Americold Realty Trust, Inc.

Greetings and welcome to the AmeriCold Realty Trust third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Henderson. Chief Investment Officer of AmeriCold. Thank you. You may begin.

Good afternoon. Thank you for joining us today for AmeriCold Realty Trust's third 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 website at www.americold.com. This afternoon's conference call is hosted by AmeriCorps's Chief Executive Officer, George Pell, Chief Commercial Officer, Rob Chambers, and Chief Financial Officer, Mark Smirnoff. 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 website. Now, I will turn the call over to George.

Thank you, Scott, and thank you all for joining our third quarter 2023 earnings conference call. This afternoon, I will discuss some key operational metrics and financial results for the third 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. Mark will also provide some additional commentary on our recent capital markets activity, our third quarter results, and a detailed walkthrough of our guidance for the remainder of the year. Turning to our core business priorities. First, customer service continues to support strong occupancy in our portfolio. For the third quarter, our same-store economic occupancy increased to 84%, which is a 345 basis point increase over last year and an 80 basis point decline sequentially from the second quarter. As we discussed, we expected the sequential decline to be 100 to 200 basis points, but we're able to partially overcome this through the normal course seasonal build of inventory. We also derive 50.4% of rent and storage revenue from fixed commitment storage contracts in the third quarter, which is 187 basis points higher than the second quarter's level and sets another record for this metric at AmeriCorps. While maintaining our low customer churn rate at approximately 3.2%, of total warehouse revenues. Rob will go into more shortly, but these key operational metrics illustrate that we continue to perform at high levels for our customers. Second, turning to our priorities around labor management. During the third quarter, we achieved a perm to temp hours ratio of 75-25. This is 300 basis points improvement to our third quarter 2022 permanent labor level, and on a sequential basis, roughly flat to the second quarter 2023 due to seasonality when we tend to use more temporary labor in the second half of the year, making the year-over-year metric more relevant. Additionally, we ended the third quarter at an annualized turnover trend approximately 12 percentage points lower compared to prior year. Compared to the end of 2019, a pre-COVID year, we ended September at approximately 11 percentage points higher. This pre-COVID turnover level is an important KPI as we work to improve our services margins. Third, we continue to make progress on our in-process development projects. During the third quarter, we completed our customer-dedicated automated project in Russellville, Arkansas that supports a large food manufacturer and our multi-tenant automated project in Spearwood, Australia that is anchored by a handful of our top customers. Both facilities went live, and we are now in the process of inbounding products as we begin ramping up to stabilization. At this point, four out of our five automated developments that we outlined at the beginning of the year have completed and launched. With the launching of these four facilities this year, AmeriCold is the first and only cold storage company to deliver automated solutions at all three key nodes of the supply chain, production advantage, major market distribution, and retail distribution. To have done so in a single year illustrates the enhancements we have made to our platform over the last 24 months to create industry-leading automation capabilities. Additionally, during the quarter, we were excited to break ground on our previously announced expansion project with RSA, our JV partner in Dubai, and we consider this a key step in expanding our relationship with DP World. Lastly, we continue to effectively reprice our warehouse business to offset inflationary pressures in our cost structure to protect margin dollars and to continue to move back towards historical warehouse margin percentages. For the third quarter, rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased 3.5% versus the prior year, which was impacted by the reduction of power surcharges in certain markets. Service revenue for through-court pallet increased 6.1%. Moving through the fourth quarter, we will continue to take a surgical approach to our pricing initiatives to continue to drive margin dollars and increase margin percent. At this point, let me comment on our recent common equity raise completed during the third quarter in support of our new growth initiatives. We issued 13.2 million shares off our ATM program at a weighted average price of $31.63 per share for total gross proceeds of $419 million. We utilized all net proceeds to reduce the balance outstanding on our revolver, which decreased our interest expense for the remainder of the year and reduced our current leverage to 5.7 times core EBITDA. These proceeds reduced leverage but will ultimately be used to fund new growth initiatives while bridging the gap to organic de-levering from improved same-store results and stabilizing developments. Turning to growth, today we are excited to announce an approximately $85 million expansion of our Allentown, Pennsylvania facility. As we have said, we are seeing very strong demand from our customer base in key distribution markets within our network, and we are well-positioned to capitalize on these opportunities. As a reminder, expansion projects are our lowest risk, highest return development projects due to our embedded customer base and local market knowledge and our ability to utilize our existing operating platform. In addition to expansions, we continue to accelerate the underwriting process around our other two key areas of development focus. First, our customer-dedicated build-to-suit developments, and second, our CPKC and DP World collaborations. Additionally, today, we announced the strategic tuck-in acquisition of Safeway Freezers, a temperature control company located in southern