Q3 2021 Matson Inc Earnings Call
<unk> are described in our press release and presentation and are more fully detailed under the caption risk factors on pages 12 through 21 of our Form 10-K filed on February 26 2021.
In our subsequent filings with the SEC.
Please also note that the date of this conference call is November 3rd 2021, and any forward looking statements that we make today are based on assumptions as of this date, we undertake no obligation to update these forward looking statements I will now turn the call over to Matt.
Okay. Thanks, Lee and thanks to those on the call today.
I'm going to start on slide three with a quick recap of our third quarter results.
We had a solid performance in ocean messages Ocean transportation and logistics businesses.
Economic and business trends in the second quarter continued into the third quarter.
The year over year increase in Ocean transportation operating income in the quarter was primarily driven by continued strong demand for our expedited Ocean services, including the New China, California Express or Ccs.
In our domestic trade lanes, we continued to see strong demand with higher year over year volumes compared to the largely pandemic reduced volumes in the third quarter of last year.
Logistics operating income for the third quarter increased year over year as a result of continued elevated goods consumption inventory restocking and favorable supply and demand fundamentals in our core markets.
The supply chain environment continues to be one of widespread congestion in many key points within ocean and overland transportation.
We remain focused on what we do best which is maintaining fast reliable trade lane services, and helping our ocean transportation and logistics customers manage through this difficult period of congestion.
Lastly towards the end of the presentation I'll review, our sustainability strategy in light of our recent release of our supplement to the sustainability report, which can be found on our website. There are a number of key items in the report that I wanted to walk through some of which have financial considerations.
And with that I will now go through our trade Lane services. So please turn to the next slide.
Hawaii container volume for the third quarter increased 11, 5% year over year and was 10, 6% higher than the result achieved in the 2019 period.
The increase year over year was primarily due to higher retail and hospitality related demand due to the continued rebound in tourism and the Hawaii economy compared to the pandemic produced volume in the year ago period.
Domestic visitor travel to Hawaii remains strong throughout much of the third quarter 2021 until the end of the quarter when the state's efforts to address the spread of the COVID-19 Delta variance, including the Governor's request in late August to deferred travel plans led to a softening in airline passenger traffic.
As a result, we experienced a modest negative impact in freight demand late in the quarter.
Please turn to the next slide we will comment on the current business trends in Hawaii.
The chart on the right shows visitor arrivals and the unemployment rate from the beginning of the year through September the.
The significant increase in visitor travel to the state driven predominantly by U S. Mainland visitors has powered a resurgence in the tourism industry and consequently in the state's economy and led to a decline in the states unemployment rates.
In the near term the Hawaii economy May experience, a brief slowdown as a result of the state's response to the COVID-19 Delta variant and the related impacts on tourism trends in July 2021, total visitor arrivals was approximately 12% lower than in July 2019 and in August.
In September this gap widened to 22% and 31% respectively as an effect of the governor's plea to visitors in late August to defer travel plans.
On October 19th the Governor announced that nonessential travel to Hawaii can resume on November one so theres, an expectation that tourism activity should increase heading into the holiday season.
You heroes latest forecast captures the near term negative effects of the state's response to the COVID-19 Delta variant and impact on tourism as well as other macroeconomic factors as compared to you heroes forecast in May the current forecast shows a modestly lower GDP growth trend and an unemployment rate for 2021.
And 2022 that are 100 200 basis points higher respectively.
You hero continues to expect that a full return to pre pandemic conditions. They take several more years.
To give you a sense of the volume trend one month into the fourth quarter, our westbound container volume in October increased approximately 2% year over year, primarily due to higher retail and hospitality related demand.
Year over year growth was muted by the pullback in tourism as a result of the Governor's request to defer nonessential travel.
Moving to our China service on slide six.
<unk> volume in the third quarter 2021 was 21, 7% higher year over year, primarily due to the volume from the CEC ex service and volume from an extra loader.
The total number of eastbound voyages in the China service increased by six year over year of which five were from the <unk> and one from the extra loader.
Matt can continue to realize the significant rate premium in the third quarter 'twenty to 'twenty, one and achieved average freight rates that were considerably higher than the year ago period.
Volume demand in the quarter was driven by e-commerce garments and other goods heading into peak season, we continued to see sustained and elevated consumption trends and low inventory levels drive increased demand for our expedited Ocean services.
I'll now comment on the business trends. So please turn to slide seven.
For October 2021, eastbound container volume was higher year over year by approximately 11% due to the addition of CTX volume, partially offset by one less <unk> plus sailing this October as a result of timing.
Currently in the Transpacific trade Lane, we're seeing supply chain congestion due to a combination of ongoing elevated consumption trends inventory restocking and bottlenecks at critical points for both ocean.
And overland transportation.
Retail and e-commerce demands remain strong and it continues to be a very challenging inventory replenishment environment for retail in particular as evidenced by the trend in U S retail inventories to sales ratio as shown in the chart on this slide.
With respect to retail and E Commerce, we're seeing a high level of demand for our China Ocean services to expedited freight to the U S West coast for Black Friday, Cyber Monday and late holiday shipping.
We're also seeing some customers plan ahead for freight delivery before the lunar new year period.
All elements of the supply chain infrastructure from origination in China to the distribution points in the U S are in chaos, and we're working very hard to help our customers navigate through this exceptionally difficult period.
We're also intensely focused on maintaining our industry, leading ocean transportation transit times in past cargo ability availability of our <unk> <unk> plus and <unk> services.
Looking ahead, we expect elevated consumption demand and inventory restocking to remain largely in place at least through mid year 2022, as we work towards the new normal we will have the <unk> in place for as long as this peak supply chain demand environment remains in place, which may be until the middle of.
<unk> 'twenty two but we don't believe that <unk> will be a permanent service for medicine.
We will continue to adapt all of our ocean expedited services to the demand from our customers and we are prepared to move on opportunities to drive further organic growth.
Turning to slide eight.
In Guam Maxim container volume in the third quarter 2021 increased 14, 6% year over year, primarily due to the higher retail related demand compared to the pandemic reduced level in the year ago period.
The volume in the third quarter was 17% higher than the result achieved in the 2019 period.
<unk> economy is recovering slowly as tourism remains constrained.
Quickly the economic recovery trajectory remains uncertain for.
For the month of October our westbound container volume increased approximately 11% year over year.
Moving now to slide nine in Alaska, Madison's container volume for the third quarter 2021 increased 10, 7% year over year.
The increase was due to the additional addition of volume from the Alaska Asia Express higher northbound volume primarily due to an additional sailing.
Higher retail related demand and higher southbound volume.
