Q4 2025 Earnings Call Transcript

Day, everyone, and welcome to the Thomson Reuters Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead. Thank you, Melinda.

Good morning, and thank you, everyone, for joining us today for our fourth quarter 2025 earnings call. I'm joined today by our CEO, Steve Hasker, and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. To enable us to get to as many questions as possible, we would appreciate it if you'd limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, we compare performance period on period, we discuss revenue growth before currency, revenue growth rates before currency as well as on an organic basis.

We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially from 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 or by contacting our Investor Relations department.

Before I turn it over to Steve, let me provide two quick updates. First, we have tweaked the naming for two of our segments to better represent their current focus and operations. Tax and accounting professionals is now known as tax audit and accounting professionals. And Reuters News is now Reuters.

The changes are in name only with no impact on the composition or measurement of their results. Second, please note that starting with our first quarter 2026 results, we will be making minor changes to where certain product revenue sits within the Big Three, reflecting how certain customers are managed. There is no impact on our consolidated results. For your convenience, we have posted to the Investor Relations section of our website a schedule that reflects our revised full year '23, '24, and '25 results and 2025 quarterly results in the manner we will begin reporting next quarter.

Let me now turn it over to Steve Hasker.

Thank you, Gary, and thanks to all of you for joining us today. Let me begin by commenting on the AI competition concerns that have led to recent share price volatility. We have growing confidence in the value of our content and our expertise for delivering professional-grade AI solutions. Our second quarter call in August, we discussed why Thomson Reuters is well-positioned to win with Agentic AI.

We bring comprehensive proprietary content, deep domain expertise, and leading workflow software, which we combine with advanced reasoning models to complete complex, multistep tasks. Our unique and high-quality content grounds the AI outputs, and our deep subject matter expertise trains and fine-tunes the AI. Professional-grade results cannot be delivered without this content and expertise. On our third quarter call in November, we discussed the durable differentiation we believe exists with Westlaw.

Its unmatched breadth of proprietary, editorially enhanced legal content together with sophisticated tools to verify the AI deliver the comprehensive, accurate, and up-to-date outputs needed for high-stakes litigation. General-purpose models cannot meet this standard. Since those discussions, our optimism around agentic opportunity has strengthened. The launch of has gone extremely well, with early sales and customer beta indicating we have created a new standard in legal research capabilities.

And more importantly, we have proven that we can leverage agentic deep research capabilities to unleash our content and our expertise to clearly differentiate our AI solutions. We are working to bring these advanced AgenTi capabilities and the full power of Westlaw and law to co-counsel legal by midyear, and to our other legal tax and risk offerings in the future. We see legal AI workflows as a significant white space opportunity for TR, and one that is largely incremental to our traditional research and know-how stronghold. We remain the clear leader in research and content, and we believe that we are a leader in the AI workflow market today.

Looking forward, our strategy is clear. We will continue to aggressively innovate, with a focus on leveraging our proprietary content and deep domain expertise, along with the latest AI capabilities to deliver highly specialized agentic workflows that we believe will be difficult for those without the same content or expertise to replicate. I'll now turn to the fourth quarter. 2025 was a year of continued progress at Thomson Reuters, so let me start by reviewing some of our key accomplishments. First, we delivered another year of good financial results meeting our key targets.

Full-year organic revenue grew 7%, driven by 9% growth for the Big Three. Our adjusted EBITDA margin expanded by 100 basis points to 39.2%, meeting our outlook. And we delivered $1.95 billion in free cash flow, slightly ahead of expectations. 2025 saw continued acceleration in our pace of innovation, with several foundational product launches, including Westlaw Advantage, the co-counsel legal Unified Solution, and CoCounsel for Tax and Audit, to name a few. Initial customer feedback and sales activity across these offerings has been encouraging, and we're excited about our road maps for 2026, as we work to bring deep research and identity capabilities more deeply into our portfolio.

Overall, commercial momentum across our AI-enabled offerings continues to build, highlighted by several council wins including Microsoft, an important validation of our strategy and the market shift toward trusted, domain-specific AI. We're also excited about initiatives we are driving to leverage AI and to reimagine how we work, fostering a tech plus talent mindset to drive productivity and speed. As I will discuss in a moment, we have delivered several early successes, including in software engineering, customer service, content operations, and our general counsel's office. This progress provides confidence in the long-term opportunity to become a more productive and nimble organization.

Our capital capacity and liquidity remain a key asset we are focused on deploying to create shareholder value. In 2025, we invested $850 million into M&A, including four strategic bolt-on acquisitions bolstering key franchises and talent. We executed a $1 billion share repurchase program last fall, and this morning, we have announced another 10% increase in our annual common stock dividend. We remain committed to a balanced capital allocation approach, and we continue to assess a number of inorganic opportunities.

Our estimated $11 billion of capital capacity through 2028 we are positioned to be both aggressive and opportunistic. Looking forward, our conviction around the medium-term growth potential for Thomson Reuters remains strong. As Mike will discuss in more detail, we are reaffirming our 2026 outlook for organic revenue growth of 7.5 to 8%, including approximately 9.5% for the Big Three. We expect healthy margin expansion and strong free cash flow, even as we continue to invest in innovating, serving our customers.

Now to the results for the quarter. Fourth quarter organic revenues grew 7%, Organic recurring and transactional revenue grew 98%, respectively. While print revenues declined 6% in line with expectations. Adjusted EBITDA increased 8% to $777 million reflecting a 110 basis point margin increase to 38.7%.

Due to healthy operating leverage and good cost discipline. Turning to the fourth quarter results by segment. The Big Three segments delivered 9% revenue growth. Legal organic revenue, again, grew 9% despite softer government growth.

