Lineage, Inc. (LINE) Q2 2025 Earnings Call Transcript

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 1 on your touchtone phone. And to withdraw your question, please press star 1 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 lemkool 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 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, 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 seasonal inventory levels. I will then turn it over to Rob to review second 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 4, we delivered ASFO per share growth of 8%. Total revenue increased modestly by 1% and adjusted even a decrease 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 billed. This updated outlook has led us to reduce our annual ASFO for share guidance to 320 to 340 compared to our prior range of 340 to 360. Transitioning 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 NOI was down 6% year over year against elevated inventory levels. 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 pallet stability as expected. Our global integrated integrated solutions saw 8% year-over-year segment NOI growth, led by our U.S. transportation and direct-to-consumer. 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 LinOS, now at 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 grade bond offering. Additionally, we executed on our M&A and development pipeline and accretively deployed $535 million in growth capital, including closing our agreements with Tyson Foods, in addition to three smaller acquisitions. positions. Before moving on to a more detailed analysis of our performance, I want to say a few words about our company. Lineage is positioned as the industry leader with broad and deep customer relationships, the largest network, cutting-edge technology, and is a world leader in warehouse automation. I'm confident that we are well positioned to grow as the food industry inventory is stabilized, new 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. Moving to slide five, when we met with investors in early June and May, 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... Late in the second quarter, when inventories historically started to climb, we saw muted seasonality and 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 carrying costs drove our decision to lower our items. 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 improvement in each quarter of the year. Turning to slide 6, we had a number of questions about price in relation to our storage revenue for physical pallet after we announced our first quarter results. A quick reminder that our storage revenue for physical pallet consists of rent, storage, and blast revenue. As outlined at DayREAT, 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 fiscal pallet. As you can see on the charts, there's always some short-term volatility in this metric, which is driven by a number of factors, including rate, volume guarantees, inventory turns, 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 7, based on the factors I've 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 AFFO 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 CapEx spend moved from the second quarter into the third quarter, which is reflected in our AFFO 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 inflection 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 invest 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 SameStore and OI trending positively, positioning us well for growth in 2026. To that end, on slide eight, 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 Cognizant, we are elevating our customer care model through proven best-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 excess 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 and has helped us deliver service, excellence, and consistent productivity gains over many years. We expect Lin-OS to build on this foundation and accelerate efficiencies while making lineage an even better place to work. As previously mentioned, our ongoing Lin-OS 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 value customers.

Now I'd like to turn the call over to our CFO, Rob Cresci. 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. Contributions from non-stained 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, and 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 and 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 direct-to-consumer businesses. Our customers continue to appreciate Lineage's integrated solution and unmatched global service offering. 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 dollar investment grade bond offering which carried a 5.25 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 domoz 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 even an improvement which we expect to continue going forward. We are the global cold 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 Windows 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 into driving long-term shareholder value. With that, let's open up our questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. I would like to remind everyone to limit ourselves from one question only. To ask a question, please press star on your touchstone phone, and to withdraw your question, please press star 1 again. Our first question comes from the line of Mr. Alexander Goldfarb with Piper Sandler. Sir, your line is open.

Hey, good morning out there. I guess for my one question, Greg, you know, at Nary, you guys reiterated the guidance from earlier this year. Clearly, you had a chance at that point to revise down. And just want to understand, everything was tracking well until basically June 1st. And then after that, things fell off. It just seems a little tough, you know, again, especially given that you guys had an opportunity to revise then. Just curious, you know, what you're thinking, you know, and how things were trending then versus what materially happened subsequent to NARIT that caused you guys to reduce the outlook.

