Q1 2020 Earnings Call

These risk factors are described in our press release M. presentation and are more fully detailed under the caption risk factors and pages 24, 234 about form 10, Q. filed today may 5th 2020 and in our subsequent filings with the S.P.C.

Please also note that the date of this conference calls me fifth 2020, and any 40 looking statements that we make today are based on assumptions as the the state we undertake no obligation to update these forward looking statements and now turn the call overdone.

Thankfully and thanks to those on the call.

In light of the unprecedented environment, wherein I wanted to begin to call with our current priorities before recapping our first quarter results. So please turn disliked three.

First.

We're executing a number of critical objectives to manage the business through this pandemic and period of economic uncertainty.

Our company's responded and continue to respond to the reality of operating under covered 19 pandemic. There are three areas in particular I want to highlight.

Are tough focus of safeguarding the health and safety of our employees by enhancing process just on the vessels to ensure crew safety, ensuring those working from our warehouses or terminals adhere to coastguard C.D.C. Another government guidelines on P.P.E. disinfecting, social distancing and requesting those who've.

Function allow them to do show to work from home.

We're also focused on ensuring that consistency, if our ocean transportation service and making sure cargo is available to our customers as quickly as possible.

<unk> culture is rooted in providing the highest quality service at best in class on time performance to its customers because we are the lifeline to these remote communities and this has never been more important than the pandemic environment in which we operate today.

The second on the environment is unlike anything we've seen before but we're no stranger to operating and difficult economic times.

Would expect we're responding to the new reality and preparing for an extended downturn.

The operational and financial aspects of the business heading into a downturn.

That's the code 19 situation involved in early March.

Increasingly apparent that we had to ensure the company had balance sheet liquidity.

And it's through a sustained period of economic weakness.

In March 31st we executed the amendments to our banks facility and private no just to provide additional leverage covenant hadn't run through the end of 2021, Joel will go into more details on the amendments later on in the presentation.

In early April we initiated an operating in cash capital cost reduction plan to address the profitability challenges, we expect to encounter as the economy weekends, while the recovery remains uncertain.

Somebody initiatives include recycling the network to lower free phonemes in our domestic trade lanes.

And increasing capacity in our <unk>.

Producing operating costs and differing or eliminating capital projects.

We'll go into more detail in the next slide please turn dislike for.

I want to spend a few minutes. These these three areas. We we're managing the operations for the new reality and preparing for an extended downturn.

First we're evaluating a number of operational initiatives to increase efficiency and better aligned capacity to volume demand.

All of the operating initiatives were evaluating rexach shooting assumed that will be in a weaker economic environment for at least the next nine to 12 months.

We've mentioned before that we are evaluating shifting Daniel Cain away from the Hawaii service to the C.L.X.

We planned to make this move in late June to better aligned to C.L.X. capacity, but the demand given what we see in the transfer Pacific Ocean and air cargo markets.

Okay. No way is one of our fastest and largest festivals and it's the sister shift to the time on a healer, which has been operating in the seal x. since the third quarter of last year.

There were a number of initiatives that were evaluating we're executing to reduce costs some of which are on dislike.

We're evaluating the Hawaii neighbor Island barge network and the frequency for calls were also evaluating the number of port calls to Kodiak in our Alaska service, we've reduced operating hours at select terminals in are evaluating other expense reductions at the terminals to increase operating efficiencies.

We're evaluating maintenance cost reductions in deferrals, and we're looking to achieve costs productions from our service providers during this difficult time.

Second.

We're managing our personnel costs and a number of areas.

We have instituted a hiring freeze across the organization and we announced today a salaried reduction plan.

The plan includes a reduction of 10% to 30% for the top highest 100 paid employees. The management team is at the high end of the range. The board of directors and I took a 30% salary and board cash fee reduction.

This plan took effect on may 1st.

We're also reducing or eliminating discretionary costs have your reducing or eliminating overtime across the company.

We expected fleet repositioning operating changers and cost management initiatives to approve operating results by 40 to 50 million in 2020.

Which two thirds is from fleet repositioning another operational changes.

However, the financial benefits from these absence will only partially offset profit declines in or businesses. As a result of the covered 19 situation and it's economic effects.

Please turn dislike five.

The third and final area of focus is that we are differing for eliminating all capital spending not considered essential were previously committed.

We were at the tail end of a large capital expenditure cycle, but three previously announced projects expected to be completed by your rent.

