Thomson Reuters (TRI) Q3 2026 earnings review
Thomson Reuters sales beat its plan, but legal margins drop
Thomson Reuters, the provider of Westlaw legal software and Reuters news, grew sales faster while profit margins in its main legal division narrowed. Sales from businesses owned a year ago rose 10%, beating the 8% plan even after stripping out the boost from selling control of its print unit. Chief executive Steve Hasker pointed to encouraging customer use of its CoCounsel AI tools, but technology costs pushed the legal division's profit margin down 2.4 percentage points.
| Sales from businesses owned a year ago | +10% ~9.4% before the print-sale boost; beat ~8% plan |
|---|---|
| Big 3 core segments underlying sales | +10% Tax rebounded to +10%; Legal +9% |
| Profit per share, excluding one-offs | $0.81 +14% from a year ago |
| Full-year underlying revenue outlook | 8.5%–9.0% Reset from ~8.0% after dropping Global Print |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because a rebound in tax software and one-off Reuters AI licensing offset fresh pressure on legal profit margins and upfront customer cash. Dropping the shrinking print business lifts the full-year growth rate by 0.6 to 0.7 percentage points, yet deferred revenue on the balance sheet slowed for a third straight quarter to 5% growth from a year ago.
The question now is whether AI products are bringing in profitable new spending or mostly adding computing costs to defend existing subscriptions. If upgrades add net new pricing power, deferred revenue growth and legal margins will rebound; if they only reprice current users while raising tech bills, growth will slow toward the 5% deferred revenue pace. Fourth-quarter renewal billings and the required jump to a 42% profit margin will tell.
🐂 Bull Case
Tax And Reuters Rebound Lifted Underlying Growth
Thomson Reuters sells legal, tax, and corporate software alongside Reuters news. Chief executive Steve Hasker said "revenue growth and margins came in ahead of our prior expectations" in the third quarter. Sales from businesses owned a year ago rose 10%, or about 9.4% by our math on a like-for-like basis before the 0.6 to 0.7 percentage point boost from dropping the print division. That beat the 8% target.
- Tax, Audit & Accounting underlying sales: up 10%, rebounding from 8% in the second quarter
- Corporates underlying sales: up 10%, matching the prior quarter
- Legal Professionals underlying sales: up 9%, compared with 10% in the second quarter
- Reuters news underlying sales: up 12%, jumping from 4% in the second quarter
The rebound in the tax division matters because sales execution problems had slowed that unit in the spring. Meanwhile, Reuters news grew 12% "primarily due to higher generative AI content licensing revenues which were largely transactional in nature". Because those AI licensing deals are one-off transactions rather than subscriptions, the company expects overall underlying revenue growth to return to about 8% in the fourth quarter.
What to watch: fourth-quarter underlying sales in the Tax, Audit & Accounting division. Because the first and fourth quarters bring in about 60% of annual tax revenue, a double-digit finish will confirm the spring sales fix worked.
Print Sale Removes A Shrinking Business
Thomson Reuters has been selling off slower units to focus on its Big 3 software divisions: Legal Professionals, Corporates, and Tax, Audit & Accounting. On October 1, the information provider closed the sale of a 51% stake in its Global Print book-publishing business to investment firm KKR for about $500 million in gross proceeds, keeping a 49% stake in the new Westbridge Print joint venture.
Moving the shrinking print unit into discontinued operations lifts the company's annual underlying revenue growth rate by 0.6 to 0.7 percentage points, management said. To cover the $134 million of annual print editorial and overhead costs left behind in Corporate Center, Westbridge Print will pay a 20% royalty on its professional sales plus transition service fees, leaving the deal neutral to profit margins after closing.
What to watch: fourth-quarter Corporate Center net costs, which the full-year outlook implies at about $27 million by our math, down from $53 million in the third quarter. Landing near that mark will show the new royalty and service fees are covering the left-behind overhead.
🐻 Bear Case
Legal Margin Dropped On Technology Costs
Legal Professionals is Thomson Reuters's largest division, bringing in 43% of total sales through products like Westlaw, its legal research database, and CoCounsel Legal, its artificial intelligence (AI) assistant. While Hasker said overall margins beat prior expectations, the legal division's Ebitda margin, excluding one-offs, fell 2.4 percentage points from a year ago to 46.6%, "reflecting higher technology and other costs".
