Thank you for joining us for the Middleby Corporation Fourth Quarter Conference Call. With us today from Management are Selim Bassoul, the Chairman and CEO, and Tim Fitzgerald, the company’s CFO. We will begin the call with comments from the management, then later open the lines for questions. [Operator Instructions] Now, I’d like to turn the call over to Mr. FitzGerald for opening remarks. Please go ahead.

Thank you, Kevin. Hi, again. This is Tim Fitzgerald, CFO of Middleby. I’ve some initial comments about the company’s 2016 fourth quarter and full year results and then we’ll open up the call to questions and answers. Net sales in the 2016 fourth quarter of 596.8 million increased 11.6% from 534.7 million in the fourth quarter of 2015. The fourth quarter sales included the impact of acquisition activity not fully reflected in the prior year period of results, which accounted for 51.3 million or 9.6% of the sales growth in the quarter. Sales in the quarter continued to be affected by foreign exchange variation in comparison to the prior year. This fluctuation resulted in lower reported international sales when converted to US dollars in the quarter and this impact amounted to 21.9 million or 4.1% in the lesser reported sales growth and reflects the significant impact at AGA due to the strengthening of the US dollar versus the British pound. Excluding the impact of acquisition activity and foreign exchange, sales during the quarter increased by 6.1% as compared to the prior year. This increase reflects organic sales growth of 7.1% at our commercial foodservice group, an increase of 20.3% at our food processing group and a decrease of 2.2% at our residential kitchen equipment segment. Sales of the commercial foodservice group for the quarter amounted to 335.3 million. Organic sales growth of 7.1% reflects continued growth in international markets with sales supporting new restaurant growth, increasing business to replace and upgrade existing equipment at our existing customer restaurant operations. Organic sales growth in international markets amounted to approximately 20% during the quarter with growth in all regions, but strongly weighted to Latin America and Asia. Sales domestically were relatively constant with the prior year quarter, as slower order trends from…

[Operator Instructions] Our first question comes from Tim Wojs at Baird.

Everybody, good morning. Hey, nice job on the quarter. I guess just maybe touching on commercial first, is there a way to kind of think about what the full year ’17 outlook could be in terms of organic growth and I'm just thinking domestic, a little floor in the back -- in the first half, does that get back to kind of mid to high single digit growth in the second half of the year and then just as you guys are lapping some of the stronger international growth, how should we think about growth in that segment? So maybe just a little bit of a discussion of how we should think of the organic growth rate in ’17, specifically in commercial?

Tim, this is Selim. Good morning. I would not give guidance and I’m not going to start giving guidance on anything. That is very clear for us that we don’t give guidance, you’ve been the people who have been with us for many, many years, but I can give you somewhat of a historical organic [Technical Difficulty] on commercial has been on average between 6% to 8% if you look at it -- over the past, many years. If you look in our recent past at least, each year, I think that most probably has been roughly the historical organic revenue growth between 6% to 8% and we believe we're going to continue managing the organic growth within that range as we're not going to be telling you if it’s happening in this quarter or in this year. And the reason is, one of our philosophy has been very important to us and it's been something that our investor and shareholders have learned over the years and I think our analysts have. I am not going to commit to customers to buy our equipment and [indiscernible] and that has been something we've been very clear upon, because we want our people to get the payback that we say we’re going to do it. So in the past, people have basically said that, Selim, you’re coming up with so many changes, how come, [indiscernible] and my response is very clear. We have basically -- have a commitment to make sure that our customers are not rushed to make decision when they test our equipment and they can validate and check and cross examine our payback and the real value of our solution that we provided. For us, as you work with our customer, I’m not changing that philosophy and that's why we have had the loyalty of our customers and that's why it’s been amazing because literally our solution do not fit everybody. And when they fit, they work beautifully well and one those people realize that this is a commitment. Long term, when they invest billions of dollars of our solutions, that is going to work. So that's why I'm not going to be talking about what the organic growth of foodservice is going to be, because we just from [indiscernible] and I think you've seen how much our company is up. You’ve seen the innovation and the boost and how confident we are. I can say we’re very confident in the future of foodservice, at least as part of our innovations and our solution are very prominent and very positive.

Okay. I know you guys don’t give guidance, I’ve always asked the question though.

