Americold Realty Trust, Inc.

Good afternoon, ladies and gentlemen, and welcome to the AmeriCold Realty Trust first quarter 2023 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 4, 2023. I would now like to turn the conference over to Scott Henderson, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us today for AmeriCold Realty Trust first 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 AmeriCold's Chief Executive Officer, George Chappell, 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 a certain non-GAAP financial measures, including Core EBITDA and AFFO. The 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 first quarter 2023 earnings conference call. This afternoon, I will provide the latest information around our recent cybersecurity event. I will then comment on some key operational metrics and financial results for our first quarter and our outlook for the remainder of the year. Rob will provide an update on our recent customer initiatives, and Mark will provide a detailed walkthrough of our guidance for the remainder of the year. As we shared earlier this week, our IT systems were recently impacted by a cybersecurity event. Our cybersecurity protocols limited the impact of the intrusion to approximately 30% of our facilities. As of today, the impact has been reduced to approximately 15%, and we expect to see continued progress over the short term. It is important to note that none of our safety procedures or structural capabilities within the impacted facilities, such as power and utilities, refrigeration systems, and blast freeze processes were compromised. Although inventory was being preserved within these impacted facilities, throughput was temporary halted and is currently scaling back up quickly. During this event, we will continue to work incredibly hard to accomplish two goals. First, communicate proactively and transparently with our customers on both food manufacturing and retail sides of the business. And second, implement manual processes and procedures to reduce overall disruption to the business as much as possible. Mandiant, our strategic partner since late 2020 and a recognized global cybersecurity expert in conjunction with our in-house cybersecurity team is leading the restoration of our systems so that when they come back online, our systems have a clean bill of health. We have also engaged the appropriate law enforcement authorities in the investigation. Since late 2020, we have invested an incremental $20 million in cybersecurity, which included a combination of personnel enhancements, hardware and software upgrades, and third-party specialty expert fees. In fact, during the time of this incident, Mandiant was performing routine cybersecurity advisory services and reacted quickly to reduce the disruption. We are all faced with an evolving cyber threat landscape in which the cyber adversaries are persistent, continually evolving their tactics, techniques, and procedures. As we recover from the impact of this incident, we remain committed to continued strengthening of our policies, practices, and technology. to further protect against future attacks. At this point, let me comment on our core business priorities, which remain fully intact despite this recent event. First, as we discussed on previous calls, customer service is a key priority for AmeriCorps. For the first quarter, our same-store economic occupancy increased to 84.6%, a record-setting first quarter level as food manufacturing customers continue to ramp production. In the first quarter, we also derived 46.1% of rent and storage revenue from fixed commitment storage contracts, which is also a record-setting level. During the first quarter, we consistently delivered a high level of customer service at record-setting economic occupancy levels. Second, turning to our priorities around labor management. During the first quarter, we achieved a perm to temp hours ratio of 75-25. This is nine points higher than our first quarter 2022 level, and on a sequential basis, we improved by three points over the fourth quarter 2022 level. Normalizing for the exit of a large retail customer and the corresponding associates in our third-party managed segment, we ended March of 2023 with an annualized turnover trend roughly equivalent to that of March of 2022. Compared to 2019, a pre-COVID year, we ended March at approximately 18 percentage points higher. On a sequential basis, we improved our turnover rate from the end of December, which was approximately 22 percentage points higher than 2019 level. As the data points show, we are making continued improvements on our perm to temp ratios and turnover rates. Lastly, during the first quarter, we completed our customer dedicated automated facility in Lancaster, Pennsylvania. We began inbounding product into the facility and ramping towards stabilization. This project has a 20-year fixed commitment in place from a leading global grocer, and we are generating 100% of the underwritten rent and storage revenue from this project. We look forward to servicing our customer in this facility. Turning to our first quarter results, we delivered AFFO per share of 29 cents, an increase of 12% compared to prior year. This performance was primarily driven by our global warehouse same store pool, which generated revenue growth of 12.3% and NOI growth of 26.1% versus prior year, both 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 volume. For the first quarter, our same store economic occupancy increased 748 basis points over the first quarter 2022 to 84.6%, a record-setting first quarter level. Rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased 10.3% versus the prior year. Service revenue per throughput pallet increased 8.6%. The large increase in economic occupancy is attributable to two factors as previously mentioned. First, our fixed commitment contract structures move out the seasonality in our business and increase overall economic occupancy while also providing certainty for our customers. This quarter, we derived 46.1% of rent and storage revenue from fixed commitment storage contracts. which is approximately a 420 basis point improvement over fourth quarter 22, and approximately a 630 basis point improvement over the first quarter 2022. As we said earlier, 46.1% fixed commit percentage is a record-setting level for AmeriCold. Second, our food manufacturers continue to ramp production levels in order to provide higher service levels to their primary customers. retailers, grocers, and food service companies. As a result of the progress we made around economic occupancy in our same store pool, we are increasing our full year 2023 AFFO per share guidance to the range of $1.16 to $1.26. This guidance increase reflects both a strong first quarter and some relative uncertainty going forward around the recent cybersecurity event. Mark will provide more commentary around the individual components. Lastly, let me comment on our ESG initiatives. In April, we posted our fourth annual ESG report on our website. A few highlights from this report include exceeding our internal goals around associate safety, which outpaced the cold storage industry average by over 100%. and establishing our internal global diversity, inclusion, and belonging culture committee, whose mission is to build and foster a culture where all associates can be their true selves at work, achieve their full potential, and thrive as being valued for their unique contributions. With that, I will turn it over to Rob.