- Legal Professionals Ebitda margin, excluding one-offs: 46.6%, down from 49.0% a year ago
- Big 3 combined Ebitda margin, excluding one-offs: 40.3%, down from 41.7% a year ago
- Company-wide software amortization: $202 million, up 11.6% from $181 million a year ago (11.0% of revenue vs 10.9%)
This drop cuts against the argument that premium AI software upgrades automatically widen profit margins. Underlying legal revenue grew 9%, down from 10% in the second quarter, while legal Ebitda, excluding one-offs, grew only 4%. Building and running AI tools is raising technology expenses and software write-offs across the core divisions faster than revenue is growing.
What to watch: full-year Big 3 Ebitda margin, excluding one-offs, in the fourth-quarter report. The company still plans for the Big 3 margin to rise 1 percentage point for the full year to 44.6%, which requires a steep jump after falling 0.6 percentage points over the first nine months.
Upfront Customer Cash Slowed Further Behind Sales
Deferred revenue — cash customers have paid upfront for subscriptions not yet delivered — sits on the balance sheet and turns into reported revenue over the next 12 months. At the end of September, deferred revenue stood at $1,191 million, up 5.2% from $1,132 million a year ago by our math, and down $65 million from the second quarter compared with a $32 million seasonal dip a year earlier.
That 5.2% growth rate marks a third straight quarter of slowdown, down from 17.8% in December, 14.4% in March, and 7.9% in June. Because deferred revenue is now growing at barely half the pace of the company's 10% reported sales growth and 8% underlying recurring revenue growth, upfront subscription billings are not showing the acceleration seen in one-off transaction sales.
What to watch: year-end deferred revenue on the fourth-quarter balance sheet, when annual subscription renewals peak. A fourth quarter of growth below the 8% recurring revenue rate would point to slower subscription revenue in 2027.
AI Revenue And Contract Share Remain Undisclosed
"Customer engagement with the next generation of CoCounsel Legal has been very encouraging, and we are excited about the recent launch of the next generation of CoCounsel Tax, Audit & Accounting," Hasker said. He added that "Customer discussions around commercial opportunities for Thomson LLM continue, and we remain optimistic about its potential", referring to the company's own large language model (LLM), the software that powers AI text analysis.
Despite those launches, the earnings release gives no dollar revenue for CoCounsel, no price increase figures for upgrades, and no update on the share of annual contract value coming from generative AI products. Thomson LLM remains in customer talks rather than generating reported sales, so investors still cannot tell whether AI tools are bringing in new money or just defending existing subscriptions against rival AI startups.
What to watch: the generative AI share of annual contract value in the full-year report or conference call remarks. Moving above last quarter's 32% mark alongside steady 9% or higher underlying recurring revenue growth would show customers are still paying more on renewal.
Risks this quarter didn't answer
Several standing questions around profit margins, deal terms, and segment sales were not settled in the third-quarter release.
- Fourth-quarter margin jump: hitting the 39% full-year Ebitda margin plan requires a 42% margin in the fourth quarter, a 6.5 percentage point jump from the third quarter that relies on internal automation savings.
- KKR minimum-return guarantee: the company agreed to financial support "designed to give KKR a minimum return on its equity investment in the joint venture under certain circumstances", but still did not disclose the maximum dollar exposure or net cash proceeds.
- Legal growth excluding government: the release did not split out Legal Professionals sales growth excluding US government contracts, leaving open whether law-firm upgrades held their 11% pace.
👓 Other Themes
Economic And Geopolitical Uncertainty Persists
Thomson Reuters said its updated 2026 plan assumes that "uncertain macroeconomic and geopolitical conditions will continue to disrupt the economy and cause periods of volatility". Management noted uneven economic growth and shifting interest rates and inflation, warning that any worsening in the global business environment could affect customer spending and its ability to meet the full-year targets.
💲 Other KPIs
Free cash flow fell 22.4% from a year ago in the third quarter, reversing a strong first half. The company said higher cash from operations was more than offset by "certain unfavorable changes in working capital and higher income tax payments", plus capital spending rising to $176 million. For the first nine months, free cash flow is still up 7.2% at $1,467 million.
Net debt — total borrowings and leases minus cash — rose 44.9% from $1,896 million at year-end 2025, lifting net debt to 1.0 times Ebitda, excluding one-offs, from 0.7 times. In September, the group issued about $2.0 billion in US and Canadian dollar bonds, using $1,068 million to pay down short-term commercial paper and holding $1,394 million in cash before October's $500 million print sale proceeds.
