Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the third quarter earnings Conference call. At this time all participants are in listen only mode. If you like to ask the question you may do sold by pressing star one.
A reminder, this conference is being recorded on the like the turn the conference over to senior Vice President Investor Relations sprinkled in please go ahead.
Good morning, and thank you for joining us today.
Our CEO , Jim Smith, our CFO , Stephane Bello or do the results for the third quarter and we'll update you on our outlook for the balance of the year and also for 2020.
When we open the call for questions. We'd appreciate it could limit yourselves to one question each to enable us to get to as many as possible.
Now before we get started there is one accounting item I will call out and that is our financial statements for the fourth quarter of 2018, and the first and second quarters or 2019 had been revised to correct. The nonmaterial misstatement in each period related to our equity interest in roots in it.
It's been statement had no impact on revenues adjusted EBITDA adjusted earnings per share or free cash or free cash flow for any period.
We posted a revised financial information on our website. This morning, and will provide revised financial statements and our regulatory filings.
Now throughout todays presentation, when we compare performance period on period, we discuss revenue growth rates for currency as we believe this provides the best bases to measure the underlying performance of the business.
In today's presentation contains forward looking statements actual results may differ materially do a number of risks and uncertainties discussed and reports and filings we provide a regulatory agencies.
You can access these documents on our website or by contacting our Investor Relations Department.
Our third quarter results reflect the progress we continue to make across the business.
These are now view by many customers as a competitive differentiator and we're helping to drive sales and revenue growth.
Secondly, these new solutions are leading to higher retention rates, including historic high rates in our legal segment exceeding 90% overall with large law firms at 100% customer retention year to date.
And thirdly, our new customer led approach to building open platforms is resonating in the market.
We're also working with our customers integrate not only a number of our previously disconnected products, but also other tools and database and they need onto our underlying platform.
A more we can integrate our offerings the more tools and capabilities, we can offer our customers.
Growth is also supplemented by our recent acquisitions, hi, Q and confirmation, which closed during the third quarter and also by integration point, which closed in Q4 2018.
These acquisitions have come with world class platforms and talent.
And we've begun to roll these out the solutions out across our Salesforce.
And earlier this month Reuters business completed the acquisition of NFC business intelligence, a fast growing company any events marketing space.
This acquisition will be re branded writers events in leveraging the globally recognized reuter Brent writers brand.
With a leader in this space. We expect this acquisition will be free cash flow accretive in 2020, just like the other acquisitions, we have recently completed.
Now to the results for the quarter reported revenues and revenues at constant currencies were up 10%, which included the quarterly payment from definitive Reuters news.
Currency did not impact revenue growth this quarter and for the second consecutive quarter organic revenues grew 4% driven by recurring revenues, which were again up 5%.
Transaction revenues declined.
And we expect the margin to be a bit better in the fourth quarter, despite higher onetime costs, some timing of expenses and dilution from the acquisitions we've made.
These impacts are included in our guidance for this year next.
Currency added two cents EPS this quarter.
Our legal corporates and tax and accounting segments.
Which comprise about 80% of our revenues posted another solid quarter organic revenues for these segments were again up 5%.
Reported.
Ported recurring revenues for these three segments, which make up about 90% of their total revenues grew 6% and are up 5% organically.
We continue to expect a solid performance for these three segments for the full year and as you've seen from our recent acquisitions. This is where we've been targeting the bulk of our inorganic investment.
Organic revenues were up 3%.
This will be the last quarter that you will see Reuters news revenue growth rates distorted by the repetitive agreement.
In the fourth quarter, we'll lap the first payment that was made in the fourth quarter of 2018.
And global brand continues to outperform our expectations with organic revenues declining only 2% thanks to us print revenues.
Having achieved positive growth for the first time since 2011.
Due to better sales and higher retention.
And as impressively the global print team continues to operate more efficiently, which is reflected in an EBITDA margin exceeding 42% for the quarter.
For the full year, we now forecast that print revenues will decline between 4% and 5%.
One final highlight.
2019, and look to next year.
Now before I turn it over to Stefan I think it's worthwhile to share with you how we're thinking about our value creation model as we look to 2020 envelope and beyond.
Our model is based on four key principles first driving higher revenue growth is our number one priority.
Second we focus on delivering the highest possible level.
Growth in free cash flow and free cash flow per share.
Third we seek to carefully balance reinvestments in the in the business and returns of capital to shareholders and finally, we aim to maintain a strong capital structure.
Let me expand a bit on each of these four principles.
We believe the company's position to achieve total revenue growth rate of 4% to 7% over the business cycle. Most of our growth will be organic with bolt on acquisitions, potentially adding 1% to 2% annually to our overall growth rate.
