Q2 2025 Thomson Reuters Corp Earnings Call
Performance of the business.
Today's presentation contains forward looking statements and non <unk> and other supplementary financial measures, which are discussed on a special note slide actual results may differ materially due to number of risks and uncertainties discussed in reports and filings we provide 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.
Thank you Gary and thanks to all of you for joining us today.
Good momentum continued in the second quarter with revenue in line and margins modestly ahead of our expectations total.
Total company organic revenues rose, 7% with the big three segments growing by 9%. In addition, healthy revenue flow through and favorable expense timing boosted margins driving profit ahead of expectations.
We are reaffirming our full year 2025 outlook for organic revenue adjusted EBITDA margin and free cash flow, while improving our interest expense and depreciation and amortization outlooks.
We continue to see organic revenue growth in the range of seven to seven 5%, including approximately 9% for the big three segments and for our margins to rise by 75 basis points year over year to approximately 39%.
Good momentum continues for many areas in our portfolio.
This includes double digit organic growth from key products, including co counsel co counsel drafting short trip safe send the Garo indirect tax and our international businesses.
We continue to invest heavily in innovation and I'm pleased to have announced several meaningful product launches in recent weeks.
As our Chief product Officer, David Wong and I will discuss shortly.
We are leveraging <unk> AI to bring significant new capabilities to our legal.
And our tax and accounting portfolios.
These offerings leverage our Thoratec live content and deep domain expertise to complete complex multi step work, helping our customers increase efficiency and effectiveness.
Our capital capacity and liquidity remain a key asset that we are focused on deploying to create shareholder value in the quarter, we repaid $1 billion maturing bond issue.
And remain extremely well capitalized with net leverage of only <unk> five times at quarter end.
We remain committed to a balanced capital allocation approach and we continue to assess additional inorganic opportunities with our estimated $10 billion of capital capacity through 2027, and we are positioned to be both aggressive and opportunistic.
Now to the results for the quarter second.
Second quarter organic revenues grew 7% in line with our expectations organic recurring and transactional revenue grew 9% and 7% respectively. While print revenue declined 7%.
Our adjusted EBITDA increased 5%.
$678 million, reflecting a 70 basis point margin increased to 37, 8% higher than anticipated due to healthy operating leverage and timing of expenses.
Turning to second quarter results by segment, the Big three segments delivered 9% organic revenue growth legal organic revenue grew 8% for the second consecutive quarter driven by continued momentum from west La and co counsel and solid government growth.
On the topic of government. We are pleased to achieve to have achieved in process status for the U S. Fed ramp program, demonstrating our strong commitment to meeting the rigorous cloud security requirements of U S federal agencies.
<unk> organic revenue grew 9% driven by offerings in our legal tax and risk portfolios and the segments International businesses.
Tax and accounting, Okay organic revenues grew 11% driven by our Latin American and U S businesses.
<unk> news organic revenues rose, 5% with all major lines of business contributing.
And lastly, global print organic revenues met our expectations declining 7% year on year in summary, we're pleased with our Q2 results.
Let me close my prepared remarks with a few thoughts on the exciting pace of innovation that continues here at Thomson Reuters.
We continue to make good progress executing against our product vision as we work to build AI more deeply into our offerings. In recent months, we have taken an important step forward introducing a number of the gentex AI offerings across our legal and tax <unk> accounting portfolios.
As David will cover we are really excited by these agenda offerings, which embed AI capabilities deeper into customer workflows and more meaningfully leverage.
T content assets and deep subject matter expertise.
By enabling our solutions.
To complete more complex tasks.
<unk> II creates an opportunity for Thomson Reuters to play a larger role in the success of our customers.
Initial customer feedback on our new offerings is encouraging and we look forward to providing updates as we continue to deliver against our roadmaps in the remainder of 2025 and beyond now let me hand, it over to David to discuss these developments in more detail.
Thanks, Steve.
Share your excitement over the accelerating pace of innovation let.
Let me start with a few thoughts on <unk>, AI, which is a key capability driving the new offerings I'll discuss there.
There are many variations of <unk>. So let me share what we believe are the core characteristics of <unk> systems.
They use advanced reasoning models supported by an AI assistant that can help orchestrate complex work.
They have access to tools and they can use these tools to complete tasks.
And they can adapt and respond to new information changing course as needed to achieve their outcomes.
And due to these capabilities agenda AI systems can't complete complex multi step assignments.
Our agent Tech platforms have been in development for more than a year and we see them as transformational to our ability to serve our professional markets.
We also believe Thomson Reuters is uniquely positioned to deliver professional grade Agentic AI solutions since we bring those four essential capabilities.
First we offer leading AI assistance with advanced reason capabilities in co counsel legal and co counsel for tax audit and accounting.
Second we have comprehensive proprietary content and insights in west La practical law and checkpoint.
Third we have a portfolio of leading workflow software tools and analytics.
