Matson, Inc.

Good day, and thank you for standing by. Welcome to the second quarter 2021 financial results conference call. At this time, all participant 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 this 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, Lee Fishman. Please go ahead.

Thank you, Tina. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer, and Joel Winney, 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 12 to 21 of our Form 10-K, filed on February 26, 2021, and in our subsequent filings with the SEC. Please also note that the date of this conference call is July 29, 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'll now turn the call over to Matt.

Okay, thanks, Lee, and thanks to those on the call. I'll start with a quick recap of our second quarter results, so please turn to slide three. Matson's businesses across ocean transportation and logistics continue to perform well throughout the second quarter as the U.S. economy further recovers from the pandemic. The year over year increase in ocean transportation operating income in the quarter was primarily driven by continued exceptional demand for both the CLX and CLX Plus services. In our domestic trade lanes, we continue to see improving demand as the local economies further reopen with meaningfully higher year over year volumes compared to the pandemic volume lows in the second quarter of last year. Logistics operating income for the second quarter increased year over year as a result of continued elevated goods consumption and inventory restocking in addition to favorable supply and demand fundamentals in our core markets. The supply chain environment continues to be marked by widespread congestion and pressure points at critical junctions for both our ocean and overland transportation. At Mattson, we remain focused on what we do best, which is maintaining reliable trade lane services and helping our ocean transportation and logistics customers manage through this unique and difficult period of congestion. We're also focused on developing new organic growth opportunities that fully leverage the Mattson brand and our customer relationships. Please turn to the next slide and I'll discuss a few of these in detail. Since May of last year, we've added three new expedited services within our China business to leverage our fastest in service transit and offloading times in the port of Long Beach and our logistics network inland. This has considerable value to both new and existing customers, especially given the pain points in the supply chain. The introduction of these new services is the product of cultivating the Mattson brand in China for the last 15 and a half years by delivering a world-class reliable service with enduring competitive advantages. The results have been compelling and we're converting customers from other ocean carriers and from deferred air freight. In response to the overwhelming demand on the CLX as a result of the pandemic, last May we started our second expedited ocean service from China called the CLX Plus. which is a weekly service to Long Beach supported by six chartered vessels. The CLX Plus has most of the unique features of the CLX on the destination side, such as SSAT terminal operations, dedicated chassis, and industry-leading cargo availability and shipper's transport. What started as a short-term service has turned into a permanent offering that is the second-best service in the Trans-Pacific after our own CLX. In August of 2020, we announced the introduction of the Alaska Asia Express, or AAX, service that is a westbound seafood backhaul service on the CLX Plus from Dutch Harbor to China. This helps the long-term economics of the CLX Plus and drives additional growth opportunities for our Alaska business. Recently, we announced a third expedited ocean service from China called the China California Express, or CCX, to operate on a seasonal basis to meet the current levels of extraordinary volume demand. Like our industry-leading CLX and CLX Plus services, the CCX is fast, reliable, and offers many of the same great features that make Mattson unique. The first voyage from Shanghai is this week, and demand is extremely high. This service departs from China and calls Oakland first, then calls Long Beach and births at Mattson dedicated terminals in both West Coast ports. We replicated the key features of our Long Beach destination services in Oakland, which are SSAT operated exclusive use terminal for immediate cargo operations, dedicated chassis for truckers to speed goods to customers, and use of shipper's transport for cleared cargo to offer quick turn times with no required pickup appointment times. To support the service, we're using both of the Kanaloa-class vessels and activating two additional vessels, one in the CCX and one in the Hawaii service. The CCX will have departures from China three out of every five weeks, with each vessel in the string having capacity of approximately 1,300 FEUs. And lastly, we initiated a new service at the end of the second quarter with our vessel, the Kamokuiki, sailing from China to Auckland, New Zealand direct in what we're calling the China-Auckland Express, or CAX. This is currently the only vessel in the service and departs China about every five weeks. We're excited about its prospects and will consider adding capacity if there is enough long-term demand. In summary, we've initiated three new expedited service in the last 14 months within our China business by leveraging the Mattson brand and the success of the CLX. We listened to our customers and quickly adapted to a rapidly evolving marketplace and investing in equipment so we never miss a single piece of freight. We've developed new relationships with customers looking for quick and reliable ocean services and have grown with existing customers whose businesses are running flat out to meet the challenges of e-commerce and other retail demand in this environment. All of our China offerings provide an extremely compelling value proposition when compared to air freight and other ocean freight services. I believe our recent initiatives have set the company up very well for future growth in this trade lane. I'll now go through our trade lane services, so please turn to slide five. Hawaii container volume for the second quarter increased 9.9% year over year. The increase was primarily due to higher retail and hospitality related demand due to the reopening of the Hawaii economy compared to pandemic lows in the year ago period as a result of