Q1 2022 Matson Inc Earnings Call
Thanks, Lee and thanks to those on the call. This afternoon.
I'll start on slide three with a quick recap of our first quarter performance.
Madison 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 and.
In our domestic trade lanes, we saw higher year over year volumes in Alaska in Guam and.
In Hawaii, we saw a comparable level of demand compared to the year ago period.
And 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 trade Lane 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 continued to see elevated hospitality related demand.
During the first quarter domestic tourist arrivals were ahead of 2019 levels and there was a 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 U S. Mainland visitors remain strong.
For 2022, we remain cautiously optimistic on further economic recovery in Hawaii.
You Heroes March forecast for 2022 shows further improvement in the unemployment rate and continued growth in GDP and construction jobs.
Tourism is expected to increase approximately 29% from the 2021 level.
With continued strong domestic tourism and meaningful improvement in international visitors later in the year driving total visitor traffic to approximately 90% of the pre pandemic level.
So the economic drivers are trending well and expectations are for further economic growth for the year.
However, we recognize the risk of incremental waves of COVID-19 variance presenting the possibility of economic slowdowns or disruptions in tourism and the loss of federal stimulus, coupled with inflation and higher potential interest rates that may negatively affect discretionary income.
Moving to our China service on slide six Matt.
<unk> volume in the first quarter 2022 was 13, 4% higher year over year due to five more eastbound voyages in the prior year.
Freight demand in the quarter was driven by e-commerce garments and other goods.
Sustained and elevated consumption trends and low inventory levels led to increased demand for medicines portfolio of expedited Ocean services.
<unk> continued to realize significant rate premium over the Shanghai Containerized freight index in the first quarter of 2022 and achieved average freight rates that were considerably higher than a year ago period.
I'll now comment on the current business trends. So please turn to slide seven.
Currently in the Transpacific trade Lane, we're seeing a number of supply and demand factors at play.
There are supply chain challenges in China, primarily due to actions to mitigate the spread of COVID-19.
<unk> been factory closures, which have impacted the delivery of raw material for production and reduced the volume of goods ready to ship.
There have been logistical challenges, including shortages of truck drivers in Shanghai delayed timing for receiving freight and returning it to containers for customer loading.
One effect of these operating conditions is that some ocean carriers are omitting calls in China to try to stay on schedule.
Through all the noise and the important point to note is that the impact to Max's China operation from these supply chain challenges has been minimal.
Our terminals are receiving freight and managing empties and our ships are departing ningbo in Shanghai on time, some customers have moved their free.
To nimmo from Shanghai to avoid Covid.
Related logistics issues and we've seen a few customers canceled reservations on a weekly basis, but those spots were filled back rather quickly as other customers continued to seek expedited ocean freight solutions to deliver their goods to warehouses on the U S. West coast. The Bottomline is that Matt since vessels are sailing.
Full from China.
In addition to these challenges in China, we continue to see supply chain constraints and congestion on the U S. West coast warehouse capacity constraints equipment availability and rail congestion remained key supply chain issues.
The number of container ships are waiting at first in the ports of Los Angeles and long Beach remained elevated as of 39 as of yesterday.
Factories in China have resumed production and shipments begin to flow at normal levels, we expect to see an increase in marine traffic and import volume in southern California, thereby adding to the stress at many key points and the infrastructure.
Lastly consumption trends remain elevated and inventory replenishment continues to be a challenge for our customers that.
The chart on the slide shows the U S retail inventory to sales ratio.
As you can see the current ratio is well below the pre pandemic level and have struggled to recover ground.
This chaotic environment affords us the opportunity to manage our discrete CLS CLS plus at Ccs expedited ocean surface as a portfolio provided customers multiple options for ocean freight management to meet their supply chain needs.
We continue to offer the fastest ocean transit and the trade Lane.
<unk> and <unk> services, we offer first in first off loading of customer cargo at our dedicated SSAT operated terminals onto our chassis cargo availability within 24 hours of arrival at birth.
