Thank you for joining us today for The Middleby Corporation First Quarter 2022 Conference Call. With us today from management are CEO, Tim Fitzgerald; CFO, Bryan Mittelman; Chief Commercial Officer, Steve Spittle; and Chief Technology and Operations Officer, James Pool. We will begin the call with opening comments then open the lines for questions. Instructions 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 the war in 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 operations. 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 chains have placed further challenges on our operations, we increased shipments to a record level in Q1 and 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 launched new product innovations with a focus on increasing the 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 the 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 Foodservice segment, the industry is still in the 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 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 chains with additional inflationary impacts and greater uncertainty in certain markets. Despite these challenges, we are confident in our market positioning, continual strategic investments, and our ability to execute. The favorable factors driving demand for our equipment to address challenges facing our customers continue 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 pleased to introduce Middleby One Touch, our new control system that enhances our brands and serves our customers. The One Touch is the result of two years of work to standardize Middleby's control platform. One of Middleby's strong points is our brand individuality, but a unified control system became essential, especially as we acquire more brands. We concentrated on several key development areas. Firstly, we aimed for a fast and seamless control environment that connects to our open kitchen IoT platform, catering to both Gen Z and Gen X customers. Additionally, the Middleby One Touch controllers are designed to be open kitchen ready, enabling our customers to easily connect and onboard their equipment at the time of purchase, while also offering a scalable IoT platform for future Middleby acquisitions. Next, we prioritized user experience, which is crucial given the current labor challenges in our industry. Our efforts resulted in a consistent user experience across all Middleby products, from a Pitco fryer to a Taylor soft serve machine. Once customers experience the Middleby One Touch control, they become adept users of any One Touch product. Lastly, we focused on supply chain strategies, reducing the number of control SKUs across our brands to just three different One Touch controls tailored for high, mid, and low interaction products. Each control uses two distinct designs and unique MCU chips and is produced by separate manufacturers. This flexibility allows us to switch controls with minimal effort if supply chain issues arise. Our new control strategy aims to deliver one control, one user experience, and one learning curve for our products. We will unveil the Middleby One Touch at the international event later this month, with around 50 new products and updates going live by the end of 2022. Before I hand it over to Brian, I want to highlight our new Synesso ES01 espresso machine. Known for crafting exceptional espresso machines, Synesso's first model for home and commercial use exemplifies versatility. The ES01 merges Middleby One Touch control with Synesso's impeccable engineering for temperature stability and on-screen brewing data that guides users through various brewing stages. This feature enables users to fine-tune their brewing process for optimal flavor balance. Additionally, the ES01's react technology quickly adapts to various espresso blends, making it a reliable choice for brewing. We are excited to add this to our residential offering for Synesso enthusiasts seeking top-notch equipment. Thank you, and now over to you, Bryan.