Looking at 2020, we expect the organic growth to be.
4%, the 4.5% and we expect the acquisitions, we announced today will add about an additional 100 basis points.
This should lead to total revenue growth of about 5% to 5.5% next year, which could of course change depending upon additional bolt on acquisitions, we may consider over the course of the year.
That level of revenue growth combined with the operating leverage inherent in our business model should drive higher free cash flow growth.
And as stated before we continue to expect free cash flow per share to reach $2.40 next year.
Thats up from the 40% to 50% range, we previously targeted.
Importantly, a higher dividend payout ratio would leave ample room to fund tactical acquisitions, which as I explained will bolster our overall revenue growth rate.
And as we grow our EBITDA over time, we'll be able to gradually increase our debt capacity within that leverage target.
In summary, we believe that we're now very well positioned to deliver on the value creation model summarized on this slide the revenue growth enhanced efficiencies and capital returns for our shareholders.
So does include.
Given our nine month performance and our outlook for the balance of the year, we're reaffirming our guidance for 2019 and 2020.
So with that let me turn it over to Stefan.
Thank you Jane and good morning, or good afternoon to Orthoview joining us today.
So on a constant currency basis third quarter revenues were up 10%.
And as you can see currency at virtually no impact on revenue growth during the quarter.
On inorganic basis revenues grew 4% into third quarter, which excludes the impact of the rotors news contract with definitive as well as the impact of our recent M&A activity.
As a reminder, issued the final quarter underwriters news contract with the store organic results.
Turning to profitability.
10% due to higher revenues and lower onetime costs in the quarter and despite the negative impact of our recent acquisitions.
We do expect the margin to be a bit higher in Q4 versus Q3, and importantly, we also see you'd expect or full year EBITDA to end up within the guidance range, we have provided earlier.
Now let me provide some additional color on the performance of our individual segments, starting with league or professionals.
Legal revenues were up 2% during the quarter was organic revenue of 3%.
Now our legal organic revenue growth rate was negatively affected by about 800 basis points due to a difficult prior year comparison, when we had a onetime transaction of sale government business that did not to free up here.
Therefore, the third quarter revenue growth performance for legal basis should represent the trough for this year and we would expect that legalise organic revenue growth rate, we rebound were approximately 4% in the fourth quarter.
Now for the third quarter recurring revenues, which were 93% of the total were up 4% organically.
From a profitability perspective, the EBITDA margin increased 280 basis point to 37.4%.
Fair to the prior year period.
This was driven primarily by revenue growth and productivity savings.
We continue to expect to full year EBITDA margin to be up from last year, driven by the factors mentioned earlier.
And here's a more detailed look at because professionals revenue performance for the third quarter.
Law firms.
Law firms grew 2% just as they did in the second quarter.
Government grew 5%.
And earlier this week, we announced that Didnt business was awarded a long term contract by the US Federal government, which were presented their largest contract ever signed by or legal business.
Global segment revenues were flat in the quarter due to the divestitures of some of our transactional based businesses in Canada.
Organic revenues fall into these global sub segment actually grew 4% during the quarter.
We remain confident with regard to the trajectory of the legal segment as we close out 2019 ended up to 2020.
And here are a few reasons for positive outlook.
First wesco edge continues to yield healthy premium which has been consistent since its launch in July of 2018.
Second.
The launch of West slow quick check in July growth of two highest say as months during the quarter since the launch of Wesco hedge in July 2018.
Also in the third quarter or online leaguer research business, so west flow and Pratik hurdle posted their highest growth rate in about 10 years, 4%.
Overall, the legal retention rate remains above nine above 90% and it is up about 100 basis points compared to last year.
Which would present some encouraging progress from an ease of doing business and customer retention perspective.
Now moving to our corporate segment.
Corporate revenues were up 8% during the quarter with organic revenue growth of 6%.
The net impact of recent acquisitions, we made in that segment largely explains the difference between the corporate total and organic growth rates.
From a profitability perspective, the margin of 34.3% was down about 100 basis points over the prior year period and that was primarily due to the dilutive impact of the recent acquisitions.
Looking at culprits results by sub segment large corporates grew 8% driven both by tax and legal solutions and by our recent acquisitions.
Organic growth in that sub segment was 6%.
The medium sized corporates grew 5%, mainly driven by strong growth from legal solutions.
And global conference were 13% Thanks to a study performance from our Asia business.
Moving to the tax and accounting professional segment.
Conversely to what I, just described for legal segment or tax professional business benefited somewhat from an easier prior year comparison during the third quarter.
Recurring revenues, which were 84% of at all.
8% organically driven by a strong performance in our Latin America business.
Transaction revenues were 7% organically.
Mainly driven by growth in our government government business and by an easier year over year comparison.
