Ladies and gentlemen, thank you for standing by, and welcome to Thomson Reuters Third Quarter 2014 Earnings Conference. [Operator Instructions] And as a reminder, today's conference call is being recorded. At this time, I'll turn the conference over to our host, Frank Golden, Senior Vice President, Investor Relations.

Good morning, and thanks for joining us as we report our third quarter results. We'll begin today with our CEO, Jim Smith; followed by our CFO, Stephane Bello. Now following their presentations, we'll open the call for questions. [Operator Instructions] Throughout today's presentation, keep in mind that when we compare performance period-on-period, we look at revenue growth rates before currency, as we believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements. 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 can access these documents on our website or by contacting our Investor Relations Department. Let me now turn it over to CEO of Thomson Reuters, Jim Smith.

Thank you, Frank, and thanks to those of you on the call for joining us. Today, I'll discuss the third quarter's results and our expectations for the balance of the year. Stephane will then review the third quarter results in more detail. Now the results for the quarter. I am pleased to report, even at the risk of sounding like a broken record, that the third quarter results were again in line with our expectations and built on the first half's improving trend lines. In Q3, total revenues were up 1%, reflecting another very strong quarter for Tax & Accounting, good growth from IP & Science and improving underlying growth for Legal. As expected, revenue growth was negative for the quarter in our Financial business, which reflects the lagging impact of aggregate negative net sales in the prior 12 months, particularly Q4 last year. Nevertheless, our Financial business continues to make good progress and achieved positive net sales for the second consecutive quarter. Net sales were positive in all regions and we've now seen year-over-year sales improvement in 7 of the last 8 quarters. For perspective, this is the first time we've seen positive net sales in all regions since the acquisition of Reuters in 2008. And importantly, the third quarter's performance has driven our year-to-date net sales performance into positive territory. While it's too early to predict whether there'll be net sales positive for the full year because Q4 is always the most difficult quarter, we are confident that Q4 net sales will again show year-on-year improvement, which is why we expect F&R's revenue growth performance in 2015 to improve over 2014. We're also very pleased that our Legal business returned to positive organic revenue growth in the quarter for the first time since the second quarter of 2013.…

Thank you, Jim, and good morning or good afternoon to you all. As usual, I will speak to revenue growth before currency throughout today's presentation. These slides provide a snapshot of our third quarter and 9 months results, which do reflect the impact of the charges which we flagged earlier this year. These charges had an $18 million impact at the EBITDA level for the third quarter and a $58 million impact for the first 9 months. For the comparable periods last year, we incurred charges of $10 million and $97 million, respectively. We still expect charges for the full year to total $120 million with about $60 million having being incurred through September. This effectively means that we expect to incur an additional $60 million in the fourth quarter, primarily within our Financial & Risk business. Our third quarter revenues were up 1% with flat organic revenue growth, and this is in line with our guidance for the full year. Our Financial & Risk segment declined 2% and was down 3% organically while our other businesses grew 4% in aggregate during the third quarter and were up 3% organically. Adjusted EBITDA was down 3% with an EBITDA margin of 26.5%, down 100 basis points from the prior year period. Excluding charges from both periods, the EBITDA margin was 27% in the third quarter compared to 27.8% last year. As Jim just indicated, foreign exchange had a higher-than-usual impact on the EBITDA margin this quarter. Excluding the impact of currency and the charges from both periods, the consolidated EBITDA margin was down 10 basis points compared to Q3 last year. Finally, underlying operating profit in Q3 declined 3% with the margin down 70 basis points. Excluding currency and charges, the consolidated margin was up 20 basis points year-over-year. We continue…

Thanks very much, Stephane. And we'd like now to open the call for questions.

[Operator Instructions] Our first question today comes from the line of Toni Kaplan with Morgan Stanley.

So regarding the $120 million in charges that you're expecting for this year, we can now see it's largely weighted towards the fourth quarter. Has there been a delay in your plans for reducing headcount? If you don't hit the $120 million number, should we assume that the cost savings will be lower than you originally thought? Or that it'll be delayed?

Hi, Toni. It's Stephane. I wouldn't assume too much out of the timing of these charges. It's kind of hard to predict with a lot of precision and -- but we do expect, based on the visibility we have at this time, that we will take the additional $60 million in Q4, and we have, obviously, better visibility now since we are in the quarter. And as I mentioned on the call, I believe that the majority of these charges will impact our Financial & Risk segment.

