Good day, everyone, and welcome to the Thomson Reuters Third Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead.

Thanks, Ruth.

Good morning, and thank you all for joining us today for our Third Quarter 2026 Earnings Call. I'm joined by our CEO, Steve Hasker, and our CFO, Gary Bischoping. Steve and Gary will discuss our results, and then we'll take your questions following our prepared remarks. to enable us to get to as many questions as possible. We would appreciate it if you limit yourself to one question and one follow-up each when we open the phone lines. Throughout today's presentation, when we compare performance period on period, we discuss revenue growth before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. I'd also note that our third quarter results reflect our former global print business reported as discontinued operations. Prior period financials have been revised to this basis. Today's presentation contains forward-looking statements and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our investor relations department. Let me now turn it over to Steve Hasker.

Thank you, Gary, and thanks to all of you for joining us today. Momentum continued in the third quarter with revenue growth and margins ahead of our prior expectations. Total company organic revenues improved to 10%, while the big three grew by 10% for a second consecutive quarter. We're updating our full year 2026 outlook to incorporate the global print transaction and now see total and organic revenue growth of approximately 9.5 and 8.5 to 9% respectively versus 8% previously. Our big three total and organic revenue outlooks remain unchanged at 9.5 to 10%. We forecast margins of approximately 39% which includes the impact of reflecting global print as discontinued operations. Excluding this impact, our margin outlook is unchanged. Good momentum continues from many areas across the portfolio with double digit growth from key products including Co-Council Legal, Peguero, Co-Council for Tax and Audit, SafeSend, Global Trade, and our international businesses. We continue to invest heavily and remain encouraged by the growing traction of our innovation engine. Commercial momentum across our AI enabled offerings continues to build and our pipeline of features and offerings in development continues to expand. As it relates to the next generation version of co-counsel legal, we are very encouraged by the initial customer engagement. are also excited about the recent launch of the next generation version of co-counsel tax audit and accounting and about the continued e-invoicing growth opportunity through Pagero. I will expand on these topics in a moment. As an update to our discussion last quarter on Thompson, our family of proprietary large language models, we're working with Skadden Arps on a strategic AI design partnership that brings together Thompson, our authoritative legal content and Skadden's extraordinary institutional expertise. As these discussions progress, we believe this has the potential to shape the legal AI industry and validate the role purpose-built AI will play in professional work, particularly as firms look to protect their data and demand a higher standard of trust, accuracy and accountability. We look forward to sharing more on this topic in the future. Our capital capacity and liquidity remain a key asset that we are focused on deploying to create shareholder value. We remain committed to a balanced capital allocation approach, and we continue to assess a number of inorganic opportunities. Our capitalization remains robust, positioning the company to be both aggressive and opportunistic going forward. Turning to the third quarter results by segment, The big three segments delivered 10% organic revenue growth for a second consecutive quarter, up from 9% in prior periods. Legal organic revenue grew 9%, driven by continued momentum with law firms and slightly lower government growth than in Q2. Westlaw and co-council legal were key drivers. Corporate's organic revenue grew 10%, driven by offerings in our legal, tax and risk portfolios. and the segments international businesses. Peguero remains a key driver. Tax, audit and accounting organic revenues grew 10% driven by co-counsel for tax and audit, our Latin American business and SafeSend. And Reuters organic revenues rose a strong 12% with healthy underlying trends boosted by AI related transactional content licensing revenue. In summary, we're pleased with the continued Good momentum in the third quarter. I'll now provide a few updates on our product innovation progress. We remain excited about the accelerating pace of innovation across our businesses, which is contributing to an expanding market opportunity and stronger growth for our company. Let me provide a few recent updates. I'll start with legal. The next generation version of co-counsel legal is off to a very encouraging start. In September, the first full month after the general availability launch. CoCouncil NextGen has surpassed the prior version's best month to date on every engagement and retention measure that we track. It now carries the majority of the user base for the CoCouncil Legal AI Bundle and its active user base up more than 60% in September from August. Co-counsel legal NextGen users are completing 2.4 times the work versus the peak for the prior version and are active 44% more days per month. And they're also retaining at higher levels. While it's early, product NPS scores are also more than twice the best month on record for the prior version. As we have delivered the rebuild of Co-Council, we have sharply accelerated our pace of feature development with the number of new releases into Co-Council up by nearly 50% in Q3 from the pace in Q1. I'll briefly mention a few of the recent advancements. In August, we introduced Westlaw Brief Builder into Co-Council to support the highly complex and time-consuming work of drafting litigation briefs. BriefBuilder, grounded in Westlaw and practical law, enables lawyers to work iteratively with AI to draft compelling, authoritative and correctly formatted briefs in their own style in far less time. Like with the introduction of Westlaw Advantage, we believe BriefBuilder is a major step forward in capability that TR is uniquely positioned to deliver. It currently supports five litigation brief types, including motion to dismiss and motion to compel and tomorrow we'll expand coverage to 24 brief types including motion for summary judgment. In mid-October we announced the new multinational profile in co-counsel legal which brings legal content from more than 100 countries into co-counsel workflows. Legal teams can now research cross-border questions, compare requirements across jurisdictions, Thank you very much. from our history where overseas capability launches have frequently trailed the US by as much as 12 months. Two weeks ago, we launched the next generation of co-counsel tax audit and accounting, a fully agentic AI platform built specifically for tax audit and accounting professionals. This next generation product takes professionals from source documents and client data to finished defensible work product in a single workflow. The prior generation offering could plan work and answer questions. With this latest release, co-counsel agents expand deeper into actually doing the work. Tax and audit work turns on judgment, not just math. So co-counsel grounds every calculation in the correct authority, runs verified calculations, and delivers outputs including multi-tab Excel workbooks and memos that follow a firm's own templates. Through clear audit trails, professionals can see how Co-Counsel reached each answer and validate outputs themselves. That's where our foundation matters. Co-Counsel draws on Check Point with more than 12 million primary source and analytical documents maintained by hundreds of experts to deliver to our fiduciary grade AI standard. It connects through MCP and integrates with tools like UltraTax. So it fits the way our customers already work. The result is faster execution without sacrificing quality, freeing up our customers to work on higher value tasks. Lastly, let me comment on Peguero, which has been a strong performer since our acquisition in January 2024. We continue to invest in Peguero to expand its geographic coverage, adding eight more countries year to date. We now support our country's growing, our customers' growing e-invoicing compliance needs in more than 90 jurisdictions. The e-invoicing industry is benefiting from a wave of new government regulations as tax authorities increasingly move from periodic backward looking to real time and continuous reporting regimes. We see this regulatory demand driven growth opportunity continuing as an additional 50 mandates are expected to go live in the next three years. Our broader transactional compliance footprint which in addition to e-invoicing includes our one source indirect tax and global trade offerings is growing well into the teens and is gaining market share versus our competition. We believe the breadth of our offerings and quality of our solutions are unique differentiators in the market, a view that has been consistently endorsed by third parties. For example, our invoicing solution was recently named as a leader in the IDC Marketscape 2026 worldwide compliant e-invoicing vendor assessment. Our one source solutions have previously been named a leader in four IDC MarketScape reports for value-added tax, sales and use tax, and global trade, which makes Thomson Reuters the only provider named a leader across all four transactional compliance categories. I'll now turn it over to Gary for a review of our financial results.

