Q4 2020 Thomson Reuters Corp Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters fourth quarter and full year earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct the question and answer session and instructions will be given at that time.
Should you require assistance during the call. Please press star and then zero and an operator Willis and do you offline. As a reminder, today's conference is being recorded I would now like to turn the conference over to our host Frank Golden Head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for our fourth quarter and full year 2020 of earnings call.
This morning on joined by our CEO, Steve <unk>, and our CFO, Mike Eastwood, each of whom will report our results and we will take your questions. Following our presentation.
They will also discuss the approach of the change program, we announced this morning, and our outlook for 2021 through 2023.
To enable us to get to as many questions as possible. We would appreciate it if you would limit yourselves to one question each and one follow up when we open the phone lines later.
Throughout 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's presentation does contain forward looking statements actual results may differ materially due to a number of risks and uncertainties related to the COVID-19 pandemic and other risks discussed and reports and filings that we provide from time to time to regulatory agencies.
And the access these documents on our website or by contacting our Investor Relations Department.
Now I'll pass it over to Steve <unk>.
Thank you Frank and thanks to all of you for joining us today.
I'll begin by stating that we're very pleased with our results for the fourth quarter and the full year. However.
And our results met or exceeded our guidance targets for revenue growth adjusted EBITDA margin and free cash flow.
Despite the enormous challenges in 2020 related to the pandemic outperformance reaffirm the resilience of our markets and businesses.
We adapted and supported our customers and their evolving ways of working and I'm very proud and appreciative of how our people performed during this period.
Now to our results for the fourth quarter revenues were up 2% and adjusted EBITDA increased 33% to $525 million, reflecting a margin of 32, 5%.
For the full year adjusted EBITDA margin was 33% and includes having spent about $70 million in the fourth quarter on initiatives to better position us for 2021 and beyond.
This strong performance resulted in adjusted earnings per share of <unk> 54 cents compared to 37 cents per share in the fourth quarter of last year.
Turning to the segments the big three businesses achieved organic revenue growth of 5% for the quarter and.
And 4% for the full year.
A very good performance, particularly given the global economic environment legal had another good quarter and built on the third quarter's results with revenues up 5% before currency and organic revenue is up 4%.
<unk> also recorded double digit recurring sales in the quarter and full year legal.
Illegals recurring revenues, which of 93% of its total revenues increased 5% organically up from 4% and Q3.
West La <unk> continues to drive strong sales growth and ended the quarter at a 52% ACB penetration.
We expect to achieve a penetration rate of between 60% and 65% by year end 2021.
<unk> has now been adopted by all of U S. Federal government courts, and 42 U S State Court systems.
Practical law ended the year nearing $400 million and revenue and grew nearly 10%.
Our government business, which is managed within our legal segment continues to see good momentum and grew 10% organically in the fourth quarter and nearly 10% for the full year.
We forecast of strong performance again for 2021.
Turning to the corporate business organic revenues grew 3% for the fourth quarter lower than expected due to an 11% decline and transaction revenues driven by lower software implementation services incurred.
Encouragingly organic recurring revenues, which are 87% of corporates total revenues grew 6%.
The 2021, we expect stronger revenue growth as recurring revenue is expected to remain healthy and transaction revenues are expected to strengthen as implementations return.
For the full year of corporates total revenues grew five 5% before currency and organic revenues grew four 5%.
Tax and accounting of Q4 organic revenues ended strongly posting growth of 8% in Q4, we accelerated the release of some of our ultra tax state tax software from January to December to more closely align with the traditional December release of our U S Federal software.
Reuters news organic revenues were down, 3% and Q4 of better than expected performance and global print organic revenues declined 10% in line with our guidance.
We expect by Reuters and print to improve their revenue performance in 2021.
For the full year reported and organic revenues were both up 1% and revenues at constant currency were up 2% <unk>.
Adjusted EBITDA increased 32% to nearly $2 billion, reflecting a margin of 33% for the year. The combination of organic revenue growth for the big three of 4% coupled with the effective cost savings measures instituted in the first quarter and not having incurred onetime costs as occurred in two.
19 contributed to strong EBITDA margin improvement.
This strong performance resulted in full year adjusted earnings per share of $1 85 versus $1 29 per share.
In 2019 and.
And we are particularly pleased to report the free cash flow per share was $2 67 exceeding the target of $2 40 per share provided at our December 2018 Investor day.
Let me finish up on the financials by pointing out that we met or exceeded each of the financial guidance metrics. We provided for 2020, which reflects the resilience of the business and visibility we have into our businesses and markets with that let me now turn to the change program, we announced this morning.
As I said last quarter, there's no doubt we have strong market positions, our customers love our content and we're in a solid operating position of it as evidenced by our 2020 results, but it is imperative that we elevate our value proposition enhance the customer experience, we provide and maximize the outperformance let.
<unk> explained.
First and context, it's important to emphasize that we are implementing our change program from a position of strength.
The first point I'd make is that we operate and robust and growing legal tax and risk fraud and compliance markets. Our businesses are rock solid and we are number one or number two and our core legal tax and accounting corporates and risk fraud compliance franchises supported by a trusted brand and a highly engaged group of associates.
Point number two prevailing tayo wins, and our markets play to our strength and will contribute to our growth those tayo winds are blowing in our favor and they play to our strength and will help drive our growth.
Covid has changed how when and where people work, which is an opportunity for us.
Additionally, our markets are healthy and growing we operate and stable competitive environment and our markets are integral to the proper functioning of professional services and ecosystems globally more on this on the next slide.
Point number three we have two powerful levers to drive both growth and efficiencies leave and number one is transitioning to an operating company to take full advantage of our scale and the customer experience. We provide the technologies, we operate and the products, we build and leave and number two is building of content driven technology company extend.
And our unique content with AI and software to create significantly expanded use cases and increased value for our customers. These two levers will expand our customer relationships and reliable us to provide a bob based on customer experience at a lower cost to serve that will also enable us to expand our market share.
<unk>.
Point number four this is on organic growth plan and we have a seasoned team in place and we believe we can achieve our targets with the momentum we have and our current markets and businesses bolt on acquisitions would be additive.
And we've developed a well defined plan and we've begun executing.
We've been hiring high caliber of highly qualified experienced talent to help lead this transition and who successfully undertook similar programs in the prior organizations. These latest complement the very experienced Thomson Reuters teams that successfully executed large scale projects in the past, including the separation from affinity and <unk>.
And number five.
<unk> position provides substantial optionality as we will have significant capital to deploy beginning in 2023.
I mentioned, we are also benefiting from prevailing tailwind, which by the business information services markets and providers. Let me give you three examples.
First over the course of the past 12 months, we've all learned to work and ways. We could never have imagined price of the pandemic fundamental shifts taking place and these changes of requiring our customers to rethink their strategies the ways of working with the allocate employees and how they allocate budgets the.