Yeah. Good morning, Alex, and honestly, great question. And you're right, what changed is our occupancy guide. We had been trending in line with typical seasonality, and I think everyone remembers we described and we described typical seasonality as the normal seasonal pattern of you know we were referencing 2015 to 2019 before all the disruptions of covid when the normal seasonal pattern happened for you know generations really before that disruption and that you know you start in q1 you you drop to a to a bottom in q2 and then you build up to through q3 and q4 and so at navery we were trending actually in line with typical seasonality actually a little bit better than normal seasonality and how the USDA indicated the market was performing. So, we were above the line, as indicated on our slide five. In June, when we typically see utilization in flat after bottoming in May, and this year, you know, we just started to see the typical seasonal uplift of utilization in late July, which is obviously later than usual, and that pickup has been a little bit more gradual than it typically is. So we do still anticipate a seasonal uplift in the second half, and we do see that happening now in the last couple of weeks. But because of the delay and because of the muted seasonal pattern that we're seeing today versus what we were seeing when we talked at AREIT, and because of the ongoing uncertainty around tariffs and elevated inventory carrying costs, we're just lowering our expectations on the magnitude of the uplift. Importantly, as you saw, we did see sequential improvement in our same-store NOI, Q1 to Q2, and we expect to improve in each quarter.

Thank you.

Thank you. Our next question comes from the line of Kim Kim from Truist. Sir, please go ahead.

Thanks. Maybe we can just start off a little bit on a higher level. You know, what's the best argument you think you've heard from your clients in terms of why occupancy is too low or throughput volume is too low today versus what I guess the industry players and yourself included might think what is normal going forward. So what are the best arguments for that?

Yeah, I think, you know, as I mentioned on the prepared remarks, you know, we believe the industry is bouncing along the bottom right now. I mean, food producers on their earnings calls and in all of our meetings continue to cite just high food pricing and value-seeking behavior from customers you know our view right now is that inventories have been under serious pressure for a couple of years now and that servicing consumers without stockouts which nobody will handle uh would be very difficult at even lower levels and so we definitely feel we're bouncing off the bottom there are some data you know positive data points out there like the beef herd counts which are obviously still below the 2021 levels so if you're stabilized based on the 2025 USDA data, and Circana's data showed that restaurant industry, the whole industry gained momentum after a slow start to the year. Also, you know, our customers are pushing very, very hard to increase volumes through incentives and their sales efforts. And if those incentives are successful or we get any interest rate relief, either one of those things could act is a stimulus for it.

Do you think GLP-1 drugs are having a significant impact on volumes or occupancy?

We don't, and our customers don't. I mean, certainly if you look at our commodity mix of heavy in proteins, seafood, food, and veg, those are areas where people are eating more of, not less of them. And we think long-term, if the drugs work, and hopefully they do, and dramatically impact diabetes deaths, that people will live longer and people will eat more in the long term.

All right. Thank you, guys.

Thank you. Our next question comes from the line of Mr. Michael Griffin from Evercore. Please go ahead.

Great. Thanks. Appreciate the comments earlier on the LinoS pilot. I don't know you said you'd kind of quantify the benefits of that later in the year, but maybe can you give us any anecdotal examples of initiatives you're undertaking and maybe some of the benefits you've seen from the implementation of these pilot, you know, six or ten facilities, however many it's been?

Yeah, we have six implemented so far. We'll do ten by the end of the year. And, you know, all I can say is this is our initiative. It's exciting. It's on track. It's exceeding expectations. And we're seeing double-digit total labor productivity improvements across the six sites. So, to remind everyone, you know, LinOS is our proprietary warehouse execution system. This started many years ago from a vision and a belief from Siddharth and Tatai, our CIO, and Elliot Wolfe, our chief data scientists, and their teams that we can reimagine the way warehouses run and that technology and data science are the enablers. And so, LinOS, through our own proprietary algorithms, optimizes literally every resource and movement that happens in the warehouse, much like air traffic control, if you will, from how trucks are loaded and unloaded to where product is put away to directing each task in the building with the result of optimizing performance for customers and dramatically increasing our warehouse efficiency. And so we have the evidence now that this vision is coming to life and can fundamentally change our competitive position over time, given its impact on customers' costs and even our employee experience. And, you know, most great things take time, and Lin-OS is no different. And this year is about proving out the functionality and getting it rolled out to different types of facilities before a much broader and accelerated rollout next year and the year after. And so, you know, we're increasingly excited about how this can just fundamentally transform our operations, because we see the benefit now across the six sites, not only in direct labor, which was the primary focus, but also in indirect labor, employee benefits, energy, safety, employee turnover, the employee experience, training expense. We even think it's going to materially lower both our CapEx and our facility as we're more efficient in the use of our facilities and our material handling equipment. And so, you know, over time, we think it will materially lower our cost structure, help us compete, and improve what we already have as an excellent service for our customers. So we're highly encouraged, and we believe LinOS is going to be everything we thought it would be, and we can't wait to share a lot more detail around kind of financials and how these algorithms work around the neighboring conference later this year. Great. Thank you.

