Good day, everyone, and welcome to the Thomson Reuters Q4 2023Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee. Please go ahead, sir.

Thank you, Jennifer. Good morning, and thank you for joining us today for our fourth quarter 2023 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. [Operator Instructions] Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS 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. 2023 was a year of continued progress at Thomson Reuters. So let me start by reviewing some of our key accomplishments. Firstly, we delivered another year of good financial results meeting or exceeding our key financial targets. Full year organic revenue grew 6% with the fourth quarter growing at 7%. The Big 3 segments also accelerated in Q4, growing 8% versus 7% for the full year, despite lingering inflationary pressures and heavy investment. Our full year adjusted EBITDA margin rose by 420 basis points to 39.3%, and we delivered $1.9 billion of free cash flow, slightly ahead of target. Although the macroeconomic and geopolitical backdrop remains uncertain, we have many areas of strength in our portfolio. Westlaw Precision’s strong performance continues. Our international businesses maintain their growth trajectory in the teams, and we have many other products delivering double-digit revenue growth, including Practical Law, Confirmation, SurePrep, and HighQ 2023 saw significant and important progress from an innovation perspective. The clear highlight was our efforts around generative AI, culminating in the November launch of the AI assisted research capability within Westlaw Precision. But the progress is far broader than just Westlaw. We have integrated our new colleagues from the August acquisition of Casetext, launched CoCounsel Core to extend the reach of case texts legal AI assistant offering, and we are working to deliver against a robust product roadmap that includes several key launches in the next few months. Our capital capacity and liquidity remain a key asset that we are focused on deploying to create shareholder value, and we made strong progress on this during 2023. We monetized nearly 5.5 billion of our stake in LSEG and returned more than $3 billion to shareholders. Since the beginning of…

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 for our Big 3 segments. Organic revenues improved sequentially from 7% in recent quarters to 8% in the fourth quarter, a new high watermark for the Big 3. Total revenue was 3%, excluding the impact of divestitures. Legal Professionals organic revenue grew 7% driven by continued Westlaw Precision momentum. Key drivers from a product perspective remain Westlaw, Practical Law, HighQ and our international businesses with Casetext also contributing. Government grew 7% in the quarter, while FindLaw was a modest headwind to the segment growth rate. We expect good momentum for Legal Professionals to continue into 2024. Our Westlaw Precision AI-assisted research launch in November contributed to another strong quarter for Westlaw Precision sales. I am happy to announce Precision penetration continues to rise, hitting 26% as of December 31, which on a dollar basis is approximately 50% ahead of Edge. In our Corporates segment, organic revenues again grew 7% driven by 7% growth in both recurring and transactional revenue. Practical Law, CLEAR and our international businesses were key drivers. Tax & Accounting had another good quarter, growing 10% organically. Recurring and transactional revenue grew 10% and 14%, respectively. Latin America remains a key driver for our Tax & Accounting segment. Looking to 2024, we expect transactional revenue growth will continue to outpace recurring revenue as higher growth products, including Confirmation and SurePrep, are transactional in nature. Moving to Reuters News. Organic revenue increased 9% for the quarter driven primarily by growth from generative AI content licensing revenue. We expect additional licensing revenue in the first quarter of 2024, which will likely drive at least mid-teens…

Thank you. Jennifer, we are ready to begin the Q&A.

[Operator Instructions] And we will go first to Scott Fletcher from CIBC.

Hi. Good morning. Mike, I appreciate you just mentioned that you'll share some of the drivers at the Investor Day, but I'm wondering if you could -- just looking at the 2025 and 2026 acceleration in organic growth, particularly in the Big 3, could you sort of give us an idea of which segments specifically are going to be driving that acceleration? Is it mostly Legal given that GenAI rollout is first there? Or any color there would be helpful.

