Thank you for joining us for The Middleby Corporation Fourth Quarter Earnings Conference Call. With us today from management are Tim FitzGerald, CEO; Bryan Mittelman, CFO; James Pool, Chief Technology and Operations Officer; Steve Spittle, Chief Commercial Officer; and John Joyner, Vice President of Investor Relations. We will begin the call with comments from management, then open the line for questions. Instructions on how to get into the queue will be given at that time. Please note, this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead.

Good morning. Thank you for joining us today on our fourth quarter earnings call. As we begin, please note, there are slides to accompany the call on the Investor page of our website. We are proud of the accomplishments The Middleby team delivered across the business in 2023. The year proved once again to be challenging marked by supply chain disruptions, inflationary costs, and the impact of interest rates, presenting operational challenges across all three businesses, and materially affecting the demand in our Residential business. Our teams focused on delivering every day for our customers while executing on our long-term strategic growth initiatives and delivering the strong financial results we reported for the year. We're pleased to have closed 2023 with a record EBITDA eclipsing $900 million, record operating cash flows exceeding $600 million, and significant -- made significant progress towards the long-term profitability goals we've set out, achieving combined Company margins which expanded to over 22%. While delivering the financial performance for the year, we have continued to remain focused on investing in and advancing our strategic initiatives, launching industry-leading innovations in customer-focused solutions, developing our highly differentiated go-to-market capabilities, and investing in our operational capability to support profitability and growth. In 2023, we brought to market an exciting pipeline of innovations addressing operator needs and customer demand for automation, energy savings, labor reduction, speed, simplicity, and flexibility. We expanded our offerings of electrified energy-efficient and ventless equipment. We launched our Middleby OneTouch control now across many of our commercial products. We furthered our lineup of integrated full-line solutions providing for the latest in automation for customers of our Food Processing Group. And we made significant strides expanding our offerings of IoT-enabled products now launching in the marketplace. Across all three of our Foodservice businesses, we enter 2024 with…

Thank you, Tim. I'm proud to start off the call with an affirmation of Middleby's commitment to innovation. Each year, the National Restaurant Association with applications for manufacturers for their best innovations in Commercial Foodservice launching in 2024. The awards are known as The Kitchen Innovation Awards, and the winners are displayed each year at the NRA show. The NRA show is May 18 through 21st. Without giving too much away, I'm pleased to announce that Middleby has garnered a large percentage of the 25 honorees, aka, winners. And while I'd like to share all the Middleby product honorees, I must wait for the National Restaurant Association to publicly announce the awards tomorrow. Please check Middleby's various social media channels for a list of all Middleby's winning innovations upon announcement. Now, per Tim, let's shift our focus to the Kitchen and Bath industry show which happens next week in Las Vegas where Middleby Residential is set to make a statement. Referring to our slide deck, you will see a selection of new design and innovations Middleby Residential is showcasing. Our expansive booth will display 250 Middleby appliances representing 16 different Middleby brands. It's worth noting that the majority of these 250 pieces will be seen for the first time in KBIS. From indoor to outdoor cooking, grills, ventilation, ice, and refrigeration, Middleby Residential has the most comprehensive lineup of premium appliances in the industry. We are also excited to announce two entrants to the U.S. market from our well-known European brands Novy and Josper. Novy's elegant and highly innovative induction, surface cooking, and ventilation products, bringing modern European design to Middleby's Residential U.S. lineup, while the Josper Casa brings the ultimate Michelin Star cooking experience to Middleby outdoors in your backyard with their Spanish charcoal ovens. While I can't go…

