Ladies and gentlemen, greetings. And welcome to the Americold Realty Trust Second Quarter 2023 Earnings Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Henderson, Chief Investment Officer. Please go ahead, sir.

Good afternoon. Thank you for joining us today for Americold Realty Trust second quarter 2023 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our Web site at www.americold.com. This afternoon's conference call is hosted by Americold's Chief Executive Officer, George Chappelle; Chief Commercial Officer, Rob Chambers; and Chief Financial Officer, Marc Smernoff. Management will make some prepared comments, after which we will open up the call to your questions. On today's call, management's prepared remarks may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions and beliefs, as well as information available to us at this time and speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events. During this call, we will discuss certain non-GAAP financial measures, including core EBITDA and AFFO. Full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the supplemental information package available on the company's Web site. Now I will turn the call over to George.

Thank you, Scott. And thank you all for joining our second quarter 2023 earnings conference call. This afternoon, I will discuss some key operational metrics and financial results for the second quarter and then comment on our outlook for the remainder of the year. Rob will provide an update on our recent customer initiatives and an update on our growth activity. Marc will also provide some additional commentary on our second quarter results and a detailed walkthrough of our guidance for the remainder of the year. Before I begin, let me quickly comment on last quarter's cybersecurity event. I am pleased to report that this event is behind us from an operational standpoint. We are confident that the impact of the cybersecurity event on our AFFO per share is largely contained to the second quarter and that our guidance going forward takes any additional impacts into account. Marc will provide a detailed bridge on how it impacted us during the second quarter and how we are taking this into account in our guidance for the remainder of the year. As a note, we have characterized direct cybersecurity costs below AFFO to provide a clean view of our operating performance. Turning to our core business priorities, which we have made progress on since our last call. First, customer service continues to be a key priority for Americold. For the second quarter, our same store economic occupancy increased to 84.8%, a very strong record setting second quarter level. We also derived 48.5% of rent and storage revenue from fixed commitment storage contracts in the second quarter, which is 240 basis points higher than the first quarter's level and sets another record for this metric at Americold. Lastly, our churn rate continue to remain low at approximately 3.2% of total warehouse revenues consistent…

Thank you, George. As George mentioned, our company delivered strong results during the second quarter, including a record setting second quarter economic occupancy level at 84.8% for the same store pool and another quarter of record setting fixed commitment percentage levels for our total warehouse segment. At quarter end within our global warehouse segment, rent and storage revenue from fixed commitment contracts increased on an absolute dollar basis to $521 million compared to $379 million at the end of the second quarter of 2022. On a combined pro forma basis, we derived 48.5% of rent and storage revenue from fixed commitment storage contracts, which is an approximately 800 basis point improvement over the second quarter of 2022. We are very pleased with this continued progress, in particular, the meaningful progress that has been made this year in recommercializing our European platform as we transition more of that business to our fixed commitment structure. Within our global warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 48% of our global warehouse revenue on a pro forma basis. Our churn rate continued to be low at approximately 3.2% of total warehouse revenues consistent with historical churn rates. Given our strong operating metrics, we're continuing to accelerate the underwriting process in evaluating development opportunities, which include a mix of expansion and greenfield projects, customer dedicated and major market distribution centers and conventional and automated facilities. Combined this macro backdrop along with our strengthened development platform positions us well to capitalize on these potential opportunities. We are excited about announcing our plans to build a conventional multi customer expansion project on our Dubai site in our RSA JV, which will be approximately 11,000 pallet positions in over 2 million cubic feet. We estimate this…

Thank you, Rob. Today, I'll discuss the capital funding and accounting of our net investment activities, our capital position and liquidity. I'll then discuss the impact of the cyber event with regard to our second quarter results, followed by an update on our full year guidance. As Rob mentioned, we completed the purchase of two facilities, the facility in Green Bay during the quarter and the facility in Brisbane, subsequent to quarter end. We funded these investments through a combination of available cash and our multi-currency revolver. On the disposition front, during the quarter, we sold a small 1.1 million cubic foot facility in Montreal, Canada for CAD10 million. Next, let me discuss the financial impact during the quarter related to transactions involving two of our joint ventures, the LATAM JV and Comfri. As a result of our strategic exit from the LATAM JV, we received proceeds of approximately $37 million, which reflected our initial basis in the investment in this JV. Pertaining to our Brazilian joint venture, Comfrio, we're required to complete the purchase of this company subject to our JV partner’s put option. We're in the process of exploring strategic alternatives for Comfrio and we have classified Comfrio as assets held for sale. We have excluded Comfrio’s results from Americold's AFFO per share in the second quarter and we'll do so going forward. Moving to our balance sheet. At quarter end, total debt outstanding was $3.6 billion. We have total liquidity of $455 million consisting of cash on hand and revolver availability. Our revolver balance was elevated by approximately $54 million as a result of the cyber incident delaying our billings and cash collections. We have recovered this working capital in July. Our net debt to pro forma core EBITDA was approximately 6.6 times. At this point, we…

