Welcome to The Middleby Second Quarter Conference Call. My name is Jenny. I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Tim FitzGerald. You may begin.

Thank you for joining us today on our second quarter earnings call. As we begin, please note there are slides to accompany the call on our Investor page of the website. We continue to execute on our financial plans and strategic initiatives, building upon our positive momentum. During the quarter, the already existing inflationary pressures further accelerated as we saw a spike in costs following the war in Ukraine. Supply chain disruption also became increasingly challenging to our operations following the COVID shutdowns in China. But our teams continue to react quickly, making adjustments to minimize disruption to our business and our customers. And despite the operating disruptions and cost increases, we posted another quarter of record sales and earnings. We also were able to advance our profitability with realized margin improvement at all three of our business segments. Our focus on the sale of our latest technologies and product innovations is favorably impacting the profitability of our sales mix. Pricing actions enacted earlier this year have partially offset the most recent wave of material cost increases with greater benefits still expected to be realized in the second half of 2022. Operationally, we continue to invest in our manufacturing footprint with facility expansions to support growth of new product launches. In the past 18 months, we’ve also committed over $75 million of investments in automated fabrication equipment, which will increase throughput and efficiencies across our businesses. In the first half of 2022, we have added over 700 production team members at our factories as we increase production capacity to support higher order rates and ship record backlogs. While inflationary pressures are impacting the overall economy, we continue to be positioned to capture favorable underlying trends driving demand across all three of our business segments. In our Commercial Foodservice segment, our customers are investing in solutions to evolve their operations and address pervasive challenges of labor, speed of service, energy, and food costs. The industry remains in long-term recovery with projected new location openings remaining intact, while many segments such as institutional, travel and lodging, and casual dining are still in recovery with increased activity from just a year ago. Our technology solutions are in demand, and we are engaged with end users and our channel partners like never before. The strategic investments in our sales capabilities, including our Middleby Innovation Kitchens in Dallas, have proven to be a success with over 5,000 customers visiting us since the opening last year. We’ve been continually engaging with our customers and partners with hands-on experiences, resulting in the development of new business opportunities and enabling us to accelerate the introduction of new product innovations to market. In our Residential business, rising interest rates and economic uncertainty have slowed existing home sales and new home starts. However, existing home sales for home values over $0.5 million are expected to be more resilient, and the backlog of new home construction yet to be completed remains strong. We expect recent trends, including greater levels of relocation along with increased work-from-home, to persist, presenting a long-term favorable backdrop for our business. We’re excited about the growing portfolio of our residential brands. The breadth of our unique offerings is unmatched. Our new showrooms, design teams, and culinary staff have been busy engaging with designers, dealer partners, and end users to create greater awareness for Middleby Residential, which is leading to new opportunities and greater market penetration. For our recently acquired outdoor grill companies, headwinds emerged in the quarter as production in China was disrupted for more than half of the quarter. This significantly impacted revenue and profitability during the quarter. Near-term demand has also softened as retailers focus on reducing levels of stock of competitor products. Although delayed, we are confident in our ability to capture market share as end users and channel partners adapt to our exciting new charcoal cooking innovations. We believe favorable trends in charcoal cooking, paired with our pipeline of new digital and automated cooking innovations, position us as a category leader and establish sustained growth in the years ahead. We made significant progress integrating the new outdoor grill businesses within our residential platform. While these businesses will essentially break even in the second and third quarters of 2022 due to the supply chain and market disruptions, we expect the fourth quarter to return to double-digit EBITDA margins as we realize the results of already completed actions to improve profitability. We are positioned for growth in sales and profitability heading into 2023. In the Food Processing business, demand continues with the need for equipment to increase throughput, address the lack of skilled labor through automation, save on utilities, and combat rising food costs. Over the past several years, we have made significant strides to enhance our industry-leading platform through new product introductions and strategic acquisitions. These efforts are paying off. Our full-line automated solutions are presenting customers with greater payback, translating to consistent growth in orders along with a continued pipeline of opportunities ahead. On the acquisition front, we continue to build upon our three industry-leading food service businesses with a number of strategic acquisitions. We added to our Food Processing Equipment Group the acquisitions of Proxaut, CP Packaging, and Colussi. These acquisitions included fully automated transport and handling, washing solutions, and high-speed packaging technologies that complement our existing brands and extend our offerings of integrated full-line solutions. Our acquisitions of Kloppenberg and South Korean-based Icetro further extend our product lineup in ice-making equipment, adding cubed and flaked ice offerings along with greater solutions for countertop, frozen beverage, and dessert equipment. We’re excited about the meaningful sales opportunities and operational synergies that exist within our beverage platform for these new Middleby brands in a large market opportunity. In summary, similar to the past several years, 2022 continues to present challenges with new dynamics. Our proven team continues to navigate these near-term challenges while making critical investments and executing on our strategic initiatives, which we are confident will provide a competitive differentiation in the years ahead. We are progressing toward our long-term profitability goals set forth in each of our three business segments. Our drive to bring industry-leading technology solutions to market, ongoing initiatives to transform our selling processes, and strategic investments in manufacturing all form our roadmap to long-term growth and higher levels of profitability. 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 slide.

