Good day, and welcome to the Middleby Corporation Second Quarter 2025 Earnings Conference Call. On today's call are Mr. Tim FitzGerald, CEO; Mr. Bryan Mittelman, CFO; Mr. James Pool, CTO and COO; and Mr. Steven Spittle, CCO. Please note this event is being recorded. I would now like to turn the conference over to Tim FitzGerald, CEO. Please go ahead.

Good morning and thank you for joining today's call. Well, this quarter's results reflect the economic challenges our customers are navigating in key end markets. They don't appropriately capture the fundamental transformation we've achieved across our business to drive long-term growth. The strategic investments we've made over the past three years across innovation, go-to-market capabilities, and operational excellence have created an unmatched platform that is poised for growth as market conditions normalize. Given our confidence in Middleby's trajectory earlier this year, we chose to allocate the vast majority of our free cash flow towards share repurchases as we do not believe our current market valuation reflects the opportunities ahead of us. This isn't just optimism. This is conviction rooted in measurable progress and wins we are experiencing across our business. That is an overarching thought. I'll discuss what we're seeing in the current marketplace across our business segments. At our Commercial Foodservice business, we experienced growth with our dealer partners in the general market, along with sales increases in better performing segments such as our institutional business, and with emerging fast casual chains. We're also penetrating product categories such as ice and beverage. However, our revenues reflect the reduction in demand from our largest chain customers that are experiencing challenges with lower traffic and cost pressures, resulting in deferred replacement business and revisions down in restaurant openings. While facing these near-term headwinds, our business is fundamentally stronger than at any point in our history. We've invested heavily over the past three years building the preeminent Commercial Foodservice business in the industry. We revolutionized our innovation engine, retooled our selling organization, and we've dramatically strengthened our positioning with top customers. We also have strategically targeted and expanded into attractive new market adjacencies. Our ice and beverage platforms deserve special attention as they represent transformational growth opportunities. While we are still in the early stages with ice, we've already grown our market position. And as a new entrant in the faster-growing beverage category, we are positioned to take share from established competitors as we disrupt the segment with automation and game-changing innovations. We are realizing early benefits of strategic investments in automation, controls and IoT, investments that are long term in nature that we know will separate us from the competition in the years ahead. Turning to our Residential business, we're seeing encouraging signs and increased sales in our indoor categories, with momentum at our core Viking, La Cornue, and AGA Rangemaster brands. Product introductions over the past 12 months have been well received. New designs, colors, and induction offerings are gaining the attention of designers, builders, and channel partners. And we have additional new products coming to market over the next six months, including the next-generation Viking Reveal, our new digitally connected product line with contemporary features capturing a new audience for Viking. Refrigeration and ice is another residential platform where we're making great progress with exciting things ahead. We'll be completing the construction and moving into our new manufacturing center of excellence in Michigan in the third quarter. All of our refrigeration and ice brands will consolidate manufacturing operations into the state-of-the-art facility. Along with the manufacturing investment, we'll be launching an entirely new product lineup under our Marvel, U-Line, and Viking brands, all coming to market in the second half of this year. This major initiative has impacted our sales in the first half as we transition manufacturing. While new product launches will take some time to ramp, we expect to build momentum in the second half and gain traction as we move into next year. Finally, within Residential, the Outdoor segment is faced with significant challenges from tariff-related pressures, causing our channel partners to reduce inventories. That said, we do believe this segment is at the bottom of a challenging cycle and Middleby is well positioned to benefit once the market returns. As innovation becomes a greater demand in the outdoor space, we have already invested. Moving to food processing, we are pleased with the improvement in sales and orders from the first quarter. Order conversion has been slow in the first half, driven by uncertainties from tariff and food costs, impacting the timing of orders, particularly for larger projects. However, we've seen our order pipeline build with conditions improving in both our protein and bakery segments. In the snack category, which is a new market for Middleby, it's growing rapidly with a large market opportunity ahead. Our strategy to offer best-in-class full-line solutions is continuing to differentiate us in the marketplace. And we're confident this strategy has positioned us for sustained long-term growth, both organic and through strategic M&A. Across all three of our business segments, we're building stronger competitive positions that will drive growth when market conditions improve. We have confidence in our strategy and optimism about our business in the future. With that, I will turn it over to Bryan to break down the quarter and talk about our outlook before I provide some final thoughts ahead of Q&A.

