Good day and thank you for standing by. Welcome to the Matson’s Fourth Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker for today, Justin Schoenberg, Director of Investor Relations. Please go ahead.

Thank you, Lisa. 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 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 February 20, 2024 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, Justin, and thanks to those on the call. I’ll be starting on Slide 3. Matson’s Ocean Transportation and Logistics business segments performed well in the fourth quarter, capping off a solid year for both business segments. Matson is in a solid operational and financial position. We are the leading expedited ocean freight provider in the Transpacific, and we’re well positioned for growth in our Jones Act and logistics markets. Our balance sheet is strong with a low-cost capital structure and low leverage. We are in a very good funding position on our new Aloha Class vessels with the program two-thirds funded at year end with approximately $600 million in our capital construction fund. And lastly, we returned approximately $203 million to shareholders in 2023 in the form of share repurchases and dividends. For the fourth quarter, within Ocean Transportation, our China service experienced solid freight demand with higher year-over-year volume, but lower year-over-year rates, which, when combined with higher operating costs across all tradelanes, resulted in a year-over-year decline in operating income. In logistics, operating income declined year-over-year primarily due to a lower contribution from transportation brokerage. I will now go through the fourth quarter performance of our tradelanes, SSAT and logistics. So please turn to the next slide. Hawaii container volume for the fourth quarter declined 1.9% year-over-year due to lower general demand. Volume in the fourth quarter of 2023 was 5.1% lower than volume achieved in the fourth quarter of 2019. Tourist arrivals in the fourth quarter were modestly lower year-over-year as tourism to Maui was impacted by wildfires. For the full year 2023, container volume decreased 3% year-over-year, primarily due to lower general westbound demand and lower eastbound volume. For the full year 2024, we expect volume to be comparable to the level in 2023,…

Okay. Thanks, Matt. Please turn to Slide 13 for a review of our fourth quarter and full year 2023 results. For the fourth quarter, consolidated operating income decreased $17.3 million year-over-year to $75.3 million with lower contributions from Ocean Transportation and Logistics of $13.4 million and $3.9 million, respectively. The decrease in Ocean Transportation operating income in the fourth quarter was primarily due to lower freight rates in China and higher operating costs and expenses, including fuel related expenses, partially offset by higher volume in China and higher contributions from Alaska and Hawaii. As Matt just noted, the decrease in logistics operating income was primarily due to a lower contribution from transportation brokerage. We had interest income of $9.8 million in the quarter due to higher investment rates on our cash and cash equivalents and deposits into CCS as compared to the prior year period. Interest expense in the quarter decreased $1.3 million year-over-year due to the decline in outstanding debt in the past year. The effective tax rate in the quarter was 26% compared to 20.4% and in the year ago period. For the full year, consolidated operating income decreased $1.01 billion year-over-year to $342.8 million with lower contributions from Ocean Transportation and Logistics of $986.4 million and $24.4 million, respectively. The decrease in Ocean Transportation operating income for the year was primarily due to lower freight rates and volume in China and a lower contribution from SSAT, partially offset by lower operating costs and expenses including fuel-related expenses primarily related to the discontinuation of the CCX service and lower fuel costs and the timing of fuel-related surcharge collections. The decrease in logistics operating income was primarily due to lower contributions from transportation brokerage and supply chain management. Please turn to the next slide. The slide shows how we…

Okay. Thanks, Joel. Please turn to Slide 20, where I’ll go through some closing thoughts. As I had mentioned in my introductory comments, Matson’s is in a very good position operationally and financially. The strength of the Matson brand is a testament to our market positioning across both business segments and the collective efforts of our employees to serve the needs of our customers. We closed 2023 in a strong financial position. We have low-cost investment-grade balance sheet, which we view as a competitive advantage to pursue growth opportunities as they present themselves. Two-thirds of the current remaining milestone payments in our new vessel build program is funded with cash deposits in the capital construction fund. We completed one LNG vessel project. And by the end of the year, we expect the remaining two LNG vessel projects to be finished with those vessels back in service. There will always be some degree of uncertainty and noise, but we remain focused on what we can control. First and foremost, we’re focused on vessel schedule integrity, reliability of our operation and delivering high-quality service for our customers. This focus has served our company well for 141 years and remains the foundation of our success moving forward. We will continue to maintain discipline in our capital allocation strategy. We invest our capital for the long-term to create value. And in some cases, we are making capital decisions for many decades like our new Aloha Class vessel build program. We currently expect these vessels to be in service in late 2026 through 2027. After that, we do not expect to build any additional vessels until the mid-2030s. We have steadily built a portfolio of high-quality businesses through organic pursuits and acquisitions. We’re always looking for natural extensions to our businesses and to leverage the Matson brand, but we’re also attentive to the returns on capital and long-term cash flow characteristics of pursuing growth. And last but not least, we will continue to return capital to shareholders after funding our maintenance of capital expenditures, long-term investments and dividends. Since 2021, when we initiated our share repurchase program, we repurchased 9.5 million shares or nearly 22% of the then shares outstanding for $755 million. Going forward, we expect to be steady buyers of our shares. And with that, I will turn the call back to the operator and ask for your questions.

