Thomson Reuters Q1 Earnings Call Transcript

123jump.com Staff
31 May, 2010
New York City

Sales up 0.3% to $3.14 billion & net income fell 31% to $134 million or 15 cents a share. Operating profit fell 8% as anticipated & the corresponding margin fell 240 basis points to 22.3%. Underlying operating profit fell 6% & margin decreased primarily due to the flow-through on lower revenues.

Thomson Reuters Corporation ((TRI))
Q1 2010 Earnings Call Transcript
May 4, 2010 8:30 a.m. ET

Executives

Frank Golden – Senior Vice President, Investor Relations
Thomas H. Glocer – Chief Executive Officer
Robert D. Daleo – Executive Vice President and Chief Financial officer

Analysts

Phillip Huang – UBS
Vince Valentini – TD Newcrest
Paul Steep – Scotia Capital
Paul Sullivan – Barclays Capital
William Bird – Bank of America/Merrill Lynch
Brian Karimzad – Goldman Sachs
Drew McReynolds – RBC Capital Markets
Colin Tennant – Nomura Securities
Patrick Wellington – Morgan Stanley
David Lewis – J.P. Morgan
Tim Casey – BMO Capital Markets
Mark Braley – Deutsche Bank Securities
Randal Rudniski – Credit Suisse

Presentation

Frank Golden

Thank you. Good morning and thank you for joining us today. We will begin today with Thomson Reuters'' CEO, Tom Glocer, who will be followed by our CFO, Bob Daleo. Following Tom''s and Bob''s presentations, we will open the call for questions. I would ask that you please limit yourselves to one question each so that we can get to as many questions as possible.

Let me point out prior to our presentation that we made a revenue reclassification between our business segments in the Markets division this quarter. We moved communications and professional publishing related revenue.

The net result in 2009 was an increase of $87 million to our Sales & Trading unit with the related reductions to the other segments. On our website, you''ll find an updated set of figures for 2008 and 2009 reflecting this change.

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 the regulatory agencies. You can access these documents on our website or by contacting our Investor Relations department.

It is now my pleasure to introduce the Chief Executive Officer of Thomson Reuters, Tom Glocer.

Thomas H. Glocer

Thanks, Frank, and thank you all for joining us today. I plan to cover three topics. First, I will discuss our Q1 results, second, I will provide you with selected highlights for the quarter and third, I will discuss our market position and our expectations for the balance of the year given the positive momentum building in our fourth and our first quarters.

Now, as I discuss our first-quarter results, keep in mind that when we compare performance period on period, we look at revenue growth before currency as we believe this provides the best basis to measure the underlying performance of the business. I am pleased with the first-quarter results, which were in line -- actually a little bit ahead of our expectations.

As I stated last quarter and is even more clear today given these results, we are past the bottom in terms of real economic activity, although we are likely to report negative year-on-year results for the first half of 2010 given the subscription nature of our business model. First-quarter revenues were down 2% as the impact from last year''s negative net sales took hold.

From a net sales standpoint, we hit bottom in Q2 of last year and trends have continued to improve since then with both Q4 and Q1 of this year positive on a consolidated basis. Even the hard-hit Markets division recorded positive net sales in two of the three months this quarter, although still a bit negative for the quarter as a whole on an average monthly basis.

The Professional division revenues rose 1%, which we believe to be a good performance compared to our peers and the industry as a whole. Professional division growth was driven by the Tax & Accounting and Healthcare & Science businesses, up 7% combined. Legal was down 3% overall but subscription revenues, which comprise 70% of its total revenues, were up 3%, reflecting what we believe were share gains.

The Markets division, 4% period-on-period decline, was due to last year''s negative net sales, which will continue to impact our second quarter. However, as I mentioned, net sales trends have improved each quarter since the second quarter of last year, a very encouraging sign for us. Underlying operating profit margin declined 120 basis points as expected due to revenue declines and ongoing investments in the businesses, including the new product launches this year which I highlighted on our Q4 call.

We continue to make good progress with our integration program with run-rate savings of $1.2 billion by quarter end. And we remain confident that we will achieve our total savings programs target of $1.6 billion by year end 2011. And adjusted earnings per share for the quarter was $0.36 compared to $0.40 in the prior period due to lower underlying operating profit and higher integration-related expenses. Lastly, we are affirming our full-year 2010 outlook given the first-quarter results and the favorable trends in the business.

Now, speaking of trends in the business, let me share a few specifics. Q1 marked the second consecutive quarter of positive consolidated net sales. Customers are still cautious when it comes to spending but things are definitely picking up.

Financial services firms have hired in three of the last four months and the increase in returns across global stock markets over the past year has led to a substantial increase in assets under management. During this period, we''ve continued to solidify our leadership position across our businesses. The launch in February of the innovative WestlawNext service has only served to strengthen our competitive position with its clean modern interface and powerful new search functionality.

It truly makes legal professionals significantly more efficient by giving them the confidence that they have cast the broadest possible search net while quickly returning only the most relevant authorities. With over 2300 WestlawNext customers so far at an attractive increase in contract value, we are well ahead of our initial expectations and the feedback has been extremely positive.

