Earnings call transcript: Lineage Q4 2024 reports flat revenue, stock gains

Lineage Inc. (NASDAQ: LINEAGE) reported its fourth-quarter and full-year 2024 earnings, revealing flat revenue for the year at $5.34 billion. Despite the revenue stagnation, the company anticipates growth in adjusted EBITDA for 2025, projecting a range of $1.35 billion to $1.4 billion. In pre-market trading, Lineage’s stock rose by 1.38%, reflecting investor optimism following the earnings release. According to InvestingPro data, the company, with a market capitalization of $14.2 billion, is currently trading at a low revenue multiple, though profitability remains a key challenge.

Key Takeaways

• Lineage’s total revenue for 2024 remained flat at $5.34 billion.
• The company projects adjusted EBITDA growth for 2025, ranging from $1.35 billion to $1.4 billion.
• Pre-market trading saw a 1.38% increase in Lineage’s stock price.
• Lineage launched a new warehouse execution system, LinOS, and opened a fully automated cold storage facility.
• The company maintains a strong competitive position in the cold storage market.

Company Performance

Lineage’s performance for 2024 was characterized by stable revenue but notable advancements in operational efficiency and technology. The company launched LinOS, a proprietary warehouse execution system, and opened a state-of-the-art cold storage facility in Pennsylvania. These innovations underscore Lineage’s commitment to technology and automation, reinforcing its market leadership in the cold storage sector. The company maintains a healthy current ratio of 1.07 and generated $676.1 million in levered free cash flow over the last twelve months, demonstrating operational stability despite challenging market conditions.

Financial Highlights

• Revenue: $5.34 billion for 2024 (flat year-over-year)
• Adjusted EBITDA: Projected $1.35 billion to $1.4 billion for 2025
• AFFO per share: $3.29 in 2024, a 6.5% increase
• Adjusted EBITDA margin: Increased by 100 basis points to 24.9%
• Net debt: $6.5 billion with total liquidity of $1.8 billion

Market Reaction

Following the earnings announcement, Lineage’s stock experienced a 1.38% increase in pre-market trading, with shares valued at $56.63. This movement reflects positive investor sentiment, driven by the company’s optimistic EBITDA projections and strategic innovations. The stock has faced significant pressure, declining 33.73% over the past six months according to InvestingPro data. With analyst price targets ranging from $61 to $92, and offering a dividend yield of 3.78%, the stock presents an interesting opportunity for value-focused investors.

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Outlook & Guidance

Lineage expects adjusted EBITDA for 2025 to be between $1.35 billion and $1.4 billion, alongside a projected AFFO per share of $3.40 to $3.60. The company anticipates 4-6% growth in its Global Warehousing segment’s net operating income and plans to deploy $1.5 billion in capital. Lineage also expects to see normal seasonal patterns in 2025.

Executive Commentary

CEO Greg Lemko emphasized the company’s growth potential, stating, "We are built to grow." CFO Rob Kriesche added, "We’re just getting started," highlighting the company’s strategic initiatives and future opportunities. These comments reflect Lineage’s focus on innovation and market expansion.

Risks and Challenges

• Supply chain disruptions could impact operations and profitability.
• Inflationary pressures may affect pricing strategies and cost management.
• Market saturation in the cold storage sector could limit growth opportunities.
• Fluctuations in global food consumption could affect demand.
• Currency exchange rates pose a risk to international revenue streams.

Q&A

During the earnings call, analysts inquired about Lineage’s customer base stability and inventory levels. The company confirmed a stable customer base and noted that inventory levels normalized in the second half of 2024. Additionally, early results from LinOS pilots were promising, suggesting potential future efficiency gains. With a gross profit margin of 33.09% and total debt of $7.47 billion, the company’s financial profile reflects its position as a prominent player in the Industrial REITs industry. For detailed financial health analysis and Fair Value estimates, explore Lineage’s comprehensive Pro Research Report, available exclusively on InvestingPro.

Full transcript - Lineage Inc (LINE) Q4 2024:

Conference Operator: Thank you for standing by and welcome to the Lineage Fourth Quarter twenty twenty four Earnings Thank you. I’d now like to turn the call over to Evan Barbosa, Vice President of Investor Relations. You may begin.

Evan Barbosa, Vice President of Investor Relations, Lineage: Thank you. Welcome to Lineage’s discussion of its fourth quarter and full year twenty twenty four financial results. Joining me today are Greg Lemko, Lineage’s President and Chief Executive Officer and Rob Kriesche, Lineage’s Chief Financial Officer. Our earnings presentation which includes supplemental financial information can be found on our Investor Relations website at ir.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 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, reporting figures are rounded, comparisons of the fourth quarter of twenty twenty four to the fourth quarter of twenty twenty three and comparisons of the full year 2024 to the full year 2023. Now, I would like to turn the call over to Grady.

Greg Lemko, President and Chief Executive Officer, Lineage: Thanks, Evan. And thanks, everyone, for joining us today. Turning to the 2024 highlights on Slide three, I’d like to start with a brief recap of our 2024 accomplishments. We executed the largest IPO of the year and the largest REIT IPO of all time. This enabled us to reduce our leverage to under five times, which earned us investment grade ratings at both Moody’s and Fitch and positions us well continue to deploy capital across our attractive pipeline of development and M and A opportunities.