These committed capital projects include the Hawaii vessel renewal program.

Where our fourth and final vessel is expected to be delivered in the fourth quarter.

The first phase or the sand island terminal upgrade.

And the six Pessl scrubber program <unk>.

We expect the deferral and elimination of cap extra results in approximately 30 million in savings and 2020.

Well, we have a rather limited ability to curtail cap action 2020 due to the committed project I mentioned, we have more flexibility to contract the capital spending 2021, 2022 to the extent the depth or duration of the economic cycle, it's more pronounced.

Without a doubt this economic downdraft will present, a number of challenges for us, but our experience in managing the company through private sessions puts us on a relatively strong putting to adapt quickly and find opportunities.

I haven't that briefly recap the forceful first quarter results.

So please turn disliked six.

Well it seems like a long time ago now our business performs well in the first quarter to spiky overhang of the <unk> 19 situation.

Consolidated operating in came came in better than expected.

Strongly that expected performance in Ocean transportation.

Conception at home food and essential goods drove increased volume at our Hawaii, Alaska and concentrate lanes and R.C.L.X. service returned to normal volume levels slightly ahead of our expectations Lastly, especially t. was challenged by cancelled sailings, resulting from decoded 19 situation.

Which I'll comment on later in the presentation.

Logistics operating income came in slightly below our expectation as some business lines were directly challenged by that coping 19 situation and transportation brokerage and free forwarding came in a little softer in March as a result of the shelter in place orders and retail store closures.

<unk>, we went through our full your outlook in light of the increasing economic uncertainties regarded decoded 19 pandemic.

The absence of the outlook for the trade lanes, S.S.A.T. and logistics I will provide commentary on the current trends in business activity. So far this quarter.

And with that please turn to slide seven.

Hawaii container volume for the first quarter increased 1.7 year over year, primarily due to the consumption of home food into central goods as a result of shelter in place orders to mitigate the spread of covert 19.

The state of Hawaiian out several orders in March to mitigate the spread of coping 19 on the islands. These orders of material effected tourism, which led to a precipitous decline and domestic visitor arrivals mid March so we didn't see any material impact from this develop in in our volume in the first quarter.

However, we are now seem to be effective near zero tourism as well as the impact from the temporary closure retail stores with April westbound container volume down approximately 12% compared to the April of last year.

The west found volume in the first half of April with slightly lower year over year, but then you sound materially lower volume in the second half of April volume declining approximately 19 per cent you every year.

Based on the current volume trend, we believe we can see a decline in the mid to high teens per cent in the second quarter compared to the priority recorder.

We expect a loss of tourism to directly and indirectly meaningfully impact the volume and the second quarter and the remainder of this year.

Clearly this economic situation is different from the last two recessions, but we believe histories are reasonable starting point.

The worst quarterly volume declined who saw after 911 during the great recession, we're 23% and 17% respectively.

I'd like to point out that despite the potential large declining frayed a majority of the volume we carry will continue to flow into form of occurring substance goods and some discretionary items.

Please turn to slide eight.

I want to spend a few minutes on the current general state of activity in Hawaii and provide some commentary based on the latest new hero forecast.

Statewide stay at home order has been extended from the end of April through May 31st.

There was virtually no tourism in the island, despite some flights on schedule.

And you can imagine hotel occupancy has declined significantly and most of tells of clothes temporarily.

Like the mainland Big Bucks retailers pharmacies and grocery stores remain open for residents to secure their day to day goods, but other essential businesses continue to operate normally.

Some non essential businesses are beginning to open the limitations.

Temporary loss of tourism is going to have a significant impact on Hawaii economic growth.

Lead to second and third or effects on the economy, including lots of jobs and discretionary income.

Lower construction activity and lower general spending in other industries, you heroes latest forecast captures the potential the integrated effects.

The state of seen a surgeon unemployment claims in March and April nearly 35% of the workforce in Hawaii has file for unemployment.

You hero is forecasting a 20 per cent your every year decline and non far jobs and the second quarter and nearly 14% unemployment rate for 2020 compared to 2.7 per said 2000 in 19.

Following a significant decline in tourism in March.

Chivalry is expected to remain near zero.

For most if not all of the second quarter.

You hero, it's projecting for the full year 2020, nearly 41% decline you every year in both visitor rivals and real visitor expenditures.

