The Middleby Corporation

Good day and welcome to the Middleby fourth quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. We will start the call with management comments and then open the lineup for questions. Instructions on how to get into the queue will be given at that time. With us today for management are Tim Fitzgerald, Chief Executive Officer, Brian Middleman, Chief Financial Officer, James Pohl, Chief Technology and Operations Officer, and Steve Spittel, Chief Commercial Officer. Please note, today's call is being recorded. Now, I'll turn the conference over to Mr. Fitzgerald. Please go ahead.

Thank you for joining us today on our fourth quarter earnings call. As we begin, please note there's slides to accompany the call on the investor page of our website. We are pleased to have finished the year with strong results in the fourth quarter along with the close to another record year in 2022. For the year, we surpassed the milestone, eclipsing $4 billion in revenues while adding approximately $140 million to our earnings for the year, reporting just over $850 million of EBITDA. We realized sustainable improvements in profitability over the course of the year as our investments in manufacturing and our initiatives to evolve our product portfolio to focus on innovation is taking hold. These efforts are offsetting the significant inflationary and supply chain headwinds we faced throughout the entire year. And these efforts will continue to provide momentum as we move through 2023. In 2022, we continue to make critical strategic investments in innovation, go-to-market capabilities, and acquisitions. strengthening each of our three industry-leading food service businesses and bolstering our competitive positioning in the marketplace. In 2022, we developed and introduced a record number of new products across our brands and significantly furthered our company-wide technology initiatives pertaining to digital controls, IoT, and automation. In 2022, we continue to take steps forward on our go-to-market initiatives, investing in our innovation kitchens, adding to our culinary teams, expanding our digital sales capabilities, and deepening our strategic channel partnerships with a focus on strengthening engagement and support to our end user customers. In 2022, we also continue to execute our longstanding track record with smart and strategic acquisitions. adding eight new brands to our portfolio, and further extending offerings with exciting new product innovations in each of our three food service segments. As we close 2022, these efforts have us well positioned to capture rapidly evolving market trends, address real-world operator challenges, and offer the sustainable solutions our customers are looking for. As we look forward into 2023, economic conditions continue to be uncertain, However, we continue to have a positive outlook given the pipeline of new product innovations, developing customer opportunities, and the competitive positioning at each of our three food service businesses. At our 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 to solve challenges in the kitchen like never before. Recent attendance at the NAPM trade show, the largest in our industry, further reinforced this. Activity at the NAPM show was strong and attendance of over 20,000 was ahead of pre-COVID levels. We were heavily engaged with new and existing customers seeking out the latest innovations to transform their food service operations. The longer term backdrop is also favorable with the restaurant industry still in early stages of recovery. It is estimated that over 100,000 food service locations in the U.S. market closed during the pandemic, while only an approximate 5,000 units were added back in 2022, leaving a long runway for new store development. This opportunity is confirmed as we are engaged with many of our chain customers on new store opening plans. And many segments, such as schools, travel and lodging, and casual dining, are still in early stages of recovery, with only more recent return to travel, increasing in-person attendance at work and school, and a return in dining out. We're confident we are well positioned for this long-term recovery. At our food processing business, there is a need for equipment to increase throughput, solve for labor challenges through automation, address rising food costs, and reduce energy, water, and utility costs. And our customers are increasingly looking to address sustainability concerns. Over the past several years, we've introduced exciting new innovations addressing these customer needs. We have also made significant strides expanding our automated full-line solutions, while also broadening our offerings into new food applications such as pet food, bacon, and alternative protein. We are seeing the benefits of our strategy through increased partnerships with customers on projects and increased business in new categories. At our residential business, rising interest rates, a slowing housing market, and destocking of channel inventory at our outdoor grill business all present headwinds and uncertainty, with expected order declines in 2023. Despite these challenges, we continue to remain excited for the developing opportunities with our new product launches, investments in our showroom and sales capabilities, and further development to leverage the strength of our platform. Our product offerings position us to capture new market trends, such as growing demand for electric and induction products, and engagements at our residential showrooms with our culinary and designer teams better position us to capture the imagination and market share. We expect to maintain industry-leading profitability as we navigate the current environment and will continue to invest as we position for growth in sales and profitability as the market recoveries. In summary, I am thankful for the effort of our entire Middleby team as we continue to deliver in another disrupted and challenging year in 2022, and I'm proud of the progress we have made as we continue to execute our strategy and transform our business. positioning us for the future. I'm confident the efforts of our team is adding to our competitive differentiation in the marketplace, which will also progress us towards our longer-term financial goals. Now I'll pass the call over to James to spotlight more of our exciting recent product introductions.

