Thomson Reuters Reports Third-Quarter 2017 Results

TORONTO – Thomson Reuters (TSX/NYSE: TRI) today reported results for the third quarter ended September 30, 2017. Based on its results for the first nine months of the year, the company reaffirmed its full year guidance (as updated in August) and expects to achieve the high end of its full-year 2017 adjusted earnings per share (EPS) guidance, which was increased last quarter to between $2.40 to $2.45.

“It is gratifying to see that the progress we have made over the last several years is continuing to pay off,” said Jim Smith, president and chief executive officer of Thomson Reuters. “And, despite lower than expected revenue growth for the quarter, margins continue to improve and our most promising growth initiatives are performing well. We will continue to manage the things within our control with the same rigor and discipline that has turned around our organization, in order to build maximum sustainable long-term profit growth. Our transformation efforts should continue to generate bottom-line growth and provide the added fuel we need to accelerate top-line growth in the future."

Consolidated Financial Highlights

Three Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margin and EPS)
(unaudited)

IFRS Financial Measures 1 2017 2016 Change Change at Constant Currency
Revenues $2,792 $2,744 2%  
Operating profit $467 $385 21%  
Diluted EPS (includes discontinued operations) $0.46 $0.36 28%  
Cash flow from operations (includes discontinued operations) $808 $758 7%  
Non-IFRS Financial Measures 1        
Revenues $2,792 $2,744 2% 1%
Adjusted EBITDA $849 $814 4% 4%
Adjusted EBITDA margin 30.4% 29.7% 70bp 70bp
Adjusted EPS $0.68 $0.54 26% 24%
Free cash flow (includes discontinued operations) $531 $519 2%  


1 In addition to results reported in accordance with International Financial Reporting Standards (IFRS), the company uses certain non-IFRS financial measures as supplemental indicators of its operating performance and financial position. These and other non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the tables appended to this news release.


Revenues increased 2% due to higher recurring revenues and a positive impact from foreign currency.

  • At constant currency, revenues increased 1%.
Operating profit increased 21% due to higher revenues and a gain on the sale of an investment.
  • Adjusted EBITDA increased 4% to $849 million and the margin increased 70 basis points to 30.4% from 29.7%.

Diluted EPS, which includes discontinued operations, increased 28% to $0.46 primarily due to higher operating profit, despite the loss of earnings from IP & Science following its sale in the fourth quarter of 2016. Lower interest and tax expense were offset by higher expenses from non-cash foreign currency fluctuations on intercompany loans.

  • Adjusted EPS was $0.68, an increase of 26%, or $0.14 per share primarily due to higher adjusted EBITDA, and lower interest and tax expense.
Cash flow from operations increased 7% due to higher operating profit.
  • Free cash flow increased 2% to $531 million as higher adjusted EBITDA was partly offset by higher capital expenditures.
The company repurchased 5.0 million shares during the third quarter at a cost of $230 million and repurchased 18.5 million shares during the first nine months of the year at a cost of $808 million under its $1.0 billion share buyback program.

 

Highlights by Business Unit

Three Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margins)
(unaudited)

  Three Months Ended September 30, Change
  2017 2016 Total Foreign Currency Constant Currency
Revenues          
Financial & Risk $1,542 $1,516 2% 1% 1%
Legal 843 835 1% 0% 1%
Tax & Accounting 341 323 6% 1% 5%
Corporate & Other (Reuters News) 73 73 0% 1% -1%
Eliminations  (7)  (3)      
Revenues $2,792 $2,744 2% 1% 1%
           
Adjusted EBITDA          
Financial & Risk $495 $460 8% 2% 6%
Legal 338 328 3% 1% 2%
Tax & Accounting 95 87 9% 1% 8%
Corporate & Other (includes Reuters News) (79) (61) n/a n/a n/a
Adjusted EBITDA $849 $814 4% 0% 4%
           
Adjusted EBITDA Margin          
Financial & Risk 32.1% 30.3% 180bp 30bp 150bp
Legal 40.1% 39.3% 80bp 10bp 70bp
Tax & Accounting 27.9% 26.9% 100bp 30bp 70bp
Corporate & Other (includes Reuters News) n/a n/a n/a n/a n/a
Adjusted EBITDA margin 30.4% 29.7% 70bp 0bp 70bp
n/a – not applicable          


Unless otherwise noted, all revenue growth comparisons by business unit 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.


