Matson(MATX) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section provides the company's unaudited condensed consolidated financial statements and notes, covering financial position, operating results, and equity changes Condensed Consolidated Statements of Income and Comprehensive Income This section presents the company's condensed consolidated statements of income and comprehensive income for the specified periods Condensed Consolidated Statements of Income and Comprehensive Income (For the Nine Months Ended September 30): | Metric | Q3 2023 (million USD) | Q3 2022 (million USD) | YTD 2023 (million USD) | YTD 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Operating Revenue | 827.5 | 1,114.8 | 2,305.7 | 3,541.4 | | Operating Costs and Expenses | (695.4) | (779.5) | (2,038.2) | (2,280.4) | | Operating Income | 132.1 | 335.3 | 267.5 | 1,261.0 | | Net Income | 119.9 | 266.0 | 234.7 | 985.9 | | Basic Earnings Per Share | 3.42 | 6.95 | 6.59 | 24.83 | | Diluted Earnings Per Share | 3.40 | 6.89 | 6.56 | 24.65 | Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets as of the specified dates Condensed Consolidated Balance Sheets (As of Date): | Metric | September 30, 2023 (million USD) | December 31, 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | | Cash and Cash Equivalents | 156.5 | 249.8 | | Total Current Assets | 635.8 | 759.6 | | Total Long-Term Assets | 3,657.0 | 3,570.4 | | Total Assets | 4,292.8 | 4,330.0 | | Total Current Liabilities | 570.6 | 581.6 | | Total Long-Term Liabilities | 1,331.9 | 1,451.5 | | Total Liabilities | 1,902.5 | 2,033.1 | | Total Shareholders' Equity | 2,390.3 | 2,296.9 | | Total Liabilities and Shareholders' Equity | 4,292.8 | 4,330.0 | Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the specified periods Condensed Consolidated Statements of Cash Flows (For the Nine Months Ended September 30): | Metric | 2023 (million USD) | 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | | Net Cash from Operating Activities | 399.1 | 1,102.5 | | Net Cash from Investing Activities | (270.7) | (692.9) | | Net Cash from Financing Activities | (221.7) | (450.6) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | (93.3) | (41.0) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 160.4 | 246.7 | Condensed Consolidated Statements of Shareholders' Equity This section presents the company's condensed consolidated statements of shareholders' equity for the specified periods Condensed Consolidated Statements of Shareholders' Equity (For the Nine Months Ended September 30): | Metric | September 30, 2023 (million USD) | December 31, 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | | Total Shareholders' Equity | 2,390.3 | 2,296.9 | | Net Income (Nine Months) | 234.7 | 985.9 | | Share Repurchases (Nine Months) | (108.2) | (296.9) | | Dividends Paid (Nine Months) | (33.8) | (36.9) | Notes to the Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, explaining business operations, accounting policies, and financial changes - The company primarily operates through two business segments: Ocean Transportation and Logistics. Ocean Transportation services cover routes to Hawaii, Alaska, Guam, Micronesia, South Pacific Islands, Okinawa, and China to Long Beach, holding a 35% equity interest in SSAT. The Logistics segment provides intermodal brokerage, freight forwarding, warehousing, and supply chain management services[17][18][19] - As of September 30, 2023, the Capital Construction Fund (CCF) balance increased to $591.6 million from $518.2 million on December 31, 2022, primarily due to $100 million in cash deposits and $23.3 million in interest income. The company plans to use CCF funds to pay for milestone payments for three new Jones Act vessels[31][126] SSAT Joint Venture Income Statement Information (For the Nine Months Ended September 30) | Metric | Q3 2023 (million USD) | Q3 2022 (million USD) | YTD 2023 (million USD) | YTD 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Operating Revenue | 268.4 | 369.8 | 742.1 | 1,191.3 | | Operating (Loss) Income | (1.0) | 82.9 | (12.1) | 297.0 | | Net (Loss) Income | 1.5 | 68.9 | (7.4) | 247.0 | | Company's Share of SSAT Net (Loss) Income | 1.3 | 23.4 | (1.9) | 82.1 | Segment Operating Revenue (For the Nine Months Ended September 30) | Segment | Q3 2023 (million USD) | Q3 2022 (million USD) | YTD 2023 (million USD) | YTD 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Ocean Transportation | 669.4 | 918.5 | 1,837.3 | 2,911.6 | | Logistics | 158.1 | 196.3 | 468.4 | 629.8 | | Total Operating Revenue | 827.5 | 1,114.8 | 2,305.7 | 3,541.4 | Segment Operating Income (For the Nine Months Ended September 30) | Segment | Q3 2023 (million USD) | Q3 2022 (million USD) | YTD 2023 (million USD) | YTD 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Ocean Transportation | 118.2 | 315.2 | 228.4 | 1,201.4 | | Logistics | 13.9 | 20.1 | 39.1 | 59.6 | | Total Operating Income | 132.1 | 335.3 | 267.5 | 1,261.0 | Debt Composition (As of Date) | Debt Type | September 30, 2023 (million USD) | December 31, 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | | Private Placement Term Loans | 166.3 | 195.0 | | Title XI Debt | 284.0 | 304.8 | | Total Debt | 450.3 | 517.5 | | Less: Current Portion | (39.7) | (76.9) | | Less: Deferred Loan Costs | (11.9) | (12.9) | | Net Long-Term Debt | 398.7 | 427.7 | - The company prepaid $26.4 million of Title XI debt during the first quarter of 2023. As of September 30, 2023, $642.6 million remained available for borrowing under the revolving credit facility[59][22][129] Earnings Per Share Calculation (For the Nine Months Ended September 30) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Basic Earnings Per Share | $3.42 | $6.95 | $6.59 | $24.83 | | Diluted Earnings Per Share | $3.40 | $6.89 | $6.56 | $24.65 | | Basic Weighted-Average Shares (million shares) | 35.1 | 38.3 | 35.6 | 39.7 | | Diluted Weighted-Average Shares (million shares) | 35.3 | 38.6 | 35.8 | 40.0 | - As of September 30, 2023, unrecognized compensation cost related to unvested share-based awards totaled $30.2 million, expected to be recognized over a weighted-average period of approximately 1.8 years[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operating results, and liquidity for Q3 and YTD 2023, noting significant declines in revenue and net income, reduced operating cash flow, but improved CCF balance and lower debt FORWARD-LOOKING STATEMENTS This section outlines the inherent uncertainties and risks associated with forward-looking statements in the report - Forward-looking statements in this report are subject to various assumptions, risks, and uncertainties, where actual results may differ materially from expectations[79] OVERVIEW This section provides a general overview of the management's discussion and analysis of the company's financial performance and position - Management's Discussion and Analysis provides insights into the company's financial condition, operating results, liquidity, and factors potentially affecting future performance, and should be read in conjunction with the condensed consolidated financial statements and annual report[80] THIRD QUARTER 2023 DISCUSSION AND UPDATE ON BUSINESS CONDITIONS This section discusses business conditions and operational updates for the third quarter of 2023, including volume and segment performance - In Q3 2023, container volumes to Hawaii, Guam, and Alaska decreased year-over-year due to reduced demand and lower Alaska seafood exports. China service volumes declined by 1.3%, primarily impacted by the suspension of CCX service in Q3 2022, though CLX+ service volumes increased. The SSAT joint venture contribution significantly decreased by $22.1 million, mainly due to lower demurrage revenue and lift volumes[81][82][85][86][87] - Logistics operating income for Q3 2023 was $13.9 million, a year-over-year decrease of $6.2 million, primarily due to reduced contributions from transportation brokerage services[88] CONSOLIDATED RESULTS OF OPERATIONS This section analyzes the company's consolidated operating results, including revenue, profit, and earnings per share, for the reported periods Consolidated Results of Operations (For the Nine Months Ended September 30) | Metric | Q3 2023 (million USD) | Q3 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Operating Revenue | 827.5 | 1,114.8 | (287.3) | (25.8)% | | Operating Income | 132.1 | 335.3 | (203.2) | (60.6)% | | Net Income | 119.9 | 266.0 | (146.1) | (54.9)% | | Diluted Earnings Per Share | 3.40 | 6.89 | (3.49) | (50.7)% | | Metric | YTD 2023 (million USD) | YTD 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Operating Revenue | 2,305.7 | 3,541.4 | (1,235.7) | (34.9)% | | Operating Income | 267.5 | 1,261.0 | (993.5) | (78.8)% | | Net Income | 234.7 | 985.9 | (751.2) | (76.2)% | | Diluted Earnings Per Share | 6.56 | 24.65 | (18.09) | (73.4)% | - Increased interest income resulted from higher cash and Capital Construction Fund