Thanks, Tim. For this discussion, please refer to Slides 9, 10, and 11. I’m excited to talk about Middleby’s new products. Over the next several quarters, we will be discussing automation and what we will be bringing to restaurants, food processing facilities, and homes. Last quarter, we featured the Synesso ES1, a single group espresso machine. Today, I’m going to continue within Middleby’s Coffee Group by talking about Concordia’s Ascent Touch bean-to-cup brewer. The Ascent Touch has all the makings of a fully automatic espresso machine, but it isn’t. It’s a true bean-to-cup brewer. The AT holds four different roasts and brings your favorite drip coffee per order through Concordia’s proprietary accelerated low-pressure extraction process. Through this, we control the coffee’s particle size, water temperature, pressure, dwell time, flow, and turbulence during the brewing cycle. In all, the Ascent Touch allows the operator to precisely control ten discrete variables via its controller. When optimized, the Ascent Touch delivers a gold standard brew as determined by the Specialty Coffee Association, which means we extract 18% to 22% of the coffee bean solids into the water. Any more or any less results in a weak or bitter cup of coffee. This brewing process rapidly automates the French press technique of extraction while allowing us to brew at a rate of one ounce per second for a 32-ounce cup of coffee, making the AT one of the fastest, if not the fastest, bean-to-cup options on the market when it matters to coffee enthusiasts. The Ascent Touch is on Open Kitchen, our IoT platform. Open Kitchen provides real-time alerts via our app, email, and/or text regarding machine status, errors, and the number of brew cycles, while also allowing users the ability to push new recipes via the cloud. Automation, connectivity, quality, and speed make the Ascent Touch ideal for high-end coffee shops, convenience stores, quick-serve, and fast-casual restaurants, to name a few. Moving from coffee to charcoal, our grilling companies are doing some exciting things in the backyard to make your food taste better, but more importantly, they are making it rewarding for everybody by automating what many find intimidating. One of our brands, Masterbuilt, is developing a lineup of digitally connected gravity-fed charcoal grills. Because these grills are digital, connected, and automated, using authentic real fuel—charcoal—they are expanding the outdoor grilling market to all enthusiasts regardless of their grilling experience. Consumer trends show that backyard cooks are disconnecting their gas grills in search of flavored heat and an authentic grilling experience, but they are still looking for convenience, meaning the simplicity of gas. Pellet grills have gained market share by offering just this convenience to novice and pro grillers. Masterbuilt’s Gravity Series brings new fire to this market; sorry for the pun—by controlling the heat and flavor of natural lump charcoal through the deployment of an MCU-controlled combustion fan. Note, if you want to see a great representation of what’s going on inside this grill, please refer to Slide 11. With charcoal-fueled, forced, and natural convection circulating through the grill, users can now smoke and properly sear their food. This is all because of the heating value of natural charcoal, which releases more heated combustion than manufactured fuels. Personally, the Masterbuilt Gravity Series is my new go-to for outdoor smoking or grilling in my backyard, and I have many choices. So download your app, light a fire, and let’s get grilling. Thank you, and over to you, Bryan.

