Frank J. Golden - Thomson Reuters Corp. James C. Smith - Thomson Reuters Corp. Stephane Bello - Thomson Reuters Corp..

Vince Valentini - TD Securities Manav Patnaik - Barclays Capital, Inc. Paul Steep - Scotia Capital, Inc. Andrew Charles Steinerman - JPMorgan Securities LLC Drew McReynolds - RBC Dominion Securities, Inc. Andre Benjamin - Goldman Sachs & Co. Aravinda Galappatthige - Canaccord Genuity Corp. David J. Chu - Bank of America Merrill Lynch Peter P.

Appert - Piper Jaffray & Co. Ato Garrett - Deutsche Bank Securities, Inc. Douglas Middleton Arthur - Huber Research Partners LLC.

Ladies and gentlemen, thank you for standing by and welcome to the Thomson Reuters First Quarter 2017 Earnings Call. And as a reminder, this conference is being recorded. I'll now turn the conference over to Frank Golden, Senior Vice President, Investor Relations. Please go ahead, sir..

Good morning and thank you for joining us as we'll report our financial results for the first quarter of the year. We'll begin as we normally do with our CEO, Jim Smith; followed by our CFO, Stephane Bello.

Now, following their presentations, we'll open the call for questions and we'd appreciate it if you would limit yourself to one question each in order to enable us to get to as many as possible. Now, two items to bring to your attention before we get started this morning.

First, a reminder that today's presentation when we compared performance period-on-period, we look at revenue growth rates before currency as we believe this provides the best basis to measure the underlying performance of the business.

And secondly, you'll note in today's presentation and earnings release that we no longer report on underlying operating profit. This change reflects the simplification of our reporting structure and is in line with how we currently manage the business internally.

Change is also consistent with how we provided our guidance for 2017 during our fourth quarter earnings in February.

Let me point out that on the last page of today's earnings release, there is a supplemental schedule that does provide depreciation and amortization expense by business unit as well as on a consolidated basis, so you are able to do that calculation. Now, today's presentation contains forward-looking statements.

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 can access these documents on our website, or by contacting our Investor Relations Department. I will now turn it over to Jim Smith who will take us through the results.

Jim?.

Thank you, Frank, and thanks to all of you on the call for joining us today. I am pleased to report that our first quarter results were solid across the board and marked a good start to 2017. Reported revenues increased 1% and/or up 2% on a constant currency basis, both representing an improvement over the prior year.

This improved revenue growth performance coupled with savings from our transformation program that includes the actions we took in the fourth quarter of last year led to a 17% increase in EBITDA and a more than 400-basis-point improvement in margin. Adjusted EPS increased $0.17 or 37% from a year ago to $0.63.

Most of this improvement was driven by stronger operating performance as below-the-line items remained fairly constant on a year-over-year basis. Both the margin and the EPS performance for the quarter represent record highs for the company.

Finally, net sales were positive in our Financial business, which was a good performance, especially since we're in the final stages of migrating a number of legacy products to Eikon in our asset management and foreign exchange segments. Now, let me turn to the results for the quarter by business. Revenues for our Financial business increased 1%.

Excluding the impact of acquisitions, recoveries and pricing adjustments, organic revenue rose 2% with all three geographies, EMEA, the Americas and Asia, reporting revenue growth. Growth was driven by a 9% increase in revenues from our Elektron Data Platform and Risk businesses and a 4% increase in transaction revenues.

This was offset somewhat by a 4% decline in desktop revenues, driven in part by the pricing adjustments we discussed. As I just mentioned, net sales were positive for the quarter, driven by growth in EMEA and Asia.

Although the Americas were negative due to the migration of legacy Thomson ONE products to Eikon, these legacy asset management migrations are expected to be completed by midyear. Turning to Legal, revenues grew 1% in spite of declines in U.S. Print and transaction revenues.

Importantly, subscription revenues, which represent about three quarters of our Legal revenue base, grew a healthy 4%. Finally, Tax & Accounting is off to a strong start with revenue growth of 6%, driven by our Professional and Corporate businesses. Now, before I turn it over to Stephane, let me finish by reiterating our key priorities for 2017.

And I'm pleased to say that we're making good progress against each of them, and we're increasingly confident as we look ahead. First, we continue to expect revenue growth to gradually accelerate as we execute on these key initiatives that are in process and continue to invest behind our higher-growth businesses.

We're also in the early stages of executing our plan to improve the customer experience as we work to eliminate customer pain points and make it easier for our customers to do business with us. We expect these efforts will further improve retention and help us grow revenue.

Second, our Enterprise group is doing a great job of managing the transformation programs and we are on track to deliver further savings and productivity gains this year.

But just as importantly, this group is now applying the same rigor and discipline towards driving a number of key initiatives aimed at improving both customer experience and sales productivity. And thirdly, given our strong start to the year, we are confident we can deliver on our financial commitments.

