Earnings Call Transcript - TRI Q4 2025

Gary Bisbee, Head of Investor Relations

Good morning, and thank you, everyone, for joining us today for our fourth quarter 2025 earnings call. I'm joined today by our CEO, Steve Hasker, and our CFO, Mike Eastwood, each of whom 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'd limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, we compare performance period on period, we discuss revenue growth before currency, 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 and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially from 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. Before I turn it over to Steve, let me provide two quick updates. First, we have tweaked the naming for two of our segments to better represent their current focus and operations. Tax and accounting professionals is now known as tax audit and accounting professionals. And Reuters News is now Reuters. The changes are in name only with no impact on the composition or measurement of their results. Second, please note that starting with our first quarter 2026 results, we will be making minor changes to where certain product revenue sits within the Big Three, reflecting how certain customers are managed. There is no impact on our consolidated results. For your convenience, we have posted to the Investor Relations section of our website a schedule that reflects our revised full year '23, '24, and '25 results and 2025 quarterly results in the manner we will begin reporting next quarter.

Stephen Hasker, CEO

Thank you, Gary, and thanks to all of you for joining us today. Let me begin by commenting on the AI competition concerns that have led to recent share price volatility. We have growing confidence in the value of our content and our expertise for delivering professional-grade AI solutions. Our second quarter call in August, we discussed why Thomson Reuters is well-positioned to win with Agentic AI. We bring comprehensive proprietary content, deep domain expertise, and leading workflow software, which we combine with advanced reasoning models to complete complex, multistep tasks. Our unique and high-quality content grounds the AI outputs, and our deep subject matter expertise trains and fine-tunes the AI. Professional-grade results cannot be delivered without this content and expertise. On our third quarter call in November, we discussed the durable differentiation we believe exists with Westlaw. Its unmatched breadth of proprietary, editorially enhanced legal content together with sophisticated tools to verify the AI deliver the comprehensive, accurate, and up-to-date outputs needed for high-stakes litigation. General-purpose models cannot meet this standard. Since those discussions, our optimism around agentic opportunity has strengthened. The launch has gone extremely well, with early sales and customer beta indicating we have created a new standard in legal research capabilities. And more importantly, we have proven that we can leverage agentic deep research capabilities to unleash our content and our expertise to clearly differentiate our AI solutions. We are working to bring these advanced AgenTi capabilities and the full power of Westlaw and law to co-counsel legal by midyear, and to our other legal tax and risk offerings in the future. We see legal AI workflows as a significant white space opportunity for TR, and one that is largely incremental to our traditional research and know-how stronghold. We remain the clear leader in research and content, and we believe that we are a leader in the AI workflow market today. Looking forward, our strategy is clear. We will continue to aggressively innovate, with a focus on leveraging our proprietary content and deep domain expertise, along with the latest AI capabilities to deliver highly specialized agentic workflows that we believe will be difficult for those without the same content or expertise to replicate. I'll now turn to the fourth quarter. 2025 was a year of continued progress at Thomson Reuters, so let me start by reviewing some of our key accomplishments. First, we delivered another year of good financial results meeting our key targets. Full-year organic revenue grew 7%, driven by 9% growth for the Big Three. Our adjusted EBITDA margin expanded by 100 basis points to 39.2%, meeting our outlook. And we delivered $1.95 billion in free cash flow, slightly ahead of expectations. 2025 saw continued acceleration in our pace of innovation, with several foundational product launches, including Westlaw Advantage, the co-counsel legal Unified Solution, and CoCounsel for Tax and Audit, to name a few. Initial customer feedback and sales activity across these offerings has been encouraging, and we're excited about our road maps for 2026, as we work to bring deep research and identity capabilities more deeply into our portfolio. Overall, commercial momentum across our AI-enabled offerings continues to build, highlighted by several council wins including Microsoft, an important validation of our strategy and the market shift toward trusted, domain-specific AI. We're also excited about initiatives we are driving to leverage AI and to reimagine how we work, fostering a tech plus talent mindset to drive productivity and speed. As I will discuss in a moment, we have delivered several early successes, including in software engineering, customer service, content operations, and our general counsel's office. This progress provides confidence in the long-term opportunity to become a more productive and nimble organization. Our capital capacity and liquidity remain a key asset we are focused on deploying to create shareholder value. In 2025, we invested $850 million into M&A, including four strategic bolt-on acquisitions bolstering key franchises and talent. We executed a $1 billion share repurchase program last fall, and this morning, we have announced another 10% increase in our annual common stock dividend. We remain committed to a balanced capital allocation approach, and we continue to assess a number of inorganic opportunities. Our estimated $11 billion of capital capacity through 2028 we are positioned to be both aggressive and opportunistic. Looking forward, our conviction around the medium-term growth potential for Thomson Reuters remains strong. As Mike will discuss in more detail, we are reaffirming our 2026 outlook for organic revenue growth of 7.5 to 8%, including approximately 9.5% for the Big