Q1 2020 Earnings Call

[noise], ladies and gentlemen, thank for standing by welcome to the Thomson Reuters first quarter earnings Conference call. At this time all participants are in the listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call. Please press Star then zero.

As a reminder, this conference is being recorded I would now like to turn the conference over to your host head of Investor Relations Mr. Frank Goldman. Please go ahead.

Good morning, Thanks for joining us today.

Hallmarks, the first time, our new CEO, Steve has turned our new CFO Mike.

It ourselves and will follow a similar format format past practice.

Given the impact hobbies 19 is having on the economy discussing Q1 results feels like walking into rear view mirror. The guidance. We gave only two months ago is already data.

Nevertheless, we believe transparency is critical to time like this for our stakeholders.

Stephen Mike will discuss where the company stands today, both operationally and financially.

We will also discuss our updated outlook for the full year as well as for the second quarter, taking into account the tremendous uncertainty, resulting from the global Cobiz Nike and.

And is evolving impact on businesses.

That will enable us to get to as many questions as possible. We open the phone line. We appreciate it would limit yourselves to one question each and one additional follow.

Before getting started on I'd like to remind you about 2019 segment revisions that we mentioned last quarter and are now reflected on our first quarter results.

Today's presentation, when we compare performance period on period, we discuss revenue growth rate before currency as well as on an organic basis. As we believe this provides the best based mentioned the underlying performance of the business.

Today's presentation contains forward looking statements actual results may differ materially due to a number of risks and uncertainties related to cope with 19 endemic and other risks discussed in our reports.

Filing that we provide from time to time to regulatory agencies you.

You may access these documents on our website or by contacting our Investor Relations Department now I'd like to turn the call over to see faster.

Thank you Frank and thanks to all of you joining us today on my first earnings call.

Sorry, I joined Thomson Reuters, rather tumultuous time from a global macro perspective.

However, I'm fortunate to have joined the company the long history strong foundation and very resilient businesses.

The company, whose customers truly value added solutions. The company is essential to the efficient functioning critical markets that drive will calmness.

It's a responsibility that we will take very seriously each and every day, we come to work, particularly at a time like this now in this environment. Good properties the health and safety. Please I wanted to extend the hospital. Thanks to the spreads a deep sense private lab hourly employees, who stepped up and rallied in this crisis I'd model flexibility yep.

Really the resilience of that people will show needs of great change.

Hey commitment to seamlessly support our customers across the will be some crazy.

Now more than ever we need to help businesses communities and economies move forward.

I also want to thank those each about communities across the world passing this virus, including healthcare workers first responders and numerous others on the front lines.

Or what is journalists have always being on the front line and the global coverage of the endemic has being truly outstanding I.

I would also like to make mention of the Pulitzer Prize or what his team one site for its coverage of the Hong Kong protest.

Such awards in three years.

We thank everyone enough for the courage and perseverance.

There are three key messages I'd like to convey during todays discussion, but these.

Thomson Reuters is very well positioned to navigate through this challenge from both an operational and financial district.

This is resilient and we have proved adaptability by seamlessly moving 98% about workforce to working effectively from Hong.

Our strong balance sheet and liquidity position and these estimates high now focus where it needs to be on our customers.

Second I believe this crisis will create more demand for El Corte solutions in mind daily conversations with customers I see more demand accurate timely and useful information delivered digitally and accessible 24 hours a day.

And certainly as a management team, we're looking to tighten every opportunity to accelerate our investments in our core franchises through and beyond this crisis I firmly believe will emerge and the other side of this crisis, even stronger before I dive into the details. This morning, I think it's also worth mentioning the based on my opening months with the company I would observe.

We have potential growth opportunities within our core franchises and significant potential take further advantage of operating scale efficiencies. Let me now turning to our results for the first quarter I know expectations balance of the.

The results for the first quarter came in as planned and we're off to encouragingly strong start to the.

As noted on our fourth quarter call, we entered the year with a healthy information services market in general and improving like legal and regulatory markets in particular.

And that was certainly what we were seeing through the first half as much when cobot 19 became began to take hold across the world.

As expected reported revenues and organic revenues increased 2% and revenues at constant currency were up 3%.

Currency, having had about 100 basis point negative impact this quarter.

Adjusted EBITDA was $490 million.

21% helped by higher revenues and by not having coast stranded or onetime costs as occurred in the prior period.

And adjusted EPS was 48 cents this year versus 36, thanks for share a year ago.

Illegal culprits and tax and accounting segments, which make up 80% to that revenues recorded another good quarter. We've had great organic revenue growth for Pacific legal in particular started the year strong and had a very good quarter with organic revenues up 4% and revenues before currency were up five.

Thanks.

Legals revenue growth was bolstered by the continued success of wet floor hedge, which you're seeing knock on benefits from the contracts signed in the fourth quarter of 2019 with the US Department of Justice and the administrative office of the U.S. course.

Lawyers have been willing to pay a premium for the solutions like edge that give them a competitive advantage and improve efficiency, particularly in the virtual environments in which they count you book.

Culprits organic revenues were up 5% and tax and accounting organic revenues were flat, which we flagged would be the case last quarter due that haven't acceleration Ultratechs state tax software from the first quarter 2020 to the fourth quarter of 29 team.

And Texan Accountings reported revenues were down 2% due to currency.

We were confident the tax and accounting was on track to achieved revenue growth of between six and 8% for the balance of the year prior to the impact we're now expecting to experience from Cobot 19, Reuters news organic revenues were down 4% in global principal getting revenues declined 5% both as expected.

Now customers have dramatically condensed the transformation of how they work.

Change that might have otherwise tightened use is happening in weeks, they calling for support and we are there to help.

Try to cover 19 opens recognize the need to investing technology solutions in order to compete.

Now they recognize they must do so in order to operate effectively if they'd probably survey clients and that's very good for us because I have a preference for a few up more trusted strategic partners, and we had particularly well suited to leverage our unique position to be that partner.

And many government agencies as well as federal state and local courts have traditionally been laggards in adopting new technologies now they have no choice, but to adapt to new ways of working the transformation to more technology, driven solutions, but by but lawyers and accountants will not accelerate given the changes where oil pricing in working.

