Earnings Call Transcript
Thomson Reuters Corp /Can/ (TRI)
Earnings Call Transcript - TRI Q1 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters First Quarter Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Head of Investor Relations, Mr. Frank Golden. Please go ahead.
Frank Golden, Head of Investor Relations
Good morning and thank you for joining us today. This call marks the first time our new CEO, Steve Hasker; and our new CFO, Mike Eastwood, will report our results, and we'll follow a similar format to past practice. Given the impact COVID-19 is having on the economy, discussing Q1 results feels like looking in the rearview mirror, and the guidance we gave only two months ago is already dated. Nevertheless, we believe transparency is critical at a time like this for our stakeholders. Steve and Mike will discuss where the company stands today, both operationally and financially. They will also discuss our updated outlook for the full year as well as for the second quarter, taking into account the tremendous uncertainty resulting from the global COVID-19 pandemic and its evolving impact on businesses. Before getting started, I'd like to remind you about the 2019 segment revisions that we mentioned last quarter and are now reflected in our first quarter results. 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 as we believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties related to COVID-19 pandemic and other risks discussed in our reports. Our filings that we provide from time to time to regulatory agencies, you may access these documents on our website, or by contacting our industry relations department. Now, I'd like to turn the call over to Steve Hasker. Steve?
Steve Hasker, CEO
Thank you, Frank, and thanks to all of you for joining us today on my first earnings call. Needless to say, I joined Thomson Reuters at rather a tumultuous time from a global macro perspective. However, I'm fortunate to have joined the company with a long history, a strong foundation, and very resilient businesses, a company whose customers truly value our solutions and a company that is essential for the efficient functioning of critical markets that drive world commerce. It's a responsibility that we all take very seriously each and every day we come to work, particularly at a time like this. Now in this environment, our first priority is the health and safety of our employees. I want to extend a heartfelt thanks and express a deep sense of pride in the way our employees have stepped up and rallied in this crisis. I admire the flexibility, adaptability, and resilience that our people have shown amidst this courageous change; their commitment to seamlessly support our customers across the world is impressive. And now more than ever, we need to help businesses, communities, and economies move forward. I also want to thank those in each of our communities across the world who are battling this virus, including health care workers, first responders, and numerous others on the front lines. Our Reuters journalists have always been on the front line, and their global coverage of the pandemic has been truly outstanding. I would also like to mention the Pulitzer Prize our Reuters team won yesterday for its coverage of the Hong Kong protest, the fifth such award in three years. We can't thank everyone enough for their courage and perseverance. If there are three key messages that I'd like to convey during today's discussion, the first: Thomson Reuters is very well positioned to navigate through this challenge from both operational and financial perspectives. Our business is resilient, and we have proved our adaptability by seamlessly moving 98% of our workforce to working effectively from home. A strong balance sheet and liquidity position permit us to maintain our focus where it needs to be: on our customers. Second, I believe this crisis will create more demand for our core solutions. In my daily conversations with customers, I see more demand for accurate, timely, and useful information delivered digitally and accessible 24 hours a day. And thirdly, as a management team, we are looking to take every opportunity to accelerate our investments in our core franchises through and beyond this crisis. I firmly believe we will emerge on the other side of this crisis even stronger. Before I dive into the details this morning, I think it's also worth mentioning that based on my opening months with the company, I would observe that we have plentiful growth opportunities within our core franchises and significant potential to take further advantage of operating scale and efficiencies. Let me now turn to our results for the first quarter and our expectations for the balance of the year. The results for the first quarter came in as planned, and we're off to an encouragingly strong start to the year. As noted on our fourth quarter call, we entered the year with a healthy information services market in general and improving legal and regulatory markets in particular. And that was what we were seeing through the first half of March when COVID-19 began to take hold across the world. As expected, reported revenues and organic revenues both increased 2%. Revenues at constant currency were up 3%, with currency having had about a 100 basis point negative impact this quarter. Adjusted EBITDA was $480 million, up 21%, helped by higher revenues and by not having incurred stranded or one-time costs as occurred in the prior period. Adjusted EPS was $0.48 per share versus $0.36 per share a year ago. Our Legal, Corporates, and Tax & Accounting segments, which make up 80% of our revenues, recorded another good quarter with organic revenue growth of 4%. Legal, in particular, started the year strong and had a very good quarter with organic revenues up 4%, and revenues before currency were up 5%. Legal's revenue growth was bolstered by the continued success of Westlaw Edge, which is seeing knock-on benefits from the contracts signed in the fourth quarter of 2019 with the U.S. Department of Justice and the Administrative Office of the U.S. Courts. Lawyers have been willing to pay a premium for solutions like Edge that give them a competitive advantage and improve efficiency, particularly in the virtual environment in which they're currently working. Corporates' organic revenues were up 5%, and Tax & Accounting's organic revenues were flat, which we flagged would be the case last quarter due to the permanent acceleration of UltraTax state tax software from the first quarter of 2020 to the fourth quarter of 2019. And Tax & Accounting's reported revenues were down 2% due to currency. We were confident that Tax & Accounting was on track to achieve revenue growth of between 6% and 8% for the balance of the year prior to the impact we are now expecting to experience