AL TV Interview: LexisNexis - The Big Picture with CEO, Sean Fitzpatrick

0:03 Hey everybody, Richard Tromans here again, Artificial Lawyer TV, doing a special interview today. We have LexisNexis and none other than the CEO, Sean Fitzpatrick. Hey Sean. >> Hey Richard, thanks for having me on. >> Yeah, it's a pleasure, it's a pleasure. I get to talk to Sean every now and then, but it's great to do a recorded interview. it's good timing as well. As many of you will have seen, LexisNexis, or rather RELX, published their half-year financial data and they did very well. Revenue grew, profit grew in the legal dimension particularly, which is LexisNexis, as you all know.

0:34 Sean, congratulations first of all. What do you put the growth down to? >> Yeah, so, you know, in the first half of this year, our our revenue grew, and our profit grew 13%. that that was up compared to where we were in the same period last year. So, we're seeing an acceleration of growth and what's driving that is our AI products. 90% of our new business sales in the first half of the year were from our AI products and Lexis Plus with Precedent is the the core product and, that's the fastest growing product that we've ever had in the history of the company and that's really what's driving the results. And I I think the the reason that that's driving results is because we found a really good fit for our customers and our customers are are voting with their wallets and, and so, you know, that that's translating into, you know, almost $80 million in additional revenue that we've added in the just in the first half of this year, which is, you know, 150, 160 million a year if you annualize it and we've been doing, you know, somewhere in that range for the last several years.

1:36 So, it's starting to add up to be a fairly meaningful number for us. >> Yeah, I'd also staying at a starting at a pretty high level already because obviously many, many law firms and in-house teams will have LexisNexis legal research products to some degree already. So, this is purely additive to some degree on top of what they've already got. >> Correct. Yeah, and that's, you know, I I think that's a that's a good way to look at it. So, you know, historically we've been in the legal information analytics space. We, you know, kind of moved to AI-powered legal information analytics and decision tools. And now there's an entirely new space that's being created, which is probably five times the size of the TAM of our historical market. And so, all that white space now is opportunity. And so, we're expanding into that that opportunity space, and it's it's really working out well for us. But our our core continues to do well, right? That that core piece of business that we have, you know, because we have that repository of authoritative legal material that drives it. And you know, these models are only as good as the content that they're built on. And we've been building content for 150 years, and we've got an incredible repository that allows us to give give our customers the answers that they're looking for, that are on point, that are trusted, and we give them the very viable the the ability to verify it themselves. So, they don't need to trust it. They can click on it, and they can actually read the case. They can see the Shepherd's report, verify that it's still good law.

3:06 So, while other tools give you an answer that sounds very confident, our tool gives you an answer that allows you to be confident that it is correct. >> Sure. So, just just to clarify one thing. So, the growth has come from, I guess, several areas. There'll be additional capabilities with AI around legal research, but also I know you've launched tools that help with drafting, for example, on the transactional side, the contract side. There are a whole bunch of different products, really. So, how much of this additional growth is effectively sort of turbocharged legal research, and how much of it is, you might say, net new, moving into new dimensions, moving into transactional work, and so forth?

3:47 >> Yeah, the majority of it's net new. You know, we're seeing like really strong pick up from our our drafting solutions that you you mentioned. Yeah, so a lot of it's going to going into the new space that that we haven't been in historically. >> Got you. Interesting, interesting. And this is happening and of course everyone knows in the context of first of all we had the cloud crash when Anthropic released a bunch of skills and agents for the enterprise world and the the global stock market collectively went whoa.

4:15 And then I guess kind of realized actually hold on a minute. It's not quite as bad as we thought. And then of course lots of competition from you know many many many many different other companies. So interesting. Now, one thing that other people may want to ask is hold on a minute, how can your profits have gone up when token costs have increased? And how does that then get built out to the clients or not built out to the clients? How does that work? So it's pretty much a given that token costs will increase the more you use AI and obviously you're using your I guess you're using more AI providing the results for your customers. So how can profits go up?

4:52 >> Yeah, so we're seeing token costs increase just like like everyone else and and our costs are in total are increasing as well, but we're increasing our revenue at a rate that's faster than we're increasing our costs. And you know, when when it comes specifically to the token costs, one of the advantages that we have is you know, we we've been multi-model since the very beginning, right? So we want to use the model that gives our customer the absolute best answer. And when you have this massive repository of content that you can focus those tools on, it requires less tokens to find the authoritative answer. And so we're our system I think is just more efficient in the way that we utilize tokens. Token costs like represent less less than 1% of overall Relics revenue. So it's not as significant of an issue for us I think as it is for for some others.

5:47 >> Interesting. So just So just to recap. So is that because you've got better metadata, it's better curated data, so the AI and the LLM gets to where it needs to get to much faster? >> Absolutely, yeah. That's right. >> Got you. Got you. Actually, on that point, and I won't mention the name of the company, but there are certain other legal research companies that have decided to build, as it were, or retrain or refine open-source LLMs.

6:09 >> Mhm. >> One argument for that is you get better results. Another is is actually you might be able to reduce token costs. Is Is that of interest to LexisNexis? >> Yeah, I I I think that a lot of folks are looking at that because they need to reduce their token costs, but they've got unsustainable models. You know, for us it's not a a an issue of token costs, but what what is important to us is getting our customers the absolute best answer. And so we're looking at those open-weight models also I just as a way to to provide our customers better solutions, more refined solutions, distilled, you know, smaller, more distilled models that get you to the answer that you're looking for more quickly and with a higher level of precision. Has that work started, or is is this just the >> Oh, yeah, we we've we it started and yeah, it's we've included those in the in our technology stack.

7:00 >> Interesting. Interesting. Okay, fantastic. And talking of technology and working with other technology companies, you've got a lot of different relationships and always had. Makes total sense for a company the size of LexisNexis. Could you just talk us through some of the more recent ones and anything com- coming down the pipe, you know, alliances, relationships, data sharing, data APIs, and so forth? >> Yeah, so I would say, you know, we have special relationships with large language model providers like Anthropic and OpenAI, and those give us advanced access to the latest tools so that we can understand them and test them with our customers before they're released and identify, you know, what's going to help us get our customers to better answers faster. and so that that's super important that those relationships also give us access to engineering talent within those organizations so that we can better understand how their tools work, how they might be applied to our particular markets. so I think there's there's category there. and then, you know, when it comes to other products in the marketplace that have access to our AI technology, you know, we just announced a deal with Luminance, for example. And so if you are a Luminance customer and you're also a LexisNexis Protege customer, you can access Protege within Luminance. So Luminance has an AI capability, they call that Lumi, and you can use Lumi if you're if you're a LexisNexis Protege a customer, LexisNexis Protege customer, you can use Lumi to get answers to, you know, questions that might involve our our content, for example. And so what happens is essentially that you would enter in your query into Lumi, it would encrypt that query, send it by by API over to Protege, Protege would answer that question, and the AI answer would come back, and it would be presented to the user within the Lumi environment.

8:58 The the attorney would be able to see that answer. Lumi actually would Luminance would not be able to see that answer. So it's a it's a connection that we have with our customers, but it allows them to get access to the AI services that they purchased. Hm. Where are they happen to be? >> So it's it's kind of like a private pipeline that runs through Luminance, but effectively it's kind of sealed, so Luminance isn't into that pipeline.

9:24 >> Yes. >> Yeah. Interesting. So and so how how is that different from how you work, for example, with say I know with others, there's a whole bunch of them, but how does that change how is that different to how you work with say Harvey? >> Yeah. So with Harvey, we also have our AI capabilities embedded within their system. With Harvey, it's a small subset of our content. So, with Luminance, you get access to the same information that you have available through your Lexis Plus with Prodej subscription. As a matter of fact, when you get your answer, you have the capability to link back to Lexis Plus with Prodej and and continue to do your your work there. With with Harvey, you know, we have a a very limited set of information that we're sharing there. So, the the tool only looks at about 1% of our total information database in coming up with answers. So, it's a it's a much more limited in its scope.

10:20 >> I get it. But, does it does it sort of play out differently in the odd information you share directly with Harvey in that it's it's not like a separate pipeline in the same way? >> It's it's it's not like a separate pipeline in the in the same way. So, it is shared a little bit differently. >> Got you. Got you. So, so so hence it it's a smaller amount of total data that's available, but it's shared more broadly across the Harvey platform.

10:42 >> Yeah, I think it's a fair way to explain it. Yes. >> Got you. Got you. Makes sense. Looking forwards to other relationships and perhaps potential M&A deals, Lexis has done a few M&A deals over the years. One of the most interesting ones that you did recently would be you bought Doctrine, which is a very well-known French company, perhaps probably the most famous French AI company. You've done other deals in Europe as well. For example, you bought Henchman a few years ago and other deals. Just just talk us through. I mean, how what is the M&A strategy?

11:13 >> Yeah, so, you know, we're looking for a best-in-class assets that would be, you know, difficult to replicate. And, you know, when we found Doctrine, you know, I think we we found that. You know, they've got great content and they've got great technology. I think it's the best AI technology that's available in in the civil law market space and I think that's a important distinction also because you know we our product was built kind of in a common law environment and while it was applicable to civil law and it is doctrine was built you know from the ground up for the for the civil law lawyer and so I think that's why they've kind of got the best absolute best product in the marketplace in that space and so we wanted to be part of that.

12:02 We announced the intent to acquire them. We haven't completed the acquisition yet but we're still wait pending regulatory approval there. >> Now but I mean the civil I mean it's one of the things I mean obviously being in the UK you're in the US we do tend to think common law to common law. We tend to forget that obviously almost the whole of Europe I would imagine a large part of South America parts of Asia Pacific are civil law or related to civil law.

