Thomson Reuters Corp Common Shares

Welcome to the Thomson Reuters Third Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Gary Bisbee, Head of Investor Relations. Please go ahead, sir.

Thanks, Ruth. Good morning, and thank you all for joining us today for our Third Quarter 2024 Earnings Call. I'm joined by Steve Hasker, our CEO, and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following the remarks. To enable us to get to as many questions as possible, we would appreciate it if you'd limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, when we compare performance period on period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our investor relations. Let me now turn it over to Steve Asker.

Steve Asker Thank you, Gary, and thanks to all of you for joining us today. Good momentum continued in the third quarter. with revenue and margins modestly ahead of our expectations. Total company organic revenues rose 7% and the big three segments growing by 9%. As expected, the pace of organic and inorganic investments picked up in the third quarter as we worked to position the company for faster revenue growth in 2025 and beyond. To incorporate the strong year-to-date, we are modestly increasing our full year 2024 organic revenue growth outlook to approximately 7%, including approximately 8.5% for the big three segments. We continue to see healthy momentum from many areas in our portfolio. This includes double-digit growth from key products including practical law, confirmation, Pagaro, indirect tax, and our international businesses. Interest in our generative AI offerings remains strong, with Westlaw Precision and Co-Counsel momentum continuing. Our 2024 investment plans are on track as we execute against the ambitious product roadmap we discussed at our March Investor Day. We made important progress against our roadmap in the third quarter, including the launch of Co-Counsel 2.0, which I will discuss in a few minutes. We remain focused on driving innovation across our portfolio and markets, particularly as it relates to AI. To this end, our investments in AI are now running at more than $200 million annualized, which is a pace we expect to continue over the next few years and is incorporated within our 2024 to 2026 financial framework. In addition to our organic efforts, we have made two small but strategically important inorganic investments that reflect our continued confidence in the generative AI opportunity. The acquisitions of safe sign technologies and materia bring key talent and accelerate our generative AI roadmap. We also recently announced the signing of a definitive agreement to sell our FindLaw business to internet brands. While FindLaw is a premier provider of customer acquisition and marketing services for small law firms, its offerings differ from our primary focus within legal professionals of helping lawyers practice more effectively and efficiently through the use of content-enabled technology. This has led in recent times to outsized management focus on the business relative to its scale. The transaction will allow both Thomson Reuters and internet brands to concentrate on their respective strategic priorities, ensuring customers continue to receive top-tier service and support from FindLaw. We remain extremely well capitalized and focused on shareholder value creation. We currently estimate $10 billion of capital capacity through 2027, up from our previously discussed $8 billion through 2026. We continue to assess additional inorganic opportunities. Now to the results for the quarter. Third quarter organic revenues grew 7%, modestly ahead of our expectations. Organic recurring and transactional revenue grew 8% and 12% respectively, while print revenues declined 6% in line with expectations. Adjusted EBITDA fell 4% to $609 million. reflecting a 430 basis point margin decline to 35.3%. This lower profitability was expected and results from organic and inorganic investments that we are making in 2024 to position the company for accelerating profitable revenue growth. Turning to the third quarter results by segment, the big three segments delivered 9% organic revenue growth. This is the fourth consecutive quarter of 8% or better growth for the big three. Legal organic revenue grew 7%, driven by continued momentum from Westlaw Precision and Co-Counsel. Corporates organic revenue grew 10%, driven by offerings from our legal, tax and risk portfolios. Tax and accounting organic revenues grew 10%. Now Latin American business and tax compliance offerings were key contributors. Reuters news organic revenues rose 8% driven by additional generative AI related transactional content licensing revenue and growth from the news agreement with the data and analytics business of the London Stock Exchange Group. While we have called out the transactional benefits for Reuters from generative AI related licensing revenue, it is worth noting that there is also a growing recurring revenue component to these contracts for the use of our Reuters news content in AI applications beyond model training. These contracts with both transactional and recurring revenue highlight the value of our Reuters news content. And lastly, global print organic revenues met our expectations, declining 6% year on year. And in summary, we're pleased with our results. Let me close my prepared remarks with updates on our product portfolio and innovation efforts. At our March Investor Day, we discussed a robust product roadmap that, if executed well, should deliver strong value for our customers and improving growth prospects for Thomson Reuters. The third quarter featured important progress against this roadmap, including a number of new capability launches. In August, we introduced CoCouncil 2.0, a major upgrade to the CoCouncil AI Assistant. The new version delivers results three times faster, brings important connectivity to customer documents, and includes a highly requested document comparison tool, along with several other user experience enhancements. During the quarter, we also launched co-counsel drafting, Checkpoint Edge with co-counsel, and the Claims Explorer tool in Westlaw Precision. Customer feedback on these offerings has been positive, and we continue to work toward delivering additional enhancements and launches over the next few quarters. As we've discussed in the past, our organic innovation efforts are supplemented with partnerships and strategic M&A through our build, partner, buy strategy. We made two small but strategically significant acquisitions in recent months. In August, we acquired SafeSign Technologies, which brings a strong team affiliated with Cambridge and Harvard universities that is developing legal specific language models. In addition to its unique talent, our testing of safe science models in development has shown potential to enhance outcomes and improve accuracy of our generative AI offerings in the future. In October, we acquired Materia, which has developed and recently launched an agentic generative AI assistant for accounting, tax, and audit professionals. We believe Materia will meaningfully accelerate our AI roadmap in the tax and accounting and audit spaces. Thomson Reuters ventures an early investor in Materia and led a proof of concept that allowed certain checkpoint users to leverage its content through Materia's AI assistant. The promising initial results from this work provides confidence in our joint potential to deliver significant value for tax, accounting, and audit professionals. I'll now turn it over to Mike to review our financial performance.

Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the third quarter revenue performance for our big three segments. Organic revenue grew 9% for the third quarter, continuously trend of 8% or better growth we have delivered in recent quarters. Legal professionals' organic revenue grew 7%, consistent with the first half. Key drivers from a product perspective remain Westlaw, Co-Counsel, and our international businesses. Government grew 6% in the quarter, and fine law remained a headwind to the segment growth rate. Legal professionals' revenue growth continues to benefit from the migration of customers from a global print product to Westlaw. This added $5 million to year-over-year revenue growth in the quarter. Our corporate segment had a strong quarter with organic revenue growth of 10%. Recurring revenue grew 9% while transactional rose 13%. Trust, practical law, Direct and indirect tax in our international businesses were key contributors. Tax and accounting continues to deliver robust growth with another quarter of 10% organic revenue growth. Recurring and transactional revenues grew 10% and 13% respectively. Our Latin America business, OneSource, UltraTax, and Confirmation were key drivers. Moving to Reuters news, organic revenue increased 8% for the quarter, boosted by transactional revenue from additional generative AI content licensing agreements signed in the quarter. Excluding this revenue, Reuters organic revenue increased approximately 4%. On a year-to-date basis, we have recorded 33 million of transactional revenue from the AI content licensing agreements, up from $18 million in 2023. As a reminder, we will face difficult comparison for Reuters and for TotalTR in the next two quarters as we lap the $18 million and $25 million of transactional revenue that occurred in the fourth quarter of 2023 and the first quarter of this year, respectively. Lastly, global print organic revenues declined 6%, or 3% when excluding the impact of the migration of customers from a global print product to Westlaw. This was in line with our expectations. On a consolidated basis, third quarter organic revenues increased 7%. Before I turn to our profitability, I would like to discuss a new metric we are introducing this quarter to help you track our success at bringing generative AI capabilities, into our product portfolio. The metric is the percent of our annualized contract value, or ACV, from products that are GenAI-enabled. At September 30th, approximately 15% of our ACV is from these GenAI-enabled products. Currently, Westlaw Precision and Practical Law Dynamic are the largest contributors, with co-counsel co-counsel drafting, and checkpoint with co-counsel also contributing. As we grow penetration of these products, introduce new GenAI-enabled products, and add GenAI tools to other existing offerings, we expect the GenAI product-enabled ACV penetration percentage will continue to rise in the future. Turning to our profitability, adjusted EBITDA for the big three segments was $555 million, down 2% from the prior year period, with a 39.5% margin. The lower profitability results from organic and inorganic investments we're making in 2024 to position the company for improving profitable revenue growth in 2025 and beyond. We expect the higher level of investments to continue through Q4. Moving to Reuters news, adjusted EBITDA was $40 million with a margin of 20.4%. Global Prince adjusted EBITDA was $43 million with a margin of 33.1%. In aggregate, Total company adjusted EBITDA was $609 million, a 4% decline versus Q3 2023. Turning to earnings per share, adjusted EPS was $0.80 for the quarter versus $0.82 in the prior year period. Currency had no impact on adjusted EPS quarter. Let me now turn to our free cash flow. First nine months of 2024, our free cash flow was $1.40 billion, up 12% from $1.26 billion in the prior year period. Our EBITDA was the largest driver of the increase. I will conclude with a few thoughts on the financial impact of recent M&A and our updated 2024 outlook. On October 3rd, we announced the signing of a definitive agreement to sell a fine law business to Internet Brands in a transaction valued up to $410 million. We expect the transaction to close later in the fourth quarter. For modeling purposes, fine law remains in our financial results through the close date. The business has approximately $300 million of annual revenue, with margins somewhat below overall TR levels. Looking forward and on an annualized basis, we expect the sale to boost our total company organic revenue growth by approximately 30 basis points and be roughly neutral to margins when including stranded costs. We expect minimal impact on our full year 2024 results. We are very excited about the safe sign and materia acquisitions as Steve indicated. From a financial perspective, both are early-stage startup businesses. SafeSign is developing legal-specific language models that in the future could bring performance and or cost benefits to our Gen AI offerings. Materia is on the cusp of generating revenue, having recently released an agentic AI assistant showing strong early potential. Both safe sign and material will be loss-making in 2025, but we plan to absorb this within the framework we have discussed for delivering 75 basis points of margin expansion in 2025. We remain focused on strategic M&A and are optimistic we will be able to complete additional transactions over the next year. As a reminder, we follow a rigorous financial approach to M&A, grounded by a 10-year IRR NPV framework that is used to assess all acquisitions. We target an IRR of at least two times our weighted average cost of capital and consider a number of additional metrics, including payback period, integration complexity, return on invested capital, organic growth impact, and accretion dilution to free cash flow and margins. We also risk-adjust this analysis based on the characteristics of the particular transaction being considered. As Steve outlined, we are raising our 2024 outlook for organic revenue growth for TR and the Big Three by 50 basis points each to incorporate strong year-to-date performance. We now see organic revenue growth of approximately 7%, up from 6.5%, and organic big three revenue growth of approximately 8.5% up from 8%. We maintain our outlook for the remaining line items. This includes our total revenue growth outlook, which is unchanged despite the higher organic growth due to the impact of the fine law divestiture. Looking forward, we remain competent in delivering to the 2025 and 2026 financial framework we discussed earlier this year. We are currently in our 2025 planning cycle and will provide more detailed 2025 and 2026 guidance on our Q4 conference call in February. But let me provide one early view on 2025. We expect our effective tax rate to be approximately 19% to 19.5%. up from approximately 18% in 2024, as the full impact from the OECD global minimum tax regulations materializes. We expect our cash tax rate to increase by a similar amount, but remain roughly 5% below our effective tax rate. Based on currently enacted tax legislation, we would expect our tax rate to remain stable in 2026, at the 19% to 19.5% level. These estimated increases in our effective and cash tax rate are already included in our 2025 to 2026 financial framework. Turning to the fourth quarter, we expect organic revenue growth of approximately 5% and our adjusted EBITDA margin to be approximately 37%. As a reminder, Q4 revenue growth will be impacted by 1% from a tough comparison driven by the $18 million of Reuters Generative AI content licensing revenue recognized in the fourth quarter of 2023. We also expect that moderation of revenue growth from our corporates and tax and accounting segments due primarily to the seasonal mix of revenue. Let me now turn it back to Gary for questions.