Financially, we delivered 4% adjusted EBITDA growth and 6% AFFO per share growth and initiated our dividend at an annualized rate of $2.11 a share. Operationally, we delivered same warehouse physical occupancy of 78% despite a challenging external environment, driven by our high quality assets in the locations most critical to our diversified customer base. As we reflect on 2024, we achieved the second year in a row of our all time best safety performance, reinforcing our first corporate value of safety. Record new business wins helping to offset the industry headwinds. Best ever truck turn times for our customers, the service metrics they care about the most.

Best warehouse labor productivity in our history and this continued into the first quarter. The issuance of our one hundredth patent, demonstrating our unwavering commitment to innovation, automation, and data science. We received market recognition and awards like the CNBC Disruptor 50 list for the fourth consecutive year. The Fortune’s twenty twenty four Change the World list for the second time. The Inc.

Twenty twenty four Best in Business Awards for the Innovation and Technology category, and the 2024 SmartWay Leader by the U. S. EPA in recognition for our dedication to sustainability through innovative freight solutions. Finally, we executed on our robust pipeline of development and M and A opportunities, deploying $760,000,000 of growth capital, including the opening of what we believe to be the most state of the art and innovative fully automated cold store in the world in Hazleton, Pennsylvania, which opened on time and is operating as expected. The acquisition of Coldpoint Logistics in Kansas City and several other accretive acquisitions around the globe, I would like to sincerely thank all of our team members across the world for contributing to our success in 2024.

Next (LON:NXT) slide. As we move into 2025, fresh and frozen food remains a growing segment driven by strong long term demand. The vast majority of food consumed in developed markets requires temperature controlled warehousing at some point in its journey from up to fork. At Lineage, our strategically built network and cutting edge technology gives us a significant competitive advantage and positions us as the global leader in the cold chain. Operationally, we’re seeing continued benefits from our focus on labor productivity, lean process excellence, and energy management, driving efficiency across our business.

And speaking of efficiencies, our LinOS initiative is on track and our early pilots are exceeding expectations. As a reminder, LINOS is our proprietary warehouse execution system that we’ve developed and already implemented multiple automated facilities and have begun piloting in our conventional buildings. The software uses patented and proprietary algorithms that are result of many years of development and collaboration between our data science, technology and operations team. Our belief is that WinOS will transform warehouse operations, resulting in significantly higher performance for customers while accelerating efficiency improvements. Our early pilots are both exceeding our efficiency expectations and being positively received by our hourly team members and warehouse leadership.

Our teams are genuinely excited about how this technology can transform our operations. In fact, I’ve been getting requests from general managers asking to be next on the list as the enthusiasm around this initiative spreads. In short, it’s still early, but we’re more excited than ever about Windows and we will provide more color moving forward as our pilots continue and we learn more. Before introducing our 2025 guidance, allow me to provide some color on the path traveled over the last few years. As part of our long term planning cycle, we recently had our data scientists refresh our analysis on the core holdings of our North American warehousing business to shed light on recent trends.

Now, no study is perfect, but our data suggests that first of all, food consumption has not changed. In fact, our study showed that since 2021, our outbound pallet volume remains stable, fluctuating less than 1% annually. The volume just shifted between channels, for example, from food service to retail, and importantly, due to our diversification, has minimal impact on us because we store pretty much everything. However, inventory holdings have fluctuated over the past several years. Here is a brief timeline of what happened.

Back in 2020, ’20 ’20 ’1, we saw supply chain chaos, production shortages, port shutdowns and the inventory was bled down. 2022 was the year where customers began to rebuild inventories quickly, leading to overbuilding. That overbuilding continued into the third quarter of twenty twenty three when the excess inventory began to unwind. That unwinding continued through the second quarter of twenty twenty four. Said another way, inventory levels remained elevated for the first half of twenty twenty four.

Since then, we’ve experienced a more normal seasonal pattern, which is what we expect to continue moving forward. For 2025, we expect full year adjusted EBITDA of $1,350,000,000 to $1,400,000,000 and AFFO per share of $3.4 to $3.6 To reiterate, our 2025 guidance assumes normal seasonality from today’s historically low inventory levels with no market improvement. As always, our guidance excludes the impact of unannounced future acquisitions or developments. Our solid financial position bolstered by a strong balance sheet, available cash and significant debt capacity provides the opportunity to deploy over $1,500,000,000 in capital in 2025. Now, I’d like to turn the call over to our CFO, Rob Preciate.

Rob Kriesche, Chief Financial Officer, Lineage: Thanks, Greg. Good morning, everyone, and thanks for your interest in Lineage. Starting on Slide five and looking briefly at our financial results for the fourth quarter. Our total revenue was $1,340,000,000 flat versus prior year. Our adjusted EBITDA increased 10% to $335,000,000 with adjusted EBITDA margin increasing two ten basis points to 25%.

Our AFFO for the quarter was up over 145% to $213,000,000 and AFFO per share was $0.83 a 73% increase versus prior year. We did benefit from a onetime tax item in the quarter of approximately $13,000,000 or 0.05 aiding our AFFO results. Also in the quarter, we deployed $329,000,000 of growth capital, including the closing of our previously announced acquisition of Coldpoint Logistics. The integration is off to a great start and we are proud to have the Coldpoint team as part of the Lineage family. Turning to our full year 2024 results on Slide six.

