Earnings Call: Thomson Reuters Sees Steady Growth and Investment in Artificial Intelligence

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Earnings Call: Thomson Reuters Sees Steady Growth and Investment in Artificial Intelligence

Thomson Reuters (TRI) reported a 7% organic revenue growth and a 9% increase in its Big 3 segment for the third quarter of 2024, announced on October 30, 2024. The company raised its full-year organic revenue growth forecast to approximately 7%, with the Big 3 segment expected to grow around 8.5%. Despite the positive growth, adjusted EBITDA fell 4% to $609 million, and adjusted earnings per share slightly decreased to $0.80. The company also announced the sale of its FindLaw business, which is expected to boost organic revenue growth by 30 basis points.

Key Points:

  • 7% organic revenue growth and 9% increase in the Big 3 segment.
  • Full-year organic revenue growth outlook adjusted to 7%, with 8.5% for the Big 3.
  • Adjusted EBITDA at $609 million, down 4% year-over-year.
  • Adjusted earnings per share at $0.80, a slight decrease from $0.82 year-over-year.
  • Free cash flow for the first nine months increased to $1.40 billion, a 12% rise.
  • Sale of FindLaw to Internet Brands for up to $410 million.
  • Significant investments in artificial intelligence, with annual spending exceeding $200 million.
  • Strategic acquisitions of Safe Sign Technologies and Materia to enhance AI capabilities.
  • No share buybacks in Q3 and Q4 of 2023 due to interest rate conditions.

Company Outlook: The company is focused on delivering value through innovation and strategic acquisitions. Further guidance for 2025 and 2026 will be provided in February 2025. Due to OECD global minimum tax regulations, the effective tax rate is expected to rise to 19%-19.5% in 2025.

Points Indicating Decline:

  • Adjusted EBITDA and earnings per share showed slight declines year-over-year.
  • The company expects losses from Safe Sign and Materia's early-stage ventures in 2025.

Points Indicating Growth:

  • The sale of FindLaw is expected to positively impact organic revenue growth by approximately 30 basis points.
  • The company is optimistic about integrating new talent from Materia, especially in the Tax & Accounting and Audit segments.

Shortcomings:

  • Despite the upward revision of revenue growth outlook, total revenue growth guidance remains unchanged due to the divestiture of FindLaw.
  • No share buybacks in Q3 and Q4 of 2023 due to unfavorable interest rate conditions.

Key Q&A Highlights:

  • No NCIB or share buybacks in Q3 and Q4, potential NCIB in 2025 dependent on interest rates.
  • Casetext is meeting or exceeding expectations, with growth in the CoCounsel product and international expansion.
  • The sale of FindLaw does not indicate a diminished focus on small law firms, which still represent over 25% of legal revenues.
  • Key drivers of the 7% revenue growth forecast include pricing and improved new sales, particularly in the corporate segment.

Thomson Reuters continues to demonstrate resilience and growth despite a challenging macroeconomic environment. The company's strategic investments in artificial intelligence and its focus on client success indicate a secure long-term outlook. As Thomson Reuters prepares for further developments in 2025 and beyond, investors and industry observers will closely monitor the impact of these initiatives on the company's financial performance and market position.

InvestingPro Forecasts: Thomson Reuters' latest earnings report aligns with several key metrics and forecasts from InvestingPro. The company's 7% organic revenue growth and increased full-year guidance reflect its strong market position supported by an estimated market value of $77.12 billion.

One InvestingPro tip emphasizes that Thomson Reuters has "maintained uninterrupted dividend payments for 36 years," showcasing the company's financial stability and commitment to shareholder returns. This is particularly significant given the increase in free cash flow to $1.40 billion in the first nine months, reflecting a 12% year-over-year rise.

Another important InvestingPro tip notes that Thomson Reuters is "trading near its 52-week high," with the stock price at 96.8% of its 52-week peak. This demonstrates continued investor confidence in the company's performance and outlook, despite the slight declines reported in adjusted EBITDA and earnings per share.

The price-to-earnings ratio of 32.95 reported by InvestingPro indicates that investors are willing to pay a premium for Thomson Reuters' shares, likely due to the company's strong market position and growth expectations from its strategic acquisitions in AI.

It is worth noting that InvestingPro has provided 16 additional tips for Thomson Reuters, offering investors a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable for those looking to make informed decisions in light of Thomson Reuters' latest earnings report and strategic maneuvers.