Q3 2022 Thomson Reuters Corp Earnings Call

Okay.

[music] economy.

Good day, everyone and welcome to the Q3 2022 earnings call hosted by Gary Bisbee had Investor Relations.

So I don't know Craig if every day during the presentation. Your lines will go mainly listen only if you require assistance at any time. Please just keystone.

And accordingly, we'll be happy to assist you to get into the Q&A queue. Please press star and one any time during the presentation.

I'd like to advise that this conference is being recorded for replay purposes.

I'd like to hand over to Kelly. Please go ahead.

Thank you and your Bill good morning, everyone and thank you for joining us today for our third quarter 'twenty to 'twenty two earnings call I'm joined by our CEO Pascal <unk>.

Well, Mike Eastwood will discuss our results and take your questions. Following their remarks to enable us to get to as many questions as possible. Please appreciate it if you limit yourself to one question and one follow each when we open the phone lines.

Throughout today's presentation when we compare.

Performance period on period, we discuss revenue growth before currency as well as all in 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 Illinois for <unk> financial measures actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies.

Access these documents on our website or by contacting our Investor Relations Department.

Let me now turn it over to see Patrick Thank.

Thank you Gary and thanks to all of you for joining US Tonight I'll start by reviewing our Q3 highlights I'm pleased to report good momentum continued.

In the third quarter with revenue and margins modestly ahead of our expectations.

Total company organic revenues growth rose 6%.

By 7% recurring revenue growth.

Each of our big three segments recorded organic revenue growth of 6% with Grace Huh.

Bruce.

Great quarter.

Due to the strong year to date performance and healthy book of business, we are maintaining our full year 2022 outlook Michael.

Mike will provide more details on our outlook later in the cool.

While we acknowledge rising market concerns around slowing economic growth.

We are blessed with a resilient business.

E T per cent about revenue is recurring.

And we operate historically stable.

Growing end markets like all companies replace reprice inflationary pressures, which we are working diligently to mitigate.

We also continue to make investments to support our revenue momentum.

And our customer success.

To date, we have not seen any significant changes in customer buying patterns.

In a few pockets in our corporate segment.

Sales cycles have lengthened modestly.

We believe this is due to both market sectors and also sales territories, where we are looking to fill open positions.

I'm excited to discuss an important product development today.

In mid September we launched a major upgrade to the wistful franchise with with more precision.

We had previously referred to as stage two daughter.

Precision offers meaningful improvement in search accuracy and efficiency.

Initial customer response has been strong.

Sales are off to a good start.

Westwood precision is also a great example, Thomson Reuters it does best which is to bring together unique content.

Artificial intelligence and machine learning capabilities.

Modern software to create significant value for our customers.

We simplify the increasingly complex compliance related environments in which our customers operate.

I will expand upon this important product launch momentarily.

Our capital capacity and liquidity remain our key asset that we are focused on reinvesting to create shareholder value.

We continue to execute the $2 billion share repurchase program.

Launched in June .

Having purchased $855 million worth of that she is through October 28.

As a reminder, we plan.

And to complete the $2 billion program by early Q2 2023.

We also continue to assess inorganic opportunities.

Victor.

Capacity.

Returns in.

And strategic M&A.

As a reminder, our acquisition focus areas include workflow automation software.

Legal.

Excellent.

Risk rating.

Clients as well as target international expansion.

Now for the results for the quarter third quarter reported revenues grew 3%.

Which includes a 2% foreign currency drag organic revenue, which is a constant currency metric rose 6% organic recurring revenue again grew 7% with transactional revenue declined modestly in line with our expectations adjust.

Adjusted EBITDA increased to $535 million, reflecting 400 basis points margin improvement to 34%.

Excluding costs related to the change program.

Adjusted EBITDA margin was 37%.

Adjusted earnings per share rose, 24% year over year to 57 cents.

Turning to the third quarter results by segment.

The big three businesses achieved organic revenue growth of 6%.

Reflecting broad strength.

Legal continued its recent momentum.

Bring a sixth consecutive quarter up 6% organic growth the.

The legal market remains healthy across all key segments and we expect to see continued good momentum from Wetzel Pratt.

Practical law IQ.

Other.

T offerings, turning to corporates organic revenue momentum growth momentum continued.

With revenue up 7% recurring revenue rose, 9%, while transactional revenue softened as expected.

