The Middleby Corporation (MIDD) Q4 2015 Earnings Report, Transcript and Summary

We'd like to welcome everyone to the Middleby Fourth Quarter and Year End Conference Call. With us today from management are Chairman and CEO, Selim Bassoul; and CFO, Tim FitzGerald. Management has prepared remarks on the quarter. Then we will open the lines up for Q&A. [Operator Instructions] Now, I would like to turn the call over to Tim FitzGerald for opening comments. Please go ahead, sir.

Thank you, Chelsea. Good morning, everybody. Thank you for joining us on today's call. I have some initial comments about the Company's 2015 fourth quarter and full year results, and then we will open the conference call for questions. Net sales in the 2015 fourth quarter of $534.7 million increased 22.9%, from $435 million in the fourth quarter of 2014. The fourth quarter sales include the impact of acquisitions not fully reflected in the prior year comparative results, and accounted for 28.5% of the sales growth in the quarter. Sales in the quarter continued to be affected by the strength of the U.S. dollar against a number of foreign currencies, in comparison to the prior year. This fluctuation resulted in lower reported international sales, when converted to U.S. dollars in the quarter. This impact amounted to $12.2 million, or 2.8% in lesser reported sales growth. Reported sales growth in the quarter also reflects the adverse impact of a 13 week fourth quarter in 2015 reporting period, versus 14 weeks in the prior year quarter. Excluding the impact of acquisitions and foreign exchange, sales declined by 2.8% as compared to the prior year quarter. This decrease reflects an organic sales decline of 1.6% at our commercial foodservice group, an increase of 0.5% at our food processing group, and a decline of 10.9% in our residential kitchen equipment segment. Sales at the commercial foodservice group for the quarter amounted to $279.2 million. Although we realized a sales decline in the quarter, it reflects the comparatively lower number of weeks in the recording period. And for the full year, we reported sales growth of 6.3% on a constant currency basis, as we continued to realize strong demand from restaurant chains upgrading equipment, and adopting new technologies to improve the efficiency of restaurant operations. Organic sales growth in international markets was largely offset by currency impacts, but on a constant currency basis, grew approximately 6% in the quarter, with mixed growth by region. Sales at the food processing group amounted to $81.9 million in the quarter. Sales improved sequentially from the second and third quarters, and backlog increased by approximately 60% to $108.5 million, in comparison to the prior year end, as incoming order rates out-paced shipments during the year. We continue to see a positive pipeline of new projects, as we move into 2016. Sales in the residential group amounted to $173.8 million in the quarter. This included approximately $111.3 million in sales related to acquisition, including U-Line, AGA and Lynx. Excluding the impact of acquisition, the sales decline in the residential kitchen equipment segment reflects the continuing impact of the recent product recall with Viking, related to legacy products manufactured prior to Middleby's acquisition of Viking. Despite the challenges faced during the year, we believe that the significant investments that we have made in the comprehensive, new and innovative lineup of products, introduced during 2014 and '15, along with a continued improvement in customer service from our investments in distribution, will result in improved sales as we progress through 2016. Gross profit for the fourth quarter increased to $198.9 million, from $169.1 million in the prior year. And the gross margin rate was 37.2%, as compared to 38.9% in the prior year. The gross margin rate for the quarter was impacted by the lower margins at the recent AGA acquisition. Excluding the impact of AGA, gross margins increased to 38.9% on a comparative basis. The gross profit margins during the quarter at the commercial foodservice equipment group were 41.8%, as compared to 40.6% in the prior-year fourth quarter. And the margins remained strong, either the improvement reflects favorable sales impact of sales mix amongst the business divisions. Gross margins at the food processing group were 40.2%. This compared to 40.6% in the prior year quarter. Gross margins remain relatively consistent with the prior year quarter, while improving from 37.8% to 38.9% for the entire year, reflecting the profitability improvements made within the segment. The gross margin at the residential kitchen equipment segment decreased to 27.1%, from 32.3% in the prior year quarter, reflecting the lower margins at AGA, in addition to higher costs related to new project introductions at U-Line. Selling and distribution expenses during the quarter increased to $56.4 million, from $45.5 million. The fourth quarter of 2015 includes $13.6 million in additional selling costs associated with acquisitions completed during the past year, offset in part by $1.6 million in lower reported costs, due to currency translation. Excluding the impact of acquisitions and foreign exchange, the decrease of $1.1 million selling expense reflects the benefit of cost savings initiatives implemented during the year. General and administrative expenses increased to 52.9 million from 38.3 million in the prior-year quarter. And general and administrative expenses included 17.2 million in expenses associated with recently acquired companies, also not included in the prior-year quarter. These increases were offset by 1 million in lower reported expenses, due to foreign currency translation. Excluding the impact of acquisition and foreign exchange, general and administrative expenses declined by approximately 1 million from the prior-year quarter. The fourth quarter also included 16.9 million of restructuring costs associated with the recent acquisition of AGA. This expense primarily relates to severance expenses in connection with headcount reduction initiatives, as we focus on efficiency and profit improvements within the portfolio of businesses of the AGA group. And we anticipate the savings from these actions will largely be realized in the second half of 2016, due to the timing of implementation, due to various social and legal processes in the related European jurisdictions. Interest expense during the quarter included a 1.4 million increase on higher debt balances, primarily reflecting the associated interest with the AGA acquisition. And earnings per share of $0.88 in the fourth quarter included the impact of the recent AGA acquisition, including the restructuring activities related to this business, which diluted EPS by $0.28 per share. Excluding the AGA and the associated restructuring, EPS for the quarter amounted to $1.16 per share, a 27% increase in comparison to $0.91 per share in the prior-year quarter. Cash flow generated by operating activities amounted to 82 million in the quarter and a record 249.6 million for the full year. Non-cash expenses added back in calculating operating cash flow amounted to 24 million for the quarter and 68.8 million for the year. This compared to 14.1 million in the fourth quarter and 56.8 million in the full year of 2014. The 24 million of non-cash expenses in the quarter included 8.1 million of intangible amortization, 11.7 million of depreciation, and 4.2 million of non-cash stock-based compensation. The AGA transaction added 2.4 million of depreciation and 2.4 million of amortization in the fourth quarter, and we anticipate this will continue at similar rates in future quarters. The company utilized 4.4 million in the quarter and 22.4 million in the year, to fund capital expenditures, primarily related to investments in manufacturing equipment and enhanced production capabilities. While cash used to fund acquisitions related to investments amounted to, acquisition investments related to, amounted to 91.1 million for the quarter and 348.6 million for the year, including the 2015 acquisitions of Desmon, Goldstein, Marsal, Thurne, Induc, AGA Rangemaster and Lynx. Total debt at the end of the year amounted to 766.1 million as compared to 598.2 million at the end of the 2014 year, while the Company's net debt to EBITDA leverage ratio at the end of the year remained less than 2 times. Chelsea, that's all for the prepared commentary, so can you please open the call now to questions?

