Kilroy Realty (KRC) Q1 2025 Earnings Call May 06, 2025 01:00 PM ET Company Participants Douglas Bettisworth - VP - Corporate financeAngela Aman - CEOEliott Trencher - EVP & CIOJeffrey Kuehling - EVP, CFO & TreasurerMichael Carroll - Managing Director & Head of US Real Estate ResearchJana Galan - DirectorA. Robert Paratte - Executive VP & Chief Leasing OfficerSydney McEntee - Equity Research Senior Associate - REITsCaitlin Burrows - Vice PresidentNicholas Yulico - Managing DirectorJohn Kim - Managing Directo ...

Financial Data and Key Metrics Changes - The company reported FFO of $1.2 per diluted share, with cash same property NOI declining by 160 basis points year over year [19] - Average occupancy ended the quarter at 81.4%, down from 82.8% at year-end [19] - Cash same property base rent growth was 90 basis points despite a 300 basis point decline in average occupancy [19] Business Line Data and Key Metrics Changes - In the office segment, there was a 60% year-over-year increase in tour activity in the San Francisco portfolio, indicating strong future leasing visibility [5][6] - The life science sector remains robust, with no discernible impact on leasing momentum despite market volatility [8][9] - The company signed a significant 60,000 square foot lease with a technology company in San Francisco, marking the largest lease execution since 2019 [5] Market Data and Key Metrics Changes - San Francisco is experiencing a rebound in office demand, driven by return-to-office mandates and a growing AI industry [4][5] - The company noted a positive trend in leasing activity across various markets, with notable increases in Silicon Valley and Seattle [12][14] - The overall office sales volume in Q1 was roughly flat year-over-year, but there is a wider array of capital pursuing deals [12] Company Strategy and Development Direction - The company is focused on maximizing value through selective sales and evaluating land parcels for future development [9][16] - There is an emphasis on maintaining financial flexibility and exploring various paths for the Flower Mart site to adapt to market conditions [25][28] - The company aims to balance economics, future growth plans, and balance sheet strength in its capital allocation strategy [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in San Francisco, citing improvements in safety and vibrancy [4][5] - The company remains committed to corporate responsibility and sustainability goals, with new ambitious targets set for 2030 [10] - Management acknowledged the challenges posed by macroeconomic uncertainty but highlighted strong leasing activity and a growing pipeline [4][6] Other Important Information - The company introduced enhanced disclosures around rental income components and a new retention statistic that highlights the effect of direct leases executed with in-place subtenants [17][18] - The company is actively working on capitalizing on its land bank while also considering operating property dispositions [16][45] Q&A Session Summary Question: Update on the Flower Mart site - Management is exploring a wider range of uses for the Flower Mart site and is hopeful for positive engagement with the new city administration [25][26] Question: Impact of leasing activity and fires in LA - Management noted that some deals were pulled forward into Q4, impacting Q1 leasing activity, but expressed confidence in the pipeline moving forward [30][31] Question: Quantification of leasing pipeline - The leasing pipeline is up approximately 15% quarter-over-quarter, with around 50,000 to 60,000 square feet of deals slipping into April [38][41] Question: Sale of land at Santa Fe Summit - The company is evaluating additional sales of land parcels and focusing on maximizing value based on market demand [43][44] Question: Trends in renewals and expansions - Companies are generally retaining their existing footprints, with some new companies seeking more space, particularly in the AI sector [46][47] Question: Capitalized interest and future projects - Management provided details on capitalized interest for KOP Phase 2 and Flower Mart, indicating significant costs associated with these projects [49][51] Question: Demand in LA and recovery progress - The LA market is fragmented, with some areas like Long Beach performing well, while the Westside is experiencing slower recovery [100][102]

