Aravinda Galappatthige: My question was around sort of organic growth. I mean, you consistently delivered in that sort of 6 — 5%, 6% organic growth and closer to 7% for the Big 3. I wanted to understand to what extent has the price component of that growth changed over the last several quarters? I mean, is it — are you seeing more of that come from price, less of it? How should we think of that dynamic going forward? And my more general follow-up was on your incremental investments into AI. Maybe for Steve, like how are you thinking of sort of assessing that in the near term, call it, the next 12 months where you may not see a lot of revenue? Maybe just help us understand what sort of the main metrics are that you’re looking for as you sort of ramp up this spend.
Mike Eastwood: Yes. In regards to your first question in regards to pricing impact in 2023, we would estimate approximately 30 basis points to 40 basis points in total across the firm for calendar year ’23 versus ’22. Just as a reminder, we do have the multiyear contracts to come into play in regards to pricing opportunities with legal having about 60% of their contracts for multiyear, normally 3 years in nature. But your direct question, 30 basis points to 40 basis points of price lift, incremental price lift in ’23 versus ’22. Maybe the second part of the question, Steve, really.
Steve Hasker: So the gen AI investments, yes. Thanks, Aravinda. So look, we view generative AI and its transformative impact on professionals as a once-in-a-generation disruptive change and one that plays to our strengths and one that we’ve moved, I think, very quickly in 2023 to position ourselves against. The principal way that we are assessing and will continue to assess our investments is in the customer reaction to the proofs of concepts, the pilots, the beta versions and ultimately, the GA releases of those products. And I’m more optimistic today than I was the last time we talked about gen AI investments based purely on that customer reaction. Two other comments. We’re going to apply the same rigor to this set of investments over the next 3-or-so year period as we did to the Change Program.
And I’ll just assure you, we will be our toughest critics in terms of making sure that we have line of sight to a better customer impact, firstly; and secondly, expanding TAMs. And as I say, we’re growing in confidence around those signals, but we will stay very, very close to our customers in the markets. And we’ll keep you apprised of what we’re hearing.
Operator: Next question comes from Vince Valentini with TD Cowen. Please go ahead.
Vince Valentini: Yes. Mike, your commentary about margins in 2024, I want to make sure I understand that properly. I mean, very quick rough math. If we assume 6% revenue growth and 3% normalized increase in your fixed costs, that would drive in a normal year 150 basis points to 160 basis points of margin expansion. That’s what I would think of as normal operating leverage. So when you say most of that is going to be reinvested, does that mean the entire 150 or maybe you can still grow margins by 50 basis points, but 2/3 of what the normal growth would have been would be reinvested?
Mike Eastwood: Vince, from our perspective, when we talk about operating leverage at roughly 6% organic, we see about 75 basis points of operating leverage. That applies just, I’ll call it, quick math, 4% increase to our fixed costs, which are about 65% in nature. And then you assume the remaining variable costs grow proportionately. If you apply those assumptions, it would yield approximately 75 basis points of operating leverage for total TR. What we’re reflecting currently based on our preliminary planning, we see significant growth opportunities to reinvest that operating leverage of approximately 75 basis points in 2024. But really emphasizing from my prepared remarks, as we go into ’25, ’26, we have confidence we’ll expand our margin in ’25, ’26, given that operating leverage. But we want to take full advantage. We see an obligation to make those investments organically, inorganically in ’24 that should propel further growth acceleration in ’25, ’26, Vince.
Vince Valentini: And a follow-up just on the sort of the nature of how you provide guidance. Last quarter, you told us Q3 was going to be weak because of OpEx timing, sort of talking down to maybe 36% margins, and you’ve delivered 39.6%. Now you’re just saying that’s going to roll into Q4. It seems like something else is happening. I don’t know if you’re deciding to pile a lot of discretionary expenses into Q4, some of the gen AI investments that you could have made next year, you can accelerate those into Q4. Is it more that? Or is there more you’re just padding yourself to try to be more cautious because of macro or competitive headwinds of some kind?
Mike Eastwood: Yes. I’ll hit that head on. No padding involved, Vince. With the business our size, you’re always going to have a number of puts and takes. One factor that comes into play, I’ll mention 4 items into Q4 events. We have M&A dilution in Q4 from Casetext and from SurePrep. That’s number one. Number two, the level of growth investments will increase in Q4, not only gen AI. We talk a lot about gen AI, but we have additional growth opportunities across the firm that we are pursuing. That’s item two. Number three, which really is part of your question, we call it a normalization of expenses. There have certainly been some timing items in the last couple of quarters that we have transparency that will normalize in Q3 — Q4, I’m sorry.
And the fourth element is productivity initiatives that we have in play that will materialize in Q4. For those 4 reasons, Vince, we have strong visibility into the 37% EBITDA margin for Q4, which would yield approximately 39% for the full year.
Vince Valentini: We’ll wait an update on that on February.
Mike Eastwood: Look forward to providing the update.
Operator: Our next question will come from Heather Balsky with Bank of America. Please go ahead.
