Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Thomson Reuters Corp (TRI, Financial) reported a 6% increase in total company organic revenues, with the Big 3 segments growing by 8%.
- The company raised its full-year 2024 revenue outlook to the high end of prior ranges, now expecting organic growth of approximately 6.5%.
- Strong performance from key products like Practical Law, Confirmation, SurePrep, Pagero, and Indirect Tax, as well as international businesses, contributed to double-digit growth.
- Interest in Generative AI offerings remains strong, with positive customer feedback on new products like CoCounsel Drafting and Checkpoint Edge with CoCounsel.
- Thomson Reuters Corp (TRI) completed the monetization of its stake in London Stock Exchange Group, bringing gross proceeds to $8.3 billion, and completed a $1 billion share repurchase program.
Negative Points
- Adjusted EBITDA fell 2% to $646 million, reflecting a 300 basis point margin decline to 37.1%, due to organic and inorganic investments.
- Global Print organic revenues declined 7% year-on-year, impacted by the migration of customers from a Global Print product to Westlaw.
- FindLaw remains a headwind to the Legal Professionals segment growth rate.
- The company expects the third-quarter margin to be the low point for the year at approximately 34%, due to increased investment spending during the seasonally lowest revenue quarter.
- Despite strong performance, the company faces elongated sales cycles in the Corporates segment, which may impact future growth.
Q & A Highlights
Q: Can you provide an update on the M&A environment and the competitive landscape, particularly around AI and GenAI?
A: (Stephen John Hasker, CEO) We have a new Head of Corp Dev and Strategy, Taneli Ruda, who has brought a fresh perspective to our pipeline. We're assessing various opportunities, focusing on products that show real value to our customers. On the competitive front, we see increased activity from traditional competitors and start-ups, which we view positively as it validates the potential of Generative AI to transform the professions we serve.
Q: Are you starting to get a better sense of the efficiencies that Generative AI might bring to your customers?
A: (Stephen John Hasker, CEO) It's early days, but our Future of Professionals Report indicates that applying our CoCounsel legal AI assistant could save four hours per week per lawyer, potentially growing to 12 hours per week in a couple of years. This could significantly impact sizable general counsel's offices or law firms.
Q: How are customers responding to enterprise-wide deals for Generative AI products?
A: (Stephen John Hasker, CEO) We see a normal distribution: some customers are very forward-looking and adopting enterprise-wide deals, while others are in a test-and-learn phase. Our teams are ensuring that each customer persona is catered to, whether they are ready to go all-in or prefer to start with targeted initial deals.
Q: Is there potential for share shifts in the market due to AI and GenAI rollouts?
A: (Stephen John Hasker, CEO) It's too early to tell. We are focused on serving our customers in new and improved ways, creating more value and driving more profit for them. While we respect our competitors, we are confident in our investments and trajectory.
Q: How are the organic sales in the legal segment trending, excluding the print shift?
A: (Michael Eastwood, CFO) The legal segment's organic growth rate was stable in Q2 compared to Q1 but nearly 200 basis points higher than Q2 2023. We expect a modest improvement in the second half of the year, driven by products like Westlaw, Practical Law, CoCounsel, and our international businesses.
Q: How are you thinking about ROI for TR Ventures, and is there potential for additional investment?
A: (Michael Eastwood, CFO) We are prepared to make additional investments in TR Ventures as we go into 2025 and beyond. We apply similar financial metrics and rigor to Ventures as we do to other parts of our business, focusing on both financial and strategic returns.
Q: What factors contribute to the expected margin deceleration in the second half of the year?
A: (Michael Eastwood, CFO) Four factors contribute: the lowest revenue quarter due to seasonality, organic investments, integration-related costs from recent acquisitions, and higher incentive compensation expense due to exceeding revenue expectations. Despite this, we remain committed to achieving our full-year EBITDA margin guidance of approximately 38%.
Q: Is there potential for revenue augmentation for law firms adopting AI, or is the focus mainly on cost savings?
A: (Stephen John Hasker, CEO) It's too early to declare definitively, but we see customers focusing on both revenue augmentation and cost savings. Some innovative customers are experimenting with new lines of business using our products, while others are looking to reduce costs.
Q: What feedback have you received from early adopters of CoCounsel, especially on reliability?
A: (Stephen John Hasker, CEO) Feedback has been very positive. We disagree with the findings of the Stanford study, which did not cover CoCounsel. Our internal testing shows an accuracy rate of 90% for Westlaw Precision AI-assisted research, and customer testing supports this.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