Another exciting new product launch in 2010 will be the Tax & Accounting units major release of its ONESOURCE platform, the first true global tax workstation, a first of its kind approach to global tax compliance for multinational corporations. This new product will address a large and growing global market where we see an opportunity to expand our business using globally scalable product platforms. While legacy print revenues continue to dampen growth in Professional, 80% of Professional''s total revenue grew 5% or more, a clear indicator to us that we are taking share.

On the Markets side, there are encouraging trends in the quarter. Average sales were positive in two of the three months, and Q1 transaction revenues were the highest since Q2 of last year. In addition, we launched Elektron, the next generation data distribution platform, in our enterprise unit. Elektron will enable financial firms to trade faster using superior real-time data and connect to more markets across a global, resilient and secure cloud-based network. And later this year we will launch our new desktop product, Eikon, formerly known as Project Utah.

This new platform will enter great content and trading technologies from across the business and provide a common platform to achieve scalable and profitable growth. So 2010 is a year of significant investment and delivery but we are off to a good start with more to come.

So, in conclusion, let me just reiterate that I''m pleased with the start to the year. We are firing on all cylinders and I have never been more excited about these and other opportunities. More importantly, our sales teams are fired up emotionally and loaded up with new product to sell into improving markets.

This is an important year of investment for us, which I''m confident will enhance our competitive position and drive further revenue growth, margin improvement and free cash flow growth in 2011 and beyond. And with that, let me now turn it over to Bob Daleo.

Robert D. Daleo

Thank you, Tom and good morning, everyone. Today, I will discuss the results of the first quarter and briefly provide an update on our integration initiatives and I''m going to end with some detail on our recent debt restructuring and our current capital structure.

Now, as Tom mentioned, we certainly are pleased with our performance in the first quarter. We are tracking to our expectations with few surprises and results thus far are consistent with the full-year guidance we presented in February.

While our revenue growth rates in the first quarter certainly slowed relative to last year, underlying trends remain encouraging across our markets. Law firm layoffs have subsided and financial services firms have begun hiring again. And our geographic diversity, our market diversity and our product diversity have all combined to soften the impact of the headwinds we have been dealing with.

As Tom mentioned, our net sales trends continue to show improvement particularly in the Markets division where they were the most suppressed in 2009. Accordingly, we believe our reported results have bottomed down, which is supported by the sequential revenue growth Markets recorded in the first quarter. Given these trends, we believe we''re well positioned to return to growth in the second half of this year. Lastly, we continue to make progress with our integration and legacy savings programs and are confident we will achieve our targeted savings of $1.6 billion by the end of next year.

Now, let''s turn to the first quarter. Let me remind you that I will speak to revenue growth before currency for the reasons Tom mentioned. Reported revenues are highlighted on each slide. Foreign exchange had a favorable impact on our revenues in the first quarter versus the prior period and had about a 50 basis point benefit to our consolidated margins.

Consolidated revenues in the first quarter were $3.1 billion. They were down 2% versus the prior year with 1% benefit from acquisitions. Underlying operating profit fell 6% and the margin decreased primarily due to the flow-through on lower revenues, product mix and the previously announced investments in new product launches. These factors more than offset integration savings, tight cost controls and the number of efficient initiatives across the businesses.

Now I''d like to discuss the operating performance for the businesses starting with the Professional division, and the division recorded revenues of $1.3 billion, up 1% against the prior-year comp, growth of 5%. Organic revenues declined 1% and acquisitions contributed 2%. Let me remind you that Q1 is historically a small quarter for the division with about 23% of the year''s revenues and 20% of its annual operating profit generated in the quarter.

Operating profit declined 8% as anticipated and the corresponding margin fell 240 basis points to 22.3%. Benefits from several ongoing efficiency initiatives and cost controls across the division were not enough to offset the negative impact of lower revenue growth, revenue mix and continued investments in the business. It is worth noting that we continue to implement efficiency initiatives across the Professional division, including shifting resources to lower-cost locations.

Let me repeat what I said last quarter to help set the context for the division''s margin performance this year. I said for 2010 that we expect the Professional''s margin to decline compared to 2009 and particularly in the first and second quarters of the year. Since these quarters are traditionally smaller, we are likely to see nominal revenue growth due to product mix and flow-through from the weaker sales of 2009, while the division will also experience a front-ended investment spending.

We expect both margins and revenues to ramp up in the second half of the year. We expect margins to further rebound in 2011 as top-line growth improves and the level of investments begin to taper off.

Now, turning to a perspective on the revenue mix and the dynamics for the Professional division, we are very similar to what we''ve talked about on previous quarters. The Healthcare & Science and Tax & Accounting and Legal''s subscription businesses continue to generate solid growth and by implication take market share.

In fact, on a combined basis, these businesses grew 5%, while representing 80% of the division''s total revenues. However, this impressive growth was offset by a 17% decline in Legal print revenues and an 8% decline in Legal''s non-subscription businesses. While the decline in the print and non-subscription revenues are having a negative impact on reported results, we believe that first half of this year will be the bottom of the cycle.

