Lineage, Inc.

Good morning and welcome to the Lineage Logistics second quarter 2025 earnings call. At this time, all participants are in a listen-only mode to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. To ask questions, please press star followed by the number one on your touch-down phone, and to withdraw your question, please press star one again. It is my pleasure to turn the call over to Mr. Evan Barbosa. Sir, you may begin.

Thank you. Welcome to Lineage's discussion of its second quarter 2025 financial results. Joining me today are Greg Lemko, Lineage's president and chief executive officer, and Rob Preci, Lineage's chief financial officer. Our earnings presentation, which includes supplemental financial information, can be found on our investor relations website at .onelineage.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 issue 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 second quarter of 2025 are to the second quarter of 2024. Now, I would like to turn the call over

to Greg. Thanks, Evan, and thanks everyone for joining us today. I'll start by going over our agenda for this morning. First, I'll recap our second quarter performance, which was in line with our expectations. Next, we'll cover our updated second half outlook, including our occupancy and price expectations for the remainder of the year. After that, we'll cover our guidance update, which is a reduction versus our prior outlook driven by muted seesaw inventory levels. I will then turn it over to Rob to review segment details and provide an update on our balance sheet. Lastly, I will summarize the quarter and turn it over to your questions. Turning to our quarterly performance on slide four, we delivered ASFO per share growth of 8%. Total revenue increased modestly by 1% and adjusted even then decreased by 2%, reflecting the challenging market dynamics we're currently navigating. These dynamics are driven by persistently higher food prices, interest rates, tariff impacts, and a general sense of uncertainty felt by our customers that are leading to reduced expectations around the balance of the year inventory build. This updated outlook has led us to reduce our annual ASFO per share guidance to 320 to 340 compared to our prior range of 340 to 360. Transition to our second quarter results, our global warehousing segment was in line with our expectations as we laid out last quarter's call. Same warehouse that aligns down 6% year over year against elevated inventory levels we experienced last year. While these market dynamics are fluid and obviously difficult to predict, we remain confident in our core business. We saw sequential improvement during the second quarter in our same store NOI, which increased from 336 to 343 million. Notably, Q2 is normally the lowest seasonal occupancy quarter of the year. We're also seeing storage revenue for physical occupying and talent stability as expected, as I'll discuss more in a minute. Our global integrated solutions saw 8% year over year segment NOI growth led by our U.S. transportation and direct to consumer businesses. Across the company, we are acutely focused on partnering with our customers as they navigate through these terminal times. We will continue to work as strategic partners to help them to improve their supply chain efficiency. Additionally, the rollout of LIDLF, now its six conventional sites, continues to accelerate and perform above our expectations, showing double digit productivity improvements. We expect to have 10 conversions completed by year end, setting us up to further accelerate the broader rollout of 2026. Also, during the quarter, we completed our inaugural $500 million investment rate bond offered. Additionally, we executed on our M&A and development pipeline and creatively deployed $535 million in growth capital, including closing our agreements with Tyson Foods in addition to three smaller acquisitions. Before moving on to a more detailed analysis of our performance, I want to say a few words about our company. We need to position as the industry leader with broad and deep customer relationships, the largest network, cutting edge technology, and as a world leader in warehouse automation. I'm confident that we are positioned to grow as the food industry inventory is stabilized, capacity is absorbed, and our internal initiatives continue to gain traction. I would also like to take a moment to sincerely thank all of our team members across the world for living our values as they deliver excellent service to our customers every day. Moving to slide five, when we met with investors in early June and Navy, we reaffirmed guidance based on what we were seeing in the marketplace at that time. The blue line on this chart shows our actual and projected physical utilization, whereas the green line shows typical quarterly USDA seasonality from 2015 through 2019, the years before the pandemic caused disruption in the normal seasonal pattern. And the red line shows 2025 actual USDA seasonality. As you can see, throughout much of the first half of the year, we were slightly above the pre-pandemic USDA averages, which we see as a proxy for normal seasonality and informed our prior guidance. Late in the second quarter, when inventories historically started to climb, we saw muted seasonality in occupancy. This trend continued into the third quarter, and we've only recently seen a positive inflection in their inventories. This delayed occupancy improvement combined with persistently high food prices, tariff uncertainty, and elevated customer inventory costs drove our decision to lower our outlook for the second half. To be clear, our occupancy projection is what changed as our assumptions around cost efficiencies, price, throughput, and GIS growth remain unchanged from our previous guidance. All that said, we still expect inventories to build through the third quarter and into the fourth quarter, supporting sequential same warehouse NOI and adjusted even end rooming in each quarter of the year. Turning to slide six, we had a number of questions about price in relation to our storage revenue per physical palette after we announced our first quarter results. A quick reminder that our storage revenue per physical palette consists of rent, storage, and blast revenue. As outlined in Day Read, we expect to see stable trends for the balance of the year. This quarter, we saw nearly 5% sequential improvement in same warehouse storage revenue per physical palette. As you can see on charts, there's always some short-term volatility in this metric, which is driven by a number of factors, including rates, volume guarantees, inventory terms, blast freezing volumes, commodity mix, exchange rates, and season housing. Additionally, we saw a sequential increase in our minimum storage guarantees, increasing 290 basis points from Q1 to Q2, as the new business we are winning has a higher percentage of storage guarantees than our base. While it remains a competitive environment, about 90% of contracts to be renegotiated this year have been completed, giving us confidence in our stable price outlook for the balance of the year. Moving to slide seven, based on the factors I described today, we're lowering our full year 2025 outlook. Coupled with the ASFO per share reduction I've