Q1 2021 Middleby Corp Earnings Call

Excuse me. This is the operator todays conference is scheduled to begin shortly until that time your lines will again be placed on music hold thank you for your patience.

[music].

Thank you for joining us for the Middleby first quarter earnings conference call with US today from management are CEO, Tim Fitzgerald, CFO, Bryan Mittelman, Chief operations, and Technology Officer, James Pool, and Chief Commercial Officer, Steve Spittle.

We will begin the call with comments from management and then open up the line for questions.

She is on how to get into the queue will be given at that time.

Now I'd like to turn the call over to Mr. Fitzgerald for his opening remarks. Please go ahead Sir.

Thank you for joining us today on our first quarter earnings call.

As we begin please note there are slides to accompany this call on our website on the Investor page.

We started the year with positive momentum in the first quarter, we reported a strong order intake realizing growth compared to 2020 and ahead of our pre COVID-19 2019 levels at each of our three segments.

Our backlog across our business segments also continued to climb supporting continued strength and financial performance for upcoming quarters.

We reported strong levels of profitability, despite pervasive and ongoing supply chain challenges.

And we posted improvements in our EBITDA margins at each of our three business segments, all exceeding 20%, reflecting the benefits of execution against our strategic and operating initiatives.

We continue with these efforts and toward our long term profitability targets.

Through acquisition integration initiatives manufacturing and supply chain activities and improvement in the mix of product sales as we promote higher technology products.

And we continue to invest again in the first quarter spending in our key strategic initiatives as we focus on evolving our business to meet rapidly changing foodservice industry dynamics and increasing customer expectations.

We remain committed to investing in technology customer support capabilities digital sales and training tools global manufacturing and after sales service programs as we aspire to better serve our customers and support the long term growth of our business.

As we move through 2021, we are optimistic about the market conditions and the strength of our positioning in each business segment.

For our foodservice, our commercial foodservice business the restaurant industry remains significantly disrupted.

However, it has proven resilient and a recovery is underway.

While the foodservice industry is not expected to fully recover until 2025.

It is anticipated to improve meaningfully in 2021.

And our customers are making strategic investments in their foodservice operations.

Moving to greater acceptance of new technologies to address rapidly changing customer trends and increasing operating challenges.

We are well positioned to support faster growth.

Segments, such as Cuba or fast casual.

<unk> stores retail and health care, we're also invested in and positioned to support industry trends.

Such as Carryout and delivery and new operating models, such as virtual brand's popular restaurants and ghost kitchens.

At our residential business, new home starts and existing home sales continue to be robust.

<unk> increased time spent at home has resulted in kitchen Remodels. This presents a favorable backdrop to our business for the year and we anticipate conditions carrying into 2022.

We remain excited about the many new product launches, we've introduced to the market along with planned upcoming introductions, which provide for continued momentum.

And the investments in our sales and service capabilities made over the past several years has positioned us to capture market share.

We continue with these investments and are excited about the summer opening of our next residential showroom in Dallas.

This showroom will be tied to our middleby innovation kitchens and demonstrate the crossover in product and technology amongst our commercial and residential businesses and bring to life, our differentiated ability do offer professional restaurant innovations into the home.

At food processing travel restrictions have proven to be a challenge to customer demonstrations and the installation of equipment.

As COVID-19 will remain a challenge across the globe in 2021, we are leveraging our global teams and platform to engage with customers.

And serve their needs locally.

Through COVID-19, we continued with our focus on market opportunities for areas such as cured meats Bacon alternative protein in pet food.

Increasing demand also exists for innovations dressing operating challenges, including labor safety energy and sustainability.

We are positioned with solutions to address these demands and have increased increasing adoption of products for many of our new technologies.

And now with that I'd like to pass it over to Bryan.

Thanks, Tim for the first quarter, our GAAP earnings per share was $1 59.

Adjusted EPS, which excludes amortization expense non operating pension income as well as the other items noted in the reconciliation at the back of our press release was $1 79.

Operationally it was another solid quarter for us we're looking at total company performance, our revenue growth persisted and we delivered 21% adjusted EBITDA overall with the strong demand environment order rates are expanding and organic commercial foodservice revenues moved into positive territory.

Comparing back to the prior year and we continued to generate strong cash flows.

Validated basis on a year over year basis revenues grew 12%.

Over 8% organically as we benefit from robust demand in residential improving conditions in commercial foodservice and growth in food processing as well.

$61 million this represents over 10% sequential growth from Q4.

Over 15% growth from the prior year.

We are growing our bottom line faster than our top line, even while we maintain our investments around 5 million and technology initiatives quarterly.