Thanks, James. In the quarter, we achieved record results with revenue exceeding $995 million and adjusted EBITDA of $197 million. GAAP earnings per share were $1.52, and adjusted EPS, which excludes amortization expenses, non-operating pension income, and other items noted in our press release reconciliation, was $2.13. Year-over-year revenues increased by over 31%, nearly 12% of which was organic growth. The adjusted EBITDA of $197 million reflects growth of more than 22% compared to the previous year, or 9% on an organic basis. Our margin accounted for nearly 20% of revenues. Globally, commercial foodservice revenues rose 11% organically compared to the previous year, and the adjusted EBITDA margin was just over 24%. All margin values mentioned are on an organic basis, excluding acquisitions and foreign exchange impacts. In the residential segment, we experienced organic revenue growth of 16% versus 2021, with an adjusted EBITDA margin close to 22%. This does not include the late December acquisitions of outdoor grill companies. As you review our reported results, please consider a few additional key points. Currently, the acquired businesses have a lower margin profile than the rest of the segment. Moreover, the accounting impacts from valuing acquired inventory negatively affected reported gross margin and operating income by over $14 million for the quarter. However, this accounting aspect is excluded from our adjusted EBITDA metrics. In food processing, organic revenues increased by 8.4%, with an adjusted EBITDA margin of 19.4%. Throughout the company, we continue to face supply chain and inflationary challenges, along with the effects of COVID, which have impacted our operations and production efficiency, notably in the food processing segment. As we actively navigate these market conditions, we are seeing positive results in the residential area and have been able to deliver expected outcomes in commercial. Cash flows used in operations exceeded $50 million. The current business climate is affecting our working capital levels, particularly concerning inventory, as we address significant demand while facing rising costs and supply chain challenges. Increased sales levels are also leading to a rise in accounts receivable. The recently acquired businesses also present some seasonality that contributes to working capital increases earlier in the year. Overall, changes in working capital during the first quarter negatively impacted cash flows by over $140 million, with about two-thirds stemming from inventory and the rest from accounts receivable. Despite the volatility, we expect to generate positive operating cash flows for Q2. Our total leverage ratio stands at just over 3 times, and we maintain over $2 billion in borrowing capacity. These figures account for over $250 million used for capital and share-related actions in the past two quarters. In the first quarter alone, we utilized over $155 million for stock buybacks in open market transactions. Reflecting on our outlook, I have observed the unique challenges we are currently facing, marked by various obstacles that continue to emerge while our resilience is tested as we strive to achieve our long-term goals. I’ve also thought about the reasons behind my eagerness to join Middleby and our teams' extraordinary abilities in overcoming challenges. Was it merely for the satisfaction of a job well done, to drive customer success, to provide strong returns for investors, or for the pride of mentoring and developing our team? All these reasons are valid, but personally, it was about the promise of free pizza. After all, why would I want to work in an oven factory? Over the past few years, I've learned about pizza solutions while becoming familiar with other great products and, most importantly, tasting the results. Chef Andrew has educated me on the incredible CTX automated conveyor cooking platform, which is self-cleaning and runs on electricity. I was genuinely impressed during last week's Cinco de Mayo celebration, showcased on our social media, which featured an amazing spread. The Carne Asada Tacos were remarkable, leading me to ponder whether it was the oven or the Chef that made the difference. I realized that success requires collaboration. At Middleby, we have talented Chefs who provide exceptional equipment and deliver incredible creations. It takes a culinary artist and great equipment, a good recipe along with quality ingredients. While some may view the CTX as old school, it still delights my palate and offers much more than pizza. Working with any of our Chefs will show you the importance of collaboration. Although I came for the pizza, I’m sticking around for the tacos. Regarding our near-term outlook, I remind you that we are discontinuing order details disclosure. However, I will note that for Q1, orders remained consistent with recent quarters and were higher compared to 2021, leading to a growing backlog. Nonetheless, due to various economic and geopolitical risks, we have seen some recent slowdowns in order trends. Still, we expect orders to significantly exceed levels seen in 2019 and 2020. For food processing, although the year started a bit soft—uncharacteristically for this segment—we recorded record orders in Q1 and continue receiving substantial orders to be fulfilled in 2023, which sets the stage for a strong second half of 2022. I expect Q2 to generate higher revenues and EBITDA margins compared to Q1. The residential sector may face notable challenges, particularly from price costs in Q2, though improvement is expected later in the year. Supply chain issues will significantly impact our volumes and revenues for Q2, especially given the COVID situation in China. While we remain optimistic for the latter half of the year, the current market dynamics pose risks. The commercial food service sector will benefit from a large backlog, though price cost pressures will persist until more significant improvements are realized in the latter part of the year. Overall, we have a positive outlook across our portfolio, as customers remain committed to significant expansion plans, our leading solutions are being adopted, and various positive economic and social factors suggest sustained demand. Therefore, we are continuing to invest in our infrastructure. Our net capital expenditures have hit the highest levels in the past six months, and our operational improvements and integration efforts are ongoing. In summary, the actions we are taking, coupled with managing the negative price cost scenario, set a strong foundation for the latter half of 2022 and into 2023. While we anticipate some fluctuations across segments in Q2 compared to Q1, I believe our overall results will remain consistent with Q1. For years, we have demonstrated our business's resilience and strong model, supported by a capable management team that has thrived in turbulent times. We are well-positioned for continued and greater success in the second half and beyond. Now, I welcome your questions. Andrew, please open up the line. Thank you.

