Matson, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2020 financial results conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Lee Fishman. Thank you. Please go ahead, sir.

Thank you, Sidarius. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer, and Joel Winnie, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption risk factors on pages 24 to 34 of our form 10Q filed on November 2nd, 2020 and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 23rd, 2021 and any forward-looking statements that we make today are based on assumptions as of this date We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.

Thanks, Lee, and thanks to those on the call. I'll start with a quick recap of our fourth quarter and full year results, so please turn to slide three. Matt's been capped off a strong year with continued solid performance in ocean transportation and logistics, despite the ongoing challenges from the pandemic and related economic effects. The year-over-year increase in operating income for ocean transportation in the fourth quarter was primarily driven by continued exceptional demand for both the CLX and CLX Plus services. In our other core trade lanes, we continue to see elevated demand for sustenance and home improvement goods, leading to higher year-over-year volume growth in Hawaii, Alaska, and Guam. Logistics operating income for the fourth quarter increased year over year as a result of elevated goods consumption and inventory restocking and tight supply and demand fundamentals in our core markets. For the full year 2020, Mattson's consolidated financial performance was strong. In ocean transportation, the contribution from the CLX and CLX Plus services was the primary driver of the increase in operating income year over year. In Hawaii and Guam, container volumes approached the levels achieved in the year-ago period, despite the economic challenges from the pandemic. And Alaska container volume was modestly higher than the level achieved in the full year 2019. Logistics operating income for the full year 2020 was modestly lower compared to the levels achieved in the full year 2019, largely due to the pandemic's impact on the business lines in the first half of the year. Please turn to slide four. I wanted to spend a few moments on our current priorities as we begin 2021 and continue to navigate our way through the pandemic and economic uncertainty. Our first priority is to maintain our pandemic response effort by continuing to safeguard the health and safety of our employees throughout the organization and to ensure consistency in the services we deliver for our customers. Without a doubt, 2020 was a significant year for us, not only financially but operationally. The initiation of the CLX Plus service is an important long-term growth opportunity. We fully intend to maximize the potential of our China service by maintaining CLX and CLX Plus as the fastest service in the Trans-Pacific trade lane and to continue to invest in new equipment to support the growth from these activities. We are investing $55 million in new containers and chassis, which not only supports the growth in the China service, but also the CLX Plus backhaul service, which we call the Alaska to Asia Express, or AAX. Further, the additional capacity helps us address continuing congestion in the ports and terminals in Southern California and provides us flexibility in equipment repositioning throughout our network, with a special focus, of course, on China. With these new assets, we'll maintain our high levels of service and meet the exceptional demand for our premium service. We expect a quick return on these dollars. In most cases, the equipment is paid for in a couple of Trans-Pacific sailings. Joel will discuss our 2021 CapEx in more detail later in this presentation. We're focused on maintaining vessel schedule integrity and positioning our domestic trade lane services for continued economic recovery as the pandemic subsides. We're also positioning our logistics business segment to continue to capture opportunities in rail and trucking from the ongoing chaotic conditions and congestion in Southern California. We also continue to evaluate organic and inorganic growth opportunities, and we remain focused on maintaining our financial flexibility with an investment-grade balance sheet. Joel will go into more detail on our capital allocation strategy later in the presentation. Now, please turn to slide five. Our Hawaii fleet renewal came to an end in December 2020 with the delivery of the Maxonia, the second Kanaloa class vessel, and fourth new vessel in the program. The total cost for the program was approximately $1 billion, including capitalized interest in owner's items. These vessels, along with the modernization at the Sand Island Terminal in Honolulu, are important investments in supporting a world-class operation to Hawaii and other lifeline economies that depend on our services. I'll now move to our trade lane services, so please turn to slide six. Hawaii container volume for the fourth quarter increased 0.8% year over year. The increase was primarily due to an additional westbound sailing and higher demand for sustenance and home improvement goods, partially offset by the continued negative impact from low tourism activity as a result of the pandemic. The state's pre-travel testing program that launched in the middle of October led to an uptick in tourist traffic in the fourth quarter versus the third quarter, but the levels achieved in the fourth quarter remained well below the level achieved in the prior year period. For the full year, container volumes decreased 0.6 percent year over year, primarily due to the lower volume as a result of the pandemic and its effects on tourism, partially offset by volume from Patia in the second quarter due in part to the dry docking of one of its vessels and higher demand for sustenance and home improvement goods. I'll now go through the current business trends in our Hawaii service, so please turn to slide seven. The Hawaii economy remains in a significant downturn, and its recovery trajectory remains uncertain as tourism-related businesses