Good day ladies and gentlemen and welcome to Matson's Fourth Quarter 2015 Financial Results Conference Call. At this time all participant lines are in a listen-only mode to reduce background noise. Later we will be conducting a question-and-answer session. Instructions will follow at that time. [Operator Instructions]. As a reminder, today's conference call is being recorded. I would now like to introduce your first speaker for today, Jerome Holland, Director of Investor Relations. You have the floor, sir.

Thanks, Andrew. Aloha and welcome to our fourth quarter 2015 earnings conference call. Matt Cox, President and Chief Executive Officer, and Joel Wine, Senior Vice President and Chief Financial Officer are joining the call today. Slides from this presentation are available for download at our website www.matson.com under the Investor Relations 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 and this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors on Pages 7 to 15 of our 2014 Form 10-K filed on February 27, 2015 and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 23, 2016 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. Also, references made to certain non-GAAP numbers in this presentation, a reconciliation to GAAP numbers, and description of calculation methodologies is provided in the addendum. With that, I'll turn the call over to Matt.

Thanks, Jerome, and thanks to those on the call. 2015 was an exceptional year for Matson strategically and financially. We substantially grew our ocean transportation platform with the opening of our Alaska trade. We maintained our leadership position in Hawaii and we strengthened our standing as the service leader in China. These actions led to 2015's financial results that significantly outpaced the strong results posted in 2014. In 2015 our business has earned net income of $103 million or $2.34 per diluted share, generated operating cash flow of $245.3 million and free cash flow per share of $4.03. In 2016 we expect to continue strong operating results, although modestly lower than the record level achieved in 2015. Matson's core businesses are well-positioned to generate significant cash flow to pay down debt, fund growth initiatives including our fleet renewal program and to return capital to shareholders via both dividends and share repurchases. The integration of our Alaska operations continue to progress well and will remain a focus this year. Our investment in Alaska is supported by attractive cash flow and earnings generation and is achieving our expectations. Slide 4 shows our strong financial metrics for the fourth quarter of 2015 and 2014, and similar to last quarter we highlighted the impact of the acquisition related SG&A in these stats of our graph data with some red dotted lines. In the fourth quarter of 2015 we generated an EBITDA of $76.4 million and diluted earnings per share of $0.60. You will recall that the fourth quarter of 2014 benefited from exceptional demand for our expedited China service during the U.S. West Coast labor disruptions and from the sharp declining bunker prices, as well as fuel surcharges collections outpaced fuel expenditures. On Slide 5 our exceptional financial metrics for the full year are…

Thanks, Matt. As shown on Slide 15, Ocean Transportation operating income for the quarter decreased $2.7 million on a year-over-year basis. The decrease was primarily due to lower China volume, additional Horizon acquisition related SG&A, higher vessel operating expenses related to the deployment of additional vessels in Hawaii trade, higher terminal angling expenses and the timing of fuel surcharge collections. Partially offsetting these unfavorable items were container volume and yield improvements in Hawaii, improved results at SSAT and the inclusion of operating results for the Alaska trade. As a reminder, we had a very strong fourth quarter in 2014 with those results benefiting from exceptional demand for our China service during the U.S. West Coast labor disruptions and from the sharp decline in bunker fuel prices which had a positive timing impact on our results. In the stacked power graph on the left you can see that excluding the largely nonrecurring incremental acquisition SG&A Ocean Transportation operating income would have been $49.7 million which represents a year-over-year increase of 7.3%. On the right hand side of the page Logistics operating income for the quarter decreased by $0.8 million on a year-over-year basis primarily due to lower highway volume and yield, partially offset by improved intermodal yield. The next slide shows our full year results. Ocean Transportation operating income increased by $56.7 million year-over-year primarily due to higher freight rates in China, container volume and yield improvements in Hawaii, the inclusion of operating results for the Alaska trade, and improved results at SSAT. Partially offsetting these favorable operating income items were additional SG&A expenses largely related to the Horizon acquisition, higher vessel operating expenses related to the deployment of additional vessels in the Hawaii trade, higher terminal handling expenses, lower China container volume, and costs related to the company's Molasses settlement…

Thanks, Joel. 2015 was an exceptional year for Matson. Looking ahead we are encouraged by the strength of our core Hawaii operations where we expect to benefit from container market growth and a strong market position. In Alaska while low energy prices are creating near term economic headwinds, I am pleased with our integration progress and I feel like we are hitting our marks as we move towards our targeted $70 million EBITDA run rate within a year and a half of closing. In China, we have the lapped very strong results achieved in the late 2014 and most of 2015, so while we will remain very pleased with the overall contribution of the service we will have some tougher year-over-year comparisons. In Guam while the U.S. Marine relocation provides a longer term positive for container demand we do expect some volume losses from the competitor's trade in January of 2016. Overall I continue to be very confident in the strong cash flow generated by Matson's core businesses that combined with our balance sheet will provide ample capacity to fund our fleet renewal program, pay down our debt, consider growth investments, while continuing to return capital to shareholders. And with that I will turn the call back to the operator and ask for your questions.