Continued momentum from Westfall, and co-counsel were the key drivers. Corporates' organic revenue grew 9%, driven by offerings in our legal, tax and risk portfolios, and the segment's international businesses. Tax audit and accounting organic revenues grew 11% driven by ultra tax our Latin American business, and CoCouncil. Reuters' organic revenues rose 5% driven by growth in the agency business, and our contract with LSIG.

Lastly, global print organic revenues declined 6% year on year. In summary, we're pleased with our Q4 results. Full-year organic revenues grew 7%. Organic recurring and transactional revenue grew 94%, respectively, while print revenues declined 5%.

Adjusted EBITDA increased 6% to $2.9 billion yielding a margin of 39.2%. Adjusted earnings per share for the year was $3.92 compared with $3.77 per share in the prior year. Let me finish on the results for the full year by noting that we have met or exceeded all of our 2025 guidance metrics with the loan exception and interest expense. This was higher than our forecast due to the pace of our share repurchase program, and declines in market interest rates.

Which led to lower interest income. As you know, we have talked a lot about AI from a product and an innovation perspective in recent years. I'd like to close my comments today by briefly discussing another important AI-driven initiative here at Thomson Reuters, namely leveraging the technology internally to reimagine how we work. Since 2023, we have invested heavily in AI tools and training.

We created OpenArena, an internal AI platform providing all employees with access to leading AI models and capabilities. And we are leveraging multiple third-party AI applications. We have held several tier-wide AI-focused learning days, offered AI certification programs, and taken steps to encourage and foster a culture of experimentation with a test and learn approach. This enabled our employees to not only build skills, but also test the impact created by the AI tools.

Last year, having matured from experimentation to execution, we implemented a disciplined top-down approach to driving transformation at scale, through AI-driven automation. Our AI initiatives are now purpose-based with specific business targets. And we have created three-year AI road maps for all segments and functions. We're leveraging key talent process, learnings from our successful execution of the change program, to reimagine how we use technology simplify complexity, optimize our footprint in commercial systems, and evolve our work with a tech plus talent.

Mindset. We are pleased with our progress to date, For example, as we are seeing broad engagement and a growing number of successes. more than 85% of our employees are active users of OpenArena and our other AI tools. We have more than 300 AI use cases in development across all areas of the company. Let me share four specific examples where AI is already driving measurable business impact at Thomson Reuters.

Let's start with software development. Over 80% of our engineers actively use AI-powered tools, making AI a core part of our development life cycle. This goes beyond cogeneration, AI is accelerating security remediation modernizing legacy systems, automating quality assurance, and enabling predictive incident management. These capabilities have transformed how we build, and deliver products.

Reducing lead times and improving quality at scale. Moving to customer support, by pairing third-party AI tools with internal development, we have automated knowledge search and content creation, and added agent assist chatbots. These tools are accelerating routine work and improving outcomes for both our customer service agents and our customers. This includes having reduced call average handle time by 15%, and boosted first call resolution by 10%.

In content operations, we're leveraging proprietary AI tools to expand our to extend our differentiation and content advantage. Our content creation process requires deep legal expertise and proprietary technology. Over the past eighteen months, we've developed specialized AI tools specifically engineered for legal content processing. These tools now automate complex tasks like document ingestion, classification, and citation conversion for judicial cases and legislative updates.

These advancements improve our speed, and quality of proprietary content we deliver. For example, we have accelerated US content delivery to Westlaw by 25%. Giving customers faster access to critical legal updates. And importantly, the increased automation also also brings up resources that we are refocusing on driving further product enhancement, and accelerated innovation.

And finally, our general counsel's office continues to excel in leveraging Thomson Reuters' AI-enabled legal tools. They were early adopters of co-counsel, and our other AI-enabled offerings. Which they leverage for contract review and drafting legal research, and more. I'll provide one concrete example with co-counsel tabular analysis.

A recently launched feature that automates the review of up to 10,000 documents at a time. Following the close of an acquisition last year, the team used this capability to review thousands of customer confidence. Completing this complex task in hours rather than weeks. And saving significant time and resources.

It also allowed for a much quicker assessment of the ongoing obligations and risk profile of the acquired business. Mike will share some incremental commentary, but let me conclude by stating we have growing confidence that this reimagination of how we work will bring significant benefits to TR over the next few years. Increasing our productivity, accelerating our decision-making, and improving our customer experiences. I'll now turn it over to Mike to review our financial performance.

Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency, and on an organic basis.

Performance for our Big Three segments. Let me start by discussing the fourth quarter revenue Organic revenue grew 9% in the fourth quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9% again this quarter despite slower growth from government,

as we discussed last quarter. Key drivers from a product perspective remain Westlaw, CoCounsel, and practical law. Government grew 5% in the quarter, though we expect this to slow in Q1 based on the government cancellations we discussed last quarter. Our Corporate segment grew 9% organically, driven by 9% recurring, and 7% transactional growth.

Indirect tax, practical law, the Garo, and our international businesses were key contributors. Tax, audit and accounting organic revenue increased 11%. Recurring and transactional revenues grew 123%, respectively, Our Latin America business Ultratax, co cancel for tax and audit, and SafeSend were key drivers. Moving to Reuters, organic revenue rose 5% for the quarter driven primarily by growth from the news agreement with the data and analytic business of LSAG, and $5 million of generative AI related transactional content licensing revenue in our agency business.

Finally, Global Print revenues decreased 6% on an organic basis. On a consolidated basis, fourth quarter organic revenues increased 7%. At the end of Q4, the percent of our annualized contract value or ACV, from products that are GenAI enabled was 28%. Up from 24% last quarter.

Turning to our profitability, adjusted EBITDA for the Big Three segments was $709 million up 9% from the prior year period with the margin rising 130 basis points to 43%. Reuters adjusted EBITDA was 48 million with a margin of 21%. Global Print's adjusted EBITDA was 54 million with a margin of 39.6%. In aggregate, total company adjusted EBITDA was $777 million an 8% increase versus Q4 2024, reflecting a 110 basis point margin increase to 38.7% despite $19 million of severance expense related to our initiatives to reimagine how we work.