[Operator Instructions] And our first question comes from the line of Tim Wojs with Baird. Your line is now open.

To start, the first question, to start on commercial food. I know you talked about the comparatively lower shipping dates, I think, in that business, but maybe across the entire business. Is there any way to help us quantify what the impact on that was to growth? Just trying to get an understanding of what the underlying growth in commercial foodservice looks like?

Yes, it's hard to measure it precisely, a difference of having one week. But I think in commercial, where we have more consistent shipments week to week, essentially, it's, I think you can think about it almost on a prorated basis, where last year, we had one week more out of 2014. So if you theoretically took that, then that would bring you from a decline into mid-single-digit growth. So I think that's what we really view the run rate being in comparison. And that would be consistent with what we had during the year. As you saw, we had higher single-digit growth. So I think we would have had similar, maybe slightly less growth rates in the fourth quarter, but it would've been much closer, in comparison. That's why I call out the 6.3% organic growth for the year. I think that's a more reflective number of the business dynamic.

And that type of growth has continued in the first couple months of 2016?

Yes, so we've had some -- there's some variability with some of the chain rollouts from the quarter, because we were pretty strong, the close of last year, running into the beginning of this year. So we are probably a little bit lighter on that. That being said, the pipeline of chain projects, in aggregate, is just as strong. So we feel very positive about that. There's probably some timing, as we go through quarters. But all in all, this business backdrop is the same with the chains.

And then, on Viking, could you give us an update on how your conversations with dealers have been progressing, with some of the legacy product recalls? And have you seen order activity beginning to improve at some of the key dealers? And is it a stretch for us to think that residential, for the full year in '16, could maybe grow slightly, on an organic basis?

Tim, I would say, at this moment that -- let me tell you, basically, the pluses and minuses of where we stand on Viking. On the minus, literally, we are still reeling from the impact of the product recall, on a product that we did not inherit. Basically, we had a product recall that happened in March and April of last year. And we're still -- the impact of it is still going to catch up, because we are just starting to turn the corner. If you look at January and February of last year, we had just started turning the corner with the dealers. We started receiving orders, and our orders were starting to grow. And then when we announced the recall, it was like a cold shower on everybody. And I think we underestimated the impact, that it was a lot bigger, because they said, okay, Middleby buys a company. Everybody's excited. And now, under Middleby, it's the first recall that occurs under Middleby. And we have to go back and explain that this was not a product designed by Middleby. It was really a legacy project that they had before. And then we have to prove to people that those are a type of legacy where it's already totally out of system. So we went back, and the first question, dealer said -- okay, Selim, we are going to go pushing Viking again. What is next, that we're not going to basically be bitten again? I said, let me tell you that, by the end of 2015, every legacy project will be totally redesigned. There will be no legacy products left on our plate. And we are basically -- we did 95% of those, that are 5% products that are still not completed that will be completed in 2016. But basically is assurance, is to go back and tell all the dealers that there is no legacy products in the pipeline. Because that's what has happened. It's happening in refrigeration, it's happening in dishwashers, and it's happened in cooking. So what did we do? So we started, we basically implemented the largest training program in the history of Viking, in not only in terms of the number of people, but in terms of speed we've done. So we got an extensive training of dealer salespeople, and designers, and builders, in the first quarter. And it's built into generate in February, where we trained probably hundreds and hundreds of dealer salespeople, and showing them the new product, which are all designed by Middleby. All tested, and have the Middleby robustness about them, the way we do in commercial, on top of features and benefits. Then, we basically carried this message to the kitchen and bath show, in Vegas, where the traffic was humongous. We had very busy traffic. Not only that but we also won the KBIS award, the KBIS People's Choice award on our induction, which was basically all new product redesigned and done by us. So it's been very exciting, from that perspective. So let me share with you where we're seeing the gains. At this moment, we are seeing gains with several dealers who joined Viking recently. So, you look at first Nebraska Furniture Mart, PC Richards, I can name many. I'm naming some few -- who basically embrace the new product, put in the big showrooms, and we're seeing a lot of movement in those dealers. The problem we're having is the dealers who have had -- who used to be big Viking dealers, and struggling, because it had a lot of issues. So you look at the ones, like Ferguson Bath sales, who basically embraced the displays, and working well with us, and really revamped their whole showroom to showcase only the Middleby designed product we are seeing gains. But now we have to basically go back and win those big local dealers that were big Viking supporters. And we have work to do on that level. The other plus, the builder business, our builder order rate has increased significantly. We are starting to get orders, specified the new construction project, and we're seeing that. That's not only to the credit of Middleby, the housing market and the construction business is growing, and we are getting a fair share of that as growth. In addition, I think builders have gone back and liked the product, like our No Quibble warranty, like our servicing and warrantee, and like the fact that we're basically introducing products that are attractive to the consumer, such as zero preheat on our convection oven. Our new design refrigeration, which used to be our Achilles' heel, if you think about where Viking failed, it failed in refrigeration. And we redesigned every legacy product from refrigeration, going forward. And that's why we are winning back the builder business.