Forecast implies improvement and tourist arrivals and Q3, and two four but still well below prior year levels.

To put the 41% annual decline and visitor expenditures into perspective in 2008 in 2009.

We're sure over your recorder decline in that time frame with roughly 21%.

And the worst annual decline was 15 per se.

The peak to trough declined from 2007 to 2009 was nearly 30%.

So the coping 19 economic effects from tourism are forecast to be far worse than what we saw in the last recession.

Do hero forecasts constructions jobs to fall by nearly 3% and 2020.

Current projects and construction are expected to continue to completion, but.

But those into plenty cases are likely to be postponed.

G.D.T. for 2020 as forecasted declined 7.7% year over year this would be the worst.

G.D.P. growth.

And you hear is recorded history dating back to the sixties.

To put this depth forecast into perspective, the largest year over year quarterly G.D.P. decline in the 2007 to 2000 night time frame was approximately 3%.

The depth of duration of this economic cycle remains unclear.

And the economic effects and the loss of tourism will be significant and the second quarter and the rest of the year.

However, again the majority of are quite service volume consists of highly recurring session as goods and we expect to to maintain a good level of demand for this type of volume and this pandemic environment.

We've been on data, where China service on the slide nine that's is volume in the first quarter 2020, with 6.5% lower your over here, but we achieved average freight rates that approximated the level achieved in a year ago period.

China's coping 19 mitigation efforts elongated our traditional post lunar new year volume low by effecting factory production.

Factory to port infrastructure logistics, and our customers inventory sourcing to produce goods.

Up and volume from the post lunar new year lulled to normal levels in March which slightly ahead of what we expected you know our fourth quarter earnings call.

For the month of April R.C.L.X. service. He's found volume increased by 4% you agree or compared to the prior year period.

Demand for the C.N.X. service has been very strong as are differentiated expedited service remains an attractive offering <unk> disruption and lots of capacity in the transpacific air cargo an ocean free markets.

Historically to see a lexus carried a higher percentage of garments footwear and other items tight supply chains.

Apparel and put where retail volume has declined significantly as a result of shelter and place orders and a temporary closure of U.S. retail stores.

Reduction in retail volume is being infilled by other high demand volume. For example are ships had been carrying masks sanitizer and personal protection equipment as well as other critical supplies, including electronics to sport growth in the work at home environment.

We're also seeing much more e. commerce volume assimilation carriers have cancelled sailings and the production air cargo capacity has shifted this type of traffic to our service.

Please turn it's like 10 I.

And when it's been a few minutes and what we see in the transpacific tracing into the balance of the year and how we are positioning are sealed x. service.

We think the disruption in a transpacific airfreight market will continue in the near term and we believe R.C. elect service will experience.

Good demand from this a substantial loss of capacity from passenger jet belly space, it's difficult to replace immediately and it is unknown. When this capacity will return to normal.

The loss of air cargo capacity is led to hysterically.

Excuse me historically.

Maybe hysterically as well, but historically high air freight rates almost two to three times previous records.

He said this before but our premium expedited service is an attractive alternative to differ airfreight, given the significantly lower costs per box with only a five day longer service.

We expect unsettled conditions in the transpacific trade laid to remain for the balance of the year.

Already this quarter there'd been a large number of cancelled sailings in the trade Lane.

As I mentioned earlier, we plan to move one of our fastest and largest vessels the Daniel staying away from the Hawaii service to the seal X. service in late June.

Pessl add roughly 500 container containers per trip.

When utilized.

For the balance of the year, we expected infill volume, where we can and we know that at some point retail stores in the U.S. will open up again and those phonemes will return.

We believe it or initiatives will continue to keep the ships full for the rest of the year.

Lastly, we will continue to evaluate opportunities to increase capacity in the seal x. string in light of the supply demand dynamics. We see for example next week, we've chartered a vessel for one voyage to sail opposite.

The smallest of R.C.L.X. vessels to supplement our capacity given the extremely strong demand for expedited service offerings.

Turning to slide 11.

In Guam methods container volume in the first quarter 2020 decreased 3.9 per cent you're over your primarily due to tycoon relief related volume in a year ago period.

Actually upset by higher volume to increase demand of essential goods and home food as a result of covered 19.

In April are with phone container volume declined approximately 4% compared to April 2019.

We sat progressively weaker volume throughout the month, that's the loss of tourism and the temporary closure retail stores negatively impacted volume.

