So maybe you could just start out with telling people about your current role. You're actually Co-COO.
Yes.
How do you divide up your responsibilities? What are your own personal ambitions in this role?
I look after technology. I look after all our content, what we call our content operations, security. So, in essence, in many ways, that's sort of the day job. I spend most of my time focused on strategy, marketing, and the digitization of our business.
Okay. Great. And when you think about your priorities ahead within that context, what would be your personal top priorities? We know what the company's growth goals are, but your personal priorities?
Actually, my priorities are the growth priorities of the company.
Right.
We're very focused on this year It's been the start, very much about reorganizing the company around our customers, making sure our go-to-market organization is appropriately structured and compensated and so on. I look after what we call commercial excellence as well, so it's well-positioned to take advantage of the opportunities we have, um but actually, I've been spending a lot of my time really focused on where we take the company going forward and how we maximize our positions in the markets that we're in and how we drive growth going forward. It really becomes into our platform strategy, which you may have heard Jim talk about.
We're getting right up to platform strategy in a second.
Very good.
But just one more time. I mean, you've been in the company a long time, over a decade, and you've surely been in charge of multiple transformational initiatives. Why do you feel like the most recent transformational initiative seemingly is the best?
I would say this one's much more fun than some of the other ones. I mean, I think that I mean, the way I would say actually take it back to kind of where we come from. I won't bore everybody with the history, but essentially, a lot of our value creation story historically was really around either kind of what I would call cost takeout at a sort of industrial scale, which, as you know, I was involved with, or what I would call industry-level M&A. And that's really kind of led us to the decision to diversify our stake, what has now become . Where we're going in many ways is going back to the roots of the company. It's really about creating value for us by creating value for our customers. We're very focused on driving organic growth.
We're very focused on our customers and helping them serve their customers. That's the direction we're going. And if we do that, by the way, that will serve us well and also pulls us into the faster-growth parts of the market. And that's why we're excited.
So, you mentioned the platform [cross talk] strategy. Maybe you should just kind of start by saying what the platform strategy is. And let me give you just one quick context. Remember, this is a track of information services companies, companies that kind of own and distribute data. How does the platform strategy fit into that?
Yeah, absolutely. So let me start by explaining what it means from a customer perspective first, and we can kind of come back from that. So if I take the legal professional segment as an example, we serve by the way, we serve professionals in legal and corporates and in tax and accounting. There's about 450,000 customers. In the legal space today, we help small law firms, small, medium-sized law firms. We actually are their marketing department. We have a business called FindLaw. It actually helps them attract customers and brings them in. So we're like the business development function for small, medium-sized law firms. Once our customers come in, we acquired HighQ this year to really help manage the interactions between the professional advisor and the client, managing movements of documents, making sure it's integrated into their systems, and so on and so forth.
And that's the reason why we acquired HighQ. Then once you've got a client on board, we actually help the lawyers actually provide advice. So many years ago, we acquired Practical Law.
Right.
So essentially, that leads lawyers through the act of actually providing advice. So it's step by step how to do M&A, step by step how to do real estate, etc., etc. If it's a litigation matter, we, of course, have Westlaw, which not only provides you the point of law, but with Westlaw Edge provides you the opportunity to tell you whether it's likely you're going to win by looking at the judge and what your chances are of winning and how that judge has ruled in the past. And the final piece of the jigsaw is that it's a little-known fact. We are like the SAP for law firms. We build time billing systems for them. We have a business called Elite. So our platform strategy is, in many ways, no more complicated than integrating the assets we have and providing them in a cohesive manner to our customers.
The way we're approaching that is in the way, first of all, it would be around consistent marketing, commercials, which not only encourage adoption, but encourage cross-sell as we go. The bit that takes us a little bit longer is the technical integration. The reason we're confident about that is that we've actually performed this before in the corporate tax space. We have a platform there called ONESOURCE. It is SaaS-based. It is open. It is API-driven. It is modular in its nature. In essence, we're going to take the same approach, but accelerate it in the legal space. That's essentially what we're doing.
