Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 Financial Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Lee Fishman. Thank you. Please go ahead, sir.

Thank you, Sedaris. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our Web site, www.matson.com under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 24 to 34 of our Form 10-Q filed on November 2, 2020, and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 23, 2021, 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 for those on the call. I'll start with a quick recap of our fourth quarter and full year results. So please turn to Slide 3. Matson capped off a strong year with continued solid performance in ocean transportation and logistics, despite the ongoing challenges from the pandemic and related economic effects. The year-over-year increase in operating income for ocean transportation in the fourth quarter was primarily driven by continued exceptional demand for both the CLX and CLX+ services. In our other core tradelanes, we continued to see elevated demand for sustenance and home improvement goods leading to higher year-over-year volume growth in Hawaii, Alaska and Guam. Logistics operating income for the fourth quarter increased year-over-year as a result of elevated goods consumption and inventory restocking and tight supply and demand fundamentals in our core markets. For the full year 2020, Matson's consolidated financial performance was strong. In ocean transportation, the contribution from the CLX and CLX+ services was the primary driver of the increase in operating income year-over-year. In Hawaii and Guam, container volumes approached the levels achieved in the year ago period despite the economic challenges from the pandemic. And Alaska container volume was modestly higher than the level achieved in the full year 2019. Logistics operating income for the full year 2020 was modestly lower compared to the levels achieved in the full year 2019, largely due to the pandemic's impact on the business lines in the first half of the year. Please turn to Slide 4. I wanted to spend a few moments on our current priorities as we begin 2021 and continue to navigate our way through the pandemic and economic uncertainty. Our first priority is to maintain our pandemic response effort by continuing to safeguard the health and safety of our…

Okay. Thanks, Matt. Now on to our fourth quarter financial results on Slide 15. Ocean transportation operating income for the fourth quarter increased 90.3 million year-over-year to 108.1 million. The increase was primarily due to a higher contribution from the China service, including the contribution from the CLX+ service, the timing of fuel-related surcharge collections, a higher contribution from SSAT and a higher contribution from the Alaska service, partially offset by higher SG&A expenses. The company's SSAT terminal joint venture investment contributed 10.9 million or 7.9 million more than the prior year period. The increase was driven by higher lift volume. Logistics operating income for the quarter was 9.6 million or 2 million higher than the prior year period. The increase was due primarily to a higher contribution from transportation brokerage. EBITDA for the quarter increased 95.3 million year-over-year to 156.3 million due to higher consolidated operating income of 92.3 million, higher other income of 1.3 million and 1.7 million in higher depreciation and amortization, which includes dry-dock amortization. Interest expense for the quarter was 4.9 million. And lastly, the effective tax rate for the quarter was 25.2%. For the full year 2020, ocean transportation operating income increased 154 million year-over-year to 244.8 million. The increase was primarily due to higher contribution from the China service, including the contribution from the CLX+ service, and lower vessel operating costs, including the impact of one less vessel operating in the Hawaii service, partially offset by a lower contribution from the Hawaii service. The company's SSAT terminal joint venture investment contributed 26.3 million or 5.5 million more than the prior year period. The increase is largely attributable to lower operating costs. Logistics operating income for the full year 2020 was 35.5 million or 2.8 million lower than the prior year period. The decrease…

Thanks, Joel. To wind it up, as I reflect on Matson’s operational and financial performance in 2020, I'm proud of our accomplishments amidst a difficult environment and a year that we will long remember as far from normal. Matson’s employees adapted on the job and at home in the face of extraordinary conditions. We moved quickly to seize organic opportunities and to drive exceptional financial performance throughout much of 2020. Across ocean transportation and logistics, we did what we've always done for 138 years, provide exceptional customer service and on-time delivery to meet our customers’ needs. 2021 will be far from normal as well, but our mindset hasn't changed. We remain focused on moving freight better than anyone and uncovering new opportunities for long-term growth to drive shareholder value. And with that, I will turn the call back to the operator and ask for your questions.

[Operator Instructions]. And your first question comes from the line of Jack Atkins with Stephens.

Great. Good afternoon everyone and congratulations on a great quarter, really a great year.

Thanks, Jack.

