Thomson Reuters Corporation (TRI) Q3 2010 Earnings Report, Transcript and Summary

Ladies and gentlemen, good morning. Thank you for standing by, and welcome to the Thomson Reuters Third Quarter 2010 Earnings Conference Call [Operator Instructions] I would now like to turn the conference over to our host, Senior Vice President, Investor Relations, Mr. Frank Golden. Please go ahead.

Thanks, very much, and good morning, and thank you for joining us as we report our results for the third quarter. We'll begin today with Thomson Reuters CEO, Tom Glocer, who'll be followed by our CFO, Bob Daleo. Following Tom's and Bob's presentations, we'll open the call for questions. I'd ask that you please limit yourselves to one question each, so that we can get to as many as possible. Now 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 that this provides the best basis to measure the underlying performance of the business. Today's presentation does contain 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 the regulatory agencies. You can access these documents on our website or by contacting our Investor Relations Department. It's now my pleasure to introduce the Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thank you, Frank, and thanks to everyone for joining us today. I'm pleased to report that the company returned to revenue growth in the third quarter. We're past the bottom and on the way back up. Our markets are slowly improving, and we're encouraged by what we're seeing in the business, revenue growth, positive net sales and strong customer uptake of our new products. For Q3, revenues were up 3% with both divisions recording growth. The Professional division's revenues grows 5%, and growth was good across each of Professional business units, with the Tax & Accounting and Healthcare & Science businesses, achieving particularly strong results. Legal revenues were up 3%, it's best performance in almost two years in what continues to be a challenging environment for law firms. Nevertheless, we continue to believe our growth rates exceed those of our peers and the industry as a whole. The Markets division returned to growth in Q3 on the back of improving sales trends. This quarter marked the second consecutive quarter of positive net sales, which has steadily improved from their bottom in Q2 2009, and these trends bode well for continued revenue growth in Q4 and 2011. Underlying operating profit declined 4% for the firm as a whole, primarily due to ongoing product investment, product mix and the dilutive effect of acquisitions. We continue to believe we'll meet our full year operating margin guidance of low 20% margins, and we're making good progress on our integration program, with run rate savings exceeding $1.3 billion, and we remain confident that we'll achieve our previously announced goal of $1.6 billion by year end 2011. Adjusted earnings per share for the quarter was $0.49 compared to $0.43 in the prior period, helped by lower integration-related cost and lower interest expense and a decline in income tax expense. Lastly, we continued to be confident that we'll achieve our full year 2010 outlook, given the year-to-date results and the favorable trends in the business. In fact, we now expect our revenue performance to be slightly better than previously forecast, with revenues flat to slightly up for the full year versus flat to slightly down before. All in all, the third quarter was a period of continuing solid execution, with positive net sales, the launch of new product platforms and steady progress on the integration programs. Trends in the Legal business continued to improve. Revenue growth of 3% was driven by an 8% increase in subscription revenues, thanks to good growth at FindLaw, IP business and the international Legal businesses. WestlawNext sales, now at 9,000 positions, continued to be strong, helping to drive growth and further strengthen our competitive position. And for the first nine months of the year, net sales for prints are up compared to a decline in the prior year period, as print attrition is close to historical levels, some 9%. Tax & Accounting and Healthcare & Science continued to perform well as revenues grew 9% and 7%, respectively, for the quarter. The Tax & Accounting market continues to be healthy, and we expect revenue growth for this business to accelerate in the fourth quarter. Turning to Markets, trends continued to be encouraging. Net sales were positive for the second consecutive quarter, reflecting positive customer reaction to our new offerings, including Thomson Reuters Elektron, our new low latency data distribution platform, and of course, Thomson Reuters Eikon, our new flagship desktop product. Enterprise revenues were up 10%, with strong growth across the segment, except for Omgeo, which was negatively impacted by lower equity volumes over the summer. Tradeweb grew 9% due to higher volumes for U.S. treasuries and mortgage-backs. By geography, revenues grew across all major regions of the world except North America. Customers in rapidly developing economies continued to demand our products, as evidenced by Asia as a whole, up 4%, of which China grew 12%, India, 7% and over in the Middle East and Africa, we are up 15% and in Brazil, up 8%. Transaction revenues were up a healthy 5% despite a dip in FX volumes during the summer months. Now most companies would be thrilled to release one or two important new products per year. We continue to invest through the great recession of 2008, 2009 and are in the enviable position of releasing six new products this year: Eikon, Elektron, insider, WestlawNext, ONESOURCE, Global Tax workstation and the Advantage Suite 5.0 in Healthcare & Science. And I want to talk today just about two of these products, Eikon and WestlawNext. Just last night, Toronto was the setting for the Canadian launch of Thomson Reuters Eikon, and similar launches have been held in New York and London in October. Eikon targets the new generation of financial professionals, who are distinguished by their affinity for technology, who demand greater realtime information, and whose outlook transcends social, geographic or language barriers. It offers these professionals a single place to turn for comprehensive critical content, and Eikon is a real game changer for us, much in the way that WestlawNext set the standard for what this generation of legal professionals needs to do their jobs. Following an extensive data test across more than 100 sites around the world that provided deep user feedback, Eikon officially launched on September 14. The product has been very well-received in the market, and early sales results were also encouraging. We have signed contracts for over 1000 new desktops, not just migrations, those are new, new desktops, and sales continue to ramp up. In addition to be a terrific product, it's a comprehensive business platform, also enabling us to improve customer service, deliver content and functionality updates more rapidly, and reduce cost for our customers and for ourselves. Three years in the making, Eikon is truly a new tool for a new era, and I couldn't be more excited about its prospects. Now with all the focus on Eikon, it would be easy to overlook the tremendous performance put in by WestlawNext in its first nine months. This innovative legal platform continues to outperform our expectations, with over 9,000 customers signed up, 20% of whom are new to WestlawNext, which is a relatively hard thing to do, given our market penetration, but we're not standing still. The new architecture and agile development process allows us to deploy enhancements to WestlawNext much more for frequently and with fewer resources. For example, the time needed to deploy new code has been reduced by 60%, and personnel needed to deploy new code has been reduced by 33%. So in closing, let me say it's good to be able to report positive numbers to you again. We're past the bottom from both the sales and reporting standpoint and despite the choppiness of our markets, we're well positioned for further growth in 2011. We've had the rare support of our board and investors over the past two years to keep investing in the projects that we believe in, including the new product platforms that I've been discussing. We do not take that for granted, and have made 2010 a year of focused execution on these investments for us. And now, the time has come for us to reap the fruits of these investments and turn our market leadership and confidence into revenue and profit growth for our shareholders. This balance between investment and return over the short and the long term is a balance that we are determined to get right, and it is with this in mind that we begun to prepare our 2011 plan. I'll spare you the usual platitudes about how difficult the planning environment is this year, although it is true. Let me just say that when or done, I'm confident we'll show good growth next year. And with that, let me turn it over to my partner, Bob Daleo.