And finally, we have substantial domain expertise through our more than 2500 legal and tax editors and subject matter experts.
In our <unk> workflows, our agents initially follow predetermined Stefan guidelines mapped out by our domain experts leveraging our content software and tools along the way.
This approach allows them to deliver on real world tasks, helping professionals move beyond prompting and start delegated.
I'll now highlight several key recent product line.
In June we launched co counsel for tax audit and accounting and <unk> AI platform powered by the 2020 for acquisition of material.
Two council for tax automate a growing number of complex multi step tasks ranging from client file review to memo drafting to compliance checks. It leverages training by our subject matter experts and Thomson Reuters authoritative checkpoint content to eliminate manual work increased efficiency and improved accuracy.
All with the transparency precision and accountability professionals require.
In mid July we announced two exciting new software tools powered by co counsel for tax ready to review and ready to advise.
Ready to review is in a gentex AI powered tax preparation solution that automates the creation of the first draft of the tax return.
AI agents autonomously work to extract and map data run that data through our tax engines and diagnose and resolve errors that come up this.
This results in a quality first draft return, while eliminating significant manual effort and improving accuracy.
Ready to advise us in Agentic AI powered tax planning advisory solution for CPA firms the solution.
<unk> leverages, our tax expertise and authoritative content.
And analyzes the client's data to identify tax planning strategies tailored to that client.
Which are ranked by relevance and potential impact.
It provides step by step guidance supporting authoritative knowledge and workflow tools that enable CPA firms take a scalable approach to tax advisory services generating incremental revenue for their businesses.
Used together accountants can save time through ready to review automation, which can be redirected to the delivery of higher value services, including revenue generating revenue generating advisory work with the health.
Five.
Ready to advise us in the market today and ready to review is currently in beta with commercial launch scheduled for the fourth quarter.
Yesterday, we announced a series of exciting new capabilities for a law firm in general counsel customers with the launch of co counsel legal.
Next generation AI offering that combines our new westleigh experience practical law co capital Corps and co counsel drafting into a single unified solution.
With this new offering co counsel orchestrates complex workflows, leveraging our west la and practical content and tools to deliver unique and valuable outcomes across litigation transactional work and regulatory analysis.
And in addition to deeper product integration, there is significant incremental capability and innovation and co counts illegal, including deep research and guided workflows, which I'll briefly explain.
Deep research, which is integrated into co counsel legal and is also available through the new westleigh advantage product.
Is our latest and largest step change in legal research capabilities.
Deep research is the legal industry is first professional grade Agentic AI research capability built to mimic the work of experienced legal researchers planning.
Planning reviewing and adapting with into countering new information during our research process.
This is not just generic AI layered on top of legal content.
We've built something fundamentally more advanced AI agents trained trained equipped and trusted to use westleigh exclusive research toolset with the curated an update a content of west La and practical law to move through complex legal research workflows with unprecedented speed and precision.
With west La advantage, what used to take hours now takes minutes and what used to be manual is now orchestrated by agents designed specifically for the legal domain.
The resulting outputs are highly structured and detailed legal research reports outperformed other AI research capabilities and set a new standard when compared to our market, leading AI assisted research tool and west La precision.
A second significant advancement is the introduction of our agent guided workflows to co Council.
These new workflows beverage, our AI agents to execute multi step tasks scripted by our experts drawing on west la and practical knowledge.
In the third quarter, we plan to launch more than 15 of these guided workflows spanning both litigation and transactional law and including a number of practice areas.
We believe they will resonate strongly with law firms in house legal teams courts and district attorneys.
Let me share an example of a new guided workflow.
The annualized merger control filing requirements workflow streamlines complex multistep compliance obligations for M&A transactions by analyzing deal information against practical loss global content to then identify potential risks in requirements generate automated filing checklists and provide actual <unk>.
<unk>.
I'll now turn it over to Mike to review.
Our financial performance. Thanks, David Thanks, again 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 the second quarter revenue performance for our big three segments.
Organic revenue grew 9% in the second quarter.
Table with the first quarter and continuing the strong trend from recent periods.
Legal professionals organic revenue grew 8% for the second consecutive quarter, driven by west La co canceled canceled drafting layer and our international businesses.
Government grew 7%.
In our corporate segment organic revenues grew 9%.
<unk> revenue grew 9%, while transactional rose 4%.
Direct and indirect tax practical law, the gara and our international businesses were key contributors.
And accounting delivered another strong quarter with organic growth of 11%.
Recurring and transactional revenues grew 9% and 14% respectively.
Our Latin America business safe, <unk>, ultra tax and share a prep or key drivers.
Moving to Reuters news organic revenue rose, 5% for the quarter driven by growth at the professional and agency businesses and from the news agreement with the data and analytics business of <unk>.
Finally, global print revenues decreased 7% on an organic basis.
On a consolidated basis second quarter organic revenues increased 7%.
