Earnings Call Transcript - TRI Q2 2022

Operator, Operator

Good day, everyone, and welcome to the Q2 2022 Earnings Call hosted by Gary Bisbee, Head of Investor Relations. My name is Nica, and I'll be your operator today. I would like to inform all participants that this conference is being recorded for replay purposes. Now, I will turn it over to Gary. Please proceed.

Gary Bisbee, Head of Investor Relations

Thank you. Good morning, everyone and thank you for joining us today for Thomson Reuters' second quarter 2022 earnings call. I'm joined today by our CEO, Steve Hasker, and our CFO, Mike Eastwood, who will discuss our results and take your questions following their remarks. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS financial measures. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide from time to time to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations department. Let me now turn it over to Steve Hasker.

Steve Hasker, CEO

Thank you, Gary, and thank you all for being with us today. Now, let's move on to our Q2 highlights. I am happy to share that the momentum in our businesses carried on into the second quarter, with strong sales and revenue surpassing our expectations. Four out of our five business segments experienced organic revenue growth of 6% or more, and the total company organic revenues increased by 7%. Our Big 3 business segments also achieved 7% organic growth. We attribute our improving momentum to both internal and external factors. Effective execution and a focus on prioritizing our investments in the best opportunities have played a significant role. We are beginning to see substantial tailwinds from the increasing complexity of regulation and compliance in our Legal, Tax, and risk-related markets. We believe these favorable conditions are still in the early stages and position us strongly to sustain this momentum in the coming years. Based on our robust Q2 revenue performance and the growth of our annual contract value, we are raising our full-year revenue forecast. We now project total revenue growth of 6% and Big 3 revenue growth of 7%, up from our previous estimates of 5.5% and 6.5%, respectively. We are maintaining our margin outlook while continuing to invest in our businesses and cope with rising inflation costs. Overall, our strong performance in the first half of the year gives us confidence that we are on the right track to meet our 2022 and 2023 goals. Although there are increasing market concerns about slowing economic growth and inflation, our business is well-positioned. Our momentum through Q2 was solid, and leading indicators remain positive. Our business is resilient, with 80% of our revenue being recurring, and we operate in historically stable and growing end markets. Additionally, our Change Program initiatives are expected to significantly enhance our margins, cash flow, and earnings in 2023. We are committed to utilizing our capital capacity and liquidity to create shareholder value. In early June, we announced a $2 billion share repurchase program. By July 31, we had repurchased $394 million of our shares, and we aim to complete this program within 10 months. We continue to explore inorganic opportunities and anticipate having sufficient resources for both share buybacks and strategic mergers and acquisitions. Our acquisition focus remains on workflow software and automation within our Legal and Tax markets, as well as Risk, Fraud & Compliance, and targeted international expansion. For instance, in Legal Professionals, we see significant potential to be a key player in the technology-driven transformation of the legal profession. We are uniquely equipped to offer our customers a smarter and more seamless experience by combining our distinct research content and expertise with workflow software. The AI-driven contract analysis capabilities we acquired through the recent ThoughtTrace purchase are a step in this direction and enhance our existing tools like Practical Law and HighQ. We will continue to explore organic and inorganic opportunities to further expand our capabilities and merge our leading content with workflow solutions that enhance automation and improve outcomes for our clients, especially concerning legal documents and contract drafting. Now, let’s look at the results for the quarter. In the second quarter, reported revenues increased by 5%, with organic revenues rising by 7%. Organic recurring revenue also grew by 7%, while organic transactional revenue surged by a remarkable 13%, aided by a calendar shift and the return of in-person events at our Reuters Events business. We do expect some moderation in transactional revenue growth in the second half, but we anticipate ongoing growth in recurring revenue. Adjusted EBITDA rose to $561 million, reflecting a 200 basis point margin improvement to 34.7%. Excluding costs associated with the Change Program, the adjusted EBITDA margin was 36.6%. This strong performance resulted in adjusted earnings per share of $0.60, up from $0.48 in the same period last year. Now, let's break down the second quarter results by segments. The Big 3 businesses achieved organic revenue growth of 7%, indicating widespread strength. Legal continued its positive trend with its fifth consecutive quarter of 6% organic growth. The Legal market remains robust across all key segments: small, mid-sized, and large U.S. firms, government customers, and important international markets. For instance, Westlaw Edge adoption continues to drive revenue, and we expect annual contract value penetration to reach approximately 75% by year-end, up from 65% at the end of 2021. Furthermore, Practical Law, which supports growth in both Corporates and Legal segments, demonstrated strong performance with a quarter of double-digit revenue growth. Our Government business also saw organic growth of 8%, and we anticipate further acceleration in the latter half of the year. Turning to Corporates, organic growth momentum remained strong, with revenue increasing by 9%. Recurring revenue grew significantly by 9%, and transactional revenue again surpassed our expectations at 8%. I will elaborate on our Corporates business shortly. Tax & Accounting had another solid quarter with organic revenue growth of 9%. Our Latin America business, Dominio, grew nearly 30% this quarter and serves as a crucial growth driver. Reuters News experienced organic revenue increases of 12% in Q2, with growth seen across all lines of the business, particularly in events. Lastly, Global Print's organic revenues declined by 1%, which was better than anticipated, due to higher third-party print revenues and timing adjustments expected to stabilize throughout the rest of 2022. In conclusion, we are very pleased with these results and excited about the growing momentum within our businesses. Now, I would like to take a few minutes to discuss our Corporates segment