KeyCorp (KEY) Q1 2025 Earnings Conference Call April 17, 2025 08:00 AM ET Company Participants Operator - Conference OperatorBrian Monning - Director of Investor RelationsChris Gorman - Chairman & Chief Executive OfficerClark Kaya - Chief Financial Officer Conference Call Participants Mark Mayo - Analyst, Wells FargoManon Bezalier - Analyst, Morgan StanleyAbram Hunwala - Analyst, Bank of AmericaPeter Winter - Analyst, VA Davidson & Co.Nathan Steen - Analyst, Deutsche Bank Operator Good morning, and welcome ...

Ann-Sofie Nordh Greetings, and welcome to this presentation of ABB's First Quarter Results. Next to me here, I have our CEO, Morten Wierod, and our CFO, Timo Ihamuotila, and I'm Ann-Sofie Nordh, Head of Investor Relations. As per usual, Morten and Timo will talk through the results, and after that, we focus on today's announcement of portfolio change. So today, the presentation will be a little bit longer than we normally have before we open up for the Q&A. And with that said, I ask you, Morten, to kick off ...

Financial Data and Key Metrics Changes - First quarter revenue decreased by 3.4% sequentially in NT dollars and 5.1% in U.S. dollars, impacted by smartphone seasonality but partially offset by growth in AI-related demand [5][6]. - Gross margin decreased by 0.2 percentage points sequentially to 58.8%, primarily due to the earthquake impact and the start of overseas dilution [6][15]. - Operating margin decreased by 0.5 percentage points sequentially to 48.5% [6]. - First quarter EPS was TWD 13.94 and ROE was 32.7% [6]. - Cash and marketable securities at the end of the first quarter totaled TWD 2.7 trillion or US$81 billion [9]. Business Line Data and Key Metrics Changes - Revenue contribution by technology: 3-nanometer process technology contributed 22% of wafer revenue, while 5-nanometer and 7-nanometer accounted for 36% and 15%, respectively [7]. - Revenue contribution by platform: HPC increased by 7% quarter-over-quarter to account for 59% of first quarter revenue, while smartphone decreased by 22% to 28% [8]. Market Data and Key Metrics Changes - The company expects second quarter revenue to be between US$28.4 billion and US$29.2 billion, representing a 13% sequential increase and a 38% year-over-year increase at the midpoint [13]. - The full-year 2025 revenue is expected to increase by close to mid-20s percent in U.S. dollar terms, supported by robust AI-related demand and a mild recovery in other end market segments [25]. Company Strategy and Development Direction - The company plans to invest an additional US$100 billion in advanced semiconductor manufacturing in the U.S., bringing total investment to US$165 billion [31][36]. - The capital budget for 2025 is expected to be between US$38 billion and US$42 billion, with 70% allocated for advanced process technologies [18]. - The company aims for a long-term gross margin of 53% and higher, despite expected margin dilution from overseas fabs [16][17]. Management's Comments on Operating Environment and Future Outlook - Management noted that the January 21 earthquake impacted production but recovery efforts were successful [21]. - The company continues to observe robust AI-related demand and expects revenue from AI accelerators to double in 2025 [26]. - Management remains cautious about potential tariff impacts but has not seen changes in customer behavior so far [24][77]. Other Important Information - The company is working on balancing supply and demand for CoWoS capacity, with expectations of continued strong demand [50][145]. - The construction of new fabs in Arizona and Japan is ongoing, with plans to ramp up production based on customer demand [35][37]. Q&A Session Summary Question: AI demand and CoWoS capacity - Management acknowledged that while there have been rumors about CoWoS demand adjustments, the demand remains strong and is expected to exceed supply in 2026 [46][54]. Question: U.S. investment and tariff implications - Management clarified that the expansion in Arizona is driven by customer demand, particularly from U.S. companies, and they are in discussions with the U.S. government for necessary permits [61][62]. Question: Geopolitical risks and production planning - Management stated that they are mindful of potential impacts from recent tariff announcements but have not seen changes in customer behavior [76][77]. Question: Semiconductor tariffs and involvement in negotiations - Management confirmed that they do not get involved in tariff negotiations between governments [90]. Question: Revenue outlook and customer behavior - Management indicated that the strong second quarter guidance is driven by demand for 3-nanometer and 5-nanometer technologies, with no observed changes in customer behavior due to tariffs [99][101]. Question: Shareholder returns and buyback policy - Management reiterated their commitment to a sustainable and steadily increasing dividend policy rather than adopting a share buyback framework [152].

