Good day, and thank you for standing by. Welcome to the First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lee Fishman.

Thank you, Andrea. 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 website 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 13 to 24 of our Form 10-K filed on February 25, 2022, and in our subsequent filings with the SEC. Please also note that, the date of this conference call is May 3, 2022, 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. And I'll now turn the call over to Matt.

Okay. Thanks, Lee, and thanks to those on the call this afternoon. I will start on slide 3, with a quick recap of our first quarter performance. Matson is off to a solid start this year with higher year-over-year operating income in both Ocean Transportation and Logistics. The year-over-year increase in Ocean Transportation operating income in the quarter was primarily driven by strong demand for our China expedited ocean services. In our domestic tradelanes, we saw higher year-over-year volumes in Alaska and Guam. And in Hawaii, we saw a comparable level of demand compared to the year ago period. In Logistics, the year-over-year increase in operating income was due to strength across all lines of business, as we continue to see elevated goods consumption, inventory restocking and favorable supply and demand fundamentals in our core markets. I'll now go through the individual tradelane services, so please turn to the next slide. Hawaii container volume for the first quarter decreased 0.6% year-over-year, primarily due to lower eastbound volume. Our westbound volume was comparable to the level achieved in the prior year as we continue to see elevated hospitality-related demand. During the first quarter, domestic tourist arrivals were ahead of 2019 levels and there was modest improvement in the international tourist trends. Please turn to the next slide, where I'll comment on our current business trends in Hawaii. The chart on the right shows Visitor Arrivals by Air to Hawaii and the state's unemployment rate since the beginning of 2021. During the first quarter of 2022, the unemployment rate continued to improve and visitor traffic driven predominantly by US Mainland visitors remain strong. For 2022, we remain cautiously optimistic on further economic recovery in Hawaii. UHERO's March forecast for 2022 shows further improvement in the unemployment rate and continued growth in GDP…

Okay. Thanks Matt. Please turn to Slide 12 for a review of our first quarter results. For the first quarter, consolidated operating income increased $312.4 million year-over-year to $432.6 million with higher contributions from Ocean Transportation and Logistics of 302.1 and $10.3 million respectively. The increase in Ocean Transportation operating income in the first quarter was primarily due to considerably higher average freight rates and higher volume in China and a higher contribution from SSAT partially offset by higher operating costs and expenses primarily due to the CCX and CLX+ services and the timing of fuel-related surcharge recovery. As Matt noted, the increase in Logistics operating income was primarily due to higher contributions from all services. Interest expense declined $2.5 million year-over-year due to lower outstanding debt in the first quarter of this year versus the prior year period. Lastly, the effective tax rate in the quarter was 21.1% compared to 23.7% in the year ago period. Slide 13 shows how we allocated our trailing 12 months of cash flow generation. For the LTM period ending March 31, we generated cash flow from operations of $1.135 billion from which we used $84.3 million to retire debt, $309.3 million on maintenance and other CapEx, including $117.3 million of early buyout and operating lease termination payments, $24.3 million on new vessel CapEx and $18.8 million on other cash flows -- cash outflows, while returning $317.4 million to shareholders via dividends and share repurchase. Please turn to slide 14 for a summary of our share repurchase program and balance sheet. On January 27th of this year we announced that the Board approved the addition of 3 million shares to the existing share repurchase plan. During the first quarter, we repurchased approximately 0.7 million shares for a total cost of $68.6 million. As of…

Okay. Thanks Joel. I want to close with a few observations given the environment we're operating in today. The main supply chain issues we're seeing are likely to persist globally and potentially longer than many now expect. There are a number of supply and demand factors currently at play here, but in the near-term, we believe our expedited freight solutions will be in high demand to manage through this difficult supply chain environment for our customers. First, the American consumer spending picture remains positive where we continue to see elevated levels of demand for retail-related goods. While rising inflation and interest rates may put negative pressure on discretionary income, we believe these effects have not materialized yet. Second, inventories, particularly, for retail goods, were relatively low before the recent supply chain disruptions with elevated consumer consumption, we expect to see further pressure on inventories in the near-term. In turn, manufacturers will need to ramp production to keep pace. For example, some of our China customers have indicated recently they have a significant production backlog from the recent supply chain challenges on the order of months of freight. This amount of disruption will take time to sort itself out, particularly, since this will coincide with the traditional summer peak season. Third, labor shortages along key points in the supply chain infrastructure are exacerbating the stress in the system. Fourth, some customers are planning ahead for any possible disruptions from the upcoming labor contract renewals by pulling forward freight and arranging alternative plans to get their goods to market. And lastly, higher fuel costs are expected to impact nearly every aspect of the supply chain from input prices to the cost of delivery. Within this complex and evolving operating environment, Matson is better positioned than our competitors to react and adapt similar to what we've done for the last two years in the pandemic. The reasons for this are pretty straightforward. We own and control key assets such as our vessels and equipment allowing us to pivot quickly to new opportunities and to appropriately manage volume flows. We have competitive advantages in our China service provide a highly differentiated expedited ocean service to customers looking for unparalleled customer service quality, transit time and cargo availability. And finally, we have a long history of managing through the difficult periods like this one and maintaining high level of service for Ocean Transportation and Logistics customers and delivering on our commitments. And with that, I will turn the call back to the operator and read your questions. Thanks.