Just as a color, I mean, I think as you know, we had very strong international sales throughout the year. So I mean we were in excess of 20%. I mean that could moderate as we go through year. Domestically, our sales were a little bit lower with reduced chain activity, which I think in the early part of the year that may carry, but I mean I think domestically, we might see -- we would expect domestic would tick-up next year. So just kind of directionally, you might kind of have domestic moving up here through the latter part of the year and maybe internationally, as you mentioned, tough comps because we were north of 20% for the whole year internationally.

Yeah. Okay. That's helpful. And then Selim, just with you maybe with now, I mean the booth was busy, I mean everybody kind of talks about a restaurant kind of CapEx slow down, but the traffic didn't seem like that. So anything you can share just around the pipeline development and the enthusiasm that you're seeing from your customers around equipment spend?

Tim, we just saw hundreds of changes now from coming, looking for solutions. They were all people I’ve talked to, traditional restaurant and non-traditional which is convenient stores and outlets where they are expanding into menus where it’s movie theaters or non-traditional outlets like air force or stages or country club, they were all feeling good about their business in the future. And literally, what we saw, there was a lot of interest about investing labor costs. That’s I think the biggest theme I saw was labor cost. So as of the end, [indiscernible] there were lots of things about simplifying the menu and looking at solutions to say, how do I simplify my menu, so I can speed up the operation and service my customers faster. So, there was a lot of shrinking the menu. That’s a biggest thing that was interesting for me on all the people that came and that’s happening not only at the show, but it’s happening for the last 18 months is finally, our customers are doing what we do as if manufacturer, they’re looking at reengineering their kitchen in that process. They are now working the way we work in our factories and make foods at their kitchen or running smoother, then the work flow is doing well and that is something exactly where Middleby and where we position our company in terms of creating this work flow through the kitchen of casual dining, fast casual, because as you can see, you can’t survive today if you don’t optimize your labor and your work flow and we’ve seen that becoming prominent. I’ve been preaching that most probably through the last five years and we put a lot of solution that talks specifically the engineering kitchen. So when you’ve come to our analyst day meeting, and you talk about whether it was in Dallas or here, we talk about specifically how our equipment worked together to create a work flow and I’ve been talking about second and inches, I think it’s been my mantra now for most probably over five years, what makes Middleby unique is we’re about second and inches. That’s our motto and finally it’s resonating.

Great. And then Tim, just last question for me, could you give us EBITDA margins by segment for the fourth quarter?

So it was roughly 29% at commercial foodservice. We were 27% at food processing and we were 20% at the residential segment.

Our next question comes from James Picariello with KeyBanc Capital.

Hey, good morning, guys. So just talking about residential kitchen, under the working assumption that Viking’s, warranty issues are now fully behind it, how are you thinking about Viking’s ability to grow in 2017, what are the key drivers, what makes you feel good about that prospect? And then how are you thinking about the residual impacts for AGA in terms of rationalization and walking away from certain customers that were accustomed to discounting those two factors would be of interest? Thanks.

So, I can talk about quality. I think, now, we've been measuring quality and accepting the recall, which was something outside and come back to what we call [indiscernible] past 24 months have dropped over 80%. So we basically now -- and that’s mostly due to redesigning all our products, or introduce new products by ’17 and we’ve gone back to redesigning every product as well in the pipeline. So from that perspective, quality has been superb. I think our stock in the last two, servicing our customers in parts and now, we can say those parts are available. So from that perspective, I’m feeling very good. Now, on where do I see, I’ll talk about Viking. I think I underestimated the impact of the recall. So from that perspective, I was wrong. I think the impact on the recall was a lot stronger than we expected. I personally received tons of emails and phone calls from people asking me, I’m afraid about safety, I’m afraid about what happened [indiscernible] and I truly believe that we’ll be through the recall, perception on our brands will be a lot better and we basically and I underestimated it. A year and a half later, where I’m sitting today, I’m telling you, it’s my fault. I did not expect it to have such an impact, it continues to linger for us and affect our top line growth. And we’re facing that, we’re basically trying to overcome it with the new products, we’re starting to pick up the builder business, we just finished an investment in dealer sales trends, as we have trained hundreds of dealer sales people that came through in the fourth quarter and in the end of the third quarter, fourth quarter, to sell the new products and we continue to…

Yes. So I think we're really not expecting much growth on the top line of AGA this year because of those detractors. I mean a lot of what we do with discounting in pricing as well as the SKU rationalization, so what we saw in the fourth quarter was roughly constant revenue. So I think it's still -- there's still a lot of activity going on, but I think that's kind of our expectation going into the year that the growth is coming in ’18 as a lot of the new products get developed, now that we're -- as we kind of move to that phase. So, just to give a little bit color.