And so when you look at the legal space, does it look like for the customer that it's one platform, or is it more like you're saying it's kind of?
Today, today, it is multiple products. Our approach is to integrate it into a platform as we go forward, as we've done in the corporate tax space.
Right, and when could that happen on the legal side?
Our approach is, I mean, we're busy. We're hard at work at it. We expect to have that, I mean, internally. I would say to you three to five years, but obviously, internally, we're basically planning to do that much more quickly. So two to three, I'd say, is kind of where we're heading.
Okay. Great. Jim laid out on the conference call what he called the value creation model. It just came on the third quarter call. I believe the algorithm is 3%-5% organic revenue growth with expanding margins over time, something like that, right?
Yeah.
How did you come up with that as the algorithm opposed to anything else, higher growth, less margins? How did you come up with, "This is the right mix of value creation"?
Actually, let me give you three reasons for that, so first of all, it's a value creation model that we are familiar with. For those of you who followed Thomson for a long time, that's the way we used to run the business, and it's not by accident that's the way we used to run the business. It actually represents the kind of subscription nature of our business. It also represents the nature of those markets over the economic cycle, so I'd say that's the first part. Secondly, as we see the markets evolving going forward, we want to be conservative. We want to make sure we actually deliver what we say we're going to deliver. We see opportunity in the software and solution space, which is faster growing than the core research market.
So the requirement to deliver that, you have to be moving into software solutions because the research market on its own won't get you there, right? And from a margin perspective, we look carefully at our peers now, particularly being in an information services conference. Notwithstanding, we have a print business and Reuters. We focus very much on what our peers are doing. We focus very much on the Rule of 40. So that's how we think about it.
How do you get to the Rule of 40?
Organic growth plus EBITDA and margin equal or greater than 40%. That's how we think about our core businesses. Now, I will say that we are, as a management team, a senior management team, we are very much focused on free cash flow. So we're getting any dividend. But I would say that we look that is where we're aiming to get to, and that's kind of where we're going.
That's great. Greater than or equal to 40. Got it. Okay. When you do these acquisitions, might some of them be dilutive to EBITDA margins? And when you give your kind of value creation algorithm, is it still contemplating with acquisitions we'll be able to deliver the margin expansion?
The answer to your last question is yes. I'll come to the first one in a minute. I think the reason it's also important to understand why we want to do acquisitions, right? And so when we think about our platform strategy, we see doing acquisitions serves two purposes. Either it helps you build what I would call critical mass in one of those professional verticals we're talking about because HighQ is one of those, or it builds capability which we can use across the professional segments that we serve. Confirmation, which we acquired earlier this year, while initially very much focused in the tax and accounting space, I mean, essentially automates loan and cash confirmations, is also applicable in the legal space too. So I see there's a capability build, right?
Now, in terms of margin dilution, yeah, when you buy these things, there tends to be some margin dilution. We expect them. We've very much focused on them being accretive at the growth level, accretive at the free cash level very quickly, and while there's some EBITDA dilution in the short term, it's pretty minimal, sort of in the 50 basis points range.
Right. And so when I look at the 2020 guidance, well, organic revenue growth is 4%-4.5%. When I look at the EBITDA margin guidance, it seems a little, what I would call, tight. And so when you look at 2020, is this kind of either a year of high reinvestment, or is it what I just asked, that the acquisitions that you layer on this year are dragging margins somewhat next year?
Oh, tight as in you mean conservative, or I suppose?
They're not expanding a lot.
Right. I think so. First of all, there is some dilution from the acquisitions. You also got to remember the full diluted impact of Reuters manifests itself in 2020. And also, I will.
Say that last part.
As you recall, next year, I think, is the first full year when we record the full extent of the Refinitiv contract, which is, while it's $300 million in revenue, it's essentially a zero margin, right? So, there's a dilutive impact from a margin perspective there. I would say, though, that, as Jim always says, we look very carefully.
I'm not even sure. So, say one more time, it's like news is a zero-margin business because it basically goes across. That's the revenue structure.