Thanks, Marc. As the operational and financial results of the second quarter highlight, our core business continues to grow and perform above expectations. Exceptional customer service, driving record occupancy and fixed commit contracts, hiring and retention continuing to improve sequentially, developments continuing to launch on time and expanding our strategic alliances to include Canadian Pacific Kansas City railroad reflect the strong operational performance of today and our capabilities for achieving growth in the future. In closing, I'd like to thank the 15,000 Americold associates around the world for their hard work and dedication in servicing our customers every day. It is their efforts that provide the foundation for our future. Thank you again for joining us today, and we will now open the call for your questions. Operator?

[Operator Instructions] Our first question comes from the line of Samir Khanal with Evercore ISI.

With occupancy up for the year, I mean, I guess how are you thinking about occupancy? I mean for the balance of the year you gave an idea, but really over the next, let's call it, 18 months. I mean, do you think you can even push economic occupancy even higher in '24? I guess, what's the sort of the new high watermark we should consider that knowing that you're already back to sort of '18 and 2019 levels at this point?

Samir, we said we know we can get into the low 90% on economic occupancy, because we have facilities at that level now. So we know that based on similar facilities executing at that level, we can get there. I think the opportunities are really economic occupancy in Europe as we commercialize that business, that's starting to contribute now in a much higher fashion. And our goal remains to get above 50% our short term goal and longer term, Rob, I think we said 60 over time…

Yes, well into the 60s…

So we think there's plenty of opportunity over the next 18 months.

And I guess just in terms of follow-up, maybe provide a bit more color on expenses. I know that that sort of helped your NOI growth in the quarter as well, so maybe a little bit of color on that would be great. And how you think about expenses over the next, let's call it, the next six months and into next year?

So as I mentioned in the guide and when you look at the overall NOI growth, what you're seeing is stronger cost control, both with power starting to come down and you heard us mention that in the prepared remarks and then we see that in our actual power results. We see improvement in labor as we've seen our labor metrics improve since the beginning of the year. So I think overall you see is just much more disciplined cost control, some favorability for some power markets starting to come back from the very extreme highs that we saw late last year. So I think those things overall we're starting to see cost controls come under.

Our next question comes from the line of Michael Carroll with RBC Capital Markets.

George, I wanted to circle back on your comments regarding occupancy. Is there a specific reason that the 100 to 200 basis point decline that we previously expected in 2Q didn't occur? And I want to make sure I got this correct, we now expect that one to 200 basis point decline will occur in 3Q?

That's correct. As far as the region that would've been North America was input we had received from several large manufacturing partners and customers that were pulling forward maintenance and were telling us of downtime in the second quarter. As Scott said, it did begin to materialize late in the quarter, very late in June. So we do think it will occur and we believe it'll happen in the third quarter at this point.

And then when we're looking at the sequential trend, I mean, should we still expect that 100 to 200 base point decline in 3Q compared to 2Q? And I know that we always talked about the seasonal build and 3Q should be higher. So should we expect a smaller decline going into 3Q because of that that's going to offset the deferred maintenance that some of these customers are going to be performing?

You're thinking about the right way, Mike. We should see a sequential increase in inventory through the third quarter. That happens every year and we do believe it will happen this year. And we should see the 100 to 200 basis points due to manufacturing downtime that we talked about, that will probably wash out to higher occupancy in the third quarter. And if you look at our guide for the remainder of the year, we do guide up the second half of the year in occupancy, part of it is in the third quarter. So it could be the timing of this 100 to 200 basis points now gets washed out with the seasonal build of inventory that will occur sequentially second quarter to third quarter.