Okay, great. And can you give any additional color on how you're able to maintain the margins in Legal despite the declining print business?

It's what I mentioned. It's a very tough balancing act because what we try to do with our management team in Legal is trying to do is really balance that objective of keeping our margin flat, while at the same time making sure that we make sufficient reinvestments in the parts of the business that are growing nicely. And you can see that they're doing a pretty nice job from both perspectives with the margin being pretty much flat year-to-date while you see good growth in these solution businesses. So I can only attribute it to really good execution from the management team in the Legal segment.

We'll take questions now from the line of Drew McReynolds with RBC.

Just 2 quick ones from me. You touched a lot on the net sales trajectory and expectations for Q4, which was great. Specifically, on the Thomson ONE migration, can you just kind of flush out a little bit more in terms of what you're seeing with retention rates and pricing dynamics versus kind of what your expectations were going into this? And how far along are you on the migration? And then just on Legal, nice to see the continued uptick, x print. Just wondering when you look at the solutions businesses in aggregate, are you getting a cyclical tailwind here? Is this new products? Are you gaining market share? Just what's the source of the renewed momentum?

Well, you take the first one, Stephane. I'll take the second.

Okay. I'll take the first one, Drew. On the migration -- Let me put into context because I suspect I'm going to get that question later. So we stated before that desktop revenues represent about 42% of Financial & Risk's total revenue base. So that's about, call it, 42% of 6.5 -- $6 billion is about like $2.7 billion. We have now migrated about almost 60% of that revenue base to Eikon, so we got like the balance to migrate. And that's spread between the buy-side segment and our foreign exchange dealing platform. Those are agreements to products we're now rolling out on the new platforms. We've just really started that effort in earnest in the late third quarter, and we expect that effort to essentially go through 2015 and be, hopefully, largely complete by the end of last -- next year. There may still be some that flow through in '16. As we said before, this is not the same kind of transition as what we did for the 3000 Xtra, which has been migrated. So much more delicate transition to the new platform. What we've seen, and that's why you're seeing the results that we've seen in terms of net sales, is why we've rolled out Eikon much more, which is the case in Europe, you start seeing much higher and better retention rates. So if you were looking at retention rates in Europe versus the Americas, for instance, you would see like a marked improvement in Europe because a lot of the desktop footprint is now Eikon in Europe. And in America, you'd see a marked difference between the customers that have been rolled on Eikon with the retention rates are higher and legacy products. So we do expect to see an improvement in the retention rates in the Americas, as we roll out Eikon to the rest of the desktop footprint.

Yes, and to your second question on Legal. I think it's hard to say, I mean, because it's a combination of factors, I think, on the Legal side. It is incredibly encouraging for us to see those solutions of products coming back. And I think as Stephane alluded as well, even the underlying subscription products are showing improved performance as well. I think part of it is due to better execution inside the business. There's no question. I think another part of it -- I'd hate to call it cyclical because it doesn't feel like any cycle I've ever lived through before, but we are seeing underlying improvement, I think, in the Legal space. Stephane alluded to a couple of consecutive quarters now of improving demand in our Peer Monitor Index. And I think while we see improvement in -- not only Legal, but in all the professional segments that we serve, it's hardly back to a robust phase of the cycle, and the green shoots are tempered by, I think, increasing macroeconomic fears, particularly when it comes to geopolitical concerns. So I do think we're getting a little bit of a lift from an improved environment in the professional services firms and industries that we serve and I think we're executing better.

We will now go to the line of Ato Garrett with Deutsche Bank.

I just had a question about the declining transaction volumes that you mentioned within Financial & Risk. Is that being influenced primarily due to just declining market volatilities? Or is it transition away from the over-the-counter trading towards exchange rates trading and so on, on that as well?

We believe it's primarily driven by market volatility. So if we could see a little bit more volatility in the market, as we've seen in the last couple of weeks of September and the beginning of October, that actually should help transaction revenues.

Okay, great. And then just a quick follow-up. You mentioned you're making some investments in the area -- in the pockets of growth where you feel you have the ability to win, could you give a little bit more detail about where you're investing in the firm currently?