from COVID-19. Reuters News organic revenues were down 4%, and Global Print organic revenues declined 5%, both as expected. Now, customers have dramatically condensed the transformation of how they work. Change that might have otherwise taken years is happening in weeks. They're calling for support, and we're there to help. Prior to COVID-19, law firms recognized the need to invest in technology solutions in order to compete. But now they recognize they must do so to operate effectively if they're to properly serve their clients. And that's very good for us because they have a preference for fewer, more trusted strategic partners, and we're particularly well suited to leverage our unique position to be that partner. Many government agencies, as well as federal, state, and local courts, have traditionally been laggards in adopting new technologies. Now they have no choice but to adapt to new ways of working. The transformation to more technology-driven solutions by both lawyers and accountants will now accelerate given the changes we're all facing in working from home. The bottom line is that the work we do is more valuable, not less valuable. I believe the support we're showing our customers today will lead to even deeper relationships tomorrow. Let me take a moment to recap why we're so well suited to assist our customers with this transformation. First, throughout today's presentation, you'll hear Mike and I use the term Big 3. The Big 3 consists of our Legal, Corporates, and Tax & Accounting segments, which comprise nearly 80% of total company revenues and grew 5% organically last year. These are solid businesses that are predominantly subscription-based with high retention rates, generate high levels of recurring revenue, have significant operating leverage, achieve high profitability, and generate substantial free cash flow. Given the markets in which we operate, our business profile, and the steps we've taken to strengthen our operations and go-to-market strategy over the past several years, we believe we're better positioned than most companies to weather this storm. I won't spend much time on each of the bullets on this slide. Suffice it to say, we have great franchises serving large and stable professional markets. We're fortunate to have a diverse customer base totaling about 500,000 customers across varied markets with no individual customer accounting for more than 2% of our revenues. This slide reflects the inherent strength of our Big 3 businesses, which have proven resilient over decades through other challenging situations. Our customers depend on our must-have solutions, and we're providing support to ensure they can remotely access these solutions, which also provides an opportunity to further expand our digital and self-service options. Given these deep relationships, we understand our customers' needs, and we're helping them adapt. For example, we launched a COVID-19 resource center on tr.com to support our customers with free resources created by legal and tax experts to help them navigate this complicated and changing environment. Since many courts around the U.S. have been closed, our court case management team is working to help courts operate virtually. Our Government business is actively contributing to the fight against COVID-19. As one example, we used our investigative and data science skills to help the U.S. government prevent the unlawful importation and distribution of counterfeit COVID-19 test kits and other unlicensed medical equipment from entering the United States. Our internal and external networks, technology, and systems have stood up extremely well. Product usage generally remains high, with call wait times lower or at average levels across all solutions. Customers are relying on us now more than ever. So, in this current environment as law firms shift to remote collaboration and service their clients, let me give you some tangible examples of several of our legal solutions that help customers in their daily work and can open doors to new opportunities. Working from home has caused us to change how we work and support our current solutions, requiring quick adjustments to our processes. Our solutions are made for addressing many of these issues that customers are facing and can be deployed rapidly. Whether it's the guidance and know-how in Practical Law that serves as the wise expert down the hall, or the collaboration experience of HighQ, which enables firms to stay in touch with clients, or helping lawyers improve their arguments with Quick Check on Westlaw Edge, our solutions are enabling the shift to remote work and empowering our customers to serve their clients, regardless of where they are working from. Serving our customers, defending our position, and gaining market share where opportunities present themselves are our focus. We're also responding to our Tax & Accounting customers by providing solutions made for addressing many of the issues they're facing, including helping customers stay up-to-date with our weekly COVID-19 newsletter and rapidly transitioning to virtual delivery of training, implementation, and summits by offering a new Checkpoint Learning COVID webinar series that has had an unprecedented 84% participation rate with over 20,000 registrants. Our Practice Forward team quickly built a toolkit providing guidance on stimulus funds, including a Paycheck Protection Program calculator. Again, serving our customers, defending our position and gaining market share where opportunities present themselves are our priority. One of the questions we're frequently asked is, 'How did your businesses perform during the 2008 financial downturn?' which this slide addresses. The businesses have changed somewhat over the course of the last 10 years, but directionally it's a good perspective. We estimate that our Legal business, excluding Print, grew 2% organically at a time when massive structural changes took place in the U.S. legal market. During the downturn, our Tax & Accounting business never grew less than 3% organically. Our Legal and Tax businesses are stronger and better positioned today than in 2008, which I'll discuss on the next slide. In 2008, our Legal business employed a usage-driven pricing model. The amount of data a customer used determined how much they paid. We lacked a multidimensional pricing model different from firm to firm, and there was little transparency for customers. This meant we were exposed and vulnerable, which led to pricing pressure. Today, we don't employ a usage-based pricing model. Our Westlaw contracts employ an enterprise-wide structure, and pricing is simplified and transparent across firms based on multiple factors. Moreover, we're deeply embedded in our customers' daily work and in the workings of the firm itself. During contract