and our Risk, Fraud & Compliance businesses and explain why we are optimistic about their growth prospects. As I did last quarter, I want to provide some additional transparency regarding our portfolio with a brief discussion of our Corporates segment and our Risk, Fraud & Compliance businesses. To start with Corporates, a bit of background may be helpful. This segment was established in the fourth quarter of 2018 to enhance our service and innovation for corporate clients regarding our key Legal, Tax, and Risk, Fraud & Compliance offerings. Corporates is the leading provider of legal and tax solutions for corporations in the U.S. and serves all Fortune 100 companies. Over the past year, we have seen consistent momentum with Corporates organic revenue growth accelerating from 4% in the first half of 2021 to 6% in the second half, and then to 8% in the first half of this year. For the full year 2022, we are confident in achieving our projected organic growth target of 7% to 9% we set for 2023. What is driving this momentum? We see strong performance from various offerings across all three product areas. Significant double-digit growth is being witnessed—highlighted in green on the slide—such as Indirect Tax and Confirmation from our Tax portfolio, Practical Law and HighQ from Legal, and CLEAR from Risk, Fraud & Compliance, among others. Altogether, double-digit growth products in our Corporates portfolio make up 39% of segment revenue and are expanding at a mid-teens year-over-year rate. As we noted last quarter regarding our Legal Professionals segment, a healthy shift towards these more rapidly growing offerings is enhancing our momentum in Corporates. Looking ahead, we remain confident about the long-term growth potential for the segment driven by our increasing momentum, diverse product offerings, and corporate demand for actionable insights and workflow tools focused on efficiency, alongside significant market opportunities. Building on this discussion, I will delve into our Risk, Fraud & Compliance business. We have traditionally discussed RFC in relation to our Legal Professionals Government subsegment, which includes our legal offerings for government and court clients. However, our RFC initiatives are also vital for Corporates, which account for over 40% of our RFC revenue. Several businesses form our RFC franchise, with CLEAR being a leading public records solution. This is supplemented by Thomson Reuters Special Services and Pondera. TRSS merges information, technology, and security-cleared analysts to help government clients mitigate global risks and enhance public safety. Pondera offers a cloud solution utilizing advanced algorithms to detect fraud in government entitlement programs. Both TRSS and Pondera utilize CLEAR data, enhancing our value addition with insightful decision-making capabilities. Our RFC businesses have shown substantial growth, with total RFC revenue growing at a 16% compound annual growth rate over the last five years, and CLEAR achieving double-digit growth every year since its acquisition in 2008. This growth is fueled by an expanding array of use cases for both government and corporate customers, enhanced functionality driving usage and pricing, and increased access through APIs that have strengthened our partnership efforts. Looking ahead, we anticipate that our RFC businesses are well-positioned to deliver revenue growth in the teens over the next few years. We also believe our current standing provides an excellent foundation for future mergers and acquisitions in the RFC area. Let me take a moment to focus on CLEAR, which constitutes approximately two-thirds of our RFC revenue. CLEAR is a leading public records database and analytics solution powered by proprietary technology and a unique data set. It consolidates billions of data points from public records and third-party databases to yield insights for investigations, compliance, risk mitigation, and fraud prevention. In the past, CLEAR concentrated on developing an aggregated data set that allows investigators to conduct a singular search across multiple sources, uncovering connections and identifying risk-related information through customizable and user-friendly dashboards. This comprehensive due diligence use case continues to be an essential driver of revenue growth today. As part of our recent enhancements, we have introduced decision-making tools and analytics related to identity verification and entity risk indicators and scoring. Furthermore, we've expanded our content to incorporate sanctions lists and beneficial ownership data for businesses. These improvements have created a more comprehensive offering that has increased customary pricing and contributed to our growth trajectory and our clients' success. We consider CLEAR to be a market leader with numerous advantages, including strong identity resolution technology, extensive content, real-time data connections, strong transparency, and an effective analytics-driven dashboard. Our CLEAR product's NPS scores for both government and corporate users rank among the highest in the company, reflecting the substantial value our clients perceive in this offering. The graphic on Slide 12 illustrates how CLEAR assists customers in preventing, detecting, and investigating risk and fraud by addressing critical questions about potential customers or counterparties. These inquiries highlight the necessity of an in-depth understanding of entities—both individuals and businesses—pertinent for government and corporate clients across various use cases, from criminal investigations to identifying human trafficking networks to Know Your Customer and Anti-Money Laundering compliance, among others. To illustrate our RFC efforts, I will conclude with a real-world example from our Government business. During the early pandemic period, unemployment insurance claims surged, which regrettably led to increased fraudulent activity. California processed more claims than any other state and initially faced challenges in streamlining claims while minimizing fraud. They utilized our combined solutions—leveraging Pondera's algorithms and artificial intelligence together with CLEAR and the state's own data—to authenticate and validate legitimate claims while flagging potentially fraudulent ones. This approach aided the state in addressing a backlog of 9.7 million claims within a two-week timeframe, expediting payments to eligible recipients while denying fraudulent claims. Since implementing this solution, Thomson Reuters has been pivotal in assisting California in preventing $125 billion in fraudulent claims. We take pride in the contributions made by our Risk, Fraud & Compliance teams, which support safe communities, uphold the integrity of government entitlement programs, and strengthen compliance efforts. Now, let me pass it on to Mike for further details on our second-quarter results.