Our total revenue for full year 2024 was $5,340,000,000 Our adjusted EBITDA increased 4%. Importantly, our two year adjusted EBITDA CAGR is a strong 11 despite market headwinds, a testament to our ability to perform well in all market environments. Adjusted EBITDA margin increased 100 basis points to 24.9% in 2024 and is up three ten basis points over the past two years. AFFO was up 25 to $7.00 $5,000,000 and AFFO per share was $3.29 a 6.5% increase versus prior year. Turning to our Global Warehousing segment, which represented 87% of our total NOI in 2024.

Full year segment revenue grew 1% and total segment NOI increased 2% to $1,500,000,000 delivering warehouse NOI margin of 39.5%, a 40 basis point increase. Since 2022, we’ve grown our total warehouse NOI margin three ninety basis points, driven by strong labor productivity improvements and continued operational execution. We operate highly efficient warehouses, thanks to our committed team members, lean processes and innovative technology. We believe we are on a long term journey to reduce our cost structure, in particular our labor and energy expense through operational excellence and the continued deployment of our proprietary technologies. We believe we’re only getting started.

Looking forward to 2025, we expect full year segment NOI growth of 4% to 6% on a constant currency basis and 3% to 5% on an as reported basis. We see same warehouse NOI growth of 2% to 5% on a constant currency basis and 1% to 4% as reported. As Greg outlined, we believe our market has stabilized after two years of unusual volatility driven by inventory rebalancing. Inventory levels remain elevated in the first half of twenty twenty four and stabilized later in the year. Our guidance assumes normal seasonality for 2025, but no market improvement.

We are well positioned for strong operating leverage on any incremental growth. In summary, we expect to drive continued growth and margin expansion in 2025 all before any benefit from our LinnOS project, meaningful market improvement or incremental capital deployment. Shifting to Slide eight and covering our Global Integrated Solutions segment. We saw a slight decrease in total segment revenue, which came in at $1,500,000,000 down 2% versus prior year. NOI was down 5% and NOI margin decreased 50 basis points to 15.9%.

As a reminder, our global integrated solutions segment offers value added solutions to our customers, which increases stickiness and supports our warehouse business. While we saw declines in 2024 driven by global transportation trends and specific weakness in some European markets, we are well positioned for a rebound in 2025. This is aided by new business wins as we benefit from our customers taking advantage of our unique network and full suite of services, allowing us to partner with our customers to optimize their supply chains. For 2025, we expect full year segment NOI growth of 5% to 10%. Turning to Slide nine.

We ended the year with net debt of $6,500,000,000 Total (EPA:TTEF) liquidity at the end of the year stood at 1,800,000,000 including cash and revolving credit facility capacity. Our leverage ratio defined as net debt to adjusted EBITDA was 4.9 times at the end of the year. Our strong balance sheet, available cash and debt capacity provides the opportunity to deploy more than 1,500,000,000 of growth capital in 2025. We are excited to enter the new year with a reloaded balance sheet and large pipeline of attractive acquisition and development opportunities that will allow us to continue to build on our position as the global industry leader. Turning to our 2025 guidance, which Greg already previewed, we expect full year adjusted EBITDA of $1,350,000,000 to $1,400,000,000 and AFFO per share of $3.4 to $3.6 As a reminder, this guidance excludes the impact of unannounced future acquisitions or developments.

We have also included some additional modeling support on this page. We are very excited to deliver a strong year for our shareholders. With that, I’ll turn it back over to Greg.

Greg Lemko, President and Chief Executive Officer, Lineage: Thanks, Rob. I’ll conclude on slide 11. Recap this transformational year on a strong note, proving once again that our business is built to perform in any environment. Our focus on execution, cost efficiencies and smart capital deployment has forged a solid path of growth for many years, and we’re excited about the opportunities ahead. Looking forward, we’re confident in the long term demand drivers of the global food supply chain and our ability to lead the industry.

With our unmatched platform, cutting edge technology, broad customer reach and over 100,000,000 of incremental future NOI growth from previously completed or in process development projects that have yet to be that have yet to stabilize, we’re in a great position for compounding growth and long term shareholder value creation. Our balance sheet remains strong, giving us the flexibility to invest in our robust pipeline of strategic opportunities. Like Rob said, we’re just getting started. With that, let’s open it up for questions. Operator?

Conference Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

Alexander Goldfarb, Analyst, Piper Sandler: Hey, morning out there. So a question on just the industry overall. You guys talked about inventory levels normalizing after the post COVID recalibration. You talked about also being at low levels. At the same time, there’s tariff talk, there’s still inflationary pressure, grocery prices, restaurant prices.

So what gives you confidence that the food market, the cold storage market truly has settled out and it sounds like there’s some optimism in your tone that things could improve? What are some anecdotes that give you that confidence versus nervousness that the consumer is still under pressure, whether it’s eating out or eating at home?

Greg Lemko, President and Chief Executive Officer, Lineage: Good morning, Alex. So as we talked about in our prepared remarks, even through the significant volatility in inventory levels we’ve seen for the last few years, our throughput in our core holdings really didn’t change very much, less than 1%. And so inventory fluctuated quite a bit as I outlined and settled in our core holdings in the third quarter of last year. And we saw normal seasonal pattern since. And so if we look at the current inventory levels, they’re low versus kind of pre COVID history.