Yes. Correct. But I think next year is the first full year when we have the full $600 million of revenue. So that's essentially the point.
Okay. And is it a particular year of kind of stepped-up reinvestments? Why aren't margins higher in 2020? Is it the two reasons you already gave, or is there something to talk about in terms of kind of reinvestment?
Look, I think we're very focused on making sure that we're making the right investment decisions to execute this platform strategy, and if we think there's opportunity, as Jim always would say, we'll take a point of growth over a point of margin every day. Look, I think if we see opportunity, then it will flow through.
Yeah. Does it seem to you, when you look at the algorithm for the company, that the exact amount of margin expansion is it's a little kind of vague? It's like, yes, the direction is expanding, but it feels to me like maybe the company left themselves room for, let's say, specific things in specific years?
I'd say it's vague to you, but we're very focused on it. As you know, we tend to be quite careful with our guidance. I think that will remain the case.
Right. Right. One thing that's odd to me is it's really more of a statement than a question is, you guys don't have a margin target, just for example.
We have a free cash flow target. That's where we're focused. So to us, free cash flow is a more important metric. It is not subject to the vagaries of accounting. You've got shifts going on between.
It's a better number.
As you move to cloud, as you know, you have shifts between CapEx and OpEx and so on and so forth, and by the way, we expect to be 50% on cloud by the End of 2020. There's a switch there, so we focus very much on free Cash flow. That's how the senior management team are compensated along with growth. That to us is a more important metric.
Right. That makes total sense. And then I know it's the same point. You guys prioritize the dividend and the increase in the dividend. But in any way, does that feel like it holds you back from other uses of cash? Or that's how we want to run the company?
No. I don't think it does. I mean, look, I think that they definitely gave some guidance, I think, at our last earnings call. Our expectation is for the dividend payout to be around 50%-60% of free cash flow. It will take us a bit of time.
From 50% to 60%, yeah. From 50% to 60%.
Yeah, and it will start off being, and I think once we get within that range, our goal is then to increase our dividend in line with free cash flow. That's essentially where we're going.
Right. How long will it take to get to 60%?
Oh, don't know the answer to that. We have a model somewhere. Is it focusing on a model somewhere?
No, no, no. Not yet. How long does it take to get to 60%?
I don't think we're commenting on that.
Not commenting. Right. That's no problem. Okay. Okay. That's very fair. There's still a lot of cash left from the sale of Refinitiv. People ask, "What are you going to do down the line with the remaining Refinitiv?" But there's still a lot of cash remaining now. And you guys are below your leverage targets. So don't even talk about the future cash that we might get when the lockup's up. Just talking about the cash that we have now and that will blow our leverage targets, what are your priorities for deploying that cash?
After exiting the Refinitiv deal, we retained $2 billion to invest in acquisitions. We spent, what is the one point? A little bit over one. So, we have like eight.
We have one.
Yeah. So we have one. That's four deals we executed in 12 months. I can tell you that we look at acquisition pipeline every two weeks. We're very focused on it. But you can't always time acquisitions, but I can tell you that we're very focused on it in the context of investing in our core business and driving this platform strategy.
I know you just said this, but should we expect you to deploy the $2 billion quickly or slowly?
I think we will deploy the $2 billion as quickly as we can, I think, is the answer. I mean, there's a balance between I mean, what you're trying to do is solve for the fact of things that are interesting and meet your financial hurdles, right? Your ability to digest them, and of course, whether they're available or not, and that's the thing that we're constantly solving for. I will tell you that we see opportunity in each of the segments we serve. We have a very clear prioritization of what it is we're seeking to achieve.
You're going to continue both? You're not going to put something continuously.
No. Well, I'd say so, just to remind you, we're in the legal professional segment. We're in the corporate segment. We're also in the tax and accounting segment, and then we also, as you know, we have a news business called Reuters, so actually, we have done an acquisition in each of those over the last 12 months.
Well, well said. Well, well taken. Could you just go through HighQ, Confirmation, Integration Point? Obviously, these are more sizable. Could you just tell us how they're going? Boy, you're doing them all at the same time. What's the integration like?