Yeah, thanks, Tim. Last quarter I discussed a couple products aimed at electrification. In hindsight, my comments were well-timed with current events around banning of gas-fired appliances. Middleby has continued to building electric cooking and processing equipment that exceed the demands of the electrification push. And as I discussed, it's just not about being electric. It's about being highly efficient and electric at the same time. From combi ovens to our next generation of electric hobs, Middleby is well positioned in the future to deliver products that meet the electrification needs moving forward. Today, I'm going to talk about three new products launching in 2023. The first is Connected Joe. If you've heard me talk on prior calls about digital connected charcoal, the Connected Joe is a continuation of our digital charcoal strategy. The Connected Joe brings digital controls and app-controlled cooking and content to the Kamado Joe lineup in the same way that we brought digital and connectivity to the master built series of gravity charcoal grills. With the connected control, the connected Joe addresses the friction points associated with outdoor grilling and Kamado cooking. Smoking and grilling has never been easier. Simply load charcoal in the connected Kamado and press the light button, that's it. The auto ignition system takes care of lighting, the Kamado, from there the digital controller takes over to precisely regulate the Kamado's temperature. The Connected Joe will embolden the grilling novice and will allow the grilling master time to enjoy their favorite beverage or four. And should this digital control scare off the grilling purist, the Kamado Joe can also run in a pure manual mode, making this the most versatile and usable Kamado on the market. The second new product scheduled to launch in the first half of 2023 is the Invoke. It is our new line of high-efficiency electric and gas commercial combis. Our engineering teams have designed the Invoke for connectivity and sustainability. And given that this is an earnings call, we should talk about some numbers. The Invoke is built on a half-size combi footprint while still being a full-size combi capable of fitting full-size hotel and sheet pans. This affords us a 32% size advantage versus competitive combis while increasing our cooking capacity by 17%. This smaller footprint reduces our hood space and load by 13% for vented combis. The smaller footprint and innovations around steam generation and cleaning make this a very efficient combi with 38% less power required for operation which means less copper going into the building, and 27% less water during cleaning. This is our best combi yet, and by the numbers, this is a best-in-class combi delivering on our customer sustainability and environmental initiatives. The Invoke was designed for the Middleby OneTouch control, and it is open kitchen ready, Middleby's IoT platform. And finally, the third component, featured new product is the Pitco Smart Solstice Fryer. Before we talk about the Smart Solstice Fryer, I'm going to make some background comments about the two most common types of fryers marketed today. Traditional or full oil volume fryers and ROV or reduced oil volume fryers. ROV fryers have become the preferred choice of fryers due to the benefits they deliver by automating oil filtering and oil top off. These features lead to reduced oil consumption versus traditional fryers. However, even with all the benefits of ROV fryers, they tend to struggle when it comes to heavy duty frying tasks such as frying chicken and heavily breaded products. Said differently, if a traditional fryer could deliver the same automation and oil savings As an ROV fryer, our customers will continue to use traditional fryers to take advantage of their full oil volume. The Smart Solstice is the first and only full oil volume fryer that employs automated filtering, oil top-off, connectivity, and smart oil sensing, which measures and reports oil quality and life in real time through the Middleby OneTouch control and open kitchen. These features make the Smart Solstice the best all-around fryer for our chain customers, and really all customers. And while it requires more to fill the vat, the cold zone and filtering process combine to extend oil life beyond the point of an ROV fryer, as it takes longer for threshold levels of total polar compounds, TPCs, to form in the larger oil volume, thus requiring less oil changes. Note concentration of TPCs determine when an oil should be disposed. Finally, the Smart Solstice uses the Middleby OneTouch control and is open kitchen ready. And before we move over to Brian, I would like to mention that we made two acquisitions as we concluded Q4, Marco Beverage Systems and Escher Mixers. These companies are synergistic with the beverage platform and food processing group, respectively. Marco brings a lineup of well-engineered and beautifully designed coffee brewing and dispensing products along with water dispensing capable of dispensing hot, chilled, and sparkling water. These additions help round out Middleby's already robust beverage platform. Escher mixers bring large-scale spiral and planetary and automated mixing lines to our food processing group. These mixers afford our customers the ability to specify Middleby mixers as part of a Middleby full line bakery solution. Thank you and over to you, Brian.