Print revenues in both the first and second quarters of last year did benefit from some favorable revenue timing, which they will not have to grow over in the second half of this year, which will provide for some easier comparisons. Therefore, given the trends we are seeing across Professional businesses, we expect to see a pickup in business revenue growth rates in the third and fourth quarters. Similarly we expect easier comparables in a stabilizing market to lead to better performance in non-subscription products for the remainder of the year.

Now, let''s talk about the segments within the Professional division, starting with Legal where revenue declined 3%, and that was all organic. As mentioned, our subscription revenues grew 3% in the quarter, led by 15% growth in FindLaw. Our U.S. Westlaw subscriptions grew 1%, while our international businesses declined 1%. Non-subscription revenues declined 8%, primarily driven by Westlaw ancillary revenues, which were down 19%.

Perhaps, very importantly, our trademarks business, which historically is a leading indicator of economic activity, returned to growth in the quarter. By customer type large law firms and government customers experienced the largest declines, while corporates and small law firms were slightly negative.

Operating profit as anticipated declined 13%, and the margin was 25.5%. This margin was negatively impacted by lower revenues, particularly from high-margin print and non-subscription products and currency. These dynamics were more than offset by several efficiency initiatives and implemented throughout the business.

Tax & Accounting revenues grew 6%. 2% was organic, and 4% was acquisitions. Now effective January 1 this year, Tax & Accounting reorganized around two major segments. The first is workflow and service solutions, which consists of our tax products and services such as ONESOURCE. The second is business compliance and knowledge solutions, which includes our research, compliance and print businesses such as Checkpoint. Now, both of these are a mouthful, so for ease I will refer to these businesses as workflow solutions and business compliance solutions.

Workflow Solutions represents 2/3 of Tax & Accounting revenues in the first quarter, and it grew 10% led by good growth in income tax products, including InSource and our creative solution suite of products and the Global Tax segment, which is represented by businesses like Digita in the U.K.

Business Compliance Solutions declined slightly as a 6% growth in Checkpoint was not enough to offset a 12% decline in print. Now print represents about 9% of Tax & Accounting''s revenues, but obviously is a larger part of this segment''s revenue base.

We expect growth to improve as the year progresses. Operating profit decreased 15% for the quarter and the corresponding margin declined to 13.4%. These anticipated declines are largely due to the dilutive impact of 2009 acquisitions. Now, I will remind you again that Tax & Accounting is historically a seasonal business with almost 50% of its operating profit generated in the fourth quarter of each year.

Healthcare and Science revenues grew 9%, 6% organic with 3% from acquisitions. Performance was solid across the business and was led by our Scientific & Scholarly Research business which was up 13% in the quarter, benefiting from acquisitions and strong outright sales.


Our payer business also continued excellent performance growing 10% on good sales into the federal government channel. Operating profit increased 42%, and the margin rose sharply to 21.2%. Margin gains were attributable to revenue flow-through, continued focus on expense management and one-time technology costs that were in the prior period that are not repeated.

The Markets division revenues declined 4% in the quarter to $1.8 billion impacted by the negative net sales we''ve talked about from the prior year. While the year-to-year decline is fairly consistent with fourth quarter of last year, on a sequential basis, the first-quarter performance improved versus the fourth quarter of last year. I will discuss this a bit further in a moment.

Also, as we stated when we announced the Reuters acquisition, there would be some dis-synergies and that is occurring as we continue to integrate the two businesses. For example, we are migrating customers new products as we sunset products such as ILX, StockVal, BDN, GlobalTopic, ReutersPlus, Trader and AFX. Migrating customers to new platforms is resulting in some lost revenue, but it is the right thing to do for the long-term and will ultimately contribute to improved margins.

By revenue type, recurring subscription revenues declined 3%, transactions were down 2% and recoveries and outright both declined double-digits. By geography Asia revenues were flat, while EMEA and the Americas declined 4% and 7% respectively. Operating profit was $323 million, down 4% from last year. The margin declined as expected to 17.5%, primarily attributable to a decline in revenues.

Now, let me review the performance of the Markets divisions for segments. Sales & Trading revenues declined 7% due to double-digit declines in recoveries revenues and the impact of desktop reductions, particularly in fixed income and exchange traded instruments.

We did see growth from our Commodities & Energy segment, which rose 4% on the heels of a good market. And although treasury revenues were down 3% due to fewer desktops, FX transaction revenues grew 4% on the backs of improving volume. Investment & Advisory revenues declined 4%. 5% was organic and we had a positive impact of 1% from acquisitions.

The investment banking business grew 6%, benefiting from improving market condition and strong sales of thomsonone.com, as well as there were certain timing effects in the quarter. The Corporate segment grew 6%, primarily due to the acquisition of Hugin. Investment management revenues declined 9% in the first quarter as weak first-half 2009 net sales flowed through to reported results.

Now, revenues were stable in this first quarter versus the fourth quarter of last year. Wealth Management revenues declined in the quarter due to fewer desktops resulting from bank mergers and the sunsetting of several products, including ReutersPlus and ILX.