Our first question comes from Mirc Dobre from Baird.

Yes, good morning, everyone. I appreciate the discussion on Tuesday. Thank you for that insight. Bryan, I would like to clarify a few points.

Yes.

I kind of heard two conflicting things; personally, I heard that Q2 revenue and margin maybe they were going to be better sequentially relative to Q1. But then you kind of talk about Q2 being in line with Q1. So, which is it?

Yes, the total company is in line. Residential may face challenges, food processing is expected to improve slightly, and commercial is likely to show some improvement as well. So if we consider all these factors, my overall comment for Q2 is that it will be similar to Q1 regarding consolidated results.

Consolidated results. Okay, that's helpful. And then of course, you highlighted that some slowing has occurred. So, additional context there would be helpful. Maybe the geographies that were this might have happened segments product lines really anything that you can mention there would be helpful?

Yes. So, I think China, as you might expect, given some of the lockdowns, is kind of a market that's been affected not only in terms of supply chain, which is an obvious one, but also in terms of orders in that region that's had some effect. I think as you look across the segments, the one that we've seen have more impact is on the residential, as Bryan mentioned, we still remain. And this is more recent phenomenon obviously has been a lot of disruption in the market. So, we'll see how things evolve, but even as things have slowed there a bit, it remains ahead of 2019. So that, those related to the areas to call out. Obviously, there is some disruption in Europe as well, but that's probably to a lesser extent.

On the residential side, your business has grown and you've made some recent acquisitions. The revenue contribution from these acquisitions in residential was higher than we initially expected. My question is about seasonal trends. Do brands like Kamado Joe and Char-Griller typically see inventory buildup in the first quarter? How do you assess the inventories in the channel? The second part of my question is regarding the core segments of the business, such as Viking and AGA. You've mentioned a slight slowdown. How are you defining that? Is it based on the increases you've observed in your stores, or is there another metric you're using to gauge these market dynamics?

We are discussing recent order activity over the past few weeks compared to 2019. We've experienced significant growth over the last year and a half, but it appears to be slowing down slightly at the moment, still in reference to 2019. There is limited inventory available in the channel across all segments. We have not been able to fully address our backlog, which remains significant, especially in residential, and we will continue to work on this throughout the year. This is why we are focusing on investing in our operations. Our capital expenditures have increased over the past few quarters as we have invested in fabrication equipment and expanded production. For the grill companies, the seasonal patterns vary by brand and geography. Generally, there is an increase in demand for grilling in the first quarter, which begins in the fourth quarter and continues into the early parts of the second quarter. As we look ahead, the recent changes in the world will impact those new grill companies more than our broader residential platform, due to our focus on U.S.-based manufacturing. However, a larger portion of products for those grill companies is shipped to China. Consequently, production for these companies may be affected by recent shutdowns. That will depend on how the situation evolves throughout the quarter. In the first quarter, after acquiring Middleby, we started with about a 12% EBITDA for those businesses, which we felt was a solid performance. We have a multi-year strategy aimed at investing in innovation, and despite the early disruptions, we remain optimistic about our platform and the growth prospects, as well as our goal of reaching 20% EBITDA margins in the next three years.

Okay, understood. If I may, one final question, on the Slides that you put out this morning on Slide eight, you've got a pie chart there talking about revenue by demand requirement. For one point really interesting, and in here, you said that replacement and upgrade, which is more than I thought of your business is still down or was down 13% relative to pre-COVID in 2021? I'm sort of curious to get more context from you as to why you think that is the case, why replacement has lagged as much of it has, and what are some of the implications here as we're thinking about '22 or '23? Thank you.