Excellent accounting had another strong quarter with organic revenue growth of 9%.

Latin American business led by Domingos.

For over 25% in the quarter.

It remains victory.

Drive.

Well it isn't used organic revenues increased 5% in Q3 growth occurred across all lines of business would be growing.

Finally club with organic revenues was nearly flat getting better than expected.

Premium retention and timing benefits can we expect to normalize in the fourth quarter.

In summary, we're pleased with our results and the solid momentum that continues across our businesses.

Now I will spend a few minutes discussing the recent launch.

Westwood precision new flagship legal offering.

Our wastewater franchises built on the foundation of more than 140 years of attorney off with classifications analysis and editorial enhancement.

With decades of machine learning and natural language processing technology.

This combination of unique content and advanced technology brings significant value for our customers and provides a real competitive advantage for al with Westworld franchise.

With more precision, which launched in mid September continues a legacy customer driven innovation. Following the release of Westwood mixed in 2010 and Westphal age in 2018, we believe that precision is the largest step up.

Ability in the history of Westwood.

So work is with more precision.

It's the most advanced legal research system in the market delivering a more efficient and accurate way to conduct legal research.

And find on point cases, it includes six new capabilities for most of which is perceived some research as well as expanded T site functionality and several other tools that in aggregate deliver improved research speed and accuracy and significant enhancement to the customer workflows.

So, let's drill down into the precision research capability.

More precision we are addressing through big issues and legal research. One is that important cases can be missed because they contain different language.

Used.

By the customer during this search.

Is that a relevant cases can be brought into the results because search terms can be used in a wide variety of context more than two years ago. We hired 250 additional attunity editors.

And have marked up case law at a far more granular level that includes not only the legal issue with.

But also a number of material facts and outcomes related to the case.

This more detailed data tagging dramatically reduces irrelevant cases, because users can target the context, they want and it reduces the risk of Mr cases, because that way that's just classify language variety to common legal issues in fact pattern.

And also enhance the search experience by highlighting the most relevant parts of the capes in the search results, making it far easier to quickly determine which cases.

Criteria.

Looking forward to.

Editorial analysis will be a further foundation.

Accelerating network.

Brown next wave of investment to pay off.

And future capability enhancements for the Westwood franchise.

Let's try to superior outcomes. We also have over 100 practicing attorneys the complete legal research sessions with both our market, leading western edge offering and the new Westwood precision with precision users were able to find the same number of relevant cases in half the time.

And twice as many in the same time.

In addition, 97% of those participating staggered the precision to help them find relevant Texas pasta, while 90% believe that relevant cases with precision they would not otherwise have found.

Slide 12 shows a real World example to further illustrate the new capabilities.

Westwood research and attorney can use filters to specify the legal issue.

Keep that.

Emotional time.

Due to this increased precision.

Our search for this issue returns just 10 cases instead of hundreds.

<unk> highly relevant.

As a result search can be done in two hours instead of five with traditional methods.

While it is early days following the mid September launch with very encouraged by the strong customer interest feedback and initial sales activity. The value proposition is resonating broadly with clients and our teams are seeing traction in sales of all customer types global lots Wilson's midsize and small thing.

<unk> state courts, and government agencies and corporate General counsel we.

We have closed more than 200 sales to date, while the bulk of these are edge clients that are upgrading to precision. We have been pleased to see a number of firms that are double upgraded from Westport classic to precision and we've also seen a few wins from customers previously not using westward.

Through the first six weeks of experience with precision compares favorably to the edge launch four years ago.

Let me close with the people throughout their expectation and the financial impact from the launch of.

<unk> fully enhancement in such speed and accuracy, along with a number of workflow improvements adds significant value to us as a result with full precision is priced at a premium which you expect to be similar to or slightly larger than the premium at which purchase price of a Westwood classic.

We are comfortable targeting a similar penetration to the west, Florida rollout, which saw steady contract value penetration growth.

With 70% by the end of the fourth year. After the launch we believe that 25% to 30% penetration by the end of 2023 is realistic.

As a result.

Confident that our western franchise can continue to contribute approximately 1%.

Legal professional segment growth in the next few years as it has in the recent past.

We look forward to sharing updated color.

Launch going forward to that and.

We're planning to host an investor analyst webcast on November 28.

To provide a demo and deeper discussion with more precision capabilities let.

