Good day, ladies and gentlemen and welcome to the Matson First Quarter 2017 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Jerome Holland, Director of Investor Relations. You may begin.

Thanks, Vicki. Matt Cox, Chairman 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, the presentation slides 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 11 to 18 of our 2016 Form 10-K filed on February 21, 2017 and in our subsequent filings with the SEC. Please also note that the day of this conference call is May 3rd, 2017 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. With that, I will turn the call over to Matt.

Thanks, Jerome and thanks to those on the call today. Matson's core ocean transportation businesses performed in line with our expectations in the first quarter with operating income of less than half the prior year level as our fuel surcharge collections to lag, the impact of bunker fuel price increases that occurred in late 2016. We've announced four fuel surcharge increases in response the latest, which was March 16 that went into effect in April. As we've explained before, it's not uncommon for fuel to have this kind of timing impact on our quarterly results. But over the course of the year, we expect this timing impact to be neutralized. At Matson logistics, our first quarter results were impacted by market softness in both our Alaska freight forwarding business and our transportation brokerage business and while results were lower than expected we remain confident in our outlook for logistics. Looking ahead, we're affirming our full year 2017 outlook for EBITDA and operating income as we expect to see modest improvement in each our core trade lanes with the Guam where we expect further competitive losses due to the launch of a competitor second ship. As a result, we expect to Matson's 2017 operating income to be lower than it was in 2016 and expect EBITDA to approximate the $288.6 million last year. Before moving on, I'd like to highlight some changes last week upon the retirement of our Chairman Walter Dods. Walter announced that I would succeed him as Chairman of the Board and that board member Jeff Watanabe has been designated Lead Independent Director. In light my new responsibilities as Chairman, we are expanding the roles of Ron Forest and John Lauer, who are proven leaders and have been integral to managing Matson's growth over the past decade. Ron…

Thanks, Matt. As shown on Slide 12, Ocean Transportation operating income declined year-over-year in the first quarter primarily due to the unfavorable timing of fuel surcharge collections, lower container volume in Hawaii and Guam, higher vessel operating expense primarily related to the deployment of initial vessel in Hawaii and higher dry-docking amortization. Partially offsetting these unfavorable year-over-year comparisons was higher container volume in China due to stronger demand and an additional sailing during the first quarter of this year. The company's SSAT terminal joint venture investment contribution increased year-over-year mainly due to improved less volume. Logistics operating income increased by $300,000 year-over-year in first quarter primarily due to the inclusion of Span Alaska's freight forwarding operations, but that was largely offset by the lower domestic intermodal and highway brokerage yields that Matt reference earlier. Slide 13 shows the summary of the balanced manner in which we allocate our cash flow generation. For the last 12 months ended March 13, 2017 we generated cash flow from operations at $142 million and undertook net borrowings of $297.9 million from which we used $194.5 million to close our acquisition of Span Alaska made net CCF deposits of $18.7 million, spent $77.2 million on maintenance CapEx and $95.8 million towards the progress payments on the Aloha Class vessels and initial deposits on the Kanaloa Class vessels. Lastly, we also returned just over $50 million to shareholders via dividend and share repurchases. As a reminder our LTM maintenance CapEx has been higher than our normal range of $40 million to $50 million per year this was as expected and is primarily due to the completion of the scrubber installation program on our Alaska vessels and other capital projects related to what it's been a relatively heavy dry-docking last 12 months for us. In addition, we…

Thanks Joel. Looking ahead, I remain confident in the long-term prospects and strong cash flow generation of Matson's core businesses 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.

[Operator Instructions] and our first question comes from the line of Kevin Sterling with Seaport Global Securities. Your line is now open.

Matt, you talked a little bit about your cautious outlook in the China trade lane, but later we've seen an improvement in international rates in that trade lane, but you have opinion that you don't think these current rates are sustainable since it sounds like you have a little bit more cautious view for the rest of the year.

I think Kevin it's somewhere in between, so what clearly last year was we were at an all-time low in freight rates. I think that we have seen rates in the general market around the BCO contract renewal up a few hundred bucks in the general broader market from all-time low, so I think it's true that we will see year-over-year improvement and we're seeing international carriers report lower losses than they had in the previous year or will report lower losses. But the caution is really from our view that while we're improved from the previous year there continuous to be a surplus of capacity in the trade that I think has yet to play out in the spot market. Again we're going to be full and there continues to be a significant advantage in premium rate environment for us and we have continued with the new deployments to see the no carrier within five days of our current transit, so we're in pretty good shape but we just note that the overall surplus of capacity overhang continues to overhang the market.

I got you. So let me phrase it another too, so we've seen air freight volumes really pick up here to the last month or so and if air freight rates out of China spike and since you guys offer an expedited service obviously extraordinaire [ph] but much cheaper, historically would you expect, could you see a pickup maybe in your business, if we do see a spike in air rates, could you see maybe some modal shifts from air to your ocean service?

