Thank you for joining the Middleby Third Quarter 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, 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, sir.

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 with 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 and a passion for Middleby. Given the significant expansion and scale of our business in 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 are fortunate to have him on the Middleby team. Now on to the quarter, we are pleased to report solid results, with record earnings and cash flows for the quarter and for the year, driven by strong execution in both our commercial and 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 challenging market conditions. We posted overall improved profitability and are realizing the benefits 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 are realizing efficiency gains from our manufacturing investments, and we are focused on 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, we believe the inventory destocking that has impacted our commercial and residential businesses will largely normalize as we enter 2024, and we will start the year competitively positioned better than ever. At Commercial Foodservice, we have extended our leadership in electrified, energy-efficient and ventless cooking solutions. We have rapidly developed an innovative platform with exciting ice and beverage products in a large and growing market. 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 foodservice industry. At residential, we have the broadest portfolio of indoor and outdoor premium brands and a pipeline of innovation addressing the growing demand for energy-efficient electrified products, with initial launches of connected equipment now in the marketplace and 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' sustainability goals. We have successfully expanded into 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 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 aligning our sales channels with strategic partners, the investments we have made in our innovation centers continue to prove to be a strategic asset for our business. Engagement at these innovation centers continues to be meaningful and is providing benefits across our commercial, residential, and food processing businesses. We are confident that these investments today are translating into a pipeline of opportunities ahead, and we are in the early chapters of realizing the impact for all of our foodservice brands. While market conditions are undoubtedly more challenging across our businesses, given the effects of interest rates and macro conditions, we are continuing to focus on our business execution while building upon our growing competitive advantages across all three of our industry-leading foodservice segments, which 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 growth in a large and addressable market.

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 cubelet ice company. By the way, cubelet is a proprietary and trademarked name for nugget ice. We have the ability to satisfy demand for all types of ice, whether it's cubelet, nugget from Icetro, cube, hex cube, or shaped ice. Our Ice portfolio has been one of the fastest-growing segments in commercial food service in 2023. With the trend and the addition of two new Icetro products, we believe we'll see growth in the range of $50 million in 2024, with growth continuing in the following years. This growth is fueled by marketplace trends around cubelet ice as well as Icetro's growth in the U.S. and international markets as we target Ice's $1.75 billion to $2 billion global market space. Now on to trends. It's no secret that cold beverages are growing at a very fast rate. In 2022, cold beverage sales increased by 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 beverages. They now appreciate ice's role in making the best iced coffee, ice craft beverages, blended beverages, and fountain drinks. Cubelet ice produces the highest quality and highest margin drink for our customers for several reasons. First, cubelet 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 beverage's flavor, extending the experience while your soda or coffee is long gone, thus giving you a beverage that keeps on giving. Additionally, cubelet ice is also safer and more sanitary, as its proprietary extrusion-making process allows us to 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 it manually. With everything I've said, you would be surprised that nugget ice is only around 20% of the global ice business, while the remaining 80% is cube ice. With the introduction of our latest machines from Icetro, the 1,700-pound and 2,000-pound machines, we now have the ability to compete and take global market share as we look to expand our cube ice business. Icetro machines have a proven track record of reliability globally and have many features that benefit us against our competition, such as multi-ingress and egress cooling, split panel access for sanitary servicing, and a proprietary planning process, to name a few. In my last comment before I turn it over to Bryan, 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, Bryan.

