Q3 2020 Thomson Reuters Corp Earnings Call
[laughter], there's much ladies and gentlemen, thank you for standing by and welcome to the time there.
Third quarter earnings conference call at this time, all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time.
If you should require assistance during the call. Please press Star then zero and as a reminder, your conference is being recorded.
I would now like to turn the conference over to host Frank <unk> head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for our third quarter earnings call.
This morning, I'm joined by our CEO, Steve ask her and our CFO, Mike Eastwood each of whom will report our results and we'll take your questions. Following our presentation.
They will also discuss our outlook for the balance of the year.
To enable us to get to as many questions as possible. We'd appreciate it if you would limit yourself to one question each and then one follow up when we open the phone lines.
Today's presentation, when we compare performance period on period, we discuss revenue growth rates before currency as well as on an organic basis. As we believe this provides the best basis to measure the underlying performance of the business today.
Today's presentation contains forward looking statements actual results may differ materially due a number of risks and uncertainties related to the COVID-19 pandemic and other risks discussed in reports and filings that we provide from time to time to our regulatory agencies.
You may access these documents on our website or by contacting our Investor Relations Department.
Now I'll pass it to our CEO, Steve ask or.
Thank you Frank and thanks to all of you for joining us today.
We're very pleased to report out markets and businesses continue to prove resilient in the face of a challenging brought a macro environment.
Our third quarter results were above our expectations across the group from the top line to the bottom line.
Customers are adapting to a new titles in this environment.
And we continue to adapt and support them in their evolving ways of working and they caught me explain how strong performance.
In the third quarter, we exceeded each of the revenue guidance metrics. We previously provided.
Revenues on a consolidated basis.
And for the Big three.
Well well above our outlook.
Total company recurring revenues and transaction revenues each increased 4% organically.
And that's the big three businesses legal corporate.
And tax and accounting posted solid organic revenue growth of nearly 5%.
Based on our performance for the first nine months of the year.
We have increasing confidence as we look to the balance of the year.
And the 2021.
Let me now turn to the results for the third quarter.
Reported revenues were up 2% organic revenues were up two and a half a cent.
And revenues at constant currency were up 3%.
Adjusted EBITDA increased 42% to 491 million.
Reflecting a margin of 34%.
Strong revenue growth the effective implementation of cost savings measures. We began at the end of the first quarter in response to Carbonite team and not having incurred onetime costs in Q3 as was the case in the prior year period, all contributed to strong EBITDA growth.
This strong performance resulted in adjusted earnings per share of 39 cents.
27 cents per share in the third quarter of last year.
Steve I'm going to interrupt you for a moment if I could in that and ask if we can dial back in because I'm being told we're getting a very bad echo.
Okay. So if you could just just bear with me for one more.
Okay.
So he's got again, we apologize, but we're going to dial back ended because evidently there's a very bad echo that we understand people are receiving so bear with us for a remote.
I believe we haven't had out.
Yeah, I can handle yeah, why not buy that car.
Okay very good will.
We'll go back in to have Steve start over again.
Thank you.
[noise], we're very pleased to report out markets and businesses continue to prove resilient in the face of a challenging broader macro environment.
Third quarter results were above our expectations across the group from the top line to the bottom line.
Our customers are adapting to a new cadence in this environment and we continue to adapt to support them in their evolving ways of working and this is partly explained how strong performance.
In the third quarter, we exceeded each of the revenue guidance metrics. We previously provided.
Revenues on a consolidated basis and for the big three well well above outlook.
Total company <unk> total company recurring revenues and transaction revenues each increased 4% organically.
And the big three businesses legal corporate and tax and accounting posted solid organic revenue growth of nearly 5%.
Based on our performance for the first nine months of the year, we have increasing confidence as we look to the balance of the year and 2021, let.
Let me now turn to the results for the third quarter.
Good.
Reported revenues were up 2%.
Organic revenues were up 2.5%.
And revenues at constant currency were up 3%.
Adjusted EBITDA increased 42% to $491 million, reflecting a margin of 34% strong.
Strong revenue growth.
The effective implementation of the cost savings measures. We began at the end of the first quarter in response to COVID-19.
And not having could onetime costs in Q3 as was the case in the prior year period, all contributed to strong EBITDA growth.
This strong performance resulted in adjusted earnings per share of 39 cents.
It was 27 cents per share in the third quarter of last year.
Turning to the segments as I mentioned, the big three businesses achieved organic revenue growth of 5%.
