Title

Presentation

Operator: Thank you for joining us for The Middleby Corporation First Quarter 2024 Conference Call. With us today from management are CEO, Tim FitzGerald; CFO, Bryan Mittelman; Chief Technology and Operations Officer, James Pool; Chief Commercial Officer, Steve Spittle and Vice President of Investor Relations, John Joyner. We will begin the call with opening remarks then open the lines for questions. Instructions on how to join the queue will be given at that time. Now I would like to turn the call over to Mr. FitzGerald. Please go ahead.

Tim FitzGerald: Good morning, and thank you for joining us today on our first quarter earnings call. As we begin, please note there are slides to accompany the call on the Investor page of our website. First quarter proved to be challenging with the backdrop of the housing market, interest rate environment and price cost pressures at our restaurant and food processing customers, weighing out our businesses as we started the year. Even though challenges persist, we are seeing improving order activity and expect this to continue as we move through the year, as customers execute on state of business plans and as opportunities in the pipeline begin to convert. While customers are slow to restock inventories, given shorter lead times and higher carrying costs, inventories in the channel have returned to normalized levels and now provide a tailwind, as end user sell-through occurs and this bodes well for the later part of the year.

At our Commercial Foodservice business, customer execution has been slow, starting the year, given continued longer lead times for permitting and construction along with longer deliberation on their business plans, given economics of higher restaurant operating costs. However, our channel partners are building backlogs weighted to the second half of the year and our chain customers continue to maintain their plans for operational upgrades and store openings, which are also weighed to the second half. We are gaining market share in new and large product categories, such as beverage and ice and we are well positioned to capitalize on our market-leading positions, capturing growing trends in ventless and electrified cooking. And we have early-stage traction with some of our game-changing innovations as we lead the future of automation, digital and IoT.

At our business – at our residential business, the housing market remains very challenged in terms of existing home sales, new home starts and remodels. While the residential market will take time to fully recover, it has stabilized with the luxury end of the market showing improvement over the past several quarters. We’re now seeing growth in order rates and we expect that will continue as we progress through the year. And we are well positioned to benefit from the many investments that we have made in new product innovation, as we move beyond the current market conditions. Many of these new product innovations were on display at the recent Kitchen and Bath show. We are proud to receive a best of Best of KBIS award at Viking for our new Reveal series and we’re also awarded Best of KBIS at Middleby, one of our newest Middleby residential brands, which we are now launching into the US market, featuring state-of-the-art induction cooking, integrated ventilation and unique accent lighting.

Our industry-leading brand portfolio with launches of new colors, new designs and new technologies, generated tons of excitement with builders our dealer partners and the design community at the show, leading to new business opportunities coming out of the show and a much greater awareness for all the Middleby residential portfolio has to offer. In our Food Processing business, our customers are proceedings somewhat cautiously as they monitor food cost, demand levels and the interest rate impact on larger projects. Still the pipeline of active projects continues to build for expansions and needed upgrades with requirements to increase throughput, reduce labor, minimize food waste, and with a growing focus on sustainability. Automation remains in great demand.

Our backlog remains healthy and as market dynamics have become more stable, we’re expecting the pipeline will convert into orders. Our strategy to become the leading provider of best-in-class full-line integrated solutions for the protein and bakery markets is resonating, and we are best positioned to offer our customers state-of-the-art automation to address their operational and efficiency challenges. We posted continued overall strong profitability at our Commercial and Food Processing segments in the quarter despite revenue declines, while residential margins were significantly challenged, given the more significant market conditions and our strategic decision to invest in KBIS. We expect to return to the path of longer-term margin expansion as we benefit not only from revenue recovery but also as we realize greater benefits from profitability initiatives, including investments made at our factories to realize greater production efficiencies along with the impact of favorable profitability on our newer product innovations.

Supply chain also provides a continuing opportunity as we have moved away from the crisis management over the past several years and are now focused on leveraging our scale and realizing synergies across our businesses. While we navigate the near-term market conditions, we continue to focus on the execution of our business strategies, expanding profitability and growing our cash flow, while building upon our competitive advantage at each of our three industry-leading foodservice businesses that we are confident in setting us apart in the long-term. Now, I’ll pass the call over to James to spotlight some of our exciting award-winning products we’ll be unveiling at the National Restaurant Association Show in Chicago later this month. Again, highlighting the results of our strategic focus to invest in and accelerate the pace of innovation.

James?

