Matson, Inc. (MATX) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Matson's Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce to your host for today's conference, Jerome Holland, Director of Investor Relations. Sir, you may begin.

Thanks, Aster. Hello, hi, and welcome to our third quarter 2016 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 8 to 15 of our 2015's Form 10-K, filed on February 26, 2016, and in our subsequent filings with the SEC. Please also note that the date of this conference call is November 7, 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. Matson's third quarter results came in below our expectations. In Hawaii, there was a lull in container volume following healthy market growth in the first half of the year. In Alaska, energy sector related macroeconomic headwinds and lower seafood harvest drove Matson's container volume below our expected levels. Despite these challenges, I'm encouraged by the strong demand for our highly differentiated expedited China service and our steady performance in Guam. During the quarter, we announced a sizable investments that underscore our commitment and confidence in the long-term prospects for both Hawaii and Alaska. Our acquisition of Span Alaska significantly expanded Matson logistics platform into freight forwarding and our order of two new ConRo ships called the Kanaloa Class for delivery by mid-2020 completes our Hawaii fleet renewal program. And as we look for the fourth quarter of 2016, we're expecting ocean transportation operating income to be approximately 15% lower than the $43.6 million achieved last year. Turning to the next two slides, I'll touch on our high level financial results, leaving it to Joel to provide more color later in the call. In the third quarter of 2016, we earned net income of $25 million or $0.58 per share and generated EBITDA of $80.8 million. And year-to-date 2016, Matson earned net income of $61.1 million or a $1.40 per share and generated EBITDA of $216 million. As a reminder, the third quarter of 2015 was impacted of Horizon's acquisition-related SG&A and the first nine month of 2015 were also impacted by molasses settlement related costs. The respective effects of which were shown in stacked bar graph data with dotted lines. Turning to our Hawaii service on slide 6, volume in the third quarter of 2016 declined 8% year-over-year on an FEU basis, primarily due to the absence of volume gains associated with Pasha's deployment changes and service issues in the third quarter of 2015 and slower market growth than we had expected. Despite this low end market volumes, we continue to believe that the Hawaii economy is healthy and expect construction activity to support market growth in the future. For the fourth quarter, we also expect Hawaii volume to be lower than last year's which was set up to be a challenging comparison by the volume gains associated with Pasha's service reconfiguration and vessel mechanical failure they suffered last year. Moving onto slide 7, we continue to believe that the construction cycle in Hawaii will be the primary driver of container volume growth. In the past 12 months, there were roughly 3,000 new housing units permitted in on Oahu, which is nearly at the peak level achieved during the construction of the mid-2000s. Growth in the current market cycle has been fueled by high-rise condominium construction in the Kakaako-Ala Moana area of Honolulu, where we've seen the first wave of projects reaching completion and expect to see the second wave of projects near completion over the next couple of years. So while there are some indications that these luxury condo market is maturing, we see several more mid-market price projects in progress or planned that should provide for a healthy construction pipeline over the next few years. As the Honolulu condo boom eventually ebbs, the residential construction activity is expected to begin to shift west ward to two large projects namely Ho'opili and Koa Ridge. Single-family and townhouse developments in suburban Oahu, where building is expected to continue for the next 10 years to 12 years. Home building our neighbor islands, which had light well behind Oahu has also began to show signs of life, and it's expected to show further expansion. But, the pace is expected to remain well below the mid-2000's boom. Commercial construction has been relatively strong as well, with hotel and resort renovations, and continued progress on the Honolulu Rail Transit Project, expected to lead to several more years of moderately strong construction activity, which should result in additional container volume growth. Construction jobs grew at double-digit rates this year, driven by strength in each of the major construction subsectors. Looking ahead, UHERO expects a new project raking ground, will replace existing projects coming to completion, thereby generating smaller net gains and jobs next year, followed by a gradual decline of the downside of the building cycle. I should point out that there is some noise in the permitting data related to high rise condominium projects, which are generally approved with a single large permit, as part of a process that can take over two years. This can lead to sharp swings and the value of building authorizations, and can mean that instead of serving as a leading indicator of future building, permit figures can become coincident or even lagging indicators of home building activity. Moving on to slide eight for a brief update of our Hawaii fleet renewal program, on August 25, this year, we announced the order of two ConRo vessels, the current Aloha Class, which along with our two Aloha Class retainership will complete the renewal of our Hawaii fleet in 2020 and allow us to retire our steamship vessels that we'll not be able to comply with the environmental regulations without substantial modification. Our new ships are expected to have among the lowest operating costs for container of any ships in the Jones Act, and will give us the ability to deploy a fewer vessels at a much higher volume than in the past. We would expect to move from our current 11-ship deployment to a 10-ship deployment with the delivery of the Aloha Class vessels, and then to a 9-ship deployment upon the delivery of the Kanaloa Class. In addition, the new vessels have been designed to meet the moderate cargo requirements of Hawaii with additional 45-foot, more retail outlets and the ability to carry construction materials more effectively. Turning now to slide nine, to get some context of the importance of 45-foot capacity, we've provided the chart here which highlights the trend towards larger container sizes in Hawaii since 2005. The grey bar shows the numbers of containers Matson carried each year and the blue bar show the forty-foot equivalent unit or FEU measure. You'll note that the blue bars have been growing larger than the grey bars each year and this highlights to move away from our 24-foot containers and towards 45-foot containers in Matson's Hawaii volume over the past 10 years. Going forward, we will be reporting our volume on an FEU basis, and we provided a historical table for each trade lane in the appendix. Moving to our China service on slide 10, where our container volume in the third quarter of 2016 was slightly lower year-over-year as continued market softness in the first two months of the quarter was partially offset by increased demand for our expedited service demand for our expedited offering relating to the market dislocation following Hanjin's bankruptcy on September 1, 2016. Spot market rates has shown by the chart on the SCFI moved up, post Hanjin's bankruptcy as international carriers put through GRIs in September and October. However, on the supply side, several carriers announced new services that effectively replaced the Hanjin capacity that have been removed from the market. Matson continue to realize the sizeable rate premium for our expedited service in the third quarter, but as expected average freight rates were significantly below last year's level. Our service remained highly differentiated returning to a five-day to 10-day advantage over the second fastest service from Shanghai after the discontinuation of Hanjin CAX service. Matson's advantage results from several factors including our industry-leading transit times, efficient cargo offloading at our dedicated term loan long beach and superior on-time performance. Looking to the fourth quarter, we expect higher container volume on stronger demand for our expedited service and a challenging international container shipping market that continues to be plagued by chronic overcapacity. Turning to slide 11. As expected Matson's Guam container volume in the third quarter showed the modest year-over-year decline due to competitive losses to a bi-weekly U.S. flagged containership service that launched early this year. For the balance of 2016, we continue to expect modest competitive volume losses to this service. Moving now to slide 12. Matson's Alaska container volume declined by more than 10% year-over-year as northbound freight volume was challenged by the continuing muted economic activity related to the sharp decline in energy prices, and southbound volume was impacted by a much lower salmon catch in Kodiak this year. Looking ahead to the reminder of 2016, we expect the challenging macroeconomic and freight environment in Alaska to result in container volumes to approximate the level achieved in the fourth quarter of 2015. Turning next to slide 13. Our terminal venture SSAT contributed $3.6 million in the third quarter of 2016, compared to $4.5 million in the fourth quarter of last year. The year-over-year decrease was primarily due to an increase in SSAT's allowance for doubtful accounts receivable, partially offset by improved lift volume. For the full year 2016, we expect SSAT to make lower contribution to our ocean transportation operating income that it made in 2015. Moving on to slide 14. Matson Logistics completed its acquisition of Span Alaska on August 4, 2016, significantly expanding their asset life logistics platform to include less than container load free consolidation and boarding to Alaska. The positive impact from the inclusion of Span Alaska in our quarter results was partially offset by lower intermodal yield. Looking ahead, we now expect logistics operating income to be approximately $11 million for the full year of 2016. And with that I'll now turn the call over to Joel, who will cover the financial results. Joel?

