Good day everyone and welcome to the Q3 2022 Earnings Call hosted by Gary Bisbee, Head of Investor Relations. My name is Nica and I'm your operator for today. During the presentation all lines will remain on listen-only. [Operator Instructions]. I would like to advise all parties that this conference is being recorded for replay purposes. And with that, I'd like to hand the floor to Gary. Please go ahead.

Thank you Nica. Good morning, everyone and thank you for joining us today for our third quarter 2022 earnings call. I'm joined by our CEO, Steve Hasker; and our CFO, Mike Eastwood, who will discuss our results and take your questions following their remarks. To enable us to get to as many questions as possible we would appreciate it if you would 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 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 financial measures. 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 department. Let me now turn it over to Steve Hasker.

Thank you, Gary and thanks to all of you for joining us today. I'll start by reviewing our Q3 highlights. I'm pleased to report good momentum continued in the third quarter with revenue and margins modestly ahead of our expectations. Total company organic revenues growth rose 6% driven by 7% recurring revenue growth. Each of our big three segments recorded organic revenue growth of 6% or greater for a fifth straight quarter. Due to the strong year-to-date performance and healthy book of business, we are maintaining our full year 2022 outlook. Mike will provide more details on our outlook later in the call. While we acknowledge rising market concerns around slowing economic growth, we are blessed with a resilient business.80% of our revenue is recurring and we operate in historically stable and growing end markets. Like all companies we face inflationary pressures which we are working diligently to mitigate. We also continue to make investments to support our revenue momentum and our customer success. To date, we have not seen any significant changes in customer buying patterns except in a few pockets in our corporate segment where sales cycles have lengthened modestly. We believe this is due to both market factors and also sales territories where we are looking to fill open positions. I’m excited to discuss an important product development today. In mid-September, we launched a major upgrade to the Westlaw franchise with Westlaw Precision which we had previously referred to as Edge 2.0. Precision offers meaningful improvement in search accuracy and efficiency. Initial customer response has been strong and sales are off to a good start. Westlaw Precision is also a great example of what Thomson Reuters does best, which is to bring together unique content, artificial intelligence and machine learning capabilities with modern software to create significant…

Thank you, Steve and thanks for joining us today. As a reminder, I will call to revenue growth before currency and on an organic basis. Let me start by discussing the third quarter revenue performance of our Big 3 segments. Revenues rose 6% organically and at constant currency for the quarter. This marks the sixth consecutive quarter our Big 3 segments in aggregate had grown at least 6%. Legal Professionals organic revenues increased 6%. This also marks the sixth consecutive quarter of 6% growth for Legal Professionals. Organic growth was driven by Practical Law, Westlaw, HighQ and our government business. Historically, Westlaw Edge added about 100 basis points to Legal’s organic growth rate. Early Westlaw Precision sales have been encouraging, earning a premium to Edge. We expect Westlaw to continue to contribute at a similar level going forward as the Precision penetration increases. In our Corporates segment, organic revenues increased 7% for the quarter driven by recurring revenue growth of 9%, offset by a decline of 7% in transactional revenues. Practical Law, CLEAR, Direct Tax, and HighQ were key drivers of recurring revenue growth. And finally, Tax & Accounting's organic revenues grew 9% driven by recurring revenue growth of 9% and transactional revenue growth of 12%. Recurring revenue growth was driven by UltraTax and the segments businesses in Latin America. Moving to Reuters News. Total and organic revenues increased 5%, led by the Agency business and the news agreement with the Refinitiv business of LSEG. All orders businesses grew in the quarter. Lastly, Global Print total and organic revenues were flat for the third quarter, ahead of expectations. Improved retention and sales timing benefits drove the outperformance, though the timing is expected to normalize in the fourth quarter. On a consolidated basis, third quarter organic revenues increased by 6%. Turning…

Thank you. Operator, we're ready to begin the Q&A.

[Operator Instructions]. We will take our first question from Kevin McVeigh of Crédit Suisse. Please go ahead.

Great, thanks so much and congratulations. Just a really, really nice outcome in obviously a pretty tough environment. I don't know if this would be for Mike or Steve, but on the divestitures, it sounds like despite the revenue impact about 165 million, EBITDA 40 million, was that in the guidance already or were you able to reaffirm despite the adjustments, and I know that's an annualized number, is there any way -- is that all kind of a Q3 and Q4 impact? And maybe -- and I know there's a lot in here, I apologize, but can you maybe understand where that sits, like is that -- maybe what segments?

