Thomson Reuters Corp. continues to boost revenue through organic growth and is looking at acquisitions after selling control of its financial and risk unit earlier this year.
In the third quarter, the company’s total quarterly revenue from businesses it retained grew by 3 per cent from the same period a year ago, after stripping out currency fluctuations. Sales from its legal division, which delivers the bulk of its revenue, jumped 4 per cent. Encouraged by the numbers, investors sent Thomson Reuters shares to a record high on Tuesday.
The company’s recent revenue growth has come from longer-term contracts and not from one-time gains that come and go each quarter. Recurring revenues account for roughly three-quarters of Thomson Reuters’ business, and those sales in the legal division climbed 5 per cent higher in the third quarter over the year prior.
“Most of our revenues are subscription-based; most of those are in multiyear contracts,” chief executive officer Jim Smith said in an interview. “What you see in the third quarter is the continuation of good solid sales momentum, enhanced a little bit by some innovation we’ve released this year.” In July the company launched Westlaw Edge, a new legal research platform driven by artificial intelligence.
Thomson Reuters is in the midst of a transition year after selling a majority stake of its financial and risk business to a consortium led by private equity Blackstone Group LP, a deal that reaped cash proceeds of US$17-billion for Thomson Reuters. It retains 45 per cent of the division, but the company is focused on the businesses it continues to fully own, which have been restructured into three core segments: legal professionals, tax professionals and corporate.
Of the new divisions, legal is the largest unit, delivering two-thirds of revenue from a diversified client base. The Reuters news business and a tax and accounting arm are the other two divisions.
Because there are numerous one-time costs associated with the sale of the financial and risk division, some of which have yet to be incurred, Thomson Reuters’ bottom line has been volatile. In the third quarter, total profit dropped 16 per cent to US$291-million from the same period in 2017. On top of the expected divestiture costs, Thomson Reuters also reported higher expenses than normal in its legal division owing to “compensation-related costs.”
Despite the drop, adjusted earnings of 11 cents a share were higher than the consensus analyst estimate of 3 cents, according to IBES data from Refinitiv.
“We view [the third quarter] results as a neutral to modest positive for the stock following the recent run-up,” RBC Dominion Securities analyst Drew McReynolds wrote in a research note early Tuesday, highlighting an “earlier-than-expected uptick in legal organic revenue growth.”
Thomson Reuters will hold an investor day in early December to outline growth plans now that the financial and risk business has been divested. However, the company has set aside US$2-billion of the sale’s proceeds for acquisitions, and on Tuesday, Mr. Smith said in a conference call the money would be spent on “fewer, larger acquisitions” instead of being spread across a number of smaller tuck-in deals.
Thomson Reuters shares were up more than 4 per cent in midafternoon trading on the Toronto Stock Exchange Tuesday, and the stock has performed well in 2018. The shares have jumped almost 15 per cent since the start of the calendar year and set a new high on the TSX, surpassing a record set in April, 2017.
The recent stock performance partly stems from a return of cash to shareholders after the recent divestiture. In early October, Thomson Reuters finalized its plans to return US$10-billion to shareholders through a number of initiatives. Chiefly, US$6.5-billion has been dedicated to a substantial issuer bid – a form of share buyback – and another US$2.5-billion will be used for a return-of-capital transaction, through which shareholders will receive US$4.45 per common share. Separately, the company has also paid down US$4-billion worth of its debt.
The Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.