And therefore, we reaffirm our full year 2017 guidance. Now, let me turn it over to Stephane..

Thank you, Jim. Before I begin discussing the results, I'd like to remind you that I will talk to revenue growth before currency as we always do, as we believe that this is the most appropriate way to judge the performance of the business.

In addition, currency did not have a material impact this quarter on profitability metrics for each of our businesses. As such, I will be referring primarily to our reported EBITDA performance and margins in my remarks. So on a constant currency basis, first quarter revenues were up 2%.

The Financial & Risk and the Legal businesses were both up 1%, and Tax & Accounting's growth rebounded to 6%. Adjusted EBITDA was up 17%, with the margin up over 400 basis points to over 31%, driven by better operating performance in each business and lower corporate costs, some of which was timing related.

Nevertheless, this represents the highest quarterly EBITDA margin we have ever achieved, and it is a strong start for the year. Now, corporate costs decreased significantly on the year-on-year basis for three primary reasons. First, we worked hard to reduce center costs last year following the sale of our IP & Science business.

Second, we made some adjustments to our locations. These adjustments have no impact on our consolidated results, but at a high level, they will reduce our corporate costs and there will be a commensurate increase in costs allocated to our Tax & Accounting business in 2017.

And finally, the first quarter results benefited from some timing factors, which we expect will be reversed over the balance of the year. As such, our first quarter corporate cost should represent a low watermark for the year.

Now, for the full year, we expect that corporate costs inclusive of depreciation and amortization expense will be approximately $300 million, which would represent a reduction of about $80 million from last year.

And as we discussed during the last earnings call, about half of that $80 million reduction consists of real savings achieved following the divestiture of our IP & Science business, whereas the other half is due to the reallocation of various corporate cost, as I discussed earlier primarily to our Tax & Accounting business.

Now, let me provide some additional color on the performance of our individual segments, starting with Legal. Overall, Legal revenues were up 1%. Subscription revenues, which makes up three-quarters of the business, were up 4%. Transactions, 11% of the total, were down 8%. And U.S. Print, which makes up the balance, was down 4%.

From a margin perspective, Legal's revenue growth and effective expense management led to a 100 basis points margin improvement versus the prior-year period. Now, here's a more detailed look at the revenue performance of the three main sub-segments in our Legal business during the first quarter. U.S.

Online Legal Information, which represented 43% of total revenues in the first quarter, was up 2%. We are now in the third consecutive year of positive growth for this sub-segment. This provides a solid foundation for Legal given this segment's high margins and strong free cash flow characteristics. U.S.

Print comprised 13% of total revenues and was down 4% and our solution businesses made up 44% of revenues and grew 2%. Recurring revenues, which comprise the vast majority of revenues in that segment, increased 5%, while transaction revenues continued to be a drag and were down 9% in the first quarter.

Now, while transaction revenues are by definition pretty hard to predict, we do expect that the year-on-year comparison will become a little easier in the second half of the year. Let me now turn to our Tax & Accounting business. In the first quarter, revenues grew 6%. Recurring revenues, which are 83% of the total, were up 7%.

And transaction revenues, which is the remaining 17%, increased by 4%. EBITDA was up a healthy 24% with the margin up over 400 basis points versus the prior-year period to 33.8%.

That strong EBITDA performance was driven by revenue flow through coupled with the savings related to the charge we took in Q4 2016, tight expense management and also the absence of $5 million of severance cost that we took in the first quarter of last year, and that made the year-over-year comparison a bit easier.

But even if you exclude this $5 million of severance cost, the EBITDA margin would still have been up by a healthy 320 basis points. We do expect the margin to be a little lower in Q2 and Q3 than in the first quarter due to the seasonal nature of the Tax & Accounting's revenues and largely fixed cost base.

Now, turning to Tax & Accounting's results by sub-segment. Our Professional business delivered another very strong quarter, posting revenue growth of 13%. The Corporate segment grew 7%. Knowledge Solutions was down 1%, and the smaller Government segment's revenue declined by about $2 million on a year-over-year basis.

Now, turning to our Financial & Risk business, first quarter revenues were up 1%, continuing the trend of the previous two quarters. Growth continued to be dampened by commercial pricing adjustments on our remaining legacy foreign exchange products.

And as we have said previously, and as Jim just reminded you, the overall impact is diminishing, and we expect these pricing adjustments to be largely completed in the first half of 2017. Growth was also affected by lower recoveries revenues. On a full-year basis, we still expect recoveries to be only marginally down compared to 2016.

So overall, excluding acquisitions, which contributed about 1% to the growth rate, Financial & Risk's organic revenue growth rate during the first quarter was about 2% before recoveries and pricing adjustments. We expect a more modest impact from these headwinds in Q2 and no further impact in the second half of the year.

