Lineage, Inc.

Good day and welcome to the lineage first quarter 2025 earnings conference call. All lines being placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Evan Barbosa, VP Investor Relations, to begin the conference. Evan, over to you.

Thank you. Welcome to Lineage's discussion of its first quarter 2025 financial results. Joining me today are Greg Lemko, Lineage's President and Chief Executive Officer, and Rob Cresci, Lineage's Chief Financial Officer. Our earnings presentation, which includes supplemental financial information, can be found on our investor relations website at ir.1lineage.com. Following management's prepared remarks, we'll be happy to take your questions. Turning to slide two, before we start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our filings with the SEC. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, reference will be made to certain non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this morning. Unless otherwise noted, reported figures are rounded, and comparisons of the first quarter of 2025 are to the first quarter of 2024. Now, I would like to turn the call over to Greg.

Thanks, Evan, and thanks, everyone, for joining us today. Today is a very exciting day for Lineage as we announce landmark agreements with our valued customer, Tyson Foods. In total, we expect to deploy approximately $1 million of capital in the coming years on the acquisition and new greenfield developments that once stabilized, will generate over $100 million in annual EBITDA. The scale of these agreements on their own by cubic feet would be the size of a top 10 global cold storage company. First, we announced a definitive agreement to acquire and take over operations of four Tyson Foods cold storage warehouses for $247 million. These warehouses total approximately 49 million cubic feet with 160,000 power positions and are located in Crossville, Pennsylvania, Olathe, Kansas, Rochelle, Illinois, and Tolson, Arizona. Second, at or prior to closing the acquisition agreement, lineage will enter into an additional multi-year warehousing agreement to design, build, and operate two next-generation, fully automated cold storage warehouses in major U.S. distribution markets, which Tyson Foods will occupy as a major customer. They will add 80 million cubic feet and 260,000 pallet positions into our portfolio. We expect to deploy over $740 million on these two greenfield developments, with an expected yield of 9% to 11% once stabilized. Under this warehouse agreement, Tyson Foods will also begin storing product at our newly developed next-generation, fully automated Hazleton facility that's an anchor customer. The acquisitions are expected to close in the second quarter, subject to customary closing conditions. We look forward to welcoming over 1,000 process. We expect to break ground on the greenfield developments in the second half of this year. As the new build warehouse is open, targeted for late 27 in 2028, the four existing acquired warehouses will transition into public multi-client facilities. Our leading global facility network and world-class automation expertise, combined with our proprietary data science capabilities, aligns really well with Tyson Foods' objective to enable a fast growing market. These landmark agreements showcase the multiple ways we can uniquely add value for our customers, and we look forward to future opportunities to help them build resilient and more responsive supply chains. Turning to our first quarter highlights on slide four, our first quarter results reflect normal seasonality against the elevated inventory levels we saw in the first half of 2024, as discussed in our last earnings call. Our total revenue is down AFFO per share growth. Right now, winning in the marketplace does come with trade-offs. Despite the inventory reset, our same-store physical occupancy remains strong at 76.5%. However, the quarter was impacted by lower revenue per throughput and occupied pallet, primarily driven by new business wins at lower rates and customers resetting volume guarantees at lower levels given lower industry occupancy. However, our team continues to control cost and improve productivity in an environment where food companies are balancing the challenges of high interest rates, shifting consumer sentiment, and significant macroeconomic uncertainty compounded by evolving tariff policies. In response, many customers are pausing their supply chain investments and maintaining lean inventory levels. They are acutely focused on increasing their sales volumes while working hard to lower their operating expenses. Accordingly, we are partnering with our customers to leverage our global scale and expertise to help them optimize their supply chains and navigate through this challenging period. All in, we are maintaining our previous guidance and expect to deliver adjusted EBITDA and AFFO for share growth for the full year, as well as return to same-store warehouse growth in the second half. We are excited to report continued progress on our LITOS pilots at our conventional buildings, which continue to exceed our expectations. As a reminder, LinOS is our proprietary warehouse execution system that we've already implemented in multiple automated facilities. The software uses patented and proprietary algorithms that are a result of many years of development. 2025 is about testing and proving out these gains in a variety of facility profiles in advance of a broader rollout starting next year. I'm personally really excited about LinOS. This technology is one example of the innovative and bold thinking at the core of lineage I'm thrilled to see what a great complement it is to our lean methodologies that we've been implementing over the last decade. These methodologies and our productivity initiatives are expected to offset labor inflation and lower our cost structure. We are realizing some of those benefits now, as our same warehouse cost of operations defied 2% and a quarter, despite the inflationary environment. We expect NOS will supercharge those efforts in the future and create meaningful cost advantages versus our competition. Finally, we continue to execute on our Tyson Foods agreements, which I've already talked about, the acquisition of three warehouse campuses from Bellingham Cold Storage for $121 million, adding to our existing portfolio in the PacNorth West. We have $67 million in development spend in the quarter, including completing a semi-automated expansion at our Bylay Denmark facility ahead of schedule and breaking ground on our automated expansion project at our Bergen-Opsten facility in the Netherlands, which once completed, will be the largest cold store in Europe. Finally, I'd like to give a shout out to our finance and accounting team for enhancing our quarterly closed process, resulting in us speaking to you today a week earlier than our last 10Q in the fall. Their hard work echoes across the organization, and I would like to sincerely thank all of our global team members for their contributions during the first quarter. Now, I'd like to turn the call over to our CFO, Rob Parishi. Thanks, Greg. Good morning, everyone. Starting on slide five and looking at our financial results for the first quarter, Our total revenue was $1.29 billion, down 3%. Our adjusted EBITDA decreased 7% to $304 million, with adjusted EBITDA margin down 110 basis points to 23.5%. Our AFFO for the quarter was up 48% to $219 million, and AFFO per share was $0.86, a 6% increase versus prior year, aided by lower than expected tax expense and the timing of our annual maintenance cap expense. Next slide. Shifting to our global warehousing segment, we have the four-year view on this slide that does a good job of pointing to the multi-year trends we talked about in February. Inventory levels were elevated the last couple of years, helping drive 22% same warehouse NOI growth in the first quarter two years ago. The exit inventory appears to have stabilized, but we are now seeing more typical seasonality as revenue declined sequentially from the fourth quarter, representative of a more normal pattern. average revenue per pallet has been challenged for the reasons Greg mentioned. We've been controlling costs well through sustainable labor productivity improvements, even before realizing future benefits around our Lino-S technology. Turning to the outlook for the remainder of the year, we continue to expect normal seasonality with the second half outpacing the first half. However, since our February call, the macroeconomic uncertainty, driven largely by the U.S. CARIC announcement, has created some hesitancy among our customer base in the short term. Notably, about 15% of our U.S. throughput volume is directly tied to import exports.