Thank you, Tom, and again, thank you all for joining us on the call today. I'm going to discuss the results for the third quarter, and I'm going to provide a brief update on where we are on integration issue. Now you will recall that in the second quarter, we anticipated that based on encouraging net sales performance, and a more constructive environment in our markets, we've return to growth in the third quarter and we had. We're tracking to our expectations with few surprises, and three quarters of the way into the year the results are consistent with the full year outlook, which we presented to you all in February. The encouraging net sales performance that Tom outlined had an improved market environment. We wish to believe this trend is likely to continue into 2011. Now as of prior quarters, I'm going to speak to the revenue growth before currency. The reported revenues are also highlighted on each of the slides. In the third quarter, foreign exchange had a negative impact on both revenues and the consolidated margin for the company. Our overall revenues in the third quarter were $3.3 billion. This is up 3% versus the prior year, with 2% of that benefit coming from acquisitions. Let me point out that we provide organic revenue growth rates for each of our business segments on the P&L, found in today's earnings release. Both Professional and Markets division achieved organic revenue growth in the quarter. Underlying operating profit was $681 million in the quarter. The corresponding margin decreased primarily due to previously announced investments in new product in which is the product mix from our current sale of revenues and the dilutive impact of acquisitions, which at the company level was 50 basis points. Each factors more than offset integration savings and initiatives across the business. On a year-to-date basis, our revenues are flat with 2% contribution from acquisitions. Underlying operating profit is down 10%, corresponding margin is 19.7%. About 20 basis points of decline is due to currency. Now I'd like to turn to the performance of the businesses. The Professional division revenues were $1.4 billion, up 5%, of which 4% was attributable to acquisitions. Organic revenue growth was 1%. Operating profit declined 4% as anticipated and the corresponding margin declined to 26.7%. Margins continued to be impressive by a combination of the investments that we've made and acquisition cost, lower revenue growth and the revenue mix from the current year. I'll discuss more detail when we get to each of the segments and again, while the currency had a negligible impact on professionals margins. Year-to-date, the divisions revenues are up 2% with flat organic growth. Operating profit is $1.1 billion, and the corresponding margin is 25.7%, with really no impact on foreign exchange. We expect the Professional divisions revenue to continue to improve into the fourth quarter. And the revenue dynamics for the third quarter of Professional circuit demonstrate improving results and our consistent, really, with what we've talked about in prior quarters. Tax & Accounting, Legal Subscription and Healthcare & Science businesses all continue to generate solid growth. In fact, on a combined basis, these business segments grew 8%, and represents 77% of the divisions overall revenues. These businesses are growing faster and becoming a larger share of the Professional business. Offsetting this performance was the continued decline in Legal's print revenues, down 4% versus the 9% decline in Q1, and a 17% decline -- 9% decline in Q2 and a 17% decline in Q1, and both periods have been impacted by unfavorable timing on a year-to-year basis. In addition, Legal Subscription revenues declined 4% versus a 5% decline in Q2, and an 8% decline in Q1. So we are seeing improvements in both these segments although they still are declining. Penetration has significantly improved in the prior year. We're now in our normal levels, and it's a meaningful step towards stabilizing the business returning to growth. Now Subscription business has achieved good growth in trademarks. However, we continue to experience double-digit declines in ancillary revenues, as customers continue to monitor spending above and beyond their base contracts. Now let's turn to the revenue performance for the business units in the third quarter. Legal revenues were unchanged on an organic basis, and up 3% including acquisitions. As mentioned, subscription revenues grew 8% in the quarter, led by a 23% growth in FindLaw, 14% growth in international revenues both helped by acquisitions and a 7% growth in our IP business. Now our subscription revenues declined 4%, print products declined 4%, the Corporate business grew 9%, and government-related revenues increased by 4%. Tax and accounting revenues grew 9%, 4% of which was organic. Workflow & Service Solutions represented nearly 2/3 of Tax & Accounting revenues in the quarter and grew 15%, led by through organic growth in income tax products, which include InSource and our creative solutions suite of products and Global Tax technology segment, which includes tax provisioning with tax trading and transfer pricing across border business, and we had the benefit of acquisitions. Business compliance and Solutions revenues were down 1%. This is despite a 9% increase in Checkpoint revenues, which were not enough to offset the decline in Print, which comprised 9% of Tax & Accounting overall revenues, and a significant portion of these segments revenues. As I stated last quarter, we expect growth in margins for Tax & Accounting to continue to improve, as the year progresses. Now turning Science revenues grew 7% in the quarter, of which 4% was organic. The payer business grew 11% on the strength of continued demand for healthcare spending analytics. The Scientific & Scholarly Research business grew 14%, driven by acquisitions and a solid growth in our core informations offerings, web of knowledge and web of science, which actually grew 6% organically in the quarter. Partially offsetting this was a modest growth in the Provider business, which was up 1% and an expected decline in our Life Science segment, which was down 2%. Now let's turn to our segment operating profit for our Professional division. In Legal, third quarter operating profit, as expected, declined 6% and the margin was 30.4%. Now lower margins, lower revenues from high-margin print and non-subscription products contributed 30 basis points of decline. the impact of acquisitions here contributed about another 100 basis points, and our investment in strategic growth initiatives and the higher depreciation and amortization contribute 160 basis points of the year-to-year decline. This more than offset in the efficiency savings for the growth in other businesses. Year-to-date, our operating profit is down 9% and the margin is 29.7%. Now we do expect a rebound in margins in this Legal segment as growth returns. Tax & Accounting operating profit decreased 8% for the quarter, and the corresponding margin remained flat at 16%. Operating profit growth was driven by revenue slow-through, partially offset by the dilutive impact of the higher depreciation and amortization from 2009 acquisitions. Now to point a