Let me now turn it over to Mike who will provide more detail on the third quarter results.

Steve and thanks for joining us today.

As a reminder, our cloud revenue growth before currency and on an organic basis, let me start by discussing our third quarter revenue performance of our big three segments revenues rose, 6% organically and at constant currency for the quarter.

This marks the sixth consecutive quarter, our big three segments in aggregate have grown at least 6%.

Legal professionals organic revenues increased 6%.

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

Organic growth was driven by practical law west La.

Q and our government business.

Historically westwater edge added about 100 basis points, the legals organic growth rate.

Early westfall precision sales have been encouraging, earning a premium to edge.

We expect less loss to continue to contribute at a similar level going forward as the precision penetration increases.

And our corporate segment organic revenues increased 7% for the quarter driven by recurring revenue growth of 9% offset by a decline of 7% and transactional revenues.

Practical law.

Lear direct tax and high cube were key drivers of recurring revenue growth.

And finally tax and accounting organic revenues grew 9% driven by recurring revenue growth of 9% and transactional revenue growth of 12%.

Recurring revenue growth was driven by ultra tax and the segment businesses in Latin America.

Moving to Reuters news.

Total and organic revenues increased 5% led by the agency business and then use agreement with the refinish business of L. Sac.

All orders businesses grew in the quarter.

Lastly, global print total and organic revenues were flat for the third quarter ahead of expectations.

Improved retention and sales timing benefits drove the outperformance.

So the timing is expected to normalize in the fourth quarter.

On a consolidated basis third quarter organic revenues increased by 6%.

Turning to our profitability adjusted.

EBITDA for the Big three segments was $530 million.

13% from the prior year period.

A 41, 9% margin rising 330 basis points.

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

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

Moving to Reuters news adjusted EBITDA was $33 million.

Up $8 million from the prior year with a margin of 19, 7%.

520 basis points.

Revenue growth and a currency benefit drove margins.

Global Print's adjusted EBITDA was $50 million with a margin of 34, 4% aided.

A decline of 60 basis points due largely to foreign exchange.

In aggregate total company adjusted EBITDA was $535 million.

17% increase versus Q3 2021.

Excluding costs related to the change program in both periods adjusted EBITDA increased 14%.

The third quarter's adjusted EBITDA margin was 34%.

437% on an underlying basis, excluding cost related to the change program.

Turning to earnings per share.

Third quarter adjusted EPS was <unk> 57.

Up from 46 cents in the prior year period.

The increase was mainly driven by higher adjusted EBITDA.

Currency had no impact on adjusted EPS in the quarter.

Let me now turn to our free cash flow performance for the first nine months.

Reported free cash flow was $814 million versus $1 billion 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 to cash outflows from the discontinued operations component of our free cash flow was $6 million less than the prior year period.

Both periods reflect payments to the UK tax authority related to the operations at our former percentage of business.

Also in the nine months, we made $275 million of change program payments as compared to $94 million in the prior year period.

If you adjust for these items.

Operable free cash flow from continuing operations was $1 2 billion.

<unk> million dollars lower than the prior year period, primarily due to higher annual incentive plan bonuses.

We maintain our 2022 full year free cash flow outlook of approximately one 3 billion.

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

In the third quarter, we achieved $41 million of annual run rate operating expense savings.

This brings the cumulative annual run rate change program operating expense savings to $410 million.

We continue to expect to reach approximately $500 million with annualized savings by year end and $600 million of gross operating expense savings by 2023.

As a reminder, we.

We anticipate reinvesting $200 million is 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 third 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 third third quarter was $79 million.

Rise of $47 million of Opex and $32 million of Capex.

Anticipating approximately $95 million of total spend in the fourth quarter 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.

Let me conclude with our outlook and several other updates.

As Steve outlined we are maintaining our 2022 guidance.

With one quarter remaining in the year I would like to provide additional insight and how we are progressing versus the 2022 targets.

First organic revenue growth for the full year is trending slightly above or approximately 6% outlook.

Adjusted EBITDA margin is trending slightly below 35% given investments to drive customer success and revenue momentum.

As well as continued inflationary cost pressures.

For the full year capital expenditures are likely to be at the upper end, the seven 5% to 8% guidance range.

While our effective tax rate is trending to the lower end of the 19% to 21% outlook.

