Matson, Inc. (MATX) Q3 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Third Quarter 2021 Fiscal Results Conference Call [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions]. I would now like to hand the conference over to your speaker today, Lee Fishman, Senior Director of Relations. Please go ahead.

Thank you, Tina. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our Web site, 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 November 3, 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.

Okay. Thanks, Lee, and thanks for those on the call today. I'm going to start on Slide 3 with a quick recap of our third quarter results. We had a solid performance in Matson's Ocean Transportation and Logistics businesses as strong economic and business trends in the second quarter continued into the third quarter. The year-over-year increase in Ocean Transportation operating income in the quarter was primarily driven by continued strong demand for our expedited ocean services, including the new China, California Express or CCX. In our domestic tradelanes, we continued to see strong demand with higher year-over-year volumes compared to the largely pandemic reduced volumes in the third quarter of last year. Logistics operating income for the third quarter increased year-over-year as a result of continued elevated goods consumption, inventory restocking and favorable supply and demand fundamentals in our core markets. The supply chain environment continues to be one of widespread congestion at many key points within ocean and overland transportation. We remain focused on what we do best, which is maintaining fast, reliable trade lane services and helping our ocean transportation and logistics customers manage through this difficult period of congestion. Lastly, towards the end of the presentation, I'll review our sustainability strategy in light of our recent release of our supplement to the sustainability report, which can be found on our Web site. There are a number of key items in the report that I wanted to walk through, some of which have financial considerations. And with that, I'll now go through our tradelane services, so please turn to the next slide. Hawaii container volume for the third quarter increased 11.5% year-over-year and was 10.6% higher than the results achieved in the 2019 period. The increase year-over-year was primarily due to higher retail and hospitality related demand due to the continued rebound in tourism and the Hawaii economy compared to the pandemic reduced volume in the year ago period. Domestic visitor travel to Hawaii remained strong throughout much of the third quarter 2021 until the end of the quarter when the state's efforts to address the spread of the COVID-19 delta variant, including the governor's request in late August to defer travel plans, led to a softening in airline passenger traffic. As a result, we experienced a modest negative impact in freight demand late in the quarter. Please turn to the next slide, where I'll comment on the current business trends in Hawaii. The chart on the right shows visitor arrivals and the unemployment rate from the beginning of the year through September. The significant increase in visitor travel to the state, driven predominantly by US mainland visitors, has powered a resurgence in the tourism industry and consequently, in the state's economy and led to a decline in the state's unemployment rate. In the near term, the Hawaii economy may experience a brief slowdown as a result of the state's response to the COVID-19 Delta variant and the related impacts on tourism trends. In July 2021, total visitor arrivals was approximately 12% lower than in July 2019. And in August and September, this gap widened to 22% and 31%, respectively, as an effect of the governor's plea to visitors in late August to defer travel plans. On October 19th, the governor announced that nonessential travel to Hawaii can resume on November 1st, so there's an expectation that tourism activity should increase heading into the holiday season. UHERO's latest forecast captures the near term negative effects of the state's response to the COVID-19 Delta variant and impact on tourism as well as other macroeconomic factors. As compared to UHERO's forecast in May, the current forecast shows a modestly lower GDP growth trend and an unemployment rate for 2021 and 2022 that are 100 and 200 basis points higher respectively. UHERO continues to expect that a full return to pre-pandemic conditions may take several more years. To give you a sense of the volume trend one month into the fourth quarter, our westbound container volume in October increased approximately 2% year-over-year, primarily due to higher retail and hospitality related demand. Year-over-year growth was muted by the pullback in tourism as a result of the governor's request to defer nonessential travel. Moving to our China service on Slide 6. Matson's volume in the third quarter 2021 was 21.7% higher