Good afternoon, ladies and gentlemen, and welcome to the Matson Fourth Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Lee Fishman, Director of Investor Relations. Please go ahead, sir.

Thank you, Alexander. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Senior Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.maston.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 11 to 20 of our 2018 Form 10-K filed on March 4, 2019, and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 25, 2020, 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 Lee. And thanks to those on the call this afternoon. Please turn to Slide 3 for my opening remarks. For the fourth quarter, Matson's performance from its trade lanes came in as expected, but the consolidated results came in below our expectation. Our China service outperformed the year ago period, which included the exceptionally strong seasonal demand driven by the U.S. China tariff situation. We saw a modest rebound in our Hawaii trade lane service after several quarters of weak performance and our logistics segment met our expectations and continued to execute well in the phase of softer industry conditions within the transportation brokerage. Despite solid contributions across most of our business lines and trade lanes, we came up short largely due to a weaker than expected contribution from SSAT, which I’ll discuss later in the presentation. We had a very busy 2019 with the delivery of two new vessels for our Hawaii trade lane service and renovation work at our Sand Island facility, including the installation of three new gantry cranes. We also completed two scrubber installations with the third in progress at the end of the year and we also opened up the new Span Alaska Anchorage facility to replace two leased facilities. To put this transition period into perspective since the beginning of 2019 to this earnings call day, we’ve placed over $600 million of assets into service, disposed a three steam ships in an environmentally responsible manner, and stepped down into a night shift fleet rotation for our Hawaii service. These efforts were years in the making. For the full-year 2019, we had solid contributions from our China and Alaska trade lane services and logistic had another good year, ellipsing the outstanding performance in 2018. Catering these favorable contributions were lower volumes in Hawaii trade…

Okay. Thanks Matt. Turning to our financial results on Slide 15, I will start with the fourth quarter results and then walk through the full-year results. Ocean Transportation operating income for the fourth quarter decreased $3.5 million year-over-year to $17.8 million. The decrease was primarily due to a lower contribution from SSAT, higher terminal handling costs, and a timing of fuel related surcharge collections, partially offset by higher contribution from the Hawaii and Alaska services. The company’s SSAT terminal joint venture investment contributed 3 million or 5 million less than the prior year period. The decrease was primarily due to higher terminal operating costs and lower lift volume. Logistics operating income for the quarter was 7.6 million or 1.5 million lower than the prior-year period. The decrease was due primarily to a lower contribution from transportation brokerage. EBITDA for the quarter decreased 3.4 million year over year to 61 million, due to lower consolidated operating income of 5.1 million a decrease in other income of 0.4 million, partially offset by an increase of 2.1 million in depreciation and amortization, which includes dry-dock amortization. Interest expense for the quarter was 5.6 million and the effective tax rate in the quarter was 22.4%. For the full year 2019 ocean transportation operating income decreased 40.3 million year-over-year to 90.8 million. The decrease was primarily due to higher terminal handling costs, higher vessel operating costs, including the modulate lease expense and a lower contribution from SSAT, partially offset by higher contribution from the Alaska service. The company's SSAT terminal joint venture investment contributed 20.8 million or 16 million less than in the full-year 2018. The decrease was primarily due to a higher internal operating cost and the absence of favorable one-time items in 2018, partially offset by higher lift volume. Logistics operating income for…

Thanks, Joel. To conclude our prepared remarks, we’re in the home stretch on both the new vessel built program for our Hawaii Service and the first phase of the upgrade of our Sand Island facility. When complete, we are not the most modern facilities and vessels in the trade lane to service Hawaii and our touch point throughout the Pacific well into the century. We remain intensely focused on cash flow generation and managing our leverage as we near our peak leverage at the end of this quarter. We also committed to helping our customers in Asia on the U.S. West Coast and throughout our network, managed through the supply chain disruptions caused by COVID-19. And with that, I will turn the call back to the operator and ask for your questions. Operator?

Thank you. [Operator Instructions] We have your first question from Jack Atkins from Stephens Inc. Your line is open.

Hi guys were afternoon. Thanks for taking my questions.

Sure Jack. How are you Jack?