Playbook is being written and real time.
We do know the trusted always on actionable content combined with unique data AI and software is a must have and companies that provide it will win.
Second these accelerated changes are enabling us to better serve customers and are opening new markets for companies like ALS, it's allowing us to deliver a quality content anyone anywhere.
Digital technologies and software of democratizing ways of working.
And attorney are accounted in Missoula, Montana has the same access to high quality legal and tax solutions as the his or her counterpart and Chicago.
Self serve omnichannel offerings will enable us to reach smaller customer groups and SMB firms, which we believe will contribute to higher growth and.
And third we have an advantage position with exposure to high growth verticals within our core markets demand for solutions in areas, such as direct and indirect tax audit and legal how to and broad of workflow software tools to risk fraud and compliance solutions are.
And are all growing and markets and we are well positioned to serve these customers.
These type of Windsor accelerating the pace of the change and driving our customers to extract more value from our information benefiting them commercially competitively, which will enhance our relationships competitive position and growth.
Now to the change program.
Leave of number one of the change program as of the transition to an operating company on the left side of the slide was our holding company structure and on the right at the operating company structure to which we are transitioning.
Our business segments, we'll focus on go to market and will be supported by Pan Ti functions.
That will manage customer service and support technology and product development. This will significantly enhance the customer experience and will improve efficiencies by building once and deploying many times, our overall cost of suitable decrease which will free up investment to pursue new growth opportunities our objectives are to make it easier for our customers to do.
Business with us to significantly modernize and simplify our product portfolio and product development groups and to reduce complexity and our operations and technology organization and from a talent standpoint, we will continue to simplify our organization break down silos and shift to a more innovative culture.
Live and number two of the change program is transitioning from a content provider to a content driven technology company our.
Our content is of significant competitive advantage it differentiates us and built our brand and new structure positions us to achieve greater success by leveraging the valuable content enriching it with world class AI and best of breed software and delivering it in the cloud.
We have started this journey with west Floorage and checkpoint edge and we're expanding the playbook to our other solutions.
This will provide a better more modern customer experience that will enable us to reach a wider number of clients, particularly in the SMB markets, where we can drive higher revenue growth let.
Let me now discuss specifics regarding how we will better serve our customers and excess new customer groups.
We're confident this program will drive deep long lasting transformation each designed to simultaneously drive revenue growth and improved efficiencies as we translate the transition to a simpler more integrated and fast company.
The work streams for the four focused areas on this slide are underway.
And let me describe the changes for each area.
Firstly re imagining the customer experience, we're creating fast frictionless connected transparent and personalized customer experiences. This includes upgrading and scaling digital marketing and driving enhanced sales and service from data and analytics and the end result in 2023 will be of significant significant portions of the.
Customer experience enhanced through Digitization and automation.
Secondly, we are optimizing our products and portfolio with shifting our focus to a smaller number of higher growth product categories, where synergies exist and where we can build and maintain and leadership positions.
And this will be supported by a concerted push to world class product proposition of the strategy development pricing delivery and management the and results. In 2023, we are more focused and integrated set of products that drive valuable outcomes for customers. The early we're simplifying operations and leveraging technology with scaling up of machine learning.
Reengineering underlying processes and creating shared technology platforms that support agile product development and significantly enhance customer experience the and results in 2023, we have modernized simplified technology architecture and operations footprint.
And finally, we are building and strengthening and inclusive culture of World class talent, we're implementing new talent management processes supported by external hires and increased investment and training and development. The and result in 2023 will be of self replenishing pipeline of world class internal talent.
In parallel with the change program and executing against these focus areas. We're also investing and seven strategic growth priorities within the big three segments. These investments are expected to accelerate organic growth and contribute to achieving our growth target of 5% to 6% in 2023, we've already begun shifting our focus and the investment to the.
The seven priorities and we're expected to growth upper single digit over the next several years. We also continue to see opportunities for tuck in M&A to accelerate our position across the three product.
Product categories, and we have an active pipeline of potential acquisitions across the big three business segments, which we regularly review and assess we continue to believe the era of attractive opportunities and wish to invest inorganically and our current markets. We plan to provide a deep dive on each of these product categories and our Investor day on March 16.
Now to the financial targets.
The change program is expected to take 24 months to largely complete and we have begun executing with urgency.
Will require an investment of between 500 and $600 million and 2021 and 2022. This investment is forecast to deliver additional annual revenues of $100 million in 2023 annual operating expense savings of $600 million $200 million of which will be reinvested and growth initiatives.
For a net savings of $400 million.
And a reduction and capital spending as a percentage of revenue between 6% and six 5% on.
I'll also note the targets embedded and the change program had been fully incorporated into our annual incentive plans.
I will now discuss our three year outlook, resulting from the change program and.
The 2023, we forecast total company organic revenue growth between 5% and 6% and for the big three between 6% 7%.
Adjusted EBITDA margin in 2023 is the expected to range between 38% and 40%.
And with adjusted EBITDA margin in that range and lower capital expenditures, we forecast free cash flow per share to range between $3 60, and $4 in 2023 substantially higher than 2000, Twenty's $2 67 per share given the resilience of our businesses the health of our markets and the team we've assembled and.
I'm confident we'll achieve our goals. The net result of the change program will be faster revenue growth significantly higher margins higher free cash flow and record free cash flow per share.
I'll conclude by saying, we're excited and energized with the rollout of our change program.
It is truly a transformative program for the company and beyond the operational and structural changes, we will make which are essential and the change program will lead to Thomson Reuters being acknowledged as a leading content driven technology company and recognized as a leader and the markets and which we operate <unk> professionals and the legal tax risk fraud and comply.
Vince and news markets. We also want of the acknowledged by our customers and as an innovator and buildup of products that delight them.
And this will afford us the opportunity to expand our customer relationships from delivering accurate content to power and customers' businesses and by 2023, we expect to have essentially redesigned our customer experience to match, our customers' expectations by delivering a seamless experience.
And enabling access to new customer groups, including Smbs and finally, our ownership interest and Belle <unk> provides substantial optionality to further strengthen our position.
The forecast, we could have financial capacity.
Of as much as $15 billion by 2025, which will allow us to assess options to further drive growth and shareholder value that.
That said, we understand that we must successfully execute our change program and earn the right to deploy that capital if opportunities were to present themselves. 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 discussing the revenue performance of our big three segments organic.
Revenues and revenues at constant currency were both up about 5% for the quarter.
Legal professionals revenue increased 5% and organic revenues were up 4%.
Recurring organic revenue growth of 5% was partially offset by a 6% decline and transaction revenues primarily related to our elite business.
Less law of edge continues to drive over 100 basis points to legals organic growth, while continuing to maintain a healthy premium.
Our government business, which is reported within legal had another strong quarter with total revenue growth of 14% and organic growth of 10%.