Thanks, James. One year ago, I noted that when I thought about 2022, one word came to mind and that was records. I also reminded everyone that records are meant to be broken, and we plan to make that happen in 2023. Well, mission accomplished. For 2023, we delivered record sales, record earnings, and record cash flows, and we plan to do more in '24. While I think that could to sum it up very well, I won't refrain from digging a little deeper into '23 and touching on '24 as well. For 2023, we generated record revenues that exceeded $4 billion. Our adjusted EBITDA exceeded $900 million, representing a profit margin of over 22%. Our margins expanded over 100 basis points from '22. GAAP earnings per share were $7.41. Adjusted EPS, which excludes amortization expense and impairment charges, non-operating pension income, as well as other items noted in the reconciliation at the back of our press release, was $9.70, up over 6.5% versus 2022. We achieved this while facing especially challenging market conditions in the Residential segment. While I don't enjoy about -- talking about red numbers, but I believe doing so here helps put in context how much we have accomplished. We delivered solid results, even while Residential saw a nearly 25% decline in revenues. As a result, our top-line growth for the Company was nominal yet we grew our adjusted EBITDA 5.5%. We also more than doubled our free cash flow. We are focused on operational excellence. We are focused on innovation. We are focused on our customers' needs. We have invested and we'll continue to do so in all these areas. These investments are generating returns. You can see that in our results. But even while we invest, we also focus on driving strong cash flows…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Mig Dobre of Baird. Please go ahead.

Thank you for taking the question. Good morning, everyone.

Good morning, Mig.

Good morning, Mig.

I guess my first question is on Commercial Foodservice. If I understand -- and I guess there is two parts to it. If I understand the guidance commentary, we're starting a little bit slower here, maybe flat year-over-year in terms of revenue. But if you expect to outgrow relative to '23 for the full year, that implies pretty significant acceleration and growth, maybe like 5% or thereabouts, if my math is right, for the rest of the year. So, I guess I'm curious, what gives you the confidence that we'll be able to see that kind of growth for the remaining of -- remainder of '24? And related to all of this, I know we're going to get this in a 10-K, but can you talk a little bit about your backlog in this business exiting '23?

Mig, good morning. It's Steve. Maybe I'll take the first crack at your question. Just kind of what gives us confidence in the year overall? I come back to three things, I think specifically, that we've talked about in the past. So, if you look at the big chain customers, especially, getting back to the new store development, which was certainly lacking, going into COVID, it was pretty weak. So, we've seen that pick up, obviously, the last call it two years. I do expect new store openings to continue this year. The chains that we worked very closely with have all reiterated, recommitted to their new store opening plan, still working through challenges around some construction labor permitting, but by and large, their total new store -- net new store openings for the year, they've committed to. So in my opinion, that is, if you roll that up, is ahead of '23 from a new store development pipeline. So, that's kind of point number one. Point number two, all the challenges that we've talked about over these last several years, whether it's labor, dealing with the utility costs, speed of service, consistency, take your pick on the challenges, they still have to solve all these. And you're seeing the chains, especially, I think being very focused on their franchisee efficiency and franchisee profitability. So, you're seeing the chains invest more and more in these areas, knowing they have to keep the other franchisee community happy. So, I think you're going to see that continued investment in those areas. And then point number three, which we've talked about in the past, I still think we're substantially behind on a replacement cycle. The chain's been so focused on new store openings after trying to get through COVID, they have really not focused on going back and replacing and upgrading equipment in their locations. I think that's true. Obviously, we focus a lot on chains, but you go through a number of the segments, it's true in all those areas that I think we're way past due on just a general replacement upgrade cycle. So, when you kind of layer those three together, Mig, again, new store openings, still have to solve for all the challenges of what's going on in the store and a deferred replacement cycle, I think that's what gives us confidence in the market and growing it for this year and certainly in the years to come.

And then Mig, this is Bryan. Regarding the backlog, obviously, we have consumed a good amount of it this year, and we'll be disclosing that next week in the 10-K. As you noted, we'd say that the backlog is pretty much at, well, consider normalized levels now. But we also have seen some positive trends over the past, I'll say over the back half of last year and even in the start of this year on orders and backlog is trending modestly, but even up a little bit to start the year. So, and when you put all that together, what Steve was talking about, what we've seen in some of the data points I've noted what we're engaging with customers on, what we have underway with them is what gives us the confidence that has underlined our comments.

And just to round it out, as you kind of think about the year and the backlog, we came in with a lot of backlogs. So there's a lot of shipments in the first quarter. We talked about the inventory destocking. So then as our channel partners really worked down their inventory in the back half of the year, that's been a little bit of a headwind in Q3 and Q4, but that goes away as we kind of look at comparatives in the back half of the year. So one of the reasons I think was just the underlying activities Steve talked about, and then the lack of the headwinds in the back half of the year. Because our orders on Commercial were actually up in Q3 and Q4, but that's obviously not how revenues were as we continue to kind of face the destocking.