Thanks, Ruth. We're ready to begin the Q&A.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question. Again, please press star 1 to ask a question. We'll go first to Scott Fletcher with CIBC.

Hi, good morning, everyone. I wanted to ask a question on M&A, given there's so much capacity on the balance sheet, particularly as it relates to AI deals. You've now done a few, some on the smaller end and then case text on the larger side, at least from a capital deployed standpoint. I'm just wondering, as you get further down the roadmap of Gen AI, are you more comfortable looking at larger deals that involve a significant Gen AI component, or does the risk-reward get more challenging as you start to look at larger deals on the Gen AI standpoint?

Steve, I'll start and I'm sure Mike will supplement. What I would say is we have spent I think $2.2 billion over the last 12 or 18 months on the deals that we've spent a lot of time on these calls on. We're happy with each of those. We're happy with the way we identified them, the way we prosecuted those deals and the subsequent integration efforts. I think you'll see assuming that the targets are there and they meet our criteria, you'll see us do more of those kinds of deals in terms of size and scale and being additive to the customer experience within the big three. You know, and as it pertains to anything bigger, we're going to keep the bar really high. So we will not be, we won't get deal fever, notwithstanding the capital capacity that we have. And we're going to stay very rigorous and very disciplined about how we identify those deals and, and, and look to execute them.

Mike, anything to add? Scott, I would just mention when we think about M&A, we also have to think about financial capacity, which Steve just mentioned, which we have the $10 billion through 2027. Check the box there. The other item that we consider is integration capacity throughput within our organization, operationally, commercially, which I think we're in good shape there with the resources that we've added, Scott. And as Steve mentioned, the bar remains high, but we'll consider acquisitions of our shareholders and customers.

Okay, great. And then just a follow-up on the M&A front. Can you provide any detail on sort of how much of the margin impact in the quarter was organic versus inorganic in terms of integration?

Scott, that's one we'll ask Gary to follow up on with you later today. I think he has a follow-up with you, Gary, if that's okay. Okay. But certainly, Scott, there's a combination of organic and inorganic impact on the Q4. Sorry, Q3. That's fine. Thanks.

Yep.