Our profitability expansion and cash flow generation come about from the actions we took to improve our business models as we manage through the pandemic.

Commercial foodservice revenues globally Rapp over three per cent organically and we're looking at just North America. The increase was approximately 6% the.

The international decline was approximately 3%.

Our margins expanded sequentially again, we produced nearly 25% for Q1.

And residential we saw revenue up nearly 29% strong demand persists for our premium appliances and outdoor cooking platforms here to our margins have expanded sequentially, we grew to over 21% per Q1.

And food processing revenues increased around 7% and the adjusted EBITDA margin was over 20 per cent an increase of over 250 basis points from the comparable prior year period.

As a reminder, for this segment Q1, usually has seasonally lower margins.

Interest expense was $60 million effective for fiscal 2021, we have adopted the new gaff rules and accounting for convertible debt instruments as such there is no longer a meaningful non cash component of interest expense from our notes.

Are operating cash flows of $60 million is another highlight when looking at our performance to start the year.

This amount was rather meaningfully impacted by the increase in accounts receivable from our growing revenue base in a pre COVID-19 world I would offer that we typically have a benefit to cash flows from <unk> in the first quarter. However for 21 the.

The impact was detrimental at $67 million, while we're certainly pleased with the revenue growth I wanted to make sure that the impact of working capital as we continue to recover and grow is understood.

As always I am proud of our discipline around cash flow at his quarter running the business for us we consistently demonstrate our ability to manage costs and cash while investing driving innovation and providing excellent service to our customers.

Our turtle total leverage ratio is two nine times, while our covenant limit is five five times.

We have over $1.4 billion, a current borrowing capacity accordingly, we are still investing in growth initiatives and obviously have been active in M&A.

When I'm not working and M&A I do spend some time with my family.

And as a parent of teenage boys various debates often and sue around the house beyond topics such as Cubs vs. Saucer bears versus Packers. This isn't especially frustrating one from my East Coast vs. West Coast Marvell versus Star Wars, we seemingly have lots of to debate, including food topics too like chop it versus vanilla.

Junkie versus smooth square cut pizza versus triangles, well what are these ramblings have to do with Middleby I point is whatever you want and however, you want it you knew you and we have a solution that will get the job done I was on a recent dinner pick up Ryan where some things came together for me I was waiting curbside for the American classic achieved.

Figure and fries, and <unk> recalled all the flame grilled burgers and shoestring fries I enjoyed as a kid little did I know how much more important these would be to be later in life.

But back in the day I, certainly had never heard of Nico our cared much about a flame broiler or the same thing with the pit go prior for that matter, but this didn't run offered a personal growth opportunity for me to we should always remain open to new experiences and ideas. So I was sitting there and some crispy crispy crinkle cut.

Fries other petco prior were sitting next to me and there was no way, they're going to make it all the way home without a sampling or two or three so having kept an open mind I can say that the crinkle cut Fry has won me over it comes down to their differentiated texture and I know the east coast West Coast viewed was not about food, but if a.

Grill from Sonoma and a prior from New Hampshire can go together, so well maybe there is a larger lesson for all of us in that and by the way in my family. We can all agree on a cookies and cream shake we will keep on having our debates and doing what we can to keep middleby customers busy and ordering more equipment.

Speaking of which are Q1 order in backlog data was again share in the presentation. We posted this morning on the investors section of our web page and I'll seek to treat briefly translate that into some near term expectations.

And before diving into each segment I will reiterate what I shared last month, even with a solid start to the year, we are keeping our expectations at modest levels for the near term.

What we're seeing good order trends. We also benefited in Q1 from some pent up demand and rollout activity. We've considered these factors as well as some risks in our valuation.

Many variables are at play and our outlook will likely evolve over time, we're facing a variety of challenges in the supply chain and manufacturing environment components availability and pricing logistics hurdles as well some matters around labor such as availability costs and worker safety are all top of buying for us.

We expect increasing cost impacts as we progress through queue to.

While we're still generally optimistic overall these headwinds are very much Rio and can't be ignored.

Furthermore, it should be understood that given the backlog levels current market dynamics in our operational plans and challenges. We do expect the backlog to be converted to revenue over a longer timeframe than was typical in a pre COVID-19 environment.

So for commercial foodservice the positive trajectory continues and Autorite seven relative positive territory of 21% in Q1.

As we consider how we are operating and given the current risks and challenges our expectation is for modest sequential growth from Q1, which means low single digits, given the low revenue levels and Q2 of last year. It seems more appropriate to be considering sequential performance at this time.