In the near term, we expect improving economic trends in Alaska, but the recovery trajectory continues to remain uncertain, particularly.
Particularly given the seriousness of the COVID-19, Delta very outbreak and the stake.
For the month of October our northbound container volume was approximately flat year over year as retail related demand remained elevated.
Turning next to slide 10.
Our terminal joint venture SSAT contributed $13 million in the third quarter 2021, compared to $7 7 million in the prior year period.
The higher contribution was primarily result of higher lift volume as a result of the significant year over year increase in import volume into the U S West coast from China.
Currently we continue to see elevated import volume into the U S West coast, which we expect to translate into a high level of lift activity or S. S E T.
Turning now to logistics on slide 11 operating income in the third quarter came in at $16 million or $4 $1 million higher than the result in a year ago period.
This increase was primarily due to higher contribution from supply chain management and transportation brokerage, where we saw elevated goods consumption and inventory restocking. In addition to favorable supply and demand fundamentals in our core markets.
In October 2021, we saw supply chain management and transportation brokerage continued to benefit from elevated container volumes in southern California in line with the trends in the U S West coast import volume.
And with that I will turn the call over to Joel for a review of our financial performance Joel.
Okay. Thanks, Matt.
Please turn to slide 12 for a REIT.
View of our third quarter results.
Consolidated operating income increased $279 5 million from $98 4 million in the year ago period to $377 9 million with higher contributions from Ocean transportation and logistics of $275 4 million and $4 1 million respectively.
The increase in Ocean transportation operating income in the third quarter was primarily due to a higher contribution from China.
The year over year increase in China with result of significantly higher average freight rates and higher volume.
The increase in volume was primarily due to the volume from the new <unk> service and an extra loader.
As Matt noted the increase in logistics operating income was due primarily to higher contributions from supply chain management and transportation brokerage.
Do you want to point out that the year over year decline in logistics operating income margin from one eight excuse me from eight 1% to seven 7% was due primarily to an increase in transportation brokerage revenue and its relatively lower margin contribution.
Interest expense for the quarter was $5 1 million or <unk> 4 million lower than the second quarter as a result of lower outstanding debt.
Lastly, the effective tax rate in the quarter was 24, 4%.
Slide 13 shows how we allocated our trailing 12 months of cash flow generation for the LTM period, we generated cash flow from operations of $742 3 million from which we used $176 4 million to retire debt.
$295 7 million on maintenance Capex, which includes $95 8 million to terminate the modeling operating lease.
<unk> 30 million on new vessel, capex, including capitalized interest and owners' items and.
$15 6 million on other cash outflows.
Turning $159 $1 million to shareholders via dividends and share repurchases.
I would like to point out that Latin made net cash tax payments of $164 million and $86 9 million in the LTM period and third quarter respectively.
Turning to slide 14 for a summary of our balance sheet you will note that our total debt at the end of the quarter was $647 2 million and our total net debt was $571 3 million during.
During the quarter, we reduced total debt by $14 3 million.
At the end of the third quarter, our leverage ratio was approximately <unk> six times and we had no outstanding balance on our revolver.
As we noted on the second quarter earnings call, we terminated the operating lease on the on the model I model a on July 7th and paid $95 8 million to acquire the vessel.
This payment is captured in other capital expenditures line item on the cash flow statement.
We continue to expect the transaction to be EPS accretive by <unk> 10 cents and 19th and.
In 2021 and 2022, respectively.
Lastly, regarding our share repurchase program, we repurchased we repurchased one 5 million shares in the third quarter for a total cost of $115 7 million.
After the quarter end and from October one through yesterday on November 2nd we repurchased an additional 400000 shares for a total cost of $33 1 million.
As of November 2nd yesterday, we had approximately $1 1 million shares remaining on our 3 million authorized share repurchase program.
With that I'll now turn the call back over to Matt.
Okay.
Thanks, Joel before moving to the Q&A I want to spend a few minutes on several key aspects of our sustainability strategy, which are detailed in our inaugural sustainability report published in February and most recent supplement published this week.
<unk> always been committed to advancing responsible sustainable and ethical practices throughout the company and I'd like to review a few important and new goals for all of our stakeholders.
I'll start with the environmental stewardship, we recognize that climate change is the most pressing environmental challenge facing the world and we believe we have a responsibility to significantly reduce our impact on climate change by lowering our greenhouse gas emissions.
And we introduced four new state of the art vessels that included multiple environmental features designed to help reduce greenhouse gas emissions, allowing us to replace seven steamships that were older and less efficient.
The two Aloha class vessels entered service in 22018 to 2019 and the two kind of lower class vessels entered service in 2020.
We've responsibly recycled six of the seven steamships at U S facilities that comply with international ship recycling standards and we plan to recycle the final steamship in a similar manner. This year.
We're now announcing medium and long term goals that reflect <unk> commitment and contribution in helping the world Decarbonize and limit climate change the goals are as follows.
Reduced scope, one greenhouse gas emissions from our own fleet by 40% by 2030, using 2016 as a baseline and achieve net zero scope, one greenhouse gas emissions from our fleet by 2015 to.
To achieve our medium term 2030 goal, we aim to improve the fleet and operational efficiency.
I'll come back to this in a few minutes.
Our 2050 goal is particularly ambitious as there is currently no known commercially available fuel that is carbon neutral and can be used for ocean going container ships to help accelerate development of zero carbon fuels and technologies Mattson along with 16 members of the World Shipping Council. So.
<unk> is an open letter to the international Maritime organization or IMO advocating for action to achieve the Imo's climate goal and proposed a new $5 billion 5 billion dollar industry funded R&D program.
We will need to access to transformational fuels and technology to achieve our 2050 goal, but in the meantime, we will continue to drive projects to lower emissions improve efficiency and modernize our terminal operations.
Lastly on environmental stewardship, we intend to report our climate risks and opportunities in accordance with the task force on climate related financial disclosures or <unk>.
Those recommendations in 2022.
Moving to people in places that just culture and values are rooted in decades of living and working into communities that we serve.
As we've experienced in our geographic reach in the business service over the years, we haven't lost sight of the connection and responsibility we have to the communities as well as to the people who make up our company.
We're focused on providing a safe and healthy work environment.
We work to minimize the inherent risks of moving freight on the water and in terminals and warehouses with the goal of zero lost time incidents and fatalities and in the Covid.
COVID-19 environment, we have been vigilant in ensuring that our workforce is access to PPE and that all of our offices terminals warehouses and vessels are regularly sanitized.
Our vision for Madsen to be a great place to work for all employees, we're committed to improving diversity.
Riding equal pay for equal work and fostering an inclusive culture.
We want to foster career pathways for future leaders, while planning for the loss of retiring employees and.
