Earnings Call Transcript - TRI Q3 2022

Operator, Operator

Good day everyone and welcome to the Q3 2022 Earnings Call hosted by Gary Bisbee, Head of Investor Relations. My name is Nica and I'm your operator for today. During the presentation, all lines will remain on listen-only. I would like to advise all parties that this conference is being recorded for replay purposes. And with that, I'd like to hand the floor to Gary. Please go ahead.

Gary Bisbee, Head of Investor Relations

Thank you, Nica. Good morning, everyone and thank you for joining us today for our third quarter 2022 earnings call. I'm joined by our CEO, Steve Hasker; and our CFO, Mike Eastwood, who will discuss our results and take your questions following their remarks. To enable us to get to as many questions as possible, we would appreciate it if you would limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth 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 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 joining us today. I will begin with a review of our third quarter highlights. I am pleased to report that our strong momentum continued in the third quarter, with revenue and margins modestly exceeding our expectations. Total company organic revenue growth increased by 6%, propelled by a 7% rise in recurring revenue. All three of our major segments achieved organic revenue growth of 6% or more for the fifth consecutive quarter. Given our solid year-to-date performance and a healthy business pipeline, we are maintaining our outlook for the full year 2022. Mike will share more about our outlook later in the call. Although we recognize growing market concerns regarding slowing economic growth, we benefit from a resilient business model. Eighty percent of our revenue is recurring, and we operate in historically stable and expanding markets. Like all companies, we are dealing with inflationary pressures that we are actively working to mitigate. We continue to invest in areas that support our revenue growth and customer success. So far, we have not observed any significant changes in customer buying patterns, apart from a few areas within our corporate segment where sales cycles have slightly lengthened. We attribute this to market conditions as well as ongoing efforts to fill open positions in sales territories. I am excited to discuss a major product development with you today. In mid-September, we launched a significant upgrade to the Westlaw brand, known as Westlaw Precision, previously referred to as Edge 2.0. This new offering significantly enhances search accuracy and efficiency. The initial customer response has been very positive, and sales are off to a promising start. Westlaw Precision exemplifies what Thomson Reuters does best—integrating unique content, artificial intelligence, and machine learning with modern software to deliver substantial value to our customers. We simplify the increasingly complex compliance environments our customers navigate. I will elaborate on this important product launch shortly. Our capital capacity and liquidity remain vital assets that we’re focused on using to create shareholder value. We continue to manage the share repurchase program we started in June, having repurchased $855 million worth of shares through October 28th. We anticipate completing the $2 billion program by early Q2 2023. In addition, we are actively exploring inorganic growth opportunities and are well-positioned for capital returns and strategic M&A. Our acquisition interests include workforce automation software in our legal tax markets, risk, fraud, compliance, and targeted international expansions. Now for the quarter's results: third quarter reported revenues increased by 3%, which includes a 2% impact from foreign currency. Organic revenue, measured in constant currency, increased by 6%. Organic recurring revenue grew by 7%, while transactional revenue decreased modestly, as we expected. Adjusted EBITDAR rose to $535 million, with a margin improvement of 400 basis points to 34%. Excluding costs associated with the change program, the adjusted EBITDA margin stands at 37%. Adjusted earnings per share grew by 24% year-over-year to $0.57. Focusing on third quarter results by segment, our three main businesses achieved organic revenue growth of 6% overall. Legal continued its strong performance with a sixth consecutive quarter of 6% organic growth, maintaining healthy market conditions across all key segments. We project continued solid growth from Westlaw, Practical Law, HighQ, and other key offerings. The corporate segment also showed organic revenue growth with a 7% increase, and recurring revenue rising by 9%, although transactional revenue softened as anticipated. Tax and accounting recorded another strong quarter with a 9% organic revenue increase. Our Latin American operations, primarily driven by Dominio, saw a notable 25% growth this quarter and remains a key growth contributor. Organic revenues from Reuters News rose by 5% in Q3, with growth across all business lines within Reuters. Finally, global print organic revenues remained nearly flat, which is better than expected due to improved retention and timing benefits we expect will normalize in the fourth quarter. To summarize, we are pleased with our results and the strong momentum across our