Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host Mr. Frank Golden, Senior Vice President of Investor Relations. Please go ahead.

Thanks and good morning and thank you all for joining us today. Our CEO, Jim Smith; and our CFO, Stephane Bello will review the results for the second quarter and half year and will update you on our outlook for the balance of this year. And then, Jim will close with the discussion of the acquisition of Refinitiv by the London Stock Exchange Group that was announced earlier this morning. Now, we have a lot to cover today, so when we open the call for questions, we'd appreciate, if you limit yourselves to one question each to enable us to get through as many questions as possible. As a reminder we do not 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 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, 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 Web site or by contacting our Investor Relations department. Let me now turn it over to Jim Smith.

Thank you, Frank. And thanks to all of you for joining us today. The second quarter was another eventful period for our organization and one that was marked by a number of significant steps forward in the execution of our strategy. Operating performance came in a bit ahead of our expectations. We launched new AI-powered products that we developed in-house and we completed two acquisitions that will help us fulfill our ambition of building world-class platforms to help our customers work more effectively. Additionally, the merger of our former market data and trading assets with the London Stock Exchange Group will create even more value for our shareholders in the coming years. I will provide more detail on this transaction at the end of our formal remarks. But first, let me expand a bit on our Q2 results. Reported revenues were up 9% in the quarter, which included the quarterly payment from Refinitiv to Reuters News. Revenues at constant currency were up 10%. More importantly, our organic revenues grew 4% in the second quarter, which represented our highest reported organic growth rate since 2008. That solid organic revenue growth performance was driven both by recurring revenues was around 5% and by transaction revenues which are up 2%. Adjusted EBITDA was $355 million, up 2% due to the benefit of currency. Free currency adjusted EBITDA was unchanged from the prior period that despite much higher one-time cost. On an underlying basis, the adjusted EBITDA margin was 31.2% for the quarter benefiting somewhat from favorable timing of expenses. We do expect the margin to be a bit weaker in the third quarter due to timing of expenses and other factors, which Stephane will speak to in a moment. And finally, adjusted EPS was up $0.12 to $0.29 per share versus $0.17 per…

Thank you, Jim and good morning or good afternoon to all of you joining us today. As we always do, let me start by reminding everyone that our results exclude the performance of Refinitiv, also I will talk to revenue growth before currency. So, on a constant currency basis, second quarter revenues were up 10%. Currency at $21 million negative impact on revenue or just under 2%. On an organic basis, revenues grew 4% during the second quarter, which excludes the impact of the Reuters News contract with Refinitiv, the Integration Point acquisition and a few small divestitures. And we provide more detail about the breakdown of our organic revenue growth rate on the next slide. But first, turning to profitability, adjusted EBITDA was $355 million in the second quarter up 2%. That performance reflects additional costs and investments related to the separation of the two companies offset by margin expansion across most segments. And as Jim mentioned, we do expect the margin to be weaker in the third quarter given the higher costs we will incur related to our ongoing transformation programs as well as a dilutive impact of our recent acquisitions. From a timing perspective, we spent about $30 million less in the second quarter related to one-time corporate costs and we had a plan, but this is expected to fully reverse in the third quarter. Importantly, we still expect to finish the year with EBITDA in the top half of the range we have provided earlier or full year outlook. I would provide more specific details on our outlook for corporate costs in Q3 and Q4 in just a moment. But, first and similar to last quarter, before turning to the segment results, I'd like to go a little deeper into our organic revenue growth performance in…

Thank you, Stephane. At the time, we announced our partnership with Blackstone 18 months ago, we mentioned that one of the key reasons to do that deal was to position the business for what we saw coming on the horizon, which is a phase of consolidation in the financial services industry. Separating the financial business from Thomson Reuters was a necessary first step to put us in a position to participate in the industry consolidation. It also enabled us to focus 100% of our attention and resources on our remaining legal and regulatory businesses. The second quarter results indicate that we are well on our way to accelerating growth in those core businesses. And the transaction announced this morning by us and the LSC Group confirms our initial thesis about consolidation in the global financial services market. This transaction transformed. LSC GE's position as a leading global financial markets infrastructure business and it increases its ability to capture global growth opportunities with a greater range of leading market positions. Now, the value creation at Refinitiv since we began working with Blackstone has largely been driven by operational enhancements and cost savings. This transaction with LSC group will double down on operational enhancements with significant additional costs and revenue synergies expected to be realized once the transaction closes. As an investor, we are comforted by LSC Group's strong track record of integrating acquisitions, realizing synergies and driving growth and profitability. And with Blackstone remaining a very significant shareholder in the business alongside us, we are even come confident that this transaction will create significant further value going forward. At a high level, the transaction creates an $8 billion company and position it positions the LSC Group for the next phase of sustainable long-term growth. The two businesses are highly complementary. Their…

Thanks very much Jim and Stephane for operating opening markets. And now, operator, we would like to take questions please. So, first question.

