Good morning. And thank you for joining us for the Middleby Second Quarter Conference Call. With us today from management are Tim FitzGerald, Chief Executive Officer; Brian Mittelman, Chief Financial Officer; Steve Spittle, Chief Commercial Officer; and James Pool, Chief Technology and Operations Officer. We will begin today with opening comments from management, then open up the call for questions. Direction on how to get in the queue will be given at that time. Now I'd like to turn the call over to Mr. FitzGerald for opening comments. Please go ahead, sir.

Good morning. Thank you for joining us today on our second quarter earnings call. As we begin, please note, there are slides to accompany this call on the Investor page of our website. I will start the call this morning with comments on our decision not to counter and further increase our offer on Welbilt. We continue to stand by our view that the originally accepted offer to acquire Welbilt through a merger transaction offered superior value to Welbilt shareholders by participating in the ongoing growth of Middleby, along with sharing in the benefits of the combined organization. While on prior calls, we shared our enthusiasm for the transaction, we are even more enthusiastic about the many opportunities we have at Middleby and the growing momentum of our business. As we contemplated the decision of the Welbilt board to accept an all-cash offer, we were unwilling to further increase the consideration of our offer at the expense to our Middleby shareholders, particularly in light of the excitement around our stand alone business prospects. We remain in an extremely strong financial position that will allow us to make investments to support our strategic sales and profitability initiatives and execute on our long standing track record of smart, strategic and shareholder value enhancing M&A. Although a Welbilt transaction would have been sizable, we have a considerable pipeline of other strategic acquisition opportunities consistent with our history over the past 20-years. These opportunities will provide a higher return to our shareholders, as we continue to successfully build our business for the long term. Now as it relates to the quarter, we continue to build upon the positive momentum across all three of our segments. Investing in technology and product innovations addressing market trends, furthering our strategic sales initiatives, and adding to our brand…

Thanks, Tim. We have a lot of terrific innovations happening at each of our divisions day-to-day. They continue working on the next-generation combi, convection oven, rapid cook oven, fryer, espresso machine, processing line and the list goes on and on, just like the song. These brand level innovations will always be a part of our engineering DNA. Beyond this, we are also focused on six initiatives across our divisions to bring much needed labor savings, enhanced efficiency such as speed of service and profitability to our customers. They are automation, beverage expansion automation, common controls, IoT, health and safety, and ventless. In today's earnings presentation, I've highlighted three new innovations within Middleby to ensure a strong demand pipeline. The first innovation, the TurboChef by Alkar, is an excellent example of brand level collaboration and innovation. This first of its kind thermal processing oven offers our customers a 45% to 90% reduction in processing times across a wide variety of food types by utilizing five unique heating technologies. In addition, the Alkar also enhances yields by 2.5% to 5%, which might not seem significant until you considered the tonnage of product that the machine will process over its lifetime. The next innovation is a textbook example of the power of embedded and collaborative automation. The PizzaBot is the first system designed to prepare and process any size or type of pizza to exacting standards, ensuring perfect consistency, while substantially minimizing food waste. From the PizzaBot, our collaborative robot takes over and move the product to an oven for the perfect rapid bake. We are very excited to bring the PizzaBot to market. And while it would have made its debut at the NAFEM show, it will be in use and on display at the Middleby Innovation Kitchen and in our customer locations. Finally, I want to introduce our new VentCore product by EVO. This has been exciting innovation in our ever-expanding line of ventless products. The VentCore product was designed to turn some of our most aggressive high temperature cooking systems into ventless systems. The EVO VentCore uses new patent pending technologies to minimize the reliance on consumables and accessories, while improving the cleanability and maintenance of the ventilation system. The VentCore was designed to bring all types of cooking to all types of venues. These are just three of the many great innovations we are bringing to the market. I look forward to discussing more in the future. And now to Bryan.

Thanks, James. For the second quarter, revenue of $809 million and adjusted EBITDA of $186.2 million were just a bit ahead of what we had indicated early last month. GAAP earnings per share were $2.13 and included a $19 million or $0.33 benefit from tax legislation impacts primarily in the UK. Adjusted EPS, which excludes the tax items, amortization expense and non-operating pension income, as well as other items noted in the reconciliation at the back of our press release was $2.11. Operationally, we continue to build upon our strong foundation and have delivered another solid quarter. Looking at total company performance. Revenue continues to trend very positively with growth sequentially of over $50 million from Q1. On a year-over-year basis, revenues grew 71% or 65% organically with strength in all three segments. Order trends also continued to be robust. We exceeded $1 billion in orders during Q2 and our backlog is at a similar amount. Our 23% adjusted EBITDA for Q2 was a substantial increase over Q1 as well as Q2 of 2020. We sequentially expanded margins meaningfully in each segment. By the way, all margin values I will discuss are on an organic basis as well, meaning excluding any acquisitions, disposition and FX impacts. Total company adjusted EBITDA of just over $186 million represents approximately 15% sequential growth in Q1 and 150% growth over the prior year. We continue to grow our bottom line faster than our top line. When comparing Q2 to the prior year, we grew EBITDA over twice as much as revenues, even while we are investing over $5 million in technology initiatives quarterly. As a result, our strong cash flow generation persists. Operating cash flows of nearly $113 million was a record for us for a second quarter. Our profitability expansion and increasing cash…