Three. We expect healthy margin expansion and strong free cash flow, even as we continue to invest in innovating, serving our customers. Now to the results for the quarter. Fourth quarter organic revenues grew 7%, Organic recurring and transactional revenue grew 98%, respectively. While print revenues declined 6% in line with expectations. Adjusted EBITDA increased 8% to $777 million reflecting a 110 basis point margin increase to 38.7%. Due to healthy operating leverage and good cost discipline. Turning to the fourth quarter results by segment. The Big Three segments delivered 9% revenue growth. Legal organic revenue, again, grew 9% despite softer government growth. Continued momentum from Westfall, and co-counsel were the key drivers. Corporates' organic revenue grew 9%, driven by offerings in our legal, tax and risk portfolios, and the segment's international businesses. Tax audit and accounting organic revenues grew 11% driven by ultra tax our Latin American business, and CoCouncil. Reuters' organic revenues rose 5% driven by growth in the agency business, and our contract with LSIG. Lastly, global print organic revenues declined 6% year on year. In summary, we're pleased with our Q4 results. Full-year organic revenues grew 7%. Organic recurring and transactional revenue grew 94%, respectively, while print revenues declined 5%. Adjusted EBITDA increased 6% to $2.9 billion yielding a margin of 39.2%. Adjusted earnings per share for the year was $3.92 compared with $3.77 per share in the prior year. Let me finish on the results for the full year by noting that we have met or exceeded all of our 2025 guidance metrics with the loan exception and interest expense. This was higher than our forecast due to the pace of our share repurchase program, and declines in market interest rates. Which led to lower interest income. As you know, we have talked a lot about AI from a product and an innovation perspective in recent years. I'd like to close my comments today by briefly discussing another important AI-driven initiative here at Thomson Reuters, namely leveraging the technology internally to reimagine how we work. Since 2023, we have invested heavily in AI tools and training. We created OpenArena, an internal AI platform providing all employees with access to leading AI models and capabilities. And we are leveraging multiple third-party AI applications. We have held several tier-wide AI-focused learning days, offered AI certification programs, and taken steps to encourage and foster a culture of experimentation with a test and learn approach. This enabled our employees to not only build skills, but also test the impact created by the AI tools. Last year, having matured from experimentation to execution, we implemented a disciplined top-down approach to driving transformation at scale, through AI-driven automation. Our AI initiatives are now purpose-based with specific business targets. And we have created three-year AI roadmaps for all segments and functions. We're leveraging key talent process, learnings from our successful execution of the change program, to reimagine how we use technology simplify complexity, optimize our footprint in commercial systems, and evolve our work with a tech plus talent mindset. We are pleased with our progress to date, for example, as we are seeing broad engagement and a growing number of successes. More than 85% of our employees are active users of OpenArena and our other AI tools. We have more than 300 AI use cases in development across all areas of the company. Let me share four specific examples where AI is already driving measurable business impact at Thomson Reuters. Let's start with software development. Over 80% of our engineers actively use AI-powered tools, making AI a core part of our development life cycle. This goes beyond code generation. AI is accelerating security remediation, modernizing legacy systems, automating quality assurance, and enabling predictive incident management. These capabilities have transformed how we build and deliver products, reducing lead times and improving quality at scale. Moving to customer support, by pairing third-party AI tools with internal development, we have automated knowledge search and content creation, and added agent assist chatbots. These tools are accelerating routine work and improving outcomes for both our customer service agents and our customers. This includes having reduced call average handle time by 15%, and boosted first call resolution by 10%. In content operations, we're leveraging proprietary AI tools to extend our differentiation and content advantage. Our content creation process requires deep legal expertise and proprietary technology. Over the past eighteen months, we've developed specialized AI tools specifically engineered for legal content processing. These tools now automate complex tasks like document ingestion, classification, and citation conversion for judicial cases and legislative updates. These advancements improve our speed and quality of proprietary content we deliver. For example, we have accelerated US content delivery to Westlaw by 25%, giving customers faster access to critical legal updates. Importantly, the increased automation also brings up resources that we are refocusing on driving further product enhancement and accelerated innovation. Finally, our general counsel's office continues to excel in leveraging Thomson Reuters' AI-enabled legal tools. They were early adopters of co-counsel and our other AI-enabled offerings. Which they leverage for contract review, drafting legal research, and more. I'll provide one concrete example with co-counsel tabular analysis. A recently launched feature that automates the review of up to 10,000 documents at a time. Following the close of an acquisition last year, the team used this capability to review thousands of customer contracts, completing this complex task in hours rather than weeks. And saving significant time and resources. It also allowed for a much quicker assessment of the ongoing obligations and risk profile of the acquired business. Mike will share some incremental commentary, but let me conclude by stating we have growing confidence that this reimagination of how we work will bring significant benefits to TR over the next few years. Increasing our productivity, accelerating our decision-making, and improving our customer experiences. I'll now turn it over to Mike to review our financial performance.