Sure, Scott. Thanks for the question. We see growth acceleration across all the Big 3 segments over the time horizon, '25 to '26. Certainly, to your point, within Legal with GenAI and the road map that we started there, Westlaw Precision with the CoCounsel Core, the as Practical Law AI and the Practical Law Course Finder certainly, Legal has a head start there on the GenAI road map. But just given the opportunities across the horizon, Scott, to achieve that 6.5% to 8% organic growth, we see acceleration across all three segments. And I think, Scott, just as a reminder, if you think about that acceleration to 6.5% to 8%, the product road map, the investments we made in '23, the investments in '24, but also the recent acquisitions in the last 13 months with SurePrep, Tax & Accounting, Casetext and Legal and then Pagero within Corporates with the invoicing and Indirect Tax, given that those acquisitions cross the Big 3 segments, that's what gives us the additional confidence that we'll see acceleration across the Big 3, Scott.

Okay. Thanks. And then as a follow-up, if we are thinking about that in the Big 3, 8% to 9% organic growth in '25 and '26, is that something you see as sustainable at those levels? Or is that a function somewhat of the price increases rolling out over the contract lengths given you've got sort of 3-year terms that would take you into 2026?

Certainly, as we get into that '25, '26 time horizon, the 8% to 9% for the Big 3 will be sustainable. Price increase is certainly a component of that, Scott. I think I shared in the November earnings call, on a weighted average basis, about $0.035 on the composite, which was up about 30 to 40 basis points versus calendar year '22. The multiyear contracts that you mentioned certainly play a factor into the time of when we increase our prices, but roughly 3.5% for 2023, Scott, on the prices.

Just to -- Scott, it's Steve. Just to add to that, I think the confidence around the sustainability of that elevated growth comes from both our organic investments and inorganic. So on the organic front, what we are starting to see, and it is very early days, is an expanded role in serving the professionals that are in our customer bases. And we think that that's going to make us an even more relevant and larger part of their working lives. And then on the inorganic, I made reference in my remarks to the portfolio shift to some higher-growth assets and businesses. So it's really the combination of those two things that gives us confidence around the sustainability of those higher growth rates going forward.

Scott, I might be anticipating questions from you or others. Just a reminder, within the GenAI revenue, I think Gary, Steve and I plan to provide additional metrics as we progress during '24 on that. But the revenue will certainly lag the sales of GenAI, which we anticipate revenue from the GenAI beginning to pick up more in the second half '24, and that goes into 2025, if helpful [ph].

Okay, great. Thank you very much.

Thank you. We will go next to Drew McReynolds from RBC.

Yes, thanks very much. Good morning. Can you hear me?

Very well, Drew.

Okay. Super. My question is just around the competitive landscape, specifically either new entrants or your peers that are also deploying GenAI. Just would love to get an update on kind of what your assessment of that would be just given the pace of change and everybody kind of launching their own GenAI versions of different products. And then maybe a follow-up to that. Steve, in the past, you've talked a little bit about the end markets that you serve and the transition or transformation that inevitably will be taking place at law firms and tax and accounting firms. What have you seen to date? And presumably not a lot. But if not, when do you think those end markets begin to accelerate their pace of transition? Thank you.

Yes. Thanks, Drew. Great questions. So with regard to the competitive landscape, I think we are seeing, I'm sure you're seeing sort of the flurry of announcements of new entrants of some of our traditional competitors making moves. I can only really comment on the conversations that I have and my colleagues have with our customers, be they existing customers or new prospects. And the feedback we are getting on our both launches to date and our product road map is extremely positive and growing. And I think that's based on a couple of different things, particularly for those customers who had a chance to really kick the tires on our offerings and test the accuracy and incremental value of our offerings relative to some of the competitors. Our repositories of content are deeper and broader than anyone else in the industries that we serve, particularly in legal. And that is being recognized as a key value component in any GenAI-driven solution. Secondly, we enjoy, but don't take for granted very deep and broad customer relationships, and they're trust-based customer relationships. So in terms of doing it right and predicting client proprietary information and all the sort of data privacy rules that will inevitably come as GenAI evolves, there's a level of trust in TR's plans and exhibition -- and execution, I should say. And then thirdly, talent. We've -- as you know, we've put a lot of effort into making sure that we have the best product and engineering and labs teams. And we're just starting to scratch the surface in terms of the results of that. So those three things give us a lot of confidence coming out of 2023 into 2024. But I would also say it's early days. I think this sort of GenAI-driven transformation will…

Very helpful. Thank you.

