Q2 2021 Middleby Corp Earnings Call

August 12, 2021

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Ladies and gentlemen, today's call is scheduled to begin shortly until that time your lines will again be placed on music hold thank you for your patience.

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Good morning, and thank you for joining us for the Middleby second quarter conference call with US today from management are Tim Fitzgerald, Chief Executive Officer, Bryan Mittelman, Chief Financial Officer, Steve Spittle, Chief Commercial Officer, and James Poole, Chief Technology, and operations Officer, we will begin today with opening.

From management fee, then open up the call for questions directions on how to get into queue will be given at that time now I'd like to turn the call over to Mr. Fitzgerald for opening comments. Please go ahead Sir.

Good morning, Thank you for joining us today on our second quarter earnings call.

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

I will start the call. This morning with comments on our decision not to counter and further increase our offer on welbilt.

We continue to stand by our view that the originally accepted offer to acquire welbilt through a merger transaction offered superior value to welbilt shareholders, but.

By participating in the ongoing growth of Middleby, along with sharing and the benefits of the combined organization.

On prior calls we shared our enthusiasm for the transaction we are even more enthusiastic about the many opportunities we have at middleby and the growing momentum of our business.

As we contemplated the decision of the wallboard to accept an all cash offer we were unwilling to further increase the consideration of our offer at the expense to our Middleby shareholders.

Particularly in light of the excitement around our standalone business prospects.

We remain in an extremely strong financial position that will allow us to make investments to support our strategic sales and profitability initiatives.

And execute on our long standing track record of smart strategic and shareholder value enhancing M&A.

Although a welbilt transaction would've been sizable we have a considerable pipeline of other strategic acquisition opportunities consistent with our history over the past 20 years.

These opportunities will provide a higher return to our shareholders as we continue to successfully build our business for the long term.

Now as it relates to the quarter, we continued to build upon the positive momentum across all three of our segments.

Investing in technology and product innovation is addressing market trends.

Furthering our strategic sales initiatives and adding to our brand portfolio with strategic acquisitions.

We remain focused on evolving our business to meet increasing customer expectations and rapidly changing industry dynamics.

While we execute our strategic initiatives. We also continue to make progress against our financial goals with.

We posted improvements in EBITDA margins at each of our three business segments, all in excess of 20% and all exceeding pre covid levels of 2019.

While we face near term pressures with massive supply chain disruption and material cost increases we remain committed to our long term profitability targets as we drive profit improvement.

Through acquisition integration initiatives manufacturing and supply chain activities.

An improvement in the mix of product sales as we promote higher technology solutions.

As we move into the second half of 2021, we continue with our optimism around market demand and the strength of.

Our positioning in each business segment.

For our commercial foodservice business. The restaurant industry remains disrupted will continues to improve and our customers are making strategic investments in their foodservice operations, leading to greater acceptance of new technologies to address rapidly changing consumer trends and the increased operating challenges most importantly, the availability.

Of labor.

At our residential business new home starts continue to be robust while strong existing home sales and increased time spent at home is supporting kitchen Remodels. These.

These conditions supported continued favorable backdrop to our business for the year and carrying into 2022.

We're excited to have debuted our newest residential showroom located in Dallas, Texas. The showroom is tied to our Middleby innovation kitchens and demonstrates the crossover of product innovation at our commercial and residential businesses, bringing to life, our differentiated ability to offer professional restaurant innovations in the home.

We're also pleased to have recently announced the latest addition to our residential brand family with the acquisition of Novae.

Nobody brings the premium line of built in cooking and ventilation featuring performance with a modern European design <unk>.

<unk> is a terrific complement to our existing brands and product offerings. We're excited to welcome the <unk> team and we see significant growth opportunities in the year ahead.

At our food processing group the impact of Covid and travel restrictions will continue to be a challenge to installations and timing of large projects.

However demand continues to increase for our complete solutions offering innovation to address operating challenges, including labor safety rising food costs and sustainability.

And we are positioned to address these demands with solutions, featuring our new product introductions and acquisitions, we've completed over the past several years.

Now I'll pass the call over to James to touch on some of the innovation initiatives and most recent product launches highlighted in our investor slides.

Thanks, Tim we have a lot of terrific innovations happening.

Each of our divisions day to day. They continue working on the next generation Combi convection oven rapid Cook oven prior espresso machine processing line and list goes on and on just like the Salt. These brand local innovations will always be a part of our engineering DNA beyond. This we are also focused on <unk>.