And our corporate segment.
Total revenues increased 4% and organic revenues were up 3%.
Recurring organic revenues were up a healthy 6%.
The transaction revenues declined 11%, primarily due to lower implementation revenues.
And finally tax and accounting as total revenues grew 6% with organic revenues up 8%.
The difference between total growth and organic growth was mainly related to the sale of our government tax business and November 2019.
Also we accelerated the release of some of our ultra tax state software from January to December to align with the traditional December release of our U S federal of software.
Excluding the timing benefit organic revenues were still up a healthy five 5%.
Moving to Reuters news.
Revenues declined 1% with organic revenues down 3%, mainly due to lower news agency revenues and the cancellation of in person conferences at Reuters events due to COVID-19.
This performance was slightly better than we had anticipated due to the conversion of several in person conferences to virtual events.
And global print revenues declined 10% and the quarter with organic revenues also down 10% as expected.
We expect an improvement and prints 2021 full year performance, but we still forecast revenues to decline between 4% and 7%.
On a consolidated basis fourth quarter revenues each increased 2%.
Before turning to profitability, let's look closer at recurring and transaction revenue results for the fourth quarter.
Starting on the left side total company organic revenue for the fourth quarter of 2020 was up 2% compared to 4% growth and the fourth quarter of 2019.
But if you look at the Q4, 'twenty and 'twenty performance for the Big three Youll see organic revenue increased 5%, a strong performance and only slightly below the 6% performance in Q4 of 2019.
And as you can see at the top right at the slide the recurring revenue growth continues to be very encouraging.
Total company recurring organic revenue grew 5% and Q4.
Only 30 basis points below Q4 2019.
And the big three recurring organic revenues grew 6% in line with last year's fourth quarter.
Turning to the graph on the bottom right of the slide.
Transaction revenues were down over 900 basis points year over year impacted by Covid, 19, which affected our implementation services and the Reuters events businesses.
So despite the COVID-19 related disruptions, we continue to remain encouraged by the momentum we carried into 2021.
Especially for recurring revenues, given us confidence and the trajectory of the business.
Turning to our profitability performance and the fourth quarter.
Adjusted EBITDA for the Big three segments was $495 million up 11% from the prior year period and the related margin was up 230 basis points.
The strong performance for the big three reflected four key items.
<unk> strong revenue growth across all three segments.
Second legal professionals, adjusted EBITDA margin and the fourth quarter grew 300 basis points of 37, 5% compared to the prior year period, driven by higher revenue growth.
Third corporate adjusted EBITDA margin was up 110 basis points of 31, 1% due to higher revenues.
And fourth tax.
Tax and accounting adjusted EBITDA margin increased 240 basis points to 51, 1% due to solid revenue growth, which included the accelerated release of some of our ultra tax state software mentioned earlier.
Moving to the orders nears.
Adjusted EBITDA was $6 million.
$4 million less and the prior year period, primarily due to several nonrecurring cost in the quarter.
Global Print's adjusted EBITDA margin for the quarter declined about 480 basis points due to the decline and revenue.
So total company adjusted EBITDA was 525 million, a 33% increase versus Q4 2019.
This next slide provides more color on the various factors impacting our full year of 2020 adjusted EBITDA margin.
As you can see our reported 2020 full year adjusted EBITDA margin was 33%.
And there are several factors and 2020 that drove the significant increase over the prior year period.
First M&A activity had a 40 basis point positive impact on margin.
The second lower revenues related to COVID-19 had of 220 basis point negative impact on margin.
However, the savings from the 100 million cost savings initiative, we announced in the first quarter more than offset the dilution from COVID-19 impact.
And we exceeded our $100 million cost savings target and reinvested a portion of the savings and the fourth quarter.
The net cost savings improved the margin by 180 basis points.
On an underlying basis, excluding stranded and onetime costs and the prior year the.
The adjusted EBITDA margin expanded 150 basis points, which was primarily related to the cost savings measures as a response to COVID-19.
We continue to expect the savings will be permanent.
Overall, we believe the investments made in the fourth quarter and the visibility into the levers at our disposal provide us with a solid position as we enter 2021 and began to execute on the change program.
Now, let me turn on to our earnings per share and free cash flow performance I will also update you on our capital structure.
Starting with earnings per share.
Adjusted EPS increased by <unk> 17 to <unk> 54 per share and the fourth quarter.
The increase was mainly driven by higher adjusted EBITDA, partially offset by higher income taxes.
Currency had a one set of positive impact on adjusted EPS and the quarter.
Yeah.
Let me now turn to our free cash flow performance for the year.
We finished the year on a very strong footing and significantly exceeded our forecast thanks to strong collections in Q4.
The strong performance also reflects the resiliency of our customers and their ability to successfully manage their businesses and practices. Despite COVID-19 impacts.
Reported free cash flow was $1 3 billion or $2 67 per share and was better than the $2 40 per share we had forecast at our December 2018, Investor day, a great achievement.
The $1 $3 billion, and 2020 compares to $159 million and the prior year period and.
And improvement of nearly $1 2 billion.
Consistent with previous quarters. This slide removes the the Storting factors impacting free cash flow performance.
Working from the bottom of the page upwards, the reset of dip related component of our free cash flow was better by $147 million from the prior year period.
2019 included residual payments for employee cost and tax expenditures related to the operations of our former <unk> business.
And in 2020.
We made $95 million of payments for separation costs incurred in 2019 related to our transformation program.
And in the prior year period, we made a pension contribution and other payments totaling 746 million primarily related to the refunded to the transaction.
So if you adjust for these items comparable free cash flow from continuing operations was $1 3 billion approximately $230 million better than the prior year period, primarily due to higher EBITDA and lower income taxes.
A quick update on our capital structure and liquidity.
As you can see our capital structure and liquidity position remained strong as we exited 2020.
We generated $1 3 billion of free cash flow last year.
We had $1 8 billion of cash on hand at December 31.
We have an undrawn $1 8 billion revolving credit facility and we also have of $1 8 billion commercial paper program.
From a liquidity and capital structure standpoint, we enter 2021, and a very strong position and we would like to put that capital to work.
We have a pipeline of potential acquisitions within our core markets.
But as we all know a transaction requires a willing buyer and seller and we will see where the discussions lead.
We do have the ability and desire to move quickly if an opportunity presents itself this year.
Let me also note we have completed the repurchase of 200 million common shares under the normal course issuer bid which began in January.
We do not currently intend to repurchase additional shares in 2021 as we have set a target to maintain approximately 500 million common shares outstanding.
And lastly, we recently received notice we will have to pay the UK tax authorities $90 million in March related to and ongoing tax dispute.
We expect to receive additional notices and 2021 to pay as much as an additional 600 million to $700 million.
While we believe we will prevail on these issues and be refined as substantially all of the payments.
We are required to pay the disputed amounts upfront while contesting them.