Thank you. Our first question comes from the line of Toni Kapilan with Morgan Stanley. Please go ahead.

Thank you. And Jim you just touched on this, but just wanted to understand…

Toni, can you just get a little closer to your phone, it is just a little hard to hear you.

Sure. Thanks. Sorry. Jimmy just laid out the capital allocation, strategy here, but I guess if you could just talk a little bit more about what this means for a couple of years out in terms of any changes to capital deployment, you're obviously this investment assuming and closes and post the lockup period obviously could be significant in terms of value. So, I guess could you just talk about capital allocation with the proceeds from this transaction announced this morning? Thank you.

Yes. Thank you. I mean obviously, it's a bit premature to be very specific about that Toni, and it is a good question and certainly one that we've been discussing a good deal. The way we handle our capital allocation decisions is that, we sit down with our Board once a year, take a look at the current environment, look at the current needs of our business what our opportunities are, and then we're in a very fortunate position already in that we have a business that is highly accretive from a free cash flow perspective. So we generate a lot of cash and the decision and discussion is all around where the best spend that cash. So, in any given year, we'll make decisions about what our dividend increase is going to be, how much we're going to -- a lot for buybacks, how much CapEx is needed, how much we need to allot for acquisitions, but we kind of tune that every year on an annual basis and traditionally we've done that in September. So, we'll have a robust debate about that next month. And based upon that we'll kind of proceed along the path or along right now, Frank. We won't be any near-term changes shortly because you're not going to be any near-term big distributions that we would be expecting. I would say however that frankly we're very happy to have the cash flow that will be coming in from the dividends and we'll never turn our nose up at additional cash flow through. Although, I don't think it would be significant enough to change our overall capital strategy, it will be nice nonetheless. And I just -- 1.8 so that I want to underline here. I think about our business, in it's that kind of virtuous cycle that we have -- of having the ability we can grow our top-line in the mid single digit, right, then that we're going to get some leverage that falls through to the bottom-line. We can see continued growth in our free cash flow and that free cash flow can then be reinvested just the kind of acquisitions that we've done to help that top-line keep growing. And actually to add a little bit to the headline number every year. So, I don't think we'll change that basic model, but it'll be a good problem to have and a good discussion with our board.

Thank you. Congratulations.

Thank you. Our next question comes from Drew McReynolds with RBC. Please go ahead.

Thanks very much. Good morning. I just want to talk about our organic revenue growth in the updated guidance either for [indiscernible] on -- just one mind just kind of peeling us away a little bit. I guess the broad question is, when you look at your asset mix going forward, I mean it sounds like 4% is kind of the new baseline growth for the business. Can you talk about just how what's driving that? In your prepared remarks you talked about recurring and that's really the basis for today's upward revision, but tuck with the up-sell cross-sell initiative if he can that the drag in transaction revenues ultimately reverse when you look forward. And then, lastly on the calculation of organic revenue growth, are you including the organic revenue growth of the acquisitions that you add i.e., their apples-to-apples year-over-year growth, organic goes into that calculation? Thank you.

Sure. Again, that's good. That's quite a mouthful. Well, I'll start. It is 4% the kind of the new floor. It's a very, very interesting question and as you noted 80% of the business is kind of on this recurring revenue model and if you look underlying as we reported here that's growing nicely in fact is growing 5% or 6% across the core businesses. So that's highly repeatable, that's highly recurring that gives us a great confidence. We do have 20% of the revenue that's in this transactional and print space. Print schedules aren't always exactly like-for-like, year-over-year in terms of what gets published and what those schedules look like. So, I'm not going to tell you that in any particular quarter transactional revenues, the 20% transactional and print could have us rounding down to three. No, I wouldn't tell you that. But, I would say if you look at that underlying recurring base, right, and the performance we see in that, we look to 2020, we're thinking that a quarter beginning with the five is far more likely than a quarter we're getting with a three.

