Greetings and welcome to the Americold Realty Trust third quarter 2019 earnings conference call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Scott Henderson, Senior Vice President, Investor Relations and Capital Markets. Please proceed.

Good afternoon. We would like to thank you for joining us today for Americold Realty Trust third quarter 2019 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional details on our results, which is available in the Investors section on our website at www.americold.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions and beliefs, as well as information available to us at this time and speak only as of the date they are made and management undertakes no obligation to update publicly any of them in light of new information or future events. During this call, we will discuss certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures is contained in the supplemental information package available on the company's website. We would also like to note that numbers presented in today's prepared remarks have been rounded to the nearest million with the exception of per share amounts. This afternoon's conference call is hosted by Americold's Chief Executive Officer, Fred Boehler and Executive Vice President and Chief Financial Officer, Marc Smernoff. Management will make some prepared comments, after which we will open up the call to your questions. Now I will turn the call over to Fred.

Thank you and welcome to our third quarter 2019 earnings conference call. This afternoon, I will provide highlights for the quarter, discuss macro trends driving our business and update you on our growth activity. Marc will follow with a review of the third quarter results and then discuss our balance sheet and outlook. After our prepared remarks, we will open the call for your questions. The third quarter was a strong quarter for Americold. We reported total company revenue growth of 16%, total company NOI growth of 18.9% and core EBITDA growth of 21.6%. This was driven primarily by three factors. First, the contribution from our second quarter acquisition. Second, as our platform and scale grow we continue to benefit from improved operating efficiencies and integration synergies. As a result total company NOI margin increased 65 basis points to 25.9%. And core EBITDA margin increased 92 basis points to 20%, compared to the third quarter last year. And third our core portfolio continues to perform well. On a constant currency basis, same-store global warehouse segment revenue grew by 3.3% and NOI grew by 2.3%. Year to date, same-store global warehouse segment revenue grew by 3.2% and NOI grew by 3.4%, also on a constant currency basis. Our performance was supported by favorable macro trends. We continue to expect that demand will rise steadily with population and consumption growth. In addition, consumer preferences continue to shift towards healthy, perishable food. Manufacturers are supporting this demand through the introduction of new products and reformulations of old. This increases the need for temperature-controlled storage. Across our portfolio, we see no signs that these trends will change. And we believe we are uniquely positioned to capture outsized market share utilizing our fully integrated infrastructure. On the supply side, significant barriers to new development remain…

Thank you Fred and good afternoon everyone. Today, we will provide updates on our actual performance as well as certain metrics on a constant currency basis. We reported total company revenue of $466 million and total company NOI of $121 million, which reflects a 16% increase and an 18.9% increase year-over-year, respectively. Core EBITDA was $93 million for the third quarter of 2019, an increase of 21.6% year-over-year primarily driven by our 2019 acquisition, solid growth in our core portfolio and continued improvement in operating efficiency. Our core EBITDA margin grew by 92 basis to 20%. Please note, our strong core EBITDA growth and margin improvement were impacted by factors including higher healthcare expenses related to an increase in high-dollar claims, the J curve associated with implementing and aligning our recent acquisition to the Americold operating structure and practices, startup cost related to our Chicago development project and the currency translation impact of the strengthening of the U.S. dollar. It is important to note that higher healthcare costs were not related to workers' comp, but rather made up of certain high-dollar claims from associate and their dependents utilizing their healthcare benefits. As we have noted in the past, our quarterly results can be lumpy due to the timing of certain factors such as healthcare expenses, which is why we recommend continuing to focus on an annual rather than quarterly results. For the third quarter 2019, we reported net income of $27 million compared to net income of $25 million for the same quarter of the prior year. Our third quarter core FFO was $59 million or $0.30 per diluted share. Our third quarter AFFO was $52 million or $0.27 per diluted share. As a reminder, the full definition and reconciliation of core EBITDA, core FFO and AFFO to reported net…

Thanks Marc. We are very pleased with our performance so far in 2019. We continue to generate strong results from our same-store portfolio as well as grow our business through strategic developments and acquisitions which are fully funded with long term capital. As we look towards the end of 2019 and into next year, we believe Americold is uniquely positioned to continue to drive long term growth and create shareholder value through best-in-class operational expertise and accretive portfolio growth, I would like to thank all of our associates for their continued hard work and outstanding contributions as we continue to grow our company and serve our global customer. Thanks again for joining us today and we will now open the call for your questions. Operator?

