Good day, ladies and gentlemen, and welcome to the Matson First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Jerome Holland, Director of Investor Relations. Please go ahead.

Thank you, Jonathan. Aloha and welcome to our first quarter 2015 Earnings Conference Call. Matt Cox, President and Chief Executive Officer, and Joel Wine, Senior Vice President and Chief Financial Officer are joining the call today. Slides from this presentation are available for download at our website www.matson.com under the Investor Relations tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the Federal Securities Laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors on pages 7 to 15 of our 2014 Form 10-K filed on February 27, 2015 and in our subsequent filings with the SEC. Please also note that the date of this conference call is May 4, 2015, and any forward-looking statements that we make today, are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. Also, references made to certain non-GAAP numbers in this presentation, a reconciliation to GAAP numbers, and description of the calculation methodologies is provided in the addendum. With that, I’ll turn the call over to Matt.

Thanks, Jerome, and thanks to those on the call. The first quarter of 2015 unfolded largely as expected. Strong momentum from the end of 2014 carried over with performance improving across all lines of business led by continued levels of exceptional demand for our expedited China service, modest yield improvements in Hawaii and Guam, and further improvements in Logistics and SSAT. In addition, lower bunker fuel prices positively impacted our results, primarily due to timing differences as fuel surcharge collections outpaced fuel expenditures. On a year-over-year basis, you will recall that the timing of fuel surcharge collections had a negative impact on results in the first quarter of 2014, so that timing difference is amplified in the current year period. Our businesses are performing well and continue to generate substantial cash flow that, combined with our strong balance sheet, provides ample capacity to close our pending Alaska acquisition. We continue to be well positioned to fund our new vessel construction commitments, and comfortably sustain our dividend. Looking forward, we are encouraged by our prospects in Hawaii, and in a strengthening broader economy that will produce volume growth in our Jones Act markets and in Logistics. Overall, for the full year 2015, we expect operating results to be moderately higher than those we achieved in 2014. Turning to slide four, you can see that our businesses generated EBITDA of $61.5 million and EPS of $0.57 in the first quarter of 2015. Both measures increase significantly on a year-over-year basis due to the factors I described on the previous slide. I would also like to note that while the first quarter is historically our lowest in terms of earnings and cash flow, this year is expected to be frontend loaded such that year-over-year compressions in the latter half of the year may…

Thank you, Matt. The table at this top of slide 12 provides updates to the estimated transaction value for the Alaska acquisition. Based upon Horizon's most recent 10-Q filed last Friday, the transaction value would be almost identical to the amount at the time of the announcement, which was based upon Horizon's most recent 10-Q financial information available at that time. However, looking at the third column of this table, you will note that we expect the transaction value at closing to be approximately $32 million higher for a total amount of approximately $488 million. This expected increase is due primarily to normal seasonal working capital borrowings, as well as anticipated final horizon transaction-related costs. From a financing point of view, we are well-positioned to fund the acquisition from cash-on-hand and available borrowings under our revolving credit facility. However, we may choose to fund a portion of the transaction with long-term financing proceeds at closing or shortly thereafter. In addition, our financial expectations for the acquisition have not changed and the items listed on this page are the same as when we announced the deal last November 11. Also as a reminder, the Alaska business is more seasonal than the Hawaii trade such that the second and third quarters each year are typically the most profitable. So accretion measures for those quarters should be expected to be more meaningful than in the first and fourth quarters in any given calendar year. After the deal closes, we expect to provide updates to our 2015 outlook for the transaction on our August call. Moving to slide 13, Matson's consolidated operating income for the quarter was $44.9 million, as compared to $9.9 million for the first quarter of 2014. Ocean transport transportation operating income increased $34.5 million during the first quarter 2015, compared…

Thanks Joel. We continue to see bright prospects for the rest of 2015, driven by our pending acquisition of the Alaska operation, construction activity ramping up in Hawaii, and our industry-leading CLX service. Additionally, improving economic activity should drive performance higher in both logistics and SSAT. While closing to pending Alaska acquisition and integrating those operations on to our platform will be a key focus for us. We will also continue to drive further operational excellence throughout the rest of our businesses. And by doing so, we will generate strong earnings and cash flow while maintaining a solid balance sheet and dividend yield. We’re looking forward to the coming months. And with that, I will turn the call back over to the operator to ask for your questions.