The adjusted EBITDA margin was slightly down over the prior year period, a 21% due to the diluted impact of the confirmation acquisition, which was over 200 basis points during the quarter.
Now looking at the tax accounting professionals revenue by sub segment small mid and large accounting firms, which make up nearly 80% of revenues rose 7%.
The global business segment grew 23%, primarily driven by our Latin America business.
And our government segment, which is about 7% of revenues were 8%.
So in summary.
Thanks profession as I'd segment continues on a positive trajectory with improving retention strong grows from the confirmation acquisition during the quarter and encouraging initial results as base still early from checkpoint edge.
Moving to rotors news.
The third quarter results include $84 million of revenues from a definitive which explains the revenue growth rate once again exceeding 100% during the quarter.
And as mentioned earlier rotors revenues.
Rotor revenue growth rate should return to a more normalized levels starting with next quarter.
Organic revenues grew 3%, which was attributable to an annual price increase related to the refinish contract as well as growth in our agency business.
As a reminder of the revenues from or affinity essentially cover the cost of providing to new services and therefore these contract as a diluted impact on our or EBITDA margin.
And a finer point as Jim mentioned earlier, we recently closed the acquisition of FC business intelligence in the attractive b to B events marketing space.
And we anticipate at 2020 revenues from that from that business will be about $40 million growing into mid teens.
Lastly, global print revenues declined 2% over the prior year period with organic revenues also down 2%, marking the best performance for that segment in a decade.
And as Jim mentioned, you EZ prints revenues actually grew organically in the quarter. The first time us legal trained as grown since 2011.
These better than expected performance was attributable to both improved sales growth and steady retention.
For the fourth quarter, we expect cranes to decline in the range of 5% to 6%, which is primarily timing related and for the full year, we expect global trading revenues to decline between four and 5%.
And as we've been stated stating.
Throughout the course of the year, we are very encouraged by the Prince segments ability to continue to drive innovation and to leverage scale from both revenue growth and cost efficiencies.
Let me now I'll turn to earnings per share and free cash flow performance.
That was also update you on our expectations for corporate costs for the remainder of the year.
So starting with earnings per share.
The increase was driven by higher adjusted EBITDA fewer shares outstanding and lower interest expense.
Turning to our free cash flow performance for the first nine months of the year.
Our reported free cash flow was negative $50 million.
We did generate nearly $1.3 billion in 2018.
So thats, we presented a decline of a little over $1.3 billion.
This slide will hopefully add to remove the distorting factors impacting or free cash flow performance. During the first nine months of the year.
Working from the bottom of the page and upwards the refinished they've related component of our free cash flow was down almost a billion dollar from the prior year period and that was primarily due to receive no longer being included in our results.
Also.
In the first nine months of the year, we made a pension contribution and out of payments totaling $542 million primarily related to the refinish transaction.
So if you adjust for these items.
Parable free cash flow from continuing operations was $650 million, which was an improvement of hundred $62 million over the prior year period.
Im early driven by stronger EBITDA performance before stranded and onetime cost and also by lower interest expense.
Now a quick update on corporate costs for the fourth quarter.
Let me start by saying that the 29 keen on your estimate has not changed from what we showed original 2019 guidance.
For the full year, we still expect to spend about $517 million.
He consist primarily of expenses or Expedia.
Looking at our spend during the third quarter. It was a bit lower than we had expected at 125 million Dollarss.
And that included about $25 million of Capex.
And that was primarily timing related.
We now expect spending to accelerate into fourth quarter, driving corporate cash cost to a quality peak of about $165 million.
Finally, let me state again that we do not anticipate any material cost related to the definitive deal to carry over into 2020 .
Therefore, there are no changes to our guidance for corporate costs next year, which are expected to range between 140 and $150 million.
Now before we conclude today's call I'd like to expand a bit under value creation model, which Jim discussed earlier.
Over the last eight years, we've returned just under $24 billion to shareholders in the form of dividends and share buybacks.
Ordinary dividends accounted for about a third of that total.
The tender offer and return of capital transactions associated with the recent activity last year comprise an additional $10 billion.
And finally normal course dish for big share buybacks over the last eight years, we present, the remaining $6 billion.
Looking ahead at the next few years.
We believe that we are well positioned to continues to deliver very attractive returns of capital to our shareholders.
As Jim explained earlier.
The board has now set the dividend payout target of 50% to 60% of our annual free cash flow.
Once we achieve that target level.
This will allow us to increase at the annual dividend in line with the progression of our underlying free cash flow.
We do expect to reduce our reliance on share buybacks going forward in fact, our objective would be to buyback enough shares each year to offset the dilution associated with a dividend reinvestment plan and with our equity incentive plans, thereby maintaining our outstanding share count at around 500 million.
