Yahoo Finance Thomson Reuters Corporation (NYSE:TRI) Q1 2024 Earnings Call Transcript
Thomson Reuters Corporation (NYSE:TRI) Q1 2024 Earnings Call Transcript May 2, 2024
Thomson Reuters Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Thomson Reuters First Quarter Earnings Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Gary Bisbee, Head of Investor Relations. Please go ahead.
Gary Bisbee: Thank you, Maddie. Good morning, and thank you all for joining us today for our first quarter 2024 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. To enable us to get to as many questions as possible, we appreciate it if you'd limit yourself to one question and one follow up each when we open the phone lines. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of our business. Today's presentation contains forward-looking statements and non-IFRS financial measures.
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 may access these documents on our website or by contacting our Investor Relations Department. Let me now turn it over to Steve Hasker.
Stephen Hasker: Thank you, Gary, and thanks to all of you for joining us today. With many of you having spent several hours with us at our Investor Day in March, we plan to keep our remarks today concise and focused on our first quarter results. 2024 has started out on a strong note, with revenue and profits exceeding our expectations. Total company organic revenues rose 9% with the Big 3 segments growing by 10%. In addition, strong revenue flow through boosted margins, driving a healthy profit beat. To incorporate the Q1 upside, we are raising our full year 2024 revenue outlook and now see organic growth in a range of 6% to 6.5%, including 7.5% to 8% for the Big 3 segments, up from our prior outlook of approximately 6% and 7.5%, respectively.
While we are pleased with the strong start to the year, I would caution that the revenue upside was driven largely by transactional revenue and strength from seasonal offerings, which are unlikely to recur at this level through the remainder of the year. Mike will provide additional detail on our outlook in a few minutes. At our March 12 Investor Day, we discussed our innovation focus and why we are confident in our outlook for future revenue growth acceleration. As part of that discussion, we highlighted 2 important market dynamics that are providing what we expect to be long-term demand tailwinds for our business. The first is the rising complexity of regulatory compliance, and the second is generative AI. We believe our portfolio is uniquely positioned for these tailwinds, and we continue to invest heavily in innovation and our product road map as we seek to play a larger role in the success of our customers.
These efforts are contributing to the growing product momentum we see from many areas in our business. Our capital capacity and liquidity remain a key asset that we are focused on deploying to create shareholder value, and we have made good progress on this during the first quarter. In February, we raised our 2024 annual dividend by 10% to $2.16, we successfully acquired Pagero for approximately $800 million, and we repurchased approximately $350 million of our shares. Year-to-date, we have also sold approximately 11.7 million shares of the London Stock Exchange Group, or LSEG, generating gross proceeds of $1.4 billion. Looking forward, we remain committed to a balanced capital allocation approach, and we continue to assess additional inorganic opportunities.
Now to the results for the quarter. Our first quarter organic revenues grew 9%, improving from 7% in the fourth quarter of 2023. Organic recurring and transactional revenue grew 9% and 22%, respectively, while print revenue declined 10%, in line with our expectations. Reported revenue grew 8%. Adjusted EBITDA increased 19% to $806 million, reflecting a 390 basis point margin improvement to 42.7%. The margin expansion was driven by strong revenue growth and the timing of certain expenses. Adjusted earnings per share grew 30% from the prior year period to $1.11. Turning to the first quarter results by segment. The Big 3 businesses delivered 10% organic revenue growth, an all-time high and up from 8% in the fourth quarter of 2023. Legal organic revenue grew 7%, driven by continued gen AI momentum in Westlaw Precision and CoCounsel.
Demand for our key offerings remains healthy, led by Westlaw, Practical Law, CoCounsel, HighQ, and strong performance in our international markets, partially offset by lower growth at FindLaw. Corporate's organic revenue growth was 12%, up from 7% in the fourth quarter and well ahead of our expectations. Organic recurring and transactional revenue grew 11% and 16%, respectively. Very strong seasonal revenues were a key driver, with the inclusion of Pagero also boosting growth. Trust, Indirect Tax, Practical Law and our international markets were key growth drivers in the first quarter. Tax & Accounting organic revenues grew 14%, driven by recurring and transactional growth of 14% and 15%, respectively, strong seasonal demand for tax and audit products and an [indiscernible] comparison boosted growth.
And our Latin American operations, UltraTax, SurePrep and Confirmation were all key contributors. Reuters News organic revenues rose 17%, driven as expected by generative AI-related content licensing revenue that was largely transactional in nature. Excluding this, Reuters revenue grew modestly, driven primarily by the news agreement with the Data & Analytics business of LSEG. Lastly, Global Print organic revenues met our expectations, declining 10% year-over-year, impacted by the migration of customers from a Global Print product to Westlaw, which we discussed last quarter. And in summary, we're very pleased with the strong start to the year. Let me now hand it over to Mike to review our financial performance.
Michael Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the first quarter revenue performance for our Big 3 segments. Organic revenues improved sequentially from 8% to 10% in the first quarter, a new high watermark for the Big 3. Total revenue rose 9%, including the impact of acquisitions and divestitures. Legal Professionals organic revenue grew 7%. Key drivers from a product perspective remain Westlaw, CoCounsel, Practical Law, HighQ and our international businesses. Government grew 6% in the quarter, while FindLaw remains a headwind to the segment growth rate. Legal Professionals revenue growth also included a benefit of $4 million due to migrating customers from a Global Print product to Westlaw, as I previewed last quarter.