are operating in a difficult environment that will be extended for some time. UHERO is projecting a 10.2 percent decline in GDP in 2020, with near-zero growth in 2021 and more pronounced growth in 2022 as tourism rebounds more meaningfully. According to UHERO, visitor arrivals in 2021 are expected to be 58% below the record level achieved in 2019, followed by an 85% increase in visitors in 2022. The timing and extent of the vaccinations across populations will have a direct impact on the recovery trajectory in tourism. Unemployment in the state remains elevated and is projected to be well above 2019 levels for the next several years. UHERO is projecting the unemployment rate for 2021 and 2022 to be 10.9% and 5.6%, respectively, compared to 2.7% in 2019. One bright spot in the pandemic has been construction jobs. which grew 1% in 2020 and is expected to be near flat to slightly up in the next couple of years, supported largely by state and federal government spending projects, with some pickup in residential and non-residential building. To give you a sense of the volume trend one month into the first quarter, our westbound container volume in January decreased approximately 5.7% year-over-year due to the one less sailing than the year-ago period. Normalizing for the one less sailing, year-over-year growth would have been a decline of 3.1%. The westbound volume largely consisted of sustenance, home improvement, and retail goods. So a soft start in January, but the first few weeks of February, we're seeing higher volumes year-over-year. In March, will begin to lap the first pandemic shelter in place in the initial rush for home goods and essential goods. Moving to our China service on slide eight, Matson's volume in the fourth quarter of 2020 was 139.1% higher year over year. The supply and demand dynamics in the Trans-Pacific trade that we outlined in our prior earnings call remained favorable. For the full year, volume increased 85.8% due to the introduction of the CLX Plus service in the second quarter, and in addition to the increased capacity of the vessels in the CLX string. As a reminder, at the end of June 2020, we moved the Daniel K&O way into the CLX service, which added approximately 500 containers of additional capacity for each voyage. The demand for our expedited ocean services from China changed throughout the year as the pandemic and its effects evolved. Early in the second quarter of 2020, we saw outsized demand driven by PPE, e-commerce, working from home electronics, and other high-demand goods. There was so much demand for the CLX that we initiated a new service in May 2020 called the CLX Plus, which started as a few charters and subsequently became a weekly service working in concert with the CLX to meet the increasing demand. Late in the second quarter and into the third quarter, we saw a pickup in retail goods as lockdowns subsided and stores reopened. And late in the summer and heading into the holiday period, we saw increasing levels of e-commerce goods as the pandemic drove more consumption of imported goods in lieu of services. We also saw the need of manufacturers to replenish inventories depleted from the elevated consumption in the first few months of the pandemic. And the manufacturers have been playing catch up ever since. Our CLX service has been the leader in expedited ocean transportation services in the Trans-Pacific trade lane for the last 15 years. And our CLX Plus service is now the second best service in the trade lane behind the CLX service. Both services rely on our competitive advantages in our destination services, such as owning and controlling our own chassis to help truckers save time and money, and the unrivaled combination of SSAT terminal operation and our off-dock facility shipper's transport, which leads to industry-low turn truck times and next-day container availability. These competitive advantages become more apparent in high volume peak periods as we avoid the congestion issues that others face. I'll now comment on the current business trends, so please turn to slide nine. Picking up where our fourth quarter ended, January 2021 eastbound container volume increased 130.4% year over year. The same key factors remain. which are favorable supply and demand characteristics in the trade lane, inventory restocking, and elevated consumption of goods, including e-commerce and other high-demand commodities. We also experienced a very strong pre-Lunar New Year period. In the peak week prior to Lunar New Year, which began in early February, we saw demand in excess of two times the capacity of our CLX and CLX Plus vessels combined. As many of you know, The post-Lunar New Year period is traditionally slow as factories idle and workers go on vacation during the public week-long holiday. This year was different. The slowdown was abbreviated and our vessels sailed near full the week after Lunar New Year as there was a significant supply of freight available at warehouses still waiting to be shipped throughout the holiday. One of the underlying network benefits of the CLX Plus service is the ability to reposition additional equipment to markets where it's needed to take advantage of supply and demand imbalances. We remain committed to having ample equipment to meet the needs of our existing customers as well as potential new customers. To this end, given the steady volume demand on the CLX and CLX Plus services, we're investing approximately $55 million in new containers and chassis to support the growth of the CLX Plus and AAX services and increase the availability of equipment across our network. We continue to expect largely all of the supply and demand dynamics in the trade lane to remain favorable in the first half of 2021 as the pandemic persists. As the pandemic is anticipated to subside with the widespread vaccinations, we expect some of the supply and demand factors we're currently benefiting remain and continue to drive demand for our CLX and CLX Plus services. Lastly, with respect to the duration of the CLX Plus vessel charters, we've extended three of the six vessels into 2022 and two into 2023. We expect to enter into a new charter