Thanks, James. For the second quarter, I get to repeat a phrase that I am not tired of saying: we again generated record results. Our quarterly revenues exceeded $1 billion for the first time, and our adjusted EBITDA exceeded $200 million. GAAP earnings per share were $2.07; adjusted EPS, which excludes amortization expense and non-operating pension income as well as other items noted in the reconciliation at the back of our press release, was $2.23. FX impacts are included in these results and were a headwind of $0.08. Our revenues of a little over $1 billion grew over 25% compared to the prior year and over 13% organically. Adjusted EBITDA of $210 million reflects growth of nearly 13% compared to the prior year or 7% on an organic basis. FX rates negatively impacted EBITDA by $5 million. Our margin was nearly 21% of revenues. Commercial Foodservice revenues globally were up 18% organically over the prior year. The adjusted EBITDA margin was 25.2%. All the margin values I will discuss are based on an organic basis, excluding any acquisitions and FX impacts. In residential, we saw organic revenue growth of 11% versus 2021, with the record adjusted EBITDA margin exceeding 23%. In Food Processing, organic revenues were down a very modest 1%, and the adjusted EBITDA margin was 19.6%. We continue to face challenging conditions across the world, which are impacting all parts of the company. Nonetheless, while our ability to produce at even higher levels has been constrained, I’m very excited about what we have delivered this past quarter. COVID restrictions in China ended up having a larger impact than we anticipated one quarter ago, specifically on the grilling products within the residential segment. Despite the challenges, sequentially we were able to expand our organic EBITDA margins across all three segments. Commercial Foodservice saw a 110 basis point improvement, and the legacy residential divisions delivered record margins after growing 140 basis points. The Food Processing segment continues to have extremely strong order intake, boding well for future margin expansion and improving revenue levels. We are also continuously focused on managing our balance sheet. We generated cash flows from operations of nearly $105 million. We expect our quarterly cash flow generation to grow sequentially for the remainder of the year. We anticipate free cash flows exceeding net income over the second half of 2022. We’re using our cash flows to continue to invest in the business as well as to periodically purchase treasury stock and make acquisitions. After exceeding $150 million of treasury stock transactions in Q1, in Q2 we spent nearly $70 million more. The cash cost of acquisitions was over $66 million in Q2 and nearly $150 million in July. Additionally, capital expenditures for the past six months represent the highest investments we have made, driving operational improvements and helping deliver stronger margins. Our total leverage ratio came in at just over 3.1 times. As of the quarter end, we continue to have nearly $2 billion of borrowing capacity. We have the financial flexibility to add great brands and technologies to our portfolio. And as I was pondering where to potentially invest next and reflecting on a variety of exceptional products that are part of Middleby, I thought I would seek inspiration in the rolling hills of Western North Carolina. I ventured to Asheville with my wife, and given that we would be in Deutsche’s backyard—being the brewing equipment manufacturer we acquired in 2019—I was targeting to responsibly evaluate a few of our customers’ creations. My wife ensured that we had tasty meals during this important journey. Archetype Brewing and Ginger’s Revenge have created some great offerings with our brewing systems. I highly recommend them or stop by to taste what we are doing ourselves. What came as a surprise to me is that my wife is potentially more in tune with Middleby equipment than I am. The first three restaurants we visited all had Imperial equipment. I also recommend the Hatch and Hickory for great mac and cheese and their inventive sandwiches, especially the pork banh mi. Although not quite as good as what chefs Chris and Keith do at the Dallas Middleby Residential showroom. When in Asheville, plant has an especially creative and tasty menu, culminating in a smoked oyster mushroom mole. I also find it hard to pass on chicken and waffles, and Tupelo Honey does them well. But most importantly, happy anniversary to Imperial—next month will mark one year as part of Middleby. Beyond all that you have contributed to Middleby, thank you for making my trip a culinary success. We continue to have a positive outlook on our business for the back half of 2022. As shown with our Q2 results, we are expanding margins while facing headwinds from the supply chain, recurring COVID disruptions, and labor availability. Despite these meaningful challenges, we do expect to expand margins sequentially for the total company for the remainder of the year. As I offer a view into the second half and trying to help with comparability, my comments will exclude the contributions from acquisitions completed in June and July. For the CSG, we obviously just posted a very strong quarter in terms of revenue and margin expansion. Sequentially, margins will continue to expand over the back half of the year, and revenues will grow modestly. For residential, a key item to understand is that grills have a seasonal pattern, where Q3 is always the weakest quarter. This thus impacts the total segment, where Q3 results will take a step back from Q2, while Q4 will see the top line and margins ahead of Q2 levels. For Food Processing, the overall outlook is strong as we continue to see customers adopt our full-line solutions. The larger projects we are booking have a longer delivery time, so they take longer to impact results. I expect Q2 to see modest revenue growth compared to Q2 with margins up a bit as well, and then Q4 will be stronger than Q3. In summary, looking at Q3 compared to Q2, there will be two segments up and one down. Our total revenues will be fairly consistent with Q2 with higher profitability in total for the company. And looking further out, based on current conditions, our Q2 results are likely to exceed Q3 in terms of both revenue and profitability for each segment and thus for the company in total as well. As I’ve noted before, we have demonstrated that we have a resilient business and a strong business model. We are looking forward to delivering higher profits and cash flows to shareholders in the near- and long-term. We are now ready for your questions.