Turning to earnings per share, adjusted EPS was $1.07 for the quarter versus $1.01 in the prior year period. Currency had a $0.01 negative impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the full year 2025, our free cash flow was $1.95 billion slightly ahead of our approximately $1.9 billion outlook.

EBITDA growth was the primary driver of the year-over-year increase in free cash flow. I will now provide an update on our capital structure and several capital allocation items. From a liquidity and capital structure standpoint, we remain in an enviable position with below-target leverage and healthy cash flow This strong financial position is illustrated by our December 31, capitalization. We had approximately $500 million cash on hand at year-end, We have an undrawn $2 billion revolving credit facility.

We also have $1.7 billion available for issuance under our commercial paper program. Our December 31 leverage ratio was 0.6 times below our 2.5 times internal target as noted in our value creation model. Looking forward, we forecast $11 billion of capital capacity through 2028. We remain focused on value creation, and we expect to continue with our balanced capital allocation approach that includes annual dividend growth, strategic M&A, and capital returns. I will provide several updates.

This morning, we announced a 10% increase in our annual dividend for 2026 to $2.62 per share up 24¢ from $2.38 in 2025. This marks the thirty-third consecutive year of annual dividend increases and the fifth consecutive 10% increase. In 2025, we completed four acquisitions for approximately $850 million SafeSand and Additive brought key capabilities to our tax audit, and Accounting Segment With Small Bolt Ons Of Time Base And Imagine Images Bolstering Our Legal Business In Australia, and Broaders respectively. In October, we completed the $1 billion share repurchase program or NCIB, we announced in August retiring 6 million shares For the year, we returned slightly more than 100% of our 2025 free cash flow through dividends and buybacks ahead of our 75% return commitment.

Looking forward, we have ample capacity to continue to execute against all three of these capital allocation strategies in 2026 and beyond. We remain highly focused on strategic M&A, but expect to again deliver to the 75% free cash flow return commitment in 2026. I will conclude with a few thoughts on our outlook. We are reiterating the 2026 financial framework we discussed last quarter, and providing additional detail with our 2026 guidance. We forecast total and organic revenue growth in a range of 7.5% to 8% driven by approximately 9.5% growth for the Big Three, Our outlook calls for modest organic revenue growth acceleration for both total TR and the Big Three, We are confident in delivering this improvement which benefits from positive underlying momentum the execution of our innovation roadmaps and to a lesser extent, easier comparisons in several areas including at Reuters and Corporates.

We continue to forecast our adjusted EBITDA margin in 2026 rising by 100 basis points from 39.2% in 2025. We expect our 2026 effective tax rate to be approximately 19% with our cash tax rate roughly 5% below this book tax rate. Moving to capital intensity, we see 2026 accrued CapEx as a percent of revenue of approximately 8% in line with the trend in recent years. This level of investment is supportive of our continued focus on investing in product innovation, as we strive to deliver stronger revenue growth. We expect 2026 free cash flow to be approximately $2.1 billion up from $1.95 billion in 2025 as growing profitability and stable capital intensity more than offset higher cash taxes.

We are reiterating previously provided 2026 organic revenue growth targets for the Big Three segments as follows. Legal professionals growth of 8% to 9%, corporates of 9% to 11%, and tax, audit, and accounting professionals of 11 to 13%. As it relates to Steve's discussion of leveraging AI to reimagine how we work, I will add a few comments. First, as I stated earlier, our Q4 results included approximately $19 million of severance as we take steps to drive automation, and productivity throughout the company.

We expect an additional $10 million in the first quarter. While it is early in our automation drive, we have growing confidence in the opportunity ahead. Combining our underlying operating leverage with expected productivity gains, we now expect to deliver 100 basis point basis points of annual EBITDA margin expansion not only in 2026, but also in 2027 and 2028. Even as we continue to invest in innovation and driving revenue growth. Turning to the first quarter, we expect organic revenue growth of approximately 7%, and our adjusted EBITDA margin to be approximately 42%.

Looking beyond Q1, we expect revenue growth to strengthen. Primarily driven by building momentum from a number of our AI-enabled products. Let me now turn it back to Gary for questions.

Thanks, Mike. Melinda, we're happy to begin the Q and A.

Thank you. Function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question. And we'll go right to Jason Haas with Wells Fargo. Please go ahead. To start, I'm curious if you could comment on the legal recurring

growth. It did slow from 3Q to 4Q. So curious what drove that And then can you just outline what sort of government headwinds you're expecting in 2026? Thank you.

Sure, Jaycee. Your first question, the answer is associated with our government business. Second question, which is more broader, I will expand. Jason, if you look at legal professionals' excluding excluding government, we have clear momentum driven by the pace of AI-driven innovation including our Westlaw and co-counsel products.

With that said, when you when we incorporate the full impact of government cancellations we discussed during Q3, we do see the government growth slowing in Q1 from the 5% we reported in 2025. We are confident legal professionals will achieve 8% to 9% for full year 2026, However, there could vary could be variations within within that range quarter by quarter in 2026 due to the government. So, hopefully, Jason, that helps with both questions. So I just reemphasize when we look at legal professionals excluding government, we have terrific momentum there. It will be offset somewhat with the government cancellations.

But we're very confident in delivering that full, year '26 of eight to 9%.

Mike, if I could just add one more comment. Jason, you might have seen that transactional growth at legal was really strong. That was actually driven in large part by government. And so there was a bit of a shift within the quarter from recurring to transactional within the government. Segment as well.

Okay. Great. That yeah. I was wondering about that too, so that's that's very helpful. And then as a follow-up question, I was hoping to take a step back and curious if you could walk us through what is the moat around Westlaw and practical law and why can't those be easily replicated by, you know, some competitor that that's using an AI tool to try to do so?