Financial Data and Key Metrics Changes - The company reported an adjusted EPS of $0.42 per share, a decrease of $0.01 from the prior quarter [12] - Pre-provision net revenue grew by $16 million from the fourth quarter, with a net interest margin expansion of 9 basis points [13] - Total expenses decreased by $20 million, excluding deferred compensation [13][28] - The CET1 ratio ended the quarter at 10.9%, reflecting the impact of $360 million in share repurchases [18][32] Business Line Data and Key Metrics Changes - Net interest income increased by $1 million, driven by a 38 basis point reduction in interest-bearing deposit costs [17] - Fee income, excluding deferred compensation, declined by $5 million [17] - Period-end loans decreased by 1% from the prior quarter, with a notable decline in commercial real estate [23] - The average rate paid on interest-bearing deposits decreased to 2.72%, down from 3.10% in the previous quarter [22] Market Data and Key Metrics Changes - The company experienced a decline in period-end balances primarily due to the payoff of $559 million in brokered CDs [20] - The interest-bearing spot rate ended March at 2.70%, down 10 basis points from the end of December [22] - The company retained 95% of the $16 billion in deposits and CDs that repriced in the first quarter [21] Company Strategy and Development Direction - The company aims to maintain a disciplined approach focusing on safety, soundness, profitability, and growth [10][11] - The strategic deployment of excess capital through share repurchase programs is a priority, with organic loan growth being the top choice for capital utilization [33] - The company remains committed to achieving a 15% plus return on tangible common equity over the next few years [39][44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about avoiding a recession despite heightened macroeconomic uncertainty [10] - The company anticipates that the economic environment will stabilize, allowing for continued growth and engagement with clients [62] - Management highlighted the importance of monitoring the portfolio closely to identify emerging credit risks [31] Other Important Information - The company increased its provision expense by $30 million to account for macroeconomic uncertainty [17] - The net charge-off ratio was reported at 19 basis points, consistent with strong performance in 2024 [14][30] - The company expects year-over-year expense increases between 2% and 4%, influenced by fixed income and mortgage production [36] Q&A Session Summary Question: Outlook on PPNR growth given uncertainty and volatility - Management remains confident in guidance, with a base case of three rate cuts anticipated [49][50] Question: Appetite for continued share buybacks - The company intends to maintain an 11% CET1 target but may adjust it based on economic conditions [56][58] Question: Insights on C&I loan balances and borrower sentiment - Borrowers are exhibiting a wait-and-see approach due to uncertainty, but optimism remains [61][66] Question: Reserve increase rationale - Reserves were increased due to macroeconomic uncertainty, with a focus on being adequately reserved [69] Question: Timeline for achieving 15% ROTCE - Management believes achieving 15% ROTCE is appropriate for a midsized regional bank and is focused on driving profitability [74][75] Question: Mortgage warehouse business outlook - The company is optimistic about the mortgage warehouse business, anticipating growth if rates decline [80][81] Question: Discussion on hedging strategies for margin protection - The company is actively monitoring interest rate sensitivity and considering hedging strategies [89] Question: Updates on fixed income business and ADRs - The fixed income business is experiencing volatility, impacting customer activity and ADRs [125] Question: Future expenses and project pipeline - The company does not expect a significant spike in expenses in the near term, focusing on long-term investments [130][131]

Financial Data and Key Metrics Changes - Total revenue for the quarter was $3.4 billion, down 7% from the same period last year, primarily due to lower benchmark coal prices and reduced fuel surcharge [10][44] - Earnings per share decreased by 24%, reflecting the impact of reduced revenues and network performance challenges [10][44] - Total volume decreased by 1% compared to last year, with intermodal volumes increasing by 2% [9][10] Business Line Data and Key Metrics Changes - Merchandise business saw both revenue and volume decline by 2%, while revenue per unit (RPU) increased by 1% year-over-year [30] - Coal revenue declined by 27% on a 9% lower volume, with all-in coal RPU down 20% year-over-year [36] - Intermodal revenue was down 3% despite a 2% increase in volume, with RPU lower by 5% due to lower fuel surcharge [39] Market Data and Key Metrics Changes - Fertilizer volume was up 2% compared to last year, while minerals volume decreased by 1% due to weather impacts [31][32] - Automotive production was slow to start the year, with volume and revenue declining by 7% and 8% respectively [34] - The overall market demand remained stable, with some areas showing strength, but operational challenges limited the ability to meet demand [28][31] Company Strategy and Development Direction - The company is focused on improving operational efficiency and stabilizing network performance amid ongoing infrastructure projects [6][14] - There is a commitment to enhancing customer service and maintaining strong relationships with customers to drive growth [8][28] - The company is optimistic about future growth opportunities, particularly in U.S. manufacturing, as it continues to attract new customers [42][56] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the first quarter represented an earnings trough, with expectations for improvement as operational challenges are addressed [45][57] - The company is committed to running a safer, faster, and more reliable railroad, recognizing the need for better outcomes moving forward [58] - Management expressed confidence in the potential for sequential improvement in performance as the year progresses [57][58] Other Important Information - The company is investing heavily in infrastructure projects, with expectations for capital expenditures to exceed $400 million for the Blue Ridge rebuild [52] - Free cash flow was stable in the first quarter, with a commitment to returning cash to shareholders [54] Q&A Session Summary Question: Can you break down the operational challenges? - Management indicated that the challenges stem from a series of significant compounding events, including severe weather and infrastructure projects, which have affected capacity [65][70] Question: Will Q2 show typical margin improvement? - Management expects Q2 results to be better than Q1, but the pace of margin improvement will depend on macro conditions and operational improvements [76][79] Question: What about lost customer contracts? - Management clarified that there have been no lost contracts, but there were missed opportunities due to operational disruptions [89][90] Question: Can you quantify the revenue opportunities? - Management noted that some revenue opportunities were perishable, but there is a significant chance to capture demand in Q2 as operations improve [102] Question: What is the outlook for coal contracts? - Management stated that coal contracts have unique pricing structures with embedded floors, and they are currently above those levels [136] Question: What is the run rate for other revenues? - Management indicated that the current run rate for other revenues is around $115 million, with some variability expected [137]

Financial Data and Key Metrics Changes - Revenue for 2024 was $1.8 million, down $4.8 million from 2023, primarily due to a reduction in government contracts [24][25] - Operating expenses for the year were $24.9 million, which is a $36.8 million improvement from 2023 [25] - Net loss for the year was $134.9 million, an increase of $84.2 million from the previous year, mainly due to a $127.6 million loss on extinguishment of debt [27] - Adjusted net loss for the year was $26.1 million, compared to $34.3 million for the prior year, showing an $8.2 million improvement [28] - Cash at the end of 2024 was $1.2 million, compared to $0.7 million at the end of 2023 [29] Business Line Data and Key Metrics Changes - The company recognized revenue for commercial operations of the Aquanaut vehicle for the first time in its history [25] - The acquisition of C-Trepid is expected to provide a significant backlog of work and reduce customer concentration [14][34] Market Data and Key Metrics Changes - The offshore market is experiencing a resurgence, with stable oil prices and increased long-term investments in infrastructure [73][76] - The company anticipates 2025 to be one of the busiest offshore markets in the past decade, with strong demand for its services [45] Company Strategy and Development Direction - The company is transitioning from a research and development focus to a commercial revenue-generating model [8] - Plans for 2025 include leveraging lessons learned from the inaugural offshore operations and enhancing the capabilities of the Aquanaut vehicle [10][36] - The government contracting side is expected to provide stability and larger upside compared to seasonal commercial contracts [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the upcoming offshore season, citing eagerness from customers to adopt autonomous technology [12][13] - The company has cured its noncompliance issues with NASDAQ and is focused on securing necessary cash for 2025 [22][17] - Management expects significant revenue growth in 2025, projecting revenues greater than $16 million [59] Other Important Information - The company filed restated financial statements due to a correction in accounting treatment for a complex debt transaction [19] - The acquisition of SeaTrepid