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Matson, Inc. (MATX) Q4 2022 Earnings Call Transcript

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Matson, Inc. (NYSE:MATX) Q4 2022 Earnings Conference Call February 21, 2023 4:30 PM ET

Company Participants

Lee Fishman - Senior Director of IR

Matthew Cox - Chairman and CEO

Joel Wine - EVP and CFO

Conference Call Participants

Jack Atkins - Stephens

Jacob Lacks - Wolfe Research

Operator

Good time and convey you for opinionated by. Welcome to nan Matson Fourth Quarter 2022 Financial Results Conference Call. At this time, each participants are successful a listen-only mode. After nan speakers' presentation, location will beryllium a question-and-answer session. [Operator Instructions] Please beryllium advised that today's convention is being recorded.

I would now for illustration to manus nan convention complete to your speaker today, Lee Fishman, please spell ahead.

Lee Fishman

Thank you, Lisa. Joining maine connected nan telephone coming are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this position are disposable for download astatine our website, www.matson.com, nether nan Investors tab.

Before we begin, I would for illustration to punctual you that during nan people of this call, we will make forward-looking statements wrong nan meaning of nan Federal Securities Laws regarding expectations, predictions, projections aliases early events. We judge that our expectations and assumptions are reasonable. We be aware you to see nan consequence factors that could origin existent results to disagree materially from those successful nan forward-looking statements successful nan property release, nan position slides and this convention call.

These consequence factors are described successful our property merchandise and position and are much afloat elaborate nether nan caption Risk Factors connected Pages 26 to 37 of our Form 10-Q revenge connected November 3, 2022, and successful our consequent filings pinch nan SEC. Please besides statement that nan day of this convention telephone is February 21, 2023, and immoderate forward-looking statements that we make coming are based connected assumptions arsenic of this date. We undertake nary responsibility to update these forward-looking statements.

I'll now move nan telephone complete to Matt.

Matthew Cox

Okay, thanks, Lee. And acknowledgment to those connected nan call. I'll commencement connected Slide three. For nan 4th quarter, Matson's differentiated Ocean Service performed well successful a difficult business environment. Matson's had a coagulated financial position pinch debased leverage and presently $622 cardinal successful rate deposits successful our CCF for nan caller alloy program, while returning $445 cardinal successful rate to shareholders successful 2022 done dividends and stock repurchases.

For nan 4th fourth wrong Ocean Transportation, our China services achieved little year-over-year measurement and freight rage, which contributed to nan diminution successful our Ocean consolidated operating income. We besides saw little year-over-year volumes successful Alaska, Hawaii and Guam compared to nan twelvemonth agone period.

In logistics, operating income alteration year-over-year chiefly owed to a little publication from proviso concatenation management, accordant pinch little request successful nan Transpacific tradelane.

I'll now spell done nan 4th fourth capacity of our tradelanes, SSAT and logistics. So please move to nan adjacent slide.

Hawaii instrumentality measurement for nan 4th fourth decreased 13% year-over-year chiefly owed to little unit and hospitality related request compared to nan elevated pandemic levels successful nan twelvemonth agone play and nan effect of 1 little week. Excluding nan 53rd week successful nan twelvemonth agone period, measurement successful nan 4th decreased 7.9% year-over-year. Volume successful nan 4th fourth of 2022 was 3.2% little than nan measurement achieved successful 2019.

We saw unit customers proceed to negociate inventories to weaker user request levels contempt continued betterment successful nan Hawaii economy. Hawaii Tourism during nan 4th remained comparatively strong, including a humble betterment successful world visitors trends. Although location was a small spot of softness successful December.

For nan afloat year, instrumentality measurement decreased 5.8% year-over-year, chiefly owed to little unit related request compared to nan elevated pandemic levels successful nan anterior twelvemonth and nan effects of 1 little week. Excluding nan 53rd week successful 2021, measurement declined 4.4% year-over-year.

Please move to Slide 5. Throughout nan twelvemonth nan Hawaii system continued to retrieve from nan pandemic pinch expanding tourer arrivals and a diminution successful nan unemployment rate. Tourism was predominantly driven by home arrivals. But nan manufacture did spot immoderate humble betterment successful world tourer arrivals successful nan 2nd half of 2022.

In nan second half of 2022, we saw our unit related customers negociate their inventories down to a little user request levels. Through nan first 7 weeks of 2023, we person seen a steadier level of unit related freight request accordant pinch pre pandemic trends.

UHERO's December projections proceed to show economical maturation successful 2023, supported by continued spot successful tourism, and a debased unemployment rate. However, nan economical maturation trajectory is uncertain, fixed nan antagonistic trends arsenic a consequence of higher inflation, higher liking rates, and nan extremity of nan pandemic and era stimulus, helping individual income.

Moving to our China work connected Slide six. Matson's measurement successful nan 4th fourth of 2022 was 47.2%, little year-over-year, chiefly owed to little request for our CLX and ClX+ services, nan discontinuation of nan CCX work successful nan 3rd 4th of 2022 and 1 little week. Excluding nan 53rd week successful nan twelvemonth agone period, measurement declined 42.1% year-over-year.

Matson continued to recognize a important complaint premium complete nan Shanghai Containerized Freight scale successful nan 4th fourth of 2022, but achieved mean freight rates that were little than successful nan twelvemonth agone period.

For nan year, measurement was 11.7% lower, chiefly owed to nan little request for nan CLX and CLX+ services, and 1 little week, partially offset by incremental measurement connected nan CCX service. Excluding nan 53rd week successful 2021, measurement declined 9.4% year-over-year.

Please move to Slide 7. On our November net call, we indicated that we expected nan 4th fourth of 2022 and nan first 4th of 2023 to beryllium challenging successful nan Transpacific tradelane, arsenic retailers inventories adjusted to user request levels, arsenic Ocean liners reduced alloy capacity to meet these little request levels. We did spot this happened and we proceed to spot alloy capacity set arsenic retailers proceed to correct size inventory to meet weakening user demand, expanding liking rates and economical uncertainty.

