Thank you for standing by, and welcome to the Matson Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you. 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 24 to 35 of our Form 10-Q filed on May 6, 2025, and in our subsequent filings with the SEC. Please also note that the date of this conference call is July 31, 2025, 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.

Thanks, Justin, and thanks to those on the call. Starting on Slide 3. Our second quarter financial performance exceeded our expectations amid the challenges of market uncertainty and volatility arising from tariffs and global trade. In Ocean Transportation, operating income was lower year-over-year, primarily due to lower year-over-year volume in our China service. In our domestic trade lanes, we saw higher year-over-year volume in Hawaii and Alaska and lower year-over-year volume in Guam. In Logistics, our operating income was lower year-over-year, primarily due to a lower contribution from transportation brokerage. Looking ahead, we expect uncertainty regarding tariffs and global trade, regulatory measures, the trajectory of the U.S. economy and other geopolitical factors to continue. However, given our financial performance in the second quarter and assuming these factors do not materially change from current conditions, we are raising our outlook for the full year 2025. Joel will go into more detail on our updated outlook later in the presentation. I will now go through the second quarter performance of our trade lanes, SSAT and logistics. So please turn to the next slide. Container volume in our Hawaii service increased 2.6% in the second quarter year-over-year. The increase was primarily due to higher general demand. For the full year 2025, we expect volume to be modestly higher than the level achieved in 2024, reflecting modest economic growth in Hawaii and stable market share. Please turn to Slide 5. According to UHERO's second quarter 2025 economic report, the Hawaii economy remains stable, supported by strong construction activity, but faces potential headwinds from slowing tourism, increasing unemployment and high inflation and interest rates. Hawaii is currently experiencing solid construction activity from the public sector and the Maui rebuilding effort. Hawaii tourism showed modest growth in the second quarter despite international tourist arrivals remaining challenged.…

Thanks, Matt. Please turn to Slide 13 for a review of our second quarter results. For the second quarter, consolidated operating income decreased $11.6 million year-over-year to $113 million with lower contributions from Ocean Transportation and Logistics of $10.4 million and $1.2 million, respectively. The decrease in Ocean Transportation operating income in the second quarter was primarily due to lower volume in China, partially offset by higher freight rates in China and the timing of fuel-related surcharge collections. As Matt noted, the decrease in logistics operating income was primarily due to a lower contribution from transportation brokerage. We had interest income of $8 million in the quarter compared to $18.8 million in the same period last year. As you may recall, second quarter 2024 included $10.2 million in interest income earned on the federal tax refund related to our 2021 federal tax return. Interest expense in the quarter decreased $0.4 million year-over-year due to the decline in outstanding debt in the past year. Net income decreased 16.3% year-over-year to $94.7 million and diluted earnings per share decreased 11.8% year-over-year to $2.92 per share. Note the $10.2 million in onetime interest income earned on our federal tax refund I just mentioned contributed $0.24 in the earnings per share in the year ago quarter. Lastly, diluted weighted average shares outstanding decreased 5.3% year-over-year. Please turn to Slide 14. This slide shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of approximately $617.9 million, from which we used $39.7 million to retire debt, $199 million on maintenance and other CapEx, $161.5 million on new vessel CapEx, including capitalized interest and owners' items, $30.3 million in cash deposits and interest income in the CCF, net of withdrawals for milestone payments, $14.5…

Thanks, Joel. In closing, we believe we are well positioned in our trade lanes and in logistics as we manage through the period of market uncertainty and volatility. It is during uncertain times like these that Matson demonstrates its unique capabilities and service qualities across our organization. With our China service, we are focused on maintaining the 2 fastest and most reliable transpacific services. We're also focused on being there for our customers, looking for additional opportunities to support them with world-class services and customer support as they diversify their manufacturing base and grow in an evolving marketplace. And with that, I will turn the call back to the operator and ask for your questions.

And our first question comes from the line of Jacob Lacks from Wolfe Research.

So you discussed expectations for lower volumes in 3Q. I think you had a couple of extra sailings a year ago. So is this just reflecting lapping those extra sailings? Or is there a bit of a utilization headwind that we should be keeping in mind as well?

Yes. I think it's -- there's 3 or 4 factors going on here, Jake. I think the first one, we noted that in last year's numbers, there was some extra demand, as you point out in your question. Those resulted in some extra sailings as well as a very healthy freight rate environment. I know we're talking about volume here. And then the other primary factor, although we see the consumer holding up reasonably well in this environment, retail sales are holding their own. We are understanding that many of our customers are in pretty good shape on their inventory, some of whom took advantage of these pauses to if they could work a deal with their manufacturers to bring in inventory early. And so our view is that we're going to see a peak season, but it will be relatively muted. And so those are some of the factors that are going into our thinking about Q3 year-over-year comparisons.