Thank you. And our first question comes from John Joyner from BMO Capital Markets. Please go ahead.

Hey, good morning, and thank you for taking my questions.

Hi, John.

Hi. So, I guess, the market doesn’t appreciate solid results. But anyway, so Tim and Bryan, you both commented on this and with price cost getting better, and Bryan, I appreciate the commentary on the back half. Is there anything that – if we go back three months, has your perception of the back half changed at all today versus where it was then with regards to the three segments?

Well, three months is a long time ago in today’s world with crises hitting us each day. I think, by and large, no. I mean, certainly, supply chain disruption changes week to week. I think we’ve seen things soften in some areas and accelerate in others. But, in terms of the comments that Bryan just made, we expect to continue to drive profitability as we get ahead of the cost, so that remains intact. Certainly, the market backdrop, and I’m talking about the world as a whole, has become a bit more uncertain. But, as I said in our comments, Food Processing remains very robust. The restaurant industry is very resilient, and we see a lot of activity with us. With residential, we have a lot of positive things going on despite the housing market getting a little bit softer. Overall, I think all the strategic themes and the things that we’re executing on, we remain very excited about and feel like we’re well positioned for the second half and certainly going into 2023.

Okay. I appreciate that. And then maybe you mentioned this, but I know processing can be lumpy, I get it. And it does sound like the underlying fundamentals there are strong for that business. But the results were lighter than I expected. Is there any additional color you can provide on the quarter itself for processing?

Yeah. Our orders have outpaced revenues. If you dig through a lot of the things that are affecting our results and our ability to ship, we still continue to add labor, right? There’s not enough labor; otherwise we’d get more out the door. Supply chain challenges hamper us as well. Certainly, we could ship at higher levels and be more efficient if we had more parts and had more labor. Food Processing also felt the impacts of costs. There was a spike, as I said, right after the Ukraine war. A lot of what we’re shipping in the second quarter were projects that were priced last year, right? As we kind of move through backlog, the higher prices will benefit food pricing as well. There’s a lot of great strategic things happening in our packaging group. We moved into a new facility. The team there did an unbelievable job relocating, and during the second quarter, as you’re doing things like that, you ship less and get disrupted. That has been done in an accelerated way. Once we move back half of the year into next year, we’ll get benefits from that move to a larger facility to support growth and realize some of the synergies across the packaging group as we continue to invest in packaging. We’ve also had a lot of new product launches, one that James has talked about in the past, that we’ve had in our slides: the TurboChef oven from Alkar. We’ve had tremendous market interest and orders there; it is a new product line. As we are shipping for the first time, there's a learning curve. It will be one of the faster-growing products in the portfolio, and we think it will be a favorable sales mix, but we’re still in the early stages where we’re investing as we’re getting out of the gates. Some of these things in the second quarter are disruptions; some of it is investments that will sort of flip as we reap benefits from new products and investments in manufacturing.

