Thomson Reuters Reports First-Quarter 2021 Results

TORONTO, May 4, 2021 /PRNewswire/ -- Thomson Reuters (TSX/NYSE: TRI) today reported results for the first quarter ended March 31, 2021, updated its revenue outlook for the full year and provided an outlook for the second quarter 2021.

"Our first-quarter performance reflects a strong start to the year, and we are encouraged by the momentum we see building. Our customers are more confident in an improving economic environment and those positive prevailing tailwinds were reflected in strong sales across our businesses. Despite the improving outlook, risks remain as the pandemic is still significantly impacting many parts of the world. However, we are encouraged by the first quarter's results and our increasing confidence is reflected in our new outlook for the second quarter and the increase to the low end of our revenue outlook for the full year," said Steve Hasker, president and CEO of Thomson Reuters.

Consolidated Financial Highlights - Three Months Ended March 31

Revenues increased 4% due to growth in recurring revenues and a 1% favorable impact from foreign currency.

• Organic revenues increased 3%, driven by 3% growth in recurring revenues, which comprised 77% of total revenues.
• The company's "Big 3" segments (Legal Professionals, Corporates and Tax & Accounting Professionals), which collectively comprised 81% of total revenues, reported organic revenue growth of 5%.

Operating profit increased 34% due to higher revenues and a favorable impact from the revaluation of warrants that the company held in Refinitiv until they were exercised in connection with the closing of the sale to London Stock Exchange Group (LSEG) on January 29, 2021.

• Adjusted EBITDA, which excludes the impact of the warrant revaluation, among other items, increased 16% due to higher revenues and lower costs, which reflected the impact from cost-reduction initiatives in 2020. The related margin increased to 35.3% from 31.6% in the prior-year period.

Diluted EPS increased to $10.13 per share from $0.39 per share in the prior-year period due to the gain on the sale of the company's investment in Refinitiv to LSEG.

• Adjusted EPS, which excludes the gain from the sale of the company's investment in Refinitiv, as well as other adjustments, increased to $0.58 per share from $0.48 per share in the prior-year period, primarily due to higher adjusted EBITDA.

Cash flow from operations increased due to favorable movements in working capital (including lower bonus payments which were due to the impact of COVID-19 in 2020), higher revenues and cash savings from 2020 cost-reduction initiatives.

• Free cash flow increased due to the same factors as cash flow from operations.

Highlights by Customer Segment - Three Months Ended March 31

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 5% (all organic) to $668 million.

• Recurring revenues grew 4% (93% of total, all organic), primarily due to strong performances from Practical Law, Westlaw Edge and the Government business.
• Transactions revenues grew 17% (7% of total, all organic), primarily due to the Elite and Government businesses.

Adjusted EBITDA increased 21% to $279 million.

• The margin increased to 41.8% from 36.7%, primarily due to higher revenues and benefits from 2020 cost-savings initiatives.

Corporates

Revenues increased 4% (all organic) to $384 million, despite a 2% reduction in revenue growth due to a loss of revenues related to the impact of the U.S. federal Affordable Care Act that was recorded in the prior-year period.

• Recurring revenues grew 4% (77% of total, all organic).
• Transactions revenues grew 4% (23% of total, all organic), primarily related to increasing demand for solutions provided by the Confirmation business, which provides audit confirmation services.

Adjusted EBITDA increased 25% to $146 million.

• The margin increased to 38.1% from 31.9%, primarily due to higher revenues and benefits from 2020 cost-savings initiatives.

Tax & Accounting Professionals

Revenues increased 5% (all organic) to $225 million, reflecting strong transactions revenue growth of 7%, despite the extension of the U.S. tax filing deadline to May from April that resulted in lower transactional tax filing revenues in the first quarter. Additionally, revenue growth was negatively impacted due to the acceleration of the release of some UltraTax U.S. state tax software from January 2021 to December 2020 to align with the traditional December release of the segment's U.S. Federal tax software. If the UltraTax software had been released in January 2021, organic revenue growth for the segment would have been 8%.