I’m doing great Matt. Thank you. So, I guess first question for me will be on just this COVID-19 and I guess there are a lot of unknown to your clearly and I get that, but as we think about the impact that this could have to your business in the second and third quarter as some of the backlog is sort of cleared out there, you know when I go back and look at the West Coast forward shutdown that occurred in late 2014, early 2015 that was a pretty significant benefit to your business, is there the potential for that, I guess as we look out into sort of the late spring and summer and to what degree have you factored that into your guidance range?

It’s a good question Jack and like you said it’s a dynamic situation as the, every day there’s a new element to the story, but the way we approach this Jack is that it was pretty clear what we saw in front of us, which was a number of the international ocean carriers that are cancelling or sailing that’s going to hurt SSAT. We saw a much slower than usual ramp up post lunar New Year because of the factory shutdowns and the curfew period that occurred in China. So, the question – and so we could see those negative impacts and we target those to be $15 million, but what we didn't do Jack is to say how congested and disrupted is the supply chain going to be once we get past this period, and it is clear that we have our own dedicated assets network terminal. We have an expedited service and when things come back we’re hearing anecdotally from our customers that they’re behind their supply chains are needing to be replenished and so we think that our differentiated service offering is going to be in high demand. Okay, so without a doubt. But historically our CLX service was has been relatively full after the 4 or 5 weeks of post Lunar New Year and then are full for the rest of the year. So, is there an upside? There is upside Jack. There’s upside, but primarily in the freight rates section because our volumes are relatively full as I mentioned to the extent we get into a very disruptive situation, our service offering will be even more differentiated and there could be upside. It’s really difficult to predict whether we’ll see it somewhat orderly recovery or something where the wheels, and in that latter case, we would definitely see upside that we have not built into our forecast here, but you kind of have to make a call on what’s going to happen and it was difficult for us to do that.

And I guess just to add to that, if things start to recover some time in the spring that’s going to correspond to when contract renegotiations are happening. So, I guess that that could be a benefit as well, not just on the spot side of your CLX business, but is there a chance that this could benefit your contractual rates as well, just given how tight things could be at that time or am I not thinking about thinking about that correctly?

Yes. I think to the extent that there is insufficient capacity to carry the trade that is if the international ocean carriers remain disciplined in the redeployment of additional capacity into the trade lane that would help the market, and that would also help our segment, but we from a PCO or the annual contracted segment, we’re managing freight off of our ship every week. So, our discussions with those carriers are very different from the people with 18,000 TEU ships that are trying to fill them anyway. So, it’s really going to be more spot market and that’s being selective about cargo, and – but I think your point is a good one, which is, if the market become constrained, I think both the annual contracted freight and the spot rate will both benefit from this effect if it comes to pass.

Okay. That’s helpful. One more question on the transpacific if I could, Matt if you just sort of put your head on as a market observer for a moment, I mean I’ve got to think that this is really putting quite a bit of strain on international ocean carriers, who are you competing within in that trade lane that in the best of times operator in very thin margins. So, I guess how are you thinking about the market in general as you just look through this year, I mean could we see some carriers face some pretty difficult financial situations here given the combination of IMO 2020 and that the coronavirus hitting at the same time?

I think we could Jack. I mean, I think one of the open questions is for the international ocean carriers is, are they going to be able to recover the extra cost of the more expensive low-sulfur fuel disruptions like this are very problematic. A number of the international ocean carriers have very high debt levels, and I wouldn't take somebody with two clear crystal ball to think the first quarter results for the international ocean carriers are going to be very negative and to the extent that a very fast recovery does not materialize for them because of congestion or because of other factors or slowdown in overall demand. I think it will turn out to be another challenging year for the international ocean carriers and it could result for example back on IMO and slow steaming. All of this chaos and slow down just sets Matson's CLX service apart, in terms of the unique service offering that we get, but I would not want to be a CEO of an international ocean carrier this year, let me put it that way.

Absolutely. One quick question and I’ll turn it over. It’s on Hawaii. Just to wrap up on my end here. But we saw Hawaii volumes turn positive for the first time in 13 quarters to have a positive year-over-year growth in that lane, do you feel like you’ve turned a corner there, can you kind of talk about what’s happening because it certainly feels like maybe we're back to slow growth more again, which is a positive?

I think that’s right, Jack. I mean, as we have said, we’ve been perplexed by the lack of growth in the market given this relatively strong economic fundamentals in the state of Hawaii and in talking with a number of our customers in Hawaii that supports trade Lane in talking with the contractors that are building these various projects, people are pretty upbeat about this year and so I think we're feeling like we’re hoping although it’s modest that we’re going to see growth in the market after a number of quarters as you rightly pointed out where the growth has been slightly disappointing. So, I think we're feeling okay about where we are right now.