For Q4, we see organic revenue growth of approximately 6%.

And adjusted EBITDA margin of approximately 35%.

Both in line with our full year outlook.

For 2023, we're also maintaining our outlook.

As Steve stated, we have not seen any major changes in customer buying patterns to date.

And a few areas in corporates, where sales cycles have lengthened modestly.

And with our 80% recurring revenue mix our business remains resilient.

However, rest to adjusted EBITDA margins are rising amid heightened inflation.

And select investments, we're making to drive customer success and to fund growth initiatives.

As a result, we believe 2023 margins are trending towards the lower end of the current 39% to 40% range.

If we see softening in demand due to macro conditions, we will continue to invest over long term.

For 2023, we believe accrued capital expenditures as a percent of revenue is trending towards the upper end of the current range of 6% to six 5%.

And we expect our 2023 effective tax rate will be approximately consistent with 2022.

We intend to revisit our 2023 outlook and provide an update during our Q4 2022 conference call in early February after we complete our annual planning process.

Our Q4 recurring net sales.

And evaluate macro factors, including inflation.

As a reminder, Q4 is our largest bookings quarter of the year.

Let me close with a few updates.

During our March 2021, Investor Day, we highlighted increased focus is an important theme.

And discuss potential for select product rationalization.

In line with the strategies I am pleased to announce we closed two small divestitures during Q3.

And we are targeting to close three more in Q4.

In total these noncore businesses contributed approximately $165 million of annualized revenue and approximately $40 million of annualized adjusted EBITDA.

Second and given recent currency volatility I wanted to provide an update.

Our exposures.

Year to date, 82% of our revenue and 67% of our costs are U S dollars.

As a result, while reported revenue has hurt our recent U S dollar strength.

Cost translation benefits, our margins and provides a natural hedge to the bottom line.

Also our revenue exposure to the pound is 8%.

Which is below the 13% U K revenue mix noted in our annual report as.

As the <unk> contract is paid in U S dollars.

On the topic of currencies. It is worth noting we have hedged a significant portion of the pound exposure related to our <unk> stake.

Currently approximately 87% of the first tranche and 64% of the total value or hedged.

As of September 30th the unrealized gain on our derivative positions.

Approximately $650 million.

Let me now turn it back to Gary for questions.

Thank you operator, we're ready to begin the Q&A.

Absolutely.

One is finished to ask a question. Please just key star one on your phone.

Now please ask only one question and she didn't have any additional loss is at risk.

T K.

Mhm cake.

Question from Kevin Mcveigh of Credit Suisse. Please go ahead.

Great. Thanks, so much and congratulations just a really really nice outcome, and obviously a pretty tough environment.

I don't know if this would be for Mike or Steve but on the divestitures.

It sounds like Theres five the revenue impact of about $165 million and the EBIT of $40 million.

Is that in the guidance already where you're able to reaffirm despite the adjustments and I know that's an annualized number or is there any way is that all kind of Q3 and Q4 impact.

Meaning and I know Theres a lot in here I apologize, but.

Maybe understand where that fits like is that.

Maybe what segments.

Sure Kevin I break that down in regards to our full year guidance for 2022, we have factored in these divestitures.

We confirm or reaffirm that.

Approximately 6% organic growth and approximately 35% we're still on target to achieve those despite those divestitures certainly when you look at organic growth versus the total revenue growth total revenue growth would be slightly less just given the impact in Q Q3, Q4, there but that would be.

<unk>.

Marginal in nature, Kevin I'll ask Gary to do a follow up with you and the team in regards to the split by segment, but its pretty evenly across the big three Kevin, but Gary will do a specific follow up for you and the other analysts there but it's.

A good rule of thumb, it's approximately evenly across the big three seven segments Kevin.

And then just on that topic, just a course for shadow potential question as we look at 2023 2024, there could be an opportunity for us to do a few additional divestitures of similar.

It's just as we continue to.

So that theme of focus simplification and prioritization.

As we look forward into 'twenty, three and to 24.

Very helpful. Thank you.

Thank you.

Next question is coming from Vince Valentini TD.

TD Securities.

Go ahead.

Yes, thanks very much.

I will draw in Q1, just any update on timing on an acquisition.

While now with.

Valuations seemingly coming down and your balance sheet is very strong as do you think something maybe by the end of the year or still going to take a little while.