And to that point.
Our board recently approved a new buyback program, which will allow us to repurchase up to an addition of 200 billion dollars' worth of shares by the up this year.
And the up to an additional $200 million of shares in 2020.
Finally.
We hold a significant store of value with our equity stake in refitted.
In fact, assuming the London stock exchange transaction is completed as expected in the second half with 20% 20.
I think what you state would be worth approximately $15 per share on a pre tax basis based on the Edison group current stock price.
Once we begin monetizing our equity interest.
Following the expiration of the Luckett provision, we will decide how best to use the proceeds which could lead to additional returns of capital to shareholders.
Let me point out that are affinities results for Q3 are included in the appendix of today's press release.
Finally.
As stated earlier, we plan to balance returns to shareholders. We look to phone objective of reinvesting approximately sorry of reinvesting appropriately in the business and maintaining a solid capital structure.
In that regard our current leverage of 1.8 times positions us very comfortably within our leverage target and gives us ample financed with financial flexibility going forward.
Now one finer point on free cash flow and flexibility.
As you know free cash flow is calculated after capital expenditures, it's what we have left for dividends buybacks and acquisitions after organically investing into business.
We believe that we can further drive free cash for overall by reducing our capital expenditures as a percentage of revenues from about 9% this year to between seven and have an 8% next year.
And this reduction was not starve the business. Since this year spend includes about 100 basis points related to onetime investments associated with the refi activity.
The remaining reduction is expected to be driven primarily by more efficient capital spending across the company.
Including platform consolidation migration to the cloud and reducing the number of products we build.
We believe that a 7% to 8% annual capex spending level, you certainly adequate to maintain or premium positions and to continue to drive attractive organic revenue growth for the business going forward.
With that let me now turning back over to Jim.
Thank you so fun. So in closing we are excited about the opportunities we see ahead.
Given the high level for recurring revenue we generate.
And the inherent operating leverage of our business model. We believe we can continue to progressively increase profitability and free cash flow.
This should in turn allow us to fund both acquisitions and attractive returns of capital to our shareholders.
All while maintaining strong capital structure.
Before we get to your questions I wanted to take a moment to address a story you may have seen in the media last week about our board hiring a search firm to help with succession planning.
I want to assure you that this is part of our normal course succession planning for all executive roles and that I'm actively involved in the process.
Hi, turn 60 earlier this year so that process has kicked into its next phase the board will evaluate internal successors against a slate of possible candidates outside the firm.
Standard best practice will orderly succession, and our entire board is involved.
It's been eight years, some Stefan I took over company in a very different place the more Thomson Reuters stands today, we are proud of all that the team has accomplished in getting us at this place, but we know our jobs include ensuring an orderly transition of leadership to the next generation, both us and our board are committed to ensuring continuity.
I'd in both our business and capital strategies as I told my Tiara colleagues last week I am not planning on going anywhere soon.
When the time comes to hand over the range. They and you will hear from me.
But right now I am focused on running the business closing the year strongly and delivering on our guidance targets for 2020.
Let me now turn it back over to frame for questions.
Thanks, very much Jim and stuff on and that concludes our prepared remarks are now we'd like to open the call for questions. So if we get on the first question. Please operator.
As a reminder, star one for questions. My first question will come from Vince Valentini from TD Securities.
Thanks, very much two questions one.
Slide show.
Maybe this is what you expected.
To curb.
Good morning, Hi, Todd.
To be you'd only 20% year.
To your customers have migrated to it given the power of it and some of the testimonials that your customers, saying they can live without it.
Is this you really holding back the pace of migration could could it be faster. If you wanted to do and and where do you see 20% going over the next year I mean connect is there a bit of an acceleration to get it up to 50 or is it santas slow steady pace.
Second question is just to free cash flow I do the math frequently stephane, but should make sure I mean, if you use.
Can you just 60 Percentish of one to 1.2 billion in free cash flow next year.
It doesn't actually Siegel signal dividend growth is that is that a target you work into over time and you may have to stay up a bit above it temporarily I assume you're not going to turn the dividend but.
Can you still grow the dividend, even though you're not in that target range at if that's how the math works out thanks.
You want to good stuff on a view I think the second question when you take the okay terrific. So.
Thank you Matt is correct. If you do the math and you try to reconcile between our current share column that to 40 target that we got out there.
You get and and the current number of shares that we have you get closer to the higher end of the 50% to 60% target I think that just gets us.
Pretty much at that higher end.
So I think what we indicating here is that once we start moving lower in that range.
Or the incentive award would be to start increasing dividends.
In line with you on free cash flow, but we only going to be at the very tough of that have that range next year.
And then as to your first question.