Thanks, Tim. Looking back at the second quarter, we were pleased to see sequential revenue improvements across all three segments, including the significant step-up in food processing revenues relative to the first quarter. For Commercial Foodservice, while market conditions kept our Q2 revenues below prior year levels, demand for our leading technologies generated sequential top line growth. We delivered over $580 million of revenue and a strong 27% EBITDA margin. At Residential, tariffs significantly affected some of our outdoor products. Nonetheless, revenues grew sequentially to over $181 million, and our EBITDA margin continued to exceed 10%. Notably, we saw improvements in our U.S. and United Kingdom indoor appliance markets. At Food Processing, we delivered a large sequential increase coming out of Q1 with Q2 revenue exceeding $216 million and an EBITDA margin of over 21%. Margins were below our expectations, owing to both tariffs and fewer large products that didn't yet materialize but do remain in the pipeline. The latter was driven by market uncertainty that impacted customer decision-making. Sequentially, we saw improvements across the majority of our platforms. Moreover, the businesses we acquired over the past year that have expanded our region snack foods continued to perform very well. On a consolidated basis, total company adjusted EBITDA for Q2 was $200 million, and adjusted EPS was $2.35. Regarding tariffs, which, by the way, are the driver of our year-over-year decrease in EBITDA, the situation remains fluid. We currently estimate that the incremental cost impact will be approximately $150 million on an annualized basis. This does not include adverse impacts to sales, which we saw in the first half across all three segments, with the biggest hit to the residential outdoor business. While the adverse net impact to EBITDA in Q2 was approximately $10 million, we estimate that the costs will increase in Q3 due to the timing of tariff implementation and inventory flow-through. Price increases will somewhat offset this, so we expect a $10 million to $15 million net negative impact to EBITDA in Q3. As pricing actions take greater hold in Q4, the tariff headwind should be further offset. As of now, we estimate an adverse net impact of $5 million to $10 million. As you can imagine, all of this is subject to where tariffs finally land and is subject to risks, particularly in key supply chain markets of China and India. Q2 free cash flow was $101 million. Our leverage ratio per our credit agreement at quarter's end was 2.3x, comfortably within our long-term target of 2 to 2.5x. Please recall that our convertible notes will mature on September 1. We intend to pay them off in approximate terms by using $250 million of cash on hand and drawing $500 million on our revolving bank facility. Accordingly, our interest expense will be higher in the second half compared with current run rates. We expect interest expense in Q3 of $23 million to $25 million and then $28 million to $30 million in Q4. As far as capital allocation, earlier this year, we made the decision to deploy the vast majority of our free cash flow to share repurchases. During Q2, we repurchased over 2.2 million shares for nearly $323 million at an average price of about $145 per share. At the end of the quarter, we had 9.4 million shares remaining under our share repurchase authorization. We've continued to buy back shares with July purchases of $97 million for over 650,000 shares. Looking ahead, we will continue to be opportunistic, and we will do so while maintaining the financial flexibility needed for strategic growth investments. As you can see in our earnings release and quarterly presentation, we issued quantitative guidance this quarter. Our plan going forward is to provide you an outlook for the upcoming quarter as well as providing an initial annual outlook in conjunction with reporting year-end results. Regarding today's outlook, I offer the following additional perspectives. For Food Processing, there can be volatility on a quarter-to-quarter basis for our results. This is often driven by the timing of completing medium to large-sized projects that may not recur with the same regularity as other parts of the business. After a stronger-than-anticipated Q2, Q3 is currently expected to take a small step back compared to Q2 revenue. We still expect the fourth quarter to be the strongest of the year and a stronger second half versus the first half. Overall, I would characterize the market conditions for our Food Processing segment as modestly improving. In the Residential segment, I would characterize market conditions as fairly stable. For the third quarter, we are forecasting a typical seasonal step down in addition to the impact of tariffs. We do see our strongest quarter of the year in Q4. Lastly, thinking about Commercial Foodservice, we are seeing pressure at many of our large QSR customers, which represents a significant share of our business. We expect slight sequential increases in revenues over the coming two quarters, largely due to pricing benefits, mitigated by tariffs and the impact of current consumer sentiment and industry-wide traffic challenges. Overall, this thoughtful view of the coming quarters in no way diminishes the greater level of optimism for the years ahead. So for Q3, we expect to achieve the following: Total revenue of $950 million to $975 million. And by segment, this is comprised of Commercial Foodservice at $580 million to $590 million; Residential Kitchen at $170 million to $180 million; and Food Processing at $195 million to $205 million. Adjusted EBITDA is forecasted to be between $185 million and $195 million, and adjusted EPS is projected to be in the range of $2.02 to $2.16, assuming approximately 50.8 million weighted average shares outstanding. Then for full year 2025, we expect to achieve the following: Total revenue of $3.81 billion to $3.87 billion with adjusted EBITDA of $770 million to $800 million, and adjusted EPS of $8.65 to $9.05 based on the sum of four individual quarters. This also assumes 51 million weighted average shares outstanding for the fourth quarter. Please refer to Slide 8 of the presentation we have posted on our website for these details. Taking a longer-term more general view with our new capital allocation philosophy and assuming more normalized market conditions, we believe we can deliver annual earnings per share growth in the high single to low double-digit range. In some years, we could certainly be higher or lower than this range due to unforeseen circumstances. But on average, we believe this is a reasonable and achievable goal given our market position and positive outlook. I will conclude my comments with a quick update on the Food Processing spin-off, which we expect to complete in the first half of 2026. We are confident in our ability to execute the necessary actions to have a successful transaction. Activities to ensure the spin company will be operating efficiently and independently after inception remain on track. We've previously mentioned in Investor Day planned for Q4, but having it in the new year will be more meaningful. As we get closer to the spin, we will cover matters such as leadership team, cost to complete the spin, and stand-alone corporate costs. With that, I will pass the call back to Tim.