James Pool: Thanks Tim. Last quarter, I remarked that Middleby had won eight of the 28 coveted Kitchen Innovation Awards products. But because of the timing, I couldn’t say which Middleby brands won. Well, with a little more than one week ago before the NRA show in Chicago, we are excited to introduce the Grade A Blodgett, PITCO, EVO, Newton, Wunder-Bar, while good selling Varimixer and L2F now known as Middleby automation. These eight brands are the National Restaurant Show associations KI winners. If you were attending the show May 18 through 21, please make sure you visit the Kitchen Innovation Awards Pavilion to see and experience these new products from the Grade A and then come checkout Middleby to experience our latest solutions around digital, embedded and robotic automation as well as beverage solutions and the launch of our newest combi the Invoq, a Red Dot Design award winner.

We couldn’t be happier with these new products. These innovations are as diverse as their brands but they were all developed with our customers’ daily challenges in mind, labor reduction and simplification, consistency of product, throughput all aimed to maximize our customers’ profitability. In the interest of time I won’t go through each innovation, but you can find each in the deck that Tim referenced. The first is the Pitco Torque fryer. The Torque introduces continuous filtration and conductive frying with continuous filtration and auto oil top off. The Torque essentially provides infinite oil life for the operator. And the continuous filtration comes forced convection as oil is forced to circulate around the food on its way to being filtered.

This forced circulation reduces our cook times up to 10%. While we are talking about numbers, let’s cover a few more. The Torque is 10% more efficient than the typical ROB fryer and goes temperatures 60% lower than the typical gas fryer, thus substantially reducing your kitchen ventilation requirements. Lastly, the Torque reduces labor needed to filter a traditional fryer by up to 90%. By the numbers, this fryer stands to obsolete most fryers in the market today. Moving on to the Blodgett induction oven. This is the first of its kind oven allowing the operators to select between a high heat transfer accelerated cook oven or a gentle convection oven by simply selecting a menu item from its Middleby One Touch controller. Once the operator touch the menu item, the induction mechanic can figure the oven for the optimal cooking profile whether it be high velocity impingement air or gentle convection.

This innovation enables a multi-cavity convection oven typically found in the back of the house to also function in the front of the house as an accelerated cooking oven thus offering our customers the ability to cook [indiscernible]. So, whether you need to cook delicate lemonade pastries in 20 minutes or we need to cook 16-inch pizzas in three minutes and 30 seconds, the induction is your solution. Now, on to beverage dispensing. We have three brands introducing beverage dispensing products aimed at reducing waste, while improving speed of service and delivering a better tasting highly consistent product. I’ve spoken about Newton CFB valves in the past, but now we have two new products that feature the valves patent design that enable the consistent precise delivery of beverage and/or ingredients regardless of the factors that play traditional valves; the Newton discrete valve and the Wunder-Bar M5 Bargun.

With these innovations our customers now have confidence that they are serving bottle quality beverage or dispensing individual ingredients with the out the expense of consistently calibrating their systems or wondering if their systems are in calibration. The Newton Discrete Valve and the Wunder-Bar M5 Bargun eliminate calibration, waste, reduce service costs, and improved customer satisfaction through consistent delivery of product. The Newton CFV valve is also being used throughout Middleby to control mixing and dispensing of highly concentrated ingredients such as individual flavors even cleaners. These concentrations can be as high as 501, which unlocks our customers’ ability to change how they distribute and dispense ingredients or even clean their equipment say with Newton’s new clean-in-place technologies.

The final dispensing solution that I’ll discuss is a Wild Goose CERVIZI, which utilizes the same filling systems to dispense beer, the Wild Goose uses and its industry-leading high-speed canning lines. CERVIZI turns anyone pouring their first beer into seasoned bar tender by automatically dispensing beer twice as fast as a normal tap system, while also minimizing waste by precisely controlling the poor volume to the nearest fraction of an ounce or just a few milliliters all with no training. Service also improves [indiscernible] from 75% to 95%, by controlling the pour volume and the beer serving conditions. Why didn’t get a chance to cover the other products such as the PizzaBot 2.0, EVO EVent, The Berry Mix or Logo. We will hit those in later calls or again you can see them at the NR Show.

But now they share the same traits as the other innovations, I described today. They all reduce waste, increase throughput, maximize consistency, decrease simplified labor all of which improve our customers’ profitability. Thank you, and over to you Bryan.

Bryan Mittelman: Thanks James. For the first quarter, we generated revenue of $927 million and adjusted EBITDA of $186 million at a margin of 20%. The Q1 GAAP earnings per share were $1.59 and adjusted EPS was $1.89. Commercial Foodservice revenues globally were down 4% organically over the prior year yet the adjusted EBITDA margin was consistent with the prior year at 26%. All the margin values I will go through are on an organic basis meaning excluding any acquisitions and foreign exchange impacts. In Food Processing, revenues for the first quarter were nearly $163 million. This was our second best Q1 ever for this segment with a tough comp given the Q1 record was set last year. Our adjusted EBITDA margin held strong and was also consistent with the prior year and nearly 24%.