is seen as a game-changer, providing access to a broader group of early adopters [14] Q&A Session Summary Question: What is the potential revenue for 2025? - Management is confident that revenue will be significantly higher than 2024, projecting greater than $16 million [59] Question: What differentiates the company's autonomous underwater vehicles from competitors? - The company has a leadership position in manipulators for autonomous underwater vehicles, offering unique capabilities such as untethered operation and depth capabilities of 3,000 meters [61][62] Question: What are the capital requirements for the business? - The company is exploring non-dilutive approaches to bring in capital for additional assets based on demand, with potential revenue generation of $6 to $8 million per season per asset [66][69] Question: What market dynamics are contributing to a strong offshore season? - Stable oil prices and long-term investment commitments in offshore platforms are driving demand, along with regulatory inspections and decommissioning activities [73][76]

Financial Data and Key Metrics Changes - Prologis reported a core FFO of $1.42 per share, including net promotes, and $1.43 per share excluding net promotes, both exceeding forecasts [15] - Occupancy at the end of the quarter was 95.2%, a decrease of 70 basis points from year-end, attributed to strong retention [15] - Net effective rent change during the quarter was 54%, with cash basis at 32%, leading to same-store growth of 5.9% and 6.2% respectively [16][17] - The company raised approximately $400 million in new capital for its flagship open-ended funds, with a similar amount in redemptions, resulting in a near-neutral capital raise [20] Business Line Data and Key Metrics Changes - Prologis leased 58 million square feet, nearing record levels, and broke ground on several build-to-suit developments [10] - The data center business saw an increase of 400 megawatts in power capacity, totaling 2 gigawatts in advanced stages [19] - The company started approximately $650 million in new developments, with nearly 80% in built-to-suits averaging 16-year lease terms [17] Market Data and Key Metrics Changes - The operating environment showed a post-election uptick in leasing, with increased proposal volumes and conversions, particularly in transport, food and beverage, consumer products, and electronics [22] - Net absorption for the quarter was 21 million square feet, with global rents declining by 1.5%, primarily in Southern California [88] Company Strategy and Development Direction - Prologis aims to leverage its global footprint and diversified rent roll to navigate market disruptions and capitalize on emerging opportunities [12][14] - The company plans to reduce development start guidance to $1.5 billion to $2 billion, reflecting uncertainty in the capital markets [33] - The strategy emphasizes investing in markets where goods are consumed rather than produced, aligning with long-term growth prospects [14] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about potential recession and inflation, noting that decision-making among customers is slowing due to tariff uncertainties [11][12] - The company remains confident in its ability to weather economic fluctuations, citing a fortress balance sheet and contractual revenue streams [13] - Management anticipates increased inventory levels as businesses stockpile, with e-commerce expected to gain market share [30] Other Important Information - Prologis received a credit rating upgrade to A2 from Moody's, making it one of only two public REITs with an A-flat rating from both agencies [21] - The company is advancing towards its goal of one gigawatt of solar and storage capacity, with over 900 megawatts either in operation or under development [20] Q&A Session Summary Question: Insights on customer interactions and demand - Management noted that consumption is closely tied to GDP growth, and while a recession would impact consumption, long-term trends remain positive [44] Question: Clarification on leasing and occupancy - The occupancy drop was attributed to a high volume of leases rolling in the first quarter, with retention at 73% [51] Question: Impact of Amazon's market presence - Prologis has signed significant deals with Amazon, with the e-commerce segment showing strong leasing activity [65] Question: Opportunities in the current environment - Management indicated that it is too early to identify specific opportunities, as the market is currently in a wait-and-see mode [69] Question: Demand for smaller spaces - Smaller spaces typically have lower occupancy due to shorter lease terms, but replacement costs are rising, providing some protection against supply issues [124][126]