In nan weeks up of Lunar New Year, we saw a humble betterment successful request for our CLX and CLX+ services compared to December. But successful nan weeks station Lunar New Year, we saw ray request for our CLX work and arsenic a result, we decided not to waste nan CLX+ vessels from Shanghai for a fewer weeks.

In nan regions successful which we run successful China, we are seeing businesses and factories reopen and life returning to normal from nan astir caller COVID-19 wave. Looking ahead, for nan first 4th successful nan first half of nan year, we expect our CLX CLX+ services to bespeak freight request levels beneath normalized condition, pinch little year-over-year volumes and a little complaint environment.

Absent an economical difficult landing successful nan U.S., we expect improved waste and acquisition dynamics successful nan 2nd half of 2023 arsenic nan Transpacific marketplace transitions to a much normalized level of demand.

We will proceed to negociate measurement successful nan CLX and CLX+ astatine freight rates to measurement it pinch nan premium services we supply connected nan Ocean, astatine nan terminals and shippers transport.

Currently freight rates for our CLX and CLX+ services are supra pre pandemic levels. Regardless of nan economical environment, we run nan 2 fastest and astir reliable water services, and arsenic a result, we proceed to expect to gain a important complaint premium to nan Shanghai Containerized Freight Index.

Please move to nan adjacent slide. In Guam, Matson's instrumentality measurement successful nan 4th fourth of 2022, decreased 14% year-over-year. The alteration was chiefly owed to little unit related demand. There was nary effect from nan 53rd week successful nan twelvemonth agone period. Volume successful nan 4th fourth of 2022 was higher than nan level achieved successful nan 4th fourth of 2019.

For nan afloat year, instrumentality measurement decreased 3.7% year-over-year, chiefly owed to little unit related demand. In nan adjacent term, we expect continued betterment successful nan Guam system pinch expanding tourism successful a debased unemployment rate. However, location are antagonistic trends arsenic a consequence of higher inflation, higher liking rates and nan extremity of nan pandemic era stimulus helping individual income that creates uncertainty successful nan economical maturation trajectory.

Please move to Slide nine. In Alaska, Matson's instrumentality measurement for nan 4th fourth 2022 decreased 7.7% year-over-year. The alteration was owed to little northbound measurement chiefly owed to 1 little trading and 1 little week and little southbound volume, chiefly owed to little home seafood measurement and 1 little week. Partially offset by higher export seafood measurement from AAX.

Excluding nan 53rd week successful nan twelvemonth agone period, measurement declined 5.3% year-over-year. Volume successful nan 4th fourth of 2022 was higher than nan level achieved successful nan 4th fourth of 2019. For nan afloat year, measurement accrued 8.6% year-over-year.

The summation was owed to higher export seafood measurement from AAX, higher northbound measurement chiefly owed to higher extremity -- higher unit related request and measurement related to a competitors drydocking partially offset by 1 little week and higher southbound measurement chiefly owed to higher home seafood volume. Excluding nan 53rd week successful 2021, measurement accrued 9.3% year-over-year.

Turning adjacent to Slide 10. The Alaska economies continues to show bully maturation and betterment successful nan cardinal indicators from nan depths of nan pandemic. In nan adjacent term, we expect nan system to use from debased unemployment and continued occupation growth.

The Federal Infrastructure measure is expected to lead to further jobs successful nan adjacent and mean term. The state's system is besides expected to use from accrued power related exploration and accumulation activity arsenic a consequence of elevated lipid prices. However, location are antagonistic trends arsenic a consequence of higher inflation, higher liking rates astatine nan extremity of nan pandemic era stimulus, helping individual income that creates uncertainty successful nan economical maturation trajectory.

Please move to Slide 11. Our terminal associated task SSAT contributed $1 cardinal successful nan 4th fourth of 2022 compared to $21.3 cardinal successful nan anterior twelvemonth period. The little publication was chiefly owed to little different terminal revenue, little assistance measurement and higher operating cost. SSAT saw importantly little detention and demurrage gross successful nan 4th owed to easing for congestion and little assistance volume, accordant pinch little request successful nan Transpacific tradelane. For nan year, SSAT contributed $83.1 cardinal for an summation of $26.8 cardinal year-over-year. The summation was chiefly owed to higher different terminal revenue.

For 2023, we expect nan first half assistance measurement to bespeak nan challenging situation successful nan Transpacific tradelane. Absent an economical difficult landing, we expect SSAT to inclination to pre pandemic profitability levels successful nan 2nd half of nan year. For nan year, we expect importantly little detention and demurrage gross owed to nan easing of Port congestion successful Southern California.

Turning now to logistics connected Slide 12.

Operating income successful nan 4th fourth came successful astatine $12.8 cardinal aliases $2 cardinal little than nan consequence successful nan twelvemonth agone period. The alteration was chiefly owed to a little publication from proviso concatenation management, accordant pinch nan little request successful nan Transpacific tradelane. For nan afloat year, operating income was $72.4 cardinal aliases $22.6 cardinal higher than 2021. The summation is chiefly owed to higher concentrations from proscription brokerage and freight forwarding.

In nan adjacent term, we expect a operation of activity crossed nan logistic lines of business. We expect continued maturation successful Alaska to beryllium supportive of freight forwarding demand. We expect proviso concatenation guidance to way our China service. So a challenging situation successful nan first half of nan twelvemonth arsenic I antecedently discussed. And we expect our proscription brokerage business to weaken from nan highs achieved successful nan pandemic play arsenic freight request normalizes. Modal shifts amid markedly improved obstruction congestion conditions and complete inventory unit customers proceed to negociate down user goods.

I will now move nan telephone complete to Joel, for a reappraisal of our financial performance. Joel?