Certainly. [Operator Instructions] Our first question comes from the line of Jack Atkins from Stephens. Your question, please.

Great. Thanks for taking my questions guys and congrats on a great quarter.

Thanks, Jack.

Thank you.

So, I guess, just to start off with if I can maybe touch on the guidance for a moment. You know, if I go back to the fourth quarter call, I think you guys are calling for modest improvement in ocean transportation operating income. Your new guidance, I think, calls for moderate improvement. Could you maybe walk us through the sort of the puts and takes in terms of, I guess, what’s changed, what’s improved versus your last call in terms of your outlook for the business going forward?

Sure, Jack. This is Matt. I will make the first pass at that and then I will Joel to comment on anything I might have missed. I think from our perspective, this slight uptick in our earnings expectation for the full year is really driven by a couple of things, the first and foremost was the better-than-expected performance in our China service. We saw just tremendous demand for that service in the face of ongoing difficulties creating a very – a terrific environment for us in which to improve and sustain the rate structure going into the New Year. And then, I think, we saw better than expected performance in SSAT. We were more cautious about the performance of SSAT, our terminal operating joint venture, given all the difficulties, but owing to the terrific operating performance there and their availability to continue to make money in a challenging environment was something which was a pleasant surprise for us. So those are the two things I think that allowed us to feel slightly more confident about the year. And Joel, I don’t know if there was anything you want to add to that.

No, those are the big ones. We had some other areas slightly better as we head into April, May, and other areas slightly worse than expectations with the big – the two items Matt mentioned were the bigger drivers allowing us to increase our outlook a little bit in the manner you described, Jack.

Okay. That makes sense. And then, just if I can follow-up on SSA for a moment, that was a very nice equity contribution or income contribution there in the quarter. If I kind of go back and look at that business now on an – in the LTM period, I think it’s generated almost $10 million in contribution to your P&L, which is a significant improvement from a couple of years ago. So is that business sort of back on track there? And that is – is that the right sort of annual run rate to be thinking about? Or would you expect some fluctuations in that SSA business going forward from a profitability perspective?

Yeah, I mean, I think you framed the question right. We see this last 12 months performance that you indicated as really a return to a more historic prerecession level of earnings. We continue as we’ve said over time continue to be very high on this segment of performance and see this as very positive and again a return in the right direction, much like Matson Logistics went through a difficult cycles and we are climbing our way through the other side of it. Having said that, exactly shipping lines are under significant stress, alliances were changing causing various shipping lines to more terminals, and this business, as you know, is very sensitive to volume changes. But we continue to believe that this business is well-positioned at both long-term and for the balance of this year.

Okay, makes sense. One last question, I will jump back in queue. Joel, when you talk about low- to mid-teens earnings accretion – earnings accretion year one and two from the Alaska acquisition. Are you basing that off of 2014, is that off of 2015? Just sort of what’s the base line that we are looking for in terms of accretion just looking kind of frame it up a little better if that makes sense?

You know that does make sense, Jack. And we are basing that essentially off of the run rate we see today, 2015.

Okay.

But it is a very steady business. I mean there are fluctuations one year to the next, but it has tended to be a very steady business. So, I would tell, 2014 and 2016 shouldn’t be that different, you will have some pluses and not minuses. But when we look at the transaction, made the announcement in November, we are making most of those comments based upon what we expect for the next 12 months to 18 months, which is into 2015 and into early 2016 type of results.

Okay, that makes lot of sense. Thanks again for the time.

Okay.