Financial & Risk

Revenues increased 1% to $1.5 billion. Organic revenues were unchanged and acquisitions contributed 1%.

  • Revenues by type:
    • Recurring revenues grew 1% (77% of total)
    • Transactions revenues grew 7% (15% of total) due to increased revenue from Tradeweb and contributions from acquisitions.
    • Recoveries revenues decreased 4% (8% of total).
  • Revenues by geography:
    • Revenues were up 3% in the Americas, up 2% in Asia, and decreased 1% in Europe, Middle East and Africa (EMEA).
Adjusted EBITDA increased 8% to $495 million.
  • The margin increased to 32.1% from 30.3%. In constant currency, the margin increased 150 basis points primarily due to savings from the company’s simplification initiatives, including 2016 severance charges, and higher revenues.
Net sales were positive in the quarter.

 

 

Legal

Revenues increased 1% to $843 million.

  • Recurring revenues grew 3% (76% of total)
  • US Print revenues declined 7% (13% of total)
  • Transactions revenues declined 8% (11% of total)
Adjusted EBITDA increased 3% to $338 million.
  • The margin increased to 40.1% from 39.3%. In constant currency, the margin increased 70 basis points due to higher revenues and savings related to fourth-quarter 2016 severance charges and ongoing simplification initiatives.

 


Tax & Accounting

Revenues increased 5% to $341 million.

  • Recurring revenues grew 2% (87% of total)
  • Transactions revenues grew 33% (13% of total)
Adjusted EBITDA increased 9% to $95 million.
  • The margin increased to 27.9% from 26.9%. In constant currency, the margin increased 70 basis points due to higher revenues.

 


Corporate & Other (Including Reuters News)

Reuters News revenues were $73 million, down 1%.

Corporate & Other costs at the adjusted EBITDA level were $79 million compared to $61 million in the prior-year period. The increase was primarily due to investments relating to improving customer experience and costs related to real estate consolidation initiatives.

  • Including depreciation and amortization of software, Corporate & Other costs were $85 million compared to $77 million in the prior-year period. On this basis, the company expects full-year Corporate & Other costs will be approximately $290 million.

 

Consolidated Financial Highlights

Nine Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margin and EPS)
(unaudited)

IFRS Financial Measures 2017 2016 Change Change at Constant Currency
Revenues $8,389 $8,306 1%  
Operating profit $1,310 $1,096 20%  
Diluted EPS (includes discontinued operations) $1.13 $1.15 -2%  
Cash flow from operations (includes discontinued operations) $1,274 $1,986 -36%  
Non-IFRS Financial Measures        
Revenues $8,389 $8,306 1% 2%
Adjusted EBITDA $2,563 $2,319 11% 10%
Adjusted EBITDA margin 30.6% 27.9% 270bp 240bp
Adjusted EPS $1.91 $1.47 30% 29%
Free cash flow (includes discontinued operations) $526 $1,267 -58%  


Revenues increased 1% as higher recurring revenues and contributions from acquisitions were partly offset by the impact of foreign currency.

  • At constant currency, revenues increased 2%.
Operating profit increased 20% primarily due to higher revenues and lower expenses, which reflected continued simplification initiatives.
  • Adjusted EBITDA increased 11% to $2.6 billion and the margin increased to 30.6% from 27.9%, reflecting the same factors.
Diluted EPS, which includes discontinued operations, decreased 2% to $1.13 as higher operating profit and lower interest expense were more than offset by non-cash foreign currency fluctuations on intercompany loans and the loss of earnings from IP & Science following its sale.
  • Adjusted EPS was $1.91, an increase of 30%, or $0.44 per share, primarily due to higher adjusted EBITDA, as well as lower interest expense.
Cash flow from operations declined 36% primarily due to a $500 million pension plan contribution in the first quarter of 2017, $137 million of payments related to 2016 severance charges, and the loss of cash flow from IP & Science following its sale ($237 million year-on-year variance).
  • Free cash flow decreased 58% to $526 million reflecting similar factors as noted above.