Okay. That's helpful. Thank you. Then my follow-up is on Residential. And just the way you kind of framed '24, I don't know, maybe a little bit slower than what I was hoping for or what I was thinking. And -- but the question here also on visibility and sort of what needs to happen here, it sounds like you actually need to see more of a recovery in the housing market and lower interest rates in order for this segment to start growing. And maybe the question on margin here more so than anything else, what sort of volume do you think or revenue do you think you need in this segment in order to be able to achieve your 25% target? Thank you.

So, I'll start off and then I'll let Bryan kind of hit that second part. Yes, I mean, I think certainly we were hoping that the housing market would start to be a little bit more robust. And I think the good news is we've bottomed out. It's a pretty low bottom, right? I mean, relative to the last decade-plus, I mean, it's pretty much the worst housing market that anybody's seen in a long time. And obviously, the interest rate hikes were very significant in the middle of last year. So, that's not that really long ago for the market to absorb all that. We saw a little bit of signs late in the year. The beginning of the year is a bit softer. So, we're kind of bouncing around the bottom. Our Residential orders also were positive in Q3 and Q4, relative to last year. But again, we had worked down the backlog from a revenue standpoint. So, I mean, I think we are seeing improvements. It's just that we're looking for a big step up in improvement where things kind of move, start to back to more normalized levels as kind of versus slight improvements off of the low. So, I think we're confident that we are going to see improvement as we go through the year. I guess the question is when is that better inflection point happen? But we do think that we will see some more meaningful step up in the back half of the year based on industry stats that we look at. So, Bryan, maybe?

Yes. No, Mig, hey, it's Bryan. Regarding the margin side of things, if I look back to '22 when we were over a billion dollars in revenue and our margins were in the high teens and we had a [Technical Difficulty] fully benefited from the cost actions and [Technical Difficulty] again. So I think if you put that all together, we'd hope to start to be again closer to the high teens or 20% around a billion. Again, that's just using past results as an indication of things going forward. And then we're making ongoing improvements in our businesses in a variety of ways. But let's -- I think the short answer is that first digit of the revenues needs to be one, we'd like to be over the billion dollars level to start releasing things, jump up nicely from the volume contribution of margins.

Maybe just to kind of add some color and pick it apart. I mean, you've got a lot of bigger pieces there. I mean, Viking had -- historically, we've gotten it well into the 20% margin. So, it's certainly fallen below there, but we've been operating at a long point in time well into the 20%s. AGA, which we bought the company, it was at 3%. We had -- we're just coming on to 20% and we've made significant investments at AGA over the last three years as we've gone through COVID. So, as it emerges, we have not only better, exciting products, but we have a much better cost base. So, I mean, there's kind of a built-in margin improvement for AGA in outdoor, obviously, which has been challenged like all the rest of Residential would make -- the team there has made significant progress in consolidating the platform around logistics. And we have a lot of new, exciting products that James touched on in the past and even in this call, they're coming out that brings the higher price points into the specialty market. So, kind of structurally, so, A, we're getting back to what we've already proven in the past and then structurally we've made improvements to the business while we've kind of gone through this period. So, we're pretty confident that margins get to be to a pretty attractive place in a normalized market.

Alright, appreciate it. Thank you.

The next question comes from Saree Boroditsky of Jefferies. Please go ahead.

Hi, this is James on for Saree. Thanks for taking questions. So I just wanted to kind of stick to inventory de-stocking that you talked about in the Commercial Foodservice again. So, you noted that the orders were actually up in 3Q and 4Q. So, can you kind of quantify or give some level of magnitude on the headwind from de-stocking in 2023? And do you expect de-stocking to continue into 1Q or is the de-stocking done in 4Q of 2023? Thank you.

I think it's very difficult for us to quantify. I mean, I think we would venture to guess it's tens of millions, but there is -- we know from discussing with our channel partners, they had a lot of inventory. It was not only Middleby inventory. A lot of dealers are trying to get with long lead times in the industry, any product they could get. And then there was concerted effort across many of the partners to work that inventory down in the back half of the year. So, I know it impacted us and it's really hard to quantify it. I mean, I think the indications that we've had by and large is that it is out of the system now. I mean, certainly, there may be some minor pockets left, but we don't view it to be in the same vein of the headwind that we had in the back half.

