Thomson Reuters Corp. Q3 FY2026 earnings call

Financial Momentum:

• Total company organic revenue grew 10%, exceeding prior expectations.
• Adjusted EBITDA increased 10% to $651 million, though margins were impacted by severance expenses and discontinued operations reporting.
• Free cash flow was $408 million, down from $526 million due to working capital changes and higher taxes.

AI Innovation and Product Traction:

• Co-Counsel Legal NextGen surpassed prior version benchmarks on engagement and retention; active user base up >60% MoM.
• Launched BriefBuilder for litigation briefs, expanding from 5 to 24 types quickly.
• Introduced multinational profile covering 100+ jurisdictions.
• Launched next-gen Co-Counsel for Tax/Audit/Accounting, an agentic platform integrating with Excel and tax engines.

Strategic Partnerships:

• Partnering with Skadden Arps on a strategic AI design partnership using the 'Thompson' LLM to create sovereign AI solutions for top law firms.

Operational Efficiency:

• Peguero expanded to 90+ jurisdictions, capitalizing on global e-invoicing regulations.
• Thomson Reuters remains the only provider named a leader across four IDC MarketScape categories for transactional compliance.

Capital Allocation:

• Completed $600 million share buyback.
• Issued $2 billion in senior notes and repaid commercial paper.
• Received $500 million from sale of 51% stake in global print business to KKR.

Legal: Organic revenue grew 9%, driven by Westlaw and Co-Counsel Legal. The segment contributed significantly to the 'Big Three' growth, with law firm subsegments at or near record rates. Corporate (Tax, Audit & Accounting): Organic revenue grew 10%, driven by Co-Counsel for Tax and Audit, Latin American business, and SafeSend. Recurring revenue rose 8% while transactional revenue surged 23%. Peguero (Transactional Compliance): A key driver within Corporate, benefiting from e-invoicing mandates like France. The broader transactional compliance footprint is growing into the teens. Reuters: Organic revenue grew 12%, boosted by approximately $19 million in generative AI content licensing. Excluding this, growth was 7%. Reuters adjusted EBITDA margin was 24.3%.

Full Year 2026 Outlook Updated:

• Total Revenue Growth: Raised from ~8% to ~9.5%.
• Organic Revenue Growth: Raised from ~8% to 8.5%-9%.
• Big Three Revenue Growth: Maintained at 9.5%-10%.
• Adjusted EBITDA Margin: Forecast at ~39% (includes discontinued print impact); underlying margin outlook unchanged.
• Free Cash Flow: Maintained at ~$2.1 billion.
• Capex: Expected at 8.5%-9% of revenue.

Fourth Quarter 2026 Guidance:

• Organic Revenue Growth: Expected ~8%.
• Adjusted EBITDA Margin: Expected ~42%.
• Note: Q4 will see flattish Reuters growth due to lapping AI licensing revenue and tougher comps.

2027 Outlook:

• Management anticipates reinvesting a portion of operating leverage to drive medium-to-long-term growth through AI investments.
• Detailed 2027 guidance to be provided in Q4 call (February).

Discontinued Operations Reporting Impact:

• Reporting global print as discontinued operations diluted Q3 margins because royalty income and TSA reimbursements from the buyer (Westbridge Print) are not yet included in TR's results.
• These revenues/expenses will begin impacting consolidated results in Q4.

Margin Pressures:

• Increased Large Language Model (LLM) costs associated with AI features.
• Severance expenses related to workforce restructuring initiatives.
• Minor dilution from bolt-on M&A.

Revenue Moderation Risks:

• Transactional revenue expected to moderate in Q4 following large implementation spikes (e.g., France).
• Reuters facing tougher comparisons and potential security-related event cancellations.

Q: Analyst asked about the sustainability of legal growth post-Westlaw Advantage and if Co-Counsel can maintain momentum. / A: Steve Hasker confirmed strong runway for Westlaw Advantage (e.g., BriefBuilder expansion) and emphasized that Co-Counsel addresses a white space opportunity. He noted a 5-10 year TAM expansion as firms shift spend from people/real estate to technology. Co-Counsel’s native access to Westlaw and Practical Law differentiates it, with management confident in winning share of this expanding market despite being early innings.

Q: Analyst inquired about the drivers of soft legal margins in Q3 and whether 2027 margins would suffer due to reinvestment. / A: CFO Gary Bischoping cited severance, NOETICA drag, and rising LLM costs as factors, but noted these are offset by premium pricing and demand upticks. CEO Steve Hasker pushed back on 'softness,' noting results beat August forecasts. He explained that while operating leverage is strong, the company is choosing to reinvest proceeds into AI accelerators (like Thompson model and new products) to drive future growth, rather than maximizing short-term margins. This investment choice may temper near-term margin expansion but is designed to accelerate revenue long-term.

Q: Analyst asked about the Thompson LLM strategy—whether it serves as a cost mitigator or revenue generator via partnerships like Skadden. / A: Hasker outlined two vectors: 1) Cost mitigation by moving token-heavy tasks (bulk review) to the proprietary Thompson model, enabling speed/accuracy/cost advantages and supporting 'all-you-can-eat' pricing. 2) Revenue generation via sovereign AI solutions for sophisticated firms like Skadden, allowing them to run models behind firewalls to protect IP. While too early to quantify revenue impact, this partnership validates the model's potential to become a significant revenue stream.

Q: Analyst questioned if Q4 revenue moderation reflects underlying weakness in Legal/Tax segments or just lower Reuters/Transactional contributions. / A: CFO Bischoping stated there is no material change expected in Legal or Tax/Audit growth trajectories for Q4; they expect to sustain Q3 levels. The moderation is primarily driven by flattish Reuters growth (lapping AI licensing revenue) and a natural moderation in transactional revenue after the large France e-invoicing implementation spike in Q3.