• Recurring revenues grew 4% (71% of total, all organic).
• Transactions revenues grew 7% (29% of total, all organic), primarily due to audit products.

Adjusted EBITDA increased 17% to $98 million.

• The margin increased to 43.7% from 38.7%, primarily due to higher revenues and benefits from 2020 cost-savings initiatives.
• The Tax & Accounting Professionals segment is the company's most seasonal business with approximately 60% 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 $160 million increased 2%, all organic, primarily due to the segment's professional business.

• Reuters Events is currently holding all events virtually. Reuters Events continue to assess when in-person events can resume based on local health guidelines and feedback from customers.

Adjusted EBITDA increased 45% to $28 million, primarily due to revenue growth and benefits from 2020 cost-savings initiatives.

Global Print

Revenues decreased 9% to $143 million, a better than expected performance, driven by higher third-party revenues for printing services.

• Global Print's full-year 2021 revenues are forecast to decline between 4% and 7%.
• Global Print's second-quarter revenues are forecast to increase between 1% and 3%, as the prior-year period was negatively impacted by delayed shipments at the beginning of the COVID-19 pandemic.

Adjusted EBITDA decreased 9% to $57 million.

• The margin decreased from 40.5% to 39.9% due to the decline in revenues.

Corporate Costs

Corporate costs at the adjusted EBITDA level were $50 million, including $11 million of Change Program costs, compared to $33 million of Corporate costs in the prior-year period. Additional information on the Change Program is provided below.

Thomson Reuters Change Program and Outlook

In February 2021, the company announced a two-year Change Program to transition from a holding company to an operating company, and from a content provider to a content-driven technology company. The program is expected to take 24 months (2021-2022) to largely complete and is projected to require an investment of between $500 million and $600 million during the course of that time. In 2023, the company is forecast to:

• Achieve organic revenue growth of 5% - 6%, including additional annual revenues of $100 million;
• Achieve an Adjusted EBITDA margin of 38% - 40%;
• Achieve free cash flow of $1.8 billion - $2.0 billion;
• Achieve annual operating expense savings of $600 million, of which $200 million is expected to be reinvested in growth initiatives; and
• Reduce capital expenditures as a percentage of revenue to between 6.0% and 6.5%.

The company's outlook for 2021, 2022 and 2023 incorporates the forecasted impacts associated with the Change Program, assumes constant currency rates, and excludes the impact of any future acquisitions or dispositions that may occur during those periods. Thomson Reuters believes that this type of guidance provides useful insight into the performance of its businesses.

While the company's first-quarter 2021 performance provides it with increasing confidence about its outlook, the global economy continues to experience substantial disruption due to concerns regarding the spread of COVID-19, as well as from the measures intended to mitigate its impact. Any worsening of the global economic or business environment could impact the company's ability to achieve its outlook.

Today, the company updated its revenue outlook for 2021 and reaffirmed its outlook for 2022 and 2023. The full updated outlook is appended to this news release.

Second-Quarter 2021 Outlook

The company provided a new outlook today for the second quarter of 2021:

• Total company revenues and total organic revenues are expected to increase between 5.5% and 6.5%. Second-quarter revenue growth is forecast to be the high point for the year given the impact of COVID-19 in the second quarter of 2020.
• "Big 3" total revenue growth and organic revenue growth is forecast to range between 6.0% and 7.0%.
• Tax & Accounting Professionals revenues are expected to increase between 10% and 15%.
• Reuters News revenues are expected to increase between 2.0% and 3.0%.
• Global Print revenues are expected to increase between 1.0% and 3.0%.