Thanks, Steve. As a reminder, throughout my remarks, I will talk to revenue growth before currency and on an organic basis. Third quarter organic revenues grew 10%. Organic recurring and transactional revenue grew 8% and 23% respectively. Adjusted EBITDA increased 10% to $651 million with a margin of 35.5%. One other item to note. The year-over-year decline in our IFRS profitability measures reflects the impact of a gain on the sale of our remaining minority equity interest in the elite business in the third quarter of 2025. Continuing on the growth theme, Big Three organic revenue again grew 10% in the quarter, continuing the improved pace achieved in the second quarter. Legal professionals' organic revenue grew 9%, as underlying law firm momentum continued, driven by Westlaw and co-counsel legal. Our U.S. large, mid, and small law subsegments all remained at or near record growth rates.

Government growth slowed slightly to 4%.

Legal professionals excluding government rounded down to 10% in the quarter, though the growth rate was only 20 basis points below that of last quarter. International growth slowed slightly, but we are confident that it will improve in coming quarters following the Q4 launch of the next generation version of co-counsel legal in the UK, Canada, and Australia. Our corporate segments grew 10% organically in line with the last quarter. Recurring revenue rose 8% and transactions revenue grew by an impressive 23%. Garrow, Clear, Consul Ligo, Indirect Tax, and our international businesses were key contributors. The transaction strength over the last two quarters was boosted by Peguero implementation revenue, particularly around the large and complex e-invoicing mandate in France that went live on September 1st. We expect transactions revenue to moderate in the fourth quarter, but to remain healthy by historical standards. Tax, audit, and accounting organic revenue growth improved sequentially to 10%. Recurring and transactional revenues grew 10% and 11% respectively. Our Latin American business, Co-Counsel for Tax and Audit, SafeSend, and SurePrep were key contributors. We continue to progress with efforts we mentioned last quarter to sharpen our go-to-market execution and drive customer migrations to our latest products. The improved revenue growth in the quarter is encouraging, though we have more work to do to deliver our aspirations for stronger future growth for our business. In our Reuters business, organic revenue grew 12% for the quarter, boosted by approximately $19 million of transactional generative AI content licensing in the quarter. Excluding transactional AI licensing revenue in the third quarter, of both 2026 and 2025, Reuters grew 7% with positive contributions from the agency and professional businesses and from the news agreement with the data and analytics business of LSIG. We expect Reuters growth to be flattish year over year in the fourth quarter due to lapping $5 million of transactional AI licensing revenue from the prior year period. along with tougher comps at agency and in portions of the professional business. On a consolidated basis, third quarter organic revenues increased 10% ahead of our expectations from a quarter ago. At the end of Q3, our annualized contract value, or ACV, from products that are Gen AI enabled was 34%, up from 30% last quarter and 24% a year ago. From a profitability perspective, we delivered adjusted EBITDA for the big three segments of $648 million, up 7% from the prior year period with a margin of 40.3%. Reuters adjusted EBITDA was $56 million with a margin of 24.3%. In aggregate, total company adjusted EBITDA was $651 million, a 10% increase versus Q3 of 2025. reflecting a 30 basis point year-over-year margin decline to 35.5%. Our Q3 results included $22 million of severance expense related to our initiatives to reimagine how we work, which is 120 basis points drag on our adjusted EBITDA margin. I'll comment in a moment on the impact of reporting our former global print segment as discontinued operations. But if we had included print results, our margins were nearly 100 basis points ahead of the initial outlook for Q3 we provided on August 5th. Adjusted EPS was 81 cents, up 14% from 71 cents the prior year period. Currency added one penny of adjusted EPS in the quarter. For the third quarter, our free cash flow was $408 million versus $526 million in the prior year period. Working capital changes plus higher cash taxes drove the decline. I'll also provide a quick update on several capital allocation items. In July, we repurchased $238 million of our shares, completing the $600 million NCIB announced in February. In September, we issued just over $2 billion of new senior notes, and through early October, we have repaid the $1.6 billion of commercial paper borrowings we had on June 30th. Our balance sheet remains robust with leverage of one times as of September 30th. The $500 million of proceeds received from the sale of a 51% stake in our global print business to KKR on October 1st further strengthened our financial position.

Now let me share a few thoughts to help with your modeling on the global print transaction.