Then the second one I mean inflation is a problem for costs, but should should there be some sort of offset on the pricing front can you give us any sense of.

Pricing increases there may be a bit above normal that you may be able to take next year Jim.

Industry revenue growth and maybe offset some of the cost pressures you are talking about.

It's Steve I'll take the first part and then.

And then Mike can take the second so on the M&A front liquid we are increasingly optimistic that we will get.

We will get the opportunity to do some bolt up bolt on acquisitions, particularly in our big three segments.

Businesses that are additive to the customer experience and delivering good cultural.

Cultural fits.

And that optimism comes from sort of three places one.

We're into the last quarter the change program.

And so we think we are.

As a business and as a team where we are.

In good shape to integrate.

Organic.

Acquisitions.

Secondarily, obviously valuations are more attractive than they were.

This time last year.

There is still a robust four.

The high growth businesses that are cash flow positive.

Otherwise things things are a bit more protracted than they have for the last couple of years.

And then thirdly of course.

<unk> position is very strong and then as we approach the.

The first tranche of the walk up.

Expiring six states.

So.

I'm cautiously optimistic we'll have.

We'll have some news perhaps later this quarter.

If not in the 'twenty three on some bolt on acquisitions.

Nothing outlandish in size and certainly nothing beyond that.

And the big three.

At this point.

Events in regards to your second question certainly pricing has been a key lever for us throughout 2022 to help offset inflation I would just remind everyone that given our base of multiyear contracts. It does take time for these price increases to work their way through our revenue base and become realized recognized.

Revenue so given those multiyear contracts. So it's not perfect correlation between the price increase in the cost increases, but we're going to continue to work like Hell.

To ensure our pricing offsets that inflation as we move forward. So could there be some timing differences given those multiyear contracts I think the answer is yes. There then so we're going to work diligently on the pricing.

So it helped to offset the inflation as much as possible.

Excellent. Thank you.

Vince I would mentioned that in regards to inflation inflation, certainly impacts the operating expenses or expediter.

But also the capital just as a tidbit for everyone. If you look at our capital expenditures a heavy portion of that is capitalized labor capitalized soft development and about 85% of our total capital is cap labor about 50% internal 50% from external sources, so inflation certainly.

<unk> Capex along with operating expenses.

Next question.

Thank you and the next question is coming from drew Mcreynolds of.

RBC capital markets.

Go ahead.

Yes, thanks very much good morning, just a just Mike following up on <unk> question on price.

Are you able to I guess first just provide some commentary in and around how some of those contract renewals or are going in real time.

Are you able to maybe kind of give a sense of the pricing contribution to 2023 organic revenue growth.

And then just second part here you did allude to in 2023.

Margins coming in at the lower end and obviously, a very tight range.

You talk about Reinvestments you have inflation there is operating leverage and then probably some additional cost efficiencies. So just how are you thinking in terms of.

Balancing all of those as we look into 2023.

Sure sure, let me break down each of those and Steve may want to supplement.

Drew in regards to Groupon contract renewals real time, I think our collective segments are making good progress as a reminder, drew the contracts renewed throughout the year. Unlike other companies our contracts do not regrouped all renew on January 1st is based on when those contracts were initially.

<unk> signed so those contract renewals are happening throughout the year that will continue into 'twenty three and some into 24, just based on the multi year nature.

As a reminder, the legal.

Professional segment has the highest percentage of multi year contracts at 60% followed by the corporate segment at 40%.

So to your direct question very pleased thus far drew.

Drew in regards to the contract renewals, but it's a continual progress as we go into 2023. Your second question related to 2023 pricing contributions it will be slightly higher in 2022 was slightly higher in 'twenty one.

2023 will follow that trend with slightly higher pricing contribution in 'twenty three versus 2020.

Two in regards to the third question on margins for 2023.

Put it into a break it down into tailwind and headwinds drew some of these which you mentioned the tailwind. So I would mention three first for 2022, we're looking at an underlying margin of 37%. That's excluding the change program. So that gives us a nice foundation to work from the second tailwind.

Would be the change program savings that we achieved in 'twenty two that will continue into 2023, and the third tailwind, which you've mentioned has operating leverage given that we're roughly 6% organic growth.

Operating leverage does benefit it.

