Summary of Thomson Reuters Conference Call Company Overview - **Company**: Thomson Reuters - **Industry**: Information Services, specifically focusing on legal, tax, and accounting sectors Key Points and Arguments Product Innovation and AI Integration - The CEO highlighted a significant acceleration in product innovation, particularly through the integration of generative AI across various product lines such as CoCounsel, Westlaw, and Practical Law [3][4][10] - The company has committed over $200 million to generative AI investments for 2025, split evenly between operating expenses and capital expenditures [11] - Recent product launches, including CoCounsel Legal and Westlaw Advantage, have received positive early testing results, indicating strong client adoption [4][5] Client Adoption and Customer Success - Thomson Reuters has invested heavily in customer success initiatives to drive adoption and sustained usage of its products [5][7] - The company has seen a doubling of its Net Promoter Score (NPS) since launching its change program in 2021, indicating improved customer satisfaction [14] Revenue Growth Projections - For 2026, the company targets a revenue growth of 9.5% for its big three segments, with price increases expected in the range of 3-3.5% [15][16] - The tax and accounting segment is projected to achieve organic revenue growth of 11-13%, driven by product innovation, acquisitions, and a strong retention rate [57][58] Competitive Advantages - Thomson Reuters maintains a strong competitive position in legal research due to its extensive content repository and a team of highly trained attorneys who enhance AI capabilities [22][43] - The company is leveraging its established tax calculation engines and expertise to automate workflows, addressing the talent shortage in the tax and accounting professions [39][41] Market Dynamics and Opportunities - The legal profession is increasingly adopting technology, with both large firms and sole practitioners showing interest in AI tools [54][55] - The corporate segment presents a significant growth opportunity, with the company focusing on automating tasks for general counsels and heads of tax [60][62] Challenges and Considerations - The company faces challenges in changing the cultural dynamics within law firms to fully embrace AI tools, which may take time [56] - There are concerns regarding potential downgrades in government contracts affecting revenue, but the company remains optimistic about overall growth [51][48] Additional Important Insights - The company is actively monitoring the competitive landscape, particularly in tax and accounting, where it has not seen new entrants in core calculation engines [44] - The integration of AI into workflows is seen as a multi-year growth opportunity, with a focus on delivering automation solutions that competitors may struggle to replicate [62][63]

Core Insights - The legal technology sector is experiencing a shift as generative AI begins to dominate software, with Thomson Reuters leveraging its extensive legal data to develop new AI-driven products like Westlaw Advantage and CoCounsel [1][2] Company Performance - Thomson Reuters reported a 9% organic revenue growth in its legal unit, reaching $700 million, an increase from 8% growth in the first half of the year, driven by AI features in CoCounsel products [3] - Despite the positive growth, the company's stock fell over 6% following the quarterly results announcement, marking a decline of more than 30% since mid-July [2] Competitive Landscape - The rise of generative AI has led to increased competition, with new entrants like RELX's LexisNexis forming alliances with AI startups and Clio acquiring vLex for $1 billion [7][8][9] - Thomson Reuters' CEO Steve Hasker expressed skepticism about the inflated valuations of AI startups and claimed that CoCounsel's adoption is outpacing that of its rivals [9] Strategic Positioning - The company emphasizes its competitive advantage through a combination of its Westlaw legal data and human editorial oversight, which is crucial in an industry where accuracy is vital [10] - Westlaw processes over 300 million documents annually, with 85% of primary documents enhanced by editorial upgrades, providing court-safe guidance [11] Future Directions - Thomson Reuters aims to expand its services beyond basic retrieval and summarization to include more generative AI capabilities that assist lawyers with complex tasks [12] - The potential entry of OpenAI into the legal tech space raises concerns, as it could disrupt existing customer relationships and market dynamics [13][14] Market Dynamics - The competitive landscape is influenced by the capabilities of general-purpose AI models, with Thomson Reuters arguing that specialized legal AI tools can outperform broader applications [15] - Customers are beginning to recognize the differences between specialized legal AI solutions and general-purpose models, indicating a shift in market understanding [16]