Yes, good morning, Mirc, it's Steve. So, I would read into it maybe a little bit of a different take. Not as much replacement being down just because I think it's more of the new builds have just increased as much as they have. So, yes, that's primarily driven by the QSR segment over the last six to 12 months you having such aggressive new-build plans that we saw last year. They have not taken the foot off the gas for this year and still pretty strong. What they shared with us going into next year. So, I think it's more of a function of the focus on the bigger chains on new builds. Not as much hey, we're seeing replacements shifting away. I just think it's the new build emphasis. I still think once we get through this new build period that we're in, again I think based on the feedback from QSRs that last, the next 12 to 18 months, I do think you see a replacement cycle pick back up again as we get into probably next year and in 2024. So, that's how I would think about the breakdown and the change in the pie chart from 2019.

Yes. Very helpful, thank you.

Our next question comes from Tami Zakaria with JPMorgan.

Hi, good morning. Thank you so much for taking my questions. So, my first question is, I think you mentioned you're expecting results to improve from the back half of this year and into next year. Just wanted to clarify, do you expect sequential improvement in both the top line and EBITDA margins in each segment, as you go into the back half?

Yes. I mean, that really is the simple take on it, right? Given our backlogs, given pricing actions, and then that sets us up for those improvements, and then we will see the risk remains on supply chain and input availability should that improve right that becomes the tailwind we're waiting to pick up influence.

Thank you very much. My other question is how did orders trend throughout the quarter by segment? Also, you implemented a price increase in April. Did that have any significant impact on orders?

I think we've been providing an order outlook for some time now. By segment, we're beginning to see prices diverge from that trend. Overall, we had solid performance throughout the quarter and noted some comments as we moved into early April. We continue to see a double-digit increase in orders during Q1, although we have yet to report that. At the start of the year, trends were favorable, but we've noticed a slowdown as we entered April. The changes in pricing dynamics have been significant. The impacts of the war and factors related to China have added inflationary pressures that became apparent in March, leading to quick responses in cost increases from our suppliers. We implemented a price increase in April, and it turned out to be significantly larger than we initially expected. I want to provide some perspective: we anticipated seeing a turning point in Q2 where margins would begin to expand, but with the new wave of price increases, this process may take another quarter or two given our substantial backlog. We are confident that the price increases we've already implemented account for the recent unexpected cost increases. This ties directly into our comments about margin expansion. We are indeed working to expand margins through pricing that reflects inflationary costs, operational actions, and the investments we're making in our R&D and product development, which improve our sales mix. While this timeline has pushed slightly to the right, we still expect margin improvement in the latter half of the year.

Got it. If I can squeeze in one quick one, do you have any other price increases planned for the rest of the year?

Tami, as of right now, nothing is planned currently. But as we continue to monitor the ongoing dynamic of cost pressures we see on our side, and just the overall market, if we have to go back to the marketplace with additional pricing, we certainly will. But at this point, there's nothing planned for the back half of the year.

Got it. Thank you so much.

Thank you.

Our next question comes from Saree Boroditsky with Jefferies.

Thanks for taking my questions. So, just staying on the price topic. Given the price cost headwinds expected in the second quarter, could you just talk about your ability to price for inflation across the segments? Particularly if you see more challenges pricing in the residential's to consumers versus the other segments?

We've taken action in all three areas. Our portfolio and leadership in each segment are strong. Pricing has remained stable, allowing us to pass on costs. We are likely most sensitive to the residential market; however, it's worth noting that the premium segment we operate in has proven to be somewhat more resilient. Customers in this demographic tend to have a greater capacity to absorb price increases within that market segment.

Great. And then just on Food Processing, you highlighted large protein projects. Could you talk about the cadence of those projects as we think about the remainder of the year and into 2023? And then what's driving that demand as I believe there has been less investment in some of those categories such as hot dogs in recent years?

Yes, many large protein producers are actively engaged in several investment projects. Our offerings extend well beyond hot dogs, and we are seeing various trends influencing cured meats and alternative proteins. Several of our customers have shared their plans for expansion, which will have a greater impact as we complete our equipment installations in the latter half of this year and the first half of next year. Some projects may take even longer. Generally, these projects require over a year to finish, and while some items in our food processing orders and backlog can change quickly, larger projects often remain in the backlog for six to eighteen months.