And industry, leading truck turn times that shippers transport, which is a unique off dock facility.
Our <unk> plus service births at the multi user terminal at PRA in long Beach and SSAT operated facility and also offers cargo availability within 24 hours of arrival at birth and the customer benefit of picking up their freight at the <unk> facility that shippers transport.
With the forthcoming forthcoming ramp up to normal manufacturing and logistics operations in China, We expect the competitive advantages of our China service to play an important role in meeting the supply chain needs of our customers.
For the year, we expect the combination of these current supply and demand factors to remain largely in place through at least the October peak season, and we expect elevated demand for our China services for most of the year.
As such we expect to keep the CCF service in place until at least through October 2022 peak season.
Turning to slide eight.
In Guam matches container volume in the first quarter 2022 increased 10% year over year, primarily due to higher retail related demand for.
For 2022, we remain cautiously optimistic on further economic recovery and Guam as we expect improvement in tourism traffic as the year progresses, but we also recognized the potential negative effects on visitor traffic.
Other economic factors that future COVID-19 variant waves could have on the economic recovery.
Moving on now to slide nine in Alaska, <unk> container volume for the first quarter 2022 increased 22% year over year.
The increase year over year was primarily due to increased seafood volume in our <unk> service higher northbound volume, primarily due to higher retail related demand and volume related to total drydocking and higher southbound volume primarily due to higher seafood volume.
The AE fishing season. This year has been stronger than it started earlier than last year, which benefited <unk> X and our southbound volumes on.
On the first quarter 2021 earnings call.
We indicated that the eight fishing season last year. It had a delayed start due to an outbreak of COVID-19 at several fish processing facilities in Alaska's Aleutian Islands.
In the near term, we expect improving economic trends in Alaska from increased oil exploration and production activity as a result of higher energy prices and the resumption of summer tourism from the cruise lines. However.
However, the recoveries.
Trajectory continues to remain uncertain, given the incremental with waves of COVID-19 variance presenting the possibility of economic slowdowns or disruptions in the patients the potential effects on discretionary income from the loss of federal stimulus inflation and higher interest rates.
Turning next to slide 10.
Our terminal joint venture SSAT contributed $34 million in the first quarter 2022, compared to $9 $2 million in the prior year period. The higher contribution was primarily result of higher other terminal service revenue.
Currently we continue to see elevated import volume into the U S West coast, which we expect to translate into a relatively high contribution from SSAT.
Turning now to logistics on slide 11.
Operating income in the first quarter came in at $16 4 million or 10 $3 million higher than the result in the year ago period.
The increase was primarily due to higher contributions from all service lines as we continue to see elevated goods consumption inventory restocking and favorable supply and demand fundamentals in our core markets.
We're currently seeing continued elevated.
Container volumes in southern California, which will benefit some of our lines of business.
The contribution from our supply chain management business is expected to continue to track with the performance of our China service.
And with that I will now turn the call over to Joel for a review of our financial performance.
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 million 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 <unk> and <unk> plus 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.
For the LTM period, ending March 31, we generated cash flow from operations of 113 5 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 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 <unk> 7 million shares.
For a total cost of $68 6 million.
As of the end of the first quarter there were approximately $2 8 million shares remaining in the share repurchase program.
Turning to our debt levels, our total debt at the end of the quarter was $614 7 million and our total net debt was $221 9 million.
Moving to slide 15, this page summarizes the status of our key vessel capital expenditure projects.
Starting with the re fleeting of the vessels for the Alaska Trade Lane, we continue to review the two options, which are one to construct three new purpose built vessels for Alaska or secondly, construct three new LNG ready Aloha class vessels for the CLEC service and moved three of the smaller vessels currently operating in the <unk>.
And to the Alaska service, which would allow us to upsize the CLEC service by approximately 500 containers of capacity per vessel.
As we mentioned on the prior earnings call. We may get a head start this year on funding into the capital construction fun for this new vessel program.