Mike Eastwood, CFO

Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency, and on an organic basis. Performance for our Big Three segments. Let me start by discussing the fourth quarter revenue Organic revenue grew 9% in the fourth quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9% again this quarter despite slower growth from government. Key drivers from a product perspective remain Westlaw, CoCounsel, and practical law. Government grew 5% in the quarter, though we expect this to slow in Q1 based on the government cancellations we discussed last quarter. Our Corporate segment grew 9% organically, driven by 9% recurring and 7% transactional growth. Indirect tax, practical law, the Garo, and our international businesses were key contributors. Tax, audit, and accounting organic revenue increased 11%. Recurring and transactional revenues grew 123%, respectively, Our Latin America business Ultratax, co-counsel for tax and audit, and SafeSend were key drivers. Moving to Reuters, organic revenue rose 5% for the quarter driven primarily by growth from the news agreement with the data and analytic business of LSAG, and $5 million of generative AI-related transactional content licensing revenue in our agency business. Finally, Global Print revenues decreased 6% on an organic basis. On a consolidated basis, fourth quarter organic revenues increased 7%. At the end of Q4, the percent of our annualized contract value or ACV, from products that are GenAI enabled was 28%, up from 24% last quarter. Turning to our profitability, adjusted EBITDA for the Big Three segments was $709 million up 9% from the prior year period with the margin rising 130 basis points to 43%. Reuters adjusted EBITDA was 48 million with a margin of 21%. Global Print's adjusted EBITDA was 54 million with a margin of 39.6%. In aggregate, total company adjusted EBITDA was $777 million an 8% increase versus Q4 2024, reflecting a 110 basis point margin increase to 38.7% despite $19 million of severance expense related to our initiatives to reimagine how we work. Turning to earnings per share, adjusted EPS was $1.07 for the quarter versus $1.01 in the prior year period. Currency had a $0.01 negative impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the full year 2025, our free cash flow was $1.95 billion slightly ahead of our approximately $1.9 billion outlook. EBITDA growth was the primary driver of the year-over-year increase in free cash flow. I will now provide an update on our capital structure and several capital allocation items. From a liquidity and capital structure standpoint, we remain in an enviable position with below-target leverage and healthy cash flow. This strong financial position is illustrated by our December 31 capitalization. We had approximately $500 million cash on hand at year-end. We have an undrawn $2 billion revolving credit facility. We also have $1.7 billion available for issuance under our commercial paper program. Our December 31 leverage ratio was 0.6 times below our 2.5 times internal target as noted in our value creation model. Looking forward, we forecast $11 billion of capital capacity through 2028. We remain focused on value creation, and we expect to continue with our balanced capital allocation approach that includes annual dividend growth, strategic M&A, and capital returns. I will provide several updates. This morning, we announced a 10% increase in our annual dividend for 2026 to $2.62 per share up 24¢ from $2.38 in 2025. This marks the thirty-third consecutive year of annual dividend increases and the fifth consecutive 10% increase. In 2025, we completed four acquisitions for approximately $850 million. SafeSand and Additive brought key capabilities to our tax audit and Accounting Segment. With small bolt-ons of Time Base and Imagine Images bolstering our legal business in Australia, and Broaders respectively. In October, we completed the $1 billion share repurchase program or NCIB, we announced in August retiring 6 million shares. For the year, we returned slightly more than 100% of our 2025 free cash flow through dividends and buybacks ahead of our 75% return commitment. Looking forward, we have ample capacity to continue to execute against all three of these capital allocation strategies in 2026 and beyond. We remain highly focused on strategic M&A but expect to again deliver to the 75% free cash flow return commitment in 2026. I will conclude with a few thoughts on our outlook. We are reiterating the 2026 financial framework we discussed last quarter, and providing additional detail with our 2026 guidance. We forecast total and organic revenue growth in a range of 7.5% to 8% driven by approximately 9.5% growth for the Big Three. Our outlook calls for modest organic revenue growth acceleration for both total TR and the Big Three. We are confident in delivering this improvement which benefits from positive underlying momentum the execution of our innovation roadmaps and to a lesser extent, easier comparisons in several areas including at Reuters and Corporates. We continue to forecast our adjusted EBITDA margin in 2026 rising by 100 basis points from 39.2% in 2025. We expect our 2026 effective tax rate to be approximately 19% with our cash tax rate roughly 5% below this book tax rate. Moving to capital intensity, we see 2026 accrued CapEx as a percent of revenue of approximately 8% in line with the trend in recent years. This level of investment is supportive of our continued focus on investing in product innovation, as we strive to deliver stronger revenue growth. We expect 2026 free cash flow to be approximately $2.1 billion, up from $1.95 billion in 2025, as growing profitability and stable capital intensity more than offset higher cash taxes. We are reiterating previously provided 2026 organic revenue growth targets for the Big Three segments as follows: Legal professionals growth of 8% to 9%, corporates of 9% to 11%, and tax, audit, and accounting professionals of 11 to 13%. As it relates to Steve's discussion of leveraging AI to reimagine how we work, I will add a few comments. First, as I stated earlier, our Q4 results included approximately $19 million of severance as we take steps to drive automation, and productivity throughout the company. We expect an additional $10 million in the first quarter. While it is early in our automation drive, we have growing confidence in the opportunity ahead. Combining our underlying operating leverage with expected productivity gains, we now expect to deliver 100 basis points of annual EBITDA margin expansion not only in 2026, but also in 2027 and 2028. Even as we continue to invest in innovation and driving revenue growth. Turning to the first quarter, we expect organic revenue growth of approximately 7%, and our adjusted EBITDA margin to be approximately 42%. Looking beyond Q1, we expect revenue growth to strengthen, primarily driven by building momentum from a number of our AI-enabled products. Let me now turn it back to Gary for questions.