Joel Wine

Okay. Thanks, Matt. Please move to Slide 13 for a reappraisal of our 4th fourth and afloat twelvemonth results.

For nan 4th quarter, consolidated operating income decreased $382.9 year-over-year to $92.6 million, pinch little contributions from Ocean Transportation and logistics of $380.9 cardinal and $2 cardinal respectively. The alteration successful Ocean proscription operating income successful nan 4th fourth was chiefly owed to little measurement and mean freight rates successful China and a little publication from SSAT, partially offset by little operating costs and expenses, chiefly related to nan discontinuation of nan CCX service.

As Matt noted, nan alteration successful logistics operating income was chiefly owed to little publication from proviso concatenation management.

We had liking income of $6.9 cardinal successful nan 4th owed to higher rate finance rates connected our rate and rate equivalents and rate deposits successful nan CCF arsenic compared to nary liking income successful nan anterior twelvemonth period.

Interest disbursal successful nan 4th decreased $1 cardinal year-over-year, owed to nan diminution successful outstanding indebtedness successful nan past year, including nan $50.4 cardinal successful indebtedness main we prepaid successful nan 3rd quarter. The effective taxation complaint successful nan 4th was 20.4% compared to 16.5% successful nan twelvemonth agone period.

For nan afloat twelvemonth consolidated operating income accrued $166.1 cardinal year-over-year to $1,353.6 cardinal pinch higher contributions from Ocean Transportation and logistics of $143.5 cardinal and $22.6 cardinal respectively.

The summation successful Ocean Transportation operating income for nan twelvemonth was chiefly owed to higher freight rates successful China and a higher publication from SSAT, partially offset by little measurement successful China, higher operating costs and expenses chiefly owed to nan CLX+ work and higher terminal handling costs.

The summation successful logistics operating income was chiefly owed to higher contributions from proscription brokerage and freight forwarding.

Please move to nan adjacent slide. The adjacent descent shows really we allocated our trailing 12 months of rate travel generation. For nan LTM period, we generated rate travel from operations of $1,271.9 cardinal from which we utilized $111.5 cardinal to discontinue debt, $146.9 cardinal connected attraction and different CapEx, $62.4 cardinal connected caller alloy CapEx including capitalized liking and orders items, $518.2 cardinal successful rate deposits and liking income successful nan CCF nett withdrawals from milestone payments. $21.9 cardinal connected different rate outflows while returning $445 cardinal to shareholders via dividends and stock repurchase.

Please move to Slide 15 for a summary of our stock repurchase programme and equilibrium sheet.

During nan 4th quarter, we repurchased astir 1.5 cardinal shares for a full costs of $101.9 million. For nan twelvemonth we repurchase astir 5 cardinal shares for a full costs of $397 million.

At nan extremity of 2022, we had astir 1.5 cardinal shares remaining connected our stock repurchase program.

Turning to our indebtedness levels, our full indebtedness astatine nan extremity of nan 4th was $517.5 million. We reduced outstanding indebtedness main by $111.5 cardinal during nan year, of which $60.1 cardinal was done regular amortization and nan equilibrium of $50.4 cardinal was done nan prepayment of semipermanent indebtedness that we highlighted connected nan 3rd 4th net call.

In January 2023 we prepaid $14.3 cardinal for each nan outstanding main connected nan Maunawili Title X indebtedness and we scheme to prepay successful March $12.1 cardinal for each of nan outstanding main connected nan Manukai Title XI debt.

I'm now going to locomotion done an update connected nan superior building funds, truthful please move to nan adjacent slide.

We ended 2022 pinch rate deposits of astir $518 cardinal successful nan superior building fund, and year-to-date 2023, we person an liking income of astir $4 million. This month, we deposited an further $100 cardinal successful rate into nan CCF and pledged accounts receivable to trim taxable income successful 2022.

Following this $100 cardinal rate deposit, we presently person astir $622 cardinal successful rate deposits successful nan CCF to screen 66% of nan astir $949 cardinal remaining milestone payments for nan caller alloy program. Note that this backing calculation excludes nan rate and rate equivalents connected nan equilibrium sheet, which was astir $250 cardinal astatine twelvemonth end.

We presently do not expect to make further rate contributions to nan CCF for milestone payments until 2026. I would for illustration to statement that liking income connected CCF rate deposits is taxation advantaged and will thief salary for early milestone payments. Considering nan liking complaint environment, we presently are in, liking income could beryllium a meaningful contributor of further rate deposits into nan CCF successful nan adjacent mates of years.

Please move to Slide 17. The array connected this descent summarizes our $209.3 cardinal successful superior expenditures successful 2022. We had capitalized building expenditures of $62.4 million, of which $11.9 cardinal was for nan caller inter Island barge placed into work successful nan 3rd 4th and $50.5 cardinal was for a milestone costs and different related costs connected nan caller alloy program.

We had attraction CapEx and different CapEx of $146.9 million, of which $60.5 cardinal was for instrumentality to support caller tradelane services and to supply solidity successful nan network. And $21.3 cardinal was for nan LNG installations connected nan Daniel K. Inouye, Kaimana Hila and Manukai.

Please move to nan adjacent slide. Slide 18 shows nan cardinal areas for superior deployment complete nan adjacent 3 years. Starting pinch attraction and different superior expenditures we expect $80 cardinal to $90 cardinal per year. This superior walk includes Phase 2 and Phase 3 activity astatine Sand Island successful Honolulu, and normal people superior expenditures to support our vessels, statement broadside operations and logistics businesses.

The adjacent statement point related to nan caller alloy program. The figures shown bespeak nan milestone payments, owner’s items and capitalized liking we presently expect. There's capable rate connected deposit successful nan CCF coming to salary for each of nan remaining -- each of nan expected milestone payments successful nan adjacent 3 years and partially into 2026.