Yeah. So, Integration Point, we closed just over, it's actually on our anniversary. In fact, we briefed our board on it just last week. It is going well, by which I mean slightly ahead of our expectations. When you buy these businesses, it's also very important to kind of keep the key talent there. So, we retain 96% of the high-performing talent there, which we're quite pleased about. It is, from an integration standpoint, the way. Just to stand back a bit, Integration Point is a global trade management business. It is a module within our ONESOURCE platform. That's what it is. That's the way we see it. So, essentially, the other global trade management capabilities we have, we've integrated into Integration Point. And, Integration Point, we're now pumping it through our Salesforce. That's basically the approach we take.
I think in January will be the final step of integration with Salesforce, at which point it is integrated. So this is, for those of you who follow the company for a long time, this is very different from the way we used to do acquisitions. So Integration Point is a standalone entity kind of end of January, kind of gone, right? HighQ and Confirmation were in much earlier days. The integration thesis on HighQ, pretty similar to Integration Point. We are reverse integrating the legal software assets we had into Integration Point and putting Integration Point through our sales channel globally. And that will become the latter part effective in January. The product management integration is taking place as we speak, and technical integration is taking place as we speak. And Confirmation is sort of somewhere in between at this point.
When you think about the next $1 billion, I know you already said across all of our areas, but just give us a little flavor of where do you feel like there's opportunity to acquire? What types of areas do you think we should be thinking about when you look at your potential acquisitions ahead?
In general, again, starting back, we see the research market, nice market, big market, $10 billion growing at 2%. Software solutions market, two and a half, three times the size growing to high single digits.
When you say research, you meant legal research?
Yeah. Well, I mean, research in terms of legal research, tax research.
You think they grow the same?
They broadly speaking, that big bucket is growing about the same. As you can tell, given the size of this, we're pretty well penetrated in that space. So we see acquisitions very much in software solutions and driving that platform strategy. We see opportunities in, and I can tell you, I got a picture in my mind of our pipeline, which we look at every two weeks. We have opportunities in each segment. The opportunities are different, I would say, I would describe it as sort of different sizes. Some of them are more likely to come available than others. So there's a bit of prioritization where we think the best opportunity is, but there's also contrary where what's available or not. I'd also say that we have right now, we have a small position in risk and compliance. We have some risk and compliance assets.
That's something that we're looking at quite carefully as an extension in our corporate space. But the core business is. I want to make sure everybody gets this message. We are very, very focused on making investments in our core business. That's where we see the growth. That's where we see the focus. And the lesson that we've learned, particularly post-Refinitiv, is the importance of focus on driving business performance. We've had the opportunity and luxury of focusing on our core business over the last 12-18 months, where hopefully we'd agree some pretty reasonable results.
Best. The last two quarters have been the best quarters in a long time. Okay. That makes total sense to me. Just one more challenge to your M&A intentions. You were very clear why. You said, "Hey, we have to acquire more software companies because kind of the base business of legal and tax research is growing 2%, and we already kind of dominate that space." My question is, do you think software businesses in these same serving these same customers are as good of a business as the content business?
In time, better.
Go ahead. Why?
Well, I think the first, actually, in your report on us, you wrote a point around possibly challenging end market because of the legal market in general. Automation, I think you quoted as a possible risk. We see it completely opposite around with respect. We see the automation as the opportunity, actually, because many, if you look at all professional organizations, advisory organizations, they're all having to digitize pretty rapidly. For many, particularly in the legal space, their business model is changing as they get a fixed fee. They have to automate. We see that as an opportunity. We see, as long as I mean, the key question is, as long as it's done at scale. So our approach is to basically build a platform for legal, a platform for corporates, a platform for as long as it's done at scale, you get the benefits of scale in time.
That will flow through in our CapEx numbers. I think the other thing I would say is that software is very sticky once it's in. We see software being stickier even than our research solutions in time once it's in. It also binds our research over time. It makes it less susceptible to technology change. In time, our research advantage will get eroded by technology for AI and so on and so forth. By binding it into solutions going forward, it supports our research business and becomes a stickier business overall.