Sure.

Okay. Go next to Manav Patnik with Barclays.

Thank you. I just wanted to ask on, you know, the 15% of ACV from your Gen EI-enabled products. I'm guessing most of that is on the legal side versus tax and accounting, and I guess over time, you know, what is the right number that that 15% should grow to?

You're correct. I'm going to have in regards to currently that 15% primarily relates to the Westlaw precision AI. Secondly, the practical law dynamic. And then to a lesser extent right now, but growing is the co-counsel. And we have co-counsel drafting and then checkpoint with co-counsel. In regards to the right percentage, a number will continuously increase. I think it's difficult to say what that percent will be going forward other than we would expect continuous improvement in increases on a monthly, quarterly basis, which we will provide. Certainly, with the additional acquisitions of SafeSign and Materia, we have optimism that the tax and accounting, corporate-related products will continue to help us on this evolution, but we'll see that 15% continuously expand MNUP.

Got it. And Mike, maybe just a quick follow-up, you know, just on the moving parts, apologies I missed it, but I guess you raised the organic guide, the 50 basis points, but the overall growth is the same. So what is the moving pieces on the divestiture and the two acquisitions, I guess?

Yeah, the impact there, the reason we did not increase the total revenue growth is the impact of the fine law divestiture Normally, we've had this year about a 50 basis point delta, but with the pending close of fine law, we factored that in, and that's why we did not increase the total revenue growth percentage. It's the fine law divestiture.

Okay. Thank you. Sure.

We'll go next to Vince Valentini with TD Cowan.

Thank you very much. Can I start with a clarification? The 15% ACV, is that just on Big 3 recurring revenue, or does it include news and print? Does it include transaction revenue?

That's on the Big 3, Vince. Thanks for the clarification points there. Basically, think of that underlying ACV, Big 3, recognized recurring revenue, so Big 3, Vince.

Thank you. And a question, I mean, there's not much to criticize in what you guys are doing. It's obviously great execution. But if I can nitpick a little, I mean, fine law looks like you're getting four times EBITDA for it. I mean, you can't do any better than that with the assets you're looking to sell. Should we expect other non-core stuff to be that low on the divestiture price? And if it's that cheap, why not just keep it? It's not really hurting you, is it?

Vince, there are multiple things to consider. Certainly the financial lens that you just applied, but the additional lens that I don't think is reflected is in your comment is in regards to the leadership focus or as I think about the management time that's required. Similar to last year when we acquired Elite, fine law requires a significant amount of outsized management time and bandwidth. So when you think about the opportunity cost, what it takes to lead fine law versus some of the other opportunities, We have to balance the financial metrics that you just mentioned, which are obviously important with the bandwidth that it requires. So that was certainly a factor. An additional factor, Ben, similar to late, fine law is a little different than the core legal professionals business. Meaning if you think about legal professionals, we're helping lawyers practice more effectively, and that's outside the scope. Last point, and Steve may want to supplement with fine law. We have additional industry dynamics, more cyclical, more macro there. But I would just double down and emphasize, Vince, the amount of management time that fine law was requiring.

The only thing I'd add is I think, Vince, over the last 12 months, we have sharpened and I think enhanced our strategy as it pertains to serving law firms and in-house clients. lawyers, court systems, attorneys general, and so forth. And a lot of that, not all of that, but a lot of that is around this gen AI opportunity. And that has focused the mind. We also see significant international growth opportunities for our legal professionals and corporates legal. And with that as the backdrop, the time spent navigating Google algorithm changes, and the disruptive impacts of Gen AI on this lead generation business that is, for small law firms, that is fine law. We just felt that that distraction was starting to far and away outweigh the size and benefit of holding onto that business, which is why we did the deal that we did.

Thank you.

Our next question comes from the line of Kevin McVey with UBS.

Great. Thanks so much. I just wanted to just clarify that the $200 million of Gen AI investment up from $100 million, is that all kind of reflected in the P&L, the incremental $100? And I guess where's the offset? I mean, you're seeing some pretty good momentum on the license sales, things like that. But just is that all? It sounds like $24. Again, just maybe help us understand that a little bit because I think it was a critical part to the story.

Sure, Kevin, let me break that down into multiple pieces. Certainly for calendar year 23, it was slightly over $100 million. When we reference the $200 million, that includes both operating expense and capital expenditure. It does not include any cost of acquisition, so that's strict within our core operating P&L and underlying CapEx. So that $200 million, Kevin, does reflect The amount, if you go back 20 months ago when Gen AI really began to accelerate, we earmarked X amount for it. Then when we acquired Case Text in August of 2023, that certainly added additional amounts to our run rates, both OpEx and CapEx. And as we began 2024, we were very purposeful and intentional as we set our 2024 management plan to make additional investments, OpEx and CapEx in Gen AI. So it's really a culmination of Kevin, of OpEx, CapEx evolution, which is all factored into our operating expense and capital. Directionally, it's about half and half if you think about OpEx and capital directionally. Kevin, does that help? Happy to go deeper.