And community is a big part of our Pacific culture, So mattson and its employees play an active role in supporting our communities.
And last but not least.
On corporate integrity that since committed to upholding the highest ethical standards.
Means acting with respect candor and honesty and everything we do.
This is the ethos is the foundation of our business and the basis of our approach strong governance, including our board of directors engagement in environmental social and governance matters. It also drives our long standing commitment to communities and customers, who depend on us to deliver critical supplies needed to power their local economies.
Please turn to the next slide.
As I mentioned earlier message set a medium term goal.
2030 to reduce scope, one greenhouse gas emissions from our own fleet by 40%.
In order to meet this goal.
We will need to pursue different approaches and it's imperative that we maintain optionality as these new technologies and tools emerge.
And of course, whatever choices, we make to meet this goal, we will need to make economic sense and fit.
Within the Companys larger strategy.
So with that in mind, let me touch on a few items.
We plan to install tanks piping and cryogenic equipment on the Daniel K Inouye, our first Aloha class vessels to operate on liquefied natural gas or LNG.
Installation is currently scheduled to begin in the first quarter of 2023 and to last approximately five months the.
The estimated total cost for this installation is approximately $35 million.
As a reminder, the engines and our low hot class and kind of Aloha class vessels are dual fuel capable, meaning the engines can run both conventional fuels and LNG.
We are actively considering LNG installations on the came on the Gila and the two kind of lower class vessels, the lean and that Sonya.
The current estimated cost to install LNG capability on the timeline of Gila is approximately $35 million and on the two kind of lower class vessels is approximately $80 million or $40 million each.
Next we plan to reenter monetize to operate on both LNG and conventional fuels the cost to re engine. This vessel is approximately $60 million and the conversion will begin after the LNG installation on the Daniel K Inouye.
We will begin procuring long lead time items on the Daniel K, Inouye, and monetize such as the tanks and model.
Monetize new engine this quarter to maintain flexibility the new tanks for these vessels will be designed to accommodate future carbon fuel neutral carbon neutral fuel when they become commercially available as.
As we consider our options for the re fleeting of the three Alaska vessels later this decade.
Any new vessels, we commit to are expected to be designed with state of the art characteristics and efficiency, including the consideration of any new fuel technologies that maybe commercial available at that time another option for us.
And one that we have not made a decision on would be to move three of our older vessels into the Alaska trade Lane in order three new LNG ready Aloha class vessels for the China service.
And lastly, there are a number of other strategies and initiatives to help increase sweep efficiency and lower emissions. These approaches can be found in the sustainability report supplement.
Please turn to the next slide.
One point I want to make clear for investors.
Is that in order to achieve our 2030 goal. We currently believe that we will need to have eight vessels operating on LNG by the end of the decade, the eight vessels would be.
Both of our Aloha class vessels, both of our kind of lower class vessels the re engined monetize.
And three new LNG ready vessels.
We've spent considerable time evaluating fuel alternatives and LNG availability the bunker barges on the U S West coast.
West Coast seems more likely in the coming years.
We believe LNG as an important bridge fuel as we evaluate our other fuel types and technologies that will allow us to achieve our 2050 climate goals.
Summary, we built a reputation for a deep commitment to environmental stewardship, being a trusted and reliable employer and community partner in operating our business with integrity.
In keeping with that tradition, we are working collaboratively and our industry to promote positive change and mitigate environmental impacts associated with our business operations.
We will chart our progress with the annual sustainability report and we'll keep investors regularly informed of the financial impact and plans to meet our goals.
To wrap things up for the quarter, we performed well in the first nine months of the year, we're focused on maintaining the reliability of our ocean.
Services, and working closely with our customers and Ocean transportation and logistics to manage through this difficult period.
For our customers.
And with that I will turn the call back to the operator and ask for your questions.
As a reminder to ask a question press star one on your telephone keypad again that is star one to ask a question.
And we'll pause for just a moment to compile the Q&A roster.
Your first question is from Jack Atkins with Stephens.
Okay, great good afternoon, and congrats on a great quarter.
Thanks, Jeff So I guess, Matt if I could.
Just kind of thinking about the the Hawaii Lane for a moment you know when we when we look at visitor arrivals.
I think as we went through the summer until the more recent actions, but still down a good bit versus 2009.
In 19, but overall volume levels in the Hawaii Lane are obviously higher than 2019, we're seeing a lot of you know.
Unusual freight flows across the U S more and more broadly in and I'm guessing that's what's going on in Hawaii.
Restocking and things like that but.
I guess, what would you sort of think about the level of activity.
To Hawaii today, and you kind of think about that over the next kind of four to six quarters.
Do you feel like that.
We can sustain this level of volume to Hawaii with without.
Hey recovery.
From a visitor perspective back to 2019 levels and beyond just sort of curious if you could maybe talk about that for a moment.
Yeah sure Jack.
My view is that.
I can say I'm, a little bit more bullish on Hawaii, Jack first of all I think we don't see much of a problem in sustaining our current level of freight volume moving forward.
I think my personal view.
In hearing and talking to our customers.
That this is a period in the fourth quarter, the slowdown associated with the Delta variant.
And the restrictions of the state put in place did indeed suppress travel.
I continue to be pretty optimistic that Hawaii will be seen as a relatively safe place to travel through the holiday season and into 2022 relative to international destinations to travel which are still dealing with.
Impacts related to the Delta variance, so I personally think that the overall.
Environmental Hawaii is likely to improve.
It would be relatively healthy going into 2022, so I think there's more of a risk to the upside than I don't feel much risk I mean absent.
The answer so a lot of questions. It's all about delta.
We're currently and to the extent that.
We begin to see not the elimination.
COVID-19, but.
The gradual reduction as vaccines and treatments become more effective I think will stand to benefit the economy in Hawaii Okay.
That's great to hear and I guess, maybe.
Kind of all along that same line of thought.
When we kind of think about your capacity utilization westbound too to Hawaii from the West coast.
I know you guys don't like to give specific utilization statistics, there for obvious reasons, but I guess when do you sort of think about sort of where you are.
With the current fleet deployment.
Do you have a fair amount of excess capacity left to go because it kind of feels like we're getting back towards the 2016 levels.
The fleet is different today than it was then but just sort of curious if you could maybe comment on that.
Yes, I'll comment I'll comment generally on a check I would say that.
We have seen.
We're satisfied with our.
The utilization, but we have capacity to be able to meet the Hawaii capacity.
As and when the economy recovers. So we're very comfortable of both where we are now on our fleet utilization perspective into Hawaii.
But also have sufficient capacity to grow with the.
The economy as it recovers next year. So that's okay.