Thank you. And our next question comes from the line of Tony Brenner with ROTH Capital Partners. Your line is now open.

In addition to the sales impact of the Viking recall, you presumably had to fix 60,000 ovens, or close to that number. I'm wondering what the costs of those repairs were in the fourth quarter, and whether that's now complete?

No, it's not complete, Tony. It takes a long time to basically, for all the awareness out there, for the owners to, we make a big push to reach the owners out there, but it continues for a period of years, I'll be honest with you. So you definitely get a bigger chunk at the front end, and it tails off over time. But we had a, it didn't run through the P&L in the quarter, if that's what you're getting after. We had a reserve set up on the books already. So the cost of that is just resulting in the accrual decreasing over time. It's hard to say exactly what percentage we're through, at this stage. But I would say there's nothing unusual that's coming along with, outside of our expectation.

Okay. Selim mentioned that you are not shipping any more legacy products. To what extent are legacy products still under warranty, and how long will that be for?

I would say, if I have to count, I don't have an exact number. But I would say we started, most of our refrigeration, all our legacy refrigeration, is behind us. I would say almost July 2014, we started, or sorry, July 2015 is when we started shipping all the new refrigeration. So prior to that, we still had legacy refrigeration that we had in system. Starting July 2015, all refrigeration is brand-new. Everything is brand-new. I would say 2014 was 50% of the refrigeration. 2013, because we bought it in 2013, so I would say 2013 was all legacy product. We didn't change much of the refrigeration by then.

Sure, but how long is that warranted for on the old product?

Tony, it's a three-year warranty.

So most probably, we will feel the impact of it though most probably through 2017. We'll be through 2017 is when we'll still feel the impact of the legacy product. But we have another year, almost another two years, of warranty impact for the legacy product. Which I think by, I would say, literally 2015, early 2015, is when we launch all the legacy products. I would say 2017, maybe 2018 at most. The new orders are all coming in, new product, and…

Sure. And one question regarding AGA, all of the restructuring expense, presumably, was severance. I wonder, going into the first quarter, will there be additional severance expense or other restructuring costs broken out for AGA?

Yes, we don't have an estimate of what that is. It will be less than what we had in the fourth quarter. We took significant actions across the Company, but there is still ongoing activities so I would expect that we would have a similar but lesser charge in the first quarter.

Will any of that relate to just continuance of businesses, or write-downs, or any of that sort of thing?

No, it would primarily be severances, as well.

Okay.

Tony, let's turn this question around. For you, and for all the people listening as investors and shareholders think let's compare AGA versus Viking and what happened there. AGA has proven already to be even more exciting than we even thought. From that perspective, AGA is a very exciting acquisition for us. It doesn't carry the legacy problem that we've encountered at Viking. It's literally been -- towards the restructuring and we've found a very competent management team there, who are adopting the DNA of Middleby quite quickly. The power of the two, of Viking and AGA, and compounded with Lynx and U-Line, will yield Middleby to be a very strong player in the high end appliance. Just to share all of you, we see AGA to have a much, much faster integration then we faced with Viking. Viking was more of -- a lot of legacy issues, quality issues. The business model of Viking was very different than AGA, from the standpoint that they had only, at one point, 11 customers, because they only went through distributors. Plus, we had to buy the distribution. So, if you think about what was done in the three years of us owning Viking, we had not only to re-change the culture with the management team, we also had to deal with the distribution, because Viking did not recognize its customers or its dealers, because they had a buffer in between, which was the distributor. We had to buy the distribution. We had no choice. Unlike most of its customers, they basically insulated themselves from the consumer, the end user. Literally, if you were a Viking customer, you never dealt with Viking. Viking had no data on your warranty, had no data on your customer issue. They basically were insulated, which was a wrong business model. And until we bought it, we discovered literally the extent. And maybe you can blame it on us, but I would say, doing the due diligence, we did not understand the fact that we were so disconnected from that end user. And we had to go and buy the distribution, which was a very complex decision for us, that we had to integrate sales, service, distribution and warehouse. So you look at AGA, AGA doesn't have any of those issues. They already had sold through their own retail store. They had a distribution system that connected them with the end user. And from a standpoint of quality fit and finish, when we did the due diligence, that was the number one thing that we spent a lot of energy on, so we don't get caught the way we've been caught with Viking. [Technical Difficulty] I think, Tony, we've answered -- I think I've answered a little bit about AGA, and what we said about AGA.