negotiations, we can leverage a more diverse portfolio of assets with products including Westlaw, Practical Law, HighQ, Elite, and Contract Express. Ancillary expenses, which were transactional, were $160 million in 2008 compared to only $50 million today and have a more stable pricing model. As a result, our Legal business is in a much more defensible position today than during the last downturn. Our Tax & Accounting business is 75% software-based today and continues to be very sticky, also has a far more diverse portfolio with deep strategic relationships and is better positioned than in 2008. Admittedly, this downturn is different from the previous one, but these charts may be a useful barometer as you assess how we may perform in today's environment. Now let me turn to our updated outlook for this year. Since March, we've witnessed an unprecedented level of volatility and uncertainty due to the devastating impact of COVID-19 on the global economy. While it is still early to predict the timing of how this may unfold, we believe it is important to provide perspective and be as transparent as possible despite the unknowns. What's reflected on this slide is our current view of how we may perform over the balance of the year. I want to stress that this is our current view, and we'll update it when we report Q2 in August. We now forecast total company revenue growth between 1% and 2%, with organic growth between 0% and 1%. Two of the primary reasons for the lower growth forecast compared to the original outlook are related to Reuters News, primarily its Reuters Events business and transactional revenues. On a combined basis, we forecast they will have a negative impact of about 200 basis points on total company growth. The other two contributing factors are projected lower sales in the Big 3 segments and Global Print revenues. Mike will share more detail in a moment. This lower revenue growth is forecast to result in an adjusted EBITDA margin between 31% and 32% and free cash flow of about $1 billion. To preserve EBITDA and free cash flow, the company instituted a $100 million cost savings program in March targeting discretionary expenses, and I'm confident we'll achieve the $100 million target. Our lower free cash flow guidance assumes lower revenues and temporary delays in collecting payments from some customers, but we're confident we will collect this cash as the economy improves. Importantly, we're continuing to invest in many of our growth and transformation programs to position us for an improved economic environment in 2021 when we expect higher growth to return. Lastly, we thought it was important to provide guidance for our Big 3 businesses: Legal, Tax & Accounting, and Corporates, reflecting the expected resiliency of these businesses. We forecast that on a combined basis for the full year, these businesses should grow 3% to 4% and achieve an EBITDA margin of between 36% and 37%. Mike will provide you with details regarding the assumptions we made in preparing our revised outlook. Let me now turn it over to Mike.
Mike Eastwood, CFO
Thank you, Steve, and thanks to all of you for joining us today. Before reviewing the first quarter results, I want to emphasize what Steve said. Our number one priority is ensuring the safety and well-being of our employees while continuing to serve our customers. Currently, 98% of our employees are working from home in an effort to keep them safe. They have been working around the clock to continue to deliver world-class service to our customers, and they have been doing a terrific job. It's also important to emphasize our company has a very solid financial foundation and operating model that has historically been resilient during past downturns. I want to assure you, we are well positioned financially and operationally to see our way through the current challenges. Now, moving to the results for the first quarter. Let me start by providing some color on the revenue performance of our Big 3 segments. As a reminder, I will talk to revenue growth before currency and on an organic basis. Revenue growth for the Big 3 was up 5% for the quarter and increased 4% organically. As Steve mentioned, the Legal business was off to a strong start to the year, building on the momentum it had coming out of 2019. In fact, prior to COVID-19, it was poised to report its best year since before the last downturn in 2008. Despite the expected negative impact from COVID-19, we are still forecasting good growth for the full year given Legal's unique position and ability to help law firms and government agencies navigate through the current environment. For the quarter, Legal Professionals revenue increased 5%, with organic revenue up 4%. Law firm revenues grew a healthy 5%. Government revenues had another strong quarter with 11% growth, and our global Legal businesses grew 3%. Westlaw Edge continues to contribute over 100 basis points to growth and yields a healthy premium. In our Corporates segment, revenues were up 7%, including Confirmation, which we acquired in July 2019. Organic revenues were up 5% driven by our legal and tax solutions. Finally, Tax & Accounting's revenues were flat in the first quarter as expected due to the change in timing for the release of UltraTax state software, which we discussed last quarter. On a normalized basis, shown in the far-right column in blue on this slide, Tax & Accounting's organic revenues were up 6% for the quarter driven by strong growth in our Latin America business and Confirmation. Let me also point out the customary end of the U.S. tax season on April 15 has been extended to July 15 by the IRS and will add a bit of uncertainty related to the timing of sales and revenues for this segment in the second quarter. Moving to Reuters News; revenues were flat in the first quarter, with organic revenues down 4%. Reuters News was and is expected to continue to be negatively impacted by cancellations of in-person conferences at Reuters Events due to COVID-19. More on this on the next slide. Global Print revenues declined 5% in the quarter, with organic revenues also down 5% as expected. The good news is our manufacturing plant in Eagan, Minnesota has been classified as an essential business and continues to operate with a mindset of safety first for our dedicated employees in the plant. On a consolidated basis, first quarter revenues grew 3% with organic revenue growth of 2%. It's unusual for us to provide quarterly guidance. However, we thought it was important to provide more granularity around our expectations for the second quarter. So let me provide you with our view as to how the second quarter may shape up, understanding we are forecasting in real time, and our forecast may change depending upon risks related to COVID-19. Starting with the total TR chart on the top