The largest portion of these issues relate to our ethanol business, which was divested in 2018.
Any payment made by us would not reflect our view on the merits of the case because we believe our position is supported by the weight of law.
We expect our existing sources of liquidity will be sufficient to fund any required payments.
As a final note. The majority of these potential payments will be recorded in discontinued operations and will not impact our free cash flow.
And finally I am pleased to report today, we announced a 10 cent or 7% annualized dividend increase to $1 62 per share the largest increase since 2008.
This marks the 28th consecutive year of annual dividend increases for the company.
The increase will be effective with our Q1 dividend payable next month.
And these annual dividend increases and speak to the solidity of our business and consistent and growing free cash flow generation.
Even during unprecedented times like 2020.
Now and update on our investment and receptive.
The agreement to sell refunded to the London Stock Exchange group closed on January 29, and we are confident <unk> has found a good home with <unk>.
Look forward to a mutually beneficial relationship as a shareholder and a board member.
The pre tax value of our $82 5 million shares is currently $11 2 billion or $23 per share and TR stock price.
Up from $6 7 billion or $13 per T. Our share at the time, we announced the transaction in July 2019.
We plan to sell shares equivalent to $1 billion and we will use the net proceeds of $750 million to pay $700 million and taxes related to the transaction and 2021.
Our future equity interest and al side will represent a store of value, which can be monetized over time and will provide us a significant level of financial flexibility.
We expect to receive annual dividends from <unk> of about $75 million per year based on the <unk> current annual dividend payout.
Lastly, regarding the accounting treatment for our ownership interest.
We will account for our indirect interest and al Sag at fair value each reporting period based on the price of <unk> stock.
We will remove the impact from non <unk> measures.
Because we own the investment indirectly through a joint entity with Blackstone and the impact will be reported through the single line item share of post tax income and equity method investments.
We will include dividends from the investment as part of our free cash flow.
Now, let me turn to our outlook for 2021 through 2023.
As we look to 2021, our first speak to our total company organic revenue growth forecast.
We expect organic revenue growth for 2021 to a range between 3% and 4%.
Returning to pre COVID-19 organic growth rates.
We believe we can build upon 2020 launch growth with organic growth of 4% to 5% and 2022.
And 5% to 6% and 2023.
And we forecast the big three organic revenues to grow between four 5% and five 5% and 2021.
Let me provide some additional color on how we expect each segment to drive the overall acceleration.
We will share more at our upcoming Investor day on March 16th.
Starting with legal we finished the year with strong sales momentum, which should lead to an acceleration in organic revenue growth and 2021.
Our confidence stems from several items.
First.
The continues to SaaS of Westfall edge as we ended 2020 with 52% ACB penetration and expect this to increase to between 60% to 65% and 2021, while continuing to command and attractive premium.
Second our government business is on a strong position and a rapidly growing market.
Evidenced by its nearly double digit organic growth and 2020.
We expect a similar performance in 2021.
And third products and workflow tools, such as high Q and practical law continues to see increased demand given their productivity.
<unk> and efficiency benefits with legal professionals.
In summary, we are confident we will see continuing improvement and legals organic revenue growth rate and 2021.
The corporate segment is expected to build on its 2020 growth rate of 5% as transaction revenues improve over 2020.
And finally, we forecast tax and accounting, we will again achieve solid organic revenue growth fueled by continued growth and our ultra tax audit and Latin American businesses.
Finally, we expect orders news to grow low single digits, driven by improvement and a Reuters professional business, which provides news analysis and events for decision makers.
And we expect global print revenues to decline between 4% and 7%.
We have not traditionally provided quarterly guidance that did so last year due to COVID-19.
We are also providing guidance for the fourth first quarter since the impact of Covid is still with us.
We want to provide greater clarity regarding expectations.
We believe our first quarter revenue growth will be the low point for the year.
Starting with the total TR chart on the top left we estimate first quarter total revenues and organic revenues will grow between one 5% and two 5% negatively impacted by global print.
The big three total revenues are forecast to grow 4% to 5% and organic revenues are forecast to grow three 5% to four 5% and the first quarter.
And we anticipate the first quarter will be the low watermark for legal professionals organic growth for the year at between 3% and 4%.
Moving to Reuters news, we forecast first quarter total revenues and organic revenues to be between negative, 1% and 1% the <unk>.
Vince team is currently holding all events virtual.
We continue to assess when we can resume in person events based on the local health expert advice and feedback from our customers.
Finally, global print first quarter revenues are expected to decline between 13% and 15%.
This is partially due to an expected continuing delay and shipping some print materials.
We continue to believe these print materials are viewed as critical content by law firms and government agencies.
Overall, the first quarter does not reflect what we expect for the full year ever.
Evidenced by our total and organic revenue growth guidance of 3% to 4% for 2021.
Turning to our adjusted EBITDA margin and free cash flow our guidance and 2021 reflects the dilutive impact of the change program investments.
Adjusted EBITDA margin is forecast to range between 30% and 31% excluding the change program of investment the adjusted EBITDA margin would have been between 33% and 34%.
Free cash flow is forecast to be between 1 billion and $1 1 billion.
And if we were to exclude the change program spending and 2021 underlying free cash flow would range between one two and $1 3 billion.
And 2022, we forecast we will began to see the benefits of the change program with higher revenue growth and cost savings, helping to lift adjusted EBITDA margin to between 34% to 35% and free cash flow to between $1 2 billion and $1 3 billion.
And in 2023 following the completion of the change program, we forecast the adjusted EBITDA margin will reach a record high of between 38% to 40% and free cash flow is forecast to range between $1 8 billion to $2 billion.
Taking a closer look at our free cash flow growth, we forecast free cash flow per share and 2023 to range between $3 60 to $4 <unk>.
Significantly higher than $2022 67 per share.
And we have several levers to pull to enable us to achieve that target as you can see on this slide.
Bottom line. The changes we are implementing are intended to enable us to achieve record free cash flow per share and 2023.
A little more on capital efficiency and effectiveness.
Today, our capital to revenue ratio of eight 4%.
Down from 10% two years ago.
There are three drivers we are focused on to drive further capital efficiency.
First.
We are scaling up machine learning reengineering underlying processes and creating share of technology platforms to create a modernized technology approach across the organization.
Second we are simplifying the product portfolio and building World class Cross product capabilities.
And lastly, we are shifting our focus to a fewer number of higher growth product categories.
As a result, we anticipate capex as a percentage of revenue to be between 6% and six 5% by 2023.
Let me provide some guidance on the change program cost phasing.
We anticipate approximately 300 million to $350 million of total Opex and Capex change program spend in 2021.
You can see on the slide the anticipated split of about 60% Opex and 40% Capex with about $115 million to $140 million total spend and the first half and 185 million to $210 million and the second half.
We will continue to provide quarterly updates on our change program spend as we move throughout the year.