Frankly, as a very timely question and it's a southern is going to get to the debate inside the company right now.
The truth is early on as we introduce the product we wanted to be very careful as we were testing how much frankly price premium we could get on that product as we rolled it out you combine that with the fact that is pretty sophisticated tool.
It requires training in order to get the most out of it. So we have a full pipeline.
You did that occupies our current capacity.
And as we look to next year look.
We think it's going to have a lot of take up. The question is the pace of take up and we'll decide when we put our plan together for next year exactly.
Exactly how we're going to set our capacity.
To roll it out to do the training and installations that we need to do.
So there's a goal there's a whole lot of runway with a with these new AI products and I would expect the pace of adoption to pickup.
And we want to do it was such a way that we maintain the premium as well as Vince.
Your next conference well, our next call will come from Gary Bisbee.
From Merrill Lynch.
Yes. Thanks, good morning, so the commentary on on.
Buybacks versus versus dividends I guess can can you give a little more color on on the concept of of slowing down buybacks is that really just more that you've had sort of an outsized amount of that in the last two years, given all the moving parts infinitive.
Or should we look at this is sort of a change to prioritizing dividends over buybacks over the long term.
Sure.
Buybacks I going to continue to be an important lever that we use going forward, but if you look also at our.
Current ownership space.
We obviously have one very large.
Shovel order in Woodbridge, and so the relying more heavily on buyback for us essentially gradually drives an increase a decrease in operating growth, which we want to avoid.
I think so that's why I think as we look at all get their strategy, we saying, let's use buyback.
On the run rate basis at the level as just mentioned just to avoid dilution. The items. I also said when we are faced with decision about what do we do with large gathering flows we receive.
From eventually setting dollar interesting affinity I've, obviously, because we look at.
At buyback as as one potential lever to use these proceeds.
Great. Thanks, and if I can add one quick follow up just any update on on the concept of of.
Using your strategies to use commercial levers to drive retention, you mentioned that a bit but that digital strategies, just sort of any update on higher progressing with those thank you.
Yes, no look.
As we said I think in a in our remarks right.
If you look at the legal segment in the smaller it all segments. We now are doing 35% of our renewals entirely digitally which is much easier for customers and also frankly more cost efficient.
For us.
So we are rolling that with the the rollout of our digital solutions across the board, it's being progressive I think thats. Another element that is also helping to drive retention is the platform strategy that we that we pursuing right we are increasingly setting.
A number of products not as Standalone.
Products, but.
Very much as part of Apollo platform, which really makes makes the whole solution more more sticky I don't Jim if you have anything yet the only thing I would add to that.
I agree was defined completely I think the more we moved the these digital solutions and digital transactions.
The mortgage is also we get to feed our analytics and if I look over the course of this year one of the biggest improvements. We've made is in the quality of our of our analytics on our markets on our customers on the use of our products and the ability to make our products more useful.
And and to put together more.
Valuable packages of products.
All comes from that.
I'll come from those analytics.
Thank you.
Our next question will come from Manav Patnaik Barclays. Please go ahead.
Hi, Good morning, guys I was hoping you could just give us a little bit more color on the marketing events business that to.
Can you just at quieten.
Maybe why it seems to attractive now I guess the impression events late cycle is probably some risk and so just curious and how resilient. This asset has been.
Well likely it's up.
The way we view that.
Opportunity is.
As part of the strategy too.
Add to revenue streams for our Reuters news business and we have a great global brand there and if we look at that business, while well, it's not huge I think we've talked about 40 million in revenue I think we talk about that publicly was $40 million revenue business and I think it's.
But is growing nicely and is growing strongly about 50% of business in United States.
Then the rest is in Europe and is very very small.
Print in in Asia, We think with the Reuters rebranding that Reuters events in using our brand power around the world will be able to keep that.
That growth going and we think it's a great way to have.
Convening power.
For both people.
Who.
I would want to come to events around the specific topics and by the way many of those are customers for our other professional solutions as well.
So I think it has a broader impact than just on the Reuters Reuters news business.
Got it and I. Thank good I'll squeeze another quick one just you've done a fair number if I guess at three decent deals already is the pipeline still active is maybe it alluded to.
Before you meet these.
Sure.
I will do this the pipeline is still active and we're still working the pipeline I think as we've said we spent about half of.
Half of the two Elon just over half of the 2 billion that we set aside.
If we can find the kinds of deals that we have found in the past.
15 months, we'd love to spend the rest of that.
The real interesting thing about that is that we've really kind of changed the criteria and narrowed the criteria that we have four acquisitions and many of you will remember the day. When we were doing 20 to 25 acquisitions a year, we're not going back to those days and.