businesses. Now, I want to take a few minutes to discuss the recent launch of Westlaw Precision, our new flagship legal offering. The Westlaw franchise is built on the foundation of over 140 years of attorney-authored classifications, analysis, and editorial enhancement, combined with decades of machine learning and natural language processing technology. This blend of unique content and advanced technology provides significant value for our customers and gives our Westlaw franchise a competitive edge. Westlaw Precision, launched in mid-September, continues our tradition of customer-driven innovation, following the releases of WestlawNext in 2010 and Westlaw Edge in 2018. We believe that Precision represents the largest advancement in capability in Westlaw's history. So, what sets Westlaw Precision apart? It is the most advanced legal research system available, offering a more efficient and accurate method for conducting legal research and locating relevant cases. It features six new capabilities, particularly highlighted by Precision Research, along with enhanced key sites functionality and other tools that deliver improved research speed, accuracy, and workflows for customers. Let’s focus on the Precision Research capability. With Westlaw Precision, we are addressing two major challenges in legal research. One is that important cases can be overlooked if they use different terminology than what the user searched for. The other is that relevant cases can inadvertently appear in search results due to the varied contexts of search terms. More than two years ago, we expanded our team by hiring 250 additional attorney editors and implemented detailed case law classifications that encompass not only the legal issues but also a variety of material facts and outcomes associated with each case. This enhanced data tagging significantly reduces irrelevant cases, as users can more accurately target the context they need, and it lowers the likelihood of missing critical cases by classifying diverse legal language related to common issues and fact patterns. We have also improved the search experience by highlighting the key aspects of each case within the search results, making it much easier for users to assess which cases align with their criteria. Looking ahead, this deeper editorial analysis will support a growing network effect that will further enhance our investment in AI and future capabilities for the Westlaw franchise. To demonstrate the advantages, we asked over 100 practicing attorneys to perform legal research sessions using both our leading Westlaw Edge offering and the new Westlaw Precision. Users with Precision were able to find the same number of relevant cases in half the time and twice as many within the same timeframe. Moreover, 97% of participants reported that Precision enabled them to locate relevant cases faster, while 90% felt they discovered cases with Precision that they would not have found otherwise. A real-world example displayed on the slide highlights our new capabilities. With Westlaw Research, an attorney can set filters to specify the legal issue, outcome, key fact patterns, and motion type. Thanks to this increased precision, a search for this specific issue yields just 10 relevant cases instead of hundreds, which can be completed in two hours rather than five when using traditional methods. Although it is still early following the mid-September launch, we are very encouraged by the positive customer interest, feedback, and initial sales activity. The value proposition is resonating well with clients, and our teams see promising sales momentum across all customer types: large global law firms, mid-sized and small firms, state courts, government agencies, and corporate general counsels. We have closed over 200 sales so far. While most of these customers are Edge clients upgrading to Precision, we have been pleased to see some firms make the leap from Westlaw Classic to Precision and a few wins from customers previously not using Westlaw. Over the first six weeks, our experience with Precision compares favorably to the Edge launch four years ago. In closing, I’d like to share a few thoughts regarding our expectations and the financial impact of the launch. The substantial improvement in search speed and accuracy, along with a number of workflow enhancements, provides significant value to users. Consequently, Westlaw Precision is priced at a premium that we expect will be similar to or slightly higher than the premium at which Edge is priced over Westlaw Classic. We are aiming for a similar penetration curve to the Westlaw Edge rollout, which showed strong contract value growth, reaching about 70% by the end of the fourth year post-launch. We believe that reaching 25% to 30% penetration by the end of 2023 is a realistic goal. Therefore, we are confident that our Westlaw franchise can continue to contribute around 1% to growth in the Legal Professional segment over the next few years, just as it has in the past. We look forward to providing updates on the launch in the future. To that end, we are planning an Investor Analyst webcast on November 28th to demonstrate and discuss the capabilities of Westlaw Precision in greater detail. Now, I will hand it over to Mike, who will provide more information on the third quarter results.

