Ladies and gentlemen, thank you for standing by, and welcome to the Thomson Reuters Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] And as a reminder, your conference is being recorded. I would now like to turn the conference over to your host, Frank Golden, Head of Investor Relations. Please, go ahead.

Good morning and thank you for joining us today for our third quarter earnings call. This morning, I'm joined by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will report our results and will take your questions following our presentation. They will also set up our outlook of the balance of the year. To enable us to get to as many questions as possible, we would appreciate it if you would limit yourselves to one question each and then follow-up when we open the phone lines. Throughout today's presentation when we compare the performance period-on-period, we discuss revenue growth rate before currency, as well as on an organic basis, as we believe this will provide the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties related to the COVID-19 pandemic and other risks discussed in reports and filings that we provide from time to time to our regulatory agencies. You may access these documents on our website or by contacting our Investor Relations department. Now, I'll pass to our CEO, Steve Hasker.

Thank you, Frank, and thanks to all of you for joining us today. We're very pleased to report our markets and businesses continue to prove resilient in the face of a challenging broader macro environment. Our third quarter results were above our expectations across the group from the top line to the bottom line. Our customers are adapting to a new cadence in this environment, and we continue to adapt and support them in their evolving ways of working, and this partly explains our strong performance. In the third quarter, we exceeded each of the revenue guidance metrics, we previously provided. Revenues on a consolidated basis and for the Big 3 were well above our outlook. Total company recurring revenues and transaction revenues each increased 4% organically. And the Big three businesses, Legal, Corporates and Tax & Accounting, posted solid organic revenue growth of nearly 5%. Based on our performance for the first nine months of the year, we have increasing confidence as we look for the balance of the year and 2021. Let me now turn to the results for the third quarter. Reported revenues were up 2%. Organic revenues were up 2.5%, and revenues at constant currency were up 3%. Adjusted EBITDA increased 42% to $491 million, reflecting a margin of 34%. Strong revenue growth, the effective implementation of cost-saving measures we began at the end of the first quarter in response to COVID-19 and not having incurred onetime costs in Q3, as was the case in the prior year period, all contributed to strong EBITDA growth. This strong performance resulted in adjusted earnings per share of $0.39 versus $0.27 per share in the third quarter of last year. Turning to the segments. As I mentioned, the Big 3 businesses achieved organic revenue growth of 5%. Legal had…

Thank you, Steve. And thanks to all of you for joining us today. As a reminder, I will talk to revenue growth, before currency and on an organic basis. Let me start by providing some color, on the revenue performance of our Big 3 segments. Revenue growth for the Big 3 was up nearly 5%, with organic revenues also up nearly 5% for the quarter, both above the ranges we provided, in the second quarter. For the quarter, Legal Professionals revenues increased 4%. And organic revenues were up 3%. Recurring organic revenue growth of 4% was partially offset by a 4% decline in transaction revenues. This decline was due to a timing delay, in our FindLaw business. And Westlaw Edge continues to contribute over 100 basis points to Legal's organic growth, while continuing to maintain a healthy premium. Our Government business had another strong quarter, with total revenue growth of 12%, of which 9% was organic growth. In our Corporates segment, both total revenues and organic revenues were up 5%, driven by our legal and tax solutions. And finally, Tax & Accounting's total revenues grew 3%, with organic revenues up 10%. The difference between total growth of 3% and organic growth of 10% was mainly related to the sale of our Government Tax business, in November 2019. Also, Tax & Accounting's organic revenues were boosted 380 basis points, due to the shift in pay-per-return filings to Q3 from Q2, related to the extension of the U.S. federal tax filing deadline, to July 15. Excluding this benefit, organic revenues were still up, a healthy 6%. We expect Tax & Accounting's organic revenues will increase between, 5% and 7% in the fourth quarter. Moving to Reuters News, revenues declined 1%, with organic revenues down 2%, mainly due to softness in the agency…

Thanks very much, Mike and Steve, and that concludes our formal remarks. So operator, we'd like to open the call now for questions, please.