 

Highlights by Business Unit

Nine Months Ended September 30
(Millions of U.S. dollars, except for adjusted EBITDA margins)
(unaudited)

  Nine Months Ended September 30, Change
  2017 2016 Total Foreign Currency Constant Currency
Revenues          
Financial & Risk $4,561 $4,549 0% -1% 1%
Legal 2,509 2,503 0% -1% 1%
Tax & Accounting 1,108 1,036 7% 1% 6%
Corporate & Other (Reuters News) 221 227 -3% -1% -2%
Eliminations (10) (9)      
Revenues $8,389 $8,306 1% -1% 2%
           
Adjusted EBITDA          
Financial & Risk $1,435 $1,340 7% 0% 7%
Legal 965 936 3% 0% 3%
Tax & Accounting 339 283 20% 1% 19%
Corporate & Other (includes Reuters News) (176) (240) n/a n/a n/a
Adjusted EBITDA $2,563 $2,319 11% 1% 10%
           
Adjusted EBITDA Margin          
Financial & Risk 31.5% 29.5% 200bp 40bp 160bp
Legal 38.5% 37.4% 110bp 20bp 90bp
Tax & Accounting 30.6% 27.3% 330bp 0bp 330bp
Corporate & Other (includes Reuters News) n/a n/a n/a n/a n/a
Adjusted EBITDA margin 30.6% 27.9% 270bp 30bp 240bp
n/a – not applicable          


Dividend

In February 2017, the Thomson Reuters board of directors approved a $0.02 per share annualized increase in the dividend to $1.38 per common share. A quarterly dividend of $0.345 per share is payable on December 15, 2017 to common shareholders of record as of November 16, 2017.

Business Outlook 2017 (At Constant Currency)

Based on the results of the first nine months of the year, the company reaffirmed its full-year outlook, as communicated in August 2017:

  • Low single-digit revenue growth
  • Adjusted EBITDA margin to range between 29.3% - 30.3%
  • Free cash flow to range between $0.9 billion and $1.2 billion, which reflects cash payments in 2017 relating to fourth-quarter 2016 severance charges, the $500 million pension plan contribution made in the first quarter of 2017 and the loss of free cash flow from the sale of the IP & Science business
  • Adjusted EPS target of $2.40 - $2.45, which is now forecast to be at the top of this range.
The company’s 2017 outlook does not factor in the impact of acquisitions or divestitures that may occur during the year.

 

The information in this section is forward-looking and should be read in conjunction with the section below entitled “Special Note Regarding Forward-Looking Statements, Material Assumptions and Material Risks.”

Thomson Reuters

Thomson Reuters is the world’s leading source of news and information for professional markets. Our customers rely on us to deliver the intelligence, technology and expertise they need to find trusted answers. The business has operated in more than 100 countries for more than 100 years. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol: TRI). For more information, visit www.thomsonreuters.com.

NON-IFRS FINANCIAL MEASURES

Thomson Reuters prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

This news release includes certain non-IFRS financial measures, such as adjusted EBITDA and the related margin (other than at the business unit or segment level), free cash flow, adjusted EPS, and selected measures excluding the impact of foreign currency. Thomson Reuters uses these non-IFRS financial measures as supplemental indicators of its operating performance and financial position. These measures do not have any standardized meanings prescribed by IFRS and therefore are unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance calculated in accordance with IFRS. Non-IFRS financial measures are defined and reconciled to the most directly comparable IFRS measures in the appended tables. The term “organic” refers to Thomson Reuters’ existing businesses before the impact of acquisitions.