We believe we were in the early meetings volume decline in the trade Lane expect further volume loss and May.

Looking back at the West down volume impact integrate recession period.

2008, 2009, the worst quarterly you ever decline, it's nearly 15%.

And while the ultimate free decline will likely be significant effect a majority of volume. We <unk>, we saw last year to flow in the form of occurring substance goods in items.

Moving out of slide 12.

Alaska <unk> container volume for the first quarter 2020 increased 11%, primarily due to greater demand from home food food and essential goods as residents shelter in place to to coven, making as well as volume associated with the Drydocking other competitors special.

Approximately one third of the volume increase in the quarter was attributable to the competitors Pessl drydocking.

South on volume in the quarter was modestly lower than the level achieved in the first quarter 2019.

For April North bound volume declined approximately 3% compared to April 2019.

We saw continued strengthen home food <unk> essential good volume in the first half of April, but then we saw materially weaker volume and the last couple of weeks of the month with volume declining in approximately 14% you over here.

We believe we could see volume decline in the mid teens and the second quarter compared to per year.

Looking back at the North bound volume impact in the great reception period of 2008 2009.

Quarterly year over year decline was a little over 8%. So a mid teens percent volume decline in the second quarter would be nearly twice the percent decline seen in the last recession.

Turning next to slide 13, I went to spend a few moments on the current state of activity in Alaska and provide some commentary based on the lab latest economic information.

Similar to Hawaii.

<unk> is under a statewide shelter in place to.

The state initially mandated the closure of all non essential businesses, but recently allowed select industries to reopen septic to limitation, including restaurants in retail stores.

The state ordered a more aggressive travel band with no flights into and within the state and in early April the major cruise line operators announced their cancelling their summer trips.

Precipitous falling oil prices to extremely low levels prompted some producers to curtail production.

Rig workers on site as a result of the covert 19 mitigation efforts.

There's currently a lot of focus on protecting the fishing industry and the surrounding communities during the upcoming salmon season.

Calls on worker safety on the fishing vessels at the commercial fisheries have been put into place to mitigate the spread of the virus.

The economic told from covered 19, and the fall in oil prices is likely to be significant.

In a report issued on April 6th by the Alaska Department of revenues.

State revenue for 2020, as forecasted declined by approximately 40%, which will necessitate budget and possibly other measures to address the shortfall.

Unemployment is expected to increase significantly even with the limited reopening of some non essential businesses.

Alaska Department of Labor in the workforce development noted recently in the last six weeks over 14% of the half a million working age population in state file for unemployment benefits.

With a combination and food services industry sit the hardest.

Although the tourism season in Alaska short, it's an important a contributor to the states economy.

Cancellation of cruise tours, we'll have a negative effect on the economy.

It remains to be seen what will happen with other tourists related activities.

And the oil industry, we expect some production will be deferred.

Lower oil prices in the near term.

And some development projects will likely be delayed.

The depth and duration of this economic cycle remains unclear and the economic effects within the state will be significant and the second quarter and the rest of the year.

Wherever the majority of our Alaska service North bound.

<unk> highly recurring substance goods and we continue to expect a good level to demand for this type of volume in this pandemic environment.

Further we have little direct exposure to the oil activity in the state including projects on the north slope. So we anticipate little to no direct impact from the sector.

We also have no direct exposure to the cruise industry and related to tourists of activity as most of the cruise lines go to the southeast Alaska and our operations cater to the real bad railed area near Anchorage.

We expect south bound volumes remained steady, but we will want to remind everyone that this year summer catches in off here in the two year fishing cycle.

Turning to the next slide 14.

<unk> terminal joint venture S.S.A.T. contributed 4 million in the first quarter 2020, compared to 8.5 million the prior year period.

The decline you're over your was primarily due to the additional expense related to the lease accounting standards adopted into second quarter 2019.

Lower lip volume.

Due to cancel transpacific sailings <unk>.

And April as I say T. experience <unk> volume loss from additional cancelled transpacific sailings.

We expect U.S. West coast in Port volumes in the near term remain challenged with reduced consumer demand do the ongoing shelter in place orders cancelled Trans Pacific ceilings.

We expect the recovery and live by and set aside of say t. to be closely tied to the speed and recovery of the U.S. economy. Both at this point remain unclear.

Turning out on the just stick some slight 15.

Operating income in the fourth quarter came in at $5.1 million or $3 million lower than the result in the year ago period.

