June 10, 2011
Thomson Reuters Legal's First Quarter 2011 Financials: TRI CEO Tom Glocer is "a happy little hamster again."
Unfortunately our naive dream that Lexis or West would change their spots to reflect a new market was short lived. Remember the talk at West of library consultants about a year ago. They didn’t last long did they? — along with the other “savings” (read redundancies) throughout the publishing side of both businesses and the move from publishing original content to “process” and the mass purchase of Legal IT companies the world over.
Which leads us to those hamsters. Once again the quarterly reports are coming in thick and fast, the tone of which remind us of those furry little creatures who like to spend all their time hopping in the wheel of death and going round and round, faster and faster ….round and round, faster and faster and so on and so forth.
Mr Glocer at West legal is a happy little hamster again. The wheel is beginning to turn faster again and one can sense the excitement levels building as this happens.
He comments that "You can, though, substitute any legal publishing executive (hamster) from [Thomson Reuters Legal or Lexis Global Legal]." For much more, see Sean's Happy Hamsters Are Back on Their Wheel. Highly recommended.
"Wheel of Death." How about this hamster cage that was made out of a shell of an iMac.
A Very Quick Look at TR Legal's 2011 1Q Financial Report. The "wheel" that is turning faster to borrow from Sean (again) is TR Legal's 2011 1Q's revenue growth compared to 2010 1Q. However, operating profits, 1Q compared to 1Q for ongoing operations remains relatively flat and operating profit margin actually declined 190 basis points for ongoing operations (read excluding "BARBRI legal education business, which we have reached agreement to sell, and our Scandinavian legal business, sold in April 2011.") See table below. Click to enlarge in case you want to print it out and display the print-out on your office wall before the next time a West rep makes an on-site visit. Who knows how long on-site visits will continue in the new West-Mart era.
Like OMG, a 24.4% operating profit margin -- that's in the ballpark of West's traditional operating profit margin way back in the pre-Thomson acquistion era, which, of course, is further back than the Thomson-Reuters era -- and TR's current "Trusted Legal Resources" ad tag line at West-Mart. Will "trust" bring back the good old days of 33-34% margins for TR Legal?
Due note that "WestlawNext has been sold to over 18,500 customers since its launch in February 2010" according to Management’s Discussion and Analysis. Who knows what the hell that means; I think it would be more interesting to know how fixed rate state practitioner-focused Classic Westlaw for the solos and small firms are selling. As for this yet another vacuous WLN adoption rate stat, I also wonder how many WLN sales were the results of "sign up for WestlawNext now because Westlaw is going to disappear" used car sales-like pitches.
One Big Happy Restructuring TRI Professional Division Family: TRI to Shed its Healthcare Business. On June 6, 2011 TRI announced its intention to divest its Healthcare business, which has been part of the company's Healthcare & Science segment. The company expects the divestiture to close before the end of the year. From the press release:
Our Healthcare business is recognized for its innovative solutions and its expertise which are critically important to its customers,” said Thomas H. Glocer, chief executive officer of Thomson Reuters. “We are grateful for the hard work and dedication of our talented employees who have built the Healthcare business into a successful and profitable unit."
Editorial comment: But not that grateful to keep you employed by the Company. Back to the press release.
“Thomson Reuters has strong positions in our chosen markets and we believe we will achieve better all-in returns for our shareholders by divesting the Healthcare business and re-deploying the proceeds in our core franchises. We have leading positions in global markets, including legal, tax and accounting, science and intellectual property, financial services and media, where we see significant opportunities for future growth and profitability. While a growing and profitable unit, our Healthcare business lacks the integration with and global scale of our other units, and our disciplined approach to capital allocation convinced us that the expected proceeds from a sale into a consolidating market could be better applied elsewhere in our portfolio,” said Mr. Glocer.
Editorial comment: Time for "better all-in returns for our shareholders," hum. I'm wondering if this guy with the circa 1964 Beatles' haircut (image right) had a little shareholder ROI heart-to-heart talk with Tom Glocer. While TRI's P/E is higher than its competitors as is typically the case for the dominant market segment player, share price appreciation during the last five years leaves something to be desired. See below (Source: Big Charts).
The really big worry is that the investment community will start issuing "over-priced" alerts based on the current TRI P/E premium. That would be indicative of an investment community perception that TRI is not worth "dominate player" status in the market. Who is likely to be the most worried about that? Well, it is a very soft real estate market for mansions currently called homes for some folks occupying sixth floor executive suites in Eagan.
From my cursory review of investment house reports, the best ratings for TRI are "market performer" vis-a-vis some other law-related media publishers (read market "out-performer" is a plus) or "hold" vis-a-vis "buy" recommendations. Granted if you've played this stock market game "buy" or "out-performer" oftertimes means the investment house intents to "sell" into the buying momentum created by those "more positive" recommendations. "Hold" or "market performer" however oftentimes means "sell your current position in this dog if you want a better ROI in the same industry segment. But I digress... . Back to the press release.
The June 6, 2011 press release also stated that "[t]his divestiture will result in a realignment of the company’s existing Intellectual Property and Science businesses into a single operating unit of the Professional division." By the way TR Legal is an operating unit of TRI's Professional division.
Not "Too Big to Fail" in ROI Terms. In my never ending fantasy of someday having the opportunity to share a pitcher of beer with Tom Glocer, please note Tom that I didn't call you a "hamster." Also note, I've been around and around the block some 30 years and have seen the stages of M&A-mania before -- buy, restructure, unload some business lines acquired or in-house to rationalize the corporate structure.
Good luck because TR Legal is not "too big to fail" in ROI terms. BLaw nipping at the very high end premium market, Fastcase becoming established at the low end private sector market for online legal search with in-roads beginning to appear higher up the customer base food chain. The cash cow status of TR Legal being milked to finance moves into South America. Then there is acquiring a position in the legal process market, one that makes TR Legal a competitor for client matter work with TR Legal's own private sector client base.
Considering the ever deteriorating editorial quality of West print with the Land of 10,000 Invoices mindless happy-go-lucky pricing-itself out of the print market by TR Legal's annual print price inflation along with those hollow sales pitches for WLN that say "ya got to take WLN to be competitve against opposing counsel," while now being a competitor, well, if I was a CIO who listened to my private sector law librarians, I would be thinking, "lets see what Lexis has to offer -- Classic Lexis now and Lexis Advance "for Associates" when it comes online. But, what the heck, at least TR Legal is hiring some laidoff attorneys and law school grads who can't find jobs for its legal process operations.
Just remember I didn't come up the "hamster" thing, Tom. I do, however, think the "wheel of death" reference was very creative. Talk about an ass-kissing comment to close this post! [JH]