Legal had a terrific quarter with revenues up 4% before currency and organic revenues up 3%.
Legal also achieved its strongest net sales quarter since Q2 2016.
And legal recurring revenues.
Which are 93% of its total revenues increased 4% organically.
Westlaw rates continues to drive strong year to date sales growth and ended the quarter at a 46% ACB penetration level.
We expect to achieve a penetration rate of between 50 and 55% by year end.
It has now been adopted by all U.S. Federal government courts, and 39 state courts.
And practical law legal solutions offering that provides comprehensive insights an odd says two attorneys how do I question is having another good year with strong sales and double double digit revenue growth. It's the perfect solution for the work from home environment.
Our government business, which is managed within our legal segment continues.
Continues to exceed expectations and grew 9% organically in the third quarter.
We forecast a similar performance for the fourth quarter.
Turning to the corporates business organic revenues again grew 5% driven by organic recurring revenue growth of 5.5.
Recurring revenues comprise 86% of the segment's total revenues.
And tax and Accountings organic revenues bounce back in the third quarter and were up 10% then it'd be benefiting from the pay per return filings in the first two weeks of July.
You'll recall about $6 million of revenue shifted to the third quarter from the second quarter.
Due to the U.S. federal tax filing deadline being extended to July 15.
Sales were also strong for the quarter following the completion of tax season on July 15.
And one additional point to mention in a recent survey we found that more than half of those working at small and midsized accounting firms and now working in the office a hopeful sign of a return to normalcy.
Reuters news organic revenues declined 2% and global principal organic revenues declined, 7%, which was better than the ranges previously provided.
Given our year to date performance and outlook for the remainder of the year, we're increasing guidance for adjusted EBITDA margin and free cash flow for the full year, we now forecast our consolidated adjusted EBITDA margin will be about 32%.
And the big three adjusted EBITDA margin will range between 37, 38%.
And free cash flow is now expected to be about $1.1 billion.
Were also slightly increasing our forecast for depreciation and amortization expense and capex as a percentage of revenue for the full year, which Mike will speak to.
All other guidance metrics, we previously provided remain unchanged.
We are confident we will continue to effectively manage through the ongoing challenging environment and we will build on this performance in 2021.
Speaking of building on these performance, it's been more than seven months since I joined the company and many of you have you have you been asking what's next.
During that period of dedicated time to learn about our products to evaluate our markets and competitive position to develop a good understanding of our organization structure sales dynamics product development cadence and technology architecture, and I've also been assessing our talent.
I can say with confidence there's no doubt we have strong market positions, our customers love our products and we're in a solid operating position as evidenced by a year to date results. Moreover, our organization is now approaching an exciting crossroads as we begin the transition from a holding company to an operating company.
We view the direction, we're headed as a logical progression from where our organization as we seek to continually strengthen our businesses and.
Alibi, no value proposition enhance the customer experience and maximize outperformance.
Let me explain.
I continue to be impressed with how strong and resilient how businesses are and have dedicated people to serving our customers, particularly over the past seven months and outperformance during that time has only served to reinforce our view that we have tremendous strength.
We stop in a position in a strong position.
And with customer access across the legal tax and accounting and regulatory ecosystems, and now domain expertise and content is mission critical to our customers' workflows. We're also uniquely positioned to build on our history.
We have an opportunity to combine our unique content with world class AI machine learning and software to be a leading content enabled technology company and positioning us to become a true partner an innovator not just a vendor or a cost of doing business I believe many of our customers would welcome that partnership given out.
Long term and deep relationships.
We also I believe increasing regulatory complexity.
New competitive entrants and co, but 19 induced structural change changes create challenges for our existing customers that will likely expand our addressable markets and drive further growth Mike.
Markets, a moving in our direction.
Those strength, our solid foundation on which to build the work we've done over the past seven months has also enabled me to begin to prioritize the areas, where I believe we can leverage our strengths and focus our time talent and investments to capitalize on the fundamental opportunities in front of us.
A few examples we have over 350 products that have been acquired built maintained salt priced separately. Some in slow growth markets. We now have an opportunity to follow a logical path to build a more focused an integrated set of products that incorporate AI machine learning and software.
Just to higher growth segments, where we can delight customers and drive valuable outcomes for them.
Second we still have excessive complexity for a company of our size, we have an opportunity to significantly improved customer experience a net promoter score we knock on benefits that include greater cross selling higher retention and high revenue growth.
Not easy, but certainly achievable.
