Good day, and welcome to The Middleby Corporation First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event has been recorded. I would now like to turn the conference over to Mr. Timothy FitzGerald, CEO. Please go ahead.

Thank you for joining today's call. I'd like to begin by highlighting several key developments that underscore our commitment to driving shareholder value. As announced this morning, we've authorized an additional 7.5 million shares under our accelerated buyback program. We plan to deploy the vast majority of our free cash flow towards repurchasing shares, reflecting our confidence in the business. We believe our share -- our current share price does not fully capture the strength of our business. By prioritizing share repurchases, we aim to bridge that gap and deliver superior returns to shareholders while maintaining our strategic growth investments. This decision follows our February 2025 announcement to separate the food processing business into a stand-alone public company, a strategic move designed to unlock value and sharpen our focus. Middleby's consistent operational excellence, strong cash flow generation and disciplined capital allocation provides a sound foundation for this enhanced buyback initiative. The total authorized shares for repurchase represent 21% of our outstanding equity. Now as it relates to the separation of our Food Processing Group, we remain on track to complete the spin-off in early 2026. We are confident that creating a stand-alone food processing company will unlock significant shareholder value by enabling focused growth strategies and operational agility. As outlined in our February call, the creation of two market-leading but separate businesses will ensure greater strategic and operational focus at each stand-alone entity, allowing each business to implement and optimize capital structure and capital allocation policy to best support growth opportunities and enabling Middleby food processing with its best-in-class growth and margin profile, to be valued in line with key food processing and industrial peers. We are excited about the prospects of Food Processing as this business is poised for long-term growth as we continue to execute on our strategy…

Thanks, Tim. Looking back at Q1, we are pleased to have driven margins and generated strong cash flows. Operating cash flows of just over $141 million are our highest for a first quarter. Free cash flows were $107 million for the quarter and totaled $620 million for the trailing 12 months. Over the past two years, we have consistently demonstrated our ability to deliberately delever from 3x to a modest 2x today. Our balance sheet remains strong and our cash flows are resilient. After year-to-date open market stock repurchases of nearly $50 million, we are now substantially accelerating our share repurchasing. From a reporting standpoint, I want to call out that we have made a small adjustment in our segment's composition as discussed in the footnotes in our press release. We've moved one operating division from being part of the commercial segment into food processing. This change has an impact of around $10 million per quarter of revenue. We have restated all periods presented for this change. For Q1, we had growth in the Residential segment, strong cost control actions and managing leverage led to higher operating income and net earnings. Regardless of market conditions, we have delivered robust cash flows and driven margin performance. Our commercial foodservice business is seeing success, thanks to our investments in the ice and beverage platform, as well as chain wins with cooking and refrigeration brands. However, muted buying levels by our largest chain customers across a few of our brands are offsetting these wins. Nonetheless, margins expanded, benefiting from our continued cost control actions and favorable mix. Food Processing, after a very strong fourth quarter and having seen some customer-driven delivery delays in Q1 did see a drop in revenues. Given the lower volumes and some unfavorable mix, margins were challenged. However, we…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Walter Liptak from Seaport. Please go ahead.

Hi, thanks. Good morning everyone.

Good morning, Walter.

Thanks. Good morning, everyone. I wanted to ask about the 2025 sales guidance. You were previously at low-single digit, and you just provided segment guidance. I wonder what you're thinking about for the company in total. And then within the three segments, where you're seeing the biggest change? Is it food processing where the outlook has changed the most? Or is it in the CFS segment?

Thanks, Walt. It's Bryan. I'll take that one. Obviously, the full-year outlook is going to be mostly driven by commercial, given it being the largest segment. So I think based on what we're seeing today, even though as we think it improves over the course of the year, that keeps the expectations on the full-year, mostly aligned with how commercial will turn out. A lot of the change in the outlook really is due to, I'll call it, the change in the macro and the change in the trade environment and what that is meant to uncertainty around consumer behavior, what that means to what our customers are seeing in the marketplace and their investment decisions. And so I do think that goes across to a certain extent, most of our segments. The dynamics are a little bit different in residential, where it's consumers making investment decisions as opposed to in commercial and food processing, right, where it is businesses making business decisions. But I think as well discussed in the general marketplace, right, uncertainty creates challenging times for people to make the investments. And so that is what's caused our outlook to maybe be a little bit more muted today than it was the last time we discussed results.