Got it. And kind of sticking to Commercial Foodservice again. So, one of your competitors talked about like weak restaurant performance. So, can you talk about what you're seeing in the restaurant market and your expectation in 2024? And can you kind of give us an update on your progress in growing the institutional side of the business? Thank you.

Yes. This is Steve. I would go back to just kind of some of my opening comments. I'm probably more positive on what's going on in the restaurant segment broadly. Yes, there are some tough kind of market backdrops, if you will. But again, going back to large QSRs, opening new locations like they haven't done in the last 10 years. So, I think that's very encouraging. I think again, you see a lot of large chains being very focused on helping their franchisees' profitability, grow their unit economics, that will always come back to be very favorable for us because everything we do for them from an equipment standpoint helps solve those items. I think the institutional side of our business, whether it's schools, healthcare, those have been good areas for us. I mean, schools primarily have been a good area, but it's not as predominant as the large chains, pizza, C-stores, retail. When you think about segments of our customer base, the institutional side just isn't quite as big as some of the other areas. So, I guess to answer your question, fundamentally, I think we're probably more positive on the end user restaurant business for this year and really years to come based on kind of those two or three backdrops driving demand.

I think it's, as Steve said, I mean, with the QSRs, it's a little bit more visibly, you can see some of the targets that they've laid out, but the fast-casual segment also has continued to do very well. So, I mean, we see a lot of new entrants coming to market and the ones that are out there expanding. So, we do pretty well in that segment. And convenience stores is also another area where they continue to push into food and beverage. And now we're a stronger player with greater offerings in beverages. We've kind of identified that as a growth opportunity for us. I think those are some other things to kind of round out. I'd also mention international, particularly Asia, I mean, as you look at some of the long-term growth opportunities and plans there, whether that gets executed this year or in the future years, we feel pretty good about our positioning. You know, as we talk about a lot of the investments we've made with our strategic initiatives, we really have also bolstered our operations in internationally, particularly China, as well as India. So, we're better positioned to serve the local markets there.

And I'd also note that as we, I'll say, satisfy the demands across the areas that Tim and Steve noted, we've also been able to manage our portfolio and we're delivering the innovations that are also earning us higher margins at the current levels. And as we grow, that obviously offers an additional tailwind to us too.

Got it. I appreciate the color. I will leave it there. Thanks.

The next question comes from Larry DeMaria of William Blair. Please go ahead.

Thanks. Good morning, everybody. Appreciate the comments on CFS in '24 on the outlook. Obviously, we've gone from strong growth coming out of COVID to kind of a slowdown, negative growth, and then a recovery here. So, I'm kind of wanting to follow up on where we think we are in the cycle and the industry. So, in other words, are we back towards this sort of long-term load and mid-single-digit industry growth from here? And secondly, if that is the case, what do you think you can outgrow the market on a sort of annualized basis from here? Thank you.

Larry, this is Steve. I mean, I will say, I think we've gone through a period of, I'll call it normalization, and not to keep hitting on how customers have ordered and working through inventory in the channel. We have gone through this period. So I do think as we start this year, I do think we're back to, I'll call it, a more normalized rate of how customers order from us, engage with us going forward. So, I do think, as Bryan said in his comments, you're getting back to kind of that low-mid single-digit growth for the year we are confident about. Again, I think it goes back to everything we've already tried to hit on this call, maybe I would take a little bit different view, because we've talked a lot about chains, but we obviously have a lot other types of customers. I think we're starting to see the benefit too of a lot of the investments we've made in our channel partners throughout the last several years, trying to get closer to them, giving them tools, you have to invest in us. One of the dynamics that is relatively new is, there's a lot of new people in kind of our channel in terms of the dealer segment. So the more we're investing in training, the more we're bringing people through the MIC, I think we're really starting to see that pay off. So, I know, again, we talked a lot about change that gives us confidence and growth, but really investing and being closer to our key channel partners on the dealer side, domestically, I think has been a big deal for us. And then the third area I would just highlight, talked about in prior calls. We've made a ton of investment in the consultant community, both domestically and internationally. And it's an area that I don't think Middleby was quite as strong in go back five, six years ago, and I think we're leaders in this segment today. So, consultants are driving spec from anything from institutional schools to large stadium projects to your local restaurant. And I think the more -- and we can see it very clearly, the specs that we're driving that show up. If you're specking something a day, it's probably showing up in a job the back half this year into next year. So, again, just trying to give you color on a couple of different areas beyond just the change where I feel like we're doing well, but I do think we will take market share and kind of outpace the market overall for the next, I'll call it two to three years.