note here, the dividend increased 15% for Tax & Accounting in the quarter. And we continue to expect continuing operating profit growth and margin expansion in the fourth quarter, as the segment exits a heavy face of investment and we seen the benefits of these investments. Year-to-date operating profit is down 6% and the margin is 14.2%. This is not indicative of the full year. Let me remind you that Tax & Accounting is historically a seasonal business, with nearly half of its operating profit generated in the fourth quarter. Healthcare & Science operating profit was unchanged from the prior year at $50 million, and we marked the related margin fell to 22.7% due to timing, and difficult prior year comparables and foreign exchange, which impacted this business by 90 basis points. As I mentioned, when discussing Tax, Healthcare & Science revenues, quarterly figures can be impacted by really the small timing shifts between quarters. This is really a case of a lot of small numbers. On a year-to-date basis, the operating profit is up 7%, and the related margin is 10 basis points higher on a reported basis. And if you include that currency impact, they're up 30 basis points. Now turning to the Markets division. Revenues increased 1% in the quarter to $1.8 billion. Revenue trends continued to improve. Revenue growth in the third quarter marked the first quarter of growth in more than a year. The modest price is due to strong transaction and discreet revenues, offset by the impact of revenue dis-synergies, which we have talked about associated with integration, and I've discussed these in previous quarters. By revenue type, recurring subscription revenues was flat, and recoveries declined 2%. The revenue category is not subject to a lag effect of lower net sales of 2009. Transactions and outright increased by 5% and 22%, respectively. By geography, Asia revenues were up 4% and EMEA was up 3%, but the Americas declined 2%. Operating profit of $359 million was down 3% and the corresponding margin declined as expected, 19.4%, due to higher expenses related to investments, supporting our new product platforms, Eikon and Elektron. The current quarter included some one-time benefits, and these were timing benefits that amounted to about $25 million and we do report them, but let me remind you that these come up from time to time. In fact, we get similar one-time benefits in last year's numbers as well. Excluding the impact of currency, operating profit declined 2%. Internet revenues are down 2%, operating profit is $1 billion, and the related margin is 18.1%. The currency had gained 30 basis point negative impact on this margin. Now let's turn to the performance of the business segments. Sales & Trading revenues were flat in the quarter, but they were actually up 2% when you exclude the recoveries. We recorded second quarter revenues declined 5%, so there has been a significant sequential improvement in growth rates. Transaction revenues were up 8%, driven by trade lift. We continue to see strong growth from our Commodities & Energy segment, which was up 13%, which about half was related to an acquisitions. And Tradeweb delivered 9% growth on the heels of stronger treasury and mortgage-backed security margins. The Treasury business remained flat versus prior year as flow-through from 2009 subscription cancellations offset a 2% increase in transaction revenues, driven by growing foreign exchange volumes. Investment & Advisory revenues declined 2%, with organic revenue down 3% and a 1% contribution from acquisitions. The Corporate business grew 6% on the quarter on the strength of acquisitions. The remainder of this is affected by late cycle impacts of the negative net sales from last year. Investment management revenues declined 9% as a result of the flow-through of cancellations from by private side customers seeking to cut costs or exit the business entirely. Wealth Management grew 4% due to strong desktop and add-on solutions and feeds growth, which offset the plan retirement of products including ReutersPlus and ILX. It's worth noting that we're seeing good momentum in the business with positive net sales across corporate, investment banking and wealth management. Enterprise grew 10% in the quarter, all organic. Foreign exchange had a negative 3% impact. Enterprise Real Time Solutions, which represents about 40% of the business, grew 10% on strong performance in consolidated feeds and tick history. Risk Management which represents about 14% of the business grew 15% in the quarter, and the Platform business grew 17% on sales of recurring products. Omgeo was down 5% in the quarter on the back of weak equity volumes. And finally, Media revenue declined 3%, driven by 2009 cancellations in the Agency business, which continues to be adversely affected by tight customer budgets. The Consumer business was essentially flat compared to the prior year. However, recent product introductions, including mobile and the iPad applications are going to new sources of advertising revenues. Now the revenue dynamics for the third quarter in Legacy division continues serves to demonstrate the improving results. Recurring subscription revenues, which represent about 77% of the divisions overall Q3 revenues were flat, as the weaker 2009 sales and planned phaseout of low margin products offset positive 2010 sales and our lower cancellations. Outright revenues were up 42%, driven by strong performance in Enterprise and the I&A. There was some timing issues with Q3 that aided that comparison. Transaction revenues, which are 9% of the overall revenue base increased 5%, driven by trade weather, as I said, growth of 9% to which I noted previously. Given the trends we're seeing across the Markets business, we expect to continue to see improvement in the Divisions revenue growth rates into the fourth quarter. Now let's turn to Performance compared to the previous quarter. In the plans we show in these chart that highlight sequential revenue growth for the Markets division as a means to provide a more realtime performance metric. This view effectively moves the inherent lag effect from our year-to-year results. Recurring subscription revenues grew two tenths of a percent in the quarter, fairly consistent with the second and first quarters, which also had the benefit of price increase of about 1.5 points. Recoveries revenues declined slightly versus the last quarter and I'll remind you that these are very low margin and past-due revenues generated by third-party vendors minus the exchanges. FX volumes were lower than Q2 due to an unusual spike in trading related to the euro zone credit concerns in the last quarter, and which led to a sequential decline in transaction revenues during the quarter. However, we feel quite good about transaction revenues overall. They were up 5% on year-on-year and recent events including the talk of currency wars had supported higher transaction volumes in September and October, and may provide a tailwind to this segment. Now that we've excluded outright revenues despite their strong performance in the quarter, since they're extremely seasonal, with over 40% of them adding the revenues recorded to the fourth quarter, although it represented less than 4% of