And nan past point is nan LNG installation and reengineering CapEx connected existing vessels. The Daniel K. Inouye is presently successful drydock for its LNG installation, and is expected to beryllium backmost successful work successful nan mediate of this year. Following Daniel K. Inouye, Manukai will participate nan drydock for a one-year task to reengine to run connected some LNG and accepted fuels. And Kaimana Hila will participate nan drydock successful nan 2nd 4th of 2024 for a astir five-month play for its LNG installation.

So successful total, we expect superior expenditures of $195 cardinal to $210 cardinal successful 2023, $205 cardinal to $220 cardinal successful 2024 and $440 to $450 cardinal successful 2025.

With that, I'll now move nan telephone backmost complete to Matt.

Matthew Cox

Okay, Joel, thanks. Please move to Slide 19, wherever I'll spell done immoderate closing thoughts.

We expect nan financial capacity successful nan first 4th of 2023 to beryllium nan weakest of nan year. Normal seasonality trends are returning to our home tradelanes and logistics. And arsenic mentioned previously, successful nan quarter, we expect to spot freight request for our China work beneath normalized condition.

In nan adjacent term, we expect continued economical maturation successful Hawaii, Alaska and Guam to beryllium supportive of freight demand. But we admit nan imaginable economical overhang that could negatively impact volumes successful each of these halfway home markets.

We expect challenging conditions successful nan Transpacific tradelane successful nan first half of nan year, pinch freight request beneath normalized levels. In nan 2nd half of nan year, we expect improved waste and acquisition dynamics arsenic nan marketplace modulation to a much normalized level of demand.

Please move to Slide 20. Matson is good positioned financially and operationally to capitalize connected opportunities arsenic they emerge. The Matson marque has ne'er been stronger. And we're successful an enviable position to leverage nan marque connected our portfolio of basal precocious value businesses to thrust caller opportunities.

Supporting our opportunistic maturation ambitions is simply a coagulated finance people equilibrium expanse pinch debased leverage. As of today, astir two-thirds of nan remaining milestone payments successful nan caller alloy programme are funded pinch rate deposits and nan CCF earning liking income connected a taxation advantaged basis. So we're successful very bully backing position pinch nan CCF connected this ample alloy project, which will trim our reliance connected utilizing rate flows successful nan adjacent fewer years to money alloy CapEx commitments.

Going forward, we will allocate nan shareholders superior for illustration we ever person successful a disciplined mode sloppy of nan economical environment. We put for nan agelong word to create worth for shareholders. In immoderate cases, nan superior decisions we make coming are to powerfulness america for decades to come, for illustration our $1 cardinal caller alloy build program.

We're ever connected nan lookout for opportunities to grow nan Matson marque and thrust integrated growth. We did this during nan pandemic pinch nan CLX+ service, and derivative opportunities successful logistics, and we're assured that we're positioned good pinch our customers successful nan marketplace to thrust early opportunities.

We will look to get businesses arsenic an hold of nan awesome postulation of assets we person today, we want to guarantee that immoderate business we get complements 1 aliases much of our existing businesses, provides a unsocial aliases differentiated worth proposition to our customers, fits culturally pinch ours, and is purchased astatine a double digit rate connected rate output pinch bully agelong word rate travel characteristics.

We did adjacent a mini tuck-in acquisition successful 2022 and we're actively looking astatine acquisitions including tuck-ins successful some Ocean Transportation and logistics. We still judge that valuation expectations are higher than justified by net fundamentals and maturation prospects, particularly successful ray of existent economical conditions. This whitethorn alteration successful nan coming year. And we expect charismatic candidates to look that meet our finance criteria.

We besides person a coagulated equilibrium expanse which provides a batch of optionality for us. And past but not least, we will proceed to return superior to shareholders aft backing our attraction CapEx expenditures, semipermanent investments and dividend. In nan past 2 years we've repurchased astir 7.5 cardinal shares for astir $600 million.

Going forward, we expect to beryllium a dependable purchaser of shares. As I've said before, we stay focused only connected what we tin power and doing what we've ever done. And that's to support vessels work reliability, supply precocious value customer service, and allocate shareholders superior to its highest and champion usage to create worth complete nan long-term.

And pinch that, I will move nan telephone backmost to nan usability and inquire for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] First mobility is coming from Jack Atkins of Stephens. Your statement is open.

Jack Atkins

Okay, great. Good afternoon, and convey you for taking my questions. So I guess, Matt, I'd emotion to possibly benignant of commencement pinch a macro mobility aliases two, you guys person specified an absorbing look into what's going connected because of your narration pinch your customers opening successful their proviso concatenation successful China. But, is it your consciousness that unit shippers are going to beryllium backmost to much normal ordering patterns astir nan mediate of nan year, is that what's benignant of underpinning your outlook for -- things to benignant of possibly get backmost towards normal successful nan 2nd half of nan year? I don't cognize -- I'm not trying to put words successful your mouth, I'm trying to benignant of understand nan outlook from that perspective.

Matthew Cox

Yes, I deliberation -- first of all, thanks, Jack for nan question. A mates of things. I deliberation our position now is that because of nan very important contraction successful Transpacific request and ordering that occurred successful particularly successful nan 4th fourth we saw nan opening towards nan extremity of nan 3rd quarter, arsenic retailers saw a slowing request shape by their customers and a important drawback up of inventory that was caught successful nan proviso concatenation congestion caused an aerial pouch to occur, if you will, successful Transpacific demand, arsenic our customers individually curtailed early acquisition orders arsenic they -- our customers were being much cautious successful their buying to get their inventories down wherever they needed them to be.

So, I deliberation what we're seeing is that -- and we're evidently listening to our ample customers, nan large container retailers and others for really good they're managing their inventory levels. And truthful we're watching that metric very closely. And nan early publication connected that is, while location has been betterment successful managing inventory levels down successful immoderate cases and different cases, and different retailers that hasn't occurred arsenic quickly arsenic they had expected.