I appreciate the color. And then just on the journey to 27% EBITDA margins by 2020, last quarter, you did mention a sourcing initiative, 3% sourcing savings over the next three or so years. Can you just provide more color on how you’re thinking about the actions that maybe you have in place or expect to have in place for that and then maybe just how does that sort of correspond with your thinking on price costs for 2017? Thank you.

I mean I think, there's a lot of initiatives going on right now internally. So I mean it's just, we've got a team that's focused on sourcing across the company and we've always had a team, but I think we're doing it a little bit more holistically and aggressively, particularly as we've added a lot of companies in the last three years. So we’re kind of really going back to a broader reach of purchasing across the company where I think our approach, over the last, as we bought companies really then to focus on the new ones coming in into the group without necessarily going back to the ones that have been part of the group for ten or more years. So I think that's kind of the approach. I mean in terms of specific initiatives, I mean I don't think we're going to walk through that. It is kind of a three year journey, but we do think that there's a lot of opportunity and synergies there. I think we're expecting a lot of that really to show up more in ’18 than ’17. We clearly do have initiatives that will add to EBITDA this year, but I think a lot of the work that we're doing this year will pay off in ‘18.

So I can add a little bit more flavor to the supply chain initiatives that we have not been involved with the last few years because we’re building the innovation of our product and there is a simple one, which is most probably standardization of parts that we’ve had, we've seen across, we’re buying many, many numbers of orders, we have different suppliers of grade and have different suppliers of brands, we have different suppliers of burners, we have different suppliers or racks and from that perspective, I think a low-hanging from is the fact driving business to fewer suppliers and starting to standardizing some of those as we have not done. Our purchases are in the millions of dollars, hundreds of millions of dollars. So we see a lot of today’s standardization of parts that is a low hanging fruit that is very much achievable, we have a company buying a blower model, we have another company buying a different one for the same application. There is not even for us, not to start working between those two suppliers to see who will deliver a better value for us down the road. It’s not only pricing, it would be delivery, it would be better quality, it would be better upgrades, but I think this is a low-hanging fruit that we see achievable literally you can start seeing it within the next 12 months.

Our next question comes from Jason Rodgers with Great Lakes Review.

Yes. A question on AGA. Where did the EBITDA margins end up at year end?

For the full year, we were between 13% and 14%. It was higher than that in the fourth quarter, so we continue to see it rise from single digit in the first half of the year and then we actually did get to 20% in the fourth quarter and the fourth quarter also is the strongest quarter in terms of volumes there, so we had the benefit of volumes. So I think we'll get back down below 20% in the front part of the year, but we're well on the way in to our journey to get to 20%.

Right. And Tim, where do you see CapEx, D&A and the tax rate for ’17?

Well, CapEx, I think for a long period of time, we've been in that 1% to 2% of sales range and 2016 was very consistent with that. So I would say that that probably closer to one than two, which has kind of been the historical average that will continue. The tax rate moves around quite a bit as our international platform will change and obviously we don't know where US tax rates are going, but assuming all of the same I would say, we were at, I think 32.5% this year. So I think in that range of 32 to 34 is where we see the tax rate in ’17 kind of absent any major tax law changes in the US.

And then as far as steel costs, what are you seeing there and have you raised prices to help offset any increases?

Yes. The steel is higher this year than last year, both relative -- so kind of coming into the year relative to both, I'd say third and fourth quarter of last year and also Q1 over I think – of ’17 overlapping Q1 of ’16, where steel costs were up 5% to 10%. So, let’s say mid to high single digits. We did see that price increases across the different segments, particularly in commercial food service as we kind of come into the year, that should offset that.

And then finally Selim, the press release mentioned emerging markets several times. I’m wondering if you could talk about where you see emerging markets as far as percent of sales from that will be over the next three to five years. Thank you.