the state's COVID-19 mitigation efforts, including restrictions on tourism. I'd like to note that the volume in the year ago period includes volume associated with the dry docking of a competitor's vessel. Total container volume in the second quarter of 2021 was 5.6% higher than the results achieved in the 2019 period. I will now go through the current business trends in our Hawaii service, so please turn to the next slide. Domestic visitor travel to the state has accelerated since the beginning of the year, and the local economy continued to reopen with COVID-19 vaccinations leading to a sharp rebound in Hawaii's tourism industry and economy. According to state statistics, visitor arrivals in June were at approximately 84% of the 2019 level compared to 21% in January. Further improvements in the tourism statistics are expected in the second half of the year. The material improvement in visitor numbers this year has also driven improvements across a number of key economic metrics. For example, the unemployment rate since January has declined from 10.3% to 7.7%, but remains elevated well above the 2.5% unemployment rate in 2019. We're cautiously optimistic that further improvements in tourism and the reopening of businesses will continue to drive the economic recovery, but we recognize it may be several years to achieve unemployment and GDP levels seen in 2019. To give you a sense of the volume trend one month into the third quarter, our westbound container volume in July increased approximately 16% year over year, primarily due to higher retail and hospitality related demand. Moving to our China service on slide seven. Matson's volume in the second quarter 2021 was 59.1% higher year over year, primarily due to incremental volume from the CLX Plus service in addition to higher volume in the CLX service as a result of our increased capacity in the trade lane. The total number of eastbound voyages in the China service increased by nine year over year, of which six were from incremental CLX Plus voyages and three from extra loaders. Recall that we had seven CLX Plus sailings in the year-ago period. Matson continued to realize a significant rate premium in the second quarter, 2021, and achieved average freight rates that were considerably higher than the year-ago period. Volume demand in the quarter was driven by e-commerce, garments, and other goods. We continue to see sustained and elevated consumption trends and low inventory levels drive increased demand for our expedited ocean services. I'll now comment on current business trends, so please turn to slide eight. The key demand factors I mentioned for the second quarter continued into the third quarter with July 2021 Eastbound container volume higher year-over-year by approximately 23%, including the benefit of an extra loader. Currently in the Trans-Pacific trade lane, supply chain congestion continues, and consumption trends remain elevated. Retail and e-commerce demand remains strong, and it remains a very challenging inventory replenishment environment, particularly for retail. We expect the supply chain and supply-demand conditions to remain in place and lead to a high level of demand at least until Lunar New Year in the first quarter of 2022. Consequently, we expect our vessels in the CLX, CLX Plus, and CCX services to be operating at capacity at least until Lunar New Year next year. Turning to slide nine, in Guam, Madison's container volume in the second quarter 2021 increased 35.7% year-over-year, primarily due to higher retail-related demand compared to the pandemic low in the year-ago period as a result of the island's COVID-19 mitigation measures, as well as volume attributable to a competitor's schedule issues. The volume in the second quarter was 18.8% higher than the results achieved in the 2019 period. The Guam economy is recovering slowly as tourism remains constrained. Consequently, the economic trajectory remains uncertain. For the month of July, our westbound container volume increased approximately 18% year over year. Moving now to slide 10, in Alaska, Mattson's container volume for the second quarter 2021 increased 15.2% year over year. The increase was due to higher northbound volume, primarily due to higher retail-related demand compared to the pandemic low in the year-ago period as a result of the state's COVID-19 mitigation efforts, higher southbound volume, and the addition of volume from the Alaska-Asia Express service, partially offset by one less northbound sailing. We continue to see improving economic trends in the state as businesses reopen, but the economic recovery trajectory continues to remain uncertain. For the month of July, our northbound container volume increased approximately 4% year over year, primarily due to higher retail-related demand. Turning next to slide 11, our terminal joint venture, SSAT, contributed $12.8 million in the second quarter 2021 compared to $3.7 million in the prior year period. The higher contribution was primarily a result of higher lift volume as a result of the significant year-over-year increase in import volume into the U.S. West Coast from China. We continue to see strong import volume into the U.S. West Coast and expect SSAT to be a beneficiary of this elevated volume. Turning now to logistics on slide 12, operating income in the second quarter came in at $12.9 million, or $4 million higher than the result in the year-ago period. The increase was primarily due to higher contributions from transportation brokerage, freight forwarding, and supply chain management, where we saw elevated goods consumption and inventory restocking in addition to favorable supply and demand fundamentals for our core markets. In July 2021, we saw transportation brokerage continue to benefit from elevated container volumes in Southern California in line with trends in the U.S. West Coast import volume. At Span Alaska, our freight forwarding business remained steady and tracked slightly better than northbound volume trends in our Alaska ocean business. Ongoing supply chain congestion at ports, terminals, rail yards, and warehouses continues to fuel a disruptive environment, and many of our business lines are actively helping customers manage through the chaos. Historically, our businesses have performed well in times like this, owing to our many years of experience in managing freight during turbulent periods, and also that we own and control our own assets. And with that, I will now turn the call over to my partner, Joel, for a review of our financial performance.