[Operator Instructions] Our first question comes from the line of Kevin Sterling from BB&T Capital Markets. Your line is open.

Matt and Joel, in Hawaii it looks like you expect higher volumes in the first half of 2016, but growth I think to be challenged in the second half of 2016. What are some of the assumptions behind this? Is it mainly Pasha coming back online in the back half of 2016 that might have an impact on your volumes, how should we think about that?

Yes, I think that's -- you are on the right track there Kevin. I think from our perspective we closed on the acquisition at the end of May of 2015 and so immediately after early June we did some significant volume shifts as they had some difficulties over startup and transition and had some vessel problems that saw a relatively large amount of cargo shift. And so what we have seen up until the end of May is sort of a normal growth pattern, although we did note that we do expect to see some small benefits associated with Pasha's configuration or reconfiguration of its fleet in that they are no longer calling Pacific Northwest and only calling in directly in Oakland in favor of a second LA call. So there is a net benefit associated with that. So in the first half of the year its largely going to be macro growth in the stake and some trailing effect of that reconfiguration and then in the second half of 2015 we see that Pasha has largely recovered from its initial service difficulties. And so we will see some volume growth but it will be lapped by the significant volume increases we saw post closing.

Okay. That will make sense kind of on a year-over-year basis, but going forward the next couple of years I think I have heard you talk about as, look at construction volumes, the construction data and permitting what have you, that looks to be pretty strong and if I am not mistaken that's probably a good indicator for future volume growth for Hawaii. Am I thinking about that right?

You are, yes. And so what we see is this configuration or transition associated with the Pasha largely behind us, that we described but we do feel confident that there is a continued growth story as evidenced by UHERO, what we are hearing from our customers, projects that are being planned or permitted. So we feel really good about our growth prospects over the next few years in Hawaii.

Okay, great. And then moving to Alaska, obviously, we understand what's going on with the oil and the impact to that state and that economy. But I do believe more of your Alaska volume seems to be kind of consumer staples and more kind of nondiscretionary items if you will. Is that right? I know, you're forecasting for some lower volume growth and maybe some population shift, but there is kind of a core stable volume component to Alaska, is that right?

That is right, Kevin. When we did our due diligence on the acquisition for Horizon Lines' Alaska business we noted that their container volumes in the market were relatively stable over very low and very high ranges of energy prices. And again we are serving basically the population. So for example, one indicator might be the total population in the state or the total population in Anchorage and some of our key markets there. And we did note in that economic forecast that volume decline was expected to be less than 1%. So I think you are on the right track there.

Okay, great. And then on the SG&A expenses related to Alaska, I think you said you are now expected to exceed the incremental run rate target of $15 million. As you fully integrate Horizon, could we see this run rate fall in 2017? How should we think about those incremental costs even beyond 2016?

Kevin its Joel, I will take that one. I would put it in the bucket of all the other costs of the company. We will -- division by division process by process we will look at every opportunity to reduce those costs. So there is a chance that in some categories the costs can go down. But overall we are approaching that run rate target and so what we are saying about our 2016 outlook Kevin, is that we don't think -- it's not going to be a materially different number than our run rate target and so that's what we expect in '16. And like I said in certain categories there could be cost potential reductions going forward. But I would characterize as similar to the other -- the SG&A ramp in the company.

Okay, great. Thanks, Joel. And last question and Matt, this is kind of a bigger picture question. You've got the potential implementation of the new container weight rules. Maybe talk a little bit, how you view the potential impact on the industry, maybe more importantly, Matson, is that an opportunity for you guys to maybe kind of help your customers verify those container weights if that rule is implemented July 1st?

Yes. This is a good question, Kevin, one that's still very much up in the air with some of the details of it. But what we do know is that the U.S. Coast Guard is planning on not delaying the implementation of the specialists, IMO regulation for July 1st. We do have certainly advantages in those businesses in that we do have scales at all our marine terminals and this is largely a requirement of our customers to report something called verified gross mass of their [indiscernible]. So my suspicion is that for some customers they will be working on their developing their own internal metrics for being able to report this new bit of information. In other cases they will be looking at scales, nearby scales or our scales or other methods by which they will be required to comply with these requirements. So my guess is that there will be lots of difference as for those solutions for our customers as they meet the new requirements. But to the premise of the other part of your question, this is just another way we think in which Matson can differentiate itself and its service. Given our knowledge of our customers and the capabilities that we have that they set us apart from our competitors.