year-over-year, primarily due to the volume from the CCX service and volume from an extra loader. The total number of Eastbound voyages in the China service increased by six year-over-year, of which five were from the CCX voyages and one from the extra loader. Matson continued to realize a significant rate premium in the third 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 heading into peak season. We continued to see sustained and elevated consumption trends and low inventory levels drive increased demand for our expedited ocean services. I'll now comment on the business trends, so please turn to Slide 7. For October 2021, eastbound container volume was higher year-over-year by approximately 11% due to the addition of CCX volume, partially offset by one less CLX+ sailing this October as a result of timing. Currently, in the transpacific tradelane, we're seeing supply chain congestion due to a combination of ongoing elevated consumption trends, inventory restocking and bottlenecks at critical points for both ocean and overland transportation. Retail and e-commerce demands remained strong. And it continues to be a very challenging inventory replenishment environment for retail, in particular, as evidenced by the trend in US retail inventory to sales ratio, as shown in the chart on this slide. With respect to retail and e-commerce, we're seeing a high level of demand for our China ocean services to expedite freight to the US West Coast for Black Friday, Cyber Monday and late holiday shipping. We're also seeing some customers plan ahead for freight delivery before the Lunar New Year period. All elements of the supply chain infrastructure from origination in China to the distribution points in the US are in chaos, and we're working very hard to help our customers navigate through this exceptionally difficult period. We're also intensely focused on maintaining our industry leading ocean transportation transit times and fast cargo availability of our CLX, CLX+ and CCX services. Looking ahead, we expect elevated consumption demand and inventory restocking to remain largely in place at least through midyear 2022. As we work towards the new normal, we'll have the CCX in place for as long as this peak supply chain demand environment remains in place, which may be until the middle of '22, but we don't believe the CCX will be a permanent service for Matson. We will continue to adapt all of our ocean expedited services to the demand from our customers and we're prepared to move on opportunities to drive further organic growth. Turning to Slide 8. In Guam, Matson's container volume in the third quarter 2021 increased 14.6% year-over-year, primarily due to the higher retail related demand compared to the pandemic reduced level in the year ago period. The volume in the third quarter was 17% higher than the result achieved in the 2019 period. The Guam economy is recovering slowly as tourism remains constrained. Subsequently, the economic recovery trajectory remains uncertain. For the month of October, our westbound container volume increased approximately 11% year-over-year. Moving now to Slide 9. In Alaska, Matson's container volume for the third quarter of 2021 increased 10.7% year-over-year. The increase was due to the addition of volume from the Alaska, Asia Express, higher northbound volume primarily due to an additional sailing and higher retail related demand and higher southbound volume. In the near term, we expect improving economic trends in Alaska. But the recovery trajectory continues to remain uncertain, particularly given the seriousness of the COVID-19 Delta variant outbreak in the state. For the month of October, our northbound container volume was approximately flat year-over-year as retail related demand remained elevated. Turning next to Slide 10. Our terminal joint venture, SSAT, contributed $13 million in the third quarter 2021 compared to $7.7 million in the prior year period. The higher contribution was primarily result of higher lift volume as a result of the significant year-over-year increase in import volume into the US West Coast from China. And currently, we continue to see elevated import volume into the US West Coast, which we expect to translate into a high level of lift activity for SSAT. Turning now to Logistics on Slide 11. Operating income in the third quarter came in at $16 million or $4.1 million higher than the result in the year-ago period. This increase was primarily due to higher contribution from supply chain management and transportation brokerage, where we saw elevated goods consumption and inventory restocking, in addition to favorable supply and demand fundamentals in our core markets. In October 2021, we saw supply chain management and transportation brokers continue to benefit from elevated container volumes in Southern California, in line with the trends in the US West Coast import volume. And with that, I will turn the call over to Joel for a review of our financial performance. Joel?

