MIDDLEBY Corp (MIDD) Q1 2024 Earnings Call Transcript

Thank you for joining us for the Middleby First Quarter 2024 Conference Call. With us today from management are CEO, Tim FitzGerald; CFO, Bryan Mittelman; Chief Technology and Operations Officer, James Pool; Chief Commercial Officer, Steve Spittle and Vice President of Investor Relations, John Joyner. We will begin the call with opening remarks then open the lines for questions. Instructions on how to join the queue will be given at that time. Now I would like to turn the call over to Mr. FitzGerald. Please go ahead.

Good morning, and thank you for joining us today on our first quarter earnings call. As we begin, please note there are slides to accompany the call on the Investor page of our website. The first quarter proved to be challenging with the backdrop of the housing market, interest rate environment and price cost pressures at our restaurant and food processing customers weighing on our businesses as we started the year. Even though challenges persist, we are seeing improving order activity and expect this to continue as we move through the year. As customers execute on their business plans and as opportunities in the pipeline begin to convert. While customers are slow to restock inventories given shorter lead times and higher carrying costs, inventories in the channel have returned to normalized levels and now provide a tailwind as end user sell-through occurs, which bodes well for the later part of the year. At our Commercial Foodservice business, customer execution has been slow starting the year, given continued longer lead times for permitting and construction along with longer deliberation on their business plans, given economics of higher restaurant operating costs. However, our channel partners are building backlogs weighted to the second half of the year and our chain customers continue to maintain their plans for operational upgrades and store openings, which are also geared toward the second half. We are gaining market share in new and large product categories such as beverage and ice and we are well positioned to capitalize on our market-leading positions, capturing growing trends in ventless and electrified cooking. We have early-stage traction with some of our game-changing innovations as we lead the future of automation, digital and IoT. At our Residential Business, the housing market remains very challenged in terms of existing home sales, new home starts and remodels. While the residential market will take time to fully recover, it has stabilized with the luxury end of the market showing improvement over the past several quarters. We're now seeing growth in order rates, and we expect that will continue as we progress through the year. We are well positioned to benefit from the many investments that we have made in new product innovation as we move beyond the current market conditions. Many of these new product innovations were on display at the recent Kitchen & Bath show. We are proud to receive a Best of KBIS award at Viking for our new RVL series and we're also awarded Best of KBIS at NOVY, one of our newest Middleby Residential brands, which we are now launching into the U.S. market, featuring state-of-the-art induction cooking, integrated ventilation, and unique accent lighting. Our industry-leading brand portfolio with launches of new colors, new designs and new technologies generated excitement with builders, our dealer partners and the design community at the show, leading to new business opportunities coming out of the show and greater awareness for all the Middleby Residential portfolio has to offer. In our Food Processing business, our customers are proceeding cautiously as they monitor food cost, demand levels and the interest rate impact on larger projects. Still the pipeline of active projects continues to build for expansions and needed upgrades with requirements to increase throughput, reduce labor, minimize food waste and with a growing focus on sustainability. Automation remains in great demand. Our backlog remains healthy and as market dynamics have become more stable, we're expecting the pipeline will convert into orders. Our strategy to become the leading provider of best-in-class full-line integrated solutions for the protein and bakery markets is resonating and we are best positioned to offer our customers state-of-the-art automation to address their operational and efficiency challenges. We posted continued overall strong profitability at our Commercial and Food Processing segments in the quarter despite revenue declines while Residential margins were significantly challenged due to market conditions and our strategic decision to invest in KBIS. We expect to return to the path of longer-term margin expansion as we benefit not only from revenue recovery, but also as we realize greater benefits from profitability initiatives including investments made at our factories to realize greater production efficiencies, along with the impact of favorable profitability on our newer product innovations. Supply chain also provides a continuing opportunity as we have moved away from crisis management over the past several years and are now focused on leveraging our scale and realizing synergies across our businesses. While we navigate the near-term market conditions, we continue to focus on executing our business strategies, expanding profitability, and growing our cash flow while building upon our competitive advantage at each of our three industry-leading food service businesses that we are confident will set us apart in the long term. Now I'll pass the call over to James to spotlight some of our exciting award-winning products we'll be unveiling at the National Restaurant Association Show in Chicago later this month, highlighting the results of our strategic focus to invest in and accelerate the pace of innovation.

