The Middleby Corporation

Thank you for joining us for the Middleby third quarter conference call. With us today for management are Tim Fitzgerald, CEO, Brian Middleman, CFO, James Poole, Chief Technology Officer, and Steve Spittel, Chief Commercial Officer. After the company's prepared remarks, there will be a question and answer session and instructions will be given at that time. Should you need operator assistance during the call, please press star then zero. And please note that this event is being recorded. I would now like to turn the conference over to Mr. Fitzgerald. Please go ahead, sir.

Great. Thank you. And thanks, everybody, for joining us today on our third quarter earnings call. As we begin, please note we've posted slides to accompany the call on our investor page of the website. We are pleased to have posted another record quarter reporting 14% growth in organic sales and 23% growth in adjusted EBITDA. During the quarter, we also reported strong profitability with improvement in EBITDA margins to 26.5% at our commercial food service business, 23.9% at our food processing segment, and 20.6% at our residential business, when excluding the impact of recent acquisitions. Supply chain impacts continue to weigh heavily on the quarter, both in terms of disruption to our manufacturing operations and increased costs. However, our focus on selling of our latest product innovations is favorably impacting the profitability of our sales mix across our businesses. While pricing actions enacted earlier this year have partly offset the dilutive impact of material cost increases, with further pricing benefits expected to be realized in the quarters ahead. Operationally, the significant investments we have made in the past quarters in automated production equipment and facility expansions are delivering benefits of greater capacity, production efficiencies, and profitability at many of our operations. These investments also position us to support our new product launches and growth initiatives in the quarters ahead. While economic conditions have become more uncertain and more challenging in the third quarter, we continue to have a positive outlook given the pipeline of new product launches customer opportunities, and the competitive positioning for each of our three food service businesses. In the commercial food service segment, our customers are investing in solutions to evolve their operations and address pervasive challenges of labor, speed of service, energy, and food costs. Our latest innovations are in demand and we are engaged with customers on solutions to solve problems like never before. The investments we have made in our digital sales capabilities consultant services team, channel partnerships, and the Middleby culinary teams are connecting end users with our latest technologies. And our Middleby innovation kitchens continue to be a home run success with now over 7,000 customers visiting with us in Dallas since the opening during the middle of last year. This transformation of our sales processes is developing a new pipeline of opportunities moving into next year. The backdrop is also favorable with the industry in early stages of longer-term recovery. Over 100,000 food service locations in the U.S. market closed during the pandemic, with only a projected 5,000 units added back in 2022. New openings are projected to accelerate into 2023 and future years, providing a long runway for recovery. We are engaged with many of our chain customers on store opening plans for next year, while many segments such as institutional, Travel and lodging and fast casual are starting to recover with increased activity from a year ago. Our food processing business demand continues with the need for equipment to increase throughput, address the lack of skilled labor through automation, address rising food costs, and save on energy and utility costs. Over the past several years, our teams have made significant strides with an objective to expand our automated full line solutions. We've done this with the launch of exciting new product innovations and also by completing a number of strategic acquisitions. Our most recent acquisitions of Proxout, CP Packaging, and Colossi further extend our automated solutions and add advanced washing technologies and high-speed packaging to our portfolio. Our full-line and automated solutions are providing customers with a greater payback, and this is translated to consistent order growth and a strong pipeline of opportunities ahead. In a residential business, rising interest rates, inflation, and economic uncertainty have slowed existing home sales and new home starts and made for a more challenging condition for the residential segment. While we continue to have a larger than normal backlog, recent order demand has weakened and we expect those difficult conditions to remain in the first half of 2023. Although we are facing difficult market conditions, we remain excited about the opportunities across our residential platform. The strength of our brands, product designs, and product innovations is stronger than ever. Our new showrooms, sales and design services teams, and culinary staff have been busy as we engage with designers, dealer partners, and end users to create greater awareness for the Middle East residential brands. The work done to leverage the capabilities of our entire platform and realize synergies across the brands present revenue and profit opportunities, offsetting some of the headwinds as we move into the year. In summary, I am proud of our teams that continue to navigate the operating challenges and evolving market dynamics while executing on our strategic initiatives as we transform our selling processes and continue to bring industry-leading innovation to market. I'm confident these efforts are adding to our competitive differentiation in the marketplace, which are reflected in the results we have delivered for the year, and that are also progressing us towards our longer-term financial goals. Now I'll pass the call over to James to spotlight more of our exciting recent product innovations, which are also highlighted in our investor slides. James?

Thanks, Tim. I'm pleased to talk about two new products from Middleby. They couldn't be more dissimilar in design and use, but they are both engineered to deliver meaningful environmental and sustainability benefits for our customers. As Tim mentioned, overviews of these products can be found in our investor deck. The first product is Baker Thermal Solutions Rapid Bake Oven, a first of its kind for the food processing side of our business. The Rapid Bake Oven combines direct-fire gas combustion, high-h impingement, and RF heating to accelerate the baking process. While these technologies have been combined for decades in products such as Turbo Chef, it's the first application for high-volume baking where size, speed, throughput, and energy matter. The technology deployed in this oven make it ideal for customers producing fruit-filled, cheese-filled, and meat-filled dough products as the RF energy is able to heat volumetrically and the impingement air is able to heat and bake and rapidly brown the exterior from the outside in. By using these two independent energy vectors, it yields a process that has proven to be 30 to 40% faster than conventional baking technology. This speed boosts production rates up to 5,000 tons per year. As it relates to sustainability, we split the energy between electric and natural gas for the rapid bake. With this, we've been able to balance the energy required such that the operator can appreciate a 7% to 19% reduction in cost per ton of production depending on where the oven is deployed. And with less dependency on natural gas, we save 57 metric tons of CO2 equivalent, which equates to about 12 cars on the road per year. And we now allow the operator to take advantage of renewable and green energy to power the electric portion of the oven. Moving from food processing to commercial, yields a similar story with CookTech's new high-efficiency induction system, Helios. The induction uses electromagnetic energy to couple to the pan, thus making induction the fastest, most precise, and efficient way to cook. CookTech has long been the anchor of induction for the commercial food service industry, producing inductive heating for warming and holding technologies. The Helios features the new middle V1 touch controller, along with the speed knob, and a newly designed power supply to optimize its performance. The Helios control can also measure a pan's efficiency to let the operator know when they are using substandard induction cookware. The Helios, which is the only American-made induction system on the market, has a cooking efficiency as high as 95%. This means that 95% of the power coming from the wall is going into the food. When compared to electric or gas operated HOBs, Cook-Tex induction is approximately 45 and 62% more efficient respectively. As for the environmental impact, a typical circuit for an induction range uses 25 pounds less copper than a conventional range since the current requirement allows us to run much smaller wire. Now scale this up and you're looking to save one to two million pounds of copper per year in the United States alone by moving to highly efficient products like Helios. And that's only one piece of the kitchen. The timing for high efficiency cooking systems like Helios couldn't be better as more and more of our customers are reporting that utility costs have had an adverse impact on their Q3 returns. This further illustrates the immediate need for new and innovative efficient electric cooking equipment. Lastly, many of our customers are talking about their successes opening smaller and more efficient restaurants. Again, product like Helios will unlock additional value for these locations by reducing building costs, less copper, utility, lower amps, HVAC cost, no radiant heat load, and hood expense, less CFM, And in some cases, Middleby can supply an entire ventless kitchen. With products such as rapid-bake and Helios, Middleby is delivering on its sustainability promise. Thank you, and over to you, Brian.