consolidated Markets revenues this quarter. Now let's turn to our Corporate cost, which totaled $259 million in the quarter. Our core corporate cost were up $5 million versus the prior year. Overall, corporate cost were up $15 million primarily due to a $55 million increase in fair value adjustments, which I'll remind you are non-cash FX accounting adjustments made quarterly in the mark-to-market certain customer contracts. This is partially offset by the $45 million favorable swing integrated-related expenses. Year-to-date, our core corporate cost are down $9 million, which highlights that the $5 million increase in the quarter was really a timing related issue. Now let's turn to the adjusted earnings per share, and earnings attributable to common shares were $268 million in the quarter. To arrive at adjusted earnings, we make the following adjustments, we deduct $44 million of income listed as other finance income, which in 2010 refers to gains realized from FX changes on an intercompany funding arrangements, offset by FX losses to on revenues instruments. All of this is non-cash. We removed the amortization of intangible assets, again, non-cash. And we normalized for anticipated full year tax rate, which we have estimated to be between 20% and 24% for the full year. This results in $11 million lower adjusted earnings in the quarter. The net result is $406 million of adjusted earnings of $0.49 per diluted share, an increase of $0.06 versus a year ago. This increase is largely due to lower integration costs, lower taxes and interest expense, offset by a decline in underlying operating profit, which we've noted. Year-to-date, our adjusted EPS figure is $1.32 versus $1.41 last year. Now a complete reconciliation to adjusted earnings is available in the press release, which we issued this morning. Turning to free cash flow, year-to-date, our free cash flow is $852 million. Underlying free cash flow which removes integration related cash spending is $1.2 billion. The decline relative to the prior were driven by lower underlying EBITDA and higher cash taxes. For the full year, we again expect to generate strong levels of free cash flow, but slightly lower than last year. I'll provide you with a brief update on our integration synergy programs. We continue to make progress on these projects, and have achieved a run rate savings of $1.35 billion. The incremental $75 million in savings in the quarter which related to communications, expense savings and content data center consolidation within the Markets division. I'll reiterate we remain on track to achieve our targeted savings of $1.6 billion by the end of 2011. In the quarter, we had incurred $103 million of integration related expenses, primarily related to severance costs, consulting fees and technology cost. Year-to-date, we've recorded about $290 million of one-time cost. We could potentially see about $25 million to $50 million of our anticipated spending this year actually shift to 2011, strictly a timing issue. Over the past year, we've taken advantage of an historically low interest rate environment to further strengthen in our already strong capital structure. We proactively refinanced about $2 billion in debt maturities at some very attractive rates. In September, we closed the public offering in Canada of $750 million, which is about $730 million in U.S. terms, and our over to our 10-year notes with a coupon of 4.35%. The proceeds from this offering will be used to repay our 500 million euro principle medium-term notes upon their maturity in November. This is the last of the Reuters that we inherited on the acquisition. Our net debt to EBITDA is just over 2x, and these refinances have stretched our duration to eight years. In addition to the cash on the balance sheet, we had $2.5 billion in non-cash credit lines. I've added this slide this quarter because as you all know, acquisitions have always played an important role in our overall corporate growth strategy. In order to strengthen our strategic focus on providing electronic solutions to our business and professional markets, we always continue to assess our portfolio. This process assures that we are investing in areas that offer the greatest opportunities to achieve higher growth and returns. In 2010, we had made six acquisitions greater than $20 million. In February, the Markets division acquired Aegisoft, a provider of electronic trading platforms, and we'll enhance our ability to provide clients broker sponsored direct market access. In June, the division acquired Point Carbon in a region-based business that is a leader in information for the energy markets, including the emerging carbon trading markets. In May, Professional division acquired Revista dos Tribunais, the leading legal publisher in Brazil. This acquisition gives us exposure to the legal market in one of the world's fastest-growing economies, and builds on the strength of our Mac-based technology platform. In June, we acquired Complinet, the U.K.-based financial services GRC business that along with our GRC assets formed our new group in Legal that is attacking the large global and growing governance risk and compliance market. In August, we closed on Canada Law book, expanding our global content base in Canada, alongside our leading Carswell Legal and Tax Publishing business. Finally in October, the compliance group in Legal closed on the acquisition of -- I should say the Corporate group in Legal, closed on the acquisition of Serengeti, greatly expanding our capabilities for serving the Corporate General Counsel. These acquisitions will contribute revenue growth for the full year. However, they will have a dilutive impact on operating margins, which I have already noted, which is why we're not raising our margin guidance for the full year. Now turning to our 2010 outlook, as Tom mentioned, we have reaffirmed our full-year outlook but with an upward realization for growth. Year-to-date revenues are flat before currency. For the full year, we now expect revenues to be flat to up slightly rather than our original expectation of being flat-to-down slightly. And this improvement is based upon a slight improvement in organic revenues and the benefit of acquisitions. On a year-to-date basis, margin before currency, that it's at last year's rates, is 19.9%. However, Q3's underlying margin was 21%. As previously expected, we expect full-year margins to fall short of last year's 21.3%, but remain above 20%, despite the dilutive impact of acquisitions. And free cash flow generation for the full year will continue to be strong, but slightly lower than last year. So in closing my comments, let me reiterate that our performance is tracking to our expectations and the trends we expected to see are coming to pass. Based on the investments we have made, the positive trends we see in net sales, the improving economic environment on markets, we believe the business is on an upward trajectory. This growth will provide a tailwind for margin improvement and continued strong free cash flow generation. And our strong capital structure will continue to allow us to invest for growth, while providing good returns to our shareholders. Now let me turn it over to Frank for your questions.