Thanks, Matt. As shown on slide 15, Ocean Transportation reported operating income decrease $26.2 million or 38% during the third quarter of 2016 compared with the third quarter 2015. The decrease was primarily due to lower freight rates in China and lower container volume in Hawaii and Alaska. Partially offsetting these unfavorable year-over-year comparisons were lower SG&A expenses related to the Horizon acquisition, as well as higher freight rates in Hawaii and Guam. The company's SSAT joint venture contributed $3.6 million during the third quarter compared to $4.5 million in the third quarter of 2015. The $0.9 million year-over-year decrease was primarily due to an increase in SSAT's allowance for doubtful accounts receivable partially offset by improved lift volume. Logistics' operating income increased $0.6 million during the third quarter 2016 compared with the third quarter of 2015. The increase was primarily due to the inclusion of Span Alaska's freight-forwarding operating results after the August 4 closing date, partially offset by lower intermodal yield. As shown on slide 16, Ocean Transportation operating income decreased $34.6 million or 24% during the first nine months of 2016, compared with the same period in 2015. The decrease was primarily due to lower freight rates and volume in the China Service, higher vessel operating expenses related to the deployment of additional vessels in the Hawaii trade in the first half of 2016 and higher terminal handling expenses. Partially offsetting these unfavorable items were lower SG&A expenses related to the Horizon acquisition, costs related to the molasses settlement and container volume and yield improvements in Hawaii. SSAT contributed $9.2 million during the first nine months of 2016, compared to $13.1 million in the first nine months of 2015. On a year-over-year basis, SSAT's lift volume improved during the first nine months of 2016, however, the positive impact of lift volume was more than offset by the absence of the benefits related to the clearing of international cargo volume after the U.S. West Coast labor disruptions in the first half of 2015 and by increase in SSAT's allowance for doubtful accounts receivable in the third quarter this year. Turning to slide 17, our balance sheet continues to be in very good shape and as of September 30, 2016 our net debt to EBITDA ratio was 2.3 times. In mid-September we closed our $200 million new senior unsecured notes transaction with a coupon of 3.14% and more recently on October 27, 2016, we signed a commitment letter for another $75 million new senior unsecured notes tranche that we expect to close within 90 days at an interest rate of 3.37%. Both of these tranches have average duration of eight years to 8.5 years and covenants that are substantially similar to our existing debt. These private placements fit well with our expected funding strategy for the construction of our new vessels, which will involve the combination of cash flow from operations, borrowing under our revolving credit facility and the periodic issuance of long-term debt, which may include Title XI financing to pay down revolver borrowings and better match our long-term liabilities with the new long-lived vessel investments. Slide 18 shows the summary of how we allocate our cash flow generation. On a last 12-month basis, we generated cash flow from operations of $173.8 million and undertook net borrowings of $330.9 million from which we used $194.7 million to close our acquisition of Span Alaska, made net CCF deposits of $99.2 million, spent $83.9 million on maintenance CapEx, paid $60.1 million of new vessel payments and finally also returned $32 million shareholders in the form of our quarterly dividends and $42.7 million via share repurchases. Again you'll notice that our maintenance CapEx was tracking higher than our normalized range of $40 million to $50 million per year. This was expected and is primarily due to the completion of the scrubber installation program on our Alaska vessels and other vessel capital projects in what is a heavy dry-docking year for us this year. In addition, earlier this year, we took advantage of highly attractive container prices to accelerate our purchases of container equipment at near record low levels. With that, now let me turn over to slide 19 to discuss our outlook for the fourth quarter. As a reminder, our outlook is being provided relative to the prior year's operating income. For Ocean Transportation, we expect operating income to be approximately 15% lower than the $43.6 million achieved in the fourth quarter last year, which implies full year 2016 Ocean Transportation operating income of approximately $147 million or 22% lower than the $187.8 million, we achieved in 2015 which is an amount that is slightly below the low end of the range of our previous outlook. As Matt described earlier, we expect to have lower volume in Hawaii and Alaska, modest competitive volume losses in Guam, lower full year contribution from SSAT and similar to this past quarter, higher depreciation and amortization expense due to increased capital and vessel dry-docking spending. For Logistics, we expect operating income for the full year 2016 to be approximately $11 million. We expect interest expense for the full year 2016 to be approximately $24 million and our effective tax rate for the full year to be approximately 39%. Regarding capital spending for the full year 2016, we now expect maintenance CapEx of approximately $90 million, new vessel construction payments of approximately $96 million and dry-docking payments of approximately $57 million. With that, I'll turn the call back over to Matt.