Enterprise revenues grew 3% in the quarter, 2% organic and 1% from acquisitions, and this is against a very challenging comp a year ago where the revenues grew 11%. Recurring revenues for the unit were up a solid 5%, but overall growth was dampened a bit by a decline in outright and transaction revenues.

Enterprise Information, which represents 60% of the business, grew 4% from continued strong demand for pricing and transparency data, somewhat offset by this decline in outright revenues. Information management systems, which represent about 15% of the revenues, grew about 14% and risk management revenues were flat in the quarter.

We do expect Enterprise growth to improve as the year progresses. And finally, Media''s revenue declined 5%. The agency business was down 6% as it continues to be impacted by tight customer budgets and media consolidation. The smaller consumer segment did return to growth in the quarter.

Now turning to this slide, during the past few quarters, we have been reviewing the performance of Markets business by revenue type since it''s a good way to depict trends in the business. This quarter we thought it would be helpful to show sequential revenue growth, meaning Q1 2010 growth over Q4 2009, rather than simply quarter-over-quarter result rates since this view is a bit more real-time in terms of a performance indicator.

Note that we have excluded outright revenues since they are extremely seasonal with over 40% of annual revenues recorded in the fourth quarter, and they represent only 3% of Markets'' total revenues last year. There are several things worthy of pointing out.

First, recurring transactions and recoveries revenue each showed sequential improvement in the last two quarters with Q1 showing growth. I will note that Q1 did benefit from a price increase relative to Q4; however, the yield was less than 2%, meaning the increase did not change the underlying pattern outlined in the graph.

Second, transactions were the first to turn red and were the first to turn green, which is not surprising given that there is no lag effect on transaction revenues. Third, the third quarter of 2009 appears to have been the bottom of the sequential decline trough, which is what one would expect given that Q2 was the slowest net sales quarter.

To be clear, each of these revenue categories did decline on a reported revenue basis versus the prior year period. But this year gives us confidence that we are trending in the right direction.

Now, let me turn to the adjusted earnings per share and earnings attributable to common shares in the quarter was $127 million. Now to arrive at adjusted earnings, we made the following adjustments. First, we removed the $63 million of expense listed as other finance expense, which in 2010 refers to the expense associated with our recent bond redemption.

Second, we removed the amortization of intangible assets, which is a non-cash expense, and third, we normalize for our anticipated full-year tax rate, which we have estimated to be between 20% and 24% for the full year. This results in an $18 million reduction to adjusted earnings in the quarter. The net result is $304 million of adjusted earnings or $0.36 per diluted share, which is a decline of $0.04 versus a year ago.

Let me point out that we did benefit slightly from timing in the quarter given that we are running a bit behind on planned integration spend and we are favorable on core corporate costs versus last year. We expect these trends to reverse themselves as we move throughout the year.

Now, just as a point of information integrated-related costs represented $0.10 per share in this quarter versus $0.09 in the previous year. Turning next to free cash flow, as you know, the first quarter is always a weaker free cash flow quarter for Thomson Reuters, and this year was no exception. Underlying free cash flow for the quarter was $107 million. This represents a $35 million decline versus the prior period, primarily due to higher tax payments. For the full year, we again expect to generate strong levels of free cash flow.

Now let''s turn to a brief update on our integration and synergy programs. As Tom mentioned, we continue to make progress on our synergy projects and have currently achieved a run rate savings of $1.2 billion. The incremental $125 million in savings in the quarter was attributable to content consolidation and organizational realignment in the Markets division and the leveraging of the Thomson Reuters global footprint by the Professional division.

We remain on track to achieve our savings target of $1.6 billion by the end of next year. In the quarter, we incurred $97 million of integration-related expense, and these costs pertain to severance, cost consulting fees and technology costs.

Before I conclude, let me spend a moment updating you on our recently completed bond redemption and subsequent debt offering. Our current net debt outstanding is $6.7 billion.

In March we announced the combined tender offer redemption of $700 million of debt due in 2012. We simultaneously issued a $500 million, 30-year bond to fund the majority of the redemption.

Now, there were three benefits resulting from the transaction. We reduced our gross debt by $200 million by utilizing cash on hand. We extended our average maturity to approximately eight years and we reduced our average interest rate to below 6%. We were again proactive and since September of 2009, we have replaced $1.3 billion in near-term maturities with $1 billion of longer-term debt at attractive rates. Our capital structure and balance sheet remains strong, and our net debt to EBITDA ratio is approximately two times.

Now, in summary, we are pleased with our first-quarter performance, including the trends in the business and we are tracking to our expectations. We have a good understanding of our business and our markets, particularly given our leading position in the markets we serve.

And for the past year, our expectations have proven to be reasonably accurate, despite some unprecedented period of uncertainty. And we are beginning to realize the benefits of our investment initiatives, improving net sales, including a strong start to WestlawNext. That is why we believe that we are positioned to return to growth in the second half of this year. The key investments we have been making position us well for sustained growth in revenue and margins in 2011 and beyond.