Second-Quarter and Update to Full-Year 2021 Revenue Outlook

The information in this section is forward-looking. Actual results, which include the impact of currency and future acquisitions and dispositions completed during 2021, 2022 and 2023, may differ materially from the company's outlook. Some of the forward-looking financial measures in the outlook above are provided on a non-IFRS basis. See the section below entitled "Non-IFRS Financial Measures" for more information. The information in this section should also be read in conjunction with the section below entitled "Special Note Regarding Forward-Looking Statements, Material Risks and Material Assumptions."

Dividends and Share Repurchases

In February 2021, the company announced its Board of Directors approved a $0.10 per share annualized increase in the dividend to $1.62 per common share, representing the 28^th consecutive year of dividend increases. A quarterly dividend of $0.405 per share is payable on June 15, 2021 to common shareholders of record as of May 20, 2021.

The company also announced in February 2021 that it completed the repurchase of $200 million of its common shares under its normal course issuer bid (NCIB), which began in January 2021. Thomson Reuters does not currently intend to repurchase additional shares in 2021. Thomson Reuters has set a target to maintain approximately 500 million common shares outstanding by using share repurchases to offset dilution associated with its dividend reinvestment and equity incentive plans. As of May 3, 2021, Thomson Reuters had approximately 496 million common shares outstanding.

Sale of Refinitiv to London Stock Exchange Group (LSEG)  

On January 29, 2021, Thomson Reuters and private equity funds affiliated with Blackstone closed the sale of Refinitiv to LSEG in an all-share transaction.  Thomson Reuters now indirectly owns LSEG shares through an entity that it jointly owns with Blackstone's consortium and a group of current and former Refinitiv senior management.  On March 19, 2021, as permitted under a lock-up exception, Thomson Reuters sold approximately 10.1 million LSEG shares for pre-tax net proceeds of $994 million. Over the course of 2021, Thomson Reuters will pay approximately $225 million of tax on the sale of these shares and will use the after-tax proceeds to pay the approximately $640 million of taxes that became payable when the Refinitiv sale closed. As of May 3, 2021, Thomson Reuters indirectly owned approximately 72.4 million LSEG shares which had a market value of approximately $7.4 billion based on LSEG's closing share price on that day. 

Subject to certain exceptions, Thomson Reuters and Blackstone's consortium have otherwise agreed to be subject to a lock-up for their LSEG shares until January 29, 2023. In each of the three and four years following the closing (starting on January 30, 2023 and January 30, 2024, respectively), Thomson Reuters and Blackstone's consortium will become entitled to sell in aggregate one-third of the LSEG shares issued to them. The lock-up arrangement will terminate on January 29, 2025. The ability of current and former members of Refinitiv senior management to sell shares held by them is also subject to certain restrictions.

Reuters News' 30-year agreement to supply news and editorial content to Refinitiv/LSEG continues under the same terms and conditions and is scheduled to run to 2048.  

Thomson Reuters financial results for the first quarter included a gain on the sale of Refinitiv to LSEG of $8.1 billion within "Share of post-tax earnings (losses) of equity investments". The proceeds from Thomson Reuters March 2021 sale of LSEG shares were distributed to Thomson Reuters as a dividend that reduced the value of the investment. The proceeds from the sale of the LSEG shares were presented in "Net cash provided by investing activities" within the consolidated statement of cash flow. Thomson Reuters removed these amounts from its non-IFRS calculation of adjusted EPS and free cash flow. The company accounts for its indirect investment in LSEG at fair value, based on the share price of LSEG, within "Share of post-tax earnings (losses) in equity method investments" within the consolidated income statement. 