On October 19th, we issued a schedule providing revised historical financial information treating global print as discontinued operations, which is the basis on which we have reported our third quarter results. I'd like to clarify one point about the discontinued operations reporting. Prior to the transaction close on October 1st, two key arrangements between TR and Westbridge Print are not included in results. First, Westbridge Print will pay a royalty to Thomson Reuters for the exclusive license to distribute the company's intellectual property in print form and on ProView, its e-book platform. Royalty is equal to 20% of Westbridge Print's Professional Revenue, which is 85% to 90% of its total. Second, Westbridge Print entered into a multi-year agreement where it will reimburse Thomson Reuters for certain transaction services as the joint venture migrates to a standalone entity. We refer to these as Transaction Services Agreement, or TSA. When these two ranges are included, which will be again with our fourth quarter results, they are expected to largely offset stranded costs from the separation. As a result, we continue to expect the impact from the global print transaction to be approximately neutral to adjusted EBITDA margins following the close. However, the discontinued operations treatment in periods prior to the transaction close, which include both revised historical periods

and the third quarter are diluted to margins as the Royalty and TSA are not included.

The right half of the slide illustrates this impact as the total company adjusted EBITDA margins of 35.5% would have been 36.6% if the transaction had closed on July 1 and thus the Royalty and TSA were included in the quarter. Going forward, we report the royalty from Westbridge Print and Revenue and show it in the corporate center in our segment reporting schedule. The TSA will be accounted for as a contra expense within our corporate center expense line in the segment reporting. We continue to see the transaction being approximately 60 to 70 basis points accretive to our organic revenue growth.

I will conclude with a few thoughts on our outlook.

As Steve mentioned, we are updating our outlook, our 2026 outlook to incorporate the impact of the global print transaction that I just discussed. For revenue, we are raising our total and organic revenue growth outlooks from approximately 8% for both metrics to approximately 9.5% for total in a range of 8.5% to 9% for organic. Our outlook for Big Three revenue growth remains unchanged, with total and organic both projected to be in a range of 9.5% to 10%. We see 2026 adjusted EBITDA margins of approximately 39%, which, as I discussed a moment ago, results from the impact of the discontinued operations treatment of the print business. Adjusting for the print transaction impact, the margin outlook is unchanged from our prior view.

For the big three, our margin outlook also remains unchanged.

Our outlook for free cash flow continues to be approximately $2.1 billion, and that's despite the loss of one quarter of global print cash flow. Slightly improved cash taxes and working capital provide the positive offset. We now see our capital expenditures being 8.5% to 9% of revenue as there was minimal incremental capital investment in the global print business. We are fine-tuning our depreciation and amortization forecasts and raising net interest expense to the upper end of the prior range as we incorporate proceeds from the print transaction and the recent debt issuance into our forecasts.

Our outlook for the effective tax rate remains unchanged.

Turning to the fourth quarter, we expect organic revenue growth of approximately 8% in our adjusted EBITDA margin to be approximately 42%. Note that Reuters' contribution to year-over-year revenue growth in Q4 will be approximately 1.5 percentage points less than in Q3. Looking forward, we are currently in our annual planning cycle and will provide more detailed 2027 guidance on our Q4 conference call in February.

but I want to share our early thinking.

Given the significant opportunities to expand our medium to longer term growth profile through AI driven investments, we currently anticipate reinvesting a portion of our underlying operating leverage during 2027. We remain confident in our ability to continue to expand margins given our business models operating leverage and our ongoing automation efforts. We have conviction that any incremental investments we choose to make will pay off over the next few years through accelerated revenue growth. We will continue to provide more detail on our Q4 call.

Now I'll turn it to Gary Bisbee for Q&A. Thank you, Ruth. We're ready for the Q&A.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Drew McReynolds with RBC Capital Markets.

Yes, good morning. Two for me. First, with respect to Q4 organic revenue growth 8%. I think in the prepared remarks, the sequential kind of downtick when you just strip out some of the licensing revenue in Reuters of Q3 is really related to a deceleration of transaction revenues and then a lower contribution from Reuters to Revere. Just wondering if that's the right take here, if there's other puts and takes. if you could just comment on those, that would be great. And then second question, with respect to co-counsel legal, great to see all of the traction and momentum there, just as you head into, I think what is still a seasonally high order for renewal activity, just what are you seeing with respect to kind of uplift with respect to co-counsel legal? including just customer reaction and maybe pricing dynamics to the extent you can comment on those. Thank you.

Drew, you really got the key factors related to that 8% revenue growth in Q4. As we mentioned, the slower growth in the fourth quarter, our expectations are for flattish Reuters growth, some moderation in transactional revenue growth as we talked about given the and the rise we saw in the prior quarter from the France implementations. On Reuters, I would just add that, you know, in the fourth quarter, we'll lap a $5 million in transactional AI licensing revenue from the prior period. And they also are facing, like I said, you know, kind of tougher constant agency and professional business. The last piece I would add is this includes a decision that we made from a Reuters event to cancel it in the Middle East due to security concerns. Steve, do you want to talk about the co-counsel opportunity in the fourth quarter?

Yeah, sure. So Drew, as you know, co-counsel for us attacks a white space opportunity. So if you think about sort of law firm and general counsel spend beyond legal research, beyond sort of know-how, practical law and so forth, co-counsel is in that legal AI assistance space and it's white space growth. What we see is a is a five to 10 year TAM expansion. And I think we're just at the start of that. And I've talked about that on these calls before. But essentially what law firms and general counsels will do, law firms as a portion of revenues, they are starting to retool so that they're spending more on technology and for a dollar of revenue, less on people and less on real estate. And we think that that's a five to 10 year journey of TAM expansion. Co-counsel legal in its rebuilt form gives us a great deal of confidence that we're going to win our fair share of that white space opportunity. And the reason for that is that this new version for the first time has native access to Westlaw and practical law. And it's an agent that's trained and built by 2700 practice experts. And so it can do things that others can't do. and certainly the customers who have been using it are telling us that, providing us feedback in spades. Firstly and secondly, as we look forward to building out our brief builder set of capabilities that are outlined, we think that's going to further differentiate us. So in terms of its pricing, we're obviously in a competitive market here. We're priced competitively. What I would say though is that over the last month or so we've ported a heavy token usage function in the form of bulk document review and tabular analysis across to the Thompson model and that's given us an uptick in speed, an uptick in accuracy and we think a cost advantage that we plan to take advantage of over the next year or so. So I think relative to August 5th The summary is we've got more excitement and more optimism about co-counsel legal than we did at that point.

