Q3 2022 Thomson Reuters Corp Earnings Call
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Good day, everyone and welcome to the Q3 2022 earnings call hosted by Gary Bisbee Hep C Investor Relations among kimco I'm afraid you for today during the presentation. Your lines will go may listen only if you require assistance at any time, please just keystone and you're right on your phone.
Do you have to go would be happy to assist you to get into the Q&A queue. Please press <unk>.
One any time during the presentation I would like to drive content that this conference is being recorded for replay purposes under Jeff I'd like to hand over to Kelly. Please go ahead.
Thank you and you go Oh.
Good morning, everyone and thank you for joining us today for our third quarter 2020 through earnings call I'm joined by our CEO , Steve Basta, Our CFO , Mike Eastwood will discuss our results and take your questions following their remarks.
He wants to get to as many questions as possible. Please appreciate it please 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.
Revenue growth 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 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. You may access these documents on our website.
Contacting our Investor Relations Department.
Let me now turn it over to Patrick.
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.
In the third quarter with revenue and margins modestly ahead of our expectations.
Total company organic revenue growth rose 6%.
Driven by 7% recurring revenue growth.
Each of our big three segments recorded organic revenue growth of 6% with great 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.
80% of that revenue is recurring.
And we operate at historically stable and growing end markets like all companies replace with price inflation repressions, which we are working diligently to mitigate.
We also continue to make investments to support our revenue momentum.
And our customer success.
We have not seen any significant changes in customer buying patterns.
Sure.
In our corporate segment.
Sales cycles have lengthened modestly.
We believe this was 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 Westwood 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.
Religious 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.
We launched in June .
Having purchased $855 million worth of that she is through October 28.
As a reminder, we plan to complete the $2 billion program by early Q2, 'twenty two 'twenty three.
We also continue to assess inorganic opportunities.
Victor.
So capacity.
Returns in.
And strategic M&A.
As a reminder, our acquisition focus areas include workflow automation software.
Legal extra markets risk and compliance 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.
Adjusted EBITDA increased to $535 million.
Like the 400 basis points margin improvement to 34%.
Excluding costs related to the change program.
The 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.
Our big three businesses achieved organic revenue growth of 6% reflecting.
Reflecting broad strength.
Legal continued its recent momentum.
Delivering our sixth consecutive quarter up 6% organic growth.
The legal market remains healthy across all segments and we expect to see continued good momentum from wetzel.
Practical law.
Q.
Other key offerings turning to corporates.
Organic revenue.
First momentum continued.
With revenue up 7% recurring revenue rose, 9%, while transactional revenues softened as expected.
Actually accounting had another strong quarter with organic revenue growth of 9%.
An American business led by Domingos.
25% in the quarter.
It remains a key growth.
Drive.
It isn't used organic revenues increased 5% in Q3.
[noise] occurred across all lines of business would be growing.
Finally club with organic revenues was nearly flat again better than expected.
Improved retention and timing benefits that we expect to normalize in the fourth quarter.
Summary, we are pleased with our results and the solid momentum that continues across our businesses now.
Now I will spend a few minutes discussing the recent launch of.
Westwood precision now new flagship legal offering.
Our Westwood franchises built on the foundation of more than 140 years of attorney authored classifications.
<unk> is an editorial enhancement.
Decades of machine learning and natural language processing technology.
It's a combination of unique content and advanced technology brings significant value for our customers and provides a real competitive advantage for our <unk> franchise.
With more precision, which launched in mid September continues a legacy of customer driven innovation. Following the release of Westwood mixed in 2010 and wistful age in 2018, we believe that precision is the largest step up in capability in the history of Westwood.
So what he 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.
And find on point cases, it includes six new capabilities.
Well 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 enhancements to the customer workflows.
So, let's drill down into the precision research capability.
For precision, we are addressing through big issues and legal research.
One is that important cases can be missed because they contain different language.
That you 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.
It's more detailed data tagging dramatically reduces irrelevant cases, because users can target the context, they want and it reduces the risk of missed cases, because they are able to 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.
Editorial analysis will be a further foundation.
Accelerating network.
Brown next wave of investments pay off.
And capability enhancements and a wistful franchise.
To illustrate the superior outcomes, we asked for over 100 practicing attorneys.
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, Inc.
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% believed that relevant cases with precision they would not otherwise have found.
Slide 12 shows a real World example to further illustrate the new capabilities.
Restaurant research and attorney can use filters to specify the legal issue.
Keep that Moshe.
Emotional time.
Due to this increased precision.
Search for this issue returns just 10 cases instead of hundreds.
They're all highly relevant.
As a result, so it can be done to warehouse 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 large law firms 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 Westwood.
Through the first six weeks are experienced with precision compares favorably to the edge launch four years ago.
Let me close with the people around their expectation that the financial impact from the launch of.
Meaningful enhancement in such speed and accuracy, along with a number of workflow improvements adds significant value to use them. 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 edges priced of a western 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 a wistful 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.
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 had grown at least 6%.
Legal professionals organic revenues increased 6%.
This also marks the sixth consecutive quarter at 6% growth for legal professionals.