Got it. That's helpful. And then it feels like we continue to see some new strings of expedited services crop up. Is this having any impact on you in the marketplace? And do you think these are -- like these certain new services have staying power in like a more persistently weaker market?

Yes, it's a good question. I think at this point, we say in our prepared remarks just a moment ago that our main focus is on maintaining #1 and #2, the fastest and second fastest. I think there are 3 or 4 other carriers who are in the near expedited segment. We've talked about them before, CMA, ZIM, [ Heda ] and there's a couple of others. But -- and so we are seeing activity as they try to position themselves in various markets as sort of the next tranche below our expedited services. I think your observation is right. It's our expectation that if the SCFI spot rates remain relatively low, we're going to -- these expedited services are expensive and difficult to maintain if you're just receiving something close to the spot rate. So it would not surprise us that like we did in other down cycles, these expedited markets or carriers would likely look hard at whether they -- all those services continue to make sense for them.

Makes sense. And last one for me, and then I'll get back in the queue. I appreciate the environment is pretty uncertain today, but to the extent maybe you can think -- help us think about the shaping of the back half of the year in the context of your annual earnings guidance, would you expect seasonality sort of the breakout between Q3 and Q4 to look something similar to the past couple of years?

Yes, I would say so. I would say we don't expect this year to be as peaky given the starting position of our customers' inventory levels. We will see cargo that will move. We expect to see a strong Q3 sequentially or related to the quarter then usually sometime in October, we start to see most of the inventory that's going to be put into our customer supply chains for the holiday season to be on the water. And so we'll likely see a fall down in October in a more traditional sense. So yes, that's our expectation.

And our next question comes from the line of Daniel Imbro from Stephens Inc.

I want to start a little higher level. Maybe just on the developments happening in Southeast Asia. I think last quarter, you talked about the Vietnamese service doubled pretty quickly. I'm sure it grew here further in 2Q. Just as you're seeing the catchment basin develop, like what kind of infrastructure investments are needed in those markets? I guess what does the path forward look like as we figure out whatever this post-tariff or new tariff world is and how Matson can continue to maintain its leadership in that Southeast Asia part of the world?

Yes. Okay. It's a good question. I think from us in our approach to these markets, we're really going to be first listening to our customers. Where are they going to be moving their production if they're going -- if their goal is to move a larger percent of their manufacturing capability out of China? And where are they going next? And then part of our strategy is we believe that over the long term in various countries, if we can have the fastest and most reliable services, not just from our main Shanghai destination and Ningbo, but from these other origins. So we're looking closely at working with feeder partners, those that have existing services or those that are willing to establish new services that have and can share, we'll do a survey in each of these country origins, who's the fastest out of those services directly to the West Coast? And can we beat them. So we're not going to -- our goal is not to become a generic average service offering in terms of days, it's really important for us to be fast. So once we've heard from our customers, once we've determined whether we can make a competitive origin transit, if we can find a new partner or the same partner in different markets that would give us that differentiated service, and we're going to grow in those ways. The other thing I would note is, for example, in our Vietnam services, we do see cargo that moves over land from other locations like Cambodia into Vietnam. So it's not just those that can serve, but those that are in close land proximity, including a cross-border from those origins. So I think it's going to be a combination of those things. But long term, we -- our strategy is to be the most reliable and fast out of each of these origins as we evolve.

That's helpful. And then maybe for a follow-up, just a couple of financials thinking about the back half of the year. You mentioned to Jake's question that SCFI has moderated here in the third quarter. I know you're not going to guide, but directionally, would you expect your China rates to follow suit on a sequential basis? And then ocean operating margin in 2Q was stronger than expected. I know we'll get the full expense detail on the 10-Q, but did you take any cost reduction actions during the quarter that should continue through the back half and into next year? Just trying to figure out what's happening on the expense side there.

Okay. Daniel. So on the expense question side, yes, we did take some actions early in April on the heels of the original tariff announcements where we wanted to tighten our belt and took some G&A actions. And so therefore -- and those are still in place. We'd expect that to continue throughout the course of the year. So that was part of the reason of the operating margin that you noted for Q2. The other part, of course, is it was year-over-year pricing, was strong this year on a year-over-year basis compared to the full quarter last year. Because remember, last year, the international rates, our transpacific rates really started moving up about halfway through the quarter and didn't get to the higher levels until the latter part of the quarter. So those are the 2 impacts on the year-over-year on the second quarter. In terms of your question about guidance and the outlook for the Q3 and Q4, it's really what Matt already reiterated. We feel like the domestic markets are hanging in there okay. In the China market, we're experiencing overall lower freight rates and volume. So it's going to be a more muted peak season that's baked into our thinking of that third quarter outlook that we provided.

And our next question comes from the line of Omar Nokta from Jefferies.

