Q2 2022 Thomson Reuters Corp Earnings Call

Good day, everyone and welcome to the Q2 2022 earnings call hosted by Gary Bisbee head of Investor Relations. My name is <unk> millimeter O'brien today during the presentation lines you have I mean listen only if you require assistance at any time, you're just Keystone do you what are your phone and of course, you need to do.

I'll be happy to assist you I would like to advise me artist at this conference is being recorded for replay purposes and it does seem like the happens to it to Gary. Please go ahead.

Thank you.

Morning, everyone and thank you for joining us today for Thomson Reuters second quarter 2022 earnings call I'm joined today by our CEO , Steve pastor and our CFO , Mike Eastwood, each of whom will discuss our results and take your questions. Following their remarks to enable us to get to as many questions as possible. We would appreciate it if you'd limit yourself to one question and one follow up.

When we open the phone lines 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. We believe this provides the best basis to measure the underlying performance of the business.

Today's presentation contains forward looking statements and non <unk> financial measures actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide from time to time to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations Department.

Let me now turn it over to Steve has occurred.

Thank you Gary and thanks to all of you for joining us today.

Now onto our Q2 highlights I'm pleased to report the momentum that's been building in our businesses continued in the second quarter with healthy sales and revenue ahead of our expectations.

Four of our five business segments again recorded organic revenue growth of 6% or greater and total company organic revenues rose 7%.

Now Big three business segments also grew 7% organically.

We see internal and external drivers, although improving momentum.

Solid execution and efforts to better prioritize investments toward our best opportunities have contributed.

We're starting to benefit from meaningful tailwind is driven by a step change in complexity of regulation and compliance legal tax and risk related markets.

We believe these <unk> are in the early innings and position us well to continue our recent momentum over the next few years.

Due to the Q2 revenue strength and healthy book of business annual contract value.

Great.

Raising our full year revenue outlook.

We now expect to see total revenue rising by 6% and big three revenue by 7%.

Up from our prior views of five 5% and six 5% respectively.

We maintain our margin outlook as we continue to invest in our businesses and also absorb heightened inflationary pressures.

Overall strong first half provides confidence that we're on the right path to achieve our 2022 and 2023 targets.

While market concerns around slowing economic growth and inflation have increased our business is well positioned now momentum through Q2 was strong and leading indicators remain healthy and we are blessed with a resilient business, 80% of our revenue is recurring and we operate in historically stable and growing.

Markets.

We also had benefit from that change program efforts, which will significantly boost our margins cash flow and earnings in 2023.

Our capital capacity and liquidity remain a key asset that we are focused on reinvesting.

Create shareholder value.

We took an important step in early June with the announcement of a 2 billion dollar share repurchase program.

Through July 31, we've purchased $394 million about she is and.

And we look to complete the program within 10 months.

We also continue to assess inorganic opportunities and expect to have ample capacity for both buybacks and strategic M&A.

As a reminder, our acquisition focus includes workflow software and automation in our legal and tax markets.

Risk fraud, and compliance and targeted international expansion.

For example in legal professionals, we see a sizable opportunity to.

To play a critical role in the tech driven transformation of the legal profession.

A uniquely positioned to provide customers with a smoker seamless experience through the combination of our highly differentiated research content and expertise with workflow software. The AI driven contract analysis capabilities. We gained through the recent thought trace acquisition is a step in this direction and builds upon the unique capability.

He's like practical law and high Q, we continue to assess both organic and inorganic opportunities to further expand our capabilities and integrate our leading content with workforce solutions that drive automation and better outcomes for our customers, particularly around the legal documents and contract drafting.

Now to the results for the quarter second quarter reported revenues grew 5% with organic revenues up 7%.

Panic recurring revenue again grew 7% with organic transactional revenue up a robust 13% aided by the calendar shift and the return to in person events at our Reuters events business.

While we expect transactional revenue growth to moderate in the second half, we see recurring revenue momentum continuing.

Adjusted EBITDA increased to $561 million, reflecting 200 basis points margin improvement to 34, 7%.

Excluding costs related to the change program. The adjusted EBITDA margin was 36, 6%.

This strong performance resulted in adjusted earnings per share of <unk> 60.

Up from 48 cents in the prior year period.

Turning to the second quarter results by segments, the big three businesses achieved organic revenue growth of 7%.

Collecting broad strength.

Illegal continued its recent momentum delivering a fifth consecutive quarter of 6% organic growth the legal market remains healthy across all key segments small.

And large size U S firms government customers and in key overseas markets.

For example, Westwood edge adoption continues to drive revenue and we continue to expect annual contract value penetration to approach, 75% by year end from 65% at the end of 2021.