Excellent.
Last question for me and I'll I'll hand, it over but could.
Could you maybe give us an update Joe maybe if you. If this is if this is more for you, but just an update on.
The charter.
The charters that you guys were planning on working on with regard to the CLEC plus service and I know some of those were coming up towards the end of this year, maybe early next year.
Any update on that and sort of maybe how you guys are thinking about that capacity over a longer period of time.
Yes, Thanks, Jack So yes, we had a couple of vessels on charter cop in early 2022, and then another vessel in the second quarter of 2022. So those are those are the three vessels that were focused on here in the latter part of this year and we're almost there. We've got we have engaged in some new charters.
And we're and we believe we need one more vessel and then we'll be in good shape to continue to have our core satellite plus vessels on charter to new development Jack.
Important to note is not surprisingly vessel owners have really push for longer duration or terms. So if you looked at 2020 and the first part of 2021, we could find charters that were sometimes 12 months or 24 months.
And of course, the Chinese government is moving aggressively to.
Two two <unk>.
Limit the spread of Covid inside the country and you also rightly point out with the Olympics I think from Ah and again speculating, but from a Chinese public policy standpoint, having hundreds of millions of Chinese in domestic transportation system going to their hometowns is not a good.
Factor in terms of trying to limit the spread of the Delta variant of Covid and so we expect a shorter lunar new year period as many people decide for themselves or discouraged from traveling. So so again I think we're going to see a more limited lunar new year or abbreviated lunar new year period.
So while while I think there will be a traditional slowdown I think it will be shorter than people expect that's my personal guess at this point.
Okay makes makes total sense. Thanks again for the time guys really appreciate it.
Okay. Jack Thanks, Thanks, Jack.
Your next question is from vanilla lets people.
Hey, guys.
So I wanted to follow up a little bit ons.
Joe what you're talking about with Jack there.
In terms of you put some.
Or now have in place some longer term contracts because that's just the way the market is at the moment, but.
I was thinking of it from the other side.
You guys offer a relatively scarce commodity are hard to get saying at the moment, especially from an expedited perspective.
I'm curious if you've been able to.
Leverage that yourself in terms of tiny.
Signing your own customers up to longer term contracts to maybe sort of help offset or mitigate a little bit.
The longer term contracts that you're signing for the ships.
Yes that thanks for the question.
Nutshell. The answer is no I mean customers right now we're very focused on their supply chain initiatives delivery, there's not a lot of conversation around long term.
Contracts as you know.
The market has two basic types of customers the annual Bcl contracts, which you may one day for 30 for most of the major retailers and then the freight forwarders that really spot market that have that are looking out to three or four weeks in advance and really I'd say and neither of those two customer segments broadly is there any conversation or movement in the market for longer term Koch.
Tracks.
Okay.
And then Matt you had mentioned that.
Certainly thinking of potentially the see the new Ccs business going perhaps into midyear. However, long.
<unk>.
Environment last but you still aren't thinking of it as a permanent fixture.
In terms of how you are deploying your assets I'm curious why minute, what what makes you think that.
Or that.
And then it's not going to be something that you are always doing.
Yeah.
It's a good good question.
From our perspective. These the ccf's comprises vessels that are.
Technically all of our reserve vessels in the Hawaii service and so the.
At some point in the future we were talking about for example, the the need to take vessels out of service to do conversions to LNG or other routine dry dock matters will limit the ability for us to have a regular scheduled service at some point in the future.
Went into 2022 is not exactly clear, but eventually.
We may turned from a standardized Ccs regular service and two extra loaders, but the CCF service as we know at some point in 22 will and.
That isn't to say, though that when we get to a new normal there may be opportunities for us to deploy other vessels.
In other expedited service once we get to the new normal because as you pointed out we we have.
We had our brand has been really enhanced with regard to a company because of our wields operation dedicated terminals and all the other elements that allow us to stand apart from the competition.
Market expectations into segment that would prefer an expedited market has grown so as things settle over the next few years, we're definitely going to be looking at ways in which we can focus on this expedited services as something that they have other opportunities, but it's not really likely not likely or will not be in the form of the current.
<unk> past 2022.
I gotcha, so it's not a function of demand as a function of capacity.
Correct other needs.
Right Okay.
Okay, all right well.
That's that's helpful.
Just lastly seem.
It seems relatively obvious but it might as well ask.
You've made quite a bit of headway on that buyback program is it fair to assume that.
Subject to board approval or what have you that.
As long as the market remains really elevated that there's no reason that wouldn't be.
Renewed and increased.
Yes.
I would definitely say, we expect to be steady return of capital of France. Your cash flow generation company for a long time as you know so I would.
I would look at us as a steady.
Long term focused.
Return of capital company that folk and with share buyback being the primary way that we do that so I think that's.
There's nothing changing our story in high regard.
Alright. This is Matt one other comment I would make Ben which is we're going to continue to and you've heard of this before but it's worth repeating to our capital allocation strategy, we're going to continue to look for ways to deploy capital either through acquisitions or organic growth initiatives and those in the absence of finding.
Those that provide the double digit cash on cash return that we talked about is our threshold will we be steady return of capital, but if we have opportunities to deploy capital.
Profitably, we're certainly going to continue to look for ways to do that.
Sure Yeah.
Alright, one.
Over the years have asked plenty about the.
Mmk aspects. So I think I have my hands pretty well [laughter] this point, but alright.
Alright, I appreciate it again.
Okay. Thanks.
Thanks.
Again, if you would like to ask a question pressed all one on your telephone keypad again that is star wanted to ask a question.
We have no further questions.
I had to call back over to Matt for closing remarks.
Okay. Thanks for listening in today, we look forward to catching up with everyone next quarter Aloha.
Does that conclude today's presentation you may now disconnect.
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Good day, and thank you for standing by and welcome to the third quarter 2021 fiscal results conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded to ask a question. During the session you will need to press star one on.
Your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today Lee Fishman Senior director of Relations. Please go ahead.
Thank you Tina joining.
Joining me on the call today are Matt Cox, Chairman, and Chief Executive Officer, and Joe <unk> Executive Vice President and Chief Financial Officer.
Slides from this presentation are available for download at our website www dot <unk> dot com.
Under the investors tab.
Before we begin I would like to remind you that during the course of this call. We will make forward looking statements within the meaning of the federal Securities laws.
Regarding expectations predictions projections or future events, we believe that our expectations and assumptions are reasonable.
We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward looking statements in the press release, the presentation slides and this conference call.
These risk factors are described in our press release and presentation and are more fully detailed under the caption risk factors on pages 12 through 21 of our Form 10-K filed on February 26, 2021, and in our subsequent filings with the SEC.