[Operator Instructions]. Your first question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed with your question.

Thanks. Good afternoon everyone. Can we first start off on the expenses side? So if I just try to remember correctly, I thought the expense comps still negative will still be tough in the second half but I thought that supposed to get better, because I think you had a $2 million negative comp variance last quarter year-over-year and it was supposed to be like $1 million in the second half. It was supposed to just get better, but it looks like it got worse. So can you help me understand that better?

Yes. So clearly, as we spoke about it in our prepared remarks, in the third quarter we had a higher number of high-dollar health insurance claims, approximately $3 million, in our same-store portfolio. So if you look at that, that contributed roughly 330 basis point reduction in what we would have seen in our normalized NOI growth rate for the warehouse segment or for the same-store warehouse segment. So it's really isolated around that number. We will say, over time, look, we have roughly several thousand of our employees on our health care program and we are self-insured and we will see over time some variation in that number. I would say that, we don't believe this is a trend but over time, over long a long thing, given that population, you may have quarters where you have higher healthcare cost. This happened to be one of them.

Okay. And that $3 million, I am just trying to get a better sense of when that starts to, just how that dissipates over time?

It was fully incurred this quarter.

Yes. So I mean is it one from now that will be gone or will it ratchet down pro rata somehow, over the next four quarters?

No. Ki Bin, these are like costs for medical procedures that happened during the quarter. So they are fully accrued.

I see. Now maybe bigger picture. Are there ways that you are thinking about to maybe take the edge of these volatile expenses? I am not sure is reinsurance is even a possibility. But are you looking into anything like that?

Yes. We do retain everything reinsurance for extreme high dollars claims. The increase that we saw this year, these are when we talk high-dollar claims, we are talking about claims in excess of $0.25 million for an individual claim. We had a significant number in this quarter. We don't believe again that it's a trend. And we do retain reinsurance above that level. But just as you know, despite regular car insurance, you don't have a zero deductible. It's prohibitively cost expensive it. We believe over the long term we retain the appropriate level of reinsurance to manage the rest of the business.

Thanks. And just my last.

And Ki, just to follow-up on that again, looking at it on an annual basis. This is one of those items that we have called out before that can fluctuate on a quarterly basis. But over the span of the year, it tends to work itself out through the expenses. So again, that's another reason why we book this on a full year.

Okay. And in terms of like the revenue side of the business, the business trends. Can you just give us a little more clarity on some operating stats like the lease spreads year-to-date in 2019 and maybe the rent growth that you have seen? And I know customer retention is probably a tricky stat given that 50% of your revenue is on month-to-month or not fixed rate commitments. But maybe just providing a little more color, just so that we get a better business sense of what's going on?

Yes. As I mentioned in the individual categories and breaking apart, you probably best se this in our same-store portfolio. We are actually seeing decent revenue growth and we continue to hold our guidance for the full year. Specifically in the quarter on a constant currency basis, we saw rent and storage revenue growth of roughly 2.6% and we saw warehouse services growth of 3.9%. On average, for the whole segment roughly 3.3% which is just above the kind of midpoint of our guidance range.

Yes. I guess I was asking about what line items contributed to that 2.6% growth? So for example, I think one of that is lease expiration schedule, you obviously rent at least eight more into the expirations for this year. So just what kind of rental rate trends are you seeing when you are re-signing leases?

Yes. So if you come back to look at and this is in our supplement. So our same-store rent and storage per occupied pallet has roughly gone up about 4.4% year-over-year on average and on a constant currency basis closer to 5.5%. So we are seeing strong growth and as we mentioned roughly 4% growth on revenue per throughput pallet. So we continue to see strong revenue growth in the business.

And Ki, remember, on the leases and the renewals and such, our churn rate is very, very low, right. And I think we are talking about 3% to 4% churn rate. So very little rotation. So our customers are with us long term and we renew their contracts as we go.

Okay. Thank you.

Thanks Ki Bin.

Your next question comes from line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yes. Thanks. Fred, I wanted to touch on Rochelle developments. I believe I heard you correctly saying that you don't expect it to be stabilized in 12 months. Now you expect it to be stabilized in 18 months. Can you walk through why it's taking a little bit longer and what's your expectation there?

