The Middleby Corporation

Thank you for joining us today for the Middleby Corporation first quarter 2022 conference call. With us today for management are CEO Tim Fitzgerald, CFO Brian Middleman, Chief Commercial Officer Steve Spittel, and Chief Technology and Operations Officer James Poole. We will begin the call with opening comments, then open the lines for questions. Introductions on how to get into the queue will be given at that time. Also, please be aware that a presentation to accompany the earnings announcement is available on the investor page of Middleby.com. Now I'd like to turn the call over to Tim Fitzgerald. Please go ahead, sir.

Great. Thank you, Andrea. And thank you, everybody, for joining us today on our first quarter earnings call. We started the year with momentum, building upon the progress we made in 2021 and continuing to execute upon our financial and strategic initiatives. Financially, we posted record sales and earnings for the first quarter, and we were able to largely maintain our profitability while facing unprecedented inflationary impacts. Supply chain disruption and the related cost impacts have become increasingly challenging as a result of the recent COVID shutdowns in China and the impact of warm Ukraine. Operationally, we remain focused on increasing our production to support our significant backlog, which again increased in the first quarter with incoming orders outpacing revenues. Our teams continue to execute in the face of daily challenges affecting parts availability, with concerted efforts to work with our strategic vendor partners to minimize disruption to operations. And we also continue to make investments in manufacturing equipment, facility expansions, and people, all in an effort to increase production capacity. While the additional recent disruptions to supply chain have placed further challenges on our operations, we increased shipments to a record level in Q1, and we are committed to continuing improvement as we progress through the year. As we continue to manage operating challenges and the related margin pressures, we are not losing sight of our long-term profitability goals set forth for each of our three business segments. We continue to invest in R&D and launch new product innovations with a focus on increasing profitability of our sales mix. While pricing actions already enacted early in the second quarter should offset the most recent wave of supply chain cost increases with a benefit realized in the second half of this year. While overall market conditions generally have become more uncertain over the past 90 days, we continue to see underlying trends and factors driving demand across all three of our business segments. At our commercial food service segment, the industry is still in long-term recovery. While traffic is moderated in the QSR and fast casual categories, We continue to see our customers invest in solutions to address pervasive challenges of labor, speed of service, energy, and food costs. Other segments such as casual dining, institutional, and travel and lodging are still in recovery with increasing investment activities. At our residential business, rising interest rates and inflationary pressures present a risk to what has been favorable market dynamics in the housing market. However, new home starts continue to be robust, and while existing home sales have softened in recent weeks, they continue to remain ahead of 2019 pre-COVID levels. The housing market at the higher price segment of the end continues to perform, and time spent at home also continues to drive new kitchens and remodels. In the food processing segment of our business, we see stable demand with the need for equipment to increase capacity, address labor challenges, and rising food costs. We're poised to capture new trends in faster growth categories and provide unique offerings with our full-line automated solutions. And we continue to see a strong pipeline of opportunities ahead. In summary, the start of 2022 has presented new and evolving challenges impacting supply chain, with additional inflationary impacts and greater uncertainty in certain markets. Despite these challenges, we are confident in our market positioning, continued strategic investments, and our ability to execute. The favorable factors driving demand for our equipment to address challenges facing our customers continues to grow, and we are best positioned to support their needs. Now I'll pass the call over to James to comment on some of our continued technology initiatives and spotlight another recent product innovation also highlighted in our investor slides.

Thanks, Tim. I'm happy to introduce Middleby OneTouch, Middleby's new control system that spans our brands, segments, and our customers. The OneTouch is a culmination of two years of effort to standardize Middleby's control platform. One of the many strengths of Middleby is our brand individuality. But when it comes to controls, the need for a singular middle B control system was ever so obvious, especially as we continue to acquire brands. To do this, we focused on several key areas of development. First, we wanted to provide a lightning fast and fluid control environment with seamless connectivity to our open kitchen IoT platform to satisfy our Gen Z to our Gen X customers. Expanding on connectivity, the Middleby OneTouch controllers are open kitchen ready. This allows our customer base the ability to purchase open kitchen connectivity at the point of equipment sale, thus providing our customers a straightforward, hassle-free way to connect and onboard their equipment, while also providing them a future-proof IoT platform for the additional Middleby equipment purchases. Next, we focus on the user experience. which is timely given the current state of labor within our industry and the struggles around training. Our work on the Middleby user experience yielded a single user experience that works across all Middleby products, whether a Pitco fryer, a FireX, a Turbo Chef rapid cook oven, a Middleby Marshall conveyor oven, a CTX, a Taylor soft serve machine, to name a few. Once a customer uses a Middleby OneTouch control, they will forever become a power user for any Middleby one-touch product. Lastly, and most importantly in today's environment, supply chain. The effort focused on reducing the number of control SKUs across the brands to essentially three different one-touch controls, one for high-touch, high-use products, one for mid-touch, high-use products, and one for our very simple products that require little interaction. Each of these three controllers rely on two different designs utilizing unique MCU chips while also being produced by two independent manufacturers. This affords us the ability to utilize alternate controls with only a modest amount of effort should a supply chain issue arise due to a chip shortage or a manufacturing issue. Our new control strategy was born from the goal of having one control one user experience, and one learning curve for our products and our customers. We will be debuting the Middleby OneTouch at the NRA show later this month, and we'll have approximately 50 new products and or platforms going live by the end of 2022. But before I kick it over to Brian, I would also like to give a strong mention to our new one-group espresso machine, the Sineso ES01. While Seneso is known for building some of the best and most elegant espresso machines on the market, this is our first machine designed and built for the home and commercial use. If you ever get the opportunity to own, use, or see one of these machines being built, you will quickly realize this is a multi-use commercial espresso machine that happens to work in the home. The ES01 brings to life Middleby One Touch Control combining Cineso's signature engineering approach and flawless temperature stability, plus Cineso's on-screen graphical brewing data, which is used to dial in the multiple stages of brewing, pre-infusion, full extraction, and post-infusion. This on-demand feature allows users to visually understand how to adjust the brewing process to yield the ideal balance between acidity, sweetness, intensity of flavor, and the desirable bitterness. The ES01 incorporates React technology that adapts to multiple espresso blends, quickly making it your most trusted barista. We are excited to add this to our residential platform for our Cineso and espresso enthusiasts and those seeking the best equipment. Thank you, and over to you, Brian.