Practical law, which contributes to growth in both corporate and legal segment.

Continued its strong performance with a quarter of double digit revenue growth.

And third our government business grew 8% organically.

And we see acceleration is likely in the balance of the year.

Turning to corporates organic growth momentum continued with revenue up 9% recurring revenue rose a robust 9% and.

And transactional revenue again exceeded our expectations and rising 8% I.

I will discuss our corporate business in more detail shortly tax <unk> accounting had another strong quarter with organic revenue growth of 9% Latin.

Our Latin America business called Dominiak.

Grew nearly 30% in the quarter and remains a key growth key growth driver.

Reuters news organic revenues increased 12% in Q2 growth occurred across all lines of Reuters business events. In particular was a key driver and finally global print organic revenues declined 1%, which was better than expected due to higher third party print revenues and timing benefits that we expect to normalize in the rim.

Of 2022 in summary, we're very pleased with these results and we're excited about the momentum building within our businesses.

Now, let me take a few minutes to discuss our corporate segment and our risk fraud and compliance businesses and while we are confident in the growth prospects both.

As we did last quarter I'd like to provide some incremental transparency.

Around our portfolio with a brief discussion about corporate segment, and our risk fraud, and compliance or RFC businesses, beginning with corporates. Some brief background may be useful.

The segment was formed in the fourth quarter of 2018 to better serve innovate for and penetrate corporate uses for our key legal tax and RFC offerings.

<unk> is the number one provider of both legal and tax solutions for corporations in the United States and so it's all of the Fortune 100.

Momentum is built nicely over the last year with corporates organic revenue growth accelerating from 4% in the first half of 2021, 6% in the second half and 8% in the first half of this year for full year 2022, we are confident in achieving the 7% to 9% organic growth.

We previously said for 2023, so what's driving this momentum we see strong growth from a range of offerings across all three product areas.

Key double digit growers, which is circled in green on the slide include indirect tax and confirmation from our techs portfolio practical law in haiku from legal.

And clear from RFC amongst others in total double digit growers in our corporates product portfolio comprised 39% of segment revenue and are growing at a mid teens year over year right.

As we described last quarter for our legal professionals segment, a healthy mix shift toward these more rapidly growing offerings is contributing to our corporate momentum.

Looking forward, we remain confident in the long term growth potential for the segment driven by our building momentum a healthy product portfolio and corporate demand for actionable insights and efficiency driven workflow tools combined with significant addressable market and watch based penetration opportunities.

Building upon this corporates discussion I'll expand on our risk fraud and compliance businesses. We have historically discussed RFC as part of our legal professionals government sub segment.

Which also includes our legal offerings sold into government and court system customers.

However, how RFC businesses are also an important driver for corporates, which generates a bit over 40%.

The RFC revenue.

We have several businesses that make up our RFC franchise led by clear a leading public record solution.

This is accomplished by Thomson Reuters special services or T Rss and Palm Dara Trs that provides a combination of information technology and security cleared analysts to support government customers in mitigating global risk and improving public safety.

Kundera provides a cloud solution that leverages advanced algorithms to help detect fraud and government entitlement programs, both tiara assessing PON thereof leverage.

Adding inside and decisioning capabilities that extend our value at.

RSA businesses have contributed nicely to growth with total RFC revenue expanding by a 16% compound annual growth rate over the long.

And clear growing by double digits in every year since it was acquired in 2000 right.

There have been several key drivers of this growth, including an expanding number of use cases across government and corporate customers enhanced functionality that is bolstered usage and pricing.

And growth of access through <unk>, which is also boosted our partnership efforts looking forward, we believe that our RFC businesses are well positioned to deliver revenue growth in the teens over the next few years.

We also believe our current position as a strong platform from which to consider future M&A in the RFC space.

Let me go a little bit deeper unclear.

Which makes up approximately two thirds about RFC revenue.

<unk> is a leading public records database and analytic solution powered by proprietary technology and a highly unique dataset.

It brings billions of data points from public Records and third party data bases together.

Liver insights for investigative compliance risk mitigation and forward prevention purposes here.

Historically clear is focused on building an aggregated data set that enables investigators to perform a single search across multiple sources to uncover connections and identify risk related information either by customizable and easy to navigate dashboards.

This enhanced due diligence use case remains an important revenue growth.

Revenue and growth driver today in.

In recent years, we've added decisioning tools, and Configurable analytics around identity verification and entity risk indicators and score.

We've also added incremental content, including sanctions lists and business beneficial ownership data.

These additions have resulted in a more robust offering that has expanded customer pricing.

Pricing.

And they are adding to our growth runway and our customers' success.

We believe clear as a market leader with several advantages, including robust identity resolution technology.

