Matson, Inc.

Good day and thank you for standing by. Welcome to the Maxon conference call. At this time, all participants 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lee Fishman, Vice President of Finance. Please go ahead.

Lee Fishman Thank you, Brittany. 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 14 to 24 of our Form 10-K filed on February 24, 2023, and in our subsequent filings with the SEC. Please also note that the date of this conference call is August 1, 2023, 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 everyone on the call. I'll start on slide three. Matson's ocean transportation and logistics business segments performed well despite a challenging business environment and sluggish U.S. economic growth. For the second quarter, within ocean transportation, our China service saw higher sequential quarterly freight demand but generated lower year-over-year volume in freight rates, which were the primary contributors to the decline in our consolidated operating income. We also saw lower year-over-year volumes in Hawaii, Alaska, and Guam compared to the year-ago period. In logistics, operating income decreased year-over-year primarily due to lower contributions from transportation brokerage and supply chain management. 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 7.1% year over year, primarily due to lower retail related volume as our retail customers continue to manage inventories to weaker consumer demand levels. Volume in the second quarter of 2023 was 3.4% lower than the volume achieved in 2019. During the quarter, total visitor arrivals increased modestly year over year, with growth in international visitor arrivals partially offset a decline in domestic visitor arrivals. Total visitor arrivals in the second quarter of 2023 were just below the second quarter of 2019. Please turn to slide five. For the second half of 2023, we expect continued improvement in the Hawaii economy, supported by continued growth in visitor arrivals and a low unemployment rate. UHERO's May projections continue to show economic growth in 2023, supported by continued strength in total tourism and a relatively low unemployment rate. UHERO projects weakness in the domestic visitor arrivals from the effects of tighter credit and higher interest rates to be countered by continued improvement in international visitor trends. Unemployment is expected to rise little as the economy responds to the effects of higher interest rates to subdue inflationary pressures. Moving to our China service on slide six. Matson's volume in the second quarter of 2023 was 24.6% lower year over year primarily due to no CCX service in the quarter. Lower capacity in the CLX due to the dry docking of the Daniel K NOA and one less CLX Plus sailing. Nearly three quarters of the year-over-year volume decline was related to the CCX service in the year-ago period. Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index in the second quarter of 2023. We achieved freight rates that were lower than the year-ago period, but well above those achieved in the second quarter of 2019. During the quarter, we saw increased freight demand from e-commerce vertical and a modest increase in freight demand from garments and e-goods customers. Electronic goods or e-goods consists of computers, tablets, phones, and other electronic devices. The e-commerce goods we generally carry are a wide range of high turnover items that need to be replenished on a timely basis. Please turn to slide seven. Currently, in the trans-Pacific marketplace, we are seeing modest reductions in deployed capacity, and retail inventories are in a relatively better position than earlier in the year, but retailers continue to carefully manage inventory levels in the face of lower consumer demand. We further expect the trade lane to experience a muted peak season, but for Matson, we expect our China services to be in solid demand with our vessels near full during the traditional peak season. Absent an economic hard landing in the U.S., we continue to expect trade dynamics to gradually improve for the remainder of the year as the Trans-Pacific Marketplace transitions to a more normalized level of consumer demand and retail inventory stocking levels. Regardless of the economic environment, we expect to earn a significant rate premium to the FCFI, reflecting our fast and reliable ocean services and unmatched destination services. I want to spend a few minutes on the elements of demand for our China service, as we believe important changes have taken place over the last few years that are positive forces for our business. Prior to the pandemic period, We built the Matson brand in China over 13 years with a demonstrated history of the fastest ocean transit in the Trans-Pacific with the CLX service, our unparalleled service reliability, and 24-hour cargo availability at a unique U.S. Customs-bonded off-dock facility in Long Beach. We ensured that this service had a premium, high-touch customer service effort, both at origin and destination. Our key customer groups were garments and accessories, e-goods, and footwear. The CLX was also viewed by customers as a relatively fast, cost-efficient means to get last-minute items to the US West Coast. During the pandemic, we enhanced the