Sure. Kevin, I will break that down. With regards to our full year guidance for 2022, we have factored in these divestitures, so I would reconfirm or reaffirm the approximately 6% organic growth and approximately 35%. We're still on target to achieve those despite those divestitures. Certainly, when you look at organic growth versus the total revenue growth, the total revenue growth would be slightly less just given the impact in Q3, Q4 there, but that would be marginal in nature. Kevin, I'll ask Gary to do a follow-up with you and the team in regards to the split by segment, but it's pretty evenly across the Big 3, Kevin. But Gary will do a specific follow-up for you and the other analysts there. But it's a good rule of thumb, it's approximately evenly across the Big 3 segments, Kevin. Kevin, just on that topic, just to foreshadow a potential question, as we look at 2023-2024, there could be an opportunity for us to do a few additional divestitures of similar size just as we continue that theme of focus, simplification and prioritization just as we look forward into 2023 and to 2024.

Very helpful, thank you.

Thank you. The next question is coming from Vince Valentini of TD Securities. Please go ahead.

Yeah, thanks very much. I will throw in two in one, just any update on timing on acquisitions as it's been a while now with valuation seemingly coming down and your balance sheet is very strong, do you think something may be imminent by the end of the year or still going to take a little while? And then the second one, I mean, inflation is a problem for cost, but should there be some sort of offset on the pricing front, can you give us any sense of pricing increases or maybe a bit above normal that you may be able to take next year to both boost your revenue growth and maybe offset some of the cost pressures you're talking about?

It's Steve. I'll take the first part, and then Mike can take the second. So on the M&A front, look, we're increasingly optimistic that we'll get the opportunity to do some bolt-on acquisitions, particularly in our Big 3 segments businesses that are added into the customer experience and don't bring tech debt and good cultural fits. And that optimism comes from sort of three places. One, we're into the last quarter of the Change Program and so we think we're -- as a business and as a team, we're in good shape to integrate inorganic acquisitions. Secondarily, obviously valuations are more attractive than they were this time last year. They're still robust for high-growth businesses that are cash flow-positive. But nevertheless, things look a bit more contracted [ph] than they have for the last couple of years. And then thirdly, of course, our capital position is very strong and as we approach the first tranche of the lockup expiry with the LSEG state, and that just gets also. So I'm cautiously optimistic that we'll have some news perhaps later this quarter, if not into 2023, on some bolt-on acquisitions. Nothing outlandish in size and certainly nothing beyond the Big 3 at this point.

Vince, in regards to your second question, certainly, pricing has been a key lever for us throughout 2022 to help offset inflation. I would just remind everyone that given our pace of multiyear contracts, it does take time for these price increases to work their way through our revenue base and become realized, recognized revenue. So given those multiyear contracts, there's not a perfect correlation between the price increase and the cost increases, but we're going to continue to work like hell to ensure our pricing offsets that inflation as we move forward. So should there be some timing differences given those multiyear contracts, I think the answer is yes there, Vince. So we're going to work diligently on the pricing to help offset that inflation as much as possible.

Excellent, thank you.

Vince, I would mention that in regards to inflation, inflation certainly impacts the operating expenses or expedite [ph] but also capital just as a tidbit for everyone. If you look at our capital expenditures, a heavy portion of that is capitalized labor, capitalized soft development. And about 85% of our total capital is cap labor, about 50% internal, 50% from external sources. So inflation certainly impacts CAPEX along with operating expenses.

Thank you. The next question is coming from Drew McReynolds of RBC Capital Markets. Please go ahead.

Yeah, thanks very much. Good morning. Just Mike, following up on Vince's question on price, are you able to, I guess, first, just provide some commentary in and around how some of those contract renewals are going in real time and are you able to maybe kind of give a sense of the pricing contribution to 2023 organic revenue growth? And then just second part here, you did allude to in 2023 margins coming in at the lower end of, obviously, a very tight range. But you talk about reinvestments, you have inflation, there's operating leverage and then probably some additional cost efficiencies. So just how are you thinking in terms of balancing all of those as we look into 2023?