The decrease was primarily due to lower contributions from transportation brokerage and freak forwarding, both of which experienced a soft soft or March as a result of shelter in place orders and retail store closures.

19 had a direct negative impact on or international intermodal and supply chain service businesses.

In April or transport transportation brokerage afraid forwarding businesses continued to be negatively impact by the covert 19 mitigation efforts and the economic effects.

Within transportation brokerage lower import volume on the U.S. west coast impacted or intermodal business and the temporary closure retail stores negatively impacted or highly business.

The temporary closure of retail stores in Alaska, many of which are small to medium sized businesses that use less than container load forwarding survey services.

Negatively impacted or break forwarding business and we anticipate the reopening of some non essential businesses to provide a modest lifted the volume and the near term.

We expect a majority of our logistics businesses to face challenging conditions for the balance of the year.

I will now turn the call over to Jolt for review of our financial performance in recent capital structure updates jewel. Thanks, Matt.

I Wonder our first quarter financial results on slide 16.

Ocean Transportation operating income for the first quarter decreased 1.5 million year every year to 7.9 million.

Decrease was primarily due to a lower contribution from China, and F.S.A.T. and hire an appreciation.

Partially offset by lower vessel operating expenses, primarily resulting from one last facile in the operating in Hawaii service and the timing of fuel surcharge collections.

The company's S.A.T. terminal joint venture investment contribute contribute 4 million or 4.5 million last than the prior year period decrease press, primarily due to the additional excellent expanse related to the new lease accounting standard and adopted the second quarter of 2019 that did not hit first quarter last year as well as lower.

Volume due to cancel them transpacific sailings.

Logistics operating income for the quarter was 5.5 point 1 million or 3 million lower than the prior year period. The decrease was due primarily to lower contributions from transportation brokerage afraid forwarding.

Even for the quarter decrease 2.8 million year over year 246.5 million due to lower consolidating the operating income a 4.5 million, partially offset by an increase of 1.7 million and depreciation and amortization, which includes drydocking amortization.

Interest expense for the quarter was 8.6 million or 3 million higher than a fourth quarter of 2019, primarily due to the higher capitalize interest associated with Elaine moving into the T.N.L. when they're not so was placed into service and the first week of January.

Last they'd be effective tax rate in in Puerto weighs 24.0%.

[noise] slide 17 shows how we allocated or <unk> trailing 12 months of cash for a generation for the L.C.M. period, and regenerating cash flow from operations at the 284 million borrowed 56.7 million on on that basis and received 14.3 million from say at least facts from which we used 103.8.

Million on maintenance camp X.

207.3 million on new that so calf acts, including capitalize interest in owners items.

And 4.9 million on other cash flows already turning 37 26 million to shareholders being dividends.

Turning to slide 18 for a summary of our balance sheet, you'll note that our total debt at the end of the quarter with 924.9 million and our net debt with 905 million.

As we indicated on previous earnings calls, we expect that are leverage to peek in the first quarter of this year in the mid threes and we would begin to d. leverage after the first quarter. Unfortunately, the covert 19, driven economic downturn is expected to have a significant impact on our businesses in the near term and will push the timing of.

Peak leverage to be later than we originally anticipated.

Please turn to the next slide.

So on flight 19, and a lot and in the in light of evolving Kobe 19 situation, we announced on April 6th.

That we amended our revolving credit facility in private notes at the end of March in order to enhance our liquidity and access to borrowing capacity under our 650 million bank revolving credit facility.

These new amendments will provide max and enhanced fans are flexibility until December 30 year 2021.

Do you allow the allowable leverage ratio was previously 3.75 times.

Under the new amendments the allowable leverage ratio will adjust by fiscal quarter up to a maximum of five times as shown in the table on the slide.

As an and in the first quarter 2020 or leverage ratio under the data agreement was 3.40 times and the available borrowings to the allowable leverage ratio four times as approximately 164 million.

As a reminder, even <unk> we report in our press release and in this presentation is different and lower than even dot calculating the under our dad agreements.

These amendments run increasingly affecting the interest rate on our debt through the amendment period and the rate on revolving credit facility in the private notice will be a function of the actual quarterly leverage ratio.

In the event Max and loses its investment grade rating either through a downgrade or reading withdraw the Cooper the coupon step outside the private notes will increase in additional hundred basis points.