Comprehensive content real time data connections strong data source transparency and a compelling analytics driven dashboard.

Clear product NPS scores for both government and corporate users are among the highest in the company, which speaks to the value customers see in this important offering.

The graphic on slide 12 illustrates how clear can help customers prevent detect and investigate risk and fraud by answering key questions about the potential customers or counterparties. These questions demonstrate the critical need for deep understanding of entities, both people and companies relevant to the government and court.

Customers across numerous use cases, ranging from criminal investigations to identifying human trafficking networks, the Ky C and AML compliance as well as others to bring out RFC efforts to lot. Let me close with a real World example, from our government business during the initial pandemic period.

Unemployment insurance claims skyrocketed, and unfortunately started fraud related activity with <unk>.

Date of California process more claims than any other state and initially struggled to process claims while minimizing forward.

It turned to a combination of our solutions using pantera's algorithms and AI in combination with clear and the states on data to identify and verify legitimate highlight potential fraudulent claims. This solution helped the state work through a backlog of $9 7 million claims in it.

Two week period, while accelerating payments to qualified recipients and denying fraudulent claims.

Since implementation Thomson Reuters has been a key partner in telecom.

$125 billion.

Fraudulent clients.

We're proud of the work done by our risk fraud, and compliance teams, which helped support safe communities upheld the integrity of government entitlement programs and support robust compliance efforts.

Now, let me turn it over to Mark who will provide more detail on our second quarter results. Thank you, Steve and thanks for joining US today as a reminder, I will talk to revenue growth before currency and on an organic basis, let me start by discussing our second quarter revenue performance of our big three segments.

Revenues rose, 7% organically and at constant currency for the quarter. This marks the fifth consecutive quarter, our big three segments have grown at least 6%.

Legal professionals organic revenues increased 6%.

This also marks the fifth consecutive quarter of 6% growth for legal professionals.

Organic growth was driven by practical law fine law and our government business.

Less LOL edge continues to add about 100 basis points to legals organic growth rate.

It is maintaining a healthy premium and is expected to continue to contribute at a similar level going forward.

Supported by the planned release of Westwood, all edge to Dot O. Later this year.

In our corporate segment organic revenues increased 9% for the quarter driven by recurring revenue growth of 9% and transactional revenue growth of 8%.

Clear practical law and indirect tax were key drivers of the recurring revenue.

The transactional revenue growth benefited from volumes that are seasonal in nature and is unlikely to continue at that level in the second half of the year.

However, we see recurring revenue growth momentum continuing.

And finally tax <unk> accounting organic revenues grew 9% driven by recurring revenue growth of 11%.

<unk> growth was driven by ultra tax audit products and the segments businesses in Latin America.

Moving to Reuters news total and organic revenues increased 12% exceeding expectations due to strength in our professionals business.

In particular, what is it that drove the growth as it benefited from both a favorable event calendar shift into Q2 and also the return of in person events.

We expect more moderate growth from Reuters news in the second half of the year.

Lastly, global print total and organic revenues declined 1% in the second quarter ahead of expectations.

Higher third party revenues were printing services and timing of new sales drove the outperformance. So we expect both to normalize in the remainder of 2022.

On a consolidated basis second quarter organic revenues increased by 7%.

Turning to our profitability.

Adjusted EBITDA for the Big three segments was $524 million.

Up 8% from the prior year period, with a 47% margin rising 80 basis points.

Improvement over prior year period was due to higher revenues and change program savings.

As a reminder, the change program operating cost are recorded at the corporate level.

Moving to <unk> orders nears adjusted EBITDA was $44 million.

Up $9 million from the prior year period with a margin of 23, 3% up 310 basis points.

Revenue growth and higher events mix drove margins.

Global Print's adjusted EBITDA was $50 million with a margin of 35, 4% a.

A decline of 250 basis points due to the decrease in revenues and the dilutive impact of lower margin third party print revenue.

In aggregate total company adjusted EBITDA was $561 million.

A 12% increase versus Q2 2021.

Excluding cost related to the change program in both periods adjusted EBITDA increased 9%.

The second quarter's adjusted EBITDA margin was 34, 7%.

Or 36, 6% on an underlying basis.

Excluding costs related to the change program.

Turning to earnings per share.

Second quarter adjusted EPS was <unk> 60.

Up from 48 in the prior year period.

The increase was mainly driven by higher adjusted EBITDA.

Currency had a <unk> <unk> positive impact on adjusted EPS in the quarter.

Let me now turn to our free cash flow performance for the first half rips.

Reported free cash flow was $428 million versus $618 million in the prior year period.

Consistent with previous quarters. This slide removes the distorting factors impacting our free cash flow.