We are also aggressively addressing inflationary factors, we hope to maintain our pattern of expanding merchant sequentially, but this is a meaningful headwind and we continue to actively address the risks to be able to exceed 2019 profitability levels.

The supply chain issues are affecting other segments monitor manage this daily the potential impacts are increasing so I do remain overall somewhat cautious in our margin outlook. We are preparing to take further pricing actions across the board as we gain clarity on the impacts to our business.

On the revenue side residential growth of items with queue for order rates I'm, sorry, with Q1 order rates up robustly again, it over 60% from the prior year, we expect to have sequential high single digit growth for cute too that as as compared to Q1 as I've noted repeatedly the supply chain risk will.

Presented challenge to further ex demanding margins in the short term.

For food processing as we look at the typical activity patterns in our backlog I'd also expect to have sequential high single digit revenue growth for Q2 as compared to Q1.

Overall, we are very excited about how we have started the year both in terms of our queue, one performance and with the future opportunities for our business and with the acquisition of Welbilt's our products innovations in customer service are driving strunk orders and a growing backlog our management expertise will be paramount as we manage through the <unk>.

Div factors, we are encountering along the way cash flow generation will remain strong we are tackling the challenges seizing the opportunities and looking forward to an exciting 2021.

That back to you Tim.

Thanks, Bryan as.

As we opened the call I would like to remind everybody that are Q&A, we'll be focused on the quarter, our business and Bryan personal culinary preferences.

We remain excited about the pending merger acquisition with well built but we will not be commenting on their results nor are we able to comment on plans with a business post acquisition and refer everyone to our presentation and call from a couple of weeks ago.

With that I'd like to open up the call Rebecca if you could open the line now.

At this time, if you would like to ask a question. Please press star one on your telephone keypad.

And your first the first question comes from the line of John Joyner with BMI.

Pretty pretty good.

Okay.

Bryan.

Bryan I can only imagine what a long Mittelman family Road trip is like.

Yeah.

[laughter].

Times.

Good times, yes, so can we focus a bit on just free cash generation I know you touched on this Bryan and that's something that you talked about.

Over the past few years, but certainly quite impressive, particularly for a first quarter and but maybe how would you kind of great yourself on this metric and and you did say that you kind of expect strong cash generation. This year, but do you feel more comfortable to day projecting whether you.

Will convert 100 per cent of net income and into cash for the year.

Yeah.

I think it's more appropriate given how our balance sheet just change in her working capital has evolved I've really kind of looked at that collectively.

2021, together, because our historical averages around 100% right. Some years, it's down a little bit from that some years, it's off right and last year. It was up so much so.

I'm holding that percentage in my mind as I put the two years together, 20th 21, right, which then implies less than that potentially for for 21 in isolation.

Okay got it and then maybe just like a follow up I mean.

I don't want to get into like kind of order a kate into not all that stuff, but maybe talk about powerhouse dynamics and now I've read some.

New technology that they kind of have rolled out like connect wear and things like that but maybe talk about that business because I feel like when it comes to connected kitchen people, probably don't fully grasp maybe what this potentially could be in terms of like how meaningful it could be four four middleby in the future and the stickiness of customer.

<unk> and things like that so could you just at least kind of touch on what's going on there and and how that businesses is performing and just kind of a connected business overall yet.

Turn that one over.

Two James but I appreciate you calling out the.

The stickiness of it right. So that's something that certainly very important to us about that but that's a james yes, we continually to invest heavily in powerhouse dynamics and we are seen the adoption of the the platform.

Across our customer base, whether it be changed adopting it or franchisees adopting it across multiple changed that they have under their portfolio of brands.

You are right the stickiness of.

Open kitchen is.

Okay.

<unk> factor of it now when tying open kitchen to the the various middleby brands and other pieces of equipment. It certainly helps draw.

Draw sales of equipment into a.

Do a chain to to support the connectivity.

Initiatives.

Relative to.

Introduced with connect were.

<unk> is a is a supporting technology that.

That we introduced a.

A few.

Weeks ago, and that's really around always having the right connectivity for our customer what we have learned is that there is not one connectivity solution that works across the board someone to G. Someone <unk> somewhat cellular somewhat land somewhat my Y and just to build a product.

With a Y five chip is is inadequate and that's where we really came up with the innovation around connect wear and our products in the.

In the future, we'll basically not ship with connect connectivity, but we will ship with connectivity capability and when the customer decides what day, what they truly want to connect with we will provide them with the rent connectivity platform with the the right data dictionary.

Such that they can get the the right data added their equipment to.

Two they're open kitchen dashboard.

Okay excellent I'll leave their thank you well done.

Thank you.

Our next question comes from the line of make it go away with a bird.