I also want to provide investors a quick status update on the LNG installation projects on the Daniel K Inouye Monica.
Monica both projects remain on track, we continue to expect the LNG installation on the Daniel K anyway to begin in the first quarter next year and to last roughly five months at a total cost of approximately $35 million.
We expect to reengineer the moniker to begin after the Daniel K Inouye project is complete.
The reengineering project is expected to last approximately 12 months and cost approximately $60 million.
We continue to evaluate LNG installations on commodity Hela learning and the <unk>. The total installation costs for all three of these vessels is currently estimated to be approximately $115 million.
But no decision has yet been made at this time on these three projects.
Lastly, we are reiterating our capex range for 2022 of $160 million to $180 million that we discussed on the last earnings call.
I will now turn the call back over to Matt.
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 afraid.
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.
That's operating distress in the system.
Fourth some customers are planning ahead for any possible disruptions from the upcoming labor contract renewals by pulling forward freight and a raging 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 Maxon is better position that our competitors to react and adapt similar to what we've done for the last two years and 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.
With that.
I'll turn the call back to the operator and your questions. Thanks.
Thank you as a reminder to ask a question you will need to press star one on your telephone withdraw your question. Please press the pound key.
Our first question comes from Ben Nolan with Stifel.
Great Hey, guys.
I've gotten a lot, but I'll just ask a couple and maybe I'll turn it over and then get back in line.
First wanted to start on the China side.
And just make sure that I understand so despite all of the Lockdowns and everything else that are happening in China. It sounds like.
It hasnt impacted or at least materially impacted volumes.
Youre 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 for the month of April .
Any sense of sort of.
Related to China, specifically, but.
How April looked or how how volumes appear to be developing despite everything that's going on.
Yeah. So.
Then the first part of your question was really effectively all of our vessels were sailing full in the first quarter. Despite the COVID-19 challenges. There. We did see for example, our customers who were.
And the outer lying regions of Shanghai that where instead of trucking their cargo to Shanghai. They were moving it to NIM. Both 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 Madsen's I think let me contrast, mattson between matching in the industry. What we saw for Maxim is again better shifts 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 port so, let's say when Shanghai.
We're seeing some problems that some customers are ocean carriers shifted ningbo.
But a number of them canceled their sailing from Shanghai altogether to avoid the congestion and went to boost on our 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.
[noise] Terriers in our case, we were able to remain full every week, including through April .
Okay.
That's helpful and so effectively April should be no different in March as a way to think about it right youre still running the same volume.
We are quite weak we have because we have the Ccs is a three week by three.
Three to five weeks to serve directly there are ups and downs related to some some weeks we have three sailing some weeks, we have two but other than that factor it should be essentially the same.
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 as 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 ballgame altogether.
Can you maybe talk to what Youre seeing from a from a rate perspective again, maybe even since the end of the quarter, but just in general.
Ooh how rate is playing out at the moment.
Yeah I can.
Make some general observations without specifically talking about rate levels, but what I would see is what I can say about that is.
To part of your question about that.
The freight rate, let's say, the Shanghai Containerized freight index.
What is missing at certain times of year or additional this is not for matteson rates, but for others that the freight rates don't include all 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 level. So I would say.
The overall rate environment has remained orderly.
For the other transportation providers, there is a subset in which we operate.
And 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.
As weekly so we have a very stable rate environment.
In a moment.
So so even is it.
Am I reading wrong.
Sort of saying that okay. Despite theres been a little bit of a downtick in the broader market. It hasnt worked itself quite directly through to the expedited side of it is that fair yes. That's.
Okay, good way of re Kevin.
And then last for me and then I'll turn it over and then probably I'll get back in a minute.
I just you were talking about sort of all the supply chain issues that were happening in Japan and that ultimately means that it exacerbates or stretches.
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 in so that we could get into.
No.