Thanks, Tim. Last quarter, I remarked that Middleby had won eight of the twenty-eight coveted Kitchen Innovation awards. Because of the timing, I couldn't say which Middleby brands won. Well, with a little more than one week to go before the NRA show in Chicago, we are excited to introduce the Great Eight: Blodgett; Pitco; Evo; Newton Wunder-Bar; Wild Goose Filling; Varimixer; and L2F now known as Middleby Automation. These eight brands are the National Restaurant Show Association's KI winners. If you are attending the show from May eighteen through twenty-one, please make sure you visit the Kitchen Innovation Awards Pavilion to see and experience these new products from the Great Eight and then come check out Middleby to experience our latest solutions around digital, embedded and robotic automation as well as beverage solutions and the launch of our newest Combi, the Invoq, a Red Dot Design Award winner. We couldn't be happier with these new products. These innovations are as diverse as their brands, but they were all developed with our customers' daily challenges in mind: labor reduction, simplification, consistency of product, throughput, all aimed to maximize our customers' profitability. In the interest of time, I won't go through each innovation, but you can find each in the deck referenced. The first is the Pitco TorQ fryer. The TorQ introduces continuous filtration and conductive frying with continuous filtration and auto oil top-off; the TorQ essentially provides infinite oil life for the operator. The continuous filtration operates through forced convection as oil is forced to circulate around the food on its way to being filtered. This forced circulation reduces our cook times by up to ten percent. While we are discussing numbers, let's cover a few more. The TorQ is ten percent more efficient than the typical ROV fryer and both food temperatures are sixty percent lower than a typical gas fryer, substantially reducing kitchen ventilation requirements. Lastly, the TorQ reduces labor needed to filter a traditional fryer by up to ninety percent. By the numbers, this fryer stands out compared to most fryers in the market today. Moving on to the Blodgett ImVection oven. This is the first oven of its kind, allowing operators to select between a high heat transfer, accelerated cook oven or a gentle convection oven by selecting a menu item from its Middleby One Touch controller. Once the operator selects a menu item, the ImVection's mechanism configures the oven for the optimal cooking profile, whether it be high-velocity impingement air or digital convection. This innovation enables a multi-cavity convection oven, typically found in the back of the house, to also function in the front of the house as an accelerated cooking oven, thus offering our customers the ability to cook delicate laminate pastries in twenty minutes or sixteen-inch pizzas in three minutes and thirty seconds. Now on to beverage dispensing. We have three brands introducing beverage dispensing products aimed at reducing waste, improving speed of service, and delivering a better tasting, highly consistent product. I've spoken about Newton CFV valves in the past, but now we have two new products that feature the valves' patented design that enables the consistent precise delivery of beverages and ingredients, regardless of the factors that affect traditional valves. The Newton Discrete Valve and the Wunder-Bar M5 Bargun are designed to eliminate calibration, waste, reduce service costs and improve customer satisfaction through consistent delivery of products. The Newton CFV Valve is also being utilized throughout Middleby to control mixing and dispensing of highly concentrated ingredients, such as individual flavors, even cleaners. These concentrations can be as high as five hundred to one, unlocking our customers' ability to change how they distribute and dispense ingredients or even clean their equipment using Newton's new clean-in-place technologies. Finally, I'll discuss the Wild Goose Cervizi, which utilizes the same filling systems used in the industry's leading high-speed canning line. Cervizi turns anyone pouring their first beer into a seasonal bartender by automatically dispensing beer twice as fast as a normal tap system while minimizing waste by precisely controlling the pour volume to the nearest fraction of an ounce or just a few milliliters, all with no training. Cervizi also improves keg yield from seventy-five percent to ninety-five percent by controlling the pour volume in the beer serving conditions. I didn't get a chance to cover the other products such as the PizzaBot 2.0, Evo EVent, and the Varimixer ERGO but we will address those in future calls or you can see them at the NRA show. Know that they share the same traits as the innovations I described today. They all reduce waste, increase throughput, maximize consistency, and simplify labor, all of which improve our customers' profitability. Thank you, and over to you, Bryan.