Okay. Excellent. And if I could just squeeze one more in. I think this is a quick one. But on the recent acquisitions, particularly Colussi Ermes, which is a decently-sized business in terms of what you’ve added to the Food Processing segment. I get that it’s focused on food processing, but is there an appetite to move into warewashing on the commercial side? And then, could you offer some color on Icetro’s and Colussi’s geographic sales footprint? And what the opportunities are there to build out their geographic reach?

Yeah. Colussi is phenomenal in terms of the products, the technologies and the solutions offering to customers, which are quite broad as you’re alluding to. Certainly, we acquired it for their expertise in food processing. Prior to becoming part of the same team altogether, we have been working alongside them for a lot of projects. Together, that will accelerate some of the market expansion. It is a global brand, much like many of our food processing customers, so you will find them in a lot of markets. The U.S. is a strong market for them. As we focus on integrated full-line solutions, we can anticipate pulling them into more projects. They do have fantastic automated washing systems that are outside food processing as well. As it relates to bringing that into commercial, the machines are substantially larger and more automated. You wouldn’t see them in a restaurant application, but we also have more and more customers bridging into central commissaries and ghost kitchens, etc. So we have been unlocking opportunities there over the last year. There could be something there, but that’s more tangent than down the fairway of the opportunities. Regarding Icetro, it has a great product portfolio of ice. We are a leader in nugget ice, which has been seeing growth both in terms of top line and profitability. Nugget ice is expanding due to consumer preferences, and we can improve efficiencies on how we transport ice. With Icetro, we gain access to cube and flaked ice, which adds further capabilities. They have robust and advanced products; that attracted us to Icetro and the synergies across the platform with Follett and some of our residential companies like Marvel and U-Line that are in the ice business. They’re located in South Korea. Their entry into the U.S. market is more recent, but they've achieved success. With Middleby, that opportunity expands dramatically. So we’ll work closely with the team to introduce their solutions into the market, and ice represents a large market. We now have a very complete portfolio, which is very exciting.

Okay. Excellent. I really appreciate the time. Yes, the stock should be up on these results. So I really appreciate it. Thanks.

We agree with that comment.

Thank you. And our next question comes from Saree Boroditsky from Jefferies. Please go ahead.

Thanks for taking the question. And I also agree with that last comment. Given some of the supply chain commentary, could you just talk about the lead times in the various businesses? If I put in an order for a commercial or residential oven today, when could I expect this? And does this give you more visibility into 2023?

For you, Saree, we’ll get it to you really quickly. So I’ll – Steve, why don’t you hit that one?

Yeah, I think in commercial, Saree, if you look across the portfolio, one of our biggest goals throughout the company this year has been to get lead times back to pre-COVID levels. We’re still navigating supply chain and finding people. I would say for the majority of our commercial divisions, we’re actually sneaking up on pre-COVID levels. It’s not 100% across the board. But I think as we continue to, as Tim alluded to earlier, make investments in manufacturing through new automation and find great new people, we do believe we can be back to pre-pandemic lead times by the end of this year in commercial.

Great. And then, you talked about investing in your manufacturing facilities. Could you help us understand the potential margin benefit from these actions?

This is Bryan. I’m not going to quantify it specifically, but you can see what we delivered this quarter. We remain committed to those medium-term goals that we’ve set. We’re seeing short-term paybacks in some of the projects we’re investing in, covering periods of quarters. I think it is part of what you’re seeing in the remainder of this year, and we’ll still be able to drive further improvements in 2023.

Great. Thanks for taking my questions. Thanks.

You bet.

Our next question comes from Mig Dobre from R.W. Baird. Please go ahead.

Hey, good morning, guys. This is Joe Grabowski on for Mig this morning.

Hi, Joe. Good morning.