And we’re not being optimistic. We’re assuming that things just resume a seasonal pattern versus, you know, from these historically low levels. I think the upside here is, I believe, that’s not in our guidance, is that what we’re hearing from customers is they’re acutely focused on increasing sales. They’re doing promotional activity, and all kinds of things and discounting in order to get volume moving. And that would be all upside versus our guidance as our incremental margins are great and we have strong operating leverage.

And so we’re not being optimistic in our guidance. We’re assuming the market stays the way it is today.

Conference Operator: Your next question comes from the line of Ki Bin Kim from Truist. Your line is open.

Ki Bin Kim, Analyst, Truist: Thanks. I appreciate your commentary and the color you provided on guidance. But I was just wondering if you can provide some more details. For example, in occupancy, it sounds like that should still mean negative occupancy next year as the first half of this year might be a little bit challenging. I’m not sure if that’s correct, but if you can provide some details on that and maybe pricing.

Thank you.

Rob Kriesche, Chief Financial Officer, Lineage: Yeah, for sure. So let me drill down a little bit on seasonality. So, you know, Greg covered a lot of this, right? It’s been unusual the last several years, you know, given all the stuff Greg just talked about. So, if we drill down just a little bit more, so if you look at our 2024 results by quarter for our new 2025 same store pool, right, which is in the appendix, you actually see that last year that the NOI is almost exactly the same in each of the four quarters, like within 5,000,000 or so.

That’s highly unusual, and that’s, you know, and that’s the result of what Greg just said, which was last year in the first half, we still had elevated inventory levels and then normal seasonality began to the second half. So that dynamic therefore creates challenging comps for us in the first half of this year. The good news, as Greg mentioned, right, is that we feel the industry is stabilized at these lower levels and as Greg also said, we’re not assuming any improvement. So, you know, drilling down again, you know, normal seasonality. So, if we look at pre pandemic data, you know, back when when our industry was more normal, Q1 generally declined from Q4, then Q2 generally declined a little bit from Q1.

Q3 jumps up a fair amount and then Q4 is typically the peak aided by the holiday season, then it starts to come back down

Greg Lemko, President and Chief Executive Officer, Lineage: and get into Q1 and we sort of start to hear over again.

Rob Kriesche, Chief Financial Officer, Lineage: So, we see this year as a normal year and expect our results to follow that trend. So, if you break that out into sort of first half, second half, generally in a normal year, you’ll get 47% to 48% of your NOI EBITDA in the first half and 52% to 53% in the second half and that’s what our guidance, assumes.

Conference Operator: Your next question comes from the line of Ronald Kamden from Morgan Stanley (NYSE:MS). Your line is open.

Ronald Kamden, Analyst, Morgan Stanley: Hey, just a quick two parter. Just I love on the same store NOI guidance for the warehouse segment. I love if you could drill in a little bit how much of that is top line versus expense saves, just high level, what’s driving that? And then the second question is just that $1,500,000,000 of capital deployment, can you talk a little bit more about the pipeline, the kind of opportunities that you’re looking at? Thanks.

Greg Lemko, President and Chief Executive Officer, Lineage: So, I’ll start with pricing. In terms of pricing, we expect to get inflationary level pricing. You know, we are most focused on being long term partners with our customers and we treat each customer and market uniquely. At times, we’ll trade volume per price if it makes sense for us. And then we expect to continue to get productivity improvements, energy efficiencies have been synergies.

Rob Kriesche, Chief Financial Officer, Lineage: And then on the on the pipeline, yeah, I mean, the pipeline is exciting, right? None of this is in our guide. We have the capacity. We’re not saying we’re going to deploy 1,500,000,000.0, we’re saying we have the capacity as we laid out between our available debt and and where our ratios are to do that. And there’s a ton of development opportunities, there’s a ton of M and A opportunities.

If you look back over the past couple of years, we spent about $7.50 each in terms of growth capital, right? As you know, we’ve been working hard to get our balance sheet in the right position, get the IPO done so we could really accelerate the growth of this company and we’re there and we’re super excited about that and we’re working on a lot of exciting things that we hope to, to tell people about here in the near near future.

Ronald Kamden, Analyst, Morgan Stanley: Thanks.

Conference Operator: Your next question comes from the line of Nicholas Filman from Baird. Your line is open.

Nicholas Filman, Analyst, Baird: Hey, good morning, guys. Just wanted to drill in a little bit on pricing within kind of just on a per pallet basis. Seems as though that’s kind of I know you guys aggressively priced in 2023, now it’s a little bit flat. I guess as you look at the ’twenty five, are you willing on the new customer acquisition

Ronald Kamden, Analyst, Morgan Stanley: to kind

Nicholas Filman, Analyst, Baird: of give up price to prioritize occupancy or how should we be kind of thinking about that?

Rob Kriesche, Chief Financial Officer, Lineage: Yes, I’ll just I’ll good morning

Greg Lemko, President and Chief Executive Officer, Lineage: and I’ll just reinforce what I said. I mean, over time, we think we can get inflationary level price increases and we’re looking at each market, the supply demand dynamics in each market, and we’re looking to partner with customers to make sure that we stay a valued partner for the next, for the long term here. That said, we, you know, we are getting inflationary level prices in, in, in nearly all of our markets and feel confident we can do that. It’s very difficult to see in the external metrics because a little bit of mix shift between, commodities or anything else can, can mask, that price improvement.

Conference Operator: Your next question comes from the line of Todd Thomas from KeyBanc. Your line is open.