Financial Data and Key Metrics Changes - Q1 2025 was described as a solid start to the year with reaffirmed full-year 2025 adjusted EBITDA guidance across all of IAC [6][18] - The company repurchased 4,500,000 shares and increased share repurchase authorization by 10,000,000 shares [6][12] - DDM (Dotdash Meredith) grew digital revenues by 7% in Q1 and increased EBITDA by 46%, excluding a one-time lease gain [8][10] Business Line Data and Key Metrics Changes - DDM's digital advertising revenue was up 1% in Q1, with premium demand remaining stable despite a decline in core traffic [35][40] - Licensing revenue led growth with a 30% increase, aided by the OpenAI license and strong performance at Apple News [36] - Performance marketing also showed strong growth at 11% [36] Market Data and Key Metrics Changes - The macroeconomic outlook remains uncertain, with consumer spending through DDM's performance marketing being solid despite weak consumer confidence [15][18] - Programmatic pricing has softened, running flat year over year after previously increasing [17][18] - The advertising base showed strength in pharma, tech, and beauty, offsetting weaknesses in food and beverage [17] Company Strategy and Development Direction - The company is focused on executing growth across its businesses and capital allocation, including share buybacks and M&A opportunities [11][12] - The strategy includes pursuing strategic divestitures of smaller holdings to free up capital [13] - The company aims to create equity value and reduce the discount between share price and intrinsic value [10][12] Management's Comments on Operating Environment and Future Outlook - Management is carefully monitoring the macroeconomic environment for signs of stability or weakness among consumers and brands [18] - The company is optimistic about future growth, particularly in 2026, with several key projects underway [22][26] - Management acknowledged the challenges in the advertising market but emphasized the strength of their brands and execution capabilities [40][41] Other Important Information - The company reached an agreement to settle litigation related to the match separation with minimal additional costs [10] - The appointment of Jim Lawson as President of Decipher was highlighted as a strategic move to enhance the product's market presence [48][50] Q&A Session Summary Question: Key priorities for 2026 TDM revenue growth and capital allocation - Management discussed ongoing projects like the People app and MyRecipes, emphasizing their focus on meeting younger audiences [22][24] - Capital allocation will balance between share repurchases and M&A opportunities, with a cautious optimism for new investments [27][28] Question: Q1 trends in DDM Digital revenue - Management noted that Q1 faced tough comparisons and a decline in core traffic, but licensing and performance marketing showed strong growth [34][36] Question: Impact of Google’s AI transition and programmatic softness - Management indicated that the impact of Google's AI changes is not significant yet, and programmatic pricing has stabilized after a period of growth [114][116] Question: Appointment of Jim Lawson and Decipher's strategy - The appointment was seen as a strategic advantage to enhance Decipher's market presence and execution capabilities [48][50] Question: AI opportunities across the IAC portfolio - Management highlighted ongoing AI applications in various segments, particularly in improving customer service and marketing efficiency [83][85]

Financial Data and Key Metrics Changes - The company reported a 27% year-on-year growth in Q1 2025, marking the sixth consecutive quarter of accelerating top-line growth [4] - In-force premium grew 27% to just above $1 billion, while customer count increased by 21% to 2.5 million [14] - Revenue in Q1 increased 27% from the prior year to $151 million, driven by gross earned premium growth and a 26% increase in investment income [16] - The gross loss ratio was 78% for Q1, compared to 79% in Q1 2024, with a trailing twelve-month gross loss ratio of about 73%, which is 10 points better year-on-year [16][18] - Adjusted gross profit increased 25% year-on-year, while operating expenses excluding loss and loss adjustment expenses increased 29% to $127 million [18] Business Line Data and Key Metrics Changes - The car business experienced significant momentum, with quarter-over-quarter in-force premium growth outpacing the rest of the business for the first time [9] - The company reported a doubling of cross-sell volume year-over-year, indicating improved bundling flows [11] - The car loss ratio remains elevated but is expected to improve as older cohorts renew, typically seeing a double-digit loss ratio improvement [12] Market Data and Key Metrics Changes - The company is closely monitoring the evolving tariff environment, particularly for imported auto parts, which could increase loss trends by single-digit percentages [7] - The impact of California wildfires contributed 16 percentage points to the gross loss ratio in Q1, but the trailing twelve-month gross loss ratio remained stable [6] Company Strategy and Development Direction - The company continues to leverage AI as a core part of its strategy, which has allowed for a significant increase in gross profit while keeping fixed costs stable [5] - The company reiterated its expectation of achieving EBITDA breakeven by the end of next year and generating positive adjusted free cash flow in 2025 [6][24] - The focus remains on geographic expansion and product development, particularly in the car insurance segment, with plans to increase coverage in profitable states [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve EBITDA profitability, citing predictable growth dynamics and the effectiveness of AI in managing costs [24][25] - The company remains optimistic about maintaining a growth rate of over 30% despite potential macroeconomic challenges, emphasizing the resilience of the insurance sector [30][31] Other Important Information - The company has updated its investor website and changed the timing of its shareholder letter to align with common practices [8] - The total cash, cash equivalents, and investments at the end of the quarter were approximately $996 million, reflecting a $69 million increase year-on-year [21] Q&A Session Summary Question: What is the timeline for reaching EBITDA profitability? - Management reiterated the expectation to achieve adjusted EBITDA breakeven by Q4 of next year, with 2027 being the first full year of positive adjusted EBITDA [24] Question: How will cross-sell rates evolve in the coming years? - The company aims to drive multiline customer rates, expecting to approach the teens in the next five years, with significant growth potential from existing customers [27] Question: What is the impact of tariffs on the business? - Management indicated that while tariffs could present a modest headwind, the company remains confident in its growth metrics and will adjust as necessary [44] Question: How is the car business performing and what states are priorities for expansion? - The car business is expected to continue growing at a faster pace than the rest of the book, with geographic expansion planned but specific states not yet disclosed [46][48] Question: What is the impact of the California wildfires on gross profit? - The gross impact from the wildfires was estimated at $44 million, with a negative EBITDA impact of about $22 million [42]