Thank you. Our next question comes from the line of Steven Tittsworth from Stifel. Your question, please.

Actually, this is Ben. I had a couple of questions. Number one, I wanted to come back around to the acquisition economics that you guys are talking about. And correct me if I’m wrong, but I think originally you’re talking about additional cost associated with your Horizon shutdown of Puerto Rico and the assumption of liabilities associated with that were about $90 million over and above sort of the headline cost of the acquisition. At this point, we have seen a little bit there, I suppose they have closed it all the way. Are you still thinking that’s the right number or has that thinking changed at all?

Ben, it’s Joel. Thanks for the question. Now things have improved a little bit, so as you probably noted and saw Horizon announce – when they were shutting down Puerto Rico on November 11, they expected $85 million to $95 million of total costs. And then on our call, we reiterated those numbers, but on an after-tax basis talked about a number of about $70 million for Matson and that number has not significantly changed. Just from a timing perspective, however, though Ben, a significant portion of those costs have already been incurred by Horizon, so they will be essentially embedded into the debt balance in the balance sheet that we inherit when we close the transaction. So we don’t necessarily expend those dollars after we own the company because they’ve already been expend. But the biggest number is the pension withdrawal liability, which horizon has disclosed in their SEC reports is $53.8 million and so that’s the biggest one. That’s a gross number that will be paid out on an annual basis over 13 or 14 years.

Okay.

So, it’s not been NPV number, it’s a gross number. But that’s the largest dollar amount of the overall cost and that number has not changed. In a couple of other areas the numbers have gotten better somewhat, but not dramatically. The picture is not significantly different than what we talked about on November 11.

Okay, that’s helpful. And then sort of staying with the Horizon side of it just for a moment, obviously, they have some pretty expensive debt. What’s the thinking about in terms of the process or how you guys and when you would imagine refinancing that relative to the closing date?

We should do it immediate at closing and simultaneous to the closing, Ben. So we’ve already – a number of those instruments require 30-day advance notice. When the HSR early termination was received, we immediately gave that 30-day advance notice. So we should be positioned to refinance and pay off all that simultaneous with closing.

Okay, perfect. And then, well, my last question, I guess, is sort of related to that, but also related to you guys and sort of the legacy Hawaii business. I know that you talked about installing scrubbers on the Alaska vessels. And curious what we should think about on the timing of that? And then also, if that is something that you also intend to undertake on the Matson side of the fleet and if we should be including any numbers in our CapEx associated with potential scrubbers on your own fleet?

Hi, Ben, this is Matt. I will answer the second question and then I will turn it over to Joel to answer the first one. The significant economic driver for Horizon and now Matson upon closing in the Alaska business is that because of the deployment, these three vessels in operations spend virtually their entire route inside the ecozone requiring the burning of these fuels and it makes it essential for these scrubbers to work and be installed in order for them to meet their base deployment schedule on a three-ship turnaround service. That contrasts with Matson's existing services where we will spend time as we approach the West Coast and in Hawaii, but outside of those areas we can operate on more conventional fuels as permitted under the emission control area rules, and so it is unlikely at this point that Matson would install scrubbers on its fleet, its Hawaii and Guam and China fleet. Although I would note that the two ships we have on order that would be delivered in 2018 for example are designed to burn LNG, and LNG burns cleaner and can operate at full speed in the eco zone. So, I would imagine over time, a very long time in connection to ship replacement programs that we will continue to look for ways to expand the use of LNG. And then I will just turn it over to Joel to answer the specific Alaska timing CapEx question.

Yes. On the three vessels spend, the first of the three are expected to install the scrubbers here this year in the third quarter and leading over into the fourth quarter and then the other two will be events in 2016. Each of these are approximately 90 days in terms of duration, possibly a little bit longer and from a cost CapEx perspective about $8 million per vessel total of $24 million. So, when we talked about the normal maintenance CapEx of this business between $5 million and $8 million a year that excluded these three individual discrete projects.