Now with that in mind, as Tom mentioned, we are reaffirming our 2010 full-year outlook. Now, let me turn it over to Frank for questions.

Frank Golden

Okay. Thanks very much, Bob and operator, we’d now like to open the call for questions, please.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at anytime by pressing the pound key. If you are using a speakerphone, please pick up the handset before pressing the numbers. And ladies and gentlemen, in fairness to others on the call, we ask that you limit yourself to one question and one follow-up. Our first question comes from the line of Phillip Huang with UBS. Please go ahead.

Phillip Huang – UBS

Good morning. Thanks very much and good results. First, just a clarification. Frank mentioned at the beginning of the call that -- I think, accounting change moved to $87 million to Sales & Trading revenues this quarter. I just wanted to know how did that impact the reported organic growth?

Robert D. Daleo

It did not because we would have adjusted the prior year.

Phillip Huang – UBS

Got it. Okay. So my question is I know we have seen a turnaround in net sales since mid last year. But for the first time since the economic downturn, we are seeing an improvement in the year-over-year organic revenue trend for Markets. Can you maybe give us a sense of how sustainable this is in light of dis-synergies from sunsetting legacy products? Was there any timing-related items that helped the quarter or do you think that in hindsight the minus 6% organic revenue growth in Q4 was the bottom and we can expect more moderate declines and eventually back to organic growth from this point on?

Thomas H. Glocer

It’s Tom. I would certainly agree with the trend as you have described it. So recalling always the lag mathematically between the economic activity, which shows itself in our net sales and then the year-on-year period-on-period performance, we think we bottomed in markets in terms of actual economic activity in Q2 of last year. And, therefore, in terms of reported results, the bottom sort of straddles Q4, Q1 -- Q1 of this year and you will continue to see the climb-out and headed towards revenue growth in the second half of the year.

Operator

Thank you. And your next question will go through the line of Vince Valentini with TD Newcrest. Please go ahead.

Vince Valentini – TD Newcrest

Yeah. Thanks very much. We see this morning that private equity firms have purchased IDC. Now that that is official and we know that you did not buy it, can you walk us through your thought process? Did you take a look at this asset? Are you just being more disciplined these days of not wanting to make any acquisitions while you finish off your integration programs? And then also maybe if you have any thoughts about the new owners there if it will change things in the Enterprise space and impact your competitive environment in any way?

Thomas H. Glocer

Bob would scold me if I let you get by with saying that we are now more disciplined. I think he would tell you we have always been disciplined. Obviously, it is very directly in one of our markets in particular in the Enterprise Information part of our Enterprise unit in Markets. I think, as Bob has just gone through, the Enterprise Information unit is about 60% of the revenues of the overall Enterprise unit. So call it around $750 million of revenues. That has been growing very well for us. Actually, we compete head-to-head with IDC there. We do not see any particular change in the competitive landscape. The buyers are very sophisticated. We know both Silver Lake and Warburg well and have worked with them before on different things.

So we take it really as an endorsement. A quick back of the envelope valuation I did on the way to work this morning suggests that it is about 5% of Thomson Reuters revenues. That is the comparable revenues in Enterprise Information. But, at the multiple paid, it would correspond to about only -- well, it would correspond to about 10% of our market cap. So it''s a really nice read across. We think our business is growing faster. So it does not affect us competitively and is a nice reconfirmation of why we have been investing in that unit.

Operator

Thank you. And our next question will go to the line of Paul Steep of Scotia Capital. Your line is open.

Paul Steep – Scotia Capital

Great. Tom, actually why don''t we talk about Elektron since that sort of feeds to what you just talked about. Maybe you could talk twofold to it. One, on the monetization opportunity in terms of, is it more transitioning existing clients and then upside on new clients and then secondly, the cost synergies baked into the overall program from deploying Elektron.

Thomas H. Glocer

Well, what''s exciting to me is that no part of our business moves as quickly as the low latency computer-to-computer Enterprise part. It''s the sort of very sharp point of the knife in terms of deployment of technology. It''s where we have wonderful assets arrayed. There are competitors and there''s constant innovation going on. So what Elektron really amounts to is a rethinking and re-platforming of that machine-to-machine infrastructure part of the business. And not only does it allow for very low latency, therefore, very high speed communications into our market data platforms and execution venues, it allows clients an incredible range of choice. They can take a direct feed from us right at their premises, if that''s how they prefer it.

They can co-locate their algorithms in our hosting facilities, essentially in a financial services cloud. They can get the same data with the same data models and symbology as they use front office in their desktops in all of their applications. So I can''t necessarily tie it to any particular increment that you''ll be able to identify in our revenues, other than it''s a great sign that we continue to invest to support our leadership position in that infrastructure business, number one.

Number two, on the cost side, it will have benefits to it because it''s a very scalable architecture. And above all, what it represents is a sort of sophisticated segmentation in where do we deliver the expensive to deliver fast data. So rather than shooting it all over the world, it goes only to those markets where folks are really trading that way. And it allows us to, in essence, manage the other data flows for both our and for our customers benefit, so it''s really positive.