Our next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Great. Thanks for taking my question. And Greg, you mentioned this a bit in your prepared remarks, but can you discuss the pricing strategy in the second quarter for rent and storage relative to the first quarter? It looks like you recaptured the trend line on that slide six, which was a little bit of a surprise given it sounded like you were giving some price concessions in the first quarter to get volume. So maybe just what has changed and what we should expect going forward.

Yeah, the short answer is nothing has changed. And let me let me explain why. So we communicated over the last quarter's results and at Nareed that we thought pricing levels would be stable for the balance of the year. In our prepared remarks today, we discussed that there's always some short-term volatility in this metric, and you'll see that on slide six, which is driven by a number of factors. I'll repeat, you know, rate or price is certainly a piece of that, but also volume guarantees, inventory turns, last freezing volumes, commodity mix, geographic mix, exchange rate and seasonality can all impact the way this this metric fluctuates quarter to quarter. And so, yes, the pricing was up for rent storage and blast 5% sequentially, but much like we weren't concerned that it went down a little bit last quarter, we're not over-celebrating this quarter of the sequential 5% because it's not all price. This quarter was benefited by European FX and elevated volume guarantees, which while they were reset in the first quarter, given the resetting inventory levels, the second quarter is normally and is this year likely to be the lowest occupancy quarter of the year. So you're collecting a little bit more volume guarantees, which elevates your rent storage and blast per occupied pallet. And so, again, long story short, nothing has changed. We got our 2% to 3% price. We see the pricing environment as competitive and stable, and we're not concerned about this element for the balance of the year, and it's consistent with our prior guide.

Okay, very good. Thank you.

Thank you. Our next question comes from the line of Ronald Camden from Morgan Stanley. Your line is open.

Hey, thanks so much. Just a quick two-parter. Just can you talk a little bit more about sort of throughput was down, same store, 3.2 this quarter, which decelerated from the last quarter number. Just help us think about sort of what's happening on that front. Is product just being stuck somewhere in the supply chain is number one? And then the second comment is just updated thoughts on supply in the industry.

You got it. So, you know, we talked about this concept of core holdings in the last quarter, and we define that as volumes from customers that have not meaningfully changed their business with us over the last four years. So, you know, we didn't win business, we didn't lose business, they're consistent, and that represents over 70% of our global warehouse holdings. So as we talked about, core holdings have been under pressure since the beginning of the inventory, unwind, coming out of COVID, starting in 23. And as a reminder, and as we explained on the last call, the total outbound pallets on an annual basis have remained remarkably flat over the last few years. In this quarter, as you mentioned, we did see throughput pallets down 3% in our same-store warehouse portfolio year over year. But we would expect that given the, you know, elevated inventory levels we saw last year. And if you look sequentially, the throughput was up about 1%. And so, you know, our view is the core holdings remain under pressure due to the items I've already mentioned, higher food prices, elevated inventory carrying costs, higher interest rates. On the supply side, you know, I think we all know that it's not a super transparent industry like some other REITs, REITs, REITs, sectors. and it's not widely tracked by third-party brokers and things are published that talk about. So we've been working collaboratively with CBRE to create a database of new announcements this year. And what that data, the new openings peaked in 23. Latest information we have.

Helpful, thank you.

Thank you. Our next question comes from the line of Michael Goldsmith from UBS. Your line is open.

Good morning. Thanks for taking my questions. Can you walk through the assumptions and what gives you confidence in the materials, step up in trends, expect? Why don't I start? So just to talk about the biggest assumption, continued progress, productivity savings, I would see expectations being more muted than we were. But we are already seeing our price assumptions, almost everything's dropped.