Thank you, Bryan. Before we go to Q&A, I want to share some final thoughts of our Middleby's positioned to create exceptional value for shareholders going forward. First, we have the best-in-class portfolio of brands that is second to none. Almost all hold #1 or #2 market positions. The strength of this combined portfolio of brands under the Middleby umbrella is powerful, establishing Middleby as the most experienced and trusted partner to our customers. Second, our commitment to innovation is extending our lead over the competition. We have introduced more new products and innovations in the last three years than any time in our history. In just 18 months, we received 24 individual innovation awards, far more than any other industry player. As solutions to reduce labor, increase speed of service, reduce food costs, and address operational pressures continue to grow in importance with our customers, Middleby is positioned to benefit. Third, the breadth of our product offerings and scale of our portfolio provides competitive advantages that are difficult to replicate. And it is only in the last several years that we have made investments and executed upon strategies to leverage the scale to drive both top-line organic growth and bottom-line profitability. We are confident these actions are unlocking new opportunities and providing growing benefits. Finally, we have evolved our culture and organization over the past several years aligned with our long-term strategic growth initiatives. I truly believe we have assembled the best team in the industry. We have attracted top industry talent and developed a new generation of leaders from within. Our people are empowered, they are running fast, and what they do every day is steeped in a culture of winning as a team. We're pairing all these advantages with shareholder-friendly actions designed to create long-term value, the Food Processing spin, our Board refreshment with four new independent directors is all part of that plan. So is our share repurchasing program, which smartly allocates our significant free cash flow to buybacks providing for increased leverage on our earnings per share growth. We're very excited about the prospects and our ability to drive shareholder value from all of these levers. So with that, operator, can you please open the line for questions now.

And your first question comes from Saree Boroditsky with Jefferies.

I have to say I appreciate all the details on the guidance this quarter. That was a great thing to see. Maybe if we can ask for a little bit more within the EBITDA guidance, maybe just talk through how you're thinking about the contribution by segment.

Yes, Saree, this is Bryan. I'll take that one. I think you'll see margins evolve a little bit similarly as the revenue trend works out through the year with Q3 revenues stepping down a little bit, we'll obviously lose a little bit of operating margin. So you'll probably see margins slightly down in Q3 as opposed to Q2 before stepping back up where Q4 is traditionally our strongest margin year of the quarter, and we will also benefit from higher revenues in Q4 over Q3.