So, Matt, maybe if I could start at -- just a lot of different places to go here, but if we could maybe start with what's happening in the transpacific. It's just sort of extraordinary here. Just to start off the year, we've seen things accelerate even further from a rate perspective. And I guess as we're sort of heading into more of the traditional contract negotiation period here over the next, call it, 60 to 75 days, how do you think things shake out, given just the elevated level of spot rates we've been seeing in the market? And how does that impact Matson’s ability to sort of drive higher contractual rates, not only on the legacy CLX business, but I would imagine you're going to want to put part of that CLX+ business under contract too in 2021? So can you help us think through that?

Yes. I sure can, Jack. I would say that from a contracting perspective, just by way of context, Matson had historically tried to operate its CLX+ with a combination of spot freight or spot rate, short-term cargo contracts, and long-term annual contracts. And so as we've said and as you know, Jack, we've been in the transpacific for 15 years and that has changed over time. We saw a relative 50-50 balance in terms of our CLX+ initially, and it has migrated more towards the spot market where we can command a premium to the market relative to contract rates. But we both felt it was appropriate to have a mix of both. So in the middle or in April-May of 2020, we stood up CLX+, which was largely outside of the -- or after the contract period. So a lot of the freight on CLX+ was spot freight, which served us well, given what we saw happening with freight rates and was consistent with our view that this environment would be well suited to focus on the contract market. So I think over time, we're going to be looking at what the appropriate mix is. I think, because it has changed over many market conditions over the 15 years, our approach will likely be to continue to focus on a mix of both with a higher weighting towards the spot market. I think it's almost certain that for customers who are looking -- who operate under annual contracts, we'll see increases in the annual contracted freight rates. And our customers’ goals will be to get as much committed capacity as they can at as low a rate level as they can, where the carriers' objectives, of course, would be different than that. And so that balance happens every year. But at the end of the day, those that are focused primarily on contracted freight are going to see significant increases in that contract capacity or contract rate. And I think as we see the world now, we see the supply and demand elements that are in place continuing through the middle of the year, and the freight rate environment to remain relatively elevated. And then as the pandemic subsides, we'll get into what the new normal is, but we really don't, Jack, have a view of when that would happen and what the new normal looks like, although we do feel comfortable that matching CLX and CLX+ service are here to stay, because of increased e-commerce and other factors in the marketplace that I think we feel really good about our long-term prospects for both of our China services. So maybe I've over answered your question, but gave you a little color in addition.

No, that was very helpful, Matt, and I appreciate that. I guess maybe just sort of following up here for a moment on CLX+ and sort of the additional CapEx investments there. Could you maybe talk for a moment about that $55 million additional investment? What's that going to do for your broader network? You talked about increased availability of equipment. Will that let you move even more volume on your chartered ships and CLX+ and your current CLX -- the original CLX operations, or is this really just about purchasing equipment off of lease and getting your own boxes to replace leasing equipment?

Yes. So the way we thought about it, and Joel talked about it in his comments earlier, which was when we started CLX+, there was a moment in time when the -- of course, we were still in somewhat of a downdraft related to the pandemic and how it was going to play itself out. And volumes fell in our core domestic markets, as they did mostly every -- largely everywhere, which created an opportunity once we saw the opportunity with CLX+ to use that equipment that was newly available to support the early stages of the CLX+. And we had a view earlier than I think the rest of the trade that the transpacific was going to be extremely busy. And our goal and mindset going into the CLX+ was we need enough equipment to not miss a single slot booking availability. And so we were aggressive in basically leasing every available box in the market that was in China, which is most of the equipment in the world a month or two before other carriers became aware of what became more obvious later, move quickly. So the combination of reduced demand in our domestic Jones Act rates as well as being very quick moving on leasing equipment, helped to sustain the early days of fulfilling our goal of not missing a single booking because we didn't have equipment. The other -- on the destination services side that we talked about as part of our advantage in LA, we also had -- one of our key elements of service differentiating is that we own our own chassis, own or control our own chassis. And so as we had the CLX+, the same dynamic was at work there. Domestic shipments were off, which allowed us to take the chassis that we previously used focusing on our domestic Jones Act services and redeploy them into the CLX+ service. And over time, we did leave chassis, but what we want to be able to do, especially as the Jones Act rates normalize and we hope begin to show modest signs of growth as we get to the backside of this pandemic, is to make sure we had enough equipment to maintain the service levels. The other point that Joel made, which is important to repeat and I think I've said it too, that while the boxes and chassis are more expensive than they were historically that the payback on the margin of having a box versus not having a box pays for itself in one or two voyages. And so we wanted to not put ourselves in a position where we couldn't fill every slot and take care of as many customers as we could, which led ourselves to recycling our fleet for this tremendous opportunity in earnings that we've seen out of our upside CLX and CLX+ service. So this is really just more normalizing for the catch up that we're playing on getting equipment, containers and chassis into the fleet.