Okay.

The bottom line is that the work we do is more valuable not less valuable and I believe the support we're showing our customers today will lead to even deeper relationships tomorrow.

Let me take amounted to remind you why we're so well suited to assist our customers with this transformation.

First a recap of the size of each of our businesses throughout todays presentation, you'll hit Mike and I used the term big three.

The big three consist of our legal corporates and tax and accounting segments, which comprise nearly 80% of total company revenues and grew 5% organically last year. These are solid businesses that are predominantly subscription based have high retention rates generate high levels of recurring revenue.

Have significant operating leverage achieve high profitability and generate substantial free cash flow.

And given the markets in which we operate our business profile and the steps we've taken to strengthen our operations and go to market strategy over the past several years, we believe we're better positioned than most companies to weather the storm.

Now I want to spend much time on each of the bullets on this slide suffice it to site, we have great franchises, assuming lodge and stable professional markets and we're fortunate to have a diverse customer base totaling about 500000 customers across various markets with no individual customer accounting for more than 2% about revenues.

[music].

This slide reflects the inherent strengths of our big three businesses, which are proven resilient over decades through other challenging situations.

Customers depend on our must have solutions and we are providing support to ensure our customers can remotely exit the solutions, which also provided at all.

Further expand our digital and self service options given these deep relationships, we understand our customers' needs and we're helping them adapt for example.

We launched a covered 19 resource into on T. I don't come to support our customers with free resources created by a legal and tax export experts to help them navigate this complicated and changing environment.

And since many quotes around us have been close a court case management team is working to help courts operate good shortly.

And our government business is actively contributing to the fight against covered 19. As one example, we used our investigated and data side skills to healthy U.S. government prevent the unlawful importation and distribution counterfeit cobot 19 test kits and other unlicensed medical equipment from entering the United States.

And lastly, how internal and external networks technology and systems has stood up extremely well.

Like usage generally remains high we call white time, lower or an average level across all solutions.

Customers are relying on us now more than ever.

So in this current environment as law firms shift to remote collaboration and service declines let me give you. Some tangible examples of several of our legal solutions that help customers in the daily work and can open doors to new opportunities working from home has caused us to change how we work and support our.

Reasons, and we've had to make some quick adjustments to our processes simply put our solutions are made for addressing many of these issues. The customers are facing and they can be deployed rapidly where does the guidance and know how in practical law that serves as the wise expert down the hall.

The collaboration experience of high Q, which enables firms to stay in touch with clients or helping lawyers improved their arguments week quick check on wet floor edge solutions are enabling the shift to remote work and impairing our customers to serve a big clients, whether they are working from a corner office or from the home office.

Serving our customers defending our position and gaining market share where opportunities present themselves. What we are focusing on.

We're also are responding to our tax and accounting customers by providing solutions made for addressing many of the issues, they contending with including helping customers sign up to date without weekly coated 19 useless.

Helping them rapidly transition to virtual delivery of training implementation and sometimes.

By offering new checkpoint learning coated webinar series that have had an unprecedented 84% partition participation right with over 20000 registers and lost our practice forward team quickly build a tool kit providing guidance on stimulus funds, including a paycheck protection program calculator.

Again, serving our customers defending our position and gaining market share we're opportunistic opportunities present themselves what we're focusing on.

The direction lease a good perspective.

Yes, it makes it illegal business, excluding print grew 2% organically at a time when massive structural changes took place in the U.S. legal muck.

And during the down to a Texan accounting business never grew less than 3% organically illegal in text businesses, a stronger and better position today than in 2000, I, which I'll discuss on next slide.

In 2000 height.

Illegal business employ a usage driven <unk>.

The amount of data.

Customer used to determine how much they pay.

We lacked a multi dimensional crossing more [noise] pricing different from them to them and there was little transparency for custom this meant we're exposed and vulnerable which led to pricing pressure.

Today, we dogs employed but usually spiced too small a windfall contracts employ an enterprise wide structure and pricing is simplified and transparent crossbones based on multiple factors more as with deeply embedded in our customers doesn't work ending the workings of the thumb itself.

And in contract negotiations, we can leverage in more diverse portfolio of assets, we've products, including Westphal practical hi, too late and contract express and and soda expenses, which would transactional or $160 million in 2000 night compared to any 50 million today.

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As a result illegal business using a much more defensible position today than in the last down to it.

How Texan accounting business is 75% soft with vice today and continues to be very sticky also has a file more diverse portfolio with big strategic relationships and he's also a bit up positions in 2000 night admittedly. This downturn is different than the private but these <unk> may be a useful barometer.

As you assessed how we make a form in today's environment.

Now, let me turn into a updated [noise] look but this year.

Now since much we've all witnessed an unprecedented level of volatility and uncertainty due to the devastating impact cover 19 on the global economy.

And while it's still.

To predict the timing as to how it's my fault. We believe it's important that we provide a perspective and be as transparent as possible. Despite the I'm not.

Watch reflected on the slide <unk> view of how we make a pool of the balance of the year I want to stress that this is <unk> and we'll updated when we report two two in August.

We now focus totals company revenue growth between one and 2% with organic cross between zero, 1%.

Two of the primary reasons below abroad or cost compared to the original Apple related to what is to use for primarily is what is the banks business and transactional runs on a combined basis, we will cost they will have a negative impact of about 200 basis points total company dry.

The other two contributing factors are projected lower styles and the big three segments and lower level print revenues Michael share more detail in a month.

This lower revenue gripe is full cost to result in adjusted EBITDA margin between 31, 32% and free cash flow, but found $1 billion in order to preserve avatar and free cash flow. The company instituted a 100 million dollar cost savings program in much targeting discretionary expenses.

And I'm confident will achieve 100 million target.

A lower free cash flow guidance assumes lower revenues and temporary delays in collecting payments from some customers, but when confident we'll collect these cash the economy improves and importantly would continue to invest in in many about drugs and transformation programs in order to position is for improved.

I think environment in 2021, when we expect hydro to retire.