Yes, I mean we have observed that over the last 10 years. We have seen more and more of our book of business, our people that used to ship a portion of their product, all of it air and now they reserve a portion of our expedited service if there is a problem in the air freight market that certainly could positive impact our results. I also note that, we plan to be effectively full all year, so on the spot market, would we take advantage of that? Sure we could, as these new alliances get up and running if there are service disruptions that could be good. But again we just want to be cautious because we can't predict those kinds of things but those could be positive factors in our market for the rest.

Got you. Okay. Let me move on to Guam real quick. So in Guam, you obviously offer a faster service and you have a long history of serving that market which should give you competitive advantage. But are you seeing your competitor come into the market with real aggressive price concessions in order to win market share and are your customers kind of asking you to obviously come down those price concessions. Is this curious kind of what you're seeing in the market maybe in terms of price now with a new weekly sailing from a new competitor?

I think the way you've asked that question is right. I think APL has a significantly inferior service and what they have to offer is a lower freight rate for that cargo which is not time sensitive and so we're seeing them offering lower rates given their inferior service and Matson is evaluating that dynamic without getting too specific and reacting to it, where we feel it it's in our interest to do so. So those are the competitive dynamics at work.

Okay, well that's all I had for this evening. Thanks for your time and best of luck to you.

And our next question comes from the line of Ben Nolan with Stifel. Your line is now open.

I wonder if I wound [ph] real quickly to the sort of Kevin's first question as it relates to China. As you're looking across all of your various businesses, is that maybe the one where you would say it has the potential to surprise you the most of the upside, maybe even worry the most hopeful in terms of upward momentum.

Let me answer it slightly different than the way you've phrased the question. Clearly it is historically proven to be the most volatile both upwards and downwards. And so if I were to guess, I would guess that this trade has historically been most difficult to predict and has changed the most. I would also say though that since our shift is full and a portion of our cargo half or approximately half is committed to annual contracting, the upside is, I wouldn't say limited but it is steady by the fact that both on the upside and downside we choose to put half of our cargo under annual contract and we're full most of the time, so our upside is limited, our down is also limited by the fact that our service is so differentiated. I think I would answer your question, yes. China has proven to be most volatile and - could surprise us to the upside. I think we are through the worst of cycle, we call the bottom last year, we were cautious in trying to call it market recovery and we remain cautious but that certainly could happen.

Okay and there is a little bit. Obviously you're playing catch up on the fuel surcharges. Are we now deploying where that should be? I know there is been a number of incremental upticks in that surcharge lately. Are we not at a point where sort of second quarter is the right run rate and if oil prices don't move much, which is a lot to ask I know, but that sort of timing issues will be resolved.

Yes I think that's fair to say, I think I would say we remain very confident that our fuel surcharge mechanism in the domestic trades remains very effective overtime and absent of, I know oil price shock we're - we believe we're going to start to make a recovery in the commentary around the first quarter and those comments are reflecting Joel's second quarter and full year estimates of earnings and EBITDA that we just affirmed.

Okay perfect and then quickly for you Joel. You guys were touch under 31% on the tax rate in the first quarter and I realize it was off really relatively lower number than what you're guiding for the back half of the year, but you're still stuck to that 39% annual rate. Is that, how should I think through that bump and rates relative to where it was in the first quarter?

Well the way to think through that is that, the first quarter has got such a low amount of pre-tax income that little adjustment to our tax rate ends up being a bigger percentage difference and when you look at the contribution of second, third and fourth quarter those are much larger to pre-tax income. So the reason that we have this in the first quarter was [indiscernible] the new stock based accounting changes investing of shares which you've seen across the whole most corporate complex, so it was very small number for us pretty immaterial, so it's not really that material to our whole annual number. So we left our annual number outlook where it's at.

Okay, that's what I thought. All right and then last one for me and I'll turn it over. So you guys are now integrated or SSAT is integrating Tacoma terminal. Should - is that going to impact the numbers at all or will - how does it impact operations as this just sort of a small part of the regular operations or something more significant?

I mean, I would you've got it about right. I do think that overtime, first of all this won't happen till towards the end of the year, the timing isn't exactly clear but it will happen later in the year. We expect it to be an absolute non-event for our customers who will be basically, will be swapping the stevedores at the same terminal and our mainly [ph] processes around that. Overtime, we could see a small contribution coming from that terminal which will be reflected in SSAT's results. But again, I don't think it's certainly not a needle mover for this year and it could be a very small positive longer change for us.

Okay, I see. Great I really appreciate it.

And our next question comes from the line of Steve O'Hara with Sidoti & Company. Your line is now open.

Just curious on the outlook, it sounds like it's unchanged for the year. I guess just relative to where you were at the end of the fourth quarter. Just qualitatively, if you feel any better now than you did then or I mean, what's kind of changed internally for you guys, anything?