Michael Eastwood, CFO

Thank you, Steve and thanks for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the second quarter revenue performance of our Big 3 segments. Revenues rose 7% organically and at constant currency for the quarter. This marks the fifth consecutive quarter our Big 3 segments have grown at least 6%. Legal Professionals organic revenues increased 6%. This also marks the fifth consecutive quarter of 6% growth for Legal Professionals. Organic growth was driven by Practical Law, FindLaw, and our Government business. Westlaw Edge continues to add about 100 basis points to Legal's organic growth rate. It is maintaining a healthy premium and is expected to continue to contribute at a similar level going forward, supported by the planned release of Westlaw Edge 2.0 later this year. In our Corporates segment, organic revenues increased 9% for the quarter driven by recurring revenue growth of 9% and transactional revenue growth of 8%. CLEAR, Practical Law, and Indirect Tax were key drivers of the recurring revenue. The transactional revenue growth benefited from volumes that are seasonal in nature and is unlikely to continue at that level in the second half of the year. However, we see recurring revenue growth momentum continuing. And finally, Tax & Accounting's organic revenues grew 9% driven by recurring revenue growth of 11%. Organic growth was driven by Ultra Tax, audit products, and the segment's businesses in Latin America. Moving to Reuters News. Total and organic revenues increased 12%, exceeding expectations due to strength in our Professionals business. In particular, Reuters Events drove the growth as it benefited from both a favorable event calendar shift into Q2 and also the return of in-person events. We expect more moderate growth from Reuters News in the second half of the year. Lastly, Global Print total and organic revenues declined 1% in the second quarter, ahead of expectations. Higher third-party revenues for printing services and timing of new sales drove the outperformance. So we expect both to normalize in the remainder of 2022. On a consolidated basis, second quarter organic revenues increased by 7%. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $524 million, up 8% from the prior year period with a 40.7% margin rising 80 basis points. Improvement over the prior year period was due to higher revenues and Change Program savings. As a reminder, the Change Program operating costs are recorded at the corporate level. Moving to Reuters News. Adjusted EBITDA was $44 million, up $9 million from the prior year period with a margin of 23.3%, up 310 basis points. Revenue growth and higher events mix drove margins. Global Print's adjusted EBITDA was $50 million with a margin of 35.4%, a decline of 250 basis points due to the decrease in revenues and the dilutive impact of lower-margin third-party Print revenue. In aggregate, total company adjusted EBITDA was $561 million, a 12% increase versus Q2 2021. Excluding costs related to the Change Program in both periods, adjusted EBITDA increased 9%. The second quarter's adjusted EBITDA margin was 34.7% or 36.6% on an underlying basis, excluding costs related to the Change Program. Turning to earnings per share. Second quarter adjusted EPS was $0.60, up from $0.48 in the prior year period. The increase was mainly driven by higher adjusted EBITDA. Currency had a $0.01 positive impact on adjusted EPS in the quarter. Let me now turn to our free cash flow performance for the first half. Reported free cash flow was $428 million versus $618 million in the prior year period. Consistent with previous quarters, this slide removes the distorting factors impacting our free cash flow. Working from the bottom of the page upwards, the cash outflows from the discontinued operations component of our free cash flow was $25 million more than the prior year period. This was due to payments to the U.K. tax authority related to the operations of our former Refinitiv business. Also in the first half, we made $186 million of Change Program payments as compared to $28 million in the prior year period. If you adjust for these items, comparable free cash flow from continuing operations was $685 million, $7 million lower than the prior year period, primarily due to higher annual incentive plan bonuses. We reaffirm our 2022 full year free cash flow outlook of approximately $1.3 billion. I will now provide an update on the progress related to our Change Program. In the second quarter, we achieved $64 million of annual run rate operating expense savings. This brings the cumulative annual run rate Change Program operating expense savings to $369 million. This increases our confidence in reaching approximately $500 million of annualized savings by year-end and $600 million gross operating expense savings by 2023. As a reminder, we anticipate reinvesting $200 million of the projected $600 million of savings back into the business for a net savings of $400 million. Now an update on our Change Program costs for the second quarter and the remainder of 2022. Let me start by saying none of the annual estimates have changed from what we provided last quarter. Spend during the second quarter was $67 million, comprised of $30 million of OpEx and $37 million of CapEx. We anticipate $175 million of total spend in the second half of 2022. For the full year, we continue to expect $305 million of Change Program investments which would bring total 2021 and 2022 cumulative investments to approximately $600 million. We also continue to anticipate a split of roughly 60% OpEx and 40% CapEx. Let me conclude with our outlook for 2022 and 2023. As Steve outlined, we have increased our full year 2022 outlook for total TR and Big 3 revenue growth. We now forecast total organic revenue growth of approximately 6% and Big 3 organic revenue of approximately 7%, up from the prior 5.5% and 6.5%, respectively. We are maintaining our adjusted EBITDA margin outlook of approximately 35% as we continue to monitor inflationary impacts and assess investment opportunities to drive continued revenue momentum. There is no change to other 2022 outlook items and we reaffirm our 2023 targets. Looking to the third quarter, we expect revenue growth to be 50 to 100 basis points below the updated full year forecast due to lower transactional revenue and more normalized growth rates for Reuters News and Global Print. However, we expect fourth quarter revenue growth to improve from Q3. We expect recurring revenue to expand by 7% for the full year. We expect our third quarter adjusted EBITDA margin to decline 300 basis points sequentially from Q2 due to normal seasonality, timing of Reuters Events and the cadence of Change Program investments. We expect Q4 margins to be the high watermark of the year, aided by seasonal strength from our Tax Professionals segment and scaling Change Program savings. We see our effective tax rate likely at the midpoint of our 19% to 21% full year range. In summary, we remain confident in achieving our 2022 and 2023 targets, supported by the strong first half and healthy underlying momentum in our key businesses and markets. Over time, we continue to believe we can achieve faster revenue growth, higher profitability and significantly higher free cash flow as we benefit from transforming to a content-driven technology company. Let me now turn it back to Gary for questions.