Okay. That's great, Matt. I guess one last question and then I'll jump back in queue. This is for Joel. I guess these are kind of a multipart question, but Joel on the 600 -- excuse me, the 760 million in debt at the end of the quarter, how much of that can you prepay without penalty? I know -- obviously the 72 million on the revolver makes sense. Is there anything beyond that that you can prepay this year with cash flow if you wanted to? That's part one part. Part two is on the free cash flow side? Are there any sort of puts and takes when we think about '21 versus '22 from a cash flow perspective, whether that's cash tax requirements or just anything like CARES Act benefits that don't repeat in '21 that was there in 2020? I just want to make sure we're thinking through the puts and takes on the cash flow side. Thank you.

Thanks, Jack. And I do love the cash flow questions, thank you. So the first part is, yes, 71 million of revolver, that's the first thing that we’ve paid down and all the rest of the debt is either Title XI debt or long-term private placements that are not pre-payable without penalty. However, they do amortize and they have amortization schedules. And so the amortization of that long-term fixed debt is over the next three years -- three to five years is between 60 million and 65 million each year. So that's the debt that we're paying down with free cash flow along with the 71 million, 72 million on the revolver. On the puts and takes question, you touched upon the biggest one, which is now we expect – we utilized all of our tax attributes, NOLs and AMTs. And through the end of 2020, we were not a cash taxpayer. We actually did receive NOL accelerated refunds which helped the cash flow in the last two years. So the biggest difference just kind of operational and cash flow wise for the company is flipping from getting some accelerated AMT credits which were positive to now in 2021 and beyond we expect to be a cash taxpayer. So I would say that's probably the biggest difference in cash flow from operations as you look forward. We don't expect any other kind of changes in our working capital. You see a big increase in working capital investment in receivables in 2020. That was just related to the stand up of the CLX+ service which is a big new service for us with lots of receivables outstanding. Some of those customers are on cash, but overall that was the main driver, which is why you see an increase in receivables, investment on our working capital. But 2021, that should actually be levelized now and no big changes on the payable side. SSAT, you've seen a couple of years in a row where distributions have been a little bit higher than annual report income. So over time, we tell investors expect those to be much closer together. And if you look back five years ago, the distributions during some phases were a little bit lower than reported income. So there’s a little bit of change there potentially over time, but that's really it, Jack. The rest of it is going to be I think comparable as we head into '21 and '22 versus prior years.

Okay. That's helpful, Joel. Thanks very much for the time, guys.

Okay. Thanks, Jack.

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

Hi, guys. Good quarter. I have – since Jack had three, I'll have three and starting clearly with CLX. Obviously that's at this point probably the biggest driver, but ultimately sort of the biggest question mark from a longer-term go-forward basis. The part that I think was interesting though is I was sort of looking at the implied rate per box across the company and it stepped up quite a bit even with the higher volumes, and I have to assume that that came from CLX because that's where the rate volatility comes. And from looking at the index, it didn't gap up quite as much as what it looked like your rates did. Is that entirely just sort of you guys have a better service than everybody else and so you can charge more for it, or is there something else than that that I'm not seeing?

No, I think you've got -- the premise of your question is the right one. Year-over-year, we saw a significant volume increase in China and a significant rate increase year-over-year. Historically, Matson, because of our differentiated service offering, charges a premium to the market and that was also true even in the elevated market environment in the transpacific. We continue to earn a premium on both the CLX and CLX+ services. So those were all factors. And so even when you look at the CCFI or SCFI or other indexes that are out there on the trade, we continue to earn a healthy premium to the market given our service advantages.

Right. And I guess my question really was it looks like that premium went up. Am I reading that correctly?