Weighted-average diluted shares fell 3.6% from 450.3 million a year ago. The drop followed May's $605 million special cash return and reverse stock split, plus the $600 million share buyback program that the company finished in July after spending the final $238 million. The lower share count lifted third-quarter profit per share, excluding one-offs, by 14% on 10% Ebitda growth.
Reported operating profit fell 22.2% from $517 million a year ago, pulling diluted earnings per share from continuing operations down 18.5% to $0.66. The drop happened because last year's third quarter included a $160 million one-time gain from selling the remaining stake in Elite. Excluding other operating gains and losses, operating profit rose 12.9% by our math.
🔮 Guidance
Raised. Removing the shrinking print unit adds 0.6 to 0.7 percentage points to the annual growth rate, lifting the target from about 8.0% to a range of 8.5% to 9.0% against a revised 2025 base of 8%. With nine-month underlying sales up 9% and the fourth quarter planned at about 8%, the full-year target is on track.
Raised. On a continuing operations basis excluding the print business, the plan calls for total revenue growth of about 9.5% at constant currency, up from about 8.0% on the old basis. Nine-month revenue is up 10% at constant currency.
New. Management expects fourth-quarter sales from businesses owned a year ago to grow about 8%, slowing from 10% in the third quarter as one-off AI content licensing deals in the Reuters news division lap.
Unchanged on a like-for-like basis. Stripping out the print business while keeping its stranded overhead in Corporate Center through September lowered the 2025 baseline margin from 39.2% to 37.4%. The new ~39% target represents about 1.6 percentage points of expansion over that revised base, requiring the planned 42% margin in the fourth quarter.
New. The plan calls for the fourth-quarter Ebitda margin, excluding one-offs, to reach about 42%, up from 35.5% in the third quarter. The seasonal peak in Tax, Audit & Accounting sales and the start of Westbridge Print royalty payments in October help drive the step-up.
Unchanged. The three core software segments are unaffected by the print sale and remain planned for 9.5% to 10.0% growth. Because Big 3 underlying sales grew 9% over the first nine months, hitting the 9.75% middle of the range requires nearly 12% growth in the fourth quarter by our math.
Unchanged. The plan still calls for a 1 percentage point increase over 2025's 43.6% margin. With the nine-month Big 3 margin down 0.6 percentage points from a year ago at 43.3%, all of the planned improvement must happen in the fourth quarter.
Unchanged. The target still includes cash flows from both continuing and discontinued operations. After generating $1,467 million in the first nine months, the plan leaves about $633 million for the fourth quarter by our math, up 9% from $581 million in the fourth quarter of 2025.
Reset for the print separation. Moving the print business to discontinued operations shifted $134 million of 2025 content and editorial costs into Corporate Center, raising the 2025 base from $118 million to $252 million. Starting October 1, royalties and transition fees from Westbridge Print are credited to this line, leaving about $27 million of net expense implied for the fourth quarter by our math.
Reset for the smaller revenue base. Removing print revenues raised the 2025 capital spending ratio from 8.2% to 8.8%, and the 2026 plan now sits at 8.5% to 9.0% of continuing operations revenue.
Narrowed to the middle of the prior range. The company shifted $15 million between lines, lowering internally developed software write-offs to about $670 million (from $680–$690 million) and raising acquired software write-offs to about $230 million (from $210–$220 million).
Moved to the top of the prior range. Management raised the forecast to about $190 million, up from $143 million in 2025, incorporating September's $2.0 billion bond issuance and October's $500 million gross cash proceeds from the print deal.
Unchanged. The planned tax rate stays at about 19%, compared with a revised 18.8% rate in 2025.
❓ Key Questions
Why did Legal profit margins drop 2.4 percentage points?
Legal Professionals Ebitda margin, excluding one-offs, fell from 49.0% to 46.6% on "higher technology and other costs". How much of that increase is ongoing AI computing and model fees versus one-time launch costs for next-generation CoCounsel?
Why is deferred revenue growing at half the sales pace?
Deferred revenue on the balance sheet grew 5.2% from a year ago, slowing for a third straight quarter from 17.8% in December while recurring revenue grew 9%. Are customers signing shorter billing terms, or are subscription bookings slowing?
What is the generative AI share of contract value now?
The earnings release omitted the share of annual contract value from generative AI products, which stood at 32% in the second quarter, as well as the Legal growth rate excluding government. What were both readings in the third quarter?
What is the dollar cap on the KKR return guarantee?
Thomson Reuters agreed to provide financial support "designed to give KKR a minimum return on its equity investment in the joint venture under certain circumstances". What is the maximum dollar payout under this guarantee, and what were the net proceeds after tax?