Working from the bottom of the page upwards, the cash outflows from the discontinued operations component of our free cash flow was $25 million more than the prior year period.

This was due to payments to the UK tax authority related to the operations of our former refinished business.

Also in the first half, we made $186 million of change program payments as compared to $28 million in the prior year period.

If you adjust for these items comparable free cash flow from continuing operations was 685 million $7 million lower than the prior year period, primarily due to higher annual incentive plan bonuses.

We reaffirm our 2022 full year free cash flow outlook of approximately $1 3 billion.

I will now provide an update on the progress related to our change program.

In the second quarter, we achieved $64 million of annual run rate operating expense savings. This brings the cumulative annual run rate change program operating expense savings to $369 million.

This increases our confidence in reaching approximately $500 million of annualized savings by year end and $600 million gross operating expense savings by 2023.

As a reminder, we anticipate reinvesting $200 million of the projected $600 million of savings.

Back into the business for a net savings of $400 million.

Now an update on our change program costs for the second quarter and the remainder of 2022.

Let me start by saying none of the annual estimates have changed from what we provided last quarter.

Spend during the second quarter was $67 million comprised of $30 million of Opex and $37 million of Capex.

We anticipate 175 million of total spend in the second half of 2022.

For the full year, we continue to expect $305 million of change program investments, which would bring total 2021 and 2022 cumulative investments to approximately $600 million.

We also continue to anticipate a split of roughly 60% opex and 40%.

Capex.

Let me conclude with our outlook for 2022 and 2023.

As Steve outlined we have increased our full year 2022 outlook for total TR and big three revenue growth.

We now forecast total organic revenue growth of approximately 6% and big three organic revenue of approximately 7%.

Up from the prior five 5% and six 5% respectively.

We are maintaining our adjusted EBITDA margin outlook of approximately 35% as we continue to monitor inflationary impacts and assess investment opportunities to drive continued revenue momentum.

There is no change to other 2022 outlook items, and we reaffirm our 2023 targets.

Looking to the third quarter, we expect revenue growth to be 50 to 100 basis points below the updated full year forecast.

Due to lower transactional revenue.

And more normalized growth rates for orders news and global print.

However, we expect fourth quarter revenue growth to improve from Q3.

We expect recurring revenue to expand by 7% for the full year.

We expect our third quarter adjusted EBITDA margin to declined 300 basis points sequentially from Q2 due to normal seasonality.

Timing of orders events and the cadence of change program investments.

We expect Q4 margins to be the high watermark of the year aided by seasonal strength from our tax professionals segment and scaling change program savings.

We see our effective tax rate likely at the midpoint of our 19% to 21% full year range.

In summary, we remain confident in achieving our 2022 and 2023 targets supported by the strong first half and healthy underlying momentum in our key businesses and markets.

Over time, we continue to believe we can achieve faster revenue growth higher.

Higher profitability and significantly higher free cash flow as we benefit from transforming to a content driven technology company. Let me now turn it back to Gary for questions.

Alright, Thank you, Mike and Steve.

Let me go we're ready to begin the Q&A.

Thank you.

One of your question and answer session will now begin.

You wish to ask a question. Please key star one on your telephone Demeter question. Please key star empty.

T.

Gary any questions. Please.

Yes, we have received a couple of questions.

The first one is coming from Toni Kaplan.

Morgan Stanley . Please go ahead.

The 22 organic growth guidance by 50 basis points, which is great to have a few quarters in a row of raising the guidance. There. So congrats on that I noticed you didn't raise 23.

Is that conservatism or concern about potential recession in 'twenty three or do you just need to go through your in depth planning process first just what drove sort of the decision not to raise timeframe. Thanks.

Yes, its more the ladder, Tony we certainly remain very confident in delivering on our 2022 updated guidance, we remain confident in delivering on our 2023 targets as we provided.

We're very confident in our team we're very confident in our execution, but we think it's very prudent given the various macro factors to weigh to complete our planned full year planning process in the next few months and we look forward to providing an update on our 2023 guidance in February but based on the first half of the year the strength of our.

<unk> book of business and the execution of our sales and go to market team the execution against our change program.

Vince is very high but it's more what you mentioned Tony in regards to going through the planning process and being very prudent in assessing the macro factors, but all signals are very positive.

Yes, Tony it's Steve just adding to that.

So Mike and Dave Larsen.

Conduct our QBR quarterly business review process.

That comes in late September October .

And as you know we have 80% of our revenue is recurring we have very high percentage of multi year contracts.

Across our big three segments. So we've got good visibility, but we want to get through that process.

And it.

And be very diligent about it before we make any any sort of further predictions.