Turning to Q1 profitability metrics, EBITDA increased 6% to $463 million, resulting in a margin of 30.8%, up 180 basis points from a year ago. This strong performance was primarily driven by improved revenue flow-through and by the actions we took in the fourth quarter of last year.

Looking at the Financial & Risk revenue in a bit more detail, you can see on this next slide that desktop-related revenue represented 38% of total revenues and declined 4% during the first quarter. And excluding the pricing adjustments, desktop revenues were down 3%.

The balance of our recurring revenue base is comprised of Elektron Data Platform, which we used to refer to as our feeds business, and Risk. And in aggregate, revenues were up 9% in this segment in the first quarter. Recoveries made up 8% of the total and were down 9%. And finally, transaction revenues were up 4% during the quarter.

Foreign exchange volumes continued to be challenging, but this was more than offset by a strong performance in Tradeweb. Now, let me update you on our earnings per share and free cash flow performance, and I will start with earnings per share.

For the first quarter, adjusted EPS increased by $0.17 to $0.63 per share, which was a 37% increase compared to the prior-year period. And as you can see on this slide, that improvement was primarily driven by stronger operating results across the board as the so-called below-the-line items did not have a material impact on EPS in aggregate.

And finally, currency had no impact on EPS during the quarter. Looking for the full year, however, and assuming that exchange rates remain roughly where they are today, we believe that currency could have a $0.04 to $0.06 negative impact on EPS. And in addition, the recent acquisitions we've made could also have a $0.02 to $0.03 diluted impact on EPS.

Now, the timing factors I referred to earlier in our corporate expenses represented a benefit of about $40 million in aggregate, and they contributed about $0.05 to the year-over-year increase in earnings per share. This next slide reflects our free cash flow performance.

As you will recall, there are several items impinging on free cash flow in 2017 with the majority of the impacts being felt in the first quarter.

So, working from the bottom of this slide upwards, you can see that our reported free cash flow was negative $585 million during the first quarter versus a positive performance of $223 million in the prior-year period.

Now, our prior-year period benefited from the inclusion of our IP & Science business, which we sold last October, and the year-over-year variance related to that disposal was just over $150 million. In addition, there were two other significant factors impacting the first quarter.

First, as indicated in our last earnings call, we made a $500 million cash contribution to our pension plan in January. This contribution brought the funded status of the plan to over 90% and we expect that it will eliminate the need for any further material contribution in the near-term.

Second, we incurred $86 million of cash payments related to the severance charges that we took in the fourth quarter of 2016. So, the aggregate impact of these three factors that I just described was about $740 million negative.

Excluding these items, our free cash flow, on a comparable basis, would have been $42 million in 2017 versus $112 million for the prior-year period with the variance being driven primarily by working capital timing items. On a full-year basis, we continue to expect free cash flow to range between $900 million and $1.2 billion.

And since the pension contribution and the cash impact of the charge are clearly temporary, we do expect to return to a stronger free cash flow performance in 2018. So, in conclusion, we are reaffirming our 2017 outlook.

Overall, we are pleased with the improving revenue trends, record profitability and record EPS performance we achieved in the quarter. And as we look to the balance of the year, accelerating revenue growth remains our number one priority as Jim just discussed. And we expect revenue growth to continue to improve as we progress throughout the year.

Now, given the largely subscription nature of our business, the improvement will be gradual. But it is reassuring to see that our recent actions are beginning to flow through into our financial results. With that, let me turn the call back over to Frank, so that we can take some of your questions..

Terrific, Stephane. Thanks very much and that concludes our formal remarks. So, we'd now like to open the call for questions.

So, can we have the first question please, operator?.

Yes, thank you. We will go to Vince Valentini with TD Securities. Go ahead, please..

Yeah, thanks very much. Hopefully, I can get a clarification and then a question. Just, Stephane, to clarify, if it's $300 million for the full year in corporate costs and you did $46 million in Q1, the quarterly base should have been $75 million.

So that would have meant $29 million of sort of one-time benefits? I think you cited $40 million later in your remarks.

Is that correct, it's actually $40 million, not $29 million that you got a boost from?.

I think it's somewhere between $30 million and $40 million, Vince, but your math is generally correct. So, corporate costs are decreasing from $380 million to $300 million. And I explained the factors that drive this decrease.

If you take $50 million in Q1, you should expect a run rate for corporate cost of somewhere between $80 million and $90 million for the balance of the year, each quarter..

Okay. And a broader question, the net sales being down in the Americas seems certainly counter to the employment trends we've seen and the better results you've had there than your other geographies recently.