Organic growth was driven by practical law west La.
And our government business.
Historically westwater edge added about 100 basis points, the legals organic growth rate.
Early west La precision sales have been encouraging, earning a premium to edge.
We expect west La is 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 wall.
Here direct tax and IQ 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 <unk>.
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.
Though 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.
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 a orders news adjusted EBITDA was $33 million up $8 million from the prior year with a margin of 19, 7%.
520 basis points.
<unk> growth and a currency benefit drove margins.
Global Print's adjusted EBITDA was $50 million with a margin of 34, 4%.
A decline of 60 basis points due largely to foreign exchange.
In aggregate total company adjusted EBITDA was $535 million.
A 17% increase versus Q3 2021.
Excluding cost 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 starting 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 $6 million less than the prior year period.
Both periods reflect payments to the UK tax authority related to the operations of our former percentages 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.
Comparable 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 of annualized savings by year end and $600 million of gross operating expense savings by 2023.
As a reminder, we.
We anticipate reinvesting 200 million as the projected $600 million of savings back into the business.
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 quarter was 79 million.
Rise of $47 million of Opex and $32 million of Capex.
We anticipate 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 to 2022 targets.
<unk> 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.
At 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 incorporates 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 the 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 as 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 board 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.
Our U S dollars.
As a result, while reported revenue has hurt our recent U S dollar strength.
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% UK revenue mix noted in our annual report.
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 was 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 ones.
T J.
Hello 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 will be from Mike Christy, 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 sits like is that.
Maybe what segments.
Sure, Kevin and break that down with regards to our full year guidance for 2022, we have factored in these divestitures.
We confirm or reaffirm.
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 with total revenue growth would be slightly less just given the impact in Q2, Q3, Q4, there but that would be.
<unk>.
Marginal in nature, it's 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 is approximately evenly across the big three sub segments Kevin.
Kevin just on that topic, just a push 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 size just as we continue to.
That theme of focus simplification and prioritization.
As we look forward into 'twenty three 'twenty four.
Very helpful. Thank you.
Thank you.
Next question is coming from Vince Valentini TD.
TD Securities. Please go ahead.
Yes, thank you 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 or Sean still going to take a little while.
Then the second one I mean inflation is a problem for cost, but should should there be some sort of offset on the <unk>.
<unk> front can you give us any sense of pricing.
Pricing increases there may be a bit above normal that you may be able to take next year or two.
Industry revenue growth and maybe offset some of the cost pressures you are talking about.
Hum.
It's Steve I'll take the first part and then.
And Mike can take the second so on the M&A front liquid we are increasingly optimistic that we'll 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 bring ticket.
Good 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're at.
As a business and as a team where we were.
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, but they nevertheless, things things look a bit more protracted than they have for the last couple of years.
Of course, our capital position is very strong.
We approached the.
The first tranche of the lockup expiring.
Expiring six sites.
Escapes me.
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.
Beyond the big three at this point.
Vince in regards to your second question certainly pricing has been a key lever for us throughout 2022 to help offset inflation.
Just to 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.
Those multiyear contracts, there'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.
She helped to offset the inflation as much as possible.
Excellent. Thank you.
Vince I would mention 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.
Impacts capex, along with operating expenses.
Next question.
Thank you. The next question is coming from drew Mcreynolds of.
RBC capital markets. Please 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 one it's 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.
To.
In regards to the third question on margins for 2023, I would put it into a break it down into <unk> 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 probe.
Graham.
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 mentioned is operating leverage given that we're roughly 6% organic growth operating leverage does benefit it on.
On the opposite side of the ledger in regards to headwinds. The overall macroeconomic situations 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 Rossing 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 <unk> 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 Kerry.
Yeah.
Thank you.
Next question.
From on the rate.
Bank of America.
Go ahead.
Hi, this is actually how they ralsky analyst on the team.
Can you just share with us in terms of your plans around cost.
And if there is a tougher year 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 <unk>.
Your next year and how to think about the phasing of them as we move through the quarter.
Sure.
Two parts there first in regards to flexibility during 'twenty one 'twenty two.
First Steve Roth <unk> music, 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 executives.
Recently in India first.
<unk> is in the middle of last week, So I think our capabilities 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 I would 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. This on the cost side certainly for mirror.
We are assuming a higher merit increase in 2023.
Slightly higher 122 versus 21, Heather I think we'll see that trend continue into 2023, but rest assured we will.
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 Ireland colored 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 suddenly 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 the quality of the <unk>.
<unk> innovation.
Suddenly the results from Agila, 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 go back into financial or sciences on anything like that.
Got.
Give them 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, we're certainly open minded about it now.
Our strategy.
And our strategy group.
<unk> always sort of looking at quarter expansion of growth opportunities, Let me make a couple of comments about the <unk>.
First is the change program.
Was it was about him. He is about building a platform for growth. So it's a migration to the cloud 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.
Three and will also give us the right to play elsewhere, where we decide to.
That's the first thing the second thing is areas like ESG is certainly of interest to us as we look at the evolving ESG landscape, we see a place where there are sort of vast amounts of highly complex rules and regulations.