Okay. Thanks, Matt. Please turn to Slide 12 for a review of our third quarter results. Consolidated operating income increased $279.5 million from $98.4 million in the year ago period to $377.9 million with higher contributions from Ocean Transportation and Logistics of $275.4 million and $4.1 million respectively. The increase in Ocean Transportation operating income in the third quarter was primarily due to a higher contribution from China. The year-over-year increase in China was a result of significantly higher average freight rates and higher volume. The increase in volume was primarily due to the volume from the new CCX service and an extra loader. As Matt noted, the increase in Logistics operating income was due primarily to higher contributions from supply chain management and transportation brokerage. I do want to point out that the year-over-year decline in Logistics operating income margin from 8.1% to 7.7% was due primarily to the increase in transportation brokerage revenue and its relatively lower margin contribution. Interest expense for the quarter was $5.1 million or $0.4 million lower than the second quarter as a result of lower outstanding debt. Lastly, the effective tax rate in the quarter was 24.4%. Slide 13 shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of $742.3 million: from which we used $176.4 million to retire debt, $295.7 million on maintenance CapEx which includes $95.8 million to terminate the Maunalei operating lease, $30 million on new vessel CapEx including capitalized interest and owners' items and $15.6 million on other cash outflows while returning $159.1 million to shareholders via dividends and share repurchases. I would like to point out that Matson made net cash tax payments of $164 million and $86.9 million in the LTM period and third quarter respectively. Turning to Slide 14 for a summary of our balance sheet. You will note that our total debt at the end of the quarter was $647.2 million and our total net debt was $571.3 million. During the quarter, we reduced total debt by $14.3 million. At the end of the third quarter, our leverage ratio was approximately 0.6 times, and we had no outstanding balance on the revolver. As we noted on the second quarter earnings call, we terminated the operating lease on the Maunalei on July 7th and paid $95.8 million to acquire the vessel. This payment is captured in other capital expenditures line item on the cash flow statement. We continue to expect the transaction to be EPS accretive by $0.10 and $0.19 in 2021 and 2022 respectively. Lastly, regarding our share repurchase program. We repurchased 1.5 million shares in the third quarter for a total cost of $115.7 million. After the quarter end and from October 1st through yesterday on November 2nd, we repurchased an additional 400,000 shares for a total cost of $33.1 million. As of November 2nd, yesterday, we have approximately 1.1 million shares remaining on our $3 million authorized share repurchase program. With that, I'll now turn the call back over to Matt.

