Thomson Reuters Corp (TRI)

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Thomson Reuters (TRI)

Q3 2012 Earnings Call

November 02, 2012 8:30 am ET

Executives

Frank J. Golden - Senior Vice President of Investor Relations

James C. Smith - Chief Executive Officer, President and Director

Stephane Bello - Chief Financial Officer and Executive Vice President

Analysts

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Vince Valentini - TD Securities Equity Research

Paul Steep - Scotiabank Global Banking and Markets, Research Division

Phillip Huang - UBS Investment Bank, Research Division

Adam Shine - National Bank Financial, Inc., Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Tim Casey - BMO Capital Markets Canada

Nick Michael Edward Dempsey - Barclays Capital, Research Division

Toni Kaplan - Morgan Stanley, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters Third Quarter 2012 Earnings Call. [Operator Instructions] As a reminder today's conference being recorded. I'd now like to turn the conference over to our host, Mr. Frank Golden. Please go ahead.

Frank J. Golden

Good morning, and thank you for joining us as we report our third quarter results today. We'll begin today with our CEO, Jim Smith; followed by our CFO, Stephane Bello. Following Jim and Stephane's presentations, we'll open the call for questions. [Operator Instructions] Throughout today's presentation, keep in mind that when we compare performance period-on-period, we look at revenue growth rates before currency, as we believe this provides the best basis to measure the underlying performance of the business. In addition, today's results are presented on an ongoing basis and exclude disposals announced to date.

Now today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations Department.

Let me now turn it over to the CEO of Thomson Reuters, Jim Smith.

James C. Smith

Thanks, Frank, and thanks to those of you on the call for joining us. Let me begin by apologizing for having to postpone our earnings release. Like many of you, we've been dealing with other critical issues related to Hurricane Sandy over the course of this week. Our priorities were focused on the safety of our 7,000 employees in the storm's path and servicing our customers around the world. I'm very pleased to report that all of our employees are safe. Though many of them are dealing with personal challenges, I'm incredibly proud of the way our teams worked to minimize the impact of Hurricane Sandy on our customers. The vast majority of our products and services were unaffected by the storm and continue to operate as normal.

There was no impact to our Legal, Intellectual Property, Science, Tax or Accounting clients. Our next-generation financial platforms, Eikon and Elektron, performed well, and critical services in dealing, matching, FXall and Tradeweb, weren't affected. We did have unexpected disruptions to a few services in a few regions, primarily related to outages at data centers in New York City and New Jersey and last mile connectivity problems at some customer sites. However, those issues have been relatively few, and our services were completely restored as of my last check this morning. I want to thank our customers for their patience, as we work to keep services up and running. I'm proud of the way our people have gone above and beyond to help our customers recover, and I want to thank them as well.

Now to our results for the third quarter. Today I want to cover 3 topics: I'll begin with a review of the third quarter results; two, I'll update you on the progress we've made over the past 9 months against the priorities and strategies I outlined at the beginning of the year; and three, I'll discuss the progress we're making and how that progress is shaping our thinking for 2013 and beyond. I'll then turn it over to Stephane who'll provide you with further details on the results for the quarter.

Our results year-to-date can be characterized as on track for the company as a whole and in line with our prior discussions. Let me remind you that given the nature of our business, quarter-to-quarter comparisons often do not accurately reflect underlying performance of the business as compared to full year results. As expected, our third quarter results were weaker than our performance during the first half of the year due to a number of factors we'll cover in greater detail in a moment.

However, we knew Q3 would be our weakest quarter this year in terms of revenue growth and that margins would decline both sequentially and period-on-period. That said, we remain on track to achieve our full year 2012 guidance. Obviously, we've not been able to fully assess the impact of the storm, but given the largely recurring nature of our business, we do not anticipate that the impact on our Q4 results would be material.

In the third quarter, total revenues increased 1% with Legal, Tax & Accounting and IP & Science again reporting good performance. In aggregate, these 3 businesses were up 4%, lower than the first half rate of 8% and also lower than what we expect for the full year. Financial & Risk revenues were flat for the quarter in what continues to be a challenging and volatile global financial services market, particularly in Europe.

As a result of the lower growth in Q3, the EBITDA and operating profit margins both declined as expected. It's also worth noting that the year-over-year margin comparison was particularly challenging this quarter, as Q3 last year was the high watermark for margins last year due to several timing factors. Adjusted earnings per share in the quarter were $0.54, unchanged from the prior year period, helped in part by lower-than-anticipated tax rate.

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