And lastly, we thought it was important to provide guidance for object three businesses legal Texan accounting incorporates which reflects the expected resiliency of these businesses, we full cost that on a combined basis for the full yet these businesses should drive 3% to 4%.

<unk> I imagine a between 36 and 37%.

Michael provide you with details as to be assumptions, we might have prepared now device house.

Let me now turn it over to my.

I think he stayed and thanks to all the Kid for joining us today.

For revealing to first quarter results I want to emphasize what Steve said, our number one party is ensuring the safety and wellbeing of our employees, while continuing to serve our customers.

Currently 98% of our employees are working from home and effort to keep them safe.

They have been working around the clock to continue to deliver world class service to our customers and they have been doing a terrific job.

It's also important to emphasize our company has a very solid financial foundation and operating model that has historically been resilient during past downturns.

And I want to assure you we are well positioned financially and operationally to see our way through the current challenges.

Now living to the results for the first quarter.

Let me start by providing some color on the revenue performance about big three segments.

And as a reminder, I will talk to rather new brause before currency.

And on and organic basis.

Revenue rose to the Big three was up 5% for the quarter and increased 4% organically.

As Steve mentioned illegal business was off to a strong start to the year building all the momentum that had it had coming out of 2019.

In fact prior to plug in 19, it was poised to record it's best here since before the last downturn in 2008.

Despite the expected negative impact because the 19, we are still forecasting good growth for the full year, given illegals unique position and ability to help law farms and government agencies navigate through the current environment.

Well the quarter legal professionals revenues increased 5% with organic rather do you up 4%.

Law firm rather than these were a healthy 5%.

Government government revenues had another strong quarter with 11% growth and our global illegal businesses crude 3%.

And last fall edge continuous you can tribbett over 100 basis points to grows and yield stay healthy premium.

In our corporate segment revenues were up 7%, including confirmation, which we acquired in July 2019.

And organic revenues were up 5% driven by our legal and tax solutions.

And finally taxing Accountings revenues were flat in the fourth quarter as expected due to the change in timing will the release of ultra attack State software, which we discussed last quarter.

Only normalize basis, which is shown in the far right column little this slide.

Taxing the counties organic revenues were up 6% pulled a quarter.

Rather than by strong growth in a Latin America business and confirmation.

Let me also point out the customer in the U.S. tax season on April 15th has been extended to July 15th.

The I R.S. and therefore at a bit of uncertainty related to the timing of sales and revenues for this segment and the second quarter.

Leading to voters news.

Revenues were flat and the fourth quarter with organic revenues down 4%.

Orders news was and is expected to continue to be negatively impacted by cancellations at the end person conferences at orders events due to code the 19th.

More on this on the next slide.

And local print revenues decline five per cent in the quarter with organic revenues also down 5% ads expected.

The good news is our manufacturing plant in Egan, Minnesota has been classified as an essential business and continues to operate with like mindset of safety first.

Dedicated employees and the plan.

So only consolidated basis fourthquarter, rather than each group, 3% with organic revenue growth of 2%.

It's unusual for us to provide quarterly guidance.

However, we thought it was important to provide more granularity around our expectations for the second quarter.

So let me provide you with our view as to how the second quarter may shape up understanding wheel forecasting in real time, and our forecasts may change depending upon risk related to code that 19.

Starting with a total T.R. chart on the top left we estimate second quarter total revenues will decline between 1% and 2%.

An organic revenues will decline between 2% and 3%.

Merrily do two orders news and global print, which I will discuss in a moment.

Four q. to the big three or four cast to achieve total revenue cross between 2.5% and 3.5% and organic road between 2% and 3%.

One additional point to make pertaining to legal professionals is we forecast total recurring revenue should row between 4% and 5%.

However, transactions <unk> revenues, which are less than 10% of the segments total revenues.

Are expected to decline between 15% and 20% into two for three reasons.

First delay in some elite installations.

Seconds and assumption that there may be a slowing of sales.

And third.

Cancellation of some events.

We forecast labels revenue growth rate will improving two three.

Two four as the economy improves.

Leaning toward US news nearly all of orders events enforcing conferences happened postpone through August.

Will result in lost revenues of about 25 million in the second order.

<unk>, 50% of orders events for your rather than use in our original plan.

And if that's could forgo an additional 15 million of revenue in cute for if they are unable to resume in person conferences.

As Steve mentioned this is one of the two he reasons for the lower total company guidance for the full year.

Global print revenues are also expected to decline and the second quarter.

Due to the government mandated shutdowns for a majority of the U.S. and many countries we forecast a significant delay.

<unk> some of our current materials since customers are unlikely to be at their offices to accept shipments.

We estimate this will result in the temporary delay of about 35 million rather than you in the second quarter with about 25 million at that rather than you'd be timing related.

We believe that we'll be able to recoup most of this rather than U.S. The economy begins to return to normal.

And will eventually be shipped as these print materials of a strictly been considered critical content by law firms and government agencies.

The 35 million temporarily delayed revenues is expected to result in a 15% to 25% decline in global prints robbing you in the second quarter, but should read pound the third and fourth quarter as as law firms and government agencies began to reopen and.

We can shift.

Trying to our profitability performance and the first quarter.

Adjusted Eva DAPL, the big three segments was 431 million.

Unchanged from the prior year period.

Legal professionals adjusted even a margin forest quarter decline 140, pips to 36.7% compared to the prior year period due to the impact of acquisitions and timing of expenses.

Corporates adjusted EBITDA margin was down 20 bishops to 31.9%.

And finally tax on the counties adjusted even a margin decreased 270, <unk>, 38.7%, primarily due to the ultra attacks timing.

Moving to voters news.

Adjusted either that was 19 million.

4 million last and the prior year period, mainly due to costs related to the cancellation of in person events.

And higher investments.

Global Krantz, adjusted EBITDA marketable to quarter decline by about 420 basis points due to the decline in revenues, but still remains strong and above 40%.

And corporate costs were in line with our expectations pulled a quarter and we continue to expect these cost range between 140 million to 150 million for the full year.

So in aggregate.

What is adjusted EBITDA was 480 million, 21% due to higher revenues and not having to encourage any stranded or one time coughs has happened the case and the prior year period.