I appreciate the color. And then one last one from me, could you just talk about the M&A pipeline? And if you've seen a pick-up in the competition for some of these assets more recently?

So, obviously, it's one of the hallmarks of Middleby; we've been doing acquisitions for a long time, and I think posted in the slide you can see even in the first quarter of a couple of additional, I would say product line of technology add-ons. So, the pipeline remains strong; certainly as we broaden the portfolio, we have lots of different strategic ideas and themes that we continue to pursue and anticipate that we'll have another busy year with acquisitions. I mean over time, competition for acquisitions has always been there. So, I mean, certainly, it ebbs and flows. But I think typically when there are strategic assets that we are kind of very focused on, we've had a high hit rate of bringing those. And so, I would expect us to continue as we have done historically.

Great. Thanks for your time today.

Our next question comes from Jeff Hammond with KeyBanc Capital.

Hey, good morning.

Good morning, Jeff.

Just on commercial foodservice, I'm wondering if you can just give us a sense of that 11% organic in the quarter. How much was price? How much was volume?

We don't break that out specifically, Jeff.

Okay. And I guess as you go forward, I guess there's two levers. One, you're pushing more price. So, I'm assuming that the price component kicks higher, but just as you think of kind of people adds, capacity adds. Obviously, this huge backlog. Just how we should think about volume sequentially in the Commercial Foodservice business?

Yes, I believe that in the short term, we have faced some constraints in volume due to various component availability issues. We are certainly looking forward to a more significant increase in volumes, although some improvements will take time. There has been a lot of speculation regarding the availability of old controls in chips, but we are actively addressing the challenges alongside our supply chain team. Overall, volumes have seen a modest increase, but we still have a considerable distance to cover.

Okay. Please continue.

Yes. Hey, Jeff. I just want to remind you that we started noticing inflation back in the third quarter. We implemented a price increase in August, which was probably the smallest one we've made, and we expect the effects of that to begin showing at the start of the year. We took a larger price increase around November, and while we may have already seen some initial benefits from that, more noticeable impacts will likely start in Q2. Additionally, we discussed the price increase in April, which was primarily aimed at addressing the cost increases we observed in December, January, and February, and now it has also adjusted to account for rising costs from China, COVID, and war impacts. We expect this to contribute more significantly in the latter half of the year. I just want to remind you of the sequence regarding pricing, as some of the benefits from the price increases we implemented last year have not yet materialized but will start to be realized in the second quarter.

Okay.

I want to provide a bit more detail on shipments by dividing it into two categories. First, we experience daily disruptions that our teams manage effectively, but these disruptions impact production schedules. It may seem like shipments are on track, then production needs to be paused due to these uncertainties. Second, we are facing limitations due to key components that restrict our production capacity. We could increase shipments significantly if we could obtain more of specific control and electronic components, along with other essential parts. Therefore, we are collaborating with various suppliers to ramp up their production. We expect that by the latter half of the year, we will see improvements that will enable us to enhance throughput in our factories. We acknowledge the uncertainties involved and the hard work being invested, but these are initiatives that have been in progress for some time. We are closely working with our strategic suppliers to ensure they are making necessary investments in their operations as well.

Is the supply chain issue related to COVID in China limited to Residential Kitchen, or is it more widespread? Additionally, is the weaker revenue in Residential Kitchen in the second quarter solely due to supply chain problems, or is there also a demand weakness affecting it?

Yes. There is no demand weakness; I realize I shouldn't have used that term. The demand remains very strong. Residential demand was exceptionally robust in the first half of last year, and we are still significantly above pre-COVID levels. We just had extraordinarily strong demand in the first half of next year. So, I won't refer to that term again. However, the situation in China definitely has a significant effect on some businesses there. For the rest of the Residential segment, the overall supply chain issues are restricting our ability to increase volume across the sector.

Okay, thanks so much.

Yes.

Our next question comes from Larry De Maria from William Blair.

