Thomson Reuters Corporation

Welcome everyone to the Q4 2021 earnings call. My name's Sue, I'm your event manager. During the presentation, your lines will remain on listen only. We will conduct a question and answer session towards the end of the call. Please key star then one on your telephone to queue for a question. If you need assistance at any time, please key star zero. An operator will be happy to assist you. I would like to advise all parties that this conference has been recorded. And now I'll hand over to Frank Golden, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining us today for our fourth quarter and full year 2021 earnings call. Joined today by our CEO, Steve Hasker, and our CFO, Mike Eastwood, each of whom will report our results and take their questions following their remarks. Today marks my final earnings call as head of investor relations for Thompson Reuters. I'm pleased to announce that we're also joined by Gary Bigby, who will assume the role of head of investor relations for Thompson Reuters on March 1st, in advance of my retirement in July. I couldn't be more pleased to place the baton in the very capable hands of Gary, who many of you already know. Gary has covered Thomson Reuters on the sales side at Bank of America Securities for the past three years, and I know he'll do a terrific job. After 18 years at Thomson Reuters, including 71 earnings calls and eight investor days, it's time for my next adventure, and to spend more time with my wife and family. I truly enjoyed my time at TR, having worked with four CEOs, three CFOs, and hundreds of very talented colleagues over that time. It also means speaking with many of you. You challenged me, informed me, and even entertained me a bit at times. You've helped me do this job better, and for that I am grateful. Lastly, I've watched Thomson Reuters evolve to become one of the preeminent business information services companies in the world. And under Steve and Mike's leadership, I'm confident TR will continue to build on its progress, further strengthening its position for the benefit of our investors, customers, and employees. Now to the results. A lot to share today, so to enable us to get through as many questions as possible, we'd appreciate it if you would limit yourselves to one question each and one follow-up 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. Before I turn it over to Steve, I want to note that I want to note that reflecting how we currently manage revenue across our segments, we are making two changes effective January 1, 2022. For comparability, we will revise our 2021 results beginning when we report our first quarter 2022 results in May. These changes will not have any impact on our consolidated results. First, we will record intercompany revenues for Reuters News for content-related services that it provides to our legal professionals, corporates, and tax and accounting professional businesses. Previously, these services have been reported as a transfer of expense from Reuters to these businesses, so there is no impact on any segments adjusted EBITDA. Two, we will transfer $9 million of revenue from the corporates business to our tax and accounting business where it will be managed and where it fits better. I'd like to direct you to the investor relations section of our website, where we've posted a schedule that reflects our revised full year 2019, 2020, and 2021 results, as well as our revised 2021 quarterly results in the manner we will begin reporting in 2022. Today's presentation contains forward-looking statements and non-IFRS financial measures. Actual results may differ materially due to a number of risks and uncertainties related to the COVID impact and other risks discussed in reports and filings that we provide from time to time to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations Department. Let me now turn it over to Steve Hasker. Thank you Frank for the introduction and thank you for all that you've done for Thomson Reuters over 18 years and welcome to Gary. Thanks to all of you for joining us today. I'm pleased to report the momentum we saw in the first nine months of the year continued in the fourth quarter. Revenue and sales growth were again strong, exceeded our expectations and we closed out the year on a solid footing. This performance has created momentum as we started 2022. and it has helped build our confidence as we work to achieve our 2022 and 2023 targets. They're increasingly in a position of strength. Since March 2020, when COVID began to negatively impact the global economy, professional markets have remained resilient and continue to grow, helped by a significant global shift by our customers to upgrade legal, tax, and risk forwarding compliance products. Customers also continue to exhibit more confidence in their own future prospects and our products are proving well suited to enable our customers to effectively serve their clients. Targeting investment in products that are driving faster growth and where we have strong positions in growing markets. This dynamic enabled us to achieve 5% organic revenue growth for the full year 2021 the highest growth rate in over a decade, while also improving our underlying profitability and free cash flow. Our fourth quarter results reflect an improving performance. Four of our five business segments again recorded organic revenue growth of 6% or greater, and total company organic revenues grew 6%. We continue to make steady progress with our change programs, as we transformed to a content-driven technology company. And we have achieved over $200 million in savings thus far, one-third of our $600 million target. We also achieved all of our 2021 guidance targets that we increased throughout the year. Given the momentum in the business and our growing confidence, today we increased our 2022 and 2023 guidance from what we provided at this time last year. And finally, this morning, we announced a 10% increase in our annual dividend to $1.78 per share, the 29th consecutive annual increase and the largest increase since 2008. Now to the results for the quarter. Fourth quarter reported and