Great. And then on Residential, could you just update us on where the grill's run rate revenues and margin performance are? And then is there any footprint changes planned in this business? And just how do you think about mitigating some of that tariff impact?

The first part.

Yes. The business was on a growth trajectory for us at the beginning of the grill season before having the full force of the tariffs hit us. But it is still, I will say, in that $100 million to $150 million range run rate that it's been operating in for the past couple of years now.

Yes, I'll elaborate on your second question. As Bryan mentioned, we were experiencing real growth at the start of the year, but the tariffs caused that growth to come to a near stop and even reverse as our channel partners reduced their inventory to very low levels, potentially leading to stock shortages later this year. This situation is certainly challenging and is putting pressure on our bottom line. However, over time, we anticipate a turnaround. We have also invested significantly in consolidating our outdoor grill platform over the past couple of years, which has allowed us to operate as one team with unified customer service and distribution. This consolidated model will give us better leverage when volumes return, and that was part of our strategy to increase our margins to double digits. Although we are currently far from that target, we are positioned to take advantage as the market stabilizes.

And your next question comes from Mig Dobre with R.W. Baird.

It's Joe Grabowski on for Mig this morning. So I also wanted to say that we appreciated the guidance. It's very helpful. And I also wanted to ask a question on the guidance. It seems like the guidance implies that Q3 consolidated organic sales are going to be down low single digits, but then Q4 consolidated organic sales are going to be down mid-single digits. Assuming that's correct, is it mostly just a factor of the prior year comparison or anything else you want to call out?

I think this is Bryan. That is an accurate representation of things. I've mentioned before that it's more useful to look at the business in terms of what it did yesterday and how it's performing sequentially compared to last year. Obviously, from year to year, factors change, and tariffs have been significant this year along with how consumer sentiment has evolved. Nonetheless, I believe you've appropriately interpreted the guidance we've provided.

Perfect. And then my next question would be on the outlook for the large QSR customers in the second half. It seems like maybe it's gotten a little worse than where we were 90 days ago. Maybe just talk a little bit more about what you're seeing with large QSR customers. I think you mentioned that new store openings were being revised down. Do you think that's just going to get pushed out to next year? Or just any color you can give would be helpful.

Yes, Joe, this is Steve. Happy to cover it. I think what we've predominantly seen from the major QSR customers is a couple of dynamics that are affecting both new store development and just overall replacement upgrade orders. I think #1, really all of this year, traffic through the QSR segment has been down, predominantly pretty much the entire year. They've been down, in some cases, double digits over prior year periods. So that's #1. #2, I think just continued cost pressures that the QSRs are facing, whether it's labor, whether it's food, construction of opening new locations and then you have the backdrop of uncertainty from tariffs. So I think as a result of that, you're seeing their new store pipeline push out and I've talked about on prior calls about the benefit that we've seen over the last several years is we have a lot more transparency into the new store pipeline from our customers. But if you look at where that pipeline has evolved from the beginning of the year to even the end of the first quarter to now, that pipeline certainly has pushed out to the right, if you will, and it's pushing more and more into 2026 and out of the back half of the year. So that is a big driver of what you're seeing in the revised guidance. And then I think secondly that all the dynamics that we're talking about from a headwind standpoint are also having an impact on just the overall replacement and upgrade cycle that those QSRs go through. So those are the big drivers of what we're seeing from the QSRs in the back half of the year.

Got it. Okay. That's very helpful. And if I can just maybe sneak in one more question. You mentioned that the tariff impact is expected to be fully offset by the start of next year in part through operating initiatives. You don't have to be specific, but just kind of generally speaking, what would some of those operating initiatives be in addition to price increases to offset the tariffs?

I believe there are several factors at play, with the most significant being the supply chain. Over the past few years, we have invested in our operating team, and we have built considerable strength in our supply chain. Much of our focus during the recent years of disruption has been on addressing immediate challenges. However, we have dedicated a lot of effort to optimizing our supply base by expanding it and exploring alternative non-tariff markets. This has provided us with considerable scale and capabilities that are helping to counterbalance tariffs and possibly even lower costs. Our long-term objective is to enhance our supply chain for future savings. I believe these initiatives are already in progress and are starting to yield positive results.

And your next question comes from Jeff Hammond with KeyBanc.