12:26 >> Yeah. >> Central Asia as well I would guess. So actually I mean it's a I mean just going slightly off the questions I was going to ask but I mean in terms of LexisNexis's you know global plans I mean obviously you're in many many different countries. So for example we had an event in Paris and you know at LexisNexis I mean how you know you earlier you were talking about open space you know that you can build into. I mean is one of the factors there globalization you know building into many many more markets at a strength and depth that you have in the US and UK for example.

12:56 >> Yeah absolutely and I think that that technology that's available today is going to allow us to expand our footprint into more markets more rapidly. So you know some components of the product you know aren't as dependent on content and that allows us to go into jurisdictions where you know we haven't had necessarily a particularly strong content play and we can still serve lawyers in that market very very well with other products. So geographically it does expand our our footprint.

13:28 >> Don't you actually Do you think there'll be more content purchases? Cuz it surprised me if you ever I was having a look at how many cuz I was assuming there were very, very few independents, you know, legal research companies left in the world. There's actually a lot still still around which haven't been hoovered up by yourself or other large legal research entities. I mean, is that is that still of interest, you know, to go out there and to build out, you know, your library as it were?

13:53 >> Absolutely. You know, the having that that must-have content is critical to the overall solution and I think the the technology to a large degree is going to be commoditized. You know, what what you can do on one system, you're going to be able to do on the other system. You know, what whenever someone comes up with a great innovative idea and that catches, you know, traction in the marketplace, then others are going to develop their own version of that and so it's going to be very hard differentiate on content alone or on technology alone. And that's where content, you know, becomes important.

14:27 And so part of our strategy is to have that must-have content to embed it into our technology solutions and then embed those technology solutions into the workflows of our customers. So I think there will be a a big play for for content across the globe. You know, the amount people are willing to pay for the content is going to be dependent on the size of the market and the market potential, right? So, you know, some sometimes there's content available in jurisdictions that are, you know, particularly small. I don't think there's going to be a big fight for the content available in those jurisdictions, but, you know, in other jurisdictions, bigger jurisdictions, there's plenty of them around the world.

15:07 I think content will will actually absolutely be important. >> Interesting. Interesting. And just last couple of things. So, moving forward, I mean, we've come so far, so fast. I mean, it's just been a roller coaster, hasn't it? It's just been extraordinary. I mean, you know, I mean, now we're just like, you know, the the debate about tokens didn't even exist a few months ago, then the whole mythos thing, and then now people talking about AI sovereignty.

15:28 I mean, where do you think things are headed? I mean, I know it's very hard to look ahead, particularly given what's just been said. But where do you think we're headed now? What what what's the general pathway forward? >> Yeah, yeah, I I it's interesting to see kind of how things are evolving, and certainly what we have seen over the past several years is an incredible amount of investment coming into the legal tech space. And I think that one of the things that differentiates us there is that we're funding everything through our cash flows, right? So Relics, our parent company, you know, generated over $3 billion in cash flow last year, right? So we're a very profitable business. We we generate a lot of cash flow, and that's going to allow us to continue to make investments in our products, in developing our products. As an organization, Relics spent over $2 billion last year on product development. And we're not tied to investment cycles, we're not tied to funding windows, we're not tied to the you know, the whims of people's views in in Silicon Valley.

16:33 You know, ours is organic. And you know, investing windows close eventually. They they always close. And so for people that are dependent on getting additional investments for the you know, to continue to develop their product, you know, at some point that could be a very tough path to go. And we've seen, you know, companies have to kind of go through that desert of becoming profitable, because that's the only place they can get their, you know, continued cash to invest. We're we're different. We're differentiated there, right? We have lots of cash to continue to invest in the product, and we continue to do so. And we just keep going to continue to make it stronger and better for our customers. So I think we are extremely well positioned to win in this this future marketplace. That plus our our content position.

17:21 >> No, absolutely, absolutely. And just which which leads to the last question, the you know, if you're kind of stable and you you're well capitalized and investors can see that and you know, large entities who perhaps could fund additional major actions. Do and given what you just said about VC back companies hitting a kind of plateau as it were, do you see a point where Lexis might buy one of the newer fast growing legal AI platforms?

17:48 >> Yeah, our strategy for growth is primarily organic. >> Mhm. >> And so when we do an acquisition, we're we're basically trying to bolt on different components of technology or content that are going to allow us to accelerate our organic growth path. So, you know, that's the that's the direction that we're primarily headed. You know, if we see opportunities to accelerate our organic growth rate through an acquisition of one of these providers, then we'll we'll certainly jump on it, but it's not about acquiring for growth, it's about organic growth and acquiring to supplement that organic growth.

18:26 >> So, yeah, so more the general strategy is more if you if there is a you might say more narrower target, you might all them on rather than I mean much larger. >> That's exactly what I'd say, yeah. >> Fantastic, fantastic. Well, congratulations again and it's good to see that you prove the market wrong that you know, that data does matter and it's been a pleasure. >> Thank you very much. >> Absolutely, thank you.