[Operator Instructions] Our first question is from Tim Thein with Citigroup.

Good morning, thank you. Just, Bryan, maybe coming back on the comments there on pricing and when those increases take effect. Is it – so it’s fair to assume that what's the opportunity or the ability to price what's in the backlog is limited at this point? Meaning what's - you have a PO, but the order is not shipping for six months or longer, there's limited flexibility or ability you have to reprice anything in the backlog. Is that a fair takeaway from what you said?

Yes. This is Tim. So that is fair. A, we're not generally repricing the backlog. The orders are in, and frankly, we still want [ph] to disrupt our customers. So we're very focused on the long term and getting - being proactive about where pricing should be as we go into next year.

Got it. Okay. And then maybe, I don't know, Tim or Steve, maybe you could just say a little bit more in terms of what you've seen thus far and what you are seeing just from a customer perspective. I suspect that as you think about overall revenues and getting back to or above that '19 level, I would assume that some of the larger chains have been doing a lot of the heavy lifting. But and you also have, as you said in the release, a lot of customers that are obviously still struggling from shutdowns and the like. So is there a way to kind of - I don't know how much of this you have on your fingertips, but kind of help us in terms of customer segments that are considerably - that are still kind of early days of recovering, and what that represents from an overall book, and this would be for the commercial business, obviously. So maybe just a little bit more color in terms of the kind of the leaders and laggards? Thank you.

Yes. Good morning, Tim. This is Steve. So I would break it into maybe three groups to help simplify how we're thinking about. So I think kind of group one would be - you have the segments that hung in there pretty well last year and continue to do well. So certainly, QSR, pizza, retail, C-stores. I mean, I think, again, specific to QSRs, I mean, they're back to obviously doing new builds at pretty aggressive levels. I think that certainly continues into next year. So that's kind of, I would say, bucket number one that has continued to well outperform 2019 and prior levels. So now I think you have kind of group number two, which I would call maybe some of the other segments that have been a little tougher hit, whether it's casual dining or really just the general market. So I think you're seeing some of that certainly come back. I think we're seeing that more in replacement business, right. not as much in the new builds, but in the replacement business that I do think has started to come back, so that's kind of group two. And then group three, I would say, are the hardest hit segments, right. So we're talking about institutional, we're talking about travel leisure and the independent restaurants. So I would share some color just specific to schools, I think is an interesting one. We've talked about schools before and kind of the order cadence that you normally see. So school business for us from an order standpoint is actually running pretty well ahead of 2019 levels, which I think is very encouraging for two reasons. I think they are back to the normal ordering habits getting ready for kids to come back in the fall, and I think you're seeing catch up from obviously not doing any kind of purchasing last year when kids were remote. So those are kind of, I would say, the three segments, I think they are all trending positively. Group three still well behind kind of groups one and two. So hopefully, that helps kind of frame up the perspective for the back half of the year and certainly into next year.

It does. Thank you. And I mean, just not to the sort of decimal place, but as you think about that group three…

Yes.

I mean, what are we thinking like a quarter kind of 30-ish percent ballpark in terms of what those categories would represent?

I mean, again, I think if you go back, we've kind of shared that chart in - the pie chart in prior slides or investor decks. I would say it's in the - yes, it's probably in the 25-ish percent neighborhood. I would say historical levels going back to kind of '19 levels, that's probably a rough estimate of what those three, four, five segments would represent, Tim.

Got it. Thanks for the time. Take care.

Thanks.

And your next question is from Larry De Maria with William Blair.

Hi, thanks. Good morning, everybody.

Morning, Larry.

Hey, guys. Hey, Tim. So obviously, you haven't walked away from Welbilt till now, I understand your sentiments. But curious your big picture thoughts now on M&A consolidation in the industry. Are there other large deals that are likely to play out, do you think? And does this potentially set off another wave of maybe larger cross border deals that we've sort of been waiting for last few years that are now hitting? Or is this - do you view this as a one-off in the industry and it's back to small and medium sized deals in general?

Yes. So Larry, I - generally, we don't comment on deals. Obviously, Welbilt was very public. Typically, we don't comment on deals until after we announce them. So I'm not - and we've been at this for a long time, over 20 years and we see a lot of transactions happened. The world has become more global, right. So even with Middleby, you've seen more international acquisitions over a period of time. We've expanded our platform, which we will continue as well. So I mean, I'm probably not going to get into a thesis of what may happen in M&A overall. I would just say that we're the best positioned in the industry given our early balance sheet but our core competencies and I guess, our strategic approach to acquisitions. And as I mentioned in the opening comments, I mean, we always have a strong pipeline of ideas focused on brands and building out our competencies, whether that's innovation, route to market, international. So I mean, we feel very good about our pipeline, but I'll probably leave it there, that…

And secondly, I think when you gave your guidance in July, you expect this 2Q backlog to be over $1 billion, came in under $1 billion, and processing orders came in below what you said they were going to come in. So is that the delta? Is that processing orders came in a little bit lighter than expected and maybe accelerated post-quarter or just timing? Or can you just give some color why there's the different numbers from July and now?

Yes. You are right. Food processing can be a lumpy business. And as we closed the quarter, one thing flipped in on the other side, right. And that business also has sizable orders. So it ended up with the rounding being just short of $1 billion as well. So if you would have looked at July numbers, they would have been up pretty robustly. So really, it's just a timing thing on one order. I would also note that residential orders also as we closed the quarter, came in stronger than we had initially estimated. So put it all together, it was as expected or actually if I take it with the residential coming in a little bit ahead, probably just slightly better or a little better than we had initially estimated. So really just a timing thing.

Okay. Thank you.

You bet.

Our next question is from Mig Dobre with Baird.

Thank you. And good morning, everyone. I guess what I'm wondering if you can give us maybe a little more color on how demand has trended into Q3, what you have seen in July? And I'm asking this because this is a question that we often get from investors, whether or not there is really any impact from the Delta variant either on activity or sentiment or how customers are thinking about investment in the back half? So can you provide some context on that?

Yes. Mig, so I would say, I mean just so obviously, we've been reporting orders and we keep saying we're going to get away from that. I think we truly are now as we kind of came through COVID. But just maybe to give you a little bit of a flavor, I mean, we - in July, that trend generally continued in terms of our orders. So in - so as we said kind of in the comments, we do feel pretty good about the outlook for all three of our businesses as we go through the back half of the year. As it relates to COVID, we kind of know what the impacts of - to a certain extent, obviously, there's a lot of uncertainty. But really what the impact of our - to our business is from COVID, we all saw that play out over the last year. So I really don't think the variant is going to take us back. I mean, food service industry has proven extremely resilient. It obviously impacts the different segments, slightly different, but the ones that haven't recovered as much, frankly, lead to greater pent-up demand when they do recover, which is kind of what Steve was alluding to, talking about school systems. So we feel pretty good about the trends continuing and don't really expect a disruption from an order standpoint based on COVID.

Okay. And then maybe a question on pricing, I mean, look, the data out this morning on producer prices, commercial cooking equipment was reported up 13%. I mean to me, it almost looked like a typo. So I'm not really asking you to comment on the reliability of government statistics here. But I am curious since you're one of the major players in the industry, what are you seeing out there in terms of pricing? It sounds to me like you're saying, hey, look, pricing is going to be more of a driver in 2022. That seems to be a little bit of odds with, again, the data that the government has reported this morning. So maybe some context on that.

Okay. So I'll kind of go through at a high level, I might ask Steve to hit some tactics here. But I mean, we have taken price increases. I mean, I think just very at a big picture, it's a hugely dynamic backdrop right now. I mean, supply chain issues have increased as we've gone through the year. I mean, I think at the beginning of the year, we thought at the back end capacity would have probably increased the number across a number of industries. But I think as they've all seen, that's not been the case or orders have outpaced the increase in capacity. So that's really led to increased supply chain disruption. And then the lack of availability has obviously led to higher and more dynamic pricing issues, right. So we're managing through that like all other manufacturers. I mean, I think we've been very proactive in measuring those cost increases and passing those along to our customers. So we're very resolute in that. And I think we're very confident that we will be able to do that just as we've always had. There tends to be some lag. Now we have taken price increases, right. So I mean, it's not that none of this will come into effect this year, but again, you've got more of a delay. So I think the message you've got from us is that, we're very focused on managing it as we go through the year, as we have in the front half and passing those on. And we don't - while we'll have some impact as we work through quarters, we are very focused on our long-term margin targets, which are strategic, and we're - and while we're managing disruption, we're not losing sight. But where we want to be with margins as we go through the next couple of years and feel confident in our ability to execute on that strategy. So that's kind of a bigger picture. I'll maybe ask Steve to comment on government statistics and…

I might leave the government alone for this call. But Mig, I would just say, as we thought about pricing throughout the year, I mean, to piggyback on what Tim said, it's certainly a very dynamic, certainly not static conversations. So we've kind of approached it in waves throughout the year. So you kind of go back to the beginning of the year, I would call kind of wave one when we took pricing to start the year. And I would say we're kind of in the completion or backside of implementing wave two of pricing, which I would say has been the most strategic. We tried to be extremely transparent with especially the larger chains, knowing those can be tough conversations. But I think, again, approaching it from a very transparent perspective, really explaining where costs are on our side. But obviously, we're seeing in commodities, where we're seeing in materials and really trying to explain our pain points. And I think that, from a tactic standpoint has been effective. But then I'll also say, even though wave two is kind of wrapping up, wave three will certainly be coming more or less to start 2022. So we tried to be very open with our customers that, a, it is tough they're tough discussions right now. We're in the middle of it, and it will continue certainly as we go into next year. So I would say from across all of our brands and across all of our team that manages our national accounts and key customers, it's one of the most important initiatives we have in the company right now.

Okay. That's helpful. And the last question for me is sort of a clarification. I mean, I appreciate all the guidance detail that you've given, but it's going to take me a lot to figure out what all of that actually means for numbers. If I'm thinking about the full year outlook that you have provided roughly a month ago, has anything changed materially relative to that full year outlook, either in terms of revenue or in terms of how you thought about margin and what was implied in that outlook? Thank you.

The simple answer, Mig, is no, right. We are sticking with that, right. We do have line of sight to that margin amount. But I think we've been pretty clear, there are challenges there. What happens with Delta, or hopefully not other variant, but what happens in the general business and customer environment, as well as, maybe more significantly to our numbers, what happens with supply chain, right. Do things take a turn for the worse, right? And we're not - haven't really baked in things worsening, nor have we really banked in things improving, right. So that view is based on the state today, which could obviously evolve. The revenue side is a little bit also potentially constrained for the same factors. I mean, we are certainly working to increase output. And as I indicated, we do think we'll have some growth sequentially for each of the next couple of quarters, which gets us to that full year number, maybe with some opportunity to overachieve slightly. But again, supply chain is the most constraining factor. But the overall take is we feel those numbers for the year are still reasonable.

Okay. Thank you for taking our questions.

You bet.

[Operator Instructions] And our next question is from Joel Tiss with BMO.

Hey, guys. How is going?

Good. How are you Joel?

All right. You start opening up the door on too much information, and the questions never stop. I just - I wonder if you - have you given us a sense of how much, like how many basis points of margin impact that you might see from price cost, just recovering it. It's just more of a mathematical, more of a mathematical kind of question.

Are you talking kind of near term or medium term?

In the second half. Yes, in the second half of this year.

Well, as I talked - as I mentioned with margins compressing or getting smaller in Q2 to a small or modest degree, right, it is going to turn against us slightly. But I mean, you can do the math also with the forecast information that's out there and see the decline, if I speak in terms of round numbers, is 100 basis points is what we're talking about. Again, as you noted, putting numbers out there is a dangerous thing, but I'm not going to avoid them completely because they are out there. I look forward to when we get past these periods, and I can get back to normal Middleby of we'll give you the results as the results happen. But that's kind of how the math does play out.

Okay. And then just more of an easy question, just stainless shortages, is that an issue or is it more on the controller side in terms of the supply chain? And just the way your conversations are going and what you're hearing and seeing, is that more of a - it will be cleaned up in 2022? Or is it more of a second half of '22? Just any sense, that's all. Thank you.

Yes. So you characterize that as an easy question. I think that is the crystal ball question which I think all companies are facing right now. I mean, I think there's a multitude of supply issues, right. So it's not just stainless steel, right. I mean, for us, at any point in time, we're dealing with 100 plus supplier issues. I mean I think what's unique about us is we have a phenomenal supply chain team, and that team has gotten stronger as we've gone through the last years, and there's a lot of cooperation, collaboration, leveraging, kind of the capabilities and relationships across Middleby. So I mean I think that has led us to where we really have not had any major disruption in our business to this point, and I think that we'll manage through it better than others. Certainly, steel is one of the headline items, given it's one of our biggest input costs, and I think people are aware of that. I mean I think we - it's a daily issue, managing steel, I think, given the scale of Middleby and the relationships we have with our suppliers there, we've done pretty well of being able to obtain supply and so. In terms of timing, I mean, I think that, again, crystal ball, I mean, I think this is - supply chain issues, we will be dealing with, certainly into 2022. I mean it's hard to say when the manufacturing world gets beyond that. But I mean, that is going to be something that we're very focused on throughout the year. And I think as you listen to the industry analysts out there and as we talk to our suppliers, I mean, I think it starts to improve probably as we go through the first part of next year, but probably hangs on until the middle of next year. But again, I would say that's a crystal ball answer. So significant disruption and uncertainty through the back half of the year, improving as we go through the front half of next year, perhaps normalizing as we get through somewhere in mid-2022.

All right. Thanks very much. At least you guys have a crystal ball. We only have like that magic eight ball. All right. Thank you.

Thanks.

Our next question is from Jeff Hammond with KeyBanc Capital Markets.

Hey. Good morning, guys.

Good morning, Jeff.

Hey, Jeff.

So just on - there's a lot of labor issues out there, and I'm just wondering if, one, you're seeing any kind of slowing around new store openings as people make sure they have the appropriate labor. Or conversely, if you're seeing a lot more uptake on kind of labor efficiency driven products?

Steve, you want to take that one?

Yes. So Jeff, I don't think we've seen a slowdown in new store openings from the bigger chains. I mean, they've all been pretty open with their projections for kind of the rest of this year and certainly into next year. I have not seen a slowdown on that front. Now I do think they have a great challenge ahead of them. You have this dynamic of - yes, again, I'm probably speaking more to the QSR segment at this point where the new stores are coming from. But they have a real challenging dynamic of they are trying to improve speed through the drive-through, which has always been a challenge for them, and even taking a couple of seconds out of the drive-through can be a big deal. And so you see a lot of emphasis on that front just to expand capacity through drive-through. Meanwhile, you have this dynamic of they can't find labor in the kitchen. So - and then the impact of not having labor is, of course, extended drive-through time. So they have a huge dynamic they have to solve. And I think it well positions us for equipment that could be used to take labor out and increase drive-through capacity. So if you have anything, James, maybe kick it to you to - from a product standpoint of things we've seen that can help just in our discussions overall.

Yes. I think talking - we certainly talk about what our products day-to-day can do to reduce labor and group efficiencies. I think one of the systems that we have out there that is now really getting more and more traction is the open kitchen platform through its ability to really automate all facets of the restaurant, from the front end operations all the way back to equipment connectivity and also providing automated task management within the space. And we see customers turning to these technologies because of the labor issues that we're all seeing. So I think we're well-positioned from a product standpoint. And as we develop the products that we have in the pipeline, we'll be even more positioned in the future to address the labor issue, which will probably likely not subside.

Yes. I'll just cap it off and repeat a little bit because I have to be repetitive. But labor, Jeff, you're asking the question, right, because it is a massive issue for our customers right now. And I think we're uniquely positioned with our solutions, right, like we've been going after technology and innovation here. If you think about the - a lot of the things that James has talked about and in slide decks and so forth, it's automation that we can bring to our customers to really solve what is, today, their number one issue.

Okay, great. And then just maybe some color on Novy. Can you talk about the - what the purchase price was. Margins look pretty good, but what's the long-term opportunity to take margins up? And then just kind of cross fertilization and revenue synergy opportunities.

Yes. So I'll make a couple of comments. I know our Q is coming out later today, so I'll kind of leave the purchase price for that. But as you mentioned, Novy's margins are strong already, right. So I mean as we bring it into the platform, it's not diluting and perhaps additive to our margins, which is great. Certainly, we think there are many synergies with Novy on, I would say, growth, number one. Certainly, there are synergies from a profit standpoint as well as we kind of think about areas that we can leverage across the businesses. But I mean, we are excited about the product platform. Built in [ph] is a growing market, and that's an area that we've been developing products, but nothing really kind of adds to our focus there. And certainly, they are very strong in the markets that they're in right now, particularly Europe and the Benelux area. But the opportunity for those products in markets such as the UK and the US is strong. So certainly, we see a lot of strategic merits on all those fronts.

Okay. Appreciate it.

Thank you.

And that is all the questions we have for today. I'd now like to turn the call back over to management for closing comments.

Yes. Thank you, Tina. And thanks, everybody, for joining us on today's call. Appreciate everybody joining in. And we look forward to speaking to you next quarter.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.