This next slide provides a bit more color on the various factors impacting our adjusted even a margin and of course quarter.

As you can see on the slide I recorded 2021st quarter, adjusted even a margin list 31.6%.

There were several factors in the quarter that distorted or margin.

First the permanent acceleration of ultra tax revenues to queue for 2019 had about a 40 basis point negative impact.

Conversely, eliminate activity positively impacted margin by about 50 basis points compared to the prior year period.

Also in the prior year period, we had about 37 million of expense that shifted to the second half the 2019.

<unk> in a negative 250 basis points intact in the first quarter of this year.

And lastly revenues blow through added about 100 basis points.

So on an underlying basis, excluding stranded and one time costs in the park period.

The adjusted either that margin contract it 150 basis points as expected, which was mainly related to the opera tax timing.

And favorable expense timing into prior year period.

We continue to recommend you look at our adjusted EBITDA margin on an annual basis.

Overall, we believe we have good visibility into the lovers at our disposal to achieve I revised Martin target, 31% to 32%.

Steve mentioned, we have implemented a cost reduction program, while still preserving the flexibility to make the necessary investments in 2020 in order to ensure that will well position for 2021, I'm an organic growth perspective.

Now, let me turn into our earnings per share and free cash flow performance and it will also provide an update on our capital structure.

So starting with earnings per share adjusted E.T.S. increased by 12 cents to 48 cents per share during the first quarter.

The increase was driven by higher adjusted EBITDA offset by an increase in depreciation and amortization.

Mainly related to acquisitions.

Higher interest expense largely due to lower interest income and higher income taxes.

Finally currency at a one cent negative impact on adjusted E.P.S. and the poor.

Let me now turn to our free cash flow performance for the quarter.

Our reported free cash flow was 35 million versus a negative 177 million and the prior year period.

And improvement of just over 200 million.

Consistent with previous quarters. The slide we'll hopefully help you remove the distorting factors impacting our free cash flow performance for the quarter.

Working from the bottom of the page upwards, the retentive related component of our free cash flow was up 42 million from the prior year period.

This was primarily due to cost incurred in 2019, including residual employee related costing tax expenditures related to the operations of our former up in our business.

Also in the current quarter, we maintain minutes for separation cost incurred in 2019.

<unk> Char transformation program totaling 63 million versus a pension contributions and other payments totaling 279 million and the prior year period.

So if you adjust for these items comparable free cash flow from continuing operations was 113 million.

46 million lower than the prior year period, primarily due to unfavorable working capital movements.

Given the understandable focus on the part of investors concerning many companies financial strength I think it is important to provide an update on our capital structure and liquidity.

And as you can see on the Sly <unk> capital structure and liquidity position remains strong.

We expect to generate about 1 billion a free cash flow. This year, we have 800 million of cash on hand about 800 million available under at 1.8 billion revolving credit facility and we also have a 1.8 billion commercial paper program.

So it from a look what 80 standpoint, we're in a very strong position.

And we're also in a very strong position from a capital structure standpoint.

We have no debt maturing until 2023, and we're modestly leverage with the net debt to adjusted EBITDA ratio 2.1 time at the end of the first quarter.

Only been low are 2.5 times internal target.

And our credit facility ratio is 1.9 times well below private line maximum of 4.5 times.

And we don't anticipate any changes to our plans to pay an annualized dividend of $1.52 cents per share in 2022 are common shareholders.

Finally in February we completed our 200 million share buyback program and do not anticipate repurchasing any further shares in the near term.

Now an update on our investments in <unk>.

The agreement to sell resented it to the London stock Exchange group is still expect the clothes and the second half of 2020, which aligned with the statement made by the L.S.C. on this Q1 earnings call two weeks ago that they are committed to closing this year.

Now regarding our investment steak when the proposed still closes as of market close yesterday.

Our estimated interest was worth about 7.6 billion pretax.

How future equity interest in the L.S.C. represent a store value, which can be monetized over time.

And we believe it will provide us with a significant level up a natural flexibility in the foreseeable future.

And after the deal closes we expect to receive regular dividends from the L.S.C. estimated at around 60 million per year based on the current companies current annual dividend policy.

And one final point regarding future taxes to be paid related to our L.S.C. shares.

We estimate we will attacks that between 400 and 600 million upon the closing of the transaction later this year, depending upon the price of the L.S.C. stock at the time.

We have several options available regarding how we will find the tax payment aside from free cash flow.

Cash on hand, or drawing under our revolver.

Including some noncore minority investments.

I will remind you we have the right to sell a proportional amount of the L.C. shares to cover the tax payment.

And at the time, we can exercise our right to sell shares in years, three and four at the closing we will attacks at the U.S. corporate tax rate, which is currently 25%.

Let me now build upon what Steve presented regarding our updated 2020 outlook.

We thought it would be helpful to provide more detail regarding the specific components that we forecastable negatively impact revenue growth for 2020.

This chart reflects the changes in our original total company revenue growth guidance of 4.5% to 5.5% compare <unk> updated guidance of 1% to 2%.

As you can see there are four main drivers, resulting in our forecasts of lower total revenue growth for 2020.

First.

We anticipate most of the N. person events in our orders events business will be cancelled this year.

In addition to our consumer an agency businesses being pressured.

That's estimated to result, they 100 basis point negative impact.

Second.

Transactions revenue are expected to be lower primarily due to delays and installations and another 100 basis point negative impact.

Third we expect our big three segments will continue to experience softness in you sales, but expect us to rebound as the economy opens backed up and the second half of the year.

This is forecast also have a negative 100 basis point in time.

And lastly, we anticipate global print sales will decline, resulting in a 50 basis points negative impact for the year.

The impact that these four items is projected to result in total company revenue growth ranging between 1% and 2% for the year.

West reflected on this slide is our current view of how we may perform of the balance of the year.

We prepared three scenarios.

The three scenarios assume they graduate economic improvement will begin in July.

October in January 2021.

Our base case was derived by taking the mid point up to the July in October scenarios to determine our updated outlook.

In preparing our updated outlook, we assume diminished economic activity through the second quarter, followed by gradual recovery through the second half of 2020.