And third we maintain dozens of distinctly underlying.
Technology architectures.
Which require investment and consume capital.
We have an opportunity to create shared technology platforms that support agile product development and a significantly enhanced customer experience. It's abundantly clear to me that we have a game changing opportunity to transition to a simple simpler more integrated innovative and agile operating company.
Now a few takeaways before I conclude.
First we're building on a very solid foundation APL.
Our plan reflects a logical progression for our organization that aimed at further enhancing and optimizing an already strong set of businesses.
Our markets are stable and growing and were not contending with regulatory issues will crippling competitive dynamics second we believe capturing growth opportunities will not require a transformational M&A will miracle gro bits much of our success will be organically driven with a substantial runway current markets will grant.
Growth will be supplemented inorganically within our current good Nichols.
And we have significant capacity, which is only expected to increase following the closing of the definitive LSC GE transaction.
And third this transition and our ability to capture greater efficiencies will require rigorous execution.
The good news is that it will not require us to reinvent the wheel.
Businesses are healthy and strong putting us in an enviable position to drive further operating excellence. Furthermore, our company has a strong record of successful execution and achieving targets. In fact, Mike has led many of those successful initiatives over the past few years.
Let me assure you that we will execute with urgency and will provide ongoing transparency against the defined set of milestones I'm confident we'll be successful finally, our plant is being built with two primary objectives, driving higher revenue growth and capturing greater efficiencies.
Success will be measured by a world class customer experience, which I'm confident will translate to higher sales greater retention more cross selling upsell opportunities and lower cost to serve our customers. The definition of success will be higher organic growth high margins low a cut capex intensity and significantly higher free.
Cash flow generation.
Success will put us on a path toward achieving the value creation model reflected on this slide which we previously shared and against which we measure our progress.
It's a model we are determined to achieve.
We look forward to providing you with more detail regarding our priorities our execution plans and the financial metrics to track our progress when we report our fourth quarter results in February 2021, Let me now turn it over to Mike.
Thank you, Steve and thanks to all of you for joining us today.
As a reminder, I will talk to revenue growth before currency and on an organic basis let.
Let me start by providing some color on the revenue performance of our big three segments.
Revenue growth for the Big three was up nearly 5% with organic revenues also up nearly 5% for the quarter.
Both above the ranges we provided in the second quarter.
For the quarter legal professionals revenues increased 4% and organic revenues were up 3%.
Recurring organic revenue growth of 4% was partially offset by a 4% decline in transaction revenues.
This decline was due to a timing delay and our financial business and.
And less fall edge continues to contribute over 100 basis points to legals organic growth, while continuing to maintain a healthy premium.
Our government business had another strong quarter with total revenue growth of 12%.
Which 9% was organic growth.
In our corporate segment, both total revenues and organic revenues were up 5% driven by our legal and tax solutions.
And finally tax and accounting total revenues grew 3% with organic revenues up 10%.
The difference between total growth of 3% and organic growth of 10% was mainly related to the sale of our government tax business in November 2019.
Also tax and Accountings organic revenues were boosted 380 basis points due to the shift in pay per return filings to Q3 from Q2 related to the extension of the U.S. federal tax filing deadline to July 15th.
Loading this benefit organic revenues were still up a healthy 6%.
We expect tax and Accountings organic revenues will increase between 5% and 7% in the fourth quarter.
Moving to orders knee is.
Revenues declined 1% with organic revenues down 2%, mainly due to softness in the agency business.
This performance was slightly better than we had anticipated due to the conversion of 16 and person conferences to virtual events.
As a result, we now anticipate Reuters full year revenue to decline between 2% 4%.
And organic revenue to decline between 6% and 8%.
And global print revenues declined 7% in the quarter with their organic revenues also down 7%.
This performance was at the better end of the range, we provided last quarter of minus 7% to minus 15%.
We expect full year global print revenue to decline between 7% and 11%.
And on a consolidated basis third quarter revenues grew 3% with organic revenues up 2%.
Before turning to profitability, let's look closer at recurring and transaction revenue results for the third quarter.
Starting on the left side total company organic revenue for the third quarter, and 2020 was up 2.5% compared to 3.6% growth in the third quarter of 2019.
But if we delve deeper and look at the Q3 2020 performance for the Big three.
You will see organic revenues increased nearly 5% a strong performance and in line with the performance in Q3 2019.
And as you can see on the top right of the slide the recurring revenue growth continues to be very encouraging as organic revenues for total company grew 4% and the big three through 5% slightly less than last years third quarter.