Sure. Sounds good, sounds like that’s a little bit expedited or was originally sort of laid out, but I guess the closing is also so that’s good and congratulations on both fronts guys.

Thanks Ben.

Thanks Ben.

Thank you. Our next question comes from the line of Kevin Sterling from BB&T Capital Markets. Your question, please.

Good morning guys it's actually William Horner for Kevin.

Hi, William.

Hi, William.

Appreciate the color you have given so far on the horizon transaction, but shifting gears and going back to the China business, it sounds like you’ve made pretty good headway in the past couple of weeks with your contract renewals and so is it fair to say that even with the West Coast congestion easing that shippers have been pretty willing and excepting rate increases?

Well, I think it is true that the backlog of vessels, international issued vessels has been largely reduced or eliminated, I think last week as you probably saw in the trade press the Port of L.A. and Long Beach are saying that the backlog is essentially completed, but I would say that a return to normal or a new normal still puts Matson's advantage between 5 and 14 days. And so there continues to be a service advantage, and so we will wait to see whether the extraordinary premiums we got during the peak of the disruption in the spot market will be repeated, perhaps the spot rates won't get quite a size they were, but we were able to take a rate increase on the annual contracted rate. So on an average basis, we were guiding to just slightly better than the good level rates we achieved for the full-year of 2014. So that was kind of the - some of the ins and outs that went behind our thinking there.

Okay, Matt that's good color but sticking on the issue for a second, have you seen a mix shift from sport our contract business, given some of these congestion issues, I mean I would assume that maybe some shippers might be looking for more contract oriented business or is just the nature of your customers, is it going to be a pretty steady mix between contract and sport going forward?

Yeah, I think we very much like to take the portfolio approach in our own model between the spot business and the annual contract freight and I think what we’ve said is half and half and sometimes it goes to 40:60, sometimes 60:40 over the last period of time, and what we have found is and as you know we continue to have the ability, we are routinely turning away cargo every week and are really limiting our customer bookings in trying to find the balance between achieving the best rate we can in this environment and filling the ship; and that process goes on tactically all year around and that goes into some of this thinking, but I think it’s in now best interest and then our approach is to continue to have both types of cargoes on the Matson vessel.

Okay that's helpful. Thank you. And one more and I’ll turn it over. Obviously, with lower bunker prices I know you’ll had our a little bit of the benefit, even as you’ve adjusted your surcharge down, but given kind of where bunker prices settled in the past couple of weeks is it - with all else being equal is it fair to assume that some of the maybe a near term impact or a positive impact would be relatively meted going forward?

Yeah, I think what our thinking is, is that we - a year ago the first quarter of 2015, we felt significantly behind in our fuel collections as we were chasing the fuel prices up and then we have the opposite effect as we got into the fourth quarter and first quarter of this year. We were chasing it down as you pointed out we lowered our fuel surcharge like four times, since the first of the year. We think most of that has played out and we should see fuel being less of a factor unless we saw a dramatic increase or decrease from these levels. So, if bunker rates stay in a relatively narrow range than there really is not much of a story in oil for the second half of the year or for the rest of the year.

Okay that helps. Thanks guys.

Sure, thank you William.

Thank you. Our next question comes from the line of Michael Webber from Wells Fargo. Your question, please.

Hi guys this is Donald McLee on for Michael.

Hi, how are you?

Hi.

Doing good. Looking at fundamentals at the containership level it looks like freight rates have remained soft during Q1, despite relatively solid trade volumes, how should we think about the impact of that weak rate environment for the containers if that met, and then on the ocean transportation business?

Yeah. I think that may be the case for the international ocean carriers, but in Matson's business we saw improved yields both in our Jones Act trades in Hawaii and Guam and improved yields year-over-year, strongly improved yields year-over-year in our China Trade. So, we’re little bit of an exception to the rule. We've seen no read re-trading and continue to see a very strong underlying rate environment in the market in which we operate.