Thank you. We will go next to Kevin McVeigh from UBS.

It's Kevin McVeigh from UBS. I just want to start and just -- I typically don't do this, but just congratulate the execution you folks have had because it's been a major transformation in the business, and it's really gone flawlessly. So I just -- I wanted to call that out because I think it's really important. I don't know if this is for Steve or Mike, but when you think about those medium-term targets kind of going from 6% to 6.5% to 8%, is there any way to think about -- build that up a little bit, how much of that is retention versus pricing? And then you've done a lot of high-growth acquisitions that are in the base now, maybe how that contributes. Because it feels like a first step to me as opposed to a ceiling, if you would. But maybe can we start there?

Yes. Can I just -- I'll just make a comment on -- or reaction to Kevin, to your questions and then turn it over to Mike. So thanks for your points about execution, Kevin. We are proud but I hope not arrogant about what we've been able to -- the work we've been able to get through. We were very deliberate back in -- way back in 2020 in saying we're going to go through this Change Program. And in doing so, we'll make a two-part pivot: first, from portfolio operating; and the second from holding to -- sorry, from holding company to portfolio -- to operating company and then from content to content-driven technology. And we're -- we've achieved a lot in getting through that. Kudos to Kirsty Roth and Jason [indiscernible] and a legion of others who have really driven a lot of that hard work and executed along the way. And as a group, I think we've learned a lot and we are getting stronger and stronger. As it pertains to some of the key metrics that we are very focused on, like Net Promoter Score and Net Recurring Revenue, the sort of broader set of customer success metrics, we are just getting started. I think there's sort of an appropriate level of modesty as to how much progress we've made and how much upside there is for our Big 3 segments should we be able to accelerate and build more momentum. Over to you, Mike.

Yes. Kevin, you touched on the key building blocks. I would just emphasize retention, price, M&A and new product. In regards to retention, as I've shared in prior calls, we're roughly 91% of revenue. That's based on -- I'm sorry, retention. That's based on revenue of total TR. That significantly varies between small customers, midsized customers and large customers, with our largest customers having the largest -- or the highest retention rate. I would anticipate pricing being relatively stable over the time horizon. If you look at the recent acquisitions in the last 13 months, SurePrep, Casetext and Pagero, certainly, they are a key component of that acceleration as we go into '25 and '26. I would just call out Dave Wyle, who is the Co-Founder, leader, CEO of SurePrep. We are into 14 months now with Dave and incredibly pleased and proud of Dave and the team being part of TR. Then we go to Casetext with Jake Heller and his team. We have 5, 6 months into a great progress there and then most recently with Pagero. So as we do that Walker build to 6.5% to 8%, those recent acquisitions are certainly key factors. And then we go to the fourth vector with the new products. We're quite confident, probably more confident than my tenure at TR and our product road map. We've talked hell of a lot about Legal and Emily Colbert, Mike Dahn, Jake Heller, done a great job and others with the product road maps for Legal. But then if you think about Tax & Accounting Professionals, already double digit with Purita and team leading the product road maps there and in Corporates with Ray Grove and IDT. I think that gives us just the confidence. If you think about those four main levers of retention price, acquisition and new product, it is the combination of those four, Kevin, that gives us the confidence to achieve that 6.5% to 8%. The one that we will provide you with more visibility on as we progress during 2024 is our GenAI as that evolves and really builds up a lot of momentum, a lot of confidence there, but we will provide additional quantitative information on GenAI evolution during the course of '24.

Great. Those are very helpful. I will leave at one just because -- I know it was a long winded question. So thank you.

Thanks, Kevin.

Thanks, Kevin.

Thank you. We will go next to Tim Casey with BMO.

Thanks. Good morning. Can you talk a little bit about your international aspiration? It seems there's more commentary on expanding into international markets on this call. I don't know if I'm overthinking that. But in the past, you've -- I think the strategy has been to grow with your multinational corporates internationally. And now it seems some of the product sets, and certainly Pagero, have a more international footprint. Any thoughts there would be helpful. Thanks.