Yeah, that's right. And I think there's confidence in the fourth quarter versus the third quarter, which is very similar to what we saw last year. we talked about starting to see normal seasonality in the second half of last year and that's embedded our guide here so you know i think we feel really good about it and you know we lowered for all the reasons greg said but again it's just occupancy and it's our industry and it's it's evolving and and we feel really good that we are now sequentially improving um and you know and and that's a great place to be thank you if it jumps as much as you know it has in in prior years, then there's, you know, then we'll, we'll, we'll, we'll be seen as conservative, I guess.

Try to take a prudent view. Thanks again.

Our next question comes from the line of Samir Kennel from Bank of America. Please go ahead.

Yeah, thank you. Good morning, everybody. I guess, Greg, you know, help us understand how to think about the rebound or the inflection and occupancy. I mean, clearly there's very little visibility from our side here, right? So, you know, Is it the macro? Is it the health of the consumer? What should we be paying attention to as we think about the timing of the inflection? And then at this point, I think folks are trying to understand, you know, what that trajectory of growth even looks like into the 26th. So, you know, help us understand kind of what you track, and that would be helpful. Thanks.

Sure. I mean, the number one thing we track is our conversations with customers and our own occupancy. And if you think about our second-half guide, we did see, you know, us come off the bottom, and we've had, you know, a few weeks of – or a couple weeks of increase, which trends, you know, like it did last year, where we saw substantial occupancy increases going in the late third quarter into the fourth quarter. And so that underpins our guide. As far as, you know, when the industry will start to rebound, I think, you know, again, our customers' inventories are, we feel, about as low as they can be while still servicing the consumer. Everybody's looking to stimulate, you know, new demand. And interest rates and tariff deals getting finalized, both could act as stimuli for increased inventories.

Okay. Thank you.

Thank you. Our next question comes from the line of Todd Thomas from KeyBank Capital Markets. Your line is open.

Hi, thanks. I guess two questions. One, just a follow-up. Are you able to provide for July any detail around occupancy or some of the specific drivers around warehouse storage and the services segment and any specific updates regarding July specifically? It sounds like there was a little bit of a pickup here later in the month. The second question, though, is around the dynamic between the softness that you experienced in the warehouse business relative to GIS, which grew 8% in the quarter. Can you talk about some of the growth drivers for GIS in the period and what's behind the sharp acceleration in the second half of the year? Sure. Go ahead, Cal.

So, you know, we're just closing out July. But, you know, in terms of occupancy levels, you know, we're back now above April, May. right so it's back to that again as you see in our chart you start to move up we just started moving up you know several weeks later right and then you just have less months with more things in the in the in the warehouse and that's what led to the guidance cut but we are seeing what we expected which is which is good to see yeah and then we're just taking a more muted view on the on the slope of the trend now for the year given that it happened late and and we're trying to be prudent with our guidance.

On the GIS side, I've got to say I've never been more proud of our GIS team around the world. They're doing a fabulous job. We have better players on the field. It remains, as you guys know, on the trucking side of the business, on all the services we provide in our GIS group, which are very complementary to our warehousing business and very critical to our customers' total supply chain optimization. But this team's doing a phenomenal job. The sales teams doing a great job selling new business. And I think we're just doing a better job than ever talking to our customers about their end-to-end cold chain. And some of them a few years ago didn't even know that we had these services. And now the services have developed, the team strengthened, the technology strengthened, and the coupling of the warehouse with the GIS services. I would expect that they're just gaining momentum.

All right. Thank you.

Our next question comes from the line of Craig Millman from Citi. Please go ahead.

Hey, good morning, guys. Just want to circle back on inventories and kind of how you guys are viewing them going forward. I mean, I just heard your comment that, you know, a pretty common refrain over here in the last couple of quarters from you and your peer that it doesn't feel like inventories can get any lower for your tenants. And yet we're still seeing kind of occupancy from a nominal perspective stay pretty muted the low-end consumer is under pressure their shrinkflation so even though you know people are spending the same amount you're getting less for what you're spending you're seeing you know fast food companies like mcdonald's see tepid sales because the value proposition isn't there i guess is it wishful thinking at this point to think that you know the the trend to seasonality should be confused with an inflection nominal inventory levels i mean can't we have both where you get that seasonality but you're just off a base that's not going to materially improve given the outlook and given the financial situation of a lot of people in the country i mean i'm just trying to kind of circle the square here because we're it just feels like the usda data has been year over year negative for over two years and yet you know when we hear from you and your peer it's just i didn't say things are going to get better that it doesn't happen right and the post covid world is just different i don't know if it's technology improvements on the tenant side i don't know if it's district inflation glp ones whatever it is but it just doesn't feel like the needle is moving back on on inventory level despite that consistent comment that just doesn't feel like inventories could shrink anymore and still serve as the end user?

