Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters First Quarter 2019 Earnings Call. At this time, all participant lines are in a listen-only mode. Later there will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to the Senior Vice President of Investor Relations, Frank Golden. Please go ahead.

Thank you. Good morning everyone and thanks for joining us today. Our CEO, Jim Smith; and our CFO, Stephane Bello will review the results for the first quarter and will update you on the outlook for the balance of the year. When we open the call for questions, we'd appreciate it if you would limit yourselves to one question each to enable us to get to as many questions as possible. And as a reminder we no longer control Refinitiv as we own 45% of the partnership. We account for our ownership interest as an equity method investment on our income statement. And I'll also remind you that Refinitiv is not included in our adjusted earnings or in adjusted earnings per share. Now, throughout today's presentation when we compare performance period-on-period, we discuss revenue growth rates before currency as we believe this provides the best basis to measure the underlying performance of the business. Today's presentation does contain forward-looking statements and actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department. I'd like to now turn the call over to our CEO, Jim Smith.

Thanks Frank and thanks to all of you who joined us today as we report our first quarter results. We'll spend most of our time focused on operating performance and I am pleased to report that we had a solid start to the year. But it is especially rewarding to do so knowing that two of our colleagues yesterday were released from a Yangon prison after spending more than 500 days behind bars. It was a great day for Reuters and for press freedom. And it was a joyous reminder of the core values that make this company special. We have a resilient business model that is delivered by passionate committed colleagues who believe deeply that what we do every day makes a difference in the world. I wanted to take the opportunity to pay tribute to Wa Lone, Kyaw Soe Oo and their colleagues in our Myanmar bureau for their commitment to fearless and partial journalism. Their work has been rightly recognized worldwide. Their courage is an inspiration to us all. I also want to thank the countless individuals and organizations who have helped keep the public spotlight focused on them and on our cause. It's safe to say they very well might not be free without that support. Now, to the operating results. As I mentioned we're off to a solid start across the business with the first quarter's performance a bit above our expectations as we continue to build on the progress we made last year. In the quarter, net sales were strong due to improved retention and price realization. Our book of business continued to build nicely and organic recurring revenue growth was as strong as we have seen in quite a few years. Reported revenues were up 8% in the quarter. That includes the quarterly…

Thank you, Jim and good morning or good afternoon to all of you joining us today. As I always do, let me start by reminding you that our results exclude the performance of Refinitiv. Also as Frank mentioned earlier, I will talk to revenue growth before currency. So on a constant currency basis, first quarter revenues were up 10%. Currency had a negative 2% impact on revenue this quarter or $26 million. On an organic basis, revenues grew 3% during the first quarter, excluding the impact of the news contract with Refinitiv and the Integration Point acquisition. I will provide some additional information about the breakdown of our organic revenue growth on the next slide. But first turning to profitability. Adjusted EBITDA was $397 million in the first quarter, which was down 8% primarily due to cost and investments related to the separation of the two companies. Now before turning to the segment results, let's look a little deeper at our organic revenue growth performance. Overall, organic revenue growth was 3% during the first quarter, which represented an improvement of about 140 basis points over the performance in Q1, 2018. As shown on the left-hand side of this graph, this was driven by better organic growth performance in all of our three core businesses: Legal Professionals, Corporates and Tax Professionals. What is particularly encouraging is that the improvement in organic growth was entirely driven by higher recurring organic revenue growth, as reflected on the top-right side of this slide. Our recurring revenue grew 5.5% organically, which rounded to 6% and which was an improvement of 170 basis points from last year. The year-over-year improvement in recurring revenue growth was particularly visible in the Legal Professionals and Corporate segments, while Tax Professionals growth remained very strong at 7% as compared to…

Perfect. Thanks very much, Stephane and Jim. And now, operator we'd like to open the call for questions please. So the first question.

Thank you. The first question is from the line of Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you. Good morning.

Good morning, Toni.

The Legal Professionals margin of 38% was far better than what I was expecting. You mentioned the drivers: scale, efficiencies and timing. Can you just give us a sense of how much is timing? Is that going to impact the second quarter margins negatively? Or how should we just be thinking about the sustainable margin level in that segment? Thanks.

I would say there were definitely some timing elements in the first quarter margin of the Legal segment, Toni. But -- and also remember the Legal business is now smaller than it used to be so there's probably like timing variance have a bigger impact on the quarterly performance. So I wouldn't look at the first quarter margin as what should be expected over the balance of the year. But, nevertheless, as we said earlier, I would certainly expect a noticeable margin improvement on a year-over-year basis and that will be driven primarily by revenue growth.

Thank you.

[Operator Instructions] Next we'll go to the line of Drew McReynolds with RBC. Please go ahead.