Sure. Drew, let me break down each of those, and Steve may want to supplement. First Drew, in regards to the contract renewals real time, I think our collective segments are making good progress. As a reminder, Drew, the contracts renewed throughout the year. Unlike other companies, our contracts do not recruit. All renew on January 1st. It's based on when those contracts were initially signed. So those contract renewals are happening throughout the year, that will continue into 2023 and some into 2024 just based on the multiyear nature. As a reminder, the Legal Professionals segment has the highest percentage of multiyear contracts at 60% followed by the Corporates segment at 40%. So to your direct question, very pleased thus far, Drew, in regards to the contract renewals, but it's a continual progress as we go into 2023. Your second question related to 2023 pricing contributions, it will be slightly higher in -- 2022 was slightly higher than 2021. 2023 will follow that trend with a slightly higher pricing contribution in 2023 versus 2022. In regards to the third question on margins for 2023, I would put it into -- break it down into tailwinds and headwinds, Drew, some of these which you mentioned. The tailwinds, I would mention three. First, for 2022 we're looking at an underlying margin of 37%. That's excluding the Change Program. So that gives us a nice foundation to work from. The second tailwind would be the Change Program savings that we achieved in 2022 that will continue into 2023. And the third tailwind which you mentioned is operating leverage given that we're roughly 6% organic growth, operating leverage does benefit it. On the opposite side of the ledger in regards to headwinds, the overall macroeconomic situation certainly is a headwind along with the inflationary pressures. In regards to investments, Drew, we're keeping the customers front and center. We think we have further opportunity when we talk about customer success. We have opportunities to improve our end-to-end customer experience, thus improve Net Promoter Score, which should correlate to higher retention. Second, I would mention continued investment in digital to help our customers with self-serve. Kirsty Roth and team continue with our content modernization initiatives. And then lastly, we have identified some additional opportunities, Drew, on the growth side that we'll continue to make some investments. So hopefully, those tailwinds, headwinds, Drew, give you some color in regards to how we are thinking about 2023 and why collectively we think focusing on the lower end of the range of 39 to 40 is reasonable and appropriate at this time. But I'll pause Steve, if you'd like to supplement.

I will sit back.

That’s great. Thank you very much.

Thanks Drew.

The next question will take from Onrad City of Bank of America. Please go ahead.

Hi, this is actually Heather Balsky, analyst on the team. Can you just share with us in terms of your plans around cost if there is a tougher year next year where you have flexibility? And then also with regard to the Change Program, can you remind us of the savings that are going to through next year and how to think about the phasing of them as we move through the quarters? Thanks.

Sure, Heather. I think there are two parts there. First, in regards to flexibility, I think during 2021 and 2022, Kirsty Roth, Maria Vucic, our full team has done a nice job further leveraging our capability centers, which we previously referred to as shared service centers. So I think us leveraging the capability centers in India, Manila, Costa Rica, Mexico City, Gada, Poland, et cetera, certainly, that's progressed very nicely and helps us with our overall cost base as we go into 2023. We see continued opportunities with that. Several executives were recently in India. Kirsty was in Manila last week. So I think our capability centers in those locations provide us with additional opportunities as we think about 2023 and 2024. In regards to our Change Program savings, the remainder for 2023, I would think about that more evenly spread throughout the year, Heather. It's certainly a multitude of different work streams and initiatives. But if you think about them evenly throughout the year, that would be a reasonable estimate for us. Just on the cost side, certainly for merit, we are assuming a higher merit increase in 2023. We had a slightly higher one in 2022 versus 2021, Heather. I think we'll see that trend continue into 2023. But rest assured, we'll pull all the levers that we can but first and foremost, continuing to support our customers will be priority one.

Thank you very much.

The next question is coming from Arvind Galappatthige of Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. Maybe just on the M&A side, a question for Steve. I mean you specifically mentioned that certainly, what you would do in the near-term wouldn't be outside of sort of the 3 big categories. With that said, you're -- clearly, the execution is strong, and you're continuing to focus on the quality of the product innovation. Certainly, the results from Edge were good evidently, and Precision looks prospective as well. Is there a temptation given sort of the disciplines that you've developed to maybe spill over into adjacent professional areas as well, not to say you're getting -- go back into financial or science, anything like that. But given sort of what you have built, particularly as we look for M&A as well, to be open to some adjacencies there I just wanted to get your high-level thoughts?

Yes. Aravinda, we're certainly open-minded about it for now. And our strategy group are always sort of looking at broader expansion and growth opportunities. Let me make a couple of comments, though. The first is the Change Program was about and is about building a platform for growth. So it's a migration to the cloud, the development of APIs. It's really sort of putting together and scaling up our global capability centers. It's about data and analytics around our products and our customer usage of those products, things of that nature. We think that those things will help us with Big 3 and will also give us the right to play elsewhere where we decide to. So that's the first thing. The second thing is areas like ESG is certainly of interest to us. As we look at the evolving ESG landscape, we see a place where there are sort of vast amounts of highly complex rules and regulations and data inputs, and that tends to be an environment in which we thrive. Firstly, and secondly, ESG is relevant to the General Counsel, the Head of Tax, the Head of Risk and their respective legal and tax and accounting advisers, all of whom we have relationships with. So I think to the extent we go beyond the Big 3, I think you'll see us sort of extend into areas like ESG versus going broader into HR or areas like that. Back into financial data and back into IP and size, they're off the table.