Okay. Great. And when you roll it all up, what are you thinking about for the revenue for 2025, especially in the [indiscernible]?

Yes. Like I said, things are going to -- should sequentially improve over the year, but I don't want to get explicitly pointed with a point estimate or a tight range for the year. But I think where we noted that growth is going to be a little bit challenged in at least two of the segments, right, that overall outlook is what would also be applied to the full company.

Okay. Got it. Okay. Thanks so much.

Thank you. The next question comes from Jeff Hammond with KeyBanc. Please go ahead.

Hey, good morning. Just wanted to start with the buyback decision. Just what informed that -- is it recognition like M&A is fewer and farther between or it's difficult or recognition on where the valuation of your company is versus deals or focus on ROC? Just more color there. Thanks.

Yes. I mean, I would say it's a combination of a number of factors, and you sit on a couple of a moment. I think first and foremost, it's our view our valuation, something that we've been spending time on going through last year led to the spin. But as we kind of think about our business, and as I mentioned in the comments, it is -- we really do believe that is stronger than ever the last handful of years. We've come a long way with the strength of each of the portfolios, the amount of innovation, how we've transformed our go-to-market processes. So -- and that's kind of against this backdrop of some of the challenging dynamics. So I mean, I think -- and at the same time, we've grown cash flows, profitability is still leading. So I mean, I think we believe inherently that the share price is not reflecting that. So I mean I think that's the number one factors, so we're the best investment in town. I think at the same time, our cash flows have grown, like we've compounded over a long period of time. We've got a lot of cash flow to deploy, as Bryan mentioned in his comments, the balance sheet is also strong as we've de-levered from 3x to 2x, which was also very intentional by the company. We're in a much better place from a cash flow and balance sheet position. So where do we want to deploy that cash, and that is to our best investment. And then as you kind of think about M&A, if you look at really where we focus the last couple of years, I think five out of the last six deals have been food processing. So we've been scaling that business, and that's really the segment that's got the most opportunities. So I think as we've grown, there is differences in what are the opportunities in each of the three segments and some of the merit of why we've moved towards the separation, because we do think that food processing going forward is still going to be has a lot of M&A opportunities where the other businesses are a bit more mature and even the investments that we've made in commercial and residential to a certain extent, have been largely technology focused, I would say, enhancing our organic growth initiatives. So I think that's a number of those factors with the evolution of the business kind of led to that decision. So we're very excited about the buyback. So yes, so hopefully, that gives you a little bit more perspective.

No, that's helpful. And then I guess with respect to tariffs and the tariff, I wanted to better understand, one, given your U.S.-centric footprint, where do you think there are the biggest opportunities for share gains and how quickly those can come through? And then conversely, I think the grills business has been a challenge, and I think most of that is sourced out of China. So what's kind of the risk in the short-term and the long-term strategy to kind of right the ship on the grill side?