Mattson brand in China with the initiation of new services during an extremely challenging environment to address our customer needs. As you may recall, We initiated the CLX Plus service in May of 2020 due to high demand for the CLX. This demand was initially driven by the loss of air freight capacity, where many customers viewed our services as the next best option to air freight. These customers quickly came to appreciate our value proposition versus air freight, which is a significantly lower cost for five to seven days of additional transit, coupled with reliability and consistency. We also initiated a temporary service in July of 2021 called the CCX to address the high level of demand for the CLX and CLX Plus as a result of the challenges of port congestion in Southern California. We ended this service in September of last year due to a combination of lower overall market demand and the reduced need for expedited ocean services given the significant improvement in the West Coast port congestion. Across our services in this period of time, we saw a wide range of demand from COVID-related supplies to e-commerce and e-goods. We also saw an expanded geographic area of freight origination with loads coming from distant areas within China and cross-border commerce. Post the pandemic, we've seen a significant increase in e-commerce demand as these customers are looking for a consistent and highly reliable expedited ocean service. This book of business complements our existing verticals of garments and e-goods that we've built over the last 16 years. Going forward, we expect the e-commerce vertical to be an important driver of demand for our China service. According to the U.S. Census Bureau, e-commerce penetration of total U.S. retail sales is approximately 15%, and in the first quarter, e-commerce sales grew approximately 8% year over year. Expectations are for continued growth in e-commerce to outpace the growth of total U.S. retail sales. Based on our customer conversations, there is enough air freight capacity in the market to meet the demand currently. Most of our customers that exclusively used air freight pre-pandemic have chosen to continue shipping a significant portion of their business with Mattson as they've already aligned their operations with our sailing schedule. We are confident that the majority of this business will remain with Matson regardless of air freight capacity as Matson's service is economically advantageous and reliable relative to air freight. Over the last 17 years, we've carved a niche reliable service that provides the fastest and second fastest ocean transit coupled with unmatched destination services and unparalleled customer service. The consistency of our China service is a significant differentiator in the marketplace and creates a flywheel of continued success whereby our value proposition and unique service attributes drive our customers to build their supply chains around our two expedited service. Please turn to slide nine. In Guam, Mattson's container volume in the second quarter of 2023 decreased 7.5% year over year. The decrease was primarily due to lower general demand. Volume in the second quarter of 2023 was 2.1% higher than the level achieved in the second quarter of 2019. In the second half of 2023, we expect continued improvement in the Guam economy with a low unemployment rate and a modest increase in tourism from low levels. Please turn to the next slide. In Alaska, Mattson's container volume for the second quarter of 2023 decreased 7.2% year over year. The decrease was due to lower export seafood volume from the AAX service, lower northbound volume due to one less saline, and lower volume primarily due to lower household goods and domestic seafood volume. Compared to the second quarter of 2019, volume in the quarter was 9% higher. In the second half of 2023, We expect the Alaska economy to continue to benefit from low unemployment and increased energy-related exploration and production activity as a result of elevated oil prices. Please turn to slide 11. Our terminal joint venture, SSAT, declined $26.1 million year-over-year to a negative $1.4 million. The lower contribution was primarily due to lower demerge revenue and lower lift volumes. SSAT saw significantly less diverge revenue in the quarter due to easing port congestion and lower lift volume consistent with lower demand in the Trans-Pacific trade lane. For the second half of 2023, we expect lift volume to reflect a relatively challenging environment in the Trans-Pacific trade lane. Turning now to logistics on slide 12, operating income in the second quarter came in at $14.3 million or $8.8 million lower than the result in the year-ago period. The decrease was primarily due to lower contributions from trans-Pacific brokerage and supply chain management. In the near term, we expect a mix of activity across the logistics lines of business. We expect continued growth in Alaska to be supportive of freight forwarding demand. We expect supply chain management to track our China service. For transportation brokerage, we expect near-term challenges with lower freight demand, excess capacity, and declining assessorial fees. And with that, I will turn the call over to Joel for a review of our financial performance.