Lineage Aims For IPO Amid Revenue Stall (Pending:LINE)

sorn340/iStock via Getty Images Lineage’s Revenue Has Plateaued Lineage, Inc. (LINE) has filed to raise $100 million in an IPO of its common stock, according to an SEC S-11 registration statement. The company acquires and operates cold-storage warehouses worldwide. Lineage, Inc. has grown rapidly since its founding and is the largest operator of its kind, but revenue growth has stalled and adjusted FFO has dropped year-over-year. I’ll provide a final opinion when we learn more IPO details. What Does Lineage Do? Novi, Michigan-based Lineage, Inc. was founded to acquire, own and operate temperature-controlled warehouses for supply chain services for perishable products on a global basis. Management is headed by founders and Co-Executive Chairmen Adam Forste and Kevin Marchetti, who have been with the firm since its inception in 2008. Mr. Forste has held positions at private equity firm KKR and at Morgan Stanley. Mr. Marchetti worked at private equity group The Yucaipa Companies and also at Morgan Stanley. The company’s primary offerings include the following: Distribution centers Public warehouses Production advantage warehouses Manager warehouses. As of March 31, 2024, Lineage has booked fair market value investment of $6.2 billion from investors, including BentallGreenOak, D1 Capital Partners, Oxford Properties, CenterSquare Investment Management, Morgan Stanley Tactical Value, Conversant Capital, OP Trust, Choen & Steers and others. The firm has supply chain clients who lease from among its variety of cold-storage warehouse properties. As of March 31, 2024, LINE operated 293 warehouses in N. America, 82 in Europe and 88 in the Asia-Pacific region, with total cubic square feet of 2.9 billion and 9.8 million pallet positions. What Is Lineage’s Market? According to a 2023 market research report by Grand View Research, the global market for cold storage was an estimated $120 billion in 2022 and is forecasted to reach $435 billion by 2030. This represents a forecast strong CAGR of 17.5% from 2023 to 2030. The main drivers for this expected growth are growing regulations for the production and storage of temperature-sensitive products and increasing retail opportunities for cold food in emerging economies. Also, the chart below shows the historical and expected future growth path of the U.S. cold storage market. Grand View Research Major industry players in the U.S. and internationally include the following companies: Americold (COLD) NewCold US Cold Interstate Warehousing FreezPak Logistics Nichirei Constellation Cold Conestoga Congebec Trinity Rail DFDS Wolter Koops Primafrio Erb Transport Midland Transport. Lineage’s Recent Financial Results The company’s recent financial results can be summarized as follows: Slightly declining top-line revenue (YoY) Dropping operating income Falling adjusted funds from operations (FFO) Increasing net losses. Below are relevant financial results derived from the firm’s registration statement: Total Revenue Period Total Revenue % Variance vs. Prior Three Months Ended March 31, 2024 $ 1,328,000,000 -0.4% 2023 $ 5,341,500,000 8.4% 2022 $ 4,928,300,000 Operating Income (Loss) Period % Variance vs. Prior Three Months Ended March 31, 2024 $ 100,800,000 -23.6% 2023 $ 1,751,700,000 20.4% 2022 $ 1,455,100,000 Adjusted FFO Period Adjusted FFO % Variance vs. Prior Three Months Ended March 31, 2024 $148,300,000 -19.1% 2023 $562,300,000 1.9% 2022 $551,900,000 Adjusted EBITDA Period Adjusted EBITDA % Variance vs. Prior Three Months Ended March 31, 2024 $ 326,600,000 -2.2% 2023 $ 1,278,200,000 19.0% 2022 $ 1,074,400,000 Net Income Period Net Income % Variance vs. Prior Three Months Ended March 31, 2024 $ (48,000,000) -358.1% 2023 $ (96,200,000) 26.6% 2022 $ (76,000,000) (Glossary Of Terms) Click to enlarge (Source – SEC.) As of March 31, 2024, Lineage had $93.6 million in cash and $9.3 billion in total liabilities. Free cash flow during the twelve months ended December 31, 2023, was $48.1 million. Lineage’s IPO Information Lineage intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure may be as high as $3.5 billion. Management says the firm will use the net proceeds from the IPO as described below: We expect our operating partnership to use the net proceeds received from us to repay the $2.4 billion of borrowings outstanding under Delayed Draw Term Loan and the remainder for general corporate purposes, which may include the repayment of borrowings outstanding under the Revolving Credit Facility. (Source – SEC.) Leadership’s online presentation of the company’s roadshow is not yet available. Regarding outstanding legal proceedings, leadership says the company is not currently the subject of legal claims that it believes would have a material adverse effect on its operations or financial condition. The listed book runners of the IPO are Morgan Stanley, Goldman Sachs, BofA Securities, J.P. Morgan, Wells Fargo Securities, RBC Capital Markets, Rabo Securities, Scotiabank, UBS Investment Bank, Capital One Securities, Truist Securities, Evercore ISI, Baird, KeyBanc Capital Markets, Mizuho, PNC Capital Markets, Deutsche Bank Securities, HSBC, Piper Sandler, Regions Securities, Blaylock Van, Cabrera Capital Markets, C.L. King & Associates, Drexel Hamilton, Guzman & Company, Loop Capital Markets, Roberts & Ryan, and R. Seelaus & Co. Lineage’s Revenue Growth Has Stopped LINE is seeking U.S. public capital market investment to pay down its debt. The company’s financials have produced slightly dropping topline revenue (YoY), reduced operating income and adjusted funds from operations (FFO), along with growing net losses. Free cash flow for the twelve months ended December 31, 2023, was $48.1 million. The firm currently plans to annually distribute at least 90% of its REIT taxable income, and management has a “long-term target of distributing approximately 50% of [its] Adjusted FFO to [its] stockholders annually.” LINE’s recent capital spending indicates it has spent heavily on capital expenditures as a percentage of its operating cash flow. Management says it manages the company for the “long term,” so I expect it will continue to spend heavily on capital expenditures for the foreseeable future. The market opportunity for providing cold storage warehousing and related services is large and expected to grow at a strong rate of growth in the coming years, so the company has substantial industry growth dynamics in its favor. Risks to the company’s outlook as a public company include its concentration in the cold-storage warehouse industry, which is itself concentrated in a few geographic regions, at least so far. When we learn more information about the IPO from management, I’ll provide an update. Expected IPO Pricing Date: To be announced.

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