Our next question comes from the line of Craig Mailman with Citi.

I wanted to, Georg, hit on the Brazilian JV real quick. So what is the kind of the cash, cash usage here in the near term, what's the kind of the process look like to monetize that? And are there buyers from for this type of asset right now given the capital markets environment?

Our intention, Craig, it's held for sale, we're going to -- we're working hard to sell and there are buyers interested. We have a process ongoing. Whether that makes it all the way to a sale or not is to be determined. But as of now, we have interest and we're working the process with the intention of selling it as soon as we can.

And so just it sounds like you guys are kind of pulling this from AFFO. And I just want to clarify something because you guys kept saying that the cyber was excluded but then Marc would say numbers would've been higher if the cyber hadn't happened. So I just wanted to see if that's a terminology switch. So as I think about that $0.04, how much of it is from Brazil possibly being excluded versus kind of better operations that you guys are seeing?

So a few things. I think the core of the overall business that you saw in what we reported in our $0.28 AFFO is being driven by occupancy that we're seeing and pricing that we're realizing principally in our same store portfolio. As it relates to cyber, we had certain one-time remediation costs that were directly related to the event, those were pro forma or excluded from that $0.28. So they did not impact the $0.28 earnings. The piece from cyber that is not in the $0.28 is the fact that we missed revenue and the NOI from that revenue of approximately $0.03, which was the missing piece of revenue that actually would've taken our reported AFFO from the $0.28, up to $0.31. But for GAAP we can't report that missing revenue or profit.

Our next question comes from the line of Nick Thillman with Baird.

Just going off that on the cybersecurity. On the service side, it looks like NOI margin in the same store pool would've been 4%, so flat sequentially without that disruption. I guess like longer term where were you trying to push those service margins? I know you've talked about maybe pushing it to 10%. But have you begun discussions on that and like kind of what has been the customer feedback?

The first, to get back to pre-COVID margins, which we said were high single digit, that's now within our control. We've largely priced the inflation related to the services margin, we now have to get back to the productivity levels. So I would say pricing largely complete might be some minor pricing left, but largely complete. Productivity, so getting the associates to work at the same throughput, if you like, from -- that they used to be able to work back pre-COVID is the real -- is the challenge and that takes time. You've got to assemble a workforce, you've got to train them, you've got to get them to work safely together. And we said that's a three to six month exercise. The hiring has gone well. The retention is getting both sequentially better and better year-over-year. So those two key components are coming into line nicely. And now we just need to do the training and go through the time it takes for a person to get comfortable in our environment and comfortable to work safely and productively. So we expect to see improvement in the second half of the year. Whether we can get all the way to back to 9% or 10% by the second half of the year is probably doubtful, but we should make progress on the 4%.

And then maybe just on the throughput, but obviously the smaller basket size makes sense. Are you seeing any of the throughput from like the upper end of the bucket, are you seeing any slowing on that end as well or is it just mostly on the consumer end?

Just mostly on the consumer end. I mean manufacturers have continued to support high inventory levels. So they can provide excellent customer service to their customers and it's just the outbound, if you like, to retail customers that's slowing down due to consumer buying habits easing and less disposable income, et cetera. Pretty much the same story we've been telling now for two or three quarters.

Our next question comes from the line of Mike Mueller with JPMorgan.

Two quick ones. One, are you seeing any lingering impact in Q3 from cyber? I'm talking more of the $0.03 impact, not the $0.07.

No, we're not Mike. We built -- our guidance reflects anything that is coming post Q2 with cyber, but I would say the bulk, the large percentage, 90% plus, has been incurred in the second quarter. We've factored it into our reported results obviously and we've factored anything beyond that, that we are aware of into the guide for the remainder of the year.

And then on the comment of expecting more expansion announcements in the back half of the year. Is that just -- was that a comment just tied to specific expansions or should we be thinking of new development announcements as well as expansions?

Yes, it could be a combination of both, to be honest with you. I mean our pipeline, our development pipeline, which I would say right now is very robust, is a mix of both expansions and greenfield opportunities across all of our geographies. There's a mix of automated and conventional facilities in our pipeline. So we're excited about it and it'll be a combination of both.

Our next question comes from the line of Vince Tibone with Green Street.