Yes. I'll start and then I'll kind of kick it around here. I mean I think even though we put out, I'll say, a big number and that's kind of more the gross number. We are confident, we're going to offset. I mean, I think, certainly, operating initiatives, which include supply chain, which we're -- the strength of that capability is much more developed today than a few years ago. And I think those two also the strength of the overall platform in our manufacturing. But we are highly confident we're going to offset this number. A price increase is, I think, will -- is not a scary number to us. So I think we have a high degree of confidence that through the balance of this year, this will all be offset. So to your other question we really are a U.S.-centric manufacturer. So the tariffs really are an opportunity. In some ways, we're a bit excited about the tariffs. So we actually don't want them all to go away. I mean, as you kind of look across different product categories, for example, light duty and counter line cooking equipment, we're kind of the last man standing with brands like Star, Toastmaster, Wells, Homan, a lot of that business with our competitors has been shifted overseas. So we see that as an advantage. But speed-cook, fryers, induction is an area we've been investing. We're the only manufacturer of induction in the U.S. of our coffee platform that we've invested in. We're largely competing with Swiss, German, Italian and we're the channel-based guys, undercounter refrigeration also on the residential side of the business. Most of our competition today is in China. So we're very well positioned. So there's actually quite a few categories, both commercial and residential that we think we're going to benefit from. So we very often kind of put the U.S.A flag on our boxes, but that means a lot more today and hopefully next year as we go forward. On the outdoor, I'm first going to start with the premium. So we manufacture a premium outdoor in Greenwood, Mississippi. That's actually one of the initiatives over the last several years is to consolidate some of our outdoor premium lines, including Viking and Lynx there. So operationally, we're much stronger today and a lot of our competition is coming from overseas, China in particular. So that's going to position us well there. And then on the other growth segments, we've got action plans in place. We're in a similar boat to our competitors. So I think we -- that the team has swung into action to counter some of those tariffs out there. I think it will have an immediate market dynamic, but I think we'll navigate it as well as anybody there. And certainly, some of the orders that may get delayed in a quarter or two, we think, will just create some pent-up demand for the latter part of the year.

Okay. Appreciate the color, Tim.

Thank you. The next question comes from Mig Dobre with Baird. Please go ahead.

Thanks. Good morning. Maybe just some clarification around this tariffs figure, the $175 million at the midpoint. Is there a way to help us understand the allocation at segment level? What would this breakdown be between the three segments? And you talked about being able to offset these costs by year-end. So I'm kind of understanding this that into 2026, you expect this to be offset. But how do we think about these costs flowing through in Q2, Q3, Q4? Presumably, it takes a little bit of time before you can actually get to where you fully offset these costs?

Yes. Mig, this is Steve. I'm happy to take a first pass at it. I think in terms of the allocation across the three segments, if you're -- maybe I'll just use percentages of the $175 million, I think the impact is, I'll call it, weighted more towards commercial and towards residential and actually probably less on food processing. So if I had kind of round numbers, I'd probably say it's something like 70%-ish would be commercial. And 20% is residential and then 10% food processing. It's somewhere in that neighborhood in terms of scale of the overall $175 million. The big difference between, I would say commercial and residential versus food processing is you don't have really any componentry being sourced from China or not as much in the food processing space. So that's how I would think about the allocation across the three segments. I think in terms of how we're mitigating it, we have talked a lot about the pricing actions that we would take. In commercial, we've already announced a July 1 price increase that we're working through as we speak. We try to be very intentional around the timing of the increase to try to give as much clarity to our customers as possible. So we feel like we are able to drive the pricing through the back half of the year. I think we've proven that we can do this over the last several three, four, five years as we've gone through inflationary periods and be able to get pricing through the market. So that's our intention at this point. I also think that we are better positioned today from a supply chain standpoint. Again, going through the last three, four, five years of supply chain disruption has actually, I think enabled us to withstand this next period of disruption. We've actually moved a decent amount of sourcing of componentry into the U.S. over the last five years. So our -- even though China remains a decent spend on componentry. It's actually less today than it was five years ago, I think, thanks to our supply chain team. I think other capabilities around like we have a facility in Nogales, Mexico that has become an in-sourcing capability for us. So even though there are tariffs, they're obviously coming in from Mexico into the U.S., obviously substantially less than China. So we have already been -- even before this latest round tariff has been moving in-house manufacturing from China to Mexico. So between pricing, supply chain, and operational initiatives, I think that's why we're confident, Mig, that we can in the back half of this year, overcome and mitigate the tariff impact to have us more or less a cost neutral standpoint going into '26.