Can you peel that onion back a little bit more for us? If you maybe exclude the commercial pricing adjustments on these FX migrations to Eikon, would the net sales in the Americas have been positive? And maybe you can talk more generally, Jim, about the conversation you're having with clients in that region and whether there's increasing optimism or a bit of a pause for reflection..

Yeah. Sure. And I would welcome the opportunity to peel the onion on that a little bit more. This is purely driven by – in March of last year, we announced the end of life for the old Thomson ONE products. So, we've been migrating over the past year our clients from 14 Thomson ONE products on to the new modern platform.

And obviously, anytime you have a product migration like that, the people who are eager for the new product sign up first. Those who are more ambivalent are towards the middle of the pack and the tough slogging is toward the end.

And so we always anticipated that we would have a difficult sales period as we migrated our clients from the legacy products on to the new products. And that has, indeed, been the case with the brunt of that coming in Q1, a little more in Q2, but we will be completely through that migration in the first half of this year.

If you take that out, we're quite encouraged with what we're hearing in the Americas and with the opportunities that we have in the Americas and what we're hearing back from clients.

So, a temporary hit to net sales because of cancelations of some old legacy products that we were no longer going to continue are more than offset by the opportunity to move the new clients or to move clients on to the new modern, reliable, robust platform, our ease in operating that platform, the reliability, the security that our clients get.

And we're particularly encouraged because in almost 50% of the cases where we moved an asset management client on to the new platform, we've had the ability to upsell another product as well. So, this is just the natural transition of that move in the asset management space away from the legacy Thomson ONE products to the new platform..

Thanks..

Thank you. Our next question is from Manav Patnaik with Barclays. Go ahead, please..

Yes. Thank you. Good morning, gentlemen. So, just a follow-up on that a bit.

I guess based on your commentary of less headwinds in the second quarter and not in the second half, is that 2% like normalized organic growth rate that you guys should report going forward? And then, I think your commentary was down to people being optimistic and signing up to the new FX platform.

But just broadly in the industry, I mean, it feels like at least the buy side has joined the trend of feeling the pain.

Can you maybe give some comments there and how that's impacting your business?.

Sure, Manav. Let me try to take the first part of your question. We've been giving you what the underlying organic growth rate for Financial business is if you exclude these two headwinds. And it's been about 2%.

I mean, this is what we should be getting from just the annual pricing increase that we get, and that happens pretty naturally in the financial business for us. So, that's 1.5% to 2%.

And then, the total growth rate of the business is supplemented by whatever volume increase we could see, and that's really driven by net sales as we said in the past; and obviously, also by the transaction revenue dynamics, which obviously changes from one quarter to the other.

But we have had now a number of quarters where, if you exclude these headwinds which we know will disappear, you can see them like going down in Q2 and then disappearing in the second half of the year, we know what the underlying growth rate of the business is.

So, that's why we feel pretty confident that the evolution of the growth rate of the Financial business this year, if you exclude transactions, what it should look like given the impact of these headwinds. So, we're very pleased that we're nearing the end of these headwinds. It's really around the corner..

If you want to say something about the foreign exchange, please go ahead..

I think the foreign exchange, what we've seen is that the strategy that we've pursued has enabled us to actually see a slight increase in the number of users of our foreign exchange platform. This had been showing some declines in headwinds over the prior years. We've been able to stabilize that.

And now, we're starting to see an increase of usage and users on the foreign exchange platforms, which obviously, is very comforting also for us..

Got it. And just my follow up to that was just if you could make some comments on outside if it's guarded generally like all the pain that the buy side and sell side continuously face. How that's impacting, maybe, not just F&R but may be Legal as well? It sounds like Tax is the only one that had good trends going for it..

I'm not sure I understand your question, Manav. Sorry..

So, just in terms of the head count reduction and so forth, like you guys aren't seeing any of that impact to your businesses?.

If I might, Manav, Jim here. Look, I think, I mean, obviously, there are many different parts to our business. And even your question specifically around the FX market, there are many sectors in the FX market whether that's the sell-side banks, whether it's broker/dealer network, whether it's treasury, it's a dealer to end customer.

And we are seeing certainly certain sectors of that market under more pressure than other pressure. And I would say that generally, where we have head count-dependent businesses, we continue to see more pressure. And the encouraging thing for us I think in Q1 was in the faster growing part of the business and a marketplace that is still growing.

So, if you look at market data in general in financial services, it is still continuing to grow. And you look at our Elektron Data Platform business and our Risk business, which are far less head count-dependent, those grew 8% in the first quarter – 9% for each in the first quarter. And so, those are still growing healthily.

So, I think you have to kind of peel apart the onion on that one as well. But certainly, headwinds have not completely diminished. I wouldn't want to ever give that impression. But there are many aspects to the business and some of them are doing quite well now..

Okay. Thanks a lot, guys..

Thank you. Our next question is from Paul Steep with Scotia Capital. Go ahead, please..