In residential, we saw an organic revenue decline of 22% versus 2023. The adjusted EBITDA margin was over 6% and was negatively impacted by our investment to attend the Kitchen and Bath Show for the first time since 2016. We’ve seen a recent inflection in order rates which is driving our view that the residential revenues have hopefully started to move off their low point. A high point for the quarter was our exceptionally strong operating cash flows of nearly $141 million for the quarter and nearly $678 million for the trailing four quarters. It was our best first quarter ever and our free cash flow conversion was around 135% for the trailing four quarters. Our total leverage ratio is now down to 2.4 times. Despite the challenging quarter we faced from a revenue perspective, our business model demonstrated that we have resilient margins and continually generate strong cash flows.

Nonetheless, in Q2, you will see some further restructuring charges as we continue to take actions to appropriately manage the business given market conditions. As we work to protect our margins we are also aggressively controlling costs. In terms of an outlook, I will start by reminding everyone that the second quarter of 2023 was our strongest revenue quarter ever. So given recent order rates and demand for our innovation we expect total Q2 revenues to be up at least mid-single digits sequentially from Q1. But given the tough comp we anticipate falling a little short of the prior year revenue level overall. To provide greater insights I will separately address each segment. In commercial, the year-over-year comparison for Q2 is especially tough given the all-time record revenue for us in 2023.

While we may fall a little short of the prior year revenue in Q2, sequentially revenues could be up high single digits as compared to Q1. Our viewpoint is based on our backlog, which is currently up slightly from year-end, and that order rates have been improving over the past three quarters. Orders through April of this year are up 15% over the back half of 2023. We also expect margins to be in line with prior year levels. Looking into the back half of the year. At this time, we expect revenues to continue to grow sequentially and be at least mid-single digits above prior year levels. Moving on to food processing. Recall that the Q2 of 2023 was our second highest revenue quarter ever for that segment. And while I expect us to fall short of that revenue level in Q2 of 2024, margins should be — margin should be up over the prior year.

And then on a sequential basis, Q2 revenues and margins should be up meaningfully versus what we just posted for Q1. So we call that lumpy is a word use to describe this business sometimes. As I look back to last year, we did see a big drop in revenues when we move from Q2 to Q3, but that is not our expectation for Q3 of this year. We continue to see strength in this business overall. Orders in the past two quarters have been amongst our strongest intake periods for the segment. Thus, we are expecting that the second half revenue for this year will be above the first half of this year and above prior year levels. In residential, the good news is that the order trend is moving slightly upward. Looking at the past couple of quarters and extrapolating on the start of Q2.

We are trending above the first three quarters of 2023. Revenues for Q2 of 2024 will likely not be ahead of the prior year. And this is due to a year ago, our domestic premium indoor appliances having posted a relatively strong quarter. Nonetheless, we are anticipating stable conditions in our European businesses when comparing Q2 of this year back to 2023, and we should see growth in the outdoor market in Q2. So this all results in a Q2 revenues should be above Q1. Visibility to the second half of the year in residential is certainly limited, but given recent trends, revenue comps and building upon our showing at KBIS and the overall strength of our portfolio, our view for the second half of 2024 is currently for growth, both as compared to the prior year and over the first half of this year.

We are also working to maintain double-digit profit margins for the year. Bringing it back all together for the total company, we should continue to build and strengthen as we progress through 2024. We look forward to Q2 being stronger than Q1, and we continue to firmly believe at this time that for the second half of this year, we will deliver sequential and year-over-year growth. We remain focused on operational efficiency and optimally managing our resources. We are sharply focused on controlling and reducing our costs. We remain committed to improving our margins. These actions should drive year-over-year growth in cash generated and consistently high levels of free cash flow conversion as well. So, to further understand how we will achieve this along with enjoying many tasty creations from both humans and cobots.

Please come and see our people and products in action at the National Restaurant Association Show later this month here in Chicago. Please reach out to us to arrange of visit, so you can deeply understand how we are solving the needs of our customers which will drive our growth in ’24 and beyond. We remain committed to our mantra more in ’24. Thank you and we will now take your questions.

Operator: [Operator Instructions] The first question today comes from Mig Dobre with Baird. Please go ahead.