Okay. Thank you. And maybe Jim I could follow-up or [indiscernible] and just if you can talk to just what the tax implication ultimately is here for Thomson on the flow through from what's happening with Refinitiv in this transaction.

I will turn that over to Stephane.

Sure. Good morning. Look we would expect to pay taxes on the gain which we will eventually realize on our investment. When we monetize that investment. Our expectation is that the closing of the proposed transaction will not give rise to any significant taxes as we simply -- it's a share for share exchange. So, the tax should not be triggered at the time of closing. There are some circumstances where the deferred tax liability that we would book in connection with the transactions could potentially be accelerated. For instance, if we receive, cash for a portion of the investment and you may write in the announcement from the LSC that, yes, he has an option to pay up to $2.5 billion of the proceeds in cash rather than shares. And under that scenario obviously things we would be monetizing part of the adjustment that would be a portion of the deferred taxes that would be accelerated. But, by and large, I think what you should assume is that taxes should be deferred. Until such time we actually realize the gain on the investment and that will happen, when we eventually set off shares based on the stock price of the LSC at which we sell shares at that time.

Okay. Thanks. That's beneficial.

Drew, I just realized I didn't answer the last part of your multi-factored question about how we calculate organic growth rates. Generally, we do not include acquisitions in the first year that they're acquired, right? And then, once we lap them they would contribute. So, they contribute small amount organic growth in any given year.

Yes. I think it works exactly the way you describing in your question. We can confirm that's the way it's calculated.

Thank you. Your next question comes from Gary Bisbee with Bank of America Merrill Lynch. Please go ahead.

Hi. Good morning and congratulations on the quarter and the transaction. I guess, if I could sneak in one question on the transaction and one of the operations, over the weekend when the first reports of potential deal came out, it talked about the $27 billion valuation. And I think between you and Blackstone 37% ownership, LSC stocks up 27% this week. So, is 27% really the right number or are we north of $30 billion transaction value at this point given that it's going to be largely based on shares. And then, the fundamental question, just as we think out over the next couple of years with the new AI powered cloud offerings that you're rolling out across your businesses, is there any reason to think that those won't be adopted by the vast majority of the customer base or there's some reason that either in legal or in tax that those are likely to appeal only to the very largest segment of customers or anything else? Thanks.

Stephane, if you can please address the first one and I'll take the second one.

Sure. So, your premises is correct, the number of shares that Blackstone and us are receiving, probably transaction was based on the unaffected stock price of the LSC. So, it was based on a weighted average stock price before the recent jump in the stock price that was the result of the announcement eventually. So, what you're describing is correct. Effectively the implicit value far is greater than the $27 billion headline number.

And as to the second one, it's a great question and frankly one we're learning a lot more about. Our technology team now is operating with a theme and that theme is AI everywhere. And I do think AI is going to affect products and our offering mix across every segment and every product that we deliver. And in fact, if you look at the early results on Westlaw Edge, if I've been positively surprised, I've actually been probably surprised by a lot of things, but I did not expect the level of take up that we've seen in the small law firm sector -- in mid-law firm size segment. So, actually these productivity tools could be even more effective in smaller operations where that efficiency is ever more valuable.

Great. Thank you.

Thank you. Our next question comes from the line of Kevin McVeigh with Credit Suisse. Please go ahead.

Great. Thank you. And let me add my congratulations. In terms of -- was the EBITDA kind of the boost to the 2020, was that all a result to the acceleration of the stranded costs or was it a combination of just the improving fundamentals as well. And then, just around the acquisitions the 10% and 30% growth, I mean really, really impressive growth. How does that look like as you scale that -- those deals across the core Thomson platform, I guess another way saying is, is there a way to think about what they can look like, is your cross-selling them across kind of the legacy business if you would?

Stephane, you answer the first one, I will take the second.

Yes. For the first question, sorry, 2020 EBITDA margin, it's a combination of the two factors. It's obviously the fact that we now at the level of content that we would be able to fully offset the stranded cost, so is Refinitiv, and it's also a reflection of the higher growth rate, which obviously comes with a pretty good flow through. And these two positive factors are offset by the slightly diluted impact of the acquisitions and the margins. But, all-in that I would say we feel comfortable at this stage that we can achieve a margin of about 31% next year, taking mix of these three factors if you want.

