Thomson Reuters Corporation Q3 FY2025 earnings call

Key Points

• Momentum continued in Q3 with revenue in line and margins modestly ahead of expectations. Total company organic revenues rose 7% with the Big 3 segments growing by 9%.
• Healthy revenue flow-through, beneficial revenue mix, and good cost discipline boosted margins, driving profit ahead of expectations.
• Reaffirming full year 2025 revenue and profit outlook, including expectation for approximately 9% organic revenue growth for the Big 3 segments. However, total and organic revenue growth for 2025 is trending closer to 3% and 7% respectively due to temporary factors like slower ramp of commercial print volumes, U.S. federal government cancellations/downgrades, and softer bookings trends at corporates.
• Legal Professionals segment accelerated to 9% organic revenue growth in Q3, driven by Westlaw momentum and strong double-digit growth from CoCounsel and Cocounsel drafting. Other key franchises like SafeSend, Confirmation, Pagero, Indirect Tax, and international businesses also saw double-digit growth.
• Customer feedback on Agentic AI launches over the summer has been very positive, with initial sales trends encouraging for offerings like CoCounsel legal integrated offer, Westlaw advantage, and CoCounsel for tax, audit and accounting.
• Capital capacity and liquidity remain strong with a net leverage of only 0.6x at quarter end. Recently completed the $1 billion share repurchase program. Adjusted EBITDA increased 10% to $672 million, reflecting a 240 basis point margin increase to 37.7%.

Total company organic revenues rose 7% with the Big 3 segments growing by 9%. Legal organic revenue grew 9%, driven by Westlaw and CoCounsel. Corporate organic revenues grew 7%, with recurring revenue up 9% and transactional revenue up 5%. Tax & Accounting organic revenues grew 10%, driven by Latin America, SafeSend, etc. Reuters News organic revenue rose 3%, driven by the agency business and the news agreement with LSEG. Global Print organic revenues declined 4% year-on-year. In terms of revenue contribution, the Big 3 segments are a significant part, with Legal, Corporate, and Tax & Accounting each contributing to the overall organic growth.

2025 Outlook

• Reaffirming full year 2025 revenue and profit outlook, including expectation for approximately 9% organic revenue growth for the Big 3 segments. Total and organic revenue growth for 2025 is trending closer to 3% and 7% respectively due to temporary factors.

2026 Framework

• Updating 2026 financial framework to expect organic revenue of 7.5% to 8%, including approximately 9.5% for the Big 3. Now see larger year-over-year margin expansion and higher free cash flow than prior outlook.

Q4 Expectations

• Expect organic revenue growth of approximately 7%, including approximately 9% for the Big 3. Legal Professionals is likely to again deliver 9% organic revenue growth assuming no incremental government headwinds. Q4 adjusted EBITDA margin expected to be approximately 39%, which includes select one-time investments to transform and increasingly automate work.

• Slower ramp of commercial print volumes.
• Several recent U.S. federal government cancellations and downgrades.
• Slightly softer bookings trends at corporates following internal sales organizational changes aimed at improving future cross-selling. These are seen as temporary factors not related to AI innovation momentum.

Q: On government and corporate headwinds, what's recurring into next year?

A: For corporates, sales softness is temporary. Remain confident in the end market opportunity and the product set, with no more changes in the pipeline and very confident in the 9% to 11% organic revenue growth outlook for next year. For government, downgrades and cancellations occurred prior to the shutdown, and the shutdown has very minimal impact on quarterly revenue.

Q: Incremental competition in AI assistant space?

A: Core franchises like legal research and tax calculation engines have stable competitive dynamics. New players have entered the AI assistant space, which is a white space opportunity. CoCounsel remains a clear market leader in this space with aggressive product development plans and positive customer response.

Q: On the Tax & Accounting business, organic constant currency growth decels from 11% to 10%. Comment on that and confidence in accelerating to 11% to 13% in 2026?

A: Have some fluctuations quarter-by-quarter within the Tax & Accounting professional business. Remain confident in delivering 11% for calendar year 2025 and 11% to 13% for 2026. SafeSend acquisition in January is performing well, and recent acquisitions like Materia are additive. The end market is healthy with a critical need for talent, and Ready to Review and Ready to Advise propositions are expected to drive growth.