Sure. Although it ranges from putting more resources in our go-to-market or sales force headcount. That's probably what we're doing, for instance, in our Tax & Accounting business, to investing into new solutions. For instance, in our Governance, Risk & Compliance business in Financial & Risk, we do make some investments; and in IP & Science, we do invest in new solutions. So it's a mix of go-to-market resources and new solutions.

Question comes from the line of Vince Valentini with TD Securities.

First, the foreign exchange hit to your margins this quarter. I know that there's a lot of moving pieces in there in terms of hedging you do and maybe some timing of working capital items. Do you have any visibility at this point as to what that impact could be in the fourth quarter? Do you expect it to be as negative?

I -- no, we don't have much visibility. It's hard to predict what foreign exchange will be. As I mentioned on the call, Vince, the largest component is really what I would refer to as short pound sterling exposure. And as you know, that primarily resides within Financial & Risk, where we have a lot of our cost base still in the U.K. So what happened in Q3, if you look at the average rate of the pound sterling against the dollar, in the third quarter of this year compared to the third quarter of last year, it was up 8%. And that's really what was the primary driver, and we always -- we'll give you what the margin is excluding foreign exchange. We do that every quarter. This quarter, it had pretty unusually high impact. I would hope that in future quarters, it's more moderate, but we'll continue, obviously, to, like, point out what the margin is excluding foreign exchange.

Okay, appreciate that color. And the second question, in terms of the net sales for the fourth quarter, obviously, you're a bit cautious in terms of visibility that it can remain positive. Do you know if there's a significant number of contract renewals in the fourth quarter this year more than you would normally have? Or is it just a normal seasonality in Q4 that gives you the lack of visibility?

I think it's more the latter, Vince. For perspective, for net sales in the fourth quarter, as Jim mentioned, the fourth quarter is always the toughest quarter in terms of net sales, the most important quarter also. And as for perspective, since the Reuters acquisitions, so as long as we can remember, net sales have been negative in the fourth quarter. So turning positive would be a pretty big achievement, frankly.

Is it fair to say that once you get Eikon fully rolled out, this Q4 headwind you always face may start to dissipate? If you start to have better retention rates, then the Q4 contract renewals won't be a negative anymore?

I would say that Q4 is probably always going to remain the toughest quarter, but once we've got Eikon rolled out, the -- like the sales should -- the net sales should be better because, obviously, the retention rate improves as we roll out Eikon.

We'll go now to the line of Sara Gubins with Merrill Lynch.

Could you help us think through the impact of the unit pricing because of the migration in terms of maybe magnitude next year? And just trying to understand a little bit more about what is happening with pricing. Is there a discount to get clients to migrate? Or are they buying fewer products as they do the migration?

Well, what's going on is that -- and that's also, Sara -- it's a good question. This is also why we have stopped talking about the Eikon migration in terms of number of desktops because what you have, you have customers, as you know on the buy side we have like a multitude of products and we call this access points. These access points will all, and these products will all be migrated to the Eikon platform. So a customer that used to buy 3 or 4 discrete products from us may now have one Eikon desktop, one Eikon solution. In some cases, as we said, this may reduce not only in a vastly improved solution for the customer, it may also result in a better commercial situation for them. It will very much vary from one client to the other, so it's hard to predict what the impact is going to be. But what we think that we're going to see an impact as we're rolling out the buy-side products on Eikon now. We'll know more as we go -- about what the impact will be as we essentially go through that transition over the course of next year.

Okay, great. And then Legal, the U.S. print revenue down 8% in the third quarter. Is it fair to assume that, that rate of decline continues? Or does it begin to get better just as the segment shrinks a little bit?

I would use that kind of assumptions going forward. It's a revenue base that is in structural decline. The good news is that it becomes proportionately smaller and smaller as we go -- as we move on in time.

Okay. And then just last question on margins. Within F&R, is there anything that's come up that would suggest that it will either be more difficult or easier for you to make your 2015 margin targets?