Well, I think the way we think about it is it expands and contracts. So in environments, it's actually maybe counterintuitive. But when rates have been at lows, we command very large premiums that can narrow when rates are at all-time highs but there is still a significant advantage or premium relative to the market. So it expands and contracts with the market cycle where the premium can actually contract in super high markets just to give you a little bit of color there.

Okay. And then with respect to volumes, obviously, again, sort of last quarter was record levels and that, what was it, 40,000 containers that were moved. Is that sort of peak like absolute nothing else can fit on a ship and that sort of as much as it can be? And maybe tying into that question, I know that Matt you talked about you had reup charters on several -- five of the six ships and you're doing a sixth. But I know, Joel, in the past you have talked about the possibility of actually increasing the size of the ships that you are chartering a little bit if you wanted to do more volume. So my question is, are you -- is that still in play? Are you considering maybe increasing the size of your CLX+ capacity or is that kind of 40,000 number that you hit here, is that sort of what we should expect if utilization is full going forward?

Yes. I would say five of our six ships have been chartered through 2022. And so I would expect over the near term that the capacity that we have at the CLX+ service also attached to our core Jones Act CLX service, the capacity isn't going to change significantly over the near term. And I would say to part of your earlier question about the fourth quarter and the volumes, effectively every slot was filled. We didn't lose a single container or load too, because we didn't lack container equipment. And so that is a pretty good profile. There will be times when we have what we call extra loaders, which is a dry dock -- a vessel being dry-docked that can be put into -- filled in the eastbound direction on its return to the domestic trades. There are times when there are also sort of one-off wages and those kinds of things. But I would say that the fourth quarter is a good proxy for what we're likely to see, which was every slot that was available was filled.

Okay. And in terms of maybe upping the size that's not really going to be happening at least in 2021, is that fair?

That's right. Yes. With the profile of the charters and the duration of where they are expecting, and size is important, but the speed is more important. So there is – we could go charter some very large ship that can't make the speed and those kinds of things. We're not interested. So we're looking for a fast ship that can get in and out of the terminal relatively quickly that has a profile. We think our current chartered ships are a good -- fit well with our service model. That's not to say that if we can find a vessel that meets the speed requirements that's a little bit bigger that can carry 300 or 400 more containers when the charter renewals open that we wouldn't look at it. For sure, we would. But it's primarily speed that defines what works for us in our environment.

Okay, that's helpful. And then the last one from me. This is just more curiosity than anything else. So, you guys had preannounced a few weeks ago and you came in meaningfully above sort of that preannounced – the high end of the preannounced range. I'm curious sort of what moved in terms of the numbers over the last few weeks that maybe you didn't know about initially?

Ben, it's Joel. Just year-end accruals, year-end reconciliations, year-end true-ups, things like pension and items that just take a few weeks to get the data to the middle of the end of January. So nothing really unusual in the business, it's just all the year-end accounting items.

All right, cool. Nice quarter. Thanks, guys.

Thanks, Ben.

Your next question comes from the line of Steve O’Hara with Sidoti & Company. Steve O’Hara: Hi. Good afternoon. Thanks for taking the question.

Hi, Steve. Steve O’Hara: Hi. I guess just going through the talk about the first half and you expect some of the factors to continue after the pandemic ends. If you think about the importance of the factors that continue versus the ones that you expect to abate somewhat in terms of earnings production revenue and things like that, how do you frame that in terms of that maybe first half versus second half? And then is that kind of timeline that you're talking about, is that due to more just kind of, hey, look, we're kind of comfortable with a six-month outlook or is there something happening out there that is kind of more concrete that you see kind of on the horizon? Thanks.

Yes. Our crystal ball is a little cloudy, but let me give you some of the thinking and approaches and I can try to answer your question the best I can. So I think what we are seeing is when we said first half, before we put a specific timeframe on it, we said we think the current conditions that where there was 30 ships at anchor in LA Long Beach and 10 ships at anchor in Oakland and supply chains are congested and turn times are slow and labor is not available and this sort of really frothy and difficult environment for our customers to remain through that period. But when we took a step back, we said really we're in a period where because of the pandemic and consumer behavior changes that we've seen and we're in a very frothy congested timeframe, at some point that's going to unwind and it's likely going to be connected in some way to the post-pandemic world whenever that occurs, when a majority of Americans are vaccinated that want them and we emerge from our caves and start venturing around or whatever and go back to work for those that are working remotely today. And at that point, we also would see this super congested lack of equipment, lack of ships that are available, every ship in the world has chartered to return to a more normal level. And so for us, there is sort of the current environment and the new normal, whatever the new normal is. And when we looked at it, Steve, we said okay -- and we've mentioned this on the last couple of earnings calls -- what's happened? We see the return of the air freight markets to be a significantly delayed item really for a couple…