New Jersey, for a total investment of approximately $37 million. New Jersey is a strategic market for AmeriCo, where we own 15 facilities, and we fulfill a variety of customer needs, such as major market distribution, citrus repackaging, retail distribution, protein import and export, and other port services. This acquisition complements our existing portfolio in this market. Before turning to our third quarter results, I am pleased to share that we recently added two new executives to our management team. First, Brian VerBarnsey has joined us as our new Chief Operating Officer of North America. Brian is a supply chain leader with over 30 years of experience in retail and wholesale grocery supply chain at Albertsons. His background and experience are particularly relevant as we look to drive customer service, improve productivity, and increase our services NOI margins. Second, Nathan Harwell has joined us as our new Chief Legal Officer. He joins us from U.S. Express Enterprises, one of the nation's largest trucking and logistics services companies, and brings deep experience addressing legal, operational, and strategic issues across a variety of companies and industries. We are very excited to have Brian and Nathan on the AmeriCold team. Turning to our third quarter results, we delivered AFFO per share of 32 cents, an increase of over 10% versus prior year's quarter. This performance was primarily driven by our global warehouse same store pool, which generated NOI growth of 5.3% versus prior year on a constant currency basis. Our strong same-store pool results were driven by meaningful economic occupancy growth and pricing initiatives partially offset by reduced throughput volumes. Reduced throughput was primarily driven by temporary changes to end consumer demand and behaviors due to the challenging economic environment, which has been mentioned by several large food manufacturers and retailers. Some of the factors driving this end consumer behavior include historically high inflation impacting food prices, reduced SNAP benefits for certain end consumers, the restart of student loan payments, and higher floating interest rates impacting all forms of consumer debt, to name a few. These temporary end consumer behavior changes include less pantry stocking, actively reducing at-home inventories, cooking more meals from scratch, and more use of leftovers. We do not believe GLP-1 weight loss drugs had any impact on third quarter results. But let me briefly share initial observations related to the temperature-controlled food supply chain based on what we know today. Large food manufacturers and retailers have indicated there has been a little or no volume impact attributable to GLP-1 drugs to date. There also seems to be consensus developing that GLP-1 drugs may impact categories such as soft drinks, snacks, potato chips as an example, and candy. none of which are meaningful temperature-controlled categories. The food industry, led by food science-driven innovation, has successfully developed products to meet changing consumer behaviors and diet nutrition for much longer than my years in the industry. To summarize, our global temperature-controlled product portfolio is incredibly diverse and includes proteins, agriculture products, and prepared packaged foods, with each category having excellent nutritional options for a healthy diet today, and we are confident that will remain the case in the future. For the third quarter, our same-store economic occupancy increased 345 basis points over the third quarter 2022 to 84%. On a sequential basis, occupancy declined 80 basis points from second quarter, which was slightly less than the 100 to 200 basis points we anticipated due to a seasonal lift. Our same store throughput volume has declined by approximately 900 basis points versus prior year, primarily driven by the temporary changes to end consumer demand and behaviors due to the challenging economic environment. Despite the 900 basis point drop in throughput volumes, we were able to deliver services margins of 2.8%, which is approximately 30 basis points better than the first half of the year to aggressive variable cost management. We have said the services business has an approximately 50% fixed cost structure, but we can still make meaningful progress on margin improvement by focusing on the variable portion of our cost structure. It's very encouraging to see us improve services margins with throughput volumes down, as it shows that our productivity improvements are beginning to take hold. Heading into the fourth quarter, we expect economic occupancy and throughput volumes to rise sequentially from the third quarter, as our customers ramp up for the normal course holiday season. Not surprisingly, given the economic climate, most large manufacturers and retailers have started promotional activities designed to bring more end consumers into the store to support the holiday season through programs like increased store flyers, couponing, and buy one, get one free. However, even with aggressive promotional activity picking up, we do expect throughput volumes to continue to be a headwind year over year given the challenging environment that the end consumer is facing. Turning to full year guidance, as a result of the progress we have made around economic occupancy in our same store pool, in combination with our ability to manage all aspects of our variable cost structure and the reduction of interest expense due to the pay down of debt, we are raising our full year 2023 AFSO per share guidance up by two cents from a midpoint of $1.25 to a midpoint of $1.27 within a revised range of $1.24 to $1.30. Lastly, before I hand it over to Rob, let me comment on our sustainability initiatives, which is a key priority for us here at AmeriCorps. I am happy to report we recently received our 2023 Gresby score of 80, which is an improvement of five points versus last year's score. Additionally, against our peer set, We also improved our rank to first versus second last year. We are very pleased with this outcome and look forward to continued progress in our sustainability journey. With that, I will turn it over to Ralph. Thank you, George. As George mentioned, our company delivered strong results during the third quarter.