Good update. Obviously, things have progressed quite a bit better than initially expected, at least relative to, say, 3 months ago. I did want to maybe just follow up a little bit on how things are progressing here quarter-over-quarter. I understand it's a little too short term. But just maybe in general, there's been a lot of volatility this year, especially in 2Q where things started slow, they ramped. You mentioned initially last quarter that April volumes were down 30% from China. They ended up being down 14.6%. Obviously, we know 3Q, as you said, is going to be lower on a year-over-year basis. But given that you're seeing so far a muted peak season, can we assume that the run rate volumes for China in this coming quarter are going to be somewhat similar to the run rate that we saw for the final 2 months of this past quarter?

Yes. Omar, it's Joel. Yes, that's a fair assumption. We do have a slightly different number of vessels in capacity this year versus last year. So there's a little bit of each weekly departure capacity that we offer compared to last year. But the overall trend of what we're calling this third quarter that we continue to see here in July is consistent with the last, call it, 6 weeks or so from mid-May through June in terms of the demand that we're seeing. So yes, I think that's a fair way to look at it.

Okay. And then just in terms of -- I think you mentioned in the opening remarks, the Vietnam volumes have stepped up to 21% of the China figures in the second quarter. That's up from 13%. knowing it's a bit difficult to give a really good projection. I guess maybe just one, can you remind us what it was in 2Q last year? And any sense of how they're progressing thus far this quarter?

Yes. So Matt will give some color on the Vietnam trends in general, Omar. But last year, on a sequential basis, Vietnam volumes were high single-digit kind of numbers. And we -- so we really -- they were at such a lower level that we were really commenting on them as we were growing that market. And then once we launched the second service in Ho Chi Minh in early April of this year and had 2 markets and plus the dynamics with tariffs and everything else that happened at that time, that's why we started really giving you and the investment community more direct line of sight on what those volumes were.

And then, Omar, this is Matt. On a moving forward basis into Q3 and perhaps beyond, I think it's our expectation that we will see kind of a similar low 20%-ish mix of non-China origins as we saw as we got towards the end of the second quarter. And it's interesting because -- and I expect that to continue. But as things normalize, I think there's 2 factors that are going to define longer term how much we're sourcing in China versus other origins. I would say the longer-term one is that it's clear that our customers are going to continue to look for ways to derisk their sourcing from China plus 1 to perhaps multi-region or closer to end market around the world. And that will inform, I think, a lot of their thinking over the longer term. But I would say in the medium term, I think what you're going to look at is where are the relative differences between tariffs, between countries. So the question is, if, let's just say, Vietnam stays at 20% and the U.S. or China ends up at 30%, both big ifs, there's no model here. Is that 10% difference, I think that will be a factor in our customers' minds about the advantages and disadvantages relative to one another. So there's sort of a -- while we do acknowledge and believe that there will be longer-term movement out of China, we continue to believe China will be a powerhouse in terms of manufacturing capacity into the foreseeable future and also acknowledge that more cargo is likely to be sourced from elsewhere. So I know those are partly conflicting, but that's kind of what we think is going to happen.

Okay. And maybe just one final one for me. This is perhaps just a bit big picture, but clearly, there's a growing chorus of building ships in the U.S. And so far, it seems to be a lot of talk. And maybe at some point, that starts to turn into physical ordering. You mentioned earlier in the call that you've got these 3 ships they'll deliver here in a couple of years. You don't really need to do anything until the mid-2030s. Just maybe out of curiosity, maybe a bit early, but are you getting a sense at all that you may need to lock up a slot sooner rather than later if there starts to really become a competition for the small number of shipyard slots available here?

Yes. I think at this point, you make a couple of observations in your question. Matson supports the Trump administration's efforts to try to renew and revive shipbuilding in the U.S. We see those as different than Jones Act carriers in the past. We've observed in previous decades. The cost to build in the U.S. for international trades is still quite large. So the question will there be additional support in providing construction differential subsidies or other types of things to make U.S. construction for international trades relatively comparable to whether it's Korea or Japan or China as an alternative place to build. That's, I think, yet to be determined. But I think it's way too early for us to be worried about trying to fill in a slot. We do our planning. We'll likely 2 or 3 years before be looking at getting into a contract. Obviously, if those lead times look longer, that may accelerate our thinking. But at this point in time, we feel like we have plenty of time before we need to make any firm decisions in those regards.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks.

Okay. Well, thanks to everyone. I would just make one other remark before I wish everyone well for the next quarter. And it's just to repeat a point I made before the Q&A section, which is that it is encouraging for us to see how well we've held up in a very dislocated market. It is, to us, clear that our customers have placed a lot of trust in us when they need to keep production lines moving, they need to keep items on the store shelves, and we're grateful for their trust in us, and we expect that to continue. So with that, we look forward to catching up with everyone on next quarter's call. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.