Todd Thomas, Analyst, KeyBanc: Hi, thanks. Good morning. I wanted to follow-up on capital deployment. I realized guidance does not include anything incremental that has not been announced. But how should we think about the mix of equity and debt to fund future investments from here with leverage ending the year at just under five times on net debt to adjusted EBITDA basis?

And then separately, I was just curious if you could talk about the yield pickup related to the $1,300,000,000 of completed and in process projects, that $101,000,000 of NOI, that opportunity. How should we think about the cadence of that incremental NOI coming online during 2025?

Rob Kriesche, Chief Financial Officer, Lineage: Yes. So on the first one, so the $1,500,000,000 that just assumes funding with cash and debt, so no equity. Certainly, we’ve got plenty of opportunities to accelerate that with equity. If the math worked out, we’d always be willing to do that. Obviously, that depends a lot on share price and where you want to issue shares.

So, we’re just assuming debt and cash. On the second point, which I think is an important one, we have a number of these great buildings that are either we had Hazelton open recently, we’ve got a lot of things in progress, we talk about that $100,000,000 plus, you know, I’d say about a quarter of that we’re expecting to sort of flow through this year and then, you know, and then the remainder in out years. And, you know, we have very consistent, yield on these projects. It’s a huge part of our compounding and we want to make sure that we people understand that this is a big part of what we do and we’ve got a lot of stuff we’ve already done that just hasn’t rolled through our financials yet.

Evan Barbosa, Vice President of Investor Relations, Lineage: Okay. Thank you.

Conference Operator: Your next question comes from the line of Jeremy Cole from Goldman Sachs. Your line is open.

Ki Bin Kim, Analyst, Truist: Hey there. Regarding occupancy, any concerns about the gap between economic and physical occupancy? How do you guys think about the spread between those two metrics? Thanks.

Greg Lemko, President and Chief Executive Officer, Lineage: Yeah. I mean, our spread is relatively tight between physical and economic, and we see that absolutely as a good thing. We think long term customers do not want to pay for space that they’re not using, And we feel that that’s a great place to be.

Ki Bin Kim, Analyst, Truist: Got it. Thank you. Of course.

Conference Operator: Your next question comes from the line of Blaine Heck from Wells Fargo (NYSE:WFC). Your line is open.

Greg Lemko, President and Chief Executive Officer, Lineage: Great. Thanks. Good morning. Can you guys talk about supply and whether you’re seeing pressure on rates driven by new supply in any specific markets? And then looking forward to 2025 and beyond, what do deliveries or completions look like broadly?

I guess, will we continue to have supply pressure this year? Good morning, and thanks for the question. So, I’ll start just by saying, you know, we’re in a market that grows long term globally, a very stable market, as I talked about. You know, our throughput Palatine core holdings have not changed a lot. It is an attractive industry for that reason.

And it’s not surprising we’ve seen new investment over the last few years. So, as we discussed last quarter, like you mentioned, there are some new competitors that even speculative developers that have entered our space. In the current construction cycle, that new capacity peaked in 2023. It came down by about 50% in both 2024 and 2025 levels versus 2023, and we expect those new deliveries to continue to decrease over time. It’s also important to mention that the capacity that’s been added over the last few years has been built at the highest cost to build in history, absolutely, for sure.

And we don’t expect those build costs to decline from the current levels because inflation, land costs, entitlement, and just the complexity of building, especially with automation. And so as such, it’s very hard for these smaller, newer players to succeed at anything below market prices, in a market with rising capital cost. And we expect, we actually expect some of these businesses to underperform and some to fail. And we’re seeing evidence of that in the marketplace. And we expect some of these dislocations to create opportunities for us as we continue to position ourselves as acquirer of choice to the industry.

And when you compare us to these new entrants, I mean, we have very distinct advantages. We have huge scale advantages. We have the network effects that come with that. We are the world leader in cold storage automation. We have proprietary technology like Lineage Link and LinOS.

We have C level customer relationships with over 13,000 customers around the world. And we have our GIS segment where we can support their cold chain from farm to fork, where none of these other competitors can do that. So long story short, you know, we feel great about our ability to compete.

Ki Bin Kim, Analyst, Truist: Thank you. Of course.

Conference Operator: Your next question comes from the line of Steve Sakwa from Evercore ISI. Your line is open.

Jeremy Cole/Daniel Guglomo/Michael Goldsmith, Analysts, Goldman Sachs/Capital One Securities/UBS: Yes, thanks. Could you maybe just talk a little bit about the pricing that you’re seeing on the acquisitions that you’re maybe looking at? Like how has that changed? And with your cost of capital changing, how are you thinking about pricing on new deals going forward?

Rob Kriesche, Chief Financial Officer, Lineage: Yes. So, obviously, the market here has been challenged the last few years and that you sort of see a little bit of that in the public valuations and it also flows through the private valuations. You know, ultimately, we’re going to make the best decisions to drive long term value for our shareholders with the highest risk adjusted returns. So, you know, there’s there’s there’s always a good arbitrage opportunity for anything that we do. So, you know, in the near term, that accrues directly to our shareholders and then as we improve the businesses over time, that also will accelerate those returns.

And so, really no changes versus how we’ve done this in the past. We definitely benefit from having the balance sheet that we have today and that lower cost of capital and that gives us an advantage and being number one in the industry gives us a huge advantage. And so like I said, we’re excited about the opportunities here and if we can take advantage of any market dislocations in the near term, we certainly will.