left, we estimate second quarter total revenues will decline between 1% and 2%. Organic revenues will decline between 2% and 3%, primarily due to Reuters News and Global Print, which I will discuss in a moment. For Q2, the Big 3 are forecast to achieve total revenue growth between 2.5% and 3.5% and organic growth between 2% and 3%. One additional point to make pertaining to Legal Professionals is we forecast total recurring revenue should grow between 4% and 5%. However, transaction revenues, which are less than 10% of the segment's total revenues, are expected to decline between 15% and 20% in Q2 for three reasons: first, a delay in some Elite installations; second, an assumption that there may be a slowing of sales; and third, the cancellation of some events. We forecast Legal's revenue growth rate will improve in Q3 and Q4 as the economy improves. Moving to Reuters News; nearly all of Reuters Events in-person conferences have been postponed through August. This will result in lost revenues of about $25 million in the second quarter, about 50% of Reuters Events' full-year revenues in our original plan. Events could forgo an additional $15 million of revenue in Q4 if they are unable to resume in-person conferences. As Steve mentioned, this is one of the two key reasons for the lower total company guidance for the full year. Global Print revenues are also expected to decline in the second quarter. Due to government-mandated shutdowns for a majority of the U.S. and many countries, we forecast a significant delay in shipping some of our print materials since customers are unlikely to be at their offices to accept shipment. We estimate this will result in the temporary delay of about $35 million of revenue in the second quarter, with about $25 million of that revenue being timing-related. We believe we will be able to recoup most of this revenue as the economy begins to return to normal and will eventually be shipped as these print materials have historically been considered critical content by law firms and government agencies. The $35 million of temporarily delayed revenues is expected to result in a 15% to 25% decline in Global Print's revenue in the second quarter but should rebound in the third and fourth quarters as law firms and government agencies begin to reopen, and we can ship. Turning to our profitability performance in the first quarter; adjusted EBITDA for the Big 3 segments was $431 million, unchanged from the prior year period. Legal Professionals adjusted EBITDA margin in the first quarter declined 140 bps to 36.7% compared to the prior year period due to the impact of acquisitions and timing of expenses. Corporates adjusted EBITDA margin was down 20 bps to 31.9%. Tax & Accounting's adjusted EBITDA margin decreased 270 bps to 38.7% primarily due to the UltraTax timing. Moving to Reuters News; adjusted EBITDA was $19 million, $4 million less than the prior year period mainly due to costs related to the cancellation of in-person events and higher investments. Global Print's adjusted EBITDA margin for the quarter declined by about 420 basis points due to the decline in revenues, but still remained strong at above 40%. Corporate costs were in line with our expectations for the quarter, and we continue to expect these costs to range between $140 million to $150 million for the full year. In aggregate, reported adjusted EBITDA was $480 million, up 21% due to higher revenues and not having incurred any stranded or one-time costs as had been the case in the prior year period. This next slide provides a bit more color on the various factors impacting our adjusted EBITDA margin in the first quarter. Our reported 2020 first quarter adjusted EBITDA margin was 31.6%. Several factors in the quarter distorted our margin. First, the permanent acceleration of UltraTax revenues to Q4 2019 had about a 40 basis point negative impact. Conversely, M&A activity positively impacted margin by about 50 basis points compared to the prior year period. In the prior year period, we had about $37 million of expense that shifted to the second half of 2019, resulting in a negative 250 basis point impact in the first quarter of this year. Revenue flow-through added about 100 basis points. Excluding stranded and one-time costs in the prior period, the adjusted EBITDA margin contracted 150 basis points as expected, mainly related to the UltraTax timing and favorable expense timing in the prior year period. We continue to recommend you look at our adjusted EBITDA margin on an annual basis. Overall, we believe we have good visibility into the levers at our disposal to achieve our revised margin target of 31% to 32%. As Steve mentioned, we have implemented a cost-reduction program while still preserving the flexibility to make the necessary investments in 2020 to ensure that we're well positioned for 2021 from an organic growth perspective. Now, let me turn to our earnings per share and free cash flow performance, and I will also provide an update on our capital structure. Starting with earnings per share, adjusted EPS increased by $0.12 to $0.48 per share during the first quarter. The increase was driven by higher adjusted EBITDA, offset by an increase in depreciation and amortization, mainly related to acquisitions, higher interest expense largely due to lower interest income, and higher income taxes. Finally, currency had a $0.01 negative impact on adjusted EPS in the quarter. Let me now turn to our free cash flow performance for the quarter. Our reported free cash flow was $35 million versus a negative $177 million in the prior year period, an improvement of just over $200 million. Consistent with previous quarters, this slide will help you understand the distorting factors impacting our free cash flow performance for the quarter. Working from the bottom of the page upwards, the Refinitiv-related component of our free cash flow was up $42 million from the prior year period, primarily due to costs incurred in 2019, including residual employee-related costs and tax expenditures related to the operations of our former F&R business. In the current quarter, we made payments for separation costs incurred in 2019 related to our transformation program totaling $63 million, versus pension contributions and other payments totaling $279 million in the prior year period. If you adjust for these items, comparable free cash flow from continuing operations was $113 million, $46 million lower than the prior year period primarily due to unfavorable working capital movements. Given the understandable focus on the part of investors concerning many companies' financial strength, I think it is important to provide an update on our capital structure and liquidity. Our capital structure and liquidity position remain strong. We expect to generate about $1 billion of free