And on the second one, I think there's a significant opportunity for us to accelerate the growth rates on those business that are already growing much faster than our core business. But, when you think about the scale of our global network and our sales forces and these businesses are right at the right size to really, really benefit from that. And we look at them actually with our acquisition, the Practical Law company as a really good guide. And if you -- for those of you who are around then, you'll recall that we purchased the Practical Law company which had a great footprint in the U.K. and was a preeminent provider of know-how knowledge and checklists and things like that where attorneys were -- right in the middle of transactional deals and things. And they were expanding -- beginning to expand in the United States and getting a little too cold in the U.S. And when we took that business and then pumped it through our platform, it was a very successful business, but we tripled the size of that business in three years, right. And not only that, there are all kinds of knock on effects to our other online legal content businesses. And then, today, when we think about the workflow solution that we've designed for medium sized law firms, it's going to be based upon a marriage of the Practical Law taxonomy and workflow mapping, right. The matter of management maps married with our time and billing system [Onvio] [ph] who are customized kind of solution. So, those are the kind of things we're looking at to say, yes, we can take something that and give it a bigger Salesforce, a bigger global presence and immediately get some benefit, but also where the addition of a back capability married with what we already have can create something that's really special that we wouldn't have done on our own.

Makes a lot of sense. Congratulations again.

Thank you. Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Hi. [indiscernible] on for George. Thanks for taking my question. I was wondering, if you guys had a pretty healthy margin expansion in the quarter for legal and tax and accounting. I was just wondering, if you could discuss how we should think about expansion within the three core segments going forward. And then, also sorry I missed this, because you talk about what caused the corporate tax margin decrease a little bit on the constant currency basis?

Sure. Let me take that question. Let me start with the last part of your question. The corporate margin actually improved a little bit, which is not about performance if you take into consideration, the dilutive impact of the Integration Point acquisition that they did late last year. So, you still have that impact going through the numbers. Absent that acquisition the margins would have been more meaningfully. And in terms of margin performance for the three sectors -- the three segments, I guess you look at it, in the future, I would expect it's going to be a mix of these same two forces right. They should be good flow through know that all these businesses are growing at a pretty robust pace and you've seen the flow through essentially this quarter for the tax and accounting business and the legal business, which were not offset by the dilution impact. But, going forward, there's going to be for each of these businesses actually for all three businesses, a little bit of margin dilution coming from the recent acquisitions. So, I would expect margin expansion stays for these businesses, but not to the same extent as what you've seen recently.

Okay. Thanks.

Thank you. Your final question comes from the line of Tim Casey with BMO. Please go ahead.

Thanks. Jim, just looking at your increased confidence in the organic revenue growth, what's driving that? I mean are you seeing the benefits of the cross-sell? Is it more of a product mix or are you just seeing better market growth overall? Can you break that down for us? Thanks.

So, I do think there's some factor there and that's a healthy market. I mean, we look at our pure monitor index and we did see an increase in both demand and in headcount certainly in the legal sector. We do have a market in which particularly United States, incredibly complex tax changes that went into effect this year. So, there's no question, we do have a favorable market environment. I think frankly though that it's just focus matters right and our ability to focus on those core customers. And for management to get up every single day thinking about how we better serve those customers and working on the relationship with those customers and providing the kind of improvements to service that I think we're providing. As we look at what's driving it primarily is increased retention, right, and at this point. And we've got a new sales structure now in place, but if you think about it, they're really in their first quarter of selling in the new territories with the new offerings and with the new incentive schemes that we've put in and the commercial terms that we've put in. So, we're at the very, very early days of seeing success in that cross-sell up-sell stuff. What I can tell you, while its early days, we've seen it flow into the numbers. We do have a very exciting and excited Salesforce who is really learning a lot about how to do it and what we're learning is that the more we can tailor those cross-sell, up-sell opportunities to particular customers and segment, the better off it's going to be. But, that's early days. It's a decent market environment, yes, but its focus increasing retention, improving service and in the future, we've got a new form to Salesforce empowered by a lot more analytics and tools to better target those sales efforts and with a much broader bag to cross-sell, but early days of tapping into that and add to that opportunity.

Are the AI products suites, moving the dial yet?

Certainly Westlaw Edge. And if you look at just the phase of the rollout, the answer is, yes. The other two are really early days, but boy, oh boy, they got a lot of interest in the market.

Okay. Thank you.

Thank you. That was our final question.

Okay. Terrific. We'd like to thank you all for joining us for our second quarter call. We'll speak to you again in the third quarter late October early November. And hope you have a good day. Thank you.

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