The Middleby Corporation

Welcome to the Middleby Corporation third quarter conference call. With us from management are Chief Executive Officer Tim Fitzgerald, Chief Financial Officer Brian Middleman, Chief Technology and Operations Officer James Poole, and Chief Commercial Officer Steve Spittel. The call will begin with opening comments from management and then we will open the lines for questions. Instructions on how to enter the queue will be given at that time. Now I'd like to turn the call over to Tim Fitzgerald for opening remarks. Please go ahead, sir.

Tim Fitzgerald Great. Thank you for joining us today on our third quarter earnings call. As we begin, please note there are slides to accompany this call on the investor page of our website. During the quarter, we continue to build upon the positive momentum across all three of our segments, investing in technology and product innovations, addressing the current dynamic market trends, furthering our strategic sales initiatives, and by expanding our brand portfolio with the recent strategic acquisitions of Novi and Imperial Range. As we invest for the future, we also continue to execute upon our long-term financial goals. For the third quarter, we reported record net sales and earnings. And once again, we posted EBITDA margins at all three of our segments in excess of 20%, despite significant headwinds from supply chain challenges. These supply chain challenges meaningfully accelerated during the third quarter, impacting our ability to produce and substantially inflating our material and shipping costs. We've responded quickly, taking multiple price increases in the recent months at each of our three business segments. However, given our record backlog, these price increases are taking longer to realize than in ordinary periods. As a result, the third quarter reflected minimal benefit from our price increases. We will see the impact of both our price increases and continued rising costs in the upcoming quarter, and we expect to realize a net price benefit as we enter 2022, which should further improve as we continue throughout next year. While we manage the disruptive impact of near-term supply chain challenges, we remain committed to our long-term profitability targets. as we drive profit improvement through acquisition integration, strategic manufacturing initiatives, and evolving the mix of our product by promoting higher technology solutions that provide greater returns to our customers. The customer demand remained strong in the quarter as our orders continued to outpace shipments. Incoming orders were not only ahead of 2020, but continued to outpace 2019 pre-COVID levels by more than 30%. both for the third quarter and for the full year. Given the continued order strength, our backlog has grown from $400 billion a year ago to $1.2 billion at the end of the third quarter. While this presents substantial operating challenges, it also presents significant visibility and momentum as we exit the current year and move into 2022. As we look toward next year, we are optimistic about the continued market demand and the strong position we hold in each business segment. For our commercial food service business, the restaurant industry is in recovery across all segments. Categories such as casual dining, institutional, and travel and lodging are joining the recovery we've already seen in categories such as quick serve, pizza, and fast casual. And more importantly, our customers are looking to make strategic investments in their food service operations, leading to greater acceptance of new technologies. The food service industry is rapidly changing, responding to evolving consumer trends, the emergence of new business models, and with an urgent need to address significant operating challenges, most importantly, the availability of labor. The strategic investments we have made over the past several years and throughout COVID position us at the forefront of an evolving industry. This is evidenced by customer activity we've had at our Middleby Innovation Kitchens. We are experiencing increased engagement on our latest technologies offering labor savings automation, greater speed of service, menu flexibility, and a reduced operating footprint. We're excited about the pipeline developing with new customers and with our latest product launches. At a residential business, new home starts continue to be robust while existing home sales also remain strong and well ahead of 2019 pre-COVID levels. These favorable housing dynamics, along with increased time spent at home, is supporting the design and build of new kitchens and remodels. These conditions support a favorable backdrop to our business carrying into 2022. In the third quarter, we were excited to have debuted our residential showroom in Dallas. This showroom is connected to our Middleby Innovation Kitchens, demonstrating the crossover of product and innovation between our commercial and residential businesses. and bringing to life our differentiated ability to offer professional restaurant innovations in the home. Our showrooms are proving to be an outstanding investment and strategic asset. We are increasing our engagement with end users, dealer partners, and designers. We're expanding our events, training support programs, and marketing from these showrooms, further increasing the awareness and demand for our premium portfolio of brands. At food processing, the effect of COVID and the related travel restrictions that has impacted demonstrations, installations, and the timing of large projects is beginning to subside, providing for an expected improvement to the operating environment as we begin next year. Despite the operating challenges encountered during the year, demand has proven to be strong as our food processing customers are facing the challenges of labor, rising food costs, safety concerns, and sustainability. We are positioned to address these demands with our many new product innovations and full-line solutions. Our entry and strategic investment into areas such as bacon, dried meats, pet foods, and its alternative protein is also paying off, and we are increasing our available solutions in these growing categories. Now I'll pass the call over to James to spotlight one of our many recent product innovations highlighted in our investor slides.

Thanks, Tim. It's not every day when advancements come to griddling technology, but with 11 patents pending, I'm excited to share with you the latest development from Taylor for 2022, the Taylor Next Gen Grill. This product delivers precisely on what the industry needs, automation and labor savings. The Next Gen Griddle is a great example of how embedded automation can augment traditional technologies to improve speed, throughput, and quality, while reducing the amount of labor and skill required to operate the griddle. Compared to other griddles, the next generation grill seems a little bit non-conventional. This is because it's the first of its kind to vertically adjust the bottom platen to the food once the top platen closes, a true innovation that gives the griddle a superior advantage over other griddles that attempt to continuously adjust the top platen to a stationary bottom platen. Top adjusting platen struggle as the amount of torque and accuracy required to achieve this task is beyond their current mechanics. The last slide in the deck is a summary of the features and benefits of the double-sided griddle, but having worked hands-on with the griddle for the past week at the Middleby Innovation Kitchens, I can say that there's nothing like it on the market today. With a single touch of a button, the griddle can execute a simple or a complex multi-step cooking profile that is designed to accelerate and optimize cooking from the vertically opposed platens, all while continuously adjusting the bottom platen to account for the food's ever-changing properties, thus ensuring the desired compression is maintained during the cook. This is a terrific product introduction for Middleby in 2022 and is on full display at the MEC. Brian, over to you.