Yes. Thanks, Tim. We -- as you've seen over a number of years now, our international assets are a source of pride in so far as they've been growing in the mid-teens, certainly Latin America higher than that and AEM a little bit lower. And this reflects the focus of Adrian Fognini in Latin America and Jackie Rhodes in AEM where the customers can be basing here in Canada [technical difficulty] same. So while today, it's around about 20% of our revenues in international. So it's a relatively modest part of the overall is we do see higher growth prospects in those markets. And that really comes from to say the opportunity in Corporates to better serve corporations across the world with our legal and our tax and risk solutions. Pagero is an asset that's heavily focused in the international markets on e-invoicing space. So we see lots of potential really that as a core driver. And of course, Casetext with its CoCounsel product, that is perhaps not constrained in the same way that traditional research products have been to common law markets and sort of cash flow precedent market. The CoCounsel skills are just as relevant civil war markets as they are anywhere else. So really on the back of those and the continued performance of the Dominio assets in Brazil, the acquisition of Westlaw Japan, we are increasingly bullish about what we can do in international markets. And I would add one other thing, which is the higher those growth prospects become and the more sort of organic and inorganic opportunities we see, I think the more exciting career paths that provides to many of our talented folks who want to spend time in markets and some of the international talent who want to spend time in North America. And certainly, Mary Alison and her team have been very focused on creating those pathways for our people.

Yes. Tim, I would say there are two points. Our Latin America revenue has doubled in the last 3-year period driven by Dominio. And at our March 12 Investor Day, McKean, we have a section dedicated to international businesses and international growth aspirations.

Thank you.

Thank you. We will go next to George Tong with Goldman Sachs.

Hi. Thanks. Good morning. You're guiding to organic revenue growth of 8% to 9% for the Big 3 in '25 and '26, which would be a nice acceleration from sentiment in half this year. Can you provide additional details at the segment level on where most of that growth acceleration should come from?

Yes. George, I think we covered quite a bit of that in the earlier comments, so I will just reemphasize those points. Also during the Investor Day, we will have each of our segment Presidents presenting on each of their businesses. And consistent with what we did at the March 2021 Investor Day, whereby we provided organic growth ranges for each of the Big 3 segments, we will once again provide that on March 12 for '25, '26 for each of the Big 3. The core points that we mentioned earlier is our product road map, significant investments in '23, even more investments in 2024 across the Big 3 segments. So new product introductions, features, capabilities, including GenAI across the Big 3. And then the second big vector, George, is the M&A, SurePrep in Tax & Accounting, Casetext in Legal and then Pagero within the Corporates, specifically e-invoicing Indirect Tax. So the product pipelines and the M&A, big contributors to our growth profile for '25 and '26. Also back to Kevin's question earlier, retention will certainly play a factor as we expand or increase our retention rates going into '25, '26.

Got it. That's helpful. And then sort of a similar question, but around margins. As you look out to 2025, '26, how would you rank order the margin expansion opportunity across Big 3? And do you see any reason why structurally long-term margin should be different across the Big 3 segments?

Yes. We will see some margin expansion across each of our Big 3 segments by the time we reach '25 and '26. I think over the long-term, we will continue to see some deltas or differences between margin across the three. Specifically within legal professionals, we have Westlaw. Westlaw is about $1.8 billion for total TR, of that about $1.5 billion is within legal professionals. So that provides a significant amount of scale if you look at legal professionals, which is circa $2.9 billion to $3 billion of current revenue. So I think we -- if you look over the long-term time horizon, we'll continue to see a delta between Legal Professionals and Corporates and also TAP and Corporates. You'll see Legal and TAP with the higher margins long-term there.

Got it. That’s helpful. Thank you.

Indeed.

Thank you. We will go next to Heather Balsky from Bank of America.

It's Wahid Amin on for Heather. Thanks for taking our question. Just wanted to talk more about your M&A. You guys have been pretty aggressive in the last year. So can you just talk about your M&A platform moving forward? And is the strategy still the same as growth for higher growth companies are going after GenAI-based companies? Or have you exhausted that already?