Thanks, Joel. Consistent with previous years, we expect to provide a detailed and specific outlook for 2017 as part of our year-end earnings call sometime in early February. But today we thought it would be helpful to provide some longer-term context for the trends in our core markets that are informing our preliminary views on 2017. In Hawaii, we expect continued construction activity to provide for modest overall market growth in 2017. And from a market share perspective, we believe things have settled at current levels. On an annual basis, we expect our 2017 Hawaii volume to grow modestly year-over-year with our first quarter 2017 volume challenged in comparison by share gains that we achieved in first quarter 2016 as our primary competitive Pasha continue to struggle with service changes and issues. In China, we feel the markets reach to cyclical bottom in 2016, and while we are cautiously optimistic about the effective ongoing consolidation and international – with the international carriers and the formation of new alliances, the market remains chronically oversupplied leaving uncertainty around the timing and sustainability of a meaningful rate recovery. That being said, we do expect our expedited service to benefit from stronger demand year-over-year as our service differential has widened back to a five day to 10 day advantage. In Guam, while we continue to expect modest market growth, we do expect our container volume to decline modestly year-over-year as the first half of 2017 is expected to be impacted by competitive losses to APL's bi-weekly service that launched early last year and we're just ramping up in the first six months of 2016. More recently, we've heard from customers that APL is discussing the addition of a second vessel to their Guam service, which if they put it in, would allow them to have a weekly call. Matson Service would continue to be significantly faster than APL's with a transit from LA to Guam of 13 days versus APL's 24 days, we would expect more significant competitive losses should they upgrade to a weekly service. In Alaska, we expect modestly lower volume in 2017, as the ongoing economic downturn will erode the northbound freight market, but we're hopeful that a better and more normal fishing season in seafood harvest will generate improved southbound volume to partially offset the northbound headwinds. In closing, while the third quarter certainly proved to be more challenging than we had expected in both Hawaii and Alaska, I do remain confident into the long-term prospectus and strong cash flow generation of Matson's core business, which will provide the foundation for our fleet renewal investments and continued value creation for our shareholders. And with that I'll turn the call back to the operator and ask for your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Ben Nolan of Stifel. Your line is now open.

