Thank you for standing by and welcome to the Madsen Second Quarter 2025 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you. Joining me on the call today are Matt Topps, Chairman and Chief Executive Officer, and Joel Winnie, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.mattson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption, Risk Factors, on pages 24 to 35 of our Form 10-Q, filed on May 6, 2025, and in our subsequent filings with the SEC. Please also note that the date of this conference closed, July 31, 2025, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call. Starting on slide three, our second quarter financial performance exceeded our expectations amid the challenges of market uncertainty and volatility arising from tariffs and global trade. In ocean transportation, operating income was lower year-over-year primarily due to lower year-over-year volume in our China service. In our domestic trade lanes, we saw higher year-over-year volume in Hawaii and Alaska and lower year-over-year volume in Guam. In logistics, our operating income was lower year-over-year, primarily due to a lower contribution from transportation brokerage. Going ahead, we expect uncertainty regarding tariffs and global trade, regulatory measures, the trajectory of the U.S. economy, and other geopolitical factors to continue. However, given our financial performance in the second quarter, and assuming these factors do not materially change from current conditions, we are raising our outlook for the full year 2025. will go into more detail on our updated outlook later in the presentation i will now go through the second quarter performance of our trade lanes ssat and logistics so please turn to the next slide container volume in our hawaii service increased 2.6 percent in the second quarter year over year the increase was primarily due to higher general demand for the full year 2025 we expect volume to be modestly higher than the level achieved in 2024 reflecting modest economic growth in Hawaii and stable market share please turn to slide five according to you heroes second quarter 2025 economic report the Hawaii economy remains stable supported by strong construction activity but faces potential headwinds from slowing tourism increasing unemployment and high inflation and interest rates. Hawaii is currently experiencing solid construction activity from the public sector and the Maui rebuilding effort. Hawaii tourism showed modest growth in the second quarter despite international tourist arrivals remaining challenged. Please turn to slide six. Moving to our China service, container volume in the second quarter of 2025 decreased 14.6 percent year-over-year, primarily due to the challenges of market uncertainty and volatility from tariffs and global trade. Freight rates were modestly higher year-over-year. As you might recall, we began to see elevated rates in the middle of the second quarter last year due to tighter supply chain conditions, including the effects of the Red Sea situation, coupled with a supportive economic and consumer demand environment. Please turn to slide 7. At the onset of tariffs in April, we experienced significantly lower year-over-year freight demand as our customers held back less urgent shipments to work through the tariff impacts. Many of our customers were negotiating the tariffs with their trading partners on an order-by-order basis. At the same time, we saw carriers and alliances begin to reduce capacity in the trans-Pacific trade lane based on the significant volume downturn. Starting in mid-May, we saw a rebound in demand after the U.S. and China agreed to a temporary reduced level of tariffs, but also in anticipation of country-specific reciprocal tariffs returning in August. The buildup of freight that had taken place unwound over several weeks. Market freight rates increased quickly to meet the higher demand levels and capacity returned over the subsequent few weeks. Following the London meeting in June between the U.S. and China that upheld the terms from May, We saw a stabilization of volume modestly below the prior year period amid a number of evolving trade lane supply and demand factors, including trade lane capacity reductions after the cargo rush in May, customers in Vietnam and other Southeast Asian countries advancing freight ahead of July 9th when the 90-day pause on country-specific reciprocal tariffs expired, and some customers pulling forward freight from the traditional peak season in the third quarter to de-risk ahead of the next U.S.-China deadline. Please turn to slide eight. During the second quarter, we moved with our customers as they shifted production throughout Asia in response to the tariffs, which resulted in higher container volume levels originating outside of China. Our transcriptment volume in the second quarter 2025 represented approximately 21 percent of our China service compared to approximately 13 percent in the first quarter of this year. The sequential quarterly increase is primarily due to higher customer demand and the opening of our new expedited Ho Chi Minh service offering as our second best-in-class service out of Vietnam with our Haiphong service from two years ago while we don't know where our transshipment percentage will ultimately land given the various factors at play we do believe in the long run that an increasing percentage of volume will originate from areas outside of China we remain focused on supporting our customers in the region as they continue to shift their production capabilities and we will look at opportunities to further expand our transship capabilities. Looking ahead, in the third quarter 2025, we expect lower year-over-year freight rates and volume compared to the elevated demand levels achieved in the third quarter last year and our expectation of a muted peak season this year. As I mentioned earlier, we saw a stabilization of volume in June, and in July we continued to see stabilized volume and rates, notwithstanding lower demand levels and continued pressure on the SCFI. As a result, our premium to SCFI widened and we significantly outperformed the market relative to the SCFI due to our service differentiation and brand reputation. Assuming tariffs and global trade, regulatory measures, the trajectory of the U.S. economy, and other geopolitical factors do not materially change from current conditions, we expect for the full year 2025 average freight rates and volume to be lower year over year. Please turn to the next slide. In Guam, Matson's container volume in the second quarter of 2025 decreased 2.2 percent year over year. In the near term, we expect Guam's economy to remain stable with a slow recovery in tourism, low unemployment rate, and some increase in construction activity. As such, for the full year 2025, we expect container volume to be modestly lower than the level achieved in the last year. Please turn to slide 10. In Alaska, Matson's container volume for the second quarter of 2025 increased 0.9 percent year over year. The increase was primarily due to higher AAX volume, partially offset by two fewer northbound sailings compared to the year-ago period. In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth, and continued oil and gas exploration and production activity. As such, for 2025, we expect container volume to be modestly higher than the level achieved last year. Please turn to slide 11. In the second quarter, our SSAT terminal joint venture contributed $7.3 million, representing a year-over-year increase of $6.1 million. The increase is primarily due to higher lift volume. For 2025, we expect the contribution from SSAT to be modestly higher than the $17.4 million achieved last year without taking into account the $18.4 million impairment charge at SSAT during the fourth quarter of 2024. Turning now to logistics on slide 12, Operating income in the second quarter came in at $14.4 million, or $1.2 million lower than the result in the year-ago period. The decrease was primarily due to a lower contribution from transportation brokerage. For the third quarter, 2025, we expect logistics operating income to be comparable to the level achieved last year. And for the full year 2025, we expect operating income to also be comparable to the level achieved last year. And I will now turn the call over to Joel for a review of our financial performance.