Great. Morning. Jim, maybe you can talk a little bit about the growth businesses, particularly Risk as well as the Elektron Data. Those are the two you highlighted I guess last quarter and again this quarter.

Maybe give us perspective as how large those are within the whole, and then maybe what the addressable market opportunity looks like relative to the head count challenges we've talked about seemingly forever..

Sure. If you look for the quarter across the – and there was consistent growth. The kind of the low watermark would have been 6% and the high would have been 9% but they are all been growing nicely for us this year and have kind of seen an acceleration there. You put all of those together, that's now over $4 billion of the revenue base.

That's in that zone growing overall at 8%. And the components of that are pretty evenly spread. The large part would be the Elektron Data Platform right now, but the others are coming on. And three of those four segments are now over $1 billion in revenue in their own right. So, we're quite encouraged by them.

And they are less, frankly, head count dependent in all cases. And they're right in the heart of the world that's changing so fast right now.

When you think about the geopolitical uncertainty and you think about the regulatory changes that are afoot, we think that bodes quite well for these businesses because when things change, that's the time our customers turn to companies like us for the trusted answers that they need to navigate those changes.

So, we're encouraged that those trends can indeed continue..

All right. I'll change my follow-up really fast..

Okay..

Because you got me intrigued. If we're growing at this pace, there's one argument that would say you've done two tuck-unders in Clarient and Avox in the most recent quarter.

Is there a sense having transformed the business to where you're at today, a willingness to step up to a larger transaction, a $500 million-plus type deal that would further accelerate one of those areas? Where's sort of the appetite for that at the moment? Thanks..

Our strategy and our appetite for acquisition hasn't changed from where it's been for the last three or four years.

We're still primarily focused on driving our business by driving organic growth, by improving the quality of our products, by improving our customer service and we always have our eyes open particularly for those tactical acquisitions that we can fold into our business that can support our growth initiatives by bringing in capabilities that we might not have, by plugging a gap in our product offering, by bringing a customer set with them perhaps a little more quickly than we could do with, if we were to build and to do that organically.

But we're very much looking for the kind of the tactical fold-in opportunities while always keeping our eyes open for opportunities out there. And as you know, everyone talks about everything all the time. So, we're certainly not sitting in a cave and not aware of what's happening in the competitive landscape or the M&A landscape generally.

But our focus is on driving the business we have, and if we see opportunities to improve that with tactical acquisitions that support what we're already building, then I think you'll see us continue to do that.

But we have made a couple of relatively small acquisitions in recent months and our plan this year is to invest behind those to integrate those into our offerings and to continue to build them to scale..

I'll slide in one quick clarification. Stephane, in Tax & Accounting, you didn't talk about, we've had some challenged government projects in the U.S., I guess, for a lack of a better word in the last few quarters. What's the progress in that? I know it didn't matter on the top line but it was more a margin drag. Thanks, guys..

It wasn't, and look, we're making progress on these. There was no impact or no meaningful impact, as you could see, from our results in the quarter. We still have work to do and we'll continue to make good progress. The team is continuing to make good progress on addressing the issues we had last year.

So, as we said in the Q4 earnings call, I think, we do expect a continuing level of spending to be reflected in our numbers throughout this year. And actually, there was fair bit of spending in Q1.

But we hope that you're not going to see the volatility from one quarter to the other that we saw last year because we obviously had to take some actions with regard to the assets we had on our balance sheet in the course of 2016. So, continued progress..

Thank you..

Thank you. We'll go next to Andrew Steinerman with JPMorgan. Go ahead please..

Hi. It's Andrew. I have two questions. The first one is about the $2.35. I know that's before currency as clearly labeled on slide 19. But does that include any small dilution on EPS that might come from the recent acquisitions earlier this year? That's my first question. And my second question is a bigger question, Jim.

It's about the strong margins in the first quarter and given that strong margins start, have you changed the amount of innovation spending for Thomson in terms of planning for innovation spending this year?.

Can I answer the last one first?.

Yes, of course..

The answer is no..

I'll answer the last one first and say no. In fact, I think we're doing a much better job of reallocating capital spend within the business. But if you look behind those big four growth initiatives I talk about, they're getting substantially more funding this year than they got in the prior year. So, we feel quite comfortable with that.

That's not a result of cutting back. That's a result – it's interesting in our model, as you well know, high fixed cost basis, as revenue starts to improve, you get lots of great flow-through dynamics. So, it's encouraging to see that even at low rates of overall revenue growth, it's good to see that powering some flow through to the bottom line.

And then the simplification initiatives that we took in Q4 last year have stuck. And those costs have come out. But to be honest with you, we would have taken them out regardless of the cost impact of those actions simply because they allow us to simplify the organization and become more nimble.

