Q2 2024 Americold Realty Trust Inc Earnings Call
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kevin Reed, Vice President, Investor Relations. Thank you, Mr. Reed. You may begin.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kevin Reed, Vice President, Investor Relations. Thank you, Mr. Reed. You may begin.
Kevin Reed: Good afternoon. Thank you for joining us today for Americold Realty Trust's second quarter 2024 earnings comments call. In addition to the press release distributed this morning, 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.ir.americold.com. This afternoon's conference call will be hosted by Americold's Chief Executive Officer, George Chappelle, President of the Americas, Rob Chambers, and Chief Financial Officer, Jay Wells.
Kevin Reed: Good afternoon. Thank you for joining us today for Americold Realty Trust's second quarter 2024 earnings comments call.
Speaker Change: In addition to the press release distributed this morning, 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.ir.americold.com.
Speaker Change: This afternoon's conference call is hosted by Americold's Chief Executive Officer, George Chappelle, President of the Americas, Rob Chambers, and Chief Financial Officer, Jay Wells. Management will make some prepared comments, after which we will open up the call to your questions.
Management: Management will make some prepared comments, after which we will open up the call to your questions.
Unknown Executive: 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.
Speaker Change: On today's call, management's prepared marks may contain forward-looking statements.
Speaker Change: 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.
Unknown Executive: 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 this 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 but not limited to Core EBITDA and AFFO. The full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in a supplemental information package available on the company's website. Now, I will turn the call over to George.
Speaker Change: 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 this date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.
Speaker Change: During this call, we will discuss certain non-GAAP financial measures, including but not limited to Core EBITDA and AFFO.
George: The full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in a supplemental information package available on the company's website. Now I will turn the call over to George.
George Chappelle: Thank you, Kevin, and thank you all for joining our second quarter of 2024 earnings conference call. This afternoon, I am pleased to announce our financial results for the quarter, and we'll also highlight key operational metrics. I will then discuss our updated outlook for the remainder of the year, and Rob will provide an update on our recent customer initiatives and growth activity. And Jay will discuss our capital position, liquidity, and provide a detailed walkthrough of our updated full year 2024 guidance. I'll begin with an overview of some key financial achievements for the quarter. We generated AFFO of approximately $109 million, or $0.38 per share, an increase of over 36% from Q2 last year.
George: Thank you, Kevin, and thank you all for joining our second quarter 2024 earnings conference call. This afternoon I am pleased to announce our financial results for the quarter and will also highlight key operational metrics.
Unknown Executive: This afternoon, I am pleased to announce our financial results for the quarter, and we'll also highlight key operational metrics. I will then discuss our updated outlook for the remainder of the year, an increase of 24.7% year over year, resulting in an industry-leading EBITDA margin of 25%. To put this in an earnings growth context, increased warehouse services margins resulted in an incremental $40 million of NOI, or roughly 14 cents per share, in the second quarter versus the prior year, underscoring our ability to drive consistent, profitable, organic growth in a challenging macro environment.
Speaker Change: I will then discuss our updated outlook for the remainder of the year. Rob will provide an update on our recent customer initiatives and growth activity, and Jay will discuss our capital position, liquidity, and provide a detailed walkthrough of our updated full year 2024 guidance.
George Chappelle: We also generated core EBITDA of $165 million, an increase of 24.7% year-over-year, resulting in an industry-leading EBITDA margin of 25%. Our performance was driven in large part by the continued strength of our same store warehouse services, where we delivered a second consecutive quarter of double-digit margin, coming in this quarter at 13.2%. To put this in an earnings growth context, increased warehouse services margins resulted in an incremental $40 million of NOI, or roughly $0.14 per share, in the second quarter versus the prior year, underscoring our ability to drive consistent, profitable, organic growth in a challenging macro environment.
Speaker Change: I'll begin with an overview of some key financial achievements for the quarter.
Speaker Change: We generated AFFO of approximately $109 million, or $0.38 per share, an increase of over 36% from Q2 last year.
Speaker Change: We also generated core EBITDA of $165 million, an increase of 24.7% year-over-year, resulting in an industry-leading EBITDA margin of 25%.
Speaker Change: Our performance was driven in large part by continued strength of our same-store warehouse services, where we delivered a second consecutive quarter of double-digit margins, coming in this quarter at 13.2%.
Speaker Change: To put this in an earnings growth context, increased warehouse services margins resulted in an incremental $40 million of NOI.
Speaker Change: or roughly $0.14 per share in the second quarter versus prior year, underscoring our ability to drive consistent, profitable, organic growth in a challenging macro environment.
George Chappelle: Last quarter, we highlighted our expectation that we could deliver services margins of 9% for the full year 2024, a year ahead of our original expectations, which would equate to approximately $100 million of incremental NOI on an annualized basis. Given the current productivity of our workforce, driven by over two years of hiring and retention progress, I am happy to report we are now on pace to exceed the $100 million target this year. Combined with new business wins, pricing initiatives, and continued systems and process improvements, Global Warehouse Same Store NOI grew 19.3% year over year.
Speaker Change: Last quarter, we highlighted our expectation that we could deliver services margins of 9% for the full year 2024, a year ahead of our original expectations, which would equate to approximately $100 million of incremental NOI on an annualized basis.
Speaker Change: Given the current productivity of our workforce, driven by over two years of hiring and retention progress, I am happy to report we are now on pace to exceed the $100 million target this year.
Speaker Change: Combined with new business wins, pricing initiatives, and continued systems and process improvements, Global Warehouse Same Store NOI grew 19.3% year-over-year. Before I touch on our core priorities, I would like to provide an update on Project Orion.
George Chappelle: Before I touch on our core priorities, I would like to provide an update on Project Orion. As a reminder, in February 2023, we announced our transformation program, Project Orion, designed to drive future growth and achieve our long-term strategic objectives through investment in our technology and business processes across our global platform. The primary goals of this project are to implement standard processes, reduce manual work, and incrementally improve our business analytics capabilities.
George Chappelle: Highlights of the project include implementing centralized customer billing, a human capital management platform, next-generation warehouse maintenance capabilities, and global procurement functionality, to name a few. Even before the system went live, we saw numerous process improvements that led to increasing margins as we changed the way we worked to fit the system in Q1. We went live in North America and Asia-Pacific with the first phase of Project Orion in early May.
Speaker Change: As a reminder, in February 2023, we announced our transformation program, Project Orion, designed to drive future growth and achieve our long-term strategic objectives through investment in our technology and business processes across our global platform.
Unknown Executive: The primary goals of this project are to implement standard processes, reduce manual work, and incrementally improve our business analytics capabilities. Highlights of the project include implementing centralized customer billing, a human capital management platform, next-generation warehouse maintenance capabilities, and global procurement functionality, to name a few. Customer service is at the heart of what we do and a key driver of both occupancy and our continued progress in selling fixed commitment contracts. While economic occupancy showed a slight dip in this quarter to 78.1%, rent and storage revenue derived from fixed commitment storage contracts increased to 56.6%.
Speaker Change: The primary goals of this project are to implement standard processes, reduce manual work, and incrementally improve our business analytics capabilities.
Speaker Change: Highlights of the project include implementing centralized customer billing, a human capital management platform, next-generation warehouse maintenance capabilities, and global procurement functionality, to name a few.
Speaker Change: Even before the system went live, we saw numerous process improvements that led to increasing margins as we changed the way we work to fit the system in Q1.
George Chappelle: And I'm pleased to report that we have had very little disruption internally or externally during and since the implementation. The rollout of Project Orion has been a contributing factor to our strong second quarter results. We expect it to continue to help drive growth and efficiency as we become more proficient in its use, expand its use across more geographies and functions, and unlock incremental functionality included in our new systems, such as embedded artificial intelligence. On a final note regarding technology, we experienced negligible disruption from the recent CrowdStrike outages that happened across the globe a few weeks ago.
Speaker Change: We went live in North America and Asia-Pacific with the first phase of Project Orion in early May. And I'm pleased to report that we have had very little disruption, internally or externally, during and since the implementation.
Speaker Change: The rollout of Project Orion has been a contributing factor to our strong second quarter results.
Speaker Change: We expect it to continue to help drive growth and efficiency as we become more proficient in its use, expand its use across more geographies and functions, and unlock incremental functionality included in our new systems such as embedded artificial intelligence.
Speaker Change: On a final note regarding technology, we experienced negligible disruption from the recent CrowdStrike outages that happened across the globe a few weeks ago. Now let me review our top priorities and how they contributed to our results.
George Chappelle: Now, let me review our top priorities and how they contributed to our results. Customer service is at the heart of what we do and a key driver of both occupancy and our continued progress in selling fixed commitment contracts. Our goal is to be the global cold storage provider of choice by delivering the highest quality customer experience through our people, our infrastructure, and our innovation. While economic occupancy showed a slight dip in this quarter to 78.1%, rent and storage revenue derived from fixed commitment storage contracts increased to 56.6%. 240 basis points higher than the previous quarter and 810 basis points higher than the second quarter of 2023.
Speaker Change: Customer service is at the heart of what we do and a key driver of both occupancy and our continued progress in selling fixed commitment contracts.
Speaker Change: Our goal is to be the global cold storage provider of choice by delivering the highest quality customer experience.
Speaker Change: through our people, our infrastructure, and our innovation.
Speaker Change: While economic occupancy showed a slight dip in this quarter to 78.1%, rent and storage revenue derived from fixed commitment storage contracts increased to 56.6%.
Speaker Change: 240 basis points higher than the previous quarter and 810 basis points higher than the second quarter of 2023. The continued growth of these fixed commitment contracts is a result of delivering the best in class customer experience through our high quality infrastructure.
George Chappelle: The continued growth of these fixed commitment contracts is a result of delivering the best in class customer experience to our high-quality infrastructure. Our customers' willingness to engage in these contracts speaks to the quality of our assets and also acts as a leading indicator of positive things to come as customers sign them in the anticipation of volume growth in the future. With respect to labor management, it's critical to our business that we have a safe, productive, and well-trained workforce to serve our customers as efficiently as possible.
Speaker Change: Our customers' willingness to engage in these contracts speaks to the quality of our assets and also acts as a leading indicator of positive things to come as customers sign them in the anticipation of volume growth in the future.
Speaker Change: With respect to labor management, it's critical to our business that we have a safe, productive, and well-trained workforce to service our customers as efficiently as possible.
George Chappelle: Over the last two and a half years, we've disclosed the key metrics in this area related to hiring, Permanent Labor Content, Retention, and Workforce Maturity to ensure that the foundation we've built to support higher levels of productivity is very visible and should inspire confidence in the sustainability of our warehouse services margin. As we've said many times before, it's the services part of our business that customers value the most, as it provides an incremental supply chain benefit beyond simply storing a pallet and keeping it cold.
Speaker Change: Over the last two and a half years, we've disclosed the key metrics in this area related to hiring.
Speaker Change: Permanent labor content, retention, and workforce maturity to ensure the foundation we've built to support higher levels of productivity is very visible and should inspire confidence in the sustainability of our warehouse services margins.
Unknown Executive: As we've said many times before, it's the services part of our business that customers value the most, as it provides an incremental supply chain benefit beyond simply storing a pallet and keeping it cold. We think this is an extremely positive event for the industry, bringing more investment dollars to the sector and helping show cold storage is an attractive asset class within industrial real estate. As it relates to Americold, having a true public peer in the space helps make us more competitive and, ultimately, more efficient and productive for our customers and investors. With that, I will turn it over to you.
Speaker Change: As we've said many times before, it's the services part of our business that customers value the most, as it provides incremental supply chain benefit beyond simply storing a pallet and keeping it cold.
George Chappelle: The performance of our workforce not only ensures we service customers well within the dozens of individual services we currently offer but also allows us to innovate and develop new services that further attract customers to our facilities. The continued refinement of our hiring and retention processes has resulted in a perm to temp hours ratio of 76-24, which is flat year over year and a slight decline sequentially due to the seasonality of agricultural harvest that drives a change in work content required from the first quarter to the second. Associate turnover finished the quarter at 38%, a 200 basis point improvement over the first quarter.
Speaker Change: The performance of our workforce not only ensures we service customers well within the dozens of individual services we currently offer, but also allows us to innovate and develop new services that further attract customers to our facilities.