Thank you both.

We'll go next to George Tong with Goldman Sachs.

Hi, thanks. Good morning. You attributed the 4Q organic growth moderation largely to lower Reuters contribution to moderating corporate transactional revenue. Does the outlook assume legal and tax and accounting organic growth remains near 3Q levels, or is there any underlying moderation embedded in either segment?

Look, we sustained our outlook for the full year for the big three.

So I think we'll continue to see the growth that we want in the legal professionals business, in particular ex-government. On the tap side, we saw an acceleration from Q2 to Q3. That team is still kind of making some of the changes in leadership and go-to-market activities we've talked about. And we'll look for them to continue to find that growth trajectory we think they'll sustain here in the long run.

So, you know, kind of no material change, I would say, as we think about Q4.

Got it. That's helpful. And then with respect to margins, big three EBITDA margins fell year over year, even though you had very strong organic growth. Beyond the severance impact, can you talk a little bit more about what drove the underlying margin performance and how you're thinking about reinvesting operating leverage into product and market share gains? and how that's going to translate into margin performance into next year.

Yeah, look, there's I think one or two other things I would add to kind of the margin number in Q3. First, we are driving investments in automation and innovation, so we are reinvesting certainly in those areas. You know, again, I think if you kind of go up Periscope a little bit here and think about what we've done over the last A couple of years, we've rebuilt co-counsel, we've built Thompson, and then we've accelerated what we're doing organically with regard to co-counsel tax audit and accounting. And I've done all that while still delivering that margin increase that we talked about. So there's plenty of productivity we're seeing in drop rate through the business model. The other thing that you would see is just modest dilution from bolt-on M&A in the period.

Got it. Very helpful. Thank you.

We'll go next to Aravinda Galapetike with Canaccord Genuity.

Morning. Thanks for taking my questions. Steve, thanks for sort of the update on the innovation side of things. I wanted to switch gears to T&A. Obviously, you're deploying core counsel more meaningfully there. I feel like we have a better sense of where you stand versus the competition on the legal side in terms of your innovation and deployment of AI. Anything you can share, any sort of thoughts around where your T&A product stands versus sort of the broader space with respect to sort of the deployment of AI and some of the innovation that you're talking about? I know it's early days, but... Some initial thoughts would help. Thank you.

Yeah, thanks. Thanks, Aravinda. We think there's a similar but different dynamic in taxed accounting and audit as there is in legal insofar as the professional services firms in those areas will undertake a multi-year process of increased automation. and a large portion of that will be AI driven. So we think there's a wide space opportunity, tax accounting and audit similar to the one in legal. If anything in tax accounting and audit, the sort of transformation process might be a little bit smoother because of the talent shortage. So in legal, there's a question of sort of how many lawyers will there be going forward. In tax accounting, it's a different question, which is, When will the technology enable the tax accounting profession to overcome talent shortages? The number of tax returns goes up, the complexity of those returns goes up, the number of audits goes up, and the complexity of those audits goes up. So there's a need for technology to fill that gap. So that's sort of the backdrop here. The starting point for us is we're one of the two largest players in terms of provision of tax calculation engines. So we've got three marquee tax calculation engines that span everything from a sole practitioner providing completing tax returns all the way up to the big four and the heads of tax and the Fortune 500 companies. So that's UltraTax, it's GoSystemTax, and it's one source. are high functioning, they're efficient to run, they're very, very accurate and they're constantly updated for federal, state and local tax changes. So the switching costs away from those tend to be high because tax season rolls around regularly and the products are, as I said, very high functioning. What we have done to date is introduce co-counsel tax accounting and audits. and we've put a new version of that in the marketplace in the last couple of weeks to significant positive reaction from our customers because it's fully agentic. It actually delegates the tasks and it has native access to applications like Excel. So that's the sort of the basis that our AI played to date. Going forward, we plan to integrate many of what I would call the shoulder activities around that tax calculation engine. So I'm talking about things like document ingestion, the patent recognition, e-filing, follow up and so forth. And that's where our ready to review and ready to advise propositions we think will be market leading. And they'll be market leading for two reasons. One, they'll be seamlessly integrated into our tax calculation engines. So where our customers are already working. and secondly, as a result of the talent and the capabilities that we have acquired and built through acquisitions like SurePrep and SafeSend, Materia and Additive. So we're positioned, we think, to pretty rapidly accelerate our rate of product innovation in tax accounting and audit and introduce that as seamlessly as we can into our customer base over the next year or so and optimistic about both the growth and profitability characteristics of those entries building on the tax calculation engines and co-counsel.

Thanks, Steve. That's helpful. I'll pass the line.

We'll go next to Manav Patnaik with Barclays.

Thank you. Morning. My first question, Steve, was just around, you know, the white space you referred to, the workflow opportunity. I was hoping you could give us, you know, some quantification or anecdotal color on, you know, kind of the size and growth that you're seeing there today because, you know, obviously from all your legal debt competitors, you see the updated ARR and growth almost, you know, every week on some kind of a social media post. I'm just curious if you could help us frame where you guys are at.

I think, Manav, thanks for the question. My take is it's still fairly early innings. I think what we've seen to date is most law firms of varying sizes and many general counsel's offices experimenting with multiple AI legal assistance. And those assistants have, I think, by and large, received positive feedback from from the associates who are using them. But the underlying change management required to sort of drive wide scale productivity or wide scale increased in capacity for revenue growth and therefore ROI. I think a lot of that work is still to come. And so, you know, step one for us was to rebuild co-counsel and fully integrate native access to Westlaw and practical law and to make it fully agentic. Step two is to rapidly enhance the capabilities therein and brief builder I think is a compelling proof point and one that we think will grow again starting tomorrow. And then step three is the sort of forward deployed support to ensure that the individual lawyer, the teams and the practices and the firms and general counsels more broadly get the ROI that they need. to develop that out. As I said, I think we're in the first innings or two here. And I think this will be, as I said earlier, a five to 10 year journey that we'll see that TAM expand in healthy ways, provided that ROI is delivered. And that's where we're hell bent on supporting that process for our customers.