[Operator Instructions] There are no questions in queue at this time. [Operator Instructions]

Let's give it a moment, Laura. I think we're having some technical difficulties.

In one moment please. In one moment, you are gong to hear a different voice than mine to give tune.

Thank you Laura.

You’re welcome. Our first question comes from Andrew Steinerman with JPMorgan.

Thank you.

Okay. Good morning everybody. Could you hear me?

Good morning Andrew, we can hear you loud and clear.

Okay, great. So for 2020 to have the EBITDA margin guide to be, let's just say, just 32%, the fourth quarter implied guide is below 30%. So I was wondering if you could give us a sense of the level of stepped-up OpEx investments for growth initiatives. And are those specific to fourth quarter?

Yes, Andrew, we will have three categories of OpEx investments in Q3. As you referenced, there will be a portion that's related to organic growth. I'll give you a few examples. Within our Legal business, our Practical Law, which supports both our Legal Professionals and Corporates segments, that's led by Elizabeth Beastrom, we are increasing our investments in Practical Law in Q4. Sticking with Legal, HighQ, which we acquired in July of 2019, will receive incremental investments. In the Government business, which is reported as Legal, we'll continue to make investments there, which is led by Steve Rubley. Within Tax & Accounting professionals, the [indiscernible] business led by Charlotte Rushton, we're continuing to make investments there, and lastly, within the Corporates segment, indirect tax with Brian Peccarelli. So a number of organic growth investments, Andrew, in Q4. In addition to those organic product investments, we will also make some investments to improve our end-to-end customer experience. And lastly, Andrew, we're making some investments to drive some efficiency initiatives. So to your point, there is a sizable amount of investments in Q4 related to OpEx. While on the topic of Q4 investments, we're also making some incremental investments on the capital side in Q4. And those would be correlated to the product investments I referenced earlier, so both some capital and OpEx investments on the product organic growth side, Andrew.

Okay. Thank you very much.

Indeed.

Thank you. Our next question is from Toni Kaplan from Morgan Stanley. Please go ahead.

Thank you. Your new sales in Legal looked pretty strong this quarter. Just hoping you could give a little more color on what you're attributing it to. Is there anything onetime in there? And I know you mentioned the Government business was strong, not sure if you're expecting that to continue at that pace. I know you just mentioned that you're investing in it, but that was pretty strong at 9%. And just wanted to understand how much is price-driven versus cross-selling and how much is taking market share from competitors or mix? Just any color on the Legal environment in new sales? Thank you.

Yes. Toni, I'll start and ask Steve to supplement. I'll start on the macro, Toni. In Q3, we were very pleased that our overall total TR net sales for Q3 actually exceeded our original plan this year. We did have a shortfall in Q2, but Q3, we actually exceeded the original plan. That's for total TR. To your point, Toni, Legal experienced a very strong Q3 from a revenue and sales perspective. The Government business, as you mentioned, was a key contributor, and we expect that to continue to grow at double-digit. It was 9% organic in Q3. We'd expect similar performance in Q4. Toni, Westlaw Edge continues at the same pace in Q3 and actually also in October, the Westlaw Edge sales, both from a volume perspective and a price premium perspective, continue there. From the standpoint of pricing for total TR, Toni, we have completed about 85% of our price actions through Q3 for the full year. We're seeing similar price increases for total TR in 2020 that we experienced in 2019. Steve?

Yes. Toni, just to add to that. I think we -- when COVID hit, we just simplified our playbook and put an exhaustive focus on our customers. And I think the Legal team as one example, the Government team as another example have done very good job of focusing on our customers. And they supported, of course, by some strong products like Westlaw Edge and Practical Law and the recent acquisitions in and around our Government segment. So kudos to the teams for taking that playbook and really executing it. And I think that's been reflected in the strong Q3.

And Toni, I make a final point. As a reminder, Q4 of 2020, similar to prior years, is always our largest quota quarter for any given year. So we're closely monitoring it. October is trending well thus far.

Thanks so much.

The next question is from Sami Kassab from Exane. Please go ahead.