Thanks, very much, Bob. We'd like to now open the call for questions and as I mentioned earlier, in my comments, I would appreciate if you could keep it to one question each. So can we have the first question, please?

[Operator Instructions] And we'll begin today from the line of Drew McReynolds with RBC Capital Markets.

Maybe for you, Tom, just looking at the sequential recurring revenues markets, obviously, some modest kind of 0.2% sequential growth in Q3 and in Q2, just wondering if you can kind of drill down into the current net sales trends, visibility into 2011 and just within the context of what everyone realizes is a slower sluggish trading environment out there in certain asset classes?

So just to remind everyone, through -- and I know you know well, what we're seeing show up in the current period-on-period performance in markets is really the economic activity from the second half of last year into the beginning of this year. So as you note, the recurring line is flat to just slightly up. That's already a pretty good thing, given what the markets were looking like last year. But the important thing from a trend perspective is that we were seeing net sales improved pretty much quarter-on-quarter right through the period. In particular, we only had, call it, two weeks of Eikon in the quarter and of that, essentially no revenue at all. So from a going-forward perspective and looking into 2011, it will be very helpful to have Eikon in there to increase significantly the competitive position on the desktop. Enterprise, as you've seen, continued to do well right through the bottom of the recession, and has now strengthened to about a 10% quarter-on-quarter. So I put all of that together, and what do I extract at this trend. Number one, the trend, the substitute technology, wherever possible for headcount growth and financial services continues. That's really what's being driving the enterprise unit all along. Although there are talk in the market about trimming or reallocating heads, and we may e see a little bit of that at the end of the year, nothing on the order of the wholesale cutbacks that we saw, obviously, 2008 and to 2009. And generally, it's a sort of reallocation growth, in particular, markets like commodities and energy, FX, treasury, growth in regions like Asia, Brazil, Middle East, offsetting reductions in large city centers. So put all of that together, plus the competitive impact of having Eikon now on the desktop and what it looks like to us is not spectacular growth, but good, steady progress in a positive Markets division.