Yes. Thanks, Wahid. So look, as I remarked, we spent about $2.1 billion over the last 12 or 18 months on half a dozen acquisitions. And they've really sort of met or exceeded our criteria. And we think that criteria is pretty rigorous and robust. So starting with additive to the customer experience, predominantly in the Big 3, but we've also seen a couple of tuck-ins in Reuters, firstly. Secondly, bringing -- not bringing tech debt. So we have a lot of work to clean up our tech debt through the Change Program. We don't plan to add to it. Thirdly, and I think equally importantly, the ability to take a product which is valued highly valued by our customers and prospective customers and really leverage our distribution and our customer relationships to accelerate this growth rate. And that's been a playbook that served Thomson Reuters well way back to Practical Law -- Westlaw and Practical Law and certainly been the case with SurePrep. We are optimistic about the likes of Pagero and Casetext against that playbook as well. We also look at the culture of the acquired businesses. And it's not to say that we're not looking to diversify our culture and inject new aspects to it. But we want to make sure that the incentives are right and that the new team will gel with our existing folks. And that's certainly been the case with these recent acquisitions to date. And then last but not least, we want to make sure that there's value creation for our shareholders, not just the selling shareholders. So those deals have very much been against that playbook. And we have a pipeline that we sort of continually clinician and refresh. That's very consistent with that. Some of those potential acquisitions are GenAI-based, but not all of them. But what we do try to make sure is that we are not going to acquire businesses that will be significantly disrupted by AI. So for example, if we look at content assets, we want to make sure that it's content that has a relevant and robust valuable role in a large language model environment, not vice versa. So I would say you'll see more of the same over the next year or two, very -- sort of very much consistent with that playbook, some of which directly leveraging GenAI and some we think will have value in that environment over time.

Got it. Thank you.

Thank you. We will go next to Manav Patnaik from Barclays.

Thank you. I think we've asked the question on acquisitions a lot, but I just wanted to revisit kind of the portfolio that you saw today. You've done a bunch of divestitures the last 2 years. Just should we be thinking of more coming down the road? I think you might have considered print at some point. So just wanted to address that topic.

Yes. Nothing imminent, nothing to announce today, Manav. But look, as you've seen, we are pretty rigorous in sort of going through the portfolio on an ongoing basis and making sure that each of the franchises they're in plays a key role in serving our customers and that the returns on any investment are the best they can possibly be relative to the alternative. So again, nothing to announce today, Manav. But it is an ongoing effort and I think it always will be, to be candid.

Got it. And then I apologize if I missed this, but just on the topic of GenAI, just trying to appreciate the feed off between the expenses or the investments versus the growth benefit, I guess, that you're embedding in your '25, '26 guidance. I think you said you'd spend like $100 million a year on GenAI or something like that. Is that still the case? And is the right way to think about it that you've made some of the big investments, acquisitions this year. And so now any growth will just help you leverage to the bottom line, and hence your guidance?

Yes. So you're right, with regard to the $100 million investment in '23. We plan to continue about that intensity. We will constantly sort of revisit whether that's the right number and whether we're getting adequate and exciting returns from that. A couple of things, though, and I don't have the split. But it's worth noting that, that pertains to a couple of different things. One is the development of a GenAI platform. So [indiscernible] and his team and Joe Herron [ph] have built a GenAI platform that serves, firstly, Westlaw Precision, our research memo, but also the other Legal products. And Can and will be extended into other parts of the business, including Reuters News. And so there's a level of sort of common and shared capabilities. It's not discrete products. And then, of course, there are the investments required in developing and launching the specific applications like Westlaw AI research memory like Practical Law Course Finder and so forth, some of the things I mentioned. So there's two of those things. And the investment in the platform side of things is probably a little heavier in the early going and then lightens up as we start to start to leverage that across more and more product launches.

Thank you.

Thank you. We will go next to Maher Yaghi from Scotiabank.

Great. Thank you for squeezing me in. I wanted to go back to one of the slides at the end of your presentation talking about your expected debt leverage over the medium-term. You're focusing on 2.5. That's like -- to get there, it's about $4 billion of additional acquisitions. So my question is when we think about return on invested capital for Thomson, how should we think about the movement on that metric as you undertake these kind of significant acquisitions over the medium term? And a follow-up question on organic growth for '25, '26. How much of the acceleration in organic growth is coming from adding on these companies that you have been buying recently, like Casetext and Pagero, versus your existing portfolio seeing acceleration in its revenue growth itself? Thank you.