So, we're expecting immoderate of nan slowness that we saw successful that 4th fourth to proceed into nan first 4th and frankly, into nan first half. And past we do expect much normal seasonality to hap arsenic we attack nan Thanksgiving and Christmas vacation seasons. And truthful we're expecting a weaker first half of nan year, owing to those questions and besides ongoing impacts of higher liking rates and nan Feds desire to curb inflation, immoderate persistent inflation, immoderate of nan macro trends that we're each of america are pursuing closely, will measurement connected demand, we deliberation peculiarly nan first half.

Jack Atkins

Okay, sewage it. Now, that's helpful, Matt, convey you for that. And I guess, you know, possibly to benignant of thief america framework up nan first 4th of nan first half. I cognize you guys are not giving guidance. But this is nan forum, possibly if you tin thief america deliberation a small spot astir seasonality. And possibly what that looks like, you said, nan first 4th is going to beryllium nan astir challenging 4th of nan twelvemonth from a financial perspective, successful position of nan EPS aliases nan profitability. If I heard you correctly.

If I deliberation backmost and benignant of look backmost to really nan business historically benignant of trends 4th fourth to first quarter, typically, marine proscription margins, tin beryllium astir half of successful nan first 4th what they were successful nan 4th quarter, is that nan correct measurement to deliberation astir nan business this year, aliases is that possibly a bully baseline. Anything to benignant of thief america deliberation astir really to framework it up, conscionable because there's conscionable truthful galore moving pieces this year. I'm not trying to put you connected nan spot pinch guidance, conscionable benignant of looking for immoderate direction.

Matthew Cox

Yes. And, portion of our deficiency of guidance is nan macro uncertainties that we're seeing. So it's not arsenic if we person a number, and we're not going to stock it pinch you. We're watching it on pinch everyone else. But we do deliberation that, arsenic we've said, if you look historically, what I mean by that is pre pandemic, aliases complete a play of time, nan first 4th has historically been our weakest, followed by I conjecture you would say, nan 4th quarter. And our historically, our 2 strongest quarters are successful nan 2nd and 3rd quarter.

So if you conscionable look historically there, we're besides seeing, I think, successful nan first 4th of this year, we had immoderate disruptions related to COVID successful China. And a weakening and definite request pattern. I besides deliberation nan portion that I haven't mentioned, but I deliberation it's going to carnivore connected what happens successful nan 2nd half of nan year.

We saw it opening successful nan 4th quarter, but I don't deliberation it's taken its afloat unit is successful nan China markets. Will nan different world water carriers resize their proscription fleets successful statement pinch nan little expected demand, we're seeing immoderate of that occur, we've seen announcements. But I deliberation much of that does request to occur, truthful that location isn't an overhang of capacity successful nan market, that could measurement down connected freight rates.

So I would opportunity arsenic without talking astir margins comparative to nan 4th quarter, I would conscionable impulse you to deliberation astir historical earnings, and past conscionable use what we spot arsenic a much cautious first half than nan 2nd half. And that's astir arsenic bully arsenic I could do Jack.

Jack Atkins

No, that helps a batch Matt. Thank you. And past that gives maine up to activity pinch there.

So fto maine possibly inquire 1 more, and I'll jump backmost successful queue. But I guess, Joel, if you person immoderate thoughts connected this, fto maine get you to chime successful connected it connected it too. But, erstwhile we benignant of deliberation astir nan past mates of years, evidently been highly beardown from an underlying request perspective, a batch of things benignant of happening, easy to furniture connected truthful possibly further costs done that process.

Now that nan things are nan businesses normalizing, successful immoderate cases, possibly beneath normalized levels. Are location opportunities to possibly return costs retired of nan business, possibly benignant of look for ways to tighten nan loop a spot successful definite parts of nan business that tin thief offset immoderate of nan challenges from a business perspective?

Matthew Cox

Yes, Jack, fto maine conscionable commencement pinch my thoughts. And past I'm going to move it complete to Joel to get his perspective. I deliberation what we -- nan biggest levers that we tin pull, arsenic you know, are really astir fleet deployments. And truthful our cancellation of nan CCX work that occurred towards nan extremity of nan 3rd 4th and done nan 4th fourth is simply a measurement successful which we could return each 1 of our vessels which were deployed, put them back, successful immoderate cases into reserve status, and little nan operating costs and by our fleet size.

The different constituent that we're going to beryllium focused connected successful 2023, is astatine its peak, we had 7 vessels successful nan CLX+ service. And we're going to beryllium moving towards a much accepted 5 vessels, arsenic we arsenic we proceed to CLX+ work into '23 and apt moving forward. So there's a mates of large level levers.

One of nan things that did not occur, Jack, successful nan past 3 years of nan pandemic was really connected nan G&A and group side. We added little than 3% to our workforce successful each of nan 2 years of nan pandemic. So, and we person a normal level of retirements and different kinds of things that doesn't put america successful a position wherever we consciousness for illustration our group resources are importantly overstep.

But having said that, we're going to spell backmost to doing what we've done successful a normal situation is looking for ways successful which to run much efficiently, whether it's nan velocity of our vessels, nan size of our instrumentality fleets, nan usage of overtime, and gait times, and a batch of conscionable blocking and tackling that will hap and does hap successful a normal situation that will let america to bespeak that we're successful a different situation and trying to support our costs successful statement pinch this little congestion and a little request situation overall.

But I would move it complete to Joel for his thoughts arsenic well.

Joel Wine

Yes, that I mean, those are nan cardinal items Jack. And conscionable to put a small spot of bid of magnitude on. Our biggest costs is terminal handling. And truthful arsenic nan freight package goes up and down complete time, and correct now it's soft pinch nan declines you've seen, that people goes down. And truthful you do get immoderate simplification successful costs connected a per portion basis, arsenic you person little freight moving done your terminals.

The adjacent costs are nan alloy operating costs broadly, including substance and there’s arsenic Matt said, our fleet is beautiful fixed correct now. We will spell to ratchet down 2 units connected nan CLX+ from 7 ships to five, that'll help. And we'll do that complete nan people of nan first 2 quarters of this year.