Aravinda, just on the topic of M&A I've shared with you and the group just in regards to our capital capacity, we are on target to complete the current $2 billion NCIB share buyback by early Q2. Once we complete the current $2 billion, we estimate about $12 billion of capital capacity by 2025. So that will afford us the ability, willingness to continue the double-digit dividend growth. The 10% dividend increase in 2022 is likely to continue or have the ability to mention -- to execute M&A that you just asked about, but also additional capital returns. So just wanted to remind the group, Aravinda, in regards to the significant capital capacity over the next three to four years.

Absolutely, thank you both.

The next question we'll take from Toni Kaplan of Morgan Stanley. Please go ahead.

Thanks so much. This actually isn't usually asked but can you just give us an update on how big your sales force is now and how much it has grown given your investments over the last couple of years?

Sure. Happy to start there, Toni. Just a reminder, we do have separate sales forces for each of our customer segments. If you go back two years ago when we embarked on the Change Program, one of the areas that we intentionally left really very much aligned with each of our customer segments is the sales force. So if you think about each of those sales forces, I'll use Legal illustratively, it's been further segregated into the size of customer. So we have a sales force dedicated to the global large law firms. So in Legal, that's [indiscernible]. Then we have medium-sized firms with Liz Emmett [ph] and then small firms with Mark Haddad [ph]. And supplementing those traditional as go-to-market teams, we also have our inside sales force that we've leveraged along with digital. So think about the sales forces as traditional beat on the street along with inside sales and also digital. And that framework that I just described for Legal very much applies to each of our customer segments, whereby we align it to meet our customer needs in the best way. With that said, our work on digital really permeates the organization to ensure that we don't duplicate any efforts there. And certainly, all of our enablement tools, such as Salesforce.com, Gainsight, et cetera, we leverage across the firm. But we have dedicated teams for each of our segments.

Thank you.

The next question is coming from Tim Casey of BMO CM. Please go ahead.

Yeah, thanks. Good morning. Mike, could you talk a little bit about the monetization process for the LSEG shares, I believe it's a third, a third, a third starting January 29th. But should we think about that as a -- that the monetization will take place in chunks through the year or would it be evenly distributed? And second, how should we think about an after tax number in terms of what's the tax impact on monetization, how should we think about that?

Sure, absolutely, Tim. You're correct. The first tranche does -- the lockup expires January 29 of 2023. And then there's a subsequent lockup expiration January 29 of 2024 and 2025, as you described, a third, a third, a third. Given that we have a Board seat, Tim, we would not actually start the monetization until March. LSEG we will announce their results for 2022 the first week of March. So given that quiet period that we need to honor, we would begin the monetization in March. Given that us and Blackstone can monetize in 2023, I think it would be prudent, Tim, to assume that the monetization would happen in tranches throughout 2023 just given the size of the total tranche that us and Blackstone has there. But certainly, our interesting goal would be to monetize as quickly as we can. But the practical element is that it will take most likely multiple transactions throughout 2023. What we'll do, Tim, is keep you posted during each of our calls in regards to the likely timing. But the first AVO or trade would likely be sometime in March of 2023. That would be the earliest given the quiet period, given that we have a Board seat. In regards to the after-tax impact, the quick math is we have a $3 billion tax basis. So if you assume the current value is illustratively about $7 billion, if you take the $3 billion tax basis away, that leaves you $4 billion. That's taxable, so 25% on that $4 billion, Tim. So quick math is about $1 billion of cash taxes would be due on the overall tranche. So if you assume $7 billion, it would be $6 billion after tax. And I'm certainly factoring in, Tim, the gain that we have on our hedge there. As I mentioned in my prepared remarks, we're up about 650 now on the hedge that we did for our LSEG stake. Let me make sure I address each of your questions there, Tim.

No, that's excellent. Thank you very much for such a good answer.

Thank you.

Next question we'll take from Andrew Steinerman of J.P. Morgan. Please go ahead.

Hi, it's Andrew. I wanted to just talk a little bit about the Legal Professionals transactional piece. I know it's only 6% of segment revenues, and it was down 7% organically. Could you just go over what's in the transactional segment, why was it down, and when should it rebound?