I mean it's not a lot of change, Steve. We're basically affirming our full year guidance I think that we again as was asked before remain cautious on the China trade. What's happening in each of our markets is shaping up more or less the way we expected. We've fallen a little more behind in fuel, but we do expect that to be recovered. We got off to a little bit of slower start in Matson logistics, but again looking at it closely, we feel pretty good about it, so not a lot different at this point. I don't know, Joel. Do you have any commentary about it?

No, it's exactly that. Some of our businesses are doing better than we thought, several months ago, some are doing slightly worse. But overall it's really in line and that's why we haven't changed our outlook, Steve.

Okay, all right. Thanks. I know you mentioned it, I missed it though, what was the year-over-year dry-dock differential in terms of maybe increased depreciation and so forth and then, did you say what the impact was on 1Q from the fuel surcharge?

We did not say what the impact was on the fuel surcharge and the year-over-year dry-docking difference in terms of dry-docking amortization was about $3 million.

$3 million in the quarter.

Yes, $3 million in the quarter. First quarter last year versus first quarter this year.

And for the full year?

Well you mean for the LTM?

No, I'm sorry for 2017 what was the - what's the expectation for the increase?

The full increase 15 for dry-docking and depreciation. I'll need to get back to you on the specific amount for the dry-docking piece.

Okay and the differential between operating income for [indiscernible] $21 million give or take, is that expectations for the full year down about [indiscernible]?

Yes that's right because when you add up the EBITDA the few businesses and it's track down, that's the right ball park.

Okay and the - so the fuel surcharge is kind of on top of that. I think originally you said about half was the first quarter impact from fuel, but was that correct?

No, we never said that. We said, it's been the biggest year-over-year impact to operating income this quarter, that's why we highlighted first. So we never said, it was half.

Okay, all right. I apologize.

And then, Steve, just to clarify that. The recovery of fuel of why we didn't disclose the specific amount are embedded in our second quarter outlook and our full year guidance.

Okay so you under collect in the first quarter, you're expecting to over collect the balance of year, so that's made up essentially.

Well you can't say over or under, necessarily because all you're doing is comparing to last year. So as an example you could have under collected last year and also under collect this year, but under by less and therefore it could be positive year-over-year. So we're not saying anything about over or under, all we're saying is on a year-over-year basis.

Okay, no that's helpful. Thank you.

And our next question comes from the line of Jack Atkins with Stephens. Your line is now open.

Just couple from us. So Matt on the logistics guidance kind of looking at that, just given where you are after the first quarter and then the headwinds you called out Alaska plus the domestic brokerage and intermodal markets, which you know I think we expect to see further margin compression of releasing until couple quarters, what you guys are seeing in that business that gives you confidence to be able to hit that guidance this year?

So first of all, I would answer the Span Alaska question which obviously is a large part of the overall outlook, I would make the same point that Joel made on for a different question, which is the Alaska trade is a very first quarter and fourth quarters are very small and so we still, we were still - while we're expecting some reduction year-over-year we still are very confident that the earnings are going to show up in Span Alaska and that the first quarter traditionally is a very, very modest quarter. So in some ways it amplifies the seasonality of our overall business and certainly of the logistics business. But secondly without commenting specifically about other carriers who have announced that are talking about a continued soft environment. We're not saying that different thing that the rest of the market is expecting, what we're expecting is from new activities within our logistics unit and cost reduction initiatives that we're going to be able to approximate our $20 million outlook guidance through other things rather than have a different view of the market.

Got you. Okay and then, I think you mentioned in your prepared remarks, you'd be shifting between 10 and 11 ship deployment over the next few months. Maybe if could provide some color on what's driving this transition. I think you called out dry-docking or the timing of dry-docking and they may be in terms of what to expect around the timing of when this happened?

Yes, so what I'll say generally is that and we've been 11 ship fleet. We have three of our largest ships today are the C9 Class Vessels. When they go into dry-dock we typically have to deploy two vessels in their vessels two of our older steam ships in their place in order to be able to carry the cargo package. But once those dry-docks are completed of the C9 vessels, given their greater capacity it allows us to operate with one fewer ship we think and still carry our cargo package. So as we looked for the completion of the C9 dry-dockings during those windows of time when those vessels are in operation, it allows us to operate one fewer vessel. So that's the general story behind it, without talking about specifics. I would say, are thinking about shifting into a 10 ship deployment the economic results of those are embedded in our second quarter and full year outlook. I would say that. But those are the general thoughts about how we approach that.

Okay, thanks for that and Joel just one housekeeping question. How much is left this year in terms of progress payments on the new ships?

Give me a second, I'll get that number for you. It's approximately 200.

Okay, perfect. Thanks guys.

And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Matt Cox for his closing remarks.

Thank you, operator. Well thanks for your interest in the call. We look forward to catching up with everyone at the end of the second quarter. Thank you.