Jason Haas, Analyst

To start, I'm curious if you could comment on the legal recurring growth. It did slow from 3Q to 4Q. So curious what drove that. And then can you just outline what sort of government headwinds you're expecting in 2026? Thank you.

Mike Eastwood, CFO

Sure, Jason. Your first question, the answer is associated with our government business. Second question, which is broader, I will expand. If you look at legal professionals' excluding government, we have clear momentum driven by the pace of AI-driven innovation including our Westlaw and co-counsel products. With that said, when we incorporate the full impact of government cancellations we discussed during Q3, we do see the government growth slowing in Q1 from the 5% we reported in 2025. We are confident legal professionals will achieve 8% to 9% for full year 2026. However, there could be variations within that range quarter by quarter in 2026 due to the government. So, hopefully, Jason, that helps with both questions. So I just reemphasize when we look at legal professionals excluding government, we have terrific momentum there. It will be offset somewhat with the government cancellations.

Gary Bisbee, Head of Investor Relations

Mike, if I could just add one more comment. Jason, you might have seen that transactional growth at legal was really strong. That was actually driven in large part by government. And so there was a bit of a shift within the quarter from recurring to transactional within the government segment as well.

Stephen Hasker, CEO

Yeah. I'll start that, Jason. Thanks for the question. If you go back to our prior earnings call, we went into some depth with regard to specifically Westlaw. So I won't try not to repeat too many of those comments, but let me make a few comments because I think this is obviously a hot topic broadly and particularly a hot topic this week. So the first point I'd make is we have not seen a change in competitive dynamics in our areas of core franchise. So that's legal research and know-how, Westlaw and practical law. And the and the various tax calculation engines. That we see. And for that matter, our risk fraud and compliance dataset. So as it pertains to legal, we have not seen new entrants into the legal research space of any measure or importance. Where we have seen more competition is in a white space area for Thomson Reuters. Which is this AI-driven workflow area where the legal assistants have emerged since the rise of generative and now agentic AI? Now the reason that we are confident and growing in confidence is a couple for firstly, we believe and all the evidence in the marketplace today supports the fact that a general-purpose model cannot do what professional-grade AI can do. So our starting point here we believe is a very strong starting point, is that we have two highly differentiated assets. The first we have decades and in some jurisdictions, centuries, of unique content sets, that have been created by highly skilled highly trained, qualified lawyers based on case law and based on best practices and know-how. Improved and refined curated and delivered over decades or centuries. So the first is our content sets. We think very difficult to replicate. And the second is our deep domain expertise. So thousands of attorney editors on staff who create this content and we have retrained to use that expertise to train our agents. And so as I said in my opening remarks, we have growing confidence here. And that growth in confidence comes from the fact that in August, we launched Westlaw Advantage. Which is a deep research agentic product. Based on early sales and customer feedback. It has reset the bar in the legal research space. To this day, it is unmatched and very significantly more sophisticated, more accurate, and more than the next best tool. In putting this product successfully full, we have cracked the code, we believe, on leveraging our content, our deep domain expertise to train agents. The opportunity for us going forward, and this runs through our product roadmap in '26 and beyond, is to take that leveraging of content and