At the end of Q2 the percent of our annualized contract value or ACB from products that are Gen. AI enabled was 22% up from 20% last quarter.
As a reminder, we began to provide this metric with our Q3 2024 results as a way to help you assess our success at bringing gen AI capabilities to our portfolio.
With west La at vantage now in market and in recognition of the growing number of AI driven revenue drivers, we no longer plan to comment on west La precision penetration and will instead focus on the Gen III AC metric.
Turning to our profitability adjusted EBITDA for the Big three segments was $621 million.
<unk>, 7% from the prior year period with the margin rising 130 basis points to 42, 3%.
Moving to Reuters news adjusted EBITDA was $45 million with a margin of 28%.
Global Print's adjusted EBITDA was $41 million with a margin of 36%.
In aggregate total company adjusted EBITDA was $678 million, a 5% increase versus Q2 2024, reflecting a 70 basis point margin increase 37, 8%.
Turning to earnings per share adjusted EPS was <unk> 87 for the quarter versus 85 cents in the prior year period.
Currency had no impact on adjusted EPS.
Sure.
Let me now turn to our free cash flow for the first half of 2025, our free cash flow was $843 million up 4% from $812 million in the prior year period.
Higher EBITDA was the largest driver of the increase.
I will conclude with an updated 2025 outlook.
As Steve outlined we are largely reaffirming our full year 2025 guidance, we continue to expect organic revenue growth of 7% to seven 5%.
With the big three growing approximately 9%.
We see a 2025 adjusted EBITDA margin of approximately 39%.
Up 75 basis points versus 2024.
And we expect free cash flow of approximately $1 9 billion.
We are updating to guidance line items.
We now see slightly lower depreciation and amortization of computer software of $825 million to $835 million with $625 million to $635 million related to internally developed software.
We expect net interest expense to be approximately $130 million below our previous guidance of approximately $150 million due to a higher than previously forecast interest rates benefiting interest income.
Turning to the third quarter, we expect organic revenue growth of approximately 7%.
And our adjusted EBITDA margin to be approximately 36%.
Looking forward, we remain comp in the previously provided 2026 financial framework and organic growth targets for our big three segments, all four 8% to 9% growth at least <unk> 90.
<unk>, 211% at corporate and a 11% to 13% at tax <unk> accounting professionals.
Let me now turn it back to Gary for questions.
Thank you Ruth we're ready to go ahead with Q&A.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker phone. Please make sure your mute function is turned off to allow your signal sorry, Jerry Clinton again. Please press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Well go first to drew Mcreynolds with RBC.
Yes, thanks, very much and good morning.
I appreciate the Atlantic AI deep dive from David Thats definitely helpful.
On that topic.
I guess two questions one.
Can you give us a sense.
As of today and I know, it's early innings the percentage of workflow that's currently being automated.
Versus kind of what could be theoretically automated end to end and just a follow up.
Maybe for Steve just in terms of the Tan.
Outlined back in the March 2024, Investor day related to Gen. AI, just how should we think about.
The evolution of those hands as we embed.
At Gentex.
The offerings into the equation. Thank you.
Yeah.
Great questions.
In terms of the the amount of automation.
Today, I think I'd make two comments the first is that.
In the overall scheme of things, it's still relatively modest particularly in legal.
Less so in tax and accounting and the secondary to that point it does vary by profession.
So if you look at the sort of the life of the tax professional.
Our tax calculation engines have.
Traditionally they are lightning fast they have been in place for many years and they are very effective in terms of producing the calculations, what we're doing with ready to review and ready to advise and the application of co counsel to tax and accounting in orders is automating a lot of this sort of showed up.
Tasks EMEA ancillary task, but take an awful lot of time. So this is this is for example, all of the sort of document ingestion in preparation to produce the first version of a tax return the E filing process and the follow up and then the advisory services that acute off of that that tax return.
Cycle, and so I would say tax and accounting is there are large portions that are automated today, but it really is some very time consuming ancillary and important tasks that are being automated as part of this into and ready to review ready to advise cycle. The legal profession is different legal professionals by some.
Some counts 350 years old in its current form and other than a discovery and wood processing and a number of other tools that are being implemented over time. The process is still fairly similar and has been for centuries, and so we think that that.
<unk> generative AI and <unk> AI.
Hold promise to fundamentally automate large portions of the of the first draft process and preparation and Thats, what we mean when we talk about.
The ability for <unk> to be performing more and more complex tasks.
And to play a larger role in the success of our customers now what we haven't done since.
Investor Day.
Early last year is update our Tam So I think we talked about a.
20% increase in the <unk> at that time, which certainly we believe on track for that.
We haven't sort of externally updated those since since we size them.
In 2020 for Investor day, but we're going to remain sort of vigilant here and as we execute on our product vision and our Roadmaps and we make progress.
Confidence internally with our customers, we will be in a position I think to.