Additional details on the amendments can be found in the eighties, followed with the S.C.C. on April six.

Now please turn is like 20.

On April 30th maps and announced that it issued in debt instruments under the United States governments title 11 program for gross proceeds of $186 million.

We used to $177 million in net proceeds from the transactions reduce outstanding debt.

The title 11, DAT matures in October of 2043.

<unk> fixed cash coupon to have 1.22%.

Animal semi annually.

And amortized bike semi annual payments of approximately 4 million plus interest.

Taking into account the up front guaranteed fee paid as part of the title 11 program. The effective interest rate for accounting purposes is approximately 1.60%.

Given the attractiveness of this financing rating structure.

Evaluating an additional type 11 dad instrument approximately $140 million in size to further optimize their balance sheet and reduce our debt cost of capital.

Shifting gears to the cares act and other government stimulus measures enacted this that's far we expect to have unlimited benefits and 2020 from the legislation.

Under the cares Act, we expect to reclaim the remaining 22.9 million, an A.M.T. receivable and 2020 I'm ways. We previously expected reclaim half the amount this year and a half next year.

We also expect to be able to defer approximately $9 million in payroll tax payments for the remainder of this year with 50 per cent of the differ amount payable in each of December of 2021 and December of 2022.

Turning to slide 21 for a review of our new vessel payments for the first quarter. We had knew that so cash capital expenditures, a 7.2 million and capitalize interest at 1.9 million or total capitalized so construction expenditures of 9.1 million.

The table on the right hand side of the slide shows that came onto it and remaining new vessel progress payments.

Remainder of 2020, we expect the last milestone cash payments to be approximately 16.6 million, which is not have the 1.2 million of cash already in escrow and the balance sheet.

The picture on the slide into the Mat Sonya on a building ways in San Diego Nasco.

And I selling is currently 80 per cent complete and we continued to expect delivery and the fourth quarter of this year.

With Nat with that I'm out turn the call back over to Matt.

Sexual please turn just like 22 for my concluding remarks.

Or second quarter is likely to be the worst period in this cycle as tourism is at a near stands still in Hawaii and all of our other U.S. markets face economic headwinds from the shelter and place orders.

However, we strongly believe it is the inherent qualities of our businesses will be a standout throughout the economic cycle.

That's in as a lifeline to remote communities of Hawaii, Alaska in Guam wherever relied upon to deliver substance goods week by week.

<unk>, replacing high priority on time performance and high quality of service to these remote communities is at the heart of what makes maps into pre eminent transporter of goods.

Nickel part of domestic supply chains.

R.C. elect services as superior product in times like this where airfreight capacity is challenged and other transpacific carriers are canceling sailings.

Or logistics businesses thrive when conditions are chaotic and bring a high quality of service that is priced during difficult times like these.

A recent debt amendments provide the necessary balance sheet liquidity to manage true the storm incomplete or Hawaii fleet renewal phase one of the sand Ireland terminal upgrade.

<unk> Scrubber program this year, despite the challenging circumstances.

As we speak today with all the uncertain two surrounding us I strongly believe that maps and we'll come out of the cycle position, well with new and stronger customer relationships, new opportunities and dissatisfaction that we met the greatest challenge of managing freight and this unprecedented time.

And with that I will turn to call back to the operator and ask for your questions.

<unk>.

Thank you ladies and gentlemen has a reminder to ask the question you may need to Crestar then one on your telephone.

To withdraw your question.

The pound cake.

Again that style wants to ask the question. Please stand by while we compiled the killing they Boston.

I first question comes on the line of Jack <unk>, what Steven lot is open.

Hey, Matt Jolie, Thanks, so much for the time.

<unk>.

Well you know I guess, let me start off by saying Thank you for all the detail, but you guys provided I think that's the most detail in terms of business trends now logo. We've heard from a lot of company. So kudos gone on that I know at the top operating environment.

Well, let me start with with sort of the the cost reduction actions <unk> and as you think about that $40 million to $50 million that you guys are targeted I believe because the balance of these here.

Can you talk about how that get scale then.

And how much of that is permitted versus just temporary based on on the card business levels.

Okay. Yeah. Jack this is that I'll take a crack at and then I'll ask tool to comment on some of the sequencing and timing. So I think basically the cost reduction efforts as I mentioned fall into several buckets. The first <unk>. It is in the category of deploying our largest.