First initiatives across our divisions to bring much needed labor savings enhanced efficiency, such as speed of service and profitability to our customers.

Our automation beverage expansion automation common controls Iot health and safety and that was in today's earning presentation I delighted three new innovations within middleby to ensure a strong demand pipeline the first innovation that term.

<unk> shipped by our car is an excellent example of brand level of collaboration and innovation.

This first of its kind thermal processing oven offers our customers a 45% to 90% reduction in processing times across a wide variety of food types by utilizing five unique heating technologies. In addition to the <unk> and also enhance the yields by two 5% to 5%, which.

Not seeing significant and can put you considered the tonnage of product that the machine will process over its lifetime.

The next innovation is a textbook example of the power of embedded and collaborative automation. The pizza Bot is the first system designed to prepare and process any size or type of pizza to exacting standards ensuring.

Consistency, while substantially minimizing food waste from the pizza bought our collaborative robot takes over and moves the product tuned oven for the perfect Rapid bank. We are very excited to bring the pizza Boston market and while it would've made its debut at <unk>. It will be in use and on display at the Middleby IND.

<unk> kitchen and in our customer locations finally, I want to introduce our new core product by Evo. This is an exciting innovation in our ever expanding lineup of Netlist products Zen core product was designed to turn some of our most aggressive high temperature cooking system into venmo.

Systems. The Evo didn't core uses new patent pending technologies to minimize the reliance on consumables and accessories, while improving the cleanability and maintenance of the ventilation system Vencor was designed to bring all types of cooking to all types of venues. These.

Or discrete the many great innovations, we are bringing to the market I look forward to discussing more in the future and now to Bryan.

James for the second quarter revenue of $809 million and adjusted EBITDA of $186.2 million. We're just a bit ahead of what we had indicated early last month.

GAAP earnings per share were $2.13.

And included a $19 million or <unk> <unk> benefit from tax legislation impacts primarily in the UK.

Adjusted EPS, which excludes the tax items amortization expense and non operating pension income as well as other items noted in the reconciliation at the back of our press release was $2.11.

Operationally, we continue to build upon our strong foundation to have delivered another solid quarter.

Looking at total company performance revenue continues to trend very positively with growth sequentially of over $50 million from Q1 on a year over year basis revenues grew 71% or 65% organically with strength in all three segments order trends also continue to be robust.

We exceeded $1 billion in orders during Q2, and our backlog is at a similar amount.

Our 23% adjusted EBITDA for Q2 was a substantial increase over Q1 as well as Q2 of 2020.

We sequentially expanded margins meaningfully in each segment by the way all margin values I will discuss on an organic basis as well, meaning excluding any acquisitions dispositions and FX impacts.

Total company adjusted EBITDA of just over $186 million represents approximately 15% sequential growth from Q1 and 150% growth over the prior year.

We continue to grow our bottom line faster than our topline when comparing Q2 to the prior year, we grew EBITDA over twice as much as revenues, even while we are investing over $5 million in technology initiatives quarterly.

As a result, our strong cash flow generation persists operating cash flows of nearly $113 million was a record for us for a second quarter.

Our profitability expansion and increasing cash flows are the benefits from the actions we took to improve our business as the pandemic hit and the ongoing focus on integrating acquisitions and managing through the challenges we continue to face while delivering innovative solutions to our customers.

Looking at our segments commercial foodservice revenues globally were up 8% organically and we're looking at just at North America. The increase was approximately 77% the international increase was 89% or.

Our margins continue to expand sequentially, we produced nearly 26% adjusted EBITDA for Q2.

In residential we saw revenue up 63% very high levels of demand persists for a premium appliances and outdoor cooking platforms here too our margins continue to expand sequentially.

Due to well over 22% for Q2.

In food processing revenues increased 25% and the adjusted EBITDA margin was over 23%.

Another highlight was our operating cash flows of nearly $113 million discipline around cash flow is core to running the business for us.

We continue to demonstrate our ability to manage cost and cash while investing driving innovation and providing excellent service to our customers.

Our total leverage ratio was down to two three times, while our covenant limit is five five times. We also have over $2.1 billion of current borrowing capacity.

We will continue to execute our M&A strategy as well as investing to improve our operations and in turn increased profitability.

And incredibly important investment we have made is the MC the middleby innovation kitchen, as well as the adjoining and stunning residential showroom in Dallas.