Thanks, Matt. Please turn to slide 13 for a review of our second quarter results. For the second quarter, consolidated operating income decreased $11.6 million year-over-year to $113 million, with lower contributions from ocean transportation and logistics of $10.4 million and $1.2 million, respectively. The decrease in ocean transportation operating income in the second quarter was primarily due to lower volume in China, partially offset by higher freight rates in China and the timing of fuel-related surcharge collections. As Matt noted, the decrease in logistics operating income was primarily due to a lower contribution from transportation brokerage. We had interest income of $8 million in the quarter compared to $18.8 million in the same period last year. As you may recall, second quarter 2024 included $10.2 million in interest income earned on the federal tax refund related to our 2021 federal tax return. Interest expense in the quarter decreased $0.4 million year-over-year due to the decline in outstanding debt in the past year. Net income decreased 16.3% year-over-year to $94.7 million and diluted earnings per share decreased 11.8% year-over-year to two dollars and 92 cents per share note the 10.2 million in one-time interest income earned on our federal tax refund i just mentioned contributed 24 cents in the earnings per share in the year ago quarter lastly diluted weighted average shares outstanding decreased 5.3 percent year-over-year please turn to slide 14. this slide shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of approximately $617.9 million, from which we used $39.7 million to retire debt, $199 million on maintenance and other capex, $161.5 million on new vessel capex, including capitalized interest and owner's items, $30.3 million in cash deposits and interest income in the CCF net of withdrawals for milestone payments, $14.5 million on other cash outflows while returning approximately $284.4 million to shareholders via dividends and share repurchase. Please turn to slide 15 for a summary of our share repurchase program and balance sheet during the second quarter we repurchased approximately 0.9 million shares for a total cost of 93.7 million including taxes year to date we repurchased approximately 1.4 million shares for a total cost of 162.9 million including taxes since we initiated our share repurchase program in august of 2021 through june of this year we have repurchased approximately 12.5 million shares or 28.8 percent of our stock for a total cost of approximately 1.1 billion as we have said before we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities turning to our debt levels our total debt at at the end of the second quarter was $381 million, a reduction of $9.8 million from the end of the first quarter. Lastly, on July 23rd, we entered into a new five-year revolving credit facility with commitments aggregating $550 million. We reduced the size of our credit facility from $650 million to $550 million due to the nearly fully funded status of the new Aloha-class vessel build program and our expected lower level of capital needs for the remainder of the decade due in part to our next Jones Act build cycle not anticipated until the mid-2030s. In connection with the new revolver, we also amended the existing private placement debt to match the covenants and terms of the new revolving credit facility. Please turn to slide 16. I'm going to walk through our outlook starting with the third quarter of 2025 on the left side of the slide. Based on the outlook trends Matt mentioned earlier, we expect ocean transportation operating income to be meaningfully lower than the $226.9 million achieved in the third quarter of 2024. For logistics, we expect operating income in the third quarter of 2025 to be comparable the level achieved last year as such we expect consolidated operating income in the third quarter to be meaningfully lower than the prior year on the right hand side of the slide we have our expectations for full year 2025. starting with ocean transportation we expect year-over-year operating income to be higher than the guidance we provided in may but moderately lower than the $500.9 million achieved in 2024. We also expect logistics full-year operating income to be comparable to the level achieved in the prior year. In addition to this full-year operating income outlook, we expect the following for the full year. Depreciation and amortization to approximate $200 million, inclusive of $26 million for dry dock amortization. Interest income to be approximately $31 million and interest expense to be approximately $7 million, other income to be approximately $9 million, an effective tax rate of approximately 22%, and dry docking payments of approximately $40 million. Moving to slide 17, the table on the slide shows our CapEx projections for the full year 2025. Compared to what we previously provided on our first quarter call in May, our range for maintenance and other capital expenditures remains the same at $100 to $120 million for the full year 2025. Our estimate for expected new vessel construction milestone payments in 2025 also remains unchanged at $305 million. Again, milestone payments for new vessel construction are expected to be paid from our capital construction fund, which already covers approximately 92 percent of the remaining obligations excluding future interest income and accretion earned on cash deposits and treasury securities we currently expect our only remaining cash contribution into the ccf for milestone payments to not be until 2028 and the final amount is expected to be less than 30 million dollars lastly in the third quarter we expect to make approximately 71 million in milestone payments with that i will now turn the call back over to