To to revise those as we head through 2026, David anything to add.
I would just add that I think our approach when thinking about our.
<unk> investments is to start with the customer and really.
I asked them what is the most value for us to be able to automate it to provide.
Our solution and ready to reviewed ready to advise are perfect examples of that where when we talk with our customers. They've always said the tax preparation process is time consuming.
Very labor intensive and where they want one support and agenda AI just happens to be I think one of the unique and perfect technologies to help those customers to get efficiencies because.
The technology can problem solve it.
It can use tools and it also can address the big gap, which has numerous and AI system. So instead of having to.
Instead of having to teach the AI how to do math, we've taught instead how to use a calculator thought of how to use our tax engine and.
And that's.
That soon.
Allowed us to be able to deliver the solution, which again helps helps customer so again.
I agree with everything you said since Steve, but again I would say that the way that we approach again identifying.
The opportunities for <unk>.
And where we invest with the agent and carrier is starting with the customer and what their demands are.
That's really helpful. Thank you both.
Thanks Robert.
We'll go next to Manav Patnaik with Barclays.
Thank you.
I guess a lot of the product innovations, obviously, a gating to see from you guys, but I was hoping you could help us frame.
Your solution set listen the competition out there.
Obviously volumes remain competitive as just normal parkinson with.
With almost a legal component will.
It will be internal law firms are doing themselves just trying to understand how a head to toe.
You are perhaps with all these innovations.
Yeah. Thanks, Manav again, I'll start and I'm sure David Mike My My AD.
So I think.
As I read the landscape in tax and accounting in order I think where.
Without ready to review and ready to advise.
And co counsel announcements I would say we are ahead of of all of competitors in terms of the announcements that they may or may not have made.
In legal I think to your question, what we're seeing is a sort of new era of Av.
Of competition with a bunch of startups.
In the sort of legal.
AI assistance space.
And a number of our traditional competitors sort of making announcements and putting new offerings in the marketplace.
I think where we are differentiated and where our confidence is if anything growing.
Is first and foremost.
Now content is a differentiator.
So the depth and breadth of <unk>.
<unk> and practical law.
And the deep expertise of our subject matter experts 2500 or more in total gives us we think a.
Reaction in it so durable one <unk>.
Secondly, we believe that having a single integrated solution.
That includes content and the best of breed AI assistant.
Is a winning strategy and it gives us.
Sort of a strategic a single strategic play.
And puts us we think on a foster.
<unk> and development roadmap I think some of the moves we've seen from from competitors.
Response to that.
Single integrated solution.
And.
And therefore, it helps build our confidence.
Yeah drew.
Drew agree with you Steve there again, I would say that again and tax account gains I think we are.
Uh-huh ahead of the competition.
With co counts for tax <unk> accounting as well as rate review and ready to advise I think that very unique solutions to the market.
On the legal side I will just highlight one additional thing which is.
Deep research in West La.
We believe that this is setting a new standard.
In the marketplace for legal research and if you compare and contrast, our deep research capability versus those available from others in the market ours is the only one which is a legal deep research agent.
Agent technology, where we have trained built and taught these AI agents to perform research like a legal researcher and Thats an important distinction because.
The general solutions from an open AI or a gemini or what have you they perform generic research like doing.
College book report or something like that.
What we've built with west La deep research as a researcher which has been trained like an experienced lawyer to explore the law arguments and counter arguments and scale to consider and explore issues, which were related to how you might prepare for litigation and that's something which I think we're one of the only in the market that have actually Cree.
So we're really proud of the work we've done there.
We have set a new standard for research with with this technology.
Got it thank you.
Thanks Manav.
We'll go next to Scott <unk> with CIBC.
Good morning, another good quarter from you guys before I'm wondering if we could dig into the margin performance in the quarter and what some of the drivers were there and then with guidance unchanged why that might not be flowing through to the rest of the year.
Alright, sure Scott I'll break that down by second quarter, and then also for the full year. If you look at our second quarter margin performance. We were very pleased with the three key factors for Q2. Scott first is we had good operating leverage as I've shared in the past at that.
Roughly seven to seven and a half organic.
Our revenue growth range, we're generating about 110 basis points of operating leverage so good leverage in Q2.
We did have some timing of expenses in Q2 that will reverse during the second half of the year and third benefit in the second quarter was revenue mix on including some of our print products. If I now go into the third quarter EBITDA margin at 36% is less than Q2.
<unk>.
Three factors that I would mention there we have the normal seasonality of our tax and accounting professional business in Q3 that we experience on each year.
<unk> items some of the timing benefit that we experienced in Q2 in the first half of the year will reverse including some integration cost associated with <unk> and other recent acquisitions.
The third item is in regards to the tough comp at borders given that Q3 2024 did include some one time to NII NII revenue.
That has big they are.
Hi, profitability and revenue flow through to your question in regards to not increasing our full year guidance, but most importantly, I would say we remain very confident in.