Mig Dobre: Thank you for taking the question. Good morning everyone. So if I understand your guidance commentary correctly, it sounds like book-to-bill in commercial foodservice was above one backlog, went up a little bit in the quarter. When you sort of think about the outlook that you’ve laid out for Q2 and the rest of the year, are you essentially baking in stable backlog and just sort of orders ramping relative to Q1 end up flowing through? Or is there still sort of a backlog conversion element here that comes sort of help us in the back half of 2024?

Tim FitzGerald: Yes. So I think we are thinking it’s not converting — we’re not reducing our backlog further. That’s not the assumption if you’re — if that’s the question.

Mig Dobre: That is the question.

Tim FitzGerald: Yes. I mean I think as we see order improvement as we go through the year. So I think we’ve — backlog has come down as we had a lot of backlog I’d say orders that were pulled ahead. We’ve kind of gone I’ll say maybe to a certain extent the other way where inventory is not only at normalized levels, but a lot of our partners are slow to place orders because they know lead times are short. They don’t want to carry inventory and our channel partners, they see kind of their end users a lot of the projects are geared towards the half of the year. So, they’re not going to buy the product right now. They’re going to buy closer to execution. So when we started the year, January was pretty slow, not unexpectedly for a whole variety of reasons some of it even weather-driven.

That we saw progressively improve as we went through the first quarter and then it’s improved a fair bit more as we’ve kind of gone into the early part of the second quarter. So that kind of lines up with a lot of the commentary that we get from our channel partners along with the discussions that we have with our chain customers. So I think a lot of the view and the confidence we have is based on kind of the transparent discussions that we have with them including what they see as the outlook, where the inventory is in the channel and then kind of line that up with the order trends that we’ve had, as we progress through the first four months of the year.

Mig Dobre: Understood. Thank you for that. And my follow-up sticking with the segment is on the margin side. Comparisons are tougher in the back half of the year. So how do you encourage us to think about margins, especially on a year-over-year basis? And maybe related to all of this, are you seeing any sort of signs of price erosion or changing competitive dynamics in North America, specifically? Thank you.

Tim FitzGerald: Yes. So I’ll contact you with Steve here. I would say, not wholesale changes. I think the mix out there in the marketplace is a little bit different to start the year. I think some of the kind of more immediate replacement type business that tends to be more economy-driven was a little bit more prevalent. So I don’t think that’s more of a pricing element as it is a mix element and then as we kind of get back to more of I’ll say specified project-driven and change driven. We expect some of the mix to improve as we go through the year. So I think that’s a little bit of the dynamic that we saw at the beginning of the year. And then maybe you want to touch on pricing.

Steve Spittle: Yes Mig, this is Steve. We actually just recently announced a price increase that will be upcoming in commercial going into effect in mid-June. Our approach there was making sure our divisions were really going SKU by SKU, customer by customer to make sure that we had captured all the price/cost, dynamics that we’ve obviously all gone through over the past several years. So it will be a – I’ll call it a relatively minimal increase or low single-digit increase as compared to prior year increases. But still want to make sure we’re being very thoughtful about and pricing against one of the more strategic initiatives in the company in the last couple of years to make sure we’re capturing costs but also making sure we’re certainly in a good place from a competitive standpoint. So that again was recently announced a couple of weeks ago and goes into effect in mid-June for commercial.

Bryan Mittelman: And then I’ll bring it around. This is Bryan to the margin side of the question. Obviously, you saw in Q1 that even with lower revenues we’re able to protect the margins and that’s coming from a variety of things, right? There are some commodities impacts in there. There’s the impact of investments we’ve made in the business. There’s impacts of I’ll call it ongoing striving for greater efficiency cost control head count control actions in there. And so as we look forward, as volumes grow we’ll also have greater absorption. I think we’ll have some modest pricing benefits. As Tim was getting after, we believe mix will improve as well. So we put that all together and as I think about how the segment will operate for the entire year, I do think we will be slightly modestly above the prior year.

Obviously, there’s some challenges always to overcome with cost of input and supply chain and the like. But nonetheless, I think it is – so will be a positive year-over-year.

Mig Dobre: Super. Thanks for the color.

Operator: The next question comes from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeff Hammond: Hey, good morning, everyone.

Bryan Mittelman: Good morning, Jeff. Good morning.

Jeff Hammond: Just want to stay at commercial food. I think you mentioned some permitting delays, customers kind of contemplating strategy. It was interesting that you said you think for the year you’re up mid-single digits in commercial food and that kind of implies high single digit low double-digit growth in the back half. And so just wanted to get a better handle on, if you’re seeing some of these delays kind of move forward and what gives you the confidence in that second half growth rate?