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

Certainly. And our first question comes from the line of Jacob Blacks from Wolf Research. Your question, please.

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

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

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

Yeah, it's a good question. I think at this point, you know, we say in our prepared remarks just a moment ago that, you know, our main focus is on maintaining number one and number two, the fastest and second fastest. I think there are three or four other carriers who are in the near expedited segment. We've talked about them before, CMA, Zim, HEDA, and there's a couple of others. And so we are seeing activity as they try to position themselves in various markets as sort of the next tranche below our expedited services. I think your observation is right. it's our expectation that if the SCFI spot rates remain relatively low we're going to those these expedited services are expensive and difficult to maintain if you're just receiving something close to the spot rate so it would not surprise us that like we did in other down cycles these expedited markets or carriers would likely look hard at whether they all those services continue

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

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

next question comes to the line of Daniel Imbra from Stephen Zink. Your question, please.

Thanks for taking our questions. Oh, sure. No problem. Matt, I want to start a little higher level, but maybe just on the developments happening in Southeast Asia. I think last quarter, you talked about the Vietnamese service doubled pretty quickly. I'm sure it grew here further in 2Q. Just as you're seeing the catchment basin develop, what kind of infrastructure investments are needed in those markets? I guess, what does the path forward look like as we figure out whatever this post-tariff or new tariff world is and how Madsen can continue to maintain his

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

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

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

Great. I appreciate it. That's it a lot, guys.

Okay. Thank you.

Thank you. And our next question comes from the line of Omar Nocta from Jefferies. Your question, please.

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

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

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

Yeah, so Matt will give some color on the Vietnam trends in general, Omar, but last year on a sequential basis, Vietnam volumes were high single-digit kind of numbers. And so they were at such a lower level that we were really commenting on them as we were growing that market. And then once we launched the second service, No Chi Minh, in early April of this year and had two markets and plus the dynamics with tariffs and everything else that happened at that time, And that's why we started really giving you and the investment community a more direct line of sight on what those volumes were.

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

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

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

Well, thank you. I appreciate it. I'll turn it back.

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

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

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