Yeah, guys. I guess, [indiscernible] expect the first. I've a couple of questions. My first has to do with sort of the Alaska – sorry, the Hawaii business, obviously, it's sounds like there is continuing construction, which is good and based on what I've seen, the tourism has been really exceptional and I know that you guys say that's not usually a very good leading indicator, but still it's an important part of the economy. Just a little surprised that, that hasn't translated into more container volume. I mean can you maybe walk me through why – is it something unique for the quarter where the fewer sailings or maybe what you're thinking in that respect?

Yeah, as I said in my prepared comments we were surprised by it as well, and those same economic factors you cite were those which we're relying on to see the growth that had materialized in the first half of the year, turned negative in the third quarter. I mean of course, we when talk to our customers if you were a retailer people had just said it was just unexpectedly soft, but that they were planning on ordering for the holiday season and had pipeline to support it, talking to the construction, our contacts and contractors or subcontractors, they have just said we're just between markets and cycles, but our order book is good and we're continuing and perhaps they're waiting permits or additional permits or sign-offs. But we went across a very broad section of our customers and there was really not a single reason for it and most of our customers continue to expect to have both this year and going into next year a very strong performance on their individual stores or site. So, it really was a low, we can't – we couldn't determine any reason for it. This has happened once before in the last five years. We had a quarter where we had a little bit of an air patch or air pocket, but we continue to feel pretty good after a bunch of soul-searching there, we think we're still in a good spot.

Okay. And then switching gears, just to a touch on the Span acquisition obviously that closed really quickly. I'm curious if now that you've had a couple of months to absorb that and have a pretty good idea of how sitting in until fourth minute, did the accretion numbers that you forecast that are originally on the deal that – those still seem like what, what you can produce or are there – where they be any difference on any of that?

Yeah. Ben, this is Matt. I'll speak to the first part of that question, and then I'm going to ask Joel to talk about the – the comments specifically about our expected accretion. So when we close the deal, we knew that the Hawaii economy was slowing, and we factor that into our valuation in terms of the purchase price we were willing to pay. We did see like – in Span Alaska, just like our own Hawaii north-bound volumes, a contraction in the market associated with the slowdown in the economy, nothing appeared unusual or strange about it, and then, it was within the range that we would expect it in terms of the slowdown, but with regard to the dilution but – Joel is there anything...accretion, dilution...

Sure. No, Ben we still feel good about it. We mentioned EPS accretion of 10% to 12% -- 10 pennies to 12 pennies per share range and just as Matt said, when we did the underwriting in the deal and value that we expected headwinds and expected some revenue implications because of that in the first year or two out-of-the-box for the operation, and in fact, the business similar to the Ocean business is experiencing some headwinds, but we factored that all in and we still feel good about the EPS range that we put out there when we did the deal.

Okay. Perfect. And then, last for me and I'll turn it over. On the Alaska side of the business, I know you decided that the -- a weaker cash in terms of seafood side of the business attributed or is attributing a little bit of a negative impact or I suppose to sort of the year-over-year results in addition to the northbound side. Could you maybe just break that out and give me a little bit more understanding as to how much of each of those is a factor in your guidance going forward?