Thanks, James. For the first quarter, we generated revenue of $927 million and adjusted EBITDA of $186 million at a margin of twenty percent. Q1 GAAP earnings per share were $1.59 and adjusted EPS was $1.89. Commercial Foodservice revenues globally were down four percent organically over the prior year, yet the adjusted EBITDA margin was consistent with the prior year at twenty-six percent. All the margin values I will go through are on an organic basis, meaning excluding any acquisitions and foreign exchange impacts. In Food Processing, revenues for the first quarter were nearly $163 million. This was our second-best Q1 ever for this segment with a tough comparison given the Q1 record was set last year. Our adjusted EBITDA margin held strong and was also consistent with the prior year at nearly twenty-four percent. In residential, we saw an organic revenue decline of twenty-two percent versus 2023. The adjusted EBITDA margin was over six percent and was negatively impacted by our investment to attend the Kitchen & Bath Show for the first time since 2016. We've seen a recent inflection in order rates, which is driving our view that the residential revenues have hopefully started to move off their low point. A high point for the quarter was our exceptionally strong operating cash flows of nearly $141 million for the quarter and nearly $678 million for the trailing four quarters. It was our best first quarter ever, and our free cash flow conversion was around 135% for the trailing four quarters. Our total leverage ratio is now down to 2.4x. Despite the challenging quarter we faced from a revenue perspective, our business model demonstrated that we have resilient margins and continually generate strong cash flows. Nonetheless, in Q2, you will see some further restructuring charges as we continue to take actions to appropriately manage the business given market conditions. As we work to protect our margins, we are also aggressively controlling costs. In terms of an outlook, I will start by reminding everyone that the second quarter of 2023 was our strongest revenue quarter ever. So given recent order rates and demand for our innovation, we expect total Q2 revenues to be up at least mid-single digits sequentially from Q1. But given the tough comparison, we anticipate falling short of the prior year revenue level overall. To provide greater insights, I will separately address each segment. In Commercial, the year-over-year comparison for Q2 is especially tough given the all-time record revenue for us in 2023. While we may fall a little short of the prior year revenue in Q2, sequentially revenues could be up high single digits compared to Q1. Our viewpoint is based on our backlog, which is currently up slightly from year-end, and order rates have been improving over the past three quarters. Orders through April of this year are up fifteen percent over the back half of 2023. We also expect margins to be in line with prior year levels. Looking into the back half of the year, we expect revenues to continue to grow sequentially and be at least mid-single digits above prior year levels. Moving on to Food Processing. Recall that Q2 of '23 was our second highest revenue quarter ever for that segment. While I expect us to fall short of that revenue level in Q2 of '24, margins should be up over the prior year, and on a sequential basis, Q2 revenues and margins should be up meaningfully versus what we just posted for Q1. So recall that 'lumpy' is a word used to describe this business sometimes. As I look back to last year, we did see a big drop in revenues when we moved from Q2 to Q3, but that is not our expectation for Q3 of this year. We continue to see strength in this business overall. Orders in the past two quarters have been amongst our strongest intake periods for the segment. Thus, we are expecting that the second half revenue for this year will be above the first half of this year and above prior year levels. In Residential, the good news is that the order trend is moving slightly upward. Looking at the past couple of quarters and extrapolating on the start of Q2, we are trending above the first three quarters of 2023. Revenues for Q2 of '24 will likely not be ahead of the prior year, due to a year ago, our domestic premium indoor appliances having posted a relatively strong quarter. Nonetheless, we are anticipating stable conditions in our European businesses when comparing Q2 of this year back to '23, and we should see growth in the outdoor market in Q2. So this all results in Q2 revenues being above Q1. Visibility to the second half of the year in residential is certainly limited, but given recent trends, revenue comps, and building upon our showing at KBIS and the overall strength of our portfolio, our view for the second half of '24 is currently for growth, both as compared to the prior year and over the first half of this year. We are also working to maintain double-digit profit margins for the year. Bringing it all together for the total company, we should continue to build and strengthen as we progress through '24. We look forward to Q2 being stronger than Q1, and we continue to firmly believe that for the second half of this year, we will deliver sequential and year-over-year growth. We remain focused on operational efficiency and optimally managing our resources. We are sharply focused on controlling and reducing our costs. We remain committed to improving our margins. These actions should drive year-over-year growth in cash generated and consistently high levels of free cash flow conversion as well. To further understand how we will achieve this along with enjoying many tasty creations from both humans and cobots, please come and see our people and products in action at the National Restaurant Association Show later this month here in Chicago. Please reach out to us to arrange a visit so you can deeply understand how we are solving the needs of our customers, which will drive our growth in '24 and beyond. We remain committed to our mantra: more in '24. Thank you, and we will now take your questions.