That's helpful. And maybe this is parsing things too finely, but in CSS specifically, you've got, call it, 4%, I guess the cost headwind would be about 4% of sales, right? So as you think about these -- the things that you have to do to offset that -- what we -- how much that do you think is pricing versus all these other cost actions that you've sort of talked about. And I'm asking the question because you did talk about the fact that you were able to put through pricing in prior years, and that was very clear, but the industry was in a very different spot, right? We've been reeling here with destocking weak demand this is not a great environment to be able to put through price increases. So how reliant are you specifically on pricing? And how confident are you that you're going to be able to actually get that.

Yes. It's a very fair question, Mig. I think as we think about the impact of pricing just in terms of scale, I expect that the pricing we set forth on July 1 is going to be in the mid- to high single-digit range. So a predominant part of the coverage is going to come from pricing. And obviously, the rest of it is going to come from the operational and supply chain initiatives. I would say from a competitive landscape standpoint, from what we've seen so far, I think that puts us below the majority of our competitors. So even though it is another increase to your point on an already tough pricing spot. We actually think we're positioned better in a lower price point from our competitors. I do believe that the way I think we can be effective in getting the pricing through goes back to being very transparent in our approach, which I think is something we were effective with going back several years ago. Our customers are not ignorant to, hey, there is this tariff impact. They know that they're going to have to absorb a majority of it or a portion of it. It goes back to being transparent with customers on where the increases are coming from. And I think it's also transparent on, hey, if tariffs do go away, that we would adjust pricing accordingly to remain competitive in the marketplace. So I think if you take that approach and again, we've already started these conversations with the majority of our big customers that we feel like we can get the pricing through. I actually do believe to round it out even though the pricing is tough in the market that we're in, it still favors us more than, I think anybody because it puts more and more focus on we still have to solve for all the challenges the restaurants are facing with food costs, which are facing inflation again, labor continues to be a challenge, utility costs. And that ultimately still comes back to us as a solution to help solve for all of those things. So that would be my positive spend on even if costs continue to go up, I think they look to us to help solve those challenges that the restaurants continue to face.

That's helpful. And if I may squeeze one last one. When we're thinking about the revenue outlook based on what you know today, I know that in Q2 typically, we see a little seasonal bump relative to Q1 for the revenue, and I'm wondering if that's still reasonable to expect? And then relative to the second half, in your slides, you talk about the fact that new store openings for your customers are weighted to the second half of 2025. How reliant is your revenue on these new store openings? Or maybe put differently, how much risk do we have from store openings potentially getting pushed out into 2026 or some later date? Thank you.

Mig, it's Steve again. So I think Bryan called out sequential improvement that we believe will be in place second quarter over first quarter. So I don't know if I'd quite call it seasonality, but I do believe that second quarter sequentially will be above first quarter for commercial. Yes, new store openings, we've talked a fair bit about over the last several years. We get pretty regular updates from I'll call at least our top 25 chain customers in terms of new store openings by market, by country, et cetera. If you look at that list today of the top 25 chains we do business with and there are new store opening plans for this year, yes, there has been pushouts or pushouts last year. I think you'll see some ebb and flow still this year. But for the most part, they would all have in their build plans, but the remaining three quarters of development this year are net higher than the same period in the back half of last year. So they continue to reiterate that. Do I think there's going to be some push out here or there? Yes, I do. But I think by and large, the numbers they continue to give to us do reflect a year-over-year improvement in net development for the remaining three quarters of this year.

Great. Thank you so much.

Thank you. The next question comes from Tim Thein with Raymond James. Please go ahead.

Thank you. I'll try and keep this tight here. I have two questions on commercial. The first being the mix benefit that you called out helping to support margins. I'm curious if that was a channel or product mix, obviously, the product mix can swing around on a quarter-to-quarter basis. But just curious if that's something that -- I guess the question is kind of the element of sustainability on that. And then I guess, Steve, just continuing on that last thread that you're talking about in terms of the new store openings. My sense is, at least from -- and obviously, I don't have the lens that you do in terms of the number of operation or operators, but it seems like more of that mix maybe is kind of oriented towards international markets. I'm curious if that is A, if you're seeing that, B, does that -- how Middleby is positioned to the extent that, that REIT is accurate that, i.e., more of the new store growth being outside North America? Thank you.