Good morning, Sami. Welcome back.

Thank you very much, Frank. Good morning, gentlemen. I also have a question on the competitive environment with regards to Westlaw. It seems that on the one hand side, we are fast scaling trying to push up market. We have Lexis Plus and their bundling strategy. To what extent, would you characterize the competitive environment as being similar to what it has always been or perhaps to be somewhat more intense, given competitors movement, please?

Yeah, Sami, I'll start, and I'm sure Mike will add. Look, we're very focused on Westlaw Edge, continuing to innovate around Westlaw Edge and partnering with our customers, big and small, to make sure that those innovations are solving our customers' issues and making their lives more productive and more efficient. We're more focused on that than we are on any of the competitive issues. And what I would say is that we haven't really seen much change in the market dynamics in recent times.

Thank you very much.

Our next question is from the line of Tim Casey from BMO. Please go ahead.

Yeah. I was wondering, could you just break out a little the investments you're making in the near term between CapEx and OpEx, what you're trying to drive there. And you mentioned you do expect capital intensity to decline. Maybe you could just flesh out a little bit there maybe by how much or what's going to lead to that decline? Is it going to be revenue growth against a flat CapEx, or would you expect CapEx in absolute dollars to decline? And if so, where would you see that decline? Thanks.

Sure. Tim, we will be providing our 2021 full year guidance in February, when we report Q4. As we go into 2021, 2022, 2023, I think the overall capital intensity percentage capital as a percent of revenue will decline there. I think we'll see continued top line growth. As part of that, with the recent additions to our leadership team of Kirsty Roth and David Wong, we're quite optimistic that our efficiency productivity per dollar invested will continue to improve and scale as we move forward. We are intentionally doing some additional investments in Q4, because we think we have the opportunity to capitalize on some near-term opportunities and also address some recent feedback from our customers.

Thank you.

Thank you. And our next question is from the line of George Tong from Goldman Sachs. Please go ahead.

You have Ryan on for George. I was just wondering, if you guys could give monthly transaction revenue trends – and how those progressed as in November. And then, I was also wondering, if you guys mentioned what the kind of Legal customers that migrated to Westlaw Edge headquarter as of today. And then you guys are planning to deal with those by the end of 2020 or – even 2021, if you look that far.

Sure. In regards to transactional revenue, it's certainly quite seasonal. And that varies by not only our segments, but by our sub-segments within. Transactional revenue continues to be about 10% of our total revenue, and it is a little choppy month-to-month or quarter-to-quarter for us. In regards to our Legal Westlaw Edge, through 9/30, we were at 46% penetration from an annual contract value, ACV, perspective. As we approach December 31, we're estimating 50% to 55%. Consistent with my comment to Toni, Q4 is a heavy quota period for us within our Legal business. So the trend there could be in the 50% to 55% range by year-end. We will share an update, Ryan, for 2021 Westlaw Edge penetration in February Q4 earnings call.

Great. Thank you.

Sure.

Thank you. Our next question is from Gary Bisbee from Bank of America. Please go ahead.

Hey, guys. Good morning. The – I guess, if I could ask first on just the Q4 investments. Can you help us frame out a little more? Should we think that this is really onetime opportunistic, because you're ahead of plan and you've got a pipeline of opportunities you can invest in to help growth in the future, or are some of these investments that, Steve, with your time there as you're flushing out your strategy, you see areas where you need investment that could persist beyond Q4? Thank you.

Yes. Gary, a combination of both. Certainly, we've been focused on it this year. We said externally our target for $100 million for our cost savings. We were optimistic that we could at least hit the $100 million. And with great leadership from throughout our team, we saw trends as we approached early Q3 that we could exceed the $100 million. So we quickly pivoted to the areas that we could accelerate in Q4, things that we certainly thought we could do in 2021. So we are making some intentional pivots, Gary, to accelerate some items that we had slated for early 2021. And our viewpoint is they would benefit our customers and shareholders. So let's move forward with them now. As we go into 2021, are there additional areas that we feel like we'll need to invest in? Definitely, yes. We're in the process now of sequencing those investments with our leadership team.