Speaker Change: The continued refinement of our hiring and retention processes have resulted in a perm-to-temp hours ratio of 76-24.
Speaker Change: which is flat year-over-year and a slight decline sequentially due to the seasonality of agricultural harvests that drives the change in work content required from the first quarter to the second.
Speaker Change: Associate turnover finished the quarter at 38%, a 200 basis point improvement upon the first quarter.
George Chappelle: Our third key metric, our percentage of associates with less than 12 months of service now stands at 23%, has improved 600 basis points since the first quarter. As our workforce retention and maturity have improved, it should be no surprise that our warehouse services margins have improved in tandem. Moving to pricing, in the second quarter, same store rent and storage revenue per economic occupied pallet on a constant currency basis increased by 7.2% versus the prior year, and same store service revenue per throughput pallet on a constant currency basis increased by 12%.
Speaker Change: Our third key metric, our percentage of associates with less than 12 months of service, now stands at 23 percent, has improved 600 basis points since the first quarter. As our workforce retention and maturity have improved, it should be no surprise our warehouse services margins have improved in tandem.
Speaker Change: Moving to pricing, in the second quarter, same store rent and storage revenue, per economic occupied pallet, on a constant currency basis.
Speaker Change: increased by 7.2% versus the prior year and same-store service revenue per throughput pallet on a constant currency basis increased by 12%.
George Chappelle: Both were driven by pricing put in place in the back half of 2023, coupled with general rate increases or GRIs at the beginning of 2024. Pricing comps will compress in the second half of this year as we lap those increases. Our current outlook on pricing looks stable as we anticipate a relatively benign environment for inflation-based rate action. With regard to development, our priority is to only invest in highly accretive growth projects.
Speaker Change: Both were driven by pricing put in place in the back half of 2023, coupled with general rate increases, or GRIs, at the beginning of 2024. Pricing comps will compress in the second half of this year as we lap those increases.
Speaker Change: Our current outlook on pricing looks stable as we anticipate a relatively benign environment for inflation-based rate actions.
Speaker Change: With regard to development, our priority is to only invest in highly accretive growth projects.
Rob Chambers: The 200 to $300 million guide for announced development starts in 2024, which is up from 100 to $200 million last year and tracking to potentially exceed the current range is committed to growth that will generate shareholder value across our three primary areas of focus. Our strategic partnerships with Canadian Pacific, Kansas City Railway, and DP World, expansion projects, which are most often occupied by existing customers, and customer-dedicated built to suit development.
Speaker Change: The $200 million to $300 million guide for announced development starts in 2024, which is up from $100 million to $200 million last year, and tracking to potentially exceed the current range, is committed to growth that will generate shareholder value across our three primary areas of focus.
Speaker Change: Our strategic partnerships with Canadian Pacific, Kansas City Railway, and DP World. Expansion projects, which are most often occupied by existing customers. And customer-dedicated build-to-suit developments.
Rob Chambers: Our strategic partnerships are excellent examples of Americold's unique ability to create value for our shareholders by partnering with global leaders who are experts in adjacent areas of the supply chain where we can leverage each other's capabilities to identify opportunities to jointly grow our business. Through these collaborations, we have $500 million to $1 billion of potential development pipeline. Regarding expansions, I'm pleased to announce that last week we broke ground on roughly a $30 million expansion project in Sydney, Australia.
Speaker Change: Our strategic partnerships are excellent examples of Americold's unique ability to create value for our shareholders by partnering with global leaders who are experts in adjacent areas of the supply chain where we can leverage each other's capabilities to identify opportunities to jointly grow our businesses.
Speaker Change: Through these collaborations, we have $500 million to $1 billion of potential development pipeline.
Speaker Change: Regarding expansions, I'm pleased to announce that last week we broke ground on roughly
Rob Chambers: Also in the quarter, we broke ground on an $85 million expansion project in Allentown, Pennsylvania. As a reminder, both expansions were announced in previous quarters, as well as the groundbreakings of our inaugural Greenfield projects with our strategic partnership, a $127 million development in Kansas City with CPKC and our $35 million development with DP World in Dubai. Our plan development is tracking towards the high end of our guidance for the year, and further underwriting is progressing well.
Speaker Change: a $30 million expansion project in Sydney, Australia. Also in the quarter, we broke ground on an $85 million expansion project in Allentown, Pennsylvania.
Speaker Change: As a reminder, both expansions were announced in previous quarters, as well as the ground breakings of our inaugural greenfield projects with our strategic partnerships.
Speaker Change: A $127 million dollar development in Kansas City with CPKC And our $35 million dollar development with DP World in Dubai
Speaker Change: Our plan development starts at tracking towards the high end of our guidance for the year and further underwriting is progressing well.
Rob Chambers: Whether it's a development or an expansion, we focus on design excellence, specific customer needs, and actual work content that will take place within the walls of the facility. We are the only cold storage company with both automated and conventional facilities along all three nodes of the supply chain, a testament to our design skills, operational capabilities, and knowledge of the overall end-to-end supply chain from farm to fork. Given the customer demand for our unique industry skills, I feel very confident our inorganic growth plans will continue to drive profitable growth for the foreseeable future.
Speaker Change: Whether it's a development or an expansion, we focus on design excellence, specific customer needs, and actual work content that will take place within the walls of the facility.
Speaker Change: we are the only cold storage company with both automated and conventional facilities along all three nodes of the supply chain a testament to our design skills operational capabilities and knowledge of the overall and to-end supply chain from farm to fork
Speaker Change: Given the customer demand for our unique industry skills, I feel very confident our inorganic growth plans will continue to drive profitable growth for the foreseeable future.
Rob Chambers: Lastly, I want to briefly address our updated full year guidance. Given the progress we have made driving organic growth through productivity and efficiency improvements, pricing, and in combination with the investments we have made in our technological infrastructure, we are raising our full year 2024 AFFO per share guidance to a new range of $1.44 to $1.50 with a midpoint of $1.47, an increase of five cents per share from previous guidance and represents an approximately 16% increase from 2023.
Speaker Change: Lastly, I want to briefly address our updated full year guidance.
Speaker Change: Given the progress we have made driving organic growth through productivity and efficiency improvements.
Speaker Change: pricing in in combination with the investments we have made in our technological infrastructure we are raising our full year two thousand and twenty four affo per share guidance
Speaker Change: to a new range of a dollar forty-four to addollar fifty with a midpoint of a dollar forty-seven an increase of five cents per share from previous guidance and represents an approximately sixteen percent increase from two thousand and twenty-three
Rob Chambers: At the midpoint of the new range, our same store NOI growth guide has increased to 12.5%. Before I turn the call over to Rob, I would be remiss not to touch on the new cold storage landscape with the recent entrance of another publicly traded cold storage company. We think this is an extremely positive event for the industry, bringing more investment dollars to the sector and helping show cold storage is an attractive asset class within industrial real estate.
Speaker Change: At the midpoint of the new range, our same-store NOI growth guide has increased to 12.5%.
Speaker Change: Before I turn the call over to Rob, I would be remiss not to touch on the new cold storage landscape with the recent entrance of another publicly traded cold storage company.
Speaker Change: We think this is an extremely positive event for the industry. Bringing more investment dollars to the sector and helping show cold storage is an attractive asset class within industrial real estate. As it relates to Americold, having a true public peer in the space,
Rob Chambers: As it relates to Americold, having a true public peer in the space helps make us more competitive and ultimately more efficient and productive for our customers and investors. With that, I will turn it over to Rob.
Speaker Change: Helps make us more competitive and ultimately more efficient and productive for our customers and investors With that I will turn it over to Rob
Rob Chambers: Thank you, George. As George mentioned, I will provide an update on our recent customer initiatives and growth strategy, starting with pricing. Our pricing initiatives continue to be a strength at Americold as we work tirelessly to ensure we price our business to reflect the value of the service we provide to our customers. We also have and will continue to price our services to offset inflationary pressures as they arise. In the second quarter, same store rent and storage revenue per economically occupied pallet on a constant currency basis increased by 7.2% versus the prior year.
Rob: Thank you, George. As George mentioned, I will provide an update on our recent customer initiatives and growth strategy, starting with pricing initiatives.
Rob: Our pricing initiatives continue to be a strength at Americold as we work tirelessly to ensure we price our business to reflect the value of the service we provide to our customers.
Speaker Change: We also have and will continue to price our services to offset inflationary pressures as they arise.
Speaker Change: In the second quarter, same store rent and storage revenue per Economic Occupied Pallet on a constant currency basis increased by 7.2% versus the prior year.
Rob Chambers: SaneStore constant currency services revenue per throughput palette increased by 12% as a result of rate actions, better revenue capture, and incremental value-added services. We've made great progress in this area. Within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who account for approximately 51% of our global warehouse revenue on a pro forma basis. Our churn rate continues to remain low at approximately 3% of total warehouse revenue, consistent with historical churn rates.
Speaker Change: Sane Store constant currency services revenue per throughput pallet increased by 12% as a result of rate actions, better revenue capture, and incremental value-added services. We have made great progress in this area.
Speaker Change: Within our global warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 51% of our global warehouse revenue on a pro forma basis.
Unknown Executive: who account for approximately 51% of our global warehouse revenue on a pro forma basis. Earning to Growth Initiative. Both projects are on track from a timing and underwriting perspective, and we look forward to updating this progress in future quarters.
Speaker Change: Our churn rate continues to remain low at approximately 3% of total warehouse revenues.
Rob Chambers: As George mentioned, we continue to be successful in increasing our fixed commitments with customers. But in the second quarter, rent and storage revenue derived from fixed commitment storage contracts came in at 56.6%, an increase of approximately $20 million on an annual basis and a 13th straight quarterly record for Americold. As our customer-based composition, low churn rate, and progress on fixed commitments demonstrate, Americold continues to be the first choice for the world's largest food manufacturers and grocery retailers when it comes to their temperature-controlled supply chain needs.
Speaker Change: consistent with historical churn rate.
Speaker Change: As George mentioned, we continue to be successful with increasing our fixed commitments with customers.
George: But in the second quarter, rent and storage revenue derived from fixed commitment storage contracts came in at 56.6%, an increase of approximately $20 million on an annual basis and a 13th straight quarterly record for Americold.
Speaker Change: as our customer-based composition low churn rate and progress on fixed commitments demonstrate a miracle continues to be the first choice for the world's largest food manufacturers and grocery retailers when it comes to their temperature controlls supply chain meanss
Rob Chambers: Our customers want world-class service and to partner with a provider who can support them at every node in the supply chain, from production advantage locations to major market distribution centers, and then ultimately to retail distribution centers. This is a major competitive advantage and uniquely positions Americold within our industry to be the cold storage provider of choice, driving growth in this. Last quarter, we updated you on the groundbreakings of the inaugural projects with both of our strategic partnerships, the $127 million facility with CPKC and the $35 million facility with DP World.
Speaker Change: our customers want world-class service and to partner with the provider who can support them at every note in the supply chain
Speaker Change: from production advantage locations to major market distribution centers and then ultimately to retail distribution centers. This is a major competitive advantage and uniquely positions Americold within our industry to be the cold storage provider of choice.
Speaker Change: earning the growth initiatives
Speaker Change: Last quarter, we updated you on the groundbreakings of the inaugural projects with both of our strategic partnerships, the $127 million facility with CPKC and the $35 million facility with DP World.
Rob Chambers: As George mentioned, we are pleased to announce the groundbreaking on both the roughly $30 million expansion project in Sydney, Australia, and the $85 million expansion project in Allentown, Pennsylvania. As a reminder, the Sydney project is a new dedicated conventional project anchored by one of Australia's largest grocers and will add mission critical infrastructure in a capacity constrained market currently operating at greater than 90% occupancy. It is anticipated to add approximately 13,400 incremental pallets to our current capacity of roughly 18,700 pallets in that market.
Speaker Change: As George mentioned, we are pleased to announce the groundbreaking on both the roughly $30 million expansion project in Sydney, Australia, and the $85 million expansion project in Allentown, Pennsylvania.
Speaker Change: as a reminder of the sydy project is a new dedicated conventional expansion project anchored by one of australia's largest clorosures and will add admission critical infrastructure in a capacity constrained market currently operating at greater than ninety percent occupancy
Speaker Change: it is anticipated to add approximately thirteen thousand four hundred incremental pallots to our current capacity of roughly eighteen thousand and seven hundred ballets in that market
Rob Chambers: The Allentown Project is a new, conventional, multi-customer expansion that will be approximately 37,000 pallet positions and approximately 15 million cubic feet. Both projects are on track from a timing and underwriting perspective, and we look forward to updating this progress in future quarters.