Yes. I think we said in the release that we expected to be between 12 and 18. It's all about ramping up and commissioning the automation. If you recall, a quarter ago we talked about the fact that we experienced some extreme weather delays in getting that building built, about 140 days above and beyond our original expectation. The building is 140 feet high. Wind gusts, ice, snow, rain any weather conditions you can think of affected our ability in being able to erect that, the racking and then the siding that goes that's attached to the racking. What that does is, that prevents us from being able to fully test and commission all of the automation that's within that building until you get the building wrapped. So as a result, that testing and kind of fine-tuning the automation didn't occur until late in the year when we were opening and we are expecting to onboard some business for a particular customer who was kind of in a pinch running up against the expiration with their current provider. So we onboarded that product in at the same time that we were commissioning. So we are burning in, if you will, the automation and getting it fine-tuned and we have made some decisions as we kind of late in the year to be a little cautious about overburdening that during the holiday season, the most critical time of the year. So we have onboarded. We have got a couple different customers in there. The system is working. It's just that we are right up against the holiday schedule which was unplanned due to the 140 days in delay. So we are just giving ourselves a little cushion there to say, that coming out of the holidays, we will start ramping more business into there and that stabilization could be somewhere between 12 and 18 months.

So what happened in the third quarter related to the financial impact? I guess, how much money did Rochelle add? And then I guess I am assuming fourth quarter is going to be fairly stable and then we start seeing a ramp up as you go into 2020? Is that correct?

Yes. As we mentioned in our prepared remarks, typically as we launch of the facility, there will be J curve. And I think we called out certain of the type of expenses that you would expect to see at the launch of the facility. Obviously, we are bringing down the labor, we are bringing down the temperature before the business is ramping in, we are dialing in the automation. So it's not uncommon and this is why we talk about typical standard year to stabilization being the first six months roughly being breakeven just as you have much higher cost as you are onboarding, learning the business, making sure your servicing the business and then it really ramps from there. And we expect to exit, just as we have always that first year on our stabilized run rate.

So was there a contribution to third quarter, because I guess it was completed when, between the first and second quarter and then if you are not putting on new customers in the fourth quarter, should we expect J curve ramp there? Or is it going to be kind of similar to what it was this quarter?

Yes. As I said, that J curve typically could take upwards of the first six months. So you think about really beginning of Q3 launch of the facility, so we expect to have those costs though the balance of the year.

Okay. Great. And then last question was --

That's reflected in our full year guidance.

Okay. And then last question. Marc, I think you said in the guidance that you still expect NOI growth to about 100 basis points higher than your revenue growth. Through the first nine months, it seems like it's only 20 points higher. So what's going to happen in the fourth quarter? Is it just that you typically see higher margins in the fourth quarter, given the seasonality and that's what's taking it up so significantly?

Yes. Michael, this is the busiest time of the year. So this is when you typically convert a little bit more. Again, this is why we look at the full year.

Okay. Great. Thank you.

Your next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.

Good afternoon guys. I just wanted to follow on Mike's question. So it sounds like you had a full expense rate for Rochelle end in the fourth quarter, if not before. Is that right?

That's correct.

Okay. And then I guess the second question was the margin enhancement. Can you kind of walk through what's going to get you to the 200 to 400 basis point of margin expansion in the fourth quarter to kind of get you on pace for the year? I mean it's almost upwards of 400 you would need and that would be great performance in the fourth quarter and obviously you guys have confidence in that. But just on top of the occupancy and the throughput, we just haven't seen that yet. And so I was just kind of curious if you could walk through some of the mechanics of getting up to that number?

Look, I think the warehouse segment performance actually is very strong. As I said in my prepared remarks, we had a significant dollar amount, roughly $3 million within our same-store cost that burdened our healthcare costs, that burdened our same-store services margin and that item alone was 330 basis points that impacted our same-store revenue growth. So we are talking about going from a 2.3% revenue growth up to 5.6%. So that's we are saying the continues to perform. We don't expect to see the healthcare that we saw this quarter. While this item is lumpy, it tends not to be sustained over long periods of time. And so we look at that. So if the core business performs and you can also take a look at our year ago margins too to see the impact to the volume that the fourth quarter has on the overall business.

Yes. So again, normalized healthcare as well as the ramp-up in business, when you talk about occupancy at this time of the year, remember, we have got such a diversified portfolio and assets that service a lot of different parts of the food supply chain. But this time of the year, this is where it's your key logistics centers, your key logistics markets, our distribution centers that really ramp up and everything on one of those markets are operating at 85% or higher. So they are very, very full. But not too full, which means that we are going to able to operate is highly efficiently by not overfilling the facilities and being at a 100% we are likely used to be in the past. So this is a high-efficiency quarter for us and that's why the NOI is outsized.