Just one additional point there Tony in regards to that getting through the planning process. You had mentioned also as we complete the year the visibility to Steves point at 80% is recurring in nature. Our book of business will have good line of sight as we complete Q3 and Q4.

Which will give us a good visibility as we go into the February earnings call.

Great.

Hoping you could talk about has the macro change to have any client conversation.

Tony Thanks for the thanks for the question. So as you know we.

We'd like to spend an enormous amount of time with customers.

Getting a deeper and deeper understanding of their businesses I think based on my conversations with.

With the heads of of small medium large law firms protection accounting firms.

All of our corporate.

Operating cost and government customers I would say that to date.

Their results have been pretty solid I mean, the law firms had record results in 2021.

And.

So far in 2022, they are seeing pretty robust demand through then litigation practices through their restructuring the corporate practices are a bit soft.

Our ipos through a debt issuance.

But I think.

Our customer base is the same stance that we have which is.

<unk>.

So we're proud of our results to date, but I think a bit of healthy paranoia as to what might come next and just watching very very carefully for some early signs of softness.

But we haven't we haven't seen it yet in most of our customers haven't seen it yet either you.

Yes, Tony I would supplement with two additional points that we monitor our renewal rates or retention rates retention rates are slightly higher in 2022. Thus far then 2021 as a reminder, we have a lot of multi year contracts.

Contracts and also on the pricing front, our pricing is slightly higher in 2022 versus 2021, and then the third quantitative measure as our sales pipelines that we monitor with all of our segments sub segments and regions.

Do we have a second question.

Yes.

And that is coming from the line of Seth.

Kathy.

Please go ahead your line is open now.

Yeah.

Yes.

Two for me.

I know it looks like you did an acquisition in the quarter could you just talk a little bit about.

What happened there.

Steve question for you.

Recurring one really just wondering if you can give us an update on.

Your assessment.

The.

Yes, the progress you've made and the shortcomings.

To date.

Your initiative to improve really the customer experience I know that's been a primary focus.

Things like customer interfaces and whatnot, what's your assessment of where you are on that journey.

Yes, Thanks, Tim Great question so.

Our most recent acquisition was.

The business towards thought trace which is based.

Based in Houston, Texas.

Run by very talented executive by the name of Nick Van <unk>.

Both Tres we think is the leading.

AI driven contract analysis tool.

Nick and his team are focused today on oil and gas, particularly oil and gas leasing contract.

But we've done a lot of work with them prior to the closing the acquisition and as you can imagine.

An awful lot more since closing acquisition as to how how we can extend.

That capability into a broader set of <unk>.

Commercial vehicles.

So whether that's financial services or a.

Pharmaceutical.

We're looking at it and so.

A small acquisition for us it's very much at the cutting edge in the application of AI and machine learning to our unique content.

But we like to look at that and Emily Cobra pretty Sharma from our teams.

Amongst others have been.

Focused on on building that out in the.

The second part of your question with relation to the change program.

Look as.

It's a complicated it's a complicated program with many moving parts as you know Tim but.

We have <unk>.

<unk> a good chunk of the $600 million onetime investment Mike talked about the run rate savings that they're recruiting from that and how it positions us for 2023, so from a financial standpoint.

The program is.

He is in great shape and is delivering what we expected it to I think the sort of components that are going on.

Amongst a number of the components that are gone.

Very well could be a cloud conversion.

Firstly, secondly, the progress that Jason <unk>.

Cyber lead us made in terms of addressing our strengths around sabra cyber fraud compliance.

Thirdly digital assistant so the idea that a customer will have a whole series of.

<unk> digital.

Sales support and renewal capabilities that have been well received.

And a very popular and then last but not least we've done a lot of work on al.

On our location strategy and where we're we want to outgrow the market.

Talent, where we want to our product and engineering talent and so on and so forth in that.

That's being led by <unk> and her teams and as John will too I would say, we still have a lot to get done through the balance of this year and into next.

Mainly it's converting.

Investments in capabilities into customer satisfaction, I think there are pockets, where the customers are really starting to see it and there are other customers where they are not yet so we're laser focused.

On that conversion in that I'd call out.

I'll go to market leaders for navigating their way through this environment with the backdrop of the pandemic the backdrop of inflation, increasing economic malaise.

Enormous amount of change and disruption being driven by the China program and yet.

Our price is going up a little bit our renewals has gone up a little bit.

Organic growth is headed in the right direction notwithstanding the.

The disruptions intermodal that we've imposed on us so.

Say.

So the punchline, Jamie so far so good on the change program with lots of work left to do.

Tim I'll just add one additional data point in regards to the cloud migration. We provided back in February that we had 37% of our revenue available in the cloud at the end of 2021 at the end of June we were 47.