On the opposite side of the ledger in regards to headwinds to the overall macroeconomic situation certainly is a headwind along with the inflationary pressures in regards to investments you were keeping the customers front and center. We think we have further opportunity when we talk about customer success, we have opportunities to improve our end to end.

Customer experience, thus improved net promoter score, which should correlate to higher retention.

I would mentioned continued investment in digital is to help our customers with self serve.

Kirstie golfing team continue with our content monetization initiatives and then lastly, we have identified some additional opportunities drew on the growth side that will continue to make some investments. So hopefully those tail winds headwinds who will give you some color in regards to how we are thinking about.

2023, and Y collectively we think focusing on the lower end of the range of 39% to 40%.

Is reasonable and appropriate at this time all policy, if you'd like to supplement what I say.

That's great. Thank you very much.

Thanks drew.

Okay.

Thank you.

Next question.

From on the rate.

Of Bank of America. Please go ahead.

Hi, this is actually how they ralsky and also on the team.

Can you just share with us in terms of your plans around costs.

If there is a tougher here next year, where you'll have flexibility and then also with regard to the change program can you remind us of the savings that are going to.

Your next year and how to think about the phasing of them as we move through the quarter.

Sure.

There are two parts there first in regards to flexibility I think during 'twenty, one 'twenty two for Steve Robb <unk>, our whole team has done a nice job further leveraging our capability centers, which we previously referred to as shared service centers.

US leveraging the capable capability centers in India, Manila, Costa Rica, Mexico City, Gdansk, Poland et cetera, certainly that's progressed very nicely and helps us with our overall cost base as we go into 2023, we see continued opportunities with that several of our executives.

Recently in India.

He was in the middle of last week, So I think our capability centers in those locations provide us with additional opportunities as we think about 2023 and 2024 in regards to our change program savings the remainder for 'twenty two 'twenty three.

We think about that more evenly spread throughout the year.

There is certainly a multitude of different work streams and initiatives, but if you think about them evenly throughout the year that would be a reasonable estimate for us.

On the cost side certainly for mirror.

We are assuming a higher merit increase in 2023, we have a slightly higher 122 versus 21, Heather I think we will see that trend continue into 2023.

Rest assured.

We'll pull all the levers that we can but first and foremost continuing to support our customers will be priority one.

Thank you very much.

The next question is coming from Arvind Gala fatigue of Canaccord Genuity.

Go ahead.

Good morning, Thanks for taking my questions, maybe just on the M&A side.

A question for Steve I mean, you specifically mentioned that certainly what you would do in the near term.

Outside of the three big categories.

With that said.

Clearly the execution is strong and continuing to focus on quality.

<unk> innovation.

The results from Angela good evidently in precision with the prospect of as well is there a temptation given set of disciplines that you've developed to maybe spillover into adjacent professional areas as well not to say you are getting to go back into financial or sciences on anything like that but.

Given sort of what you have built and particularly as you look for M&A as well to be open to some adjacencies. There I just wanted to get your high level thoughts.

Yes.

Let me open minded about it now and.

And our strategy.

And our strategy group.

Always sort of looking at.

Water expansion of growth opportunities.

Let me make a couple of comments about the first is the change program.

It was it was about him. He is about building a platform for growth. So it's a migration to the cloud the development of Ipi.

It's really sort of putting together and scaling up our global capability centers.

It's about data and analytics around our products and our customer usage of those products things of that nature. We think that those teams will help us big three and will also give us the right to play elsewhere, when we decide to sell.

That's the first thing the second thing is areas like ESG.

Certainly of interest to us as we look at the evolving ESG landscape.

We see a place where they are.

So vast amounts of highly complex rules and regulations and data inputs and that tends to be an environment in which we thrive.

Secondly, ESG is relevant to the general counsel the head of tax the head of risk.

With respect to legal and tax and accounting advisors, all of whom we have relationships with so I think the extent we go beyond the deep three I think you'll see us sort of extend into areas like ESG Lewis.

Louis is.

Going broader into into HR areas like that.

Back into financial data and back into IP and science they are off the table.

Not everyone that just on the topic of M&A I would share with you in the group just in regards to our capital capacity.

We are on target to complete the current $2 billion in CIB share buyback by early Q2. Once we complete the current $2 billion, we estimated about $12 billion of capital capacity by 2025, so that will afford us the ability willingness to continue.