And nan remainder of it is beautiful fixed web of vessels, staying connected schedule, and past we person substance that fluctuates based connected substance prices. So that's nan adjacent biggest category.

And past instrumentality Matt touched upon that. We did flex up, we've repurchased a batch of instrumentality successful nan early and midstream days of nan pandemic. And past we really leased rather a spot successful nan past 12 months that we now tin prosecute and move that instrumentality backmost to nan lessor is and ratchet down a small spot of crossed our web location which will thief nan costs building a small bit.

And past nan past portion is nan group arsenic Matt said, we spot election, further transmission services do not require large increases successful our headcount. So we're beautiful disciplined astir adding group only erstwhile basal successful nan past mates of years. And truthful therefore, there's not there's not a large further number of headcount that accrued our costs structure. So that conscionable put a small spot of colour successful position of nan bid of magnitude connected each of those costs, but it's Jack.

Jack Atkins

No, I really admit that. Joel, convey you. And I'll manus it complete and jump backmost successful queue.

Operator

Our adjacent mobility is coming from Jake Lacks, of Wolfe Research. Your statement is open.

Jacob Lacks

Hey, acknowledgment for your time.

Matthew Cox

Hi, Jacob.

Jacob Lacks

So we spent a adjacent magnitude of clip talking astir nan request environment. Can you talk astir really you position nan proviso broadside for nan equilibrium of nan year? I deliberation you talked a spot astir immoderate blank sailings, but nan bid book is beautiful elevated. Could that beryllium offset by alloy scrapping? I would for illustration to get your thoughts there.

Matthew Cox

Yes, I judge I tin springiness you my thoughts. And fto maine springiness you my thoughts astir what should happen. Well, what I deliberation will hap and what should happen. That is that nan world Ocean carriers, operating done their world alliances will yet resize their fleets successful nan Transpacific and globally but successful nan markets we attraction astir successful nan Transpacific for yet nan level of request that is needed successful nan trades.

We acknowledged location was a larger bid book, that those vessels are going to beryllium delivered, immoderate of those will beryllium delayed, arsenic Ocean carriers activity to push backmost nan delivery, we'll spot immoderate precocious level of scrapping. We'll spot for vessels that are chartered, which correspond astir 50% of nan world fleet, galore of those vessels will beryllium returned to their alloy owners erstwhile nan charter periods are over.

So I deliberation you're going to spot a operation of resizing that's going to occur, and moreover perchance laying up vessels aliases again, scrapping vessels that should person been scrapped, aliases would person been scrapped, isolated from for nan bonzer marketplace rhythm that has occurred complete nan past fewer years. So you'll spot a operation of each of those things occurring complete nan coming months.

And arsenic I said, immoderate of it has occurred. We ourselves are an illustration of that, having 3 transpacific services astatine our peak, and past scaling that backmost to 2 successful ray of slack, falling demand. So those are those are really our thoughts astir what should and are very apt to hap arsenic we spell done 2023.

Jacob Lacks

Got it. Thanks. And then, I understand there's a batch of sound correct now, fixed inventory stocking. But do you deliberation there's capable request for 2 play transpacific services twelvemonth round? Or is location an action to make a CLX+ positive seasonal aliases each different week aliases something?

Matthew Cox

Yes, I mean, I deliberation our position is -- fto maine reside nan marketplace that we attraction about, which is nan expedited market. And it's a bully reminder that moreover while customers whitethorn beryllium handling a batch of seeing a batch of inventory successful their systems, successful portion arsenic a consequence of ostentation connected nan underlying costs of that inventory. There is still going to beryllium a request for merchandise that is moving, that needs to beryllium replenished. And our position is that while customers will apt stay cautious connected managing done their inventory levels, they are going to want to capable nan shelves. And Matson's position is that location is simply a size of a marketplace capable successful nan expedited abstraction for 2 play services.

And it's our position that if we remained nan fastest and astir reliable, which we expect to that we're going to get nan lion's stock of each that expedited freight, and there's capable expedited freight successful nan marketplace that will let america to prolong 2 services.

Jacob Lacks

That makes sense. And past 1 past 1 for me. You noted immoderate weakness successful nan request situation and 1 cardinal coming retired of China. You had a large diminution successful rates from 3Q to 4 Q, has that recovered a bottommost yet? Or should we deliberation rates diminution again, successful first quarter?

Matthew Cox

Yes, it's a bully question. I mean, I deliberation and I deliberation it's important present to differentiate betwixt what we'll opportunity our marketplace rates aliases spot rates and what that since rates are. So fto maine fto maine first commencement talking astir our thoughts astir nan spot rates successful nan market. I deliberation typically what you spot are after, historically, aft Lunar New Year, aliases earlier nan mill is reopened, we typically spot that arsenic nan lowest constituent successful nan twelvemonth for spot rates, but nan request is debased arsenic world water carriers typically void aliases cancel aliases blank sailings during that period. And that's erstwhile you spot nan spot rates astatine their lowest.

So whether we're precisely astatine nan bottommost aliases adjacent nan bottom, I deliberation we're close, if we're not there. So I deliberation what we're going to do, and based connected my belief and anticipation that nan yet nan capacity will beryllium reset, arsenic I mentioned, that spot rates will travel up from these lows, nan grade to which it will beryllium wished by tons of factors connected nan proviso and request side. But I deliberation we're astatine aliases adjacent nan bottommost connected nan spot complaint side.

I deliberation if you look astatine past we move into nan benignant of successful nan Transpacific this yearly contracting rhythm and what I expect to hap is that successful nan full proscription trade, we will spot little contracted rates past successful nan erstwhile twelvemonth arsenic these contracts renew. They'll apt to beryllium supra nan spot rates but beneath nan rates astatine which they were contracted past year. That's beautiful clear.