Core Viewpoint - 21Shares AG has launched the 21Shares Cronos ETP, providing regulated exposure to the Cronos blockchain and its native token CRO, aimed at facilitating investment in the rapidly growing blockchain ecosystem [1][3]. Company Overview - 21Shares is one of the largest issuers of crypto exchange-traded products (ETPs) globally, with a mission to make cryptocurrency more accessible to investors and bridge traditional finance with decentralized finance [4]. - The company has a seven-year track record of creating crypto ETPs and is backed by a specialized research team and deep capital markets expertise [4]. Product Details - The 21Shares Cronos ETP is listed on Euronext Paris and Euronext Amsterdam under the ticker CRON, with a management fee of 2.50% [2]. - The Cronos blockchain is designed for scalability, low costs, and interoperability, supporting decentralized finance (DeFi), NFTs, and Web3 applications [2][3]. Industry Context - Cronos is positioned at the intersection of centralized access and decentralized innovation, aiming to drive real-world adoption and the future of Web3 [3]. - The Cronos ecosystem includes three chains: Cronos (EVM), Cronos POS, and Cronos zkEVM, safeguarding over $6 billion in user assets and having settled more than 100 million transactions since its launch in 2021 [6][7]. Strategic Partnerships - Crypto.com, a major player in the cryptocurrency industry, supports the Cronos ecosystem and partners with 21Shares to enhance exposure to Cronos and Web3 infrastructure [3][8]. - The Cronos Labs initiative, with a $100 million startup accelerator, focuses on fostering innovation within the Cronos ecosystem [7].