Yeah, thanks very much. Good morning. On the transaction revenue performance in the first quarter, I think you've walked through and flashed through the impact quite extensively. Just want to look at it from a bigger picture perspective, Jim or Stephane. When you look at each of the components of that transaction revenue, is there any kind of structural tailwind or headwind facing those buckets of revenue? Just trying to kind of size up. I know it's volatile from quarter-to-quarter but size up whether those transaction revenues ultimately grow over a medium term? Thank you.

Yeah. Drew thanks for the question. I think there are two primary drivers in there. And one is just the services revenues that go along with big implementations like our Elite software systems. So when a law firm changes out its time and billing system or upgrades its time and billing system there are a lot of services that wrap around that and that's completely dependent upon when we have those installations. So I think over time that'll be a steady source of revenue, which will be volatile. But it'll be steady as Elite continues to grow. And then there was the Legal Managed Services bit, which was outsourced work, helping law firms and corporations with things like due diligence, responding to regulatory request that sort of stuff. And that's a business, which is a purely services business. It's a business that doesn't have the same kind of scalability characteristics as our other businesses. And it's a business that we're exiting. So I think that would be the more from our perspective challenge of the businesses but the business that would fit better within EY who is acquiring it because they're experts at managing those kinds of businesses.

Okay. Thank you.

And Drew that business is about $40 million $45 million in annual revenue.

So I think you'll see a gradual decline in the percentage of transaction revenues over that time.

Okay. Appreciate that. Thank you.

Next we go to the line of Vince Valentini with TD Securities. Please go ahead.

Yeah, thanks. Just trying to triangulate your guidance based on pretty healthy beat here in Q1, but then this asset sale which you're talking about are you -- do you think you're now trending towards the high end of the $1.4 billion to $1.5 billion range or these timing issues you've talked about significant enough to detract from EBITDA growth in future quarters? And as a part of your answer have you given us -- or can you give us some ballpark on how much revenue and EBITDA goes out the door with Pangea?

Sure. So let me try to address the second question for -- like the divestiture of our Legal Managed Services business should not have a big impact on margin. If anything it may be slightly positive but very, very minor Vince. Now with regard to the EBITDA we are encouraged obviously by the performance of the first quarter, but we still have like three quarters to go. So it's a bit early to do anything with regards to our guidance. And I would say, we are looking at a number of initiatives which hopefully can help us really turbocharge our growth. And so if there is an opportunity to fund some of these initiatives in 2019, I think if we have to make a trade-off we'll definitely make a trade-off in favor of initiatives which should help us do better in 2020, 2021 even if as a result of that we don't significantly exceed our 2019 EBITDA guidance.

Yes. And let me just jump -- just reiterate, reinforce and underline what Stephane just said. We've said for a long time, we'd always trade a point of margin for a point of growth any day. And what we're looking at now and we're in the fortunate position of actually being a little ahead of our expectations for Q1 and we're going to actively manage that throughout the year to say, if we continue to see the kind of over performance we've seen in Q1 are we better off to take that to the bottom line? Are we better off to invest that in initiatives that we believe will pay off with top line growth in the future? So we're going to be managing it very dynamically. And if we are convinced we can spend on things that will drive growth while still delivering on our commitments, we'll do that. And if we don't, we'll take the over performance to the bottom line.

Thanks.

Next we'll move to the line of Aravinda Galappatthige with Canaccord Genuity.

Thanks for taking my question. For Stephane, with respect to the earlier question about Legal margin, I know that last year there was some spend around Westlaw Edge. I'm trying to remember what the cadence of that was through the year? And I was wondering if that is sort of assisting sort of the sharp growth that we're seeing in Legal Professionals EBITDA margin? I was wondering if you can speak to that. And to that point I was wondering if you can give us a little bit more color on the development of Westlaw Edge in terms of the take-up. How's that tracking versus expectations and also the reception from customers? I mean were they happy with the features? Are they asking for more? Just a little bit more color around how material that could be down the road? Thank you.

Sure Aravinda. Thank you for your question. I would -- in response to your first question I would say, yes probably. If you look at the year-over-year improvement some of that was driven by some of the marketing expenses linked to Westlaw Edge. If you look at the margin of our Legal business last year Q1 was actually the low point. So I think that what you're saying is right. This being said, if you look at the absolute performance of our EBITDA this year, it's one of the highest margins the business has done. So it's more than just the aspens of the Westlaw Edge marketing expense. It's really good underlying performance that you -- is shining through the margin there. And in terms of your second question on Westlaw Edge, it's a really good question. Remember Westlaw Edge is not a, what I would refer to as a static product. We will introduce new modules as the year goes by. Actually we have a pretty exciting module that we are planning to introduce in the coming weeks that I think is going to be well received. And going forward, I think that's what we should expect -- you should expect to see from Westlaw Edge continuous improvement in that product to make it increasingly attractive to our customer base.