Core Insights - Thomson Reuters Corp reported third-quarter 2025 revenue of $1.78 billion, a 3% increase year-over-year, surpassing estimates [1] - Organic revenue grew by 7%, driven by a 9% increase in its three main segments: Legal Professionals, Corporates, and Tax and Accounting Professionals [1] Financial Performance - GAAP diluted earnings per share rose 40% to 94 cents, while adjusted EPS increased 6% to 85 cents, exceeding the estimate of 83 cents [2] - Operating profit surged 43% to $593 million, aided by the sale of its remaining minority stake in Elite [2] - Adjusted EBITDA increased 10% to $672 million, with the margin improving to 37.7% from 35.3% [3] Segment Performance - Legal Professionals revenue decreased 2% to $728 million, but organic growth was 9% due to strong performance in Westlaw, CoCounsel, and Practical Law [3] - Corporates revenue grew 9% to $478 million, supported by Indirect Tax, Pagero, and Global Trade [4] - Tax & Accounting Professionals revenue climbed 15% to $251 million, bolstered by the SafeSend acquisition and 10% organic growth [4] Additional Revenue Insights - Reuters News revenue increased 4% to $207 million, primarily from higher agency revenue and a price increase under its London Stock Exchange Group contract [5] - Global Print revenue fell 4% to $124 million, while adjusted EBITDA rose 8% to $46 million due to reduced expenses [5] Year-to-Date Performance - For the first nine months of 2025, total revenue rose 2% to $5.47 billion, and adjusted EBITDA grew 5% to $2.16 billion, with a margin of 39.3% [6] - Adjusted EPS increased to $2.85 from $2.7 [6] Strategic Moves - The company acquired Additive AI, Inc., specializing in AI-powered tax document processing, and completed a $1 billion share buyback [6] - Thomson Reuters reaffirmed its 2025 sales guidance of $7.475 billion to $7.512 billion, expecting total revenue growth of 3% to 3.5% [7] Future Outlook - For 2026, the company raised its projected margin expansion to approximately 100 basis points and expects free cash flow of around $2.1 billion [8] - Thomson Reuters shares were trading 5.69% lower at $146.87 at the time of publication [8]

Core Content and Technology Offerings - The competitive dynamics for core content and technology offerings, particularly Westlaw and tax engines, remain stable, with CoCounsel being a market leader in the AI assistant space [1] - The company completed a $1 billion share repurchase program and maintains a strong capital position with a net leverage of 0.6 times [1] Financial Performance - Total company organic revenues increased by 7%, with the big three segments growing by 9% [4][5] - Adjusted EBITDA rose by 10% to $672 million, reflecting a margin increase to 37.7% [5][19] - Organic revenue growth for the legal professionals segment accelerated to 9%, driven by Westlaw and CoCounsel [6][16] Growth Outlook - The company expects organic revenue growth of 7.5% to 8% for 2026, with approximately 9.5% growth anticipated for the big three segments [2][24] - The tax and accounting segment is projected to achieve the highest absolute growth rate in 2026, with expectations of 11% to 13% organic growth [79] AI and Innovation - Positive customer feedback has been received for the AgenTik AI launches, with initial sales trends encouraging [2] - The company emphasizes the differentiation of Westlaw in an AI environment, highlighting the importance of comprehensive and accurate legal research [7][14] Segment Performance - Legal organic revenue grew by 9%, while corporate organic revenues increased by 7%, driven by legal, tax, and risk offerings [6][16] - Tax and accounting organic revenues grew by 10%, supported by strong performance in Latin America and the U.S. [17][79] Capital Allocation and M&A Strategy - The company has an estimated $9 billion capital capacity through 2027 and remains focused on balanced capital allocation [5][20] - The company is open to assessing additional inorganic opportunities, particularly in areas showing strong growth potential [56][58]