organic revenues were up 6%, attributable to strong results from the big three businesses and realtors. And similar to the last quarter, this performance included strong organic growth of more than 20%, from our Latin American businesses and nearly 10% growth from our Asia and emerging markets businesses. Adjusted EBITDA declined 14% to $452 million due to costs related to the change program, higher performance bonus expense and a discretionary investment of $25 million to better position the business for 2022, which Mike will discuss. This resulted in a margin of 26.4%. Excluding change program costs, adjusted EBITDA margin was 31.1%. Adjusted earnings per share for the quarter was 43 cents compared to 54 cents per share in prior year period. The additional $25 million we invested in quarter lowered adjusted EPS by 4 cents. Earnings to fourth quarter results by segment The big three businesses achieved organic revenue growth of 7%, reflecting strength across each of the businesses. U.S. legal market was very healthy throughout 2021, and our performance benefited from that dynamic. Legal's fourth quarter performance was again impressive, with organic revenue growth of 6%, the third consecutive quarter of 6% growth. Full year revenue growth was also 6%, the highest annual growth rate since 2008. Sales were strong throughout the year, including Q4. We exited the year in a good position, recording double-digit recurring sales growth in Q4, reflecting customers' willingness to invest in productivity-enhancing products. For example, Westmore Edge continued to achieve strong sales growth and entered the quarter with an annual contract value, or ACV, penetration of 65%. achieving the top end of our gardens with more opportunity in 2022 with a target of 70% to 75% penetration and the expected launch of Edge 2.0. Second, practical law, as reported in the legal segment, had a terrific quarter and year, growing mid-teens in both periods. We forecast another strong performance in 2022 for practical law as we continue to invest in this key legal workflow initiative. Third, our government business, which is managed within our legal segment, grew 7% organically in Q4 and 9% for the year and achieved strong sales in Q4, setting it up well for strong growth in 2022. And fourth, our legal businesses in Canada and Asia grew double-digit in the quarter, while Europe grew mid-single digits. Turning to the corporates business, organic revenue growth continued to accelerate and was up 7%. from 6% in Q3 to 4% in the first half of the year. This improvement came from increasing demand for customers for our legal, tax, and risk products. And tax and accounting had a terrific quarter and year, with organic revenue growth of 9% for both periods and strong Q4 sales. This performance was stronger than expected thanks to UltraTax, our audit solutions products, and a strong performance by our Latin American tax business, Dominio, that grew more than 20% for the year. Reuters News organic revenues increased 12% in Q4, with growth across all of the business lines, particularly the professional business, which includes digital advertising, custom content, and Reuters events, which continues to recover from the negative impact of COVID-19 in 2020. And finally, Global Print organic revenues declined 4%, better than expected, due to a continued gradual return to office by our customers and higher third-party print revenues. So in summary, we're very pleased with our results and we're very excited about the momentum we're building. We expect further improvement to our performance this year as we invest to further strengthen our positions across the business segments. The full view reported revenues were up 6% and organic revenues were up 5% thanks to strong results from the big three businesses and Reuters. adjusted EBITDA declined slightly and was just shy of $2 billion due to costs related to the change program and higher performance bonus expense, resulting in a margin of 31%. Excluding change program costs, adjusted EBITDA margin was 33.9%, about 100 basis points higher than 2020. Adjusted earnings per share for the year was $1.95, compared with $1.85 per share in the prior year. Let me discuss several of the key contributors to our accelerating growth and improving prospects. During our investor day in March last year, I shared with you that we're investing in seven strategic growth priorities within the big three segments. These businesses grew 6.5% on a combined basis in 2021, several growing double-digit and our foundational Westworld product up 4%. We continue to believe that our opportunity is about powering the world's most informed professionals, and we're helping forge their future through digital automation, augmentation, and collaboration, powered by a combination of unique content, world-class AI and machine learning, and best-of-breed workflow software. These products do precisely that. Against this frame, we'll continue to invest heavily in these strategic priorities and we'll continue to shift the proportion of capital investment allocated to these initiatives. These investments are expected to continue to help accelerate organic growth and enable us to achieve our revenue growth target of 5.5% to 6% in 2023. M&A is also expected to play an important role in accelerating our organic growth and and we have an active pipeline of potential future acquisitions across our core segments. Additionally, we recently launched our new Thomson Reuters Venture Fund, which will invest up to $100 million of seed funding for start-up companies to cultivate innovation and expand our M&A pipeline. Let me finish on the financials for the full year by noting that we met or exceeded each of our 2021 guidance metrics which reflects the resilience of the business and the visibility we have in our businesses and markets. I would now like to update you on the progress related to our change program, including highlighting the progress from our product and innovation teams. You will recall I presented this slide at our Investor Day last year, and it's as relevant today as it was then. We continue to benefit from fundamental