Thank you. And our next question comes from the line of Schon Williams with BB&T Capital Markets. Your line is now open.

I wonder if we could address food processing. Obviously, it seems like the orders have been quite strong, backlog up 60%, one of your competitors talking about a very strong environment. Can you help us -- obviously, there's been some delays, I'm assuming it's mostly customer delays, throughout most of 2015. Just help me get comfortable with when we should start to see some of these projects go out the door? Is that a first half 2016, second half 2016? Just some confidence around the delivery schedule there?

Yes, I think we're looking at a lot of this starting to ship in the first half of 2016. Obviously, we've been talking about increasing orders through the year. Sometimes, the timing of when the customer is going to take the project slips, and sometimes, it slips longer than what we expect, which obviously we've seen this year. But that's why we pointed out the backlog, which we usually don't talk about. But I think it was important to show that we've had significant increase in the backlog, which has out-paced the revenues. It can only push so far. So I think a lot of these orders will start to be realized, in terms of revenues, as we go through the first half of the year, is our expectation.

And is there any real risk that some of that backlog starts to evaporate? Is there any real risk that you start to see cancellations?

That is very unusual. And with the way the business model is -- so the larger orders, typically, there is a large deposit -- 30%, one third of the project. So there's an investment that's made by a customer, up front, on those longer lead time projects. So they'd be walking away from that. So that rarely occurs.

Schon, that's basically why everybody questions why the orders sometimes are lumpy. It's not because -- the orders are only lumpy is because we require a complete sign off and a deposit, a pretty sizable deposit, to put it in. Basically, unlike foodservice where, when we get an order, we basically go ship it and get paid. Here, we're basically, there's a sign off on the engineering drawings. Those are big -- we're talking several million dollars, so they have to sign off on the drawings. The customer has to sign off on the drawings. That's why, when we look at those orders in-house, they've already fulfilled the two requirements. We've have a full sign-on on the complete drawings, and we've had a deposit put in. And that's what makes us very comfortable with those orders.

That's helpful color, guys. Tim, I wonder if you could -- could you just give us the EBITDA margins by segment? And then also, I wanted to see, is there any purchase accounting that we should be thinking about, for AGA in the quarter? And if so, does -- how much of that starts to go away, as we move into the next couple of quarters? I'm just trying to get a sense of, is there an upfront hit that starts to fade, as we move through time?

Yes, I'll take the second piece first. As I mentioned, in the non-cash costs, we are still finalizing the valuation, but it was about 2.4 million for amortization, and 2.4 million for depreciation. So I think that's a general benchmark, going forward. We do -- one of the other kind of goofy accounting rules out there is, you write to the inventory up to fair market value. So some of the inventory that you're selling immediately after an acquisition, you don't actually realize a margin on it. That was a number that was about 3.5 million in the fourth quarter. And we'll have some continuation of that in the first quarter, but then after that, typically, that inventory is turned out. So that piece goes away. As it relates to the EBITDA margins for the quarter, we have foodservice, we had at 29.4%. Food processing actually had a very strong quarter, so we had food processing at 29.6%, so it was actually right in line with commercial -- for the year, food processing was at 25.4%. So commercial was consistent in that band of -- in the 28% range, a little bit higher in the fourth quarter, where food processing had the strong quarter, but for the whole year, was 25.4%. So that's a real strong improvement over the last few years. And then residential, including AGA, would've been around 11%. If you were to back out AGA and look at the legacy businesses, we were right at 20%, like the Viking/U-Line combination.

Thank you. And our next question comes from the line of Jamie Clement with Macquarie. Your line is now open.

Selim, Tim, Darcy, good morning. Selim, was wondering if you might be able to touch on some of the restaurant themes that you are seeing develop out there? And then perhaps touch on some of the new products in commercial foodservice that you've set the launch, in 2016, to have those products link up with the trends?