Got it. Great, Matt. Thank you. And gentlemen, thanks for your time this afternoon. I really appreciate it.

Thank you. Our next question comes from the line of Jack Atkins from Stephens Inc. Your line is open.

So if I could kind of look at the -- or just discuss the China - Long Beach volume for a moment. You talked about your expectation for rates to be down significantly in 2016 year-over-year. You know Matt, when you think about the contractual piece of that business, which I think historically has been around 50% or so. I guess, what sort of visibility do you have into those rates at this point? I think, May 1st, historically when those contracts start?

Yes. So you are right, Jack. Most of our contracts -- in fact nearly all of our contracts are May 1 to April 30 cycle. So there's still obviously a few months left in gaining extensions. It's a little early Jack, to feel where the market is going to sort out, although of course we are not very encouraged by the macro. There is a lot of that fourth quarter in international ocean traders who are reporting significant losses. We are not hearing about significant reductions of capacity in terms of taking capacity out or reducing the number of service lines in coordination with their alliance partners. Tough -- its tough to know but it's also at this point tough to be optimistic that the carriers are going to withdraw enough capacity to create a more stable environment. So I think we are definitely in for a pretty tough year, is the gut feel at this point.

Okay. That's what I would assume. I just wanted to double check that. And then when we think about the rotation in Hawaii. I think you guys exited the year if I'm not mistaken, with 10 ships in the rotation. I think you put 11th ship back in reserve. Is that still the plan to operate in a 10 ship rotation in 2015 or does the dry-docking plan sort of change that somewhat?

Yes. Those are good questions and I think where we are now is in 10 ship deployment. I think potential -- as we go through the dry-docks especially as we go through the larger vessels, the C9s, its often the case that those can't carry the same cargo package and so we have to break out an additional vessel and go into with the 11th ship during those periods. Some of those are in 2016 and some will be in 2017. And then we are also looking at it and watching the market growth and the dynamics back and forth and we will break into the 11th ship as and when the market needs it. So we are at this point in a 10 ship deployment. As you know we are in our slower time of the year as well and we will have a vessel ready to be broken out when the market requires it. That's kind of the best way to think about it.

Okay, okay, that makes it makes sense. And just when you think about your current utilization rates, I know you guys are hesitant to sort of give that statistic. But I guess what sort of market growth would we need to see out of Hawaii to warrant putting that 11th ship in? I mean something that if we have a normal market growth of 2%, 3%, 4% that would necessitate bringing in the 11th vessel all things being equal from a market share perspective?

Yes. It's a good question. But really what we are thinking about it is this. I mean we are in our 90 plus utilization of our fleet here in the Hawaii service that we both have a market growth going on. We also have seasonality going on. So it’s very likely that we will see ourselves going from 10 ships to the 11th ship deployment in each of the next few years but with a generally increasing overall market volume. So I don’t see it as completely in or out, but I do see it as more likely sort of that end of three years from now we would be mostly in an 11 ship deployment before the delivery of our two new Aloha Class vessels.

Okay. Okay and then just a couple more questions. Then I'll hand it over. On the dry-dock amortization, Joel, you did a good job laying all that out in what's happening on a year-over-year basis there. Would you expect that $35 million level for 2016 to sort of be the new run rate going forward, or is that abnormally high this year, maybe it will step back down going forward? Just help us think through how we should expect that over the next couple of years?

Yes. I'd expect it to come down a little bit, Jack. So it's going to trend higher than the previous five year comparison that we showed on that graph. The $35 million is going to be -- there is a lot going on this year and especially with some of these vessels they are near the end of life that are being dry-docked and then we have to amortize the entire dry-docking costs and expenses over two and a half years. So I think that that number should trend down over time.

Okay. Then last question and then I will hand it over. With the U.S. military project that's going on in Guam, it will be going on for the next decade or so. At what point do you expect to start seeing incremental volumes from that? Is that really more of a later 2016 event into 2017? Just sort of curious, when you think maybe that will help offset some of these competitive losses potentially from the APL service?