Financial Data and Key Metrics Changes - Revenue decreased by 3% sequentially to $3.4 billion, with the Illumina segment's third-party revenue down 8% due to lower average realized prices and shipments [11] - Net income attributable to Alcoa was $548 million, up from $202 million in the prior quarter, with earnings per share more than doubling to $2.07 [12] - Adjusted EBITDA increased by $178 million to $855 million, driven by higher aluminum prices and lower intersegment profit elimination [13] Business Line Data and Key Metrics Changes - In the Illumina segment, revenue decreased due to lower prices and shipments, while the aluminum segment's revenue remained flat despite an increase in average realized prices [11] - Adjusted EBITDA for the alumina segment decreased by $52 million due to lower prices and volume, while the aluminum segment's adjusted EBITDA decreased by $60 million due to higher costs [14] Market Data and Key Metrics Changes - The LME aluminum price showed resilience despite a general decrease, with the Midwest premium increasing but not reaching expected levels [40][41] - Alumina prices declined in the first quarter due to increased liquidity and production normalization, with over 80% of Chinese refineries reportedly unprofitable [38][39] Company Strategy and Development Direction - The company aims to maintain a strong balance sheet and focus on operational excellence, with a commitment to safety and continuous improvement [7][10] - Alcoa is engaging with U.S. and Canadian governments to advocate for favorable trade policies and is focused on restarting the San Ciprian smelter under a joint venture [45][30] Management's Comments on Operating Environment and Future Outlook - Management highlighted the uncertainty surrounding U.S. tariffs and their impact on operations, particularly the 25% tariff on Canadian aluminum [32][30] - The outlook for the second quarter includes expectations of unfavorable performance in the aluminum segment due to tariff costs and operating expenses related to the San Ciprian smelter restart [25][26] Other Important Information - The company completed a $1 billion debt offering to refinance existing debt, which is expected to lower interest expenses [10] - Cash flow activities showed a strong cash balance of $1.2 billion at the end of the first quarter, despite high working capital consumption typical for this period [15][16] Q&A Session Summary Question: Clarification on tariff impacts - Management clarified that the $100 million negative impact from tariffs considers higher Midwest premiums and the overall cost of Canadian tariffs, while the $105 million figure is a quarterly estimate based on current pricing assumptions [54][55] Question: Engagement with government on tariffs - Management confirmed ongoing engagement with U.S. and Canadian governments, emphasizing the need for economic upstream aluminum production to support downstream jobs [63][64] Question: San Ciprian smelter restart and hedging strategy - Management indicated that the smelter losses would be heavier in 2025 due to restart inefficiencies, with hedging strategies in place to manage costs [76][78] Question: Impact of lower oil and input prices - Management noted that while some input prices are increasing, productivity initiatives are expected to offset these costs [89] Question: Working capital expectations - Management expects a significant drop in working capital throughout the year, particularly in the second quarter, as high pricing normalizes [93] Question: Future of aluminum production in China - Management expressed confidence that the Chinese industry would react quickly to economic pressures, potentially leading to curtailments in output [85] Question: Trade actions in the EU - Management stated that there is too much uncertainty regarding potential EU trade actions to speculate on impacts at this time [137]

Financial Data and Key Metrics Changes - The company reported strong financial results for Q1 2025, with natural gas demand growing by 6.8 billion cubic feet per day, driven by a 10% increase in residential and commercial demand and a 15% increase in LNG demand [14] - The project backlog increased to $8.8 billion after adding approximately $900 million during the quarter, with over 70% focused on serving power demand [15][16] - The acquisition of the Bakken Gathering and Processing System for $640 million was completed, although it had minimal impact on quarterly results due to a short ownership period [19][20] Business Line Data and Key Metrics Changes - Transport volumes in the natural gas business unit increased by 3% compared to Q1 2024, achieving new peak day volume records [25][26] - The largest project in the backlog, Bridge, is a $430 million extension of the Elba Express pipeline, expected to deliver 325 million cubic feet per day into South Carolina [16] Market Data and Key Metrics Changes - U.S. natural gas demand rose from approximately 60 BCF per day in 2005 to almost 109 BCF per day in 2024, marking an increase of roughly 80% [4] - Future growth in natural gas demand is projected to be between 20 and 28 BCF per day by 2030, primarily driven by increased LNG export demand [5][6] Company Strategy