Double digit dividend growth, 10% dividend increase in 2022 is likely to continue we will have the ability to mentioned to execute M&A that you just asked about but also additional capital return. So I just wanted to remind the group their vendor in regards to the significant capital capacity over the next three to four years.

Absolutely. Thank you both.

Yeah.

Next question, we'll take from Toni Kaplan of Smart.

Morgan Stanley .

Go ahead.

Thanks, so much.

And this actually isn't usually asked.

But can you just give us an update on how big your sales force is now and how much. It has grown given your investments over the last couple of years.

Sure I'm happy to start there Tony just a reminder, we do have separate sales forces for each of our customer segments. We go back two years ago, when we embarked on the change program.

One of the areas that we intentionally left really very much aligned with each of our customer segments as the sales force. So if you think about each of those sales forces all use legal illustrative fleet. It's Dan further segregated into the size of customer. So we have a sales force dedicated to la.

The global large law firms certain legal that's Neal Stern call. Then we have medium sized firms with lives that Mike and then small firms with mark for that kind of supplementing those traditional.

Go to market teams. We also have our inside sales force that we've leveraged that align with digital so think about the sales forces as traditional feet on the street, along with inside sales and also digital.

And that framework that I just described for legal very much applies to each of our customer segments, whereby we align it to meet our customer needs in the best way.

That said I'll work on digital really permeates the organization to ensure that we don't duplicate any efforts there and certainly all of our enablement tools, such as Salesforce dot com gain side et cetera, we'd ladder leveraged across the firm, but we have dedicated teams for each of our segments.

Thank you.

Uh huh.

The next question is coming from Tim Casey.

CMO Tim.

Go ahead.

Yeah. Thanks, good morning.

Could you talk a little bit about the monetization process for the LLC.

Sure.

I believe its a third a third a third starting January 20 millions.

Should we think about that as a <unk>.

Monetization will take place in chunks through the year.

Or would it be evenly distributed.

And second how should we think about.

Adapter tax.

Number in terms of what's the tax impact on monetization, how should we be thinking about that sure. Thanks, Yes, absolutely Tim you are correct.

First tranche does the lockup expires January 29 of 23, and then there was a subsequent lockup expiration January 29th of 'twenty, four and 'twenty five as you described a third a third a third.

That we have a board seat.

We would not actually start the monetization until March L side will announce their results for 2022.

First week of March so given that.

Quiet period that we need to honor we would begin the monetization in March given that us and Blackstone can monetize in 2023, I think it would be prudent time to assume that the monetization what's happened in tranches.

Throughout 2023, just given the size of the total tranche that Pos and Blackstone.

Has there, but certainly our interest in goal would be to monetize as quickly as we can but the practical element is that it will take most likely multiple transactions throughout 2023, what we'll do Tim is keep you posted during each of our calls in regards to the likely.

A timing, but the first.

A b or trade it would likely be sometime in March of 2023 that would be the earliest given the quiet period, given that we have a board seat.

In regards to the after tax impact the quick math is we have a $3 billion tax basis, but if you assume the current value is illustrated flee about $7 billion. If you take the 3 billion tax basis. The way that leaves you 4 billion, that's taxable so 25% on that for bill.

Tim So quick math is about $1 billion of cash taxes would be to you.

On the overall tranche Tia assumed 7 billion it.

It would be 6 billion after tax and I am certainly factoring in the gain that we have on our hedge there.

There as I mentioned in my prepared remarks, we're up about $6 50, now on the hedge that we did for our <unk> stake.

Let me make sure I address each of your questions there Tim.

No.

Excellent. Thank you very much for such a good answer.

Thank you.

Next question, we'll take from Andrey <unk>.

Yes, Keith.

Please go ahead hi.

It's Andrew I wanted to just talk a little bit about the legal professionals transactional piece.

No, it's only 6% of segment revenues.

It was down 7% organically could you just go over what's in the transactional segment why was it down and when should it rebound.

Sure Andrew as we mentioned back on the August earnings call, we forecasted anticipated.

A downdraft in regards to our transactional overall in Q3.

As temporary in nature I think if we go into Q4 Youll see transactional pick up so I would not view the downtick in transactional in Q3 as any type of a trend. It's just more due to the cyclical nature of our business, which we had forecasted there I know you asked about legal but if you think about <unk>.

Actional overall, there are seasonal elements to different aspects of our business, especially in tax that impacts our corporates and also our tax <unk> accounting professionals business.