The different point that up for Matson while our rates are down from nan erstwhile year, and volumes were down arsenic we mentioned, our rates remained importantly higher than nan marketplace rates and they stay supra wherever they were pre pandemic successful our expedited space. So it's difficult to cognize precisely what will occur. But we consciousness comfortable that we are receiving a premium to nan marketplace that is commensurate pinch our highly differentiated service. So not knowing precisely really it's going. We for illustration wherever our position is successful nan market.

Jacob Lacks

All right, acknowledgment for your time.

Operator

And our adjacent mobility will beryllium coming from Jack Atkins of Stephens.

Jack Atkins

Yes, Jack Atkins pinch Stephen, acknowledgment for letting maine jump backmost successful and inquire a mates much questions. So I guess, I cognize you guys don't for illustration to talk astir tradelane level profitability. But there's a batch of question, I deliberation retired location successful position of for illustration what rates wherever they are, and nan CLX+ not needfully having that afloat double caput each for illustration nan original CLX has. How does it fare successful this type of operating environment, do you consciousness for illustration that pinch nan costs levers that you person to propulsion successful position of being capable to blank sailings erstwhile necessary, and going from 7 ships to 5 ships, that should beryllium capable to support CLX+ profitable aliases astatine worst neutral to earnings, moreover successful this type of complaint environment? Is that reasonable to expect?

Matthew Cox

Yes, it's a bully question. And I'll commencement by saying we don't talk astir waste and acquisition level profitability. What I tin opportunity pinch assurance Jack is this. There is moreover successful this past week sailing, much request for expedited work than we tin fresh connected our CLX+ service. And this is astatine nan seasonal low. So we do expect that nan size of nan expedited marketplace can't beryllium satisfied pinch a azygous alloy moreover successful a down marketplace we're successful an overshot market.

And we besides firmly judge that complete time, location will beryllium semipermanent worth creation by having nan fastest and 2nd fastest markets successful a trade, there's a there's a request for it, there'll beryllium unit to effort to move merchandise retired of aerial freight into our expedited aliases deferred airtight product. And I would opportunity that, evidently profitability is going to beryllium little connected each of our transpacific services, and successful nan erstwhile year, but we remained assured that these 2 services will create agelong word worth for our shareholder.

Jack Atkins

Okay. Got it. I knew that was going to beryllium a reliable mobility to answer. But I want to spot if you guys would, would possibly elaborate. So I conjecture possibly benignant of shifting gears to a mates of different items. You know, Joel, could you could you possibly thief america deliberation astir really liking disbursal should trend? I cognize it's liking rates tin move astir a lot. So not asking for a afloat twelvemonth look. But, pinch nan -- nan advancement payments being made into nan superior building money and higher rates connected your rate balance? I mean, what's nan correct measurement to deliberation astir liking income, I conjecture I should say, complete nan adjacent mates quarters?

Joel Wine

Yes. Well, liking disbursal will beryllium very easy to task we'll person 4 instruments aft we salary disconnected these 2 Title XI present successful nan first quarter, truthful that 2 stay backstage placement tranches, and 2 remaining Title XI tranches. So that'll beryllium very fixed connected nan liking disbursal side.

So your mobility connected nan liking income side. Just return a look astatine nan rate connected deposit successful nan CCF arsenic good arsenic rate and rate equivalents connected nan equilibrium expanse itself. So each of those costs will beryllium invested successful short term, precocious rated securities. And truthful what's nan liking income connected that -- connected those 2 full amounts going to be? I mean, correct now it's moving adjacent to 4%. And we told you what we made, we made $4 cardinal of liking income here, truthful acold twelvemonth to date, and conscionable nan CCF alone, which had $518 cardinal astatine twelvemonth extremity and done -- up until nan $100 cardinal deposit we made conscionable this past week.

So it's really a usability of this, look astatine those 2 numbers together connected nan equilibrium expanse Jack, CCF positive rate and equivalents, and past look astatine what marketplace rates are for precocious value money market, authorities backed funds, authorities types of securities, because we'll support a very precocious value of money marketplace type investments pinch those funds. So that's nan benignant of return you should expect connected nan liking income side.

Jack Atkins

So successful position of for illustration really that nets retired onto nan P&L, we're looking astatine thing possibly somewhat northbound of what you saw successful nan 4th quarter, again, depending connected nan imaginable change pinch instrumentality rates?

Joel Wine

Yes.

Jack Atkins

Okay. Got it. Thank you for that, Joel. And past successful position of reasoning astir a mates of different items connected nan rate and rate travel side, pinch nan deposit into nan superior building fund, should we beryllium reasoning astir nan rate taxes being conscionable fundamentally backed retired of nan replacement minimum tax, is that nan correct measurement to deliberation astir that positive your authorities income tax? Is location different measurement to beryllium reasonably minimal rate taxes?

Joel Wine

Well, it should revert to thing much normal, I would opportunity successful 2023. So what you saw is successful 2021, and 2022, we had very precocious levels of profitability, we did person precocious amounts of rate taxes. So if you look astatine those 2 years together, we're going to get immoderate refund backmost connected nan 2022 magnitude of rate taxes we paid. So that'll thief wide rate flow. But going forward, Jack successful 2023 will really revert to thing much normal successful position of rate taxes comparative to our underlying earnings.

Jack Atkins

Okay, truthful nan superior building deposit -- that's going to shield nan -- that's going to thrust a refund from anterior periods and going forward, it's going to beryllium much your rate taxes and your payroll taxes possibly it will beryllium reasonably similar?

Joel Wine

Yes, they'll beryllium overmuch person together. And nan measurement -- what we'll person to do successful 2023, is commencement making quarterly estimated rate taxation payments, truthful that you'll spot that, but past that'll beryllium a small spot overwhelmed by astatine immoderate constituent here, we'll get a refund from nan IRS. We don't cognize erstwhile astatine immoderate constituent this year, we'll person a large one-time refund. But we'll besides beryllium making regular quarterly rate taxation payments to nan IRS based connected 2023 estimated profitability.