Hey, good morning. So, I guess my first question is, there’s obviously a lot of discussion about a pending recession, perhaps we’re already in a recession. Consumer confidence is at multi-year lows. A lot of uncertainty exists regarding the health of the consumer and how it will trend. Are you sensing any of that in your discussions with large and small customers regarding commercial food equipment CapEx? Is there cautiousness seeping in? It’s hard to see this in organic sales numbers because your backlog is so healthy, but just provide a sense of how people are thinking about CapEx spending now and going forward?

Yeah. This is Steve. Good morning, great question. By and large, we have not seen that kind of pullback that you’re alluding to. Think about three different areas of where we’re seeing engagement with customers right now. Obviously, we’ve talked on prior quarters: new store openings continue to be a big focus of the larger chains. They’ve been quite transparent about their new store opening plans, which remain in place. Secondly, we also have some pent-up replacement coming over the next couple of years. The third and biggest thing that is driving excitement in commercial is that, regardless of the macro backdrop, customers need to solve issues around labor, food costs, etc., and how to create an easy and efficient workplace in their restaurants. In summary, we do not see a pullback from our customers at this point, both from a new store opening standpoint and an investment in technologies to solve their challenges.

Got it. It’s good to hear. And then my follow-up is along similar lines; we don’t have all the numbers to calculate this exactly, but it looks like in the second quarter, organic growth domestically was above 20%, and organic growth internationally was in the single digits, which is a flip from the first quarter. So, specifically regarding commercial on international demand trends, what do you see in different regions?

A couple of things. Asia is certainly impacted by the environment in China. Europe is still seeing good things and growth, but with the overhang of war and impacts on economies. That said, we’re still seeing positive results. Latin America was extremely positive. It’s the smallest region but did very well. The global dynamics, especially in Europe, have been more modest than we have seen prior to the last quarter. The impacts from China are fairly self-evident.

Yeah. Okay. Great. Thanks for taking my questions. Good luck in the third quarter.

Great. Thank you, Joe.

Thank you. Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning, Jeff.

Good morning.

So, interesting comments on lead times. We’re hearing they’re still pretty stretched. But I’m curious if you can talk about the manufacturing improvements and adding people. Volume throughput, as we look through Q2 and into the back half versus Q1, would seem like a price quarter?

I think to answer the question about volume going through our manufacturing facilities in the back half of the year compared to the first half of the year, we expect many divisions to increase volume through the plants in the back half of the year. Again, going back to our investments in manufacturing, and finding employees at a number of facilities. That said, while supply chain has improved in many areas, there are many areas still stretched. It remains a daily challenge, making sure we have components across our brands. Overall, from a volume standpoint, we expect to be ahead in many of our manufacturing facilities in the back half of the year compared to the first half.

I think we’re expecting and it’s linked to Bryan’s comment. A lot of the investments discussed have been happening throughout the year, but realizing the benefits of the manufacturing equipment that’s installed takes time. One other note: we have seen surging COVID cases recently. The situation is different now because we’re not talking about hospitalization and life-threatening conditions, but it is affecting manufacturing. We can have 20 to 30 people absent from the factory at any time, and they’re out for a week. These things impact lead times unexpectedly, affecting planning and dragging down profitability. While we’re in a better position with our supply chain than before, other challenges will undoubtedly remain.

Okay. Good color there. Just on these deals, it looks like you did around $5 million and $127 million in annual sales. Do you have thoughts on the profitability of these new businesses? Are they at fleet average already, or do they come in lower and you see opportunities to drive the margins up?

It’s difficult to say, since we’ve done quite a few acquisitions in a short time. By and large, they tend to be lower than our platform average, but they all have respectable margins. Similar to the past, we’ll work on synergies and commercial opportunities together to bring them to our platform average over the next several years.

Okay. Thanks so much, guys.

Thanks, Jeff.

Our next question comes from Tim Thein from Citigroup. Please go ahead.

Yeah, great. Thank you. Good morning. The first question I have is just on the commercial business. First half versus second half, you outlined expectations on volume. How should we think about incremental pricing given actions taken over the past months and what pickup you can expect to see flow through the P&L? Can you help think about first half versus second half from a pricing standpoint?