One housekeeping items had mentioned related to the expected variance between free cash flow per share and adjusted earnings as we look ahead.
First we expect our capital expenditures will be less and our depreciation and amortization by about $75 million to $125 million and 2021.
There will be a quicker impact of free cash flow due to the timing of the depreciation run off.
And second the.
It should be about 50 million to $75 million of miscellaneous items that impact the P&L, but not free cash flow.
We expect annual pension contributions to be lower than annual pension expense.
In addition, there are expenses related to our employee stock purchase program and stock based compensation that had no impact on free cash flow.
Let me now turn to our outlook.
Given the size and scope of the change program. We think it is important to provide as much transparency as possible to enable you to track our progress.
This is our detailed guidance for 2021 2022 and 2023. It reflects our view, we can achieve faster revenue growth higher profitability lower capital intensity and significantly higher free cash flow as we benefit from transitioning to an operating company.
We are very excited and energized with the rollout of our change program.
As always success will require effective execution, but we're clear eyed as to the work streams and deliverables required to meet our objectives. We are confident we can do so.
As we have said our goal is to transform Thomson Reuters until a leading content driven technology company when.
When we are successful Thomson Reuters will be built to consistently and sustainably drive strong operating and financial performance that builds value for shareholders for the long term.
Let me now turn it back to Frank for questions.
Thanks, very much Mike and Steve that concludes our formal remarks and the presentation.
Before we open it up for questions on one of mentioned and.
And reiterate what Steve and Mike had said that we'll be hosting a virtual investor day on Tuesday March 16 now.
That session will run from <unk> and the mortgage all of about 12, new.
With presentations from our management team, who will provide a more detailed.
Discussion regarding our change program and then they will also be highlighting our growth initiatives and seven strategic growth priorities, Steve and discussed.
We will be sending more information on the on the.
And the Investor Day later, this week, including a link to register for the meeting.
So with that I would like to open it up for questions. So if we can take the first question operator please.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your Touchtone phone and you will hear the acknowledgment on that you've been placed into the queue. You may remove yourself from queue at any time I repeat and the ones. They will come and if you are on the speaker phone. Please pickup your handset before pressing the numbers once again for any questions. Please press.
One zero at this time and we.
We'll go to the line of Toni Kaplan with Morgan Stanley. Please go ahead.
Thank you I wanted to talk about the levers that you mentioned the transitioning from the holding company to an operating company and from a content provider to content driving technology company I guess do you see this shows the significant change and culture at the company or do you think that just with the 500 600 million.
And our investment and new direction that you can get there just trying to understand what it means for turnover and for hiring on and just anything on and sort of that aspect. Thank you.
Yes, Tony.
Steve I'll start look I think.
We.
We are of very strong existing culture, it's been built up over decades.
And it's built around integrity and trust and.
Speak with with our customers.
And that will reflect that.
And they trust, what we say and what we do and so we want to continue that and I think that's an important sort of foundation stone for our activities going forward and for the change program.
We have real strengths in content on <unk>.
And in many cases, if not most cases, where we are providing.
Solutions for customers of our content.
And is unique but to that we need to add more.
AI and machine learning capabilities more software capabilities more cloud expertise and the most SaaS expertise we've started to do that and we've made some really good progress with wish Laurie and checkpoint edge and we've made some really good progress in terms of the.
The hires.
And that have come on board, including the <unk> growth and David Wong So the old <unk>, and Pat will burn and all of whom have.
And those kinds of.
The expertise and space. So from a culture standpoint, I think it's much more of an evolution than any of the revolution and I think in terms of.
In terms of the formulation of our teams Youll see us continue to build the skills within the associates who've been here for long periods of time.
But also to supplement those skills, where we need to.
Got it and just for a follow up you talked about bringing capex down to six to six and a half percentage of revenue I guess, if you're becoming more of a technology driven company is that why is that the right level and I understand the main motivation is free cash flow and I. Appreciate that just wanted to understand if yes.
And maybe the capex level needs to be higher than that.
On a sustainable basis, thanks, Tony Mike Here, we've had a lot of debate and discussion internally one data point that I would share with you that we have worked on a lot with first of all David Wong and others is currently about 33% of our capital is spent on keep the lights on more of the legacy we think over.
Time, which we'll discuss more at the Investor day, we can decrease that the fifth.
And the 15% range what that actually means is that we can decrease our absolute level of spend Tony but actually spend more on our product development. So ultimately that's where our focus is deploying our capital to the growth initiatives right now were spending an exorbitant amount on the <unk> portion of our biz.
And so thats, where we see it certainly as opportunities arise going forward, whether it be organically or inorganically, we won't be shy, if we think theres the customer need to meet there, but that's how we modulate that six to six and a half Tony is is really that driver on keep keep the lights on and the legacy.
Thanks, so much.
Hmm.
Thank you and we'll go to the line of drew Mcreynolds with RBC. Please go ahead.
Yes, thanks, very much share good morning, just a broad Tony's question out of little bit maybe for you Steve.
The 2023 outlook as well above I think forecast out there sort.
The above with Thomson and Dennis the Barclay what gives you confidence that you can kind of pull this kind of lift up and the business and the follow up from Mike Architected, a lot of restructurings and carve outs.
Thomson over the years can you just size. This one up in terms of complexity and achieve ability. Thank you.
Yes, thanks true.
With regard to the confidence point I'm glad you picked that up because.
I think as the team we are confident and that confidence is built through the sort of design and early stages of execution of the change program and it comes from.
It comes from three places I think the first is the sort of resilience of our core franchises 2020 and was a tough year for our customers and.
And therefore, a tough year for us.
And yet we posted.
Pretty pretty solid organic growth within the within the big three so we look at that resilience and say we are starting from a position of strength secondarily. We've spent a lot of time, Inc, and the Covid environment.
Deeply connected with our customers, we really double down.
With a bit of a mantra when when the pandemic hit and when.
And that cooler customer.
And went and depth provide just more and more support and more and more help for customers and what we've seen across the segments across all of the professionals that we serve is the changing their behavior and and and appetite to make increased and smart investments and information and technology.
If we get it right we're going to have it.
Really powerful tailwind, which gives us confidence.
And then thirdly, we have put together a team of folks who are very experienced here at Thomson Reuters and of driven change before and added some highly talented.
From the outside and both the team and net change program of purpose built to create and operating company and to create of content driven technology company. So it's sort of the culmination of where we started from what we're seeing and the external markets and the team and program that we've constructed and all of those things together I think just gives us a great deal.
The confidence and that's not the best not to say, we will get every aspect right now and I think we've built in enough enough room to move.
To be able to experiment and make some mistakes along the way, but we do as you said start from a position of significant confidence, Mike and drew I'll compare the 'twenty. One of 23 change program to what we did in 2018 and 2019 back in 2018 and 2019, we had three primary vectors or goals.