cash flow this year. We have $800 million of cash on hand, about $800 million available under our $1.8 billion revolving credit facility, and a $1.8 billion commercial paper program. From a liquidity standpoint, we are in a very strong position. We also have a strong capital structure. We have no debt maturing until 2023 and are modestly leveraged with a net debt-to-adjusted EBITDA ratio of 2.1 times at the end of the first quarter, comfortably below our 2.5 times internal target. Our credit facility ratio is 1.9 times, well below the credit line maximum of 4.5 times. We don't anticipate any changes to our plans to pay an annualized dividend of $1.52 per share in 2020 to our common shareholders. In February, we completed our $200 million share buyback program and do not anticipate repurchasing any further shares in the near term. An update on our investment in Refinitiv: The agreement to sell Refinitiv to the London Stock Exchange Group is still expected to close in the second half of 2020, which aligns with the statement made by the LSE on its Q1 earnings call two weeks ago that they are committed to closing this year. Regarding our investment stake when the proposed deal closes, as of market close yesterday, our estimated interest was worth about $7.6 billion pretax. Our future equity interest in the LSE will represent a stored value, which can be monetized over time. We believe it will provide us with a significant level of financial flexibility in the foreseeable future. After the deal closes, we expect to receive regular dividends from the LSE estimated at around $60 million per year based on the company's current annual dividend policy. Finally, regarding future taxes to be paid related to our LSE shares, we estimate we will owe tax of between $400 million and $600 million upon the closing of the transaction later this year, depending on the price of the LSE stock at that time. We have several options available regarding how we will fund the tax payment aside from free cash flow, cash on hand, or drawing under our revolver, including some non-core minority investments. I remind you, we have the right to sell a proportional amount of the LSE shares to cover the tax payment. At the time we can exercise our right to sell shares in years three and four at the closing; we will owe tax at the U.S. corporate tax rate, which is currently 25%. Let me now build upon what Steve presented regarding our updated 2020 outlook. We thought it would be helpful to provide more detail regarding the specific components that we forecast will negatively impact revenue growth for 2020. This chart reflects the changes in our original total company revenue growth guidance of 4.5% to 5.5% compared to our updated guidance of 1% to 2%. There are four main drivers resulting in our forecast of lower total revenue growth for 2020. First, we anticipate most of the in-person events in our Reuters Events business will be canceled this year, in addition to our consumer and agency businesses being pressured. That's estimated to result in a 100 basis point negative impact. Second, our transactions revenue is expected to be lower, primarily due to delays in installations, another 100 basis point negative impact. Third, we expect our Big 3 segments will continue to experience softness in new sales but expect this to rebound as the economy opens back up in the second half of the year. This is forecast to also have a negative 100 basis point impact. Lastly, we anticipate Global Print sales will decline, resulting in a 50 basis point negative impact for the year. The impact of these four items is projected to result in total company revenue growth ranging between 1% and 2% for the year. Our current view of how we may perform over the balance of the year assumes gradual economic improvement will begin in July, October, and January 2021. Our base case was derived by taking the midpoint of the July and October scenarios to determine our updated outlook. In preparing our updated outlook, we've assumed diminished economic activity through the second quarter, followed by a gradual recovery through the second half of 2020. This assumes the financial and operational health of our customer base in both the U.S. and global economies will gradually improve, coinciding with the easing of lockdown restrictions. The metrics on this slide mirror what Steve discussed except for the addition of interest expense, which we now forecast will range between $190 million and $215 million since we drew down under our revolver last month to bolster our liquidity. All of the guidance metrics we provided in February remain unchanged. Let me now turn it back to Steve to conclude our presentation.
Steve Hasker, CEO
Thanks, Mike. Let me conclude with a few additional thoughts regarding my initial observations of the company, having now been in this role for about 60 days. First, before joining the company, I understood how our customers depend on our products and solutions. Now having met with many customers across the businesses, I am even more appreciative of the unique relationship we have with them. That relationship is a two-way street, and our employees feel a personal responsibility to support their clients, many of whom they've worked with for years. That support and those relationships will pay dividends over the long term. Second, I'm already convinced that our Big 3 businesses still have a lot of opportunity to grow, improve the customer experience, and take advantage of scale by transitioning to a more efficient operating model. There are additional benefits to be achieved by integrating our product development and technology capabilities. Throughout my career, I've always focused on listening to the customer, understanding their needs, and developing solutions that serve those needs. We have some of the best and brightest product development technologies in the world. If we support them properly, point them in the right direction, and leverage their talents across the organization, we can drive higher growth while achieving greater efficiencies. Third, in what will be an extraordinarily difficult year given the global economic environment, we will manage the business accordingly, controlling what is within our control. It will take hard work mixed with realism, humility, and teamwork to see us through to the other side. But I believe we can further strengthen our franchises and come through this in an even stronger position. Let me now turn it back over to Frank.
Frank Golden, Head of Investor Relations
Thanks very much, Steve and Mike, and that concludes our formal remarks. We would now like to open it up for questions. Operator, if we could have the first question, please?
Operator, Operator
Your first question comes from Andrew Steinerman from JPMorgan. Please go ahead.