This assumes nothing natural and operational health of our customer base.

Base and by the T.U.S. and global economies will gradually improve which we believe will coincide with the easing of lockdown restrictions.

The metric some dislike near what Steve discussed except for the addition of interest expense, which we now forecastable range between 190, and 215 million since we drew down under I was Barbara last month to bolster our liquidity.

This will resolve and higher interest costs than originally estimated.

All of the guidance metrics, we provided in February remain unchanged.

Let me now turn it back to Steve to conclude our presentation.

Thanks, Mike Let me conclude with a few additional thoughts regarding my initial observations or the company, having now meaningless role for about 60 days.

Oh before joining a company what I understood customers depends on L. products No solutions now having that we've made any customers across the businesses.

Even more free shoe unique relationship we've had with these customers that relationship is a two way street.

No employees feel personal responsibility to to support vector machines, maybe <unk>, we we use that support in those relationships from quite a few buttons over the long too.

Second already convinced that out big three businesses and still have a lot of opportunity to drugs to improve the customer experience and to take advantage of scale by transitioning to a more efficient operating mode. For example, there additional benefits to be achieved by integrating a product development in technology capabilities and throughout my.

Courier voice focused on listening to the customer understanding when they come in developing solutions.

Voters meetings, we have some of the best and brightest product adult technologies and we'll pick all just in the world and if we support improperly point to the right direction and leverage the talents across the organization, we should draw <unk> all the same time <unk>.

Could you what will be an extraordinarily difficult yeah, you've been the global economic environment, We will marriage the business Accordingly, and will control what's been going out of control. It will take a lot of hardware. It makes a bit of realism humility and three were to zero through to the other side, but I believe we can grow the string for their franchises income.

Reduce even stronger position.

Let me now turn it back over to France.

Thanks, very much Steve and Mike and then concludes our formal remarks. So we would laugh now like to open it up for questions. Operator figured out. The first question. Please. Thank you ladies and gentlemen, if you'd like to ask a question. Please press one zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command.

If you're using the speaker phone please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time.

Please for your first question.

Your first question comes from a line of Andrew Steinerman from J.P. Morgan. Please go ahead.

Hi, Good morning discuss Michael <unk> for for Andrew My first question I'm, just hoping you couldn't I'm pack the resolute pressure from the installation delays and met new sales across.

<unk> three segment tickets can we just give us a sense of the contribution from each of the big <unk> any segment of clients that you think.

But the potential rebound could be delayed.

Sure. This is Mike I'll start on that question and then ask Steve to supplement as we look at our transactions rather new there is a significant portion.

That we can actually complete remotely with our installations. There are some of more artists relations that are more complex or sophisticated in nature that actually require us to be in person. A good example would be how it leads business within a legal in that regard were closely mom.

Neutering, not in and and as our customers return to their respect up offices will will have better insights on that timing.

In regards to the net sales the net sales primarily impacted with our big three customer segments. We have assumed a significant haircut and our net sales into two we're not assuming negative net sales were just assuming lower net sales, which state are recurring.

Revenues during the rating 80% of our revenue we think that we'll have lower net sales across all the segments I will mention and the month of April we did have lower net sales. However, we did have good velocity given the current environment illustrate a flea within leave.

<unk> are westlaw edge cells in April continued at the same pace as they did pre know that at the same same premium.

So hopefully Michael that that helped.

Oh, that's great and if I could just squeeze one <unk> cash flow <unk>, what's the 2020 free cash flow impact from the customer collection glean set that you called out and these are particular subset of clients that I think might have higher variability.

Sure if my but let me outbreak that down into two pieces. If you look at the revenue decrease or hair cut we believe the majority of that impact on free cash flow will be offset by our cost containment initiatives that Steve and I mentioned it to look at the decrease in our for your free cash flow. It is driven by our assumption of.

Lower collections from our clients, we value our client relationships and we plan on supporting them. During this period the areas that were focused on the mice. The most Michael would be our small firms whether it be legal tax and accounting Ah. It's early innings yet are collections in April.

I was pretty good.

Ever that's an area as we go through the next couple of months [noise], we feel like we'll have to support and are willing to support our customers as we go into the Q2 earnings call will certainly have more history of collections, but that's our current assumption and Michael we believe that temporary nature in nature, and we'll recoup the time.

Many of those collections and 2021.

Great. Thanks, Mike.

Your next question comes from an line of drew Mcreynolds from our B.C. Please go ahead.

No. Thanks, very much good morning, and and appreciate all of the the detail in the presentation.

Big Picture question for you, Steve I know a little bit fresh on the job of cocoa taken over here right.

Would be curious to just get your initial thoughts on you know where you see the one or two or three biggest kind of incremental growth opportunities here given the asset mix.

And in terms of you know what you're born specific priorities here, let's say over the next six to 12 months you know what they would be and maybe just a it last follow up here in terms of emanate.

To what extent is Thompson's still on on the front sport here trying to identify tucked in ammendale opportunities. Thank you.

Yeah. Thanks, Thanks, real happy to address that in terms of.

In terms of the biggest opportunities <unk> you apparently there's too many of the least at the moment I I see them across the big tree franchises. Let me give you a couple of examples.

The within the legal area you know I spent a lot of time over the last couple of months speaking with the managing passes a million many about about customers and but but before and during the lock down and you know they they.

The same things to me like Okay. As friends, we realize we spent too much on real estate enough enough on on information and technology I think that provides a significant opportunity for us and we were already starting to see the the the the green shoots around that so.

<unk>.

From from continuing to integrated continued software within legal I think is an opportunity that we'll need to execute against and the saying goes with with regard to a Texan accounting, where I'm content is essential now software who use the <unk>.

Accounting firms, there's lots of opportunity given a relatively modest Shia drops Reuters can next by us and we forgot to culprits.

Really feel so we're just starting out <unk> if there's got to the journey you know we got good relationships with many general counsel within <unk> brutalizing too many hits attacks, but if you're looking at <unk>, it's quite modest.