Tim FitzGerald: Yeah. Maybe just to add a little bit of color around delays. I mean I think the world has not fully recovered from supply chain in some regards. I mean, I think as customers have tried to identify locations open locations, right? They’ve got to get through construction, documentation, permitting. Those things have taken a bit longer. We saw that in the back half of the year. So I mean I think those things are improving in terms of just the world normalizing, but that is one of the things that we know that they’ve — a lot of our customers have to struggle that’s delayed. So I think those things get better. I think there’s a little bit of muscle memory as well as customer — the world has kind of gone from crisis management back to strategic execution of business plans and — so I think there’s — we’re in a little bit of a restart.

And I think some of those things cause slowness coming out of the gates plus there’s a lot of just dynamic step people were absorbing, right? Again, interest costs while they’ve been up for a bit here people have been monitoring it and its rates had been higher for that long. And then just where it was pricing on venues because I think a lot of our customers had very favorable overlaps to the pricing that they had put through and were absorbing what was that impact to the consumer. What has been the traffic at the end of the year at the beginning of the year were food costs. So I think they’ve been absorbing a lot of that relative to the plans they had coming to the year and then reauditing those plans. And I think those plans to by and large held up.

And I think it’s just taking a little bit more time to make sure are we doing the right thing and how are we working with our operators et cetera. So I think we still see the strategies out there what they want to execute to. So again, I think that’s where maybe they weren’t ready to go on January 1. But I think those things are still progressing. And I think that kind of gives us some of the confidence in the visibility. So again, why maybe things were — start slow to start not entirely surprisingly and — but while we think the engine will be stepping on the gas pedal as we kind of progress through the next couple of quarters. Please go ahead.

Steve Spittle: Jeff, this is Steve. I’ll just add on to that. I mean I’ve talked about before. Yeah, I think one of the nice byproducts of the last several years there’s a lot more transparency from the chains in terms of new store openings plans. And I’d just say even though as Tim alluded to a little bit slower start from a new store order or a new store build perspective, they pretty much all recommitted several times to their overall plans for the year. So I think that’s what gives us confidence in more of the back half of the year. I think the other thing too I would point out I know we’ve talked about before the dynamic between new store orders and the replacement orders that we feel like have been deferred over the last three, five, seven years.

What’s been exciting is there’s been a number of large chains that have announced initiatives where the Corporate NT [ph] is going to help franchisees do refreshes to build their stores and help them in that replacement cycle. So I think that’s a relatively new nuance. So we think new store builds pick up the back half of the year and we’re still very bullish on this replacement cycle that we feel is going to really kick in over the next couple of years specific to the chain customers.

Jeff Hammond: That’s great color. And then just a couple on [indiscernible] Kitchen One, but can you quantify the onetime KBIS investment? And then it seems like your maybe the destocks done finally in outdoor grills and you feel a little bit better about that but kind of the US indoor kitchen is still maybe one of the choppier areas. Is that correct?

Bryan Mittelman: Yeah. On the KBIS investment I’d put it 150 to 200 basis points of drag in the quarter. Do you want to address that? Market commentary?

Tim FitzGerald: Yeah. No, I think that’s right. I mean we’re — the inventory channel was far or less of an issue. I mean that was true in commercial as well as residential start in the year. So it really starts coming down to end-user demand. Sell-through, probably an outdoor has not been very strong. So it’s kind of a, I’ll say a neutral factor so far. But we’re early in the grill season right? So I think it is what has yet to come as we start moving into spring and summer months. So I think our revenues there will be highly dependent on how real season performs not only through that, but then that will lead into how do we think about the restocking going into 2025 and we do feel like there we’re winning in some areas picking up floor space and the way the grill market works in some of those floor planning that happens right now really is geared toward next year not even this year, so we don’t have to get some of those benefits until later in the year.

With the indoor market, yeah, I mean I think again we’re bouncing along at the trough. While we think a lot of our consumers are really geared, obviously, that upper Echelon in the luxury market and we see some improvement, some of that is a little bit longer lead time. So we’ve seen improvement in order rates and sometimes the remodels and the newbuilds, they don’t need that product next week like they made in the replacement market. So we see some of that starting to pick up. I think the KBIS show was very good for us, because again it was a large investment but we’ve really transformed the portfolio over the last number of years, adding new brands, new products, innovations, colors. So it was very exciting show not only for us as a company but for our channel partners and builders the dealers that came through.

So I think that was really the intent is to take the world a little bit by surprise of how far we’ve come in the last five years and now start funneling them to our residential showrooms that we’ve also invested in over the last couple of years with our Chicago showroom opening in the middle of last year. So I think those are the things that help pick up traffic there and build a long-term pipeline of opportunities as people start converting over to the Middleby portfolio. So I think we see the gears turning there and we start seeing the housing improve, but I think it’s going to be modest improvement that’s going to take some time here. So but I think that’s where directionally, we’re at the beginning of kind of those sides. And I think it will — it’s kind of we would like it to be V-shaped.