So fair point, certainly. And our guide does not assume any inflection in the underlying environment or that kind of general consumption inventory levels get better for the balance of this year. But there's no doubt the consumer is still under pressure because of high food prices, high interest rates uncertainty uh and that's putting pressure on overall food sales we you know the seasonality we talked about we saw last year even in this tough environment and we're guiding to even a more muted seasonality than than we saw last year and so we think we're being conservative we're not depending on an inflection for all the reasons that you pointed out we think long term you know leading up to the to 2020 call it 22 you know fresh and frozen food consumer preference it's shifting that direction um you know uh consumers want to eat healthy we we you know the majority of our food fits in that category and we think that the trend the long-term trend and the data that or the you know people like afi and other other organizations uh feel that they'll be gross in the long term but we are bouncing off the bottom right now and we're not trying to uh predict or or dictate when we think that's going to change but that that said all of our you know we saw sequential improvement in our results in the first and second quarter we expect to see that in third and fourth despite the challenging environment the technology we're putting in place we think is a game changer for our business our gs segments doing very well we're doing a great job controlling costs in every aspect of our business around the world and we think you know our network our technology our customer relationships our gis uh service offering puts us in a great position to win in the long term and we do still feel despite the fact we don't know when that you know that that uh that volumes at the consumer of fresh and frozen will start to grow again at some point yeah that's right you know everything you said which i think are fair points is currently reflected in our numbers so that's what's been happening.

We are seeing things getting better slowly. We're doing everything we can on our end to control what we can control. And so I think, you know, any change to any of the things that you said is upside opportunity, and we're not expecting any of that to happen this year in our guide. But we do think over the long term, there is quite a bit of upside opportunity, but, you know, we're going to wait to see it happen.

Yeah, and we think we'll leave this year with good momentum.

We think the TC collection for each quarter is good momentum going into the next you're absolutely good about all the internal initiatives we're doing our new business with customers whereas we're only strengthening and we think that'll benefit a bit of benefit us long term great thank you our next question comes from the line of mark mike carroll from rbc please go ahead greg can you provide some color on where cold storage companies are currently trading or at least being valued in in the private market i mean has private market valuations changed as much as we've seen in in the in the public markets i guess what's the right valuation metric that these assets are trade at i mean should we be thinking about ebd ebda ranges and i know it's uh each asset there is different or each company is different but what's the typical ebd ebda range uh that coal storage companies are trading on the private market today or or at least if twins trade start like where do they typically trade at i mean it's it's obviously an evolving metric, but right now they're probably trading higher than our current multiples.

Yeah, I think we're trading at, what, 55% to 60% of NAB.

We think it's, you know, obviously undervalued. That's our opinion. Yeah, you know, the private markets take a longer-term view, right? And so, you know, the quality of the assets, but just the long-term growth of this industry, you know, yes, there's definitely a disconnect. Now, as you know, we've deployed a bunch of capital. I think we're in a good place. We've got a lot still to come, as we mentioned in the prepared remarks of NOI that's still developing in terms of Tyson and the acquisition. So we've deployed a lot of capital at attractive multiples. Now that that's going to flow through our results, we're going to do our best here to improve sequentially, and then we'll continue to monitor the markets. But there's certainly, at this point in time, you know, the sort of true long-term value of our industry is not we don't we don't feel shown in the public valuations and private you know like what's the typical ev to ebda range that assets trade out in the private market um i guess compared to to your valuation i guess where does that typically go you know it really depends on region it's so many dynamics but there are things rating double digit ebitda up to 15 20 times ebitda that we see you know in in smaller transactions in europe and other places it's uh you know it's a pretty big definitely.