The company's business outlook contains various non-IFRS financial measures. For outlook purposes only, the company is unable to reconcile these non-IFRS measures to the most comparable IFRS measures because it cannot predict, with reasonable certainty, the 2017 impact of changes in foreign exchange rates which impact (i) the translation of its results reported at average foreign currency rates for the year, (ii) fair value adjustments associated with foreign currency derivatives embedded in certain customer contracts, and (iii) other finance income or expense related to foreign exchange contracts and intercompany financing arrangements. Additionally, the company cannot reasonably predict the occurrence or amount of other operating gains and losses, which generally arise from business transactions that it does not anticipate.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS, MATERIAL ASSUMPTIONS AND MATERIAL RISKS

Certain statements in this news release, including, but not limited to, statements in the "Business Outlook 2017 (At Constant Currency)" section, Mr. Smith’s comments and statements regarding corporate costs, are forward-looking. As a result, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. There is no assurance that the events described in any forward-looking statement will materialize. A business outlook is provided for the purpose of presenting information about current expectations for 2017. This information may not be appropriate for other purposes. You are cautioned not to place undue reliance on forward-looking statements which reflect expectations only as of the date of this news release. Except as may be required by applicable law, Thomson Reuters disclaims any obligation to update or revise any forward-looking statements.

The company's 2017 business outlook is based on various external and internal assumptions. Economic and market assumptions include, but are not limited to, GDP growth in most of the countries where Thomson Reuters operates, a continued increase in demand for high quality information and workflow solutions and a continued need for trusted products and services that help customers navigate changing geopolitical, economic and regulatory environments. Internal financial and operational assumptions include, but are not limited to, the successful execution of sales initiatives, ongoing product release programs, our globalization strategy and other growth and efficiency initiatives.

Some of the material risk factors that could cause actual results or events to differ materially from those expressed in or implied by forward-looking statements in this news release include, but are not limited to, changes in the general economy; actions of competitors; failure to develop new products, services, applications and functionalities to meet customers' needs, attract new customers and retain existing ones, or expand into new geographic markets and identify areas of higher growth; fraudulent or unpermitted data access or other cyber-security or privacy breaches; failures or disruptions of telecommunications, data centers, network systems or the Internet; increased accessibility to free or relatively inexpensive information sources; failure to meet the challenges involved in operating globally; failure to maintain a high renewal rate for recurring, subscription-based services; dependency on third parties for data, information and other services; changes to law and regulations; tax matters, including changes to tax laws, regulations and treaties; fluctuations in foreign currency exchange and interest rates; failure to adapt to organizational changes and effectively implement strategic initiatives; failure to attract, motivate and retain high quality management and key employees; failure to protect the brands and reputation of Thomson Reuters; inadequate protection of intellectual property rights; threat of legal actions and claims; failure to derive fully the anticipated benefits from existing or future acquisitions, joint ventures, investments or dispositions; risk of antitrust/competition-related claims or investigations; impairment of goodwill and other identifiable intangible assets; downgrading of credit ratings and adverse conditions in the credit markets; the effect of factors outside of the control of Thomson Reuters on funding obligations in respect of pension and post-retirement benefit arrangements; and actions or potential actions that could be taken by the company’s principal shareholder, The Woodbridge Company Limited. These and other factors are discussed in materials that Thomson Reuters from time to time files with, or furnishes to, the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. Thomson Reuters annual and quarterly reports are also available in the "Investor Relations" section of www.thomsonreuters.com.

Thomson Reuters will webcast a discussion of its third-quarter 2017 results today beginning at 8:30 a.m. Eastern Daylight Time (EDT). You can access the webcast by visiting the "Investor Relations" section of www.thomsonreuters.com. An archive of the webcast will be available following the presentation.


CONTACTS

MEDIA
David Crundwell

Senior Vice President, Corporate Affairs
Tel: +1 416 649 9904
Email: david.crundwell@tr.com

INVESTORS
Frank J. Golden
Senior Vice President, Investor Relations
Tel: +1 646 223 5288
Email: frank.golden@tr.com