I'll echo the comments on the guide. I appreciate the color there and a formal guide. I just want to hit the, I guess, the $25 million to $35 million of tariff impact that's not going to be covered this year. Can you give us a better sense of how that's impacted by business? It seems like maybe FP and Res Kitchen are impacted a little bit more. But if you could break that down a little bit better, that would be great.

Jeff, this is Steve. I'm happy to take a pass at it. We covered a little bit on the last call. It's actually not quite as you outlined. If you think of the three segments and the tariff impact overall, I'd say roughly 60% to 65% of the impact is coming in commercial, which is about the overall spend for the company. Residential is in the 20% to 25% of the overall impact and then food processing would be the remaining was at 10% to 15%. So food processing is actually probably the least impacted compared to the other two segments and a big driver for that is that if you look at overall sourcing, food processing sources less componentry and parts from China compared to the other two segments. And again, remember, in residential, you also have the grill impact. So that's why that's a little bit higher than food processing as well. So those would be the three breakdowns, but food processing will be the lowest of the three.

Okay, great. That's very helpful. Bryan, you mentioned that FP is showing modest improvement from a trend. Can you share what you are observing regarding order rates and backlog growth, especially considering the quarter-to-quarter fluctuations? Also, since you announced the deal, could you discuss the M&A pipeline in FP as you move towards the spin-off?

Yes. The order trends have been improving throughout the year. And so that was behind my commentary. I would say our book-to-bill is above 1, but some of those orders don't deliver in one, two, three months. So it takes a little bit of time for them to roll out and such. So that's driving the positiveness in my tone there. Accordingly, backlog is also growing compared to where we started the year. And then as you have seen, we obviously made an acquisition in this space and do have an active pipeline. We've said that M&A will be part of the strategy for this segment. So I would expect to see more of that in the future.

One of the reasons for the spin is the active pipeline we have. As the spin approaches, our focus will shift to execution, but we have a strong pipeline in place. We're particularly excited about the recent acquisition of Frigomeccanica. While it may not be large for Middleby, it brings significant value to our food processing capabilities, enhancing both our product offerings and category expertise. This move is strategic and paves the way for exciting developments ahead.

And your next question comes from Tim Thein with Raymond James.

First question was a follow-up from an earlier conversation with Steve on the commercial business. And I'm just curious on these profit and margin pressures that have been ongoing for your restaurant customers and franchisees. I'm curious if you're seeing or have seen any impact in terms of maybe product mix or maybe share moving around, i.e., is there any shift to lower spec equipment or less technology uptake? I guess one could make the argument maybe they'd go the other way if there's issues around labor availability, but just curious your thoughts on that, just general question.

Yes, Tim, that's a great question. To address the last part of your question first, I believe the situation is actually the opposite of what you might expect. We haven't observed a shift towards lower-cost or lower-spec equipment. In fact, what’s interesting, especially in the quick-service restaurant (QSR) segment, is that they are focused on how to attract more customers back to their locations while managing costs. They are working on bringing in additional traffic during different times of the day. This includes introducing new menu items and categories that they haven't previously offered. A significant trend we've noticed among several major QSRs is the emphasis on beverages, adding them to their current offerings. We have discussed beverages extensively before, and we are in a strong position in this area, particularly regarding ice, coffee, and dispense products, including frozen items from companies like Taylor. There are companies that produce ice, dispense equipment, and manufacture coffee, but none that offer all three under one roof. This gives us a unique advantage in working with QSRs, as we serve as a comprehensive solution for their needs. To sum up, they are actively seeking new menu items and different times during which to drive traffic. Additionally, it’s worth noting that QSRs are not only competing with each other but also with convenience stores and grocery stores, which explains some of the dynamics at play. Regarding your last question, they are increasingly focused on higher-tech products that improve efficiency, reduce energy consumption, and minimize labor and training needs. However, it does take time to navigate these products through corporate and franchisee channels before they reach the market. That encapsulates what we are currently concentrating on with our larger chain customers.

I want to summarize that despite facing some challenges, we've actually gained market share with our existing customers where we have seen a decline. We currently have more products approved across our top chains than we did before. Looking at the upcoming rollouts that Steve mentioned, although some were postponed this year, we anticipate them coming in the next couple of years, which excites us about our pipeline. We believe we are succeeding in that segment, even though it is under pressure right now, and we are confident that it will improve eventually.