Yeah, wide range, I would say.

Thank you.

Our next question comes from the line of Vikram Mahhotra. Your line is open.

Thanks for getting the questions. I have two clarifications. I guess this first one, and I'm still struggling to get a sense of like how conservative you truly are in the back half, given kind of we're still seeing elevated inventory levels. Do you mind just, you know, from that chart you've provided, like what is your actual occupancy build just a number sequentially into into the second half whether physical or economic if you can give and compare that to you know how how is how does that compare to say like pre-covid historical trends just like how how conservative you are like what and give us the exact like occupancy number occupancy from that chart and then just second clarification is gna Your G&A did come in, I guess it was a big benefit in 2Q versus we anticipated, and the second half assumes a big pickup. So cash G&A, like what is driving that in the second half?

So, you know, slide five, I mean, that's exactly to answer your question. That's what slide five is here for. So 2015-2019 is your pre-COVID USDA seasonality. That's the green line. What we are embedding at the midpoint of our guide here, which is you can look at the charts basically you know call it 75 percent plus or minus in q3 78 and q4 so that is muted seasonality compared to history we think it's prudent like we're not you know we're not trying to be overly conservative or overly aggressive this is what we see right now um our team's going to work hard to beat these numbers um you know and in terms of gna you know again we're managing the company you know prudently and and we're we have we think there's you know room to you know grow the business quite a bit at this level of G&A, right? We expect to go to business over a long term. We think we'll get great leverage in the short term. You know, we're certainly going to look everywhere and to make sure we're investing the right amount in the right areas. And that's something that never changes. It's something we'll continue to work on.

Thank you. Our next question comes from the line of Blaine Hex from Wells Fargo. Please go ahead.

Great. Thanks. Good morning. Just following up on guidance, can you give us a little bit more color on what's driving the ASFO decline expected in the third quarter versus Q2, you know, despite the increased occupancy, same story in EBITDA, is that all driven by CapEx seasonality or is there anything else going on there? And then with respect to the fourth quarter, it's a pretty wide range between 78 cents and 94 cents.

So, can you just share your thoughts on what key drivers would result and asfo coming in towards the upper lower end of that range yeah q3 is just timing of capex so we some of the capex we expect in q2 push into q3 i think we're still working to get better at being even every quarter we used to have an annual budget process the team's doing a great job but we're just there's still some seasonality in maintenance capex which over time will work to remove but we definitely have higher maintenance capex in q3 and q4 in behavior than four year high numbers i mean in terms yeah in terms of the range i mean you know i think um there's you know it really depends on occupancy that's the biggest driver as greg mentioned price is stable our cost controls are in place you know our team will work hard if occupancy is lower to take out costs and make sure we can still produce as high as a number we possibly can but we just thought it was prudent because again you're in an industry here that's inflecting from a seasonality standpoint and it's just you know a week or two change um you know can can drive um you know very different results and so we wanted to give you again we're trying to be as transparent as we can and show you here's what we see you know here's what we're assuming and you know and then obviously people can make their own determinations from there but that's that's that's our goal of this so okay thanks our next question comes from the line of caitlin burrows from goldman sachs please

go ahead.

Hi, good morning. Maybe just back to the private market valuation discussion. I know you guys have only been public for a year, but I guess how do you think about the option of being private versus public, and do you think it, or under what circumstances, or do you think it would be better for shareholders to take the company private?

Certainly, it's been a, it's been a, I mentioned in the prepared remarks, I think we went public at a very interesting time as the industry was resetting um you know that said i think uh getting our our investment grade rating uh having access to the to the capital markets uh we're better in the civic space uh despite you know yeah i think that's right you know getting the cost of capital um having the ability to issue equity moving forward for for accretive opportunities we're going to you know we're continuing to do that like we're going to look hard at you know how do we compound and grow this company and having that flexibility to be an investment-grade company is huge.

So I think that, you know, I think the future is very bright, even though obviously the first year has been tough.

Yeah, I mean, if you look at our guidance, we see sequential improvement. We think, you know, our mission is to help the stock rebound through our performance as fast as it's come down. And we think we can do that. We think we're very well positioned. And even at, you know, even at the current, you know, deflated stock level, we're still seeing accretive deals in the marketplace where we can generate alpha through those deals. So there's still a ton of opportunities even at these levels.