What we said, achieving our margin target for 2015 depends on 2 primary factors: first, it's execution on the cost takeout. And there, we are very focused on that and the team is very much on plan in terms of that cost takeout. The second thing we mentioned is that -- and remember, Tim Collier mentioning that at Investor Day, we need to see slightly positive revenue growth in 2015 in order to achieve that objective. That, I think, will depend on a number of factors. The 2 biggest ones I can think about is what will our net sales performance be in the fourth quarter and the evolution of transaction revenues. Transaction revenues are very profitable and frankly, as I said on the call, we need them to get a bit more normalized in order to get where we need to be. So we should have better visibility on these 2 items when we talk to you in early February and we provide the guidance for 2015.

We will go now to the line of Andre Benjamin with Goldman Sachs.

One more question on Eikon, specifically the efforts to penetrate kind of new buckets of buy-side clients. I know you've called out PWM as an area in the past. I was wondering how that effort is progressing. And any color on which types of clients, whether it be by investment type, size or geography, where you expect to see the most success?

I think, historically, what we've seen in places where we're most fit for purpose, across Europe, for example, we're having pretty good success across the board. We have success again via asset classes and by groups of customers where we have very, very strong differentiated content. Commodities and energy would be a good example of an area on where we're strong. And I think we continue to develop now around those areas, where we have differentiated content. So I don't want to go into too great a detail about what the rollout plans will be because we're in the early days there. But suffice it to say, we'll build behind areas where we're strong first, and then at the same time be building out capability in other areas. And as Stephane alluded earlier, this is really early days of our move on the buy side. We're still doing a lot of building and we're just beginning selling on the FX side and just beginning selling in the Americas on the buy side generally. So early days again.

Okay. And then I think you talked a fair amount about Legal organic growth improving as the mix improves with the growth of your businesses that you call solutions becoming a bigger part of the bucket. Is there anything that you're seeing in terms of client interest or end market demand that would say specifically that part of the business should accelerate from that mid-single digit organic growth that we're seeing now? Or should we simply assume it remains there and Legal improvement is simply a matter of mix?

Andre, let me try to take that question. If you look at what we call solutions businesses, it's a number of different businesses. So that would include Practical Law, Elite, FindLaw or emerging markets. If you look at them, each separately, they all have the potential to grow more than the 5%, 6% organic we've seen recently. However -- I mean, what the standing assumption should be is that not everything is always going to run at 100%. There's always going to be one or the other of these segments that may be in a cyclical period of weakness. So if we can get that overall revenue base to grow in aggregate by 5%, 6% organically, we actually would be very pleased.

We'll now go to the line of Paul Steep with Scotiabank.

I guess, Jim or Stephane, either one of you. As things sort of emerge, and it looks like trends are improving through '14, how much are you thinking about in your '15 planning process that you're now starting, getting more aggressive and sort of accelerating investments in key areas of the business? And maybe within that context, what's your comfort with the overall portfolio at this point? Is there a thought to maybe returning to more M&A or divestitures?

We're very comfortable with the portfolio that we have and we're very comfortable with the plan we're executing right now, which means we're being very aggressive on the cost base across the base of the company while picking those key selected areas where we believe we have higher growth opportunities and a higher chance to win. We don't believe that requires stepping back into the M&A game at the level we were at historically or in the past few years. And we do believe that within the spending envelope that we have that we have sufficient resources to fund the growth initiatives that we find so attractive. So it's really hand in glove. It's -- we're able to provide some self-help not only to our bottom line, but to free up resources and to make kind of pretty difficult and sometimes ruthless reallocation decisions on where we're going to put our resources. So we've seen those shortage of growth opportunities within the businesses that we have today and we don't think we need to go out and be acquiring new fields in which to play.

We'll go to the line of Manav Patnaik with Barclays.

It's nice to hear your commentary earlier on the positive net sales sort of across all regions and geographies, I think, is what you mentioned. I was wondering if you could help us just parse things out a little bit in terms of the environment. Obviously, on the equity side, we've heard on the buy side at least, some improved momentum. Can you just help talk about the sell side? And just also in the context of you hear a lot of pressure and layoffs on the fixed income side of the business, maybe not as much in equity. So maybe just a little bit more color on what dynamics you're seeing in the overall environment?

Sure. I hate to disappoint on that one. But I think, frankly, we saw pretty solid strength across the face of our customer base, so I don't think it broke down. I can't provide much more color on that because if I remember, and distribution chart I saw, particularly on the sales side, it looked to be improving across the board.