and prevailing tailwinds due to increasing legal, tax, and regulatory complexity, which favors business information services markets and providers. And as we enter the third year of the pandemic, its lasting impact on the market segments we serve is becoming clearer. Digital transformation has accelerated, driven by virtual working and client demands to engage digitally with the firms and departments that serve them. It's unlikely to be a passing fad. Hybrid and virtual working is here to stay, which is increasing customer expectations of digital experiences and demand for content-enabled, cloud-based, AI-powered solutions that drive professional efficiency and effectiveness continues to grow. Hesitation to embrace new technologies in our core, in our more traditional customer segments is giving way for an appreciation of the benefits to be gained from doing so. And our goal of becoming a content-driven technology company includes excelling at product innovation and successfully integrating our products to provide customers with a seamless offering while delivering an excellent customer experience. We believe this approach will further improve customer loyalty and increase retention as we continually enhance our products adding to organic growth. Our change program is targeted at achieving these objectives, and we're making good progress. Let me share several examples of that progress. I won't take you through each of the items on this slide. Rather, I want to highlight the progress we've made last year in transforming to a more integrated, simple agile economy. We are reducing complexity in our operations and technology group, which is critical for us to achieve the change program goals and margin targets. We've made significant progress, which you can see on this slide, including 37% of our revenue is now on a cloud solution, and we're on track to achieve our target of 90% of our revenue available in the cloud by the end of 2023. SMB digital sales increased to 29% as a percentage of total sales. Improving our internal process within order to cash has reduced customer-facing incidents, invoice rework, and have brought together our product, content, and editorial strategies to improve customer delivery and drive efficiencies. Each of these achievements are critical if we're to simplify and improve the customer experience we provide. We also reduced our global footprint of office locations from 102 to 46, and our call centers from 99 to 77. And one additional point here, talent is key to completing our initiatives. and our goal is to build the best team in business information services by developing and attracting top global talent and delivering a differentiated employee experience. Over the past two years, we have brought in new key talent into our organisation within product, engineering, marketing, data and analytics, design, operations and technology, amongst other key areas. The visiting talent different perspectives and approaches which have complemented the skills and experiences of existing leadership. I'm very, very pleased with the progress we're making. A few additional points regarding the change program. We made progress towards shifting customers to a more digital automated experience with the launch of self-serve capabilities and automated tools for support. Delivery of the customer experience of the future is underway. And our goal remains to create fast, frictionless, connected, transparent, and personalized customer experiences. Our key areas of focus continue to be, first, a digital-first approach for small customers. Second, a 360-degree view of the customer. Third, simplified and standardized commercial terms, billing processes, and customer support. Fourth, seamless digital product trials and digital purchasing. And fifth, data-driven and AI-powered sales and marketing. We expect these changes to redefine our customer experience to match their expectations by the end of 2023, by which time a large portion of customer-facing sales, sales operations and support could be digitized and automated. The impact of this should be twofold. First, we believe delighting our customers will translate to an improved net promoter score leading to improved retention and new sales opportunities. And second, Decreasing the cost to serve customers enables us to reallocate funds to pursue new organic growth opportunities, improving our agility to test new product ideas quickly with customers, which we believe will lead to further improvements in the top and bottom lines. So let me now turn to product innovation. Last year, we ramped up our focus and our investment in product innovation, and we will continue to do so. We expect new products and product enhancements will be a key lever to accelerate revenue going forward. And our product development teams are making good progress. Entering 2022, the product organization is prioritizing resources where we can build and maintain leadership positions and support for your products, a shift from our historical approach of making small investments in many products. New organizational design model enables us to work as a better integrated, more effective team moving from an organization with data to a data-driven organization. Our content is a significant competitive advantage and differentiates us against our key competitors. The new product organizational structure we formed last year positions us to achieve greater success by leveraging that valuable content, enriching it with world-class AI and machine learning and best-of-breed software, and delivering it in the cloud. Investing in an improved user experience across our products is another important priority so that our customers can interact with our content with minimal points of friction. And we're increasing investments in our people as well as our technology and product organizations to expand and accelerate innovation and speed to market. We believe this will enable us to continue to be leaders within our core market segments and allow us to expand into adjacent market opportunities. And lastly, here are some examples of products and initiatives in which we're