No, that's super helpful. And Mike, that would be the same – Split is the $100 million goes up to $200 million. It's the same split in terms of OPEX as opposed to CAPEX?

Directionally, certainly in a given quarter, you're going to have a little bit of ebb and flow. But if you look at it on an annualized basis, that's roughly 50-50, Kevin. Got it.

And then just real quick, especially relative investor date, it feels like the organic growth in the big threes accelerating kind of even faster than what we would have thought. Is that the kind of pacing of the Gen AI, and just maybe is that retention starting to improve? Just any thoughts around the broad strokes there on the organic growth?

That's a very fair question, Kevin. If you go back to February when we set guidance and then expanded out in March investor day, three things have evolved over the time horizon. First is the corporate segment. about 45 basis points stronger than we had anticipated, Kevin, at the beginning of the year. Huge credit to Laura Clayton McDonald, president of corporate segment, and her leadership team. Execution has been phenomenal. As a reminder, 7% organic growth in calendar year 23, be over 9% this year. Second item that's contributed is tax and accounting professional. Obviously, 9.5% last year were probably looking at one and a half this year, about 20 basis points stronger than we anticipated in tax and accounting. And then the third vector, Kevin, is Reuters Gen AI. We certainly did not anticipate the incremental Gen AI. We had baked into plan the $25 million in Q1 that we were very transparent about, but the most recent Gen AI content licensing deal was accretive. So in summary, Corporate's about 45 basis points. Tax and accounting, 20 basis points. And Reuters Gen AI, about 20 basis points, Kevin. Super helpful. Thank you.

Our next question goes from the line of Aravinda Galapathage from Canaccord Genuity.

Good morning. Thanks for taking my question. Just a quick, I guess, housekeeping question before the main one. With respect to corporate costs, I mean, it does look like you're tracking below the guide meaningfully when I look at the nine-month numbers. Is there anything we should sort of consider when you look at Q4 there?

No, everyone. It's a very fair question. There is a little bit of variability or seasonality with our corporate costs. If you just annualize through year-to-date nine months, it would appear that we're going to be below our guidance. I believe, Aravinda, we're going to be spot on at least the lower end of our corporate costs just due to, I'll call it seasonality, that we're expecting in Q4. I have good visibility into that, Aravinda, so I think we'll be within the range that we have provided, but a very fair question.

Okay, great. And then maybe just going back to the $200 million in spend, obviously you have the space to continue to invest and sort of the encouragement from the results you're seeing so far. But the 75 basis point margin expansion that you've originally guided for 2025, does that sort of envisage this $200 million level, recognizing of course only half of that is OPEX? or is there more room to grow that within that margin guide? I just want some color on that. Thank you.

Yeah, a couple points. I would just add clarity as I referenced in my prepared remarks. If you look at 2025, we committed to 75 basis points of margin expansion, which we've reaffirmed today. That means that we'll be able to absorb this 200 million of Gen AI, the portion that's off X, Also, as I mentioned in the prepared remarks, we'll be able to absorb the dilution from the safe sign acquisition and the materia acquisition. One item to consider, Aravinda, is we go, historically I've talked about 75 basis points of natural operating leverage at 6% organic growth. If you go up to 7% organic growth, that natural operating leverage increases from 75 basis points to slightly over 100. So when you look at that decision in regards to margin expansion versus reinvestment, that incremental operating leverage now that we're at 7% kind of affords us that optionality, but we are comfortable absorbing the Gen AI at the 200 in addition to the acquisitions that we mentioned today.

Thank you very much. Pass the line. Thanks, Sarabinda.

You're welcome. We'll go next to Andrew Steinerman with JP Morgan.

Hi, Steve. As law firms have embraced Thomson Reuters, Gen AI-enabled products, have you seen law firms change any of their intentions around hirings and or practices around value billing?

Andrew, the short answer is not yet. There are very active conversations going on amongst law firm partnerships, amongst the partners as to, you know, firstly, what happens to the per hour billing and how much of the efficiencies will be shared with customers. So that's a sort of an active conversation both within the partnerships themselves and with the general counsels that they serve. There's also active conversations around how much they spend and what sort of in-house data analytics, data science, technology talent they need. And so I think we're starting to see law firms resolve they're going to spend a bit more on technology and then try to figure out sort of where that funding and investment is going to come from as they think about their people spend and their real estate spend. A number of law firms through the middle of this year sort of said, okay, we're thinking about holding the number of new graduates that we hire or perhaps even reducing that number as we go forward in the next few years. But I think it's too early to tell as to sort of exactly how this is going to play out across the large, medium and small firms. We're obviously, you know, every single day in conversation and providing support and monitoring those conversations. And they're occurring and I think they're healthy, but it is early in the context of that broader transformational change. Makes sense. Thank you.