Our next question comes from Colin Tennant with Nomura.

The question I had was on Eikon and I just wondered, I know that you've actually had to test, you've had to launch and getting some orders in. Which segments of the market is it most attractive to both geographically and by activity?

Okay, so in version one, right out the door, it's attractive to basically anyone who has a 3000 extra on their desktop today, and we will be seeing a significant amount of migration activity. But as I pointed out in my remarks, the thing that I'm probably happiest about is the very strong start in what I usually call new, new positions. So people who had no Thomson Reuters position before, and that's either a competitive displacement for a new source of growth. By region, we will be introducing in 2011 Chinese language version, Japanese language version, which is more than just changing the language of some of the content. The entire software framework goes into localized version. So we will have to wait until that to really see a significant geographic pickup in Asia, but that's all good sales to come I believe. So it's off to a good start. It's the Sales & Trading core where we're focused now. And I guess, the only thing else I'd have is, that there'll be an ongoing and rolling basis of functionality and content upgrades, in particular, the Asia and in particular, more by-side oriented functionality, which will be coming over the next, call it, six to nine months.

So I mean, what I was trying to get at is, I guess, is it in your traditionally strong markets like money markets and so forth, that is getting the best reception so far? Or are you seeing a bit of a fight back in the areas there? I guess, you've traditionally lost some share to Bloomberg like in equity markets, or is it too early to say at this point?

The bottom line is it's too early to say. However, the version that's outright now is perfectly suitable for international equity markets, certainly the large treasury money market franchise. And I do expect, with the combination of Tradeweb, trading functionality, some of the enhanced pricing and analytics and always the strong news offering, you'll see a much more competitive showing in fixed income as well.

Next we will go to the line of Brian Karimzad with Goldman Sachs.

As you think about the pricing for the Markets division next year, I know, Bob alluded to some modest year-over-year gains this year. And I know with Eikon, you're selling it as a complimentary upgrade to existing users. Explicitly, there's not a price increase there, but implicitly, as you look at the overall price increases you're seeking for 2011, do you see an acceleration in what you're asking for and any sense on communication you've had with customers about that?

First of all, we have already set out price increase letters for 2011. And they, of course, vary depending upon the product, I think, on average or about 2.5%. But the responses that we've gotten, the ones that I'm aware of, have been positive and in the sense of that they understand the basis for it. And with Eikon, well, we're not increasing Eikon's price, but the fact that we've been able to go to the market and say that we have launched a meaningful new product improvements and a meaningful introduction, certainly, they understand that these price increases that we've gotten from them in the past, we have used to their benefit to continue to invest back into the business. So our strategy is that like anything, in all of our business, you price to value, and our strategy with Eikon is to offer this value to our customers because we realize that there's a whole new generation of financial managers out there, as Tom talked about, and with Eikon is about really the longer-term positioning of Thomson Reuters in this market place.

And I may just quickly, I know you gave out the organic versus all-in color on the broad segments, but within legal subscription there, there was a nice acceleration, any sense when you classified a couple of acquisitions today following to that subscription revenue component?

No, we would have to pull it out for organic purposes. We're reporting as organic.

Our next question comes from the line of Vince Valentini representing TD Newcrest.

A question on the margins. In the Legal segment, Bob, can you give us any sense of how long these kind of drags from both the acquisitions? And from the new strategic initiatives, how many more quarters you expect to that kind of pressure? And also, is it possible to give the same margin impact figure from Eikon start up cost in the quarter as well?

Let me start with the Legal side of it. I think that our investments that we've made that have a drag in the quarter, we'll certainly continue to drag, certainly, throughout the balance of this year, and into a bit into next year, but to a lesser degree. I think that so, for example, let me take on a part, like acquisitions, what causes it. When you acquire a business, two things. First, they don't tend to have the same margin as our existing businesses, so it takes a while to integrate them. And second of all, many of these acquisitions are software, like they have been in Tax & Accounting, and you take a portion of the purchase price, and set it up as software cost. And our policy is we amortize them over three years. So for those that fall in that category, we'll have three years. Now you'll see, obviously, margin accretion as we integrate them and as we grow them, but certainly, there'll be a drag. In terms of the investments, I think a significant portion of them are this year. We'll see them start to decline, certainly, in 2011. But the product mix issues is a longer-term issue for us. It's no secret that when you lose $1 of print revenue versus gaining say, $1 of final revenue, that changes. So I think that the return to growth that we will -- the margin improvement will still return to growth will come from volume more than a shift in our product mix. I think the product mix that we have is really a permanent one. And so I think that as we think about that long term, that's the perspective we have on Legal. In terms of Markets, really, if you look at -- I don't have it separately, but if you look at Eikon, Elektron and we have the internal project called Aurora, which really has to do with streamlining our technology infrastructure. Those three items are together represent about 130 basis points of margin investment in the quarter.

Next we will go to the line of Thomas Singlehurst with Citigroup.