Michael Eastwood, CFO

Thank you, Steve, and thanks for joining us today. As a reminder, I will focus on revenue growth before currency and on an organic basis. Let me start by discussing the third quarter revenue performance of our Big 3 segments. Revenues rose 6% organically and at constant currency for the quarter. This marks the sixth consecutive quarter our Big 3 segments in aggregate had grown at least 6%. Legal Professionals organic revenues increased 6%. This also marks the sixth consecutive quarter of 6% growth for Legal Professionals. Organic growth was driven by Practical Law, Westlaw, HighQ, and our government business. Historically, Westlaw Edge added about 100 basis points to Legal’s organic growth rate. Early Westlaw Precision sales have been encouraging, earning a premium to Edge. We expect Westlaw to continue to contribute at a similar level going forward as the Precision penetration increases. In our Corporates segment, organic revenues increased 7% for the quarter driven by recurring revenue growth of 9%, offset by a decline of 7% in transactional revenues. Practical Law, CLEAR, Direct Tax, and HighQ were key drivers of recurring revenue growth. And finally, Tax & Accounting's organic revenues grew 9% driven by recurring revenue growth of 9% and transactional revenue growth of 12%. Recurring revenue growth was driven by UltraTax and the segment's businesses in Latin America. Moving to Reuters News. Total and organic revenues increased 5%, led by the Agency business and the news agreement with the Refinitiv business of LSEG. All orders businesses grew in the quarter. Lastly, Global Print total and organic revenues were flat for the third quarter, ahead of expectations. Improved retention and sales timing benefits drove the outperformance, though the timing is expected to normalize in the fourth quarter. On a consolidated basis, third quarter organic revenues increased by 6%. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $530 million, up 13% from the prior year period with a 41.9% margin rising 330 basis points. Improvement over the prior year period was primarily 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 $33 million, up $8 million from the prior year with a margin of 19.7%, up 520 basis points. Revenue growth and a currency benefit drove margins. Global Print's adjusted EBITDA was $50 million with a margin of 34.4%, a decline of 60 basis points due largely to foreign exchange. In aggregate, total company adjusted EBITDA was $535 million, a 17% increase versus Q3 2021. Excluding costs related to the Change Program in both periods, adjusted EBITDA increased 14%. The third quarter's adjusted EBITDA margin was 34% or 37% on an underlying basis, excluding costs related to the Change Program. Turning to earnings per share, third quarter adjusted EPS was $0.57, up from $0.46 in the prior year period. The increase was mainly driven by higher adjusted EBITDA. Currency had no impact on adjusted EPS in the quarter. Let me now turn to our free cash flow performance for the first nine months. Reported free cash flow was $814 million versus $1 billion 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 $6 million less than the prior year period. Both periods reflect payments to the UK tax authority related to the operations of our former Refinitiv business. Also in the nine months, we made $275 million of Change Program payments as compared to $94 million in the prior year period. If you adjust for these items, comparable free cash flow from continuing operations was $1.2 billion, $12 million lower than the prior year period primarily due to higher annual incentive plan bonuses. We maintain 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 third quarter, we achieved $41 million of annual run rate operating expense savings. This brings the cumulative annual run rate Change Program operating expense savings to $410 million. We continue to expect to reach approximately $500 million of annualized savings by year-end and $600 million of 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 third 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 third quarter was $79 million, comprised of $47 million of OPEX and $32 million of CAPEX. We anticipate approximately $95 million of total spend in the fourth quarter 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. Let me conclude with our outlook and several other updates. As Steve outlined, we are maintaining our 2022 guidance. With one quarter remaining in the year, I would like to provide additional insight on how we are progressing versus the 2022 targets. First, organic revenue growth for the full year is trending slightly above our approximately 6% outlook. The adjusted EBITDA margin is trending slightly below 35% given investments to drive customer success and revenue momentum as well as continued inflationary cost pressures. For the full year, capital expenditures are likely to be at the upper end of the 7.5% to 8% guidance range, while our effective tax rate is trending to the lower end of the 19% to 21% outlook. For Q4, we see organic revenue growth of approximately 6% and adjusted EBITDA margin of approximately 35%, both in line with the full year outlook. For 2023, we are also maintaining our outlook. As Steve stated, we have not seen any major changes in customer buying patterns to date beyond a few areas in Corporates where sales cycles have lengthened modestly. And with our 80% recurring revenue mix, our business remains resilient. However, risk to adjusted EBITDA margins are rising amidst heightened inflation and select investments we're making to drive customer success and to fund growth initiatives. As a result, we believe 2023 margins are trending towards the lower end of the current 39% to 40% range. If we see softening in demand due to macro conditions, we will continue to invest for the long term. For 2023, we believe accrued capital expenditures as a percent of revenue is trending towards the upper end of the current range of 6% to 6.5%. And we expect our 2023 effective tax rate will be approximately consistent with 2022. We intend to revisit our 2023 outlook and provide an update during our Q4 2022 conference call in early February after we complete our annual planning process, assess our Q4 recurring net sales, and evaluate macro factors including inflation. As a reminder, Q4 is our largest bookings quarter of the year. Let me close with a few updates. During our March 2021 Investor Day, we highlighted increased focus as an important theme and discuss potential for select product rationalization. In line with these strategies, I am pleased to announce we closed two small divestitures during Q3 and we are targeting to close three more in Q4. In total, these non-core businesses contributed approximately $165 million of annualized revenue and approximately $40 million of annualized adjusted EBITDA. Second, and given recent currency volatility, I wanted to provide an update on our exposures. Year-to-date, 82% of our revenue and 67% of our costs are U.S. dollars. As a result, while reported revenue has hurt by our recent U.S. dollar strength, cost translation benefits our margins and provides a natural hedge to the bottom line. Also, our revenue exposure to the pound is 8%, which is below the 13% UK revenue mix noted in our Annual Report as the LSEG contract is paid in U.S. dollars. While on the topic of currencies, it is worth noting we have hedged a significant portion of the pound exposure related to our LSEG stake. Currently, approximately 87% of the first tranche and 64% of the total value are hedged. As of September 30th, the unrealized gain on our derivative positions was approximately $650 million. Let me now turn it back to Gary for questions.