Financial Data and Key Metrics Changes - Total company organic revenues rose by 7%, with the big three segments growing by 9% [4][8] - Adjusted EBITDA increased by 10% to $672 million, reflecting a margin increase of 240 basis points to 37.7% [8][20] - Adjusted EPS was $0.85 for the quarter, compared to $0.80 in the prior year [20] Business Line Data and Key Metrics Changes - Legal organic revenue grew by 9%, improving from 8% in the first half of 2025, driven by Westlaw and Co-Counsel [5][18] - Corporate segment organic revenues grew by 9%, with recurring revenue also increasing by 9% [18] - Tax and accounting organic revenues grew by 10%, driven by Latin American and U.S. businesses [18][19] - Reuters News organic revenues rose by 3%, primarily from growth in the agency business [19] Market Data and Key Metrics Changes - Global print organic revenues declined by 4% year on year [19] - The percentage of annualized contract value from GenAI-enabled products increased to 24%, up from 22% last quarter [19] Company Strategy and Development Direction - The company is reaffirming its full-year 2025 revenue and profit outlook, expecting approximately 9% organic revenue growth for the big three segments [4][21] - The company is focused on leveraging AI and technology to enhance product offerings and improve operational efficiency [7][16] - The company completed a $1 billion share repurchase program and remains well-capitalized with a net leverage of only 0.6 times [7][8] Management's Comments on Operating Environment and Future Outlook - Management noted temporary factors affecting revenue growth, including slower commercial print volumes and recent U.S. federal government cancellations [4][21] - The company remains confident in achieving its 9% organic revenue growth outlook for the year, driven by strong innovation-led momentum [21][24] - Looking ahead, the company expects organic revenue growth of approximately 7% in Q4, with legal professionals likely to deliver 9% organic revenue growth [21][24] Other Important Information - The company is committed to a balanced capital allocation approach and is assessing additional inorganic opportunities [7][8] - The company plans to invest over $200 million in AI and GenAI initiatives in 2025, continuing into 2026 [93][94] Q&A Session Summary Question: What are the recurring impacts of government and corporate headwinds? - Management acknowledged temporary sales softness in corporates but remains confident in the long-term growth potential, targeting 9%-11% organic growth for next year [30][32] Question: How is customer reaction to Agentic AI? - Customers have responded positively to Westlaw Advantage, with significant changes in their research behaviors noted [35][36] Question: What is the impact of the government shutdown on contracts? - Cancellations occurred prior to the shutdown, which has minimal impact on revenue [41] Question: How does the company view competition in the AI assistance space? - The company sees new entrants in the AI assistance space as a white space opportunity and is confident in its competitive position [56][57] Question: What are the expectations for tax and accounting business growth? - Management remains confident in delivering 11%-13% organic growth for the tax and accounting segment in 2026 [59][61] Question: What is the company's approach to pricing strategy with AI products? - The company aims to price based on the value delivered, with ongoing assessments of market signals [81][82]

Financial Data and Key Metrics Changes - Total company organic revenues rose by 7%, with the big three segments growing by 9% [4][8] - Adjusted EBITDA increased by 10% to $672 million, reflecting a margin increase of 240 basis points to 37.7% [8][20] - Adjusted EPS was $0.85 for the quarter, compared to $0.80 in the prior year period [20] Business Line Data and Key Metrics Changes - Legal organic revenue grew by 9%, improving from 8% in the first half of 2025 [8][18] - Corporate segment organic revenues grew by 9%, with recurring revenue also increasing by 9% [18] - Tax and accounting organic revenues grew by 10%, driven by Latin American and U.S. businesses [18][19] - Reuters News organic revenues rose by 3%, primarily from growth in the agency business [19] Market Data and Key Metrics Changes - Global print organic revenues declined by 4% year on year [9][19] - The percentage of annualized contract value from GenAI-enabled products increased to 24%, up from 22% last quarter [19] Company Strategy and Development Direction - The company is reaffirming its full-year 2025 revenue and profit outlook, expecting approximately 9% organic revenue growth for the big three segments [4][21] - The company is focused on leveraging AI and technology to enhance product offerings and operational efficiency [7][16] - The competitive dynamics for core content-enabled technology offerings remain stable, with incremental competition in the AI assistance space [7][58] Management's Comments on Operating Environment and Future Outlook - Management noted temporary factors affecting revenue growth, including slower commercial print volumes and recent U.S. federal government cancellations [4][21] - The company remains confident in achieving its 9% organic revenue growth outlook for the year, driven by strong innovation-led momentum [21][24] - Looking ahead, the company expects organic revenue growth of approximately 7% in Q4, with legal professionals likely to deliver 9% organic revenue growth [21][24] Other Important Information - The company completed a $1 billion share repurchase program and remains well-capitalized with a net leverage of only 0.6 times [7][8] - The company is committed to a balanced capital allocation approach and is assessing additional inorganic opportunities [8] Q&A Session Summary Question: What is the outlook for government and corporate headwinds? - Management acknowledged temporary sales softness in corporates but remains confident in the long-term growth potential, targeting 9%-11% organic growth for next year [31][32] Question: How is customer reaction to Agentic AI? - Customer feedback on Agentic AI products has been very positive, with significant changes in user behavior noted [36][38] Question: What is the impact of the government shutdown on contracts? - Cancellations occurred prior to the shutdown, which has minimal impact on revenue [43] Question: How does the company view competition in the AI assistance space? - The company sees new entrants in the AI assistance space as a white space opportunity and is confident in its competitive position [58] Question: What are the expectations for tax and accounting business growth? - Management remains confident in delivering 11%-13% organic growth for the tax and accounting segment in 2026 [60][62] Question: What is the company's approach to pricing strategy? - The company aims to price based on the value provided by its AI products, with a focus on maintaining competitive pricing [83][86] Question: What is the outlook for capital allocation and share buybacks? - The company maintains a framework for capital allocation but is willing to step up buybacks when opportunities arise [99][100]