Gary, just to provide a bit more color to that. I think when we saw COVID hit and like everyone anticipated sort of hoped for the best and prepared for the worst. Mike was very quick to look at some areas of spend that we didn't think were productive, and that was the $100 million cost target. We well and truly exceeded that as we sit here today on November 3, and that's enabled us to reinvest. And as we said, some of it is onetime and some of it leads into a broader transformation program for us. As I mentioned, we've got 350 products. We've got dozens of websites, e-commerce sites, document management systems, call centers. And they add up to a customer experience that has room for improvement. And so what you'll see us do is stop that now, that investment program now and continue it. And we're very confident that the end result will be a dramatically improved customer experience.

Gary, if I could just add just a little bit more color for transparency. I stated back on August 5 through Q2, we had achieved roughly $70 million worth of the savings target. Through 9/30, we're at roughly $130 million, Gary, just to give you magnitude. And we'll continue to work on that Q3, Q4, which is providing us with the funding capacity to drive these investments in Q4.

That's really helpful. Thanks. And if I could just ask one more sort of bigger picture question. While you're still -- it sounds like you're still developing the plans here going forward. Three things that have -- you've said since you arrived, both of you into your roles, changing the customer experience or improving that is important, opportunities to invest in technology for several different outcomes and significantly reducing complexity are sort of three of the key themes you're working on. How do we think about, at this point, time line? I mean, is each of the three of those multi-year type process that it will take to get where you want to be or one or more of them areas where you can have meaningful success more quickly? I realize you'll probably lay out plans for us in the future. But any color on how we think about? How quickly you can achieve real progress on those three key initiatives? Thank you.

Yes. Gary, as you said, those are sort of integral to our aspirations and to the plans. And the first one is the most important, which is the customer experience. The customers value our content. And they value -- in a lot of cases, they value our people and the relationships they have with our people, but the customer experience isn't as good as it needs to be. So that's really the principal area of investment. In terms of timing, Kirsty Roth has been with us three months. David Wong has been with us a bit longer than that. And we're working very closely as a team on developing that program. The only thing I'd say about timing is that we'll have a lot more to say about it in 2021, obviously. We're going to execute with urgency. So we're going to move through it as fast as we can. And the urgency of the team, I think, is there, and we'll continue to work on that. We don't want to make any sort of a transformation program longer than it needs to be.

Gary, I would just add in the three themes that you mentioned, customer experience, tech investments and decreasing complexity, digital really permeates all three and will be a really, really key aspect as we move forward. At the same time, with Brian Peccarelli and the go-to-market leaders, Gary, things like cross-sell, in addition to those areas you mentioned we're still in the early innings there, Gary.

Okay. Thank you.

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

Great. Thank you. And realizing it's early, but you talked about the transition of the operating company, any sense of what that means for revenue growth and just margins over time kind of beyond what you framed already?

Yeah, Kevin, a little bit early yet. So we'll have more detail in February. I would reference two items, Kevin that we've talked about in the past with you, value creation model that we initiated back in December 2018 and Steve referenced again today. We remain committed to that value creation model in the upper-left quadrant in regards to organic and inorganic growth opportunities there. And then the second pointing to December 2018 Investor Day, we shared at that time for Tax & Accounting Professionals by 2020 6% to 8% organic; Corporates 6% to 8%; and Legal, 4% to 5%. I think those broad ranges that we provided at the December 2018 Investor Day are reasonable kind of metrics for you to think about as we move into 2021.

Got it. And then just real quick, as you talked about just streamlining the number of products, is that in the core Big 3, or would that be a potential sale of Print or Reuters News, like would they fall on the 350? Are they outside of that band?

The 350 are in the Big 3.

Okay. Thank you.

Thanks, Kevin.

Our next question is from Manav Patnaik from Barclays. Please go ahead.

Hi. This is actually Greg calling in. I was just hoping to get an update on Checkpoint Edge and the momentum on the sales there?