Well, there are two questions there, Ben on with respect -- on Alaska for the quarter itself versus the outlook going forward and so, for the quarter itself, the seafood had a significant impact on the negative year-over-year volumes that we talked about and it's really a combination of softness in the market due to the headwinds in the market and the macroeconomic environment plus the weak seafood that led to the decline for the third quarter. With respect to next year, and the comments about 2017, there we're expecting a return to normalization of a normal seafood environment. So just like every year, we'll probably be, if we expect normal, and if it's less than normal that'll be an issue in the following year, but we are expecting a more normal environment next year for the seafood which should be a positive when we get there on a year-over-year basis relative to this year.

Okay. And maybe another way to say is how much or what was the decline in southbound volumes in the quarter?

We - we do not report that level of detail, so we'll just give the macro, Ben...

All right.

...and we'll talk about the trends in each of those, but we don't report the exact numbers.

All right. That's good. I appreciate it. Thanks, guys.

Thanks, Ben.

Our next question comes from the line of Jack Atkins with Stephens. Your line is open.

Hey, guys. Good afternoon. And sorry for [Technical Difficulty] on speaker, I'm having some technical issues with my phone.

Okay. No problem. Good afternoon, Jack.

So I guess it's just first off thinking about and just following up on Ben's question about the Hawaii volumes. It sounds like this is more of a competitive -- this is more of a market issue rather than a competitive issue. Is that kind of summing it up correctly, I mean it doesn't sound like as if there are any unexpected competitive losses in the quarter? This is more of a – market was unexpectedly soft relative to your initial expectations. Is that correct?

Yes, that's exactly right. We do not see this as a market share or market shift. I think what you'll see looking back, Jack, is that we saw an unusually high level of volume beginning in the third quarter and continue in the fourth quarter of 2015 as Pasha got off to a pretty rocky start and so we had gotten an outsized level of share during those first two – third and fourth quarters and we did in our preliminary 2017, there were still some small amount of temporary market share shift. We believe where we are now is a – I believe a level in sustainable share in the market, the market has settled down where it has. And so, that was playing in, but there has been no – there has been no market share shift rather than just that normalization due to that very unusual level of service disruption when Pasha got out the gate.

Okay. Okay, Matt. Thank for that. And then, when we think about the China business, with Hanjin out of the market, I know that you said that their capacity is going to replace by others in the transpacific lane, but we haven't seen any announcements of any expedite service from your markets in China, coming into the West Coast and it sounds like that your speed diesel engine is sort of backward was before. So, is it fair to say that you're recapturing some of the lost market share that maybe Hanjin took from you in the first half of the year?

Yeah. So, I think your observation is a good one, Jack. Hanjin was the second fastest in the trade. We've also mentioned that there are beginning around April of next year, the four current alliances are going to merge or combine into three alliances. We've seen the preliminary deployments of one of those three, the other two have yet to announce and at least through the first one we've seen – we've seen no indication that that expedited service will be put back in place. So, to that extent that – the other thing that we've said as we went along this year as Hanjin, who started this service in April of 2016 this service that try to replicate ours had had on the margin an impact on our volume. And I think it's fair to say that as we – the other thing I would say as context is we were pretty full all year to begin with, I mean we've been full for a long time, but I would say on the margin that we would expect a little bit more volume, but those are all points that I think are good ones Jack.

Okay. Great. And then Matt, you gave some preliminary outlook around 2017, but when we think about that China business next year and the rates that we've seen recover a bit in the transpacific post Hanjin bankruptcy do you feel like – you talked about we're going to – still we're seeing a cyclical bottom, do you feel like that rates here although relatively low on a historical context are sustainable here at current levels going into next year, do you think there could be some pressure that move into the first quarter?

Yeah. That's a million dollar question Jack. I mean part of it will be, once we see what amount of deployed capacity the three ocean carrier, or the three alliances once they reform and put there, that will be one indication. But if they deploy capacity far in excess of the current market demand, then we're likely to see to more challenge markets, but if they're more thoughtful and size this for the – for all the trades including the transpacific trade, then there is a chance for the turnaround. But it's been hard to say exactly when they're going to act rationally, when a lot of the recent activities would indicate that there – that despite their best efforts, they can't get out of their own way. So time will tell there, but I think we have hit bottom. I think we're pretty clear about that. And I do feel good about Matson's little part of this world here in terms of our super highly differentiated service, the international ocean carriers now – because of the bankruptcy in Hanjin and the poor financial performance of the other ocean carriers, Matson's relatively strong financial base is just another factor that is in customers minds about not getting their cargo tied up on a shipping line that fails through bankruptcy next year or two. So we like where we are and the turnaround can't come soon enough as far as we're concerned.