One was to eliminate the stranded cost pre.
Pre refunded to the for <unk>, we had $280 million of corporate costs, and we're down to roughly $130 million and 2020. So we accomplish that our second goal back in 2018 was the separate from the definitive and thanks to a hell of a lot of work from Stewart Beaumont, John Lions' revenue and Smith and many many others.
On Cam.
We are largely complete with the separation, so I think and put to check March there. The third element of the 2018 initiative was really to advance our efforts in regards to digital and then also our lead to cash really consolidating multiple systems internally to improve the customer experience, we still have more work to deal on that third.
And what makes the current change program different for me drew is the really really intense focus on improving the end to end customer experience.
Which I believe will improve our NPS currently our net promoter score is significantly below the industry.
<unk> industry average, but our goal is not to get to the industry average is to far exceed that and as we improve the NPS and the customer experience I'm quite optimistic that.
We will be able to accelerate our revenue and to Steve's point early on to Tony's question. The pivot to the operating company I think will yield some efficiencies for us along the way last point I would make true is in regards to the confidence level I think I and the full team the Thomson Reuters team learned of Hell of a lot.
And the last 12 months with Covid, especially in regards to what's possible that might sound very basic but a lot of things that we accomplished and the last 12 months I'm not confident we would have unfortunately without without COVID-19 because it really.
<unk> eliminated some of the myth busters within I am company and I am sure and the economy overall, so my confidence and conviction is quite high drew and I think on March 16th year Hail from 10 additional colleagues.
We'll go deeper into the store.
Got it thank you very much.
Okay.
Thank you work on from the line of Vince Valentini with TD Securities. Please go ahead.
Yes, thanks, very much just looking at the dividend if you take the new dividend of of the Buck 62, and the midpoint of.
The 2021 and free cash flow guidance, so obviously a bit of and elevated payout ratio.
At 77%, but if we if we just assume that <unk> is now the new normal and you.
You increased the 7% in each of the subsequent two years you'd be back to.
And just under 50% by my math on your 2023 guidance. So I just want to make sure you can level set us on that is the 7% some sort of one off catch up dividend increase or should we take this as a signal of what you think the dividend growth potential is for the next couple of years as you go through the cycle.
Several points there Vince your math is correct.
And our payout ratio for 'twenty, one and 'twenty two will be above our target of 50% to 60%. We had discussions with our board regarding 2021, we set our dividend increases in January of each year with board of portable. So your first point your math is correct as we go into 2023 based on our target stance will.
The.
Below that $50 to 60% the 7% is not a fixed target as we go forward, we'll assess that on an annual basis going forward as we did in 2021, but based on the current targets.
For 2023, we would certainly have some optionality there, okay and just to clarify on on taxes the.
Money you were talking about $90 million soon and then another $6 million to $700 million owed and the U K is that of separate amount from the 700 million on the LSE transaction.
And then said good good question, let me break it down and it's two separate categories of payments. The first in regards to the London stock exchange. The 700 million is due on the.
The closing of the transaction and that's the portion of Thats not tax deferral that was related to the trade wars trade web piece and so that's the first piece of the second piece relates to some disputes we have with the U K <unk>.
And the majority of that actually Vince relates to our divestiture of the intellectual property and science business.
And also the <unk> business, but it's two separate items. The first piece. That's in regards to the <unk> transaction would not be refunded. We believe on the second piece, we will have to advance it just due to the U K.
Tax regulation, but and our viewpoint, we will be refunded. The majority of that because we think we have a very strong position.
We have multiple external advisors and they have the same strong view as us. Thank you.
Jim.
Yep.
And.
Thank you we'll go to the line of Gary Bisbee with BMA Securities. Please go ahead.
Hey, guys good morning.
And congratulations on announcing the program I guess I'm sure there'll be more detail of the Investor day, but I'd I'd love some more detail on two areas first where does the $600 million of cost savings come from can you bucket some of the key buckets.
The numbers and then.
What are the key things that drive the revenue acceleration.
I see focusing on the seven product categories, you mentioned SMB several times, but can you break down some of the key factors. Thank you.
Hi.
Gary there are multiple pieces, there I'll start and ask Steve to supplement FERC you didn't ask the first part that I'm Gonna mentioned, Gary but it might be helpful for the overall.
The audience, the 5% to $600 million investment.
We break that down at the three tranches Gary first is in regards to the omni channel digital SNB and that's the first third the second third relates to what we call modernized technology and operations.
Some of you will be familiar that at the end of 2020, we had completed the majority of our cloud migration with the exception of our data center and Eagan, Minnesota outside of Minneapolis, and then we have a few small of least day.
Data centers around so that will be of big objective for us as we worked through with Andy Martin as Paul Fisher and the legal group the line width with Kirstie and David and then the third tranche is organization and location. So the third of third a third and regards to the actual investments and regards to your question on <unk>.
Savings multiple categories, there as we work through it Gary certainly.
Attrition will be a portion of that as we work through it as we pivot to the operating company. We think there is a lot of opportunity within product technology editorial because we have a lot of legacy acquisitions that we have still have not fully integrated and we think we will be able to be more efficient with those <unk>.
Of the business and then lastly, I would mentioned sourcing procurement as a category and then real estate. The go back six or seven years, we had over 500 office locations were down to 100 now.
Mir Alice <unk>, our Chief people officer is on the wonderful job and the last 12 months.
The evolving our workplace of the future and really the workplace of today. So a lot of key learnings there that will help us continue.
To optimize our footprint as we move forward, let me pause to see if Steve wants to add anything to that before I go to the revenue pace Gary.
Well said and Mark I think Gary we've been we've been I think.
And we've looked comprehensively across the.
The cross sell activities and most importantly focused on the customer experience and the investments that we're making.
And in and around the.
Omnichannel digital they are in and around the underlying operations and technology that support our customer experience and the area and around both the people and real estate footprint that serves that and that and flows through into the cost base and we think.
And when we get this right.
And going to have a significantly lower cost to serve.
And and to Mike's earlier point of higher net promoter score from our customers. So that's the sort of equation that we've worked against you of the mic.
Back to you on the revenue Gary I'll start on the revenue piece I'm sure Steve of wants to supplement the first word I'm going to use Gary is focus and that might sound incredibly basic.
But around July one of this year, we and our 2020, we had <unk>.
Elizabeth the strength of Elizabeth as our president of the global print business, but we asked her to double hat and lead our practical law business, which is of product used by our legal professional customers and also our corporate customers and I think with the focus that and.
Elizabeth is put on this and the last eight months not just Elizabeth the Elizabeth and the team.
We have also now began to apply that to our indirect tax flips the Nielsen data, our new president of the corporate business. So of focus I'll mentioned first let me get a little bit more tactical Gary.