Thanks, Joel. Before moving to the Q&A, I want to spend a few minutes on several key aspects of our sustainability strategy, which are detailed in our inaugural sustainability report published in February and most recent supplement published this week. Matson's always been committed to advancing responsible, sustainable and ethical practices throughout the company, and I'd like to review a few important and new goals for all of our stakeholders. I'll start with the environmental stewardship. We recognize that climate change is the most pressing environmental challenge facing the world and we believe we have a responsibility to significantly reduce our impact on climate change by lowering our greenhouse gas emissions. To this end, we introduced four new state-of-the-art vessels that included multiple environmental features designed to help reduce greenhouse gas emissions, allowing us to replace seven steamships that were older and less efficient. The two Aloha Class vessels entered service in 2018 and 2019 and the two Kanaloa Class vessels entered service in 2020. We've responsibly recycled six of the seven steamships at US facilities that comply with international ship recycling standards, and we plan to recycle the final steamship in a similar manner this year. We're now announcing medium and long term goals that reflect Matson's commitment and contribution in helping the world decarbonized and limit climate change. The goals were as follows. Reduce Scope 1 greenhouse gas emissions from our owned fleet by 40% by 2030 using 2016 as a baseline and achieve Net Zero Scope 1 greenhouse gas emissions from our fleet by 2050. To achieve our medium term 2030 goal, we aim to improve the fleet and operational efficiency. I'll come back to this in a few minutes. Our 2050 goal is particularly ambitious as there is currently no known commercially available fuel that is carbon neutral and can be used for ocean going container ships. To help accelerate development of zero carbon fuels and technologies, Matson, along with 16 members of the World Shipping Council, signed an open letter to the International Maritime Organization, or IMO, advocating for action to achieve the IMO's climate goal and proposed a new $5 billion industry funded R&D program. We will need to access to transformational fuels and technology to achieve our 2050 goal. But in the meantime, we will continue to drive projects to lower emissions, improve efficiency and modernize our terminal operations. Lastly, on environmental stewardship, we intend to report our climate risks and opportunities in accordance with the Task Force on Climate related Financial Disclosures, or TCFD, those recommendations in 2022. Moving to people and places. Matson's culture and values are rooted in decades of living and working in the communities that we serve. As we've experienced in our geographic region the business service over the years, we haven't lost sight of the connection and responsibility we have to the communities, as well as to the people who make up our company. We're focused on providing a safe and healthy work environment. We work to minimize the inherent risks of moving freight on the water and in terminals and warehouses with the goal of zero lost time incidents and fatalities. And in the COVID-19 environment, we've been vigilant in ensuring that our workforce has access to PPE and that all of our offices, terminals, warehouses and vessels are regularly sanitized. Our vision for Matson to be a great place to work for all employees. We're committed to improving diversity, providing equal pay for equal work and fostering an inclusive culture. We want to foster career pathways for future leaders while planning for the loss of retiring employees. And community is a big part of our Pacific culture, so Matson and its employees play an active role in supporting our communities. And last but not least, on corporate integrity, Matson's committed to upholding the highest ethical standards. This means acting with respect, candor and honesty in everything we do. This is the ethos, is the foundation of our business and the basis of our approach to strong governance, including our Board of Directors’ engagement in environmental, social and governance matters. It also drives our longstanding commitment to communities and customers who depend on us to deliver critical supplies needed to power their local economies. Please turn to the next slide. As I mentioned earlier, Matson set a medium term goal of 2030 to reduce Scope 1 greenhouse gas emissions from our own fleet by 40%. In order to meet this goal, we will need to pursue different approaches and it's imperative that we maintain optionalities as these new technologies and tools emerge. And of course, whatever choices we make to meet this goal will need to make economic sense and fit within the company's larger strategy. So with that in mind, let me touch on a few items. We plan to install tanks, piping and cryogenic equipment on the Daniel K. Inouye, our first Aloha Class vessels, to operate on liquefied natural gas or LNG. The installation is currently scheduled to begin in the first quarter of 2023 and to last approximately five months. The estimated total cost for this installation is approximately $35 million. As a reminder, the engines in our Aloha Class and Kanaloa Class vessels are dual fuel capable, meaning the engines can run on both conventional fuels and LNG. We are actively considering LNG installations on the Kaimana Hila and the two Kanaloa Class vessels, the Lurline and Matsonia. The current estimated cost to install LNG capability on the Kaimana Hila is approximately $35 million, and on the two Kanaloa Class vessels is approximately $80 million or $40 million each. Next, we plan to reengine Manukai to operate on both LNG and conventional fuels. The cost to reengine this vessel is approximately $60 million and the conversion will begin after the LNG installation on the Daniel K. Inouye. We will begin procuring long lead time items on the Daniel K. Inouye and Manukai, such as the tanks and Manukai's new engine this quarter. To maintain flexibility, the new tanks for these vessels will be designed to accommodate future carbon neutral fuel when they become commercially available. As we consider our options for the refleeting of the three Alaska vessels later this decade, any new vessels we commit to are expected to be designed with state of the art characteristics and efficiency, including the consideration of any new fuel technologies that may be commercially available at that time. Another option for us and one that we have not made a decision on would be to move three of our older vessels into the Alaska tradelane and order three new LNG ready Aloha Class vessels for the China service. And lastly, there are a number of other strategies and initiatives to help increase fleet efficiency and lower emissions. These approaches can be found in the sustainability report supplement. Please turn to the next slide. One point I want to make clear for investors is that in order to achieve our 2030 goal, we currently believe that we will need to have eight vessels operating on LNG by the end of the decade. The eight vessels would be both of our Aloha Class vessels, both of our Kanaloa Class vessels, the reengined Manukai and three new LNG ready vessels. We spent considerable time evaluating the fuel alternatives and LNG availability via bunker barges on the US West Coast. West Coast seems more likely in the coming years. We believe LNG is an important bridge fuel as we evaluate other fuel types and technologies that will allow us to achieve our 2050 climate goals. In summary, we've built a reputation for our deep commitment to environmental stewardship, being a trusted and reliable employer and community partner, and operating our business with integrity. In keeping with that tradition, we're working collaboratively in our industry to promote positive change and mitigate environmental impacts associated with our business operations. We will chart our progress with the annual sustainability report and we'll keep investors regularly informed of the financial impact and plans to meet our goals. To wrap things up for the quarter, we performed well in the first nine months of the year. We're focused on maintaining the reliability of our ocean services and working closely with our customers in ocean transportation and logistics to manage through this difficult period for our customers. And with that, I will turn the call back to the operator and ask for your questions.