expertise to train agents to our other flagship products. Starting with co-counsel, launch a fully agentic version in the coming months through to our other franchise products. And so I'd finish by saying there is a marked difference between professional-grade AI and general-purpose model AI. Professionals the stakes for professionals are extraordinarily high. They must be correct. They're doing expert fiduciary work, and they require data privacy and security. Ultimately, they are accountable for being correct. That's really the basis of our confidence, not only in our core Westlaw and practical law franchises, but also in our ability to extend leadership into AI-driven workflows, which, as I said, is a white space opportunity for us.

Tim Casey, Analyst

Hi. Good morning. Given the share price action, certainly of this week, could you talk a little bit about how share buybacks and return of capital transactions things like that are, you know, I guess, how are they stacking up in your pecking order? I know you detailed your priority of strategic M&A, but, you know, given what's gone this week, how are you thinking about buybacks more specifically?

Mike Eastwood, CFO

Yeah. Tim, I'll start overall as you referenced in my prepared remarks. I did mention we will continue with our balanced capital allocation, the three vectors of annual dividend growth, which we increased 10% today, strategic M&A and capital returns. Tim, we agree with your comment and assessment that share repurchases are definitely attractive at the current levels. And we look forward to continuing our ongoing discussions with the board in that regard. Lastly, would mention, Tim, that we plan to deliver on our commitment to return 75% of our free cash flow to investors in 2026 in order to achieve that 75% we would need about $500 million of share repurchases to achieve this commitment, which is in addition to the dividends previously mentioned. So just to reiterate, Tim, we agree share repurchases are attractive at the current levels. We'll continue to discuss that option with the Board.

Brendan, Analyst

Good morning. This is Brendan on for Manav. I just wanted to see if you could help us at all with the kind of how the size of co-counsel, if that's even possible to split out and kind of how much in legal versus tax. And then also just any comment on the progress of adoption of Westlaw Advantage and kind of what kind of uplift you know, adoption uplift you expect that's kind of baked into the guide?

Stephen Hasker, CEO

Yeah. Brandon, I'll start it, Steve. Thanks for the question. So we haven't and and don't plan to sort of provide, you know, specific dollar ACV numbers for those products as it as it's relatively early days. What I would say, though, is that we are very encouraged by the reception of co-counsel legal by both the general counsel's that we serve and aspire to serve and their teams and also the law firms. And that is both the largest law firms in the world, medium firms, and small firms. And I think Steve Acy and and Liz Zimmick and Aaron Radermacher have done a great job as is Karam Tewari in terms of penetrating co-counsel into the legal community. So we are very pleased with the progress, and we think we are keeping pace or outpacing the competition in what is a white space area for us. I'd echo those comments as it pertains to co-counsel for tax and audit. On the back of the Materia acquisition, particularly the integration of Kevin Molini and Lucas Adams, from Materia into the fully agentic products that they bought with them and have been able to develop with the help of our content and expertise. Have been very well received. By tax and accounting professionals, firms, small, medium, large in-house tax departments, and also the professional firms themselves. So I think it's early days in term of the development of these tools that we should change management within the customer set. But we're off to a great start, and we're looking forward to both further investing and innovating and having our fantastic sales teams bring those products and services to market.