NPS, our retention is already 90%, but we're quite optimistic that we can continue to improve our retention as we move forward as you know each percentage point on our retention is roughly $50 million to $60 million for us and then pricing I think as we improve our customer experience.
We can maintain the pricing that we currently experience it's about 3% overall.
Which varies by segment for us.
David one with product innovation I think we're just scratching the surface with our product innovation, Charlie <unk> and recently joined David's team as head of our design and.
<unk>.
And you to add more talent within our product area, and then I think upsell and cross sell of the cross sell you've been hearing us discuss that for a while now I think is kirstie raw and others help us with our internal systems.
Which we're making progress on that will make it easier for Brian Peck of rallies.
Sales organizations, Michael Friedenberg within borders to really cross sell and support our customers. So those are some of the areas not to mentioned SMB as you know Gary about a third of our business today.
It comes from small firms, but we think we have the opportunity to drive further reach within SMB.
<unk>, yes, just one other comment on.
On this carrier will talk a lot more about this at Investor day, and I Hope and Investor Day, you get a sense for at least two things. One is this set of elevated growth expectations pretty broadly diversified across these growth initiatives. So we're not we're not overly reliant on on sort of one one.
And when big bet, or a hail Mary or anything like that and.
And the second is there's lots of upside here.
In terms of and.
Attracting new customers and maybe most importantly, our ability to shift of new products.
I think we've had a pretty modest cadence in terms of product organic product innovation and I hope that youll get a sense and investor day certainly from.
And for many of the the team, but specifically from David Wong and shorter haul truck and as our head of engineering.
We have very high expectations of our ability to innovate in and around the marketplaces that we operate today.
Yes, Gary if I could just add one additional point I know you're focused rightly on the organic side, but.
Well as I mentioned in my remarks, we have the ability and desire to deploy capital when the opportunity is right for.
For our customers and for our shareholders. There as you know we have about $700 million of the 2 billion of Reinvestments on that we set aside a couple of years ago with the Blackstone transaction. So we will continue to look Gary for opportunities to supplement the organic items that Steve and I mentioned with inorganic opportunities.
Thank you.
And we will go to the line of Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much and congratulations.
Steve and Mike This is Mike.
And for Mike, but I think one of the underappreciated parts.
Of this initiative.
How much better positioned you are internally from an operational perspective, and maybe just compare and contrast, the transition away from the affinity of back and 18, because they're still a key part of it is just management's ability to execute just given a much more streamlined business. If there's anything you'd call out there just as you put this plan together because I think that's it and.
More subtle point that really increases the probability of success as you engage these next couple of years.
Yeah, Kevin I'll start and Mike <unk>, obviously been here for longer and and Shane can give you more of a.
EBITDA of historical perspective, and ICANN, but is sort of in my mind.
The key difference, Brian and that is that.
We don't have <unk> and the portfolio anymore right. So and that was as you know a very different business.
And it is a very complex business, but by nature of sort of the markets and which operates and the customers that it serves and so.
We don't have that.
And that on the agenda instead, we've got the big three segments.
Printed Reuters and we feel side of that is a manageable portfolio and there are some real similarities.
Across the customer needs and the customer experience, we need to provide.
And to that we've added.
And extraordinary.
Amount of expertise two of them to an already strong associated price here at Thomson Reuters.
People like Christy Rossi who've done this before at significantly larger scale and <unk>.
Very similar if not tired of Timeframes and.
Shifting sands from external point of view.
And so as those of the two things that I think differentiated and my mind at least from and where we might've been but I'll turn it on.
And Kevin I'll, just add one small item in addition to <unk> now with <unk>.
The amount of time all of the colleagues that I mentioned had to spend on the separation and there's more time that we can really focus on building our products now we try to and a ring fence that group as much as possible, but we can now deployed.
Of those funds and resources to building and accelerating new products and capabilities.
Super helpful and I'm just.
And with retention of 90% and when.
And we think we can get back to you and then.
As of third of irrespective of the interest.
And that new product and innovation is 200 million is that and the organic targets or would that be something indications you executed on that.
Okay.
Take it down first and regards to retention and Kevin I think we'll get a better feel with the Investor day.
Certainly we feel like we can get.
Percentage point as we move forward, we have a lot of customer pain points that we are addressing very straightforward with our customers in that regard and.
And then as we continue to add.
More and more capabilities you are very familiar with all of the work that Andy Martin as Mike Dana song on the West La edge.
Just to illustrate the flea and Charlotte rushed and and tax and accounting professionals is now working on on the other initiatives with the she'll discuss so.
I wouldn't be surprised Kevin if we can get another percent lift.
The lift, but we will closely monitor that and keep you up to date as we move forward and then <unk>.
Kevin and regards to the revenue lift from the change program that is reflected in the targets that we provided today.
Thank you so much great job. Thank.
Thank you Kevin.
Thank you we'll go to the line of Arab window with Canaccord. Please go ahead.
Good morning, Thanks for taking my questions.
Yeah.
My first question is on and I have a follow up after that and my first question's on the software and services component.
I think that Mike and the cost you can kind of enough to kind of give us the breakdown as to what back some glaring flaws in some of the key the patients include legal and also on a consolidated basis as you look to sort of your 2022 and 'twenty three targets.
Is there a number of our present day did you have in mind as to where that would transition to and as my follow up with respect to the the <unk>.
Target of $700 million and <unk>.
Tax on the disputed items.
And I know you talked about $90 million and Q1 is the.
Any sort of color as to how that would how the.
The remainder would sort of stay.
Is out and I apologize if I missed the commentary on that thank you.
And now let me take the second question first the $90 million, we estimate will be paid in Q1 of this year and then the $6 million to $700 million estimate that I referenced if we're still.
Contending that if paid it would be Q3 of 2021.
We're on the topic of tax the tax associated with the <unk> transaction or a and the those would be paid quarterly April 15th June 15th of 915 12 15.
And there just from a timing perspective, all of these items are factored into our liquidity forecast for the full year. Let me just provide some grounding on the software and content and I'll ask Steve to share his thoughts prospectively today. If you look at the legal business about 30% estimated is software.
<unk> and within corporates about 6% and and tax about 75%. So for total TR looking at about 40% software. So I'll ask Dave to share his thoughts prospectively.
I think.
Part of this transition out of India.
Two of content driven technology company is too.
<unk> the increase that software of.
Portion and I think if you looked at.
We are at sort of 35, 35% of 35% to 40% and software today.
Right of bit of upside the.
And with one of the things we will do I think that we will blow of that right.
And I think our customers are demanding we do that basically side of me when I speak with of look we love the content, but we need it we need it delivered and different more innovative more and more customer friendly ways and more usable ways and so I think youll see more and more of this blend of unique content.
World Class.
And machine learning and best of breed software that'll really blame the solution and as long as we're solving the customer problems better than anyone else.
And.
And I'm confident that that will translate into the healthy growth rates.
Thank you very much of that line.
Okay.
