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- : - : - : - : - : - : - : Aravinda Galappatthige - Canaccord Genuity Tim Casey - BMO - :

Ladies and gentlemen, good morning thank you for standing by and welcome to the Thomson Reuters Second Quarter 2015 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for your question and instructions will be given at that time. If you should require any assistance today, please press star followed by a zero and an AT&T operator will assist you. As a reminder, today’s conference is being recorded. I would now like to turn the conference over to our host, Senior Vice President Investor Relations, Mr. Frank Golden. Please go ahead.

Good morning and thank you for joining us as we report our financial results for the second quarter. Our CEO, Jim Smith will start today’s discussion followed by Stephane Bello, our CFO. Following their presentations we will open the calls for question and we would appreciate if you would limit yourselves to one question each in order to enable us to get to as many questions as possible. 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, and it’s also the basis on which we provide our 2015 outlook. Now, 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. With that I will turn it over to Jim Smith.

Thank you, Frank and thanks to those of you on the call for joining us. Today we will begin with a review of the second quarter results and our outlook for the balance of the year. Now lets turn to the resultts for the quarter. As I stated on our Q1 earnings call, we've made significant progress putting the company back on a solid footing and you can again see that in the numbers we reported today. We had had a good first half of the year both opertaionally and financially. Importantaly, we’re on track with our expectations for the balance of the year. Our guidance for 2015 is to return to positive organic revenue growth on a constatnt currency basis and we are on our way towards achieveing that objective. We cautioned last quarter that increased volatility in foreign currnecy markets would likely have a higher than usual impact on our results in 2015 that indeed route to be the case again in second quarter. Therefore, I'll provide you with both our reported results for the quarter and our results before currency, so you can clearly see the underlying progress we are making. Revenues were down 4% ona reported basis but were up 2% befoe currency a full 600 basis points swing due to currency in the quarter. EBITDA was down 2% with the margin of 40 basis points on a reported basis, while before currency EBITDA was up 3% and the margin was up 50 basis points. Again on a ported basis, underlying profit was down 1% and the margin was up 60 basis points. Before currency, operating profit was up 7%, and the margin was up 100 basis points. Adjusted EPS was $0.52, $0.01 better than the prior year period. And before currency EPS was $0.07 better…

Thank you, Jim, and good afternoon to all of you. As Jim just explained currency again at a significant impact on the results. As reflected in the 600 basis points swing between reported revenues which were down 4%, and revenues before currency which were up 2%. This slide provides a snapshot of our second quarter and six months results. For the rest of the presentation, I will speak to revenue growth before currency in line with the way we always have done it. So on a constant currency basis, second quarter revenues were up 2% or organic of financial business was up 1% organically while our pre-order businesses were 2% organically in aggregate during the quarter. Adjusted EBITDA was down 2% with an EBITDA margin of 28.2% up 40 basis points compared to the prior year. Excluding the impact of currency EBIDTA was up 3% and the margin was up 50 basis points compared to Q2 last year. Our second quarter operating profit was down 1% compared to the prior year and the margin was up 60 basis points. Again excluding the impact of currency operating profit was up 7% and the margin was up 100 basis points. Now there were some negative factors both last year and this year which impacted the year-on-year comparability of our second quarter performance. As you may recall, we booked approximately $30 million of charges in the second quarter of last year which did not happen this year. On the other hand, we implemented our annual merit increases on April 1 of this year of three months earlier than we've planned. So unbalanced the 100 basis points improvement in the margin addresses growth this quarter, genuinely reflects a continuing improvement in the underlying performance of the business. Now let me provide you with some…

Thanks very much, Stephane, and that concludes our formal remarks on quarterly results, and now I would be happy to open the call for questions. So if we could have our first question, operator.

Thank you [Operator Instructions] Our first question today will come from the line of Toni Kaplan representing Morgan Stanley. Please go head.

Good morning, everyone. This is actually [Patrick Hoff] (Ph) filling in for Toni this morning. Lapping quarters of positive net sales in FNR, can you give us a sense of whether the third quarter will be a tougher comp than 2Q for net sales.