Thank you. [Operator Instructions] Our first question comes from Ben Nolan with Stifel.

Great. Hey, guys. I've got a lot, but I'll just ask a couple and maybe I'll turn it over and then get back in line. I first wanted to start on the China side and just make sure that I understand. So despite all the lockdowns and everything else that are happening in China it sounds like it hasn't impacted or at least materially impacted volumes and that you're still sailing full. To that end one of the things that you normally put in the presentation is sort of where you are thus far like for the month of April. Any sense of sort of related to China specifically, but how April looked or how volumes appear to be developing despite everything that's going on?

Yes. So Ben, the first part of your question was really effectively all of our vessels were sailing full in the first quarter despite the COVID challenges there. What we did see for example our customers who are in the outerlying regions of Shanghai that were instead of trucking their cargo to Shanghai. They were moving it to Ningbo. So we saw some of our customers shift to the load port from Shanghai to Ningbo, but effectively every week every single slot has been full. And we're seeing that same trend into April. Matson's -- I think let me contrast Matson -- between Matson and the industry. What we saw for Matson as again that our ships have been full week by week and that has continued through April. What we saw for the industry where a number of the Alliance vessels were diverted to other ports. So let's say when Shanghai was seeing some problems that some customers or ocean carriers shifted to Ningbo, but a number of them canceled their sailing from Shanghai all together to avoid the congestion and went to Busan or other Asia origin ports and reallocated that capacity to other markets. So the overall impact in Shanghai was that there was a reduction of capacity but it was largely filled by other load ports for the other carriers. In our case we were able to remain full every week included through April.

Okay. That’s helpful. And so effectively April should be no different than March is a way to think about it, right? You're still running the same volume in ?

Yes. I mean, week by week we have -- because we have the CCX is a three week by -- it's three weeks or five weeks to serve directly. There are ups and downs related to some weeks we have three sale and some weeks we have two. But other than that factor it should be essentially the same.

Okay. And then just shifting to rate a little bit on the China service. One of the things that I scratch my head on a little bit is I see various indices for Transpacific rates and they don't all look the same for whatever reason. And then you guys sort of play in a different ball game altogether. Can you maybe talk to what you're seeing from a rate perspective again maybe even since the end of the quarter, but just in general how rate is playing out at the moment?

Yes. I can make some general observations without specifically talking about rate levels. But what I would see is -- what I would say about that is to part of your question about the freight rate, let's say, the Shanghai Containerized Freight Index what is missing at certain times of the year are additional -- this is not for Matson rates, but for others that these freight rates don't include all the add-ons and congestion surcharges, but rather are the base rate indices. And those have -- the freight rate, as has been reported in the trade press and through the Shanghai Containerized Freight Index, we've seen very small reductions in market rates from relatively high levels. So I would say, the overall rate environment has remained orderly for the other transportation providers. There's a subset in which we operate, then as you know, which is in the expedited segment where we -- that's an area that we focus on all three of our services weekly, operate in that expedited market where the market rates are significantly larger than those average freight rates. And again, our experience has been to see very stable freight rates. And we have more -- even in a disrupted production environment, more cargo than we can fit on all three of our services weekly. So we have a very stable rate environment at the present moment.

Okay. So, even -- is it -- am I reading wrong that, you're sort of saying that, okay, despite there's been a little bit of a downtick in the broader market, it hasn't worked itself quite directly through to the expedited side of it. Is that fair?

Yes, that's a good way to recap it.

Okay. And then, last for me and then I'll turn it over and then probably I'll get back in. But I just -- you're talking about sort of all the supply chain issues that were happening in Japan and that ultimately means that it exacerbates or stretches the duration of the market normalizing. Is it fair to think that -- or are you thinking perhaps that maybe some of the problems that we're seeing in China that have in a way alleviated some of the pressure on the West Coast, are going to be shifted back and so, that we could get into just trade supply chain issues from China to the West Coast again, and maybe heighten or increase the level of problems that we've seen that may have been easing a bit?