investing that are contributing to higher organic revenue. Tactical Law and Indirect Tax, two of our strategic seven initiatives, released new and enhanced product modules last year, which were well received by customers, and we expect they will again contribute to higher organic revenue growth in 2022 and beyond. We also made good progress last year forming a centralised partnership team led by our corporates group, which we are seeing good traction having signed partnership agreements with Oracle, SAP, AWS, and Alteryx. And in 2021, we accelerated the work we're doing to provide our content and workflow solutions to customers via APIs. For 2022, we'll accelerate and expand our API ecosystem where we can improve the experience for both existing and new customers. We're confident this will open up new channels, new business models, and new product offerings and will help grow our partner ecosystem. And as our capabilities surrounding APIs continue to grow, it will enable us to further integrate our best-in-class content and solutions into our customers' workflows, contributing to our growth. Before I turn it over to Mike, let me discuss our updated guidance for 2022 and 2023. I'm very pleased to report that given the positive trajectory of the business, we're increasing our revenue, adjusted EBITDA margin and free cash flow guidance from that which we provided in Investor Day in March 2021. We now forecast total company organic revenue growth of approximately 5% for 2022 and 5.5% to 6% for 2023. Let me remind you that 2021's organic revenue growth of 5% included about 100 basis point benefit from easier year-over-year comps related to COVID-19 items in 2020. Big three organic revenue growth is forecast between 6% and 6.5% in 2022 and 6.5% to 7% in 2023. We forecast an adjusted EBITDA margin of 35% for 2022 and between 39% and 40% for 2023. And free cash flow is now forecast at about $1.3 billion for 2022 and between $1.9 to $2 billion with free cash flow per share between $3.90 and $4.10 for 2023. I'm confident we'll achieve these higher targets. Let me now turn it over to Mike. Thank you, Steve, and thanks 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 fourth quarter revenue performance of our big three segments. Revenues were up 7% organically and at constant currency for the quarter. This marks the sixth consecutive quarter our big three segments have grown at least 5%. Legal professionals' total revenues increased 5%, and organic revenues increased 6% in the fourth quarter. Recurring organic revenue grew 6%, and transaction revenues increased 6%. Fourth quarter organic revenue growth was driven by practical law, elite, fine law, and our government business. Let's Law Edge added about 100 basis points to legal's organic growth rate, It's maintaining a healthy premium and is expected to continue to contribute at a similar level going forward, supported by the planned release of Edge 2.0 during the second half of this year. Our government business, which is reported within legal and includes much of our risk, fraud, and compliance businesses, grew 7% for the quarter and 9% for the year and exited Q4 with strong sales and good momentum, entering 2022. Quarter-to-quarter performance can vary for this business given the government contracting process, project work, and fiscal year funding from the various agencies. We believe 2022 will be another year of healthy revenue growth supported by strong Q4 2021 sales. In our corporate segment, total and organic revenues increased 7% for the quarter due to recurring organic revenue growth of 7% and transactions organic revenue growth of 4%. Current revenue is driven by clear, practical law, indirect tax, and legal software, as well as our businesses in Latin America. Finally, tax and accountants' total and organic fourth quarter revenues grew 9%, driven by 9% recurring organic revenue growth thanks to strong performance in our audit solutions and Latin America businesses. And transactions organic revenue increased 10%. Moving to Reuters news, fourth quarter performance is very strong with total and organic revenue growth of 12%. Waters achieved growth across all business lines, including the bounce back in the events business as it continues to recover from the negative impact from COVID in 2020. In global print, total and organic revenues declined 4%, better than expected. On a consolidated basis, fourth quarter total and organic revenues each increased 6%. Before turning to profitability, Let's look closer at recurring and transaction revenue results for the fourth quarter. Starting on the left side, total company organic revenue for the fourth quarter 2021 was up 6%, compared to 2% in the prior year period, which was impacted by COVID. Fourth quarter 2021 performance for the date three was strong, with organic revenues up 7%, compared to 5% in the same period last year. This was partly driven by strong performance in the corporate segment, which grew 7% organically compared to 3% in Q4 2020. Total company recurring organic revenues grew 6% in Q4. 110 basis points above Q4 2020, with Big 3 recurring organic revenues up 7%, above last year's fourth quarter growth at 6%. Turning to the graph in the bottom right of the slide, transaction revenues in Q4 were up 16% compared to the prior year period when COVID affected our implementation services and the Reuters events business. We continue to remain encouraged by momentum in 2021, especially for recurring revenues. This gives us confidence in the trajectory of the business and our ability to achieve our 2022 growth targets. Turning to our profitability performance in the fourth quarter, adjusted EBITDA for the big three segments was $488 million, down 2% from the prior year period, driven by higher performance bonus expense. Fourth quarter cost also included a discretionary investment of $25 million related to go-to-market initiatives, product development initiatives, and data and analytics tools to support the customer experience to better position us for 2022. I will remind you the change program operating costs are recorded at the corporate level.

Moving to Reuters news,