Turning to the graph in the bottom right at this slide transaction revenues were up over 600 basis points year over year, mainly due to the paper returned timing that was recorded in Q3, and which I previously mentioned.
So despite the close at 19 related disruptions, we continue to remain encouraged by the momentum we carry into the fourth quarter and 2021, especially for recurring revenues given us confidence and the trajectory of the business.
Turning to our profitability performance in the third quarter.
Adjusted EBITDA for the Big three segments was $439 million.
Up 22% from the prior year period and.
And the margin was up 560 basis points, reflecting strong revenue growth and the cost savings programs implemented late in the first quarter related to co that 19.
Legal professionals adjusted EBITDA margin in the third quarter grew over 600 basis points to 42.8% compare.
Compared to the prior year period due to higher revenues included 19 related cost mitigation efforts.
Corporate adjusted EBITDA margin was up 300 basis points to 36.0%, mainly driven by revenue growth.
And finally tax and Accountings adjusted EBITDA margin increased more than 800 basis points to 28.5% also due to co that 19 cost mitigation efforts and the sale of the lower margin momentum business in November of last year.
Moving to orders news adjusted EBITDA was 23 million 7 million more than the prior year period, mainly due to co that 19 cost mitigation efforts.
Global press adjusted EBITDA margin for the quarter declined about 120 basis points due to the decline in revenues, but remained strong at about 41%.
So in aggregate adjusted EBITDA was $491 million.
Up 42% benefiting from revenue growth.
Cost savings initiatives and not having incurred onetime costs as had been the case in the prior year period.
This next slide provides a bit more color on the various factors impacting our adjusted EBITDA margin in the third quarter.
As you can see our reported 2023rd quarter adjusted EBITDA margin was 34%.
There were several factors in the quarter that contributed to the significant increase over the prior year period.
M&A activity had a 50 basis point positive impact on margin in the quarter.
And lower revenues related to co that 19 at a 230 basis point negative impact on margin.
However, the savings from the 100 million cost savings initiative, we announced in the first quarter led to a 500 basis point benefit.
More than offsetting the dilution from the co that 19 impact.
We have now exceeded our 100 million target, but anticipate reinvesting the additional savings in the fourth quarter.
Therefore, our full year net savings in response to co that 19 will be approximately $100 million.
And lastly currency negatively impacted margin by about 40 basis points in the quarter.
So on an underlying basis, excluding stranded and onetime costs in the prior year. The adjusted EBITDA margin expanded about 400 basis points.
Which was primarily related to the cost savings measures as a response to co that 19.
We continue to expect these savings will be permanent.
With the completion of our 100 million cost savings initiative.
We believe we're making the necessary investments in the fourth quarter to accelerate organic revenue growth and margin improvement in 2021.
We continue to encourage you to focus on our adjusted EBITDA margin on an annual basis.
Overall, we believe we have good visibility into the levers at our disposal to achieve the new adjusted EBITDA margin target of about 32% Steve mentioned earlier.
Now, let me turn to our earnings per share and free cash flow performance.
Starting with earnings per share adjusted EPS increased by 12 cents to 39 cents per share during the third quarter.
The increase was driven by higher adjusted EBITDA, partially offset by three items.
First an increase in depreciation and amortization, mainly related to acquisitions and asset impairment charges related to office closures in Q3.
Second higher interest expense largely due to lower interest income.
And third higher income taxes.
Finally currency had a one cents negative impact on adjusted EPS in the quarter.
Let me now turn to our free cash flow performance for the first nine months.
Our reported free cash flow was $881 million.
Versus a negative $50 million in the prior year period.
And improvement of over $900 million.
Consistent with previous quarters. This slide removes the distorting factors impacting free cash flow performance.
Working from the bottom of the page upwards, the definitive related component of our free cash flow was better by 145 million from the prior year period.
2019 included residual paid payments for employee cost and tax expenditures related to the operations of our former up in our business.
Also in the first nine months, we made $87 million of payments for separation cost incurred in 2019 related to our transformation program.
In the prior year period, we made a pension contribution and other payments totaling 542 million primarily related to the definitive transaction.
So if you adjust for these items comparable free cash flow from continuing operations was $840 million.
190 million better than the prior year period.
This increase was primarily due to higher EBITDA and lower income taxes slightly offset by higher capital expenditures.
Now an update on our investment in Retenanted.
The agreement to sell the benefit to the London Stock Exchange Group is now expected to close in the first quarter of 2021.