Conference Operator: Your next question comes from the line of Michael Carroll from RBC. Your line is open.

Greg Lemko, President and Chief Executive Officer, Lineage: Yes, thanks. Greg, I wanted to circle back on your LinOS comments. I know you indicated that the pilot tests are showing strong initial results. Can you help us understand what that means? I guess, what did these pilots prove?

And are you seeing better revenue growth and better margins on those assets? I guess, how can we clarify that comment that you’re seeing stronger results than you expected? Yes. Great question. So as I mentioned, the Lindow S.

Initiative is very, very much on track. The pilots are early, but they are absolutely exceeding our expectations. We’re super excited about it. This year is about proving out the functionality of the technology and getting it rolled out to different types of facilities. So think, think DOCS, think High Reach, think Case Pick, and getting all that technology rolled out in every aspect of the operation across different facility types to prepare for a broader rollout next year.

And so, as I mentioned, we believe that this technology can fundamentally transform our operations and we are seeing early indications of that. I actually have a great story, Michael, from our first pilot. In the first week of rolling out mid-eleven earlier this year in Chicagoland, our COO, Jeff Rivera, was just standing there observing the operation and kind of watch LinOS, active, you know, kind of controlling the orchestra of the operation, if you will. And one of our most senior team members, a 30 year reach truck driver who had been working with this technology for two days, drove by Jeff on his forklift, gave him a thumbs up and said, This is freaking awesome. And he actually used a little bit more, different words.

But I’ll be polite. And so I think the buzz and the excitement within the company and in our leadership team has never been higher. We’ve never been more optimistic. That said, it’s really early and we wanna wait till we have more proof points before we come out with any sort of additional color. But we will definitely, we are extremely excited to share that as this year progresses.

Conference Operator: Your next question comes from the line of Daniel Guglomo from Capital One (NYSE:COF) Securities. Your line is open.

Jeremy Cole/Daniel Guglomo/Michael Goldsmith, Analysts, Goldman Sachs/Capital One Securities/UBS: Hello, everyone. Thank you for taking my question. I know you have a mix of large and small customers with the top 25 customers making up about a third of revenues. As we continue to come out of this customer demand kind of trough, are you seeing a divergence in the speed at which large customers are occupying space versus your smaller customers? Or are there any trends of note between the two?

Greg Lemko, President and Chief Executive Officer, Lineage: So I would say no. We are our customer base has been very stable, as we look over the trailing 12 here and we wouldn’t anticipate that to change moving forward. You know, importantly, we’re with our scale, we’re touching all commodities, all customers in all regions in which we operate and that diversification is part of the, a big part of our story. So any shift that would happen that we’re not anticipating, one would benefit, another would, could be impacted, but we’re super diversified and not a concern for us.

Ki Bin Kim, Analyst, Truist: Great. Thank you. Of course.

Conference Operator: Your next question comes from the line of Michael Goldsmith from UBS. Your line is open.

Jeremy Cole/Daniel Guglomo/Michael Goldsmith, Analysts, Goldman Sachs/Capital One Securities/UBS: Good morning. Thanks a lot for taking my question. I appreciate some of the background on the supply, but just maybe ask a little bit more directly. Will competitive supply for 2025, will that be lower, higher over the same, than last year? Thanks.

Rob Kriesche, Chief Financial Officer, Lineage: You mean in terms of new things coming online, it’s lower? Yeah, I I guess, yeah, I mean, what competitive supply dynamics?

Greg Lemko, President and Chief Executive Officer, Lineage: We would expect it to be consistent with last year. Yeah.

Ki Bin Kim, Analyst, Truist: Thank you very much.

Greg Lemko, President and Chief Executive Officer, Lineage: A new supply cut going down moving forward.

Ki Bin Kim, Analyst, Truist: Appreciate it.

Conference Operator: Your next question comes from the line of Amitayo Akarsanya from Deutsche Bank (ETR:DBKGn). Your line is open.

Evan Barbosa, Vice President of Investor Relations, Lineage0: Hi, yes. Good morning, everyone. A question around I mean, you look at the USDA data that’s kind of suggesting that inventory pressures are still existing in the business. There’s a lot of talk of continued inflationary pressure on food costs and some of the more recent data around like weaker consumer sentiment. I mean, as you kind of just look at a combination of those things, do you kind of look at that as a dynamic that continues to kind of put pressure on things for a while?

I mean, some of your comments today seem like 2025 really is a year of market stabilization. But I just kind of compare it against some of that demand related data and I just kind of wonder if that kind of lingers for a little longer than maybe everyone’s expected.

Rob Kriesche, Chief Financial Officer, Lineage: So on the I mean, yes, I’ll just comment briefly. So on, I went through all that sort of normal seasonality information. We looked back to USDA data for that as well. So what you’re seeing in the USDA data is that normal seasonality, the least over the past year as we talked about soaring in the back half of last year. Go ahead, Craig.

Yeah.

Greg Lemko, President and Chief Executive Officer, Lineage: And I think it’s just important to point out again that despite the inflationary pressures, our throughput in our quarterly holdings has not changed. And so the pressure has really been more on inventory levels and that peaked in the second quarter of last year. Since then, inventory levels in our core holdings have stabilized at a lower level and that is what our guide, our guide does not assume that there’s any sort of rebound in throughput or, or inventory holdings. We assume things are where they’re, where they are, they’re not going to improve and we feel we can perform in that environment. And just a little more on the USDA data, you know, I think everybody knows this, but, you know, USDA data is based on a voluntary survey conducted via telephone, to facility managers and only a portion of the total cold stores in The US report.