Got it. Thanks.

Thank you. Our next question comes from the line of Yes, good morning.

We've talked a lot about just, you know, customer trends and the USDA data. I'm just kind of curious, the occupancy decline in everything you're seeing in regards to a more tempered outlook. Is this all U.S.-centric, or are you also seeing similar trends in your international business as well?

Yeah, we're really, I mean, we want to show the USA data because it's something people look at. It's just, you know, it represents the trend. But the point is that it's not necessarily, nor U.S. for that matter. I mean, it's about, as we put on the slide, about 40% of our portfolios reflect in USDA trends. But, you know, there is seasonality throughout the world.

Yeah, I think we're seeing, you know, inventories hold up better in other regions, both in Europe and Australia, which is our largest market in USA. So, the U.S. is driving the, you know, the year-over-year occupancy decline. Gotcha.

Thank you. Our next question comes from the line of Greg from Socia Capital. Please go ahead.

I'm curious on, you know, this occupancy and whether the lower seasonal occupancy you're experiencing is ratable across all categories or if there's specific categories that are under more pressure, and if you could comment on the more import-export focus category specifically as well, that would be appreciated.

So, it is pretty broad-based, I would say, the pressure we're seeing. I'll comment a little bit, you know, about tariffs. We're certainly seeing, you know, chicken sell well, and the beef herd is low. Those are two categories that are, that are, um, you know, mixed, uh, uh, seafood, the, the, the inventories have stabilized, but, uh, and sales are at a pretty low historic level. Um, you know, and, and a lot of these are, of course, on the import export side are, are a result of, of, uh, of tariff policies. Our customers are constantly redirecting product around the world and kind of managing through with their buys on the tariff policies, you know, one of the things that we were hoping to see as a result of tariff negotiations is, you know, is to open up new markets for U.S. exports as, you know, the U.S. is the most efficient producer of food in the world. I mean, for example, agriculture and particularly proteins is one of America's last great exports. You know, the U.S. is extremely competitive in the protein space on the world stage, and many of these markets have been either partially closed or closed to U.S. protein imports until recent trade deals are finalized and, you know, we're closed historically. So, you know, as an example, the U.K. and Australia just opened up their markets to U.S. beef imports if these deals get closed that are likely going to be in the near term here. And while that won't stimulate, you know, a lot of new exports in the short term because our beef was so low in the midterm, it certainly could. And, you know, we're looking for more deals like this to help stimulate production in the U.S.

Yeah, so to quantify, we did go through and really try to quantify our tariff impact in all of our review calls. We've got about a $10 million, our estimate, NOI headwind in the second half. That's embedded in the guidance and the occupancy chart that you can see. So, you know, we do have some locations that have more inventory because of tariffs, but then again, enough that have lower to lead to a headwind overall. So we did want to give that number to give everyone a second.

Okay, thank you. Are you not worried about the use of, like, growth hormone in our beef that's going to limit exports?

I think the protein space will adapt to that and figure it out, frankly. Okay. Thank you.

Thank you. Our next question comes from the line of Michael Muller from Jake and Morgan. Please go ahead.

Yeah, hi. Can you talk about the strategy to manage interest expense going forward after the caps and swaps burn off at year end?

Yeah, for sure. Sure. So we did the bond deal. We did a new swap here just recently. So we are actively managing it. There is about a $10 million per quarter headwind in Q in 2026 versus 2025 because of the expiring swap. And we are working hard to mitigate that through a number of different areas, the bond deal, you know, take advanced investment grade markets. We have the opportunity to do you know potentially financing in different in different currencies and and we'll continue to do all we can to make sure we have the lowest cost of cash and and real quick as a follow-up was the the new swap you mentioned was that uh just on the recent quarter and how significant is it uh 750 million dollars and i think it's about 3.2 percent okay okay thanks thanks our next question comes from the line of nick stillman from bear please go ahead hey good morning greg maybe just wanted to get your comments on what you're seeing from some of the smaller operators in the space today what you're seeing they're doing from like a pricing standpoint um are you

seeing them starting to be under more pressure than you um do you see them exiting the market i guess a little commentary because it is you and a larger player that have these amount of market share, but curious on kind of the more fragmented part of the industry?