Yes. Good morning, everyone. Thank you for taking my question here in Bryan I think both began pocket grade that critical is the best so.

There's agreement there for sure now my My My question is is really around your margin outlook on C. S. S.

You talked about revenue ramping sequentially, you, obviously have good backlog.

But we know that there was cost inflation here. So as you think about incremental margins.

Can you maybe help us understand how you see the ear progressing in terms of ability for pricing to kind of catch up with material inflation should we be thinking queue to maybe.

Is a little more pressure than the rest of the year. It sounds like you still have 2019 margins as a target that can be achievable or at least that's kind of what I understood from your prepared prepared remarks, so I'll start it. Thank you yep.

Yet.

I do think you have that right that cute too is going to be somewhat.

<unk> Lynch.

Obviously, we're sitting right close to that 25% level and that's what you're trying to overachieve.

We have taken pricing as I said more pricing will will be coming and we're working hard to make sure that that.

<unk>.

Covers the cost impacts that are very real.

Also kept my revenue outlook, I'd say kind of and check moderate modest pick kind of Ah middle of the road viewpoint, there right so that.

Is is the impact of somewhat limiting the margin expansion from kind of call. It the leverage benefit if there were.

Higher revenue levels behind our analysis, so I think that's.

A potential benefit out there.

As as well.

So if I understand this correctly you were saying sequentially margins are gonna be maybe maybe flattish and then things get better in the back half of the year.

As you sort of catch up right right right.

Get some pricing benefit there and then.

Again, I've kept kind of incrementals impacts from volumes out of the commentary the outlook at this point.

Yeah, maybe I guess, a couple of things while I'll, just say that we've got longer term bar.

Margin targets, which remain.

<unk> I mean beyond just kind of the immediacy of.

What's got out of a supply chain, which which again is very significant which is why I think we want to make sure everybody understands it I mean, we certainly are doing a lot of things operationally and strategic to.

To drive to those longer.

<unk> targets and we will still.

Ex skewed against those this year, so that will definitely be.

Something that will offset that in part.

The the supply chain challenges are very volatile and uncertain right now right. So I mean, it's not like we have it all measured because it is changing.

Two week.

We're we're being very thoughtful and proactive about it and that will lead us to passing out some of these cost increases in the second half the reality of it is a lot of the pricing actions that were contemplating probably won't be fully realized until the fourth quarter. So I think the kind of the.

More near term impact of it will be in Q T Q2, and perhaps even more in Q3. It in terms of the way I view it.

I have on the portfolio can we sustain this level of performance. Thank you.

The quick answer is yes, I'd also remind you and refresh <unk> youre going back a couple of years ago. A couple of years ago, We didn't have Bravo in the mix and we certainly own it and it is part of our numbers, but if you exclude that.

Just to kind of get a apples to apples basis to what it might have been set in your mind now theres, another let's say 150 basis points.

Drag a little bit from that right, so where we've come ex that just trying to toot, our horn, a little bit more rate, but we've been putting in a lot of hard work and investing and getting the business and the cost structure and the production processes.

Moving in the manner to get to that 25% rate that is still the number that is out there for us we are having some challenges.

Currently given the environment to do more than right now.

<unk> continued to invest in the businesses.

And are undertaking some meaningful investments, especially on the August side to continue on that.

Longer term medium term I should say journey so <unk>.

Sustaining yes, I am comfortable in and again, obviously speaking here that we feel like we can.

The medium term.

Continue to improve as well.

Great. Thank you.

Your next question comes from the line of Saree <unk> with Jefferies.

Good morning.

This comes from other companies reporting it seems like you might have outperformed the market in commercial foodservice can you just highlight if there was any large projects or anything that you think maybe allows you to outperform the general market.

I'll start and then kick it over to Steve So I'll, just remind it's kind of a.

A more volatile market right now some of it I think as you look across the industry that would probably be.

We're getting out is what we really want to make sure that we're focused on what are the solutions that customers are looking for.

We feel that that's.

Well here and we're.

Really positioned in those areas that are that are growing and Steve can probably add on to that.

Would specifically call out kind of two areas.

Where we've made a lot of investments over the last couple of years last year, especially that I think are starting to pay off so the first I guess, we've talked about before is certainly the retail segments.

It was a positive growth segment for us last year and is a segment that is off to a very good start again for us. This year why I think it's important to know why this could be a reason why we are doing a little bit better is this is still a very new segment for middleby.

If you go back three or four years ago, we were really not holistically in the retail space like we are today and so now today again, having a very dedicated team with the right products.