Literally, if I look at what's going on in the industry business, it bodes well for Middleby. One, we continue to see the pressure on labor wages. That's number one. You get labor wages rising, and it's an unstoppable aspect of a restaurant. Their costs are going to go up on labor wages, which basically have to do automation. Number two, you are seeing delivery is becoming a big thing. Everybody wants to deliver product. And delivering product requires flexibility and speed, so we're looking at speed of cooking and delivery. Both of those are unique for Middleby, because we own the automation. We are the largest automated equipment supplier to the restaurants. Speed, we have the largest speed of cooking in that space. So you look at those two trends that are disrupting the food restaurant business, labor and delivery, and we play right in there. The third thing that's going to help everybody in the space is that the fact that the last five years, restaurants have done a lot of investments in online -- basically ordering, social media, texting, ability to text an order and receive it, into what I call making it easier for people to order online. They've made so much investment, and those investments are already done and sunk. Now you are seeing more money being freed up back to the back of the kitchen, where they have to start upgrading their kitchen, to allow for menu rollouts and flexibility and speed, and to figure out a way to corner that rising labor cost. So I see those. Then I see another trend, which is the trend of, basically, more cooking. So you're going back to healthy cooking food, more vegetable, grilling vegetables, steaming vegetables, just because people are walking away from a lot of the proteins that have hormone issues, bacteria issues, and the cost of rising beef. So you are looking back to chicken, you're looking back to vegetables. Then another two trends is breakfast. Breakfast is also becoming more and more popular. You've seen, at one of the QSR, making breakfast an all day event. People are starting to emulate, because it has been very successful for them, and everyone is looking at breakfast again, to say, how do I take breakfast, and make it more of a revenue driver for me. Then you see convenience stores and supermarkets, which is a new entree for Middleby, is our growth in supermarkets being very, very strong. The last two years, we've invested significantly in going after supermarkets, because they are doing more and more take-out, and they are doing more prepared food. And the growth in that segment went from almost nothing, to now, we're basically, I think, $15 million to $20 million, in two years, in that segment. Then convenience store is -- we are playing a major role in convenience stores. And we are seeing that becoming even a strong competitor for food delivery. So from an equipment standpoint, 2016 bodes well for us, because we're introducing around 14 highly disruptive products that are going to basically grow, in the next two to three years, into multi-million dollar platform. So when I look at our entry into ventless, into Combi, into beverage, into broilers, into kitchen of the future, into warming and holding, and into pizza; we are so well-positioned to grow those segments extremely well in the next three years. Irrespective of the macro, I don't know what's going to happen in Brazil. I don't know what's going to happen for the dollar, one way or another. I look at the US, and I would say that we are well positioned, for the next three years, to grow very, very well, given all of the innovation, and given those two trends I have talked about, which is labor and delivery.

Okay, that's great. And Selim, if I could ask just one follow-up question, on the Viking side. It seems to me that arguably, the last revolutionary piece of cooking equipment that really hit kitchens was probably the original series of Viking stainless steel ranges. I am wondering about the TurboChef wall oven, or some other versions of combined Viking/TurboChef branded products. Is there an opportunity to make something that's affordable for people, that really could revolutionize the way people cook?

We are introducing -- so finally, after three years of significant work, we are launching our TurboChef product in April. I think April 15, or end of April, we are launching the TurboChef. It's now in production. We figured out the kinks, and all we need to do. It will change the way people will cook, I will tell you that. The same thing that we are seeing in commercial, seeing it in residential. Speed of cooking is a big issue. That's why, I think when you look at the Middleby innovation within the residential at Viking, we've introduced all of our convection ovens. We took the Blodgett technology, and we introduced it -- the Blodgett convection oven, the Blodgett commercial convection oven, which has zero preheat, and we put it into all of our convection ovens and our ranges. If you have a Viking range today, you bought it in 2015 or 2016, it will have zero preheat -- if you have the convection oven from us. We eliminated 15 to 20 minutes of preheating the oven. You can take your item from the refrigerator or the freezer and put it in, and you eliminate 15 of 20 minutes of preheating of the oven. Now, with TurboChef, we bring that in two minutes. The more interesting part at KBIS, which was interesting for us, we were the most connected -- we had the most smart and connected product, transforming the kitchen, was in Viking. Basically, not only I could connect my basically -- through my iPhone or tablet, I can figure out what's going on in my refrigerator or my oven. I can put it on and off. I can basically figure out what's going on in my kitchen totally. It will open up the refrigerator. It will open up the oven. What was opened up? I can look into my refrigerator, and figure out what I am missing from the supermarket. So we have -- we basically are looking at cameras inside the refrigerators that are basically -- will tell you what's missing. You are at the supermarket, in meantime, you wonder if you have lemons or you have tomatoes in your refrigerator, or if they're still good or not. We are really pushing -- in the last three years, we have transformed Viking. We've taken not only the features and benefits of speed, and fit and finishing quality of our cooking platform in commercial. We basically took our products, and made them highly connected, smart, and in an affordable way. We are not going back and saying, well to be smart and connected you have to spend in excess of thousands and thousands of dollars. We have done it in a very efficient way to give you a very smart refrigerator, a smart oven. And it's done in a way that works for you. We are not trying to give you a TV that you can watch TV on your refrigerator, which is the way some other companies have done. We're making application that really transform, and make your life easy, as a housewife, as a mother, as a cook, we're trying to make your life easy in that kitchen. And that's what we've done. And that was on display at KBIS. So we have the TurboChef, and we are cooking live on it, and we have launched. And we have the smart connect products were all on display at KBIS, at Kitchen and Bath Show. So, we'll be launching our smart connected product sometime in 2017, and they will be all available, and it will be very affordable. Now going back to TurboChef, can we ever make TurboChef highly affordable? The problem is that the TurboChef product is highly- highly innovative product. It has so many technology and has so many patents. It's ventless, it doesn't have flavor transfer, it's high-speed. It's a unique touch screen. It has unique ways to recognize your recipes. It has a unique way to sense the food inside the oven. So it's difficult for us to bring that product, which is our wish, to make it affordable for the masses. Maybe down the road, maybe in five, six, seven years, we might. But today, it's a very high margin, expensive product. We're looking at a price of around $17,000 for a double, for the double oven, which is basically double what you would spend on a high end wall oven. It's coming up double. But once you have a TurboChef, you really cannot go back. It's impossible to go back. Because you can get your croissant toasted. You go and get your Costco croissant in the morning, and take them from the refrigerator. By the time you preheat the oven, let's say it takes four minutes. And within most probably a minute, you have phenomenally toasted croissant, like coming out of a French pastry shop. And that's what you get. It's an amazing product. It's transforming Costco croissant into a delicacy, because of the way its technology cooks, and do that. And we were able to show that many-many ways. I give you another. Forget just turkeys. We do turkey once a year, okay people can wait three hours to cook a turkey. Let's talk about simple stuff, vegetables. Today, if I take a squash, which is a very healthy product, and it's a very easy product, and people don't eat a lot of squash, just because it takes a long time to heat that oven. I'm one of them. I love butternut squash -- I love it. So easy, you go buy one. You cut it in half. By the time you put it in a traditional oven, you have to heat the oven, even with Viking. You don't have to preheat it. It takes 45 minutes to get that squash toasted correctly, so it melts in your mouth when you take it with a spoon. In addition, I would have to go and open that oven, maybe 20 times, to make sure it is done right. It's not overcooked. It's done all the way through the core. With the TurboChef, you are talking total to have a squash done, which is a healthy product, cut it in half. You take it from supermarket, cut it in half, put the two halves in the TurboChef. You are talking total, including pre-heat, of nine minutes. And you don't have to open it. It will test it, it will sense the temperature. It is every time consistent. It comes out consistently good every single time. It browns correctly, it cooks correctly. All you have to take it out and basically let it cool it off a little bit, because it's hot, and just start use a spoon, and you're done. This is the power of the TurboChef, and that's being launched in April. And that's basically, all our dealers are excited about it, and many customers have had the previous TurboChef, who are waiting for this to come through. Now, on another great note, the French door oven continues to do extremely well for us, which was a complete innovation from Middleby on the Viking site. It has done extremely well for us, continues to grow very fast.