As I noted, our profitability is set to rise each quarter. We’ve faced increased costs, but on balance, still ahead. We posted a 110 basis point improvement in commercial, and I expect things will continue to grow sequentially again, but it may be challenging to exceed the growth amount compared to the previous quarter. Higher end margin trends may be consistent with last quarter. However, I can say there’s still potential for significant margin expansion in the back half.

Okay. That’s helpful, Bryan. Thank you. One other question for James or Steve, regarding suggestions on digital and smart technology. With the shift to digital equipment, what’s in the backlog and how will that impact your mix? Any clarity would be helpful to understand the significance of connected equipment from a margin standpoint?

I think as we look toward late 2022, with the adoption of The Middleby One UX control platform on our higher-technology, higher-margin products is what our customers seek day-to-day to solve labor and waste management issues. These products are tied to Open Kitchen IoT automation for restaurants. We are confident this combined approach, along with our SaaS offering, will drive technology sales and create greater stickiness for Middleby products as restaurants adopt our solutions.

Okay. I didn’t ask that effectively. What percentage of backlog or portfolio is impacted by this? Is it 3% of the business, or is it something larger?

It's substantial. We have many technology solutions, and the strategy includes launching a control that will touch dozens of products by the end of the year, including fryers, ovens, conveyors, and grills. These are higher-end technology products. It’s likely not as low as 3%. It will apply to a large percentage of our portfolio, and the mix is shifting significantly. This out-of-the-box solution allows for an easy user experience, meaning teams can monitor and manage equipment performance, uptime, and service costs efficiently.

Yeah. Good start. Thanks for the time.

Thank you. You’ve touched on this but you’ve also mentioned that you have great backlog and a plan for the rest of the year. Can you provide further detail on month-to-month inquiries or order rates? Understandably, you should see some near-term concerns and choppiness where it is logical, however, can you give us comfort that the fundamentals continue to be there?

I hope my guidance on revenue helps, ensuring that we maintain healthy business in the backlog and coming in. This conviction remains. The macro environment can impact our CSG customer investments, but that hasn’t been the case. We still have healthy backlog levels and margins.

Sure. I understand that you have backlog because of long lead times and solid demand. But on a month-to-month basis, have there been any trends in residential or commercial? I recognize residential is closer to the consumer, and logically, it might be more at risk, but are you experiencing any incremental concerns there?

Yeah. We’re not going to get into monthly trends, but there are definitely dynamics at play in residential, especially as we’re closest to the consumer. If the housing market perils and consumer spending declines, then yes, we’re likely to see some effect. But we believe we’re positioned to be in the premium segment, and I think it will perform better there. Additionally, we’ve got a lot of long-term market share opportunities based on phenomenal brands and innovative product pipelines that we are excited to grow. While not revealing month-to-month data, we continue to see orders up compared to 2019 for the residential segment.

Hi, good morning. Thank you for taking my questions. First on China: can you quantify how much sales headwind you faced in the quarter due to China’s lockdowns and which segment suffered the most?

China impacted residential the most. We discussed expectations for this segment last quarter, and the top line was below what we anticipated. I would estimate the headwind to be in the mid- to high-single-digits percentage of revenue, attributable to those impacts.

Got it. That is super helpful. Do you anticipate recovering some of this headwind in the back half, or is it lost sales?

Unfortunately, I think it is largely lost sales. It’s hard to quantify recovery, though, given the seasonality of the grill market. Q3 tends to be the weakest quarter, which impacts the overall segment.

I see. If I could squeeze in one more: can you quantify how much price cost headwind you’ve had in the quarter and how you see that progressing into Q3 and Q4?

What we’re experiencing is a move to the other side of the equation. We were previously behind price cost, but in Q2, we improved more than we anticipated. We’re pleased with this trajectory and will continue focusing on staying ahead of costs, which means a tailwind into the back half if current conditions persist.

Got it. Thank you so much.

You bet.

That concludes our questions for today. I’d like to turn the call back over to management for final comments.

Thank you, everybody, for joining us on the call today. We are excited about the remainder of the year and all the great things that we have going on at the company, hopefully, that came through today in this call, and we look forward to speaking to you at the end of the third quarter. Thanks. Bye.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.