Hey Tim, this is Bryan. I'll start with the mix and the margins in Q1 on commercial. It actually has contributed to both, I'll say, customer and product. We've noted that we have some businesses in the beverage platform that performed well because of the value they create for our customers as well as just as you go, I'll say, up and down the list of the different -- the many different brands we have and which segments of customers were buying that there was some positive mix in terms of which customer segments we're buying at higher levels this quarter.

And Tim, this is Steve to answer your question about the international mix on new store openings, you are spot on. If you were to bucket the new store opening pipeline for this year, from a domestic versus international standpoint? It will -- it is definitely more heavily weighted. It's probably something like 75-25, maybe even 80-20 towards international markets. You certainly see a lot of growth with some of the bigger chains in markets. Actually, Europe is doing well. Places like India, Brazil, are markets where you continue to see these chains look for new franchisees and new markets to enter into. I think Middleby is incredibly well positioned. I think we've put a lot of investment into having the resources, both from a pre-sale and post-sale perspective, I mean, service, especially in international markets for these chains is incredibly important. I think we've put a lot of time and resources and investment into Europe, into the U.K., into India, into the Middle East -- and I think that lines up very well with where we're seeing that growth take place from our biggest chain customers.

Excellent. Thank you, Steve.

Thank you. The next question is from the line of Tami Zakaria with JPMorgan. Please go ahead.

Hey, good morning. Thank you so much. So my first question is on the $150 million to $200 million impact you mentioned from tariffs, half of which is from China. Is that number based on the current 145% tariff rate. What I'm trying to understand is what the benefit or reversal could look like if that rate comes down to a more manageable level in the coming months?

Yes. So it's -- the true gross number is maybe slightly higher than that. So I think the range we've kind of taken a view of a little bit of a haircut of what we think it might model out to. So I would say we've assumed it might be anywhere from 20% to 40% lower looking at all the different countries in China, in particular. So that kind of gave us the range of 150% to 200%. Possibly, that range can't come down further depending on obviously how the negotiations with tariffs go. So that's kind of -- that is what we think is an adjusted gross number.

Understood. Very helpful. And my second question is on the buyback. Are you expecting most of the free cash flow you're going to generate this year to go for buyback?

Yes. I mean I think the term we use in there is vast. So I mean I think really we are thinking about using essentially the entirety of our cash flow this year certainly will take a lot of other factors into consideration, but we're pretty committed to deploying most of our cash flow to the buyback.

Got it. Super helpful. Thank you.

Thank you. [Operator Instructions]. The next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.

Hey, good morning guys. Thanks for taking the questions. In Commercial Foodservice, I'm curious what competitive price increases that you have observed already in the marketplace in response to tariffs thus far and how those would compare to kind of the mid, high-single digit that you're planning on taking July 1st. I think you said you expect yours to be below, but I'm curious what you've observed already, if anything?

Yes, Brian, this is Steve. I mean, I'll preface my comments by obviously, there's a wide range of products and brands within Middleby. And we think competitors obviously crosses over a pretty wide landscape. I would just say, first and foremost, when the tariff news first broke, earlier this year. I think we've built a lot of goodwill from our customer standpoint. We took an approach of a little bit more of a wait and see that, A, we won't give you as much certainty as possible in uncertain times. And so that's why our [indiscernible] going up July 1st is actually later than many. I think a lot of our competitors, I would say, rush to put something across the line. without having a lot of data to support it. And I think that did not play well from a customer standpoint. So I think we've taken the right approach of being a little bit more thoughtful in making sure we had as much data to support our increase as possible going back to being transparent to get the pricing through. In terms of the competitive landscape, again, Brian, our increase is going to be just again in the mid-single digit range. We have seen competitors anywhere from 10% to 25% in terms of increases. Tim called it out earlier. We've also seen a number of competitors that bring in product directly from China, either having to take massive increases in that 25%-plus range or simply saying, hey, they're getting out of those products. So that's where we see, again, a pretty big opportunity in the countertop space, the cooking space, priors, ovens, et cetera. So we definitely feel like we have a competitive advantage both from the pricing standpoint and from, again, having the product coming out of the U.S. and not bringing anything in from China.