Summary of Conference Call on ABF Substrate Industry Industry Overview - The ABF (Ajinomoto Build-up Film) substrate market is expected to experience oversupply conditions until the second half of 2026, with a projected 7% oversupply in 2025 [1][11][25]. - The total addressable market (TAM) for ABF substrates has been revised down by 12% and 10% for 2025 and 2026, respectively, due to lower-than-expected AI server GPU substrate shipments and increased pricing pressure [2][22]. Key Insights - **Demand Dynamics**: The demand for AI server substrates has been cut by approximately 50% for 2025, reflecting a significant decrease in AI server rack shipments, which are expected to decline by 35% [2][60]. - **Pricing Pressure**: The average selling price (ASP) for AI GPU substrates has decreased from over US$120 earlier in the year to US$100, indicating a challenging pricing environment [2][60]. - **Impact on Suppliers**: Tier-2 suppliers like Unimicron and Kinsus are expected to face significant challenges due to their exposure to legacy ABF products and weaker-than-expected spillover orders from tier-1 suppliers [2][9][24]. Supplier Performance - **Unimicron**: Downgraded to Neutral from Buy due to weaker AI spillover orders and a slow PC demand outlook. Target price revised from NT$170 to NT$90 [9][10]. - **Kinsus**: Downgraded to Sell from Neutral, with a new target price of NT$63, reflecting less favorable growth in the mid-to-low-end ABF substrate market [9][10]. - **Ibiden**: Maintained Buy rating with a target price of ¥6200, benefiting from its leading position in the high-end substrate market [10][22]. - **Zhen Ding Technology (ZDT)**: Initiated with a Buy rating, expected to benefit from ABF demand expansion from Chinese IC design houses [8]. Future Catalysts - The mid-to-long-term outlook for Taiwan ABF suppliers is expected to improve with the localization of AI IC production in China, projected to grow at a CAGR of 53% from 2025 to 2027 [3][4]. - Adoption of CPO (Chip-on-Package) technology is anticipated to double the consumption of switch IC ABF substrates compared to general 2.5D packaging substrates [3]. Capacity and Utilization - The overall industry capacity is expected to increase by approximately 40% from 2024 to 2027, with a significant portion of new capacity planned before 2024 [29][53]. - Utilization rates for ABF substrate suppliers are projected to improve in 2025, but overall industry utilization will remain below 80% [27][24]. Risks and Challenges - Potential risks include higher electricity costs in Taiwan and the impact of tariffs, which could increase costs as a percentage of revenue significantly [46][45]. - The overall cash margins for ABF substrate suppliers are expected to remain under pressure until at least the second half of 2025, with a potential recovery starting in 2026 [44][59]. Conclusion - The ABF substrate industry is currently facing a challenging environment with oversupply and pricing pressures, particularly affecting tier-2 suppliers. However, long-term growth opportunities exist through technological advancements and increased demand from AI-related applications. The market is expected to stabilize post-2026, with significant growth driven by AI and server upgrades.

Core Viewpoint - Nvidia remains a leading player in the AI race, but its stock has declined by 25% to 30% from its all-time high, reflecting broader market trends [1][2] Group 1: Nvidia's Market Position - Nvidia's GPUs, originally designed for gaming, have found extensive applications in AI due to their parallel processing capabilities [4] - Nvidia holds a dominant market share in the data center GPU market, estimated to be above 90%, which has attracted competition [5] - The company's profit margins have increased significantly, leading some clients to seek alternatives due to high prices [6] Group 2: Competition and Alternatives - AI hyperscalers are exploring custom AI accelerators, such as those from Broadcom, which can outperform Nvidia GPUs in specific applications but lack flexibility [8] - While competition is expected to increase, it is unlikely to significantly undermine Nvidia's investment potential [9] Group 3: Future Revenue Projections - Data center capital expenditures are projected to rise from approximately $400 billion in 2024 to $1 trillion by 2028, which is crucial for Nvidia's revenue growth [10] - Nvidia generated $115 billion from its data center division over the past year, capturing nearly 30% of total data center spending [11] - If Nvidia maintains its market share, it could generate around $288 billion by 2028, although competition may limit this growth [11] Group 4: Market Dynamics - Broadcom estimates a $60 billion to $90 billion addressable market from three major clients by 2027, indicating a direct challenge to Nvidia's market share [12] - The future landscape will likely involve a mix of GPUs and custom AI accelerators, suggesting that both Nvidia and Broadcom could be successful investments [13] - If the data center market does not meet projected figures, Nvidia's stock may face challenges due to capped revenue and rising competition [14]