Retail continues to grow as a as a market I think we've been very well position in so that that I think is a key driver for us certainly last year and the quarter that we just finished the second thing I would say is you, especially last year. We spent a lot of time and we're very intentional in Guinea.

<unk> closer to our dealer partners and.

And our channel partners I know, we talked a lot about the different chain segments. On these calls, but we really spent a lot of time coming up with specific tools resources trainings for our dealer partners to help them and their partners navigate.

The pandemic last year, and so I think we made a lot of.

Short term investments last year, playing the long game when the market would start to come back. So I think we're starting to see that in very early stages in the first quarter as more of that general market.

Smaller chain business that the dealers historically focus on starts to come back I think we're starting to take take some business in that area.

That's helpful.

What about the supply chain issues being from a cost side that could you provide any color on what youre seeing there any impact on sales from QUADRA.

Coming quarters and what it is.

Lead times per day, Antimere Clinton interest normally.

Yeah Ana it's.

<unk> revenues.

I'd say.

Yes.

It has been not overly limiting yet there's probably a couple of areas that we could have done a little bit more in the revenues.

Cautious a little bit starting there probably.

Probably stick with the comment I've said before in that.

It hasn't.

I'll call it shut us down in meaningful ways anywhere, but each day and the list gets longer it gets a little bit harder so.

It certainly is in my mind are more than in my mind as we've put together.

The outlook right. So it's a it is somewhat of a limiting.

You know factor.

For us in a couple of areas and then lead times.

A little bit of a tougher one to answer given we have 100 brands.

You know out there.

In residential it is probably if.

If you had to generalize you know.

Probably two months or more across commercial again.

It varies I mean, certainly given our backlog and such they are higher now than they were all just say two years ago like compared to a pre COVID-19 environment, but I don't think I have a quick.

Rule of thumb to throw out on that one.

I would say just generally our lead times are two to three times longer.

It's really across every one of those brands, but I mean, but at a significant portion of it. That's one of the things that we've been working hard is increasingly capacities were kind of moving through the year.

Although Bryan said, we haven't been quote unquote, maybe disrupted in terms of shutting down production in that that's a credit to our supply chain team, which did a tremendous job throughout all of last year and continues to do that this year. It does maybe somewhat cap our production.

And in certain cases, because we do have limitations in terms of what supply is out there.

I will also say that as we.

Talk about margins.

This is embedded in the first quarter margin, there's some inefficiencies in there as well because I mean, the parts availability doesn't always line up with our production. So we're doing quite a bit.

Rearranged production and sometimes we get the product that you would get a step halfway down the line and finish it the next week so.

That's one of the other things that we're dealing with right now and I'm sure that that'll that'll continue for a bit but I mean, I think we're being pretty proactive in managing that and very focused on trying to take care of our customers best we can.

And we will be increasing the <unk>.

Our capacity at that a number of our businesses as we book through the year.

I appreciate the color thanks, guys.

Your next question comes from the line of Jeff Hammond with Keybanc capital.

Hey, good morning, guys.

Good morning, Jeremy.

You've called out retail and I know like a lot of the change or kind of back to back getting busy again, but just maybe speak to what youre seeing in the laggard markets hospitality travel leisure casual education and kind of how you see that.

For me in terms of recovery as you go through the year.

Yeah, Jeff good good good question I would say I mean, certainly still a fair bit of uncertainty.

And many of those markets I mean, I think just calling a couple that you mentioned I mean casual dining I would say is getting better obviously as more and more restaurants can have.

In store seating coming back online most states I think are back to having some form of of in restaurant seating. So I think that certainly helps.

I still think it's a little uncertain for from the next couple of quarters.

<unk>, specifically what will be interesting I mean, this is historically where coming into the period, where you would normally start to see U K through 12 colleges universities start their purchasing cycle. It would be kind of this normal cadence of second quarter purchase.

Delivering install over the summer toughest will get ready for for the fall session. So and we're starting to see some of that start to pick up and obviously as kids go back from being remote to in person more and more I would expect the educational segment to probably I won't say get back to traditional levels.

But certainly improve I would think over the next quarter or two.

As kids come back in person in the fall.

Okay, Great and then.

Just a couple more one.

Any comment on an order momentum into April and then just on the <unk> kitchen.

Got.

Is the confidence on the out year, just youre not.

Orders are still outstripping your ability to produce and you'll come into 2022 with a big backlog.

Yes, I think.

On residential some of the trends that we're seeing they're going to sustain or a bit or at least that's our.

Our view I mean, certainly part of that has to do with the backlog not only in our business, but really the residential industry more broadly in line.

In terms of construction and contractors.

The availability of materials et cetera, but certainly the housing market.