Operator

Thank you. And our next question will go to the line of Paul Sullivan of Barclays Capital. Please go ahead.

Paul Sullivan – Barclays Capital

Hi. Good morning guys. A quick question on Legal. Just in relation to the 2300 accounts that you were talking about in relation to WestlawNext, could you try and size that for us in terms of penetration of your existing customer base either by sort of a number or revenue and quantify the pricing uplift that you are seeing on average? And where do you think that incremental money is coming from? Are you seeing it cannibalize some of the print business as we go through this year and are there any signs of you now starting to more materially displace some of your competitors?

Robert D. Daleo

This is Bob. The 2300 represents about 3% of Legal''s overall customer base. And while there are wide variances depending on the segment, the average uplift so far has been about 10%. We have not seen that come from print. Substantially most of the customers who we have to date are from small to midsized law firms and corporates where print is not a significant part of that marketplace, so we have not seen a displacement. And we have seen a reasonable outcome from competition, or let me put it another way, customers who are new to us. If I remember correctly, about 40% of those new customers come -- were not customers of Thomson Reuters Legal before. So it''s been very, very successful. We really are tracking ahead of our own expectations both in terms of the price realization, market acceptance, and the amount of customers who we have converted. But we have a long way to go. We would like to convert 100% of our customer base to get the full benefit of this. And so our expectations are realistic in that that will take a couple of years to do that.

Operator

Thank you. And we’ll go to line of William Bird with Bank of America. Your line is open.

William Bird – Bank of America/Merrill Lynch

I was wondering if you could just discuss how quickly will your 8% deferred revenue growth on the balance sheet convert to actual revenue growth? Could you also just discuss how net sales developed within the quarter?

Robert D. Daleo

Actually that is an interesting question. We really don''t look at that particular one, and so I would have to study it. I think that there are probably other factors involved in that 8% growth and I''m sure growth in sales. Because I could tell you certainly I don''t think that we''ve had an 8% growth in our net business over that period. So from my perspective, I don''t see that happening.

Tom, do you want -- so it is hard for me to react to that. I will certainly take a look at it and go off-line, but I don''t understand -- I really cannot respond to that. Other than saying perhaps part of that is influenced I am certain by acquisitions that we make, which on a year-to-year comparison would increase that. And that would actually factor out from an organic perspective. When we talk about organic -- we talk about growth midyear, we are referring to organic growth. So I really cannot answer that, and I certainly will go take a look at it, and we will post the answer to that to the website.

Operator

Thank you. And we’ll go to line of Brian Karimzad of Goldman Sachs. Your line is open.

Brian Karimzad – Goldman Sachs

Hi. Good morning. On the WestlawNext, just out of curiosity, what color do you have on the reception to the sell-in on the large lots? I know that is going to be a bit slower because of the duration of the contracts there, but any color you can provide on the reception and how receptive they have been on pricing.

Thomas H. Glocer

They have been very welcoming and very receptive because pretty much any lawyer who looks at it, who like me who has ever had to do this sort of work, gets it quickly and intuitively how much more efficient it can make you. Salesforces being the lovable animals we know them to be will go for the simpler sales first. So that is one reason you see a lot of the solo and small practitioners. But we think we will be able to sell-in, penetrate the large law firms. We have a large event for them coming up next week. In fact, what I cannot predict is whether the pricing trends that Bob has described around the 10% uplift will be the same once we get through the entire customer base or move one direction or another. But we certainly deliver a lot more value with the product.

Operator

Thank you. And we’ll go to line of Drew McReynolds of RBC. Please go ahead.

Drew McReynolds – RBC Capital Markets

Thank so much. Good morning. A question for you, Tom. Just bigger picture when you look at all the things happening in the world on the sovereign credit issues and regulatory developments in the U.S., just a little bit of a crystal ball, but I am just curious to know net how you ultimately think it impacts your business whether that is across Professional or Markets?

Thomas H. Glocer

Yes, that is a great question. I can give you the short term, and I will try and venture further out. So short-term the instability in Greece in particular and spreading to other sovereigns has certainly increased the volumes we are seeing in our FX business, and that trend is continuing in the second quarter. And it is also driving a significant need for pricing information, news, and plays into a real strength that Thomson Reuters has or Thomson Reuters Markets has, which is the global coverage, the ability to report seamlessly from bureaus in Athens, London and emerging markets'' desks. That has been a very nice factor. Going out a little bit further, obviously the potential in Europe could be severe.

We have been reporting on what it would take for Greece to pull out of the euro, which is unprecedented and there is no mechanism for. It could drive very significant continued volatility in currency rates, all of which I think are positive trends. But ultimately we care about the health of the economies we operate in. Like everyone else, we would be affected by a true crisis brought on by domino insolvency. Closer to home in the U.S., we are following very carefully the financial reform legislation, and I should say we are in other markets as well.

To date, and again I would caution it is a very moving target, that is headed in the direction, which is I would say neutral to positive for us in terms of market structure, in terms of transparency mechanisms, and pricing that will be mandated in the solution, and in particular the outturn of where does the swaps market go. But further out than that, I would not hazard a guess.

