Mr. Steve Hasker reports

THOMSON REUTERS REPORTS SECOND-QUARTER 2023 RESULTS

Thomson Reuters Corp. has provided its results for the second quarter ended June 30, 2023. All amounts are stated in U.S. dollars.

• Solid revenue momentum continued in the second quarter;
• Total company revenue up 2 per cent/organic revenue up 5 per cent:
• • Organic revenue up 7 per cent for the big three segments (legal professionals, corporates, and tax and accounting professionals):
    • Based on Q2 performance, maintained full-year 2023 outlook for organic revenue, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin and free cash flow.
• Interest expense, tax rate and accrued capital expenditures outlooks updated;
• Completed $2-billion return of capital transaction; and reduced share count by 15.8 million shares in concurrent consolidation;
• Sold 15.5 million shares of the London Stock Exchange Group (LSEG) in the second quarter, for gross proceeds of $1.6-billion;
• Signed definitive agreement in June to acquire Casetext and completed Reuters acquisition of Imagen in July.

"I am pleased with our performance in the second quarter as we continued to see good momentum across our portfolio despite an uncertain macro backdrop," said Steve Hasker, president and chief executive officer of Thomson Reuters. "Importantly, our confidence around the opportunity that generative AI [artificial intelligence] brings to us and our customers continues to strengthen. We made good progress in executing our 'build, partner, buy' approach throughout the quarter, with organic AI builds progressing, our announcement of an intelligent drafting solution with Microsoft, and the announcement of our intention to acquire Casetext. Our capital capacity and liquidity will also remain a key asset as we look to continue innovating in our markets, strengthening our leading positions and generating shareholder value."

Revenues increased 2 per cent, driven by growth across four of the company's five business segments. Net divestitures had a 3-per-cent negative impact on revenues and foreign currency had no impact.

• Organic revenues increased 5 per cent, driven by 6-per-cent growth in recurring revenues (80 per cent of total revenues) as well as 6-per-cent growth in transactions revenues. Global print revenues decreased 4 per cent organically.
• The company's big three segments reported organic revenue growth of 7 per cent and collectively comprised 81 per cent of total revenues.
• Operating profit increased 111 per cent primarily due to the gain on the sale of a majority stake in the company's Elite business. Higher revenues and lower costs also contributed to operating profit growth.
• Adjusted EBITDA, which excludes the gain on sale of Elite, as well as other adjustments, increased 18 per cent due to higher revenues and lower costs. The related margin increased to 40.1 per cent from 34.7 per cent in the prior-year period. Lower costs reflected change program investments made in the prior-year period, which benefited the year-over-year change in adjusted EBITDA margin by 190bp, as well as the timing of expenses. Foreign currency contributed 10 basis points to the change.
• Diluted EPS was $1.90 compared with a diluted loss per share of 24 cents in the prior-year period. The increase reflected higher operating profit and an increase in the value of the company's investment in LSEG, while the prior-year period included a significant reduction in the value of the company's investment in LSEG.
• Adjusted EPS, which excludes the gain on the sale of a majority stake in Elite, changes in value of the company's LSEG investment, as well as other adjustments, increased to 84 cents per share from 60 cents per share in the prior-year period, primarily due to higher adjusted EBITDA.
• Net cash provided by operating activities increased $262-million primarily due to the cash benefits from higher revenues and lower costs, lower tax payments, and favourable movements in working capital.
• Free cash flow increased $254-million primarily due to the same factors as net cash provided by operating activities.

Unless otherwise noted, all revenue growth comparisons by customer segment in this news release are at constant currency (or exclude the impact of foreign currency) as Thomson Reuters believes this provides the best basis to measure their performance.

Legal professionals

• Revenues increased 1 per cent to $705-million, reflecting a significant negative impact from net divestitures. Organic revenues increased 6 per cent.
• Recurring revenues grew 2 per cent (95 per cent of total, 5 per cent organic). Organic growth was primarily driven by Westlaw, practical law, HighQ and the segment's international businesses.
• Transactions revenues declined 12 per cent (5 per cent of total, 12-per-cent organic growth). Organic growth was primarily due to the government business and revenue timing at Findlaw.
• Adjusted EBITDA increased 14 per cent to $345-million.
• The margin increased to 48.9 per cent from 43.4 per cent, driven by higher revenues and the timing of expenses, with the latter expected to normalize in the second half of the year.