Gary Bisbee, Head of Investor Relations

Thank you, Mike and Steve. Nica, we're ready to begin the Q&A.

Operator, Operator

We have received a couple of questions and the first one is coming from Toni Kaplan of Morgan Stanley.

Toni Kaplan, Analyst

You raised the '22 organic growth guidance by 50 basis points which is great to have a few quarters in a row of raising the guidance there, so congrats on that. I noticed you didn't raise '23. Is that conservatism or concern about potential recession in '23? Or do you just need to go through your in-depth planning process first? Just what drove sort of the decision not to raise '23?

Michael Eastwood, CFO

Yes, it's more of the latter, Toni. We certainly remain very confident in delivering on our 2022 updated guidance. We remain confident in delivering on our 2023 targets as we provided. We're very confident in our team. We're very confident in our execution. But we think it's very prudent, given the various macro factors, to wait to complete our full year planning process in the next few months. And we look forward to providing an update on our 2023 guidance in February. But based on the first half of the year, the strength of our underlying book of business and the execution of our sales and go-to-market team, the execution against our Change Program, confidence is very high. But it's more what you mentioned, Toni, in regards to going through the planning process and being very prudent in assessing the macro factors but all signals are very positive.

Steve Hasker, CEO

Yes, Toni, it's Steve. Just adding to that. Mike and Dave Larson lead our quarterly business review process, which takes place in late September and October. As you know, 80% of our revenue is recurring, and we have a very high percentage of multiyear contracts across our major segments. We have good visibility, but we want to carefully navigate that process before making any further predictions.

Michael Eastwood, CFO

Just one additional point there, Toni, in regards to that, getting through the plan process, so you mentioned also, as we complete the year, the visibility, to Steve's point, at 80% is recurring in nature. Our book of business will have good line of sight as we complete Q3 and Q4 which will give us a good visibility as we go into the February earnings call.

Toni Kaplan, Analyst

Great. And hoping you could sort of talk about, has the macro changed to have any client conversation?

