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01/11 03:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong financial performance with increased EBITDA and EPS, despite a slight decline in free cash flow. Positive customer response to new products and confidence in achieving growth targets bolster sentiment. The Q&A reveals management's optimism about overcoming sales challenges and maintaining essential government contracts. While there are some uncertainties in government spending, the overall outlook, including AI investments and margin improvements, is positive. Given these factors, a positive stock price movement is expected over the next two weeks.
Total company organic revenues Rose 7% year-over-year, driven by the Big 3 segments growing by 9%. The increase was attributed to healthy revenue flow-through, beneficial revenue mix, and good cost discipline.
Legal Professionals segment organic revenue Grew 9% year-over-year, up from 8% in the first half of 2025 and 7% last year. This growth was driven by continued Westlaw momentum and strong double-digit growth from CoCounsel and CoCounsel drafting.
Tax & Accounting organic revenues Increased by 10% year-over-year, driven by strong performance in Latin American and U.S. businesses.
Reuters News organic revenues Rose 3% year-over-year, driven by growth in the agency business and the contract with LSEG.
Global Print organic revenues Declined 4% year-over-year, attributed to a slower-than-expected ramp in commercial print volumes.
Adjusted EBITDA Increased 10% year-over-year to $672 million, reflecting a 240 basis point margin increase to 37.7%. This was due to healthy operating leverage and good cost discipline.
Adjusted EPS Was $0.85 for the quarter, up from $0.80 in the prior year period. Currency had a $0.01 positive impact.
Free cash flow Approximately $1.4 billion for the first 9 months of 2025, down 3% year-over-year. The decrease was largely due to timing-related changes in working capital.
Agentic AI launches: Customer feedback on the Agentic AI launches over the summer has been very positive, with encouraging initial sales trends for CoCounsel legal integrated offer, Westlaw advantage, and CoCounsel for tax, audit, and accounting.
Westlaw Advantage: The development of Deep Research and Agentic AI, along with the launch of Westlaw Advantage, has significantly increased differentiation in the legal research space.
Generative AI-enabled products: 24% of annualized contract value (ACV) is now from products that are generative AI-enabled, up from 22% last quarter.
International business growth: Double-digit growth was observed in international businesses across Legal, Tax & Accounting, and Corporates segments.
AI assistant space: Incremental competition is noted in the AI assistant space, which is seen as a white space growth opportunity where CoCounsel remains a market leader.
Revenue growth: Total company organic revenues rose 7%, with the Big 3 segments growing by 9%. Legal Professionals segment saw 9% organic revenue growth, driven by Westlaw and CoCounsel.
Cost discipline: Healthy revenue flow-through, beneficial revenue mix, and good cost discipline boosted margins, driving profit ahead of expectations.
Adjusted EBITDA: Adjusted EBITDA increased 10% to $672 million, with a 240 basis point margin increase to 37.7%.
Capital allocation: Completed a $1 billion share repurchase program and remain well-capitalized with $9 billion of capital capacity through 2027.
2026 financial framework update: Updated 2026 framework includes 7.5%-8% organic revenue growth, 100 basis points of adjusted EBITDA margin expansion, and $2.1 billion free cash flow.
Slower ramp of commercial print volumes: The company has experienced a slower-than-expected ramp in commercial print volumes, which is expected to impact total organic revenue growth by approximately 25 basis points for the year.
U.S. federal government cancellations and downgrades: The government business has faced recent downgrades and losses related to federal efficiency programs, which are expected to drag full-year organic revenue growth by approximately 20 basis points.
Softer bookings trends at Corporates: The Corporate segment has seen softer bookings trends due to internal sales organizational changes aimed at improving future cross-selling, contributing to a slower sales build in 2025.
Global Print revenue decline: Global Print organic revenues declined 4% year-on-year, reflecting ongoing challenges in this segment.
Incremental competition in AI assistant space: The company faces incremental competition in the AI assistant space, which could impact its market position despite current leadership in this area.
Dependence on proprietary content and editorial processes: The company's reliance on proprietary content and extensive editorial processes for products like Westlaw could be a challenge if competitors find ways to replicate or innovate beyond these offerings.
2025 Revenue and Profit Outlook: Reaffirmed full-year 2025 revenue and profit outlook, with expectations for approximately 9% organic revenue growth for the Big 3 segments. Total and organic revenue growth is trending closer to 3% and 7%, respectively, rather than the higher end of the ranges at 3.5% and 7.5%.
2026 Financial Framework: Updated expectations for 2026 include organic revenue growth of 7.5% to 8%, with approximately 9.5% growth for the Big 3 segments. Larger year-over-year margin expansion and higher free cash flow are anticipated compared to prior outlook.
AI and Product Innovation: Positive customer feedback and encouraging initial sales trends for Agentic AI launches, including CoCounsel legal integrated offer, Westlaw Advantage, and CoCounsel for tax, audit, and accounting. Incremental competition in the AI assistant space is noted, but CoCounsel remains a market leader.
Capital Allocation: Estimated $9 billion of capital capacity through 2027 after completing a $1 billion share repurchase program. Positioned to be aggressive and opportunistic in deploying capital to create shareholder value.
Q4 2025 Expectations: Organic revenue growth of approximately 7%, including 9% for the Big 3 segments. Adjusted EBITDA margin expected to be approximately 39%, including select onetime investments for automation and transformation.
2026 Margin and Free Cash Flow Outlook: Anticipated 100 basis points of adjusted EBITDA margin expansion, up from prior view of 50 or more basis points. Free cash flow outlook raised to approximately $2.1 billion, the upper end of the prior range.
Share Repurchase Program: We recently completed the $1 billion share repurchase program announced in mid-August, and we remain extremely well capitalized with a net leverage of only 0.6x at quarter end. We remain committed to a balanced capital allocation approach, and we continue to assess additional inorganic opportunities. With our estimated $9 billion of capital capacity through 2027 after the completion of the buyback, we are positioned to be both aggressive and opportunistic.
The earnings call highlights strong financial performance with increased EBITDA and EPS, despite a slight decline in free cash flow. Positive customer response to new products and confidence in achieving growth targets bolster sentiment. The Q&A reveals management's optimism about overcoming sales challenges and maintaining essential government contracts. While there are some uncertainties in government spending, the overall outlook, including AI investments and margin improvements, is positive. Given these factors, a positive stock price movement is expected over the next two weeks.
The earnings call highlights strong growth in key segments like Tax & Accounting and Corporates, with solid EBITDA margins and free cash flow. The Q&A reveals a positive outlook on AI adoption and strategic M&A, while maintaining guidance. Despite some unclear responses, the overall sentiment is positive due to revenue growth, strategic focus on AI, and potential shareholder returns through dividends and buybacks. The absence of negative surprises or lowered guidance further supports a positive stock price movement.
The earnings call shows steady financial performance with organic revenue growth and stable cash flow. However, the decline in margins and print revenue, along with unclear management responses on future opportunities, temper positive sentiment. The Q&A reveals no immediate demand changes but highlights uncertainties in the economic backdrop. Overall, the mixed signals from financials and management's cautious outlook suggest a neutral sentiment for the stock price movement.
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