[Operator Instructions] Your first question is from Jack Atkins with Stephens.

So I guess, Matt, if I could, just kind of thinking about the Hawaii lane for a moment. When we look at visitor arrivals, they've approved, I think, as we went through the summer until the more recent actions, but still down a good bit versus 2019. But overall volume levels in the Hawaii lane are obviously higher than 2019. We're seeing a lot of unusual freight flows across the US more broadly, and I'm guessing that's what's going on in Hawaii too with inventory restocking and things like that. But I guess when you sort of think about the level of activity to Hawaii today and you kind of think about that over the next kind of four to six quarters, do you feel like that we can sustain this level of volume to Hawaii without a recovery from a visitor perspective back to 2019 levels and beyond? Just sort of curious if you could maybe talk about that for a moment.

My view is that I'm a little bit more bullish on Hawaii, Jack. First of all, I think we don't see much of a problem in sustaining our current level of freight volume moving forward. And I think my personal view and what we're inherent in talking to our customers that this period in the fourth quarter, the slowdown associated with the Delta variant and the restrictions that the state put in place did indeed suppress travel. But I continue to be pretty optimistic that Hawaii will be seen as a relatively safe place to travel through the holiday season and into 2022 relative to international destinations to travel, which are still dealing with impacts related to the delta variant. So I personally think that the overall environment in Hawaii is likely to improve and be relatively healthy going into 2022. So I think there's more of a risk to the upside than -- I don't feel much risk. I mean absent -- it's like answer to a lot of questions, it's all about Delta and COVID. And to the extent that we begin to see, not the elimination of COVID-19 but the gradual reduction as vaccines and treatments become more effective, I think will stand to benefit the economy in Hawaii.

And I guess maybe kind of along that same line of thought, when we kind of think about your capacity utilization westbound to Hawaii from the West Coast. I know you guys don't like to give specific utilization statistics there for obvious reasons. But I guess when you sort of think about sort of where you are with the current fleet deployment, do you have a fair amount of excess capacity left to go? Because it kind of feels like we're getting back towards the 2016 levels. I know the fleet is different today than it was then, but just sort of curious if you could maybe comment on that.

Yes, I'll comment generally on it, Jack. I would say that we have seen -- we're satisfied with our utilization but we have capacity to be able to meet the Hawaii capacity as and when the economy recovers. So we're very comfortable with both where we are now on a fleet utilization perspective into Hawaii but also have sufficient capacity to grow with the economy as it recovers next year.

And last question from me, and I'll hand it over. But could you maybe give us an update, Joel, maybe if this is more for you, but just an update on the charters that you guys were planning on working on with regard to the CLX+ service. And I know some of those were coming up towards the end of this year, maybe early next year. Any update on that and sort of maybe how you guys are thinking about that capacity over a longer period of time?

So yes, we had a couple of vessels on charter come up in early 2022 and then another vessel in the second quarter of 2022. So those are the three vessels that we are focused on here in the latter part of this year. And we're almost there. We've had engagements on new charters and we believe we need one more vessel and then we'll be in good shape to continue to have our core CLX+ vessels on charter. The new development, Jack, that's probably important to note is not surprisingly vessel owners have really pushed for longer duration of terms. So as we look at 2020 and the first bit of 2021, we could find charters that were sometimes 12 months or 24 months, that's when owners that move that conversation in three years, four years, five years and really pushing for four and five years. For the most part, we've tried to keep ours down to three years or maybe a little bit more than three years, and that's what you'll see as we roll these over. So you'll have some charters that go into '24 and '25. But we're in good shape as we look at our needs for the CLX vessels heading into Q1 to next year, Jack.

Maybe if I could sneak one more in before I hand it over. But Matt, I'd be curious to get your take on Lunar New Year in 2022. I know we didn't really see much of a Lunar New Year holiday in China in 2021. I guess there's a lot of debate on sort of what Lunar New Year in 2022 could look like, given the Olympics and everything else kind of going on in China next year and there's zero COVID policy. So just curious what you're hearing from your customers with regard to sort of the Lunar New Year holiday in 2022, do you think we're going to have a more normal Lunar New Year this year? And just any sort of thoughts on that would be appreciated.