Steve Hasker, CEO

Thank you for the question, Toni. We invest a significant amount of time engaging with our customers to gain a deeper understanding of their businesses. Based on my discussions with leaders from small, medium, and large law firms, tax and accounting firms, as well as corporate and government clients, I would say that their performance has been quite strong so far. Law firms achieved record results in 2021, and throughout 2022, they have experienced strong demand in their litigation and restructuring practices. However, corporate practices are somewhat weaker, with a decline in IPOs and debt issuances. Our customers share our perspective: they are proud of their results thus far but remain cautiously aware of potential challenges ahead, carefully monitoring for any early signs of weakness. Nonetheless, we have not observed any significant issues yet, and most of our customers have not reported seeing them either.

Michael Eastwood, CFO

Yes. Toni, I would supplement with 2 additional points that we monitor, our renewal rates or retention rates. Retention rates are slightly higher in 2022 thus far than 2021. As a reminder, we have a lot of multiyear contracts. And also on the pricing front, our pricing is slightly higher in 2022 versus 2021. And then the third quantitative measure is our sales pipelines that we monitor with all of our segments, subsegments, and regions. Do we have a second question?

Operator, Operator

Yes, we do and that is coming from the line of Tim Casey of BMO.

Tim Casey, Analyst

Yes, I have two questions. First, could you provide some insight into the recent acquisition during the quarter? Also, Steve, I have a follow-up question for you regarding your ongoing efforts to enhance the customer experience. Could you share an update on the progress you've made and any challenges you've encountered in this initiative? I'm interested in your evaluation of where you currently stand in this process.

Steve Hasker, CEO

Yes, thanks, Tim. To answer your question, our latest acquisition was a company called ThoughtTrace, based in Houston, Texas, led by a talented executive named Nick Vandivere. We believe ThoughtTrace offers the top AI-driven contract analysis tool, currently focusing on oil and gas leasing contracts. We've collaborated with them extensively before finalizing the acquisition and, even more so since, to explore how we can apply their capabilities to a wider range of commercial sectors such as financial services and pharmaceuticals. This acquisition is relatively small for us but is at the forefront of AI and machine learning applications in our unique content, which we find quite promising. Emily Colbert and Kriti Sharma from our team, among others, are working on expanding this. Regarding your second question about the Change Program, it's a complex initiative with numerous components. We've utilized a significant part of the $600 million one-time investment, and Mike mentioned the ongoing savings from it, which sets us up well for 2023. Financially, the Change Program is performing well and meeting our expectations. Notable aspects that are progressing effectively include our cloud conversion, the advancements made by Jason Escaravage in enhancing our strengths in cyber fraud and compliance, and our digital assistance initiatives, which have been very well received. Additionally, we've made significant headway on our location strategy regarding the placement of our go-to-market and product engineering talent, which Kirsty and her teams are leading successfully. However, we still have much work ahead this year and into next. Our main goal is to convert these investments and capabilities into improved customer satisfaction. While some customers are beginning to see the benefits, others have not yet experienced it, so we are focused on that conversion. I want to emphasize the efforts of our go-to-market leaders who have navigated through the challenges posed by the pandemic, inflation, and economic instability, all while managing the substantial changes from the Change Program. Despite these disruptions, we've seen slight increases in our pricing and renewals, and our organic growth is moving in the right direction. In summary, Tim, the Change Program is progressing well, but there is still much to accomplish.

Michael Eastwood, CFO

Yes. Tim, I'll just add one additional data point in regards to the cloud migration. We provided back in February that we had 37% of our revenue available in the cloud at the end of 2021. At the end of June, we were 47%. We forecast to be at 60% by the end of '22. And we remain confident in being at 90% by the end of 2023 which is consistent with our prior estimates.

Operator, Operator

The next question is coming from the line of Kevin McVeigh of Credit Suisse.

Kevin McVeigh, Analyst

Congratulations on the results. I guess, Steve or Mike, the 50 basis point boost to the organic growth guidance, was that pricing, retention, a little bit of everything? Or I guess, what gave you the confidence to do that? Number one. And then can you talk about retention just a little finer in terms of maybe upmarket versus down versus mid? And are you starting to see any initial benefits from the Change Program around retention?

Michael Eastwood, CFO

Sure, Kevin. Let me start with the guidance question. The 50 basis point increase for total TR and the Big 3 was primarily driven by the performance and health of the business. While pricing is part of that, it has only increased slightly in 2022 compared to 2021. This will continue to rise as we move through '22 and '23, given the multiyear contracts I mentioned earlier regarding Toni's question. So, the main factor for increasing our guidance by 50 basis points is the underlying health of the business and the book we had as of June 30, along with our pipeline for the rest of the year. As for retention, we are seeing slight improvements across the firm, but there remains significant opportunity to enhance it based on revenue, rather than the number of customers. Currently, our revenue-based retention is slightly above 91%. We still have considerable room to improve retention as we work on the customer experience issues Tim addressed. So, while there’s a bit of improvement in both price and retention, we still see opportunities in retention. Additionally, our recurring revenue growth is forecasted at 7% for the entire year, with each quarter roughly averaging 7%. Some quarters may be slightly higher or lower, and as we enter Q3 and Q4, the comparisons will be a bit more challenging. I hope that helps, Kevin.