Okay, got it. and then maybe just one for Gary, in terms of the legal margins, they felt a little bit soft this quarter. So just curious if you could talk about some of the moving pieces there and, you know, how we should think about Q4 and your comments in 27, I guess the investments. Is that specifically legal or broadly all?

Yeah, I think there's a number of factors running around in the kind of legal results.

in the quarter from a profitability perspective. First, we do push that severance down into the segment level, and so the severance impact in the quarter caused a decline. There's an impact from the NOETICA transaction and a drag in margins there. We are seeing an increase in LLM costs. That being said, like in my prior remarks, We're more than getting paid for that with the premium tier pricing that we're offering for co-counsel and the demand uptick that we're seeing from that, as well as our ability to optimize the engineering choices around which model is chosen to solve which prompt and optimizing that for speed, accuracy, and cost. and then as we think about all that going forward, we'll see those margin rates kind of get back to the level we've observed in the legal business here as we exit the year.

Can I add to that, Gary? Manav, so the first thing is I'd push back on the idea that it was soft in the third quarter. I think the combination of severance of the investments in our own internal automation and some minor dilution from M&A contributed to the numbers you see, but they were ahead of where we suggested they'd be on August 5th. The second thing is going forward. The fundamental characteristics of our business is such that we think that the operating leverage is very, very attractive. And as we grow faster, that operating leverage expands. We don't see any change to that or impairment to that as a result of dynamics that are going on in the marketplace. But we have, as Gary said early, you know, just this year, as an example, we rebuilt co-counsel legal. We have launched a new version of co-counsel tax and order. We put eight new countries in the marketplace for Peguero and we built and launched and marketed the Thompson model. All of that within the sort of financial envelope that Mike provided a few years ago. So I think the question for us going to 2027 is over and above that leverage. Do we see opportunities for additional growth? And to the extent we see them, we're going to invest in them. And we'll be transparent with you and everybody else as to what we think the impact of those investments will be. But I wouldn't like to sort of leave you with a view that there's softness here or that there's sort of investments required to hold ground. We see this as the fundamental strength of the business and a question of what we invest in and what the timing of those investments are.

I would appreciate that. Thank you.

Our next question comes from the line of Tim Casey with BMO Capital Markets.

Thanks. Steve, can you talk a little bit about how your thinking is evolving with respect to Thompson LLM? I mean, you mentioned that you have offloaded some and some token work there. So that's helping margins. But the SCAD and ARBs discussion is quite interesting.

So how should we think about that in terms of a revenue generator versus a cost mitigator? Thanks.

Yeah, thanks, Tim. Thanks for the question. So as you point out, there are sort of two vectors here, you know, based on what we've seen in the first couple of months of conversations with our customers. The first is we have taken a particularly token heavy set of tasks around bulk document review and tabular analysis and ported them away from the frontier models to Thompson. And that gives us a speed and accuracy and maybe most importantly, a cost advantage. Because if we can get the capacity utilization of that model up to near 100%, then there's a cost advantage there and what that enables us to do is in many cases stick with all you can eat pricing for co-counsel legal and we think that that's a compelling particularly compelling offer for private partnerships so that's the first one now we're in early days but certainly the reaction of of our heaviest users to tabular analysis has been very strong so they like They like the speed, they like the accuracy, and we're confident in the sort of cost associated there. The second is the idea that for the world's most sophisticated and largest firms, Skadden being the first, that we can support them to create sovereign AI solutions. So in other words, to have a version of the Thompson model family behind their firewall to run our applications on top of that and to enable them to create their own applications, which protects their IP, gives them greater control over the application of AI within their firms internally, and maybe most importantly, enables them to build specific applications by practice and by jurisdiction that they view as competitive advantages. So we're very excited to be working with Skadden. It's one of the world's preeminent firms. And we think we're going to learn a lot. We think that they'll learn a lot and that this will lead to an attractive revenue stream. We have not quantified it yet, Tim. I think it's too early to do so. But as soon as we start to get more visibility into the depth and breadth of that opportunity, we'll come back to you.

Thank you.

We'll go next to Kevin McVey with UBS.

Great, thanks so much. And then I guess just to follow up on that, you know, is that a template used for the other large law firms as well, or would this be unique to Skadden in terms of, you know, that type of alliance or partnership?

Kevin, the opportunity exists. to license in various forms the Thompson model family to many of the world's most sophisticated firms. Skadden are first and have some particularly unique and in-depth concepts and ideas that we're working with them on. And so I think the opportunity is scalable, but I would put Skadden at this point in the category of one.

It's helpful. And then just with the $2 billion of Canadian OCHE issued, the $500 million from the print proceeds, any thoughts as to capital allocation relative to inorganic opportunities? And obviously, you exhausted the buyback already, but just any thoughts? Obviously, there's a lot of excess capital building on the balance sheet.

Yeah, thanks, Jared. At the highest level,

We're very confident in a balanced capital allocation approach that we've been pursuing, and we'll continue down that path around investing organically. And those organic investments that Steve just mentioned are driving that top-line growth that we've talked about, right? Investments in Westlaw, investments in CoCouncil, you're seeing the acceleration in the legal professionals' growth rate from that. And so we like the organic investments that we see on the horizon, and we'll continue to put efforts behind those The second priority is what you just alluded to, which is inorganic growth. In that context, we have a nice pipeline of opportunities that we see across multiple platforms in our business to provide either bolt-on or material, I would say, improvement in the scale of some of our platforms, as well as the ability to get talent through those acquisitions. So inorganically, we like the pipeline, and that's part of the reason why we've got this pristine balance sheet. We'll go put that to work. The third point is returns of capital, and we've done that in the form of NCIB and other returns of capital over time. We'll consistently deliver that balanced approach, and we remain committed to delivering 75% of our free cash flow back to shareholders via returns of capital. So a balanced approach is the answer. but we quite like where assets are sitting right now in our space and see a nice pipeline in the inorganic side.