And importantly, maybe they look at each of those acquisitions. There. This kind of one chunky thing in each of our business units on the things that are easily integratable, but even more important than Matt we're not buying individual businesses with the whole both.
Improving those individual businesses were lower buying our capabilities or platforms are technologies.
Our skills that we think we need to serve our core customers that were already serving into serve them with things theyre going to need down. The road. So the example of that I would give is if you look at the though the confirmations piece that functionality that goes into our cloud audit suite.
It was right in the heart of what we sell into it to our audit customers.
In our in our tax accounting business right. If you look at high Q. The most recent acquisition, that's a workforce flow platform, the which we're going to integrate all of our workflow tools of various.
Discrete tools into or into a platform that will help connect our customers to their customers. So we're looking at things that will be.
Right in the heart of the center of our strategy.
If we can find those and we can find them that make financial sense and again I will point out all four of those acquisitions, we made will be free cash flow positive in the first full year.
Hi, Thanks, guys.
Thank you our cash question will come from Andrew.
Steinerman Jpmorgan. Please go ahead.
Hi, Andrew Jim talked about the legal end market, a little bed changing in any way, that's making them more receptive to span with Thomson legalise I'm talking about legal head count or internal budgets for technology and data and then also when you think about Thomson legal as as a vendor do you feel like you're gaining share.
From competitors.
Adding them off market opportunity that you're addressing with customers.
Sure I think the end markets have stronger Andrew I mean, not massively so does that increase where demand or that we've seen mirrors, what I am hearing for customers I would say the biggest the biggest scenes I've seen is the willingness to accept technology solutions and the eagerness really to embrace technology solutions.
Over the last couple of years in particularly this year you know, we do a big thought event in the legal industry.
Every year in May and this year, it whether theres been a remarkable turn in the eagerness.
To consider platforms and workflow tools I will just give you a data point, we had a pre breakfast optional.
Optional session to present, our platform strategy at that conference. We thought maybe 35 or 40 folks would show up it was standing room only they are out in the theyre out in the hallway. So I do think theres an increasing.
Appetite to spend on technology that helps.
That helps them operate more effectively and more efficiently. So I think look we're certainly holding our own.
In terms of.
Market share against our traditional competitors, but I think where were making even more gains.
It is on the areas, where we're working to become the kind of technology platform.
Partner of choice in the space and I think Thats, where the next kind of big Battleground will play out over the next five years or so.
Okay.
Thank you.
Next question will come from RBC capital with Canaccord.
Canaccord.
Hi, good morning.
Thanks for taking my question.
I wanted to add up just a quick follow up plus stephane to begin with and then a bigger picture question with respect the AD that corporate cost.
The.
140 to 150 million that you're projecting for 2020 I just wanted to clarify is there even a small capex component to that Stephan and then my bigger picture question is with respect to operating leverage Jim Obviously gave US helpful color around what the organic revenue growth projection would be lags.
The business cycle, how should we think about the operating leverage and as a result, the EBITDA growth.
Rising from that I mean, I know that.
Much of the heaviest spend around said a bit building up youre.
New platforms like West low edge is behind you, but I suspect there's still some investment that that goes and.
That that will be on the Opex line, but I just wanted to get a sense of how we should think about.
The operating leverage going forward. Thanks.
All right now let me take your first question.
And thanks for asking.
I can clarify.
The number the forecast we got for next year to 140 250 million, that's 100% Expedia that's on the expenses.
This year as I said in my remarks, why the 570.
Medium that we that we.
I have been guiding towards since many of the year that includes about 75 million of Capex. The rest of it is expedia and if you wanted to breakdown that capex overtime I would say we had about 25 meeting the first had 25 million roughly in Q3, and we expect another 25 million approximately in Q4.
And on the and the Thanks, Let me start to think Youre. Your other question and I think where you really.
Going with the question are there is like what's the margin.
Prognoses for next year, and what's the inherent operating leverage of the business.
Evan now reached at that level of revenue growth rate, where rewrite right, where we really.
Squarely in like mid single digit territory. The operating leverage is pretty strong in the business space. There's no question about that I would just draw your attention to a couple of things as you look at margins. The first one is that or news business does not have very high margin, so and thats primarily related to that prophage contract we've got to.
About 325 million dollar source of revenue coming from a definitive which comes with virtually zero margin. So that has a very diluted impact on the over margin actually if you were to exclude rotors news.
From our results or margins would be about 200 basis points higher than what they are.
The second point I would make is that if you look at our remaining four segments.
Global trade.
You would expect the margin global print to decline overtime simply because it's a highly profitable business and we don't expect that to basis to turn to positive revenue growth rate so that.
These will essentially be a drag on margins.