investments and rising interest rates. Decreased interest expense was due to reduced outstanding debt and increased capitalized interest offsets related to new vessel construction. The effective tax rate for Q3 and the nine months ended 2023 benefited from deductions related to Foreign-Derived Intangible Income (FDII)[90][91][94][97][98][99] ANALYSIS OF OPERATING REVENUE AND INCOME BY SEGMENT This section provides a detailed analysis of the company's operating revenue and income broken down by its business segments Ocean Transportation Operating Results (For the Nine Months Ended September 30) | Metric | Q3 2023 (million USD) | Q3 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Revenue | 669.4 | 918.5 | (249.1) | (27.1)% | | Operating Income | 118.2 | 315.2 | (197.0) | (62.5)% | | Operating Margin | 17.7% | 34.3% | | | | Hawaii Container Volume (FEU) | 37,000 | 37,700 | (700) | (1.9)% | | China Container Volume (FEU) | 39,000 | 39,500 | (500) | (1.3)% | | Metric | YTD 2023 (million USD) | YTD 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Revenue | 1,837.3 | 2,911.6 | (1,074.3) | (36.9)% | | Operating Income | 228.4 | 1,201.4 | (973.0) | (81.0)% | | Operating Margin | 12.4% | 41.3% | | | | Hawaii Container Volume (FEU) | 108,600 | 112,400 | (3,800) | (3.4)% | | China Container Volume (FEU) | 105,800 | 134,800 | (29,000) | (21.5)% | - Ocean Transportation revenue and operating income declined primarily due to lower average freight rates and volumes on the China service, coupled with reduced SSAT contributions. The decrease in China service volumes was also impacted by the suspension of CCX service in Q3 2022[101][103][107][109][110] Logistics Operating Results (For the Nine Months Ended September 30) | Metric | Q3 2023 (million USD) | Q3 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Revenue | 158.1 | 196.3 | (38.2) | (19.5)% | | Operating Income | 13.9 | 20.1 | (6.2) | (30.8)% | | Operating Margin | 8.8% | 10.2% | | | | Metric | YTD 2023 (million USD) | YTD 2022 (million USD) | Change (million USD) | Change (%) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Revenue | 468.4 | 629.8 | (161.4) | (25.6)% | | Operating Income | 39.1 | 59.6 | (20.5) | (34.4)% | | Operating Margin | 8.3% | 9.5% | | | - Logistics revenue and operating income decreased primarily due to reduced contributions from transportation brokerage and supply chain management services[112][115][116] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, cash flows, debt structure, and capital resources for future operations and investments Cash, Cash Equivalents, Restricted Cash, and Accounts Receivable (As of Date) | Metric | September 30, 2023 (million USD) | December 31, 2022 (million USD) | Change (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Cash and Cash Equivalents | 156.5 | 249.8 | (93.3) | | Restricted Cash | 3.9 | 3.9 | — | | Accounts Receivable, Net | 305.2 | 268.5 | 36.7 | | Accounts Receivable Designated to CCF | 213.2 | 9.9 | 203.3 | Cash Flow Changes (For the Nine Months Ended September 30) | Cash Flow Type | 2023 (million USD) | 2022 (million USD) | Change (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net Cash from Operating Activities | 399.1 | 1,102.5 | (703.4) | | Net Cash from Investing Activities | (270.7) | (692.9) | 422.2 | | Net Cash from Financing Activities | (221.7) | (450.6) | 228.9 | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | (93.3) | (41.0) | (52.3) | - Net cash from operating activities significantly decreased by $703.4 million, primarily due to lower net income, the SSAT joint venture shifting from profit to loss, and no cash dividends distributed. Net cash from investing activities decreased by $422.2 million, mainly due to reduced cash deposits and interest income in the Capital Construction Fund, offset by increased capitalized vessel construction and other capital expenditures. Net cash from financing activities decreased by $228.9 million, primarily due to fewer share repurchases and debt repayments[119][122][123] Capital Construction Fund (CCF) Balance (As of Date) | Metric | September 30, 2023 (million USD) | December 31, 2022 (million USD) | | :----------------------- | :----------------------- | :----------------------- | | Cash Deposits | 591.6 | 518.2 | | Designated Accounts Receivable | 213.2 | 9.9 | - As of September 30, 2023, total debt decreased by $67.2 million to $450.3 million, primarily due to the prepayment of Title XI debt and scheduled repayments of