already outlined, we're revising our full year adjusted EBITDA guidance to the range of $1.29 to $1.34 billion, down from our previous range of $1.35 to $1.4 billion. Given the dynamics unfolding in the industry, we want to provide more clarity regarding our near-term expectations, and accordingly, we are initiating guidance for the next quarter. For Q3, we expect ASFO per share to be between $0.75 and $0.79, and an adjusted EBITDA to be between $326 and $336 million. Some of the maintenance FX spend moved from the second quarter into the third quarter, which is reflected in our ASFO per share guidance. It's obviously been a very tough road since our IPO, with customer inventories rationalizing, tariff uncertainty, higher interest rates and food prices, and new competition entering our market. We believe that industry demand is bouncing along the bottom right now. Unfortunately, the uncertain macro backdrop is slowing our expectations of a broader market and we are also seeing a lot of inflation in inventories and throughput. Lowering guidance is both difficult and disappointing for us, but we remain focused on executing our business plan and driving shareholder value. We are also aligned with our investors as our management team has the majority of our compensation tied to long-term equity incentives. In summary, we believe we've turned the corner and our business has begun to steadily improve in the short term, while we continue to win in the long term. We saw sequential NOI improvements in Q2, which is normally the lowest quarter of the year. We expect this improvement to continue in the second half, with same-store NOI trending positively, positioning us well for growth in 2026. To that end, on slide 8, allow me to outline some of the actions we're taking to position lineage for long-term success. We're focused on driving competitive differentiation across three key areas, delivering customer success, leveraging our network effects, and enhancing warehouse productivity. Starting with customer success, we're focused on addressing our customers' primary concerns, which include optimizing supply chain costs, increase efficiency, and further improving service by marrying our global integrated solutions offering with our expansive global warehouse network. We're also enhancing our responsiveness and customer service consistency. Through a new partnership with Cognosys, we are elevating our customer care model through proven -in-class technologies, expanded service hours, and deep customer service expertise, all while retaining the same team members as points of contact that our customers have known for years. Next, on network effects, we're leveraging our best practices, economies of scale, investments in technology, broad service offerings, and presence across 19 countries to support the increasingly global needs of our customers. We're also using our scale to drive cost savings across our platform in areas such as energy and insurance. In markets experiencing access capacity, we're proactively consolidating facilities to drive higher occupancy and efficiency. As the industry leader, our scale and breadth position us to create value through network optimization efforts like these. Finally, regarding warehouse productivity, I truly believe we have the best operating team in the business. Bean has always been at the core of our operating culture. It has helped us deliver service excellence and consistent productivity gains over many years. We expect LinOS to build on this foundation and accelerate efficiencies while making lineage an even better place to work. As previously mentioned, our ongoing LinOS pilots are continuing to show double-digit productivity improvements. We look forward to sharing more financial details with investors by year end. Lastly, our industry leadership and automation remains unmatched, as illustrated by our agreements with Tyson Foods discussed last quarter. Simply put, we will never stop working to earn the right to grow with our valued customers. Now I'd like to turn the call over to our CFO, Rob Creechie. Thanks, Greg. Good morning, everyone. Starting on slide nine and quickly recapping our segment performance. In our global warehouse segment, total revenue grew slightly and total NOI declined 4% to $367 million. Same warehouse revenue was down 3%, while same warehouse cost of operations decreased 1%, aided by our continued labor and energy productivity initiatives. Contribution from non-same warehouse NOI grew 33%, driven by acquisitions and developments that continue to ramp. We received some positive contributions from the Tyson Foods agreements, which closed in June, we are off to a great start. Additionally, we expect 109 million of incremental future NOI from previously completed and in-process development projects that have yet to stabilize. We have already spent over 1.1 billion of the 1.2 billion total investment on these projects, where the future NOI benefit is yet to be realized. In summary, we are well positioned to grow, aided by the impact of these nearly completed developments. Shifting to slide 10, covering our global integrated solution segment. Revenue was up 2% to $380 million and NOI was up 8% to $68 million. Our NOI margin was up 100 basis points to 17.9%. We are seeing strong momentum in our U.S. transportation and -to-consumer businesses. Our customers continue to appreciate lineage as integrated solutions and unmatched global service offerings. For the remainder of 2025, we expect this strong momentum to continue with double-digit growth in the second half. Moving to slide 11, we ended the quarter with net debt of $7.4 billion. Total liquidity stood at $1.5 billion, including cash and available capacity on a revolving credit facility. Our leverage ratio, defined as net debt to LTM adjusted EBITDA, was $5.7. We will remain highly disciplined on future capital employment. In June, we successfully completed our inaugural $500 million investment grade bond offering, which carried a .25% coupon on a five-year term. Our new bond has been well received by investors and has traded tighter since the offering. I'd like to thank Michelle Domas, our world-class treasury team, and our banking partners for the great execution on our inaugural deal. The investor grade status was a key driver of our decision to go public, and we are excited to have access to these markets moving forward. With that, I'll turn it back over to Greg to wrap up before opening it up to your question. In summary, on slide 12, our Q2 results were in line with our expectations. We're lowering our guidance due to our revised outlook regarding the seasonal inventory build. Pricing remains stable, and importantly, we saw sequential revenue, NOI, and EBITDA improvement, which we expect to continue going forward. We are the global chain leader in providing the critical infrastructure for the food industry, an industry with positive long-term growth. We're achieving meaningful progress in our internal initiatives, such as our Midwest technology. We are positioned to deliver strong operating leverage when the industry improves. And finally, our management team has never been more committed to delivering results and to driving long-term shareholder value. With that, let's go to another question. Operator?