Right. Don't you feel like the competitive landscape is sort of broader? You're used to businesses where you have one or two competitors in each of these software spaces. It just seems like there's more companies.
Yeah. We like that.
Why do you like that?
I think it means that you get less into an arm wrestle with one or two competitors, right?
You could keep on fighting different competitors.
Equally, first of all, I would tell you I am paranoid about our competitors, and also the ones that haven't been invented yet. I would say that at the end of the day, to be successful in the professional information space, you have to have the right blend. You have to have all three, I think, to be successful long term. You've got to have the content, right? You've got to have the people who actually understand the content, as in our case, lots of lawyers and lots of tax attorneys that we employ. You've got to have the technology. It's the application of all three, which makes you very sticky and applicable in that space. If you just have the technology without the content, you're kind of vanilla, right?
If you just have the content, over time, you're just locking yourself into a smaller part of the market, which isn't growing that faster. Which is why I think it's the triple play, which makes it appealing and exciting.
Right. So one of the things I've really liked is organic product innovation at Westlaw, that you didn't go to market to introduce an AI product. And here's one of my worries. You could say, "Don't worry." But one of my worries is if you're so focused on gaining capabilities through acquisitions, it just might mean that you're somewhat less focused on organic new product innovation. And so my question is, should I worry about this? And then my next question, do you measure how much of your organic revenue growth is coming from products that you invented versus products that you previously bought?
I'd say almost everything that we do is a combination of buy and build. I mean, that's it, right? So I mean, HighQ, for example, is essentially a buy and build. Building a legal platform is a buy and build. We'll buy components, but we can't and nor should we try and build everything ourselves. Otherwise, we'll have an enormous giant technology organization. It's already a considerable size as it is. We want to make sure that we focus our efforts on the things that we do uniquely and that we supplement that with capabilities in order to make the overall platform attractive. And also, for some things, frankly, we're not quite as good at as other companies are. So, we could invest a lot of time trying to do that ourselves. I think the most powerful thing, actually, as an incumbent is actually innovating at scale.
So, innovating on a few things at scale. So, look, I think Westlaw Edge has been quite successful. We think there's a lot more runway, by the way, with that.
Really? That's enough.
What may be less well known is that we've just released a version of AI in Checkpoint.
Yeah, I knew that.
Checkpoint Edge. So we're following the same profile. Interestingly enough, we showed our board this last week. So I don't want to go into too much detail, but it's more of a minimum viable product at this point. But essentially, we've started applying some of the same AI disciplines from Checkpoint and Westlaw in global trade management. So we have a thing we're talking to a very large corporation right now where essentially we can look at the characterization of certain products in their supply chain and compare that to the U.S. government's sort of tariff list and tell them whether they're complying or not complying.
Yeah. Remember there was a little addendum to my question that said, "Do you measure how much of your organic revenue growth?" If you're up to 4%, how much of your organic revenue growth is coming from products that you previously acquired?
Not specifically. Not specifically is the answer to that.
Let me say the question one different way because you don't measure it that way. How are you making sure that there's enough organic innovation in the system?
Every month, Mike Eastwood is sitting here in the audience and I, together with our head of strategy and senior business leaders, every month we basically what's called essentially an investment committee. We have an organic one and we have an inorganic one. The organic one meets every month. Every month we're looking at we have an investment firm which we keep back. Next week, the senior team is meeting to basically figure out our plan for next year. Every month we sit down and meet and figure out what funding we move from A to B to drive growth and drive innovation. We also keep an investment fund back to make sure that we can deploy extra funds during the course of the year around good ideas that we haven't thought of at the start of the year.
That's great. I'm going to open it up for questions.
Yeah.
Okay. Who wants to ask another question?
Yes.
Talk a little bit more about the comparative vision when some of these acquisitions that are trying to grow, as they're lapping and growing. They're already doing four to five. How are you thinking about the innovation, whether that's through skills or just kind of the additional capability?