We'll go next to Mayor Yagi with Scotiabank.

Great. Thank you for taking my question. Just my first one relates to your NCIB program. I noticed that you did not buy any stocks during the Q3 because you exhausted your NCIB back in Q2. As we stand today, your leverage is very healthy at 0.5 times. What are your plans in terms of returning capital to shareholders here with another potential NCIB program? And if so, should we expect a similar size to 2023 or the formulaic requirements allow you this year to buy more than the 10 million of last year? The second question is on case text. So with one year now under your belt, Can you update us on the performance that you have been able to achieve on that asset since you closed the transaction? Maybe if you can provide some metrics on revenues or amplification implications to existing products, i.e., is it delivering on your expectations and returns expectations? Thank you.

Yeah, Mayor, I'll take the first one in regards to NCIB. I think we foreshadowed on the August earnings call not to expect any NCIB or share buyback in Q3 or Q4, and that's really driven by the current interest rate environment. Certainly, we have seen a decline in interest rates, but at the current interest rates, based on our calculations and assessment, we're still slightly diluted. So, I would not expect any share buybacks or NCIB in Q3, Q4. As you go into calendar year 2025, we remain very open to considering NCIB or share buybacks, but the timing will be directly correlated to the interest rate cuts and interest rate environment. In regards to size, we certainly have optionality given our $10 billion worth of capital capacity. We'll discuss if we decide to move forward with an NCIB. We'll certainly discuss with our board But given at the beginning of 2024, we committed to 75% capital return over the time horizon. If you look at just our dividends, our dividends gets about 50% to 55%. So mathematically, we would need on an annualized basis about $500 million of an NCIB in calendar year 2025 to hit that 75% capital return guidance that we provided earlier this year. So to summarize, We do not anticipate any NCIB in Q4. The timing in 2025 will be based on interest rate environment, and then the size will be based on a multitude of factors, including the timing of potential strategic M&A.

And then, Mayor, it's Steve. On case text, we don't provide sort of product-by-product revenue guidance for something like case text, but Unequivocally, from my point of view, this one is on or ahead of track relative to the acquisition case we made and the price we paid. And there's a few reasons for that. The first is we're seeing really good growth in the core co-counsel product in the United States. And of course, we put out co-counsel 2.0 and we're excited about some of the enhanced features and functionality I mentioned in my prepared remarks. Secondly, co-counsel is a vehicle through which we plan to explore international growth in the legal field in a way that perhaps we haven't in the past, given the association of research with common law rather than civil law markets. And then thirdly, we've extended co-counsel to Checkpoint with Checkpoint with co-counsel and also most recently under the leadership of Ray Grove, one of our product executives in our one source suite. And so not only is it sort of within that core legal franchise, we're seeing real applications and I think excitement from customers beyond that. And of course, the material acquisition we think is additive here and will be an accelerant for that extension of the core AI assistant capabilities. So In summary, we're excited about what Casetext has brought to TR, and we're equally or even more excited about what the next few years will hold for that set of capabilities and the impact it will have on our customers.

Great. Thank you very much.

Our next question comes from the line of Tony Kaplan with Morgan Stanley.

Thank you. I wanted to go back to the fine law sale, and I definitely understand the growth challenges you've been having there and unnecessary focus that you're paying to it. Just wondering if the sale also represents a shift in strategy with regard to small law firms. Is there less of a focus there or was just this was not the right product to be selling to them and you're better off selling the AI products?

Thanks. Yeah, Tony, it does not represent a shift away from small law firms. We are excited about that segment under the leadership of Aaron Rademacher. He and his team are doing a great job. And specifically, what we have seen is an interesting shift, which is as we've brought to market some of these brand new features and functionality around DNAI, We've seen the very smallest of our law firm customers pick them up as quickly as the global large law firms. And I think historically, that was not the case. You know, it was the large law firms with very sophisticated teams, research and knowledge teams and budgets that would be first in adopting these products. And the smaller firms were much farther down the line. We've seen a pretty equal balance. So no, very... Very excited about the small law firm segment and Aaron's leadership thereof. And the reason for the divested fine law, as I said before, our strategy is sharpened and fine law was just not part of it. And we felt it was an increasing distraction.

Tony, I would just supplement. Small law firm is over 25% of our legal revenue. So hopefully that amplifies the importance of small law that Aaron leads for us.

Very helpful. I was also hoping you could give us an update on your thoughts around how you're pricing the co-counsel product, if there's been any changes to that, and how you think about pricing it across different customer types.