Thank you. And our next question comes from the line of Jason Rodgers with Great Lakes Review. Your line is now open.

Selim, as you talk to your major restaurant chain customers, do you sense, or are you seeing, any kind of caution, given economic conditions, as far as spending on new equipment? Or is it pretty much business as usual?

I think it's business as usual. In fact, we are very excited, because not only low gas prices, low heating oil and natural gas prices, and we've had basically a warm winter throughout, even in Chicago. We've had a few days, but it's been mostly warm in comparison to the previous years. And it's having people spending in restaurants. I think also, I think the biggest thing that I see is literally, wholesale food projects have gone down about 5% in 2015, and -- boosting margin for our restaurant operators. So they've been having improved cash flow and margins and it has really translated capital spending. So I think that we all see it. I give you a perspective. Our national accounts business has been growing, basically double-digit growth, every, the past three years. And I would say that this year, it will not be different. So our roll out and our chain orders, by national accounting, which will have a huge visibility on because it is the direct business, it's up again, in January and February, double digits. So we have no reason to indicate that there's, nothing changes. We think that operator environment and the restaurant environment is, continues to be good for us. Now, the only thing they're going to have to face, and they're worried about it, is, literally, rising wages, labor cost. And that brings a lot of opportunity for us. And that brings us to the kitchen of the future, which it continues to be a very good stuff for us. Finally, we are back. I'm surprised that Tony Brenner has not asked about it, because he's been asking about it for, now, two or three years. Today, we have eight solid chains, beyond Chili's, we've done over 300 restaurants now, and it's starting to roll. So I believe, in the next two years, we will most probably outpace Chili's. So we will have over 1,000 stores, in the next 24 months, finally going into kitchen of the future, and it's being driven by speed, it's being driven by labor, being driven by a lot of things. But the interesting part, if you look at the chains, without naming them, I will tell you, I am looking at two fast casuals, once seafood chain, one steak, large steakhouse chain, basically two burger chains, another casual dining, one Italian chain, and one large, large casual dining chain. If you look at those, eight of them have gone beyond the test, and we're putting those kitchens of the future in them. It's not coming into just casual dining. Now, it's expanding into fast casual, it's expanding into basically Italian, it's expanding into burger chains. It's doing pretty well for us we are very excited about that.

All right, it's good to hear. Tim, just a few questions for you, the expenses related to the warranty for legacy Viking products does that run through the P&L? Or is that included in that reserve you already have set up for the Viking recall?

Okay, I think there's two different things. There's the specific recall cost, which we've estimated, and we've reserved for that. So as we incur those costs, that would just bring down the reserve. The ongoing warranty we've reserved for products that we've produced, then shipped. So there is a reserve for that, as those costs some through. So really, just on a go forward basis, the warranty expense would be for the new products that are shipping.

Okay, and then finally, if you have an estimate for CapEx, D&A and the tax rate for 2016?

Yes, CapEx has been pretty consistent with us for many years. So we always put out that 1% to 2% of sales range in CapEx, which we've been pretty consistent with, and it's been historically closer to the 1% than the 2%. The tax rate, I think we were at right around 32%. So I think the run rate is in the low 30%s, although I think as AGA rolls in, that would have some favorable impact, as the profitability of some of the international businesses increase. But I think that's hard to do, really, to gauge that that would be a big impact in 2016. So I think we are still thinking it's in the similar range as 2014 and 2015 has been which has been around the 32% range.

Thank you. And the last question we have time for today is from the line of Joel Tiss with BMO Capital. Your line is now open.

I just have a quick cleanup for Tim. And that's, is this tax rate that we are seeing in the fourth quarter, is that the new run rate, going forward?

No, as I said, I think you have got to look at the full-year rate. So we do have anomalies from quarter to quarter, driven by the accounting for taxes. So the fourth quarter was driven down, in part, by a number of things. But for example, R&D credit, which was tied to the government, improves the credit every year in the fourth quarter. So you don't, we anticipate that there probably will be a benefit, but then it all comes through in one quarter so that's not a typical run rate. So I think you have got to look at the whole year, which was around 32%. So typically, 32%, 33% is how we have thought about the tax rate.