Okay. Thanks for the color on that. Then just secondly, can you talk about price and volume in '23 with everything? How did it shake out? Any pockets of negativity? And then as we're looking at the '24 outlook, any pockets of negative price or just overall comments on pricing in general?

I think we've -- I would say broadly. Obviously, pricing I talked about in prior calls has been one of the most strategic initiatives to make sure we're being very thoughtful knowing what costs have done. Obviously, there's been a lot of pricing over the last several years, so I think it's enabled us to be in a very good and strategic position as we move into this year. I do think that there is always going to be procs where I think we have to continue to be very thoughtful about where costs are. And so I would say we're not necessarily done with taking pricing. I think there's still some pockets where we will look to improve.

Okay. So, put in other words, is it positive pricing on the three segments in '24?

I think we've been focusing on this several years. And we focus heavily on mix. I mean, I think as we’ve been focusing on technology. So, we're not saying we're taking -- I think we're kind of at a pause point. And I would say it's more of a fine-tuning, right. Because there's been a lot of cost disruption with inflation, kind of across labor, material, shipping. So, I mean, I think now we're going back through the portfolio and making adjustments where it makes sense. And I'll say having the accounting and finance catch up to all this disruption over the last couple of years. So, it's more of a fine tuning.

I think the other thing that I would point out as a reminder is, we were very intentional over the last two years about moving away and out of products on the lower side of the marketplace. So, we canceled a lot of SKUs throughout the last several years. So that's why when you think about kind of the price volume dynamic, it is a little bit difficult to kind of triangulate everything just knowing the products we cut, the pricing we took. So, that's why it's a little bit tricky to answer the question, but do feel like to support Tim's point, we've done a very good job controlling mix overall, and I think are in a better position to kind of build going forward from a volume standpoint the next couple of years.

Okay. Thank you so much.

I think it is worth kind of pointing out and reminding everyone, we did cancel a lot of products as we went through the last three years. So, even as you kind of look at our revenues and organic growth and everything, it's hard to determine as you go through periods with kind of whipsaw demand effect. We intentionally got out of a lot of SKUs, so we've canceled what would have been tens of thousands of products that would have been shipped over the last several years to really reinvest and focus on new products that we were launching into the market at the higher end of the innovation scale.

Okay. Thank you.

[Operator Instructions] And our next question comes from Walt Liptak of Seaport Research. Please go ahead.

Hi. Thank you. Good morning, guys.

Hi, Walt.

Wanted to ask a question about CFS, and just as you were talking about the new store openings, I wonder if you could talk a little bit about where you're seeing them geographically, is it international markets? I think you talked about Asia, what about Europe? And when you're talking about the new store openings, are you talking about North America as well?

Yeah, it's a great question. I think what has been exciting is the big chains are back to opening new store locations. It predominantly is in international locations. So, I'm talking about new store openings overall. I'm speaking from a global perspective. So, if you look at most of the bigger chains, there is new store opening growth in North America, but it's actually predominantly coming from international markets. So, Tim hit on Asia, I mean I think all the big chains are -- have been and have pretty substantial growth plans for Asia in general. I think as you go through Europe, I mean, countries, Spain, France, actually Germany has been a good performing market force. You see pockets in areas like India, Brazil, that I think the chains continue to invest in. So, yes, when we think of global new store openings, I would say it's probably skewed something to 60% to 70% are coming from international markets.

Okay. Great. Thank you for that. And just switching gears to Residential, I wonder if you can just talk about if things are maybe slightly -- are going to get slightly better throughout the year, where do you think the bigger inflection could come first? Would it be in the Resi Outdoor or in Resi Kitchen? If you have a guess on that.