Sure. Andrew, as we mentioned back on the August earnings call, we forecasted anticipated downdraft in regards to our transactional overall in Q3. I think that's just temporary in nature. I think as we go into Q4, you'll see transactional pick up. So I would not view the downtick in transactional in Q3 as any type of trend. It's just more due to the cyclical nature of our business, which we had forecasted there. I know you asked about Legal but if you think about transactional overall, there are seasonal elements to different aspects of our business, especially in tax, that impacts Corporates and also our Tax & Accounting Professionals business. Reuters Event certainly has cyclicality, and you'll see an uptick there. So you'll see an uptick in transactional, Andrew, in Q4. If you look at 2023 for the full year, we do assume that transactional revenue will grow at a smaller pace than the recurring revenue. Recurring has consistently grown 7% throughout 2022. So transaction on a long-term basis grows slower than recurring.

Okay, thank you.

Thank you. The next question is coming from Manav Patnaik of Barclays. Please go ahead.

Thank you. Mike, the 12 billion of capacity that you talked about, that includes the LSEG stake. So I just want to confirm that? And also, with that kind of capacity, I guess, can you talk about again the limitations perhaps in the buyback given the desire to maintain the ownership stake of the [indiscernible]?

Sure. The 12 billion of capacity that I mentioned following the current completion of the 2 billion, that does include LSEG. So as I just mentioned on Tim's question, roughly $6 billion after tax or roughly 50% of the $12 billion, the residual comes from just natural free cash flow and assuming a two and half times leverage ratio there. In regards to your question on additional buybacks or capital returns, given the Woodbridge ownership, Woodbridge ownership today is about 68%. Going forward, I would assume, Manav, that does not exceed 70%, which would assume that Woodbridge would participate on a proportional basis as we move forward. So a key item there is on Woodbridge. Assume that their ownership would not assume -- exceed 7% over the time horizon.

Got it. And then you talked about the corporate sales cycle lengthening modestly kind of maybe the first sign of potential impact from all the macro noise we're hearing. I guess, just historically, is that a good leading indicator or what indicators do you look for from where you can see in the business that would signal to you that you might have to adjust accordingly?

Yes. I think -- Manav, it's Steve. The leading indicators tend to be the Reuters advertising revenue, the Reuters event, the transactional side of things and point. Within our business, those are the least bolted down to give return, and so we watch them carefully. All of those are holding up okay. The Corporates, as I said in my prepared remarks, our book of business is robust and our sales activity is robust. Having said that, the fourth quarter is our biggest quarter. So we're watching it carefully because we read the same news you do and as part of the sort of broader dialogue about the macroeconomic environment. So it's -- to date, we've seen some minor slippage in terms of -- from third quarter into fourth quarter in the sales activity, and we're watching it carefully. But at this point, it's no more than that. And just a reminder that our projection of revenue growth for Corporates 2023 is 7% to 9%, and we're confident that we'll hit that pretty squarely.

Alright, thank you.

And we'll take our last question from Douglas Arthur of Huber Research. Please go ahead.

Yeah, thanks. Just to that point, Steve, is -- as your big customers get -- potentially go into a more stressful period in 2023, is there an argument to be made that the Thomson product offerings are somewhat countercyclical and that they help your customers do more for less staff intensity, et cetera, so that as your clients get more stressed, some of your product areas actually could benefit, is there an argument to be made there?

Yes, Doug, there is. I mean two comments about those products. So if you think about the end market, in tough times, litigation doesn't necessarily slow down. And I think you can look over time and suggest that it actually accelerates in certain pockets in a downturn, firstly. Secondly, tax returns need to be filed. And so that activity doesn't change all that much at all. And then the Heads of Risk within corporates and their advisers typically see sort of fraudulent activity and those kinds of things pick up as the government agencies who are handling benefit entitlements and so forth. So the fundamental -- our end markets tend to be very stable and actually may see a few opportunities in various places, firstly. And secondly, our products are largely not discretionary. So they must have products, which is the reason we think we're pretty well placed headed into a downturn on the revenue side. And as Mike said in his prepared remarks, it's really the cost side that we're watching most carefully because we see opportunities to invest for long-term growth, and we see opportunities to better serve our customers. And we don't want to shy away from those things. So we'll be very prudent about where we spend, but we will continue to invest through the cycle as we see the opportunities.

Great, thank you.

Thanks Doug.

Thank you. We have no further questions in the queue.

Okay. Great. Thanks, everybody.

I pass it back to Gary.

Yes. I think we're good. Thanks, everybody. Me and the IR team are around if you want follow-up discussions. Have a good day. Bye-bye.

Thanks everybody. Bye-bye.