Thomson Reuters AI Tools Boost Productivity, But Government Growth Slows

Date of Call: Feb 5, 2026

Financials Results

• Revenue: Organic revenue grew 7% in Q4, with the big three segments growing 9%. Full-year organic revenue grew 7%.
• EPS: Adjusted EPS for Q4 was $1.07 versus $1.01 in the prior year period. Full-year adjusted EPS was $3.92, compared with $3.77 per share in the prior year.
• Operating Margin: Adjusted EBITDA margin increased 110 basis points to 38.7% in Q4 and expanded 100 basis points to 39.2% for the full year.

Guidance:

• Reaffirming 2026 organic revenue growth outlook of 7.5%-8%, including approximately 9.5% for the Big Three.
• Adjusted EBITDA margin expected to rise 100 basis points from 39.2% in 2025.
• 2026 free cash flow expected to be approximately $2.1 billion, up from $1.95 billion in 2025.
• Q1 2026 organic revenue growth expected to be approximately 7% with an adjusted EBITDA margin of approximately 42%.
• Legal Professionals: 8%-9% growth; Corporates: 9%-11% growth; Tax, Audit, and Accounting Professionals: 11%-13% growth.

Business Commentary:

Revenue Growth and AI Product Launches:

• Thomson Reuters reported a 7% organic revenue growth for 2025, with the big three segments growing by 9%.
• Adjusted EBITDA increased 8% to $777 million, reflecting a margin increase of 110 basis points.
• The growth was driven by foundational product launches such as Westlaw Advantage and CoCounsel Legal, which have been well-received by customers, and the increasing adoption of AI-enabled offerings.

AI and Internal Productivity Improvements:

• The company has leveraged AI internally, resulting in over 85% of employees using internal AI tools like Open Arena.
• AI initiatives have led to measurable impacts, such as a 15% reduction in average handle time in customer support and a 10% increase in first call resolution.
• These improvements are attributed to the disciplined top-down approach to AI-driven automation and the integration of AI into various functions like software development and content operations.

Capital Allocation and Shareholder Returns:

• In 2025, Thomson Reuters completed $850 million in acquisitions and executed a $1 billion share repurchase program.
• The company announced a 10% increase in its annual common stock dividend, marking the 33rd consecutive year of increases.
• The strategic focus on capital allocation includes strategic M&A, dividend growth, and capital returns, supported by an estimated $11 billion of capital capacity through 2028.

Government Segment Challenges and Legal Momentum:

• The legal professionals segment, excluding government, showed strong momentum driven by AI innovations, but government growth slowed with 5% in Q4.
• The company anticipates legal professionals to achieve 8%-9% growth for 2026, despite government cancellations impacting the segment.
• The challenges in government were offset by strong performance in AI-driven legal research products like Westlaw and CoCounsel.

Strategic M&A and Future Growth:

• Thomson Reuters remains focused on strategic M&A, having completed four acquisitions in 2025, including SafeSend and Additive, to bolster key franchises.
• The company continues to assess inorganic opportunities, supported by its strong capital position and below-target leverage ratio.
• The focus on strategic acquisitions is aimed at enhancing customer experience and integrating modern technology into its offerings.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed growing confidence in AI differentiation and competitive positioning, citing 'strong momentum' from AI products and early sales success. They noted 'we are the clear leader in research and content' and 'we remain the clear leader in research and content, and we believe that we are a leader in the AI workflow market today.' Financial results were described as meeting targets with margin expansion and strong free cash flow.

Q&A:

• Question from Jason Haas (Wells Fargo): Could you comment on the legal recurring growth slowing from Q3 to Q4 and outline government headwinds for 2026?
  Response: Legal recurring growth slowdown was driven by government business; government growth is expected to slow in Q1 2026, but overall legal professionals are confident in delivering 8%-9% full-year growth.

• Question from Anna Wu (Goldman Sachs): Could you walk through the moat around Westlaw and Practical Law and why they can't be easily replicated?
  Response: Confidence stems from unique, proprietary content and deep domain expertise that are difficult to replicate; early sales of Westlaw Advantage indicate a new standard in legal research.

• Question from Tim Casey (BMO Capital Markets): How are share buybacks stacking up in your pecking order given recent share price action?
  Response: Share repurchases are attractive at current levels; the company plans to deliver 75% of 2026 free cash flow to investors, which would include about $500 million in buybacks.

• Question from Brendan (Barclays): Could you help with the size of CoCounsel in legal vs. tax and comment on Westlaw Advantage adoption uplift?
  Response: No specific dollar ACV provided, but reception for CoCounsel Legal and Tax/Audit is strong. Westlaw Advantage adoption is pacing higher than prior releases, contributing to 2026 revenue guidance confidence.

• Question from Drew McReynolds (RBC): Is strategic M&A trickier given AI innovation pace, and what's your confidence in execution?
  Response: M&A remains challenging; the company maintains high standards and a selective approach, with $11 billion in capital capacity to deploy through 2028.

• Question from Anna Wu (Goldman Sachs): How do you monetize AI innovations amid flat/increasing enterprise headcounts, and what are 2026 pricing trends?
  Response: Pricing is based on value, not headcount; AI tools drive efficiency, benefiting the company. Slightly higher overall pricing yield is expected in 2026.