Got you. I appreciate the added color. On the G&A, maybe for Marc, you did talk about synergies that you getting post the Cloverleaf transaction. But I wanted to ask, the G&A was up sequentially even if you kind of back out I think some of the one-time items in the quarter. Is that still a good run rate going forward? Or do you expect to be able to take some of the synergies out of that line? Or are we seeing them come from somewhere else?

As I said, roughly, we have identified an action, an additional $4 million on an annualized basis of synergy that we should continue to see benefit overall spend on the go forward basis.

And was the $6 million annualized fully reflected in the third quarter?

Well, the $6 million on an annualized basis, so it wouldn't be all $6 million in that quarter would to be the annualized impact of that kind of midway through the quarter, if you think about it.

More midway. So there's some benefit to the fourth quarter. Okay. That's helpful. And then lastly, Fred, can you talk about the outlook or the appetite, obviously the appetite, but the pipeline for acquisitions, the opportunities that you are seeing out there, given your liquidity today?

Yes. The same opportunities that we have seen, we have got a, as I said, on the acquisitions front, we cast out a very wide net. We are going to remain disciplined and make sure that we are buying things that makes sense and fit within our portfolio in a way that we fully integrated our enterprise. So again, our approach is still on integration. And that's important to us. And so, look, we are looking at a number of things. If something happens, we will action it. If not, now remember the other part of our growth pipeline is the development pipeline and that continues to be very robust. We still have a pipeline in excess of $1 billion. So you will see us continue to execute on that in addition to the buybacks of active projects we have got going right now.

Thank you.

Sure. Thanks Dave.

Your next question comes from the line of Manny Korchman with Citigroup. Please proceed with your question.

Hello. Thanks. Fred, maybe to follow-up a little bit on Dave's question. In your press release, you talked about a wealth potential opportunities. Is there something special you are looking at now that you would include that line in the release? And with that line, were you talking about acquisitions and developmental? Or you were talking about sort of lease-up opportunities, more specifically?

I think we are speaking more about acquisitions and development. We are talking about growth.

And is there something going on at the moment that you chose to lead with that in your prepared quotes and the release? Or is it just more of the same and you chose to just highlight it?

Yes. I think we highlight it in every press release because it's a fundamental part of our growth strategy. We don't give guidance on acquisitions. We say that that will be lumpy because of the fact that we are hunting and packing to find the right acquisitions. But the development pipeline continues to be really strong. So this development pipeline has been the size ever since we went public. We have executed on a tremendous amount of it and we plan on continuing to do so. So we are just calling out that that growth continues to be strong and has fuel for us.

Yes. I mean our long term model, I think, as you have heard us talk about is, our goal is to start roughly between $75 million to $200 million in new development projects in a given calendar year. And we believe our pipeline is robust and continues to support that level of development growth.

Okay. If we can hop back to the discussion on the healthcare costs, just to help frame sort of what's going on? What is sort of your annual outside of just the premiums spend? So those costs that you highlighted in the quarter, what's your total sort of annual spend on those? And then what were they in total in the quarter that would have been higher than what you expected, if that makes sense?

Yes. Exactly as we said, on an annual basis, our total healthcare spending in our same-store to be close to in aggregate dollars around $40 million. So this could give a sense of that $3 million move is about roughly a 10% move on an annual basis and obviously a much larger percent move if you are thinking about the quarterly impact to that.

So instead of $10 million, you spent $13 million in the quarter?

Right.

And so we should think about it being sort of like a mark? There is no reason for you expect that it would be higher going forward?

Yes. Look, when we look back at our healthcare expenses over time, not just the more, we have seen roughly about 5% growth over the long term in overall healthcare spending. We factor that into our cost model and our escalation. What I would you say, the thing I think we look at while we will, as a business going forward in the future, we may see this level of lumpiness in select quarters. Overall, what I would say is this is the least controllable of all the expenses that we manage. The core business expenses, the operation, the efficiencies, the workers' comp, those are performing. This is something that is one of those items that's probably a little more unique to our business than others. And so we do our best managing it. We have brought a investment through HR around health and wellness program but look, I wish we all had a crystal ball to make sure if you were to get affected to do something about it.