And many can report inconsistently or only report for a portion of their warehouses. And so while it’s an interesting data point, it’s far from perfect. For us, you know, 20% of our business is outside The US and only 40% of our commodity to acid in The US is reported through the USDA. So we don’t believe that’s a good predictor of our results in the short term, although it does certainly have correlation in the long term.

Ki Bin Kim, Analyst, Truist: Helpful. Thank you. Of course.

Conference Operator: Your next question comes from the line of Michael Mueller from JPMorgan. Your line is open.

Evan Barbosa, Vice President of Investor Relations, Lineage1: Yeah. Hi. Carrie, what do you see as more normalized longer term physical and economic occupancy levels for your portfolio?

Greg Lemko, President and Chief Executive Officer, Lineage: I mean, we certainly strive to move up our physical and economic over time as we gain market share. And we think, you know, we think we are gaining market share. Our customers are always looking to optimize their supply chains, especially our larger customers. There’s a number of, you know, large optimization initiatives going on at our at our big customers. One of them had just completed their their seven month study and they’ll be reconfiguring their North American supply chain.

And we were just informed earlier this week. And it’s a top 10 customer for us that will get a 50% increase in business from that customer as this year progresses. So, you know, we’re looking to gain market share. We think as we optimize our cost structure, as we implement LINOS, as we continue our lead initiatives, we think we can be we think in the long term, we can be the lowest cost provider with the best service, with the best scale, with the broadest service offerings, and that will lead to ongoing gain of market share over time. Yeah.

Rob Kriesche, Chief Financial Officer, Lineage: I think another thing worth pointing out, right, is because occupancy levels have come down, there’s space to sell. Right? We have we have room in our building. Lots of upside. Yeah.

Ki Bin Kim, Analyst, Truist: Yeah. There’s a ton

Rob Kriesche, Chief Financial Officer, Lineage: of upside. You don’t have to go and build a bunch of new buildings in order to service your customers. You can you can take advantage of of available space. So that I mean, that’s again, this is none of this is embedded in our guide, you know, in normal course, we think we can drive mid single digit same store NOI before any of these other great things we’re talking about and we’ll be there here in the second half of the year, and moving forward. So it’s a pretty exciting time as we mentioned.

Conference Operator: Your next question comes from the line of Victor Fedde from Scotiabank (TSX:BNS). Your line is open.

Ki Bin Kim, Analyst, Truist: Hello. This is Victor Fedde on with Greg McGinnis. I’d like to ask, so at NAREIT, you highlighted a new focus on managing your SG and A expenses. Are you able to provide more clarity on the expectations around that for 2025 and how you plan to address going forward?

Rob Kriesche, Chief Financial Officer, Lineage: Yes, for sure. So if you look at operating leverage both operationally and through admin, it’s a huge part of what we’re driving here at the company. You saw nice EBITDA growth in a down market last year, so we’re always looking to optimize. I mean, we’re investing more in certain areas. We are making sure other areas have the right size and it’s an important part of what we do.

So there’s a little bit of growth in admin for ’25, of course, because we’re a new public company and there’s public company costs and things we didn’t have before. But other than that, we are there’s always just not much growth. And I think there’s again, we built this company because we plan to grow this company to an enormous scale over a long period of time and we’ve made up some of those investments in advance. And so moving forward, we can grow without a ton of incremental investment in admin. I can tell you our CEO and I are very focused on this.

Evan Barbosa, Vice President of Investor Relations, Lineage: Yes. Thank you.

Conference Operator: Your next question comes from the line of Vikram Malhotra from Mizuho (NYSE:MFG). Your line is open.

Evan Barbosa, Vice President of Investor Relations, Lineage2: Good morning. Thanks for taking the question. I just wanted to clarify on your kind of occupancy and maybe just NOI comments and assumptions. I think you mentioned having sort of NOI 47 ish percent first half and the balance in the second half, that’s kind of normal seasonality. So if I just run that through just to clarify, is that embedding basically occupancy falling in the first half and picking up a fair amount in the second and and essentially the NOI growth negative in the first half just on your on the on the percentage you gave and a big pickup in the second?

Could you clarify that? Thanks.

Rob Kriesche, Chief Financial Officer, Lineage: Yeah. I mean, I think if you run those numbers through your models, you’re sort of flat, you know, flattish to slightly down in the first half and up in the second half. I mean, that’s, you know, I think that’s normal seasonality because, you know, inventory levels were already in the first half of last year. So, yeah, that’s very consistent with, with what we just laid out.

Evan Barbosa, Vice President of Investor Relations, Lineage2: Thank you.

Conference Operator: Your next question comes from the line of Ki Bin Kim from Truist. Your line is open.

Ki Bin Kim, Analyst, Truist: Thanks for taking me back. Just two quick follow ups. First, what does the stock based comp assumed in your 2025 guidance? And second, I’m looking at Page 11 I’m sorry, Page 15 on your slide deck. Just curious, why did the non same store storage revenue fall?

I mean, it looks like your economic occupancy fell 700 basis points, but your average occupied pallets were actually up 2.8%. So, just a little confusing?

Rob Kriesche, Chief Financial Officer, Lineage: So, I mean, non same store, right? There’s a lot we had some buildings move out of same store, non same store because of the solar fire last year. There’s just a lot of stuff embedded in there. Sorry, what was the first question?