Percent, we forecast to be at 60% by the end of 'twenty, two and we remain confident in being at 90% by the end of 2023, which is consistent with our prior estimates.

Thank you.

Additional questions.

Yes. The next question is coming from the line of Kevin Mcveigh of Credit Suisse. Please go ahead.

Great. Thanks, so much and congratulations on the results.

I guess.

Steve or Mike.

This 50 basis point.

Boost to the organic growth guidance was that pricing retention, a little bit of everything or I guess, we gave you the confidence to do that number one and then can you talk about retention just a little finer in terms of maybe up market versus down versus made and you're starting to see any initial benefits from the change program around <unk>.

Retention.

Sure Kevin Let me focus on the guidance question first the increase in 50 basis points for total TR and the big three was really driven by the underlying performance and health of the business prices included therein, but price is up only slightly Kevin in 2022 versus 2021.

That will continue to increase as we progress in 'twenty, two and 'twenty three given the multiyear contracts as I mentioned earlier in regards to Tonys question. There. So primarily the underlying health of the business. The book of business that we have Kevin at June 30th coupled with the pipeline for the remainder of the year.

The drivers for us increasing our guidance above the 50 basis points in regards to retention, we're seeing slight increases across the firm, but we still have significant opportunity on a weighted average basis using revenue as the benchmark not number of customers, but based on revenue we're slightly over 91.

Percent. So we continue to have a lot of opportunity to improve our retention and the time horizon as we continue to address the underlying customer expense experience items that Tim addressed or in his questions. There so a little bit of improvement in price a little improvement in retention.

We.

Continue to have opportunity on retention and just a reminder, Kevin our recurring revenue growth rate, we are forecasting at 7% for the full year each quarter is roughly 7% rounded a couple of quarters, a little higher a couple of quarters, a little lower as we go into Q3 Q4, the comps are a little higher so hopefully thats helpful. Kevin.

Yeah.

Anita please.

Sure.

And next we have a good question Brian .

Robyn.

Thank you Oliver.

Canaccord Genuity please.

Go ahead your line is open.

Good morning, and thanks for taking my questions, Steve when you talked about the.

The M&A criteria you touched on the legal software workflow.

Space.

Can you just sort of revisit the size of that market I know that.

It's incumbent right now seemingly by some mid tier companies are you kind of looking at that space. It is simply just being large enough and you being positioned to kind of.

Take share there or do you even look at it.

The industry.

Participants.

Relatively weaker and that kind of gives tiara, even maybe some incremental opportunity just wanted to get your sort of expanded thoughts there and then.

Secondly.

With respect to 2023, and maybe for Mike When you think about inflation I mean, obviously you have a significant labor component can you just talk about how that changes the puts and takes there are recognizing of course that there may be some opportunities to move rates around as well on the <unk> on the recurring on the subscription front.

Any color would be helpful. There. Thank you.

Yes, Thanks, Ravi Let me, let me quickly address the first point. So as you know we've got a pretty robust pipeline of M&A that we're looking at we're optimistic that that valuations are coming coming our way versus the other way round, but we'll be very rigorous very disciplined and patient about going after them.

Focused on on automation workflow automation tools that drive efficiency and take many hours out of key key tasks for our legal tax accounting and risk fraud compliance government customers. That's really the sort of area of focus also with an eye to to some selected international.

Expansions within legal yes.

Yes look we're very bullish what we see is a.

He is an industry that is at the start of a transformation and it's a it's an inflammation and tech driven transformation. So.

For many years, the legal profession as being reasonably good luck moving slow to adapt adopt technologies and we've seen that change pretty markedly coming out of the pandemic.

So every every head of our law firms these asking us the questions around.

How can our tools, how can help count research content and tools combined helped them be less reliant.

On hiring new lawyers are additional lawyers to drive growth. So they want to create a different a different set of economics in a different.

Rob within within the firm.

And we are one of the few players that are well positioned to take advantage of that so as we look at contract lifecycle management document management further workflow tools, we see a pretty big opportunity.

And the Tam is.

Is growing in a meaningful way because traditionally it's a profession underspent on information and technology arguably overspent on real estate and <unk>.

That is being addressed pretty aggressively by the leading firms. We think it provides a pretty big opportunity.

So thats a few thoughts on the first part of your question, Yes, our vendor on the second part of the question in regards to 2023 and inflation I would say both for 2022 and for our 2023 guidance based on how we see inflation, both topline and bottom line. We are fully incorporated our current view into 'twenty two and 'twenty.

Three guidance to your point there on labor, we certainly provided higher merit increases.

In 2022, we're working very closely with our HR team Chief people officer in regards to 2023, there, but we think we've factored in the appropriate increases or the labor cost. The other element of inflation that we monitor with Jennifer Prescott, leading the print business is paper and postage.