Assets in the market that seems the most active what's clear is Hawaii will remain muted for the tiny being at least and so moving or larger vessels into the C.L.X., where we happen to have this unprecedented level of demand given that the relocation to market will produce some of that benefit and then we basically did a bottom up.

As as most companies are doing bottom up look at ways in which we can reduce our operating expenses in line with the lower expected levels or break volume and so there are I would say over 100 separate initiatives you know from every terminal from every location every one of our locations, which are looking at ways to reduce our up.

Reading costs and then you know of course, we're looking at different Capitol and differing all.

Sort of discretionary expenditures until we get a better look at this cycle. So I would say that with rubber your question about when and how they will out there a number of the initiatives that we're looking at are only get you know what three quarter year or or eight month benefit. So the annual runrate of that 40 to 50.

He was actually hire into the extent that the economic cycle is is remains muted into the future. We'll have a running headstart on a cost reduction initiatives going into 20, <unk> 21, if that's necessary. So given that it was difficult for us to you don't know exactly what was going to happen we decided sticky.

Very strong from reduction at our recurring operating expenses given the uncertainty <unk>. It but we were also careful to do nothing that would create permanent damage to our services. So that when the cycle ends our whole goal is to remain affective end to be able to bounce back.

When that eventual recovery occurs although we're planning for who's we're not assuming it happens.

The next nine to 12 months, but what else would you I told her that yeah, I think that that hits at all I mean, <unk> and I think the key for that your point crusher on timing and the number of these initiatives don't you can't just make them go affect one day, you got the phase them and so a lot of that some of them began at the end of April a number of other ones, especially the best of appointments will be phase.

And as we knew vessels entities markets through the course, it may and June 70 look at the total 40 to 50 million you an investor should wait more of that to queue Q3 in q. for some of it will definitely benefit cute too, but they won't be proportional equally between Q2 in the latter half of the years, that's a little bit of.

Sense on on the overall timing this year now and then you also said how many need something permanent as mad to start taking rated instead, except that we keep our vessels, where they are they'll be permanent but the accent and we knew them later because market conditions or dictate then it'll change, but we'll get updates around the magnitude of that as as dictated is.

Changes occur.

Okay that all make a lot of them.

Yes, just sort of following along with that I mean, given.

It seems like the second quarter, hopefully you, but <unk> volume perspective.

And it's going to take the time at least up a little bit of time to get to that full 40 to 50 million dollar run rate.

Do you expect the business to be able to generate a profit in the second quarter I know, you're not giving guidance I'm just trying to trying to think that you know I'm trying to figure out is dissolved equate to a break even or maybe even a modest operating loss or do you think we're going to be able to generate a probabilistic before.

Yeah, Jack we believe <unk> well, we'll we'll have a profit and Q2 this year.

Okay. That's that's great. That's great thing here. The last question for me and I'll turn it over on the title 11th Nancy.

He just talk for a moment about.

You know that does that provide you more flexibility around the flea longer term less flexibility rather if we didn't have changed Oh. The way you kind of think about the capital structure as we sort of look out over the next several years I know you guys. It's sorta debated whether or not to take that could add thinking of the past and opted not to you know now obviously give you a little more flexibility near term does that.

Change anything longer term about the boat.

No I don't think it that they'll have zero impact on how we deployed divest themselves. So it's really just a capital structure financing decision and <unk>. The reason, we'd been reluctant to do too. Many of these is because it's really important that mats and has access to unsecure long-term capital when and where we need it and.

Core foundation of that as being a investment Grant company and if you just do too much security financing and you lose or maybe inhibit sound your access to unsecured Capitol. So that's why we that's why we've talked about in a way we have in the past, but if you. If you look at the New World War and Jack of course, which we don't think it's going to.

Go away and a quarter to the this this is incredibly attractive financing longterm financing as I said, 1.60% effective.

Interest rate 1.22 cash coupon no. This is really really low costs of Capitol and so from our perspective, it actually makes sense to do right now to do it in a judicious way and we think exploring and other traunch of this around 140 million in size.

Mentioned is the smart for us to do in this environment. So that's why we're looking at it but knowing pack two operations or how we could put it that tells Jack.

Okay. That's that's great. That's great. Thanks again for the time guys.

Yeah.

Thank you.

Annex questions come from unknown.

Okay.

Great. Thank you and did Socked, the guys and and first let me just going around town I. Appreciate you guys are.