In delivering our full year guidance of approximately 39% and we are not raising it for the three reasons in regards to the favorable revenue mix in the first half of the year, we do not anticipate that continuing the timing of expenses will reverse in the second.
Half of the year, including those integration expenses, but I and we do have good line of sight Scott into Q3 Q4 EBITDA.
EBITA margin and once again, we're very confident in delivering to the guidance of approximately 39% just on the topic of margin I'll take it into 2026, and we have committed which I reaffirmed today for 2026, we said margin will expand by at least 50 basis points we.
<unk> confident in delivering on the 2026 margin expansion also.
Okay, great great color, there and then as a follow up maybe maybe potentially for David can you touch on the expense profile of some of the newer products like something like a deep research and a third of the potential impact of the margin its adoption of those does meet or exceed target.
Scott I'll start there we had certainly contemplated all of the costs, both operating expense and capital for all of the product launches that David and capabilities that David discussed today, we remain very confident with our capital intensity, which is roughly 8% for talent.
For year 2025, and then also if you look at our investments in <unk> of approximately 200 million plus.
If you look at all of the products today, including deep research, we have all of those cost Opex and Capex built.
Into our forecast and into our guidance and we remain very confident David.
Yes, I think Thats, well said Mike.
The only other thing is.
It keeps us very diligent on managing our pricing and profitability for new product offerings and so we are also confident that.
We're able to.
This additional value to our customers price effectively and earn price for it and continue to to earn healthy healthy Marta.
Although we generally don't comment about.
So the cost profile looks like for those yes.
Yes, Scott David makes a really excellent point in regard to see if you look at the variable costs. We are doing a terrific job in regards to managing the flow through associated there with including the cloud cloud costs.
Alright, Thank you very much.
Yep. Thanks, Scott.
Well go next to Vince Valentini with TD Cowen.
Okay. Thanks very much.
First I misunderstood judy's question, but im going to ask it the way I thought he asked it in a different way what percentage of your internal workflows are automated with AI or something equivalent at this point and where is the opportunity set there over the next couple of years to actually just to.
Make your own margin better and become more efficient question. One question two just to tag on the last one on margins just to be clear Steve here.
Troy Mike.
Sure.
Margins not changing for this year is it just those factors you laid out you're not putting in any sort of buffer for maybe there are some macro weakness or maybe there's some weakness in pricing from what competitors are doing or maybe there was another acquisition that comes with a bit of integration cost and dry.
On margin and those are not factors in why you're you're staying with the margin guidance. It's only the ones you sited thanks.
Yes, Vince.
I'll start and then I'm sure Michael answer the second part of your question. So with regard to the internal application of Gen II.
I can't give you.
Referring back to Drews question I can't give you the sort of percentage of tasks that are performed across the company.
That are being automated by G&A I, what I can say is that we have been very aggressive in making.
A set of internal AI tools available to every single one of our colleagues and we are very pleased with the uptake on a daily basis by the majority of all of our colleagues.
We.
In that spirit, we continue to pilot many proof of concepts.
And in terms of the application of <unk> across across go to market across the support functions across product and engineering.
And so forth.
And we're optimistic about the future potential to drive increased speed higher quality and productivity from our operations.
I'm not going to give you.
The quantification of the benefits today, because I think it's a little bit too early.
But we are seeing some early successes, particularly for example, within our software engineering team and in our customer support applications. So there is some upside there Vince, but how much how much and over what period of time I think it's a bit too early.
To give you a guide on that Mike.
Vince in regards to your second question My response to Scott's questions on EBITDA margin I think touched on the key drivers. There. Your direct question. There are no weaknesses and pricing that we have assumed to David's point earlier, we're confident in regards to our pricing.
And the related flow through.
We'll go next to the next question please.
And we'll go next to Tim Casey with BMO.
Hi, good morning.
You continue to generate strong free cash flow and your balance sheet is.
Relatively under Levered, I wonder, how youre thinking about that.
Excess capital I mean, given the valuation on your shares I assume share buybacks are not a priority, but like maybe if you could update us on how you're thinking about a potential return of capital transaction before Q2 next year and then Steve.
Given your free cash flow profile.
You do have the option to turn up for Capex.
Intensity to drive growth are there also.
Maybe an update on the M&A environment.
Given given the balance sheet.
Sure Tim I'll start just to frame everything to $10 billion of capital capacity by the end of 2027 hold certainly dealer to go into 2028, which were not today that $10 billion.
Would further increase as you've referenced 10 balance sheet remains very strong.
Net leverage at 0.5 times.
In regards to the potential deployment of about $10 billion of capital capacity first priority remains strategic M&A, we think to strategic M&A has the highest return potential from our lands. We remained very focused on our existing big three and bolstering does <unk>.
To what we've done in the last.
Two and a half year I think we have deployed about $2 6 billion of capital via acquisitions in the last two and a half years. There we do not see a need for fourth lag, but we remain various.