Just trade supply chain issues from China to the West Coast, again, and maybe heightened 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 <unk>.
Reduction.
In.
Inventory building in manufacturing in China.
China in the Shanghai area.
Has will.
Has caused a temporary reduction in the number of ships waiting and when all that comes back online I do think we will see the backlog increase together with their 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 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 bouncing around China.
With regard to continuing labor shortages with the rails are they 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 that stuff around and we've talked about all the other choke points in the supply chain, including.
Potential issues and the availability of labor on the West Coast.
I personally do think that.
I'm sure that with.
Within a relatively short period of time, Shanghai will 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 constrained using the traditional features that the economies in Asia have done. So I think it's just those are some factors, but I think it's really the basket of all of these factors tied together that are going to cause a choppy environment and frankly, that's the one in which we thrive that choppy environment.
Uh huh.
Helpful. I appreciate it Matt and again I'll I'll turn it over to Jack and you'll probably hear from me in just a few minutes, okay sounds great. Thanks Pat.
Thank you. Our next question comes from Jack Atkins with Stephens.
Hi, This is Cameron on for Jack Congrats on the great quarter guys.
Does it sort of keep with that same theme.
With the West Coast Labor negotiation.
Do you have any thoughts on what's happening on the west coast as far as.
You talked to the unions out there.
Yeah. So.
As 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.
So formally present it's.
Requirements to each other and that will launch at the beginning of the formal part of the negotiation process and so we.
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 at acceptable outcome without any disruption.
And 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 formulary, they're gonna be starting next week.
Okay Awesome and then another question.
Yeah.
Reiterated its expectations to keep that CTX service are at least three that October 22 peak season.
It's sort of factors are you guys looking at as to when you would consider winding that service down.
Yeah. So Cameron we have said that we believe more generally that we believe the <unk>.
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 <unk> will remain with us through that.
Through that period.
To the extent that the environment remains longer.
We have the ability to keep the Ccs 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 if it does we can provide it well into 2023.
Okay awesome, thanks for the clarification there.
And then you over the past several years, Matt Matt since then.
The spot market coming out of China has the philosophy changed around that at all during the bid season I was there any overall changes to that spot.
Spot versus contract mix there.
Sure Yeah Cameron.
You are right. We have operated we try to operate with a balance of both annual.
Contracted freight and more shorter.
Transactional with a shorter rate or time period, and I think what we have seen over the last 15 years that we've operated this service.
Because we are operating in a different service thats expedited our customers don't really know when they will need to use us or how much they'll need to use us and so we over time have been comfortable with contracts for just a way less than half of our freight.
It's quite a bit lower than that now because our customers themselves arent quite sure when they'll have a need whether it's a late order or it's a production problem.
Historically, they've not knowing exactly how much they they would like to commit to and that has worked to our favor we've been able to as you.
Cameron.
Our ships have been told this.
That's been full.
Really 14 of the last 15 years other than our startup year. So we don't exactly know which customers are going to require this expedited treatment we're comfortable.
That.
Production in the manufacturing environment change.
What we've seen through the pandemic as more of the same but obviously theres a larger segment of the market that requires this expedited treatment. So we remain where we've been historically with the 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.
Yeah, and just to revisit April trends really quick did you all.
Quantify.
How things are looking so far in April or I guess, how about April down how you.
You know rates and volumes.
Yes, we haven't really commented other than maybe just comment on given the.
The uncertain environment in China, just a moment ago, but we don't really have not rate any other comments really around the markets. Although we noted.
Our commentary that Alaska is looking strong Hawaii should be better, but 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 trade lanes.
Awesome. Thank you so much for the time.
Congrats again on the great quarter guys.
Okay. Thanks, Kevin.
Thank you again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone question has been answered or you wish to remove yourself from the queue. Please press the pound key.
At this time I would like to turn it back to Ben Nolan with Stifel.
Alright, well Hello again.
You got the main step out of the way I wanted to ask a little bit about SSAT.