• Question from Ara (Canaccord Genuity): Is there a material difference in the threat from new AI services between large and small law firms? What's the high watermark for GenAI-enabled ACV?
  Response: Demand for AI tools is keen across all firm sizes. GenAI-enabled ACV is expected to rise steadily through 2026-2027, with potential spikes as more products are AI-enabled.

• Question from Kevin McVeigh (UBS): Could you discuss the complexity of data aggregation and the importance of in-house attorney curation?
  Response: The majority of value comes from attorney-edited content and expertise, which is critical for training agentic AI and ensuring accuracy and relevance.

• Question from Doug Arthur (Huber Research): Details on the $19M severance, its segment allocation, and future AI productivity displacement impacts?
  Response: $19M severance was spread across segments; an additional $10M is expected in Q1 2026. Cost improvements and productivity gains are factored into margin expansion guidance.

• Question from Stephanie Price (CIBC): How are you thinking about the pacing of internal AI investments and cost improvements for margin expansion through 2027-2028?
  Response: Confidence comes from experienced leadership, momentum from 300+ use cases, and integrated investments, with no surprises in guidance.

• Question from Andrew Steinerman (JP Morgan): Are sophisticated legal clients consuming more or less content? Can you provide segment-level color on Q1 organic revenue growth guide?
  Response: Early to tell on like-for-like time shifts; AI is seen as enhancing demand for legal services. Q1 guidance is not broken down by segment.

• Question from Toni Kaplan (Morgan Stanley): Why won't CoCounsel AI products become commoditized, and what's the moat in tax and accounting?
  Response: High stakes, data privacy, and need for accuracy create a moat; tax calculation engines are sticky and high-performing, with opportunities to extend into talent-short areas.

Contradiction Point 1

Government Business Outlook and Legal Recurring Growth

Contradiction on the primary driver of legal recurring growth slowdown and government business outlook.

What caused the slowdown in legal recurring growth from Q3 to Q4, and what government headwinds are expected in 2026? - Jason Haas (Wells Fargo)

2025Q4: The legal recurring growth slowdown was due to the government business. - [Mike Eastwood](CFO)

What recurring government and corporate headwinds are expected next year? - Drew McReynolds (RBC)

2025Q3: Recent cancellations and downgrades occurred prior to the government shutdown and are believed to be due to budget adjustments. The long-term outlook remains confident... - [Steve Hasker](CEO)

Contradiction Point 2

Westlaw AI Launch Trajectory and Momentum

Contradiction on the adoption momentum and trajectory of key AI products like CoCounsel.

Could you provide the size of CoCounsel and clarify if it's possible to split it out? - Brendan (Barclays)

2025Q4: Adoption is progressing well, and TR is keeping pace or outpacing competitors. - [Steve Hasker](CEO)

How are customers reacting to AgenTic's actions from their perspective? - Drew McReynolds (RBC)

2025Q3: Customer reaction to new AI products... has been very, very strong. Early feedback indicates a change in workflow... - [Steve Hasker](CEO)

Contradiction Point 3

Moat and Competition in AI Workflow Space

Contradiction on whether new AI competition is a concern for core franchises and the nature of the competitive moat.

What is the moat around Westlaw and Practical Law? - Jason Haas (Wells Fargo)

2025Q4: New entrants are more in the AI-driven workflow area... The moat is built on unique, decades/centuries-old proprietary content and deep domain expertise. - [Steve Hasker](CEO)

Could you elaborate on your comment about incremental competition in the AI assistance space? - Jason Haas (Wells Fargo)

2025Q3: The incremental competition is in the **AI assistant / workflow space**, a greenfield opportunity. Core franchises (legal research, tax engines) have stable competitive dynamics. - [Steve Hasker](CEO)

Contradiction Point 4

Primary Growth Driver for Legal Segment

Contradiction on whether AI or non-AI factors are the main legal growth driver.

What drove the slowdown in legal recurring growth from Q3 to Q4, and what government headwinds do you expect in 2026? - Jason Haas (Wells Fargo)

2025Q4: The legal recurring growth slowdown was due to the government business. Excluding government, legal professionals show clear momentum driven by AI products like Westlaw and CoCounsel. - [Mike Eastwood](CFO)

Which segments are driving the 2025-2026 Big 3 organic growth acceleration (6.5%-8%), and is it primarily Legal due to the GenAI rollout? - Scott Fletcher (CIBC)

2023Q4: Growth is expected to accelerate across all three Big 3 segments... GenAI revenue is expected to lag sales and pick up more in the second half of 2024 and into 2025. - [Mike Eastwood](CFO)

Contradiction Point 5

Capital Allocation Priority and Share Buyback Appetite

Contradiction in enthusiasm and financial commitment to share repurchases.

How are share buybacks and capital return methods prioritized in your pecking order given the share price movement? - Anna Wu (Goldman Sachs)

2025Q4: Share repurchases are attractive at current levels, and discussions with the board will continue. To meet the 75% free cash flow return commitment in 2026, approximately $500 million in share repurchases would be needed, in addition to dividends. - [Mike Eastwood](CFO)

What is your strategy for deploying excess capital, including share buybacks and potential returns to shareholders? - Tim Casey (BMO Capital Markets)

2025Q2: For 2025, an NCIB share buyback in the $400-$500 million range is potentially possible at the September Board meeting... The 75% return framework applies to both 2025 and 2026. - [Michael Eastwood](CFO)