Yes. So, it's a bit hard to say, right. Like I mean I think with the crystal ball that nobody has, so, I think as we think about our indoor platform, that's going to be kind of more of a radical step up as we go through the year, again, probably starting a bit challenged. Outdoor does have the ability to inflect a bit more, and it could just because of the nature of the grill season and load-ins, et cetera. So, I mean I think as we go through this year, a lot of the channel partners and customers will start to work down some inventory, and they're reticent to load-in for a grill season. So, I think there'll be a little bit more of a real-time demand of what happens in the spring. And then I think then we get to the end of the year where people start thinking about 2025. We've got a lot of new exciting products that are taking more floor space in 2024, and so, that could have significant impact in the end of 2024 as people are starting to look at 2025 and what the outlook is and what the sell through has been and what the confidence level has been. So, I mean, I think that's -- that is one that could take a bigger -- it's got a bigger beta to it, let's put it that way. But it doesn't have a beta down. It's only a beta up.

Okay. Alright. Great. Thanks for that. Good luck with you.

The next question comes from Brian McNamara of Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. On de-stocking, could you guys expand on where this has been an issue in particular? Is it the dealer channel, distributor level, or somewhere else? And can you remind us of your rough sales in the segment by channel and CFS whether it be dealer, distributor, or direct?

I'll take a pass the first part of the question. I think the de-stocking phenomenon has hit Pretty much every segment. I think it hit the general dealer segment just again going back over the last couple years when they were ordering just to find products whether it was, hopefully from us, but from other manufacturers In the segment, so I think general dealer business did have excess inventory. I think the chain side, the dealers that carried inventory for chains, you also saw inventory show up there and that really is a function of all the chains were placing orders, say a year out going back 12 to 18 months ago, two years ago and as we started to catch up for a manufacturing standpoint, obviously, we started to fulfill more and more and that inventory ended up in the dealer channel or distributor channel. Now it still lines up against a lot of the new store openings and replacement that the chains are looking for, it just caused kind of back up in the channel, but I think we've, as we've said, by and large have worked through over the last couple quarters. So, it showed up in all areas of business to answer your question both in the, I'll call the general market dealer business and definitely in the chain business as well.

Got it. Thanks. And then secondly, it looks like Commercial Foodservice revenues were down significantly in pizza, casual dining, and independent restaurants in 2023. Is this de-stocking or is there anything else worth calling out in any of these customer segments and would you expect any of this weakness to continue in 2024? Thanks.

So, those percentages were -- aren't the revenue decline, but the change in the percentage of our total composition of revenues that they each represent.

Understood.

Yes, I wouldn't read necessarily too much into some of the nuances. I think it's just how -- has been flowed obviously. I read more, you have QSRs continue to do very well, so you see why that's -- fast casual continues to do very well, so I think that's why that's up. So, I think it's more certain areas doing just better than others more than some areas to be significantly down overall if that makes sense. So, I mean if you go back, pizza has had a great run, really started in COVID for the last couple of years. It was inevitable that at some point it might slow a bit, and you just see the other segments you pick up. So, that's how I would interpret it more than certain segments being way down.

Got it. Alright. Thank you.

The next question comes from Tami Zakaria of JPMorgan. Please go ahead.

Hi. Good morning, team Middleby. Hope you're doing well. So, my first question is on the cash flow, very nice cash flow last year. You expect good conversion this year too. And I think you have some convertible debt coming to you in 2025, so overall, can you update us on the capital allocation priorities from here on given the very strong cash generation?

Yes, so I'll touch on that. I'm not sure how the convert ties into that and obviously we're pretty well positioned from a capital structure with a lot of availability in [Technical Difficulty]. It really hasn't changed [Technical Difficulty]. I mean we may have done a little bit less from an M&A perspective as of late, but that continues to be a core competency and focus of ours. We see continued significant opportunities across all three business platforms to grow them both organically and through acquisition as we've done that for a long time to build into the three platforms that we have today. I think as we've gone through the bill last year, the market being disrupted with buyers and sellers thinking about what are appropriate multiple, where is market growth, is it going up, down, et cetera. But our expectations, I would say they were not as aligned so as I think it -- as we kind of move into a more normalized environment in 2024 and beyond, I think you'll see us continue to do smart acquisitions to continue to build out our platform.