I think it’s a little bit more U-shaped, but I think we will see progression as we move through the year.

Jeff Hammond: Okay. Appreciate it, guys.

Operator: The next question comes from Saree Boroditsky from Jefferies. Please go ahead.

Q – Saree Boroditsky: Hi, good morning. I just kind of wanted to go a little bit more on the residential questions. Could you just quantify the performance in resi, and grills or Viking versus AGA? And then when you talk about the improving order rates, it sounded like that was largely driven by the industry show? Or if not, where did you see that uptick in demand come from?

Bryan Mittelman: Saree, this is Bryan. Sorry, could you repeat the first part of your question?

Q – Saree Boroditsky: Just the performance in the quarter of grills versus Viking and versus AGA

Bryan Mittelman: Okay. Got you. I mean it was a challenging quarter across the board, in terms of the year-over-year comps. I noted that Q2, last year was really strong for I’ll call it domestic premium or mostly Viking, but we have other brands as well. But we started the year there last year strong as well. So certainly, that market has been down. AGA — I’ll say the European markets have been continuing to be under in challenging environments. We haven’t seen things relief or improvement in the UK housing market. I’ll say, on the continent we’ve been maybe faring a little bit better given how Novy’s product offerings are resonating. And on Grills, we’ve seen a different buying pattern this season as compared to the past, with later load-in by our customers albeit, also they’re being reserved in their buying. So Q1 did see weakness in grills, but we’re actually looking forward to much improvement there? Should trends continue in the second quarter.

Q – Saree Boroditsky: And then obviously, residential margins were weighed down by the show. What do you need to see to support double-digit margins in that segment? Is it just volume or anything else? And then, how do you think about incremental margins, when you do see volumes turn positive there? Thank you.

Bryan Mittelman: I think, once you strip out some of the show impacts, the recent history has been a good indicator of where the business can and does perform. So, as we start getting closer to $200 million or even $190 million, we’re likely to see closer to the double-digit margins. We continue to evaluate costs in this business. And you’ve seen – obviously, we’ve been taking charges and we continually to address that. So we will do more of that to make sure we are rightsized for the current environment. But operationally, we’ve been making significant investments in these operations and that really does drive really positive increments. And I’ve noted to some before our factories in this segment tend to have more throughput than in commercial, right?

We have a fewer yet larger factories in terms of the volumes they run. So, I’m not trying to minimize at all our focus on again looking at all the current costs and actions. But dare I say as the volumes come back, the margins will come racing back as well.

Saree Boroditsky: I appreciate the color and I’ll you see at the –. Thank you.

Tim FitzGerald: See you next week. Thanks.

Operator: The next question comes from Tami Zakaria with JPMorgan. Please go ahead.

Tami Zakaria: Hi, good morning. Thank you so much. I have two questions regarding the commercial food services segment. So, first of all, can you comment on the price realization you saw in that segment in the first quarter. I’m hoping to learn whether the negative organic growth was purely volume-driven? Or there is a mix of both price and volume?

Bryan Mittelman: Tami, this is Brian. It is mostly volume-driven. We haven’t taking many price actions recently. Obviously, Steve noted that we’ll be taking one — a modest one currently. So, it’s fair to assume that that is very highly dominated by volume.

Tim FitzGerald: Yes. And maybe I’ll just — we did not have a price reduction, right? So, it really is volume. And we did not take a I’ll say a typical price increase at the end of the year, we’ve taken significant price increases over the last several supply chain related. And I think as we went into this year, we were monitoring where we’re at with a price/cost standpoint. And we did see some cost increases not only related but even a little bit of supply chains as we went through the year hence the evaluation as we went through Q1 to why we’ve have taken a price increase now in Q2. But as you kind of think about Q1 we get — you can go backwards on price, we didn’t get a benefit and we probably had a little bit of a weight of supply chain still coming into the year.

Tami Zakaria: Got it. That’s very helpful. So, I wanted to follow up on that. So, in June, you’re taking some price increase I think you mentioned low single-digit. Again I’m trying to understand whether the price increase might actually stick or face some resistance given demand is weak and you just mentioned there’s some price cost pressure in the industry right now. So, can you speak to the rationale for the June increase and how distributors are reacting to it if you have already communicated to them about it?