Yeah, I mean, there's obviously a number of new competitors. You know, there has been some discounting going on, you know, and some are more aggressive than others. Most are very rational on price, I'd say. And there's a few that are discounting in areas where, you know, where where supply is greater than demand. I mean, I think, as I mentioned, you know, we see the waning of new supply coming online and, you know, demand increasing for any reasons that we already talked about will probably be the primary driver of that absorption over time. But also, you know, both us and another company are consolidating buildings, which are, you know, taking some capacity out of the market. Also, there's a lot of old inventory in the U.S. and geographies around the world that's becoming obsolete quickly and will come offline in the coming years, which will help offset some of the new supply that's come online in the last couple of years.

Hopeful. Thank you.

Our next question comes from the line of Vins. Keep on from Green Street. Please go ahead.

Hi, good morning. Can you discuss the current rollout plan for Lin-OS over the next several years? And also, like, what percentage of your facilities are you targeting for Lin-OS, or is it all of them? And then what is just, like, a realistic, you know, implementation timeline to get, you know, all these potential efficiencies flowing through the portfolio?

Yeah, well, yeah, I mean, if I hit a bit of a facility, it's pretty fast. I mean, as Greg mentioned, you know, during the pilots, we quickly see, you know, gains within weeks.

Yeah, we see gains generally the first week, which is amazing for a new technology, I think, in any aspect of any business. But as far as the implementation, we'll share more later in the year. We are working based on how excited we are about it. We are literally working every day on how we can further accelerate our implementation. You know, we'll have 10 done this year, and we look to dramatically increase that number in the coming years. It'll probably take us, you know, two or three years to get the majority of our network converted. And, again, we're working really, really hard to accelerate that, given how excited we are.

Yeah, but it should be the great information. Yeah, the majority of our conventional facilities.

Absolutely. And new acquisitions will go immediately on to Lino S, including the Tyson ones we just bought. So, you know, this will provide more accretion for future M&A. It'll make our new builds more productive and, you know, transform our existing conventional facilities.

We're very excited, and I know we've been talking about it for the past year, but, you know, we'll start to have benefit in our numbers in 26, and it'll accelerate from there. And as Greg mentioned, around NAIRED, we plan to give a bunch of detail around this.

We'll probably do a special session around NAIRED to provide a lot more detail and color on what we're seeing.

Great. That's really helpful. Thank you. Maybe just a quick follow-up. Is there any incremental capital we should be thinking about with this broader rollout, or it's really more of a workflow system? The tech investment has already been made. If you can just talk a little bit about, you know, is there a CapEx associated with this?

Yeah, I mean, the majority of the tech investment has been made. There's, you know, some operating costs when you're, you know, when you're going and having people on site and training people, but it's not material. No, you should not expect a CapEx bubble from the Midwest.

Great. Thank you.

Our last question comes from the line of Daniel Guglielmo from Capital One Securities. Please go ahead.

Thank you for taking my question. The labor expense line accelerated this quarter versus being flattish last quarter. Is there anything to call out there? Are there certain regions or countries where it's been harder to keep employees or where labor rates are rising faster than expected?

So our wage increases are implemented for the majority of our markets on April 1st. That's probably what you're seeing. You know, that said, we, in our guidance and what we're seeing is continued productivity improvement, even outside of WinOS. You know, we have a ton of levers we're pulling and a myriad of productivity initiatives that impact that labor line outside of just need at Lino S that we always talk about to increase labor productivity, things like daily labor planning is being implemented throughout the U.S. To start with, we're implementing a next generation labor management system that both of these things are just designed to match the labor dynamically to the facility activity. And so, we're seeing good productivity trends even before the Lino S implementation, and those act as a perfect foundation for the Lino S rollout SBDSL right next year.

And same warehouse labor was down.

Okay, thank you.

Thank you. That concludes our question and answer session. I will now turn the call over to Ms. Evan Barboza for closing remarks.

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 floor of the Green School.

This concludes today's conference call. We now disconnect.