Yes. I mean, that's one part of it for sure. I do think that this reduction in inventory building and manufacturing in China and in the Shanghai area has caused a temporary reduction in the number of ships waiting. When all that comes back online, I do think we'll see the backlog increase, together with the traditional peak season, as we start to move into that. So I think we're at a low in terms of backlog and it will only increase because of seasonal and because of the factors you mentioned. But we're also observing that a lot of the other factors, separate from the COVID issues that are advancing around China, with regard to continuing labor shortages with the rails. They can't hire and train crews fast enough and continue -- our customers continue to have open positions in their warehouses to be able to move the stuff around. And we've talked about all the other choke points in the supply chain, including potential issues in the availability of labor on the West Coast. And I personally do think that, I'm sure that within a relatively short period of time Shanghai will begin -- we're already seeing the testing numbers begin to be reduced. But it's not entirely clear to me that this thing doesn't continue to bounce around inside other parts of China and other parts of Southeast Asia, as Omicron has proven to be very highly transmittable and more difficult to constrain, using the traditional features that the economies in Asia have done. So, I think, it's just a -- those are some factors, but I think it's really the basket of all these factors tied together that are going to cause a choppy environment and frankly, that's a one in which we thrive, that choppy environment.

That's helpful. I appreciate it Matt. And again, I'll turn it over to Jack and you'll probably hear from me in just a few minutes.

Okay. Sounds great. Thanks, Ben.

Thank you. Our next question comes from Jack Atkins with Stephens.

Hi. This is Cameron on for Jack. Congrats on a great quarter guys. To sort of keep with that same theme with the West Coast labor negotiated, do you all have any thoughts on what's happening on the West Coast as far as you talk to the unions out there?

Yes. So the negotiations have not started, but next week they've agreed to formally sit down. I think, it's on the 10th of May. And each side will formally present its requirements to each other and that will launch the beginning of the formal part of the negotiation process. And so, we don't have a lot of other insight. Each side will have its own needs and wants and we're hoping like everybody else in the supply chain that that's an orderly process and one that will produce an acceptable outcome without any disruption. The history says sometimes there are no problems and they work our way through them without disruption. Other times there have been disruptions. It's hard to really handicap how likely that is to begin, but we know formally they're going to be starting next week.

Okay. Awesome. And then Matt another question. So, Matson is reiterated its expectations to keep that CCX service at least through that October '22 peak season. What sort of factors are you guys looking at as to when you would consider winding that service down?

Yes. So, Cameron we have said that we believe more generally that, we believe the relatively strong market environment that we're in today to stay in place likely through this year's peak season. We've also said that the CCX will remain with us through that period. To the extent that the environment remains longer we have the ability to keep the CCX operating well through most of 2023 and it will be entirely dependent on whether the market needs this additional capacity in the market. And if it does, we can provide it well into 2023.

Okay, awesome. Thanks for the clarification there. And then over the past several years Matson has been levered more to the spot market coming out of China. Has the philosophy changed around that at all during this bid season? Is there any overall changes to the spot versus contract mix there?

Sure. Yes Cameron. You're right. We have operated -- we try to operate with a balance of both annual contracted freight and more shorter transactional with a shorter rate time period. And I think what we have seen over the last 15 years that we've operated the service is, because we're operating a different service that's expedited. Our customers don't really know when they'll need to use us or how much they'll need to use us. And so, we over time have been comfortable with contract for just a way less than half of our freight. It's quite a bit lower than that now because our customers themselves aren't quite sure when they'll have a need whether it's a late order or it's a production problem, historically they have not known exactly how much they would like to commit to. And that has worked to our favor. We've been able to, as you know Cameron our ships have been full the CLX ship that's been full really 14 of the last 15 years other than our start-up year. So we don't exactly know which customers are going to require this expedited treatment. We're comfortable knowing that production, manufacturing environments change. What we've seen through the pandemic is, more of the same, but obviously there's a larger segment of the market that requires this expedited treatment. So we remain where we have been historically with way, way less than half of our market being annual contracted freight and that has served us over a long period of time and that's the current approach we're taking.

Awesome, thank you. Really appreciate the insight there. Just to revisit April trends really quick did you all quantify how things are looking so far in April I guess that April on how rates and volumes move?

Yes, we haven't really commented other than maybe just commenting given the uncertain environment in China just a moment ago. But we don't really -- we have not rate any other comments really around the markets. Although we noted in our commentary that Alaska is looking strong Hawaii should be better. We haven't quantified what we think those are looking for, but our experience in April are very consistent with the comments that we've made in each of the tradelines.

Awesome. Thank you so much for the time. Congrats again on the great quarter guys.