Gary Bisbee, Head of Investor Relations

Thank you. Operator, we're ready to begin the Q&A.

Operator, Operator

We will take our first question from Kevin McVeigh of Crédit Suisse. Please go ahead.

Kevin McVeigh, Analyst

Thank you very much and congratulations. This is a really positive outcome, especially in a challenging environment. I'm not sure if this is for Mike or Steve, but regarding the divestitures, it appears that despite the revenue impact of about $165 million and an EBITDA of $40 million, was this already included in the guidance or were you still able to reaffirm it despite the adjustments? I understand this is an annualized figure, but is there any way to clarify if this impact is mostly in Q3 and Q4? I apologize for the multiple questions, but could you help me understand where this sits in terms of specific segments?

Michael Eastwood, CFO

Sure. Kevin, I will break that down. With regards to our full year guidance for 2022, we have factored in these divestitures, so I would reconfirm or reaffirm the approximately 6% organic growth and approximately 35%. We're still on target to achieve those despite those divestitures. Certainly, when you look at organic growth versus the total revenue growth, the total revenue growth would be slightly less just given the impact in Q3 and Q4 there, but that would be marginal in nature. Kevin, I'll ask Gary to do a follow-up with you and the team in regards to the split by segment, but it's pretty evenly across the Big 3, Kevin. But Gary will do a specific follow-up for you and the other analysts there. But it's a good rule of thumb, it's approximately evenly across the Big 3 segments, Kevin. Just on that topic, just to foreshadow a potential question, as we look at 2023-2024, there could be an opportunity for us to do a few additional divestitures of similar size just as we continue that theme of focus, simplification, and prioritization just as we look forward into 2023 and 2024.

Vince Valentini, Analyst

Yeah, thanks very much. I will throw in two in one, just any update on timing on acquisitions as it's been a while now with valuation seemingly coming down and your balance sheet is very strong, do you think something may be imminent by the end of the year or still going to take a little while? And then the second one, I mean, inflation is a problem for cost, but should there be some sort of offset on the pricing front, can you give us any sense of pricing increases or maybe a bit above normal that you may be able to take next year to both boost your revenue growth and maybe offset some of the cost pressures you're talking about?

Steve Hasker, CEO

It's Steve. I'll handle the first part, and then Mike can take the second. Regarding mergers and acquisitions, we are quite optimistic about the potential for bolt-on acquisitions, especially in our primary segments that enhance the customer experience without introducing technical challenges and align well with our culture. Our optimism stems from three main factors. First, we are nearing the final quarter of the Change Program, which positions us well to integrate new acquisitions. Secondly, valuations are more favorable now compared to last year, although they remain strong for high-growth, cash flow-positive businesses. Overall, the market appears to be more constrained than it has been in recent years. Finally, our strong capital position, combined with the approaching end of the lockup period with the LSEG state, adds to our positive outlook. Therefore, I am cautiously optimistic that we may have some updates on potential acquisitions later this quarter or into 2023, focusing on opportunities within our primary segments.