Steve, what would you add? Well covered, Gary.

Thank you all.

We'll go next to Stephanie Price with CIBC.

Good morning. Congratulations on the 34% of ACV being gen AI enabled. I think it's up about 40 basis points sequentially. Just curious if you could dig into that a little bit more around where you're seeing the strongest uptake and how you think about AI pricing here and evolving over time. And then my second question is just on gen AI co-counsel feedback from customers. Can you talk a little bit about what clients are viewing as the biggest strength of the next gen product and where you see some opportunities for further enhancements?

The 34% in the quarter was encouraging in ACV.

I would just clarify there that's up from 32% in the prior quarter and up from 24% just one year ago. I would say Westlaw Advantage continues to be part of that story. Co-counsel legal and the GA of that here in the U.S. and now the GA of that in Canada and Australia. In the UK, we are very excited about that. Our international teams have a great pipeline building there. They're excited to have that out and available to their customers. We're getting good uptake from demos and seeing good client interaction and engagement with that. We are bullish on that being a continuous driver here as we get this out into our customers' hands outside the U.S., which, again, I would reiterate the fastest transition we've made going from US GA to global GA in two to three months. So that's just another proof point around the innovation acceleration we've seen. That's going to continue with what we just saw in co-counsel tax accounting and audit. that is a unique product and that product now delivers outcomes as well as the research capabilities it previously had. So we see that story continuing. I'll turn it over to Steve for the second part of your question. Yeah, Stephanie, with regard to co-counsel, I'll give you a couple of anecdotes.

I think there are at least two themes that are coming back from customers and users of co-counsel legal in its latest form. The first is appreciation of its accuracy and Annabeth Depp. And I'll give you one example. We had a head of AI innovation and technology at a major firm do a bake-off between co-counsel and a couple of the frontier models and a couple of the startup applications. And what she did was she asked the same very, very in-depth question of each of the five or six applications. She then compared the answers by running each of those answers through all of those applications and asked them to rank them. And all of them ranked co-counsel's answer as the best. And so it's tests like that that it takes a while for those to sort of permeate through the firms and through the industry. But it's that the first thing I'd say is the accuracy and the depth. And that shouldn't come as a surprise, given that we have more reference attorneys and attorney editors and we have Westlaw and Practical Law and we've got native access to those things and we're using Co-Counsel Bench to constantly and iteratively improve the product and the underlying data sets. So that's the first one. I think the second one, which cannot be underestimated, is we have rebuilt Co-Counsel to be the opposite of a black box. and so one of the principal concerns of managing partners and firm chairs is if indeed there are fewer lawyers coming in, which is not the case yet, but if three and a half years from now there are fewer lawyers in intake years at firms of various sizes, how are they going to train young lawyers? What is going to be the apprenticeship model? And if instead of sitting around a conference table or in the office of a senior partner, and gaining their apprenticeship through that direct feedback and learning that a lot of the work is automated and done using these tools. How is that going to happen? Now, if you use co-counsel legal, what you'll see, it is the opposite of a black box. So the agent spells out in great detail the 10 or 20 or 30 steps that it's undertaking in order to answer a question. And equally importantly, at each and every step, It describes the authoritative citation or source material that it used to reach a conclusion to that step before moving to another one and why it went to one step versus another. And so we think, and more importantly, our customers think that this is going to be a very, very important training and learning tool for young attorneys and that it will in large part overcome this concern around the next generation of the apprenticeship model within the firms. So those are really the two things we're hearing. It's deeper and it's more accurate. And the second is it's more transparent, more auditable, more verifiable.

Thank you for the color.

Our next question comes from the line of Vince Valentini with TD Cowan.

Hey, thanks very much. First, I'm hoping I get a clarification and a question. The clarification will be, The royalty revenue in the print segment that'll start to show up in the fourth quarter, do you include that in consolidated organic revenue? I would assume not, given there was no royalty revenue in Q4 last year, so it's not part of your 8% guidance for Q4. It would be just the clarification. The broader question would be on your sort of margin commentary for next year, Gary. Correct me if I'm wrong, but it certainly clearly sounds like you're not saying Thank you for joining us. Is that because you're investing to drive faster growth and harvest from these things you've already launched? There's been a lot of launches and a lot of product innovation this year. Is the margin sort of slow down next year because you're going to see even better revenue growth from things like the Thompson LLM or the brief builder or just the new version of Coal Council you've just been talking about? Or is this you saying we are going to go into the next wave of product development and be watching just as many, if not more, new products next year, which won't actually contribute to revenue immediately. So there's a bit of a drag on margins, but you'll see that revenue in 2028 and beyond. I'm just trying to unpack the margin not being quite as high as before. Is it a problem or is it something we should actually be happy about given you're leaning in?

Yeah, Vince, great questions. Let me ask Gary Bisbee to cover the first one in terms of the royalty treatment. and then Gary Bischoping to talk about how we're looking at investing in 2027. Yeah.

Hey, Vince. So in our organic growth calculation going forward, we will pro forma in royalty in both periods. And so as you know, the royalty declines modestly over time as print revenue declines. So it is a drag. relative to if you didn't include that. So I'd argue it's the more conservative way to calculate that organic revenue growth. I can take any follow-ups on that offline if that doesn't make sense. Gary?

The short answer here is we have still great productivity that's coming through this business model, both in operating leverage as well as the continuous improvement we've seen in productivity. Since this is a choice, based on the organic options that we see in front of us and those investments, just like we demonstrated with Westlaw Advantage and Co-Counsel Legal. We make an investment and we see a subsequent increase in growth from that investment. And that's what we're working our way through for 2027. We're working our way through, given the productivity we're seeing, given the operating leverage we see, but more importantly, the investments we have on the horizon to accelerate those investments So to your question, it's an acceleration of the investments into new products and solutions to continue to accelerate the innovation engine, delivering more value to the customer. And what we're working our way through that is therefore the timing of that revenue is probably, like you said, maybe not in the period of the investment, but we have strong conviction that will deliver incremental increases in the growth rate over the medium to longer term. So we could deliver, if we chose to, 41 next year, to your question, on a pre-print basis, apples to apples basis. We could choose to do that. We're choosing to make investments in those ongoing incremental AI accelerators and increase that to drive an increase in the revenue growth over time. Steve, what would you add?