Jack, our gut feeling is we are going to start to see volume growth in the second half of 2016 and I think it will start at a slow pace and grow from there. So we may actually see some market growth in 2016 and we see that pace more pick up into 2017. So we are going to see some market growth and of course we are likely to take debt at a step back as the market grows more slowly perhaps in 2016 but does grow, offset by the competitive losses we expect because of the APL service. But we should start seeing some this year in a small amount and a little bit more measured pace in 2017 is our guess at this point.

Okay. That's great guys. Thanks for the time and congratulations on a great 2015.

Our next question comes from the line of Steve O'Hara from Sidoti. Your line is open.

I just got on the call late so I apologize if you covered this. But I mean it seems like the guidance for 2016, implies maybe stronger Hawaii and then full year of Alaska kind of offset by the fuel surcharge in 2015 and then maybe weaker China and Guam. I mean, is that about right, is that -- if those are the main moving pieces?

Yes. I would say so, but I would say the fuel part is only a small part of the story. I mean of course, you know Steve from a macro perspective when prices are falling, we can lag a bit. We don't expect that to be a part of the story in '16, but we strive over time to breakeven in our largest market in Hawaii. So it's a smaller part of the story. I wouldn't overplay that piece of it. I think the only other piece is that we see are a very small increase in Logistics and a small -- lower result in SSAT. But I think you have got the pieces right there.

Okay. And then just on the China trade. I mean it seems like you guys have gotten I guess an increasing premium over the last few years or maybe your premiums the markets increased, and I'm just wondering -- I mean that seemed to change a little bit and was that due to the issues on the West Coast port and is there anything else to play there in terms of, other than the overcapacity in the market, which seems to have been a problem for some time, maybe it's just kind of reached the tipping point?

Yes. I think the way you are referring the question on the premium is right that we have been at this for 10 years. We have seen our premium increase every year in the last 10 years. We saw it spike up dramatically in 2015 because of the broader labor disruption issues around the ILW contract renewal. We expect in 2016 our premium to probably be without naming a number, the second biggest premium we've ever seen behind 2015. So it follows the pattern of a normal increase in premium expect for the anomaly of 2015 is the way to think about that.

Okay. So the utilization rate it's coming down, but maybe also historically high extremely strong levels rather than you are going to maybe normalized levels or something like that?

Yes. We expect strong volumes in 2016 much like volumes that we have seen in the 2012 to 2014 levels, but not at kind of the 2015 exceedingly strong demand that we saw but again because of the labor disruption.

Okay. All right. Thank you very much.

Thank you. Our next question comes from the line of Kevin Sterling from BB&T Capital Markets. Your line is open.

Thanks for the follow-up. Joel and Matt you talked about possibly ordering two more new vessels for Hawaii in addition to the ones you're going to build for 2018-2019. What's the thought process behind that? Would you scrap any of your older equipment or just kind of keep those in reserve? Just kind of maybe help us think about the fleet growth even like say the 2020 and beyond because it looks like you're contemplating ordering two more new vessels.

Sure, Kevin will take that and I will ask Joel to comment if there is an element he wanted to add on to. Just taking one step back, the two Aloha Class vessels that we have ordered that are to be delivered in late 2018 and the first quarter of 2019 will allow us to have 10 diesel vessels. So at that point we will be fully compliant with the ECA regulations and we will at that point have approximately seven vessels, steam vessels in reserve. So in 2020, steam vessels as they are currently configured do not meet the ECA requirements, their steam ship exemption. And so we would be -- at that point we would like to have reserve vessels for two reasons. One is because of normal dry-dock we would need to find another vessel to put it in space. And the second is for service disruptions or if there is a mechanical event we want to our vessels equipped in its place. So we will either need to do some vessel configurations, these old steam vessels, by reengineering or making other modifications to keep them as reserve or replace them with two additional new vessels that would allow us to take our oldest vessels, that is the C9s which will be approaching 40 years of age. They were built in '82 and '83. So we are just looking ahead so that sometime either as early as 2019 or 2020 have two additional vessels put in place or perhaps at a later date, but we are just acknowledging that there are three vessels that will be approaching 40 years of age in 2020 through 2023. And of course that's separate from the Alaska fleet replacement which when we announced the acquisition we said we believe that those D7 vessels had 10 years of life left, we very much still continue to believe that to be the case. So as to kind of give a little bit of visibility to what our vessel replacement needs are after these first two Aloha Class vessels we wanted to just give investors some visibility to our longer term capital needs.

No, that's great. Thank you. That's all I have. Thank you for the follow-up.

Thank you. That's all the questions that we have in queue at this time. So I had like to turn the call back over to Matt Cox for closing remarks.

Okay. Well thank you so much for attending this call. We look forward to catching up with everyone on the first quarter earnings call. Thank you very much.