Thanks, James. I'm torn now. Do I leave my cubelet ice in my drink to keep it cold longer, or do I chew it as I enjoy my drink? I don't know; I'm really torn. But more importantly, Q3 gave us a lot to be excited about. Our performance was at record profitability levels, and we also had record operating cash flows for a quarter. We are on track for our best year ever in terms of EBITDA and operating cash flow generation, and we are achieving this while facing challenging market conditions. Despite these challenges, we still delivered growth in two of our segments, while achieving $981 million of revenue and an organic adjusted EBIT margin of 23%, up 100 basis points from Q2 and even more compared to the prior year. With nearly $224 million of adjusted EBITDA in the quarter, over the last 12 months, we are at nearly $900 million, an increase of over 10% from the prior LTM period. We continue to increase our profitability, EBITDA, and cash flow generation, even amidst exceptionally tough times for one of our segments. This demonstrates the resilience of our business model, which drives exceptional profitability and cash flows even in difficult times. Among our strengths is our ability to execute in all conditions. While our total organic revenue was down due to residential headwinds, we were still able to grow our adjusted EBITDA dollars for the quarter, 5% over the prior year. Our total company margins expanded 140 basis points or 160 basis points organically over the prior year as well. All the margin values I will discuss hereafter are on an organic basis, meaning excluding any acquisitions and foreign exchange impacts. GAAP earnings per share were $2.01. 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 $2.35 and an 8% increase over the prior year. Commercial Foodservice revenues were up slightly organically over the prior year. Their adjusted EBITDA margin was 28.7%, up 200 basis points over the prior year. We are very pleased with how margins have continued to evolve as we see benefits from improved product mix stemming from our capital investments, operational improvements as we integrate acquired businesses, as well as our constant focus on costs. In residential, we saw organic revenue decline of 21% versus 2022. The adjusted EBITDA margin was a little over 10%. For food processing, revenues of nearly $167 million represents an increase of a little over 1% organically, with year-to-date growth of over 16%. Our adjusted EBITDA margin was 26.6% for the quarter, up 440 basis points over the prior year, and we are just above 24% for the year. Our operating cash flow generation was a record at $219 million for the quarter. Over the past two quarters, we have reduced inventory levels by nearly $100 million. Over the last 12 months, our operating cash flows amounted to $532 million. Regarding cash conversion, our free cash flow for the last 12 months is at 97% of net income, and I expect it to be over 100% for fiscal 2023. As we close Q3, our total leverage ratio moved down to 2.75 times. Looking forward, if we were not to make any acquisitions or stock buybacks, our leverage could move down to around two times by the end of 2024, and we currently have over $2.5 billion of borrowing capacity. While market conditions present a revenue headwind, our focus on operational excellence, differentiated products and technologies, and deep customer connectivity drive our strong results. Middleby has always been known for healthy margins and cash flows, and we are consistently growing them; we believe the trend will continue. We remain bullish on our outlook over the coming years. Our actual margins are near our medium-term targets for commercial and food processing. We anticipate achieving our target margins for these two segments on a full-year basis within the next two fiscal years. Residential continues to be profitable at levels well above peers. We have been taking measures to manage costs, while still investing in go-to-market strategies, production improvements, developing new products, and entering new markets. These efforts, along with improvements that will come from better market conditions, keep us on track to reach our long-term goal of 25%, albeit it may take longer and be harder to predict given current economic conditions. Nonetheless, we do anticipate a period of high growth as housing and economic conditions improve, and I speculate that we can reach our target in three to four years. Bringing it back to the near term, here are some thoughts on how we think 2023 will conclude. Starting with residential, last quarter I noted that we expected Q3 to hopefully be the trough, and our results reflect the challenging market conditions. However, we do expect Q4 to produce higher revenues than Q3 and at least maintain double-digit EBITDA margins. For food processing, Q4 should see higher revenues than Q3 and likely similar margins. For commercial, I expect Q4 to overall be fairly consistent with Q3, given current demand and the tail end of dealer destocking. Combining the three segments, we expect Q4 performance to be on par or slightly higher than Q3. Looking beyond the fourth quarter, it is hard to know with great certainty what 2024 will look like. However, I will share that our expectation is for modest top-line growth and expanding margins across all our segments. For residential, we generally believe that current market conditions will persist through the first half of the year, and we remain optimistic that there can be some improvements in the second half of the year. For food processing, interest rates and food costs continue to be a headwind; nonetheless, given our backlog, pending opportunities, and the benefits our full-line solutions offer, we expect growth. Lastly, in commercial, while buying patterns have been somewhat volatile considering our customers' ongoing build plans and rollout activities, increasing customer engagement with our leading technologies, and an elevated backlog, we expect to see growth. While these comments have been revenue-focused, we also expect to deliver more margin expansion. We've updated our view on our journey within the slides posted today. Regardless of market conditions, we remain focused on improving our sales mix, which has been a big contributor to the improvements seen to date as our best solutions solve our customers' most pressing needs. Furthermore, we are relentless in targeting costs, integration projects, and driving operational efficiencies. Managing these areas keeps us moving forward toward our targets. In conclusion, we are being disciplined; we are managing costs and focusing on operational excellence. We are also continuing to make strategic investments that drive differentiated products and best-in-class go-to-market capabilities. Our technical strengths, strong customer relationships, and leading innovations will continue to drive success, resulting in even better cash flows and expanding margins. We are all eager for the higher stock price we deserve based on the levels of earnings, profitability, and cash flow we have delivered. In the meantime, I'm off to our amazing new residential showroom in Chicago to see what our latest chefs, Kristin and Amy, have created. Please stop by to experience our amazing platform for yourselves. Thank you for listening, and we will now take your questions.