So, it's not the result of overcutting on investment spend..

Right.

But how about if margins continue to trend favorably? Would you step up your innovation spending this year, or is it more a matter of we have our annual plan for innovation spending, it's already in there?.

No. Look, I think it's the great trade-off that we make all the time. And we will make that dynamically. It's a nice problem that I would love to have. But we continually look at the transformation savings we were able to generate, and then we allocate the size.

How much of that do we take to the bottom line and how much of that could we reallocate towards innovations spend that we don't have or towards speeding up a product to market or fixing of services.

And, I think Stephane has alluded to in a number of our calls, if you look at the totality of our transformation savings, they are well in excess of what we've taken to the bottom line and just each and every year and dynamically throughout the year, as we see opportunity, we try to fund that opportunity.

So, there's not a hard and fast rule for how it works, but we're evaluating what we do with every dime that comes through the door and trying to apply it appropriately.

And I would hope that if we could continue to get more effective and efficient in how we're managing the business, that there will be lots of folks here knocking at the door to speed up things that would power the top line.

I have always said, since the day I became a CEO, I would trade a point of margin for a point of growth any day, and I still believe that..

Well said. Thank you..

And Andrew, your first question, I think, was on the $2.35 EPS target that we have. And look, the way we provide guidance for the year usually is before the impact of acquisitions and before currency.

The $2.35, I would say – you heard me in the remarks, right? We do expect currency may have a slightly negative impact over the course of the year and acquisitions exactly building on the point that Jim just made. We are actually investing behind the acquisition that we've made.

So we do expect some investments which should be dilutive to EPS, particularly in the KYC acquisition that we've made because we feel pretty strongly about the opportunity there. And so, we're putting dollars behind them.

This being said, to the extent that the impacts are pretty minor, both currency and acquisitions, we are very hopeful we can overcome them and achieve our $2.35 target..

Got it. Thank you..

Thank you. Our next question is from Drew McReynolds with RBC. Please go ahead..

Thanks very much. Just a clarification and then a question on F&R. Stephane, Just on the $300 million in corporate cost guidance for 2017, that has some depreciation/amortization in it, but we're now focused on EBITDA, not EBIT.

Can you give us what that adjusted EBITDA corporate line would be?.

I can, if you give me two seconds. Why don't you ask your second question? I'll give you the numbers by that time..

No. Okay. Thank you. And just on F&R maybe for Jim or Stephane, kind of look through that. So, you did, I think, flat organic in Q1 and you've done kind of plus 1% the back half of last year. And you did kind of flat with transactions up this quarter. So, I'm just wondering, kind of within the mix, what kind of took that sequential step back.

And then, as we look at flowing through these buy-side migrations that you're doing that's impacting net sales, what kind of revenue flow-through on a reported basis impact would that have? Thank you..

Stephane, you're probably better positioned to answer that one..

Well, I was looking for the number. Sorry. Repeat if you don't mind. I apologize for this. If you could repeat your question..

Yeah..

If you could repeat your question..

Yeah..

Yeah.

The second question, you want me to repeat?.

Yeah..

Yeah. So, just – and we kind of do the other one offline, if you want. But I'm just trying to better understand kind of the puts and takes within F&R. If you exclude the acquisition, it was flat organic this Q1. You did, I think, plus 1% in Q3 and Q4 of last year.

So, I'm just wondering kind of what took a step back? And then, in addition to that, when we look at the net sales impact of that Thomson migration for kind of this quarter and next quarter, that's going to have an ultimate kind of reported flow-through revenue impact after that and I'm just wondering, is that a significant kind of impact in reported revenue, organic revenue in the back half of this year and into 2018?.

Look, I would say directionally, we would expect more – the difference between reported and organic revenue to be about the same for the balance of the year. So, acquisitions – assuming no additional acquisitions for F&R over the balance of the year we will contribute about 100 basis points also to the top line performance of our F&R business.

In terms of your other question, I'm not sure exactly what drove the numbers. I think it's probably rounding more than anything else that may have driven the organic from, like, the reported organic growth rate from 1% to 2% flat this quarter.

As I said, I think that directionally what we expect to see in that business is an improvement in the growth rate that's driven by the gradual elimination of these headwinds. And obviously, what's going to have an impact also is the evolution of our net sales performance over the balance of the year.

And as Jim said in that respect, being positive in Q1, in the face of having to go through the final phase of our migration for the asset management business was a very good performance in our perspective. So, that was encouraging.

And in answer to your other question, I believe that the equivalent number for the corporate expense is about – I think depreciation, amortization is about $40 million also in that segment.

So, deduct the $40 million from the $300 million, yeah, about $300 million of that given, and you should see what – it's about $260 million or so thereabout that we would expect on an EBITDA line..

Okay. Perfect. Thank you, Stephane..