The first question today comes from Mig Dobre with Baird.

So if I understand your guidance commentary correctly, it sounds like book-to-bill in commercial foodservice was above one because backlog went up a little bit in the quarter. When you think about the outlook that you've laid out for Q2 and the rest of the year, are you baking in stable backlog and just sort of orders ramping relative to Q1 end up flowing through? Or is there still a backlog conversion element here that comes to help us in the back half of 2024?

Yes. So I think it's not converting; we're not reducing our backlog further. That's not the assumption if that's the question.

That is the question.

Yes. I believe we will see an improvement in orders as the year progresses. Our backlog has decreased, and orders have been brought forward. However, inventory levels are normalized, and many of our partners are hesitant to place orders due to shorter lead times; they prefer not to hold excess inventory. Our channel partners are aware that many projects are aimed for the second half of the year, so they plan to purchase closer to when execution is needed. January was relatively slow, which was expected for various reasons, including weather conditions. However, we saw steady improvement through the first quarter and a significant increase as we entered the early part of the second quarter. This aligns with feedback we receive from our channel partners and discussions with our chain customers. Our outlook and confidence stem from the open conversations we have with them, including their perspective on channel inventory and our order trends over the first four months of the year.

Understood. And my follow-up, sticking with the segment is on the margin side. Comparisons are tougher in the back half of the year. So how do you encourage us to think about margins, especially on a year-over-year basis? And maybe related to all of this, are you seeing any sort of signs of price erosion or changing competitive dynamics in North America specifically?

Yes. I'll tag team with Steve here. I would say not the wholesale changes. I think the mix out there in the marketplace is a little bit different to start the year. I think some of the more immediate replacement-type business that tends to be more economy-driven was a little bit more prevalent. I don't think that's more of a pricing element as it is a mix element and then as we kind of get back to more of, I'll say, specified project-driven and change driven. We expect some of the mix to improve as we go through the year. So I think that's a little bit of the dynamic that we saw at the beginning of the year. And then maybe you want to touch on pricing.

Yes, Mig, this is Steve. We actually just recently announced a price increase that will be upcoming in commercial going into effect in mid-June. Our approach there was making sure our divisions were really going SKU by SKU, customer by customer to capture all the price/cost dynamics that we've obviously encountered over the past several years. It will be a relatively minimal increase or low single-digit increase compared to prior year increases. However, we want to ensure we're thoughtful. I believe pricing is one of the more strategic initiatives in the company in the last couple of years to make sure we're capturing costs, but also making sure we're in a good competitive position.