<unk> remains strong and we foresee not only.

Building and sales, but also the remodels really to.

Carried through for the remainder of the year. So certainly I think we feel pretty good about how we enter <unk>.

22, but.

Again, we also feel good about what we are doing so.

That's a great backdrop.

But we continue to invest in that business I know Bryan just talked about the margins and the outlook, but as we are increasing profitability all the way along we've been reinvesting in that business and we continue to plan to do that so we see still a lot of opportunity in terms of sales.

Channel as well as new products coming online so that kind of bodes.

To our longer term outlook for the business.

I'm, sorry, I know, Jeff you had another instrument order rates order momentum at ticket bring my family back into it I have been tough from a younger son about slow fallout recently, so I would say that the.

The slope continues I'm not going to get into specific numbers for April.

What we've been.

Seeing in reporting Hasnt been any changes in the in the trajectories for for April.

Okay, great. Thanks, guys.

Yes.

Maybe just like.

We feel good about I mean, the business recovery and how we're positioned and we just talked about that.

There is it is hard to say what a trend in orders is going to be this year right. So I also wanted to just under line that we certainly will be up over last year given it was the.

COVID-19 year, but.

<unk> to know what the.

The week to week month to month.

Quarter to quarter will be over the next few quarters and I suspect that that's true.

Of our industry generally.

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

Alright. Thanks.

Afternoon, everyone. Good morning, Tyler.

So.

Orders of 21%.

I would imply they are up over 102019 as well.

Huge orders.

I want to understand is how.

All sustainable.

And if this is kind of can we look at this as a real number it sounds like.

Partially not because.

No longer lead time orders from here. So can you just kind of talk about how you see where we are.

Versus 2019, and how much of this inventory stock catch up.

And et cetera, and then can you give the backlog number from <unk> 19, So we can understand how that 941 comparison.

<unk> thousand 19.

Well I'll start then I'll kick it to Bryan to clean up whatever I say here, so I think.

So it is up over Q1 of 19. So we've had order growth is that kind of said in the initial comments not only over first quarter of 2020, which was largely pre COVID-19, although COVID-19 started bleeding through there but were up.

Somewhat over 2019.

Feel good about that obviously, so I think some of that has to do with.

Again, the investments we've made the segments that we're in and speaks to somewhat the recovery of the industry included in there probably is also some pent up demand as restaurants are starting to open up I mean, I think we see some strategic investment from the chains and I would say not only the <unk>.

But fast casual coming on line more so I mean, I think that is some.

Some of the things that we saw last year and continue into this year and as some of the other segments.

Probably not back on line, but start to open.

Such as maybe some of the casual dining.

That that there's probably some pent up demand in there. So that's harder to say what was sustainable in there and I'll kind of kick it over to Bryan now in terms of backlog growth.

Go back to Q1 of 19, but we have in our go back few years in the 10-K.

At the end of 18 and that backlog was around $280 million.

Would offer that.

The difference between.

We entered 19 that number I just gave and we were at the Q1 things didn't meaningfully change in that one quarter right. So that the backlog is tremendously different.

It's not quite up.

Threefold from.

Net amounts, but it's getting.

Close.

Close to that right now.

It's probably worth thinking about it in terms of each segment is as well right back in that time frame frame food processing was around $100 million backlog, we've talked now that's in the $150 million.

Neighborhood.

These days residential use do not carry a very.

Three large backlog given the size of their.

Their business right and that one is up tremendously and then obviously commercial being the largest is one that probably.

It starts getting up to again being not quite but start getting closer to three times, where it was.

Back then.

Okay.

Fair and Super helpful. If I could just follow up on that day.

In your opening comments, you said that the industry is an unexpected COVID-19 covered till 2025.

I think that implies that your sales won't get back.

These levels right I mean is it fair to think that 'twenty two 'twenty three time frame given how you guys can pivot.

End markets.

Frame to think about getting back to that.

Yes, that's right and so just to clarify so in my comments and that's based on some industry data that comes out of technomic and that really speaks to the restaurant sales so our customers and what they are and when are they going to recover at a I think that's across all the.

The different segments. So you have got.

<unk> and retail recovering.

More quickly than other areas, such as casual dining maybe taken a little bit longer and travel and leisure, perhaps maybe a little bit longer than that so that is really speaking to the.

Foodservice industry, our end markets recovering them, but I think our view is you just said Larry as you know.

2022, 2023 is where we'd be I think we'd be back to to 2019 levels.

Thank you very much good luck.

Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

And your next question comes from Tom <unk> with J P. Morgan.

Hi, Thanks, good afternoon, everyone.