Jack Atkins

Okay, I dream I'm going to get a refund this year, too, but I'm not going to clasp my breath. Okay, truthful I conjecture it'd beryllium past question, past I'll move it over. It’s connected nan benignant of nan gait of stock repurchases, you guys person been beautiful progressive connected those complete nan past mates of years. And its really larger stock count beautiful significantly. How should we beryllium reasoning astir that moving forward? I mean, is this going to beryllium benignant of a akin gait a small spot much ratable? You guys will beryllium much opportunistic pinch it. How should you’d beryllium reasoning astir that?

Matthew Cox

Yes, I would opportunity it's going to beryllium a slower gait than what we've done this first twelvemonth and a half. I mean, remember, we started successful August of 2021. And truthful successful that 18 months, we've bought backmost 7.5 cardinal shares already. So that's much than nan dependable gait you'd expect for nan remainder of this decade. And nan logic we did that is because we had specified very ample levels of rate travel and profitability successful 2021 and 2022. So arsenic things benignant of revert backmost to thing much normal successful '23 and beyond nan stock repurchase activity will spell down and trim from that yearly pace.

So much of a dependable gait that's much measured pinch our rate travel from operations minus our benignant of attraction CapEx levels, because we because we funded nan large alloy for CapEx successful nan CCF already two-thirds of that. So, much of a steady, truthful little gait and what we've seen successful nan past 18 months, but a dependable gait for years to come. It's what we expect, Jack.

Jack Atkins

Okay, no, that's awesome to hear. And I conjecture possibly 1 past 1 for me, and I'll manus it over. And I conscionable would for illustration to possibly benignant of spell backmost to this thought of benignant of what normalized net could look for illustration for Matson. And I cognize it's a difficult mobility to answer. But I conjecture arsenic you guys deliberation astir benignant of nan separator scope for marine transportation, historically, it's benignant of successful mid-single digits astatine nan trough of a cycle, mid-teens astatine nan highest of a cycle. It's because of COVID times retired for a moment, and benignant of precocious azygous digit, debased double digit, and we're successful a much normalized operating environment.

Is location immoderate logic to deliberation that that scope has benignant of changed 1 measurement aliases nan different done nan cycles we look forward? I mean, is that still nan correct measurement to deliberation astir it? Do you consciousness for illustration nan business is structurally much profitable? Any benignant of colour astir that I deliberation would beryllium adjuvant for investors.

Matthew Cox

Yes, Jack, this is Matt. I'm going to effort to reply portion of it, and past I'll move it complete to Joel. I deliberation we proceed to judge that our net coming retired of this pandemic will beryllium higher than it was going in. And I'm not judge whether we've deed normalized earnings, particularly successful nan first half of this year. But we do expect yet to get there. And I deliberation our position location is partially driven from nan summation of nan CLX+, which arsenic I said earlier we deliberation will thrust agelong word worth complete and supra our halfway earnings.

I deliberation nan worth of our CLX and nan marque that that it stood retired successful a really disruptive rhythm is besides going to let america to proceed to gain a very patient premium. In a fewer years-time, I do expect these 3 caller builds to put these further 500 containers for sailing for those 3 ships that we're going to beryllium introducing into nan CLX to beryllium different bolt connected of further net done upsizing benignant of an integrated maturation initiative. And I expect america to beryllium lookout for mini tuck-ins.

And I deliberation those acquisitions successful different maturation opportunities, absent of a beautiful ample acquisition, which are not included successful our comments if we tin find 1 that fits. So without trying to put a percent connected it, those are immoderate of nan things I think, springiness america competence to opportunity that we do judge that we're going to beryllium a different institution than we are going into it. But I'll move it complete to Joel to springiness you nan mid-cycle percent profit margins.

Joel Wine

Which, and Jack, you've heard america opportunity before, because there's truthful galore moving parts, particularly fuel, that separator study becomes very, very difficult. And truthful I know, you went done successful your question, a mates of predicates location successful position of what margins mightiness beryllium normalized and little extremity and precocious and debased points successful nan cycle. And we honestly, we conscionable don't deliberation of it that way. We don't deliberation of our businesses successful position of what margins they're going to produce, we deliberation of our businesses successful position of what aggregate EBITDA and operating income they're going to produce.

So I deliberation for investors, we've ever talked astir taking a tally rate, and past doing your analysis, what you deliberation is going to hap nan early disconnected that tally rate. So if you if you presume much measurement astatine x price, past you tin backmost into what your publication and incremental publication separator mightiness look like. And past you tin commencement moving connected aggregate EBITDA and operating income based connected based upon that starting point, arsenic opposed to building a gross number and past applying nan separator against it.

Does that make sense?

Jack Atkins

It does, it does. I conscionable -- I deliberation you guys cognize your business amended than anybody else. And it's reliable from nan extracurricular looking successful pinch each nan different tradelanes to beryllium capable to successful a batch of these businesses overlap connected each different to beryllium capable to really exemplary it and deliberation astir wherever things are going to settee out. So I deliberation that erstwhile we tin get immoderate much clarity astir that, I deliberation that will thief valuation erstwhile we tin benignant of get immoderate views. So I conscionable tried to get you guys to spell connected nan grounds connected that, but I conjecture we'll person a amended consciousness for that successful nan 2nd half of nan year. So convey you again for nan time. Really admit it.

Matthew Cox

Okay, sure. Thanks, Jack.

Operator

Thank you. That concludes nan Q&A convention for today. I would for illustration to move nan telephone backmost complete to Matt Cox, for closing remarks.

Matthew Cox

Okay, well, thanks, everybody for your liking successful today's call. We look guardant to catching up pinch everyone adjacent quarter. Aloha.

Operator

Thank you each for attending today's convention call. You each person a awesome evening and you whitethorn disconnect now.

Editor: Naga



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