Thank you. [Operator Instructions] Our first question for the day will be coming from Jacob Lacks of Wolfe Research. Your line is open.

Hey, Matt. Hey, Joel. Thanks for your time.

Hi, Jacob.

So I just want to dig into the 1Q guidance a bit. I guess, what’s driving the lower year-on-year operating income in ocean? And then we’ve seen a big increase in Transpacific ocean spot rates to start the year. And I know your expedited rates are a little different. Do you think there is just a pricing lag there or is there some other reason why this will impact your price as well?

Yes. Jake, it’s Joel, I will take that. So, the biggest thing we expect a little bit lighter volumes than we had last year on the China business. The rates, as Matt mentioned, are a little bit higher than we had in last – than we were in the first quarter of last year. But on a year-over-year basis, it’s the volume impact that was probably the bigger change there. Our Jones Act businesses are more or less in similar places on a year-over-year basis. So, it’s primarily the China business. And then the other part of your question there is the rate environment. Matt can add in here, too. But what we have said here is that we haven’t seen really any material impact on our China business based upon the Red Sea or other events in international ocean shipping. So, even though some of the commodity price indices like the SCFI and Asia-Europe rates are higher, that’s not necessarily impacting our Expedited segment.

Got it. And is that just seasonality the year-on-year volumes being lower in the first quarter?

Yes. I mean it’s really annual seasonality, yes, around post-Lunar New Year, and we are seeing a little bit more – a little bit less volume this year than last year.

Yes. So, Jake, this is Matt. I would just add a little more color. I think we see the pattern that’s emerging in 2024 in the first quarter around Lunar New Year, as Joel mentioned, to be much more traditional. This is really the first year in 4 years that people have had a chance to return to their homes and are taking advantage of kind of a longer shutdown period that were abbreviated during the pandemic for various reasons. And so it’s more a return to normal than I would say anything that is of concern to us about our outlook, which is in part why we still think that the full year we are going to have a year that looks a lot like on a consolidated basis, the year we just finished in 2023.

Got it. Okay. That’s helpful. And then on a sequential basis in 4Q, it looks like operating expenses stepped up despite lower volumes. What are the big buckets driving that?

Well, on the 4Q, Jake, volumes are actually up quite a bit in China. So, we did have higher terminal handling costs, and we also had higher fuel costs particularly in our domestic tradelanes on a year-over-year basis. And there is also an issue of year-over-year timing of collections. So, we had a little bit more collections on a timing basis in Q4 of 2022, a little bit less than 2023. So, it’s actually fuel price, fuel – timing of fuel collections and volumes in the China business were the biggest drivers of the higher cost.

Okay. So, I was thinking sequentially from 3Q to 4Q.

Sequentially, yes, the biggest issue there was fuel, the timing of fuel and fuel collections.

Okay. Got it. Okay. And then it seems like we have just – in terms of broader ocean, it seems like we have seen some shift of West Coast imports back, or East Coast imports back to the West Coast. Is this impacting SSAT at all? Does this help get profitability back towards pre-COVID levels, I guess what do we need to get SSAT…?

Yes. Jake, it’s a good question. I think certainly, we know our customers are looking closely at – we talked about the Red Sea, we talked about the drought in the Panama Canal, the ILA contract renewal. These are all factors that I think are going to inform our customers’ decisions around how they are going to route their cargo into the U.S., the imports that many of our customers have multiple distribution centers and can select where they want to have the imports focused. What I would say is while we know customers are looking closely at these various factors, so far, we haven’t seen any significant movement of customer moves in that direction, although – and nor have we seen any significant changes in deployed capacity by the international ocean carriers, but I do expect that we will see, at a minimum, a return of that cargo, which moved off of the West Coast when the ILWU contract was renewed in 2023. So, we do expect some volume to return to the West Coast that had left during the ILWU contract renewal. The extent and amount are unclear and not yet present, but we do expect some increased volume as a result of some of that as the year progresses in ‘24.

Got it. That’s helpful. Thanks for your time.

Sure. Thank you.

Thanks Jake.

Thank you. [Operator Instructions] And our next question will be coming from Ben Nolan of Stifel. Your line is open.

Hi Joel and Matt, long time, no talk.

Hi Ben.

Hi. So, I wanted to dig in a little bit on – I know on Slide #7, you talk about demand for CLX and the CLX+ or, I guess the MAX service now to approximate what it was last year. And it could just be me being seeing more into this than it is really there, but normally, you are talking about volumes approximating year-over-year levels, so you sort of said, demand, and I know you talked about adding a sixth ship as sort of a spare. Is it fair to say that you were – there maybe was some demand that you missed out on because of whatever you just didn’t have enough equipment in place and now you have a little bit more equipment. So, actually, even if demand is equal, your volume could be higher next year, or am I just reading too much into that?