The question I had was on as far as the differential between constant currency tax growth and organic growth. Got a lot of excitement if i think about the level of outlook in Professional and then the matrix but actually in organic basis, the Legal side is actually flat. The question is this. Firstly, that's quite a big step up in differential versus the previous quarters. Is that going to be more of a feature going forward? And then sort of longer term, what's the balance between acquisition and organic in terms of the anticipated drivers of growth over the next sort of 12 to 18 months within Legal, in particular, but also across the rest of the business?

And I'm sure Tom can jump in on the strategic. Let me talk a little bit about -- let's step back and understand our model, again, the subscription model. The reason that we lag going into declines and lag coming out is just the mathematics of that. So we continue to record revenue growth even as we see perhaps negative sales or slowing sales. And we continue to show revenue decline or slowdown, although lower revenue growth even as we build sales momentum. So the significant part of the Legal performance this quarter is the fact that we've continued to see strengthening sales and in fact, have seen a flat performance in terms of overall revenues. That is a positive sign, and we expect to see accelerations. But given the model, it does take us a while. I think that's the beauty of our model is its tremendous consistency on our business, and while we understand and anticipate and can plan for movements. So we tend to be -- we are obviously very patient with it, but I can understand why you would expect to see a more significant move. That's not the way it happens. In terms of, as we think about going forward, I think that as we look forward, we will see an improving balance between what comes from our acquisition and what comes from organic as the overall growth of the division accelerate into 2011. I think that the benefits from a number of these acquisitions that we make will actually drive organic growth for us, certainly, into 2011 and into 2012. So our objective is not to drive growth through acquisitions, to drive growth through organic performance. We use acquisitions to achieve that goal over both the short and longer-term.

But for 2010, should we interpret the increase in revenue guidance as being purely a function of that?

Well, I did say when we talked about it, that there's a little bit of improvement in organic performance, but the majority of it does comes from acquisitions.

The next question comes from the line of Philip Wong, representing UBS.

It's obviously encouraging to see that you signed up more than a thousand new desktops in less than two months after launching Eikon. And I know these are not migrations, but for your existing customers, just wonder if I could get an understanding of the process to migrate those customers to Eikon. So for example, say, some of your larger customers with more than, say, 50 users, can you maybe talk a bit about how long the migration process is on average? And is it closer to two weeks or six weeks and whether there may be any dual cost to support the two systems during migration process?

Let me jump in on that one, Philip. So let's start with the cost element. To the extent that there are dual cost, and I'll address both ours and customers, from the Thomson Reuters point of view, there are dual costs running these two systems. They are in the run rate now of the business and therefore, they offer the promise as we get deeper into the migration and ultimately convert and shutdown old systems to reduce the cost of dual running. And that will obviously have implications and that's one of the main ways in which we intend to get the Markets margins up. From a customer point of view, there's always some level of dual running, but it's really not significant, because there's a sharing of infrastructure. And in terms of the timing, no two customers are completely alike, so we already have several hundred folks actually migrated, let's say 3,000 extra, over to Eikon. If you were reasonably standalone, let's say, you're a small to medium-sized shop and you wanted to transfer over your 20 terminals, it would not be a significant undertaking could be done in a matter of a couple of weeks. Typically, with our largest customers, there will be a fair amount of customization into the trading room of that bank, as well as an internal schedule of testing, when is the bank planning to, let's say, upgrade servers any way. And therefore, unlike maybe the electricity company and the water company, who tear up the street twice, our experience is most of our clients are much more efficient with that and wait and have us do it on their schedule. But we've got ambitious targets and all of the Markets division is focused on taking clients up to our latest and greatest offerings. So it looks good.

And obviously, just a quick follow-up, obviously, there's several versus of the platform to be rolled out in the years ahead, but based on the current version of the product, is there a specific region or asset class that the sales force is currently more focused on primarily?

Well, just to come back to you on the sort of way you've asked the question, because I think it includes an important business model change that Eikon represents. There's actually only a single flavor of the platform. It is the common platform that we've talked about for several years, and in that is very important sort of scale economics advantages. You are right in that. It will allow a variety of different flavors right out of the box today a form of, let's call it mass customization that allows the fixed income trader to see something different than an FX options trader. But over time, additional functionality and content both localized let's say, in Asia markets, but also specialized in different industry markets, that we can add without major site visit remotely which was not a feature typically of let's say the 3,000 extra architecture. Going back to my answer to Collin's question earlier, I guess, the day one fit for purpose of Eikon is the large installed base of 3,000 extra treasury, in particular, more cell site orientation than buy side, Western Europe and U.S. before, let's say, Asia. But all of those are in the plans and as this may suggest, there are good things to come in the natural rollout from here. What I'm happiest about is, we've got a version out, as you know, we waited until we felt it was of high quality. Not only did we get it out on time for that schedule, but the testing we did ahead of time has -- this is a very good piece of software that's holding up well in its first weeks of, really, critical customer use.

Next question is from Mark Braley, representing Deutsche Bank.

Following on Legal, could you give us a feel for how significant the timing benefits in print were in the third quarter, and whether if those is actually a pull forward from the fourth quarter. And if so, should we assume it would actually be an organic growth illegal in the fourth quarter? And then just one for Bob, the tax rate comment you made, 20% to 24%, is that on the adjusted earnings? And if so, can you give us a feel for why that is such a wide range on the adjusted figure?