Yeah. I'll, I'll start that, Jason. Thanks for the question. If you go back to our prior earnings call, we we went into some depth with regard to specifically Westlaw.

So I I I won't I'll try not to repeat too many of those comments, but let me let me make a few a few comments because I think this is obviously a hot topic broadly and and particularly a hot topic this week. So the first point I'd make is we have not seen a change in competitive dynamics in our areas of core franchise. So that's legal research and know-how, Westlaw and practical law. And the and the various tax calculation engines.

That we see. And and for that matter, our risk fraud and compliance dataset. So as it pertains to legal, we have not seen new entrants into the legal research space of any of of any measure or importance. Where we have seen more competition is in a white space area for Thomson Reuters.

Which is this AI-driven workflow area where the legal assistants have have emerged. Since the rise of generative and now agentic AI? Now the reason that we are confident and growing in confidence is a couple for firstly, we believe and all the evidence in the marketplace today supports the fact that a general-purpose model cannot do what professional-grade AI can do. So our starting point here we believe is a very strong starting point, is that we have two highly differentiated assets.

The first we have decades and in and in some jurisdictions, centuries, of unique content sets. That have been created by highly skilled highly trained, qualified lawyers based on case law and based on best practices and know-how. And improved and refined curated and delivered over decades or centuries. So the first is our content sets.

We think very difficult to replicate. And the second is our deep domain expertise. So thousands of attorney editors on staff who create this content and we have retrained to use that expertise to train our agents. And so as I said in my opening remarks, we have growing confidence here.

And that and that growth in confidence comes from the fact that in August, we launched Westlaw Advantage. Which is a deep research agentic product. Based on early sales and customer feedback. It has reset the bar in the legal research space.

To this day, it is unmatched. And very significantly more sophisticated, more accurate, and more than the next best tool. And secondly, in putting putting this product successfully full, we have cracked the code, we believe, on leveraging our content, our deep domain expertise to train agents. And so the opportunity for us going forward, and this runs through our our product road map in in '26 and beyond, is to take that leveraging of content and expertise to train agents to our other flagship products.

Starting with co-counsel, launch a fully agentic version in the coming months through to our other franchise products. And so I'd finish by saying there is a marked difference between professional-grade AI and general-purpose model AI. Professionals the stakes for professionals are extraordinarily high. They must be correct.

They're doing expert fiduciary work, and they require data privacy and security. And, ultimately, they are accountable for being correct. And so that's really the basis of our confidence, not only in our core Westlaw and practical law franchises, but also in our ability to extend leadership into AI-driven workflows. Which, as I said, is a white space opportunity for us.

That's great. Very helpful. Thank you.

If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We go next to Tim Casey with BMO Capital Markets.

Hi. Good morning. Given the, share price action, certainly of this week, Could you talk a little bit about how share buybacks

return of capital transactions things like that are you know, I guess, how are they stacking up in your pecking order? I you know, I I know you detailed your priority of strategic M&A, but, you know, given given what's gone this week, how are you thinking about buybacks more specifically?

Yeah. Tim, I'll start overall as you referenced in my prepared remarks, I did mention we will continue with our balance capital allocation, the three vectors of annual dividend growth, which we increased 10% today, strategic M&A and capital returns. Tim, we agree with your comment and assessment that share repurchases are definitely attractive at the current levels. And we look forward to continuing our ongoing discussions with the board in that regard.

Lastly, would mention, Tim, that we plan to deliver on our commitment to return 75% of our free cash flow to investors in 2026 in order to achieve that 75% we would need about $500 million of share repurchases to achieve this commission, commitment. Which is in addition to the dividends previously mentioned. So just to reiterate, Tim, we agree share repurchases are attractive at the current levels. We'll continue to discuss that option with the Board.

Thank you.

We go next to Manav Patnaik with Barclays. Please go ahead.

Good morning. This is Brendan on for Manav. I just wanted to see if

you could help us at all with the

kind of how the size of co-counsel, if that's even possible to split out and and kind of the it's how much in in in in legal versus tax And then also, just any comment on the progress of adoption of Westlaw Advantage and kind of what kind of uplift you know, adoption uplift you expect that's kinda baked into the guide?

Yeah. Brandon, I'll start it, Steve. Thanks for the question. So we we haven't and and and don't plan to sort of provide you know, specific dollar ACV numbers for those products as it as it's relatively early days.

What what I would say, though, is that we are very encouraged by the reception of co-counsel legal by both the general counsel's that we serve and aspire to serve and their and their teams and also the law firms. And and that is both the largest law firms in the world, medium firms, and small firms. And and I think Steve Acy and and Liz Zimmick and Aaron Radermacher have done a great job as is Karam Tewari, in terms of penetrating co-counsel into the legal community. So we are very pleased with the progress, and we think we are keeping pace or outpace.

The the competition in what is a white space area for us. And I and I'd echo those comments as it pertains to co-counsel for for tax and audit. On the back of the materia, acquisition, particularly the integration of Kevin Molini and Lucas Adams, from Materia into into the the fully agentic products that they bought with them and have been able develop with the help of our content and expertise. Have been very well received.

By tax and accounting professionals, firms, small, medium, large, in-house tax departments, and also the the professional firms themselves. So I think it's early days in terms of the development of these tools that we should change management within the within the customer set. But we're we're off to a great start, and and we're looking forward to both further investing and innovating and and having our fantastic sales teams bring bring those products and services to market.

Brandon, I think you had a second question in regards to the Westlaw Advantage. I would say the trajectory there is pacing actually higher than prior releases of Westlaw. Steve and I had a chance spend time last week with Mike Don Mike Dane, Mike Dane leads the Westlaw Advantage, and also spent time with Emily Colbert. Maybe I'll expand your question, which is likely to come.