Speaker Change: The Allentown project is a new, conventional, multi-customer expansion that will be approximately 37,000 pallet positions and approximately 15 million cubic feet. Both projects are on track from a timing and underwriting perspective, and we look forward to updating this progress in future quarters.
Unknown Executive: In addition to these new projects, we continue to make progress on the five automated developments that we completed last. The service levels being delivered by our best in class automation exceed industry standards and are a testament to Americold's technical design and implementation capability. Given the level of complexity and the importance of the customer relationship, we are delivering in our approach. What we're hearing from our customers is the need to partner with someone who understands how to build efficiency and resilience into their operations to support their future growth.
Rob Chambers: In addition to these new projects, we continue to make progress on the five automated developments that we completed last. Three of these automated facilities are supporting food manufacturing in Atlanta, Georgia, Russellville, Arkansas, and Spearwood, Australia, and our proven solutions are performing well and delivering in line with expectations. These automated facilities are where several of our largest customers have both their key manufacturing and distribution location. The service levels being delivered by our best in class automation exceed industry standards and are a testament to Americold's technical design and implementation capability.
Speaker Change: In addition to these new projects, we continue to make progress ramping the five automated developments that we completed last year.
Speaker Change: Three of these automated facilities are supporting food manufacturing in Atlanta, Georgia, Russellville, Arkansas, and Spearwood, Australia, and our proven solutions are performing well and delivering in line with expectations.
Speaker Change: These automated facilities house several of our largest customers at both their key manufacturing and distribution locations.
Speaker Change: The service levels being delivered by our best-in-class automation exceed industry standards and are a testament to Americold's technical design and implementation capabilities.
Rob Chambers: Given the success of our automation facilities in this sector, we expect to announce future automated expansions in the coming quarters. We continue to be thoughtful as we proceed with our two customer-dedicated automated retail distribution centers in Lancaster, Pennsylvania, and Plainville, Connecticut.
Speaker Change: Given the success of our automation facilities in this sector, we expect to announce future automated expansions in the coming quarters.
Speaker Change: we continue to be thoughtful as we proceed with our two customer dedicated automated retail distribution centers in lanecasastter pennsylvania and play goill connecticut
Rob Chambers: Given the level of complexity and the importance of the customer relationship, we are relentless in our approach. At Americold, we interact with major global customers, both current and prospective, every day, and a consistent theme in our discussions is the gradual recovery of consumer demand, and we're positioning ourselves to take market share by providing best-in-class solutions. The development projects we've mentioned earlier highlight the significant market opportunity that exists, and we are focused on converting that opportunity into outsized growth for Americold.
Speaker Change: Given the level of complexity and the importance of the customer relationship, we are being deliberate in our approach.
Speaker Change: At Americold, we're interacting with major global customers, both current and prospective, every day. And a consistent theme in our discussions is the gradual recovery of consumer demand. And we're positioning ourselves to take market share by providing best-in-class solutions.
Speaker Change: The development projects we've mentioned earlier highlight the significant market opportunity that exists, and we are focused on converting that opportunity into outsized growth for Americold.
Rob Chambers: What we're hearing from our customers is the need to partner with someone who understands how to build efficiency and resiliency into their operations to support their future growth. Americold's growth strategy is anchored in being able to create these solutions, and we have developed this capability to a level that is industry-leading. Our Supply Chain Solutions organization is the only group of supply chain scientists in the industry to develop automation at every node of the supply chain and are laser focused on the science and analytics behind the design needs that matter most to our customers, including first how to best optimize their supply chain.
Speaker Change: What we're hearing from our customers is the need to partner with someone who understands how to build efficiency and resiliency into their operations to support their future growth.
Unknown Executive: Americold's growth strategy is anchored in being able to create these solutions. Our Supply Chain Solutions organization is the only group of supply chain scientists in the industry to develop automation at every node of the supply chain and is laser focused on the science and analytics behind the design needs that matter most to our customers, including first how to best optimize their supply chain. Our team is utilizing industrial IoT and machine learning applications to drive speed to market with these solutions.
Speaker Change: Americold's growth strategy is anchored in being able to create these solutions.
Speaker Change: And we have developed this capability to a level that is industry leading.
Speaker Change: Our Supply Chain Solutions organization is the only group of supply chain scientists in the industry to develop automation at every node of the supply chain and are laser focused on the science and analytics behind the design needs that matter most to our customers, including
Rob Chambers: Customers who engage our supply chain solutions group are consistently presented with solutions that drive savings and improve performance as compared to their current network. Our team is utilizing industrial IoT and machine learning applications to drive speed to market with these solutions.
Speaker Change: First, how to best optimize their supply chain.
Speaker Change: Customers who engage our supply chain solutions group are consistently presented with solutions that drive savings and improve performance as compared to their current network. Our team is utilizing industrial IoT and machine learning applications to drive speed to market with these solutions.
Rob Chambers: Second, how to build and operate the most efficient facilities in the industry. Americold's facilities maximize the cubic footage of the buildings by being 13% more dense than our closest competitor, driving efficiency for our customers and return on invested capital for Americold. The Americold operating system ensures best practices are utilized across our entire network. Third, when to deploy automation versus utilizing conventional solutions. Our supply chain solutions group analyzes the discrete work content associated with the customer market we are building to determine if and when automation is appropriate versus adding conventional capacity.
Unknown Executive: Second, how to build and operate the most efficient facilities in the industry. The result is a tailored solution that meets the needs of our customer or market without unnecessary added cost. Fourth, what the most important value-added services are that Americold can provide. By having a portfolio that includes facilities at every node in the supply chain, we're able to offer dozens of value-added services that drive our same store warehouse revenue per economically occupied pallet 16% higher than our closest competitors, a much greener mode of transportation. Thank you, Rob.
Speaker Change: Second, how to build and operate the most efficient facilities in the industry. Americold's facilities maximize the cubic footage of the buildings by being 13% more dense than our closest competitor, driving efficiency for our customers and return on invested capital for Americold.
Speaker Change: The Americold operating system ensures best practices are utilized across our entire network.
Speaker Change: Third, when to deploy automation versus utilizing conventional solutions.
Speaker Change: Our Supply Chain Solutions Group analyzes the discrete work content associated with the customer or market which we are building to determine if and when automation is appropriate versus adding conventional capacity.
Rob Chambers: The result is a tailored solution that meets the needs of our customer or market without unnecessary added cost. Fourth, what are the most important value-added services that Americold can provide? By having a portfolio that includes facilities at every node in the supply chain, we're able to offer dozens of value-added services that drive our same store warehouse revenue per economically occupied pallet 16% higher than our closest competitors. Fifth, how to create environmentally friendly cold chain solutions.
Speaker Change: The result is a tailored solution that meets the needs of our customer or market without unnecessary added cost.
Speaker Change: Fourth, what the most important value-added services are that Americold can provide by having a portfolio that includes facilities at every node in the supply chain, we're able to offer dozens of value-added services.
Speaker Change: that drive our same store warehouse revenue per economically occupied pallet 16% higher than our closest competitor.
Speaker Change: Fifth, how to create environmentally friendly cold chain solutions.
Rob Chambers: As an example, driving energy efficiency into our buildings. Americold has over 200 buildings in its network that have been recognized by the Global Cold Chain Alliance's Energy Excellence Program. That is more than 14 times the number of buildings recognized in the rest of the industry combined. Another example is our CPKC solution that will convert over 15,000 truckload shipments a year into rail shipments, a much greener mode of transportation. Our customers view Americold as an extension of their own supply chain organization, as evidenced by the long-term, committed, and global nature of our relationship. That type of trust is not built overnight. It was built over decades of industry leadership. Now, I'll turn it over to Jay.
Speaker Change: as an example driving energy efficiency into our buildings
Speaker Change: Americold has over 200 buildings in our network that have been recognized by the Global Coal Chain Alliance's Energy Excellence Program. That is more than 14 times the number of buildings recognized in the rest of the industry combined.
Speaker Change: Another example includes our CPKC solution that will convert over 15,000 truckload shipments a year into rail shipments.
Speaker Change: A much greener mode of transportation.
Jay: Our customers view Americold as an extension of their own supply chain organization, as evidenced by the long-term, committed, and global nature of our relationships. That type of trust is not built overnight. It's built over decades of industry leadership. Now, I'll turn it over to Jay.
Jay Wells: Thank you, Rob. Today, I will discuss our capital position and liquidity and update our full year guidance. Starting with our balance sheet, at quarter end, total net debt outstanding was $3.3 billion. We have total liquidity of $554 million, consisting of cash on hand and revolver availability, and our net debt to perform a core EBITDA was approximately 5.3 times. As we discussed last quarter, our expansion in Allentown, our greenfield developments in Kansas City and Dubai, and our new expansion project in Sydney increased investment spend in the second quarter and will continue for the remainder of this year.
Jay Wells: Today, I will discuss our capital position and liquidity and update our full-year guidance, an approximate 4% increase at the midpoint and an approximate 16% increase from 2023 as a photo. This pool has 226 facilities, which is approximately 96% of the total number of properties in our warehouse segment. Now turning to the individual components of our updated AFFO guidance, and starting with our global warehouse segment, we expect full year 2024 same store constant currency revenue growth to be in the range of two to four percent.
Jay: Thank you, Rob. Today, I will discuss our capital position and liquidity and update our full year guidance.
Jay: Starting with our balance sheet, at quarter end, total net debt outstanding was $3.3 billion.
Jay: We have total liquidity of $554 million consisting of cash on hand and revolver availability.
Jay: And our net debt to perform a core EBITDA was approximately 5.3 times.
Speaker Change: As we discussed last quarter, our expansion in Allentown, our greenfield developments in Kansas City and Dubai, and our new expansion project in Sydney increased investment spend in the second quarter and will continue for the remainder of this year.
Jay Wells: Please see page 38 of the IR supplement for additional details on our development project. Now, turning to our updated full year 2024 guidance. As George mentioned, we are increasing our AFFO per share to the range of $1.44 to $1.50, an approximate 4% increase at the midpoint and an approximate 16% increase from 2023 as a photo. Before reviewing the individual components of this guidance that are set forth on page 41 of the IR supplement, let me quickly remind everyone of the 2024 Same Store Pool for the Global Warehouse Segment. This pool has 226 facilities, which is approximately 96% of the total number of properties in our warehouse segment.
Jay: Please see page 38 of the IR Supplement for additional details on our development projects.
Jay: Turning to our updated full year 2024 guidance, as George mentioned, we are increasing our AFFO per share to the range of $1.44 to $1.50.
George: An approximate 4% increase at the midpoint and an approximate 16% increase from 2023's AFFO.
Speaker Change: Before reviewing the individual components of this guidance that are set forth on page 41 of the IR supplement, let me quickly remind everyone of the 2024 Same Store Pool for the Global Warehouse Segment.
Speaker Change: This pool has 226 facilities, which is approximately 96% of the total number of properties in our warehouse segment.
Jay Wells: A summary of the 2024 same store pool historical performance for the second quarter of 2023 is presented on page 33 of the IRS supplement. We have nine facilities that are in our 2024 non-same store pool. Now, turning to the individual components of our updated AFFO guidance, and starting with our global warehouse segment, we expect full year 2024 same store constant currency revenue growth to be in the range of 2 to 4%. Let me provide more detail around the key drivers of this updated guide.
Jay: A summary of the 2024 Sane Store Pool historic performance for the second quarter of 2023 is presented on page 33 of the IRS Subcommittee. We have nine facilities that are in our 2024 non-Sane Store Pool.
Jay: Now, turning to the individual components of our updated AFFO guidance and starting with our global warehouse segment, we expect full year 2024 same-store constant currency revenue growth to be in the range of 2 to 4 percent.
Jay: Let me provide more detail around the key drivers of this updated guide. With respect to occupancy and throughput volumes, as we discussed over the past quarter, our previous occupancy guide planned for a good summer grilling season.