Michael Eastwood, CFO

Vince, in regards to your second question, certainly, pricing has been a key lever for us throughout 2022 to help offset inflation. I would just remind everyone that given our pace of multiyear contracts, it does take time for these price increases to work their way through our revenue base and become realized, recognized revenue. So given those multiyear contracts, there's not a perfect correlation between the price increase and the cost increases, but we're going to continue to work hard to ensure our pricing offsets that inflation as we move forward. So should there be some timing differences given those multiyear contracts, I think the answer is yes there, Vince. So we're going to work diligently on the pricing to help offset that inflation as much as possible.

Drew McReynolds, Analyst

Yeah, thanks very much. Good morning. Just Mike, following up on Vince's question on price, are you able to, I guess, first, just provide some commentary in and around how some of those contract renewals are going in real time and are you able to maybe kind of give a sense of the pricing contribution to 2023 organic revenue growth? And then just second part here, you did allude to in 2023 margins coming in at the lower end of, obviously, a very tight range. But you talk about reinvestments, you have inflation, there's operating leverage and then probably some additional cost efficiencies. So just how are you thinking in terms of balancing all of those as we look into 2023?

Michael Eastwood, CFO

Certainly. Drew, let me address each of your points, and Steve may want to add to this. First, regarding the contract renewals in real time, I believe our segments are making solid progress. Just a reminder, the contracts renew throughout the year. Unlike some other companies, our contracts do not roll over automatically; they all renew on January 1st based on when they were initially signed. Therefore, these contract renewals will continue throughout 2023 and into 2024 due to their multiyear nature. The Legal Professionals segment holds the highest percentage of multiyear contracts at 60%, while the Corporates segment follows at 40%. To answer your question directly, I am very pleased with the progress on contract renewals so far, and it remains an ongoing effort as we move into 2023. Moving on to your second question about pricing contributions for 2023, we expect it to be slightly higher, following a trend where 2022 had a marginal increase compared to 2021. We anticipate an additional increase in pricing contribution in 2023 compared to 2022. Regarding your third question about margins for 2023, I categorize it into tailwinds and headwinds, some of which you mentioned. On the tailwind side, first, we are looking at an underlying margin of 37% for 2022, excluding the Change Program, which provides a solid base. The second tailwind is the savings from the Change Program achieved in 2022, which will carry over into 2023. The third tailwind you noted is operating leverage, given our approximate 6% organic growth. However, on the headwind side, the overall macroeconomic environment presents challenges, along with inflationary pressures. Regarding investments, we are prioritizing our customers. We see further opportunities in customer success which will enhance the end-to-end customer experience and improve our Net Promoter Score, likely leading to higher retention. Additionally, we are continuing to invest in digital solutions for self-service options. Kirsty Roth and her team are working on content modernization initiatives. Finally, we have identified further growth opportunities that will require additional investment. We believe that these tailwinds and headwinds provide insight into our strategies for 2023, and we consider focusing on the lower end of the range of 39 to 40 to be reasonable and appropriate at this time. I'll pause here for Steve, in case he wants to add anything.

Steve Hasker, CEO

I will sit back.

Heather Balsky, Analyst

Hi, this is actually Heather Balsky, analyst on the team. Can you just share with us in terms of your plans around cost if there is a tougher year next year where you have flexibility? And then also with regard to the Change Program, can you remind us of the savings that are going to be available through next year and how to think about the phasing of them as we move through the quarters? Thanks.

Michael Eastwood, CFO

Sure, Heather. I think there are two parts there. First, in regards to flexibility, I think during 2021 and 2022, Kirsty Roth, Maria Vucic, and our full team have done a nice job further leveraging our capability centers, which we previously referred to as shared service centers. So I think us leveraging the capability centers in India, Manila, Costa Rica, Mexico City, Gdańsk, Poland, et cetera, certainly, that's progressed very nicely and helps us with our overall cost base as we go into 2023. We see continued opportunities with that. Several executives were recently in India. Kirsty was in Manila last week. So I think our capability centers in those locations provide us with additional opportunities as we think about 2023 and 2024. In regards to our Change Program savings, the remainder for 2023, I would think about that more evenly spread throughout the year, Heather. It's certainly a multitude of different work streams and initiatives. But if you think about them evenly throughout the year, that would be a reasonable estimate for us. Just on the cost side, certainly for merit, we are assuming a higher merit increase in 2023. We had a slightly higher one in 2022 versus 2021, Heather. I think we'll see that trend continue into 2023. But rest assured, we'll pull all the levers that we can, but first and foremost, continuing to support our customers will be priority one.