And then I'll bring it around. This is Bryan, to the margin side of the question. Obviously, you saw in Q1 that even with lower revenues, we're able to protect the margins, and that's coming from a variety of factors, right? There are some commodities impacts in there. There's the impact of investments we've made in the business. There are impacts from doing ongoing striving for greater efficiency, cost control, and headcount control actions. As we look forward, as volumes grow, we'll also have greater absorption. I think we'll benefit from some modest pricing benefits. As Tim pointed out, we believe mix will improve as well. So we put that all together and as I think about how the segment will operate for the entire year, I do think we will be slightly modestly above the prior year. Obviously, there are some challenges always to overcome with input costs and supply chain dynamics. But nonetheless, I think it is going to be a positive year-over-year.

The next question comes from Jeff Hammond with KeyBanc Capital Markets.

Just want to stay at commercial, food. I think you mentioned some permitting delays, customers kind of contemplating strategy. It was interesting that you said you think for the year, you're up mid-single digits in commercial food, and that kind of implies high single digit, low double-digit growth in the back half. I just wanted to get a better handle on if you're seeing some of these delays kind of move forward and what gives you the confidence in that second half growth rate?

Yes. Maybe just to add a little bit of color around delays. I think the world has not fully recovered from supply chain in some regards. I think as customers have tried to identify and open locations, they've got to get through construction, documentation, permitting. Those things have taken a bit longer. We saw that in the back half of the year. I believe those things are improving in terms of the world normalizing. However, many have struggled with delays. I think those things will get better. There is some customer muscle memory from crisis management it has shifted back to strategic execution of business plans, which I believe is causing some of the slowness at the gates.

Jeff, this is Steve. I'll just add on to that. I mean, I've talked about before, the transparency from chains regarding new store opening plans has improved significantly. Even though, as Tim alluded, we've seen a slower start from a new store order or build perspective, they've recommitted to their plans for the year.

Okay. That's great color. And then just a couple on Res Kitchen. One, can you quantify the kind of one-time KBIS investment? And then it seems like your destocks done finally, and outdoor grills and you feel a little bit better about that, but the U.S. indoor kitchen is still maybe one of the choppier areas. Is that correct?

Yes. On the KBIS investment, I'd put it at 150 to 200 basis points of drag in the quarter.

Do you want to address that? Market commentary?

Yes, no, I think that's right. I mean, the inventory channel was far less of an issue. That was true in commercial as well as residential. So it really starts coming down to end-user demand. Sell-through, especially in outdoor, has not been very strong. So it's kind of a neutral factor so far. However, we're early in the grill season, so it is yet to be seen how that will affect our revenues. So I think our revenues there will depend heavily on how the real season performs, which will also influence restocking going into 2025. We feel like we're winning in some areas by picking up floor space, but the grill market's floor planning right now is geared toward next year, not this year, hence we won't see benefits until later in the year. Regarding the indoor market, while we think a lot of our consumers are geared towards the luxury market and we see some improvement, some of that has longer lead times. We've seen improvement in order rates, but remodels and new builds won’t require our products immediately, as compared to the replacement market.

The next question comes from Saree Boroditsky from Jefferies.

I just wanted to build a little bit more on the residential question. Could you just quantify the performance in residential, on grills versus Viking versus AGA? And then when you talk about the improving order rates, was that largely driven by the industry show? Or if not, where did you see that uptick in demand come from?

Saree, this is Bryan. Sorry, could you repeat the first part of your question?

Just the performance in the quarter of grills versus Viking versus AGA?

Okay. Got you. It was a challenging quarter across the board in terms of the year-over-year comparisons. I noted that Q2 last year was really strong for domestic premium, primarily Viking, but we have other brands as well. So certainly, that market has been down. AGA has continued to face challenges in the European markets. However, we've been faring a little bit better on the continent due to how NOVY's product offerings resonate. As for Grills, we’ve seen a different buying pattern this season compared to previous years, with later load-ins by our customers, although they are being cautious in their buying. Q1 did see weakness in grills, but we are actually looking forward to much improvement there, should trends continue in the second quarter.