So, I think first of all, our business is, by its very nature, being a recurring revenue business. Our contracts are, on average, a couple of years, some of them are longer than that. It has a slightly slower cadence. The model that we've described as our value creation model, we see that having quite a lot of runways in the markets that we currently serve. Our focus is very much to nail those professional segments and not only build very compelling positions in each of those segments, but also then continue to enrich those platforms as we go forward. Having looked at the markets and seeing the fragmentation in those markets, we see, as I said, over the next sort of 3-5 years, a lot of runways.
I'd also add that somewhat longer term, and you do have to do what we see a little bit in parallel, but what we're really good at and where we're successful is in what I would call knowledge-based, rule-heavy professions, and the more that regulatory authorities fragment and the faster that they issue rules, that to us is a very good thing from an end-user market. I can tell you, running a business is a nightmare dealing with that, but from serving those markets is a great thing. There are other, what I would call, rule-heavy, intensive knowledge-based sectors, which we have very small positions in today, so risk and compliance, for example, we have a small position there. We think that's an opportunity going forward. It's very close to kind of what we do already.
In the legal business, we have a subpart of our legal business that deals with governments. We have an interesting business in there which is growing pretty quickly around fraud, waste, and abuse, taking some of the technology capabilities we have and some of the content and applying it to that specific use case with government agencies. So, we see in positions that we're in, which are relatively quite small right now, we see ways to expand further into those spaces. So, we're not short of runway. The short answer is yes. We do see tailwinds. I mean, structurally, we see not only the industries that we serve going in this direction, as I mentioned, more automation and professional services. We see the driver, I guess the underlying driver of growth being more regulation, more fragmentation. I don't see that going away.
So that aligned with automation, I think we feel pretty good.
More questions? Go ahead.
Thank you. I was just curious about your media business, which at the beginning of the presentation about you talked about that being a $300 million revenue business, but no margin. And what are the plans for that business? Is it just sort of steady state, or can you grow that business, or what's the plan?
So, we feel we can grow it. So, in very simple terms, the way I think about it is that our media business today has two key elements to it. And I can tell you where we're going. So essentially, we have a 30-year agreement with Refinitiv, which has a CPI and mechanic built in. That's $300 million a year for 30 years. So that's going forward. The other $300 million a year essentially is a news agency business. That end market is challenged. There's no doubt. We don't see a great deal of growth in that business. Michael Friedenberg, who joined us fairly recently, is the President of Reuters. He, has together, we've worked on a strategy which really looks at growing Reuters. And that's the reason why we did the acquisition of an events business earlier this year.
So, we see very interesting, which we're going to rebrand as Reuters. We see the events business as an interesting way to grow Reuters. It's a faster-growing market. It's higher margin. The profit pools are there much higher. It's a much higher margin business, so as we move forward, we're expecting Reuters to not only grow faster than it has been growing, but also to be more profitable going forward, and it also is a very interesting thing because it kind of pulls the community further into professional segments as we go forward.
Also their price increases in that contract. There is growth on that base.
Yeah. There is.
Without events running.
Yeah.
Other questions?
Maybe talk a little bit more about the events business. I have to say it took me by surprise. I've covered businesses like Nielsen used to have at events.
Excuse me.
In general, I've found info services businesses sell events business. It's not content. Events is different than news. Surely, if you're going to fit it anyplace, it fits best with news. And I surely get that the events business probably will do better with the Reuters name. But is events a good business?
I think events is a better business than a news agency business.
Well, sure.
Right? And so.
You're improving it.
We're improving it.
But it's not better than your other businesses.
I would say that we are, look, I think over time, I don't want to call it, but the preponderance of our investment dollars, both organic and inorganic, are in what we call the core professional services business. So M&A is always somewhat opportunistic. The fact that the fourth one in the year happened to be in the events business, I wouldn't necessarily say that's an indicator of the proportion of our investment dollars going forward, if that's kind of where you're going.
Right. Right. Okay. Great.
Yeah.
Any last questions for Neil? Okay. I think we'll stop on that. Thank you so much.
Thank you very much. I appreciate it.
Thank you. Thank you. That's great. Thank you.