Hi, thanks, good morning. We've obviously talked a lot about orders and stuff without these specifics, but as it relates to second quarter or first quarter orders and orders since closed at April into May, is price and volume both up for orders including current or we start to see volume flip maybe in residential in the orders?

As compared to which periods? Because I think I just need clarification.

Year-over-year growth in organic orders; they are up year-over-year as you guys said.

Yes.

But I'm curious that how much of that is, let's say, from a high-level price versus volume which I understand is volume if you continue to contribute or volume is softening?

No. We don't think overall that the volume is softening.

And that's fair.

I don't think we're going to discuss orders by segment compared to last year, as we've stated we are moving away from that.

But I think you can take from Bryan’s prior comment that relative to a very strong first half of last year residential volume is softening, but it still remains well ahead of 2019.

And 2020?

Level, so I mean effectively that's what he is saying.

Okay, fine. Usually, you have a split between the first half and second half, with the second half being a bit larger. Could you help us understand the split for sales and EBITDA? We know the second half faces more pressure now due to price increases and better price-cost dynamics. Will the difference be significantly greater than the typical first half to second half split in previous years?

So, clearly, we think the second half of this year is better than the first half, both in terms of revenue and profitability and margins. I don't think we can compare it to any historical periods before, again we are living through unprecedented times and have never been in a situation where we have backlog and demand where we have it now. So, again, the outlook is great, right? Demand levels are higher than they've ever been. We have a lot of backlog and so I look forward to what the back half of the year and next year and the year after that are going to be. But again, the fundamentals or the overall market dynamics we're in now are such that comparing it to prior periods is really apples and oranges.

Larry, when we simplify things and think about our current costs, we've been dealing with inflation, and while Q4 may not reflect everything we've faced over the last three years, we've seen cost increases without fully benefiting from the pricing adjustments we've implemented. This recent wave has pushed things back a bit, but fundamentally, we're currently experiencing higher costs without the corresponding price increases, and we're trying to maintain our margins. Once we move past this situation, I believe that maintaining margins will be supported by the strategic and operational initiatives we've been working on, which will continue to provide benefits in the coming years. This is where we stand in the ongoing supply chain landscape.

Okay, thank you very much.

Okay. Thank you.

Our next question comes from Mik Dobre with Baird.

Hey, thanks for taking the follow-up. Just a quick one here. So, interesting sort of use of cash in the quarter; your operating cash flow was negative. I think we understand that, but then you've gone and you repurchased $155 million of stock, and you also bought nearly $10 million of cap calls, right?

Yes.

For your converts. And I guess I'm looking for maybe some color from you guys in terms of how you're thinking about share repurchases going forward given kind of where your leverage is, but also where your M&A pipeline stands? Taking into account the fact that right, I mean, the stock has pulled back; it's pulling back further today. And then what's the reason behind the cap call, the additional cap call purchase? I mean that the stock is nowhere near the point where we'd be thinking about the dilution from the converts.

Well. Fortunately, we still have 3.5 years until the converts mature, and our outlook is very positive. And the cap call really is just I'll call it a way to use leverage to obtain stock and address dilution risk rating. Obviously, we've committed much more to share repurchase than the cap call. I think as we've looked at the recent share purchases, we really have kept in mind again seeking to address the potential dilution risk from the convertible notes, but obviously, M&A continues to be a priority for us as we obviously haven't steered away from that at all. And I'd expect us to still be very, very committed to M&A, and will consider if additional buyback activity is prudent along the way, to your point, as we look at leverage levels as well.

But sorry to press you on this, but

Yes. No, go ahead.

Should investors expect you to step in in more meaningful fashion in terms of buybacks given the disruptions in the volatility that we're kind of seeing in your near-term, or is Q1 more of a one-off?

I'm sorry, is Q1, more of a what?

More of a one-off in terms of the buybacks.

