Greetings, and welcome to Americold Realty Trust Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. 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.

Good afternoon. Thank you for joining us today for Americold Realty Trust second quarter 2024 earnings conference 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 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. On today's call, management's prepared remarks may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of 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 the supplemental information package available on the company's website. Now, I will turn the call over to 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. 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 walk-through 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. 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 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%. 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 prior year, underscoring our ability to drive consistent, profitable, organic growth in a challenging macro environment. 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…

Thank you, George. As George mentioned, I will provide an update on our recent customer initiatives and growth strategy. Starting with pricing initiatives. 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 economic occupied pallet on a constant currency basis increased by 7.2% versus the prior year. Same-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. 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 revenues, consistent with historical churn rate. As George mentioned, we continue to be successful with increasing our fixed commitments with customers, and 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 base 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. 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…

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 had total liquidity of $554 million, consisting of cash on hand and revolver availability, and our net debt to pro forma core EBITDA was approximately 5.3x. As we discussed last quarter, our expansion in Allentown, our Greenfield developments in Kansas City and Dubai, and our new expansion projects in Sydney, increase investment spend in the second quarter and will continue for the remainder of this year. Please see Page 38 of the IR supplement for additional details on our development projects. 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 mid-point and an approximate 16% increase from 2023's AFFO. 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. A summary of the 2024 same-store pool historic performance for the second quarter of 2023 is presented on Page 33 of the IR 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. With respect to occupancy and throughput volumes,…

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 with 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. We continue 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 accretive and 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. 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?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. The first question comes from the line of Mike Mueller, J.P. Morgan. Please go ahead.

Yes, hi. As it relates to, I guess, the lighter throughput volumes, are there any categories specifically that are driving this? And then do you expect end the year in positive territory based on the forecast at the end of 2024?

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 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 depressing 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 story. Its high prices in the grocery store. It's a consumer with less disposable income. And as I said, it's been that trend for the last 12 months.

Yes. Good morning, Mike. It's Jay. Just to hit a little bit more on that, I mean, you look year-over-year throughput is going to be bad if you look at approximately about 1% if you do the back half of our guide. But if you look at sequentially with seasonality, our throughput is going to improve in the back half of the year if you look sequentially.

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.

Sequentially. Sequentially, not year-over-year. I think that I was answering year-over-year. Jay is going through sequentially. He's 100% 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 will be down in both the third and the fourth quarter.

Thank you. Next question comes from the line of Samir Khanal with Evercore ISI. Please go ahead.

Hey, good morning, everybody. And George, I guess, my question is around economic occupancy. How should we think about that? I know you kind of gave guide -- you updated guidance 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. And my only question is, given the macro out there and the challenges of 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?

Yes. 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? It comes back when a consumer has disposable income. That comes closer to the pricing in the grocery store just as we said. 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 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 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 that will help us consumer disposable income, that will close the gap to current pricing at the grocery store, that will raise demands, that will raise a 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.

And then maybe just one other point that I would add, Samir is, look, 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 straight quarter. We're over 56% now another $20 million this quarter. So I think, like what you should take from that is that both Americold and our customers continue to benefit from the stability that that provides it.

Also, I think as we said in the script shows that they believe that the second half has the 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.

Got it. And then just as a follow-up here on pricing for the warehouse business, it still seems to be pretty solid year. I know we talked about inflation moderating, but it feels like you're still getting good pricing power above inflation here. Does that guide value provided at four to five and then seven to eight for the services side? Does that sort of -- can you sustain those levels into next year or…

Yes. What we said on -- in the prepared remarks is 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 costs will narrow. 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 exists, whether its new services or profile adjustments, et cetera. I 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. 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.

If you triangulate our full year guide, it shows that back half of the year, we get to more normal type of increases, up 3% to 4%. So that that's really what's built into our back half guides.

Thank you. Next question comes from the line of Josh Dennerlein with Bank of America. Please go ahead.

Yes. 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, like, stabilize from here?

Well, we did just over 13% in the quarter, and then as remember, Jay mentioned, some expense that was deferred to the third quarter. So if you rationalize that we get to just over 11%, and that's where we adjusted the guide. So if I use 11% of the base, our retention metrics are excellent, better than pre-COVID. The system tailwinds we have are just beginning the system we just turned on May 6. 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, but at this point, throughput is still a headwind. So if I net those two together, we're very comfortable with the 11% and all I can say is that's where we are right now.

Yes. 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 million. So that that's how we're saying run rate. That's really what the run rate looks like.

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 good aspirational goal on the service margin and achievable?

I think 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. 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 the commercial work is probably the long pull in fact.

Yes, I mean, 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. 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 services margins. And where we've 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.

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. Next question comes from the line of Greg McGinnis with Scotiabank. Please go ahead.

Hey, good morning. So we understand this is likely difficult to parse, 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.

I would say that the two-and-a-half years of work we did on hiring, retention, a number of different, I mean, literally hundreds of activities below that to support what I just said, that's the LION's share 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. 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, but they're more supporting an already well trained workforce.

And the ERP system is improving our revenue capture of our value-added services. So that is providing us benefit. But as George said, definitely the labor side is where the biggest benefit is.

Thank you. Next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, 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 would 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.

Yes, 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, that demand will recover and increase, and they want to make sure they have their stays 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, that represents what we believe market rates should be when we offer fixed commitments. 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 busy season this year and then out into the future. Remember, 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.

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?

Mike, I think customers would prefer higher demand, higher revenue, 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. And right now, the demand situation is suppressing all of that. So during my past in these environments, 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.