We will now begin the question-and-answer session. The first question is from Saree Boroditsky of Jefferies. Please go ahead.

Hi, good morning. So residential took another step down this quarter. Can you just break out the performance in grills versus the remainder of the business? How do you view underlying demand versus destocking? And lastly, is there any benefit from lapping the destock as we think about growth next year?

Thanks, Saree. This is Bryan. At this point, I would say that grills are not really a differentiated performer versus the other product lines we have. There are challenges across various products but some bright spots as well. As we've noted before, Q3 is always the low point of the year for the grill business. Given where stocks are, we're not expecting much growth there. Our customers are expected to order in a different manner, with different timings for this upcoming growth season. They are likely to order later in the season with restocking focusing more on domestic shipments than direct from plant sources. So Q4 will still be a bit of a challenge, given that we are in these trying times. We think things will really improve as we move into the back half of the year, while also having easier comparisons to lap.

I appreciate the additional color. Can you just talk about what you're seeing from an order perspective in food processing? You talked about growing next year. How do we think about the benefit of incoming backlog this year? Does that create a challenging comparison for organic growth in 2024?

Yes, this is Bryan. We certainly had a very strong backlog entering this year, but many of these projects take time. I would say we still have very healthy backlogs today. This gives us confidence looking into next year when we consider what is in the backlog and how those projects continue. The orders have been steady over the past couple of quarters, though not at the highest levels that we saw in the middle of last year, due to interest rate environments and underlying food costs. But there is still a lot of interest. We continue to engage with our customers, winning opportunities, and they are also looking at what they believe could be an inflection point with food costs, which we hope can lead to more robust ordering times. I think Tim might want to add something.

The only thing I'll add about our pipeline is that it is very strong. That's one of the key metrics we track, and it has actually grown. What we see is that there’s a bit of a delay in placing orders due to where interest rates are and understanding the outlook for next year regarding input prices for them, primarily food. The level of activity and quoting in our pipeline is promising; it just takes a little longer for those orders to convert during this period. Overall, we feel good about next year, especially since the baking part of our business seems to be stronger at the moment. We recently came off an industry trade show where we received very strong engagement, making that promising. We've also introduced numerous new products that address our customers' key pain points across the platform.

I appreciate the insights, and I'll pass it on.

The next question is from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning.

Good morning, Jeff.

John, welcome aboard. Just on Commercial Foodservice, I'm trying to parse out this continued destocking versus demand weakening. Are you seeing any cracks in new store development as you look into next year? Lastly, how far along are we with this destock? Thanks.