Jay Wells: With respect to occupancy and throughput volumes, as we discussed over the past quarter, our previous occupancy guide planned for a good summer grilling season, with manufacturers and retailers increasing promotional activities to drive consumer demand. However, the most recent reports from food manufacturers and producers show the consumer continues to be strained by stubborn inflationary pressures resulting in continued volume challenges. While this is not new news, it does warrant attention as throughput volumes continue to be muted.
Speaker Change: Manufacturers and Retailers Increasing Promotional Activities to Drive Consumer Demand
Speaker Change: The most recent reports from food manufacturers and producers show the consumer continues to be strained by stubborn inflationary pressures resulting in continued volume challenges.
Jay Wells: While not new news, it does warrant attention as throughput volumes continue to be muted. Based on the current economic outlook and recent commentary by food producers, we are reducing our expectations for economic occupancy to decline by a range of 200 to 300 basis points compared to 2023 and throughput volume to decrease by a range of two to 4%. As a reminder, the pricing guidance reflects our continued pricing and power surcharge initiatives to cover known inflation.
Speaker Change: While not muted, it does warrant attention as throughput volumes continue to be muted.
Jay Wells: Based on the current economic outlook and recent commentary by food producers, we are reducing our expectations for economic occupancy to decline in the range of 200 to 300 basis points compared to 2023 and throughput volume to decrease in the range of 2 to 4%. With respect to pricing, we expect constant currency rent and storage revenue for economic occupied pallet growth to be in the range of 4 to 5%, and cost and currency services revenue per throughput pallet growth to be in the range of 7 to 8 percent.
Speaker Change: Based on the current economic outlook and recent commentary by food producers, we are reducing our expectations for economic occupancy to decline in the range of 200 to 300 basis points compared to 2023, and throughput volume to decrease in the range of 2 to 4%.
Speaker Change: With respect to pricing, we expect constant currency rent and storage revenue for economic occupied pallet growth to be in the range of 4 to 5 percent, and constant currency services revenue per throughput pallet growth to be in the range of 7 to 8 percent.
Jay Wells: As a reminder, the pricing guidance reflects our continued pricing and power search initiative to cover known inflation. It also reflects our annual contractual escalation and GRI step-ups and the commercialization of market-based pricing for contracts that we underwrite or renew. Lastly, with regard to pricing, comps are expected to compress in the second half of this year as we anticipate a relatively benign environment associated with inflation-based rate action. For the full year, we are increasing our same store of confidence and ROI growth to now be in the range of 11 to 14 percent. This increase is being driven by higher services margins, based on productivity and pricing supported by new systems and processes. We now believe we can deliver services margins of over 11% for the full year 2024.
Speaker Change: As a reminder, the pricing guidance reflects our continued pricing and power surcharge initiative to cover known inflation.
Jay Wells: It also reflects our annual contractual escalation and GRI step-ups and the commercialization of market-based pricing for contracts that we underwrite or renew. Lastly, with regard to pricing, comps are expected to compress in the second half of this year, as we anticipate a relatively benign environment associated with inflation-based rate action. For the full year, we are increasing our same store conflict currency NOI growth to now be in the range of 11 to 14%. We expect the managed and transportation segments to be in the range of $42 to $47 million.
Speaker Change: It also reflects our annual contractual escalation and GRI step-ups, and the commercialization of market-based pricing for contracts that we underwrite or renew.
Speaker Change: Lastly, with regards to pricing, comps are expected to compress in the second half of this year as we anticipate a relatively benign environment associated with inflation-based rate actions.
Speaker Change: For the full year, we are increasing our same-store constant currency NOI growth to now be in the range of 11 to 14 percent.
Speaker Change: This increase is being driven by higher services margins.
Speaker Change: Based on productivity and pricing, supported by new systems and processes, we now believe we can deliver services margins of over 11% for the full year 2024.
Jay Wells: Please note that service margins were higher in Q2, partly due to the implementation of Phase 1 of Project Orion and a new procurement system, which delayed certain Q2 operating expenses into Q3. If you just out these delayed expenses, same store NOI is forecast to grow sequentially from the first half to the second half of 2024. With regard to the 2024 non-same-store pool, as can be seen on page 33 of the IR Supplement, the non-same-store pool generated negative $2 million of NOI in the second quarter of 2024.
Speaker Change: Please note that service margins were higher in Q2 partly due to the implementation of Phase 1 of Project Orion and a new procurement system.
Speaker Change: which delayed certain Q2 operating expenses into Q3.
Speaker Change: If you just out these delayed expenses, same-store NOI is forecast to grow sequentially from the first half to the second half of 2024.
Speaker Change: With regard to the 2024 non-same-store pool,
Speaker Change: As can be seen on page 33 of the IR Supplement, the non-same-store pool generated negative $2 million of NOI in the second quarter of 2024.
Jay Wells: For the full year 2024, we expect the non-same-store pool to generate NOI in the range of negative $7 million to positive $1 million. We expect the managed and transportation segments to generate NOI in the range of $42 to $47 million. We still expect SG&A to be in the range of $219 million to $229 million. Turning to interest expense for the full year, we are lowering our interest expense range to approximately $133 million to $141 million, a reduction of $2 million at the midpoint due to an increase in capitalized interest.
Speaker Change: For the full year 2024, we expect the non-same-store pool to generate NOI in the range of negative $7 million to positive $1 million.
Speaker Change: We expect the managed and transportation segments, NOI, to be in the range of 42 to 47 million dollars.
Speaker Change: We still expect for SG&A to be in the range of $219 million to $229 million.
Speaker Change: Turning to interest expense. For the full year, we are lowering our interest expense range to approximately $133 million to $141 million, a reduction of $2 million at the midpoint due to an increase in capitalized interest.
Jay Wells: There is no change to our full-year cash taxes or maintenance capital expenditures guide. Regarding developments, as George mentioned, we're attracting to be at the high end or to potentially exceed the current guidance range of $200,000,000 to $300,000,000 of announced development starts in 2024. Please keep in mind that our guidance does not include the impact of acquisitions, dispositions, or capital markets activity beyond that which has been previously announced. And please refer to our IR supplement for detail on the additional assumptions embedded in this guidance. Now, let me turn the call back to George for some closing remarks.
Speaker Change: There is no change to our full-year cash taxes or maintenance capital expenditures guides.
George: Regarding developments, as George mentioned, we're tracking to be at the high end or to potentially exceed the current guidance range of 200 million to 300 million dollars of announced development starts in 2024.
Speaker Change: Please keep in mind that our guidance does not include the impact of acquisitions, dispositions or capital markets activity beyond that which has been previously announced, and please refer to our IR supplement for detail on the additional assumptions embedded in this guidance.
George Chappelle: Thanks, Jay. As the operational and financial results of the second quarter highlight, it's been another great quarter for growth at Americold. The effort put in by our team over the past two and a half years to build a stable, productive workforce, enhanced by our recent technology implementation, has created a solid foundation for sustained, predictable growth. While our company has never operated better, we have stepped up our investment in inorganic growth by investing almost double the amount of money in announced development starts as last year and now look to exceed those expectations due to the high demand for our design and construction services, coupled with our world-class operating models.
Unknown Executive: Thanks, Jay. As the operational and financial results of the second quarter highlight, it's been another great quarter for growth at Americold. The effort put in by our team over the past two and a half years to build a stable, productive workforce, enhanced by our recent technology implementation, has created a solid foundation for sustained, predictable growth. While our company has never operated better, we have stepped up our investment in inorganic growth by investing almost double the amount of money in announced development starts as last year and now look to exceed those expectations due to the high demand for our design and construction services, coupled with our world-class operating model.
Speaker Change: Now, let me turn the call back to George for some closing remarks.
George: Thanks, Jay.
George: As the operational and financial results of the second quarter highlight, it's been another great quarter for growth at Americold.
George: the effort put in by our team over the past two and a half years to build a stable productive workforce enhanced with our recent technology implementation has created a solid foundation for sustained predictable growth
Speaker Change: While our company has never operated better, we have stepped up our investment in inorganic growth by investing almost double the amount of money in announced development starts as last year and now look to exceed those expectations due to the high demand for our design and construction services.
George Chappelle: We've continued to grow our business through one of the most challenging consumer times in recent history. Over time, the consumer will strengthen, and buying habits will normalize. And when that happens, we are positioned well to grow at a highly accelerated rate. As always, I want to give thanks to the over 15,000 associates around the world for their hard work and dedication every day. It's their best in class customer service efforts that provide the foundation for our future.
Speaker Change: coupled with our world-class operating model.
Speaker Change: We've continued to grow our business through one of the most challenging consumer times in recent history. Over time, the consumer will strengthen, and buying habits will normalize. And when that happens, we are positioned well to grow at a highly attritive and accelerated rate.
Unknown Executive: As always, I want to give thanks to the over 15,000 associates around the world for their hard work and dedication every day. It's their best in class customer service efforts that provide the foundation for our future. For this, I say thank you; we could not do this without you. Thank you again for joining us today, and we will now open the call to your questions. Operator.
Speaker Change: As always, I want to give thanks to the over 15,000 associates around the world for their hard work and dedication every day.
Speaker Change: It's their best-in-class customer service efforts that provide the foundation for our future. For this, I say thank you. We could not do this without you. Thank you again for joining us today, and we will now open the call for your questions. Operator?
George Chappelle: For this, I say thank you; we could not do this without you. Thank you again for joining us today, and we will now open the call to your questions. Operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question key. You may press start too if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up their handsets before pressing start.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Operator: You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing star 2. The first question comes from the line of Mike Mueller, J.P. Morgan. Please go ahead.
Speaker Change: You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys.
Operator: As a reminder, please restrict yourself to one question and one follow-up. One moment, please, while we poll for questions. The first question comes from the line of Mike Mueller, J.P. Morgan. Please go ahead.
Speaker Change: As a reminder, please restrict yourself to one question and one follow-up. One moment please while we poll for questions.
George Chappelle: Hi Mike. I would say that no, we don't expect to end up in positive territory on throughput for the year. We'll be down year over year based on our updated guide, and it's not just one category that's driving the throughput down. I would say it's an overall weak consumer in an environment where pricing in the grocery store is suppressing volume. That's been the case now for well over a year and, I think, has reached a tipping point very recently. But it's the same.
Speaker Change: The first question comes from the line of Mike Mueller, JP Morgan. Please go ahead.
Mike Mueller: Yeah, hi. As it relates to, I guess, the later throughput volumes, are there any categories specifically that are driving this? And then, do you expect to end the year in positive territory based on the forecast at the end of 2024?
Speaker Change: Hi, Mike. I would say that no, we don't expect to end up in positive territory on throughput for the year. We'll be down year over year.
Speaker Change: Based on our updated guide, and it's not one category that's driving the throughput down. I would say it's an overall weak consumer in an environment where pricing in the grocery store is suppressing volume.
Mike Mueller: That's been the case now for well over a year and I think has reached a tipping point very recently. But it's the same story. It's high prices in the grocery store. It's a consumer with less disposable income.
Jay Wells: Yeah. Good morning, Mike. It's Jay. Just to hit a little bit more on that. Yeah. I mean, you look year over year.
Jay Wells: Yeah. Good morning, Mike. It's Jay. Just to hit a little bit more on that. Yeah. I mean, you looked
Speaker Change: It's, as I said, it's been that trend for the last 12 months. Yeah. Good morning, Mike. It's Jay. Just to hit a little bit more on that. Yeah. I mean, you look here over here.
Speaker Change: Unknown, Unknown Executive, Marc Smernoff, Unknown Executive, Unknown Executive, Unknown
Mike Mueller: Got it. Okay. So by year end, if we're looking at 4Q, you're expecting to be in the positive territory, it sounds like.
George Chappelle: Not sequentially, not year-over-year. I was answering year-over-year. Jay is going through sequentially. He's 100 percent correct. There'll be a slight seasonal lift in the back half of the year sequentially from today, let's say. But year-over-year, we'll be down in both the 30 and the fourth quarter.
Speaker Change: Sequentially. Sequentially, not year-over-year. I was answering year-over-year. Jay is going through sequentially. He's 100% correct. There will be a slight seasonal lift in the back half of the year sequentially from today, let's say. But year-over-year, we will be down in both the third and the fourth quarter.
Operator: Thank you. The next question comes from the line of Samir Khanal with Evercore ISI. Please go ahead.
Speaker Change: Thank you. Next question comes from the line of Samir Khanal with Evercore ISI. Please go ahead.