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Okay, thank you.

Our next question today comes from the line of Drew McReynolds with RBC Capital. Please go ahead.

Thanks very much and congrats on the revenue growth. Jim just now that you have a stronger footing clearly under each of the, this four businesses and sounds like there is still cyclical tailwind out there. Just wondering if and when there any change to your acquisition versus organic growth focus, as we move into 2016, tend on kind of revisiting things now that your potentially focused on things internally. Thank you.

- : So I am sure that will always be some level of tactical acquisition activity but we’re still focused on executing right now and serving our customer.

Okay.

Our next question comes from the line of Manav Patnaik with Barclays. Please go ahead.

Hi, this is actually a Greg calling on for Manav just wanted to ask about your pricing and reference data business. I know I’ve seen a couple of headlines out that you’re adding in today pricing but I guess more broadly just wanted to hear about your strategy in that business and what you think you said in the competitive landscape?

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Okay, thank you.

And we have a question from Vince Valentini with TD Securities. Please go ahead sir.

This is Vince. Two questions on potential problem, so Europe I mean there always been some economic challenges there anything changing in your conversations with your major customers there and then secondly global growth, plus 6 percentage is a bit less than what we have been seeing in that, in prior periods without being getting up closure to double digit so you seeing some challenges there in some of those emerging markets starting to decelerate little bit. Thanks.

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Yes, good morning Vince the two things I would highlight as first this is now a business that is close to $1.02 billion in revenues, so growing that revenue base at 6% is not a bad performance, the other thing I would point to is that when we speak about some of the commercial adjustments that impact our funds and risk business these do impact our original also and so the organic growth rate is a little bit depressed if you want because of these commercial adjustments this year.

Our next question is from the line of Sara Gubins with Merrill Lynch. Please go ahead.

Hi this is [David Chew] for Sara. So it sounds like about half of the FX and migration is complete, so when do you expect to get all 700 in revenue over on…

As we said David in the past we do expect it is going to happen over 2015 and 2016, I would expect migration of our foreign exchange based on to be largely but not fully completed by the end of this year, so there is still going to be some let over if I like a better word if you want in the first quarter of 2016 where we should be very much done with this one by the first half of 2016. On the buy side, on the asset management side, we are adopting a much more deliberate approach there and so we know that this is going to take us well into 2016 and potentially a little bit further but I would say that the vast majority of the migration is, the migration is progressing very well and most of the commercial adjustments impact that we talked about are going to essentially hit this year with the little bit still hitting us in the first quarter of next year.

Okay. And just one follow-up, so is it still fair to assume that this migration represents about a 200 basis points drag to revenue?

You are speaking about the impact of the commercial adjustments, I would say it is about in that region, I mean I think in the quarter we said that if you were to exclude the impact of the commercial adjustments the growth [indiscernible] somewhere between 2% and 3%, I think that is exactly where it would have been also in Q2 maybe just a little bit above 2% into the second quarter.

Okay. Perfect, thank you.

Our next question comes from the line of Ato Garrett with Deutsche Bank. Please go ahead.

Just a follow-up on the previous question relating to pricing realization, you mentioned clearly that there is some headwind there from the FX migrations but can you talk about pricing for new customers on desktops?

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Great and then one quick follow-up on legal, I want to get your expectations for the growth for the balance of the year, should we still continue to expect the first quarter to be the highest growth for the year do you already think we might see a little bit of a bounce back in the back half?

Yes I would say, what I would always recommend is looking at the trajectory of the growth rate, not quarter by quarter but more in annual basis if you look at our legal business it was negative 1% in 2013 moved just to slight positive growth rate last year in 2015 in the first half of this year I think it was about 2% that is probably a good projection for the full year be around 2% and then from there in 2016 and 2017 because of the mixed dynamics I explained on that slide, we would expect a gradual improvement in the growth rate year after year.

Okay. Thank you.

Next we will go to line of Bill Bird with FBR. Please go ahead sir.