Thank you.

Next we'll go to the line of Andrew Steinerman with JPMorgan. Please go ahead.

It's Andrew. I have two questions. The first is on disposals. Are there plans or prospects to dispose other non-core businesses like Pangea? And if that was done this year would it affect the revenue guidance? Like is there -- are they notable enough in terms of revenues to affect the guidance? And the second one Stephane, you probably feel like you just answered this question. I'm going to ask the corporate cost question a little bit differently. I truly get it. If corporate costs come in lower than expected you want to reinvest it. But I'm just asking, why corporate costs have come in lower than expected in the first quarter but you still expect corporate costs for the full year to be that $750 million level. Like could you give us some sense of the types of costs within corporate costs that should build from here during 2019?

Sure. Thank you, Andrew. Let me start with the second question. When I was referring -- Jim and I were talking about potentially using the better performance in profitability to fund some growth initiative we were not just referring to corporate costs. We were referring to the overall better EBITDA performance, which is coming very much from the businesses I would say more than from the Corporate costs. What happened with regard to Corporate costs is onetime costs are sometimes pretty hard to predict exactly in which quarter they're going to fall. We think that the guidance we've given you in terms of what's going to happen in the first half versus the second half is still pretty much accurate, which means we're seeing higher corporate costs onetime costs primarily in the second quarter versus the first quarter like $30 million to $40 million higher probably in Q2 versus Q1. And as I said, that should really be the peak because from there on you should start seeing these onetime costs to start being less and less as we progress through the year. That's the answer to your second question. With regard to divestitures, we don't really speak about it a lot, but there's a number of very small businesses that we have or are in the process of divesting in addition to what we call our Legal Managed Services or Pangea3 as you refer to it. I would say in aggregate these may be to the tune of maybe $25 million in annual revenues. So that -- that's going to happen over the course of the year. There was some impact of that in our Q2 results pretty minor on a quarterly basis given that as I said in aggregate these other divestitures are about $25 million or so for the full year.

Great. Thank you.

Next we go to the line of Manav Patnaik with Barclays. Please go ahead.

Yeah. Good morning. I also have a two-parter. The first one is just on Westlaw to follow up. I think at Investor Day and Westlaw Edge specifically I guess at Investor Day you'd given us some stats on 1,500 new sales or up-sells in the first I forgot how many weeks. I was hoping you could give us a little bit more update there. And then, it sounds like organically there's a lot of innovation happening and that should help you lift your organic growth. So with that in mind is M&A still very much in your agenda? Or can we expect to see some of that cash that you stocked up in buybacks in some other form?

Sure. Let me dive in there. And again, it's with the caveat that Stephane gave in the earlier answer. This is not kind of a Westlaw Edge replacing earlier products and it's not some kind of forced migration. These are actually new tools and new platform. It's a new platform with all kinds of new tools that we'll be adding to over time. If you look at it we're over 3,000 sales now which is a solid growth from our large law firm customers and frankly surprisingly good uptake amongst some small law firm customers. So we're going to continue to grow that. If you look at it about 75% of the sales have come to our existing customers and 28% of those sales have come to -- from new customers. And those new customers are primarily in small law firm areas. So really good uptake there and really good price realization there. And we're quite happy with how that product has come out. We're also happy with what we've learned the reaction that we're getting from our clients and then the ability to do Westlaw Edge-like analytics in other areas for other customer sets that we serve. So it's really encouraging experience we've had with Westlaw Edge. As it comes to supplementing that increasing organic growth with acquisitions, we're still looking at it very hard and with a keen eye. We're looking again not to plug gaps in today's offerings. We feel quite confident in our offerings today, but looking for capabilities that our customers might need in future years. And to the extent, we can make acquisitions that support the growth story and provide tools to our clients that they're going to need in the future we'll take a long hard look at them. But I would just say in order for us to pull the trigger on it -- on an acquisition, it's going to have to meet two criteria: one it's going to have to be strategically right on point; and two it's going to have to make financial sense. And it's got to be both of those things. So frankly, we're working really hard. We've analyzed the market. We know the opportunities that we want to explore and we are actively exploring those now. The difficulty in predicting M&A is that it requires a willing buyer and a willing seller at an agreed-upon price that makes sense to both. So we're in that process right now and you just have to play the game on the field to see where it comes out.

And next we'll move on to the line of George Tong with Goldman Sachs. Please go ahead.