Operator

And we have a question from Colin Tennant with Nomura. Please go ahead.

Colin Tennant – Nomura Securities

Hi. Thanks. Just looking at the new launches that you mentioned, three big platforms going out this year. I wonder if you could quantify the specific costs around the actual launch activity, which may fall away next year or would it be replaced with the ongoing sales and marketing around those products?

Robert D. Daleo

I will respond. We tried to provide some guidance on that in a broad way by identifying about 100 basis points of margin that we thought we would -- margin erosion in 2010 as a consequence of these launches rolling out and that is a combination of two things. There is certainly some one-time costs that occur as a result of a launch, the marketing expense, promotion expense such as what we have done with WestlawNext and what we are doing with Eikon. But then there is I would say a majority of the costs, though, are really more run-rate costs.

There are things like amortization of capitalized cost to develop products. And also, they are then -- the development staff then moves to maintenance, and so those costs become run-rate. And so what has to happen for a number of these products is that the revenue growth has to catch up with that so where they become a contribution. So I would say that a majority of the costs are run-rate. That 100 basis points probably fairly captures what those investments are. And with that, though, we do expect that we will see margin expansion, as we said, in 2011 and beyond as a consequence of these platform launches.

Operator

And our next question comes from the line of Patrick Wellington with Morgan Stanley. Please go ahead.

Patrick Wellington – Morgan Stanley

I have a question about the market sales improvement. Tom, you said I think at the fourth quarter that you chose to flag the positive number in January because there is a natural focus on when you cross that zero line. You seemed to have crossed the zero line back in the other direction at some point in the quarter. Do you want to tell us what that tells us about this market''s upturn? Are we solid in this market''s upturn, or is that just an aberration?

And then secondly, just relating back to that last question, we had some costs presumably for the launch of WestlawNext in Q1. Bob, do you want to give us a better idea of when the Utah Eikon costs will fall incrementally by quarter and maybe also on the global tax workstation, which quarters is that first impact felt?

Robert D. Daleo

Well, I will answer that question first and then I will let Tom handle the first one. We have repeatedly said that Eikon will launch in the second half of the year. So that is when -- so that is when that will happen. ONESOURCE, we have incurred some of those costs because some of it is expensed in the first half of this year, but more will occur in the second half.

Thomas H. Glocer

Patrick, I forgot how good you were with the slide rule against market''s quarter-on-quarter sales. You know, the facts are pretty straightforward. There was one negative month in the first quarter. As I mentioned, trying to be objective about it, the average monthly sales in the first quarter were still negative, so we are still below the zero line. But the trend, if you start counting Q2 of 2009, Q3, Q4, Q1, shows a very significant ramp up toward and close to the zero line. And what it suggests to me is the trend is intact. Invariably it is lumpy on the way down, a bit lumpy on the way up, which is why I look at the average monthly. But I do expect that to cross imminently, let''s say.

So when I look out rest of this year, it is really more relevant for what does 2011 look like now. You know roughly what our expectation is for this year. I''m pleased with the book of business that is building towards next year, especially given the Elektron launch, Eikon later in the year, Reuters Insider next week. So I think Markets is in good shape. Devin Wenig and team have done a great job.

Operator

Thank you. And next, we''ll go to the line of Michael Meltz of J.P. Morgan. Please go ahead.

David Lewis – J.P. Morgan

Hi. Good morning. This is Dave Lewis for Michael Meltz. I''m just wondering if you guys could just touch on -- just following up last question, if you guys could just touch on the pricing environment for Markets if that has improved over the past quarter or so? Thank you.

Thomas H. Glocer

Well, Bob and I will both jump in. So two data points to look at. One, we, in fact, did put through a price increase, our normal annual one. Yield was just a little bit under 2%. So even in the environment -- and those letters went out, call it last October for effectiveness January 1, a little bit later in Japan first quarter. So even in a difficult environment, it has been possible to price.

Again, I would stress that is an average price. So some parts of the product line have priced up significantly more than that. I think we have returned to a stable pricing environment. If we can deliver value, new content, new functionality for clients, they will pay for it. That has been clear through the crisis in Enterprise. And I think we are now seeing stability come back into both the desktop business and other parts of the market. Bob, do you want to…?

Robert D. Daleo

I would just add that while the yield for this year''s price increase is roughly similar to what it was a year ago, the environment I would say was far more favorable. Meaning that we had -- you always get certain pushback from clients or whatever, and you try to consider that in your thinking. We had far less of that. The price increase in 2010 was I think far better received than the price increase in 2009. So the market environment seems to be improving in that regard.

Operator

Thank you. And our next question will go to the line of Tim Casey with BMO Capital Markets. Please go ahead.

Tim Casey – BMO Capital Markets

Thanks. Given its importance, could you refresh our memory and update any changes to the rollout of Eikon? And I know it is a multiyear product rollout, but any more granularity you can give us on when you think the really big customer impacts will be? Is it really a 2011 story, or would it even be 2012 before you really start to see the breadth of customers on the new platform?