Great. And then obviously, residential margins were weighed down by the show. What do you need to see to support double-digit margins in that segment? Is it just volume or anything else? And then how do you think about incremental margins when you do see volumes turn positive there?

I think once you strip out some of the show impacts, recent history has been a good indicator of where the business can and does perform. So as we start getting closer to $200 million or even $190 million, we will likely see closer to double-digit margins. We continue to evaluate costs in this business. You've seen that we’ve been taking charges and we continue to address that. More of that will be done to ensure we are rightsized for the current environment. Operationally, we've made substantial investments in these operations, which drives significant positive increments. Our factories in this segment tend to have more throughput than commercial, meaning fewer but larger factories running greater volumes. I’m not minimizing our focus on all current costs and actions, but I would say that as volumes recover, the margins will also rebound significantly.

The next question comes from Tami Zakaria with JPMorgan.

I have two questions regarding the commercial food services segment. First of all, can you comment on the price realization you saw in that segment in the first quarter? I'm hoping to learn whether the negative organic growth was purely volume-driven or if there's a mix of both price and volume?

Tami, this is Bryan. It is mostly volume-driven. We have taken many price actions recently. Obviously, Steve noted that we'll be taking a modest one currently. So it's fair to assume that it is very much dominated by volume.

Yes. We did not have a price reduction, so it really is volume-driven. We did not take a typical price increase at the end of the year. Significant price increases were taken over the past few years related to supply chain issues. As we entered this year, we were monitoring our price-cost stance and saw some cost increases, not only labor-related, but a little bit from supply chain as well, hence the evaluation of why Steve's taken a price increase now in Q2.

Got it. That's very helpful. I wanted to follow up on that. So in June, you're taking some price increases, I think you mentioned low single digits. I'm trying to understand whether the price increase might actually stick or face resistance given demand is weak and you just mentioned there's some price-cost pressure in the industry right now. So can you speak to the rationale for the June increase and how distributors are reacting to it, if you've already communicated it to them?

Yes, Tami. This is Steve. It has been communicated out to the marketplace at this point. I believe it will be relatively sticky. Obviously, it's always a challenge to ensure that it does come through. However, given the thoughtfulness our team has put into the approach, which isn't a one-size-fits-all method, it’s detailed SKU-by-SKU, customer-by-customer. It will affect both the general market and chain customers. So we do believe it will hold or is sticky and should come through in early third quarter.

The next question comes from Brian McNamara with Canaccord Genuity.

I guess two for me on residential. First, a question we often get from investors is the breakdown in sales in grills versus the rest of the residential kitchen. I don't expect you to quantify it, but can you give us maybe a qualitative picture of how grills look today relative to when you first acquired them?

This is Bryan. The grills are down quite significantly from when we bought them. I think we've said before, over fifty percent, and I'll probably leave it at that. At this time, I think it's fair to consider the segment in fourths: U.S. domestic indoor premium, European (including the U.K.) businesses, outdoor business, and all else primarily being Continental European businesses.

Got it. That's helpful. And then secondly, on grills again. I'm curious what you're seeing currently with your retail partners in the category. Are they willing to either add to or at least hold floor space for the category? If not, how do you break in given your relatively small size and brand recognition compared to the bigger players?

I'm not sure if the holding floor space was specific to us or to the grills overall.

I think it's specific to the category. But I mean, presumably, you would need to be part of that, just given your relative size at the moment.

Yes. I think we've focused on product differentiation and some of the new technologies that we've introduced. Our connected platform for both Masterbuilt and Kamado Joe represents a major innovation that our competitors may lack. We’ve also focused heavily on charcoal, which is differentiated, especially with the vertical charcoal feature of the Masterbuilt. I believe some of these offerings are recognized by retail partners, and we've had some success in picking up floor space over the last twelve months and probably into 2025 as well.