Good afternoon.

Hi.

How are you thinking about food processing demand in the near to medium term do you expect to see year on year growth from that business in the back half of 'twenty, one against tougher comps.

Yes.

This is a business where.

We do expect growth obviously my comments here we're also.

Positive I would say.

Obviously at modest.

Modest levels.

There is a little bit of lumpiness from from quarter to quarter like if you asked about the back half of the year Q3.

It was a little lower quarter Q4 jumped operate and so we.

I think theres, often a little bit of danger in looking at this business on.

A quarter to quarter basis, because you can get some lumpiness in terms of.

Fulfilling large orders in the line. So I think it's important to look at it as kind of you don't collectively over.

A period of time.

But.

I did so my comments again thinking about it sequentially.

Q2 should be a little bit better than.

Q1.

And we have a pretty good backlog in pipeline continues to be pretty pretty strong. So I think we should be able to.

At least sustain.

Q2 level.

Then for the remainder of the year, which would imply a growth overall.

That's very helpful. Thank you and can you clarify the timing of general pricing actions, you've taken and maybe comment on how much of the backlog is covered by net prices if at all.

So we took a.

Price increase generally coming into the year so.

Not all of our brands take it on the same day by any means but generally we had a first quarter price increase so let's say it's.

Mid mid quarter.

And then anticipated that will have a second price increase.

Lee.

In early to mid.

Third quarter as you said because we are.

Carrying a heavier backlog.

Some of the pricing actions that we would anticipate upcoming.

That's why we don't anticipate that those would really start going into effect or be realized.

In the P&L until the latter part of the year.

Patrick Thanks, very much I'll pass it on.

Great. Thanks.

Your next question comes from the line of Tim Thein with Citigroup.

Thanks.

Good morning, net the first question was on.

Channel inventory and the commercial business and.

Implications for Middleby volumes as we go through the balance of the year and so obviously a lot of discussion on supply chain issues and how thats limiting.

Your production.

And I assume you're there's some priority prioritization towards towards retail orders, but how should we think about.

Dealers start to also see the improving end markets and starting to see orders inflect.

Well there is there an opportunity for for some kind of channel fill.

In 'twenty, one or do you think.

And do you think thats more likely 'twenty two event.

Well.

Ill pass.

Pass it back and forth with Steve here.

They're obviously with longer lead times, I mean, I think coming into COVID-19, there was a destocking generally.

So I think cash was king as most businesses so.

Certainly our channel partners, we're not loading up on inventory at the time and frankly, we were depleting inventory that ourselves so.

I think now given the dynamic even if they wanted to stock there's probably not as much of an opportunity is to stock. So.

In terms of when does.

That happened I think maybe as you alluded to it probably becomes more of an opportunity later in the year or.

Into 2022.

If they start to stock again, I will say the industry stocks.

Less than they did if you were to go back five to 10 years ago for a variety of reasons.

So I would say the inventory in the channel is probably more efficient than it used to be but certainly there is less stock in the channel right now.

Got it that's helpful. And then maybe Tim on just on the pricing backdrop in commercial and I guess, there's more perspective question, but and really the kind of the interplay between replacement.

<unk> versus more project, our spec kind of business where.

Historically I 10.

And to think of it maybe rightly or wrongly as the larger projects.

Or where you tend to get more.

Or kind of.

Sharper elbows, and where price competition tends to be greater than where more of that traditional kind of break fix business.

Imagine thus far.

The majority has been in the ladder just in terms of more replacement type business as you start to see.

And presumably you are you start to see project backlogs improves.

That.

And again it is a difficult one day kind of forecast but.

Does the does the competition price competition potentially maybe less pronounced.

Considering the backdrop in which we haven't seen this level of inflation in quite some time day do you think that kind of mitigates that.

Pricing competition or or not.

Just curious your thoughts on that.

Yes, I mean.

Theres a lot to unpack, there and I'm not even sure I can answer the question frankly, all that good I mean, I would say.

We operate in.

Pretty efficient market pricing is always generally.

Competitive and.

I'm not so sure that it's always all that differentiated.

Just on all the different scenarios.

That you.

Laid out I mean, even as we've kind of gone through this period I mean, I'm not so sure that.

The biggest impact of pricing is really the.

US passing along.

Cost rate as we've seen.

Steel.

Components.

Compressors, foaming electronics et cetera.

I'll go up I mean, I think the.

Focus for us.

<unk> has really been moving to higher technology right I mean, I think that's where.

Having.

Better ROI.

For the customer to address labor needs energy needs sustainability speed of service footprint et cetera, and as we can do that everybody.

Wins, along the way, including our channel partners. So.

I think that's really our focus is on the ROI.

To the customer.

And from.

Probably.

It probably doesn't fully answered your question because you kind of hit.

No.

A lot there, but I'll probably leave it.

Really there with kind of our approach in the major.

Areas that we're trying to focus on.

Got it thanks, Thanks a lot.

Your next question comes from the line of Todd Brooks with CL King and associates.

Just a couple quick questions here at the end.

If we look at the the supply chain issues and the constraints on current productive.

Capacity.

Just COVID-19 separately is that still a restraint on.

Capacity as well with shift changes in employee densities are or.

Really pass the baton to the supply chain and when we do work those issues through the COVID-19 related kind of.

Detriment to capacity should be behind Middleby.

Yes, I mean there.

Labor challenges are not behind.

Behind us.

There are we are not immune from some of the factors there that impact a lot of manufacturing.

Environment. So we will use some over time.

Needed and such.

But I put the the kind of parts and physical goods challenge a little bit above the labor challenge right now, but having said that.

Labor is still number two on the list.

Okay Fair enough and then just is there a metric and there may be aggregating too much relative to.

Individuals businesses and facilities, but when you look at kind of a.

Our percentage of normalized production capacity, where where are you running right now.

It is a tough one in terms of we have so many operations out there right, but it is.

Yes.

To generalize trying to give an answer is close to full tilt.

Sure.

Where we can again hard to quantify it with some of the supply chain limitations right, but.

Have you as you've seen our revenue levels in our backlog left.

<unk> levels and such right.

Our operations are running pretty pretty robustly these days.

Okay.

I'll, just I want to have a baby.

We do have capacity at a number of our plants most of our clients honestly. So I mean, if we get.

We move past supply chains, what Bryan said is 100% correct, which is then than we would.

Move into some labor challenges I would say.

By and large.

Labor is an issue across many industries and certainly at our customers as well, which is something that we focus on.

Solutions to to.

Help them, but we do have.

Access to labor at many of the geographies that we're in is we've got.

Capacity, if you just kind of think about.

Book print.

Production line capabilities fabrication capabilities of it I'd say generally there's.

<unk> <unk> to <unk>.

40% is kind of a band at a broad set of our.

Manufacturing facilities, if we were to kind of moving out of those constraints. So I just don't want to leave you with that.

We're maxed out.

Great. That's helpful. Thank you Bob.

At this time there are no further questions I would like to turn the call back over to management for any final comments, yeah. So I think before we wrap it up here one of the things that might like to do is pass it over to James a bit we've.

You've kind of done a bunch of commercials here about the opening of our innovation center in Dallas, which again, we will expand that to add on to residential but that was something we opened.

During the quarter and remain excited about so I thought maybe given a J.

James and opportunity to give a quick overview of some of the activities there would be good as we wrap up the call. Yeah. Thanks, Tim So as Tim mentioned, we opened the innovation kitchen really.

The first part of January and I think even with.

With the fact that we are in COVID-19 the amount of commercial traffic through the Middleby innovation kitchen.

It's kind of exceeded our expectations to.

To date, we've had over 70 plus high quality brands.

And channel partners come tour.

The mic and these customers come for various reasons some come for one or two items.

And we've seen over 150 plus different middleby items.

They walk out of the door with kind of a basket of ideas and products that they didn't know they needed.

The mic is really.

Driving the the message of the the breadth of the Middleby product to our customers who may not know how deep middleby is in beverage and automation and then.

Hot side.

From our channel partner perspective.

Along the same lines, they're coming in to see all the great products under one roof. They are bringing their teams and to get them trained on on Middleby not only on a handful of products, which are used to be but literally every single product that middleby.

<unk>.

Also we are continuing to invest in the innovation kitchen, we are here in the next months going to complete.

Fully automated ghost kitchen.

Popular.

Space within the in the mix and we are also putting in a fully automated sous-vide line for.

Our high volume commentary hotel.

And restaurant customers to see.

We are excited to get more people into the kitchen.

As you know travel.

<unk> is up.

There is a great landing page at Middleby Dot com forward Slash Mec for everybody to go to to see the kitchen and also to book. Some some time there. So I encourage everybody on the call to do that and Tim I will pass it back to you.

Okay. Thanks, so wrapping up the call here and again, it's a great.

Capability that thanks to James the team that we've built and it's a tool certainly for all of our channel partners in our in our customers. So again.

Pending the invite and excited to get more and more people into the facility.

But with that I appreciate everybody joining the call with us today and look forward to speaking to everybody next quarter. Thank you.

Thank you for participating this concludes today's conference call you may now disconnect.