Regarding our investment stake when the proposed deal closes our expected interest was worth about 8.8 billion pretax.
As of the market close yesterday.
And we now expect to incur a tax of about 600 million at closing due to the continued rise in the LFC stock price.
I will remind you we have several options available regarding how we will fund the tax payment aside from free cash flow cash on hand, or drawing under our revolver.
Including some noncore minority investments.
Our future equity interest into LSC will represent a store of value, which can be monetized over time.
We believe it will provide us with a significant level of financial flexibility in the foreseeable future.
As a reminder, after the deal closes we expect to receive annual dividends from the LFC estimated at 60 million per year based on the Lses current annual dividend payout.
Now, let me turn to our outlook for the balance of the year.
As Steve mentioned, we are reaffirming our 2020 full year guidance for consolidated revenue growth.
And organic revenue growth for the big three and we are revising for guidance metrics.
First we are increasing our adjusted EBITDA margin guidance to 32% for total TR.
We are also increasing our margin guidance for the big three to between 37% and 38%.
Second we are increasing our free cash flow guidance to 1.1 billion for the full year.
From 1 billion to $1.1 billion.
Third.
Just as we're making additional operating expense investments in Q4, we also plan to make additional capex investments both are intended to better position us for 2021.
Capex as a percentage of revenue is now forecast to range between 8% and 8.5%.
As I've said before we continue to expect Capex to decline as a percentage of revenue over the next several years, beginning and 2021.
And fourth guidance for depreciation and amortization is increasing by $25 million, primarily due to asset impairment charges related to the office closures I previously mentioned.
These closures reflect our intention to continue to shrink our global real estate footprint.
Finally, we are reaffirming our effective tax rate guidance of between 17% and 19%.
Let me now hand, it back to Frank.
Thanks, very much Mike and Steve and that concludes our formal remarks so.
So operator, we'd like to open the call now for questions. Please.
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Lois Hello.
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Welcome.
Our first question lot of Andrew.
Andrew Steinerman with JP Morgan.
Thank you okay.
Okay. Good morning, everybody could you hear me.
Good morning, Andrew we can hear you loud and clear okay, great I sell for 2020 that have the EBITDA margin guide to be let's just say July 32%. The fourth quarter implied guide is below 30%. So I was wondering if you could give us a sense of the level of stepped up our opex and vast.
Sales for growth initiatives and all those specific to fourth quarter.
Yes, Andrew we will have three categories of Opex investments in Q3 as you referenced there won't be a portion that is related to organic growth I'll give you a few examples.
Within our legal business, our practical law, which supports both our legal professionals and corporate segments.
Thats led by Elizabeth B. strong, we are increasing our investments and practical law in Q4 sticking.
Sticking with legal high Q, which we acquired in July of 2019 will receive incremental investments.
In the government business, which is reported as legal we'll continue to make investments there, which led by Steve rudely.
Within tax and accounting professionals the on the business led by Charlotte Rushton, we're continuing to make investments there and lastly, within the corporate segment indirect tax with Brian Packer rally, so a number of organic growth.
Growth investments Andrew in Q4. In addition to those organic product investments. We will also make some investments to improve our end to end customer experience and lastly, Andrew we're making some investments to drive some of the efficiency initiatives. So to your point there is a sizable amount of investment.
In Q4 related to Opex, while on the topic of Q4 investments. We're also making some incremental investments on the capital side in Q4, and those would be correlated.
To the product investments I referenced earlier, so both some capital and Opex investments on the product organic growth side Andrew.
Okay. Thank you very much.
Dave.
Thank you and our next question is from Morgan Stanley. Please go ahead.
Thank you and your new sales in legal looked pretty strong this quarter, just hoping you could give a little more color on what you're attributing it to their anything one time in there and I know you mentioned government business with strong not sure if you're expecting that to continue at that pace. I know you just mentioned that you're investing in it.
But that was pretty strong at 9% and just wanted to understand how much is price driven versus cross selling and how much is taking market share from competitors. Your mix, just any color on that or legal environment and new sales. Thank you.
Tony I will start and ask Steve to supplement I'll start on the macro Tony in Q3, we were very pleased that our overall total t. our net sales for Q3 actually exceeded our region original plans this year.
We did have a shortfall in Q2, the Q3, we actually exceeded the original plan us for total GR.
To your point, Tony legal experience, a very strong Q3 from a revenue and sales perspective, the government business. As you mentioned was a key contributor and we expect that to continue to.