When do you see the developments with Canadian Pacific and DP World commencing? And just how much capital could you see allocating to these type of projects through these partnerships over the next several years?

So we're actively underwriting developments with both partnerships. So I think in the coming quarters, we'll have announcements associated with both. When we think about the amount of capital that could be deployed in those types of facilities, I think we've said before DP World has 80 plus ports that they operate at. If we had a development on 5% to 10% of those ports, we would consider that partnership a success. When we think about the Canadian Pacific network, they have 30 plus nodes in their network, and for us kind of the same thing, 5% to 10% of those nodes, having an Americold cold storage facility built on them would be a great success for us.

Just like how different are the cold storage facilities in these kind of key supply chain nodes defer from the rest of your portfolio, whether it's production advantage or distribution. Like, I'm just trying to get a sense is there a little bit of kind of learning with some of these developments where you maybe want to complete one before you start the next one or is this pretty similar to the other facilities you own, just a higher barrier location?

I would say they're pretty similar. I mean, every facility has a certain nuance. These facilities may have a slightly higher component of value added services associated with them that we would need to make sure that our facility design cared for. But there's -- I would not say there's any substantial amount of learning or nuances to them where we would want to build one, learn from that model before we build the next. We know how to build these facilities and we could handle more than one at one time.

Our next question comes from the line of Ki Bin Kim with Truist Securities.

So UPS just raised wages for full-time workers to $49 an hour. I was wondering if you had any thoughts on possible impact to your employee base or your tenants’ employee base, and if there could be a full whip effect on wage inflation?

No, I think, for us, we've seen wage inflation moderate, as we said, all inflationary impacts seem to be moderating at the moment. Marc mentioned some power primarily in Europe coming off surcharging, et cetera. But coming back to wages, our hiring is going well, our retention is going well. We now have more permanent hours and corresponding permanent associates in the system than we ever had at 76% of the workforce. Going back to pre-COVID that was never higher than 70%. So hiring is going well, retention is getting much better. And that tells us that wages have normalized at least for the time being where we are. And we don't see any impact from the UPS agreement at least not yet and we don't expect to see any.

And on Comfrio, it looks like the basis for the entire joint venture was $135 million. Can you help me understand, like, did you have to pay for the remaining 80% that you didn't own and was that the write off? And tied to that, I was wondering if there's a similar dynamic for SuperFrio?

So we had basis of an existing 22% of that entity when we closed on the Agro acquisition. The put loss that you saw flow through the face of the P&L was $57 million, that was incremental cost for the 78% that we didn't own. And then the balance was working capital investment we made into that business, which was roughly another say $22 million, $25 million. So that was the entire basis of our investment in Comfrio. SuperFrio very different business, own significant amount of its real estate and that arrangement does not have any put arrangement in it.

Our next question comes from the line of Anthony Powell with Barclays.

I had a question about how the CPK deal came to fruition. It seems like a great opportunity for you to develop over time. Was that a competitive process, do come to them, did they come to you? Maybe some more background that would be super helpful.

Yes, not a competitive process. It was one that was nurtured over the last year, year and a half. We stayed close to CPKC as they went through their merger and acquisition process. And we were very intrigued by the solution that they created through the merger of their business. And so it was just a collaborative conversation when we talked about how the customer overlap that we have today, we could use to create value, create value for us and create value for our customers. And this solution that we're going to be able to offer, I think, is going to be a great benefit to our mutual customers, and we're excited to get started. But nothing competitive, it was just something that was developed over the last year or so.

And we've got some questions from some clients about newer competitors who are more automation based, who are saying they're cheaper than some other legacy, I guess, competitors in the space and who are maybe serving some of the larger customers. Are you seeing any more competition from some of these newer, I guess, more automated operators? And if so, how are you answering that competition?

Well, one thing I would say is we also provide highly automated solutions, three of which have gone live just this year already. One more automated facility will go live this year. So I don't think there is anybody out there that can build an automated facility more reliably than we can. So Rob, you're probably closer to the competition though.

I would just point to our record economic occupancy, our record fixed commitments and our continued low churn rate to demonstrate that from an Americold standpoint, we continue to gain share.

Thank you. Ladies and gentlemen, as there are no further questions, the conference of Americold Realty Trust has now concluded. Thank you for your participation. You may now disconnect your lines.