The next question comes from Walt Liptak with Seaport Res.

I want to go back to when you provided the guidance, Bryan, and could you repeat the sales guidance for the year? I believe you mentioned that you were expecting sales to increase this year, along with higher margins and cash flow. Is that correct?

Yes. Let me find my place in the script here. Yes. On a total company basis, I started with that Q2 will be stronger than Q1, right? And as we look at the second half of the year, we will grow sequentially: Q3 above Q2 and Q4 above Q3, as well as for both Q3 and Q4 being above prior year levels. I noted that for Q2 we will face challenges achieving the prior year revenue level. So Q2 will be better than Q1, but may fall short of the prior year while Q3 and Q4 are expected to be above prior year and improve sequentially throughout the year. These comments are specific to revenues, but they do generally apply to margins as well.

Okay. Just to clarify, you are expecting revenue to increase this year despite the challenges faced in the first quarter.

Yes. I know your question involves breaking down revenue by segment. We expect total company revenue to increase this year. However, residential will be the most challenging segment where we currently have less visibility given the weaker start. We're more confident in the other two segments concerning year-over-year growth. Ultimately, we expect total company revenue to be up year-over-year.

Okay. Great. And maybe just one final one on the NRA show. You mentioned the Invoq Combi oven that we've heard some things about. I wonder if you could tell us a little bit about the features and what you're expecting as you commercialize that product.

Yes. I'll jump in and talk about the Invoq. We've spent the last several years designing the Invoq and finally have it on the market. We think there are many novel features in the Invoq. One of the first things is that we've developed a half-sized combi oven that fits full-size combi pans. This means that if you think about traditional full-size combi ovens, they have standard dimensions. If you look at a half-sized combi oven, it's about one-third less in volume than a full-size combi, which implies that kitchens that need equipment will need less hood ventilation, which leads to lower energy input rates and a more efficient product. Additionally, we've optimized the wash cycle to reduce power consumption during the wash cycle. We have a steam-on-demand feature that is incredibly efficient, using seventeen percent less energy for steam-on-demand. Lastly, we have added another shelf in the oven. Typically, combis are either 6 or 10 pans. Here, we have combis that can accommodate 7 or 11 pans, thus increasing the production capacity in the oven. By doing this, we not only improve the efficiency of the oven but we believe it will be one of the most advanced pieces of technology that we have coming out at Middleby. When you compare it to other combis in the marketplace, this positions us near the top globally.

I’m glad you asked this question because we are excited about it. I think it's an excellent example of innovation. James walks through many features that represent substantial investments over the years across various products that we believe are shaping the future of where restaurants are headed, with several of these innovations yet to be fully realized in their potential. Several of them are in leading market categories that we expect to grow significantly. We have high expectations for the Invoq as we have for the previous success of products mentioned in prior quarters. I think this will contribute to our growth. We have established positive relationships with channel partners who are eager to engage us as we bring these innovations to market.

I want to add one more point. The Invoq combi is shipping now. We have been distributing the product in Europe for a number of months, and we've just started distributing the product in the U.S. So it is actively being sold.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Yes. I'd like to thank everybody for being on the call. I just have one final comment, which follows up some of the questions on residential. Just as we think about margins, fundamentally, our residential business is much stronger today than it's ever been due to new products, manufacturing efficiencies, quality, and the investments we've made in distribution and capabilities. Bryan mentioned that margins are expected to recover significantly. We're operating at volumes that are far less than normalized periods, pre-COVID. Just re-emphasizing what gives us confidence in margins for that segment and why we think it's a fantastic platform. We're currently witnessing its lowest points, but it's actually the strongest it's ever been at this moment. A normalized period would be promising, and we are eager about what residential has to offer. We still have a couple of quarters of challenges ahead, but we are seeing early signs of recovery. I wanted to reiterate that point. Thank you for attending today's call.

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