And last one for me. The preferred income tax benefit in the quarter was much higher than we had expected. Is that an item that's going to continue at sort of those levels? Or what will be a more normalized level to think about going in to the future?

Yes. What that particularly related to was the fact that our legacy business had some NOLs in our TRS and with the addition of the acquisition, we were able to take advantage of some of those NOLs which were previously reserved. And so as we acquire businesses in the future and we continue to grow earnings, we do think that there could be some level of benefit. But I think you will see those bigger moves in connection with when we make acquisitions.

Thanks Marc.

Thanks Manny.

Your next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.

Yes. Hi. Two questions here. And first I apologize for another Chicago one. But just the startup cost in the third quarter, should we expect a similar, I know you touched on this but I don't think it was answered explicitly this way. Should the drag or the startup cost in 4q be fairly similar to what we saw in 3Q? Or will they be notably different for some reason?

The cost base is more in there. But as Fred said, this fourth quarter is the busiest quarter of the year. Our focus as a business is really on making sure we are serving our customers and performing for them during this busy season. So I would expect not significantly greater cost, but I would also expect the ramp to really not be focused until the early part of next year.

Got it. Okay. And then I guess when we are thinking development investment over the next three years, five years, what do you think the most in terms of annual development spend we will see is in a given year, once you have ramped up?

Yes. Look, I think we gave guidance today of $75 million to $200 million. Certainly, we are excited about the pipeline that we have out there. But you have got a mix of opportunities out there, some of which are customer dedicated builds and some of which are more market builds like our Chicago or like our Atlanta project. Those market builds, we have a little bit more control over the timing. The customer builds, as we have discussed in the past, can fluctuate because we are probably kind of at the mercy of the customer and their timing. So it's really hard to kind of pinpoint the exact number.

Got it. Okay. That's it. Thank you.

Your next question is a follow-up from Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed with the question.

Thanks. Any new updates on the Woolworths development in Australia in terms of timing?

Sure. Speaking of customer chosen time lines, that's a good one, Ki Bin. We continue to work with that customer. I don't anticipate any news coming up soon, just with a lot of things that are going on, I mean they are working in their fourth quarter, which is their busiest time of the year right now and they have got an automated dry facility of their own that they are working through. So look, we continue to work with them and commercialize the deal as well as work through detailed design. And we will know more as soon as the customer is ready to go. As you know, we took action and pushed out the forward because of our belief of matching funds with development projects. If we are not breaking ground at the beginning of the year, we are confident that something else will be, so again thanks to having a rich pipeline.

And a, what's the probability of that deal actually ever even canceling? Is there almost like a zero probability of that happening?

Well, I will never say zero, Ki Bin. But it's a big project, it's a big customer. Will it look exactly like it was when we started working on this two years ago, probably not. But we expect to get the same returns out of whatever we do for them and we will announce that as it comes about.

Okay. And just last question. Do you see much different rent growth patterns when you look at your distribution facilities versus the production advantage facilities?

No. Really across our entire portfolio, even our public warehouses, we tend to see the same types of rent increase and storage handling increases throughout all of our services and throughout all of our distribution types.

Yes. The numbers I quoted earlier, kind of the weighted average cost of our portfolio.

But they are pretty consistent, not a whole lot of fluctuation between them.

Okay. And this is a hard concept for me and I think a lot of people to understand and that's like the market rent growth rate, right. So not the in-place rents you are getting or higher revenue per pallet, but just the market overall. How would you describe the market rent growth in cold storage? And is there any kind of big trends between like different cities or geographies?

Look, I think the market, as Fred mentioned and we have talked about it for some time, remain tight. This is still a market where you do not see people building on spec. These are very expensive purpose driven mission-critical assets and I think the market remains very disciplined.

I think the other thing to remind you of is, again, this as an industry does not rack rates. There is nobody out there publishing per square foot rental rates and that type of things. Our pricing is unique to every individual customer based on the profile of their business, the space that they take out, the size of their pallet, the amount of time to turn, the amount of handling, lots of different things that go into our pricing. So typically what happens, Ki Bin, is just if we are giving increases on an annual basis of 2% to 4% a year and we are at the end of a five-year contract and are renewing a new five-year contract, it pretty much carries on through into the new contract.

That 2% to 4% increase trend you mean?

Correct.

I see. All right. And then you said your turnover rate is 3% to 4%. I think that meant annually? I mean, that's pretty low.

Yes.