Got you. That's actually pretty helpful and just one more, and I will turn it over. While the port congestion has helped support rates tend to begin 2015, have you noticed any change in customer port references within the U.S. just given all the operational and logistical volatility at Long Beach and LA?

I think what we’ve seen are customers that have previously - in our own customer conversations for those customers that had in East Coast and D.C. and West Coast D.C. for example, they’ve routed more, they favored the East Coast distribution centers in their model, they are in some cases waiting until the congestion clears before routing cargo back over the West Coast. So, I do think that while there may be some permanent migration freight from the West Coast to the East Coast, I do think that a lot of it will begin to come back as the congestion eases and as we get into this year's peak.

All right thanks guys for taking my questions, that's all I have.

Okay, thank you.

Thank you.

Our next question comes from the line of Steve O'Hara from Sidoti. Your question, please.

Hi good afternoon.

Hi Steve.

I'm sorry, I got disconnected so I don't know if it has been asked, but in terms of the slide that you used in the update on the Horizon Alaska acquisition when you said substantially less debt, was that included in that slide or can you talk about that a little bit?

It is included in the slide and what we’re seeing is that if the deal closed, let’s say six months from now, we would have expected there to be substantially more debt on the company’s balance sheet when we close it’s because it's very expensive debt. A significant portion of it is picking in non-cash pay and so the balance continues to go higher. So what we're seeing Steve the punch line of all that is that the quicker the deal closes, the better from an overall economic perspective and that is all taken the numbers we put on the slide.

Okay. And then just on the construction update, I mean are you seeing the kind of beginning of the recovery in single family home or is that still kind of couple years of in the [indiscernible]?

I think it’s the second of the two. I still think there is certainly other projects in the pipeline being discussed, but we still see them as a bit far off and I don't think we see that imminent or being baked [ph] into you hear those numbers in any meaningful way or our own thinking about that.

Okay. All right, thank you very much.

Okay Steve, thank you.

Thank you. Our next question comes from the line of John Mims from FBR Capital Markets. Your question, please.

Hi. Thanks, guys. Congrats on a good quarter.

Thank you.

So, Matt, let me ask you, on the Pasha ship, looking at the Hawaii business and that’s slated to come online in May. Have you all seen that ship in the waters there? Do you know more about it in terms of call schedule, the markets it plans to serve or any more details and where exactly that would be a competitive threat in that business?

Well, I think, we do know it’s on its way. We see Pasha’s sailing scheduled, which is published online and available. We do note that it is either in progress or has transited or about to transit the Panama Canal. So we know it’s on its way and into the market. And so, as to – so we know it’s coming. As to its final deployment, where it plans to go, how it’s going to be deployed? We don’t yet know. They’ve made no announcements yet about how they are planning on deploying that vessel. And we will learn as they announce when that occurs. So, we don’t have a lot of information at this point.

Okay. But the May launch timeframe is pretty firm based on where the ship is now?

Yeah.

But again then it’s been pushed back, right?

Yeah, it’s on its way. So, yes, we think that’s pretty firm.

Okay. And then you commented on volumes being soft as a result or at least flat. Is there any impacts to pricing you expect? Or is there more kind of resiliency from a contract standpoint on the Hawaii pricing?

So, in Hawaii, we’ve seen a relatively strong rate environment. We’ve seen yields increase in the first quarter. And so we’ve seen a relatively strong environment. The weakness in eastbound freight doesn’t really impact our westbound headhaul in terms of pricing. And as you might know, this is more of a tariff trade and so we don’t really do contracting in the environment. But, again, overall, we are pleased with the improvements in the rate environment in the first quarter. It’s above last year’s level.

Okay.

And at this point, relatively steady.

Right. But with the launch of the Pasha ship, you would expect volumes to fall ahead of price or just the tariff would kind of tick down as well or I guess they discount the tariff?