Yes. I think, in line with what Bryan mentioned, the action we took is closely related to the convert and the capped call. We observed various developments affecting the overall market, not just our stock, prior to that decision, but we maintain a very positive outlook. Our goal was to reduce the costs and dilutive effects of the convert upon its maturity, hence our focus on that aspect. While we won’t commit to specific actions at this moment, historically, we have engaged in share repurchases on an opportunistic basis, so that's not off the table. I won't definitively state what we will do in the short term, but we are confident in our strategic goals and the trajectory of the company. Despite some immediate challenges, we are optimistic about our direction over the next few years. Therefore, when the stock experiences pullbacks, we will consider being opportunistic from time to time.

All right. Understood. Thank you.

Our next question comes from John Joyner with BMO.

Hey, thank you for taking my questions. So, can we go back again to the comments about Q2 being similar to Q1? I mean, are you referring to sales or EBITDA dollars on the segment level? And I guess with commercial and processing, you mentioned forecast to be better maybe slightly better, and residential worse and how much worse are you assuming for residential?

So, just to clarify, right. The comments, Q2 similar to Q1 is the overall total company consolidated outlook, right? And you heard it right commercial up, food processing up, residential challenged. I don't know that I want to get into much more granularity about that but I do note that the China lockdowns right are having a significant impact on portions of our business to have product available to us. And we believe that will hopefully be a relatively short timeframe phenomenon. Now, we've talked about that we're not able to sequentially take huge jumps, right now, so I mean I'll let you do your modeling on how much the other two kind of ops would need to be to offset down in one but hopefully a little bit I comment there maybe are able to let you put some size to the magnitude of the swings a little bit.

Thank you, Bryan. Regarding processing, the margins are good, and the business is not being negatively impacted by the challenges from acquisitions. You mentioned large protein projects, which typically have higher margins.

Yes.

And it's good to know that it's not just hot dogs. Is there something structural that would prevent I guess processing EBITDA profitability from getting back into the mid-20's?

I mean, no, I mean that's, that is certainly the goal, right? Where I use the word soft and had a more modest tone about the business, obviously, we are disappointed even though we had industry-leading margins in that segment. So, thanks for noting that. The first digit wasn't two. But where it is a business that works on large projects where you do have absenteeism issues, right? It seems like a long time ago but let's not forget the impact on COVID, on employees and the workforce back in January and February. So, the impacts of COVID, how much steel we could bend and put together, and then also when you start operating at lower levels, what that means to coverage of fixed cost is where even admittedly where we came in Q1, while again appreciating noting is good, it wasn't great for Middleby standards and we do expect to be better than that for the remainder of the year. The large projects again take some time to happen. So, it's not like all of the sudden, you're going to see a huge jump in revenues and margins in Q2. But as we get into the back half of the year and into '23, as we start delivering on more of these projects, is why I feel comfortable agreeing to what you believe the outlook could and should be.

All right, thank you. And then maybe just one more. On the — I guess what was the organic growth? Do you have that available for the domestic and international businesses for the commercial segment?

I do. It was, I think, 7% in North America and 21% outside of North America.

Okay, excellent. Thank you. And so can you maybe give any color around any of the targeted markets I guess for the international peace? And I guess for some of the countries on the international side, do you have a good feel for like the currency effects for this year?

We don't specifically forecast currency effects. Obviously, the dollar is strengthening. But I'm sorry, I don't have specific kind of model and commentary to offer there.

Okay. Can you provide any insights into specific international markets?

Yes.

Like jump out or not?

China has been weak for us, and Europe has shown only modest performance. The positive aspect is that it is not collapsing. There are concerns about the impact of the ongoing war on the European economy, but consumers have shown some resilience. We are still experiencing some positive trends, and things have not shifted in a negative direction.

Okay, Excellent. Thank you very much.

You bet.

That's all the time we have for questions. I'd like to turn it back over to management for closing remarks.

Well, we just like to thank everybody for joining us on the call today. And just reiterate that we're very excited and optimistic about the business right now. So, despite the challenges in supply chain that we've obviously spent a fair bit of time talking about on this call. Certainly, a lot of the long-term initiatives that we continue to execute on with new products, innovation, and route to market, which we are very confident are going to allow us to expand margins in the long run and drive our business are all intact. So, I appreciate everybody's participation in the call and we look forward to speaking to you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.