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.…

[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…

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…

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…

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…

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…

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.