Thomson Reuters
Thomson Reuters is a leading provider of business information services. Our products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world's most global news service – Reuters. For more information on Thomson Reuters, visit tr.com and for the latest world news, reuters.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 customer segment level), net debt to adjusted EBITDA leverage ratio, free cash flow, adjusted EPS, selected measures excluding the impact of foreign currency, and changes in revenues computed on an organic basis. 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 company's outlook contains various non-IFRS financial measures. The company believes that providing reconciliations of forward-looking non-IFRS financial measures in its outlook would be potentially misleading and not practical due to the difficulty of projecting items that are not reflective of ongoing operations in any future period. The magnitude of these items may be significant. Consequently, 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 2021, 2022 and 2023 impacts of changes in foreign exchange rates which impact (i) the translation of its results reported at average foreign currency rates for the year, and (ii) other finance income or expense related to intercompany financing arrangements. Additionally, the company cannot reasonably predict (i) our share of post-tax earnings (losses) in equity method investments, which is subject to changes in the stock price of LSEG or (ii) the occurrence or amount of other operating gains and losses, that generally arise from business transactions that the company does not currently anticipate.

ROUNDING

Other than EPS, the company reports its results in millions of U.S. dollars, but computes percentage changes and margins using whole dollars to be more precise. As a result, percentages and margins calculated from reported amounts may differ from those presented, and growth components may not total due to rounding.

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

Certain statements in this news release, including, but not limited to, statements in Mr. Hasker's comments, the "Thomson Reuters Change Program and Outlook" section, and the company's expectations regarding Reuters Events, Global Print and share repurchases, are forward-looking. The words "will", "expect", "believe", "target", "estimate", "could", "should", "intend", "predict", "project" and similar expressions identify forward-looking statements. While the company believes that it has a reasonable basis for making forward-looking statements in this news release, they are not a guarantee of future performance or outcomes and there is no assurance that any of the other events described in any forward-looking statement will materialize. Forward-looking statements, including those related to the COVID-19 pandemic, are subject to a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from current expectations. Many of these risks, uncertainties and assumptions are beyond the company's control and the effects of them can be difficult to predict. In particular, the full extent of the impact of the COVID-19 pandemic on the company's business, operations and financial results will depend on numerous evolving factors that it may not be able to accurately predict.

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, uncertainty, downturns and changes in the markets that the company serves, the ongoing impact of the COVID-19 pandemic on the company's business and risks that the pandemic could have a longer duration or a more significant impact on Thomson Reuters than the company currently expects; fraudulent or unpermitted data access or other cyber-security or privacy breaches; failures or disruptions of data centers, network systems, telecommunications, or the Internet; failure to keep pace with technological developments to provide 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; inadequate protection of intellectual property rights; actions of competitors; failure to adapt to organizational changes and effectively implement strategic initiatives; failure to attract, motivate and retain high quality, talented and diverse management and key employees; failure to derive fully the anticipated benefits from existing or future acquisitions, joint ventures, investments or dispositions; 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; failure to protect the brands and reputation of Thomson Reuters; impairment of goodwill and other identifiable intangible assets; changes to law and regulations related to privacy, data security, data protection and other areas; tax matters, including changes to tax laws, regulations and treaties; threat of legal actions and claims; risk of antitrust/competition-related claims or investigations; fluctuations in foreign currency exchange and interest rates; 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; actions or potential actions that could be taken by the company's principal shareholder, The Woodbridge Company Limited; and the ability of Thomson Reuters Founders Share Company to affect the company's governance and management. Many of the foregoing risks are, and could be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. These and other risk 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 tr.com.