Michael Cho, Analyst
Hi, good morning. This is Michael Cho on for Andrew. My first question, I'm just hoping you can unpack the revenue pressure from the installation delays and net new sales across the Big 3 segments. Can you just give us a sense of the contribution from each of the Big 3 segments? Are there any segments or clients that you think that the potential rebound could be delayed?
Mike Eastwood, CFO
Sure, this is Mike. I'll start on that question and ask Steve to supplement. As we look at our transactions revenue, there is a significant portion we can complete remotely with our installations; however, there are some of our installations that require us to be in person. A good example would be our Elite business within Legal regarding that. We're closely monitoring that. As our customers return to their respective offices, we'll have better insights on that timing. Regarding the net sales, the net sales are primarily impacted within our Big 3 customer segments. We have assumed a significant haircut in our net sales in Q2. We're not assuming negative net sales, just lower net sales, which feed into our recurring revenues, generating 80% of our revenue. In April, we had lower net sales, but we did see good velocity given the current environment. Illustratively, within Legal, our Westlaw Edge sales in April continued at the same pace as before COVID at the same premium. Hopefully, that helps.
Michael Cho, Analyst
That's great. If I could just squeeze one in on cash flow. In the cash flow, what's the 2020 free cash flow impact from the customer collection delays that you called out? Is there a particular subset of clients that you think might have higher variability?
Mike Eastwood, CFO
Sure, Michael. Let me break that down into two pieces. If you look at the revenue decrease or haircut, we believe the majority of that impact on free cash flow will be offset by our cost-containment initiatives mentioned earlier. The decrease in our full-year free cash flow is driven by our assumption of lower collections from our clients. We value our client relationships and plan on supporting them during this period. The areas we are focused on the most would be our small firms, whether in Legal or Tax & Accounting. It's early innings yet; our collections in April were pretty good. However, we feel like we'll have to support small firms as we go through the next couple of months. As we go into the Q2 earnings call, we'll certainly have more history of collections, but that's our current assumption. We believe that's temporary and we'll recoup the timing of those collections in 2021.
Operator, Operator
Your next question comes from the line of Drew McReynolds from RBC. Please go ahead.
Drew McReynolds, Analyst
Thanks very much. Good morning and appreciate all of the detail in the presentation. Yes. A big picture question for you, Steve, given it's fresh on the job and COVID's taken over. Would be curious to just get your thoughts on where you see the one or two or three biggest incremental growth opportunities here, given the asset mix? What your specific priorities would be over the next six to 12 months? Lastly, in terms of M&A, to what extent is Thomson still on the front foot here trying to identify tuck-in M&A opportunities?
Steve Hasker, CEO
Yes. Thanks, Drew. I'm happy to address that. In terms of the biggest opportunities, there's too many on the list at the moment. I see them across the Big 3 franchises. Inside Legal, managing partners have told me they’ve realized they've spent too much on real estate and not enough on information and technology, which I believe provides a significant opportunity for us. I'm also seeing green shoots around that. We want to move from content to integrated content and software within Legal; the same goes for Tax & Accounting, where our content is essential and our software is the workflow for many accounting firms. In Corporates, we are just beginning; we have good relationships with general counsels and heads of tax but our overall penetration is quite modest, and I see a lot of upside there. In terms of my priorities since starting, first and foremost, is to keep our associates safe and contribute to our communities. I hold virtual sessions with our associates a couple of times a week, and I get a sense of the appreciation they have for the care we're applying for them. Second is the opportunity to double down on a couple of our big product bets against our core franchises and be selective about freezing or cutting some activities at the long tail of product development. Thirdly, I believe we can make a transition to a more operational company and take better advantage of scale across segments. Regarding M&A, we remain focused on logical bolt-on acquisitions that better serve our customers within our core franchises. You won’t see a change in that direction. We see more opportunities, not less, coming out of this crisis given our strong balance sheet but will be diligent in assessing the potential impact of acquisitions on customer service, technological fit, and the financial aspects.
Mike Eastwood, CFO
If I could just add a couple of points regarding growth opportunities. We're very optimistic about our Government business, which is about $450 million of annualized revenue. We did a small acquisition earlier in Q1 with Pondera, but if you look at areas like fraud, waste, and abuse, I think Steve Rubley, who runs that business, is doing a great job with it. I see both organic and inorganic opportunities in Government. The other one I would mention is within our global trade management business, given supply chain issues, there are opportunities surfacing now. Those are two additional opportunities for us to focus on.
Operator, Operator
Your next question comes from the line of George Tong from Goldman Sachs. Please go ahead.
George Tong, Analyst
Hi, thanks. Good morning. You're targeting $100 million in cost savings from discretionary expense savings in response to coronavirus. Can you talk about the timing of when you expect to realize some of these savings? How much may be permanent in nature?
Mike Eastwood, CFO
Sure, George. It's Mike. In regards to the $100 million, we aim to achieve all of it in calendar year 2020. We're incredibly confident in our ability to do that. Two illustrative examples would be T&E, travel, and entertainment; another example would be our consulting and use of third parties. Other items are primarily discretionary as well, and we're confident in maintaining that level of savings as we go into 2021.
Steve Hasker, CEO
Just an additional comment: when we assessed the revenue impact and potential impact of COVID-19, we were quick to put the cost-reduction efforts in place. We've focused on costs that are not customer-facing and do not directly affect our associates. We’re confident we will emerge stronger from this, and we will continue to invest in customer-facing activities and in our associates, particularly in AI and software development.