Mike Eastwood, CFO

Brandon, I think you had a second question in regards to the Westlaw Advantage. I would say the trajectory there is pacing actually higher than prior releases of Westlaw. Steve and I had a chance to spend time last week with Mike Don, Mike Dane, who leads the Westlaw Advantage, and also spent time with Emily Colbert. Maybe I'll expand your question, which is likely to come. Brendan, in regards to our confidence level in 2026. These GenAI offerings that we've recently launched are a key ingredient. Several items there, Westlaw Advantage, the co-counsel legal that Steve talked about, Steve also talked about co-counsel for tax and audit. I would add ready to advise, which is within Elizabeth Bistrom's tax, Audit and Accounting Professionals. And we just launched ready to review, with Kevin Molaney there. So that's one of the key reasons, Brendan, why we're confident in our 2026 revenue guidance. Along with that, Elizabeth is scaling the recent acquisitions of SafeSend and Additive. The last component of that revenue growth acceleration in 2026 I mentioned in the prepared remarks easier comparisons specifically for orders given the one-time GenAI content licensing revenue it was lower in 2025. 2024 was $33 million. 2025 was $13 million.

Drew McReynolds, Analyst

Thanks very much. Good morning. Either for Steve or Mike, with respect to strategic M&A, I think you guys, a company, clearly have been in AI for a long time and have been successful doing tuck in M&A. Is it incorrect to assume the pace of all the AI innovation, including from the frontier models, is accelerating? So does that make strategic M&A trickier to do? And then when you see a pullback, like we've gotten this week across the broader software space, have multiples in the private market, do you expect them to come in? And just your level of confidence in making sure you're doing the right strategic acquisitions just given again, the pace of AI evolution underneath the hood? Thank you.

Stephen Hasker, CEO

Yeah, Drew. Thanks. It's a great question. Look, in my view, M&A of any stripe and any size is tricky. And it always has been, and it always will be. And that's why one of the reasons that we've kept as I think you know, the bar very high. I mean, we look for our acquisitions that are first and foremost additive to our customer experience. Secondly, they got modern tech. The financials need to work for us, not just the exiting shareholders. And last but not least, we look for executives and teams leading those companies that we think will be additive to TR’s culture and talent base. And so we've done a series of these acquisitions, as you've seen, but I think have we've kept our powder dry nine times out of 10 relative to the pipelines and that which we look we look at. I would suggest that would continue because M&A is hard and integration is hard, and we take it very, very seriously. We're proud of the sort of batting average. That we've achieved in terms of integrating the acquisitions we've made over the last five or six years. As to sort of what happens in the private markets with valuations, you know, as you've shared before. We focus on the best targets and the best products and teams. And so we're not in the market sort of looking for, you know, sort of cheap deals and subpar products. The prices of those assets have maintained held in private hands have stayed high in my view. I don't think the private equity firms have sort of readjusted their expectations. Here we sit with $11 billion of capital to deploy between now and 2028. I think that's an advantageous position because should the events particularly this week, but over the last couple of months in terms of downgrading the valuations of software and AI-related businesses. I think we should be able to take advantage of that should it occur. But I've been wrong before in terms of how fast the private markets would move.

Anna Wu, Analyst

For taking my questions. We are in an environment where many enterprises are keeping headcount flat or even down. How do you monetize your AI product innovations further to capture the increased AI-driven consumptions in pricing? And as you look to 2026, how should we think about pricing trends compared to the approach you took in 'twenty five?