Yes. Okay. Tim, I don't recall if it was you or Bryan who mentioned the long-term target of achieving high single to low double-digit growth in EPS. I'm considering the long-term outlook for the commercial business. The post-COVID period has certainly been skewed in various ways. How do you view the underlying growth of the commercial sector? It used to align closely with GDP growth, but has since normalized. I suspect you have strategies in place for significant growth. I'm curious how you approach achieving double-digit annual EPS growth in relation to the core growth of the global commercial business.

Okay. Well, I'll let Bryan kind of pick up on the second part of the EPS translation. But we do think of it as a GDP plus business, right? Like I think we have built a lot of the pluses with the innovation pipeline, our go-to-market, incremental new target markets, right, that are new to us. Obviously, we talked a lot about ice and beverage, which we are just in early stages of attacking. So that's kind of incremental on top of industry growth. And then you have kind of the longer-term pieces of IoT and automation. So we do think those things are going to show up and be of growing importance once we kind of get past the disrupted period. So that kind of gets us to the GDP or industry plus growth.

And translating that to EPS growth, I think there are two reasons that the EPS grows, I'll say, two levels above what the revenue is happening. We've consistently demonstrated in the past that, I'll call it, our earnings growth exceeds our revenue growth as we look at how well we manage margins, operating leverage, the benefits of offering better technologies to our customers, right? Those are things that Middleby has been doing for decades now. Again, I would say that has earnings at higher growth rates than revenue and then layer on top of that the additional benefits from our capital allocation and our buyback gives it one more lift up. So I think that's how you can bridge from, let's say, a mid- to high single-digit growth rate into potentially a double-digit earnings growth rate. So our products, our operational excellence, and our capital allocation all work together really well there is what we see in the future.

And your next question comes from Tami Zakaria with JPMorgan.

My first question is, could you refresh us on how you're thinking about your direct-to-customer initiatives? Any thoughts on furthering your equipment and part sales by enhancing the DTC channel? Any launches in the pipeline or ideas in the pipeline that we should look forward to in the coming quarters or the coming years? I think that would be helpful.

Tami, I think we're all trying to make sure we understand your question properly. I'll maybe start talking a little bit, but then I'll ask you to clarify. So over the last few years, when I talk about go-to-market a lot, we are very focused on how do we build a machine that surrounds the end user, right? So that has to do with how do we bring innovation to market, leveraging, I'll say, newly created capabilities. So for example, you've been to our innovation center, right? So that's a big investment. We've had 30,000-plus customers come through there, built a culinary team, totally revamped our rep organization, which a lot of those reps are new. They are fully aligned with Middleby to sell the breadth of all of our brands and really focus on higher technology solutions, right? So that's not only a big investment, but we kind of disrupted ourselves in the process, but we're also great at training that team and working side by side. We've invested heavily in digital tools, and maybe that's what you're alluding to a bit, and that cuts across a lot, but we do think that, that goes right to the end user with content education and developing a funnel. And one of the things that we have not talked a lot about, but we will in upcoming quarters and the year is our service initiatives, which we think will further differentiate us. We're not necessarily selling direct to the end user, but we've got all of these capabilities and channel partners that we're very well aligned with, and we strengthened those partnerships to kind of provide not only excellent engagement, but bring to them the latest innovations that we have. So it's taken us a while to build these capabilities, and its significant investments, but we believe we're kind of gaining significant traction that we can see on a quarter-by-quarter basis.

Understood. That's very helpful. Just a follow-up. I was wondering, is there any plan? Or is there any business case for going direct to customer even with sales like having a website and having some of your business customers onboarded there so they can directly order from you in parts and new equipment and the likes? So that was the genesis of my question, but I think you answered most of it.

Okay. Yes, I'll just comment on two things. One, I mean, although we've got channel partners, we are engaging directly with end users in multiple ways. All those different elements I talked to are all about how we engage with those customers. So end-user customer engagement, like I say, is at an all-time high, and we've got capabilities we didn't have a few years ago to do that. And I think that's paying dividends in some of the pipeline we are building. Digital is a piece of that, and we're evolving it. We are not going direct to customers, but it provides a channel for us to engage and educate customers. And there are new tools that are being deployed that our investments already made that will gain traction over the next year.