To grow at double digit it was 9% organic in Q3, we would expect similar performance in Q4 Tony.
Tony Westlaw edge continues at the same pace in Q3 and actually also in October the west while AD sales both from a volume perspective than a price premium perspective continue there from the standpoint of pricing for total TR, Tony we have completed about 85%.
Our PRASA price actions.
Through Q3 for the full year were seeing similar price increases for total TR in 2020 that we experienced in 2019.
Yes, Tony just to add to that I think.
We when covered hit we just simplified our playbook and.
And put an exhaustive focus on our customers and I think you know.
The legal team as one example.
Government team is another example of them very good jobs of of focusing on our customers and this supported of course by some strong products like wet floor edge and practical or under.
The recent acquisitions in and around our government.
Government segment, so kudos to the teams, but taking that playbook and really.
Executing it and I think thats been reflected in the strong Q3.
And Tony that make up the final point as a reminder, Q4 of 2020 similar to prior years is always our largest quota.
Quarter for any given year, so closely monitoring at October is trending well thus far.
Thanks, so much.
The next question is from Sami Sam.
James Please go ahead.
Good morning, and welcome back.
Thank you very much and good morning, gentlemen, and I I also have a question on the competitive environment and it was regards to west so.
It seems that on the one end side, we are fast scale is trying to push up markets.
We have elecsys, plus and that branding strategy and.
To what extent you Stuart.
Would you characterize the competitive environment as being similar to what it has always be or perhaps to be somewhat more intense and keep them compared to just movement piece.
Yes, I mean, I'll start and and so Michael Ed.
Look we're very focused on on Westlaw rich continuing to innovate around with Florida.
And pottering without without customers big and small to make sure that those innovations are.
Solving our customers' issues and then making their lives.
More productive and more efficient.
We're more focused on that than we are on on any of the competitive issues and what I would say is that we havent really seen much change.
And the market dynamics in recent times.
Thank you very much.
Our next question is from Rome as Casey.
Please go ahead.
Yes, Hi, I was wondering could you just break out a little the the investments you're making into their true near term between.
Capex and Opex, what you're trying to drive there and you mentioned you do expect capital intensity to decline.
If you could just flush showed a little bit there may be a by how much or what is going to lead to that decline is there going to be revenue growth against a flat capex or.
Would you expect capex and absolute dollars should decline and if so why.
Where would you see that decline thanks.
Sure, Tim we will be providing our 2021 full year guidance in February when we report Q4 as we go into 21 22, 23, I think the overall capital intensity percentage capital as a percent of revenue will decline. There I think we will see continued topline.
Line growth.
As part of that with the recent additions to our leadership team of course, do Rob and David long.
We're quite optimistic that our efficiency productivity.
Per dollar invested we will continue to improve and scale as we move forward we are intentionally.
Some additional investments and.
Q4, because we think we have the opportunity to capitalize on some near term opportunities and also address some recent feedback from our customers.
Thank you.
Uh huh.
Thank you and our next question is from the line of George Tong from Goldman Sachs. Please go ahead.
Hi, you have Ah.
Ryan on for George.
I was just wondering.
Monthly transaction revenue trend, Greg do you and how those are right at November.
Then I was also wondering you mentioned what the Oh.
Legal customers migrate, but well worth it.
As of today.
Are you guys planning to do you get those but yet when each one year would be.
You want to look.
Sure in regards to our transactional revenue certainly quite seasonal and that varies by not only our segments, but by our sub segments.
Within a trend.
Transactional revenue continues to be about 10% of our total revenue and it is a little choppy month to month or quarter to quarter for us and.
In regards to our legal west LOL edge through 930, we were at 46% penetration from an annual contract value HCV perspective, as we approach December 31st we're estimating 50% to 55% consistent with my comments, Tony Q4 is a heavy quoted period for us with.
In our legal business.
So the trend there could be in the 50% to 55% range by year end, we will share an update Ryan for 2021 Westfall edge penetration.
In February.
Q4 earnings call.
Great. Thank you.
Sure.
Thank you. Our next question is from Gary Bisbee from Bank of America. Please go ahead.
Hey, guys good morning.
I guess, if I could ask a first on just the Q4 investments can you help us frame out a little more should we think that this is really.
One time opportunistic because you're ahead of plan and you've got a pipeline of opportunities you can invest in to help growth in the future or are some of these.
Yes, Mitch that.
Steve with your time, there as you're Flushing out your strategy you see areas renewed investment that should persist beyond beyond Q4.