We've certainly received.

Incurred some inflationary increases on the cost there, but we've been able to.

I'll set majority of that with our pricing so managing pricing.

Coupled with the increased labor cost and other costs. We think we're managing all of those aspects very well as you mentioned there are a lot of puts and takes but with those puts and takes we think we've fully incorporated them into our guidance for 'twenty, two and 'twenty three.

Thank you very much.

Yes.

Mika.

The next question is coming from the line of Heather <unk> of bank.

America. Please go ahead.

Hi, Thank you for taking my question I was curious if you can just talk about some of the sort of incremental areas you're investing in you talked about on the margin keeping kind of guidance the same for opportunity to invest.

What are what are the organic opportunities you're most excited about.

Yes, I'll start with that Heather first I would say that we're continuing to invest in our change program, where we've centered that on improving our customer experience and Steve Itemize, a number of items on earlier that involved the change programs as a first we're continuing to execute that a lot of lifting.

Still in Q3 Q4, I think the team has a very good glide path to work on the change program items in regards to other areas of investment.

I'd highlight our product and engineering first our western edge, II, <unk>, which will be released later this year within legal that's an important area for us practical law that we highlighted during our may 3rd earnings call practical law helps both our.

It gives me our law firm customers and also our general counsel customers within.

Corporate risk fraud, and compliance as Steve discussed today impacts both our government customers and also our corporate customers is another area, Steve referenced accretive earlier, certainly high queue that we acquired back in July of 2019.

As a key area for us over within our tax and accounting.

Arsenals business Altra tax that I referenced during the prepared remarks today.

Confirmation that we acquired in July of 2019.

It continues to perform incredibly well under Elizabeth <unk> leadership, we also have leverage there within our corporate customers. So outside of our change program Heather.

The key focus for US is in regards to investing in our products to help our customers there and it's very balanced across our portfolio.

Including within our Latin America region, and also Asia and emerging markets.

And then some.

If you go back to our Investor day.

Presentations.

Last year, we talked about seven growth initiatives.

We continue to invest behind those because we're seeing good results.

We are excited about about where they can take us.

Helpful and as a follow up when you think of 2023. If there is a downturn. If you were to see some sort of sales impact.

On the margin side.

You have the benefits of that.

The cost cutting with change program, but more broadly how are you thinking about margins and the things you can control.

Yes, I think Heather for 'twenty, three we remain confident in achieving our guidance of 39% to 40%.

In regards to any revenue headwinds, where we would potentially see those first would be in transactional revenue, which includes our orders of that let's say Reuters events have an incredibly good year over $20 million of revenue in Q2 for us their transactional certainly did well.

In the first half of the year as I mentioned, we expect it to normalize in the second half, but for us, but for March $39 million to $40 million back to our vendors point, we have a lots of puts and takes that we can manage and pull in we feel confident in delivering 39% to 40% in 2023, and we have enough levers to affect it.

Effectively managed through while supporting our employees and our customers have.

Not to be flippant about it but.

Should we head into a recession.

Gordon deep one or relatively shallow one we view it as an opportunity an unequivocal opportunity.

To emerge stronger.

Relative to our customers and be better able to relative to our competitors.

<unk> and better able to serve.

Customers, we have number one or number two positions in just about every market in which we operate and we think.

A more difficult economic backdrop will provide us with an opportunity to further isolate which should it happen we'll be looking forward to it.

Heather back to your first question is on areas of investment I think the areas of investments just intentionally make a stronger as we go through 'twenty, two and certainly position us to Steves point for 'twenty. Three so we think they go hand in hand.

Great really appreciate the answer thank you.

Thanks Sarah.

Okay.

Next we have a question from the line of Judy Mcreynolds RBC. Please go ahead.

Yes, thanks, very much good morning late coming onto the call. So I apologize if you covered this off.

Maybe Mike just an update on westleigh edge, two point or if thats still on track for some launch in the back half of this year.

And maybe a bigger picture question.

It's my understanding in terms of Thompson internal AI and machine learning capabilities.

You you went down that path. Many many years ago, and obviously are leveraging it into products like west La.

Edge, just wondering is the AI and machine learning markets have evolved over the last five or six years.

Could you speak to your internal capabilities to keep pace with that kind of innovation versus.

Your M&A strategy, where youll look too.

Different companies with these capabilities perhaps.

Backfill your own internal kind of innovation machine, so sorry for the kind of broad motherhood Big picture question, but just curious Jeff in light of what you've just acquired in the quarter.

Two great questions, let me tackle Westwater edge to Dato drew we confirm that we will launch <unk> edge to data.