Thomas H. Glocer

Nothing has really changed in the last quarter, other than we are that much further along in testing of the platform and it looks very good. Scheduled release is on time. I have been saying at least for a year that I think the impact really is a 2011 and then continuing. So there is not going to be a significant Eikon component of our revenues until then. But I think we will see very positive effects before 2012 just like we''re beginning to see them in WestlawNext and a bit similar to that, the smaller shops where you have less of a major opening up of the infrastructure are first to go in new clients and smaller shops with the larger global accounts taking a while to schedule in with their own release agendas.

Operator

And next, we''ll go to the line of Mark Braley with Deutsche Bank. Your line is open.

Mark Braley – Deutsche Bank Securities

I wonder if I can just come back to some comments during the slides about currency. I just want to clarify what the benefit was within the Markets business from FX on the margin, and I think what the hitch was within the Legal business on margin from FX. And then my follow-up, if I can, was basically can you give us a steer as to what the second-quarter integration charge number will be because it is not really a number we have got a prayer of forecasting, to be frank?

Robert D. Daleo

Okay. The impact in the Markets division for foreign exchange was roughly about 70 basis points. So it really was roughly about -- actually about 100 basis points, I should say. Correct that.

Mark Braley – Deutsche Bank Securities

So 100 basis points favorable in Markets?

Robert D. Daleo

Yes.

Mark Braley – Deutsche Bank Securities

And in Legal?

Robert D. Daleo

I don''t know if I have that granularity here. I think it is probably less of an impact, if any, in Legal. I would say it is probably does not have any material …

Thomas H. Glocer

And then the second part of Mark''s question was whether we had any visibility for him on the Q2 integration cost number.

Robert D. Daleo

The answer to that is not really. I think that we look at it, we have said we have projected about $475 million. I think that the $97 million is a bit lighter than probably we would have expected. But, as I have said frequently, these are -- this integration program is a series of quite a few different projects. And knowing when they come together, we are honestly very focused on making sure we drive these projects to completion during the specific time periods. My expectation would be that we would see a little bit of a catch-up in integration spend in the second quarter. So if you took the $475 million and divided it evenly, that gives you about 120 roughly a quarter. So my guess -- my estimate would be -- it should be a little better than -- a little more than $120 million in the second quarter.

Thomas H. Glocer

Operator, we would like to take one final question, please.

Operator

Our final question will come from the line of Randal Rudniski with Crédit Suisse. Please go ahead.

Randal Rudniski – Credit Suisse

Hi. Thanks. Actually two quick ones. First of all, Bob, you referred to some revenue dis-synergies in Markets, in the Markets division in Q1. Is there any way to quantify how large that was and what it might be for the full year?

Robert D. Daleo

That is a question that we really struggle with. Because 40,000 customers, all these different platforms, it would be -- we probably would grind our internal systems to a halt if we were trying to track that. We know it is a negative impact. I would not even hazard a guess. We know it contributes, like I said, to the revenue decline. But we are focused more on the positive side of that, and that is that as we eliminate these platforms and products and consolidate, we are improving the efficiency and effectiveness of the company. And over the long term, we feel confident we are going to recoup that growth.

So I wish I could be more specific, but we made a conscious decision that we were going to do this, take these actions. And we also looked at it, can we track it, and the answer was, boy, this would be really tough to do. So I cannot give you a specific on that. We do know that it is having an impact, though.

Randal Rudniski – Credit Suisse

And second of all, you renewed the NCIB and in that paragraph you indicate you have not repurchased any shares since 2008. But you might in 2010. So I guess the question is, what sort of criteria are you really looking for in order to be -- to become active with that buyback program?

Robert D. Daleo

Well, the buyback -- first of all, the reason why we renewed it primarily was because it expired and the NCIB is like a shelf offering for debt. And so I think, we all think, and the board agrees that having a standard ability for the company to enter the market to buy back shares is a good part, a prudent part of our long-term capital strategy. I don''t think you should read into this is that we have any intentions of buying stock at this time. We are spending our money right now appropriately so on investing in our business and returning a healthy dividend to our shareholders. And we have always had a preference for using dividends as a way to return value, and certainly that still is our preference. But I don''t think that you should read into it as anything more than just prudent good financial management that the company has filed for and keeps the capacity for the NCIB should the opportunity warrant it and should our cash availability warrant it.

Thomas H. Glocer

Right. We want to keep the flexibility without having to go back to the market and say that our intention has changed. So our intention is agility you can judge over the past year what the likely result may be. But we do not want to be pinned down because it would undermine the benefit of having that flexibility in the capital structure.

Frank Golden

Okay. With that question, that will conclude our call. I would like to remind those of you who would like to join us for our Investor Day, which will focus on our Legal business at our headquarters in Eagan, Minnesota. That will take place on June 3. If you have not received our invitation, then by all means please contact my office and we will forward you the invitation. That is June 3 in Eagan, Minnesota. So with that, that concludes our call. Thanks very much for joining us.