Yes. Let me take a crack at that. So, from our expectation of what we know now, of course, we will have two weekly departures for the full year 2024 as we did in 2023, except for the handful of CLX+, now MAX wages post-Lunar New Year when the expedited market demand could be accommodated by the single sailing of the CLX service. So, I think what you will see, and we were effectively full once we ramped ourselves back up after this post-Lunar New Year period. So, we expect – there really is no fundamental changes in our expectation at this point about the number of voyages that sixth ship we have added we do not expect will be results in additional voyage. That vessel is there to stand by as a reserve either the CLX or the MAX service because of a weather event or some other circumstances not able to sail to ensure an on-time departure that our customers rely on and are willing to pay for through our premium rate structure. So, I don’t think you are going to see a – we are not thinking that there is going to be any significant additional capacity that’s introduced in a very similar profile in terms of how our ships are going to fill up as the year goes on.

Okay. That’s helpful. And then if I could, just sticking with the China side, you talked about in the – on Slide #7 there, freight rates being a little higher in 2024 than you are in 2023. I am curious how much of that is contract versus just sort of your expectation for what the spot would look like?

Well, I will take the first part of that first, Ben, which is that what we are saying about – we are not interested in saying the rates will be higher than the entire year. What we are saying is right now, rates are at a higher point in January, than they were last January, February. And then they found their pricing level after the Lunar New Year ramp-up towards the end of February into March, April, and then they were pretty consistent throughout the year as we reported throughout the year. So, what we are seeing in general is that the overall demand on the volume and rate side should not be that different in the China business. But that said, except January and February, the rates were higher than where we started. So, that’s the comment about rates for the whole year. And then the question on contracts, we don’t see a significant change in the percentage of contracts. We certainly have important contract with our customers. But the majority of the freight still moves as freight forwarders on short-term one-week, two-week, three-week out basis.

Okay. Alright. And then last for me, just on Alaska, you mentioned it a little bit doing – or anticipating perhaps a little bit more business from drilling activity and energy activity and lack – and that had always been, as I recall, a market where you said there might be more touch points that you could add in time as part of the logistics program. Are – either organically or inorganically, are there opportunities emerging to add to what you are doing in the Alaska business here?

Yes, I think the short answer is yes. I think we – as we talked about it in our prepared comments, I do feel like Matson since the acquisition, 5 years, 6 years ago, have really focused on two areas of growth – or three areas. One, of course, was the acquisition of Span Alaska in our logistics business, and that business has continued to grow faster than market. We have invested in new distribution facilities, two in the state, one in Anchorage and one in Fairbanks that have led to strong growth in that segment. But on the ocean transportation side, really, there are two segments that we focused on. One is the – in the Oil and Gas segment that Horizon Lines, our previous company had not focused very much on, and we are now seeing it as a growing component of our freight flows. And right now, the dynamics in Alaska for exploration and production are good. And we are aware of our customers looking at large multiyear projects, and we expect to benefit from that additional volume in drilling and production. The other one, of course is the seafood exports outside of – on the Aleutian Islands, Kodiak and Dutch Harbor primarily to international seafood markets and buyers in Asia in our scope of services. And so those are the two verticals that we have seen most directly that we have grown ourselves into. And frankly, we continue to see more growth opportunities in both of those segments moving forward.

Alright. I appreciate it. Thank you, guys.

Okay. Thank you.

Thank you, Ben.

[Operator Instructions] And our next question will be coming from Jack Atkins of Stephens. Your line is open.

Hey guys. This is Grant on for Jack. Thank you for taking my questions. Matt, you mentioned natural extension to Matson brand. Previously, I think you guys have talked about that likely coming within the Logistics segment. Could you maybe just kind of update us on what you are seeing related to logistics M&A targets and/or maybe are you seeing opportunities in other tradelanes like South China on the Ocean Transportation side, perhaps as it relates to the events in the Red Sea. Thanks.

Yes, sure. Thanks for the question. I would say that when we look at brand extensions, I would say we would look to our past to look at both organic growth initiatives, whether it’s our fleet of 53-foot rail boxes growth in those rail services in and out of Mexico, for example, is a new vertical. That’s an organic growth initiative. We have done some small tuck-in acquisitions in the Alaska service. And while we see valuations as continue to be elevated in logistics businesses or base their financial forecasts on elevated profit forecast that were borne out of the pandemic boom. We do keep a watchful eye on good quality businesses that fit our investment profile. I would say right now, there is – well, we are going to keep a close eye on it. We think valuations are still relatively elevated and beyond our underwriting capability. To your point about China, we expanded our service offering, connecting with partners to have direct services from Vietnam, which connect over Shanghai to meet our CLX or our MAX services. We expect continued growth in working with partners to expand the origins of our business out of China into nearby markets. So, those are just a couple of examples of ways in which we expect to continue to grow over time.

Okay. Great. Thank you, guys for your time.

Okay. Thank you.

Thank you, Grant.

Thank you. And that does conclude the Q&A session for today. I would now like to turn the conference back over to Matt Cox, CEO, for our closing remarks. Please go ahead.

Okay. Thanks operator. Thanks for tuning in today. We look forward to catching up with everyone at the first quarter call. Aloha.

This does conclude today’s conference call. Thank you all for joining. You may disconnect.