Thank you. Next question comes from the line of Vince Tibone with Green Street. Please go ahead.

Hi, good morning. Some of your earlier comments suggest that you think the consumer should be healthier soon. Just in terms of 2024 guidance, what are you implicitly assuming as it relates to the health of the consumer. Are you expecting some back half improvement in the new kind of throughput and occupancy ranges you provided? Or just if you can give us a sense of what macro assumptions you have baked into guidance that would be helpful.

Yes. 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've taken 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 more slight than we would in normal years. Even 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 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.

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, just the tenants often lease space from both of you in the same market? How often are you competing for tenants and ultimately, like how hard is it for tenant to maybe switch cold storage providers in a single market. If you can provide some comments around this line, that would be helpful.

Yes. I'll start, and I'll hand it over to Rob. But we've been competing with everybody in this space for years, so none of that changes. 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 a more detail.

Yes. I mean I would say, Vince, it's probably pretty rare to see large customers tend to single stores 100% of their outsourced cold chain. So there tends to be shared wallet across 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 maybe customers with one provider in a certain region, but maybe multiple providers across several regions. We're obviously very proud of the fact that we have extremely high market share with the largest food manufacturers, the largest grocery retailers, we think that, 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 customer 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-in-class customer service, the most comprehensive suite of value-added services. And then from there, we think the rest takes care of itself.

I'll just highlight the value-added services. The reason we're still focused on our services margins, our services capability, our workforce, et cetera, 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 and theirs to do other things, which most often is produce more product or sell more products. So one area where I think there is 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. 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 have 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.

Thank you. Next question comes from the line of Nick Thillman with Baird. Please go ahead.

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 adjust that on a normalized number, just kind of looking at what they would be year-on-year for volumes?

I don't know that we ever went back in adjusted volume, Nick. We always said there was $0.03 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 is the big issue. So I don't want to call ever doing that. So I don't think I can comment on that. We did say we lost $0.03 of earnings in the quarter. That was in our results. So I don't think we did normalize.

Yes. And for me, again, I'm a sequential guy. If you look at Q1, we were at 86.81, Q2 we were 87.17, which is a normal sequential trend, so hard to breaking apart more than that. But I would say our sequential throughput trend is normalizing post all the different disruptions that has happened in the past.

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 or just staffing levels in general, just given the lower volume? Can you give like a mix between those two components?

Yes. If you adjust -- 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 are more productive. And the example I've used in the past is that we had a year ago, 10 people and they could move two pallets an hour, that's 20 pellets 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 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, well, two-and-a-half years when it comes to rebuilding the workforce, but now seeing improvements in services margins the last 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.

Yes. No, that's a key productivity set we follow. And if you look at year-over-year, it's take that our folks 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.

Thank you. Next question comes from the line of Ki Bin Kim with Truist Securities. Please go ahead.

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 going forward?

Yes. 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 WRA agreement, et cetera. But Rob, why don't you go through the detail.

Yes. Yes. I mean, look, I would say in a normal environment, you're sitting around 3.5% to 4.5% on annual GRIs. And then there's incremental 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 3.5% to 4.5% and then there's opportunity for upside with other pricing levers that we take.

Okay. Thanks. And given a new competitor, at least in the public space, I'm sure you've gone through some of the disclosures. I also just curious kind of high-level I'm sure there's things that you do really well and other people do well too. Are there other avenues that you think there are for improvement? And I guess, what's the chance that Project Orion goes to like there's another Project Orion 2 going forward?

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 drive earnings per share. So we're very emboldened by 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. We did take a look at the S-11. We published a document on our website. 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.

Thank you. Next question comes from the line of Craig Mailman with Citi. Please go ahead.

Hey, good morning. Maybe just hitting on sort of the trajectory here or risk to rent growth or occupancy as we head into 2025. Just looking at your exploration schedule, I mean, 71% of the kind of fixed commit rents expire through 2026. And there's 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, we'll keep the space but no [ph] rent reductions, right? Like you're talking 3.5% to 4.5% GRI increases in a low inflationary environment. But they've been getting hit over the head with kind of inflationary cost increases the last couple of years and that their customer is stretched. And even with potential rate declines here, you've unemployment ticking up, you have wage growth slowing like 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. I know your margins are going higher and that's a positive. But on the other side, right, end user demand is down. 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 really bridge all of the comments on the call that get a sense of as we head into 2025, I mean, should we be putting a break on expectations here for continued kind of same-store growth the same way you've had it this year.

Well, I was going to say the only thing not following 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. So look, all the pricing we pass-through to our customers has 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. 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, we've recovered the inflation. Now we 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 will continue to improve with the new systems we have in place. Throughput and occupancy has 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. And that will increase disposable income significantly for the -- 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 have said multiple times, and we don't see an end to that growth.

And then the point that I would add, I mean, look, as George said, over the last 12 months plus, we've been in this environment. 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 on the call that, that customer service is what is the most important factor to our customers because when you have a provider that provides for 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 is 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 KeyBanc Capital Markets. Please go ahead.

Yes. Hi, thanks. Good morning. Just last quarter, you mentioned some positive commentary out of the CAGNY conference around the consumer and the potential lift in throughput that was being discussed through retailer marketing efforts. You're talking about lower throughput now in the second half of the year. Just any sense sort of what changed between then and now and why the promotional activity has not translated?

Yes. 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. So it was not a lack of promotional spending. The problem is 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 selling price at the store and what the consumer has 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, 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.

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