Yeah. I mean, without giving too much away, Tony, we've been in test and learn mode, I think, since... since we acquired Co-Counsel. You know, this is a dynamic market with a brand new proposition to a set of, you know, existing and prospective customers. So, you know, there has been a degree of sort of testing and iterating. What I would say is we price to value, firstly. Secondly, we prefer enterprise-wide pricing rather than per seat. You know, we've never gone down that path and we don't plan to start. And we're always very mindful of covering, more than covering, the variable cost components associated with pinging large language models, which is obviously a relatively new dynamic for us. So I would say so far so good on the pricing front. We're pleased with what we see in terms of that pricing to value component, and we'll just stay diligent and continue to be flexible as we see the market evolve. Anything to add on that, Mike? No, I think that's a good summary.

Thanks, guys.

Thanks, Tony.

We'll go next to Drew McReynolds with RBC.

Yeah, thanks very much. Good morning. And hopped on late, so hopefully not repetitive here. I did hear an earlier question, Mike, on the organic revenue growth guidance increment where you broke it down in terms of those three components. So super helpful there. Bigger picture, when we kind of look at the 7%, kind of guided growth for 2024 and then acceleration in 2025. You know, we're kind of firmly into high single digits here, which I think the longstanding Thompson followers is great to see. At that high level, can you just kind of update us on whether the components or drivers of that growth have changed with respect to price? Obviously, TAN expansion, you talked about at your March Confessor Day, market share, you know, how much of this is asset mix evolution, et cetera, just, again, at a high level. And then second, maybe for you, Steve, on the agentic AI acquisition with Materia, fascinated from my perspective on kind of the next generation capability here on the agency side. Can you kind of give us a sense of what additional capabilities that acquisition brings you? Thank you.

Yeah, Drew, on the first one in regards to the 7% and describing that first in regards to pricing, pricing today is very consistent with what we expected and forecasted at the beginning of the year. I think we've consistently stated about 3.5% price lift on a year-over-year basis. If you do like-for-like, if you look across our total TR, it certainly varies by segment and subsegment there. If you look at a convergence of factors, we're certainly doing better on new sales, new logos, cross-sell, upsell, certainly helping. I think the one item, if you dissect, there's kind of some of the parts for TR is the corporates, which I mentioned earlier in the call, 7% organic growth last year and approaching very 9.5% this year. That's been a key factor for us, and I think that's largely the sales execution that we referenced earlier on this call and on prior calls there. So we've seen good execution sales-wise by corporates throughout calendar year 24. So if I were to isolate one item, that would be it. The second one, which I've referenced, is on the broader side, the Gen AI content licensing deal. That's certainly helping us in Q3. But pricing is very consistent, Drew, Retention, just slightly higher. It's incremental. I think Kevin asked a related question earlier. We have not seen a significant uptick yet in retention. We remain optimistic there, but it was just a small incremental increase thus far this year. And then Steve on the agenda.

Yeah, Drew, firstly, congrats on the 332 New York City Marathon. That's an extraordinary achievement. And then as it pertains to As it pertains to Materia and the agentic capabilities that Kevin and Lucas and the team there have built, we're pretty excited about this one for a few reasons. The first is, you know, obviously, in layman's terms, what the agentic capabilities enable the Materia to do is perform in sequence and in parallel multiple related tasks and then be able to bring them together to... to provide answers to more sophisticated questions and problems. And what Kevin and Lucas did from day one was built their set of capabilities around agentech models. So that's sort of been the heritage and starting point for that capability. And that was one of the reasons we were really intrigued. The second reason is they've dedicated their time to tax and accounting and audit. And as we think about Elizabeth Bistrom's teams and all the activities that are going on there and the work that Dave Weil is doing in leading our audit capabilities, we are very excited about taking that capability, starting this week at our Synergy Customer Conference in Orlando to our customers. And then last but not least, the other thing the Materia team did was, we think in a very unique way, put... put together the ability to interrogate and integrate customers' documents. And that, of course, sets these capabilities on a whole new sort of path to value creation. And that's something that our head of engineering, Joel Huron, has been focused on for a period of time. And so when he was able to get to know Kevin and Lucas and understand the capabilities, I think our excitement grew here. It's early days for this one, but starting this week in Orlando, we're excited about the journey.

Okay, thanks for the context.

We'll go next to George Tong with Goldman Sachs.

Hi, thanks. Good morning. The legal business has seen 7% organic revenue growth for several quarters now. Can you talk about when you expect legal organic growth to accelerate and what the top drivers will be?