and Development Direction - The company remains bullish on U.S. LNG exports, citing factors such as increased demand from the EU and Asia to offset any potential loss from the Chinese market [9][10] - The company is focused on long-term contracts with creditworthy entities to support its projects, ensuring stable cash flow and a strong balance sheet [21] Management's Comments on Operating Environment and Future Outlook - Management expressed a conservative outlook for 2025 due to uncertainties surrounding tariffs and commodity prices, although they do not expect a material impact from tariffs [19] - The company anticipates that the $7 trillion in new U.S. investments could drive additional demand not currently captured in projections [15] Other Important Information - Management succession plans were discussed, with Tom Martin set to retire in January 2026, and Dax Sanders to succeed him as president [22][23] Q&A Session Summary Question: Impact of tariffs on project economics - Management does not believe tariffs will significantly impact project economics, estimating the impact to be roughly 1% of project costs for new large projects [17][18] Question: Performance of the Bakken Gathering and Processing System acquisition - The acquisition is performing in line with expectations, despite having only been owned for 45 days during the quarter [20]

Financial Data and Key Metrics Changes - The IT services revenue for Q4 was $2.6 billion, reflecting a sequential decline of 0.8% and a year-on-year decline of 1.2% [11] - For the full year, IT services revenues were $10.51 billion, showing a year-on-year decline of 2.3% [12] - Operating margins for Q4 were at 17.5%, flat sequentially but expanded by 110 basis points year-on-year [11] - The net income grew by 6% quarter-on-quarter in Q4 and 19% for the full year, with an EPS of INR 12.6, a growth of 20% year-on-year [30] Business Line Data and Key Metrics Changes - The Americas region one grew 0.2% sequentially and 6% year-on-year, while Americas region two de-grew 1% sequentially and 1.8% year-on-year [13] - Europe de-grew 2.5% sequentially and 6.9% year-on-year [13] - The BFSI sector de-grew 0.5% sequentially but grew 0.8% year-on-year [14] - Capco performed well, growing 6.5% sequentially and 11.5% year-on-year [15] Market Data and Key Metrics Changes - The company closed 17 large deals in Q4 with a total value of $1.8 billion, and for the full year, 63 large deals worth $5.4 billion were closed, reflecting a year-on-year growth of 17.5% [15] - The healthcare sector de-grew 3.1% sequentially but grew 0.1% year-on-year [14] - The consumer sector de-grew 1.3% sequentially and was flat year-on-year [14] Company Strategy and Development Direction - The company is focused on driving consistent, profitable growth and has identified five strategic priorities to achieve this [10] - There is a strong emphasis on AI-powered solutions and consulting-led services to meet client needs [18] - The company has realigned its global business lines to better serve customer needs, effective April 1st [24] Management's Comments on Operating Environment and Future Outlook - The management noted that clients are approaching tech reinvention cautiously due to an uncertain macroeconomic environment and recent tariff announcements [9] - There is an expectation of a sequential revenue decline of 3.5% to 1.5% in constant currency terms for the upcoming quarter [27] - The management remains optimistic about the deal pipeline and expects to stabilize and bring growth back in Europe [121] Other Important Information - The company finished the financial year with a free cash flow as a percentage of net income at 118%, with gross cash including investments at $6.4 billion [31] - The company has hedged about $2.4 billion of forex derivative contracts as of the end of Q4 [32] Q&A Session Summary Question: Which verticals are seeing the highest impact currently? - The CEO noted that sectors like consumer and manufacturing, particularly automotive and industrial, are experiencing significant impacts due to the uncertain economic environment [38] Question: How is BFSI performing in the US and Europe? - BFSI is seeing good traction in the US and APMIA, but there are headwinds in Europe [41] Question: What is driving the weak revenue growth despite strong bookings? - The CFO explained that timing differences in deal conversions and ramp-downs due to lower discretionary spending are affecting revenue growth [53][54] Question: What is the outlook for Europe and its impact on overall performance? - The CEO mentioned that Europe has been a challenge, but there is a strong pipeline of deals and new leadership focused on improving performance [66][120] Question: How does the company plan to maintain margins in a weak revenue environment? - The CFO indicated that while there will be pressure on margins, the company aims to keep them in a narrow band through operational efficiencies and cost management [96][100]