So I think lots of outside the in terms of my priorities, starting drew first and foremost to do what I can to keep out associates, a site and to make sure that as a company went contributing to the <unk> the communities in Montreal for I don't think we'd makes a meaningful progress <unk>.

I hold a virtual <unk>, we've got associates, a couple times a week. It doesn't know so at a time and you know I I'm getting as soon as for the appreciation nine out of the.

Care diligence, but we're applying <unk>.

So that's the first one the second one is you know I I do think that we'd have the opportunity to double down on a couple of F.B. product base I catch before franchises and potentially be a little bit more selective about freezing or cutting some activities that belong Kyle about park development activities and then finally got truly believe as I said it <unk>.

<unk>, we'd have an opportunity, particularly opposed the the <unk>, Oh, Oh, Oh, Oh financial and risk to make to shoot two more of an operating company in type a better advantage of style across the segments.

I think you'll see you know market I talk more about that and of course to count.

Well I forgot to.

Out of your question in the night you know we.

We will continue with strategy that was laid out a a gymnast. So we'll we'll look to make a logical bolt on acquisitions Betta help is better suited up customers would be now cool franchises. So you want to see a change of direction as it pertains to that if anything we see coming out.

News crisis, given the strings about balance sheet more opportunities not waste, but we're going to be very very diligent about assessing first and foremost the impact all the particular, because you shouldn't have no ability to better suited about customers and provide a better customer experience.

Secondarily, the the the fifth and and so forth of of the underlying technologies that that we're requiring and there's lots of at least of course, the financial aspects of the movie is as methodical and and and and thoughtful as we always have a more growing food.

Ruth I could just add a couple of points there in regards to growth opportunities. We're very optimistic about our government business, which is about 450 million of annual ice revenue. We did the small acquisition earlier and Q. Q1 with <unk>.

Look at areas like frog waist and abuse sitting Steve <unk> run stuff business is doing a great job with it so I could see but organic and inorganic opportunities in government and the other one I would mention drew his within a global trade management business is given a supply chain issues opportunities that are yeah surfacing.

I think those are two additional opportunities to for us to focus on.

Thank you very much that's great.

Your next question comes from the line of George Tongue from Goldman Sachs. Please go ahead.

Hi thinks good morning, you're targeting 100 million in cost savings from discretionary expensive things in response to the girl Novartis you talked about the timing of when you expect to realize some of these savings and how much maybe permitted the nature.

Sure, Georgia Smytka in regards to the 100 million, we will achieve all 100 million in calendar year 2020 were incredibly confident on our ability to do that to illustrate of examples George would be T.N.A. traveling entertainment. Another example would be our consulting and use a third parties.

There are other items, which primary discretionary nature and we're also confident in our ability to maintain that level savings as we go into 2021.

Just an additional homemade I mean, when when we started to assess.

The the the river you to talk on impact potentially impact covered 19, we were quick to put the I could cost reduction if it's in place and very very focused on costs.

I know what customer pricing.

End of gun gun directly affect go so.

Okay. So my my only points, we confident we're going with a strong enough out of this in order to do so we need to continuing <unk> customer wising activities.

Genuine invest you know you know.

Ah you know <unk>, particularly in areas like I and software development. So we're not taking a poodle off the gas when it comes to those critical areas.

George I would just add to U.S., specifically about the expert of 100 million I and also to Michael's questions on free cash wife for benefit of everyone. We are currently assuming that we spend our full capital expenditure budget, which is about $480 million on an annual ice basis. So if you look at our free cash flow target up 1 billion that assumes.

Well, we use a bit will certainly monitor that during the course of the year, we're very focused on maintaining the growth factors for 2021, and a bond just wanted to clarify that.

Very helpful. It just took the follow up in your updated for your revenue growth outlook. You did but you have 100 bits of negative impact on lower new sales and give a big three recurring revenue streams can you talk about how renewals in pricing trends in general are performing correctly, just but then you pick three segments.

Sure I I'll start with that we're very police George in regards to the force Porter in regards to our renewals. It certainly very <unk> segment by segment, any but I sub segments, but we think given the how we're embedded with many of our customers. We could have actually some upside on our attention as we go.

Net sales, but lower net sales lore net sales are false the big three or four Q2, sunborn that sells and Q3 and we didn't expect it to began to pick up but the impact on that George <unk> lower impact in 2020, and more impact and 2021.

Pricing pricing certainly happens throughout the year based on contracts come up for renewal the largest portion of our pricing happens into one of each year said that he's here and behind US some of our tax happens later in the year.

We currently expects retention overall should be flat to 2019, which was slightly over 90%.

Just to add to that <unk> that is.

Yeah.

That is that.

You know, how leaving it products like Where's forage into check point, which <unk>. These are you should see tools and so you know what else what else I always seem to doing is you just making voted points to customers and so so far it you know even in the in the defensive.

Oh that is proving to be pretty effect.

Very helpful. It's like you.

Your next question comes from the line of Tony Caplin from Morgan Stanley. Please go ahead.

In the morning.

You think wonder about <unk> yeah.

<unk>.

19.

You can share shift towards.

Terms from smaller Hmm.

Out there any other changes that could impact okay, hi, <unk>.

Tony High.

I think as we sit here today, it's hard to predict certainly the heads all.

The the largest local law foods and the largest accounting firms project that they are going to type sure yeah.

I certainly under the data from any over them through this period of time. So that's one point of view I think another point of view is that you use it it's actually the middle <unk>. The the the small very very minimal firms that have a a great you know customer relationships will be archive.

<unk>.

And the biggest of events have have the buffer the diversity of the blind to business to to to weather the storm it it'll be the middle <unk>.

<unk>, we do not see <unk> signs of.

Pressure, but as you can imagine we're monitoring it very very closely.

Data and then in turn Hi.

Okay.

<unk> <unk> ended up out there.

Current environment sort of.

Salary that you can't stand like killing their or you know just trying to understand I you know basically how how far along you don't you think are and how much more they're dying.

<unk>, we see it on a group, including shifting that transition. So we didn't let me just give you a a form of legal vote on contacts in accounting within legal as I said you know my my for the managing partners have sort of going through the last month to six weeks and realized that on a time they'd spend too much on.