Or is there just where we are.
Pretty eye popping and certainly better than I was thinking about.
And I know that you know.
It's relatively well.
We're somewhat and there is an element of fixed cost and so if you just do more volume and then theres a decent amount of operating leverage and that certainly is contributing here, but in general I guess two things on SSAT.
It is generating a lot more.
Revenue and net income how do those flow through to Madison or how does the cash flow through flow through to Madison and then maybe more broadly.
Is there any reason to think that SSAT is a contributor is.
Any way different than it hasnt been in the past.
Have things changed such that you are now maybe more confident in that it can be a permanently higher contributor.
Sure I'll take that so on the first part of it is the earnings contribution and 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 FSA and they vary in their sub sub joint.
Joint ventures, as part of that across the different ports on the west coast as each of US each of the entities that accumulates cash then it gets dividend up to SSAT and then periodically SSAT declared dividend.
Two the two owners of which 35% comes to us. So as an example here in the first quarter, we had really strong earnings, but just because of the timing of certain cash accumulation in distributions. There was not a distribution in the first quarter two mattson.
The one key one is coming here at the end.
In early May and you might have like two distributions and one quarter instead of instead of.
One as an example, so a little bit of quarter to quarter fluctuations, but over the course of the year that it shouldnt be that far off.
What the actual earnings of the entity as ever.
Every once in a while and every 357 years the joint venture is to invest in new cranes, so or other equipment. So sometimes it might be a little bit less than earnings, but it hasnt been dramatic or at least the last five years.
That's earnings and cash flow timing big picture about structural changes.
Down in L. A long beach no other than SSAT could he used to be an excellent best of breed operator on the west coast, but there the joint venture really has two main terminals and Theres 13 in L. A long beach, so a smaller share of the market, but in Oakland in Seattle, we have a much greater share of the market. We've got all the key terminals and <unk>.
<unk>.
Terminal in Tacoma in that region, and then we've got about 75% or less here in Oakland. So to the extent that long beach in la have longer wait times in any of the international carrier customers are diverting freight a little bit on the margin to Seattle, Tacoma or I'll find that get back back kind of trend could benefit short term and long term SSAT.
So I would say you see some of that going on right now in the last year because of the wait times and first times in long Beach.
Monitoring I think long term Ben.
The entity is going to do best buy 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 span the history of the last 20 years on the joint venture and that's what we that's what we aim to do in in the primary way that business' growth over time.
Okay. That's helpful. I appreciate that Joe and then just as my last question I apologize that it's boring but.
For the.
Tax rate it was 20 little over 21% is that fair to assume that we should you should stay in that kind of ballpark.
Second wound back half the year.
In the past around 21% to 23% recently and so.
The biggest drivers of this new foreign derived intangible income, which you've seen our footnotes in our 10-K, the details of that but it benefited us about two 5% last year. So.
<unk> done a 23% 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 it of the of the 21% to 23% range and that's where we came out in this quarter. This quarter was 21, one but the big drivers there is that.
As the foreign derived intangible income fees.
Okay.
Sort of tied to that so it will still be part of the last question you mentioned Joe in your prepared remarks, making contributions as the capital construction fund if you know if and when you decided to build some new shifts.
Does that at all change, how we think about taxes.
No the tax rate itself, the effective tax rate something hits, the income statement will be unchanged by that but the the the.
The cash flow itself.
We will be significantly influenced by that so we'll get a we'll get a cash reduction dollar for dollar for investments that we put into 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 cow.
Tax benefit item, but not a P&L benefit items.
Alright, perfect I appreciate it thank you.
Okay. Thanks Pam.
I'm showing no further questions at this time I would now like to turn the conference back to Matt Cox Chairman and CEO .
Thanks, operator.
That's it for US here I hope everyone has continues to have an enjoyable spring and we'll look forward to catching up with you at the end of next quarter Aloha.
Okay.
That concludes today's conference call. Thank you for participating you may now disconnect.
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