Or is it that certainly has.

Cyclicality and Youll see an uptick there so.

Youll see an uptake in transactional.

Andrew in Q4, if you look at 2023 for the full year, we do assume that transactional revenue will grow at a slower pace than the recurring revenue recurring it's consistently grown 7% throughout 2022, so transaction on a long term basis grow slower than <unk>.

Sorry.

Okay. Thank you.

Thank you.

The next question is coming from Manav Patnaik of Barclays.

Go ahead.

Thank you all.

Volume of capacity that we've talked about that includes the all folks sales folks I just want to confirm ballroom also.

That kind of capacity I guess.

Can you talk about the game and limitations, perhaps on the buyback pumpkin in form we desire to maintain the ownership stake at a certain level.

Sure.

The $12 billion of capacity that I mentioned following the current completion of the $2 billion that does include L side. So as I just mentioned on Tim's question, roughly $6 billion after tax or roughly 50% of the $12 billion. The residual come through just natural free cash flow and assuming a two five times leverage.

<unk> ratio there.

Regards to your question on additional buybacks or capital returns given the Woodbridge ownership Woodbridge ownership today is about 68%.

Going forward I would assume the NAV.

That does not exceed 70%, which would assume that woodbridge would participate on a proportional basis as.

As we move forward. So key item there is on Woodbridge assume that their ownership with not assume.

<unk>, 7% over the time horizon.

Got it.

You talked about the corporate sales cycle lengthening modestly kind of maybe the first sign of success.

Pension impact from all the macro noise regime.

I guess historically is that a good leading indicator of what indicators you look for from what you can see the business that would signal Q baby Bolthouse too.

<unk>.

Yes, I mean, I think I would say that the leading indicators tend to be.

The.

Where does the advertising revenue the Reuters events, the transactional side of things in place within.

Within our business those are the least bulk with down for good return and so we watch that.

Washington carefully all of those are holding up okay.

Okay.

The corporates.

And in my prepared remarks.

Our book of business is robust sales activity is robust having said that the fourth quarter is a big quarter. So we're watching it carefully because we read the same news you're doing.

Part of that.

Part of the sort of forward a dialogue about the macroeconomic environment.

It's Tonight, we've seen some some minor slippage in terms of.

From third quarter into fourth quarter, and the sales activity and were watching it carefully but at this point.

It's not more than that.

And just as a reminder.

Now.

Projections of revenue growth for corporates, 2020, threes, 7% to 9% and we're confident that we'll hit that pretty quickly.

Alright, thank you.

Okay.

Last question from Douglas Arthur Keith.

He'd been research. Please go ahead.

Yes, Thanks, just to that point Steve.

Is.

As your big customers get potentially go into a more stressful period in 2023 is there an argument to be made.

That the tops and.

Product offerings are somewhat counter cyclical.

Net.

To help your customers do more for less.

Less staff intensity et cetera, so that.

As your clients get more stress some of your products or is actually could benefit is there an argument can be made there.

Yes, there is.

Two comments about about those products. So if you think about the end markets.

In tough times litigation doesn't necessarily slow down and I don't think you can look over time it suggests that it because it actually accelerates in certain pockets.

In a downturn.

Firstly, secondly tax returns need to be filed.

And.

And so that activity doesn't it doesn't change all that much if at all.

And then the heads of risk within within corporates and their advisors.

Typically see sort of.

Fraudulent activity.

Kinds of things pick up as the government agencies, who are who we.

Handling a benefit entitlements and so forth.

So the fundamental OE markets tend to be very stable and actually may seem let's see a few opportunities.

<unk> places firstly secondly, our products are largely not discretionary.

Must have products.

Which is the reason, we think we're pretty well placed.

Heading into a downturn.

On the revenue side and as Mike said in his prepared remarks, it's really the cost side that we're watching most carefully because.

We see opportunities to invest for long term growth.

We see opportunities to better serve our customers and we don't shy away from those.

Those things so we'll be very prudent about where we spend but we will continue to invest through the cycle as we see the opportunities.

Great. Thank you.

Thanks, Doug.

Thank you we have no further question in the queue.

Okay, great. Thanks, everybody.

Let me pass it back to Gary.

Yes, I think we're good thanks everybody.

It may in the IR team are around if you want a follow up discussions have a good day bye bye.

But.