Brendan, in regards to our confidence level in 2026. These GenAI offerings that we've recently launched are a key ingredient. Several items there, Westlaw Advantage, the co-counsel legal that Steve talked about, Steve also talked about co-counsel for tax and audit. I would add ready to advise, which is within Elizabeth Bistrom's tax Audit and Accounting Professionals, And then we just launched ready to review, with Kevin Molaney there. So that's one of the key reasons, Brendan, why we're confident our 2026 revenue guidance.

Along with that, Elizabeth is scaling the recent acquisitions of Safe Send and Additive The last component of that revenue growth acceleration in 2026 I mentioned in the prepared remarks easier comparisons specifically for orders given the one-time GenAI content licensing revenue it was lower in 2025. 2024 was $33 million. 2025, it was $13 million.

So that lower

Reuters' one-time GenAI content licensing revenue contributes about 30 basis points to total TR If we look at the walk of revenue between 2025 and 2026. Sorry to expand there, Brandon, but I thought that might be helpful. Just to give you a broader view on our revenue acceleration, in 2026.

Very helpful. Thank you.

Our next question comes from Drew McReynolds with RBC. Your line is open.

Thanks very much. Good morning. Either for Steve or Mike, with respect to strategic M&A, I think you guys, a company, clearly have been in AI for a long time and have been successful doing tuck in M&A. Is it incorrect to assume the pace of all the AI innovation, including from the frontier models, is accelerating? So does that

make strategic M&A

trickier to do And then when you see a pullback, like, we've gotten

this week across the broader software space, have multiples in the private market, Do you expect them to come in

And just your level of confidence of making sure you're doing the right strategic acquisitions just given again, the pace of AI evolution underneath the hood? Thank you.

Yeah, Drew. Thanks. It's a it's a great question. Look, in my view, M&A of any of of of any stripe and any size is tricky.

And it always has been, and it always will be. And that's why one of the reasons that we've kept as I think you know, the the bar very high. I mean, we we look for our acquisitions that are first and foremost additive to our customer experience. Secondly, you know, they they they got modern tech.

The financials need to work for us, not just the exiting shareholders. And last but not least, we look for executives and teams leading those companies that we think will be additive to to to sort of TR's culture and talent base. And so we've done a series of these acquisitions, as you've seen, but I think have we've we've kept our powder dry nine times out of 10 relative to the pipelines and that which we look we look at. I would suggest that would continue because M&A is hard and integration is hard, and we take it very, very seriously.

We're proud of the the sort of batting average. That we've achieved in terms of integrating the acquisitions we've made over the last five or six years. As to sort of what happens in the the private markets with valuations, you know, as as you've shared, before. We focus on the the best targets and the best products and

and teams.

And so we're not in the market sort of looking for you know, sort of cheap cheap deals and sub subpar products. The prices of those assets have maintained held in private hands have have stayed high in my in my view. You know, I don't think the private equity firms have sort of readjusted their expectations Here we sit with $11 billion of capital to deploy between now and the 2028. And and I think that's an advantageous position because should the events particularly this week, but but over the last couple of months in terms of in terms of downgrading the the valuations of of of of software and AI-related businesses.

You know, I think we we should be able to take advantage of that should it occur. But but I've been wrong before in terms of how fast the private private markets would move. And and so we won't we won't overstate the point

What would you add, Mike? A good summary. Thank you, Steve.

Thanks. Thanks, Drew.

Yeah. Thank you. That's great context.

We'll go next to George Tong with Goldman Sachs. Your line is open. Hi. This is Anna Wu on for George Tong.

For taking my questions. We are in an environment where many enterprises are keeping headcount flat or even down. How do you monetize your AI product innovations further to capture the increased AI-driven consumptions in pricing? And as you look to 2026, how should we think about pricing trends compared to the approach you took in 'twenty five?

Yeah.

Anna, thanks for the question. I'll let Mike answer the pricing question But in terms of the headcount so let let me make something really clear. Which which which we often state, but I I can't be can't be clear enough. And that is we do not price on a headcount basis.

So we don't sell seat licenses. To the extent that our tools and this broader sort of agentic AI transformation. Drives greater efficiency and ultimately headcount reduction within either in-house legal tax audit departments and so forth or firms that serve corporations. We will be a beneficiary of that not a victim of that.

The reason will be a beneficiary of that, and I used the example in my prepared remarks of how Nori Campbell's team saved weeks in terms of their due diligence activities and contract review on a potential acquisition is that we price we're increasingly looking to price to value. Now it's early days, in this in this AI journey, and so there's still a a sort of a level of of experimentation in terms of pricing as as customers become accustomed to these tools and start to learn the impact and play through. But we should be a beneficiary of that, not not not a victim not a victim of that. And we're always looking to be to to base our pricing as much as we can on the ultimate end end impact.

Anna, I'll address two additional points I think you raised. One was in regards to how we monitor our GenAI investments. Certainly, Steve just touched on price in which I'll go into more detail in a second, pricing which we monitor very closely with our segment presidents Raghur Aminathan, Laura Clayton McDonald, Elizabeth Bistrom for the Big Three, Big Three segments. I think another indicator, Anna, is our continued EBITDA margin expansion As we mentioned and you saw today, EBITDA margin expanded 100 basis points in 2025. And we've made commitments to continue the 100 basis points of margin expansion in twenty twenty six 'twenty seven and 'twenty eight, Hopefully, that gives you indicators that we're closely monitoring all of our GenAI and really all investments, period.

I think that's a strong signal of the return that we're getting. On your second question on pricing, we estimate a slightly higher overall pricing yield in 2026 versus 2025 And when I say that, that is a composite of our full portfolio, not just the GenAI offerings, but all of our offerings. So slightly higher pricing yield in '26 versus '25, Anna.