[indiscernible] Well, emerging markets continue to be a big driver for us. I think as you see in our investment there, we've invested heavily in emerging markets and I just basically was there visiting many of our emerging markets, I wasn’t going to lead, visiting from Dubai and then I went from Dubai to visit basically many of our emerging market chains, there was a big conference that I attended in November and they were all there and the movement in the emerging market is also the growth of local chain that have embraced Middleby’s technology innovation. So our people have done a great job, getting those local chains, regional chains, emerging chains to embrace our automated cooking and it’s unbelievable, exciting. Many of t hose chains have basically moved up big, even faster than the US in adopting our technology. So when I look at that, they might be so small chains. So from that goes our local chain. So, other thing is the continuation of the US chain penetrating emerging markets continues to be a big driver for many of the US chains going into emerging markets, because that's where the rising middle class is happening and it's been good for us. So we've invested heavily in those markets by adding our own direct salesforce, warehouses and service. So on a certain point is regarded even we’re looking to create design capabilities to help an emerging chains look at how the design the kitchen, their menu through added chefs, through added design capabilities. A huge investment for us that’s happened for last I would say three to four years in the emerging market in peoples and facilities and resources, in CAD capabilities and CAD growing and trucks to service we have service bucks and hold out to service our emerging markets and emerging chain.

Our next question comes from George Godfrey with CL King.

Good morning, thank you for taking my question, nice job on the quarter. I just had two questions, Selim, you’ve been quiet on the acquisition front at least for Middleby over the last several months and I'm just wondering I'm sure you've been active in discussions. I’m just wondering if you've been focused internally on improving operations or the prices haven't been right or you just haven't found willing partners or what are you thinking there?

I think we've always been involved in two things. We’ve been involved in three - if you look at our strategy, it’s basically retaining our customers and working with them to test – to help them test to win. So looking at that one of the biggest things that done is have helped our customers test solutions with option to buy more equipment just to say if there's something that has a better payback for you. And one of the things that you'll see the theme of everybody here at Middleby we’re not here to push equipment, we’re here to find it the solution that works, but if it doesn’t work [indiscernible] because we want you to win and that's the legacy of what I've brought after. Over twenty years at the company my legacy is to make sure that customers whether they are big ones or they are people who left the job which I meant with last week, two people left their IT job doesn't work, came to Middleby and I spent almost a full day with them. They are starting encounter new changes. In my heart was for those people to succeed. They think every saving they made in working as IT software developer and they left, husband and wife with no safety net to open a counter that they dream of opening for many, many years. They feel they've never done, no expertise and my number one objective despite all the pressure of having more meeting this week and have basically an earning release, they were here testing, they brought their concept, they bought their own ingredients and they spend almost a full day with the husband and wife my team, making sure that we give them the best equipment they have. So they are the…

Yes understood I love the passion. And then Tim, I just wanted to get a little bit more on AGA, can you quantify how much the lack of discounting or telling customers will no longer discount, how much that impacted the sales or perhaps maybe can you comment if competitors try to take advantage of that this lack of discounting to get in there and I'm sure that's not the first time you pulled someone who are not discounting.

It’s really hard to measure that. I mean, AGA is made up of many companies and I think we’ve been very close to what's going on in all those businesses. So we believe put forth plans were in that we were walking away from business but you kind of roll that up across the group and put it in percentage terms and it's not really something that we have done the specific math on.

Our next question comes from Larry De Maria with William Blair.

Good morning, and you just mentioned Dallas, so I'll start there maybe. In terms of speed cooking, I think one of your competitors mentioned that their offering was doing very well. Just curious, do you see anything in the market, that suggests any kind of change for TurboChef or increased competition, or any general thoughts about that? First of all, thanks.