Please also note that the date of this conference call is November three 2021, and any forward looking statements that we make today are based on assumptions as of this date and we undertake no obligation to update. These forward looking statements I will now turn the call over to Matt.
Okay. Thanks, Lee and thanks to those on the call today I'm going to start on slide three with a quick recap of our third quarter results.
We had a solid performance in Ocean Max's Ocean transportation logistics businesses had strong economic and business trends in the second quarter continued into the third quarter.
The year over year increase in Ocean transportation operating income in the quarter was primarily driven by continued strong demand for our expedited Ocean services, including the New China, California Express or Ccs.
In our domestic trade lanes, we continued to see strong demand with higher year over year volumes compared to the largely pandemic reduced volumes in the third quarter of last year.
Logistics operating income for the third quarter increased year over year as a result of continued elevated goods consumption inventory restocking and favorable supply and demand fundamentals in our core markets.
The supply chain environment continues to be one of widespread congestion at many key points within ocean and overland transportation.
We remain focused on what we do best which is maintaining fast reliable trade lane services, and helping our ocean transportation and logistics customers manage through this difficult period of congestion.
Lastly towards the end of the presentation I'll review, our sustainability strategy in light of our recent release of our supplement to the sustainability report, which can be found on our website. There are a number of key items in the report that I wanted to walk through some of which have financial considerations.
And with that I will now go through our trade Lane services. So please turn to the next slide.
Hawaii container volume for the third quarter increased 11, 5% year over year and was 10, 6% higher than the result achieved in the 2019 period.
The increase year over year was primarily due to higher retail and hospitality related demand due to the continued rebound in tourism and the Hawaii economy compared to the pandemic produced volume in the year ago period.
Domestic visitor travel to Hawaii remains strong throughout much of the third quarter 2021 until the end of the quarter when the state's efforts to address the spread of the COVID-19 Delta variants, including the Governor's request in late August to deferred travel plans led to a softening in airline passenger traffic.
As a result, we experienced a modest negative impact in freight demand late in the quarter.
Please turn to the next slide we will comment on the current business trends in Hawaii.
The chart on the right shows visitor visitor arrivals and the unemployment rate from the beginning of the year through September the.
The significant increase in visitor travel to the state driven predominantly by U S. Mainland visitors has powered a resurgence in the tourism industry and consequently in the state's economy and led to a decline in the states unemployment rates in the near term the Hawaii economy may experience a brief slowdown as a result of that.
States response to the COVID-19, Delta variant and the related impacts on tourism trends.
In July 2021, total visitor arrivals was approximately 12% lower than in July 2019, and in August and September this gap widened to 22% and 31% respectively. As it affected the governor's plead to visitors in late August to defer travel plans.
<unk>.
On October 19th the Governor announced that nonessential travel to Hawaii can resume on November one. So there was an expectation that tourism activity should increase heading into the holiday season.
You heroes latest forecast captures the near term negative effects of the state's response to the COVID-19, Delta variance and impact on tourism as well as other macroeconomic factors as compared to you heroes forecast in May the current forecast shows a modestly lower GDP growth trend.
The unemployment rate for 2021, and 2022 that are 100 200 basis points higher respectively.
Your hero continues to expect that a full return to pre pandemic conditions may take several more years.
To give you a sense of the volume trend one month into the fourth quarter, our westbound container volume in October increased approximately 2% year over year, primarily due to higher retail and hospitality related demand.
Year over year growth was muted by the pullback in tourism as a result of the Governor's request to defer nonessential travel.
Moving to our China service on slide six.
<unk> volume in the third quarter 2021 was 21, 7% higher year over year, primarily due to the volume from the <unk> service and volume from an extra loader.
The total number of eastbound voyages in the China service increased by six year over year of which five were from the <unk> and one from the extra loader.
Matson continue to realize the significant rate premium in the third quarter 2021, and achieved average freight rates that were considerably higher than a year ago period.
Volume demand in the quarter was driven by e-commerce garments and other goods heading into peak season, we continued to see sustained and elevated consumption trends and low inventory levels drive increased demand for our expedited Ocean services.
I'll now comment on the business trends. So please turn to slide seven.
For October 2021, eastbound container volume was higher year over year by approximately 11% due to the addition of CTX volume, partially offset by one less <unk> plus sailing this October as a result of timing.
Currently in the Transpacific trade Lane, we're seeing supply chain congestion due to a combination of ongoing elevated consumption trends inventory restocking and bottlenecks at critical points for both ocean and.
Overland transportation.
Retail and e-commerce demands remain strong and it continues to be a very challenging inventory replenishment environment for retail in particular as evidenced by the trend in U S retail inventory to sales ratio as shown in the chart on this slide.
With respect to retail and E Commerce, we're seeing a high level of demand for our China Ocean services to expedited freight to the U S West coast for Black Friday, Cyber Monday and late holiday shipping.
We're also seeing some customers plan ahead for freight delivery before the lunar new year period.
All elements of the supply chain infrastructure from origination in China to the distribution points in the U S are in chaos, and we're working very hard to help our customers navigate through this exceptionally difficult period.
We're also intensely focused on maintaining our industry, leading ocean transportation transit times, and fast cargo ability availability of our CLS <unk> plus and <unk> services.
Looking ahead, we expect elevated consumption demand and inventory restocking to remain largely in place at least through mid year 2022, as we work towards the new normal we will have the <unk> in place for as long as this peak supply chain demand environment remains in place, which may be until the middle of.
'twenty two but we don't believe that <unk> will be a permanent service for medicine.
We will continue to adapt all of our ocean expedited services to the demand from our customers and we are prepared to move on opportunities to drive further organic growth.
Turning to slide eight.
In Guam <unk> container volume in the third quarter 2021 increased 14, 6% year over year, primarily due to the higher retail related demand compared to the pandemic reduced level in the year ago period.
The volume in the third quarter was 17% higher than the result achieved in the 2019 period.
<unk> economy is recovering slowly as tourism remains constrained subsequently the economic recovery trajectory remains uncertain.
For the month of October our westbound container volume increased approximately 11% year over year.
Moving now to slide nine in Alaska, <unk> container volume for the third quarter 2021 increased 10, 7% year over year.
The increase was due to the additional addition of volume from the Alaska Asia Express higher northbound volume, primarily due to an additional sailing and higher retail related demand and higher southbound volume.
In the near term, we expect improving economic trends in Alaska, but the recovery trajectory continues to remain uncertain, particularly.
Particularly given the seriousness of the COVID-19, Delta very outbreak and the stake.
For the month of October our northbound container volume was approximately flat year over year as retail related demand remained elevated.