Okay. Matt, Joel thanks very much for the time.

Okay Jack, thank you.

Thank you.

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

Hi, good afternoon.

Hi, Steve.

Hi. Just quickly on the first quarter breakeven for Ocean Transportation, did you quantify how much of that is expected to come from lower SSAT versus just pure ocean transportation?

No, Steve we didn't. What we did say is for the total 15 million impact of COVID-19 the vast majority of it would be Q1 and would be Ocean Transportation and modest impact on logistics, but we didn't further break that down between SSAT and our other businesses, CLX et cetera, but there will be – we do believe the meaningful impact will occur in SSAT.

Okay. And I mean, I guess as I look at last year, it was, I think you guys put up an operating income by 9.4, but I think SSAT was almost most of that or is 8.5 million or so. So, I mean, I guess it seems like despite what seems like a pretty significant impact, the – maybe year-over-year decline isn't as bad as maybe it could be fair to be?

Are you saying for COVID-19 by itself or [indiscernible]?

Yes I guess. It looks like you guys were almost breakeven within Ocean Transportation last year without SSAT, and then you know with SSAT this year, I mean I have to expect that volumes will be down significantly at West Coast ports, I would think that would be a pretty hit operating income or the contribution there. So, I guess it just seems like that it's not as bad as it looks?

That’s a piece of it now. Remember, we do underneath all of this, importantly, is the reaffirmation and we’re seeing it as a $30 million of benefit from the new vessels. So, for instance this year's first quarter will be a 9-ship deployment versus 10-ship deployment. So, the core profitability underneath this is improving, it has been battered around by some of these other factors like COVID-19. So, this year's numbers will be benefiting from certain of those positive trends in the investments.

Okay. And in terms of CLX, I think you guys were talking at a conference recently about you were still sailing with the CLX service right now, can you just talk about may be what the conditions are like right now, what capacity utilization is right now out of that service?

Yes. Steve this is Matt. I can do that. So, I think your first point is right. We, unlike a lot of the international areas, did not avoid any of our sailings in part because it’s part of an integrated network that requires it to be back in the West Coast to load for freight for Hawaii and Guam and Okinawa. So, we did not. I think what we saw are a much lower than average post Lunar New Year freight volume as the factories shut down, I think without getting too specific, what I would say is that we’re seeing – every week we’re seeing increased demand as factories are reopening and well I just as a checkpoint this year or this week we are likely to see sailing utilization levels in the 60% to 70%, but we're seeing week-by-week improvements. We expect to see that continue to improve and is embedded in our thinking around the $15 million first quarter impact to that together with SSAT and the other items that Joel walked through. But we’re seeing week-by-week improvements and we expect it to continue to go from here. We do know that that which is moving in an environment is typically late and is typically very interested in trying to get onto the CLX service. So, we continue to think that we're going to have strong demand.

Okay. And then maybe just a follow-up to Jack's question, it sounded to me like you didn’t have any real rate benefit, should one come to pass baked into the full-year guidance assuming there is, you know things a little chaotic after you know things start to clear up. Is that fair, I mean are you kind of assuming kind of flat year-over-year rate out of China and you know within SSAT or are you expecting kind of some benefit, but maybe a muted benefit given there is so much uncertainty?

Yes. I think the way I would describe that within the CLX or our Ocean Transportation segment is, we feel that in 2018 and 2019 let's just call second half, which will start the freight rates are premium to the market have remained very strong. And we expect that the second half of the year we’re going to see freight rates like we’ve seen in 2018 and 2019. What we have not factored in as a meltdown in our competitors transportation service offerings that would allow us to charge significantly more than what we have seen in a normal orderly healthy premium market. So, it could occur and if it does occur, which we did not forecast there could be some great upside that, but our ships are likely to be fully whether it is an orderly market or a chaotic market given our limited size shifts.

Okay. Thank you very much.

Okay, Steve. Thank you.

Your next question comes from the line of Ben Nolan from Stifel. Your line is open.

Hi. This is Frank Galanti on for Ben.

Hi, Frank.

Hi, Frank.