Samir Khanal: Hey, good morning, everybody. I'm George.
Speaker Change: Hey, good morning, everybody. I'm George. I guess my question is around economic occupancy. How should we think about that?
George Chappelle: I guess my question is around economic occupancy. How should we think about that? I know you updated your guides for this year, but I'm talking even more beyond this year, given that when you look at economic occupancy and physical occupancy, I mean, there's a spread of about 900 basis points right now. The question is, given the macro out there and the challenges and slowdown you spoke about, could customers sort of deviate from this sort of safety stock idea and say, look, why are they paying for space that they're not So maybe you could provide a bit more color on that in the next entry.
George: I know you updated guides for this year, but I'm talking even more beyond this year, given that when you look at economic occupancy and the physical occupancy, I mean, there's a spread of about 900 basis points right now.
Speaker Change: question is given the macro out there and the challenges and slowdown you spoke about I mean could customers sort of deviate from this sort of safety stock idea and say look why are we paying for space that we're not using at this point so maybe you could provide a bit more color on that into next year
George Chappelle: Yeah, I would say that although the gap between physical and economic is 900 basis points, it has narrowed since the first half of the year by a couple hundred basis points. We expect it to narrow further through the second half of this year. When does it come back?
Speaker Change: Yeah, I would say that Although the gap between physical and economic is 900 basis points It hasn't it has narrowed since the first half of the year by a couple hundred basis points. We expect it to narrow
George Chappelle: It comes back when a consumer has disposable income that comes closer to the price of groceries, just as we said. Consumers do reduce safety stock when demand is down, and demand is down, which is why I believe our economic occupancy is down. When it comes back, as the consumer strengthens, and I think there's hope for that in the second half of the year with potential interest rate cuts and other activity, putting more money in a consumer's pocket. I think the potential for that is certainly there next year, but maybe even the second half of this year.
Speaker Change: further through the second half of this year.
Speaker Change: when does it come back it comes back when a consumer has disposable income that comes closer to the pricing and the grocerystore just as we said
Speaker Change: manufacturers do reduce safety stock when demand is down and demand is down which is why i believe our economic occupancy is down when it comes back as the consumer strengthens and i think this's hope for that in the second half of the year with
Speaker Change: Potential interest rate cuts and other activity, putting more money in a consumer's pocket. I think the potential for that is certainly in next year, but maybe even the second half of this year. There seems to be a lot more aggressive talk around interest rate cuts.
George Chappelle: There seems to be a lot more aggressive talk around interest rate cuts that will help consumer disposable income that will close the gap to current pricing at the grocery store. That will raise demand, that will raise the safety stock, and the whole system grows again. It's all linked to the consumer, Samir, and right now, the consumer has never been weaker. Then maybe just one other point that I would add, Samir, is we've been in this environment now where it's been a tough consumer for a number of quarters in a row, and yet every quarter you see our fixed commitments in terms of absolute dollars and percentages go up.
Speaker Change: That will help consumer disposable income, that will close the gap to current pricing at the grocery store, that will raise demands, that raises safety stock, and the whole system grows again. So, it's all linked to the consumer, Samir, and right now the consumer has never been weaker.
Speaker Change: And then maybe just one other point that I would add, Samir, is that we've been in this environment now where it's been a tough consumer for a number of quarters in a row, and yet every quarter you see our fixed commitments in terms of absolute dollars and percentages go up. We're on our 13th.
George Chappelle: We're on our 13th straight quarter. We're over 56% now, another $20 million this quarter. I think what you should take from that is that both AmeriCold and our customers continue to benefit from the stability that that provides. It also, as we said in the script, shows that they believe that the second half has potential, as I do, but it does require some consumer help. And it's good to see that now many, many people are talking about the consumer, not only in our industry but in other industries.
Speaker Change: straight quarter we're over fifty six percent now another twenty illion dollars this quarter so i think what you what you should take from that is that both americacled and our customers continue to benefit from the stability that that provad
Jay Wells: It also, I think, as we said in the script, shows that they believe that the second half has some potential in it, as I do. But it does require some consumer help, and it's good to see that now many, many people are talking about the consumer, not only in our industry but in other industries. And it seems as though consensus around interest rate cuts is building pretty quickly. So if help is on the way, we're very confident that that will help our business, it'll help occupancy, it'll certainly help throughput, and those tailwinds that I think could be as soon as the second half of this year should carry into next.
Speaker Change: it also i think as we said in the script shows that they believe that s the second half has a potential in it as i vie
Speaker Change: But it does require some consumer help, and it's good to see that now many, many people are talking about the consumer, not only in our industry, but in other industries.
Speaker Change: And it seems as though consensus around interest rate cuts is building pretty quickly, so if help is on the way, we're very confident that that will help our business, it'll help occupancy, it'll certainly help throughput.
Speaker Change: And those tailwinds that I think could be as soon as the second half of this year should carry into next.
George Chappelle: Got it. And then, and then just as a follow-up here on pricing for the warehouse business, it still seems to be pretty solid here. And I know we've talked about inflation moderating, but it feels like you're still getting good prices above inflation here. Does that guide you provide that four to five and then seven to eight for the services side? Does that sort of can you sustain those levels into next year?
Speaker Change: Got it and then and then just as a follow-up here on pricing for the warehouse business it still seems to be pretty solid here.
Unknown Speaker: I know we've talked about inflation moderating, but it feels like you're still getting good prices car prices above inflation here. Does that guide you to provide that four to five and then seven to eight for the services side? Can you sustain those levels into next year?
Speaker Change: and know we talked about inflation moderating but it feels like you're locating good priceing carabog inflation here does that that guide you provided that fortiffive and then seventy eight put serviceesasside is that that does that sort of can you sustain those levels into next yearerror as i's ated
Unknown Speaker: Unknown Speaker
Unknown Executive: I represent Smernoff and Reed. Thank you. Thank you.
Unknown Executive: Yeah, what we said in the prepared remarks is that we expect those comps to narrow in the second half of this year. The pricing that you see in the results this quarter all happened in the second half of last year and also in the GRIs we took at the beginning of this year. So those comps will narrow.
Speaker Change: yeah what we said on in the prepared remarks as we expect those comps to narrow in the second half of this year the pricing that you see in the results this quarter
Speaker Change: All happened in the second half of last year, and also in the GRIs we took at the beginning of this year. So those comps will narrow.
George Chappelle: And based on the outlook for inflation we see today, we see the pricing environment is very benign. So I would say the bulk of our pricing going forward, if nothing changes, will be our annual GRIs with some exceptions along the way that always exist, whether it's new services or profile adjustments, et cetera. I'd call that normal course business. But when it comes to pricing actions, specific pricing actions, we don't see any necessary where inflation is today.
Speaker Change: And, you know, based on the outlook for inflation we see today, we see the pricing environment is very benign.
Speaker Change: i would say the bulk of our pricing going forward if nothing changes will be our annual g with some exceptions along the way that are always exists whether it's new services or profile adjustments et c i call that normal course business
Speaker Change: But when it comes to pricing actions, specific pricing actions, we don't see any necessary where inflation is today. And you probably will see those pricing comps compress in the second half, as well as next year, they'll probably be more normalized. Not back to pre-COVID, but I would say more normalized.
George Chappelle: And you probably will see those pricing comps compress in the second half as well as next year. So I would say we'll be more normalized, not back to pre-COVID, but I would say more normalized. He triangulates our...
Unknown Executive: If you triangulate our full-year guide, it shows that in the back half of the year, we get to more normal type of increases of three to four percent. So that's really what's built into our back half guide.
Speaker Change: If you triangulate our full year guide, it shows that back half a year we get to more normal type of increases of three to four percent. So that's really what's built into our back half guide.
Unknown Speaker: The stock price is up 3-4%, so that's really what's built into our back half, guys.
Operator: Thank you. The next question comes from the line of Josh Dennerlein with Bank of America. Please go ahead.
Speaker Change: Thank you. Next question comes from the line of Josh Dennerlein with Bank of America. Please go ahead.
Joshua Dennerlein: Yeah, hey guys, thanks for the time. George, just wanted to kind of circle up on the service margin, you know, second quarter in a row where they come in double digits. Just how are you thinking about where they are ultimately, like, stable?
Josh Dennerlein: Hey guys, thanks for the time. George, just wanted to kind of circle up on the service margins, second quarter in a row where they've come in double digits, just how are you thinking about where they ultimately stabilize from here?
Unknown Speaker: you know, the second quarter in a row where they come in double digits. Just how are you thinking about where they will ultimately stabilize?
George Chappelle: Well, we did just over 13% in the quarter. And then, as you remember, Jay mentioned some expenses that were deferred to the third quarter.
Speaker Change: well we did just over thirteen percent in the quarter and then as we remembered j mentioned some expense that was deferred to the third quarter of ' rationalize that we get to just over eleven percent and that's what we adjusted the guide so by you eleven percent of a base you know our retention metrics are excellent
George Chappelle: So if you rationalize that, we get to just over 11%. And that's where we adjusted the guide. So if I use 11% as a base, you know, our retention metrics are excellent, better than pre-COVID. The systems tailwinds we have are just beginning. The system was just turned on on May 6.
Speaker Change: the better than pre-COVID. The system's tailwinds we have are just beginning. The system was just turned on on May 6th. So we do think there are tailwinds there. So is there some upside to the 11 percent? We believe there is, as the system gets
George Chappelle: So we do think there are tailwinds there. So is there some upside to the 11%? We believe there is, as the system gets better used and better understood.
George Chappelle: But at this point, throughput is still a headwind. So if I net those two together, we're very comfortable with the 11%. And, you know, all I can say is that's where we are right now. As I mentioned, as part of implementing Project Orion and our new procurement system, certain POs were delayed as part of the process. So we could not buy certain types of material for our services-type business. And if you normalize out that 5 million, it gets the first half of the year at 11.2. So that's how we're saying run rate; that's really what the run rate looks like.
Speaker Change: better used didn't even better understood but at this point throughput is still aheadwind so if i net those two together we're very comfortable at the eleven percent
Speaker Change: And, you know, all I can say is that's where we are right now. Yeah, you know, I mentioned as part of implementing Project Orion and our new procurement system,
Speaker Change: certain ps were delayed as part of the process so we could not buy certain types of material for our services type business and if you normalize about that five million it gets and the first half of the year at eleven point two
Speaker Change: So that's how we're saying a run rate. That's really what the run rate looks like.
George Chappelle: Okay, and what about George? I think in the past you've talked about maybe...
George Chappelle: Aspirationally hitting 15% on the service margins. Do you think that's still kind of a good aspirational goal on the service margin?
Speaker Change: Okay, and what about George? I think in the past you've talked about maybe aspirationally hitting 15% on the service margins. Do you think that's still kind of a good aspirational goal on the service margin and achievable?
George Chappelle: I think it is even more achievable than ever before, given where the margins landed this quarter, given we still have the system tailwinds, and we're still not done with retention and all the work we've put into that. In fact, that work will never end.
George: i think even more achievable than before given where the margins landed this quarter given we still have the system tailwindins and we're still not done with retention and
Speaker Change: And all the work we put into that. In fact, that work will never end. So, I would say they're less aspirational than they have ever been to get to 15%, but I'd still say that it takes some commercial work to get there.
Rob Chambers: So I would say they're less aspirational than they have ever been to get to 15%. But I'd still say that it takes some commercial work to get there. And that is a different set of muscles than offsetting inflation. So maybe you can comment on that, Rob. But I think commercial work is probably the long-term intent.
George: And that is a different set of muscles than offsetting inflation.
George: Maybe you can comment on that, Rob, but I think the commercial work is probably the long-fold intent. Yeah, I mean, we're, you know, we're continued on to focus on driving pricing. We know that it'll be compressed, but we want to see inflation plus with regard to what we're able to accomplish. And then the other area commercially that helps our services margins is incremental value added services.
Rob Chambers: Yeah, I mean, we're, you know, we've continued on to focus on driving pricing; we know that it'll be compressed, but we want to see inflation plus with regard to what we're able to accomplish. And then the other area commercially that helps our services margins is incremental value-added services. And we've been very focused on understanding and implementing services that our customers want us to do that help both them be successful with their supply chain and Americold drive our service margins.