No, I think that's the point. I mean, the fundamental business is robust and its growth increases, that operating leverage increases, bids increase. and the question that we're going through now as a team is, okay, of that operating leverage, are there additional growth options that we see, whether that is in and around our Dominio franchise, expansion internationally, expanding out the brief builder within co-counsel legal, further developing ready to review and ready to advise, you know, the launch of more countries within Peguero. We have, I suppose, the great luxury, we don't take it for granted, that we have a lot of growth opportunities and we're rigorous and disciplined about assessing those and stack ranking them. And then where we invest, we want to see a return and we want to see that, if not in period, to Gary's point, soon after. So please rely on us to be very, very rigorous about going through that. And to the extent that any of that sort of expanded leverage is being reinvested, it'll be for good reasons.

The only thing I would add, Vince, is there's some things that happen in the short run, too, around sales hires that have a more near-term return perspective and some other things that take a little bit longer given the development cycle. So we'll balance both the timing and the quantum investments as we think about 2027, but more to come in the Q4 call, Vince.

Perfect. Thanks.

We'll go next to Mayor Yagi with Scotiabank.

Great, thank you for taking my question. I just wanted to go back on the sustainability of the legal revenue growth. In the past, you've highlighted that Westlaw Advantage was one of the primary growth drivers for your growth in that business and that you still had a good runway to grow that part of the portfolio. I wanted to ask you as we head into 2027, do you still have enough runway for growth in Westlaw Advantage to continue to support the growth rate, the organic growth rate in your legal business? Or do we need co-counsel to take the baton here and grow in order to continue that performance that you've had in legal?

Yeah, so thanks, Maya.

Look, I think the answer is yes, we do. We continue to be very excited about what Mike Dane and the Westlaw team under Emily Colbert's leadership and with a very, very talented set of labs and engineering executives are doing. And I think the latest example of that is BriefBuilder, where, as I said, we've put five motions in the market initially. We've got, we'll expand to 24 tomorrow. as you probably know there's 350 in total and so whether we get all the way to 350 but it sort of speaks to the runway in and around the legal research and litigation space specifically for Westlaw, Westlaw Advantage and Co-Counsel and so that's the first part. I think the second one is we've talked for many quarters about Co-counsel sitting in White Space Opportunity. So as we look at both of those and we look back, our growth rate in legal has gone from seven to eight to nine, ex-government sort of 10 and 11 and hovering in that space. We think we can maintain and enhance that over the time period. The most important thing for us is to continue to innovate and delight our customers. As long as we continue to do that, we'll be in, I think, good shape both in the research space but also in the broader legal AI assistance space.

Okay, thank you for that. And just to follow up on the question on the margins, I know this is not a 2027 guidance call. I just wanted to get maybe just one clarification and are we talking about holding margins steady or there could be even more investments than the 100 basis points that Gary was talking about earlier.

Let me just reiterate, again, the business model produces that operating leverage. It produces ongoing productivity, and we'll make decisions around investment levels and share more of that when we talk to you in the fourth quarter. But the margin profile is important to us and will expand over time. And that level of productivity and what we see in the operating leverage will expand over time. At any given point in time, we face the choice of how much to invest, and we're not going to kind of talk today into the details of what that means for 27, but we will update everybody with clarity when we do that in our Q4 call.

Thank you.

Our next question comes from the line of Tony Kaplan with Morgan Stanley.

Thanks very much for fitting me in. I wanted to ask a little bit of a broader question. Steve, looking out, say, the next five years, what do you see as the biggest changes in terms of product innovation, distribution, the way that customers are using your products, just wanted to understand, you know, how you're thinking about how this all evolves in the sort of medium term. Thanks.

Yeah, thanks, Taneli.

I think there's a couple of forces at work. The first is, you know, something I've talked about for a while, which just continues to, in my view, strengthen, which is the increasing complexity associated with compliance, whether that's legal compliance, whether that's a tax accounting audit, risk-related compliance, and the idea that corporations and their advisors just can't add headcount to meet the needs of that increasing complexity and ensure that they remain compliant. They need software and automation tools to do so. And that's the space in which we're operating. That's where our big three sit. And we're maniacally focused on meeting and exceeding that demand, firstly. Secondly, AI expands our TAMPs. Put simply, it expands the role in which we can play in the success of our customers. So instead of being a sort of primary, you know, the Westlaw being the best and most efficient way to get a list of relevant precedent cases, Westlaw will now draft the brief. Westlaw will increasingly perform the advanced analytics required to win a case. and the same goes with transactions activity, the same goes with in-house activity. So this expands our TAM and we don't think anyone else brings the same assets and advantages to that white space and to that expanding TAM that we do. And I would humbly suggest that our step ups in growth over the last few years suggest that we're on the right track and we've got to keep going. So I think that's sort of, they're two dynamics. The first is this ongoing trend to greater complexity and the need for software to meet that complexity and ensure compliance. And I think the second is AI as a means to expand TAM. The third I think we're seeing is the development of headless solutions. So in other words, and this is where the Thompson model is interesting. So the idea of sort of putting the model and harness and a set of applications that firms can then build on instead of a fully integrated software stack. I think we're just at the start of that, Tony. It's hard for me to sit here and tell you exactly how that's going to play out. But what I will tell you is that the Thompson model starting in legal to be extended into tax accounting and audit gives us, I think, a really interesting play in that space as it develops amongst the world's most sophisticated professional services firms.

Thank you.

We will go to Jason Haas with Wells Fargo next.

Hey, good morning and thanks for taking my question. I'm curious if you do decide to bring up the investment levels in 2027, what are the products or areas of the business that you're most interested in investing in? Thanks.