Financial Data and Key Metrics Changes - Total company organic revenues rose 7%, with the big three segments growing by 9% [4][8] - Adjusted EBITDA increased 10% to $672 million, reflecting a 240 basis point margin increase to 37.7% [8][19] - Adjusted EPS was $0.85 for the quarter, compared to $0.80 in the prior year period [19] Business Line Data and Key Metrics Changes - Legal organic revenue grew 9%, improving from 8% in the first half of 2025 [5][17] - Corporate segment organic revenues grew 9%, with recurring revenue growing 9% and transactional revenue rising 5% [17] - Tax and accounting organic revenues grew 10%, driven by Latin American and U.S. businesses [9][17] - Reuters News organic revenues rose 3%, primarily from growth in the agency business [9][18] - Global print organic revenues declined 4% year on year [9][18] Market Data and Key Metrics Changes - The percentage of annualized contract value from GenAI-enabled products increased to 24%, up from 22% last quarter [18] - The company expects organic revenue growth of approximately 7% in Q4, including about 9% for the big three segments [23] Company Strategy and Development Direction - The company is focused on leveraging AI and technology to enhance product offerings and improve operational efficiency [6][16] - A balanced capital allocation approach is maintained, with a commitment to assess additional inorganic opportunities [7][46] - The company aims to achieve approximately 9% organic revenue growth for the big three segments in 2025, despite some temporary headwinds [20][23] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the long-term growth potential of the corporate segment, despite recent sales softness [26][28] - The company anticipates a positive margin expansion and higher free cash flow outlook for 2026 [24][55] - Management highlighted the importance of their proprietary content and editorial expertise in maintaining a competitive edge in the AI landscape [10][15] Other Important Information - The company completed a $1 billion share repurchase program, acquiring approximately 6 million shares [19][20] - The company is committed to investing over $200 million in AI and technology in 2025, continuing into 2026 [54][55] Q&A Session Summary Question: What are the recurring impacts of government and corporate headwinds into next year? - Management expressed confidence in achieving the 9%-11% organic revenue growth target for corporates next year, despite temporary sales softness [26][28] Question: How is customer reaction to Agentic AI products? - Customers have responded positively to Westlaw Advantage and Co-Counsel, with significant changes in their research behaviors noted [30][31] Question: What is the impact of the government shutdown on contracts? - Cancellations occurred prior to the shutdown, which has minimal impact on monthly and quarterly revenue [32] Question: How does the company view competition in the AI assistance space? - The company sees new entrants in the AI assistance space as a growth opportunity, with Co-Counsel positioned well in the market [39][40] Question: What is the pricing strategy in light of AI product value? - The company aims to price based on value delivered, with ongoing discussions about pricing strategies as AI products evolve [49][50] Question: How does the company view innovation and product intensity moving forward? - The company expects to see an acceleration in innovation and product launches, with continued investment in AI [53][54]