So how do you do the calculus of, are you pushing rent enough versus a turnover rates, from an industry standpoint, whatever real estate sector you are looking at, it's pretty low.

Look, it is pretty low. There is a little art and science to pricing, right. You want to be careful not to push it up too high and push the customers out. So we keep our eye on the market. Obviously, we do bid on business on a regular basis through RFPs and that helps us get some intelligence. We also have the thing to remember here is we do have customer profitability. We have got pricing by customer, by market. We have over 2,600 customers across 178 sites. That gives us a very, very large database to understand what the market will bear in terms of pricing. So we leverage all of that data and all of that intel along with participating in request for proposal and pricing on new business that's coming in. So again, there is nowhere to really go for published guides on it. It's a little bit of art and science.

All right. Thanks guys.

Thanks Ki Bin.

Thanks Ki Bin.

Your next question comes from Bill Crow with Raymond James. Please proceed with your question.

Good evening guys.

Hi Bill.

Fred or Mark, just on the insurance thing, $40 million a year in costs or $43 million maybe this year, is that net of whatever premiums you are getting from your employees? Or how does that work?

That's correct.

Yes. And what would we the cost to Americold, if you went to traditional insurance?

It would be significantly greater. So you see this with some of those large companies, once you get, look, 200 people is statistically significant. Once you get the portfolios where you have thousands of employees, you tend to find that it's much cheaper to self-insure. We do that and we retain stop-loss coverage. But that isn't to say that people don't get sick at times with certain illnesses that are very expensive to treat.

Some times it's not illnesses. It's just people having babies and such, right. So I mean, if any medical procedure that one of our 13,000 associates is having and we have about, I think just over 7,000 associates that are participating on our healthcare plan.

Do you kind of budget that on per employee? How do you think about the cost you accrue on an annual basis?

We do. As I said, if you look back over time you, on average, we have seen healthcare costs rising roughly about 5% a year. I don't think that's too dissimilar than what you have seen in the broader marketplace.

I think, if you could, we are all trying to square the bottom line results with all the great fundamentals that you guys are talking about.

Yes.

So just can you make sure that we understand the nonrecurring items in the quarter that caused EBITDA to go down from 2Q to 3Q? And where would we be, I mean I get the $3 million in health care and 3% change to same-store. What else is in that number that we need to know about that we can use to justify that the fundamentals remain strong?

Yes. I would say, overall, I think the business is growing and total EBITDA is growing. Overall EBITDA margin is growing. I think the one area where we were down slightly was the warehouse services in our same-store portfolio, the margin's slipping. As we said, we reported overall growth in the same-store of roughly 2.3% NOI. And that's after this $3 million of healthcare costs. So you can do the math and add back the $3 million. If you pro forma that $3 million back, we would have seen services growth of 5.6% in the quarter, which would have been pretty consistent with what you are seen from prior, right.

So remember, again, we have got to look on a full year basis, Bill, because the problem is, one of the things is in addition to healthcare and not being controllable, we also have the volume that fluctuates from quarter-to-quarter, from month-to-month that we don't have direct control of that our customers or our customers' customers that are pulling that. And remember, keep in mind the year-to-date number on NOI growth was 3.4% and that's with the burden of that healthcare costs on top of it. So without that, we are smack dab right in the middle of everything that we have guided to.

Yes. It's all in the guidance.

Yes. And please understand, our overall cost structure isn't steady by quarter. As Fred mentioned, this is the back half of the year and especially going into the fourth quarter, this is our busiest time of the year. So you will see us spending more on labor. There is greater activity working through the warehouse. But also greater opportunity for us to get efficiency.

All right. We can continue this later on off this call. Thank you for your time.

Sure. And thanks Bill.

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Mr. Fred Boehler for closing remarks.

Thank you. And thank you everyone for joining in the call and for the questions that were asked. We understand that we are two years young as a public company and people are still trying to get their heads around our business. But that's why I will continue to guide to look at the annual aspect of this business. It's a very strong underlying business, continues to perform strong on a same-store basis and if you really look at it from a full-year standpoint, we have reconfirmed all of our full-year guidance. I think we have a similar situation between first quarter and second quarter where I think people were expecting more out of the first quarter and we kind of said, give us the year and it will smooth out. And sure enough, after second quarter came through, it did. So this is really a full-year business and we hope that you can see that and again we have reconfirmed guidance for the full year. So thank you for all of your support and have a great evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.