In the three other segments I would expect pretty substantial operating leverage actually and so overall when you put all these factors together, we absolutely do see room for margin to improve because of the operating leverage that we have in or three main businesses.
Okay. Thank you Stephanie.
Thank you. Our next question will come from Toni Kaplan from Morgan Stanley .
Could you just give us an update on.
Yes, Josh.
Installation.
Guess, what percentage are you two with regard to technology.
And just in general.
You mentioned.
Tony can I go thanks, Tony just before you go to your second just repeat the first around a little bit of a hard time here are you sure I.
I was hoping you could give an update on that shift can satisfy your legal solutions, just what percentage share apoquel with regard to technology versus content and just in general what trends, you're seeing with regard to disruption and legal technology. I know you mentioned a little bit with an earlier question, but that would be very helpful.
Sure. So I'm on the first question.
Not really talking about just SaaS software in total represented about 31% of revenues for legal in the into third quarter. So 69% is content. So it's still a pretty high.
Waiting towards what Scott than solution versus software.
Yes, and I would just reiterate what I said before I think the the appetite for technology spend is going up and I think thats, what youre seeing in.
In a lot of our.
Investment.
And what we're seeing certainly in our dialogue with with our clients. So.
I think thats as I said earlier, where the games move is moving I would expect from that.
Percentage to grow.
Thank you next question will.
Come from George Tong from Goldman Sachs. Please go ahead.
Hi, you have Ryan on for George Thanks for taking my question.
So you'd previously discussed that you were intending to accelerate your organic growth through cross selling and Upselling solutions and that your customers on average are using less than two.
Could you discuss progress with this and where you're seeing the most success and then one other quick question just I know you touched on the operating leverage a bit earlier, but could you do you have any aspiration on margin targets or even a range for the individual segments that you're trying to achieve.
Sure Let me take the first one and I'll turn the segment over to Stefan right as far as across all of them. So obviously, we're still in the very very early days of cross sell an upsell and if you think about how this year's progress and the.
Third quarter into third quarter last year.
We completed the repetitive deal.
And we came into this year Salesforce all realign.
At trying to come out of gate really strongly pushing cross sell up sales second quarter, we really started to hit our stride and frankly, what we started a learning was.
What was working best right. We're we're gearing up our analytics and we are seeing.
Clear opportunities for four upsell cross sell and we have a lot of folks in our Salesforce is we're very excited about those opportunities what we've been working through in the third quarter is the notion that all products are created equal and I mentioned earlier, the better analytics that we have we're using those analytics define wattenberg.
Yes opportunities are.
To kind of blend solution together not necessary, we don't think amount of quite so much anymore. I don't think about as much anymore as how do we cross sell individual products, but how do we combine services or capabilities and then how do we commercially price that and I think thats, we have a lot of room for enormous uplift there but were array.
Early days and I, just would share with you that I'm thinking.
More of it more about kind of how do we craft propositions for the various market segments and looking more at the total uptake and the total amount of revenue we get from a particular customer.
Which is driven under the under the covers by cross selling enough selling more more more products with the in probably a different way in future.
So on and on your second question.
We don't really have a specific asset duration on margin target because that's as Jim likes to say right and you described is very well in.
The value creation model.
That easily.
Spoke about earlier earlier today.
Our main goal is to achieve the maximum placebo rate of free cash flow per share.
Growth, it's an operating margin growth, it's how do we drive free cash flow in free cash flow for share that frankly, what.
Is driving our incentive plans, that's what we think creates the most value for investors overtime and then we will decide how we use deferral 40 operating leverage to the business generates now whether it's to reinvest into basis organically.
And to drive growth, which meet with little bit pressure marginal on these operating leverage our weather related growth, where the margins, but it's free cash flow per share we very much focused on.
Great. Thanks.
Thank you. Our next question will come from Doug Arthur Hover research.
Yes, Thanks, I'm not sure if theres a weighted to segregate this but as you sort of look at your organic.
Gross.
Progress and goal in 2020 is there a way to sort of.
Box the impact of the new products. Some of you have a lot of new product initiatives virtually across the board is is there a way to sort of quantify the impact that's having or on organic and I assume it.
Impact.
The greater in ensuing years.
No Thats, a really tough question that because I mean, if you look at new product like take Wesco edge for instance, right.
No new product before us a lot of the growth we getting from edge is because the much.
Higher functionality of the product much better subsets of course enables us to sell it at a price premium so is that price or is that new product.
So it's really hard to break it down for us the way you just described to be very honest.
Okay all right. Thank you.
Thank you next question will come from Tim Casey BMO.
Yes, two for me one.
Jim just when you look at the macro trends are there in terms of global trade and the increasing complexity on that.
You are now mostly a U.S. business, but you do have a number of multinational clients are you getting any bump from the complexity, there which is usually good for the business and second just on print.