Hi. So, I know first priority is for capital redeployment is obviously finishing the new build program and then reducing leverage over time, but are there any kind of growth initiatives outside of the fleet renewal program? We saw last week, Merck bought a warehouse in the West Coast. Is that something that would be interesting to Matson as a kind of tuck-in acquisition?

Yes. Thanks for the question Frank. So, the interest we’ve been looking for organic growth opportunities across all of our trade line. So, even though this vessel build program has been going on for three or four years we’ve been continuing to look at ways to expand and leverage off our footprint today into more business for our customers, whether that’s in lower 48 or other locations. So, Alaska is a good example of that were together with our logistics business and Ocean Transportation business we’re trying to originate more freight from Cradle to Grave. The Oil & Gas segment is a piece of that. So, and we've grown in the Pacific by adding some services off our hub-and-spoke operations and locations in that Pacific. So, those kinds of opportunities we are going to continue to look for organically, but we also told investors even though our leverage ratio has been increasing, we have also been looking at M&A actively and so if we saw good acquisition that hit our strategic criteria, we would go forward with those and believe we can finance them. So, really no change with all of that in our growth initiatives now that we’re coming to the end of the vessel build program. We’re still looking to grow in both of those ways.

Okay. That’s helpful thanks. And then I had a kind of a follow-up on the Hawaii trade lane, as Jack mentioned, container volumes looks pretty good, but the automobiles took a bit of a dip and I know that happens from quarter-to-quarter, but just if you guys could talk about that a little bit, is that a seasonal or timing decline or is there a potential for further declines on the automobile side?

Yes. So Frank the approach on auto is, you will notice that as we go through quarterly explanations and consoles, the auto volumes are listed, but we don't often talk about auto volumes being a driver of our profitability. Most of – while the cars fit into two or three different buckets, the manufactured cars that all the large car companies make retail sales in Hawaii and we carry our share of those cars as does our principal competitor [patient]. We also moved military vehicles, we carry privately owned vehicles as people relocate to or from the state, those are different segments of cars we carry. And, I think from our perspective what we have been focused on is carrying profitable cars. So, carrying cars because of the competitive situation between ourselves and [indiscernible] lot of the manufactured car prices have come down over a number of years to a point where there is not a lot of profitability in those, and so what we’re actively doing is carrying the right cars and making money on those cars rather than carrying lots of cars. And so that has been our approach and that will remain our approach and so honestly there are lots of cars where we spend a lot of activity and really make next to nothing on them. So, you shouldn't assume that our profitability is down because we’re pairing less cars. We’re just trying to be more selective in the cars we carry.

That makes a lot of sense. Pretty helpful. Thanks so much. That's all I have.

Okay, Frank. Thank you.

Thank you.

[Operator Instructions] We have your next question from Steve O'Hara from Sidoti. Your line is open.

Hi. Thanks for taking the follow-up. Just on CapEx, can you just talk about, maybe I missed it in the slide deck, but can you just talk about CapEx may be outside of acquisitions and things or let’s say outside of the ship program for 2020 and 2021, you know, I guess outside of ships, including kind of the scrubbers and things of that nature in Sand Island et cetera.

Sure. Thank you. So, big picture we still believe our maintenance CapEx level absent any new vessel spend is around $50 million a year. We will believe, we will be higher than that here in 2020 and we haven’t commented beyond, but some of these projects will continue, and I’ll explain. The biggest items that will continue in 2020 are the scrubbers. So, each of those are approximately $10 million per scrubber. There will be three enacted this year, so that’s an additional $30 million and the other big piece is what you mentioned and alluded to, which is the infrastructure work at Sand Island. So, we installed the three trains last year in 2019, and now we’re finishing the final work on the – mainly the electrification and the power and backup storage power for those cranes and some of that is pretty significant investment as well. And so that will continue in 2020. So, mainly because of the sand island work and the scrubbers will be over the [$50 million] number in 2020 and then a little bit of that Sand Island work will still over in 2021, but we really should be glad passing down towards that [$50 million] number in 2021 and 2022 timeframe, and we’ll have more to say on the details there as we get closer to the end of the year.

Okay. Alright. Thank you very much.

Okay. Thank you, Steve.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Matt Cox. Sir, please continue.

Thanks, operator. Okay. That’s it for us on our end. We look forward to catching up with everyone on the first quarter call. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.