Super helpful. Just as a follow-up, I'm wondering what are you hearing from your customer on the rollout of AI solutions in TNA? What's their take on the potential experimenting with other newer or smaller Geniei point solutions that's becoming more available in the market, specifically

areas like e-invoice extraction or accounts receivable automation. Versus staying with a scalable and more integrated platform, like Thomson Reuters is offering. Yeah.

So, Anna, if you can answer the question, it's it's are we hearing customers sort of experiment with general-purpose AI solutions in areas like e-invoicing and and AP automation. If if that's if if I understood correctly, the answer is no. As as as you know, we we acquired Piguero, which is we believe world's leading e-invoicing solution, and this mandate to roll out through through Europe and increasingly in The Middle East and Southeast Asia and Latin America we we very much like the trajectory of that product and that offering given inherent product advantages.

And

know, the the the our tax solutions, including our indirect tax solutions and our invoicing solutions, are lightning fast, very accurate, and and priced efficiently. So the idea that sort of a general-purpose AI tool is going to come in and perform that core task. More quickly and efficiently at a lower price is not is not factually true and and not a concern. I think the opportunity for us is to use AI as we're doing in the tax and accounting space with ready to review and ready to advise.

Is to use AI to build out the entire value chain of activities around the tax calculation engine. And so that's a playbook that that we're rolling out first in tax tax and accounting order professionals. And we will extend into our one source proposition de-invoicing and indirect tax, and ultimately, tax. And so it's early days for that, but but we got a we've got a playbook, and we like the early feedback we've gotten from from customers around ready to review and ready to advise.

Right? Anna, just to supplement to your point specifically on e-invoicing, which Steve commented on, if you look at our indirect tax solution, Pagero solutions, which are included within our corporate segment, Those offerings fully met our revenue expectations in 2025, and that trajectory will continue into 2026.

Got it. Super helpful. Thank you so much.

And, Dave go next. To the line of Ara Vinda Galappata with Canaccord Genuity.

Just to go back to sort of, Stevie, comments about the mode. I was wondering if it's worthwhile differentiating the position with respect to your customers and larger law firms as opposed to the smaller law firms. Is is there a material difference

with respect to, you know, the the threat from these new these new generalized services? And then as my follow-up, perhaps, Mike, on, you know, clearly notice the the the GenAI enabled products as percentage percentage of ACV jumped a little bit more than in prior quarters, 28%. How should we think of sort of high watermark for that? Obviously, there's a bunch of products.

It will never be AI. You know, global print and so forth. Maybe just help us imagine what what how far that that number could go. Thank you.

Thanks thanks, Aravinda. I'll I'll take the first, Mike the second. So with so traditionally, the when when we put out a new version, for example, of Westlaw or an upgraded version of Practical Law, the the largest law firms and the largest general counsel's offices were the the first to kick the tires on those and and and ultimately take them up. And then that would sort of work its way down through the customer set.

And and you've heard over time Mike and Gary talk about, you know, percent of ACV that these products occupy and typically know, they they took they've reached the limit in the sort of 70 odd percent range. I think what we're seeing is a slightly different dynamic in this sort of AI-driven era. Insofar as we have just as much demand and interest in our most advanced AI-driven tools from small firms as we do medium and large because they instantly see the impact in terms of accuracy, quality, and and ultimately the sort of impact to their bottom line. And the small folks see see that as quickly.

I mean, I I've been in sales meetings where we've had where we've had sole litigators in the Midwest, for example, The US, say, see a a a demo of of West of the latest West law and and or co-counsel and say, where do I buy? And when I've asked them why such a quick decision, they've said, because, look, I was I've been thinking about hiring another paralegal. Or another associate. And this this does the work.

In many cases. And it's easier and cheaper for me to do this than than than go down that hiring path. So so that dynamic has has been slightly different. But the demand is uniformly keen across across all three.

I think is is slightly different than than than previous iterations, Mike.

Aravinda, in regards to your question on gen GenAI enabled products, just for everyone's benefit, I'll set context. We've initially provided this metric in November 2024 with the Q3 twenty four call Initially, it was a 15% of our annual contract value. As noted today, it's now 28% To specifically address your question, if you can visualize a graph I think we will see continued steady rise in the percent of ACV that's Gen AI enabled throughout 2026, 2027. I think the second thing I would do on that visual in regards to the trend line there will be points in time over 2627 where we will add AI to more of our existing products So those points you could see begin to see some uptick that's higher than the current trend that we have.

So two points there. We'll see a we'll keep rising steadily And then as we AI enable more of our products, you'll see some spikes over the time horizon. But we're certainly pleased with that continued uptick, Aravinda. And there's a direct correlation to my comments earlier as to my confidence in achieving the 2026 targets with the progress and momentum that we have with the GenAI offerings.

Is that helpful, Arvinda? Absolutely. Thank you so much.

Thanks, Aravinda.

We'll go next to Kevin McVeigh with UPS. Please go ahead.

Great. Thanks so much. And congratulations on the execution and a lot of uncertainty, perceived uncertainty. Hey.

I wonder if you could maybe just go into because I think one of the parts that maybe isn't fully appreciated by the market is you know, the complexity of the data aggregation. And then, ultimately, the overlay of your in-house counsel to draw kind of conclusions. And just trying to get a sense of how difficult it is to aggregate the data, not only from a, obviously, digital, but also linear perspective. So maybe talk to that a little bit, and then I think the importance of, I think, it's, what, 17, 1,800 in-house attorneys you have and and how critical that curation process is to the ultimate delivery.

Steve, to your point, kinda know, how important it is getting it right and and having the most comprehensive view.

Yeah. Thanks, thanks, Kevin. It's it's sort of a obviously, renewed interest in in in this question. I would say the vast the vast majority of of value in in our datasets, particularly, but not limited to our link.