Our speed cooking is one of the biggest trends today and [indiscernible] cooking and I would like to say people think of speed cooking at Middleby and they think TurboChef, I will have to tell you that our speed cooking goes beyond TurboChef so that's where I think the difference between us and many of our competitors on the cooking platform is we do speed cooking and many of our office - if you look at our speed cooking our Combi and our Houdini. We basically shave off compared to our competitors we are almost 40% faster. If you look at our cooking our convection, we are faster than any other speed cooking permeate. You look at basically baked, Middleby Marshall, you look at all conveyors they are faster than anybody else. We shaved off we are faster than anybody else in delivering pizza or in delivering proteins on our CTX or on our Middleby Marshall. By far we’ve shaved off over if you look I don’t want to even talk about a competitors, I want to go back to talk about 8 years ago. Our pizza oven, our Middleby Marshall wire oven, not even home to the 570 that’s used to be 12 minutes which was the norm in the industry. We went to basically 6.5 minutes, we went to basically 4.5 minutes and we’re basically own at 2.5 minutes, which is amazing, and there is nobody in the industry that has got there. I’ll take another one, which is fire oven, which caused 90 second cooking a pizza, it’s the fastest oven in the industry. So when you look at speed cooking I want to say that when people come to look at our solution we've been - at speed cooking speaking beyond TurboChef and that’s very first…

Okay, thank you. If you can help me speed cook a piece at home better than a microwave, I would be interested. I guess what I'm getting at, the category is growing, but the TurboChef, you're not concerned about competition share. It has obviously done very well for a long time but you’re not, and not to put words in your mouth, but it sounds like you are saying that the category is growing, but you're not concerned about share, or maybe there are some share changes?

I’m not concerned about share.

And then secondly, I know obviously the commercial side has been, the industry itself has been going through a bit of transition, and I think you said that it would be slower for first half organic and a better second half. And I guess what I'm curious about, is that specifically around timing and the testing that you talked about? Or if the market is going through an inflection post-election, and obviously that does not happen overnight. It takes some lead time for that to happen. So I'm curious what your thoughts are about, is the market inflecting, or is it just timing, and just some better thoughts around there? Because it sounds like it might be flattish organic, and then a better second half. So I want to understand that a little bit more?

I will help you cook faster at your home, that will have a Viking big cooking coming to you, so that I will promise to you, so in eight months, I will make sure that I can resolve that issue, maybe you can help me resolve the timing of customers maybe we can talk about that. I think that I cannot resolve I think - to answer the question is no, we do not see a deflection in the market I think it’s timing issue. I think from all the testing, so, I always go back to what I always paid for the past ten years. For me, the way I measure the market is not by whether best in sales are up or down or consumer confidence is up, all customers are established, are mature they are growing, they're big organizations they're good at what they do. I think that the restaurant business today, after the major recession have done a superb job in running their business. I admire all the leaders of all the restaurant chain. And when you’re not good or you don't have a product either they resign or move to somewhere and they take their intellect somewhere else to start another chain. So my issue has always been is what is the backlog of people booking a solution. If I look at that and I say wow there's nobody coming flying into our divisions to look at solution is where most probably would become my worrying state of mind. So I see people coming and they might be testing with our competitors too. But as long as they testing, solution and innovation I feel confident that the market is going to grow pretty well. And I can tell you the number of customers seeking solutions…

Ladies and gentlemen this is all the time we have for the question-and-answer portion of today's conference, so I’d turn it back over to the host for closing remarks.

Thank you for all being us and listening to us and being with us today. I think that I would like to always talk about two things that are important to us. One is we just came from two major shows one is the NKBA Kitchen and Bath Show in Las Vegas, and that happened in mid January. And I have to tell you what was cooking in that show and I can also give you data from HGTV which run a very expensive trends in high-end kitchen appliances. And they basically validated both of the show and what HGTV and seem to cross correlate. French door oven are now becoming highly stylish and they are becoming a great choice in places where people want to go away from a conventional door that folds down in front of them and going back to door that opens the way conventional oven works. And this has been continues to be - we introduce our French door in fact we were the first to use the French door and I'll now there are few more players but you seem to be on dominate player in that. The next thing is induction cooking and residential is now becoming a race. Because it’s fast, it’s allowing to master the control over simmering, and it's basically cool. It basically it keeps your kitchen cool and you can put it in island with a downdraft and that has been on HGTV trend they did in the research and we’re that in our business and we are basically upgrade our induction. And given withdrawal, our commercial induction into residential where there's been a lot of all of connectivity between CookTek, which is our leading industrial commercial induction which is one of the leading induction in the work to…

Ladies and gentlemen that concludes today's presentation you may now disconnect and have a wonderful day.