Okay, great. And then Selim, you hinted around it. But I wondered if you could give us a little more details on some of the projects, and the customer conversations, that you have percolating for the next 24 months, for 2016 and 2017? Thank you.

Joel, I will tell you one thing, which is fascinating for me, is that where Middleby's sweet spot has been has been literally in the chain business. We've not been strong in the fine dining. We've not been strong as an institution as much. So if you look at the chain business, it is something happening in the fast casual and the QSR. Casual dining -- you think things like chef-driven fast casual is becoming a big part of the restaurant movement, which is fantastic for us. So if you look at literally what is happening with all those chefs opening fast casual, and they are all flocking to us, because literally, they don't have the R&D that they need. They want to open restaurants. They know how -- the menu they want, but they are coming back to talking to us. And as I visit around the country, if you look at Paul Kahan with his Big Star. You look at Rick Bayless with Xoco. We look at Tortas Frontera and Frontera Fresco, and you looked at Danny Meyer with [indiscernible]. And I can name them. I can call Bobby Flay. We can talk about dozens of other high-profile chefs. And basically, you look at -- that movement has become very attractive for us. Now, interestingly enough, you start looking at QSR like Taco Bell, who has been inspired and infused by chefs, and continues introducing unique menu items. So that bodes well with us, because they don't hire a chef to do salads. They are hiring them to create some exciting menu items that include unique ingredients, fresh, local foods. And I look at that and I say, this movement has become so strong that it is most probably one of the hottest trends out there that affects us incredibly. So now, you're looking at fast casual and casual dining, looking at their menu, and the ingredients that goes into it in a different way. They are looking at the way they cook in a different way. So I'm looking at literally a huge explosion of what I call multi-concept restaurants, or big quick-serve restaurant operators, either relying on creative chefs, or those creative chefs continue to expand into that space, which is excellent for us. From that interesting part, I look at it as an exciting thing. So I spoke earlier about breakfast. I spoke earlier about, basically, the pizza business. The pizza business continues to do very well, and we're a very dominant player in it. And the reason I like it is, I always thought, where the pizza will go, and I think the pizza operator reinvents himself all the time. And whether it is Dominoes, Papa John's, Pizza Hut, they've done a great job reinventing themselves. And I will say that literally, I will see -- just to give you an example, I will see our pizza oven business to double again in the next three years. I am not talking $10 million here. We are talking, it's a big, sizable size of Middleby. I'm not going to reveal the number, but it is multi-million dollar initiative that will double in the next three years. I look at our Combi oven business, growing in the chain business, which we've done extremely well, because we're not a big player in the fine dining, except maybe a couple of our divisions. Our Combi oven has doubled in size in the past 18 months. So our revenue from Combi ovens has doubled in the last 18 months. I think it will double again in the next 18 months. We are most probably growing fast our Combi oven. It's our ventless Combi oven that's doing well. I am going to give you another trend. From an equipment standpoint, more on oven, when to talk to customers, I talked about the kitchen of the future, and I told you today, we have over 300 stores, beyond Chili's. And it's all over the spectrum, from casual dining to fast casual, and to QSR, thinking of kitchen of the future. But -- and it's seafood, and it's steak, and it's burger, and it's chicken. So I look at it and I say, literally, our broiler business, today, is around $40 million. I expect that business to double in the next two years. We have so many rollouts involving broilers that will most probably double in the next two years again. So you look at ventless, our ventless business today is around $200 million. It's over $200 million, when we talk about our ventless, incremental, it is more than that. I am talking incrementally, since 2009, we increased our ventless business by $200 million. I expect that business to most probably double again in the next five years, which means it will most probably double again in the next five years, which means it will most probably go from $200 million to another $200 million, in the next five years. So if you add up all those things, this is a huge runway for us, on foodservice. So, from that perspective, when I sit and talk to our customers, from the restaurant operator -- I just met with one of the largest restaurant operator in the world. I just met with their top management last week. Me and our COO were there. And what we've done, they are seeking solution from Middleby. And I asked them, I said let me ask you, what can we do more for you? They said, Selim, you continue changing the way the back of the kitchen is done. One of the issue is, they've done a great job marketing. They've done a great job branding. They've done a great job franchising. They've done a great job opening up China, India, the world. But one of the things they have not done a great job has been making that kitchen more efficient. And that was the topic of the conversation. How do we make that kitchen, in the back, run like a factory? So, when they talk to me, they said, Selim, when you go to your factory, and we look at how much productivity you run out of factory, and you come here, you see how lean we are, how effective we are And I say to them, it's a combination. It's a combination of equipment and layout. We have done -- what's in our factory, we've re-laid our factory many times, to extract the most efficiency we can out of our factories, and we say we can do the same for you, in your kitchens. And we can do it in a very efficient way. That's what has made Middleby unique. And I don't think the sentiment will change with the macro. I'm not affected by, literally, what's happens in the macro trend in the U.S., because literally, those customers are baked. They are going to find ways to figure out how to manage the slowdown, and they've found ways to introduce menu items, and doing all of that. I think one of the biggest things we talked about, when we were in that meeting; one thing is not going away. People are going to continue eating out. Now by 2025, I will tell you that the number of people eating outside the home will be bigger in emerging markets than the developed world, by 2025. So, we are seeing a lot of opportunities for us, and the runway is still pretty solid and pretty long for Middleby. I remain very excited about the long product sector, mainly on the foodservice side. Then, we can talk about food processing. We can talk about industrial bakery, where we are just reinventing ourselves in industrial bakery, which has become a very large part of our business. I look at the emerging markets, as rising middle class goes up, and they are basically doing the same thing, husband and wife working. They are sending their children to music school, to soccer games. They have no time to cook at home. They are basically going into prepackaged food, precooked food, and that's a trend that I see. When I go visit my home country of Lebanon, the amazing amount of prepackaged -- I know from my sister, because she has basically kids still in school, and she's busy. Her husband's busy. She's busy. She's basically increasing the amount of food she brings in the house, or eating out. She's been a big supporter of Chili's. Many-many years ago, I remember when her children, Ross and Jeff, were very young, she was at Chili's that opened in Lebanon; she was probably there twice a week. Today, she is basically going out and bringing food in that is pre-prepared, precooked. And you are seeing -- I know a friend of mine who now opened -- he started opening -- he opened the first basically fresh milk in Lebanon, called Candia. And he just opened up, is in the process of opening up, the first ham, salami and sausage factory in Lebanon, and he's using our equipment. So it's very exciting to see where is the emerging market going, and where we are well positioned.