Along with having awesome facilities, we have an outrageously talented culinary team <unk>.

<unk> been with them on a few locations recently and I'm willing to admit to getting spoiled by them.

Being at the Mic, which by the way is the largest Iot connected kitchen and the world is really an on sparing event.

Looking at our list of brands and papers impressive seeing them physically together is amazing and enjoying the output is even better.

We are proud of the breadth of what we offer while all our brands are great I felt it was imperative to somehow come up with a top three list to commemorate my days feasting at the mic.

And since I won't be able to offer tours. It at Napa. This year. This can serve as a quick Middleby tour to get you all Hungary is the lunch hour approaches.

One brand that does not get as much recognition and Middleby family is sometimes globe.

Their preparation solutions brought to life, what may have been my favorite dish. The masterfully created watermelon gazpacho hit the spot, especially given the Dallas heat.

Incredibly flavorful, a little spicy a hint of suite cooling refreshing or crazy good as our CTO aptly described it.

Moving on to the current a course, our talented chefs location, we admit to a bit of a bias for hard fuel powered cooking.

Coming out of Spain, the Jasper charcoal grills are always a favorite of cooks in diners alike.

Mohawk dry age for 90 days and our tender shaft was absolutely delicious.

And lastly, moving on to the Sandwich food group, what the Plexor can do will be market changing.

And with our Middleby controls. It is so easy to use that even I could operate at the grille Rubin was toasted perfectly a crispy outside with the warm savory inside I could go on and on about the menu breadth of the flexor can deliver.

And I'll have to come back to the cookies and other time as I, probably should put aside my side Hustle as chief Food officer and get back to my typical CFO duties.

So having covered Q2 and my culinary ramblings. This time to look forward to the rest of 2021.

We've provided order and backlog data in the presentation that is available at the investors section of our website. We also provided our full year outlook and are released last month, which I want to further address.

As I've noted before even with a solid start to the year, we are keeping our expectations at modest levels for the near term.

The reason for some caution in my tone, even with the order trends, it's due to the variety of supply chain issues and cost pressures we are facing.

Many positive factors do contribute to optimistic views such as our backlog.

Innovative solutions that are addressing customer challenges and the development activity by many of our customers. However, I don't want anyone to fail to recognize the near term risks that are impacting our cost structure and availability of raw materials and other inputs for our products.

These forces do limit our ability to generate higher top line growth for the next few quarters and will play some downward pressure on margins. We are taking pricing actions to mitigate margin impacts, but we don't expect meaningful contribution from those until early 'twenty two given our backlog levels.

I will note that we are currently anticipating low single digit growth in overall revenue sequentially from Q2 to Q3 with margins compressing.

Also we call it food processing is a lumpy business as we look at how contracts will be fulfilled we will likely see a temporary revenue decline for this segment when comparing Q3 to Q2. However order strength has continued thus Q4 should Soc should show solid growth for FPGA.

As we look out to Q4, we expect total company revenues could grow at least mid single digits from Q3, which includes the seasonal benefits typically seen in residential at the end of the year.

Given the volatility impacting the supply side of our business it would be prudent to anticipate Q4 margins not exceeding Q2 levels in.

In closing to highlight with the full year 2021 should deliver food processing and residential should see revenue growth in excess of 20% over 2019 levels with margins, having expanded as well.

Commercial foodservice organically will be at similar levels to 2019 in terms of revenue and margins as.

It is important to remember that the margins will likely at similar to 19 levels are after considering the inflationary impacts we are facing and the investments we've been making this demonstrates that our management actions to address costs integrate acquired businesses and generally improve operations are generating results.

In total consolidated company margin for 2021 should exceed 2019 levels as well.

While it is a little too early to.

To specifically be addressing 2022 and beyond I will reiterate our commitment to the medium term margin targets. We've set for each of the segments, which are 30% for commercial and initially 25% for the other two segments. While the near term may be a little Rocky I believe we are extremely well positioned for the longer term and that our.

Products and solutions as well as the teams and tools, we are driving our success in the market everyday will continue to deliver industry leading results.

And with that Tina let's please open the call to questions. Thank you very much.

To ask a question simply press star one on your telephone keypad again that is star one to ask a question to remove yourself from the queue press the pound key.

First question is from Tim Thein with Citigroup.

Good morning, Thank you.

Just Brian maybe coming back on the comments there on pricing.