Unknown Speaker: understanding and implementing services that our customers want us to do that help both them be successful with their supply chain and Americold drive our services margins. And where we've, you know, seen success with that, we have many, many individual properties that generate services margins in excess of what those aspirational goals are. So we know that we'll be successful getting there.
Rob: And we've been very focused on...
George: understanding and implementing services that our customers want us to do that help both them be successful with their supply chain and merirac drive our services margins and where we've
Rob Chambers: And where we've, you know, seen success with that, we have many, many individual properties that generate service margins in excess of what those aspirational goals are, so we know that we'll be successful getting there. So we still ask.
Rob: You know, seeing success with that, we have many, many individual properties that generate services margins in excess of what those aspirational goals are, so we know that we'll be successful getting there.
Operator: So, still aspirational, but much less so given the performance over the last three quarters and the fact that we believe in the sustainability of those margins based on not only the disclosures we've made around our labor but also the fact that we feel like there's nowhere to go but improve those numbers, even from where we sit today. Thank you. The next question comes from the line of Craig McGinniss with Scotiabank. Please go ahead.
George: so still aspirational but much less so given the performance over the last three quarters and the fact that we believe in the sustainability those margins based on
George: Not only the disclosures we've made around our labor, but also the fact that we feel like there's nowhere to go but improve those numbers, even from where we sit today.
Operator: Thank you. The next question comes from the line of Craig McGinniss with Scotiabank.
Operator: Thank you. The next question comes from the line of Craig McGinniss with Scotiabank.
Speaker Change: Thank you. Next question comes from the line of Craig McGinnis with Scotiabank. Please go ahead.
Craig McGinnis: hey good morning so we understand this is likely difficult to p
Craig McGinnis: But could you give us your thoughts on how much of the warehouse service margin increase you think is driven by a more experienced labor pool, the process improvements highlighted last quarter, and then the ERP implementation?
George Chappelle: I would say that the two and a half years of work we did on hiring, retention, and a number of different, I mean, literally, you know, hundreds of activities below that to support what I just said, that's the lion's share of the improvement. We just have a more stable, more productive, better trained, better engaged workforce. Now, the other things that are definitely contributing factors around systems in particular to give people the visibility of how to manage labor better.
Unknown Executive: I would say that the two and a half years of work we did on hiring, retention, and a number of different, I mean, literally, you know, hundreds of activities below that to support what I just said, that's the lion's share of the improvement. We just have a more stable, more productive, better trained, better engaged workforce. Now, the other things are definitely contributing factors around systems in particular to give people the visibility of how to manage labor better.
Speaker Change: I would say that the two and a half years of work we did on hiring, retention,
Speaker Change: A number of different, I mean, literally, you know, hundreds of activities below that to support what I just said, that's the lion's share of the improvement. We just have a more stable, more productive
Speaker Change: better trained better engaged workforce now the other things are definitely contributing bice around systems in particular to give people the visibility of how to manage what ever or better
George Chappelle: But I would say at least 75% of it is just the labor training, the hiring, the retention, and the engagement. Essentially, all the work we've done on the workforce, and of course, the other things help, but they're more supporting an already well-trained workforce. And the ERP system is improving our revenue capture for our value-added services. So that is providing us with a benefit, but as George said, definitely the labor side is where the biggest benefit is.
Unknown Executive: But I would say at least 75% of it is just the labor training, the hiring, the retention, the engagement, essentially all the work we've done with the workforce. And of course, the other things help, but they're more supporting an already well-trained workforce. And the ERP system is improving our revenue capture for our value-added services. So, you know, that is providing us with a benefit, but as George said, definitely, the labor side is where the biggest benefit is.
Speaker Change: But I would say at least 75% of it is just the labor training, the hiring, the retention, the engagement. Essentially, all the work we've done on the workforce, and of course, the other things help.
George: They're more supporting an already well-trained workforce. And the ERP system is improving our revenue capture of our value-added services. So, you know, that is providing us benefit. But as George said, you know, definitely the labor side is where the biggest benefit is.
Operator: Thank you. The next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Speaker Change: Thank you. Next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Rob: Sorry, Rob, I wanted to follow up on another question earlier regarding the fixed commitments. Can you kind of explain why companies are taking down more fixed commitments, even though the occupancy is trending lower? I mean, is there a risk that they will hand back this space? Or are they looking further out and thinking that they're going to need it in the near term, and they're going to want to take down those commitments to ensure that they have it?
Michael Carroll: Sorry, Rob, I wanted to follow up on another question earlier regarding the fixed commitments. Can you kind of explain why companies are taking down more fixed commitments, even though the occupancy is trending lower? I mean, is there a risk that they will hand back this space? Or are they looking further out and thinking that they're going to need it in the near term, and they're going to want to take down those commitments to ensure that they have it?
Michael Carroll: Sorry, Rob, I wanted to follow up on another question earlier regarding the fixed commitments. Can you kind of explain why companies are taking down more fixed commitments even though the occupancy is trending lower? I mean, is there a risk that they will hand back this space or are they looking further out thinking that they're going to need it in the near term and they're going to want to take down those commitments to ensure that they have it?
Rob Chambers: Yes, it's the latter, Mike. I mean, our customers in conversation are looking to the future and are recognizing that there will be a time when demand will recover and increase, and they want to make sure they have their space available to them. So I think Americold has built a very strong muscle in terms of the way that we go to market with those fixed commitments and the fact that that represents what we believe a market rate should be when we offer fixed commitments.
Rob: Yeah, it's the latter, Mike. I mean, our customers, in conversations, they're looking to the future and that they're recognizing that there will be a time that demand will recover and increase, and they want to make sure they have their space available to them. So I think Americold's built a very strong muscle in terms of the way that we go to market with those fixed commitments and the fact that that represents what we believe market rates should be when we offer fixed commitments.
Michael Carroll: and then our customers see the benefit not not just in terms of the stability of making sure that space is available for them now but ultimately because they really do believe that that volume will be there we go into busy season this year and then out into the future remember those those fix commitments tend to be multi years in length they're not they're not shortterm fixedcommitments those are multiyear fixed commitments and that's way customers are viewing
Rob Chambers: Okay, and what are your customers telling you right now? I mean, are they happy with their current inventory levels given the current market challenges, or do they want to rebuild their inventories? I mean, are they too short now and they need to rebuild them soon, or is this a longer-term rebuild that we're talking about?
Unknown Executive: Okay, and what are your customers telling you right now? I mean, are they happy with their current inventory levels given the current market challenges, or, I guess, when do they want to rebuild their inventories? I mean, are they too short now and they need to rebuild them soon? Or is this a longer-term rebuild that we're talking about?
Speaker Change: Okay, and what are your customers telling you right now? I mean, are they happy with their current inventory levels, given that the current market challenges, or I guess, when do they want to rebuild their inventories? I mean, are they too short now and they need to rebuild it soon, or is this a longer-term type rebuild that we're talking about?
George Chappelle: Mike, I think customers would prefer higher demand, higher revenue, and better volume. Cutting inventory because demand is down doesn't make many customers happy. What they want is higher demand so they can invest in new products and new activities. Right now, the demand situation is suppressing all of that. During my past experiences in these environments, and I've been through a few, what you're hoping for is some consumer help to get traffic up, get volume up, and the inventory plan takes care of itself once volume is growing.
Unknown Executive: Mike, I think customers would prefer higher demand, higher revenue, and better volume. Cutting inventory because demand is down doesn't make many customers happy. What they want is higher demand so they can invest in new products and new activities. Right now, the demand situation is suppressing all of that. During my past experiences in these environments, and I've been through a few, what you're hoping for is some consumer help to get traffic up, get volume up, and the inventory plan takes care of itself once volume is growing.
Speaker Change: Mike, I think customers would prefer higher demand, higher revenue, better volume.
Mike Mueller: cutting inventory because demand found doesnand doesn't make many customers happy what they want is higher demand so they can invest in
Mike Mueller: and new products and new activities. And right now, the demand situation is suppressing all of that. So, you know, during my past in these environments, and I've been through a few, what you're hoping for is some consumer help.
Michael Carroll: to get traffic up, get volume up, and the inventory plan takes care of itself once volume is growing.
Operator: Thank you. The next question comes from the line of Vince Tibone with Green Street. Please go ahead.
Operator: Thank you. The next question comes from the line of Vince Tibone with Green Street. Please go ahead.
Speaker Change: thank you next question comes on the line of bin stboron with green street please go ahead
Vince Tibone: Hi, good morning. Some of your earlier comments suggest that you think the consumer should be, you know, healthier soon. Just in terms of 24 guidance, you know, what are you implicitly assuming as it relates to the health of the consumer? Are you expecting some some back half improvement in the new, you know, kind of throughput and occupancy ranges you provided, or just give us a sense of what macro assumptions you have baked into guidance? That'd be helpful.
bin stboron: Hi, good morning. You know, some of your earlier comments suggest that you think the consumer should be, you know, healthier soon. In terms of 24 guidance, you know, what are you implicitly assuming as it relates to the health?
Speaker Change: of the consumer. Are you expecting some some back half improvement in the new you know kind of throughput and occupancy ranges you provided or just give us a sense of what macro assumptions you have baked into guidance that'd be helpful.
George Chappelle: Yeah, I appreciate that, Vince. We've baked no optimism into the second half of the year, just as we did in the last quarter. We're taking a very, I would say, realistic view of demand. And while we have a very slight seasonal lift in the second half, it is much less than we would in normal years. We've even muted the seasonality a bit to take account of the current demand environment. So while I am optimistic, because I think there's a lot of noise on interest rate cuts, even aggressive interest rate cuts, and I think that can help a lot. That gives me the optimism I expressed a little earlier on the call. However, when it comes to our guide, that optimism is not in the volume guide at all.
Speaker Change: Yeah, appreciate that, Vince. We've baked no optimism into the second half of the year, just as we didn't the last quarter. We're taking a very
Speaker Change: i would say realistic view of demand and while we have a very slight seasonal lift in the second half it is much more slight than we would in normal years even
Speaker Change: We've even muted the seasonality a bit to take account for the current demand environment. So while I am optimistic, because I think there's a lot of noise on interest rate cuts, even aggressive interest rate cuts, and I think that can help a lot, that gives me the optimism I expressed a little earlier on the call. However, when it comes to our guide, that optimism is not in the volume guide at all.
George Chappelle: Great, that's helpful. And then, switching gears, I'm just curious, how would you describe the competitive dynamics between Americold and your new public public peer? Just, you know, the tenants often leave space from both of you in the same market? How often are you competing for tenants? And ultimately, like how hard is it for tenants to maybe switch? Cold Storage, Providers in a Single Market, just provide some comments around this line; that'd be helpful.
Unknown Executive: Great, that's helpful. And then switching gears, how would you describe the competitive dynamics between Americold and your new public public peer? Just, you know, do tenants often leave space from both of you in the same market? How often are you competing for tenants? And ultimately, how hard is it for tenants to maybe switch?
Speaker Change: Great, that's helpful. And then switching gears, I'm just curious, how would you describe the competitive dynamics between Americold and your new public peer?
Speaker Change: Just, you know, do tenants often leave space from from both of you in the same market? How often are you competing for tenants and ultimately, like, how hard is it for tenants to maybe switch?
Speaker Change: Cold Storage, Providers in a Single Market, just provide some comments around this line that would be helpful.
Unknown Executive: Yeah, I'll start and I'll hand it over to Rob, but you know, we've been competing with everybody in this space, several competitors when you're talking about the large players in the space, not always within the same geography because customers like to try to have large piles of their inventory in one location and not bifurcated across multiple facilities. So what you see is, generally, customers with one provider in a certain region but maybe multiple providers across several regions.
George Chappelle: Yeah, I'll start, and I'll hand it over to Rob, but, you know, we've been competing with everybody in this space for years. So none of that changes.
Speaker Change: yes i'll start and now handed over to rob but we've been competing with everybody in this space
George Chappelle: I mean, every deal that we look at, we're never the only ones there, and I would say every entrant in the space is normally invited to every deal. So when it comes to the customer overlap, there is some, as you can imagine, because geography matters when you're looking at cold storage facilities, and there's a natural overlap there. But Rob, why don't you go into more detail?
Rob: for, you know, years. So, none of that changes. I mean, every deal that we look at, we're never the only ones there.
Rob: I would say every entrant in the space is normally invited to every deal.