Mike Eastwood, CFO
George, just to clarify that regarding the exit of $100 million and also with Michael's questions on free cash flow. We are currently assuming that we spend our full capital expenditure budget, which is about $480 million on an annualized basis. Our free cash flow target of $1 billion assumes full use of it. We'll certainly monitor that as the year progresses. We're focused on maintaining growth factors for 2021.
George Tong, Analyst
Very helpful. Just as a follow-up in your updated full-year revenue growth outlook, you did mention 100 bps of negative impact on lower new sales in your Big 3 recurring revenue streams. Can you talk about how renewals and pricing trends are performing currently just within your Big 3 segments?
Mike Eastwood, CFO
Sure. We're very pleased with the first quarter regarding renewals. It varies segment by segment, but we expect retention overall to be flat to 2019, which was slightly over 90%. Many of our contracts are multiyear; for example, about 60% of our contracts within Legal are multiyear, two to three years in range. As for net sales, we are estimating lower net sales across the Big 3 for Q2, some in Q3 as well, and we expect it to begin picking up. Pricing happens throughout the year based on when contracts come up for renewal, with the largest portion occurring in Q1. We currently expect retention to be flat to 2019.
Steve Hasker, CEO
The only addition I would make is that our leading-edge products like Westlaw Edge and Checkpoint Edge are efficiency tools. Our sales team is emphasizing these points to customers, and even in the depths of April, that is proving effective.
George Tong, Analyst
Very helpful, thank you.
Operator, Operator
Your next question comes from the line of Toni Kaplan from Morgan Stanley. Please go ahead.
Toni Kaplan, Analyst
Thank you and good morning. How are you thinking about potential structural changes to the Legal and Tax & Accounting markets post COVID-19? Would you see some share shift towards maybe the larger firms from smaller firms? Any other changes that could impact your business positively or negatively?
Steve Hasker, CEO
Toni, hi. It's hard to predict. The heads of the largest global law firms and accounting firms predict they will take share. I’ve also heard the other point of view that the middle will suffer. Small nimble firms with great customer relationships may be okay, and the largest firms may have the buffer to weather the storm, possibly leaving the middle to suffer. To date, we do not see any acute signs of pressure, but we are monitoring it closely.
Toni Kaplan, Analyst
Got it. In terms of the shift to digital in Legal, does this current environment accelerate that shift? How far along do you think you are, and how much more is left in the transition to digital?
Steve Hasker, CEO
Toni, we see the shift accelerating unequivocally. Many managing partners have realized they’ve spent too much on real estate and not enough on information and technology, which benefits us. Coming out of this, there's more demand for accurate, timely, usable information delivered digitally. Most of our solutions are geared for that environment. In Tax & Accounting, there's resistance to adopting new products and technologies. However, we see that resistance evaporating as they realize that they may have no choice. This crisis has led to an accelerated transformation, and we are seeing a similar trend in our customer base.
Mike Eastwood, CFO
Toni, to supplement that, using digital for more of the commercial, go-to-market, sales, and renewals, and for supporting clients has allowed us to monitor product usage on a daily basis. We saw a small dip in usage initially, but it quickly returned to normal levels. We’re shifting to more self-service capabilities for our clients and enabling that with analytics.
Operator, Operator
Your next question comes from the line of Manav Patnaik with Barclays. Please go ahead.
Manav Patnaik, Analyst
Yes, thank you. Good morning. Yes, and Steve, congratulations, welcome. I'm looking forward to working with you again.
Steve Hasker, CEO
Thanks, Manav.
Manav Patnaik, Analyst
My first question is on the Westlaw Edge product and Checkpoint Edge. Can you just talk about where you are in terms of penetration, upsells, and a bit more color on where that's progressing?
Mike Eastwood, CFO
Yes. In regards to Westlaw Edge, we concluded 2019 at about 33% penetration; we're approaching 40% at the end of Q1. The price premiums we experienced in 2019 have continued into Q1 and even into April. We're estimating by year-end we'll approach 55% penetration. Checkpoint Edge is also progressing well and should accelerate during 2020. We're leveraging AI and machine learning with our products, and we're pleased with overall progress.
Manav Patnaik, Analyst
Got it. In terms of your contract structure — considering we're seeing a spike in usage — does that presume pain at every customer and companies? In the customer count that you gave, what is the rough mix of small, medium, and large?
Mike Eastwood, CFO
Yes. In regards to our contracts, we do not anticipate opening them up during this period. We're going to support our customers, but we'll maintain the integrity of the commitments for 80% of our business. We'll support clients more through payment terms. We monitor product usage daily. We saw a small dip at first when the work from home started, but we quickly returned to pretty normal levels. Our Big 3 revenue includes approximately 34% within small firms, which is about 30% for total Reuters.
Operator, Operator
Your next question comes from the line of Aravinda Galappatthige from Canaccord. Please go ahead.