Good morning. I was wondering if you could talk a bit about churn maybe you could speak to kind of icon churn versus total desktop churn and how much room you think there is for improvement and just secondly you were very clear in kind of calling out accelerating recoveries declines. How big do you expect the upcoming headwind to be from that at FNR. Thank you.

Well, I think the first part of that and then list upon the second part of that. We’re seeing a significant improvement in churn, I assume you are talking about retention, with over 200 basis point improvement in our overall retention rates, where we’ve got new modern icon platforms in place and then in fact if you look at some of the other desktop business that we have, the remaining was that are same enroll management or imagine we have very solid in fact better retention rates there. And I think we reported for this quarter, we are approaching 90% now in terms of the retention rates on those icon platforms. So we have seen the improvement there, I can tell you that internally we are targeting increased improvement and we see that based upon customer SAP, we see it on with the product on improvements to customer service that we have and so we intend to continue to improve that. But the good news about those improved retention rates is they do bring down that customer churn and then obviously, this is far more profitable to keep an existing customer than to go and try to win a new one. So we are focused on that, we’ve seen marked improvement over the last two years in our retention rates and we think there is room to improve it even further.

And Bill on your question regarding recoveries, really hard to predict exactly how much of the headwind will be because it depends upon the timing which of third party partners are moving to the direct dealing arrangement with customers. But in the first half, the rate of decline of recoveries was in the area of like 1% and we would suddenly expect that to accelerate to mid-to-high single digits of decline in the second half of the year. Again, I mean what’s important there is that, this is not really highly profitable revenue for us. So it doesn’t have any impact this change in direct dealing arrangement has no impact on the growth rate of EBITDA of free cash flow or operating profit, which is really just a contractual change in terms of how we do the billing with our customers.

Thank you.

And we’ll to the line of Paul Steep representing Scotia Capital. Please go ahead.

Thanks. I guess for Jim and Stephane, both, maybe could talk about where the investments going in terms of the CapEx spend that’s been out there this year and how we should think about major platform refreshes particular I guess I was thinking legal for about five years into Westlaw. How you are thinking about redeployment in that capital and how we should think about it into 2016 and 2017 into big refreshes. Thanks guys.

Okay. Let me start with good morning. I would say that where the investments are going right now, there are two clear priorities, the first one is investments in our highest growth areas. So that will be areas like global trade management, KYC and risk in general or legal solutions business and the lag, that’s where we making a fair bit of investments. And also I think as we look next year and the year after where we need to continue to make investment, is make sure that we keep improving the stability of our platforms and really make sure that we have one of the strongest infrastructure that we can, because that’s actually the backbone of the company. So that’s really where I think investment will be growing going forward. - :

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Great, thanks guys.

Our next question comes from the line of Peter Appert representing Piper Jaffray. Please go ahead.

Thanks good morning. So Jim that the risk here up over simplification sounds like the fourth quarter is a pretty big inflection for as in our in terms of growth and profitability the pricing reset done as the migrations completed to cost down with the elimination of duplicate networks. I’m wondering if one that fair assessment and two more importantly does it suggest that perhaps it more confident that you get to the 30% margin in 2016?

I think that’s probably a fair view the situation if we can continued to execute over the balance of this year, 2016 looks very encouraging.

And may be as just a follow on to that, I’m wondering in the context of that whether you think better than 30% is potentially achievable on an intermediate term basis.

Well, we’re going to get, let’s get the 30% - right. I think honestly look, if you look at where our margins are and you look at where some competitor margins are, there is clearly opportunity for us to continued to be more efficient inside the business and once we get to the 30% margin what will have to do is weight the tradeoffs between improving the margin right and investing and things that will drive growth. - :

Right, thank you.

There we have a question from line of Doug Arthur with UBS Research. Please go ahead.

Doug are you there?. Hi operator we’ll take the next question.

Okay, we’ve got a line of Aravinda Galappatthige with Canaccord Genuity. Please go ahead.

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Sure, happy to take that question. At the EBITDA level if you look at in absolute dollar terms I think the impact year-to-date is above the $100 million or so now at the free cash flow level there are two important offset. There is some offset in working capital movements and there is the biggest offset which is the hedges that we have on the group that the foreign exchange impact, the currency impact on free cash flow this year is much lesser than $100 million is about $30 million.