Yes, Jeff, good morning. It's Steve. I would say maybe we'll start with what the end-users are seeing. As we've talked about in previous calls, the larger chains have engaged in a pretty healthy new store build plan over the past couple of years, and I see that continuing. However, we have observed some shifts in that pipeline, pushing some of it out due to challenges they are facing with permitting and construction, still facing some supply chain issues. Interest rates are also delaying some of these stores that are expected to open next year. That said, they haven’t reduced their overall pipeline; it’s more about timing. The thought process that created the excess inventory in the channel has primarily been among chain customers. They attempted to replace orders far in advance to keep up with anticipated chain demand. As we've caught up on our side and now that some stores are pushing their plans out, that excess inventory in the channel has emerged. We are definitely on the back side of this; being in close contact with many of our dealer partners shows that sell-through on their side is becoming more and more positive. It’s just a matter of time, probably over the next quarter or two, when the destock becomes much less of a headwind and we return to a more normal ordering pattern. Does that make sense?

Yes, that’s very helpful. On the margin targets, I understand Residential Kitchen probably needs some volume help. But looking at commercial food and food processing, if we encounter flat demand over the next two years, do you see yourself being able to reach those margin targets? How much depends on self-help and how much relies on volume tailwinds?

This is Bryan. I would say there isn't an overweighted amount that comes from volume. Volume does contribute, but improving costs, acquisition integration, and the like are more significant factors. I would say you'll see in upcoming waterfall charts that three-quarters of the driver is from mix or self-help measures.

Okay. Appreciate it.

The next question is from Tim Thein of Citi.

Thanks. Good morning. I think, Bryan, you were touching on this earlier but just going back a year ago, you outlined some drivers for commercial to achieve that journey to 30% plus margins, such as price-cost and sales mix. You’ve mentioned sales mix extensively. Where are we regarding price-cost? The market outlook doesn’t seem as robust as it was a year ago. What’s your confidence level on that becoming a tailwind for Middleby as we look toward 2024 and beyond?

As I view it, we are operating around 27.5% now, and we need to reach 30% over the next couple of years. We got to that 27.5% through some pricing and self-help, among other things. Going forward, I would say that price-cost is a significant portion of that journey. However, it will depend more on the cost side rather than the price side since we expect pricing to be more moderate. We do have some cost benefits coming through as we manage inventory and look at what's happening with commodities. This journey is not solely dependent on volume or exclusive price increases, as we will see operational efficiencies and successful acquisition integrations aid this process.

Got it. Okay. If you can provide insights as to commercial revenues, where do you estimate them to be, call it, 30% higher than pre-COVID since 2019? How do you view volumes for that business relative to 2019? I'm curious to know how much throughput we are seeing compared to that period.

Volumes are complex to quantify based on our different brands, but regarding establishments, we are seeing new build initiatives. However, volumes are not appreciably up from 2019. We've seen a good amount of pricing but are beginning to see a return in unit expansion, with further volume gains expected as build-out plans continue and clients transition to higher technology solutions.

Yes, this is Steve. I would agree with that. Over the past year or two, we've seen pricing benefits, but that is beginning to shift toward volume. There are still fundamental drivers for demand such as new store developments and an underlying replacement cycle that has been postponed. Addressing customers' rising labor and utility costs will also contribute positively to volume increases over the next couple of years.

The next question is from Tami Zakaria of JPMorgan. Please go ahead.

Hi. Good morning. Thank you so much. On Slide 9 of your presentation, there are targets for EBITDA margin for the year. That suggests both commercial food service and food processing EBITDA margins could step down sequentially. Could you walk us through the factors behind that sequential decline?

I need to clarify; I don't believe we are seeing a step down in Q4 compared to Q3. Food Processing should at least match Q3, and Commercial is also expected to be in a similar neighborhood. The numbers presented in the 2023 column forecast the total year, not specifically the fourth quarter. I hope this clears up any confusion regarding our expectations.

Great, thank you. My second question: we've recently heard from home appliance companies about increased promotional activity, especially in North America. Does this reflect your segment's higher-end offerings, and how do you anticipate pricing impacting realization in Q4 or next year as we prepare for the next spring selling season?

Yes, there are some promotional pricing occurring at lower levels. One reason for our structured portfolio is that it involves premium performance, and we occupy a different category compared to standard appliances. We approach pricing smartly and tactically as we navigate these inflationary impacts; pricing has fluctuated a lot in the past two years. However, it remains more resilient at the premium end of the appliance market. We're not experiencing impacts similar to the others.