Stephen Hasker, CEO

Anna, thanks for the question. I'll let Mike answer the pricing question. But in terms of the headcount so let let me make something really clear. Which we often state, but I can't be clear enough. And that is we do not price on a headcount basis. So we don't sell seat licenses. To the extent that our tools and this broader sort of agentic AI transformation drives greater efficiency and ultimately headcount reduction within either in-house legal tax audit departments and so forth or firms that serve corporations, we will be a beneficiary of that not a victim of that. The reason will be a beneficiary of that, and I used the example in my prepared remarks of how Nori Campbell's team saved weeks in terms of their due diligence activities and contract review on a potential acquisition is that we price we're increasingly looking to price to value. Now, it's early days in this AI journey, and so there's still a sort of a level of experimentation in terms of pricing as customers become accustomed to these tools and start to learn the impact and play through. But we should be a beneficiary of that, not a victim.

Mike Eastwood, CFO

Anna, I'll address two additional points I think you raised. One was in regards to how we monitor our GenAI investments. Certainly, Steve just touched on price in which I'll go into more detail in a second, pricing which we monitor very closely with our segment presidents Raghur Aminathan, Laura Clayton McDonald, Elizabeth Bistrom for the Big Three segments. I think another indicator, Anna, is our continued EBITDA margin expansion, as we mentioned and you saw today, EBITDA margin expanded 100 basis points in 2025. We've made commitments to continue the 100 basis points of margin expansion in 2026, '27, and '28. Hopefully, that gives you indicators that we're closely monitoring all of our GenAI and really all investments, period. I think that's a strong signal of the return that we're getting. On your second question on pricing, we estimate a slightly higher overall pricing yield in 2026 versus 2025. And when I say that, that is a composite of our full portfolio, not just the GenAI offerings, but all of our offerings.

Ara Vinda Galappata, Analyst

I was wondering if it's worthwhile differentiating the position with respect to your customers and larger law firms as opposed to the smaller law firms. Is there a material difference with respect to, you know, the threat from these new generalized services? And then as my follow-up, perhaps, Mike, on, you know, clearly, the GenAI enabled products as a percentage of ACV jumped a little bit more than in prior quarters, 28%. How should we think of sort of high watermark for that?

Stephen Hasker, CEO

Thanks, Ara. I'll take the first, Mike, the second. So with traditionally, when we put out a new version, for example, of Westlaw or an upgraded version of Practical Law, the largest law firms and the largest general counsel's offices were the first to kick the tires on those and ultimately take them up. That would sort of work its way down through the customer set. You've heard over time Mike and Gary talk about, you know, the percent of ACV that these products occupy and typically know they reach the limit in the sort of 70 odd percent range. I think what we're seeing is a slightly different dynamic in this AI-driven era. Insofar as we have just as much demand and interest in our most advanced AI-driven tools from small firms as we do medium and large because they instantly see the impact in terms of accuracy, quality, and ultimately the sort of impact to their bottom line. Small firms see that as quickly. I mean, I've been in sales meetings where we've had sole litigators in the Midwest, for example, say, see a demo of the latest Westlaw and or co-counsel and say, where do I buy? When I've asked them why such a quick decision, they've said, because look, I was I’ve been thinking about hiring another paralegal or another associate. This does the work. In many cases, and it's easier and cheaper for me to do this than go down that hiring path. That dynamic has been slightly different. But the demand is uniformly keen across all three, I think is slightly different than previous iterations.

Anna Wu, Analyst

I think it'd just be helpful you've done this in the past, but maybe just to hear from your words how you're thinking about the sort of differentiation or moat there because I do think that that is a little bit of a different animal than, you know, legal in terms of what you're providing.

Stephen Hasker, CEO

No. I agree, Anna. I think it is a it’s there are some similarities, but there are also some differences clearly. The basis of differentiation is the tax calculation engines that we that we operate and we provide to customers. And those tend to be very sticky. Because tax season, tax filing systems seasons come up quickly. And they're incredibly stressful moments for our customers. So the idea of sort of swapping out the tax calculation engine is not all that attractive. For a tax accounting professional or the head of tax within a corporation. We operate a number of these products that are leading in their categories, including UltraTax, ecosystem tax, and OneSource. Those calculation engines are lightning fast. They are fed by constantly, and in many cases, instantly updated content.

Karma Tewari, Sales Team Representative

Thank you for taking my question. I just want to highlight that we're seeing strong synergies between co-counsel and the existing Westlaw products that enhance our value proposition in the legal market, reflecting excellent integration.