Turning next to slide 10.
Our terminal joint venture SSAT contributed $13 million in the third quarter 2021, compared to $7 7 million in the prior year period.
The higher contribution was primarily result of higher lift volume as a result of the significant year over year increase in import volume into the U S West coast from China.
Currently we continue to see elevated import volume into the U S West coast, which we expect to translate into a high level of lift activity or SSAT.
Turning now to logistics on slide 11 operating income in the third quarter came in at $16 million or $4 $1 million higher than the result in a year ago period.
This increase was primarily due to higher contribution from supply chain management and transportation brokerage, where we saw elevated goods consumption and inventory restocking. In addition to favorable supply and demand fundamentals in our core markets.
In October 2021, we saw supply chain management and transportation brokerage continued to benefit from elevated container volumes in southern California in line with the trends in the U S West coast import volume.
And with that I will turn the call over to Joel for a review of our financial performance Joel.
Okay. Thanks, Matt.
Please turn to slide 12.
For a review of our third quarter results.
<unk> operating income increased $279 5 million from $98 4 million in the year ago period to $377 9 million with higher contributions from Ocean transportation and logistics of $275 4 million and $4 1 million respectively.
The increase in Ocean transportation operating income in the third quarter was primarily due to a higher contribution from China.
Year over year increase in China was a result of significantly higher average freight rates and higher volume the.
The increase in volume was primarily due to the volume from the new <unk> service and an extra loader.
As Matt noted the increase in logistics operating income was due primarily to higher contributions from supply chain management and transportation brokerage I do want to point out that the year over year decline in logistics operating income margin from one eight excuse me from eight 1% to seven 7% was due primarily to the <unk>.
Kris and transportation brokerage revenue and its relatively lower margin contribution.
Interest expense for the quarter was $5 1 million or <unk> 4 million lower in the second quarter as a result of lower outstanding debt.
Lastly, the effective tax rate in the quarter was 24, 4%.
Slide 13 shows how we allocated our trailing 12 months of cash flow generation for the LTM period, we generated cash flow from operations of $742 3 million from which we used $176 4 million to retire debt.
$295 7 million on maintenance Capex, which includes $95 8 million to terminate the modeling operating lease.
<unk> 30 million on new vessel, capex, including capitalized interest and owners' items and.
$15 6 million on other cash outflows, while returning $159 $1 million to shareholders via dividends and share repurchases.
I would like to point out that Matt made net cash tax payments of $164 million and $86 9 million in the LTM period and third quarter respectively.
Turning to slide 14 for a summary of our balance sheet you will note that our total debt at the end of the quarter was $647 2 million and our total net debt was $571 3 million during.
During the quarter, we reduced total debt by $14 3 million.
At the end of the third quarter, our leverage ratio was approximately <unk> six times and we had no outstanding balance on our revolver.
As we noted on our second quarter earnings call, we terminated the operating lease on the on the model our model a on July seven and paid $95 $8 million to acquire the vessel.
This payment is captured in other capital expenditures line item on the cash flow statement.
We continue to expect the transaction is EPS accretive by <unk>, 10, and 19 <unk> and.
In 2021 and 2022, respectively.
Lastly, regarding our share repurchase program, we repurchased we repurchased one 5 million shares in the third quarter for a total cost of $115 7 million.
After the quarter end and from October one through yesterday on November 2nd we repurchased an additional 400000 shares for a total cost of $33 1 million.
As of November 2nd yesterday, we had approximately $1 1 million shares remaining on our 3 million authorized share repurchase program.
With that I'll now turn the call back over to Matt.
Thanks, Joel before moving to the Q&A I want to spend a few minutes on several key aspects of our sustainability strategy, which are detailed in our inaugural sustainability report published in February and most recent supplement published this week.
<unk> always been committed to advancing responsible sustainable and ethical practices throughout the company.
And I'd like to review, a few important and new goals for all of our stakeholders.
I'll start with the environmental stewardship, we recognize that climate change is the most pressing environmental challenge facing the world and we believe we have a responsibility to significantly reduce our impact on climate change by lowering our greenhouse gas emissions.
And we introduced four new state of the art vessels that included multiple environmental features designed to help reduce greenhouse gas emissions, allowing us to replace seven steam ships that were older and less efficient.
The two Aloha class vessels and in service and 22018 in 2019, and the two kind of lower class vessels entered service in 2020.
We've responsibly recycled six of the seven steamships at U S facilities that comply with international ship recycling standards and we plan to recycle the final steam ship in a similar manner. This year.
We're now announcing medium and long term goals that reflect management's commitment and contribution in helping the world Decarbonize and limit climate change the goals are as follows.
Reduced scope, one greenhouse gas emissions from our own fleet by 40% by 2030, using 2016 as a baseline and achieve net zero scope, while in greenhouse gas emissions from our fleet by 2015 to.
To achieve our medium term 2030 goal, we aim to improve the fleet and operational efficiency.
I'll come back to this in a few minutes.
Our 2050 goal is particularly ambitious as there is currently no known commercially available fuel that is carbon neutral and can be used for ocean go and container ships to help accelerate development of zero carbon fuels and technologies Mattson along with 16 members of the World Shipping counsel signed in <unk>.
Letter to the international Maritime organization or IMO advocating for action to achieve the Imo's climate goal and proposed a new $5 billion 5 billion dollar industry funded R&D program.
We will need to access to transformational fuels and technology to achieve our 2050 goal, but in the meantime, we will continue to drive projects to lower emissions improve efficiency and modernize our terminal operations.
Lastly on environmental stewardship, we intend to report our climate risks and opportunities in accordance with the task force on climate related financial disclosures or <unk>.
Those recommendations in 2022.
Moving to people in places that is culture and values are rooted in decades of living and working in the communities that we serve.
As we've experienced in our geographic reach in the business service over the years, we haven't lost sight of the connection and responsibility we have to the communities as well as to the people who make up our company.
We're focused on providing a safe and healthy work environment with.
We work to minimize the inherent risks of moving freight on the water and in terminals and warehouses with the goal of zero lost time incidents and fatalities and in the Covid net COVID-19.
COVID-19 environment, we have been vigilant in ensuring that our workforce is access to PPE and then all of our offices terminals warehouses and vessels are regularly sanitized.
Our vision for Madsen to be a great place to work for all employees, we're committed to improving diversity.
Riding equal pay for equal work and fostering an inclusive culture.
We want to foster career pathways for future leaders, while planning for the loss of retiring employees and.
And community is a big part of our Pacific culture, So thats and its employees play an active role in supporting our communities.
And last but not least.
On corporate integrity that since committed to upholding the highest ethical standards.