Aravinda Galappatthige, Analyst
Good morning, thanks for taking my question. Steve, congrats on the role and welcome to your first conference call. My question is on the color you gave on the comparison versus the recession in pivotal times in 2008 and 2009. The one thing that stood out to me was that last time around, the impact on the Legal business was a little more lagged. The quarterly decline rate did not bottom out until around Q1 2010. Looking at the guidance you've given, you're expecting a sooner recovery starting in H2. Is that based on different structural factors, or are there differences in the recession of 2008 and 2009?
Mike Eastwood, CFO
Yes. When we think about 2020 COVID-19 versus 2008, '09, certainly, different macro factors are at play. Our product mix is different than it was. In 2008 and '09, we were still launching Westlaw Next and now we have Westlaw Edge. The activity we've seen in April gives us confidence we’ll see continued demand in 2021. Those make us optimistic about the recovery timing reflected in our guidance today. Regarding the Refinitiv transaction, their viewpoint is it’s still on target to close by the end of 2020. The current environment has created some challenges and delays, but overall, confidence remains high.
Steve Hasker, CEO
Nothing to add, Mike. Well said.
Operator, Operator
Your next question comes from the line of Tim Casey from BMO. Please go ahead.
Tim Casey, Analyst
Yes, thanks. Good morning. Two quick ones for me. Steve, regarding your comments about an accelerating shift of customer behavior. On a net basis, is there not some offset to that, that you'll see an acceleration of Print decline? How should we think about those two metrics? You also mentioned your global trade management business is one that you're quite excited about. Could you scale that for us? Is it close to or smaller than that $450 million from Government?
Steve Hasker, CEO
We certainly see the acceleration in the shift to digital solutions, and we believe this plays nicely into products we have in the marketplace. We’ve been conservative about the impact in Q2 on Print and are projecting a significant decline, partially due to legal librarians being unable to receive books at their offices. We are taking a conservative approach to the return of overall activity throughout the year, but to the extent that there are digital solutions, they are offsetting the Print decline. On the global trade management business, we anticipate approaching $100 million this year on an annualized basis.
Mike Eastwood, CFO
Just to clarify, Tim, that’s $100 million in annualized revenue for the global trade management business, stemming from the Integration Point acquisition from Q4 2018. We see continued growth in this area beyond 2020.
Operator, Operator
Your next question comes from the line of Vince Valentini from TD Securities. Please go ahead.
Vince Valentini, Analyst
Yes, thanks for the information and for taking so many questions. One clarification and one question. Mike, you said 25% tax on the $7.6 billion value for your LSE shares. Can you just confirm there's zero cost base there, so you'll expect to pay a full 25% in four years?
Mike Eastwood, CFO
Simplistically, yes, that would be the easiest way to look at it. It's roughly 25% on that; the cost base is very low.
Vince Valentini, Analyst
If I can just try to unpack your Slide 29 a little bit. Prior to the COVID crisis, you expected 2021 organic growth to be at least as good as 2020. Given your current guidance with onetime hits in Events and installations, is there any reason, assuming your base case scenario of economic recovery in H2, to think you would either be expecting lower or even higher organic revenue growth in 2021?
Mike Eastwood, CFO
It's a fair question, Vince. I want to refrain from going into much detail on 2021 today. At the Q2 call, we'll have additional insight. We remain optimistic about the foundation of our business and the strong underlying recurring business driving revenues, but I ask for a little time on 2021.
Operator, Operator
I think we have one final question, please.
Gary Bisbee, Analyst
Hey guys, good morning. I have a question for each of you. First for Steve, you mentioned your initial impressions and opportunities include further operating model efficiency potential. Can you help us understand if you feel this points to a rightsizing of the business given separation or something more targeted?
Steve Hasker, CEO
I don’t think it’s about a big disconnect in terms of the size of the overhead or process for rightsizing the cost base. It is more specific. There was a holding company feel to the business prior to the divestiture of the F&R business, and I believe the opportunity lies in identifying areas where we can achieve better scale and embed next-gen tech to drive efficiency across all activities, starting from data capture through AI application. We can also better understand and translate customer needs into product solutions. That’s imminently achievable; we just have to get after it.
Mike Eastwood, CFO
For Steve, regarding your commentary around cost reduction efforts, much of that is discretionary. Do you think those costs would largely come back in line with revenue? Or will there be discretion on when to bring those costs back? We are working to ensure those costs do not come back in the aggregate. There could be a slightly different mix that comes back as we head into 2021, but our focus will be on discretionary costs being a permanent part of our DNA. While the mix may vary, we're optimistic we'll hold that entering 2021.
Steve Hasker, CEO
I want to add: notwithstanding the human crisis, this is a great experiment. We cut costs, and so far, we haven’t missed any of it. This gives us courage and confidence to double down on our larger bets our customers truly value in Legal, Tax & Accounting, and Corporates. We’re pursuing this path and seeing promising results.
Frank Golden, Head of Investor Relations
So that will be our last question for the day. We know that there was much to digest on this call. We appreciate your time and attention. I'm sure you'll have follow-up questions, so please don't hesitate to reach out to me and for Megan, and we will be available to help you with that. Thanks for joining us this morning, and have a good day.
Operator, Operator
Ladies and gentlemen, this conference will be available for replay after 10:30 Eastern Time today through May 12. You may access the AT&T executive replay system at any time by dialing 1-866-207-1041 and entering the access code 8916567. Those numbers once again are 1-866-207-1041 with the access code 8916567. That does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.