Ki Bin Kim, Analyst, Truist: Stock based

Rob Kriesche, Chief Financial Officer, Lineage: comp. Stock

Ki Bin Kim, Analyst, Truist: based comp.

Rob Kriesche, Chief Financial Officer, Lineage: Yeah. I think we’re at a normal run rate now again in the fourth quarter, right? A big part of the stock based comp increase is our starting line, right, where we went to the entire company and offered equity to the majority of people and I think that’s driven huge benefit and it will help us in a million different ways and so that’s kind of in the base now.

Greg Lemko, President and Chief Executive Officer, Lineage: Part of the reason why we have all time lows. Very good productivity. Yep.

Ki Bin Kim, Analyst, Truist: So, so what is the normalized run rate?

Rob Kriesche, Chief Financial Officer, Lineage: Yes, I think we’re there for the fourth quarter.

Ki Bin Kim, Analyst, Truist: Okay. Thank you.

Conference Operator: Your next question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

Alexander Goldfarb, Analyst, Piper Sandler: Hey, thank you for the follow-up. Just a two parter here, if you don’t mind. One, if you could just give us an update on the lockup or I guess the expiration lockup of the pre IPO investors, where you guys stand and what’s going on there. And then second part is Slide five of the presentation really speaks to the outperformance of the platform versus flat year over year revenue. And just curious, is this more driven that outperformance, is that more driven as you guys acquire assets and you’re able to put them on your system?

Or do you also see similar outperformance at existing center at existing warehouses such that? And then do you think that this will be able to continue so that the lineage technology platform that you guys spoke about, the IPO, that that will continue to reflect in results and that we should see this continued outperformance of the metrics versus the top line revenue?

Rob Kriesche, Chief Financial Officer, Lineage: Yeah. I appreciate the question. Yeah, I mean, and I appreciate you bringing it back to the story. Like, this is what we do. We are world class operators.

The lien process is the technology. Like, yeah, it’s not just things we acquire. We are consistently always getting better. The whole point of lien is you’re always getting better, right? And we’ve rolled it out across some of our companies, not everywhere.

And then LinOS is all amazing upside on top of this, right? So, yes, we expect to outperform, We expect to continue to drive margin improvement. As we both said on the call, we’re just getting started and I think there’s a ton of opportunity there.

Greg Lemko, President and Chief Executive Officer, Lineage: And as we get better, everything we acquire just becomes more accretive. Yeah.

Rob Kriesche, Chief Financial Officer, Lineage: You have bigger network, more places to, to to take advantage of that. And then I want to also appreciate the question on the, on the the sell down. So just just some some comments around that. So we don’t see the sell down process at all at a meaningful as a meaningful headwind, and sort of give you some color on why. So Kevin and Adam, you know, our founders, large individual long term shareholders, they’re obviously very, very aligned with the public market on on making sure the settlement process, aids our public investors and all of our investors.

They control the settlement process. They plan to execute the organized sell down over this three year period starting with the IPO. They’re very focused on long term share of my depreciation as are we all, increasing the public float and expanding our base of great long term shareholders. You know, we also have increased passive index ownership, right, where we’re around 30% index ownership now. And then again, thinking about the sell down over time, you know, only 30% of the company is publicly floated today, but of the remaining 70%, founders and management own a significant amount and obviously we expect all of those people to be long term owners.

And so that leaves maybe two thirds of the stock owned by pre IPO investors. And of course, we can’t predict their investment decisions, but, you know, we we view a significant number of them and they’ve told us such that they are also long term holders of the stock. So, you know, this is a very organized process over the next two and a half years. There’s no, like, clip dates and things that, you know, should worry people about this being a real headwind. Appreciate the question.

Conference Operator: And your last question comes from the line of Jamie Feldman from Wells Fargo. Your line is open.

Ronald Kamden, Analyst, Morgan Stanley: Great. Thanks for taking the question. And I think your response to Alex’s may have answered some of it. But stocks underperformed since the IPO. What do you in your conversations with investors, what do you think is most misunderstood?

What do you think the key concerns are? And what would you tell people to get more comfortable, especially as we start a new year and you think business is stabilizing?

Greg Lemko, President and Chief Executive Officer, Lineage: Yes. I think what’s been misunderstood is that we’ve been we’re growing this company 4% total EBITDA, 6% AFF over share in a major inventory rebalancing. And so in the start in the stiffest headwind the industry has seen in many years, we’re still growing and we’re built to grow. Right now, we’re delivering the best customer performance of our history where we have record new business wins, our operational, our safety, our energy management performance is great. As Rob said, we’ll get great G and A leverage going forward.

We have technology and automation that no one else in the industry has and we’re built to grow. And we’re gonna prove that over the next several years and I do not think we’re getting credit for that on the street yet. And I understand that we have to show that, but we’ve shown it for a long time prior to going public. We were kind of in this strange rebalancing position since we’ve been public and we expect to perform very well going forward.

Conference Operator: And that concludes our question and answer session. I will now turn the call back over to Evan Barbosa for closing remarks.

Evan Barbosa, Vice President of Investor Relations, Lineage: Thanks. On behalf of the entire Lineage team, thank you for joining us today and for your interest in Lineage. We look forward to speaking with you again on our next quarterly earnings call. Thanks everybody.

Conference Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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