Thank you.
Yes, Gary a combination of both certainly we've been focused on it this year, we set externally our target for 100 million for our our cost savings we were optimistic that we could at.
At least hit the 100 million and with Great leadership from throughout our team out we saw trends as we approached early Q3 that we could exceed the 100 million. So we quickly pivoted to the areas that we could accelerate in Q4 things that we certainly thought we could do in 2021. So we.
We are making some intentional pivots.
Gary to accelerate some items that we had slated for early 2021, and our viewpoint as they would benefit our customers and shareholders. So let's move forward with them now.
As we go into 2021 are there additional areas that we feel like we'll need to invest in.
Definitely yes, we're in the process now of sequencing those investments with our leadership team.
Yes, just to provide a bit more color to that.
You know I think when when we saw it covered a hit and you know like everyone anticipated sort of hope for the best and prepared for the worst Mike was very quick to look at some areas of spend that we didnt think were productive.
And that was the $100 million costs cost target, we are well and truly exceeded that.
As we sit here today.
In the three and that's enabled us to reinvest and as we said size. Some of these one time and some of it leads into a brought up.
A broader transformation program for US you know as I mentioned, we've got 350 products. We've got thousands of websites E Commerce sites document management systems coal Sandoz.
And they add up to a customer experience that has room for improvement and so what you'll see US do is stop that now that investment program now and and continue it and we're very confident that.
The end result.
We'll be a dramatically improved customer experience.
Yes.
Gary if I could just add just a little bit more color for transparency I stated back on August five through Q2, we had achieved roughly $70 million worth of the savings target through 930 were at roughly 130 million Gary just to give you the magnitude and will continue.
To work on that Q through Q4.
Which is providing us with the funding capacity to drive these investments in Q4.
That's really helpful. Thanks, and if I could just ask one more sort of bigger picture question.
While you're still it sounds like you are still developing that.
Lance here going forward three things that you've said since you arrived both you and into your roles change in the customer experience are proving that is important.
You need to invest in technology.
Several different outcomes and significantly reducing complexity or sort of three of the key.
[music].
Seems you're working on how do we think about at this point timeline I mean is each of the three of those multi year type process that it will take to get get where you want to be or or or one or more of them.
Areas, where you can have meaningful success more quickly.
I realize you're probably lay out plans for us in the future, but but any any color on how we think about how quickly you can achieve.
Real progress on those three key initiatives. Thank you.
Gary you know as you said that those are.
Sort of integral to the to the up.
Two aspirations into the plans and the first one is the most important which is the customer experience customers value the value our content.
And that value in a lot of cases that video out people and the relationships they have with our people, but but the customer experience isn't as good as it needs to be so that's that's really the principal area of investment in terms of timing you know Christy Ross bring with US three months, David Wong sitting with us a bit longer than that and we're working very closely as a team on developing that.
Program. The only thing I'd say about timing is that we'll have a lot more to say about it in.
In 2021, obviously.
We got to execute with urgency so we're going to move through it as fast as we can.
And and.
The urgency of the team I think is there and we'll continue to work on that we we don't want to make any sort of a transformation program longer that it needs to be.
Urologist, adding the three themes that you mentioned customer experience tech investments and decrease in complexity digital really permeates all three and will be a really really key aspect as we move forward at the same time with Brian pick a rally in the go to market leaders, Gary things like Cross sell in addition to those areas you mention.
And.
We're still in the early innings there Gary.
Okay. Thank.
Thank you.
Thank you. Our next question is from the line of Kevin Muffled from Credit Suisse. Please go ahead.
Great. Thank you.
Realizing its early but it.
You talked about the transition the operating company and.
Any sense of what that means for revenue growth and just margins overtime kind of beyond what you framed already.
Yes, Kevin.
Kevin a little bit early yet so we'll have more detail in February I would reference two items I, Kevin that we've talked about in the past with you value creation model that we initiated back in December 2018, and Steve referenced again today, we remain committed to that value creation model in the upper left.
Quadrant in regards to organic and inorganic.
Growth opportunities there and then the second point into December 18, Investor Day, we shared at that time.
For tax and accounting professional by 2026, 8% organic corporate 68% and legal four to five I think those broad ranges that we provided at the December 18 Investor day.
Our reasonable kind of metrics for you to think about as we move into 2021.
Got it and then.
Just real quick as you talked about.
No just streamlining the number of products is that in the core big three or would that be a potential sale of.