Yes. So with regard to your questions, I would say that the environment when we said we think the current frothy environment is going to remain through the first half of the year implies that we see really strong demand for Matson's services. So the question is about how much capacity we have and at least through Lunar New Year was extremely strong. We see an abbreviated post Lunar New Year period. So we do see a continuing environment of very strong demand. I think over the longer term, the most important factor for Matson in this new normal is to maintain the fastest service in the transpacific and the second fastest service in the transpacific. Other carriers have created some other niche offerings in other markets, but because of our destination services they cannot equal our sale through availability. And the market knows it. Every customer who is looking to move their freight knows that Matson's services are the fast and second fastest. So operationally, our priorities, whether it's in new equipment or sailing or other, our great joint venture with SSAT are around making sure that Matson's services remain the fastest and the second fastest in the market. I think that long term will be the thing that determines the viability. And of course we're doing this a very long time and we have confidence that we will continue to be the first and second fastest services. So I don't know if there is another part of the question that I missed, Steve, but those are my thoughts about that. Steve O’Hara: That's helpful. All right. I'll jump back in the queue. Thank you.

Okay. Thanks, Steve.

[Operator Instructions]. And you have a question from the line of Ben Nolan from Stifel.

Well, if nobody else was I guess I'll take it. I wanted to follow up, and Matt you and I talked a little bit about this at our conference, what was it last week, two weeks ago? You were just talking about how mission critical it is to have the fastest speed and everything else. What we are hearing from a lot of other people is that they are under intense pressure to reduce emissions and that the easiest to most expedient way to do that is to go slower, which is pretty counterintuitive to sort of the value proposition that you guys have. Can you maybe just talk through how you're balancing the need to reduce your emissions, but also have that competitive advantage of speed?

Yes. It's an important question. It's going to become more important as the – there's an IMO 2030 guideline around -- towards a long-term 2050 of significantly reducing the carbon impact in the ocean transportation business. So this is here to stay. We understand it and so on. But I would say two things. I would say, there are – it is true that one of the ways to meet your carbon emission reductions is by slowing down. But what for many ocean carriers don't exactly say is that if you want to maintain schedule and you slow your ships down, you need to add more vessels to your stream to be able to make the ship, like if you went from five ships in the service to six ships or seven ships as you slowed down to reduce your emission, you now have one or two other vessels that are operating and emitting carbon. So partly, you have to look at it as a big picture. And so I would say the other thing to keep in mind at least as we see our model, the question to be asked, do we see ourselves as a relatively higher carbon emitting operator compared to a carrier that's moving around 20,000 TEU ships on a per container basis? The answer is yes, that might be slow steaming. But when you compare it to air freight, we are a fraction, 5% or 10% or whatever of the carbon emission relative to air freight, which is a market that we're pulling, we know, are pulling cargo from and as a result are significantly reducing carbon emissions for that freight that would otherwise go there. So does Matson have a responsibility to reduce its carbon footprint? Absolutely. Are we making investments to do so? Absolutely. I think longer term, we're hearing one of the benefits of the four new ships, for example, that we have are very large spaces to accommodate what we thought initially might be LNG, but to the extent there are net carbon -- zero carbon fuels like hydrogen or other ammonia, other things, biogases, those things can also be used on our vessel to lower our CO2 footprint over time, are not yet commercially available, but I think there's a lot of investment and interest in these alternative fuels, which we think have the ability for us to reduce our footprint further. So we're mindful of it. I think it's still a bit early in the game to pick the winners. Anyway, those are my thoughts about how we're going to be approaching this.

All right. I appreciate it. Thanks, Matt.

Sure.

And at this time, there are no other questions in queue. I'll turn it back to CEO, Matt.

Okay. Thanks, operator. Thanks for your participation today and thanks for your continuing interest in Matson. We look forward to catching up with everyone at the end of the first quarter. So please stay well and safe, and we'll look forward to speaking with you then. Thank you.

This concludes today’s call. You may now disconnect.