Real estate not enough on information technology.

That is too out what bondage and we've been coming out of this is actually my remarks were going to see more divine are accurate a timely.

Useful information to live in digitally anything stressful 24 hours a day.

<unk> you pull that that environment. That's interesting second thing is the vehicle detection accounting for fish and enjoy the reputation integrating oh swear to transition to new products and technologies and we're starting to see some of that resistance some of that resistance.

Is that right. So they they have gripe loyalty to US we have worked with many many of these rooms for decades, but at one example would be you know the the folks who were resistant to putting the tax return activity.

But I could do our file based solutions have realized through this crisis that they just may not have a choice. So I know that the the number of the big technology Silicon Valley Technology implies a call me to that they've seen.

You know sort of two to four years of digital Digitization and and transformation in the last few weeks, we're seeing a version of the same with the <unk>.

Yeah, Tony I would just a supplement in addition to using digital for more the commercial go to market sales and renewals also for supporting our clients over the last six weeks, we've actually seen our call volumes remain up pretty steady levels and I think we'll see more that shift to more self service we call. It my T.R. within the from the more cell.

Services capabilities for for our clients will be really important and enabling that will be data and analytics, we're investing more an animal it's crossed affirm that especially with our go to markets.

Okay. Thank god.

Your next question comes from the line of men have Pontiac with Barclays. Please go ahead.

Thank you good bonding and it's team the congratulations welcome I'm looking forward working with you again.

<unk>.

My first question is just you know on the <unk>, probably that could maybe being checkpoint batch and it can just talk about the way you are in terms of team independent <unk> I, just a little more color on you know where that is progressing how far along we are.

Yeah, I'll start with that one in regards to west while as just as a reminder, we concluded 2019 at about 33% penetration on an annual contract value basis, we're approaching 40%.

At the end up to one the premiums that we experienced and price premiums in 2019 are continuing into Q1 and and actually as I referenced earlier continuing into April so good movement in regards to west while edge and we continue to estimate that by year end will we will.

55% penetration for a annual contract value checkpoint edge is coming along and we would expect that to accelerate as we progress during 2020, I think that the key item, there's leveraging a guy a machine learning et cetera, with our products. So pleased with the progress over.

<unk>.

Got it and then you know just in terms of the <unk> I understand you sent chip your products I, probably you know going <unk>, who believes that habit just send color on you know the.

The contract structure books and films that usage and use it was because I presume you know they will be painted that we <unk> email companies and and also you know him back to that customer contact me gave like what is the rock mics off in the small medium and large.

Yeah, I'll I'll start with that immigrants start contracts, we do not anticipate opening up our contracts. During this period, we'll certainly going to support our customers, but more so from the standpoint of contract payment terms, but we're going to maintain the integrity of the committed contracts that we have supporting about 80.

Percent of our business. So we're not making any wholesale changes in with way that we handle hour a contract structuring commitments will support our clients more from the standpoint, a payment termed get we certainly monitor the product usage on a daily basis or cross talk from and including orders.

We saw a small dip a immediately wind of work from home started across the economy, but we saw it quickly pick back up to pretty normal normal levels.

The other the other come in what makes that not because we.

Analyzed sort of every form of fresh out throughout customer base in on the web business that you can then you could imagine.

And.

A couple of things going to much point would receive products like with war age continuing on the time trajectory to sign off they were poorly.

And very importantly, you know how how how far some solutions are a source of decency in cost reduction for our customers across their their entire costs face.

That's how we're increasingly selling anything that's how they're increasingly be viewed things. So we're we're not obviously.

With with north or ignorant to the pressures that our customers up placing them by going to place, but what part of the we call it a solution, but the problem.

And I have just just additional point in regards to the segmentation of stratification question you asked about 34% of our big three rather new is within small farms, which a place for about 30% for total T.R.

Thank you again.

[noise]. Your next question comes from the line of <unk> <unk> <unk> from Cannacord. Please go ahead.

[noise], but taking my question. Please <unk> welcome to the close talking So my question is the Arab into can we can we ask you to get a little closer to your bones is a little hard injuries.

Hi, <unk> <unk> better.

Hi, Kinda guys hear me.

Mmm.

We can now go ahead.

That's that's questions on the the the collar U.K. bond the comparison professors, the the recession or not and the <unk>.

2009, the one thing that stood out to me way SAB last time around the recovery in the legal baseball, except the impact on the legal business was a little bit more lack that I mean, if my madly says my correctly.

Decline great did not bottom out until around Q1, 2000, I had well look at some of the guidance that you've given on a coffee bases, obviously, you're expecting more suited our recovery are starting to salt on top of the yeah, it's not simply based on their friend.

Structural factors that you talk dog or obviously there are differences in that in a recession of 2008 of 2009 that was far more simply are but I just wanted to get your thoughts on that and a a quick follow up on your update to the repetitive transaction.

I as far as you can just walk us through sort of the book was process I know, there's a little bit of the delay on the European outside of the proposed is there anything to update on that.

Yeah, I'll start with the responses in the N.S., Steve to jump in <unk>. When we think about 2020 club at 19 versus 2008 nine yeah, certainly different macro factors <unk> play and it's Steve mentioned legal excluding print bottom out at about 2% on an annual basis in 2009 and.

10, we certainly our product mix is different than it was today back in 2008 and nine we had not even launched bless while next and we now have less while edge and just give them the activity that we've seen in April we think that demand from our clients will will continue got more of I must have so I think the strength in mixed up.

Our offerings are much different now and the degree to upon which were further embedded with our clients. Today is another big factor. So I think those are the some of the factors that gives us confidence in regard certainly Steven I mention I will provide another update it q. too as we learn more in.

<unk> transaction based on feedback from the <unk> management. Their viewpoint is currently between definitive an L.S.C. that the transaction is still on target to close by the end of 2020, certainly the current environment has created some additional challenges and delays here and.

There, but overall based on our conversations with repetitive.

Their their confidence level as high which was confirmed by the L.S.C. during their recent Ernie school.

<unk>.

<unk>.

Your next question comes from the line of Tim Casey from being <unk>, whose go ahead.