Sure. Checkpoint Edge launched on Q3 of 2019. We're continuing to make progress with it. Not as significant as progress as Westlaw Edge, but it's a key product for us, well received by our customers. And as we move forward, I think we'll continue to see continued momentum there. It's another product that our engineering team really leveraging AI for us. So pleased with the progress, but we have more opportunity.

Our next question is from the line of Drew McReynolds from RBC. Please go ahead.

Thanks very much. Good morning. Maybe for you, Mike, in terms of capital returns -- sorry, I'm getting a big echo, but I'll continue here. You have a cash tax bill that will come with the closing of the LSE stake. Maybe can you provide an update on where you stand on share repurchases? And maybe one for you, Steve, on the M&A environment. Can you comment to what extent how it's trended through COVID here for the first seven months? And what kind of opportunities you see out there? Thank you.

Sure. Let me address the first part, Drew. Just in regards to the cash taxes with LSEG, we do have multiple options there in regards to the payment of the estimated $600 million. Just to remind everyone, we do have the option to sell proportional amount of our LSEG shares upon closing in Q1 of 2021. So that's an option for us. We also have some other non-core minority investments that we can monetize to pay that. And then certainly we have $1.3 billion of cash on hand today, Drew, and a significant amount of capacity with our credit facility. So we're very comfortable in managing through all of those cash needs. Drew in regards to share repurchases, we do not anticipate any additional share buybacks this year. As we go into 2021, we have our January Board meeting, so we'll be discussing with our Board at that time.

And then, Drew, in terms of the M&A, as you know, we've done two small acquisitions this year, and we're very happy with the progress of those. We've been very focused on ensuring that they perform as they should or even better than our expectations. When COVID hit, we certainly saw seizing up of M&A activity across the board. I think, in recent months, things have returned. There is M&A activity that we can point to in and around our Big 3. We have both a short list and a long list of things within the Big 3 that we're interested in, but we're being very rigorous about pursuing acquisitions, and we will continue to be very rigorous. We look at, first and foremost, will they enhance our customer experience, and so is it in our customers' experience. Secondly, we want to acquire, make acquisitions that reduce our complexity, not increase our complexity. And we want to make sure, thirdly, that we're an advantaged owner and that, from a valuation standpoint, it all adds up. And obviously, valuations have stayed high. So we're going to continue to work on that list and refine our thinking. But we'll be very rigorous about any acquisitions we pursue.

Thank you.

Operator, we'll take one more question, please.

Thank you. And that question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. I wanted to touch on the legal segment again, given the strength there. Remind us that the exposure to the small law firms within the division, as well as how that subspace did during the last couple of quarters, including collections and as such. Thanks.

Sure, Aravinda. I will start and ask Steve to supplement. In regards to small law, it's roughly one-third of our total revenue, Aravinda. That's led by market add, on Paul Fischer's team there. Certainly, back in March, April, there were some choppiness in our FindLaw business as COVID-19, but we quickly rebounded. As we ended Q2, we had a very good Q3, with the overall small law firm business. Collections, we identified collections within small law, tax and legal as an area of focus. Very pleased with the collections that we've incurred over the last seven months from all of our customers, including the small law, legal and tax there. So small law, overall, doing very well.

Yes. Just to add to that, Aravinda, I think as Mike said, we're monitoring this very carefully. And I would say, so far, so good. And that's illustrated, as Mike said, in our third quarter results. And we're going to continue -- I think, we're sort of cautiously optimistic, but we're cautious as to what we'll see. I do think in the longer term, the smaller segment, whether that's in Legal, Tax & Accounting or Corporates, is an opportunity for us. And as we improve that customer experience and make that customer experience more digital, we expect to see some broader upside, but that is a longer-term aim rather than shorter-term aim for us.

Thank you.

So that will be our final question, and that will conclude our call. We'd like to thank you all for joining us. As Mike and Steve said, we'll provide you with an update on our 2020 plans and our guidance in February when we report Q4. So until then, take care. Thanks very much.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.