Thank you. And our next question will come from Andre Benjamin with Goldman Sachs. Please go ahead..

Thanks. Good morning. As for my question, I wanted to focus on the growth potential in the data feeds business where that could possibly go over the next couple of years versus the 9% you put out this quarter.

I'm wondering if you can maybe talk a little bit about what's underpinning the strong growth? How much of it is from customer shifting revenue from the desktop businesses versus new business with new customers..

Sure. I think, we saw – we have seen some external reports in the last couple of months or so about the underlying growth and the demand for market data. So that demand is growing for market data. And obviously, more of it is being consumed by machines than people these days, and that's what's driving the growth.

And yes, I think there is a shift from desktops to feeds that will continue to drive the growth with the aggregate markets going up. But we're seeing it, frankly, across the face of that business, whether it's with the real-time data feeds, some of the referential pricing data that's there, and for our Risk products.

So, I think it's consistent across the board. It continues to grow with many of our existing customers and we continue to add clients particularly on the buy side..

I guess that kind of feeds my follow-up, which is to the degree you can just at least give us a ballpark kind of what the revenue mix is for that business between sell-side banks and the buy-side clients..

On that one, we have to get back to you. I don't have it off hand..

Okay. Thank you..

We'll get to you on this..

Thank you. Our next question is from Aravinda Galappatthige with Canaccord Genuity. Go ahead, please..

Good morning. Thanks for taking my question. Jim, I was wondering if you can sort of revisit sort of the cost rationalization opportunities ahead of you again. Obviously, we saw sort of a big block in Q4, and that's playing out now.

As you look at the main pieces that are in front of you, how do you see that sort of play out over the next year or two? Do you feel that it would be chunky as it has been in the past or would it be smaller restructuring programs on a go-forward basis? Thanks..

Sure. We have our transformation machine really firing on all cylinders right now.

So, I do anticipate sitting here today that it's going to be a steady machine that goes after the cost base, that continues to find ways to work more effectively and more efficiently to consolidate technology platforms, whenever possible, reducing our overall real estate footprint, now particularly to help with simplifying our customer experience, help us become more productive in our sales and marketing activities and our client acquisitions, and onboarding and customer support.

So, I think the machine will continue to find ways to streamline our operations and make them better while reducing costs, and I think that'll be steady. It's built into the run rate of the business. We wouldn't call those out.

And I've been asked before, where are you? I honestly believe we are still in the late-early innings to middle innings, if I can use the baseball analogy, of that journey. So, we have lots of opportunity to keep getting better.

And then we'll go back to Andrew's question earlier, we'll make the decision of how much of that we invest to fire the top line and how much of that we take to the bottom line.

But as I've always said, as we move through that exercise and as we make steady progress toward our goals, if we see an opportunity to take a step change that will pay back in short order, like the charge we took at the end of last year, which will pay for itself in one year, we will step up and take those and we'll call it out.

We'll tell you what we're going to do. We'll tell you the savings that we expect to get from it. And we won't shy away from that if the opportunity presents itself. Sitting here today, we don't have any such plans nor do we see any on the horizon. We expect it would be steady state, continued improved execution..

Great. That's helpful. Thank you..

Thank you. Our next question comes from David Chu with Bank of America. Please go ahead..

Good morning. Thanks. So, can we dive into net sales for a bit? So, how did gross sales look in the quarter? And if maybe you can speak to retention and just kind of how that compares to recent quarters, please..

Sure. I would say at a high level, gross sales improved overall and they also improved, I would say, across the businesses. Retention rate was down a little in the quarter and that's very much driven by the factor we've been talking about on this call, which is end of life of our legacy product in the asset management business.

And that essentially translates in a higher level of cancellation as you would expect. So, we still expect a little bit more cancellation in Q2, probably not to the same extent as in the first quarter, but still some impact. And then hopefully we hope to see our retention rate start to rebound in the latter part of the year.

But good gross sales performance which was quite encouraging, and retention down a little bit because, really, of that factor that I just described in our financial business..

Okay. Great. And just lastly, so in terms of F&R, has the buy side been much more stable than the sell side? And maybe you can talk about the shift toward passive and the impact to your business..

For us the buy side has been growing overall as a segment, and you've seen some of the slides we showed in the fourth quarter earnings release where you've seen how much of a percentage of revenue is now represented by buy side and it's a much bigger proportion than it was four, five years ago.

There's no question that the buy side is going to become more sensitive to head count, the same way the sell side was also. But I think what makes us pretty happy is that we do have now a much better product offering in the buy side, the reaction, the feedback has been very positive.

So, we believe that we are better positioned to compete in that segment. It's going to remain a very, very important segment for everyone, for us and for our competitors, of course.