Brian, I hope that answers your question.

Yes, sorry, on tariffs -- thank you for that, Steve. I'm curious, is there any nuance as it relates to China tariffs specifically. We've heard that like this the Section 232 steel tariffs, super seed or reciprocal tariffs from other companies? I know it sounds like your exposure is only on the component side. But is there anything investors should be kind of mindful of us as it relates to the nuances associated with the stackability of kind of the reciprocals versus the steel as it relates to the componentry.

I think we've reflected all those nuances, I think, in the range that we've given. So I guess that's kind of the first comment. There's a handful of strategies to minimize the impact, including different types of classifications, et cetera. And so I mean I think we have quite a few tools in the toolbox to mitigate the exposure that we see in China, including relocating out of China. But I mean, I think everything that relates to China, we've kind of embedded in all the comments I think that we've already got through here today.

Great. And then finally, I was just wondering if you could provide an update on any new Open Kitchen rollouts and maybe some of the new products featured at NAFEM that are gaining traction and that you're most excited about. I think a lot of the conversation focuses on tariffs when some of you got some exciting stuff going on in the base business?

Yes. So we continue to have good momentum on Open Kitchen. We do have a lot of good pipeline activity with Open Kitchen with some large chain customers. Obviously, I don't want to name names today, but we've got some good velocity behind us with activity, especially around really what I'll call the entire enterprise platform Open Kitchen, that's connectivity at the front of the house, the middle of the house, and with the back of the house connectivity with the connected products. Additionally, we are seeing a second order benefit, and we saw this in 2024, where we are winning rollouts because of connectivity. And so we had tens of million dollars of rollouts in '24 because our products were connected to Open Kitchen and that ultimately tipped us over the competition relative to winning that change. So a lot of great momentum with Open Kitchen in the marketplace. And remind me your second question?

The new products you're excited about from NAFEM?

Yes. So I mean we're excited about our entire pipeline. And Tim is going to talk about the Sizzling 7 at NRA that we're debuting here in a couple of weeks. And a lot of the new products are around beverage, beverage dispensing and we've got a lot of great pipeline support on those products. We have some new products in holding around holding chicken for extended periods of time. And obviously, everybody on the call knows how hot the chicken market is in the QSR space. Beyond that, the frying with the new torque fryer, we're super excited about because we believe that revolution as is the frying industry forever, we take oil life from five days over 30 days with the torque fryer. A couple of other mentions. Obviously, we talk a lot about the invoke combi oven. We are really starting to get traction on that. We're now rounding that out right after the [indiscernible] with the introduction of our gas versions of the Invoq combi oven so that will continue to help us drive sales with the Invoq combi. And then lastly, the induction oven from Blodgett which offers a unique multi-cavity impingement and convection of an on-demand platform, and we see that really going into the casual dining market and having great success there. So -- just to wrap it up, very bullish on Open Kitchen and very bullish on our NPI.

Great. Very helpful. Thanks guys.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Timothy FitzGerald for any closing remarks.

Yes. Thank you, everybody, for attending today's call. I was going to put an invite out, and I think James did a great job of covering all the terrific things that we've got going on with innovation. James referred to it there, but we're very proud to be taking seven kitchen innovation awards at the National Restaurant Show. That's the most of any manufacturer. And so I would encourage everybody to come and see it. And you'll -- James said, but you'll see the latest in automation, kind of next-generation beverage, which is an exciting platform for us and everything digital, including IoT, as James mentioned there, which is a big growth initiative in a huge part of the future for Middleby. So it's May 17th through '20 in Chicago. So hopefully, the invite is out, and we will see many of you there. Thank you.

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