Okay. And then, I guess, can you just remind us the fourth quarter, like why that's again the toughest for net sales? Is that just because a lot of the contract renewals get redone? Is that what it is?

I think it's like a lot of our large customers, that's really when they look at their budget for the next year and that's where they tend to make adjustments.

We'll go to the line now of Peter Appert with Piper Jaffray.

So Jim or Stephane, is it possible could you give us any finer quantification of the net new sales number in the third quarter and the change from the second quarter?

We've never given out the aggregate net sales numbers or the exact numbers. So I don't think we want to start doing that now.

It would be a great day to start. And how dependent for the fourth quarter getting to positive net new sales, how dependent is it on the transaction volumes? Is that the key?

No, not at all.

No, no. Transactions are not included in net sales.

Okay, sorry. And then one other thing. On the messaging service, how critical do you think that is to your competitive position and differentiation? And can you talk about any momentum you're seeing from that?

I -- look, I think, certainly, the -- Bloomberg's messaging service is a significant part of making their service so sticky. So it is a significant discussion that's happening within the industry right now. And as you well know, there are tons of discussions, numerous discussions that are happening around messaging in the industry. I think it's far too soon to say what the ultimate result of those discussions are going to be. We're involved in many of those discussions. And I guess, suffice it to say, we're very, very supportive of an open solution. And it's just too early to tell what the ultimate outcome of all that discussion is going to be.

It sounds like you wouldn't call that out as a factor that's necessarily an important contributor to getting back to the positive net sales?

No.

We'll go now to the line of Doug Arthur with Evercore.

Yes, 2 questions. Jim, I just wanted to clarify something you said earlier in the call about going back to this pricing issue. The implication was that the -- I don't know if you want to call them concessions or the metered or whatever -- that depending on pricing in the rollout of the desktops, it could impact -- the overall impact of net sales on total revenue growth in F&R in '15. Was that the implication? Or did I misunderstand that?

So I think you did understand that. What I'm saying is that there's going to be some -- there'll be some pricing impact as we put together multiple products into new bundled solutions on one platform. So I think what we're trying to signal is you can't just take net sales times a 2% yield on price or -- it won't be that straightforward as we work through the buy side because all revenues aren't created equal. And it's not just a 1:1 product swap with a price increase on top, right? There'll be some impact of that mix.

Okay, great. And then, Stephane, just as a follow-up on IP & Science. Transactions, small percent of total revenues, but they were down a fair amount in the quarter. What caused that?

We do -- transactions in IP & Science consist primarily of sales of, what we call, back your 5s[ph] to certain customers, and these can be pretty lumpy. So -- and that's why we always carve out transactions. They tend to be more volatile, frankly. But it's -- as you said, it's a small proportion of the total revenue base of our smaller -- smallest businesses, but it's certainly lumpy.

From the line of Tim Casey with BMO.

Revisiting the pricing discussion. When you implement price increases, are they implemented throughout the year? Or is that more of a Q1 dynamic? And you said an enterprise-wide practice, so most of the pricing discussion has been related to F&R, but do you expect to be able to put through price increases across Legal and Tax & Accounting?

Tim, thank you. That's a good question. We do expect to implement price increases across the segments. When we've been speaking about pricing on this call, I think it's related primarily to our Financial business. And in that business, the price increase happens in the first quarter.

And that will come from the line of Matthew Walker with Nomura.

Just 2 small ones. Could you maybe be -- you mentioned -- is it stability you need in transactions in F&R to get to positive organic growth? So roughly around 0 for transactions to get to positive overall F&R organic growth. And second question is, do you anticipate any -- is it too early to say or do you anticipate any charges in 2015?

Matthew, it's Stephane. I think we would like to see is actually transaction returning to some level of growth. It doesn't have to be staggering growth, but we need transactions to return to some level of growth. In terms of your question on charges, we don't have anything to announce beyond what we've announced so far. So it's very much in line with what we've said. We've got another $60 million to take in the fourth quarter. And in 2015, at this stage, yes, there may be some charges, but we would expect to incur them in the run rate of the business. And if that were to change and if we see an opportunity to accelerate, getting to some of the financial targets we've laid out by taking a charge, we would obviously lay it out very clearly. But that's not the expectation at this time.

Well, that will be our final question. We'd like to thank you, all, for joining us for our third quarter results this morning. Have a good day.

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