Matson, Inc.

Good day, ladies and gentlemen. Thank you for standing by. And welcome to MAPS's second quarter 2022 financial results conference call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host, Lee Fishman. Please go ahead.

Thank you, Olivia. 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 13 to 24 of our Form 10-K filed on February 25th, 2022, and in our subsequent filings with the SEC. Please also note that the date of this conference call is August 1st, 2022, 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. With that, I'll turn the call over to Matt. Okay. Thanks, Lee, and thanks to those on the call.

Starting on slide three, Massen performed well in the second quarter with higher year-over-year operating income in both ocean transportation and logistics. The increase in ocean transportation operating income in the quarter was driven by significant demand for our China expedited ocean services. In our domestic trade lanes, we saw higher volume in Alaska and softer volumes in Hawaii and Guam compared to the second quarter of last year. In logistics, The increase in operating income was due to strength across all of the business lines as we continue to see favorable supply and demand fundamentals in our core markets. Please turn to slide four. I want to start off providing our views on the current market environment across the domestic trade lanes, logistics, and the Trans-Pacific trade lane, after which I will walk through our current priorities and then our trade lane performance in the second quarter. Starting with our domestic trade lanes, we continue to see economic recovery in Hawaii, Alaska, and Guam from the pandemic lows. In Hawaii, domestic tourism was strong in the first half of the year, and we saw increasing international tourist arrivals, but total arrivals are still well below the pre-pandemic high. UHERO is projecting Hawaii visitor arrivals for 2022 to be 87% of the pre-pandemic high in 2019, increasing to 93% in 2023. The strong recovery in Hawaii tourism industry has led to a rapid decline in the unemployment rate. In Alaska, we expect the Alaska economy to benefit from the resumption of summer tourism and increased energy-related exploration and production activity as a result of elevated oil prices. We continue to see further improvement in the unemployment rate from the pandemic highs. And in Guam, the economy continues to recover from the pandemic low despite the slow return of tourism. Tourism has increased since the beginning of the year, but it's still about 25% of the pre-pandemic level. We expect further improvement in tourism arrivals from Asia to support the local economy but the timing remains unclear. With our positive drivers supporting further growth in our core domestic markets, weakening economic conditions in the US and in global economies could negatively affect tourism and consumer spending. In addition, the combination of high inflation, higher interest rates, and lower personal income with the end of the pandemic era stimulus is likely having a negative impact on household income and consequently consumer goods demand. For example, in Hawaii and Guam, retail-related demand declined in the second quarter and the softness continued in July. Turning to logistics, we continue to see a solid level of activity across all business lines. Span-Alaska's business activities continue to track well with the performance in the Alaska trade land, and the trend in our supply chain business is consistent with the demand for our China service. Rail congestion, particularly on the U.S. West Coast, continues to be an issue for our transportation brokerage customers, and as a result, some of our customers are shifting modes from rail to truck to expedite the delivery of goods. Our warehousing unit remains busy, with inbound goods and transload volume exceeding outbound volume. Please turn to slide five. Demand for our differentiated expedited China service remains solid. While some supply chain infrastructure issues that we've mentioned on prior calls are slowly subsiding, other uncertainties remain. China's factory production continues to recover from the COVID-19 related supply chain challenges. Import commodities are making their way to the factories and the logistics of moving freight from the factory floor to the port have become more fluid. but as we've seen in the last two years, COVID-19 waves have the potential to disrupt this part of the supply chain. Port congestion on the U.S. West Coast has improved, and birth time waits are considerably less than at the beginning of the year, but container dwell times at the terminals remain elevated, partly due to ongoing rail congestion I just mentioned. In the last month or so, we've seen some customers opt to send U.S. cargo to the East Coast ports to manage risk during the peak season. The key uncertainties for them are the ongoing rail congestion and the potential for a West Coast labor slowdown as the contract between the PMA and the ILWU expired on July 1st. In recent weeks, we've seen a gradual decline in the Trans-Pacific freight indices from the highs experienced earlier this year. This indicates that rates have likely peaked for now. At this time, we expect an orderly marketplace for the remainder of the year with our vessels continuing to operate at or near capacity and earning a significant rate premium to the market and well above pre-pandemic rate levels. We're well positioned to help customers speed goods to market with the fastest and most reliable ocean services in the Trans-Pacific and unparalleled destination services on the US West Coast. As a result, we continue to expect to operate the CCX service through October peak season this year. Our CCX service, with Oakland as the first call, has addressed the need for our customers in the last 12 months to get freight to markets during a period of difficult congestion conditions at the Southern California ports. With congestion conditions expected to subside further, the need for this service beyond the October season is likely to diminish. However, if there's enough demand for the CCX post the October peak season, then we'll have the option to continue the service well into 2023. Please turn to slide six where I'll go through the current priorities. First and foremost, we're focused on maintaining vessel schedule integrity and providing high quality service for our ocean transportation and logistics customers as the environment continues to evolve. We continue to expect the post pandemic environment to be an evolving journey, and we will adapt like we have always done to support the lifeline communities that we serve. Second, we're focused on organic growth opportunities and long-term investments that leverage our existing operations. To this end, We're making good progress on the evaluation of the Alaska fleet replacement. We're currently leaning towards upsizing the CLX service with three new LNG-ready Aloha-class vessels. We expect to get a head start on funding the refleeting program on a tax-advantaged basis with a sizable cash deposit into the Capital Construction Fund before the end of the third quarter. Joel will go into more detail on the new vessels and the CCF in a few moments. Third, we want to maintain our investment-grade balance sheet. We view our balance sheet as a competitive advantage to capitalize on inorganic growth opportunities as they emerge and regardless of where we find them in the cycle. We will remain disciplined in evaluating acquisitions that meet the key criteria we've outlined previously on earnings calls and in my shareholder letters. And lastly, we're committed to returning capital to shareholders with excess cash flow, which we define as cash flow after funding our maintenance capital expenditures, long-term investments, and dividend. In the last 12 months, we've generated significant cash flow, which we have used to return over $450 million in capital to shareholders in the form of dividends and share repurchases. Going forward, we expect to be a steady buyer of shares. I will now go through the second quarter performance of our trade lanes, SSAT, and logistics. So please turn to the next slide. Hawaii container volume for the second quarter decreased 1.5% year over year, primarily due to lower retail-related demand. The Hawaii economy continued to show improvement in the quarter, supported by strong domestic tourist arrivals and modest improvement in international tourist trends. Moving to our China service on slide eight. Matson's volume in the second quarter 2022 was 11.7% higher year over year due to four more eastbound voyages than the prior year. Freight demand in the quarter was driven by e-commerce, garments, and other goods. Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index in the second quarter of 2022 and achieved average freight rates that were considerably higher than the year-ago period. Turning to slide 9, in Guam, Matson's container volume in the second quarter of 2022 decreased 7% year-over-year. The decrease is primarily due to lower retail-related demand. Moving now to slide 10, In Alaska, Massen's container volume for the second quarter 2022 increased 12.2% year-over-year. The increase was primarily due to higher northbound volume, primarily due to higher retail-related demand and an additional sailing, and higher seafood volume from the Alaska-Asia Express. Turning next to slide 11, our terminal venture SSAT contributed $24.7 million in the second quarter 2022 compared to $12.8 million in the prior year period. The higher contribution was primarily a result of higher other terminal revenue. Turning now to logistics on slide 12, operating income in the second quarter came in at $23.1 million or $10.2 million higher than the result in the year ago period. The increase is primarily due to higher contributions from all services as we continue to see favorable supply and demand fundamentals in our core markets. And with that, I will now turn the call over to Joel for a review of our financial performance.