We’ve break those down, Maher, in regards to your questions there. I think you're referring to Page 29 and of the presentation. And first, the net debt leverage 2.5 over the long run, those of you who have followed us for many years, we've consistently provided our value-creation model, which reflects that. We're currently below 1x. To your point, Maher, we have significant flexibility, significant optionality. And to Steve's point on his discussions today on M&A, given the opportunities that we see with the pipeline, we have a lot of flexibility. So not much more I can say there that we're going to be very, very prudent in deploying our capital given that we are roughly at 1x today, and 2.5x is our internal target. Our bank covenants provide up to 4.5x, a lot of flexibility. On ROIC, additional focus on that in recent years. Certainly, as we make acquisitions, might there be times where you have some ebb and flows given the impact of M&A on the ROIC. But I think over the long run, focusing on 2x [technical difficulty] we feel very comfortable on achieving recognizing that acquisitions can have some near-term impact on that. Your third question on organic growth for '25, '26, I will refer back to Kevin's question earlier today. I think '25, '26 revenue growth acceleration, the 4 vectors I mentioned earlier: tension, pricing, the product road map and then the M&A. You mentioned the M&A specifically in your question. I stated in my prepared remarks about 50 basis points of contribution in calendar year '24. If you look at '25, '26, there will be additional contribution from the M&A.

Thank you very much.

Thank you. We will go next to Doug Arthur from Huber Research.

Yes, Mike, can you hear me?

Very well, Doug.

Yes, just quickly on your margin guidance specifically for 2024, I mean you -- company has been notably conservative in their guidance that far out. What do you see as sort of the main puts and takes? I know you went through the investment emphasis. But where could you be conservative in that margin guide, I guess, is my question.

Yes, the approximately 38% is our best lens, Doug, as of today. I'd just emphasize two points. One, as stated in the prepared remarks, the M&A that we've done recently will dilute our margin by about 120 basis points in calendar year '24. The other point, Doug, I mentioned during the November earnings call, about 75 basis points is the operating leverage contribution for us. If you assume 6% organic growth, 4% increase in our fixed costs, which are 65% and then variable costs flow through, that yields about 75%. So given the M&A dilution of 120 basis points and we are reinvesting the operating leverage, that gets us to that approximately 38%. And if there's any variation there too during the course of the year, Doug, we will keep you posted. But that's our best transparent lens today given those two key items.

No, it makes sense. Interesting framework. Okay. Thank you very much.

Thank you, Doug.

Jennifer, I think we have time for one final question, please.

Thank you. We will go to Sami Kassab from BNP Paribas.

Yes, hello. Thank you. Can you hear me?

Yes, Sami.

Hi, Sami.

Yes, thank you. good morning, gentlemen. We talked a lot about the GenAI contribution to the top line. But can you help us understand the cost efficiencies that this technology may help the company achieve in the next 2 or 3 years and perhaps highlight a few initiatives you have ongoing to deploy GenAI internally? Thank you, gentlemen.

Yes. It's great question, Sami. Thank you. So Christi Roth [ph] and [indiscernible] are spearheading an effort to look end-to-end at our core operations and our functions to figure out where we can successfully apply generative AI tools. In some cases, with our Legal department under Norie Campbell's leadership it will be the internal applications of our own tools, whereas within the engineering and content and editorial areas, it will be some of the off-the-shelf tools that we're all starting to read about and understand. We are not here to quantify what the sort of financial impact of that will be today. But we are pretty excited about the ability to improve employee sentiment, improve the sort of underlying productivity of the various parts of our company and the team as a whole and ultimately see some interesting financial benefits. But I think it's too early, Sami, for us to put a stake in the ground. But as we all -- under Mike's leadership, we will be very focused on ensuring that any investments we make in applying those tools across the company, there's an attractive return for our shareholders.

Thank you very much.

Thank you, Sami.

Great. Thank you. Thank you, Jennifer. We will leave it there.

Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect.