Welcome to The Middleby Fourth Quarter 2020 Conference Call. We will start today's call with comments from management, then open the lines up for questions. [Operator Instructions]. With us today from management are Chief Executive Officer, Tim FitzGerald; Chief Financial Officer, Bryan Mittelman; Chief Operating Officer, David Brewer; Chief Technology and Operations Officer, James Pool; and Chief Commercial Officer, Steve Spittle. Now I'd like to turn the call over to Mr. FitzGerald for opening comments. Please go ahead.

Thank you, everybody, for joining us today on our fourth quarter conference call. As we begin, please note there are slides to accompany this call on our investor page. I am very pleased to welcome James Pool and Steve Spittle on the call this morning. As recently announced, James and Steve have been appointed as officers of the company, expanding and greatly enhancing our leadership team. James and Steve each bring tremendous experience in the foodservice industry, along with a long tenure at Middleby. They have successfully been leading a number of our core brands, such as TurboChef, Pitco, Blodgett and Middleby Marshall. James and Steve have also been executing on key initiatives over the past several years that are critical to our business as we accelerate the pace of technology advancement, innovate the customer experience and differentiate Middleby in the marketplace. In addition to their officer roles, James and Steve will oversee the portfolio of cooking brands within our Commercial Foodservice segment. I'm also very excited to have announced Korey Kohl to lead our Middleby Beverage Group and Najib Maalouf to lead our Residential Kitchen Equipment business. Korey and Najib bring a deep foodservice industry experience and are long-time Middleby executives. Both have successfully led integration efforts across many businesses we have onboarded through acquisition. The Beverage Group and our Residential Kitchen Equipment business have expanded rapidly since their inception and present exciting continued growth opportunities for Middleby. Korey and Najib, in their new roles joined Mark Salman, our President that has been leading the Food Processing Group. This expanded team provides leadership for each of our business segments, ensuring the continued execution of growth initiatives and bolsters our efforts to realize synergies across each of our segments. I'm very excited about the deep bench of talent that we…

Thanks, Tim. For the fourth quarter, our GAAP earnings per share were $0.94. Adjusted EPS, which excludes amortization expense and non-operating pension income, as well as other items noted in the reconciliation at the back of our press release, was $1.62, which was negatively impacted by $0.04 from acquisitions. Operationally, it was a strong quarter for us. We generated all-time record sales and earnings in the Residential segment; Food Processing closed 2020 with their strongest revenue quarter of the year and earnings were the highest percentage level in 3 years. Commercial Foodservice grew their top line approximately 15% sequentially over Q3 and nearly the same on EBITDA. Also, our free cash flow exceeded $200 million for the quarter. I've been especially excited to report one number in particular, $500 million, actually $504 million. That represents our free cash flow for all of 2020. Being disciplined about cash flows is core to running the business for us. We have demonstrated our ability to manage costs and cash while also investing, driving innovation and providing excellent service to our customers. Now jumping into revenues and segment performance. On a consolidated basis, revenues declined 7% or 9% organically as COVID significantly impacted our results. Across the company, we were able to deliver gross margin of just over 35%, which was in line with Q3. By the way, all margin values I will discuss are on an organic basis as well, meaning excluding acquisitions and FX impacts. Total company adjusted EBITDA was $145 million and represented over 20% of revenues, which was also generally in line with Q3. We achieved this while continuing to invest around $5 million in technology initiatives quarterly. Commercial Foodservice revenues globally were down under 19% organically. And when looking at just North America, the decline was approximately 9%. The…

Thanks, Bryan. I will say, as most of the people on the call know and appreciate, we get very organized and disciplined at preparing for these calls. Those last comments were a surprise to me. So thank you, Bryan. We will talk later. I do appreciate having just a couple of minutes to say a couple of things. As I transition out of the company and stepped down as an officer of the company, and I work for the next 10 months on some strategic opportunities that we have. And on an irregular basis, maybe even being on this call, but I wanted to take an opportunity to say my appreciation. And I would like to start off by congratulating James and Steve for stepping up to an officer role of a global company. They have clearly demonstrated their capacity, their capability and their leadership skills over many years. And it couldn't be too bitter leaders to step into those roles, and I'm very excited for Middleby overall. As I've said many times in this call, a lot of Middleby people listen in on this call. They read the document afterwards. And so I cannot resist sending my appreciation for the hard work of the supply chain, the purchasing, the operations, the engineering and the sales team of Middleby around the world. It’s just an outstanding group of people. I love working with them every week. I think I talked to a couple hundred of them on conference calls and processes and leadership reviews. And I'm always amazed by the capability we have embedded in our organization. Clearly, Tim and I have pulled forward some great group presidents, too, Najib and George and Korey, Jeremy, John, you look at their resumes. I challenge everybody to look at their LinkedIn profiles…

[Operator Instructions] Our first question comes from the line of Mig Dobre with Baird.

Dave, congrats to you on a fantastic career and all the best of luck going forward. And you mentioned great folks in Middleby that are listening on the call, congrats to them as well for the way they managed through 2020, definitely an unprecedented year for the industry. I guess my first question, Bryan, I appreciate all the context and detail you've provided on Commercial Foodservice and all the other segments into Q1. I'm sort of curious here, you're building backlog and demand is getting better. So 2 things. One, can you maybe parse out how much of this demand improvement is really sort of driven by the end markets and how much might simply come from different product initiatives that you guys have had through 2020? I mean, you've introduced a lot of new product that I'm presuming is starting to result in incremental revenues for you. And then as you've built up this backlog, how should we think about your ability to convert this backlog? Are there any issues beyond the weather that you mentioned, right, in terms of supply chain constraints? Or should we start to see revenues kind of approximate order intake as we get to Q2 and beyond? So maybe we can start there.

Yes. Certainly, we are seeing adoption of our new products. But I would say, especially as I call it, maybe some of the more headline products that have been on pages in our decks. It's a little bit of good news, so-so news, like those are not yet, I'll call it, driving what we're, I'll call, short-term successes that are in front of us. So I'll say that benefit is still to come. And we have a lot of products that are in evaluation and test and really the revenue contributions are small at this point. So the order success and the backlog we are having is from things that have been in our pipeline, I'm not going to say that they're old products. I mean they've been a result of the innovations over the past year or 2 but it's about being able to address the customer needs. And again, those headline products will be incremental to that as we progress into second quarter and back half of the year. And now I've lost track of other parts -- a little bit, you talked about supply chain challenges and such. We are monitoring supply chain on a daily basis. I'll say, fortunately, so we feel very good that we haven't lost any meaningful customer opportunities because of that thus far and feel good about Q1. However, I'm not going to sit here and ignore those factors, whether certainly things that are kind of in the headlines, whether it be component availability or cost or logistics challenges. So those are real. My margin comments have contemplated those, especially for the next 3 months out. And they are literally on our radar every day going forward. And we're prepared to address them and I'm certainly not trying to downplay them.

So I want to make sure that I understand the nature of your comment though. I mean, the way I interpret it -- what I heard is that demand continued to improve thus far in Q1 relative to the fourth quarter. So from an order intake perspective, my understanding is that you're actually up relative to the prior year. But you continue to build backlog, which is why you're saying that your revenue might actually be closer to flattish. Do I have that right?

Yes. I mean as we look at our order rates that kind of by quarter on the charts and what we've kind of posted, right, Q3 order rates sort of minus 22, our revenue was a little better than that. Q4, we just posted a minus 5 on order rates. And you heard me correctly, we've flipped over to the other side of zero, the good side of it now. So that's kind of about taking us to flat for Q1. And with the backlog is the reasons why I'm positive through the first half of the year. And then it's just all the great things, hopefully, that are happening in the market, right? Whether it's going to get better vaccinations, are going to improve and so I just -- I'm not going to get over my skis for the back half of the year, right? But -- and that's why, to your point, Q1, let's call it in the neighborhood of flat. And Q2, I haven't done the percentage, right? Q2 last year was obviously a dismal number, so I started to think about things more sequentially, right? But certainly feel like Q2 could be after above Q1 levels as we look at the top line.

That's a good color. Then my final question. And we talked about this in prior calls as well. As you're sort of looking at your customer mix, right, I'm curious of the moving pieces here, QSRs and some of the pizza and fast casual guys versus maybe some of the casual dining and even your institutional exposure. How you kind of see that play out through the year? Because you sound better about the casual dining component. And to me, that's a little bit surprising, right, because you've gone through a quarter with a spike in COVID cases that we've never quite seen before. And obviously, a lot of the outdoor dining was closed in areas with cold temperatures. So it's a little counter to what I personally expected out of the quarter. Any color there would be helpful.

Yes. I'll turn it over to Steve in a second, but let me clarify. I wouldn't say that I'm banking on casual dining as being overly strong contributor to where I've made positive comments as we look out. I mean, I'm sure Steve will address the areas we've seen strength, and it really is continuation from the areas that have been doing well and are accelerating themselves. So -- and that's -- I think where we're going with casual dining and other stuff greatly, maybe it's more about probably more so the back half of the year. We'll -- I guess Q2 has good weather months in it, and again, we'll see how vaccination. But I think casual dining independence, travel, entertainment are all upsides yet to hit. But then I'll turn it over to Steve to kind of talk about what we've been feeling and what's coming.

Yes. Thanks, Bryan. Mig, just to build on that, again, certainly, the QSR segment is where we've seen, obviously, let them hold in through the back half of this year. And I think what's changing recently for many of these QSRs is really getting back to new builds. I mean, that obviously was muted last year delayed. Many of the QSRs are really saying, "Hey, they're going to be back to '19 new build levels, if not ahead of '19 new build levels. So I think we're starting to see that in some of our orders to certainly start this year. The other segments, again, we've talked about retail and c-stores continue to be very strong, expect them to really continue throughout this year. Again, retail is a great pickup, I think, for us, just knowing retail was for Middleby, relatively new in the last 2 or 3 years as a segment and having a dedicated team, dedicated products focused on retail. So that's a big benefit. As far as that casual dining segment goes, I mean, I do think we've seen them hang in there okay, the ones that have adopted things like virtual brands that had allowed them to pivot to kind of new revenue streams. I agree with Bryan, I think it's just a lag behind the other segments. Hopefully, in the back half of the year, you start to see, again, people coming back to in-store dining, vaccinations, weather gets better. And obviously, we could see casual dine really start to pick back up as this year progresses. But it's still the QSR, retail, c-store, pizza segments that I think are driving right now, and that certainly continues throughout the year.

Our next question comes from the line of Todd Brooks with CL King & Associates.

And congrats Dave and also congrats to Steve and James on your promotions as well, well deserved. First question, Bryan, if we can just walk through, I mean, the working capital performance was amazing this year. And you kind of qualitatively talked about some of that benefit unwinding as we do recover here. But maybe if we could talk about opportunities and learnings from how efficient you got during the pandemic and how much of that savings generated in '20, do you see coming back onto the balance sheet in a recovery scenario towards 2019 volumes?

Yes. And a lot of that obviously will be volume-dependent. I'll say, I do like to think about primarily AR and inventory, right? Those are the biggest components on our books and it drives a lot. We are -- we do a good job of managing AR, and we're also fortunate in to have a good credit risk profile, I'd say. So the simplistic view for me on AR is that it's going to move as sales move. We've actually been able to bring down DSO a little bit through this, and we had a lot of great programs in relations that we're able to benefit from with our dealers and distributors and supporting them. And again, supporting them and managing our risk. So again, AR is going to move as sales move generally. Inventory has been, obviously, a very positive area for us in terms of working capital management. And so -- but I do expect to get back some, but not all of that next year. Maybe I'll say 75% of it goes back because of volume, but we have been actively working, especially in CSG, to bring down our inventory levels and really be looking at safety stocks, products we have on hand. And we've talked about sharpening our focus on product mix as well, right? And so we have scratched some products that are lower profit levels and such. So all that ties into the fact that why the full inventory item will not flip back to the balance sheet as improvements in the market happen. Admittedly, right now in Residential, I would take more inventory if I had it, right? But I guess I need to admit to not having been prepared for 50% growth there, right? But this is a good problem we're having, and we're continuing to improve our operations and such, daily. So I'm not -- I guess, to stop rambling and to summarize, AR is going to move back as sales move back and inventory, we will be able to drive down lower DIOH, especially on the commercial side.

That's great. And then just a final question. It was good to see in the deck, the summary of deals during the year, the 6 acquisitions. I guess, A, can we talk about -- and I don't know if you'll disclose it, but kind of incremental revenue from the class of 2020 from an acquisition standpoint? And any commentary about the M&A pipeline as we're entering the backside of the pandemic would be helpful. My sense is that the differentiation between offerings from companies in commercial foodservice or food processing or even residential is getting to a greater gap than we've seen in the past, and that should be a competitive advantage for Middleby.

I'll take the first one, and then Bryan can maybe add up the numbers in a second. So certainly, acquisitions has always been a core competency of Middleby. We worked really hard throughout the year to get our balance sheet back, hence, the financing. And as you can see in the deck with the cash flow and availability, we're really well positioned to bring the acquisitions back online and in fact, have brought the acquisitions back online. You could see, as you referenced there. We've done quite a bit, really including, I think, about 4 at the back end of COVID here. So we always have a great view of, I would say, a strategic pipeline of targets that we have that really add to the long-term value of the company, and we're actively working on those. So I'm anticipating that 2021 is going to be back online and really is already back online. So we're pretty excited about the pipeline that we've got going into the year. More and more, we're investing in, I would say, technology companies that cut across all brands, certainly. Historically, we've always gone after key brands and product categories that are new and complementary to us, but really we're accelerating things just like you've seen with L2F powerhouse dynamics that really cut across the platform. So excited about the opportunities there.

Yes. And in terms of the numbers, we have disclosed some of these. We made the acquisitions. Wild Goose was around $35 million and Deutsche was around $40 million, which shows that a store on our product page or United Foodservice was around $10 million. So that's $85 million there. RAM was certainly a smaller one. And Bluezone is one with more opportunity, as more of an investment, we haven't quantified that one for folks and the same thing with [VeMA]. But when you put the other ones together, it probably starts getting it to around $90 million.

Our next question comes from the line of Saree Boroditsky with Jefferies.

And welcome, James, Steve. And congratulations, Dave, on your retirement. So you talked about getting to 25 EBITDA margins in Commercial Foodservice in 2021 despite the lower sales in 2019. Just given the structurally higher margins, could you just update us on how you're thinking about the long-term potential for EBITDA margins in this segment?

I mean, yes, I'll say that's an easy question. We put out the 30% there as the goal, and that's still is the goal and still what we're marching towards, right? The hard part of that question is to tell you exactly when that hits, right? But it's still just probably a couple of years out. The hardest part for me to get more specific on that is the pace of recovery, right? So we probably have debates around the table here, whether it's 2 to 3 years out or so. But hopefully, it's in that, I'll call it, small single-digit range of years to get there. We talked more extensively about margins at some point before COVID and how I'll say our mature cooking businesses were really already at that level, and I'll call it our larger and kind of the beverage cold-type businesses that we had, were also there. And what we were working on was the continued integration and growth at more of the more recently acquired businesses, both having them mature from a revenue-generating wise as well as taking the cost action. So COVID, obviously, gave us a bit of a step back there. But the goal is still the same goal and is certainly extremely achievable in our views. It just became a matter of the timing setback here this year. And I'll actually say, I'll put one more a little bit positive spin on it. Nothing like a little bit of hardship to cause you to get a little bit more introspective on things. So I think we'll actually get further benefits from all the deep dives and belt-tightening we did on the mature side of things for us.

That's helpful. And then Residential demand has obviously been very strong. Could you just talk about how you're performing relative to the market? What do you think the market share opportunity is? Do you have an estimate for where you are today versus where you could go?

Yes. So I'm not going to really talk about market share and the market can be defined quite a bit, obviously, in the appliance area, we are a very small player in an overall industry, but certainly, we're touching on that premium side. That being said, we think we have significant opportunity to gain market share over the next several years. The efforts that we've had leading into this year, really over the last several years, and I've talked about it a number of times, whether it's new product, the infrastructure that we built with sales, distribution service. We talked about the showrooms, which were just really on the front end of leveraging those, particularly as we go after the designer market, which is one that really we're just starting to touch upon and make investments there. And then the sales process is changing is true across all of our business segments, but certainly on residential, digital marketing and how we access the end user is evolving. And we view that we're really at a great inflection point. Certainly, we've got a good backdrop at the same time. But I mean, we feel pretty good about how we're going to be growing the business over the next several years. What that means in terms of market share, that's -- that is hard to measure right now. But I would also say that I think the demand for premium products in high-technology products is a trend that's increasing over time, and that's where we're investing. And that's where we're well positioned. So we feel pretty solid about where we're at in the market right now.

Our next question comes from the line of Joel Tiss with BMO.

I just wonder if you can talk a little more deeply around the strength in the commercial business or kind of what's driving the backlog? Just a little more granularity. There's been a couple of questions around the edges. And I just wondered if we could try to maybe get a little deeper into that.

Can I take that one?

Yes, go ahead.

So I'd say 2 things. First of all, I think Steve did a really good job of talking about the customer and our connectivity with the customer and our -- we're with the customer a lot on new products, speed of service, menu mix, menu flexibility, cost, labor. And that's really driven by our technology and both individual technologies. So I'll put James on the spot here to talk about how technology is getting us in front of the customer in a bunch of different ways, both from our Open Kitchen platform to individual pieces of equipment. And that, by the way, goes from foodservice over to residential, too. I think there's a connection of technology and backlog and customer-facing capabilities. James, why don't you talk about technology?

Yes, Dave, I think I would approach it a little bit differently. But first thing I want to talk about is the new Middleby Innovation Kitchens that we just opened. If everybody hasn't gone out there yet, go to www.middleby.com/mik to see all about the new Middleby Innovation Kitchens, which we opened in the Dallas area. It's been about 2 years in the making. The idea for us was to have a single point of access for our customers and our channel partners to come and have chef-led demonstrations to focus our customers and channel partners and all the great innovations that we do day-to-day at Middleby from baking to frying to speed cook to conveyors and automation to IoT. All those innovations are on display in the -- at the Middleby Innovation Kitchens. And since we've opened the Middleby Innovation Kitchens, in about the last 1.5 months, we've had 9 segments tour the innovation kitchen, so very high-profile customers. I won't give their names, but they represent QSR, c-store, pizza, GOS kitchens, buying groups, dealers, casual dinings, foodservice consultants and even on-premise brewing. So we've had just a tremendous amount of volume and great customer interaction through the Middleby Innovation Kitchens. Beyond that, automation continues to be a focal point at Middleby through our advancements in the high level user interface that we are developing. Also the advancements of Open Kitchen, which continues to be the single platform for our customers to really automate their entire restaurant whether it be HVAC, lighting controls, whether it be management reporting, food safety measurement has up to equipment connectivity, Open Kitchen truly is the only platform in the industry that brings all that together to allow our customers a single point of basically access to all the data in their kitchen. So we're continuing to drive innovations on open kitchen, automation, and among other products such as pizza, where we continue great innovation, such as the world's largest ventless conveyor on.

Okay. And that was my next question. But if you guys are going to cut us off at exactly at 12:00, then maybe I'll let someone else ask, and I can ask on a follow up.

We'll run a little bit longer, Joel. So if you get a follow-up there, please. Yes, please ask.

Okay. You guys keep mentioning sort of the reinvention of the company. And I wondered across anybody there, if you could give us a little sense of where you see this industry in 5 years and kind of what capabilities you've got to build today to get to that eventuality?

Yes. I mean, it's an evolution, and we've been investing heavily in technology as well as sales processes, and that's been happening over the last couple of years here. So I mean, certainly, a lot of the things that James went through. But we think our customers are starting to pivot and a period like we've just been through and still in with COVID brings a lot of this to light. So the automation in the kitchen, how much labor is a kitchen flexibility footprint and really digital, which digital goes to the power of data as well as automation, right? So I think the foodservice industry has probably been a little bit slower to adapt than many others. And I think now is where we see the inflection point of technology really coming into this industry. And hence, why we've been making these investments for a while. I mean, this is not new. Frankly, we've been getting on calls talking about how we've been incrementally spending in these areas. And again, buying companies, also automation companies, IoT companies, et cetera, and continue to invest in those platforms, which are embedded in our P&L as we're driving profitability, we are taking those dollars and spending some back on these capabilities. I think it goes beyond just the footprint of the kitchen and the equipment we're putting in there. But we've also been thinking about, okay, what does that sales process look like? I mean, we are moving more and more to ensure that we can educate our customers, whether that's through a digital sales process, which we've invested heavily in also in the last year. The -- our channel partners become incredibly important and more important through that because we really need to have partners that can think about solutions…

Do you feel like you're kind of pulling ahead of the competition like now is the critical time to put the foot on the gas? Or it's just the natural evolution of how the business is going?

Well, we have been trying to differentiate ourselves, and we've been committed to it for the last couple of years, and again, why we've been making those investments. We hope those investments are starting to pay off now. And so that is our objective is, again, really to be differentiated and have unique solutions to our customers that really or beyond what others in the industry might have.

Our next question comes from the line of Jeff Hammond with KeyBanc.