And the last point I would say that, buy side clients are starting to be more interested in the feeds business, not just on the desktop business, which is also something that we feel is a good trend from our perspective, given how large and well positioned that business is..

Okay.

And lastly, so continued shift toward passive, is that a major impact to your business?.

Too soon to tell, I would say, at this point in time. But in general, that would lead to more reliance on feeds and less on desktops. That would be my very preliminary read on what a trend like that might make..

Okay. Thank you very much..

Thank you. We'll go next to Peter Appert with Piper Jaffray. Please go ahead..

Thank you. Good morning. So, a question on guidance. Given the strength you saw in the first quarter, the easing headwinds you've cited and your expectation of accelerating growth, I'm just wondering why you're not a bit more optimistic here in terms of the full-year numbers.

What are the offsets in the later part of the year that might cause the numbers not to be better?.

Well, Peter, I would answer that question very simply, it's still very early in the year. That's really, I would say, the main reason. Obviously, the performance in the first quarter gives us increased confidence that we can meet the guidance that we've given out, but it's probably a bit early to think about changing anything at this point..

So, not a specific expectation that there, I mean, there were some unusual items that boosted the margin obviously in the first quarter.

But this is not a sort of backdoor expectation that there'll be some incremental pressures for the balance of the year?.

No, I mentioned some of potential offsets in my remarks, right? Obviously, currency, if they stay where they are, may have a little bit of a negative impact on the earnings per share performance. We saw no impact in Q1, but that impact can increase based on where it's moved.

We're making investments in these acquisitions that we've made, so the acquisition we've made will be a bit diluted. Nothing major, and actually in the case of the acquisitions, it's probably good reasons to have these negative offsets because they really represent investments in future growth. But really nothing too major..

Thank you..

Thank you. Our next question is from Ato Garrett with Deutsche Bank. Please go ahead..

Hey. Good morning, and thanks for taking my questions. First, looking at expectations for Financial & Risk and the improving revenue outlook across the year that you previously mentioned.

Can you just talk about the moving parts there? I know you've called out the diminishing recovery declines and the smaller impact from pricing adjustments, but just want to get your expectations of the underlying business..

The underlying business will be – look, we've had like a number of quarters now where the underlying growth rate in the business was 2%. The growth trends in that business will be defined by the evolution of net sales over the course of the year and, obviously, by transactions also.

I mean, look, the change in revenue mix, the fact that you saw in the first quarter, I think it was the very first time that we had the feeds and risk business being actually bigger as a percentage of the total revenue base than the desktop revenue base. That should be positive also.

So, I would say this very gradual change in revenue mix, hopefully, will be beneficial for the revenue rate of the financial business overall..

Great. And just again final one to follow up. Just regarding the Legal business, finally moving away from F&R a bit, given some of the trends, the volatility you've been seeing around the transactional revenues and declining revenues from U.S.

Print which now are very high margin, can you just remind us or can you help us frame up how we should be thinking about Legal margins for the year?.

Yes. No change from what we said in prior calls on that question, Ato. The trick in the Legal business is to ride the shifting revenue mix. As solutions revenues get a bigger proportion of the total, they have lower margins. The margin is increasing in this business, but they're a lower margin business in aggregate than the online solution business.

But for the full year, I think we would expect the margin to be – if we can keep the margin roughly flat for the full year in the business, it's a very good performance and that's going to be achieved through mix. So, as I said, the margin in our solution business is getting better, number one. And number two, continuing tight management of expenses.

So, the goal there is to gradually get the revenue moving while the margin is not negatively impacting because of the negative mix effect..

And if I could just add to that, I'm glad you asked about the Legal business because we are highly encouraged to see those underlying subscription businesses and Legal growing at 4%. Because those are very sticky, very profitable businesses for us and will contribute to the stability and growth of that business as well..

Great. Thanks..

Operator, we'd like to take one final question please..

Thank you. And the final question will come from Doug Arthur with Huber Research. Go ahead please..

Yeah. Thanks. I got a couple of questions. But I'll take a few offline. Stephane in terms of the charge you took for severance in the fourth quarter, I think it was $212 million, is there any way to sort of quantify what the benefit of that severance was in Q1? And I assume it will have some legs for the rest of the year. Thanks..

I don't know how to quantify it very precisely. You saw clearly like the year-over-year margin improvement was pretty meaningful. So, a lot of that was attributable obviously to the actions we took in the fourth quarter. And yes, it should have like over the balance of the year. As Jim said, this is a charge which has a pretty rapid payback.

So, it definitely pays for itself in the scope of 12 months without any question..

And I would just add that the charge as well, in addition to the financial impact that that move had, it has greatly simplified operations within the organization. And as I've said before, it's a move that was justified on that alone..

Okay. Great. Thank you..

Okay. That'll be our final question, and we'd like to thank you all for joining us for this first quarter earnings recap..

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