Yeah, it’s just – it’s tough to know. I mean we are expecting as we said a relatively flat volume environment for the rest of this year. Our thinking about it more broadly is that this extra capacity as you heard us say adds between 5% to 10% of the capacity of the deployed trade at the present moment. If that extra capacity grows along with our market expectations of growth that capacity could be observed in the first year or two as the market grows and that would limit our westbound headhaul growth for that period of time. We really haven’t commented about pricing and it’s really just too early to know and too hard to speculate about.

Sure. That’s fair. Let me ask one more pricing question on the CLX business. I know you had a – you said, you had a successful bid season, which is great. But remind me the structure of those contracts, I know like truckers are notorious for putting fixed pricing out there with no volume commitments. If you do see broader international flagged [ph] spot rates crater, is there a – how protected are you in those contractual business when people running to more attractive market rates?

I mean, I think that – so, first of all, it’s an annual cycle, it goes from May 1 till April 30, so it’s a full-year contract. Often the minimum quantities that exist in those contracts are lower than the amount that a customer would typically provide to us. And so, you shouldn’t think of them as being tied in for the year. So, for example, if there is a dip in demand for Matson’s product or sailing, which we do not expect, then we are free to reengage and adjust those rates or we could – the spot market moves much more frequently then that – weekly, or quarterly, or monthly. And so, I don’t think we think half of our book of business is locked in for the year. But what we’ve said is just because if rates moved against us, for example, the amounts that carriers are obligated to ship are less than the amounts stated in the contract and so it’s – that’s a custom in the trade. But having said that, at this moment, we still have in the overall environment is we have demand for significantly more freight week in and week out than we have capacity to fill that.

Okay. That’s really helpful. And then just one last one and I will turn it back. When you look at the Logistics business and eventual closing of Horizon, is there opportunities for growth, any kind of overlap where you could provide that Alaska business with additional logistics services?

I think when we announced the transaction in November; we said that there could be some minor synergies between those two businesses that we were not counting on it. One of the things that Matson Logistics does for Matson’s Ocean business is it handles all the inland logistics and the empty equipment positions as required and we expect that Matson Logistics would perform that same task for our Alaska business post closing and post integration. And there could be savings both in terms of rail contracts or trucking costages tapping into our network. But we don’t envision those as being significant in our own thinking as to get to our $70 million of recurring EBITDA with in the first 24 months. And if there are some, that would be an upside. But at this point, we are not thinking there is going to be a huge amount of them.

Great. Actually I do have one extra and then I will turn it back. On that logistics side, did you have any impact from the rage driver strikes recently in the LA basin?

We did not.

Okay, cool. All right, thanks so much for the time.

Okay, thank you.

Thank you. Our next question is a follow up from the line of Steve O'Hara from Sidoti.

Hi, thank you for taking the follow up. Just – I know it’s pretty far out still, but the [indiscernible] coming in, I’m just curious what the – would this allow you to add excess or more capacity into the CLX business? I know you are kind of limited because you have to have another five ships to replicate the services. But are you going to be able to ship larger ships and potentially add capacity that way with delivery of the ships in 2018? Thank you.

Yeah, Steve, yeah, we understand the question and certainly if we had a larger ship or five larger ships because you need five ships in order to make that weekly service, we certainly believe we could fill them. In order to meet the deployment that we have in mind, we would need five new ships in order to make that capacity. That certainly is one option. But we think the better of the options is to deploy these two new container ships that are going to be delivered in 2018 into the Hawaii service, which we think on the market would allow us to operate fewer Jones Act services and the turnaround Hawaii service as the market grows and provide a better opportunity on the margin. We continue to look for ways for growing that CLX service, but none appears viable right in front of us at the moment. I think we – you should think of us continuing to be capacity constraint on that service.

Okay, thank you very much.

Sure.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Matt Cox. Please go ahead.

Okay, well, aloha, and thank you for your participation in the call. We look forward to catching up with everyone in August. Thank you.