Rob: So when it comes to the customer overlap, there is some as you can imagine because geography matters when you're looking at cold storage facilities and there's a natural overlap there. But Rob, why don't you go into more detail? Yeah, I mean, I would say Vince, it's probably pretty rare to see
Rob Chambers: Yeah, I mean, I would say, Vince, it's probably pretty rare to see large customers tend to single source 100% of their outsourced cold chains, so there tends to be a shared wallet across several competitors when you're talking about, you know, the large players in the space. Not always within the same geography because customers like to try to have large piles of their inventory in one location and not bifurcated across multiple facilities. So, you know, what you see is, generally, customers with one provider in a certain region but maybe multiple providers across several regions.
Rob: You know, large customers tend to single source 100% of their outsourced cold chain. So there tends to be shared wallet across.
Rob: several competitors when you're when you're talking about, you know, the large players in the space, not not always within the same geography, because customers like to try to have large piles of their inventory in one location and not bifurcated across multiple facilities. So, you know, what you see is generally
Rob: You know, maybe customers with one provider in a certain region, but maybe multiple providers across across.
Rob: We're obviously very proud of the fact that we have extremely high market share with the largest food manufacturers and the largest grocery retailers. We think that those best-in-class companies, like partnering with Americold as a best-in-class company, when it comes to the competitive dynamic, it all starts with customer service. Customer service is the most important thing to our customers. After you go down from customer service, location is probably next, and after location, it would be price. So we're focused on delivering the best-in-class customer service and the most comprehensive suite of value-added services, and then from there, we think the rest will take care of itself.
Rob Chambers: We're obviously very proud of the fact that we have extremely high market share with the largest food manufacturers and the largest grocery retailers. We think that those best-in-class companies like partnering with Americold as a best-in-class company. When it comes to the competitive dynamic, you know, it all starts with customer service. Customer service is the most important thing to our customers. You know, after you go down from customer service, location is probably next, and after location, it would be price. So, you know, we're focused on delivering the best-in-class customer service, the most comprehensive suite of value-added services, and then from there, we think the rest will take care of itself.
Rob: Several regions.
Speaker Change: ' obviously very proud of the fact that we have extremely high market share with the largest food manufacturer the largest grocery tailers we think that that those bestest in class companies like partnering with americle as the best class company when it comes to the competitive dynamic you know it all starts with customer serviceas customer services the most important things to to our customer
Rob: after you go down from customer service location is probably next and after location it would be priced so we're focused on delivering the best
Rob: in class customer service the most comprehensive suite of value-added services and then from there we think the rest takes care of itself
Rob Chambers: I'll just highlight the value-added services, the reason we're so focused on our services margins, our services capability, our workforce, etc.; that's where you can delineate yourself from a competitor. That's where you can add value to a manufacturer or a retailer by doing more work within your facility, freeing up work in theirs to do other things, which most often is produce more product or sell more product. The one area where I think there's a lot of competitive advantage across the space is in the value-added services area, and that's why we're so intentional.
Rob: I'll just highlight the value-added services, the reason we're
Rob: We're so focused on our services margins, our services capability, our workforce, etc. That's where you can delineate yourself from a competitor. That's where you can add value to a...
Rob: a manufacturer a retailer by doing more work within your facility
Rob: Freeing up work and there's to do other things which most often is produce more product or sell more products So the one area where I think there's a lot of competitive advantage Across the space is in the value-added services area and that's why we're so intent on running it well and expanding it
Rob Chambers: And ultimately, it's why we have made the investment that we have in our supply chain solutions group. And you know, it's an area where my prepared remarks talked a lot about the differentiators that that group provides, and whether it be the supply chain optimization work that we're able to perform, the design capabilities that we have, the green solutions that we're building, all of those capabilities are differentiators that we've invested significantly in and really resonate with our customer base.
Rob: And ultimately, it's why we've made the investment that we have in our Supply Chain Solutions Group. And it's an area where, in my prepared remarks, I've talked a lot about the differentiators that that group provides.
Rob: and whether it be the supply chain optimization work that we're able to perform, the design capabilities that we have, the green solutions that we're building, all of those capabilities are differentiators that we've invested significantly in and really resonate with our customer base.
Operator: Thank you. The next question comes from the line of Nick Thillman with Baird. Please go ahead.
Operator: Thank you. The next question comes from the line of Nick Thillman with Baird. Please go ahead.
nicktillman: thank you next question comes on the line of nicktillman for bedad please go ahead
Unknown Speaker: Hey, guys, maybe touching a little bit on throughput. Looking at just 2Q, it's still down year on year. Can you like adjust what that number would be? I know there's a cybersecurity incident in 2023 in the second quarter. So what that number would be, if you adjusted that on a normalized number, just kind of looking at what it would be year on year for
Nicholas Thillman: Hey guys, maybe touching a little bit on throughput. Looking at just 2Q, it's still down year on year. Can you like adjust what that number would be? I know there's a cybersecurity incident in 2023 in second quarter. So what that number would be, if you adjusted that on a normalized number, just kind of looking at what it would be year on year for
nicktillman: Hey guys, maybe touching a little bit on throughput, looking at just 2Q, it's still down year on year, can you like adjust?
Nick Tillman: What that number would be. I know there's a cybersecurity incident in 2023 on second quarter. So what that number would be if you adjust that on a normalized number, just kind of looking at what that would be year on year for volumes.
George Chappelle: I don't know that we ever went back and adjusted volume, Nick. We always said there was three cents of earnings lost in that quarter as a result of the cyber incident, but I don't think we ever went back and said normalized throughput and normalized, well, throughput was the big issue. So I don't recall ever doing that, so I don't think I can comment on that.
Speaker Change: I don't know that we ever, um...
Speaker Change: went back and adjusted volume, Nick. We always said there was three cents of earnings lost in that quarter as a result of the cyber incident, but I don't think we ever went back and said normalized throughput and normalized
Speaker Change: while throughof this a big the big issue so i i don't work all ever doing that so i don't think i can comment on that we did say we lost three cent earnings in the quarter that waswith in our results so
George Chappelle: We did say we lost three cents of earnings in the quarter. That was in our results. So I don't think we did normalize throughput. And for me, again, I'm a sequential guy. If you look at Q1, we're at 86.81, and Q2 we're at 87.17, which is a normal sequential trend. So hard to break it apart more than that, but I would say our sequential throughput trend is normalizing post, you know, all the different disruptions that have happened in the past.
Speaker Change: i don't think we didn't the life and for me again i'm a sequential guy you look at at q one you know we're at eighty six eighty one q two or eighty seven seventeen you know which is a normal sequential trend so you know hard to talk hard to
Nick Tillman: breakking apartpart more than that i would say our sequential throughput trend is normalizing post post all the all the different disruptions that has happened in the past
Unknown Speaker: Okay, that's helpful. And then just touching on unit economics, or just kind of that service margin side of the business. I'm just looking at kind of the labor component of that. Is that more so the actual productivity of labor? Or have you also like reduced the hours for employees? Or just staffing levels in general, just given the lower volume? Can you give me like a mix between those two components?
George Chappelle: Okay, that's helpful. And then just touching on unit economics, or just kind of that service margin side of the business. I'm just looking at kind of the labor component of that. Is that more so the actual productivity of labor? Or have you also like reduced the hours for employees? Or just staffing levels in general, just given the lower volume? Can you give me like a mix between those two components?
Speaker Change: Okay, that's helpful. And then just touching on unit economics or just kind of that service margin side of the business, I'm just looking at kind of the labor component of that. Is that more so the actual productivity of labor or have you also like reduced kind of hours for employees?
Speaker Change: or just stafing levels in general just given the lower volume can you give it like a mix between those two components
George Chappelle: Yeah, if you just if volume goes down and labor goes down, commensurately, margins don't increase, right? I mean, that's, that's, that's the way the math works. So if you look at productivity, which is what we've been driving through the system, we do the same amount of work on a relative basis with fewer people because they're more productive. And the example I've used in the past is if we had a year ago, 10 people, and they could move two pallets an hour, that's 20 pallets an hour. Those same two, 10 people are going to move 10 pallets an hour.
Unknown Speaker: Yeah, if you just if volume goes down and labor goes down, commensurately, margins don't increase, right? I mean, that's, that's, that's the way the math works. So if you look at productivity, which is what we've been driving through the system, we do the same amount of work on a relative basis with fewer people because they're more productive. And the example I've used in the past is if we had a year ago, 10 people, and they could move two pallets an hour, that's 20 pallets an hour. Those same two, 10 people are now moving 10 pallets an hour. We're moving 100 pallets an hour.
Speaker Change: Yeah, if you just, if volume goes down and labor goes down commensurately, margins don't increase, right? I mean, that's the way the math works. So if you look at productivity, which is what we've been driving through the system, we're doing the same amount of work on a relative basis with less people because they're more productive.
Nick Tillman: The example I've used in the past is that we had a year ago 10 people and they could move 2 pallets an hour, that's 20 pallets an hour. Those same 10 people are now moving 10 pallets an hour. We're moving 100 pallets an hour. Now we need less people to move.
George Chappelle: We're moving 100 pallets an hour now, so we need fewer people to move the, you know, more pallets. So that's kind of how productivity works. And we've been driving that very, very hard for the last year, as you know, and well, two and a half years when it comes to rebuilding the workforce, but now seeing improvements in services margins. The last, you know, three quarters, and that's a result of productivity taking hold via training and other activities engagement that says the same people can move more pallets in an hour than they could three quarters ago.
Unknown Speaker: Now we need fewer people to move the, you know, more pallets. So that's kind of how productivity works. And, and we've been driving that very, very hard for the last year, as you know, and well, two and a half years when it comes to rebuilding the workforce, but now seeing improvements in service margins.
Nick Tillman: So that's kind of how productivity works, and we've been driving that very, very hard for the last year, as you know, well, two and a half years when it comes to rebuilding the workforce, but now seeing improvements in services margins.
Nick Tillman: The last, you know, three quarters and that's a result of productivity
Nick Tillman: taking hold via training and other activities, engagement that says the same people can move more pallets in an hour than they could three quarters ago. Yeah, no, and you know, that's a key productivity stat we follow. If you look at year over year, it's taken our folks, you know,
George Chappelle: Yeah, no, and you know, that's a key productivity stat we follow. And if you look year over year, it's taken our folks, you know, better than 10% less time to move a single pallet, and that's really the productivity side, not cutting the labor force side.
Nick Tillman: It's better than 10% less time to move a single pallet and that's really the productivity side not cutting the labor force side
Operator: Thank you. The next question comes from the line of Ki-Bin Kim with True Securities. Please go ahead.
Operator: Thank you. The next question comes from the line of Ki-Bin Kim with True Securities. Please go ahead.
Nick Tillman: Thank you. Next question comes from the line of Ki-Bin Kim with True Securities. Please go ahead.
Unknown Speaker: Thank you, good morning. I just want to go back to the general rate increase topic. You know, if we had a benign inflationary environment of, let's say, 2%, what does that get you in terms of just organic GRI price increases?
Ki Kim: Thank you, good morning. I just want to go back to the general rate increase topic. You know, if we had a benign inflationary environment of, let's say, like, 2%, what does that get you in terms of just organic GRI price increases?
Ki-Bin Kim: Thank you. Good morning. Just want to go back to the general rate increase topic. If we had a benign inflationary environment of, let's say, like 2%, what does that get you in terms of just organic GRI price increases?
George Chappelle: Yeah, I'll ask Rob to comment in a minute. But, as you know, they come in different sizes, depending on the size of the customer, whether it's a contracted customer or a WRA agreement, etc. Rob, why don't you go through the details?
Speaker Change: Going forward.
Rob: Yeah, I'll ask Rob to comment in a minute, but as you know, they come in different sizes depending on the size of the customer, whether it's a contracted customer or a WRA agreement, et cetera. But Rob, why don't you go through the details? Yeah. Yeah. I mean, look, I would say in a normal environment...
Rob Chambers: Yeah, I mean, look, I would say in a normal environment, you're sitting around three and a half to four and a half percent on annual GRIs. And then there's incremental, you know, pricing work that we always are focused on if we have contracts that are coming up for renewal that may have been below market or the focus that we have on new business and the forward view that we take on pricing there. So GRIs end up in that three and a half to four and a half. And then there's opportunity for upside with other pricing levers that we take.