on a sixth vessel sometime in the first half of this year. Turning to slide 10, in Guam, Maximum container volume in the fourth quarter 2020 increased 4.2% year-over-year, primarily due to higher demand for sustenance and home improvement goods, partially offset by lower tourism activity as a result of the pandemic. For the full year 2020, container volume decreased 2.6%, primarily due to lower demand for retail-related goods resulting from the pandemic and its related effects. The Guam economy remains in a downturn as tourism levels remain depressed and tourism-related business activity remains very low. Unemployment remains high and well above pre-pandemic levels. The economic recovery trajectory remains highly uncertain and is largely dependent on the recovery of tourism. For the month of January, our westbound container volume increased 1.8% year-over-year from primarily due to higher volume of building materials. In the near term, we expect to see a stable retail environment, but we also expect tourism to remain challenged by the pandemic and have a negative impact on freight demand. Moving now to slide 11. In Alaska, Matt Simpson's painter volumes for the fourth quarter 2020 increased 18.9% year over year. The increase was driven primarily by higher northbound volume due to two additional sailings and higher demand for sustenance and home improvement goods and modestly higher southbound volume. Excluding the positive impact from the two additional northbound volumes, sailings, container volume would have increased approximately 11.5% year over year. For the full year, Container volume increased 4.6% year over year, primarily due to the higher northbound volume, including volume associated with the dry dock of a competitor's vessel and one additional sailing, partially offset by modestly lower southbound volume. I'll now go through the current trends in Alaska, so please turn to slide 12. The Alaska economy continues to recover from the second quarter lows, but the recovery trajectory remains uncertain. The jobs market remains challenging in the pandemic environment with employment in the state and in Anchorage down a little over 8% year over year for 2020. Both AEDC and the Alaska Department of Labor are projecting a rebound in employment growth, but the pace of jobs recovery will likely be dependent on further stimulus efforts during the pandemic, continued virus mitigation efforts, and the timing and extent of vaccinations across the state. Population growth is similarly tied to the waning of the pandemic and its effects on the economy. For 2021, AEDC shows continued population decline in Anchorage. The low oil price environment continues to negatively impact oil exploration and production, which has a direct and indirect impact on the state economy. But there is optimism that we'll see an uptick in development activity in 2021 from new projects. In January, northbound volume decreased 12.4% year over year due to one less sailing. Normalizing for the one less sailing, northbound volume would have increased 2.9%. The volume strength we saw in the fourth quarter of 2020 has carried into the early part of 2021. where we continue to see higher volume of sustenance and home improvement goods, the A fishing season, and consequently our Alaska southbound volume in AAX services is off to a delayed start due to an outbreak of the virus at several fish processing facilities in Alaska's Aleutian Islands. We expect the situation to only be a timing change in this fishing season and do not expect negative potential overall over time for seafood container volume. Turning next to slide 13, our terminal joint venture, SSAT, contributed $10.9 million in the fourth quarter of 2020 compared to $3 million in the prior year period. The higher contribution was primarily a result of higher container lift volume. SSAT volume benefited from the significant year-over-year increase in import volume into the U.S. West Coast from China. For the full year 2020, SSAT contributed $26.3 million, or $5.5 million higher than the year-ago period. The increase was largely due to lower operating costs. In January 2021 and throughout Lunar New Year period, import volume from China into the U.S. West Coast remained strong, and we expect SSAT to be a beneficiary from the elevated import volume. Turning now to logistics on slide 14, operating income in the fourth quarter came in at $9.6 million, or $2 million higher than the results in the year-ago period. The increase was primarily due to a higher contribution from transportation brokerage, where we saw elevated goods of consumption and inventory restocking coupled with tight supply and demand fundamentals in our core markets. For the full year, operating income decreased $2.8 million year-over-year to $35.5 million. The decrease was largely due to a lower contribution from freight forwarding but other business lines were also negatively impacted in the first half of the year by the pandemic. In January 2021, we saw transportation brokerage continue to benefit from elevated container volumes in Southern California in line with the trends in the U.S. West Coast import volume. At Span Alaska, our freight forwarding business remained steady and tracked our northbound volume trends in our Alaska Ocean business. We continue to see steady business activity in warehousing and supply chain services in line with what we've seen throughout much of 2020. Currently, many of our business lines are actively helping customers navigate a fairly challenging environment. These are the effects of continued congestion in Southern California from the elevated import volumes that I spoke about a moment ago, but there's also a broad set of challenges with the rails and trucking companies as a result of winter storms, most throughout most of the country last week. Historically, during periods of disruption, we tend to perform better, helping our customers navigate the difficulties because we own the chassis and assets and have years of experience maintaining freight in challenging times. And with that, I will now turn the call over to Joel for a review of our financial performance. Joel.