When those.

Increases take effect as it is.

Fair to assume that what's.

The opportunity or the ability to to.

Price mix in the backlog is limited at this point, meaning.

Yes.

Whats you have appeal, but.

The order is not shipping for six months or longer.

Emitted flexibility our ability you have.

To reprice anything in the backlog is that a fair one.

From what you what you said.

Yes. This is Tim so that is fair.

We're not generally repricing the backlog.

<unk>.

The orders are and frankly, we just don't want to disrupt our customers. So we're very focused on the long term and getting being proactive about where pricing should be.

As we go into next year.

Got it Okay and then.

Maybe I don't know, Tim or Steve maybe you could just say a little bit more in terms of what you've seen thus far and what you are seeing just from a from a customer perspective I suspect that as you think about overall revenues and getting back to or above that 19 level I would assume that some of the larger.

Teams have been doing a lot of the heavy lifting but.

And you also have as you said in the release a lot of customers that are obviously still struggling.

From shutdowns and the like so is there a way to kind of.

I don't know if yes, how much of that do you have on your fingertips, but kind of help us in terms of.

Customer segments that are.

Considerably.

That are still kind of early days of recovery and what that represents from a from an overall book and this would be for the commercial business. Obviously, so maybe just a little bit more color in terms of the kind of the leaders in laggards. Thank you yes.

Good morning, Tim This is Steve So I would break it into maybe three groups to help simplify how we're thinking about so I think kind of group one would be the segments that hung in there pretty well last year and continued to do well so certainly Q.

<unk> Pizza retail C stores, I mean, I think again specific to <unk> I mean, they are back to obviously doing new builds at pretty aggressive levels. I think that certainly continues into next year. So that's kind of I would say bucket number one that has continued to well outperform.

2019, and prior levels, So and I think you have kind of group number two which I would call maybe some of the other segments that have been a little tougher hit whether its casual dining or really just the general market.

So I think youre seeing some of that certainly come back I think we're seeing that more in replacement business right. It's not as much in the new builds but the replacement business that I do think has started to come back. So thats kind of group II and then group three I would say are the hardest hit segments right. So we're talking about Institute.

No we're talking about travel leisure any independent restaurants.

So I would share some color just specific to your schools I think is an interesting one we've talked about schools before and kind of the order cadence that you normally see so school business for us from an order standpoint is actually running pretty well ahead of 2019 levels, which I think is very encouraging for two reasons.

I think theyre back to their normal ordering habits getting rate for kids to come back in the fall and I think youre seeing catch up from obviously not doing any kind of purchasing last year when kids, where remote. So those are kind of I would say the three segments. I think they are all trending positively group III still well behind kind of groups one.

And too so.

Hopefully that helps.

Frame up the perspective for the back half of the year and certainly into <unk> into next year.

It does thank you and I mean just that.

Not to that.

Third decimal place, but if you think about that group three yes.

We think in like a quarter kind of 30 ish percent.

Ballpark in terms of what those categories would represent.

Again, I think if you go back we've kind of shared that chart.

The Pie chart in prior prior slides.

Investor decks.

I'd say its in the yeah, it's probably in the 25 ish percent neighborhood I would say at historical levels going back to kind of.

<unk> 19 levels, that's probably a rough estimate of what those 345 segments would represent Tim.

Got it thanks for the time take care. Thanks.

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

Hi, Thanks, good morning, everybody.

Larry.

Tim So obviously you haven't walked away from available till now I understand your sentiments, but curious your big picture thoughts now on M&A consolidation in the industry are there other large deals that are likely to play out do you think and.

Actually shed off another wave of maybe larger cross border deals it with tripling for Vlad for your children now hitting or is this.

How do you view this as a one off in the industry and it back to Jeff.

A lot of medium sized deals in general.

Yes.

Yes, so Larry.

Generally we don't comment on deals obviously welbilt was very very public typically.

We don't comment on deals until after we.

Announcement.

We've been at this for a long time over 20 years, and we see a lot of transactions.

It will happen the world has become more global right. So even with Middleby, you've seen more international acquisitions over a period of time, we've expanded our platform, which we will continue.

As well, so I mean, I, probably not going to get into it.

Thesis of what May happen in M&A.

Overall I would just say that we're the best positioned in the industry given get it on our own balance sheet, but our core competencies.

I guess, our strategic approach to two acquisitions and as I mentioned in the opening comments.