Certainly, George, certainly Q3 legal professionals was consistent or stable with Q2 performance, slightly over 7% rounding, 7 there. However, if you look at a longer time horizon over the last 12 to 18 months, there's been a meaningful step up in the legal professionals' organic growth rate driven by Westlaw Precision and also the Gen AI launches that we discussed there. We did see a slight uptick in the recurring revenue in Q3. We had a downtick in the transactional revenue. I mentioned government was 6%. Some of that transactional relates to government there, so you have the correlation. If you look at Q4, 24, and calendar year 25, we do anticipate a modest improvement as we go forward. We'll rise there. We touched on here that the co-council certainly were optimistic there. Westlaw, we still have more room on the Westlaw precision penetration that we've discussed in prior quarters there. So a very solid 7%, and we anticipate modest improvements as we go forward, George.

Yeah, just to add to that, George, I would say, you know, we talked to the investor today about potentially the potential for our TAM to expand on the back of GenAI and its ability to enable us to play a larger role in the success of our customers. Everything we've seen since March 12 supports that. But the other thing we said on Invest Today was this will require a degree of change management within and across the law firms. And it was really central to Andrew Steinemann's earlier question. That process is underway. We will play a role in supporting our customers through that transformation. But we're not the sole determinant. And so we're focused on the long-term growth opportunity and expansion of the role we play with and for the profession rather than the quarter to quarter. We'll keep ourselves accountable quarter to quarter, but we're laser focused on that longer-term expansion. And we're not going to do anything in the short term that compromises our ability to meet or exceed our customers' interest in pursuit of that. Got it.

That's helpful. And then you touched a little bit about your pricing philosophy with the co-counsel. Can you discuss how you plan to monetize Gen AI more broadly across the segments? Given the step up in investment, how much of a pricing or revenue uplift in return do you expect from Gen AI?

I think it's, you know, we obviously talked about this percent of ACV that has a Gen AI component, and we'll keep you apprised of that. George. I think it's a bit early to sort of say, here are the direct through lines between the gen AI capabilities and explicit pockets of revenue. We've seen good growth of Westlaw precision since we put the AI functionality in the marketplace, same with practical law, same with checkpoint, as Mike talked about, co-counsel. So all of that points, I think, to a to a positive outcome. But the focus, as I said, is on ensuring that these capabilities are to the benefit of our customers. And that's what we're focused on. That's what we're starting to see. And as long as we stay focused on that, I think you'll see our growth rates expand as we believe they will.

Got it. That's helpful. Thank you.

We'll go next to Doug Arthur with Huber Research.

Yeah, thanks. Steve, just on Reuters news, you made an interesting comment that some of the AI modeling ATAL is becoming recurring in nature. Does that sort of change your outlook for that business on an intermediate term basis?

Thanks for the question, Doug. No, it doesn't, because bear in mind that half or more than half of the revenues of Reuters news relates to the 30-year news agreement with the data and analytics side of the London Stock Exchange Group. So there's a fair bit of weight of that business there, and we believe that's a real strength of the business and our ability to to do a better and better job of serving LSEG is a laser and primary focus of Paul Baskervere, Alessandra Galloni and the team. We've obviously benefited in the fourth quarter and through this year from these deals. As I said earlier, I think it's too early to tell as to sort of what the longer term run rate, recurring run rate will look on these deals. We're pretty optimistic. We're focused on ensuring that the customers see value and are incented to expand and renew those over time. But as I said earlier, Doug, I think it's a bit early to tell. And of course, you know, the agency side of the business, the new subscription, the event side of the business all bring some variability. So we're sort of optimistic and I think growing in confidence, but it really is early in this journey.

Got it. Okay. Thank you.

We'll take our last question from Sami Kassab with BNP Paribas.

Thank you very much, and good morning, everyone. I'm trying to put some context around the 15% share of AECD from GenAI-enabled products. Now, given the relative contract length across the big three, I am tempted to think that every year, renewals from the legal professions division probably accounts for around 15 to 20 percent of total big three ACV and therefore given that most of the general revenues sit in the legal professionals, am I right to conclude that it means over the last 12 months or so pretty much every single law firm that had to renew decided to trade up to a Gen AI product? Would that be a fair statement? Or if not, then could you comment on the share of renewables in legal that trades up to GNAI? Thank you, Steve.

Yes, Sammy, I'll start. Certainly, we've been sharing the ACV penetration for the Westlaw Precision product. I think we're around 37% there. As you'll remember, with Westlaw Edge, the previous version, earlier version of Westlaw, I reached around 75%, I think, was the last percentage that we applied. So it's difficult to provide a direct correlation to your question there, Sammy. I would say certainly as contracts come up for renewal, we have a very strong hit rate in regards to customers adopting the Westlaw precision that GenAI enabled. I think that's probably as much specifics as we could provide to that.

Thank you. Nothing to add. Thanks, Sammy.

Ruth, I think that brings us to the end of the Q&A session. So thanks, everybody, for your interest and attention. Thank you. Thank you.

Thank you. This does conclude today's conference call. Thank you for your participation. You may now