Youve acknowledged you're surprised by how it's performed but what's when you Peel it back what's going on on underneath there or and.
Mike are you just or we just delaying the.
The pain, if you will inch are you expecting it to.
I have a the better year you've had this year you give it back and have a worse year next year. Thanks.
Okay.
Try both of those as defined can jump into.
Correct or augment my answer.
Yes.
If if.
With first was first question was it that mitigate any impact comes fmbs exiting several makes it.
I was just was I think you're exactly right on the first one I apologize I was thinking of recession when.
I think the increasing complexity is helping us.
Or around global trade and no Thats why we bought the integration point business, because we thought we needed to global platform.
To serve to serve those clients I was just down a few weeks ago with.
The team at integration point, and with some of their clients and their customers and the opportunity for us to.
If you look in the capabilities that we have between our current existing global trade businesses and with the team integration point I think is absolutely unrivaled.
What we're going to be able to provide the customers and.
Also if you look at where we are in and you look about what we can add to the workflow tools that were providing I think it's a great opportunity for us and so the short answer is that complexity in global trade.
Is indeed.
Isn't the driving.
Opportunity for Us and I think is going to be a significant growth factor going forward. In fact, we're having that team present to our board of directors.
Next week.
In Dallas.
So on the second question I'd say too.
The success, we seeing in print is partly attributable to other factors, we describing our remarks right like as a really great job for that even in leveraging.
Their scale.
Globally from older properties that we had implemented in the U.S. and ready to use that to drive.
Better growth in terms of less decline, but also better cost efficiencies.
There's also the backdrop of a good.
Market environment, obviously.
Legally man being.
At the highest level, we've seen a number of years that certainly helps.
We don't expect the I mean, we need to make the whole plan right now but at this stage, we do not expect to have to give back anything that we've earned this year entering next year, we actually expect based on what leasing pretty similar type.
Growth rate footprint next year as we see this year again that will be partially a function of the of the.
The environment.
But if it stays where it is today, we certainly would not expect to that but change in terms of would be deterioration you and if I could just add to that I would it would have to and that the team in global print is just doing a terrific job it kind of re imagining those customer relationships.
And I think.
Tim.
As be streams led a real turnaround in that organization to begin thinking about.
The group of clients of where our print only customers and think of that as a as an entry way as a client and a customer and how can we build out one more holistic relationship with all those customers of which print is only a part of that relationship. So.
I think thats, that's highly encouraging.
And then kudos to the team for continuing particularly the Geismar plant, we're continuing to find ways to.
Take costs out and be more effective and more efficient so.
Its a.
It's encouraging and it is surprising but.
As Stephane said this is not something we think were necessarily going to give back I don't think we're going to change the overall.
Hi, good trajectory.
For say, but I think we can stem it and continue to stem and I think that there.
They certainly proven that they can surprise us on the upside or the other thing I would call out in terms of brand is this year is the first time, we've pulled all of our global print.
Under one management team.
And I think we're seeing the benefits of.
Of doing that with best practices really being spread around the world.
Thank you.
Thank you.
Operator, we'll take one final question. Please okay now will come from Kevin Mcveigh Credit Suisse. Please go ahead.
Great. Thanks, Hey, Thank you very much.
If you said this I apologize I guess, what keeping the confidence to boost the organic growth to 50 bets and 19 and when should we expect that to flow through into 2020, Stephane or we just being conservative at this point.
We really haven't changed anything to the guidance, we gave last quarter, Kevin We last quarter, we did increase our guidance for this year and foreign exchange very slightly so we just kept it at the same level Thats, what we announced last quarter Oh, Okay. I thought it was the organic maybe I misread that I apologize and then Okay then truck.
I think what Jim said is that if you.
So for next year, we expect organic growth of like Fort four and a half percentage. We expect the acquisitions. We've we've made to date to add about a 100 basis points for the total growth rate as we see now somewhere between five five and has percent and as Jim said It may change if we do more acquisitions of course.
That's helpful. It's helpful. And then as you kind of shift the legal is that goes more towards software I think you said, 30% today, 70% content.
How does that impact the margin over time, so as you kind of shift that as as it remixes more towards software, what's the margin impact on that and any sense of where how long that you take it as you kind of shift again, what towards software as opposed to the comp.
Hi.
If you look at the legal business, specifically, because the revenue base in our.
Got that business is so large it has pretty attractive margins. So obviously is software is a highly repeatable business and it has very nice margins, but the content as pretty decent margins itself. So I don't think is a major impact they both quite attractive businesses from margin perspective.
Super Thank you.
All right that will be our final question, we'd like to thank you all for joining us today and we will speak you again in February We report Q4 other good day.
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