Interested in expanding our areas such as risk fraud, and compliance growing our indirect tax business and also growing our international business. So strategic M&A is top priority.
With that said, we will I believe continue to grow our dividends in the out years, we have four consecutive years of dividend growth at 10% the.
The next cycle will be our January board meeting, so I'll hold any speculation on what that increase might be.
Until then in regards to share buybacks, we made a commitment at the March 2024, Investor day to return, 75% of our free cash flow.
Our dividend cover about 55% of that that would leave about $400 million that would need at 75% when I provided that 75% framework that was over time.
Time.
Ryzen there for calendar year, 2025 would we consider an NCI be share buyback potentially we have our next board meeting in September we have our annual capital strategy discussion with the board in September that is a topic. So could there be an NCI be yet this year potentially.
So I think it would be within that $4 million to $500 million range and I think you also asked about and CIB share buybacks into 2026. My response, there would be I think that 75% return of free cash flow is a good framework for both $25 26, so that would indicate Tim we would need.
Roughly 4% to $500 million.
Share buybacks on a calendar year to achieve that.
And then Tim with regard to capital intensity and M&A.
So capital intensity as you can imagine we have some pretty vigorous debates internally on but the absolute number and the way we quantified the way Mike thinks about it as percentage of revenue.
And also the efficiency in other words, the Bang for the Buck, we are getting and particularly how much of that capital is being spent on new new.
Innovations and build versus keeping the lights on and service health remediation.
<unk> activities I would say the biggest sort of.
Cap or full throttle on that absolute number.
He is.
Is the availability of top flight engineering talent, because a lot of it is capitalized software development.
So we're always looking to expand.
Our talent in that area, but I'd say, that's one that's one cap that sort of prevents it getting too far out.
And two large and then Jason <unk>, just done a great job of improving.
The efficiency of our K TLO and serve as health remediation work and Joan <unk> head of engineering continues to.
Attract retain and develop great talent so.
But it's a it's a vigorous I think healthy and ongoing debate as to what the right level is and how much should go to new versus <unk> versus <unk>.
Remediation and so forth on M&A I used to.
The language, we can be both aggressive and opportunistic in that is our stance.
We're looking for acquisitions that.
The better serve al in Hartsville proposition to customers and the big three I would point, particularly to areas like risk.
AI further further for rising to the sort of generative and authentic II area and also in indirect tax where we're starting to see I think some signs that we're outgrowing some of the some of the competition on the back of the <unk> acquisition. So those are a few of the areas, we'll be both aggressive and opportunistic.
And just make sure that it is very much now big three customers interest in anything we do Tim.
Tim just to round this out.
For 2026 capital intensity I would assume 8% we will have capital intensity for 2025 of approximately eight we just completed what we call our enterprise privatization Committee, which is our prioritization process for 2006, which is ongoing but we spent a lot of time on 26 at this time of the year very comfortable.
<unk>, saying that it will be approximately 8% capital intensity for 2026, and we will continuously assess the level of AI and AI investment, which is 200 million plus this year.
Thank you.
Thanks, Tim.
Well go next to Andrew Steinman with J P. Morgan.
Hi.
Two questions on West La advantage is westwater advantages separate moderate module for precision, meaning you have to buy the Gentex deep research capabilities. In addition to precision so there'll be a penetration story there and then second question. This is for you David.
Is there not just with advantage back broadly this year with the product upgrades are better integrated user interface across the whole West lore co counsel suite I asked the question I have is that a demo of the Weslaco Council products earlier this year and I just felt like separate module walls with separate user.
Log ins at the various kiosks at that time.
Yes, thanks for the question.
The on the first.
What's the advantage is a.
A new subscription tier four west la so.
But we've also had some coverage about how it's also critical at the final west La.
Final whats launch here.
You do need to to upgrade you need to adopt west la advantage to get the deep research capability. So west La advantage includes a number of.
New innovations.
And new AI features deep research is the is the.
So sort of the crown jewel in this in the in the selection of New features which are included in west La advantage.
So.
But you do need to subscribe to.
<unk> deep research so that's.
Just to clarify that on your first question.
On the experienced interface.
This strategic priority for us, which is to continue to improve and to enhance the user experience for <unk>.
For our customers with the launch of co counsel legal.
We just announced this.
This week.
We are introducing a much more integrated offering where.
Our co counsel westleigh in practical law are more seamlessly integrated into a single experience and the capabilities of west La are available via co counsel and vice versa. So I think if you were to see a demo or to visit us at <unk> for example.
You'd probably see a much more integrated experience.
And we're going to continue to iterate and to improve that experience.
Over over the next next quarters, but it is a it is a top priority for us to continue to improve and enhance these experience for both co counsel and west La.
That makes total sense. Thank you.
Great.
Well go next to Arvind <unk> with Canaccord Genuity.