Rob: you're sitting around three and a half to four anda half percent on annual giz and then there's incremental pricing work that we always
Rob: are focused on, if we have contracts that are coming up for renewal that may have been below market, or the focus that we have on new business.
Speaker Change: and the forward view that we take on pricing there. So, GRIs end up in that three and a half to four and a half, and then there's opportunity for upside with other pricing levers that we take.
Ki Kim: Okay, thanks. And, you know, given a new competitor, at least in the public space, I'm sure you've gone through some of the disclosures. I was just curious, kind of high-level, you know. I'm sure there are things that you do really well and other people do well too. Are there other avenues that you think there are for improvement? And, you know, I guess what's the chance that Project Orion goes forward? There's another, you know, Project Orion 2 going forward. I'm looking.
Speaker Change: Okay, thanks. And, you know, given a new competitor, at least in the public space,
Speaker Change: I'm sure you've gone through some of the disclosures, I'll just create a kind of high level You know, I'm sure there's things that you do really well and other people do well, too
Speaker Change: are there other avenues that you think there are for improvement and you know i guess what's the chance that project or ryion close to like there's another know ped wrright to going forward
George Chappelle: Look, when it comes to Project Orion, we're emboldened by the success of Project Orion, and we'll clearly invest in systems in other areas of the company. I think we've got a very strong talent for implementing systems and implementing systems in a way that drives earnings per share, so we're very excited about that. When it comes to our new public competitor, we've been competitors for a long, long time. We don't really see a lot of change in that.
Speaker Change: id look at when it comes to proct we're em boldened by the success of project arri and
Speaker Change: willll clearly invest in systems in other areas of the company i think we've got a very strong talent for implementing systems and implementing systems in a way that drive
Speaker Change: Earnings for Share. So we're very emboldened by that.
Speaker Change: When it comes to our new public competitor, we've been competitors for a long, long time.
George Chappelle: We did take a look at the S11, we published a document on our website, and we highlighted some areas where we think we're a little bit better, and I'm sure there are areas where we're not as good. I think I've been saying that for a couple of years now, but the point is we now feel like we have a competitor. We're very competitive people, and we expect to continue to grow and do very well.
Speaker Change: We don't really see a lot of change in that. We did take a look at the S11, we published a document on our website, we highlighted some areas.
Speaker Change: We think we're a little bit better and I'm sure there are areas where we're not as good. I think I've been saying that for a couple of years now, but the point is we now feel like we have a competitor. We're very competitive people and we expect to continue to grow and do very well.
Operator: Thank you. The next question comes from the line of Craig Mailman with Citi. Please go ahead.
Operator: Thank you. The next question comes from the line of Craig Mailman with Citi. Please go ahead.
Speaker Change: Thank you. Next question comes from the line of Craig Mailman with Citi. Please go ahead.
Craig Mailman: Hey, good morning. Maybe just hitting on sort of the trajectory here or risk to rent growth or occupancy as we head into 25. Just looking at your expiration schedule, I mean, 71% of the kind of fixed commit rents expire through 26. And there's, you know, a good amount of slack in the system from a physical occupancy standpoint. And you look at the USDA numbers, I mean, you're still below 2016 levels, right? And your tenants are under margin pressure. Just at what point do they say that?
Speaker Change: a good morning um maybe just hitting on
Craig Mailman: sort of the trajectory here or risk to rent growth or occupancy as we head into
Craig Mailman: to 25. Just look at your expiration schedule. I mean, 71% of the kind of fixed commit rents expire through.
Speaker Change: 26. And there's, you know, a good amount of slack in the system from a physical occupancy standpoint. And you look at the USDA numbers, I mean,
Speaker Change: You're still below 2016 levels, right? And your tenants are under margin pressure. Just at what point do they say
Unknown Speaker: We'll keep the space. GRI increases in a low inflationary environment, but, you know, they've been getting hit over the head with
George Chappelle: We'll keep the space, but you went got rent reductions, right? Like you're talking three to four and a half percent GRI increases in a low inflationary environment, but you know, they've been getting hit over the head with, the customer could be under pressure here for a while going forward. So, I'm just kind of trying to put all the pieces together.
Speaker Change: will keep the space
Speaker Change: but room went rent reductions right like you're talking three to four and half percent gi increases in the low inflationary environment but you know they be get hit over the head with
Speaker Change: kind of inflation ary cost increase in the last couple of years and that their customer is stretched and even with potential rate declines here you've gotunemployment ticking up you have waage slowing like
Craig Mailman: The customer could be under pressure here.
Craig Mailman: for a while going forward so I'm just kind of
George Chappelle: I know, you know, your margins are going higher, and that's a positive, but on the other side, right, end user demand is down, and you're seeing economic occupancy fall. You're seeing physical occupancy fall, and most real estate supply and demand, right, rents eventually fall in that scenario. So, I'm just trying to kind of bridge all the comments on the call to get a sense of, as we head into 2025, should we be putting a break on expectations here for continued kind of the same sort of growth the way you've had it?
Speaker Change: trying to put all the pieces together i know you know your margins are going higher
Speaker Change: and that's a positive, but on the other side...
Speaker Change: Ed user demand is down. You're seeing economic occupancy fall, you're seeing physical occupancy fall, and most real estate supply and demand, rents eventually fall in that scenario. So I'm just trying to kind of...
Speaker Change: really bridge all the comments on the call to get a sense of as we head into 2025 I mean should we be putting a brake on on expectations here for continued kind of same sort growth the same way you've had it this year?
George Chappelle: Well, I was going to say the only thing not falling is our earnings per share, right, Craig? I mean, they're up consistently every quarter this year, second two quarters this year in a row.
Speaker Change: well that's going to say the only thing not following is our earnings for share right crig i mean they're up consistently every quarterof this year as the second two port is this year in row so
George Chappelle: So look, all the pricing we pass through to our customers has to do with inflation we incur. I would say 90% of that was labor inflation. As you know, labor is the biggest expense we have in our company. We're not going to give labor decreases in our company. I'm pretty sure our customers aren't either. So, there's no room for price decreases in our business. We haven't expanded margins on price when it comes to inflation, and we've recovered from inflation.
Speaker Change: Look, all the pricing we pass through to our customers have to do with the inflation we incur. I would say 90% of that was labor inflation. As you know, labor is the biggest expense we have in our company.
Speaker Change: We're not going to give labor decreases in our company, and I'm pretty sure our customers aren't either. So there's no room for price decreases in our business. We haven't expanded margins on price when it comes to inflation, and we've recovered the inflation.
George Chappelle: Now, we've expanded margins by working better internally, as we talked about on the call, and that's what's driven our AFFO per share up both quarters this year, and it'll continue to improve with the new systems we have in place. Throughput and occupancy have been a problem for a year now.
Speaker Change: Now, we've expanded margins by working better internally, as we talked about on the call, and that's what's driven our AFFO per share up both quarters this year, and it'll continue to improve with the new systems we have in place.
Speaker Change: Throughput and occupancy have been a problem for a year now. I think there's hope because there's wide recognition that interest rates are coming, interest rate cuts are coming.
Rob Chambers: I think there's hope because there's wide recognition that interest rates are coming, interest rate cuts are coming, and that will increase disposable income significantly for the customers that you mentioned, or consumers that affect the customers you mentioned, and I think there's a positive outlook there if those interest rates come. We continue to grow our AFFO. We can do that in any environment, as we've said multiple times, and we don't see an end to that growth. And then, you know, the point that I would add. I mean, look, as George said over the last... 12 months plus, we've been in this environment.
Speaker Change: And that will increase disposable income significantly for the...
Speaker Change: for the customers that you mentioned, or consumers that hit the customers you mentioned, and I think there's a positive outlook there if those interest rates come. But we continue to grow our AFFO. We can do that under any environment, as we've said multiple times, and we don't see an end to that growth.
Speaker Change: and then you the point ed out would add i mean look as george said over the last
Unknown Speaker: Twelve months plus we've been in this environment, and you've seen us continue to grow our fixed commitments. You've seen our churn rate remain consistent, and the reason for that is customer service. I said earlier in the call that customer service is the most important factor to our customers, because when you have a provider that provides poor service, a 3% or a 4% GRI pales in comparison to the cost associated with poor service.
Rob Chambers: You've seen us continue to grow our fixed commitments, and you've seen our churn rate remain consistent. And the reason for that is customer service. I said earlier in the call that customer service is the most important factor to our customers, because when you have a provider that provides poor service, a 3% or a 4% GRI pales in comparison to the cost associated with poor service. So our focus there on providing best-in-class customer service is why our customers stay with Americold.
George: 12 months plus we've been in this environment. You've seen us continue to grow our fixed commitments. You've seen our turn rate remain consistent. And the reason for that is customer service. I said earlier on the call that customer service is what is the most important factor.
Speaker Change: to our customers because when you have a provider that provides poor service, a 3% or a 4% GRI pales in comparison to the cost associated with poor service. So our focus there on providing best-in-class customer service is why our customers stay with Americold. It's why our relationships with those big customers are decades long, and I think we'll just continue to see that grow.
Unknown Speaker: So our focus there on providing best-in-class customer service is why our customers stay with Americold. It's why our relationships with those big customers are decades long, and I think we'll just continue to see that grow. Todd Thomas with KeyBank Capital Markets, please.
Rob Chambers: It's why our relationships with those big customers are decades long, and I think we'll just continue to see that grow. Thank you. Next question comes from the line of... Todd Thomas with Keybank Capital Market, please. Yeah, hi, thanks. Good morning.
Operator: Thank you. The next question comes from the line of... Todd Thomas with KeyBank Capital Markets, please go ahead.
Speaker Change: Thank you. Next question comes from the line of...
Speaker Change: torour thommss with keyban capital market placease ahead
Speaker Change: Yeah, hi, thanks. Good morning. Last quarter.
Speaker Change: You mentioned some positive commentary out of the CAGNY conference around the consumer and the potential lift in throughput.
Speaker Change: that was being discussed through retail or marketing efforts. You know, you're talking about lower throughput now in the second half of the year. Just any sense, you know, sort of what changed between then and now and why the promotional activity is not translated?
Todd Thomas: Yeah, I think number one, the promotional activity did occur. There was a lot of spending around the summer grilling season, going into Memorial Day and straight through July 4.
Speaker Change: Yeah, I think number one, the promotional activity did occur. There was a lot of spending around the summer grilling season going into Memorial Day and straight through July 4th. So it's not a lack of promotional spending. The problem is the.
George Chappelle: So it was not a lack of promotional spending. The problem is that the prices in the store are so high right now, even discounted; the consumer did not rise to the occasion of buying more products. And it just gives you an idea of how big the price gap is between the selling price at the store and what the consumer has for disposable income. So every activity that we thought would occur did, and the promotional spending was very heavy. It just didn't squeeze the gap between price.
Speaker Change: The prices in the store are so high right now, even discounted, the consumer did not rise to the occasion of buying more products.
Unknown Speaker: And it just gives you an idea of how big the price gap is between the selling price at the store and what the consumer has for disposable income. So every activity that we thought would occur actually did.
Speaker Change: and it just gives you an idea of how big the price gap is between selling price of the store and what the consumer has for
Speaker Change: for disposable income. So every activity that we thought would occur did. The promotional spending was very heavy. It just didn't squeeze the gap between price and what a consumer is willing to pay close enough. And it gives you an idea, I guess, when we talk about 20 to 40% higher prices in the grocery store, depending on the category.
Unknown Speaker: The promotional spending was very heavy, but it just didn't squeeze the gap between price and what a consumer is willing to pay close enough. And it gives you an idea, I guess, when we talk about 20 to 40 percent higher prices in the grocery store, depending on the category. But while promotional activity is normally aggressive, it typically doesn't go to 40 percent. And I think the gap left between even the net promotional price and the consumer was too wide. It's as simple as that.
Speaker Change: You know, while promotional activity is normally aggressive, it typically doesn't go to 40%. And I think the gap left between even the net promotional price and the consumer was too wide. It's as simple as that.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Rob Chambers: And then our customers see the benefit, not just in terms of the stability of making sure that space is available for them now, but ultimately because they really do believe that that volume will be there as we go into the busy season this year and then out into the future. Remember that those fixed commitments tend to be multi-years in length. They're not short-term fixed commitments; those are multi-year fixed commitments, and that's the way our customers are viewing them.