This means acting with respect candor and honesty and everything we do.
This is the ethos is the foundation of our business and the basis of our approach strong governance, including our board of directors engagement in environmental social and governance matters and also drives our long standing commitment to communities and customers, who depend on us to deliver critical supplies needed to power their local economy.
<unk>.
Please turn to the next slide.
As I mentioned earlier message set a medium term goal.
2030 to reduce scope, one greenhouse gas emissions from our own fleet by 40%.
In order to meet this goal, we will need to pursue different approaches and it's imperative that we maintain optionality as these new technologies and fuels emerge.
And of course, whatever choices, we make to meet this goal, we will need to make economic sense and fit within the companys larger strategy.
So with that in mind, let me touch on a few items.
We plan to install tanks piping and cryogenic equipment on the Daniel K Inouye, our first Aloha class vessels to operate on liquefied natural gas or LNG.
Installation is currently scheduled to begin in the first quarter of 2023 and to last approximately five months the.
The estimated total cost for this installation is approximately $35 million.
As a reminder, the engines and our low hot class and kind of Aloha class vessels are dual fuel capable, meaning the engines can run on both conventional fuels and LNG.
We are actively considering LNG installations on the came on a hela and the two kind of lower class vessels, the lean and that Sonya.
The current estimated cost to install LNG capability on the timeline of Gila is approximately $35 million and on the two kind of lower class vessels is approximately $80 million or $40 million each.
Next we plan to Reengine monokine to operate on both LNG and conventional fuels the cost to re engine. This vessel is approximately $60 million and the conversion will begin after the LNG installation on the Daniel K Inouye.
We will begin procuring long lead time items on the Daniel K, Inouye, and monetize such as the tanks and model.
Monetize new engine this quarter to maintain flexibility the new tanks for these vessels will be designed to accommodate future carbon fuel neutral carbon neutral fuel when they become commercially available as.
As we consider our options for the re fleeting of the three Alaska vessels later this decade.
Any new vessels, we commit to are expected to be designed with state of the art characteristics and efficiency, including the consideration of any new fuel technologies that maybe commercial available at that time another option for us.
And one that we have not made a decision on would be to move three of our older vessels into the Alaska trade Lane in order three new LNG ready Aloha class vessels for the China service.
And lastly, there are a number of other strategies and initiatives to help increase sweep efficiency and lower emissions. These approaches can be found in the sustainability report settlement.
Please turn to the next slide.
One point I want to make clear for investors.
Is that in order to achieve our 2030 goal. We currently believe that we will need to have eight vessels operating on LNG by the end of the decade, the eight vessels would be.
Both of our Aloha class vessels, both of our kind of lower class vessels the re engined monetize.
And three new LNG ready vessels.
We've spent considerable time evaluating the fuel alternatives and LNG availability via bunker barges on the U S West coast.
West Coast seems more likely in the coming years.
We believe LNG as an important bridge fuel as we evaluate our other fuel types and technologies that will allow us to achieve our 2050 climate goal and.
In summary, we've built a reputation for our deep commitment to environmental stewardship, being a trusted and reliable employer and community partner in operating our business with integrity.
In keeping with that tradition, we are working collaboratively and our industry to promote positive change and mitigate environmental impacts associated with our business operations.
We will chart our progress with the annual sustainability report and we will keep investors regularly informed of the financial impact and plans to meet our goals.
To wrap things up for the quarter, we performed well in the first nine months of the year, we're focused on maintaining the reliability of our ocean.
Services, and working closely with our customers and Ocean transportation and logistics to manage through this difficult period.
For our customers.
And with that I will turn the call back to the operator and ask for your questions.
As a reminder to ask a question press star one on your telephone keypad again that is star one to ask a question.
And we'll pause for just a moment to compile the Q&A roster.
Your first question is from Jack Atkins with Stephens.
Okay, great good afternoon, and congrats on a great quarter.
Thanks, Jeff So I guess, Matt if I could.
Just kind of thinking about the the Hawaii Lane for a moment you know when we when we look at visitor arrivals.
The improved I think as we went through the summer until the more recent actions, but still down a good bit versus 2009.
<unk> 19, but overall volume levels in Hawaii Lane are obviously higher than 2019, we're seeing a lot of you know.
Unusual freight flows across the U S more broadly and I'm guessing that's what's going on in Hawaii to have inventory restocking and things like that but.
When you sort of think about the level of activity.
To Hawaii today, and you kind of think about that over the next kind of four to six quarters.
Do you feel like that.
We can sustain this level of volume to Hawaii with without.
A recovery.
From a visitor perspective back to 2019 levels and beyond just sort of curious if you could maybe talk about that for a moment.
Yeah sure Jack.
My view is that.
I can say a little bit more bullish on Hawaii, Jack first of all I think we don't see much of a problem in sustaining our current level of freight volume moving forward.
I think my personal view.
In hearing and talking to our customers.
This period in the fourth quarter, the slowdown associated with the Delta variant.
And the restrictions of the state put in place did indeed suppress travel.
I continue to be pretty optimistic that Hawaii will be seen as a relatively safe place to travel through the holiday season and into 2022 relative to international destinations to travel which are still dealing with.
Impacts related to the Delta variance, so I personally think that the overall <unk>.
Environmental Hawaii is likely to improve.
It would be relatively healthy going into 2022, so I think there's more of a risk to the upside then I don't feel much risk I mean absent.
The answer is still a lot of questions. It's all about delta.
We're currently and to the extent that.
We begin to see not the elimination.
COVID-19, but.
The gradual reduction as vaccines and treatments become more effective I think will stand to benefit the economy in Hawaii Okay.
That's great to hear and I guess, maybe.
Kind of all along that same line of thought.
When we kind of think about your capacity utilization westbound too to Hawaii from the West coast.
I know you guys don't like to give specific utilization statistics, there for obvious reasons, but I guess when do you sort of think about sort of where you are.
With the current fleet deployment.
Do you have a fair amount of excess capacity left to go because it kind of feels like we're getting back towards the 2016 levels.
The fleet is different today than it was then but just sort of curious if you could maybe comment on that.
Yes, I'll comment I'll comment generally on a check I would say that.
We have seen.
We're satisfied with our.
Utilization, but we have capacity to be able to meet the Hawaii capacity.
As and when the economy recovers. So we're very comfortable of both where we are now on our fleet utilization perspective into Hawaii.
But also have sufficient capacity to grow with the.
The economy as it recovers next year. So that's okay.
Excellent.
Last question for me and I'll hand, it over but could.
Could you maybe give us an update Joe maybe.
This is if this is more for you, but just an update on.
The charter.