And your next question comes from Brian McNamara with Canaccord Genuity.

I recognize that there are significant challenges ahead. CFS organic growth has been declining for seven consecutive quarters. This business previously achieved high single-digit growth organically, but it has fallen well short of that since 2017. When can investors expect a sustainable return to growth in this area? Also, will the anticipated growth be more focused on volume?

Yes, we've observed growth in specific areas as the overall market begins to improve. Certain segments within commercial foodservice are performing well, particularly larger chains where we have a strong position. The question of when growth will return is complex, but we don't believe that these chains will disappear. Currently, there's significant retooling happening, including adjustments to menus from both pricing and innovation perspectives, along with management changes. This disruption in the market has led to a recapture phase for these chains, and we expect them to experience a surge at some point. When that happens, we anticipate a longer runway for growth, as the headwinds faced over the past few years have been numerous, with a new crisis emerging each year. Our hope is for a couple of years without crises so that these chains can successfully implement their strategies, aligning with our own efforts. This alignment is key to achieving sustainable growth. We believe we are in a better position than others and have made the necessary investments to support this. This is why we speak about our business with confidence and have opted to buy back shares. We see Middleby as an exceptional investment, and our long-term perspective indicates that this will pay off.

Great. We observed a lot of impressive innovation at NAFEM earlier this year that addresses customer pain points, such as labor savings and other inefficiencies. Open Kitchen, FryBot, PizzaBot, and other ovens seem exciting. How are those products performing compared to your internal expectations? Also, do you think the sales cycle has possibly lengthened due to tariff issues and other uncertainties in the marketplace?

So I'm going to let James address that. Regarding the second point, the tariffs have prolonged some processes. Whenever there is uncertainty, the tariffs have impacted costs not just for new equipment but also in other sectors like paper packaging and food. With uncertainty and disruption, timelines get extended. This has certainly influenced what we've observed this year and our outlook on the market right now, although we believe it will evolve. We are starting to gain momentum on many of the exciting developments mentioned at NAFEM, and perhaps James can provide insights on IoT and beverage automation.

Yes. Let's talk about IoT first. I think with our investments over the past several years, we've kind of hit a nice critical mass with connected products to offer to our customers. And we're continually seeing an uptick in connected equipment sales through the channel, which is exciting. It's also been a tailwind for us on certain chain wins where we are winning rollouts because of our connectivity solution and having the products connected kind of out of the gate. So we're appreciating that. Also on the Open Kitchen side, we're seeing some wins out in the market on the energy management side of the Open Kitchen platform. If you remember, Open Kitchen has energy management, has middle of the house cold chain management and then it also has connected equipment management. No other platform out on the market has all three of those pieces tied together with a single pane of glass. So very exciting there. On the new products that we showed at the NAFEM and NRA show, I will say that they are seating very nicely in the marketplace, starting to see some good traction there, and we will start to benefit nicely in '26 and as we go into '27 as volume picks up. I'd tell you where we're really excited is with beverage. Tim talked a lot about the beverage innovations that we have coming down the pike. And I just want to echo that we have some really game-changing dispensing and dosing technologies coming out from Newton and L2F, where we are bringing kind of future-proof beverage dispensing to the restaurant industry, enabling them to rapidly adopt new beverage platforms within their organizations. And coupling that with some game-changing automation from L2F, we really expect to see some nice revenues in '26 from our beverage platform.

I want to provide some perspective on the hard work that James and the team have put in, especially since we acquired what we believed was the leading platform with Powerhouse Dynamics. James and the team created the Open Kitchen application, which required a significant investment over several years. At the same time, they developed the Middleby OneTouch Control during a period when controls were scarce. Not too long ago, it was difficult to purchase controls, but now we have successfully launched the Middleby OneTouch Control, which James has integrated across our various brands and platforms. This consistency offers a streamlined experience when interacting with Middleby, and these controls come IoT-ready right out of the box. Everything came together effectively at the beginning of 2025. This is a multi-year initiative, and this year marks the real kickoff, as we are now enhancing our sales team to bring these innovations to the market. Our customers are also inquiring about these products, and as James mentioned, we've had wins where our offerings influenced purchasing decisions, in some cases even being the deciding factor. We feel positive about our position in what is a long-term journey, and no one else is as well-positioned as we are. These substantial investments are not only challenging to replicate, but the extensive nature of our portfolio adds a unique value to Middleby compared to individual products.