Yeah pretty learning too quick ones for me.

Regarding your comments about you know.

When accelerating skip school customer behavior.

On the net basis is there is there not some offset to that that you'll see an acceleration they'll print the Corey how should we think about those two metrics and then you mentioned your global trade management business is one that you're quite excited about <unk>. I think you mentioned 450 million from government is it.

Is it close to that size or smaller.

Thanks.

So let me let me take that one.

One two and all the calls and put it to to to mind for the second is because I said, we we certainly see <unk> the acceleration in in a shift to to to to virtual offices to digital solutions, and we think that that quite nicely into the the.

Set of products, we should still be having a mockery twice in dollars that we are developing I'm, leaving into our <unk> machine learning and so we go and capabilities as for the decline in print you know we've we've been I think very prudent conservative in terms of what what the impacting too too.

On print will be because I'm pretty expensive zero legal library into a normal in their offices and on campus and so forth. They don't pay to receive books and so we we really taken a significant cutting computers and we bring I think very conservative just to sort of the gradual were turned into.

Activity through the rest of you as as to whether these contributors to I I, a broader and more accelerated decline in print.

You know, we have I think that bike into l. sort of long term expectations in any case.

Into the <unk>, usually accelerated by five who's who's crisis in the changing by Who's we're confident that the acceleration in shift with digital solutions were more than off soon.

I I see I'm in regard struck global trade management business, we will approach 100 million U.S. this year.

2028 on an annual ice basis member backing to 40018, we require a integration point and we see that business continuing to grow nicely in 21 in the.

<unk>.

Your next question comes from the line of Vince Valentini from T.D. Securities. Please go ahead.

Yeah. Thanks, Thanks for all the information little per ticket. So many questions guys. One clarification one question.

Like you said, 25% tax on the 7.6 billion dollar value for your L.C. shares can use consumers was a zero cost base. There. So it looks back to pay a full 25% to four years.

Simplistic answer Vince that would be the easiest way to look at it's roughly 25% on that.

Who picked up at the cost basis very low.

And second the question if I can just try to unpack your slide 29, a little bit.

You'll prior to the covert crisis, you had certainly been expecting the organic growth in 2021 to be at least as good as is 2020.

If I look at this flight in you're taking these somewhat one time hits, but that's because several installation revenue.

If we go with your base case narrow the economy's recovering by the second half a year is ready reason I think that if you're expected five per cent organic revenue growth before that you know expect <unk> organic revenue growth in 2021.

Yeah event, it's a it's a fair question I'm going to refrain from going into much detail in 2021 today as we come back out with the key to call, but we have some additional inside hopefully can appreciate that just so meeting losing pieces right. Now we certainly remain very optimistic with the foundation of our business and and the strong underlined book a business driving.

Recurring but if I could ask just for a little time dents on the 2021 outlook for all the metrics that that would be helpful.

Okay. Thanks, how much uh-huh operator, I think we'd have one file question. Please.

That question comes from the line of Gary busy from a bank of America. Please go ahead.

Hey, guys morning.

One one question.

At first perceived.

About initial impressions and opportunities.

That you mentioned was further operating model efficiency potential over time and as part of that.

A comment about product development can you just help us from a high level, you know understand where you're thinking it's it's really the concept of post separating half the company the.

Business is not necessarily been right sized or or is officially set up for the current.

For the current you know.

Or is there something more targeted specific you have in mind.

Yeah. It's look I don't think it's a question of.

You know sort of a a big disconnect Gary in terms of this is the size of the overhead oldest the the you know the right. So I think it would cost base I think it's more <unk> more specific than that so.

It was prior to the divestiture the W., having offices there was something of a holding company for you to to to the company I think we still have some of those vestiges today.

And you know given the size of it if enough business I think that was understandable at the time, we have a a pretty exciting opportunity to look across the business identify the areas of activity.

Yeah, you service about customers, we can do things a bit of scale, we can even big.

More next generation technology, you know the underlying activities and do them significantly more efficiently you know in a in that that is every activity you can imagine starting from the way in which we capture install diner information through to you know application of.

Machine learning and the development of products. So that's that's interesting although depend on the product development.

Wins, you know I think we've just got some some some room to improve their I think our ability to you know we we are very focused on our customers. We'd have we have a lot of a talented styles and customer service people, who have truly <unk> spatial relationships with with the accountants.

<unk>.

And the executives from whom they work, but I think our ability to truly understand the decisions that our customers are making.

Translate that back into the solutions, we're providing isn't real upside down and I think we can get better we can get a pasta and more agile doing that are in terms of understanding those neustine anticipating getting them into the product features and functionality is growing food you know and this is this is.

Evidently a dream, there's nothing sorta overly scientific <unk>. If we go about doing this we just go to sit about doing it.

Right.

Follow up for.

Cost reduction cometary gave about this year it sounds like a lot of that is discretionary that goes away, but but could come back in the future is is there any way to think about eight and stuff that is that.

<unk>.

Come back.

Aligned with revenue or you'd have some discretion.

<unk>.

Yeah.

<unk> work to ensure that does cost and not come back in the aggregate that could be a slightly different mix as we go into 2021, but certainly a very strong focus on those discretionary costs will be a permanent part of our D.N.A. with that so it could be a slightly different mix, but I'm optimistic we'll be able.

Hold that as we go into 21.

I like to say I I think.

Gary many of the companies you follow exciting version of the same thing but.

In a sense <unk>.

The human crisis here. This is the right experiment right and so we we cut those costs and we see what happens in so far we haven't missed them.

No no <unk>. So that's the first thing the second thing is it it really I think gives discouraging and you you know conditions.

Hold down on that big a base.

The customer is truly values right, but the legal detects accounting and corporate the government components about business or in the process of doing that sort of father results that have been oh, so very very promising. So we claim to continue on that through the rest of this year and use that momentum heading to 2021.

Thank you.

So that'll be our last question for the day, we know that there was an awful lot to digest there we very much appreciate your your time and attention on this call I'm sure you'll have fallen question. So please don't hesitate to reach out for me and Megan and we will be available to help me with that thanks very much for joining this morning and have a good good.

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