Higher recurring revenue from subscriptions helped propel Thomson Reuters Corp. to better-than-expected results in the first quarter, as the company continues to retool after spinning off its largest division last year.
The news and information provider’s revenue rose 8 per cent to US$1.49-billion compared to a year ago. That was despite elevated corporate costs from one-time expenses associated with last year’s transaction with private equity giant Blackstone Group LP, which acquired a 55-per-cent stake in Thomson Reuters’s financial and risk business and spun it out as a separate company called Refinitiv.
A major factor behind the rate of revenue growth at Thomson Reuters is a contract by which Refinitiv pays at least US$325-million annually for Reuters News content. Revenue from the Reuters News division more than doubled when compared to a year ago, to US$155-million, due to new revenue from the contract and the way Thomson Reuters now accounts for news revenues.
Yet, a more vital reason for the company’s improving financial results was a 6-per-cent increase in recurring revenues, which make up more than three quarters of Thomson Reuters’s total revenue. The company is looking to deepen its relationships with clients in the legal, corporate and tax industries, in part by rolling out new products built on artificial intelligence, such as last year’s launch of the legal research platform Westlaw Edge, which now has 3,000 customers. At the same time, investors are looking for signs that Thomson Reuters can sustain a faster rate of increases in revenue.
“That’s probably the most important indicator of the stability of our business going forward, is how those underlying recurring sales perform,” chief executive Jim Smith said in an interview. “Those are subscription sales. Many of them are multi-year contracts, so it’s solid, sticky business for us.”
The Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
In the legal professionals division, which is now the largest source of revenue for Thomson Reuters, revenue rose 2 per cent to US$594-million in the first quarter. A 4-per-cent improvement in recurring revenues more than offset a sharp decline in transactions revenues, which can be volatile.
Revenue from corporates climbed 7 per cent to US$352-million, including a 3-per-cent boost from the company’s acquisition of Integration Point, which makes trade-management software. And revenue from tax professionals increased 2 per cent to US$222-million, while global print revenues continued a steady decline, down 7 per cent to US$165-million.
Profit for the first quarter was US$116-million, or 23 US cents per share, compared with a loss of US$339-million, or 48 US cents a share, a year ago. Last year’s loss was recorded because Thomson Reuters had just begun recording the financial and risk division as a discontinued business, removing a major share of its previous earnings.
Adjusted to exclude discontinued operations, Thomson Reuters earned 36 US cents a share, well ahead of analysts’ consensus expectation of 25 US cents a share, according to data from Refinitiv.
As expected, corporate costs were sharply higher at US$131-million, compared with US$41-million a year ago, due to one-time expenses. Those costs are expected to reach a total of about US$570-million for the year, consistent with prior forecasts, before falling much lower next year.
The company's financial performance to start the year has been "a little bit ahead of our expectations," Mr. Smith said. "We've really been driving toward how we get to that 3.5 to 4.5 per cent level of revenue growth in 2020, and I have to say we're tracking right to that target."
Shares in Thomson Reuters rose nearly 3 per cent to $84.65 in trading on the Toronto Stock Exchange on Wednesday.
After the deal to create Refinitiv, Thomson Reuters set aside about US$2-billion for potential acquisitions to build out its three core businesses in legal, corporate and tax services. The company is “still doing a lot of exploration right now, and it’s just early days of that evaluation and frankly negotiation with several of the targets,” Mr. Smith said. “You just have to kind of play the game to see how it turns out.”
In the meantime, the company bought back US$190-million in shares in the first quarter, and could repurchase more if no major deals materialize in the near term.
Thomson Reuters also owns a 45-per-cent stake in Refinitiv, which reported a net loss of US$201-million in the first quarter. That included US$97-million in restructuring costs, as Refinitiv makes progress on an aggressive cost-cutting plan. The company has a target to shed US$650-million in annual costs by the end of 2020, and has stripped out US$350-million in yearly savings so far.
Thomson Reuters also reaffirmed its full-year forecast, which anticipates revenue growth of 7 per cent to 8.5 per cent, including the new revenue from the Reuters News contract with Refinitiv.
James Bradshaw