Printer, Reuters news like where they fall in the 350 or they outside of that bad.
350 are in or in the big three.
Okay. Thanks.
Thank you.
Thanks, Kevin.
Our next question is from.
No no.
Hi, <unk> from Barclays. Please go ahead.
Hi, this is actually a great.
Greg calling and.
I was just hoping to get an update on checkpoint edge and the momentum on the sales.
With that.
Sure check point edge launched on Q3 of 2019, we are continuing to make progress with that not as significant as progress is less LOL edge, but it's a key product for us well received by our customers and as we move forward I think we'll continue to see.
Continued momentum there it's another product that our engineering team really leveraging AI for us so.
I'm pleased with the progress that we have more opportunity.
Our next question is from the line of.
From RBC. Please go ahead.
Thanks, very much good morning.
Me.
Maybe for you Mike in terms of capital returns.
Sorry, I'm getting a big echo, but I'll continue here.
You have a cash tax bill that will come with the closing of the LFC stake and maybe can you provide an update on where you stand on share repurchases and.
Maybe one for you Steve on the M&A environment can you comment to what extent.
How it's trended through a cold made here for the first seven months and what kind of opportunities you see out there. Thank you.
Sure. Let me address the first part drew just in regards to the cash taxes with LSW IGI, we do have multiple options there with regards to the payment of the estimated 600 million just to remind everyone. We have the option to sell or small amount of our LNG shares.
On closing in Q1 or 2021, so thats an option for us.
We also have some other noncore minority investments that we can monetize.
To pay that and then certainly we have 1.3 billion of cash on hand today drew and thanks.
Significant amount of capacity with our credit facility. So we're very comfortable in managing through all of those cash needs to in regards to share repurchases. We do not anticipate any additional share buybacks. This year as we go into 2021, we have our January board meeting. So we will be discussing with our board at that time.
And then drew in terms of the M&A as you know we've done two small acquisitions this year.
And we're very happy with the progress of those we've been very focused on ensuring that that they perform.
As they should or or even better than our expectations.
When covered here, we certainly saw up.
Seizing up of M&A activity across the board I think in recent months things have returned there is M&A activity.
We can point to unit around Big Cthree, we have quite a short list than a long list of things when the big three that were interested in.
But were being very rigorous about about pursuing acquisitions and we will continue to be very rigorous we look at first and foremost.
Well they enhance our customer experience. So it is a do now customers experience secondly, we want to.
Acquire make acquisitions that reduce complexity not increase.
Clicks and then we want to make sure thirdly that we aren't advantage Donna and that tough from a valuation standpoint role thats up and obviously valuations have stayed high so we're going to continue to work on that list and refine our thinking.
But we'll be very rigorous about any acquisitions, we pursue.
Thank you.
Operator, we'll take we'll take one more question. Please.
Thank you on that question is from our our I've been there a lot the team from Canaccord Genuity. Please go ahead.
Good morning, Thanks for.
Yes.
I want to focus on the legal segment again, given the strength there.
Good by those that are.
Exposure to us all a bulk up with the provision.
As well as how that.
Space that the last couple of quarters.
Including collection.
That such thanks.
Thank you.
Sure.
And ask Steve to supplement in regards to small wall is roughly one third of our total revenue our vendor that's led by Mark a dad.
On pulp Fisher's team there certainly back in March April.
Worse, some choppiness in our final business.
As close to 19, but we quickly rebounded as we ended Q2, we had a very good Q3 with the overall small farm business.
Collections, we identified collections within small tax and legal as an area of focus very pleased with the collections that we've incurred over the last seven months from all of our customers, including the small legal and tax they're so small loss.
We are all doing very well.
Yeah, just to add to that Aravinda I think as Mike said, we're monitoring this very carefully.
And I would say so far so good that's illustrated as Mike said in the.
Third quarter results.
We're going to continue to I think what we're sort of cautiously optimistic, but we're cautious as to as to what will we will see I do think in the longer term.
The the smallest segment, whether that's in legal tax and accounting or corporates is an opportunity for us as we improve that customer experience and make that customer experience more digital.
We expect to see some some some broader upside but that is a longer term.
Rather than a shorter term I promise.
Thank you.
So that will be our final question and that will conclude our call we'd like to thank you all for joining us as Mike and Steve said, we'll provide you with an update.
Our 2020 plans and our guidance in February when we report Q4, so until then take care thanks very much.
Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using <unk> Executive teleconference. You may now disconnect.
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