Comes from the the IP and the added value from our attorney editors. And these are these are large teams of terrifically talented, highly dedicated folks spread throughout the world. And just a couple of sort of anecdotal points. I mean, the first is, you know, we have in some jurisdictions centuries worth of content, and and and and decades and decades of content that was never digitized.

So it required someone to go to the court steps to the courthouse and record that first instance. Secondly, to the extent that know, some of the case information is published by a particular circuit court or a particular courthouse, Oftentimes, you know, it includes a a sort of a a summary of the judgment. It doesn't include for example, dissenting opinions and and all of the fact based sitting beneath that. And we've captured that over time.

But most importantly, is the way our editors interpret that information modify that information, categorize it, and and and add the expertise that helps determine, for example, is this fact patent relevant to other situations, and which is the relevant precedent and which isn't? That's that's where a lot of the the the real IP is added, and it's a it it is a very, very significant added value add know, over that sort of base level information. That's more publicly available. And that is certainly the true true in legal and and and it's true in in tax and account.

The second thing I would add, and I've I've mentioned this a couple of times, but it's worth reiterating, is that under Leanne Blanchfield's leadership, with help from David Wong and Joel Varon and and Emre and many others, We we have

trained

our attorney editors, our tax and accounting editors to take their expertise not only to produce the content that I just described, but also to train our agents. So if you think about a particular transaction, legal transaction, we've broken it down into the 25 or 30 or a 100 different steps. And then the agents trained by our experts to behave as a world-class best practice practitioner and the agents can then behave in sequence and in parallel, to work their way through that problem. In a very, very advanced way.

And so you know, that, I think, is another example of how this human this this human expertise that's been developed here at TR over many, many decades is highly relevant to this AI era and a differentiator.

Very helpful.

Thanks, Steve.

Thanks, Debbie.

Our next question comes from Doug Arthur with Huber Research. Your line is open.

Yeah. Let me ask a numbers question Mike, the 19,000,000 in severance, a, was that expected? B, where does it show up in the segments? And given the AI productivity displacement, and you mentioned something about $11,000,000 in the first quarter. Are we likely to continue to see these kind of small hits as 2026 unfolds? Thanks.

Doug, let me hit each of those points. The $19,000,000 if we go back to the November earnings call, I did foreshadow that we would have some onetime incremental investment The $19,000,000 is slightly higher than we anticipated at the time. Of the November earnings call. As I mentioned today, we estimate $10,000,000 of severance in Q1 If I look for the remainder of the year, I think another $10,000,000 is a reasonable estimate.

For total Q2 through Q4. That $10,000,000 would be kind of spread along. So directionally, an estimate of 20,000,000 for the full year. Let me bounce back to 2025. You asked about the 19,000,000 and how it's spread. It is spread among segments and functions throughout total TR.

The reason for that, as Steve mentioned during the prepared remarks, we have initiatives across every segment and every function. To drive productivity for total TR.

Okay. So it's not in any specific segment per se?

It it's not in any specific, segment. Once again, Doug, that 19,000,000 is spread among the segments.

Okay. Okay. Thank you. Uh-huh.

We'll go next to Stephanie Price with CIBC. Please go ahead. Good morning. Thanks for squeezing me in. I'll maybe ask on the EBITDA margin expansion. Mike, it was good to see the the 26% preliminary guidance reiterated. Just curious

you're thinking about the pacing of internal AI investments and cost improvements and what's driving the confidence to kind of extend that margin expansion through to 2728? Yes.

Stephanie. Just to confirm, we did say 100 basis points of expansion in each year 26%, twenty seven percent and twenty eight. I think Steve has touched on a few of these points, but I'll expand on it in regards to the confidence level. Stephanie, if you go back to '21 to 2023 when we had our change program, we have many members of that leadership team, including, Andrew Pierce, Pradeep Bhakapali, Mike Goddard, Liz Bank, who are all heavily involved in the change program.

So we have leaders who have proved in regards to their ability to galvanize the team, influence, encourage the team to deliver So that is a really, really important point. And the second point, Stephanie, we have been working on these initiatives for a period of time. They're just not beginning right now. So we go into 2026 with Momentum.

Across total TRs. I referenced a second ago with Doug's question, customer segment, every function in TR, with a number of use cases. I think Steve referenced 300 use cases during the course of his prepared remarks. So once again, those 300 use cases we've been working on throughout 2025 So we're not in exploration mode.

We're in execution and delivery. Mode across all of these 300 plus use cases, Stephanie. In regards to level of investment, that will happen throughout 2026. All of that is reflected within the guidance. There will not be any surprises in regards to incremental investments.

To actually drive and execute against these initiatives. Did I touch on each of your questions, Stephanie?

You did. Thank you very much.

Sure.

We go next to Andrew Steinerman with JP Morgan. Your line is open.

When you look at your most sophisticated legal clients in terms of using AI broadly, Are these clients consuming more or less content? And spending more or less time on Westlaw and why? And I'll just give my follow-up as well. And on my follow-up, I just want to get a little more color at a segment level about that first quarter organic revenue guide of 7%?

Yes. Andrew, it's Steve.

What a great question. So

I don't know that I can give you a sort of the time stamped answer. Right, like for like as to as to you know, to to to talented attorneys spend more time in Westlaw and more time in the AI tools. Certainly, the penetration of these products is growing nicely. And as they are adopted, yes, the time goes up.

But but like for like, I think it's a little, you know, it's it's a little too early to tell. What I would say is is a couple of things. The the legal profession continues to by and large, be in in in good health. In terms of demand for its services.

And my own view for what it's worth is that AI will create many, many complex legal issues. And therefore, the sort of headline demand for the profession will continue to grow. And so within that, these tools are going to play larger and larger roles, and there will be more and more attorneys using them more often each day. And so you know, we we think we'll go from a situation where Westlaw would be used by know, litigators in the context of a particular litigation.