<unk> puts and that tends to be an environment in which we thrive firstly and secondly, ESG is relevant to the general counsel ahead of tax the head of risk and their respective legal and tax and accounting advisors, all of whom we have relationships with.
<unk> the extent, we go beyond the big three I think you'll see us sort of extend into areas like ESG.
This is gil.
Going broader into into HR areas like that.
Back into financial data and back into IP and science they are off the table.
I think 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.
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 returns. So just wanted to remind the group their vendor in regards to the significant capital capacity over the next three years to four years.
Absolutely. Thank you both.
The next question, we'll take from Toni Kaplan.
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 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.
The global large law firms certain legal that's Neal Stern call. Then we have medium sized firms with Liz that Mike and then small firms with mark for that.
Supplementing those traditional.
Go to market teams. We also have our inside sales force that we leverage aligned 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 appeal.
Lies to each of our customer segments, whereby we align it to meet our customer needs in the best way.
With 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 leverage 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.
Our CMO Tim.
Go ahead.
Yeah. Thanks, good morning.
Could you talk a little bit about the monetization process for the LLC.
Tears.
I believe its a third a third a third starting January 29.
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.
The adapter tax number in terms of what's the tax impact of a monetization how should we think about that sure. Thanks, Yes, absolutely. Tim you are correct. The first tranche does the lockup expires January 29 of 23, and then there was a subsequent lockup exploration January .
<unk> 29 for 'twenty, four and 'twenty five as you described a third a third a third.
Given that we have a board seat Tam, we would not actually start the monetization until March L side will announce their results for 2020 to the 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 Tim 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.
<unk> to the after tax impact the quick math is we have a $3 billion tax basis. So if you assume the current value is illustrative flea 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 $4 billion.
Tim So quick math is about $1 billion.
Cash taxes would be due on.
On the overall tranche, so do you assume 7 billion it.
It would be 6 billion after tax and Im certainly factoring in Tim the gain that we have on our hedge 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 they.
They make sure I address each of your questions there Tim.
No that's perfect.
Thank you very much for such a good answer.
Thank you.
Next question, we'll take from Andrew Liesch.
S. J P. Morgan. Please go ahead.
Hi, It's Andrew I wanted to just talk a little bit about the legal professionals transactional piece I know, it's only 6% of segment revenues.
And 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, and that's just temporary in nature I think as 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 with.
We had forecasted there I know you asked about legal but if you think about transactional overall, there are seasonal elements to different aspects of our business, especially in tax that impacts us corporates and also our tax <unk> accounting professionals business orders are down certainly has.
The capacity and Youll see an uptick there so youll see an uptick in transactional Andrew in Q4, if you look at 2023 for the full year.
We do assume that transactional revenue grow at a slower pace than the recurring revenue recurring inched us consistently grown 7% throughout.
<unk> thousand 22, so transaction on a long term basis grow slower than recurring.
Okay. Thank you.
Thank you.
Question is coming from Manav Patnaik of Barclays.
Go ahead.
Thank you all.
$12 billion of capacity that we've talked about that include the offset so I just want to confirm ballroom also would that kind of capacity I guess can you talk.
Talk about again, the limitations, perhaps on the buyback pumpkin in form we desire to maintain their ownership stake at a certain level.
Sure.
<unk> 12 billion of capacity that I mentioned following the current completion of the $2 billion that does include El 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 ratio there in.
In regards to your question on additional buybacks or capital returns given the Woodbridge ownership Woodbridge ownership today is about 68%.
Forward I would assume that that that does not exceed 70%, which would assume that woodbridge would participate on a proportional basis.
As we move forward. So key item there is on Woodbridge assume that their ownership would not assume it.
<unk>, 7% over the time horizon.
And then you talked about the corporate sales cycle lengthening modestly kind of maybe the first sign.
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 maybe bolthouse too.
<unk>.
Yes, I mean, I think I would say that the leading indicators tend to be.
Sure.
<unk>.
Where does advertising revenue the Reuters events, the transactional side of things and point.
Within our business those are the at least bulk with down for good return and so we watch that.
What's been carefully all of those are holding up okay.
The.
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.
To date, we've seen some some minor slippage in terms of.
From third quarter into fourth quarter, and the sales activity and we're watching it carefully but at this point since.
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 that will be.
You bet pretty squarely.
Alright, thank you.
Okay.
Last question from Douglas Arthur.
The research.
Go ahead.
Yeah, Thanks, just to that point Steve.
Is it as you 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, Doug areas.
Two comments about about those products. So if you think about the end markets.
In tough times with litigation doesn't necessarily slow down and I think you can look over time it suggests that 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.
Borderlands activity and those kinds of things pick up as the government agencies, who are who are handling a benefit entitlements and so forth.
So the fundamental OE markets tend to be very stable and actually may seem obscene.
A few opportunities.
In various places firstly and secondly, our products are largely not discretionary.
We all must have products.
Which is the reason, we think we're pretty well placed hit.
Headed 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'd be very prudent about where we screened 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.
Me and the IR team are around if you want a follow up discussions have a good day bye bye. Thanks a lot.