Thomson Reuters Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: 2024 full-year organic revenue grew 7%, big three segments grew 9%. Adjusted EBITDA margin was 38.2%. Free cash flow was $1.83B.
• AI Investments: Invested over $200M in AI in 2024, including acquisitions like SafeSign and Materia. Expect to continue investing in 2025 and beyond.
• Acquisitions and Divestitures: Completed $1.6B in acquisitions in 2024, including Peguero and SafeSend. Divested Fine Law and two smaller non-core businesses.
• Dividend Increase: Raising common dividend by 10% in 2025, fourth consecutive year.
• TAP Segment: Fastest-growing segment, driven by talent shortages, regulatory complexity, and demand for advisory services. SafeSend acquisition bolsters tax automation strategy, expected to contribute ~$60M in 2025 revenue.

Segment Performance

• Legal Professionals: Q4 organic revenue grew 7%. Full-year organic revenue grew 9% (up from 7% in 2023). Key drivers: Westlaw, Co-Counsel, practical law, and international businesses.
• Government: Q4 organic revenue grew 4%. Benefited from migration of customers from global trans product to Westlaw, adding nearly $5M to year-over-year revenue growth.
• Corporate: Q4 organic revenue grew 10%. Recurring revenues grew 10%, transactions rose 12%. Contributors: practical law, direct tax, indirect tax, Peguero, Trust, and international businesses.
• Tax and Accounting Professionals (TAP): Q4 organic revenue increased 7%. Impacted by revenue mix seasonality and unfavorable revenue adjustment. SafeSend acquisition expected to contribute ~$60M in 2025 revenue.
• Reuters News: Q4 organic revenue decreased 3% (driven by tough comparison to prior year). Adjusting for generative AI-related transactional content licensing, it increased ~6%. Full-year recorded $34M from AI content licensing (up from $18M in 2023).
• Global Print: Q4 organic revenues declined 6% (or 4% excluding migration of customers from global print to Westlaw).

Guidance

• 2025: Organic revenue growth forecasted 7% to 7.5%. Adjusted EBITDA margin expected 39%, up 75 basis points from 2024. Effective tax rate expected to rise to ~19% in 2025 and 2026.
• 2026: Organic revenue growth forecasted 7.5% to 8%, driven by big three segments growing ~9.5%. Raised 2026 revenue growth targets for big three segments by 1%.
• 2025 Q1: Expect organic revenue growth 5% to 6%, adjusted EBITDA margin ~40%.

Risks

• Reuters Comparison: Difficult comparisons in Reuters due to prior year's generative AI transactional content licensing revenue, impacting growth rates.
• Revenue Adjustments: Unfavorable revenue adjustments impacted tax and accounting segment growth in Q4.
• Integration Costs: SafeSend acquisition may have fair value adjustment to deferred revenue, reducing reported revenue in 2025 by ~$22M, but expected to add ~$30M to $35M in incremental revenue in 2025.

Question and Answer

• Q: Talked about 2026 outlook, what gives confidence to raise segment growth numbers? A: Confidence comes from 2024 performance, underlying book of business, demand for Gen AI-enabled products, and strong Q4 performance in December.
• Q: Any changes in customer reaction to Gen AI products? A: Pleased with adoption of Gen AI products. Westlaw Precision AI ACV above 40%, Co-Counsel and Drafting adoption exciting. Gen AI adoption across customer segment at ~18% of ACV, ticked up from prior report.
• Q: Increased demands from new administration in Washington? A: Cautiously optimistic, too early to tell. Offerings in global trade, taxation, and government security may benefit, but uncertain how change will play out.
• Q: Sustainability of corporate segment growth? A: Sustained double-digit growth due to leadership under Laura Clayton Madonna, improved operational management, and benefit from Peguero acquisition.
• Q: ACV penetration across client sizes and pricing with Gen AI products? A: Penetration strongest in large law firms first, then mid-law and small law. Positive signs in pricing as Gen AI enables expanded role for customers, e.g., Westlaw Precision AI research memo and practical law drafting.