And this is Bryan. Thinking about the converted, obviously it doesn't come due for a little over a year and a half from now. So I do not have a specific answer to precisely what we'll be doing at that point in time, but we obviously are generating cash so we could stockpile cash in advance of a coming due. We have availability under our bank facilities. We could roll it into our bank facilities. There's a variety of other, obviously, debt instruments out there that we could pursue to use as well. So we're certainly keeping an eye on all those options and balancing things based on the factors Tim talked about as well, but certainly, don't have a specifically defined course of action that we will be employing a year and a half for now. Again, we have a lot of flexibility I believe available to us.

Wonderful. That's good to know.

As you said, Bryan, I mean, I think we do see another strong year of operating cash flow ahead, which is great, obviously, as we reinvest in the business and execute on M&A and de-lever which we were happy to kind of bring down, below 2.5 times. I will also kind of just touch on repeat comments. I mean we have made significant investments this year and last year back into the business from a CapEx standpoint, so that is gone into innovation centers, it's gone into some really great investments in our factories thinking about ice, coffee, packaging. We've really kind of moved forward some of our businesses' position for growth and we've brought a lot of automation into our factories as well. So, I mean that is part of the story of the margin expansion, as we've mapped that out over the last couple years which is coming into fruition and continues to position us well into next year.

Got it. If I may ask one more. The Novy and Josper launches, what's the total TAM or opportunity you see from these two brands in the U.S. over time? I'm essentially trying to gauge the potential revenue lift, let's say over the next couple of years that we might expect.

Tami, you probably know that we don't often quote a lot of TAM numbers out there. I mean, the Josper is an amazing product. It is certainly a very premium product for us. So, we're excited about what it can do, but by itself, it probably is not large needle-moving. I think Novy is -- could certainly be of the two -- the bigger difference maker. They have a lot of really great technology, a lot of induction and we see trends moving that way.

Got it. Thank you so much.

Our last question comes from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.

Hey. Good morning, guys.

Good morning, Jeff.

Just on Resi, on the 1Q is, seasonally I think that business actually is up 4Q to 1Q. I'm just wondering how you're thinking about that sequentially.

I mean, sequentially, obviously, things have been a little bit challenging, right, in this segment. So -- and Q4 is typically though, I'll say a bump up from Q3. And it was this quarter even with tough market conditions, overall, there is still some higher seasonal spending, so I do expect that Q1 could be below Q4 levels. But I think if you look at the past three quarters, you can kind of establish a band in which we've been operating and our outlook is that band, it doesn't stretch down and hopefully it starts to stretch up.

Okay. And then Steve, you mentioned one of the growth drivers being kind of this pent-up replacement cycle. And I'm just wondering, what you hear from customers on that and what it really takes to kind of get some of that catch-up on the replacement cycle going?

Yes, no, for sure. So, again, this is my perspective on the replacement cycle, as I think we were due for a replacement cycle going into COVID, and then obviously COVID kind of kicked the can through supply chain. And then a lot of the focus from the chain customers again down new stores. And so, I think as we get into this period now where, yes, new stores are still important, they do realize that they have to go back into locations where the equipment has aged making sure, again, common theme of making sure franchisees remain happy. We're also in a much better position compared to a couple years ago to be able to fulfill demand from both a new store and replacement cycle. So, I think that was a big dynamic the last couple years of, they were just prioritizing getting new stores open knowing equipment was -- have longer lead times. So, customers are definitely engaging with us on replacement, conversations making sure that we have products ready to go for them at any time. So, I do think you see our demand mix of -- we've shared it, between replacement and new stores shift back to be more and more predominantly driven by replacement and upgrade. I want to just hit on just the nuance of, it's not just replacing a like for like, what I think you're going to see them do is predominantly upgrade to newer technology, technology that's able to be connected, new controls, so that gets kind of lumped into replacement and upgrade as well. So, I think that starts to get back to being -- it's historically been 50% of demand for us overall, I think as you go out the next two or three years, I think it gets back to kind of those levels overall.

Okay. Thanks a lot.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thanks, everybody, for joining us on today's call and we look forward to speaking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.