To a situation where it plays larger and larger roles in the in the execution of that litigation. And, also, lawyers are one of the first things they do during the day is is open up CoCouncil and start using it. And one of the last things they do is sort of shut it down and go home. So know, as I've said to you before, we see AI as a means to take our highly differentiated assets enable us to play a larger role in the success of our customers.

And I think what we don't know and what nobody knows is what what will the profession's headcount be in serving that. But my bet is the demand for their services will go up. The complexity of questions that general counsels need to cope with will go up. And and and and the the adoption of these tools will grow significantly particularly as they execute over the next eighteen to twenty four months to change management.

Required internally just as we are doing to ensure that we get the the the extract full value from the tools.

Thank you, Steve. Andrew, in regards to your second question, we don't break down our Q1 guidance by segment consistent with Q1 and prior quarters. I just provide the total. So we don't provide a breakdown by segment.

Okay. Thank you.

Thanks, Andrew.

Take We'll We'll

Thanks, We'll take Toni Kaplan with Morgan Stanley. Your line is

Thank you so much. I wanna put Westlaw aside for a second because I do think that it's easier to conceptualize what the moat is there versus the co-counsel products. And so guess, with regard to co-counsel, you're seeing a lot of growth there right now. But there is a lot of innovation in the space from competitors.

And I know you're sort of gen considering them general AI competitors. But I guess if someone's thinking about summarization or a draft or these like, sort of other use cases outside of core legal research, I don't know that it's totally clear why you need the technical expertise you know, for those types of functions. And so I think that that's leading to, like, will the AI product suite eventually either get commoditized or harder to monetize. And so, like, I guess, I just wanted to hear your thoughts on

how that plays out over time and and sort of the risk to growth because of that

potential for commoditization.

Yeah. Tony, Thanks for the question. I think we've touched upon a couple of these points, but to be let me take a shot at that. I think the first thing you've gotta start with in legal is the stakes associated with being a practicing attorney.

And the the the sort of rights and obligations that that come with that. The fiduciary responsibilities and the expertise required. And and all of those things, the data privacy, the security, and ultimately the accountability, the for the advice that you provide. All of those things lead to the need to be correct.

And not to allow know, client proprietary information to bleed into an AI model or or out into the or, heaven forbid, in the hands of the other the other side of a litigation or a transaction. And so the stakes are extraordinarily high.

Firstly.

Secondly, the single best way to ensure that the AI output is correct

is

by training it, on on a a highly curated trusted, accurate data source.

And

we have that. And very few if any, of the new entrants have access to such a data source. That's the the second part. I think the third is just as as we move into this agentic environment, and the tools are able to to perform more and more tasks and higher sophisticate sophisticated tasks, whether that be summarization or drafting or or production of briefs or rebuttals motions to dismiss, and so forth.

The the in order to perform those tasks, the products need to be agentic. And in order for those agents to behave as a class expert would behave and meet the rights and obligations of a practicing attorney, those agents need to be trained by deep experts. And we have them and have invested very heavily over decades in in those folks. And as I said in my remarks, have have in a sense, retrained those folks to, in addition to producing the content, also to train the agents.

So you know, that's why we are confident And and we think that our sort of leadership position and heritage in around research and know-how. Is a great launching pad for us to be a leading player in the workflow tools as well. And we think that more and more customers will look to integrate those particular areas including research and know-how, and they will want a tool that does both to a very high standard.

Makes sense. And then you think about the tax and accounting business,

I think it'd just be helpful you've done this in the past, but maybe just to hear from your

words,

how you're thinking about

the sort of differentiation or moat there because I I do think that that is a little bit of a different animal than know, legal in terms of what you're providing. And differentiating. Yeah.

No. I agree, Tony. I think I think it is a it's there are some similarities, but there are also there are also some some some differences clearly. So the the basis of differentiation is the tax calculation engines that we that we operate and we provide to customers.

And and those tend to be very sticky. Because tax season tax filing systems seasons come up quickly. And they're incredibly stressful moments for our customers. And so the idea of sort of swapping out the tax calculation engine is not all that attractive.

For a tax tax accounting professional or the head of tax within a corporation. So we operate a number of these products that are that are leading in their categories, including UltraTax, ecosystem tax, and and and OneSource. And so

those

those calculation engines are lightning fast. They are fed by constantly, and in many cases, instantly updated

content.

And they are extremely accurate. And, of course, they have the last number of years of tax information embedded in them and feeding through them to ensure that accuracy and relevance to a particular customer. But all of those things make them both difficult to replace and also unattractive to replace because they are they are very, very high performing. The opportunity for us is to take that position in tax calculation and extend it into the sort of shoulder activities.

So whether that's whether that's the the collection and ingestion of all the source material that goes into a tax return, And short prep, obviously, do that. Whether that's the efiling process that that SafeSend performs well. Or whether it's the sort of integration of these activities that materia. Has has has done so well.

And so we we think there's an opportunity to take that starting position with tax calculation engines and to solve a critical problem from the for the industry, which is which is an acute talent shortage. Know, as we've talked about before, Tony, the tax and accounting firms, whether they're the big four, or whether they're, you know, a high street firm. Just can't access the the talent. As they could twenty five, thirty years ago when there were lots of kids coming out of programs wanting to be CPAs.

There are far fewer now, so the technology has to fill a significant gap, particularly as the number of returns goes up sophistication of returns goes up, the number of audits goes up, and the sophistication of goes up, and the stakes around those things go up. And so that's that's why we're bullish about both our tax and accounting and audit professionals business that Elizabeth runs and also the the the various indirect and direct tax componentry within our corporates business that that Laura runs.

Thanks for fitting me in. Thanks. Bye.

Thanks, Connie.

Great. Thanks, everybody. Have a good day.

Bye.

This concludes today's conference. We thank you for your participation. You may disconnect your lines at this time.