Hi, thanks, good morning. I'd also like to ask about the strong EBITDA margin performance in the Legal business. One of the drivers you'd listed was flow-through from strong recurring revenues. Many of your other segments also have strong recurring revenue performance this quarter. So the question is do you see similar margin expansion opportunity in your other segments? And how would you frame your longer-term EBITDA margin targets for the Legal Corporates and Tax segments?

Yes. Good morning, George. I would say we see very similar dynamics in our other segments. There was visible strong flow-through also in our Tax Professionals. It was less apparent in our Corporates segments because of the Integration Point acquisition. But just having the margin essentially flat year-on-year despite that acquisitions should give you an indication that the underlying margin was also seeing good flow-through. And in terms of long-term margin targets, we don't really have targets in terms of margins for each of our segments. As Jim always say what we seek to deliver is the maximum growth of free cash flow in each of these segments. That's really what we're focused on. And it's always trade-off between you achieve that by trying to push the revenue line or do you achieve that by letting more of the flow-through fall to the bottom line. And really that's what -- that's the trade-off that we are looking at every day. But as we always said, with the growth rate -- the organic growth rate north of 3% now, that's when you start seeing the operating leverages come from these businesses and it was rewarding to see that really shining through in the first quarter.

Got it. Very helpful. Thank you.

Yeah. And just to answer that I mean, again, the thing that encourages us most was that those -- the growth was driven in those subscription-based recurring revenue businesses which are the stickiest of our businesses and the most profitable of our businesses.

Okay. Thank you.

Next we go to the line of David Ridley-Lane with Bank of America. Please go ahead.

Good morning. Wanted to check in on the digital sales channel. At the Analyst Day, you spoke out about investments you're making there building up the digital channel working to reach some of your smaller prospects and current customers. So, I did want to check in on the progress that you've made so far.

Sure. I believe we're making really good progress there -- specific progress in building out the tools that we need to help reach out to them. I think we've seen a pretty marked increase in the number of our customers who are renewing their contracts with us online -- fully online and the prospecting and kind of the assistance that we're driving to our sales forces. So its early days and we're focused on building the tools to do it better. But the update frankly particularly on the ability to renew and the uptake of that from our clients is actually probably ahead of what we would have expected. And I would call it particularly in the small law firm space.

And next, we'll move to the line of Doug Arthur with Huber Research. Please go ahead.

Yeah. Just a quick question on share repurchase plans. Jim, if acquisitions that are small do not meet your criteria in 2019 given your pretty strong net debt position it's under $1 billion, I think right now. Would you consider accelerating share repurchase activity, I guess is the question?

I'm sure we would. We're -- these are early days of exploring the opportunities for how we're going to deploy that capital. As the year moves on and we see what the likelihood is of finding effective ways to deploy that through acquisition, we'll have a conversation with our Board and we'll make that decision at that time. I mean, obviously, we're not going to sit with the net debt position that we're in right now. We're not going to sit with $2 billion of cash on the balance sheet or looking for something to do with it. We'll find a way to put it to work one way or the other. But we just need to complete our analysis of how effectively we're going to able to spend it on acquisitions.

Got it. Thank you.

I think we'll take one more question please operator.

Very good. It's the line of Tim Casey with BMO. Please go ahead.

Jim at the Analyst Day you talked about cross-sell and up-sell as key components to drive organic growth. What's the update there? Is any of that in the numbers yet? Or is that still to come given you'll probably take some time to really drive those things? Thanks.

Tim, it's a great point. I actually think it's -- there's a lot of future potential there. And I think there's probably some element of that that's flowing through toward the end of the quarter. But if you think about it we just got the new sales teams together up and firing at the beginning of the year. And we're building the tools that will help in giving our salespeople the visibility into how that's working. We are seeing some increase in cross-sell and up-sell. We are targeting in each unit. But right now we're still building some tools to help analyze that in more real-time fashion. So, we're going to have to do more analysis around that manually for the time being. I would say though that if you look at what we're doing to enable the salesforces, we'll have three quarters of the company on one instance of salesforce.com by the end of this year. We'll be well over 85% of the company on one instance in the first quarter of next year. So, we're now getting the tools to have the kind of real-time visibility into those activities. I have spent more time with our salespeople and with our customers this year than I have in a long time. And I can tell you that the sales teams are excited about it as a new opportunity and that the clients really like the ability to deal with us holistically in a more integrated sort of way. So, I still have a lot of hope and this is one of the key levers that we expect to use to drive increasing organic growth in the future. And I think its early days there and there's a lot of upside there.

Terrific. Thanks Jim and Stephane and thank you all for joining us for our first quarter call. That'll conclude the call and we look forward to speaking to you again in August. Have a good day.

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