Good morning, Thanks for taking my questions.
Tax and accounting.
Obviously very strong EBITDA growth, yet again similar to what we saw in Q1.
Perhaps for Mike is that predominantly set of that timing benefit of the.
The timing of the integration costs with respect to safe send that you were referring to or was there.
Another component to that.
While it is that to be called out.
Yes.
My quick follow up and more generally perhaps for Steve can.
Can you just talk to what your client cohorts look like I mean, when you think of that.
The density of the new product innovations I'm sort of wondering what proportion of the clients are sort of open to quickly sort of gravitating towards the latest product and perhaps paying up for it.
I assumed as a cohort that that properly.
Probably more.
More of a lag from that perspective I was wondering if you can give us at a high level description on that front as well. Thank you.
Yeah, <unk> I'll start with your question in regards to tax and accounting professional EBITDA.
You are correct in your assumption in regards to Q2 EBITDA margin is the timing of the <unk> integration. Those integration expenses that were initially planned for Q2 will now occur in the second half of the year with that said tax and accounting professional on a full year basis, along with legal professionals will continue.
<unk> to have very strong full year EBITDA margins are fairly comparable within a percent or two of each other for on a full year basis, but your core question Sasin integration expenses slipped into the second half of the year.
And then Eric.
Thanks for the question with regard to the sort of customer cohorts look it it does vary between legal and tax accounting audit and risk customers, what I would say, though is that.
It's very rare to find a customer who was not interested in our AI offerings. So almost all want to hear about those offerings want a test.
Kick the tires on those offerings.
And what we see is lots and lots of proof of concept trials comparison with with some of the competitive products so on and so forth.
And we're happy with the way we show up.
Through that process I would say, 20% to 30% of for example, Wolfgang.
Looking to.
Aggressively lean into II as a means to differentiate their firm in various ways and thats.
That's firms of all different shapes and sizes, whereas the rest of the firms.
Have accepted that they need to adopt.
I need to provide the best tools to two there for that.
Talent to the lawyers.
And going through various waves of adoption.
That's sort of starting to pick up.
Still pretty early days, but that's I think where we sit.
And it's a similar picture in the detection of accounting and audit where.
It's very rare to find.
Our firm.
A large medium or small that isn't interested in is and sort of thinking through and adopting.
But it probably a minority of firms are really aggressively moving at this stage.
Yes.
Thank you personally.
Thanks Erin.
Well go next to Toni Kaplan with Morgan Stanley.
Thanks, so much.
And the person of ASB from products that are Gen. AI enabled was 22%. This quarter I was wondering if there was a way to break that into legal tax and accounting and corporate if you don't want to give the specific numbers I guess directionally have you seen more adoption.
You know specific areas versus others.
And then maybe just as a follow on.
We talk so much about legal AI products, but I know that you see a big opportunity and the tax and accounting side as well maybe as big if not bigger than two just wondering what you think unlock that value.
On the tax and accounting space. So two separate questions there, but thank you.
Yes, Tony.
Let me start.
It's worth stating I think Tony you've heard this from us before Theres a particular.
Sort of characteristic within the tax and accounting and audit spaces, which is an acute talent shortage. So as the number of <unk>.
It goes up and the complexity of audits goes up the number of tax returns goes up and the complexity of those returns goes up.
There is not the supply of young talent coming through undergraduate and graduate programs two one.
Once it becomes cpi's and savvy.
The profession faces a very significant challenge and that is.
Talent shortages and.
The technology, therefore is a really important role to play in addressing that fundamental issue and so if anything we see more interest.
And potentially more uptake I think it's too early to call it but uptake.
From our tax accounting and audit customers than we do in the other professions, we said Mike Yeah.
Tony on your first question, we don't breakdown externally that 22% of Gen. AI enabled I would say to date the larger portion of that 22% is legal I don't think youll be surprised because of the west la precision that was gen. Eight gen AI enabled and so we had a really great start.
With that as we progress now going forward I think youre going to see an increase in each of the three segments legal corporates and tax just giving the number of product launches in Q3 of this year with that said all the corporates will increase with co counsel for corporates and other products and tackling.
Increased while the products that David discussed today legal over the time horizon will continue to have the larger portion of that just because of the scale of legal the scale up less law advantage and as we go forward, we're going to be talking more and more about the suite of products not just about less law advantage west La co cancel practice.
La kind of all in hopefully thats helpful. Tony.
Thank you.
We'll go next John Mayer Yaghi with Scotiabank.
Hi, Good morning, Thank you for taking my question.
Wanted to ask you a question on free cash flow.
As we roll into the second half so far you you generated close to 840 million.
<unk> won nine could you.
Can you provide us some puts and takes on the working cap in the payments and.
And lower payments I guess that you will have less to pay maybe taxes.
That we should be aware of in order to model the back half and and also on the guidance again.
So far this year you have.
First half your revenue growth.