Yes, it is early, Jack. So I'll speculate just a little bit. But currently, in China, they are dealing with Delta variant outbreaks throughout the country. And of course, the Chinese government is moving aggressively to limit the spread of COVID inside the country, and you also rightly point out with the Olympics. I think from -- and again, speculating, but from a Chinese public policy standpoint, having hundreds of millions of Chinese in the domestic transportation system going to their hometowns is not a good factor in terms of trying to limit the spread of the delta variant of COVID. And so we expect a shorter Lunar New Year period as many people decide for themselves or are discouraged from traveling. So again, I think we're going to see a more limited Lunar New Year or abbreviated Lunar New Year period. And so while I think there will be a traditional slowdown, I think it will be shorter than people expect. That's my personal guess at this point.

Your next question is from Ben Nolan with Stifel.

So I wanted to follow up a little bit on, Joel, what you're talking about with Jack there in terms of you put some, or now have in place some longer term contracts because that's just the way the market is at the moment. But I was thinking of it from the other side. You guys offer a relatively scarce commodity or hard to get thing at the moment, especially from an expedited perspective. I'm curious if you've been able to leverage that yourself in terms of signing your own customers up to longer term contracts to maybe sort of help offset or mitigate a little bit the longer term contracts that you're signing for the ships?

In a nutshell, the answer is no. I mean customers right now are very focused on their supply chain issues, delivery. There's not a lot of conversation around long term contracts. As you know, the market has two basic types of customers, the annual BCL contracts, which are May 1 to April 30 for most of the major retailers. And then the freight forwarders, they are really spot market that are looking out two, three, fourweeks in advance. And really, I'd say in either of those two customer segments broadly, is there any conversation or movement in the market for longer term future.

And then, Matt, you had mentioned that you're certainly thinking of potentially the new CCX business going perhaps into midyear, however long this environment last, but you still aren't thinking of it as a permanent fixture in terms of how you're deploying your assets. I'm curious why? I mean, what makes you think that it's not going to be something that you are always doing?

But from our perspective, the CCX comprises vessels that are effectively all of our reserve vessels in the Hawaii service. And so at some point in the future, we were talking about, for example, the need to take vessels out of service to do conversions to LNG or other routine drydock matters, will limit the ability for us to have a regular scheduled service at some point in the future. When into 2022 is not exactly clear. But eventually, we may turn from a standardized CCX regular service into extra loaders. But the CCX service as we know, at some point in '22, will end. That isn't to say though, that when we get to our new normal, there may be opportunities for us to deploy other vessels in other expedited service once we get to the new normal because as you point out, our brand has been really enhanced with regard to a company because of our wheels operation, dedicated terminals and all the other elements that allow us to stand apart from the competition, market expectations in this segment that would prefer an expedited market has grown. So as things settle over the next few years, we're definitely going to be looking at ways in which we can focus on this expedited services as something that may have other opportunities. But it's not likely or will not be in the form of the current CCX past 2022.

So it's not a function of demand, it's a function of capacity?

Correct. Other needs.

I mean, I guess, just lastly, this seems relatively obvious, but it might as well ask. You've made quite a bit headway on that buyback program. Is it fair to assume that subject to board approval or what have you that as long as the market remains really elevated that there's no reason that wouldn't be renewed and increased?

Ben, I would definitely say we expect to be steady return on capital, free cash flow generation company for a long time, as you know. So I would look at us as a steady, long term focused return of capital company with share buyback being the primary way that we do that. So I think that's -- there's nothing changing in our story in that regard.

One other comment I'd make, Ben, which is we're going to continue to -- and you've heard us say this before, but it's worth repeating to our capital allocation strategy. We're going to continue to look for ways to deploy capital, either through acquisitions or organic growth initiatives. And in the absence of finding those that provide a double digit cash on cash return that we talk about as our threshold will we be steady return on capital. But if we have opportunities to deploy capital profitably we're certainly going to continue to look for ways to do that.

We, over the years, have asked plenty about the M&A aspect. So I think I have my hands pretty well fully at this point, but all right. I appreciate it guys.

[Operator Instructions] We have no further questions at this time. I'll now hand the call back over to Matt Cox for closing remarks.

Okay. Thanks for listening in today. We look forward to catching up with everyone next quarter. Aloha.

This does conclude today's presentation. You may now disconnect.