Operator, Operator

And next, we have a question from Aravinda Galappatthige of Canaccord Genuity.

Aravinda Galappatthige, Analyst

Steve, could you revisit the size of the legal software and workflow market that you mentioned in relation to the M&A criteria? It seems like some mid-tier companies are currently limiting its potential. Are you viewing this market as sufficiently large for you to gain market share, or do you see the industry players as relatively weaker, presenting TRI with additional opportunities? I'd like to hear your thoughts on this. Additionally, Mike, concerning 2023, how do you see inflation impacting the labor costs, considering you have a significant labor component? Can you elaborate on how this affects the overall dynamics, noting that there might be opportunities to adjust rates in the subscription area? Any insights would be appreciated.

Steve Hasker, CEO

Yes. Thanks, Aravinda. Let me quickly address the first point. So as you know, we've got a pretty robust pipeline of M&A that we're looking at. We're optimistic that the valuations are coming our way versus the other way around. But we'll be very rigorous, very disciplined, and patient about going after them. Focused on automation, workflow automation tools that drive efficiency and take many hours out of key tasks for our Legal, Tax & Accounting, and Risk, Fraud & Compliance and Government customers. That's really the sort of area of focus, also with an eye to some selected international expansions. Within Legal, yes, look, we're very bullish. What we see is an industry that is at the start of a transformation and it's an information- and tech-driven transformation. So for many years, the legal profession has been reasonably slow to move and slow to adopt technologies. And we've seen that change pretty markedly coming out of the pandemic. So every head of a law firm is asking us the questions around how can our tools, how can our research content and our tools combined help them be less reliant on hiring new lawyers or additional lawyers to drive growth. So they want to create a different set of economics and a different vibe within their firm. And we're one of the few players that's well positioned to take advantage of that. So as we look at the life cycle management, document management, further workflow tools, we see a pretty big opportunity. And the TAM is growing in a meaningful way because traditionally, it's a profession that's underspent on information and technology and arguably overspent on real estate. And that is being addressed pretty aggressively by the leading firms. We think it provides a pretty big opportunity. So that's a few thoughts on the first part of your question.

Michael Eastwood, CFO

Yes. Regarding the second part of your question about inflation in 2023, I can say that we have fully integrated our current understanding of inflation into our guidance for both 2022 and 2023. We did provide higher merit increases in 2022 and are closely collaborating with our HR team and Chief People Officer regarding 2023. We believe we have addressed the necessary increases in labor costs adequately. We are also keeping an eye on inflation in our Print businesses, particularly with paper, print, and postage, where we have experienced some inflationary pressures. However, we have managed to offset most of those costs through our pricing strategies. Overall, we think we are effectively managing the challenges presented by increased labor and other costs. While there are various factors to consider, we believe we have reflected all these elements in our guidance for 2022 and 2023.

Operator, Operator

The next question is coming from the line of Heather Balsky of Bank of America.

Heather Balsky, Analyst

I was curious if you can just talk about some of the sort of incremental areas you're investing in. You talked about on the margin keeping kind of guidance the same for the opportunity to invest. What are the organic opportunities you're most excited about?

Michael Eastwood, CFO

Yes, I'll start with that, Heather. First, I would say that we're continuing to invest in our Change Program where we've centered that on improving our customer experience. I think Steve itemized a number of items earlier that involved the Change Program. So I'd say, first, we're continuing to execute that. A lot of lifting still in Q3, Q4. But I think the team has a very good glide path to work on the Change Program items. In regards to other areas of investment, I would highlight our product and engineering. First, our Westlaw Edge 2.0 which will be released later this year within Legal, that's an important area for us. Practical Law that we highlighted during our May 3 earnings call, Practical Law helps both our law firm customers and also our general counsel customers within Corporates. Risk, Fraud & Compliance, as Steve discussed today, impacts both our government customers and also our corporate customers is another area. Steve referenced Kriti earlier. Certainly HighQ that we acquired back in July of 2019 is a key area for us. Over within our Tax & Accounting Professionals business, Ultra Tax that I referenced during the prepared remarks today. Confirmation that we acquired in July of 2019 continues to perform incredibly well under Elizabeth Beastrom's leadership. We also have leverage there within our corporate customers. So outside of our Change Program, Heather, the key focus for us is in regards to investing in our products to help our customers there. And it's very balanced across our portfolio, including within our Latin America region and also Asia and emerging markets.

Steve Hasker, CEO

Yes, if you refer back to our Investor Day presentations at the start of last year, we discussed seven growth initiatives. We are still investing in those because we are seeing positive results and are enthusiastic about their potential impact.