Steve Spittle: Hey Tami, this is Steve. It has been communicated out to the marketplace at this point. And I do believe it will be relatively sticky. I mean obviously it’s always a task to make sure it does come through. But I think given the thoughtfulness the team has put behind coming back to it’s not across the board kind of peanut butter approach. It really is being thoughtful SKU-by-SKU customer-by-customer approach. So, it’s hitting both general market and chain customers. So we do believe it mostly holds — or it is sticky and certainly comes through in early third quarter.

Tami Zakaria: Understood. Thank you.

Operator: The next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.

Brian McNamara: Hey, good morning. Thanks for taking the questions. I guess two for me on residential. First a question we often get from investors is the breakdown in sales in grills versus the rest of residential kitchen. I don’t expect you to quantify, but can you give us maybe a qualitative picture of kind of how grills look today relative to when you first acquired them?

Bryan Mittelman: This is Bryan. The — I mean obviously the grills are down quite significantly from when we bought them. I think we’ve said before over 50% and I’ll probably viewed at this time. I think it’s fair to in general terms I think about the segment in fourth. I’d say if you think about I’ll call it US domestic indoor premium European or I should say the UK business, the outdoor business and then all else which would primarily be I’ll call it the European Continental European businesses.

Brian McNamara: Got it. That’s helpful. And then secondly on grills again. I’m curious what you’re seeing currently with your retail partners in the category. Are they willing to either add to or at least hold floor space for the category? And if not how do you break in given your relatively small size and brand recognition compared to the bigger players? Thanks.

Tim FitzGerald: I’m not sure if you — with the holding floor space if that was specific to us or Grills overall.

Brian McNamara: I mean it’s specific to the category. But I mean presumably you would need to be a part of that just given your relative size at the moment.

Tim FitzGerald: Yes. I mean I think we’ve focused kind of on product differentiation, some of the new technologies that we’ve had. And I think one of the items that we’ve highlighted here is our connected platform both for master built as well as commodity. That’s definitely something that we think we’ve got a lot of innovation that you don’t see across the grill platform. Also we’ve had the heavy focus on charcoal which is differentiated particularly with the vertical charcoal the Masterbuilt. So I mean I think there’s things that we offer that some of the other players out there do not have. And we think we follow some of the trends of the fuel type which ties to flavor and digital which ties to convenience and culinary. So I mean I think those are some of the things that we think some of the retail partners recognize also and I think we’ve had some success with certain partners there with picking up floor space over the last 12 months there and probably going into 2025 as well.

Operator: [Operator Instructions] The next question comes from Walt Liptak with Seaport Res. Please go ahead.

Walt Liptak: Hi, guys. Good morning, guys. I want to just back up to Bryan when you gave the guidance and can you just repeat the sales guidance for the year? I think you said the sales — you were expecting sales to go higher to grow this year and margins as well as cash flow to be higher. Is that correct?

Bryan Mittelman: Yes. Let me find my place in the script area, so on a total company basis, I started with that Q2 will be stronger than Q1, right? And that as we look at the second half of the year, we will grow sequentially. So Q3 above Q2, Q4 above Q3 as well as for Q3 and Q4, being above prior year levels. I did note that for Q2 we will be a little bit of a challenge to achieve the prior year revenue level. So, Q2 better than Q1, maybe a little short of prior year Q3 and Q4 ahead of prior year and also sequentially improving as we move through this year. And with that and so those comments are very specific to revenues, but they do also generally apply to margins as well. I do expect total company margin to improve sequentially as we move through the year. Obviously, we demonstrate we have a business that really gets nice increments and has nice leverage. And I’d expect to see that in the segments individually as well.

Walt Liptak: Okay. And just to make sure I’m totally clear on this. The revenue — you’re expecting revenue to go up this year even with the tougher first quarter?

Bryan Mittelman: Yeah. And I think — I know your — when you tear apart and you do look at things by segment. So total company revenue, we do expect up. Obviously, the challenging — the most challenging segment and the one where I’d say we have some of the lesser visibility right now is exactly how residential will play out where we have started weaker. So higher conviction in the other two segments, I think, in terms of the year-over-year. And I think we do end up still a total company up year-over-year.

Walt Liptak: Okay. Good. And then just a follow-up. When you guys were talking about the CFS segment and some of the strategic changes or maybe strategy normalizing from crisis. I noticed that, Shake Shack commented that we’re decreasing some investments this year. Was that what you guys were referring to? Or is there something else out there in the market that you were referring to?