Aravinda Galappatthige, Analyst

Good morning. Thank you for taking my questions. I have a question for Steve regarding M&A. You mentioned that your near-term actions would remain within the three main categories. That said, your execution is strong, and you are maintaining a focus on product innovation quality. The results from Edge were good, and Precision appears promising as well. Given the disciplines you have established, is there a temptation to expand into adjacent professional areas? I'm not suggesting a return to finance or science, but considering what you have built, especially as we explore M&A, how open are you to some adjacent opportunities? I'd like to hear your high-level thoughts on this.

Steve Hasker, CEO

Yes. Aravinda, we're certainly open-minded about it for now. And our strategy group is always sort of looking at broader expansion and growth opportunities. Let me make a couple of comments, though. The first is the Change Program was about and is about building a platform for growth. So it's a migration to the cloud, the development of APIs. It's really sort of putting together and scaling up our global capability centers. It's about data and analytics around our products and our customer usage of those products, things of that nature. We think that those things will help us with Big 3 and will also give us the right to play elsewhere where we decide to. So that's the first thing. The second thing is areas like ESG are certainly of interest to us. As we look at the evolving ESG landscape, we see a place where there are vast amounts of highly complex rules and regulations and data inputs, and that tends to be an environment in which we thrive. Firstly, and secondly, ESG is relevant to the General Counsel, the Head of Tax, the Head of Risk, and their respective legal and tax and accounting advisers, all of whom we have relationships with. So I think to the extent we go beyond the Big 3, I think you'll see us extend into areas like ESG versus going broader into HR or areas like that. Back into financial data and back into IP and size, they're off the table.

Michael Eastwood, CFO

Aravinda, just on the topic of M&A I've shared with you and the group just in regards to our capital capacity, we are on target to complete the current $2 billion NCIB share buyback by early Q2. Once we complete the current $2 billion, we estimate about $12 billion of capital capacity by 2025. So that will afford us the ability and willingness to continue the double-digit dividend growth. The 10% dividend increase in 2022 is likely to continue or have the ability to execute M&A that you just asked about, but also additional capital returns. So just wanted to remind the group, Aravinda, in regards to the significant capital capacity over the next three to four years.

Toni Kaplan, Analyst

Thanks so much. This actually isn't usually asked, but can you just give us an update on how big your sales force is now and how much it has grown given your investments over the last couple of years?

Michael Eastwood, CFO

Sure, I’m happy to start there, Toni. As a reminder, we have separate sales forces for each of our customer segments. Two years ago, when we initiated the Change Program, we intentionally kept the sales force aligned with each customer segment. For example, in the Legal segment, we have separated our sales force based on the size of the customer. We have a dedicated sales force for global large law firms, then a team for medium-sized firms led by Liz Emmett, and another for small firms managed by Mark Haddad. In addition to these traditional sales teams, we also utilize an inside sales force alongside digital channels. This means we think of our sales forces as both traditional field teams and inside sales, along with digital outreach. The framework I mentioned for Legal applies similarly to our other customer segments, allowing us to best meet our customers' needs. Our digital efforts are integrated throughout the organization to avoid any duplication of efforts, and we use enablement tools like Salesforce.com and Gainsight across the firm. However, we do have dedicated teams for each of our segments.

Tim Casey, Analyst

Thank you. Good morning. Mike, could you explain the monetization process for the LSEG shares? I understand it will be done in three parts starting January 29th. Should we expect that the monetization will occur in chunks throughout the year or will it be evenly spread out? Additionally, how should we view the after-tax implications regarding the tax impact on monetization?

Michael Eastwood, CFO

Sure, Tim. You're right. The first lockup expires on January 29, 2023, followed by another on January 29, 2024, and a third in 2025, as you mentioned. Since we have a Board seat, we won't begin the monetization until March. LSEG will announce their 2022 results during the first week of March, and we need to respect that quiet period, so we'll start monetization then. Since both Blackstone and we can monetize in 2023, it makes sense to expect that the monetization will occur in several tranches throughout the year due to the total size of the tranche we both hold. Our goal is to monetize as quickly as possible, but realistically, it will likely involve multiple transactions throughout 2023. I will keep you updated on the timing during our calls. The first transaction will probably happen in March 2023 at the earliest, considering the quiet period and our Board seat. In terms of the after-tax impact, we have a $3 billion tax basis. Assuming the current value is around $7 billion, subtracting the tax basis leaves $4 billion, which is taxable at 25%. This results in roughly $1 billion in cash taxes due on the entire tranche. So, with a $7 billion valuation, it would be $6 billion after tax. I am also accounting for the gain on our hedge, which is currently up about 650 on the hedge related to our LSEG stake. Let me ensure I address all your questions, Tim.