Okay. Great. Last question and I'll turn it over, but Joel were there any sort of transaction fees or integration costs associated with Span in the third quarter that we should be thinking about?

There were a few, Jack, they were below materiality, but they were there. The traditional fees you would expect around outside advisors but nothing larger, nothing other or more unusual than that.

Okay. Thank you very much.

Thanks, Jack.

Thanks, Jack.

Our next question comes from the line of Ian Zaffino of Oppenheimer. Your line is now open.

Hi. Thank you very much.

Hi Ian.

Just two really quick question, I think some of my questions have been answered. But the main question would be, as you look at kind of what happened last year taking that share in Hawaii, was there any intention ever to maybe do something – some type of competitive response to maybe maintain that market share, or was that just sort of free market share last year that you're always willing to see when things normalized. Thanks.

Yeah, I mean Ian it's a good question. I think, the customers will split along the market lines and the market has been a two-carrier market for a long time. Customers have their reasons for selecting Matson versus Pasha or previously Horizon Lines. I would say after Pasha's initial difficulties, their service has proven relatively reliable and competitive with us. And so, it's ultimately the vote of the customer as to who do they decide they want to partner with to keep move their cargo. So what we know is, if we show up how our ships arrive on time every week in and out, we will be able to maintain the outsized market share that we built up over many decades. But we didn't have a specific idea of what – how this is all going to settle out. But we now believe it's settle out about where it is now.

Okay. All right. And then, you're not going to try to go after that share again, you're probably going to keep it the way it is? [indiscernible] is it?

Yeah. I think the market has settled out where it's settled out, which is close to our long-term average of about two-third share of the market. And that's I think where it's going to be.

Okay. All right. Thank you very much.

Okay, Ian. Thanks.

[Operator Instructions] Our next question comes from the line of Steve O'Hara with Sidoti. Your line is now open. Steve O’Hara: Hi, good morning.

Hi, Steve. Steve O’Hara: How are you doing?

Good. Steve O’Hara: Just good afternoon, I guess. I was just curious, I think you kind of said that you couldn't denote any softness. But I'm wondering whether at certain areas that maybe a little softer than expected or maybe it was more pronounced in 3Q? And then I mean, is it possible that kind of the issues with Hanjin created some sort of – let's say potential headwind on trade flows or no?

Yeah. I mean, it's two good questions. I think with regard to the segment, I would say probably seven of our eight segments were all impacted to varying degree, so there wasn't – we spent a fair bit of time with our customers just understanding where they were. And we did not see any factor that appeared to be secular or that was one that was going to stay and most people – again what I add in my prepared comments or my earlier question, our customers seem relatively upbeat about the prospects of the rest of this year and next year. So, at this point, we're – and it was – again across a very broad segment of our customer base. And with regard to your second question around trade flows from Hanjin, that could have played a very small factor, there was a small amount of cargo that got stranded on Hanjin ships, but most of that – you had to have had it on a specific message ship and that happened two thirds of the way through the quarter, so if it was any, it was very small, is my guess about that. Steve O’Hara: Okay. And then just looking at Hawaii GDP forecast and so forth, I mean, if we're expecting, UHERO and the others are forecasting X amount of growth, I mean what's the typical, how do you think about the container volume growth, if GDP is 1.5% or 2%, how do you think about that in general?

Yeah. I mean I think as we've said the economy for us really moves on construction activity, although clearly we're off to another record arrival year for tourist that gives the hotel owners and others confidence in which to do hotel refurbishments and other investments that we benefit from. With respect to direct correlation between state GDP, we just don't see it, I would expect low-single digit growth next year. I mean that – it's consistent with what we're seeing with the more macro data, which is the best indication I gave you. Steve O’Hara: Okay. And so, there is no real correlation between state GDP and container volumes in Hawaii?

Yeah. I mean yes, I think permitting was pretty good except for the noise in some of the multistory projects, construction, employment is also a relatively -- had been a good indicator. State GDP is a little less connected, it stays positive, that's absolutely positive. But and it's a little less correlated over a long period of time. Steve O’Hara: Okay. Thank you very much.

Sure.

At this time, I'm showing no further questions. I would like to turn the call back over to Matt Cox for any closing remarks.

Okay. Well, thanks for joining us on the call today. We look forward to catching everyone in February. Aloha.