The Middleby Corporation

Thank you for joining us for the Middleby third quarter conference call. With us today from management are CEO Tim Fitzgerald, CFO Brian Middleman, Chief Commercial Officer Steve Spittel, and Chief Technology and Operations Officer James Poole, as well as Vice President of Investor Relations John Joyner. We will begin the call with opening remarks from management and then open the call for questions. Instructions on how to get into the queue will be given at that time. Please note this call is being recorded. Now I'd like to turn the call over to Mr. Fitzgerald. Please go ahead.

Thank you and good morning. Thanks for joining us today on our third quarter earnings call. As we begin, please note there are slides to accompany the call on the investor page of our website. We're very excited to have joining us on today's call, John Joyner, our new head of investor relations for Middleby. As many of you may know, John is joining us from BMO, where he did a tremendous job covering Middleby for many years. So he has a deep understanding of our industry with a passion for Middleby. Given the recent expansion and significant expansion in the scope and scale of our business over recent years, it was the right time to establish a dedicated leader for investor relations. And we are excited to have John as the first to step into this role for Middleby. I know John's presence will significantly benefit all of our current and future shareholders, and we're fortunate to have John now on the Middleby team. Now, under the quarter, we are pleased to have posted solid results, reporting record earnings and cash flows in the quarter and for the year, driven by strong execution at both our commercial and our food processing businesses. We continue to make significant progress at our residential business, positioning for growth and a return to higher levels of profitability when the market recovers, while at the same time managing the near-term impacts of the challenging market conditions. We again posted overall improved profitability and are realizing the benefit of our profit actions as we progress toward our longer-term margin targets. We are benefiting from our focus on new product innovation to drive improved profitability in our sales mix. We're realizing efficiency gains reflecting the impact from our manufacturing investments, and we're focused on the long-term supply chain opportunities with ongoing product design and sourcing initiatives providing for greater improvements over the next year. While market conditions have proven to be increasingly challenging, the inventory destocking, which has impacted our commercial and residential businesses, will largely be normalized as we enter 2024, and we will start the year competitively positioned better than ever. At Commercial Food Service, we've extended our leadership in electrified, energy-efficient, and ventless cooking solutions. We have rapidly developed an innovative platform of exciting ice and beverage products in a large and growing market, and we are well on our way to establishing Middleby as the leader in controls, IoT, and automated solutions. positioning us to capture the future of the commercial food service industry. At Residential, we have the broadest portfolio of indoor and outdoor premium brands, with a pipeline of innovation addressing the growing demand for energy-efficient electrified products, and with initial launches of connected equipment now in the marketplace, with more to come. At Food Processing, we have executed on our strategy of becoming a leading provider of best-in-class full-line integrated solutions for the protein and bakery markets. We are offering state-of-the-art automation to address growing labor and efficiency challenges, and we have developed a portfolio of equipment to support our customers' efforts to achieve the sustainability goals for their operations. We have successfully expanded in new markets such as bacon, cured meats, alternative protein, and pet foods, with additional targeted applications providing further growth opportunities ahead. Our substantial go-to-market investments, we believe, are uniquely positioning us for long-term sustainable growth, with great progress made in establishing our digital sales and marketing capabilities, developing our industry-leading culinary teams, and in the alignment of our sales channel and strategic partners. The investments we have made in our innovation centers continues to prove to be a strategic asset for our businesses. Engagement at these innovation centers continues to be meaningful and is providing benefits across our commercial, residential, and food processing businesses. We're confident these investments of today are translating into a pipeline of opportunities ahead, and we're in the early chapters of realizing the impact for all of our food service brands. While market conditions are undoubtedly more challenging across our businesses, given the effects of interest rates and macro conditions, we're continuing to focus on our business execution while building upon our growing competitive advantage at each of our three industry-leading food service businesses that we are confident will set us apart in the long term. Now I'll pass the call over to James to spotlight our ICE businesses. It's a great, fast-growing part of our exciting beverage platform. and a great example of recent strategic investments that we have made both through acquisition and new product innovation that have positioned us for a growth opportunity in a large and addressable market. James.

Thank you, Tim. I'm going to deviate from peer NPI and technical discussion this quarter to talk about one of our fastest growing segments, ice. With the acquisition of IceTro over a year ago, Middleby is more than a nugget or Tubelet Ice Company. By the way, Tubelet is followed proprietary and trademark name for its nugget ice. We have the ability to satisfy demand for all types of ice, whether it's tubelet, nugget from IceTro, cubed, half cubed, or shaved ice. Our ice portfolio has been one of the fastest growing segments in commercial food service in 2023. And with the trends in the addition of two new IceTro products, we believe we will see growth in the range of $50 million in 2024, with the growth continuing in the following years. This growth is fueled by new marketplace trends around Chubut ice, as well as IceTro's growth in the U.S. and international markets as we go after ice's $1.75 billion to $2 billion global market space. Now on to trends. It's no secret cold beverages are growing at a very fast rate. In 2022, cold beverage sales increased 15% over hot beverages, while a leading coffee chain sees as much as 75% of their beverage mix being cold. This growth has led our customers to focus on more than just ingredients to craft their best beverage. They now appreciate the ice's role in making the best iced coffee possible. ice craft beverages, blended beverages, and fountain drinks. Follett's tubelet ice produces the highest quality and highest margin drink for our customers. This is for several reasons. First, tubelet ice chills the beverage faster due to its total surface area. It dilutes the beverage less as it has a higher percentage of frozen water compared to regular ice. And it allows the ice to absorb the flavor, extending the beverage experience once your soda or coffee is long gone, thus giving you a beverage that keeps on giving. Follett's tubelet ice is also safer and more sanitary as Follett's proprietary extrusion making process allows us to extrude, i.e. pump the ice up to 75 feet from the ice maker to two remote locations within the restaurant without employees having to carry buckets of ice or handle ice. With everything I've said, you would be surprised that Nuggets Ice is only around 20% of the global ice business. The other 80% is cubed ice. With the introduction of our latest machines from IceTro, the 1,700-pound and 2,000-pound machines, which now complete IceTro's full production lineup, IceTro now has the ability to compete and take global market share as we look to expand our cubed ice business. IceTrow machines have a proven track record of reliability globally and have many features that benefited from our competition, such as multi-ingress and egress cooling, split panel access for sanitary servicing, and a proprietary plating process, to name a few. And the last comment before I turn it over to Brian, all Middleby products that require water use filters from Terry Water Filtration. And when it comes to ice, we believe that Terry's H2O Citrine Water Filter provides our customers with the best-tasting ice. Thank you, and over to you, Brian.