Corporates

• Revenues increased 5 per cent to $392-million, including a negative impact from net divestitures. Organic revenues increased 7 per cent.
• Recurring revenues grew 5 per cent (87 per cent of total, 8 per cent organic) primarily driven by strong growth in practical law, CLEAR and the company's Latin America business. Transactions revenues grew 2 per cent (13 per cent of total, decreased 1 per cent organic).
• Adjusted EBITDA increased 17 per cent to $163-million.
• The margin increased to 41.6 per cent from 37.4 per cent, driven by higher revenues and the timing of expenses, with the latter expected to normalize in the second half of the year.

Tax and accounting professionals

• Revenues increased 7 per cent to $229-million, including a negative impact from net divestitures. Organic revenues increased 10 per cent.
• Recurring revenues increased 1 per cent (73 per cent of total, 9 per cent organic). Organic growth was driven by the segment's Latin America business.
• Transactions revenues increased 27 per cent (27 per cent of total, 12 per cent organic) primarily due to Confirmation and SurePrep.
• Adjusted EBITDA increased 10 per cent to $89-million.
• The margin increased to 38.5 per cent from 37.4 per cent, driven by higher revenues.
• The tax and accounting professionals segment is the company's most seasonal business with approximately 60 per cent of full-year revenues typically generated in the first and fourth quarters. As a result, the margin performance of this segment has been generally higher in the first and fourth quarters as costs are typically incurred in a more linear fashion throughout the year.

Reuters News

• Revenues of $194-million increased 2 per cent (1 per cent organic). The moderation in revenue growth was driven by a lower contractual price increase in 2023 compared with 2022 of the company's news agreement with the data and analytics business of LSEG, slower events growth and lower digital revenues.
• Adjusted EBITDA increased 2 per cent to $45-million, primarily due to currency benefits.

Global Print

• Revenues decreased 5 per cent (decreased 4 per cent organic) to $133-million, which was in line with the company's expectations.
• Adjusted EBITDA increased 5 per cent to $53-million.
• The margin increased to 39.7 per cent from 35.4 per cent, driven largely by expense timing related to materials sourcing and labour. The company expects this to normalize in Q3.

Corporate costs

• Corporate costs at the adjusted EBITDA level were $33-million. Corporate costs were $57-million in the prior-year period and included $30-million of change program costs.

• Revenues increased 3 per cent, driven by growth across four of the company's five business segments. Net divestitures had a 2-per-cent negative impact on revenues and foreign currency had 1 per cent negative impact.
• Organic revenues increased 6 per cent, driven by 6-per-cent growth in recurring revenues (78 per cent of total revenues) as well as 9-per-cent growth in transactions revenues. Global print revenues decreased 2 per cent organically.
• The company's big three segments reported organic revenue growth of 7 per cent and collectively comprised 81 per cent of total revenues.
• Operating profit increased 66 per cent primarily due to the gain on the sale of a majority stake in the company's Elite business. Higher revenues and lower costs also contributed to operating profit growth.
• Adjusted EBITDA, which excludes the gain on sale of Elite, as well as other adjustments, increased 15 per cent due to higher revenues and lower costs. The related margin increased to 39.4 per cent from 35.3 per cent in the prior-year period. Lower costs reflected change program investments made in the prior-year period, which benefited the year-over-year change in adjusted EBITDA margin by 190 basis points, as well as the timing of expenses. Foreign currency contributed 30bp to the year-over-year change.
• Diluted EPS was $3.49 per share compared with $1.83 per share in the prior-year period primarily due to higher operating profit and an increase in the current period in the value of the company's investment in LSEG.
• Adjusted EPS, which excludes the gain on the sale of a majority stake in the company's Elite business, changes in value of the company's LSEG investment, as well as other adjustments, increased to $1.67 per share from $1.26 per share in the prior-year period, primarily due to higher adjusted EBITDA.
• Net cash provided by operating activities increased $254-million due to cash benefits from higher revenues and lower costs, lower tax payments, and favourable movements in working capital.
• Free cash flow increased $301-million due to higher cash flows from operating activities as well as lower capital expenditures. The prior-year period included investments in the change program.