Ladies and gentlemen, this concludes today's question-and-answer session. I would now like to turn the call back to Management for closing remarks.

So I'm going to basically re-summarize what we've said. One, we're very excited about what we've done. If you look at the results, and you look at our cash flow, and you take away the ex charges, ex-restructuring charges, we still delivered a good year. Our cash flow was very-very strong in the year. And if you take away the restructuring charges and the extra week that we had the year before, and some major rollout, that the timing of the rollout came through, we continue to see that it was a very solid year, despite the macro trends, despite the dollar being as strong, we still delivered a very solid year. We continue to be very excited about our chains continuing being very strong. We see a number of rollouts in the second half of the year. Our beverage business will grow -- this is a new business for us -- will grow significantly this year. Our Combi business is doing very well, our ventless business is doing very well. Our speed cooking business continues to be very, very good, our products business, our kitchen of the future, our pizza oven business. On the food processing side, I continue to look at extremely strong record order backlog, which will start shipping to order, as Tim mentioned, toward the second half, the second quarter and second half of the year. We continue to see emerging markets continue to be a big driver in the next few years. The industrial bakery, we just made a big investment in that. We just re-consolidated that business in Dallas. We basically also are in the, right now in the step of investing huge investments, in people and technology, in that business, as well as opening one of the most innovative technology centers, live technology centers in Dallas. It will be up and running somewhat in early 2017. That's a multi-million dollar investments from us to basically be able to showcase all of the automation, the nanotechnology, and the ability to create fantastic, fantastic industrial baking for our customers. It will be one of our largest showroom, in industrial baking, similar to what we have in protein, but we have gone a longer way to doing it, because we see that market to be very, very strong. On the residential side, we are basically very pleased with the Viking. However, basically, it will take time and marketing to reclaim consumer confidence in the Viking name. We truly invested in Viking, and we will win that fight. We've had some surprises we did not see coming, we did not anticipate. And we are working through it, including the last recall, which stunned us, because we did not see it coming. Literally, this was something that we inherited previously. And unfortunately, if we knew about it earlier, we would have done something about it. We were not aware of it, which is why, I think, we are facing what we are facing today. AGA has proven already to be even more than what we thought it would be. The power of our residential platform will lead Middleby to be a strong player in the high end appliance business. We have proven adept on product innovation and margin expansion. We have re-engineered every product and every process at Viking, introducing the robustness of Middleby into the Viking line. So again, we are starting to see the builder coming through. We're starting to see the People's Choice, whether it's architectural, architects, or designers, starting to rally again with us. And the proof is, we just came back from KBIS. So if any, some of you underscore where our Kitchen and Bath Show in Vegas, in January. You saw how busy our booth was. You saw the new product. Most important, I will tell you, the most important is, we started to win the People's Choice award. Is it going to take time? Yes. I wish I could answer the question, when? But I will tell you one thing. It will not affect our margin. We will continue doing what we have to do, in the face of full sales, if need be, to continue growing the EBITDA of the business, until we can win the confidence of the consumer again. And we will win that fight. I think Viking is a strong name, strong brand, with what I just mentioned to you, with respect to the technology we put in. We are literally, by far, I walked the show. I looked at every one of our competitors. I think from a smart connected, easy connectivity, we win that place. We win that place, in terms of technology in our cooking, and now we're winning it in refrigeration, which was our Achilles' heel. So if you were there, we introduced something called Bluezone, which is a patented technology for us, in addition to our Plasmacluster. We also introduced the depth of what we can do with that oven. We can basically take any challenge in refrigeration, on flavor transfer, on extending the shelf life of our refrigeration, versus any competitor out there. We also basically took the fit and finish of that product, which was a huge weakness, I thank, Viking. And we took a significant quality and testing on that product, to make sure that it stands up against what Middleby stands up in our commercial. So we are there, in terms of product. We need now to win the customer, from a dealer salesperson, as well as to get back, the designers back on the Viking bandwagon. On this, that completes our presentation today. And I thank everybody for being with us on this call this morning. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.