I can actually answer both of those, Mark. First of all, I apologize you might have misinterpreted my comments. The timing benefits that we had were actually last year, not this year. And this year, there are no timing benefits either in the quarter or actually year-to-date.

So we should be quite well positioned on that basis then for organic growth in Legal in the fourth quarter? I just asked the question because the half-year you were talking about expecting good growth in the second half, I might sort of implicitly feel that the third quarter has been slightly disappointing in Legal, organic.

We do expect overall organic performance to improve across Professional division and in order for that to happen, Legal has to be a part of that. So that is true. In terms of the tax rate, we've given this guide us through the year our tax rate, it is for adjusted earnings, not for the GAAP or IFRS earnings, which is really, I think, more meaningful for you to understand where the company's going. The reason we a provide a range like that is because it is so subject to the source of earnings and the timing benefits and so on. So today, I'd say that you probably are going to be towards the middle of that range, I think, and right now, it's down a little bit, maybe from -- probably when I think about it, I'd say it's probably 20% to 23%, not 20% to 24%. So there's so many things that could happen at the end of the year in terms of the source of revenues and incomes, and how we book provisions and so on. So I think it's a reasonable guidance, what we've given in the past, and so I encourage you to kind of, as you think about it, kind of split the difference that go towards the middle.

Our next question is from the line of Tim Casey, representing BMO Capital Markets.

Tom, questions on Legal, could you comment on what impact you're seeing, if any, from Bloomberg Law? And I was thinking another one -- you've provided great detail on the rollout of Eikon. Is there anything to add with respect to the rollout of Westlaw? Obviously, it's been very well-received and you've given some details. Is there any milestones obviously or targets or accelerated rollouts that we should be aware of going forward?

Well, let me start with the second part of the question. Yes, WestlawNext has gone, I think, amazingly well. We have high hopes for the product. As you know I'm sort of proud of the -- and we've spent a lot of time around the development process because this is what I use to do. I understood what a good product and how much of a step forward it was. But the 9,000 contracts actually concluded to date is well above our own internal forecast rate. So both on a number sign, number of passwords at firms, we're penetrating large and medium-sized firms, as well as the smaller ones. We're doing particularly well at some of the smaller ones. There have been very significant competitive wins. And that I attribute it to the significant increase in efficiency that the product allows a lawyer to be. In terms of penetration, we're heading up pretty much towards 20% of the installed base. And in terms of price uplift, we're still seeing very high single digit increases, again, attributable to the performance advantage. So on pretty much any metric I look at, WestlawNext is a really great success. Now I suppose that also begins to, if not answer, at least, add some color to the Bloomberg Law question. Well, we have a very healthy respect in the DNA of this organization for what Bloomberg can do and obviously, their success in financial services. They are starting from a very different place in law. I've had it expressed to me that their real target is probably the number two player in this market. It doesn't mean that one day, they might not set their sights on us, but we don't see that whether it's in the subscription revenues, up 8%, the particular performance of WestlawNext, the anecdotal feedback on wins and losses in the field. They're obviously making a serious run, but it doesn't look to be in the core Legal research market as much as around the edges of sort of current awareness in news with the Legal thrust, the BGov initiative or sort of corporate dealmaking and the like. And beyond that, I can't really say we're sticking or knitting in. It's knitting a nice sweater at the moment.

Our final question today will come from the line of Paul Steep with Scotia Capital.

Tom, one for you. Slide 8, I guess, in your slide decks, and maybe you could talk as we head into sort of 2011, your perspective on that balancing of investments and return and the view towards either now maybe undertaking another material acquisition or where you're at today in terms of the higher level on the right side of the scale to return to shareholders?

Yes, all I really meant to do by highlighting the balance of investment and return on that slide or in my remarks is to say, I guess I am personally grateful that our board and investors are frankly been patient with us. Obviously, integrating a business of the size of Reuters is not sort of three months and you're done effort. And we've been doing it against the backdrop of the most significant disruption in financial markets and a great recession. But we feel, as I turn and Bob and I work on 2011 plans, that it is appropriate for us to begin to show, I suppose, more of the R in the ROI equation. We've always been confident it's there. You've seen a lot of cost savings come out, really, ahead of plan in the integration. But I think it's also fair to say that because growth has been essentially flat over two years, a good amount of those cost savings has is basically gone in to catch-up for revenue that's not there. As even slow revenue growth returns and it's faster in obviously some of our segments, we expect to bring more of that to the bottom line, so you'll see margin expansion and that's a very good thing. In terms of acquisition, obviously, nothing to discuss specifically, given our general no comment policy. You've seen the types of acquisitions we've made to date, they are probably a little bit more international, i.e. global in nature. They continue to be acquisitions in furtherance of a strategy rather than just sort of portfolio effect acquisitions, and may likely see as cash increases going forward, those sort of naturally ramp-up. But we have nothing other to say in terms of anything bigger other than we've got plenty of really good things to do on our plate. So we are not wanting for challenges.

That would be our last question. In concluding our call, we'd like to thank you all for joining us today.

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