Your next question comes from Walt Liptak with Seaport Research.

My question is about capital allocation. It seems that with the purchases you've made in the third quarter, you're at about $500 million in buybacks this year. Do you expect to continue with buybacks at that rate in the second half of the year, or are you considering other forms of capital allocation for that period?

I think I'll start off, but Bryan will kind of clean up. So I mean, I think we indicated that, that was the strategy and then obviously that we indicated that was an accelerated or more committed strategy. So I mean, I think we're very focused on making sure we executed on the buybacks sooner rather than later, given a variety of things, including it's the best idea be things that we're focused on operationally in other areas. But I mean, I think we wanted to make sure that we kind of got ahead of our buyback strategy. So I mean, I think we're going to continue with buybacks. So that is a longer-term view, and we think a great investment, but we definitely kind of weighted it towards the front end was the thinking there to take advantage of where the stock price goes.

Your debt ratio appears to be around 2.5%. I'm interested in understanding your M&A strategy moving forward. It seems like FP might have some potential deals in the latter half of the year. Historically, you've successfully consolidated and made acquisitions in the CFS segment. Given the current sector weakness, wouldn't this be an opportune moment to pursue consolidation and explore deals? Does CFS still have a deal pipeline?

I believe there are a couple of important points to consider. Our capital allocation for acquisitions over the past few years has focused significantly on food processing. This area is growing due to its position in the business life cycle and the industry's fragmentation, which is one reason we are considering separation. We expect food processing to become a fast-growing company through both organic development and strategic mergers and acquisitions. This strategy will remain unchanged with the separation. In contrast, our Commercial Foodservice segment has reached a different size and scale. We have completed many acquisitions and developed our platforms. Recently, we've shifted much of our acquisition capital towards beverage and ice, where there are some opportunities, but we've also made substantial progress in that area. Additionally, we've been concentrating on our long-term initiatives related to IoT automation and controls. While we are not finished with our growth initiatives, we have made significant investments in recent years and are focused on integrating these opportunities to drive organic growth. We will continue to evaluate appealing and strategic opportunities that fit our platform. However, at this moment, our share price is appealing, and we want to prioritize executing the spin from a bandwidth perspective. The most obvious opportunities remain in food processing right now. Thus, that outlines our current priorities. This doesn't imply that we will rule out future acquisitions in Commercial Foodservice, but our attention is on immediate priorities.

Okay. Yes, that would be surprise if you didn't do any more CFS deals. Maybe just the last one. While you were answering another question, you talked about how replacement of equipment in the field in CFS that there's some delays in refurbishments or replacement. And I can't remember I've ever heard you guys talk about that in the past. What's the driver of that? And what should we think about for when maybe some pent-up demand for replacement comes back?

Yes, great question, Walt. This is Steve. We've discussed this quite a bit previously. If you look at the last decade of commercial growth, a significant portion of it stems from the period between 2012 and 2016. Consider the equipment that's been in the field, which typically has a life cycle of about 5 to 7 years. Using 7 years as a reference point, you would generally expect that equipment from that growth period would now be due for replacement. However, many franchisees prior to COVID were concentrating on front-of-the-house initiatives. Then COVID happened, followed by supply chain issues and now tariff disruptions, which have all delayed equipment replacement. We’re approaching a point where we need to address this situation. There’s a substantial amount of existing equipment that requires upgrading, and repair costs are increasing. Ultimately, not being able to serve food due to equipment failures will drive the need for replacements even more. Franchisees also need to consider whether their equipment can improve labor efficiencies and energy savings, as we’ve discussed before. The demand for upgrades has been building for a long time, and it's a matter of timing for when it will come to fruition. Nonetheless, I believe we're getting closer, as it’s not sustainable to postpone these upgrades indefinitely. We expect to see a rise in replacement activity starting next year and continuing into the following years.

Seeing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Tim FitzGerald for any closing remarks.

Thanks, everybody, for joining us on today's call, and we look forward to speaking to you next quarter.

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