Andrew Steinerman, Analyst

Hi, it's Andrew. I wanted to just talk a little bit about the Legal Professionals transactional piece. I know it's only 6% of segment revenues, and it was down 7% organically. Could you just go over what's in the transactional segment, why was it down, and when should it rebound?

Michael Eastwood, CFO

Sure. Andrew, as we mentioned back on the August earnings call, we forecasted anticipated downdraft in regards to our transactional overall in Q3. I think that's just temporary in nature. I think as we go into Q4, you'll see transactional pick up. So I would not view the downtick in transactional in Q3 as any type of trend. It's just more due to the cyclical nature of our business, which we had forecasted there. I know you asked about Legal but if you think about transactional overall, there are seasonal elements to different aspects of our business, especially in tax, that impacts Corporates and also our Tax & Accounting Professionals business. Reuters Event certainly has cyclicality, and you'll see an uptick there. So you'll see an uptick in transactional, Andrew, in Q4. If you look at 2023 for the full year, we do assume that transactional revenue will grow at a smaller pace than the recurring revenue. Recurring has consistently grown 7% throughout 2022. So transaction on a long-term basis grows slower than recurring.

Manav Patnaik, Analyst

Thank you. Mike, the $12 billion of capacity you mentioned includes the LSEG stake, correct? Also, with that level of capacity, could you discuss the limitations on the buyback considering the desire to maintain ownership stake?

Michael Eastwood, CFO

Sure. The $12 billion of capacity that I mentioned following the current completion of the $2 billion, that does include LSEG. So as I just mentioned on Tim's question, roughly $6 billion after tax or roughly 50% of the $12 billion, the residual comes from just natural free cash flow and assuming a two-and-a-half times leverage ratio there. In regards to your question on additional buybacks or capital returns, given the Woodbridge ownership, Woodbridge ownership today is about 68%. Going forward, I would assume, Manav, that does not exceed 70%, which would assume that Woodbridge would participate on a proportional basis as we move forward. So a key item there is on Woodbridge. Assume that their ownership would not exceed 70% over the time horizon.

Steve Hasker, CEO

Yes, Manav, it's Steve. The primary indicators we focus on include advertising revenue from Reuters, events, and transactions. These aspects of our business provide less certainty in terms of returns, so we monitor them closely. Fortunately, they are currently performing adequately. As I mentioned earlier, our business portfolio is strong, and our sales efforts are vigorous. However, since the fourth quarter is our largest period, we are keeping a close eye on it, particularly in light of the macroeconomic discussions happening. So far, we've noticed only a slight decline in sales activity from the third to the fourth quarter, and we are monitoring this situation. At this moment, the decline is minor, and it's important to note that we expect our revenue growth for Corporates in 2023 to be between 7% and 9%, and we feel confident about achieving this target.

Douglas Arthur, Analyst

Thanks for that point, Steve. As your major customers may face a more challenging period in 2023, can it be argued that Thomson's product offerings are somewhat countercyclical? Do they enable your customers to accomplish more with fewer staff, suggesting that as your clients encounter stress, certain areas of your products could actually see benefits? Is there a case to be made for that?

Steve Hasker, CEO

Yes, Doug, there is. I have two comments regarding those products. First, in challenging times, litigation does not typically slow down; in fact, it may increase in certain areas during a downturn. Secondly, tax returns still need to be filed, so that activity remains relatively unchanged. Additionally, the Heads of Risk within corporations and their advisors often observe a rise in fraudulent activities as government agencies manage benefit entitlements. Therefore, our end markets are generally stable and may present opportunities in various sectors. Moreover, our products are largely essential, which positions us well for revenue during a downturn. As Mike mentioned earlier, we are focused on managing costs carefully, but we also see opportunities for long-term growth and to better serve our customers. We intend to be prudent with our spending, yet we'll continue to invest through the economic cycle when we identify opportunities.

Michael Eastwood, CFO

Okay. Great. Thanks, everybody.

Operator, Operator

I pass it back to Gary.

Gary Bisbee, Head of Investor Relations

Yes. I think we're good. Thanks, everybody. Me and the IR team are around if you want follow-up discussions. Have a good day. Bye-bye.

Steve Hasker, CEO

Thanks, everybody. Bye-bye.