Group 1: Technology Sector Overview - The technology sector has historically produced rewarding growth stocks, with artificial intelligence (AI) expected to create further wealth-building opportunities for investors [1] Group 2: Nvidia - Nvidia's powerful graphics processing units (GPUs) are in high demand, with Wall Street's average price target 47% above its current share price of $111 [3] - Nvidia's revenue more than doubled to $130 billion last year, with 88% of sales coming from data centers; analysts expect revenue to exceed $200 billion this year due to demand for new data center chips [4] - The Blackwell computing system, designed for advanced AI workloads, is anticipated to drive significant growth, with billions in sales reported in its first quarter [5] - Despite some analysts expressing caution due to the cyclical nature of the chip industry and economic uncertainties, major customers like Microsoft and Google plan to continue heavy investments in data center infrastructure [7][9] Group 3: The Trade Desk - The Trade Desk, a leading digital ad-buying platform, has delivered a nearly 1,700% return since 2016, with an average price target 64% above its current share price of $53 [10] - The company reported a 26% year-over-year revenue increase, driven by a fee-based model that enhances profitability and cash flow [11] - Although the company experienced a revenue miss, it has a significant addressable market estimated at $1 trillion, with only $12 billion in ad spending on its platform last quarter [12] - The Trade Desk is investing in AI to improve its services, with expectations that all customers will use its Kokai AI platform by the end of 2025 [12] - Current estimates suggest revenue growth of 17% for 2025, with improving margins indicating potential for robust earnings growth [13] - The stock is currently priced at a fair 30 times this year's earnings projection, presenting a potential buying opportunity for long-term investors [14]

Core Viewpoint - Western Digital Corporation's recent fiscal third-quarter earnings announcement highlighted a strong performance, exceeding profit expectations and providing optimistic forward guidance, which has garnered positive investor sentiment [1][4][15]. Financial Performance - For fiscal Q3 2025, Western Digital reported revenue of $2.29 billion, reflecting a 31% year-over-year increase, despite a slight sequential decline [7][9]. - The company achieved a non-GAAP EPS of $1.36, surpassing the analyst consensus estimate of $1.06, indicating effective cost management and favorable pricing dynamics [8]. - Non-GAAP gross margins reached 40.1%, exceeding the anticipated 40% threshold, showcasing operational efficiency [8][6]. Future Guidance - Management projects Q4 revenue between $2.30 billion and $2.60 billion, with a midpoint of $2.45 billion, which is above analyst expectations [4]. - The profit forecast for non-GAAP EPS is set between $1.25 and $1.65, with a midpoint of $1.45, indicating anticipated revenue stability and profitability [5]. Market Position and Demand - The cloud segment remains a significant driver, accounting for 87% of total revenue in Q3, with cloud revenue hitting $2.0 billion, a 38% year-over-year increase [9][10]. - The demand for high-capacity storage solutions is accelerating due to the growth of AI applications and data storage needs [10]. Dividend Initiation - Western Digital's Board of Directors has authorized a quarterly cash dividend program, starting with an initial dividend of $0.10 per share, signaling confidence in the business model and financial stability [11][12]. Analyst Sentiment - Following the earnings report, analysts have shown positive sentiment, with several firms reiterating or upgrading their ratings, maintaining a consensus rating of Moderate Buy [13][14]. - The average analyst price target is approximately $66.42, suggesting potential upside from the current stock price [14]. Strategic Outlook - The successful transition post-separation from the flash memory business positions Western Digital favorably within the data storage sector, indicating potential for a cyclical recovery [3][15][16].

Group 1: Investment Opportunity in TSMC - TSMC is the largest chip manufacturer in the world and plays a crucial role in the advancement of AI technology [6][7] - The company has a significant technological lead, being one of only three manufacturers capable of producing 3 nm chips, which are essential for AI applications [7][8] - TSMC's sales increased by 35% last quarter, with advanced 5 nm and 3 nm nodes accounting for 58% of total revenue, indicating strong demand for AI chips [9] Group 2: Financial Performance and Growth Outlook - TSMC is investing $38 billion to $42 billion in capital expenditures this year, a 34% increase from the previous year, to meet the growing demand for AI chips [11] - The company expects mid-20% revenue growth this year and over 20% average annual revenue growth over the next five years, while maintaining a gross margin above 53% [13] - TSMC shares are currently trading at less than 19 times the analysts' consensus estimate for 2025 earnings, making it an attractive investment compared to the S&P 500's aggregate P/E ratio [12] Group 3: Market Position and Competitive Advantage - TSMC has built a substantial moat that makes it difficult for competitors to gain market share, attracting major clients like Nvidia and Apple [10] - The company is planning to spend $100 billion over the next few years to expand manufacturing capacity in the United States, further solidifying its market position [11] - If included in the S&P 500, TSMC would account for approximately 1.8% of the index, highlighting its significant market capitalization [16]