You have your own salaries, and I think that's very admirable and and good for you for doing that but the I I have a handful of questions and the curve.

Look at.

<unk> allocation in this environment and I appreciate it a little bit early Middleton ordinarily in June every year, you can say your clock, but you guys increasing your dividends have you given any thought to to that or you know how how do you prioritize dividend in general with respect to.

Where we are in the market and you sort of view that as sacred or or a tool and a tool tip.

Yeah then.

So the question then through your comment earlier, but basically you know we continue to be and believe ourselves to be in in a very strong cash flow creator and while we're at the very end can you know the very end to the large capital program and and not to minimize the disruption, but you know.

Inconveniently times the recession, we don't believe that interrupts are long term story about cash flow generation and we equally remained committed to being disciplined and returning capital to shareholders. So while the board will make the decision with respect to dividends and approach the dividends, we would be we see ourselves very much.

Committed to that approach of capital.

If that answers your okay no no that's perfect and and then M-. My next question is sort of around I mean, you are shifting the the more modern larger ships because the c. I liked service totally understandable earlier on you made some comments about maybe changing from the neighbor Island <unk>.

Those are Kodiak period, there are any long term application to have some of those move.

Yeah, I <unk> I suppose you can always go back and and do them again as demand.

Is required but.

<unk> did it change the supply chain did all such that you know may maybe there's a.

Unintended consequences.

Yeah, I mean, I would say the answer to your question. Specifically is yes. There are adjustments that are required by our customers. So for example, if we were making.

Three calls to a particular day Reiland and now we're making too we have to make sure that you know we're carrying carrying the cargo a little bit differently. The way that our retail store customers would have to.

Order to restock in order for the cargo to be flowed onto their network will require some adjustments all of that takes some adjustment work by customers, but that can be easily changed when volume returns and we want you know obviously, we're working very closely with our customers to make sure that there there core sales and.

Supply chains are not interrupted by this to dramatically, but again are all very changeable, we think with minimal disruption in can be easily changed back when volume returns.

Okay help and then like maybe a bigger kinda macro bigger picture question and and you know you guys think I.

In my opinion, guys think bigger picture.

As you look out and let's say that this is maybe it's certainly it's challenging environment now and it remains downs incur a little while these in any any big changes in sort of the.

Additive landscape that you're operating it and and you know that that certainly.

For the Arts and service, but also in the logistics side I mean, there is there.

This is an opportunity maybe take market share or do you think there's going to be some consolidation or restricting it fair or or any of those kind of things that might fall out as people grapple with occur environment.

Yeah, I mean, it's a great question, a little difficult to know for certain but I mean, if you just look at a trade by trade.

Easiest way or the way, we think about it if you look at Hawaii, Hawaii has been a two carrier trade for you know many decades in decades has has been Alaska. We don't expect the fundamentals of of those carrier dynamics to change. If you look at the China market you know it continues to be in turmoil.

Depending on to the depth and duration of this economic cycle you could expect you know potentially further international Ocean curved consolidation, you know, whether there's bankruptcies or iraq positions or whether national governments or continue to combine their their flight carriers all of that is there's a possibility.

Before I think as it relates to our logistics business for the most part we see opportunities. There you know may I I think first of all you know, it's it's important for us to have re sized our our capital projects in our in our fleet for the new economic circumstances, and we're gonna continue to be working on this.

By any means I don't think we're done if we continue to look at it but we wanted to make it very early and strong statement about changes to our Apple or structure. We do think that there'll be some opportunities as other companies who are not as well prepared and you know matching has got a long arch of history. I mean, we were we were mentioning.

We we don't quite remember the Civil war, but we do remember World War one in World War. Two you know so we've been around a long time and often in these downturns opportunities will present themselves and I think first that's recycling or networks and doing what we needed to do but second we'd be able to look out for opportunities as they present themselves, perhaps it will just six base or elsewhere.

I think was very much on our minds.

Okay, Alright, well I would that I'll I'll turn it over but <unk>.

Okay. Thank you. Thank you been.

Thank you as a reminder, ladies and gentlemen that style I want to ask the question.

I'm not showing any further questions at this time.

<unk>.

Okay well. Thank you everybody. Please stay safe, we'll look forward to catching up with <unk>, everyone at the end of the second quarter call Aloha.

Ladies and gentlemen disclosed today's coughing. Thank you for your participation you may not everyone have a wonderful.

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