Heather Balsky, Analyst

Helpful. And as a follow-up, when you think of 2023, if there is a downturn, if you were to see some sort of sales impact on the margin side, you have the benefit of the cost-cutting with Change Program. But more broadly, how are you thinking about margins and the things you can control?

Michael Eastwood, CFO

Yes. I think, Heather, for '23, we remain confident in achieving our guidance of 39% to 40%. In regards to any revenue headwinds, where we would potentially see those first would be in transactional revenue which includes our Reuters Events. I'd say Reuters Events is having an incredibly good year, over $20 million of revenue in Q2 for us there. Transactional certainly did well in the first half of the year. As I mentioned, we expect it to normalize in the second half for us. But for margin, 39% to 40%, back to Aravinda's point, we have lots of puts and takes that we can manage and pull. And we feel confident in delivering 39% to 40% in 2023. And we have enough levers to effectively manage through while supporting our employees and our customers.

Steve Hasker, CEO

Yes, Heather, while we don’t take it lightly, we see a potential recession, whether it’s severe or mild, as an opportunity to strengthen our position with our customers and outperform our competitors. We hold the top two positions in nearly every market we operate in. We believe that challenging economic conditions could allow us to extend our leads, and if that situation arises, we will be prepared for it.

Michael Eastwood, CFO

Yes. Heather, back to your first questions on areas of investment, I think the areas of investments just intentionally make us stronger as we go through '22 and certainly position us, to Steve's point, for '23. So we think they go hand in hand.

Operator, Operator

Next, we have a question from the line of Drew McReynolds of RBC.

Drew McReynolds, Analyst

Late coming on to the call, so I apologize if you've covered this off. Maybe Mike, just an update on Westlaw Edge 2.0, if that's still on track for some launch in the back half of this year. And maybe a bigger-picture question, it's my understanding in terms of Thomson's internal AI and machine learning capabilities, you went down that path many, many years ago. And obviously, you're leveraging it into products like Westlaw Edge. Just wondering, as the AI and machine learning markets have evolved over the last 5 or 6 years, could you speak to your internal capabilities to keep pace with that kind of innovation versus your M&A strategy where you look to different companies with these capabilities perhaps to backfill your own internal kind of innovation machine? So sorry for the kind of broad motherhood big-picture question but just curious just in light of what you just acquired in the quarter.

Michael Eastwood, CFO

Drew, great questions. Let me tackle Westlaw Edge 2.0. Drew, we confirm that we will launch Westlaw Edge 2.0 in the second half of this year. Steve and I have had multiple sessions, demos from Andy Martens, Mike Dahn, Paul Fischer, David Wong, in the last few weeks. I think you'll be incredibly pleased. More importantly, our customers will be super pleased when we launch it later this year. So fully on target there. In the meantime, Drew, the team, our go-to-market team within Legal Professionals and Corporates, they continue to work with our customers on Westlaw Edge 1.0. We're approaching 70% penetration with Westlaw Edge 1.0 but 2.0 will definitely launch later this year, Drew. And look forward to sharing it with all of you and our customers. I think Steve will address the AI, ML question.

Steve Hasker, CEO

We have several hundred AI and ML experts in our TR Labs, located in various parts of the world, including a significant presence in Toronto, as well as in London, New York, Minneapolis, Ann Arbor, and Dallas. We take great pride in their contributions, which have been essential in developing Westlaw Edge 1.0 and even more influential as we prepare for the launch of 2.0. The evidence of our progress is clear, and I believe we are not just keeping pace with the evolving landscape, but potentially leading it, which is quite an achievement. Our goal, as a content-driven technology company, is to further integrate AI and machine learning into our unique content and top-quality software. While we have made significant strides in the Legal Professionals sector, we are beginning to expand these initiatives across our entire portfolio, including areas such as Tax & Accounting and Risk, Fraud & Compliance, among others.

Drew McReynolds, Analyst

Super. And maybe one last quick one. Back to you, Steve, just you spoke about taking advantage of your #1, #2 positions in a downturn. Just before we get to that phase, as your kind of peers coming out of COVID and not that these are only your peers but Wolters Kluwer and RELX, are you seeing any change in their capabilities, their ability to execute on all the things they're trying to capitalize on post-COVID? Just any change in the competitive dynamic, that would be great.

Steve Hasker, CEO

No, Drew. We have great respect for both our traditional and emerging competitors. We don’t take this situation lightly, and we stay informed about their activities. Currently, I don't see any significant change in competitive intensity or innovation from our customers, but we will continue to monitor that.

Operator, Operator

Next, we have a question from Andrew Steinerman of JPMorgan.

Stephanie Yee, Analyst

It's Stephanie stepping in for Andrew. Thanks for all the color you provided on the Corporates segment. I was wondering if you can talk about your positioning in Indirect Tax relative to competitors in the marketplace. Is Thomson gaining market share in that area?