2023 outlook

The company is maintaining its 2023 outlook except for updates to its tax rate, interest expense and accrued capital expenditures as a percentage of revenues as follows:

• The outlook for the 2023 effective tax rate has been reduced to approximately 17 per cent from the prior forecast of approximately 18 per cent, reflecting a second quarter benefit from the settlement of a prior-year tax audit.
• Interest expense is now expected to be approximately $190-million, which is the low end of the previously communicated range of $190-million to $210-million, reflecting the accelerated pace of LSEG monetization and the benefit from higher interest rates on the company's cash balances.
• Lastly, the outlook for accrued capital expenditures as a per cent of revenues has been increased to approximately 8 per cent, from the prior forecast of approximately 7 per cent plus $30-million non-recurring real estate spend. The updated outlook includes the previously forecasted real estate optimization spend and additional investments to accelerate Thomson Reuters AI focused growth strategies.

The attached table sets forth the company's updated outlook, which assumes constant currency rates and excludes the impact of any future acquisitions or dispositions that may occur during the year. Thomson Reuters believes that this type of guidance provides useful insight into the anticipated performance of its businesses.

The company expects its third quarter 2023 organic revenue growth rate to be at the high end of the full year 5.5-per-cent to 6.0-per-cent range, and its adjusted EBITDA margin to be approximately 36 per cent, reflecting typical margin seasonality, the normalization of cost timing that benefited Q2 margins, and also higher SurePrep integration expenses.

While the company's performance during the first half of 2023 provides it with increasing confidence about its outlook, the macroeconomic backdrop remains uncertain with many signs that point to a weakening global economic environment, amid rising interest rates, high inflation and continuing geopolitical risks. Any worsening of the global economic or business environment could impact the company's ability to achieve its outlook.

Thomson Reuters and TPG establish Elite as an independent legal technology company

In June, 2023, TPG acquired a majority stake in Thomson Reuters' Elite business, which provides financial and practice management solutions to the world's leading law firms, helping customers automate and streamline critical finance and accounting work flows. The company received proceeds of $418-million and retained a 19.9-per-cent minority interest and board representation in the business, supporting Elite strategically going forward. TPG Capital, TPG's U.S. and European late-stage private equity business, is now the majority shareholder of the stand-alone business.

London Stock Exchange Group PLC (LSEG) ownership interest

Thomson Reuters indirectly owns LSEG shares through an entity that it jointly owns with Blackstone's consortium and a group of current LSEG and former Refinitiv senior management. During the second quarter of 2023, the company sold 15.5 million shares that it indirectly owned for $1.6-billion of gross proceeds. As of July 31, 2023, Thomson Reuters indirectly owned approximately 31.8 million LSEG shares, which had a market value of approximately $3.5-billion based on LSEG's closing share price on that day.

Return of capital and share consolidation

In June, 2023, the company returned approximately $2.0-billion of gross proceeds related to the disposition of shares in LSEG to shareholders, and reduced its common shares outstanding by 15.8 million, in accordance with its previously announced plans. The return of capital transaction consisted of a cash distribution of $4.67 per common share and a share consolidation, or reverse stock split, which reduced the number of outstanding common shares at a ratio of one preconsolidated share for 0.963957 postconsolidated share, which was proportional to the cash distribution.

Acquisitions

In June, 2023, the company signed a definitive agreement to acquire Casetext for $650-million. Casetext uses artificial intelligence and machine learning, which enable legal professionals to work more efficiently. The company expects the acquisition to close by the end of 2023, subject to specified regulatory approvals and customary closing conditions.

In July, 2023, the company acquired Imagen Ltd., a media asset management company, which will be part of the Reuters News segment.

Dividends

In February, 2023, the company announced a 10-per-cent or 18-cent-per-share annualized increase in the dividend to $1.96 per common share, representing the 30th consecutive year of dividend increases. A quarterly dividend of 49 cents per share is payable on Sept. 15, 2023, to common shareholders of record as of Aug. 17, 2023.

As of July 31, 2023, Thomson Reuters had approximately 455.3 million common shares outstanding.

About Thomson Reuters Corp.

Thomson Reuters informs the way forward by bringing together the trusted content and technology that people and organizations need to make the right decisions. The company serves professionals across legal, tax, accounting, compliance, government and media. Its products combine highly specialized software and insights to empower professionals with the data, intelligence and solutions needed to make informed decisions, and to help institutions in their pursuit of justice, truth and transparency. Reuters, part of Thomson Reuters, is a world leading provider of trusted journalism and news.

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