Has been 2% guidance is three to three and a half.
Can you maybe just help us understand what's going to accelerate in the back half.
That gap thank you.
Sure My regards to free cash flow I'll start with full year, our guidance is approximately $1 9 billion.
We're confident in achieving the one 9 billion there are some variance between H, one and H two in March of each calendar year, we pay our annual incentive plan bonuses, which is a drag on free cash flow in Q1, and the first in the first half of the year. If you look at individual items.
That impact working capital that is the single largest item, but I have strong confidence in the full year on the $1 9 billion, if I take free cash flow one step further to 2026, our guidance is $2 billion to $2 1 billion I have strong confidence also in delivering on the 2000.
26 free cash flow.
In regards to your question on revenue.
Referenced percentages associated with total revenue growth I want to focus on organic growth.
Once again for the full year at seven to seven 5%, 9% for the big three which we have confidence in delivering.
From my chair, if I look at the second half of the year and the bookings that we incurred for the first semester I have strong confidence in regards to the revenue for Q3 Q4 also with the healthy pipelines that we have in Q3 Q4.
Very strong confidence another key factor is an <unk> two we have significantly easier comps for both the orders business and tax and accounting professional you'll remember in the second half of 2024, we had some significant orders Gen AI revenue and we also had <unk>.
Factors with tap that makes it an easier comp this year. So those are some of the key items that we have as we look at the second half of the year revenue in the full year, but we have strong confidence on delivering to that seven to seven and a half.
For total TR and 9% for the Big three the key factor there is the book of business. The underlying bookings is very strong the pipeline is strong and we have easier comps in the second half of the year.
Thank you.
[laughter].
We'll go next to Jason <unk> with Wells Fargo.
Hi, good morning, Thanks for taking my questions I'm curious if you could talk about what sort of price increase your customers will see if they upgrade.
I saw precision with AI to west La advantage, if you want to be too specific on that percentage on which I understand.
How does it compare on the step up to west operation with <unk> I'm trying to understand this.
This is a big step up in value and you'll be able to price.
Even more important than the price increases we've been seeing previously thank you.
Yeah, Jason I'll provide some color on that will continue no surprise surprise for value over the type time horizon as we move forward I'll intentionally use the phrase commercial packages to my comment earlier versus point solutions looking at the collection of offerings. It will include a combination of a premium.
The initial sale, but then also higher out year.
This increases so youll see a continued opportunity for sustained acceleration from all of our businesses.
As a result of that that gives us confidence in delivering for 2026, 25% in 2026 guidance, but I would encourage you to focus on the overall split of <unk>.
Versus them.
Products. So there will be a step up and there will be out year increases.
Got it that's very helpful. Thank you and as a follow up I was curious if you could comment on the size and growth of <unk>.
Co Council.
Harvey recently disclosed they're doing $100 million of IRR.
Curious, how how called counsel comparison that thank you.
Yeah, we don't disclose on an individual product level I would say we are very very pleased with the progress of co counsel across the total tier.
Okay. Thank you.
Sure.
Thanks, guys.
Our next question comes from George Tong with Goldman Sachs.
Hi, Thanks, good morning.
Sticking with the topic of AI are you seeing different adoption curves for AI tools between March enterprise clients versus mid market or smaller firms.
And how are you tailoring your go to market strategies Accordingly.
Yes, Thanks George.
So I think what's interesting in this sort of AI Revolution.
Is that we're seeing a pretty even.
Demand.
<unk> across the different segments, so relative to when we would put out a new version of West La New version of practical law in the legal segment and it would very much be the sort of the largest most sophisticated firms with the most.
<unk>.
The most evolved sort of chief knowledge officer groups, and so forth value with the first customer ship, whereas now we see.
Sole proprietor sole operator lawyers.
Taking up co counsel and wanting to hear about the latest version of West La if there if there is litigation business and so.
I think that's true of detection accounting side of things as well, so it's a slightly different in and potentially.
More attractive dynamic for us.
Got it that's helpful and.
And then can you talk a little bit about what internal benchmarks or kpis are using to measure the ROI of AI investments, particularly in terms of the customer.
Tension or customer upsell rates or the percentage of HCV, that's coming from AI.
Yeah, George I think it's a combination of convergence.
All of the items that you mentioned there I certainly look at it from a gross margin perspective, just given in the last two and a half years, we will have a different type of costs in regards to large single model pains or searches associated with that the cloud cost et cetera customer retention, we've talked a lot about.
In the last few quarters that continues to be a key focus item and then also the adoption adoption rate because some of these new offerings.
Are really important for us and we track the adoption and usage on a monthly quarterly basis. So it's really a convergence on Georgia. The items that you mentioned not solely one item.
Very helpful. Thank you.
Alright, great.
I think we'll learn.
Well end the call there. So thanks, thanks, everybody for your time.
Good day.
This does conclude today's call. Thank you for your participation you may now disconnect.