Financial Data and Key Metrics Changes - Total company organic revenues rose by 7%, with the big three segments growing by 9% [4][10] - Adjusted EBITDA increased by 10% to $672 million, reflecting a margin increase to 37.7% [10][26] - Adjusted EPS was $0.85 for the quarter, compared to $0.80 in the prior year [26] Business Line Data and Key Metrics Changes - Legal Professionals segment saw organic revenue growth of 9%, up from 8% in the first half of 2025 [6][11] - Corporates segment organic revenues grew by 7%, driven by offerings in Legal, Tax, and Risk portfolios [11][23] - Tax and Accounting organic revenues grew by 10%, supported by strong performance in Latin America and the U.S. [11][24] - Reuters News organic revenues rose by 3%, primarily due to growth in the agency business [12][25] - Global Print organic revenues declined by 4% year on year [12][25] Market Data and Key Metrics Changes - The percentage of annualized contract value from GenAI-enabled products increased to 24%, up from 22% in the previous quarter [25] - The company expects organic revenue growth of approximately 7% in Q4, including about 9% for the big three segments [31] Company Strategy and Development Direction - The company is focused on leveraging AI innovations to enhance product offerings, particularly in the Legal Professionals and Tax and Accounting segments [5][21] - A balanced capital allocation approach is maintained, with a commitment to assess additional inorganic opportunities [8][9] - The company completed a $1 billion share repurchase program and remains well-capitalized with a net leverage of only 0.6 times [8][9] Management's Comments on Operating Environment and Future Outlook - Management reaffirmed the full-year 2025 revenue and profit outlook, expecting approximately 9% organic revenue growth for the big three segments [4][29] - Temporary factors affecting growth include slower commercial print volumes, U.S. Federal government cancellations, and softer bookings trends in Corporates [5][29] - The company is optimistic about the long-term value proposition in government despite recent downgrades and cancellations [44][45] Other Important Information - The company is updating its 2026 financial framework, expecting organic revenue growth of 7.5% to 8% and margin expansion [32] - Free cash flow outlook for 2026 is raised to approximately $2.1 billion, reflecting confidence in operational efficiency [33] Q&A Session Summary Question: What are the recurring impacts of government and corporate headwinds? - Management remains confident in the corporate segment's growth potential despite temporary sales softness, expecting 9% to 11% organic growth next year [40][43] Question: How is customer reaction to AgenTik AI? - Customer feedback has been very positive, with significant changes in behavior noted among users, indicating strong adoption of the new tools [45][46] Question: What is the impact of the government shutdown on contracts? - Cancellations occurred prior to the shutdown, which has minimal impact on current revenue [52] Question: How does the company view competition in the AI assistant space? - New players have entered the AI assistant space, but the company is confident in its position and product development plans [68] Question: What is the pricing strategy in light of AI product value? - The company follows a price-to-value principle, ensuring pricing aligns with the efficiencies provided by AI products [93][94] Question: How does the company see AI affecting the tax business? - The tax business is expected to benefit from AI advancements, enabling more efficient processes and advisory services [114][115]

Q3 2025 Performance Highlights - Thomson Reuters Q3 organic revenue grew by 7%, driven by a 9% increase in recurring revenue[13] - The "Big 3" (Legal, Corporates, and Tax & Accounting) experienced a 9% organic revenue growth[13] - Reported revenues increased by 3% to $1.8 billion[16] - Adjusted EBITDA increased by 10% to $672 million, with a margin of 37.7%, up 240 basis points[14] - Adjusted EPS increased by 6% to $0.85[14] Financial Outlook and Framework Updates - The company reaffirmed its FY 2025 outlook, expecting total and organic revenue to trend towards the lower end of the 3.0%-3.5% and 7.0%-7.5% ranges, respectively, while maintaining the Big 3 organic revenue growth outlook at approximately 9%[13] - For 2026, the company now anticipates adjusted EBITDA margin expansion of approximately 100 basis points and Free Cash Flow of approximately $2.1 billion[13] Capital Allocation and Liquidity - Thomson Reuters completed a $1.0 billion share buyback in October[13] - The company's net leverage stood at 0.6x as of September 30, with an estimated ~$9 billion of capital capacity by 2027[13] Segment Performance - Legal Professionals organic revenue grew by 9%, primarily driven by Westlaw and CoCounsel[13] - Corporates revenue increased by 10% to $0.5 billion[16] - Tax & Accounting Professionals revenue increased by 13% to $0.3 billion[16]

Industry Overview - The Zacks Business Services industry includes a variety of services such as specialty rentals, supply chain solutions, e-commerce support, technology services, and business transformation solutions, with a focus on digital transformation and technology integration in response to the pandemic [2] - The industry has shown consistent demand for its services, with revenues, operating income, and cash flows surpassing pre-pandemic levels, indicating financial strength and reliable dividend payouts [3] Future Trends - The rapid advancement of artificial intelligence and automation is transforming service delivery, promising efficiency and cost reduction, but also presenting challenges like workforce displacement [4] - The latest Services PMI indicates stagnation in U.S. services activity, with the index at 50% in September, reflecting stalled expansion momentum due to inflationary pressures and cautious business sentiment [5] Market Performance - The Zacks Business Services industry has underperformed compared to the broader sector and the S&P 500, declining 7.5% over the past 12 months, while the S&P 500 grew by 22.7% [8] - The industry is currently trading at a forward 12-month P/E ratio of 19.73X, lower than the S&P 500's 24.03X and the sector's 20.42X, with historical trading ranges between 26.24X and 28.8X over the past five years [11] Stock Recommendations - Rentokil Initial plc is positioned for growth, benefiting from improved sales execution and a digital marketing strategy, with ongoing expansion and cost efficiency initiatives enhancing its competitive position [14][15] - Thomson Reuters Corporation demonstrates operational discipline and innovation, focusing on AI-driven solutions to strengthen its leadership in professional information services [17][18]