In the second half of this year, Stephen iPad multiple sessions demos from Andy Martin's Mike, Dave Paul Fisher, David long in the last few weeks I think youll be incredibly pleased more importantly, our customers will be super pleased when we launch. It later this year so fully on target there.

In the meantime drew the team.

Go to market team within legal professionals in corporates. They continue to work with our customers on western all edge, one dato, we're approaching 70% penetration with less all edge, one auto but two data will definitely launch later this year drew and look forward to sharing it with all of you and our customers I think Steve will address the AI ml.

Question, Yes, so we have a couple of hundred.

AI and ml.

World class experts and top tier labs.

And so those folks are spread throughout the world.

And as a quite a number of them here in Toronto, There a number in London and New York in June .

And in other operating Santos like MSP and other in Dallas.

And we're very proud of the work they do.

They have been instrumental in West Florida.

Sure.

Understood.

<unk> has been I think even more influential as we think about a launch.

So the proof is there I think where I think we are keeping up with the changing environment, if not outrunning it.

Obviously nine main phase and the opportunity for us is to.

Along the lines of being a content driven technology company is to increasingly add AI and machine learning.

Unique to our unique content and Investor breed software, we've done more of that in the legal.

Our legal professionals area, but we are starting to ramp those if its up.

Across across the portfolio.

And extends into our tax and accounting propositions, yes, Scott two additional points I would mentioned just in the last two and a half years I think our teams sales go to market teams have done a hell of a job adjusting in this hybrid environment virtual environment supporting our customers that way, we do have our annual meeting with ourselves leaders coming up in <unk>.

Mid August that will give us additional time to get direct impact, but right now we're not seeing any significant change Scott.

Great. Thank you.

The next question is coming from Manav.

Sorry.

Hi, Manav.

Thank you have a question from the line of Barclays.

Please please go ahead.

Hey, this is Brendan on for Manav, just wanted to ask real quick on the.

The the guidance obviously revenues.

50 bps.

This or last two guidance increases.

Kept margin of 35%.

Just wanted to is there is is the bias.

There are simply just a bit higher costs from cost from inflation or investments or how should we think about that.

Yes, three items I would mentioned Brendan first is certainly we have made incremental investments.

Specifically focus on margin that we've made incremental investments in both opex and capex as we see opportunities to sustain and accelerate our organic revenue.

Secondly to your point Brendan certainly inflation. This year I think we're doing a good job managing the puts and takes as I've discussed earlier, but certainly inflationary pressures is one that we're watching very closely and then thirdly I would mention with very being very prudent eyes wide open on macro factors just joined the remainder of the year.

So I think the convergence of those three items that we're closely monitoring and investing in are the reasons why we maintain the margin at approximately 35% full year, but we're confident in delivering on that Brendan.

Great. Thank you.

I think we have one more question.

Yes.

Last question is coming from the line of Douglas Wassa.

Uh huh.

Hello.

Please go ahead.

Yes, Steve.

Good morning, Steve just sort of Big picture question when you talk about.

Technology work solution adoption at the big law firms among others.

Is that enhanced by sort of a generational change in leadership I mean, I think if some of the all time low of partners that I know and if you walk into their office and started talking about AI and cloud based solutions they'd look at you blankly, so, but there does seem to be younger.

Group of managers and I'm wondering if that sort of.

Accelerating adoption.

Yes, it is for sure.

To that business.

10 years ago, you would see on the research side.

Knowledge, Chief knowledge officer, or a librarian, who was very much to sort of gatekeeper and curator of the research contract before the practicing attorneys.

Now more and more of the detainees themselves.

Direct into out into our products and they are very adept.

Doing so in providing us feedback and we do our best to incorporate that feedback into English.

In the subsequent releases, so I think thats.

That is very much the trend the other thing that that occurred during <unk>.

During COVID-19 amongst the senior most longest tenured lawyers, including managing partners because they went to work from home for the first time in their careers and and is one of them geographies and I have to come out of it.

So I didn't have a clue how to do any of this stuff through the pandemic and now have no choice.

I think so even the longest tenured folks are starting to adopt technologies and getting much more comfortable with.

With directly using.

Our products and that's a really healthy dynamic for our business because the more users are directly exposed to the experience.

And as we invest behind Charlie <unk>, UX and design teams to improve that.

We think the stickiness of those products goes up the chances of renewal at healthy price increments goes up too.

Yes. It makes total sense. Thank you very much.

Thanks, Doug appreciate the question.

I think <unk> I think that's the last question, we really appreciate everyone's time today.

Thank you very much everyone that concludes your conference call for today you may now disconnect.

Thank you for joining and enjoy the rest assured day.

Thank you.

Yes.

Yes.

Sure.

Yes.