In our Corporate segment, organic revenues grew 12%, improving sharply from 7% in recent . Recurring revenue grew 11%, while transactional was up [indiscernible] 16% year-over-year. Several factors drove the improvement. Seasonal offerings contributed significantly, especially ONESOURCE tax information reporting within Trust and to a lesser extent, Confirmation. The inclusion of Pagero added roughly 30 basis points to organic growth. And Indirect Tax, Practical Law and our international segments all delivered strong growth. While this was clearly an encouraging result, there was a bit more than 2.5% contribution from items we see as unlikely to recur beyond Q1, including outsized tax information reporting revenue and select comparison favorability versus first quarter of 2023.
For Q2, we expect a return to growth rates closer to the 2023 trend than the first quarter level. Tax & Accounting also had a very strong quarter, growing 14% organically. Recurring and transactional revenue grew 14% and 15%, respectively. Seasonal revenue strength from SurePrep and Confirmation, along with continued robust growth from our Latin America businesses, were key drivers. In addition, we faced an easier comparison, as Q1 of 2023 included a minor revenue reserve that we called out last year. This benefited the segment revenue growth rate by nearly 2% this quarter. Moving to Reuters News. Organic revenue increased 17% for the quarter, driven primarily by transactional revenue from additional generative AI content licensing agreements as we had previewed last quarter.
Excluding this revenue, Reuters organic revenue increased approximately 3%. Lastly, Global Print organic revenues declined 10%, or 6% when excluding the impact from the revenue shift to Legal Professionals I mentioned earlier. This was in line with our expectations. On a consolidated basis, first quarter organic revenues grew by 9%. In total, the seasonal strength, which is unlikely to recur beyond Q1, along with the Reuters transactional content licensing revenue and select comparability items I mentioned, contributed approximately 2% to Q1 revenue growth. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $716 million, up 15% from the prior year period with a 45.8% margin. Segment margins rose nicely across all Big 3 segments, driven primarily by strong revenue growth and the timing of expenses.
We expect technology, product and acquisition integration spending to increase in the second quarter versus the Q1 spend level and persist at a higher level through the remainder of the year. Moving to Reuters News. Adjusted EBITDA was $60 million with a 28.3% margin. The significant profit increase from the prior year period is largely attributable to the revenue flow through from the aforementioned generative AI content licensing deals. We expect margins to return to more typical historical levels for the remainder of the year. Global Print's adjusted EBITDA was $47 million with a margin of 38.2%. In aggregate, total company adjusted EBITDA was $806 million, a 19% increase versus Q1 2023. Turning to earnings per share. Adjusted EPS was $1.11 for the quarter, up 32% from $0.84 in the prior year period.
The increase was mainly driven by higher adjusted EBITDA and a lower share count. Currency had no impact on adjusted EPS in the quarter. Let me now turn to our free cash flow performance for the first quarter. Reported free cash flow was $271 million, up 101% from $133 million in the prior year period. Consistent with previous quarters, this slide removes the distorting factors impacting our free cash flow. If you adjust for the discontinued operations component of our free cash flow and change program payments of $63 million in the prior year period, comparable free cash flow from continuing operations was $272 million, up $78 million year-over-year, primarily due to higher EBITDA. We continue to successfully monetize our stake in the London Stock Exchange Group.
In the first quarter, we sold 10.1 million shares for $1.2 billion of gross proceeds. This includes 7.5 million shares sold in a March block trade and 2.6 million shares sold through exercised call options. Yesterday, we sold an additional 1.6 million shares to LSEG for gross proceeds of approximately $175 million. Following these sales, our remaining stake is 4.3 million shares, which are eligible for sale in Q1 2025. Our tax basis on the remaining shares is approximately $100 million. For your math, we would assume a 25% capital gains tax rate on gains above $100 million. I will conclude with our updated 2024 outlook. As Steve outlined, we are increasing our 2024 total and organic revenue growth outlooks for TR and the Big 3 to incorporate the first quarter upside.
We now see total revenue growth of 6.5% to 7%, up from approximately 6.5%; organic revenue growth of 6% to 6.5%, up from approximately 6%; total Big 3 revenue growth of 8% to 8.5%, up from approximately 8%; and organic Big 3 revenue growth of 7.5% to 8%, up from approximately 7.5%. We are maintaining other 2024 guidance metrics, including adjusted EBITDA margins of approximately 38% and free cash flow of approximately $1.8 billion. I would note, our full year effective tax rate outlook remains approximately 18%, despite the first quarter coming in at 19.1%. We expect tax developments later in the year will bring the full year rate down to 18%. For the second quarter of 2024, we see organic revenue growth of approximately 6%, with the growth rates for our Corporates, Tax & Accounting and Reuters segments moderating as the Q1 seasonal strength wanes and above-trend transactional growth rates return to more typical levels.
We see a Q2 adjusted EBITDA margin of approximately 36%, reflecting a pickup in the pace of investments we are making in product, infrastructure and acquisition integration. Let me now turn it back to Gary for questions.
Gary Bisbee: Thank you. Maddie, we're ready to begin the Q&A.
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