Yeah, Jason, thanks. We've mentioned a few of them. I think, you know, ongoing investment in co-counsel legal and ensuring that we've got the right forward deployed teams and the right the right sales resources to support that. That's one. I think co-counsel tax and audit and the development and introduction of ready to review and ready to advise in the tax accounting space. Next is transactional compliance. So that's e-invoicing global trade in direct tax. We've got, I think, some very exciting plans in terms of adding agentic capabilities and leveraging co-counsel Thank you very much. in Brazil with Dominio and embedded finance propositions there. I think it's starting to look interesting to us. So assuming that stays on track, we'll keep investing. So I know it's a long list, but I think it speaks to the point I made in response to Tony's question, which is we're uniquely positioned to meet a growing and long-lived market demand around compliance and the complexity of compliance. and AI is a means for us to expand our role in meeting or exceeding our customers' needs around that.

Steve, the only one I would add to that is the General Counsel's Office. We've been very focused on co-counsel for legal professionals. It's a great opportunity in the General Counsel's Office with our relationships that we have with our large corporate customers. to bring the differentiated elements of co-counsel legal to the Office of the General Counsel.

We're excited about that opportunity here as we head into 2027 as well.

Got it. That's very helpful. Thank you. And then just as a follow-up, I'm curious if you expect to see any impact from the closure of Wild God Shell on your business.

Thanks. Not a material impact, no.

Okay, great. Thank you. We'll go next to Doug Arthur with Huber Research.

Yeah, great. I'm covered. Thanks.

We'll go next to Curtis Nagel with Bank of America.

Great. Just two quick ones for me. Steve, I think you noted 60% of the COCO base is now in the next-gen model, which is great to hear. I guess any sizing in terms of how much contribution you're seeing from new users versus upgrading the existing base?

We haven't published that, Curtis. We'll go back and review that. Suffice to say, though, we're very focused on gaining more than our fair share of the market over the next 12 months. So we'll come back to you as we as we achieve that.

Okay, fair enough. Then maybe just another one just, you know, on legal 4Q. So I think you noted 20, you know, margin difference in the growth rates from, you know, 2Q to 3Q, like 20 bps. Do you think you can accelerate that, you know, in 4Q? Just, you know, again, Westlaw is still doing great. You've got Cocoa coming in. Comps are easier, right? I think you've, you know, previously alluded to, you know, maybe seeing better growth in 4Q. So just, yeah, help us sort of size that and, you know, sort of what's the opportunity in your term in legal?

Yeah, I mean, Q4 is an important quarter for us across the big three. So we're always, at this time of year, cautiously optimistic. But we've got to deliver it. We certainly see great traction from... from our various product franchises. And it's early days for Thompson. So I think I'm going to remain optimistic that there's upside there.

The question is sort of what's the timing of that, you know, and when do we deliver it?

Okay, thank you. We'll go next to Surrender Send with Jeff Rees.

Thank you. Hi, Steve. As I think about the need for your commentary around more technology at law firms, corporations, and especially as I think we think about more agentic capabilities that get deployed, so whether you're taking on a lot more responsibility, maybe displacing individuals, how should we think about the potential change or impact your pricing power. Meaning that I think if you maybe provide more value as you do more of the work inside the organizations, should you be able to take a bigger part of the economics? If that makes sense. Like when I think about like the promise of cloud and the reliance on technology and everybody was offered all of these amazing savings, but ultimately a large portion of the economics accrued to like the hyperscalers. How does that really embedding yourself in these organizations maybe change the equation or the partnership profile?

Yeah, no, it's a great question. So we as a philosophy do our best to price to value. And if you look across the portfolio, there are examples where we do that very well. And I would argue there's some examples where we don't do it as well. But certainly, We are optimistic about exactly the sort of arc that you describe in terms of embedding the tools within the firms and the general counsel's office, within the judiciary and the court systems and so forth. And then ensuring that we're then able to support our customers in the underlying change management to ensure they get the requisite ROI. And that's an attractive proposition first and foremost for them. and then in doing so, price to value. So that's the journey we're on. I think, as I said in answer to an earlier question, it's still early days. I think we're in the first, second or third chapter here of a five to ten year journey. And so I think it's too early to sort of describe a price to value journey around co-counsel legal as an example. But we are very focused on getting there for sure. Gary, what would you add?

We have already seen demonstrated value in customers willing to pay for that value with, you know, achieving the price increases we've seen in the last two years relative to Westlaw Advantage and Co-Counsel. And we expect that price to value equation to continue as we continue to accelerate the innovation engine. The last clarifying point is we don't have any seat-based, you know, kind of approach to pricing. it's enterprise license agreements for the most part. And that really adds value and enables our customers to have certainty over cost over time, which they also value. So we like the pricing proposition and the ongoing benefits from that model.

That's helpful. And then as a follow up on the commentary around kind of the all you can eat How does that impact the token costs and contractually where the clients land? Is those costs treated separately or accounted for separately? How should we think about that as growing agentic use? Does that also boost the top line here as well, that they show up in the revenue line?

Yeah, so we have enterprise-wide pricing. So we're not priced on a per seat basis or a per token. This is illegal or a per token usage. And so far, that's enabled us to maintain attractive margin profile for co-counsel legal. And we'll continue on that path. We want to keep it as simple as we possibly can. I think the reference I made before was to In moving tabular analysis across, so a high token usage application across, where we've got a speed, an accuracy and a cost advantage, that means we can stick with, in many cases, all you can eat pricing, which is a very attractive proposition relative to some of the competitors. As to whether there's upside for power and super users, we have not yet explored that. but certainly aligned with your earlier question around price to value.

That's certainly something we're exploring.

Thank you.

I think that gets us to the end of the queue.

Thanks, everybody. We're around if you have any follow-ups. Splendid there, Ruth. Thanks.

Thank you. This concludes the questions and answers. I would like to turn the call back over to Gary for any closing remarks.

That's it. Have a nice day. Thanks Ruth. Bye-bye.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.