Okay. Thanks Cameron.

[Operator Instructions] At this time, I'd like to turn it back to Ben Nolan with Stifel.

All right. Hello again. So, you got the main step out of the way. I wanted to ask a little bit about SSAT. The numbers there just were pretty eye-popping and certainly better than I was thinking about. And I know that it's relatively or somewhat -- there's an element of fixed cost. And so, if you just do more volume than -- there's a decent amount of operating leverage and that certainly is contributing here. But in general, I guess two things on SSAT. As it is generating a lot more revenue and net income, how do those flow through to Matson or how does the cash flow through -- flow through to Matson. And then, maybe more broadly, is there any reason to think that SSAT as a contributor is in any way different than it has been in the past? Is it -- have things changed such that you're now maybe more confident that it can be a permanently higher contributor?

Ben, it's Joel. I'll take that. So on the first part of the earnings contribution, cash flow contribution, they're usually not far off, if you look at any 12-month period of time. And the way it works is essentially SSA in the very -- and there's sub joint ventures as part of that across the different ports on the West Coast. As each of the entities accumulates cash then it gets dividend up to SSAT and then, periodically SSAT will declare a dividend to the two owners, of which 35% comes to us. So, as an example here in the first quarter, we had these really strong earnings but just because of the timing of certain cash accumulation and distributions, there was not a distribution in the first quarter to Matson that we -- the one is coming here at the end in early May. And you might have like two distributions in one quarter instead of one as an example. So, a little bit of quarter-to-quarter fluctuations. But over the course of the year, it shouldn't be that far off what the actual earnings of the entity is. Every once in a while in every three, five, seven years, the joint venture has to invest in new cranes or other equipment. So sometimes it might be a little bit less than earnings, but it hasn't been dramatic at least in the last five years. So that's earnings and cash flow timing. Big picture about structural changes. I'd say down in L.A. Long Beach no other than SSAT continues to be an excellent best-of-breed operator on the West Coast. But there -- the joint venture really has two main terminals and there's 13 in L.A. Long Beach. So, a smaller share of the market. But in Oakland and Seattle, we have a much greater share of the market. We've got all the key terminals in Seattle a key terminal in Tacoma in that region then we've got about 75% of the lifts here in Oakland. So, to the extent that Long Beach and L.A. have longer wait times than any of the international carrier customers are diverting freight a little bit on the margin to Seattle Tacoma are open that kind of trend could benefit short-term and long-term SSAT. So I'd say, you see some of that going on right now in the last year, because of the wait times and berth times in Long Beach. So that's a modest thing. But I think long-term Ben, the entity is going to do best by just delivering great quality service to its customers and attracting more customers in each of the three key ports on the West Coast and really growing organically. That's been the history of the last 20 years of the joint venture and that's what we aim to do in the primary way the business grows over time.

Okay. That's helpful. I appreciate that, Joel. And then, just as my last question, I apologize that it's boring. But, for the tax rate it was a little over 21%. Is that fair to assume that we should -- you should stay in that kind of a ballpark in the second quarter and the back half of the year?

Yeah. We've bounce around 21% to 23% recently. And so, it -- the biggest driver is this new foreign-derived intangible income, which you see in our footnotes in our 10-K, the details of that but it benefited us about 2.5% last year. So we've historically been the 23% to 24% range and then for the year came down to the 21% to 22%. So as long as that kind of stays in a similar fashion, we should be at the lower end of the 21% to 23% range and that's where we came out this quarter. This quarter it was 21.1%. But the big driver there is that -- is the foreign-derived intangible income piece.

Okay. Well, and sort of tied to that. So, this will still be part of the last question. You mentioned Joel, in your prepared remarks, making contributions to the capital construction fund if and when you decide to build some new ships. Does that -- it all changed how we think about taxes?

No. The tax rate itself -- the effective tax rate itself that hits the income statement will be unchanged by that but the cash flow itself will be significantly influenced by that. So we'll get a cash reduction dollar for dollar for investments that we put in the CCF. But, that -- it won't affect our income statement. What happens then is we'll have larger deferred tax liabilities that will accrue on the balance sheet that will eventually reverse down the road. But -- so think of it as a cash tax benefit item but not a P&L benefit item.

Okay. All right. Perfect. Appreciate. Thank you.

Okay. Thanks, Ben.

I'm showing no further questions at this time. I would now like to turn the conference back to Matt Cox, Chairman and CEO.

Okay. Thanks operator. That's it for us here. I hope everyone has -- continues to have an enjoyable spring. We'll look forward to catching up with you at the end of next quarter. Aloha.

That concludes today's conference call. Thank you for participating. You may now disconnect.