The charters that you guys were planning on working on with regard to the select plus service and I know some of those were coming up towards the end of this year, maybe early next year.
Any update on that and sort of maybe how you guys are thinking about that capacity over a longer period of time.
Yes, Thanks, Jack So yes, we had a couple of vessels on charter costs in early 2022, and then another vessel in the second quarter of 2022. So those are those are the three vessels that were focused on here in the latter part of this year and we're almost there. We've got we have engaged in some new charters.
And we believe we need one more vessel and then we'll be in good shape.
Continue to have our core <unk> plus vessels on charter to new development. Jack that's probably important to note is not surprisingly vessel owners have really push for longer duration or terms. So as we looked at 2020 in the first set of 2021, we could find charters that were sometimes 12 months or 20.
Four months.
Vessel owners had moved that conversation of three years four years five years and really pushing for four to five years for the most part we've tried to keep ours down to three years or maybe a little bit more than three years and thats, what thats, what youll see as we roll. These over so you'll have some charters that go into 'twenty four 'twenty five.
We're in good shape as we look at our needs for the shale X plus vessels heading into Q1 of next year Jack Okay. Excellent maybe maybe if I can sneak one more in before I before I hand, it over but.
Yes, Matt I'd be curious to get your take on lunar new year in 2022, I know, we didn't really see much of a lunar new year holiday in China in 2021.
I guess I.
There's a lot of debate on sort of what the lunar new year in 2022 could look like given the Olympics and everything else kind of going on in China next year, and they're zero zero Covid policy. So.
Just curious what youre hearing from your customers with regard to sort of the lunar new year holiday in 2022 do you think we're going to have a more normal lunar new year. This year and just any sort of thoughts on that would be appreciated.
It is early Jackson.
Speculate just a little bit but.
Currently in China, there they are.
Fueling with Delta variant outbreaks.
The country and of course, the Chinese government is moving aggressively to.
Two two <unk>.
<unk>.
Spread of Covid inside the country.
You also rightly pointed out with the Olympics I think from a.
And again speculating, but from a Chinese public policy standpoint, having hundreds of millions of Chinese.
Domestic transportation system going to their hometowns.
Is not a good factor in terms of trying to limit the spread of the delta variant of Covid and so we expect.
Short or lunar new year period, as many people decide for themselves or discouraged from traveling so so again I think we're going to see a more limited lunar new year or abbreviated lunar new year period.
And so while I think there will be a traditional slowdown I think it will be shorter than people expect thats my personal guess at this point okay. Okay makes total sense. Thanks again for the time guys really appreciate it.
Jack Thanks, Thanks, Jack.
Your next question is from Ben Nolan with Stifel.
Hey, guys.
So I wanted to follow up little bit ons.
Joe you were talking about with Jack there.
In terms of you put some.
Or now have in place some longer term contracts because that's just the way the market is at the moment.
I was thinking of it from the other side.
Do you guys offer.
A relatively scarce commodity are hard to get saying at the moment, especially from an expedited perspective.
I'm curious if you've been able to.
Leverage that yourself in terms of tiny.
Timing your own customers up to longer term contracts to maybe sort of help offset or mitigate a little bit.
The longer term contracts that you're signing for the ships.
Yes.
Thanks for the question.
Nutshell. The answer is no I mean customers right now are very focused on their supply chain initiatives delivery, there's not a lot of conversation around long term.
Contracts as you know.
The market has two basic types of customers the annual Bcl contracts, which you may one to April 30 for most of the major retailers and then the freight forwarders that really spot market that have that are looking out 234 weeks in advance and really I'd say in neither of those two customer segments broadly is there any conversation or movement in the market for longer term.
<unk>.
Okay.
And then Matt you had mentioned that you certainly thinking of potentially the CEC, the new Ccs business going perhaps into mid year or however, long.
The environment last but you still aren't thinking of it as a.
As a permanent fixture.
And in terms of how you're deploying your asset.
Curious why.
What makes you think that.
Or is that.
And then it is not going to be something that you are always doing.
Yeah.
It's a good good question.
From our perspective these the Ccs comprises vessels that are.
Affectively all of our reserve vessels in the Hawaii service and so the.
At some point in the future we were talking about for example, the.
The need to take vessels out of service to do conversions to LNG or other routine dry dock matters will limit the ability for us to have.
As a regular scheduled service at some point in the future went into 2022 is not exactly clear, but eventually.
We made turned from a standardized Ccs regular service into extra loaders, but the Ccs service as we know at some point in 'twenty two will end.
That isn't to say, though that when we get to a new normal there may be opportunities for us to deploy other vessels.
<unk> and other expedited service once we get to the new normal because as you pointed out we.
We have.
Our brand has been really enhanced with regard to a company because of our wheels operation dedicated terminals in all the other elements that allow us to stand apart from the competition.
Market expectations in this segment.
We would prefer an expedited market has grown so as things settle over the next few years, we're definitely going to be looking at ways in which we can focus on this expedited services as something that they have other opportunities, but it's not really likely not likely or will not be in the form of the current CTX past 2022.
I got you so it's not a function of demand, it's a function of capacity.
Correct other needs right.
Sure, Okay, alright, well.
That's helpful. I guess, just lastly, it seems relatively obvious but it might as well ask.
You've made quite a bit of headway on that buyback program is it fair to assume that.
Subject to board approval or what have you that.
As long as the market remains really elevated that theres no reason that wouldn't be.
Renewed and increased.
Yes.
Keith I would definitely say, we expect to be steady return of capital of friendship Cashflow generation company for a long time as you know so I would.
I would look at us as a steady.
A long term focus.
Return on capital campaign, and with share buybacks being the primary way that we do that so I think thats.
There is nothing changing our story in that regard.
Alright. This is Matt one other comment I'd make them, which is we're going to continue to you have heard us say this before but it's worth repeating to our capital allocation strategy, we're going to continue to look for ways to deploy capital either through acquisitions or organic growth initiatives.
Have those been in the absence of finding those that provide this double digit cash on cash return that we talked about is there a threshold will be steady return of capital, but if we have opportunities to deploy capital.
Profitably, we're certainly going to continue to look for ways to do that.
Sure Yeah.
Alright.
Over the years have asked plenty about the.
The M&A aspect, so I think I have my hands pretty well [laughter].
At this point, but.
Right I appreciate it guys.
Okay. Thanks, Ben Thanks.
Thanks Pat.
Again, if you would like to ask a question press star one on your telephone keypad.
That is star one to ask a question.
We have no further questions at this time I will now hand, the call back over to Matt Cox for closing remarks.
Okay. Thanks for listening in today, we look forward to catching up with everyone next quarter Aloha.
This does conclude today's presentation you may now disconnect.