Just on the -- just a clarification, Bryan, on the Commercial Foodservice margin comment, '21 versus '19. Is that -- is the thought that for full year '21, you'd be at '19 levels? Or you'd kind of get there on a run rate in the back half?

The hedge answer is get there in the back half. But I think we can -- we have a decent chance of doing it overall for the year, right? The only reason I hedged there some is the back half of the year in getting that revenue right is hard right now. But that is definitely within our sites. So I'll put it like that, right?

Okay, great. And then just as we think about this kind of rebuild and recovery and certainly, you guys have introduced a lot of products, and there seems to be certainly a focus on technology shift and but just as you look at maybe more QSR, fast casual, doing the new build and maybe less independent, just how do we think about margin mix within this kind of recovery scenario that you're thinking of?

Well, I mean, I'll say I'm impressed in what we've been able to do with margins now. And I don't know if you're kind of behind your question, implying like is there lower margin from these bigger customers, right? So our results now speak for themselves. And honestly, I think things just continue to get better from here as we pull back or add more volume back into the industry, right? And I'll go back to what my colleagues here have been talking about, innovation and differentiated products deliver value for our customers, and that impacts what you're seeing now and what I'm talking about coming next, right, where -- what's driving our success right now is in commodity. It's differentiated and high-performing products.

So I mean one of the things that we focused on coming into this year is having sustainably higher margins at low levels of business. And so I mean, certainly, we had opportunities starting with all the acquisitions we've acquired over the last 3 years. So don't forget that. I mean, we -- we've got a slide in the deck there. And it's quite a few, and we've got a pretty core competency of bringing those companies into the fold. So that's been a key element. As the organization has grown, we've focused on how do we really leverage synergies and capabilities across the company, which helps us also bring up the margins. But then to that last piece, the mix of product again, as we are investing in technologies, we're committed to shifting the mix to those higher end products, which have a higher ROI for our customers. We're trying to deliver more value. And those are the 3 key elements that we've executed on over the last year. And again, it's always difficult to predict exactly what the margin is going to be. But I mean, we're anticipating that's going to show up in 2021, and it is part of that bridge of how do we get the margins to 30% for this business segment in the long-term.

Our next question comes from the line of Larry de Maria with William Blair.

Good luck to everybody. I wanted to ask, you guys mentioned, obviously, you talked about CFS orders improving still in '21. So first question is just to clarify, what the December comp up? And can you just give us the comps for January and February, which I assume were up year-over-year?

I'm not going to get into months and we've obviously moved to quarters because of the variability month-to-month, right? But we are comping positive in '21 through the first 2 months of the year here, right? And there's day-to-day lumpiness, there's week-to-week lumpiness. As you get to bigger periods, it starts to smooth out a little more. But we have -- again, the trends have continued in '21, and we're on the positive side now. We're in green, not red.

Okay. And then I don't think we talked too much about price cost. Could you talk about price increase, order of magnitude? And is this enough to cover, do you have net positive price versus materials for the year? Or do we think we still need to re-address at a later date, given what's going on with steel prices? So can you just give us a little discussion about that, please?

Yes. We did take pricing somewhat, I'll call it, at the modest levels. Not seeing a lot of that in the Q1 outlook just because we do have strong backlog, and some of that gets filled at, I'll call it, old prices. But I do expect there to be further pricing actions taken this year, to your point, steel and a lot of other areas in our business are seeing inflationary pressures, and we will respond to that accordingly. So it certainly, I would say, is not a detriment in Q1, and we're going to take actions to make sure that continues to be the case for the full year.

Yes, Larry, I would just say that, I mean, this is a real issue for a lot of companies right now. I'm sure you're hearing it more and more from some of the other companies you cover, but availability of containers, shipping costs, supply shortages and then just kind of general inflationary pressures. And I'm repeating a little bit of what Bryan says. But it's something that we're managing pretty effectively. We're keenly aware of, and we're being proactive with our thinking about what that means in the second half of the year. And I think this is an area that thanks to Dave and team that we've got a really strong competency that probably doesn't exist at the level that we have today at Middleby. And I don't know, Dave, if you want to add anything further?