Steve Hasker, CEO

Thank you, Stephanie. Our Indirect Tax offering is not among the top two in size, but it's closer to the third or fourth position. We generally compete at the upper end of the market with Vertex, and I believe we're performing adequately or slightly better in that space. This is one of our seven growth areas we mentioned during Investor Day last year. We have been investing in developing capabilities and building the team, and we take pride in our progress. Avalara is approaching this segment from the SMB sector but is attempting to scale up. Sovos, backed by private equity, has a solid portfolio that is somewhat fragmented yet strong. We are experiencing significant industry growth in the mid-teens, and while we are keeping pace with that, we aspire to achieve a larger, more prominent presence and aim to reach a top two position over time. We will carefully consider how to pursue that goal.

Operator, Operator

And so the next question is coming from the line of Scott Fletcher of CIBC.

Scott Fletcher, Analyst

I just have a question on the sales cycle and the impact of macro headwinds and your comments around sort of that healthy paranoia and whether it's extending sales cycles given some more scrutiny on or different levels of review as you go through the new sales cycle.

Michael Eastwood, CFO

Yes, Scott, thank you. Regarding the sales cycle, we are monitoring it very closely with all of our segment and subsegment leaders. Currently, we are not noticing any significant change in the length of our sales cycle. The most challenging aspect for us is our Government business, which has always been somewhat variable and less predictable compared to our other sectors due to the government procurement process. However, there hasn't been any major change in the sales cycle or its duration at this time. I want to acknowledge our sales teams for their efforts, including our direct sales reps, account managers, client managers, and customer success managers, who all work to support our customers. We will continue to keep a close watch on this and provide updates in the future.

Steve Hasker, CEO

Yes. And the other thing to note is that we're investing in our growth initiatives, particularly around tools that drive efficiency. The conversations remain very healthy with customers where they can see a tangible, measurable increase in their own efficiency. So fewer hours required to achieve core tasks, fewer bodies required to achieve core tasks, that's really a big area of focus. And that embraces Westlaw and Practical Law, HighQ, ThoughtTrace and extends into our Tax & Accounting propositions.

Michael Eastwood, CFO

Yes, Scott, 2 additional points I would mention. Just in the last 2.5 years, I think our teams, the sales go-to-market teams have done a hell of a job adjusting in this hybrid environment, virtual environment, supporting our customers that way. We do have our annual meeting with our sales leaders coming up in mid-August. That will give us additional time to get direct impact. But right now, we're not seeing any significant change, Scott.

Operator, Operator

We have a question from Manav Patnaik of Barclays.

Unidentified Participant, Analyst

This is Brendan asking on behalf of Manav. I wanted to quickly inquire about the guidance. Revenue has increased by 50 basis points, which has happened twice in the last two updates. You maintained the margin at 35%. Is there any bias in that, or is it simply due to slightly higher costs from inflation or investments? How should we approach that?

Michael Eastwood, CFO

We have made incremental investments in both operating and capital expenditures to sustain and accelerate our organic revenue. While managing the impacts of inflation, we are closely monitoring the situation and are aware of macroeconomic factors as we move through the rest of the year. These three items are key reasons why we have maintained the margin at around 35% for the full year, and we remain confident in achieving that.

Operator, Operator

And the last question is coming from the line of Douglas Arthur of Huber.

Douglas Arthur, Analyst

Steve, I have a broad question. When discussing the adoption of technology solutions at large law firms, do you think it's being boosted by a generational shift in leadership? I know some traditional law partners who would be baffled if you mentioned AI and cloud-based solutions in their office. However, there seems to be a younger group of managers, and I'm curious if this is speeding up the adoption process.

Steve Hasker, CEO

Yes, Doug, it definitely is. If you look at our business from 5 or 10 years ago, you would see that on the research side, there was typically a Chief Knowledge Officer or a librarian who played the role of gatekeeper and curator of research content for practicing attorneys. Now, attorneys are increasingly looking directly at our products, and they are quite skilled at using them and giving us feedback. We strive to incorporate that feedback into future releases, and this trend is becoming more pronounced. Additionally, during COVID, the most senior and longest-tenured lawyers, including managing partners, found themselves working from home for the first time in their careers. As one of them humorously mentioned to me, he became his own IT support. He was unfamiliar with many of these tools before the pandemic, but now he had no choice but to engage with them. Even the most experienced lawyers are beginning to adopt technologies and becoming much more comfortable using our products. This is a very positive development for our business because as more users experience our offerings directly, and as we continue to invest in our user experience and design teams, we believe the stickiness of our products will increase, along with the likelihood of renewals at healthy price increments.

Michael Eastwood, CFO

I think, Nica, I think that's the last question. We really appreciate everyone's time today.

Operator, Operator

Thank you very much, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.

Steve Hasker, CEO

Thank you.