Okay, great. That’s very helpful and just lastly with respect to the, the ID on [indiscernible] platform any idea or can give us some color around what sort of the potential uptick with be as we kindly get that behind us and we’re talking something in the range for about 150 basis points. Thank you.

I say this, I would say that dual customer running in the second quarter where in the area of $10 million plus or minus so you can extrapolate from that and get a sense of where our margins would have been or could be once we don’t have to incurr these dual running costs anymore, and as you can see right next from the progress we get [indiscernible] from that 30% margin target which obviously makes us in very good that’s actually a pretty good performance given that if we are able to get there by the end of the year if we are able to get to an exit rate of 30% as we end the year, we would have done that in spite having facing much, much higher headwinds from a transaction revenues than what we were expecting over the period that the lapse since we set that target out. So it is a good result but basically as I said the platform is the migration certainly going to help the margin in the fourth quarter.

The $10 million per year in dual running cost is that a quarterly number?

Yes that is a quarterly number.

Okay, great. Thank you.

And we go to line of Tim Casey with BMO. Please go ahead.

Thanks good morning. Given the volatility on foreign exchange markets, I mean obviously that is having an impact on your reported results, but are you getting any benefits on the transaction or any of the other FX platforms you have from a revenue point of view you see increased volatility helping you on some of the trading platforms, are you seeing any benefits in business that way?

That is a very good question and you’ve seen what we reported in terms of transaction revenue growth this quarter, it was like 3% that is lower than what we would expected to be given the volatility that we are seeing in the markets and so as we mentioned on the call, what we are seeing is the little bit of decoupling between high volatility and high volumes and we think that due to the fact that some of the largest players particularly on the sell side are essentially staying bit on the sidelines as we have seen them in the past as there are number of investigations going on and so what we think is happening is that they just want to make sure that operationally they are completely compliant from a trading perspective and then they reenter for the market. But we will have to say time will tell but at this point in time your point is a good one given the increased volatility in terms of we would have expected to see more volume, we are not seeing that volume and it is not just on all platform, I think it is a little bit across the board on foreign exchange side, the another area where we have seen good continued growth is on our FX platform, so treasurers and buy side continue to have a very healthy level of training activity but the biggest chunk of trading and volume is probably not as high as what we would expect the given currency volatility. So little bit of benefit, transaction volumes were up 3% as I said on the call we would have expected that transaction volume to be up by more given the volatility we are seeing in the market. So that is a bit of a disappointment.

And would you characterize that level of activity is that a high margin revenue piece or is it relatively…

No that is very high margin, transactions are very high margin.

Right, okay, Thank you.

Operator, I think we have one final question and I am happy to say I think we have found Doug Arthur, so Doug?

Can you hear me now?

Yes we can.

Thanks. I just wanted to go back to legal for a second, the 39% of revenues that is online legal, can you just sort of refresh our memory in terms of what are the main components that are sort of keeping the growth from turning more positive, thanks.

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And do you still see sort of a tension between large legal firm demand and small and medium sized firms or is that all sort of going the same direction?

Let me jump in there, I think we have been surprisingly encouraged in both sectors over the past I would say six to eight quarters. And what the dynamic has played out there, if you think about a bright philosophy going very fast, it’s a very small part of the mix, Westlaw in the U.S. particularly is the big grow up and as you know that we had a lot of price competition from Lexis in the marketplace, we were very disciplined about selling on value and price and that appears to have been a successful though painful past the tape and frankly we’re seeing. What we saw was the downturn of Westlaw period, offset some of the growth in practical law we saw that stabilize and now Westlaw itself get back in growth for the quarter which was highly encouraging and we’ve done that on the back of quality wins in the phase of pretty stiff price competition. So I think if you are looking at damper on that growth, it’s been price competition again Westlaw primarily from Lexis.

Great. Thank you. End of Q&A

Okay. That was our final question and we’d like to thank you all for joining us to review our second quarter results. Speak to you again next quarter. Thank you.

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