And we'll go to the line of George Tong with Goldman Sachs. Please go ahead.
Hi, Thanks. Good morning, you mentioned that your 500, the $600 million and the investment breaks out into the three tranches of the omni channel SMB modernization of trucking operations and the broader organization can you talk a little bit more about these initiatives within the tranches and how this compares with the where youre <unk> strategic investment priority and salt.
Sure I'll start and then ask Steve to supplement the first category and I'm going to call. It more of the go to market, which includes smaller customers more difficult of serve and SMB and the omni channel.
At the heart of that George is addressing our internal systems. We as you know I've had many acquisitions over the years. So we're looking to consolidate the many desperate systems that we have today into as few as possible what that does is improves our operational efficiency efficiency, but more importantly.
And it improves the sales go to market teams efficiency, because they are dealing with fewer systems day today. They get the full view across total TR and regards to the cross sell that we mentioned.
Earlier also within this is SMB. We are building the case of capabilities mentioned Kirstie earlier, and David can strip out Chief Digital officer.
Is working on this we have about 500000 customers today that number has been fairly constant over the last few years. We think these SMB capabilities will allow us to attract and retain.
Additional new customers as we move forward.
The second tranche and regards to modernizing our technology and operations Kirstie, Sean Mahal churn and David <unk> will discuss more.
At our Investor Day, I mentioned earlier, the cloud migration, but we have some more older underlying editorial type technology that we're in the process of investing in and the next two years that will accelerate our time to market and then lastly on the organization and the location.
<unk> and.
And different parts of our organization now we might have and like for example call centers or and finance different different areas that are kind of repeat and multiple times as we pivot to the operating and company.
We will be able to have leverage there and I mentioned the locations of few minutes ago.
Great.
Yes, I think the very explicitly if you look at those three buckets right.
Digital and Omnichannel customer experience, modernizing ops, and tech and the organization and and location footprint they feed into the seven so.
Products like crack the low high too.
With floor.
The <unk> <unk> of the cloud order the suite and indirect tax all of these we believe will be significantly enhanced by those three investments. So there is a there is a very explicit the link between the investment and then making and the upgrade and the innovation around those products and and that's what we will dive into on the <unk>.
The 16th of March.
Very helpful. And then just as a follow up you mentioned that organic revenue growth should reach 6% to 7% and the big three by 2023 can you break out what that growth might look like within legal tax and accounting and corporate assumptions in there. That's included net charges.
And George will go deeper on that with the March 16th Investor Day, Paul Fischer will cover legal Charlotte rushed and tax and Brian and Air and we'll cover of the corporates, but we will share more on that than Georgia.
Got it thank you.
And we'll go to the line of Manav Patnaik with Barclays. Please go ahead.
Thank you good morning, Jim.
The follow up slightly the I mean on a high level of that that 6% to 7% growth range like how much of that is market growth.
As you may cause.
And you compare the.
The transition of the evolution to F&I before and one of the problems that concludes the marketed ex and iron.
The impression has always been legal is a tough market as well. So I was just curious how you guys have factored what the market growth looks like it's all the innovation.
Sure Manav.
Once again, we're going to hear more about this from the segment presidents on March 16th we certainly at the updated our total addressable market data and as we kind of triangulate, what we see from a market growth perspective to our internal estimates as fairly consistent once again, we will share of both.
And the Tam estimates by sub segment, along with our estimates of the big three of that George just asked about on March 16th but from our viewpoint, there's pretty good cemetery and regards to the Tam estimates that we see and then our also the internal and there are some deviations. If you look at the west low product that has really.
Really strong.
Presence and the market and then some of our earlier projects that products that are and the earlier stages.
And it may not be a huge growth contributor today, but we see a lot of upside going forward, but we think we have good symmetry between our internal estimates and App and then also the Tam estimates.
Okay fair enough I'll wait for that and the Investor Day and then the other question I had was this obviously seems like a pretty big organic lift, but I think along the way.
You mentioned, a few times and you still want to do deals and I was just curious what the capacity there.
And I'm guessing the all small deals, though is the capacity to integrate the large deal and its all of this change going on.
Yes, I'll talk about it from a from a sort of and organizational capacity and then.
Michael will remind us of the the financial capacity.
We're very focused on on meeting and exceeding our customer needs and the change program that is out of laser focus for 2021 and 2022.
In terms of our capacity for inorganic activity, we're going to be open.
Two acquisitions that are that of reinforcing of the change program and reinforcing about ability to meet and exceed customer needs today within the big three.
And so.
Daily we would do a number of tuck in acquisitions. This year and next that meet that criteria, but we're going to be pretty hard hedged about making sure that our focus stays on the change program.
And the acquisitions, indeed meet that criteria.
And I was kind of a similar rep associated execute the change program of Mitel and Thats, Our first second and third priority and then we have the capacity.
To make an acquisition and smaller midsized acquisitions.
Is this the right time.
And also meets our customer needs and is this the way I view, it but the $700 million that I referenced earlier that remains from the 2 billion of original investment fund, obviously, our capacity far exceeds the $700 million, but we don't have and urgency to put it to work and we will put it to work at the right time of our customers and shareholders.
Good morning.
I think we at the time for one more question operator.
Thank you our final question will come from Doug Arthur with Huber Research. Please go ahead.
Yes. Thank you Steve in terms of the addressable market that is.
And transformation is.
Targeting is this kind of a dual track you think you are large for instance, legal companies are going to the.
The COVID-19.
Issue has dramatically changed the way they will work going forward. So this is meant to address that but it seems on the same vein that this is all about expanding the market into smbs and really growing that customer base I mean, I'm, just trying to get a sense of priority.
Yes, I think.
I think Doug.
Certainly this year and.
And in the next the priority is to meet and exceed the needs of our existing customers and so you refer to the large law firms and I've spent a lot of time.
Over the last 12 months with with the managing partner of the chairs of lots of all firms and as I've mentioned before and this environment.
Every single one of them and their own woods, who set of version of.
And we need to spend less on real estate more information and technology and our focus is on making sure that the part of that we're part of that solution set and so we do think there is upside and despite a very high share.
With the launch of open so we think theres real upside as they.
The change the ways of working and and move the budgets around appropriately sort of the.
And the SMB opportunity for us.
As we think a big one, but it's a slightly longer term what we're going to build we are building those capabilities today.
That process is going well, we will get it online as soon as we can but the focus is very much on that first category with a clear eye towards the sick.
Great. Thank you.
Thanks, Doug.
Thanks, everyone for joining us today that will conclude our call with you of any follow up questions feel free to reach out to me.
As I mentioned, we will be sending out of notice regarding our investor day on March 16th later this week. If you do not receive that for some reason other you're not on our distribution list. Please reach out to me and we'll make sure we get it to you.
And we look forward to sharing more with you three weeks from today. Thank you.
Thanks, everyone.
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