No, I think that it's -- with supply chain, a lot of times, you -- or with any change, you think it's revolutionary, but it's actually evolutionary. It's been -- the supply chain team, it was built 2, 3, 4 years ago. We've got a database of suppliers across all the individual brands that we work off of that we share. And then on top of that, every week, there's 150 people that go around the world on supply chain and engineering, looking at supply chain issues, and it's more than just components. We're looking at container availability, shipping availability, port dock availability. So it's a very detailed review. And so it really comes back to the competency of -- it's the -- do you have a process? Do you have the data? And then do you have the people that know what to do. And when you look at Middleby across all the brands around the world, with the database that we've assembled, with the supplier base that we've assembled that can cross the port, it's an amazing organization of great people that's been developed over the last 4 years. And so relative to the situation, we are really set up well.

Our next question will come from the line of Tom Simonitsch with JPMorgan.

Just a follow-up, first of all, on that last question. How much of the Q4 backlog will be filled at new prices?

Yes. The backlog goes across so many companies. It's really hard to say that specifically. I don't have a point on answer on that one for you.

Okay. Fair enough. And you highlighted alternative protein as a potential bright spot for food processing. Can you elaborate on how Middleby might participate in that growth?

Could you repeat the question?

Sure. You highlighted alternative protein as a potential bright spot for food processing. Can you elaborate on how Middleby might participate in that growth?

Okay. So it is early stage. I mean, just to be clear. I think, by the way, the mature dried meats and maturation business. I mean, I think that's probably more impactful to us this year. Obviously, you see a lot of headline news and including with our QSRs of alternative protein coming on more and more significantly investments made there. So when I think that is something that we view as a long-term trend, we do believe it is here to stay, it is not a significant piece of the food processing equipment today. We are, however, uniquely positioned there. It's been something that we've spent time developing products that broadly meet a number of different applications there and do feel like that's an example of a number of trends that we're going after.

And what positions us that way on it is, I'd say, alternative proteins require kind of a combination of technologies that exist across our protein and bakery product lines. So that will be good for us. And to echo Tim's comments over the longer term, it's not just about what's being done, I'll call it, by the new names that are kind of in the headlines every day in it, but also how are some of the more well-established, older line companies thinking about it as well. And we have been partners with them for a long time. So that's what gives us, again, good vies on this over a medium-term horizon.

Yes. And I've got to say, Bryan, that's right on the -- it's amazing amount of start-up chains that we've talked to about alternate proteins. And it ties -- we introduced them back to our customers on the food processing side that are developing those early on changes, as Tim said. So I think it leads right back to what James was talking about in technology. And if you get a chance to that innovation kitchen, you'll actually see demonstrations around specifically the question you have. So we are well poised on both the Food Processing side and the Commercial Kitchen Equipment technology side to be a leader in this area as it emerges.

Our last question comes from the line of Walt Liptak with Seaport.

I'll keep it brief because we're kind of long in the call. But I wanted to ask one about operating leverage in 2021. Specifically, I don't think we've talked at all about any temporary costs that might be coming back that came out in 2020?

Yes. I mean, many of those costs are back/coming back in terms of the ones that are, I'll call it, volume-dependent. Certainly, our travel costs are still low. We've talked a lot about the Middleby Innovation Kitchens, and there will be some pivoting, I'll call it, from some of our trade show dollars into that area. So I do feel like, I'll call it, our Q1 structure, which is embedded in the outlook comments I gave really reflect the bringing back of what was temporary and the benefit of what was taken out semi-permanently. I only say semi-permanently for 2 reasons: I hope that we continue to have tremendous growth; and with that, will come making some adjustments. And again, it's not a huge number for us, but we really think about it a lot because of the impacts of employee safety and technology, and that's the travel side of things, right? And so we're all certainly embracing technology and how we work with our customers. But nonetheless, given the industry we're in, people do like interacting with our equipment. And so do expect that to creep back over time, right? But hopefully, my comments about where we expect '21 margins to be versus '19, capture the fact that a lot of those costs stay out, and that's why we will continue to advance on that margin expansion story.

Okay. Great. Yes, I can do the math on the margin discussion. But maybe more specifically in Commercial Foodservice, just -- have you calculated the leverage number? Or is there a leverage level that you're thinking about as the market starts to recover or at least your sales start to recover?

I'll admit to not knowing exactly how you would be referring to calculating leverage. Sorry. I mean -- so maybe we'll need to take that one for a little bit of a side bar.

Okay. Sounds great. Thank you.

There are no further questions. I will now turn the call back over to management for closing remarks.

Okay. Well, thank you very much, everybody, today for joining us on the call, and we look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.