The next question is from Brian McNamara of Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking our questions. First, are you noticing any changes in your restaurant customers' order behaviors considering the recent popularity of GLP-1 drugs? It seems several restaurant stocks, along with yours, have reacted negatively to this news lately?

It's still very early to say. No one has observed any changes to actual order behavior as of now. Business remains steady, and if you listen to other restaurant CEOs, they haven’t indicated any significant effects. It is generating a lot of headlines, but we don't foresee any long-term implications for our business at this moment.

Great. Can you confirm if your tailored double-sided grills are being trialed with a popular Mexican fast-casual grill chain? If so, how is that testing phase progressing?

We never disclose specific trials with clients, but you might encounter our equipment in various restaurants. I will note that we've discussed our leading automation that we've rolled out over the last few years, and Taylor has been highlighted in past calls alongside others, such as Ice that James discussed. These are excellent examples of our innovative growth drivers.

The next question is from Mircea Dobre of Baird. Please go ahead.

Good morning. Thank you for taking the question. Regarding residential, your introductory comments indicated that revenue is expected to be up sequentially in Q4 versus Q3. Can you elaborate on what gives you confidence about this? Also, as you look into 2024, understanding that macro concerns remain, do you expect residential revenue to continue to build sequentially relative to Q4?

This is Bryan. I'll start with the second part. Q4 is typically a stronger quarter for residential due to seasonality in some areas of the business, especially outdoor ones. However, there's the destocking issue. We have not specifically mapped a quarterly trajectory for next year. But generally, Q4 tends to be strong compared to Q1; we expect positive trends there. Regarding Q4 versus Q3, we believe revenue will be higher, based on the current order patterns stabilizing. Some seasonality advantages help us as well.

Mircea, your question about residential indicates we could reach a neutral growth phase next year if the headwinds fade. As inventory begins to normalize, we anticipate better sell-through rates during grill season, with lower orders offsetting prior levels. We see opportunities for growth even in modest market conditions, especially if housing and renovations gain traction.

That was indeed the essence of my question. If we use Q3 as the trough for revenue and margins, we should expect incremental benefits from channel normalization and the potential for restocking as we move towards the spring selling season next year. Is that accurate?

Yes, that's how we're approaching it.

Lastly, regarding backlog, you mentioned it remains elevated in Commercial Foodservice. Can you provide more context about current backlog levels and where you expect them to be exiting 2023?

Currently, backlog levels are elevated but are returning to normal. We have many brands, and there are some with larger backlogs due to order levels and supply chain capabilities. However, about 90% of our businesses are back to normal lead times and backlog. Overall, we feel confident heading into next year.

The next question is from Walter Liptak of Seaport. Please go ahead.

Hey, thanks. Good morning, guys. I wanted to follow up on residential. If margins are currently low, could you elaborate on the costs and operational improvements you've implemented? When growth returns in 2024, what does volume leverage look like?

Yes, this is Bryan. We have taken restructuring charges, as you can see on our P&L, with more than half of them in the residential area. We have recorded savings that significantly outweigh the charges we've incurred. We anticipate recovery in our margins; our incremental margins tend to be robust. If we revert back to previous revenue levels, we expect our margins to return to the upper teens once again. We believe the improvements made, while not currently visible due to volume effects, will drive us back to 20% margins by reaching our goals in 2025. We've also identified substantial international market opportunities for expansion across our brands.

Great. One last quick question regarding pricing in commercial food service. Despite inflation easing, do you anticipate implementing price increases at the start of 2024?

Yes, Walter, this is Steve. Pricing has been an important strategic priority, and we have navigated inflation over the past two years. I am proud of the team's success in pricing effectively. We still have some products in our portfolio affected by components and supply chain issues that may require further pricing adjustments. However, broadly speaking, I do not expect significant pricing increases for the upcoming year, barring any unusual supply chain disruptions.

That concludes our questions for today. I would like to turn the conference back over to management for closing remarks.

Thank you, everybody for joining us on today's call. We look forward to speaking to you next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.