private placement term loans. The company maintained $642.6 million in available borrowing capacity under its revolving credit facility[128][129] - Working capital surplus decreased from $178.0 million on December 31, 2022, to $65.2 million on September 30, 2023, mainly due to reduced cash generated from operations and increased cash deposits into the CCF[130] Future Vessel Construction Milestone Payments (As of September 30, 2023) | Vessel Type | Paid (million USD) | Remaining 2023 (million USD) | 2024-2025 (million USD) | 2026-2027 (million USD) | Thereafter (million USD) | Total (million USD) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Three Aloha Class Containerships | 99.9 | — | 422.0 | 464.0 | 13.1 | 999.0 | - During Q3 2023, the company repurchased approximately 300,000 shares at a total cost of $25.8 million. As of September 30, 2023, approximately 3.0 million shares remained available for repurchase under the stock repurchase program[133] - On October 26, 2023, the Board of Directors declared a cash dividend of $0.32 per share, payable on December 7, 2023, to shareholders of record as of November 9, 2023[136] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no significant changes in the company's market risk profile since the disclosures in its Form 10-K annual report as of December 31, 2022 - The company's market risk profile has not materially changed[137] Item 4. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they are effective, with no material changes in internal control over financial reporting during the period - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective[138] - No material changes occurred in internal control over financial reporting during Q3 2023[139] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company believes it complies with applicable environmental laws and regulations in all material respects, and other legal proceedings are not expected to materially impact its financial condition, operating results, or cash flows - The company believes it complies with applicable environmental laws and regulations in all material respects[142] - The company will disclose any environmental proceedings expected to result in monetary sanctions of $1 million or more, excluding interest and costs[143] - Management believes the outcome of other legal proceedings will not materially impact the company's financial condition, operating results, or cash flows[144] Item 1A. Risk Factors This section indicates no material changes to the risk factors described in the company's Form 10-K annual report as of December 31, 2022 - No material changes occurred in the company's risk factors[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 301,084 common shares at an average price of $84.79 per share under a plan extended to December 31, 2025, with an additional 3 million shares authorized in April 2023 Stock Repurchase Summary (Q3 2023) | Period | Total Shares Repurchased | Average Price Paid Per Share | | :----------------------- | :----------------------- | :----------------------- | | July 1 – 31, 2023 | 105,545 | $78.59 | | August 1 – 31, 2023 | 77,689 | $90.04 | | September 1 – 30, 2023 | 117,850 | $86.87 | | Total | 301,084 | $84.79 | - As of September 30, 2023, 2,961,627 shares remained available for repurchase under the stock repurchase program, which was extended to December 31, 2025, with an additional 3 million shares authorized in April 2023[146] Item 3. Defaults Upon Senior Securities This report discloses no defaults upon senior securities - No defaults upon senior securities[147] Item 4. Mine Safety Disclosures This report discloses no mine safety information - No mine safety disclosures[148] Item 5. Other Information During Q3 2023, no directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - During Q3 2023, no directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[150] Item 6. Exhibits This section lists the exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits include CEO and CFO certifications (31.1, 31.2, 32) and Inline XBRL files (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[154] Signatures This report was signed by Joel M. Wine, Executive Vice President and Chief Financial Officer, and Kevin L. Stuck, Vice President and Controller of Matson, Inc. on October 31, 2023 - The report was signed by Joel M. Wine, Executive Vice President and Chief Financial Officer, and Kevin L. Stuck, Vice President and Controller, on October 31, 2023[157]