Bryan Mittelman: And you’re talking about the overall building kind of new stores and the strength of what’s happening out there. I mean, our comments are not specific to one change, certainly not specific to Shake Shack, I think as you look at the print across the board from the very large QSRs, right, that they have started the year slower in terms of completion of projects, right? There was weather and permitting and such. So again, I think it’s a pretty consistent comment we’ve seen across the large QSRs that no one. They’re also committed to their build plans. It just did not start off the first quarter is probably exceeding any of their internal benchmarks for the total number of new doors to be opened.

Walt Liptak: Okay. Great. And maybe just one final one on the NRA show. I think the — you guys mentioned the Invoq combi oven that we’ve heard some things about how. I wonder if you could tell us a little bit about the features and what you’re expecting as you commercialize that product.

James Pool: Yes. So I’ll jump in and talk about the Invoq. So we’ve spent last several years into designing the Invoq and finally have it out on the market. We think there’s a ton of novel features in the Invoq. Kind of one of the first things that I like to talk about is the fact that we’ve developed a half-sized combi oven that fits full-size combi pan. So that means that if you think about traditional full-size combi oven, it’s got kind of ex dimension. If you look at a half-sized combi oven, it’s about a third less in volume than a full-size combi. So what does that mean for the kitchen that needs more space for the — for other equipment in the kitchen that means less hood requirement, it means lower energy input rate into the product more efficient product.

A couple of other features we’ve done is that we’ve really spent a lot of time on the wash cycle, reduce the amount of power going into the wash cycle. We have a steam on-demand feature that is incredibly efficient using 17% less energy for the steam on demand. And then, I will say the last cool feature that we’ve done is we’ve been able to add another shelf in the oven. So traditionally combis are either six or 10 pan. Here we have combis that have seven or 11 pans. So we’ve been able to increase the production capacity in the oven, and by doing that we improve the efficiency of the oven as well. So we’re pretty excited about it. Our combi has the Middleby One Touch control. It is open kitchen ready. So it’s really one of the more advanced pieces of technology that we’ve got coming out at Middleby.

And I think when you compare it to the other combis in the marketplace, this puts us right up at the number one, number two combi on the global market.

Walt Liptak: Okay. Great. Thank you.

Tim FitzGerald: Yes. I mean I just — I think — I’m glad you asked the question, because I mean I think, we are excited about it. I think it’s a good example of a lot. We talked about innovation a lot. James goes through it. These are significant investments that we’ve made over a number of years on a lot of different products that we think some of them are the future of innovation where the restaurant is going, which a lot of that has yet to be realized. And some of it are existing large markets. Combi is clearly one of those. It’s a large market. We lead in a lot of categories, Combi has not been won and this was a multiyear development project to make sure that we have the best-in-class features. James just went through a water, energy, space, throughput.

And again that, the ease of use with the control that also James and team have developed over multiple years and connected to IoT, which we think is the future. So, it does have a lot of legs here. And I think it is going to be one of the things that helps us grow. We have a lot of expectations for it over the next several years and we have a lot of channel partners that are, not only intrigued but engaged right now as we start bringing it to market. So I think just another great example of a lot of things that we talked about. And I think this one will gain traction much like last quarter James talked about ICE, right? Like again another large market of similar size. We have not necessarily been a player as you kind of went back a number of years ago.

And we are gaining a lot of traction in that. We got a full line of solutions there. And so whether that’s success with some channel partners and some chains we’re starting to see that early this year. Again, I think one of the things that, bodes well for us growing in certain targeted product categories as we go through the next several years.

James Pool: I want to add one more point. [indiscernible] is shipping now. So we are — we’ve been distributing the product in Europe, now for a number of months. And now we have just started distributing the product in the U.S. So it is actively being sold.

Walt Liptak: Thanks a lot.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management, for any closing remarks.

Tim FitzGerald: I’d like to thank everybody for being on the call. I just got one final comment which is a little bit more of a follow-up to some of the questions on residential. So I’ll say it’s an answer to a question earlier. Just as we think about margins fundamentally, our residential business is much stronger today than it’s ever been from new products, manufacturing efficiencies, quality, the investments that we have made in distribution and some of the capabilities things that our design team [indiscernible] et cetera. So Bryan made a comment of margins come racing back. We’re operating at volumes that are far less than normalized period so pre-COVID, if you look at the number of units that are going through a factory.

So just kind of re-answering a little bit of the question of what gives us confidence for the margins in that platform and why it is a great. Platform you’re seeing it at its worse right now, but it’s actually the strongest it’s ever been right now. So a normalized period we’re pretty excited about all that residential has to offer. So certainly we’ve got a couple quarter still here of Rocky Road ahead, but we see it inflecting and just something that I wanted to hammer home given that question that was put to Bryan earlier. So with that, we’ll wrap it up. And thanks everybody for attending the call today.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.