The company's business outlook is based on information currently available to the company and is based on various external and internal assumptions made by the company in light of its experience and perception of historical trends, current conditions and expected future developments (including those related to the COVID-19 pandemic), as well as other factors that the company believes are appropriate under the circumstances. Material assumptions and material risks may cause actual performance to differ from the company's expectations underlying its business outlook, which reflects the global economic crisis caused by the COVID-19 pandemic. Material assumptions related to the company's revenue outlook are that there will be improved global economic conditions throughout 2021 to 2023, despite periods of volatility due to disruption caused by COVID-19 and the measures intended to mitigate its impact; there will be a continued need for trusted products and services that help customers navigate evolving and complex legal, tax, accounting, regulatory, geopolitical and commercial changes, developments and environments, and for cloud-based digital tools that drive productivity; Thomson Reuters will have a continued ability to deliver innovative products that meet evolving customer demands; the company will acquire new customers through expanded and improved digital platforms, simplification of the product portfolio and through other sales initiatives; and  the company will improve customer retention through commercial simplification efforts and customer service improvements. Material assumptions related to the company's adjusted EBITDA margin outlook are its ability to achieve revenue growth targets; the company's business mix continues to shift to higher-growth product offerings; Change Program expenses are $500 million to $600 million during the course of 2021 and 2022; and Change Program investments will drive higher adjusted EBITDA margin through higher revenues and efficiencies by 2023.  Material assumptions related to the company's free cash flow outlook are its ability to achieve its revenue and adjusted EBITDA margin targets; and capital expenditures are between the percentages of revenues in 2021, 2022 and 2023 as set forth in the company's outlook. Material assumptions related to the company's effective tax rate on adjusted earnings outlook are its ability to achieve its adjusted EBITDA target; the mix of taxing jurisdictions where the company recognized pre-tax profit or losses in 2020 does not significantly change; no unexpected changes in tax laws or treaties within the jurisdictions where the company operates; depreciation and amortization of computer software for 2021 as set forth in the company's outlook; and interest expense for 2021 as set forth in the company's outlook.

Material risks related to the company's revenue outlook are that business disruptions associated with the COVID-19 pandemic, including government enforced quarantines and stay-at-home orders, may continue longer than the company expects or may be interrupted by future outbreaks and resurgences of the virus, delaying the anticipated recovery of the global economy; global economic uncertainty due to the COVID-19 pandemic as well as related regulatory reform and changes in the political environment may lead to limited business opportunities for the company's customers, creating significant cost pressures for them and potentially constraining the number of professionals employed, which could lead to lower demand for Thomson Reuters products and services; demand for the company's products and services could be reduced by changes in customer buying patterns or in its inability to execute on key product design or customer support initiatives; competitive pricing actions and product innovation could impact the company's revenues; and the company's sales, commercial simplification and product design initiatives may be insufficient to retain customers or generate new sales. Material risks related to the company's adjusted EBITDA margin outlook are the same as the risks above related to the revenue outlook; the costs to execute the Change Program may be higher than current expectations or the expected benefits by 2023 may be lower than current expectations; and acquisition and disposal activity may dilute the company's adjusted EBITDA margin. Material risks related to the company's free cash flow outlook are the same as the risks above related to the revenue and adjusted EBITDA margin outlook; a weaker macroeconomic environment could negatively impact working capital performance, including the ability of customers to pay the company; capital expenditures may be higher than currently expected; and the timing and amount of tax payments to governments may differ from the company's expectations. Material risks related to the company's effective tax rate on adjusted earnings outlook are the same as the risks above related to adjusted EBITDA; a material change in the geographical mix of the company's pre-tax profits and losses; a material change in current tax laws or treaties to which the company is subject, and did not expect; and depreciation and amortization of computer software as well as interest expense may be significantly higher or lower than expected.

The company has provided an updated Outlook for the purpose of presenting information about current expectations for the periods presented. 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, including those related to the COVID-19 pandemic.

CONTACTS

Thomson Reuters will webcast a discussion of its first-quarter 2021 results and its business outlook today beginning at 8:30 a.m. Eastern Daylight Time (EDT). You can access the webcast by visiting ir.tr.com. An archive of the webcast will be available following the presentation.

The information in this section is forward-looking. Actual results, which include the impact of currency and future acquisitions and dispositions completed during 2021, 2022 and 2023, may differ materially from the company's outlook. Some of the forward-looking financial measures in the outlook above are provided on a non-IFRS basis. See the section above entitled "Non-IFRS Financial Measures" for more information. The information in this section should also be read in conjunction with the section above entitled "Special Note Regarding Forward-Looking Statements, Material Risks and Material Assumptions."

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