Always have a strong pipeline of ideas focused on brands and building out our competencies whether that's innovation.

Without the market international So I mean, we feel very good about our pipeline, but I'll leave it.

Their debt.

Yes.

Secondly.

Thank you.

When you gave your guidance in July you expected backlog to over $1 billion.

Came in under $1 billion in processing orders came in below what you said you were going to come in and so is that the Delta and then processing orders came in a little bit lighter than expected and maybe accelerated post quarter or just timing or can you just give some color why there's different numbers from July now.

Yes.

You are right.

Food processing it can be a lumpy business and as we closed the quarter one thing flipped in on the other side right and that business also has sizable orders so.

Ended up with the rounding being <unk>.

Just.

Just short of $1 billion as well. So if you would've looked at July numbers. They would have been up pretty robustly. So really it's just a timing thing and one order and would also note that residential orders also as we closed the quarter came in stronger than we had initially estimated so.

Put it all together.

Was as expected or actually if I take it with the residential coming in a little bit ahead, probably just slightly better or a little better than we had initially estimated so really just a timing thing.

Okay. Thank you you bet.

Our next question is from Nick <unk> with Baird.

Thank you and good morning, everyone.

I guess.

What I'm wondering is if you can give us maybe a little more color on how demand has.

Trended into into Q3.

What you have seen in July.

I'm asking this because this is a question that we often get from investors, whether or not there is really any impact from the delta vary and either on activity or sentiment or how customers are thinking about.

Investment in the back half so.

Can you provide some context on that.

Yes.

So I would say I mean, just so.

Obviously, we have been reporting orders and we keep saying we're going to get it get away from that I think we truly are now as we kind of came through.

Covid, but just maybe to give you a little bit of a flavor I mean July.

That trend generally continued in terms of our orders so.

And so as we said kind of in the comments, we do feel.

Pretty good about the outlook for all three of our businesses as we go through the back half of the year as it relates to Covid.

We kind of know what the impact of Av.

To a certain extent, obviously theres a lot of uncertainty, but really what the impact of our to our businesses from from Covid. We all saw that play out over the last year. So I really don't think the variant is going to take us back in the foodservice industry has proven extremely resilient. It obviously impacts the different segments slightly different but.

The ones that Havent recovered as much frankly lead to greater pent up demand when they do recover which is kind of what Steve was alluding to talking about school system. So.

We feel pretty good about.

The trends continuing and don't really expect a disruption.

From an order standpoint based on Covid.

Okay.

And then.

Maybe a question on pricing.

I mean look at.

<unk>.

Data data out this morning on producer prices.

Commercial cooking equipment.

Reported up 13% I mean to me it almost looked like a typo, so I'm not I'm not really asking you to comment on the reliability of government statistics here, but I am curious since you're one of the major players in the industry.

What are you seeing out there in terms of pricing. It sounds to me like you were saying, Hey look pricing is going to be more of a.

More of a driver in 2022 that seems to be a little bit of odds with.

Again, the data that the government has reported this morning, so maybe some context on that.

Okay. So ill.

Kind of go through at a high level I might ask Steve.

It had some tactics here, but.

I mean, we have taken price increases, but I think just very at a big picture. It's hugely dynamic backdrop right now I mean, it supply chain issues have increased as we've gone through the year I mean, I think at the beginning of the year we thought.

At the back end capacity.

Would've probably increase in number across a number of industries, but I think as <unk> all seen.

Thats not been the case.

<unk> orders have outpaced that.

The increase in capacity. So that's really led to increased supply chain disruption.

And then the lack of availability has obviously led to higher and more dynamic.

Pricing issues right. So we're managing through that like all other manufacturers I mean, I think we've been very proactive.

In measuring those cost increases and.

Passing those along to our customers. So we're very resolute in that and I think we're very confident that we will be able to do that just as we've always had there tends to be.

Some some lag that we have taken price increases right. So I mean, it's not that none of this will come into effect. This year, but again, you've got more of a delay. So I think the message you've got from us is that.

We're very focused on managing it as we go through the year as we have in the front half and passing those on.

And we don't while we will have some some impact as we work through quarters. We are very focused on our long term margin targets, which are strategic and were and.

While we're managing disruption.

We're not losing sight of where we want to be with margins as we go through the next couple of years and feel confident in our ability to execute on that strategy. So that's kind of a bigger picture.

Maybe ask Steve to comment on government statistics.

I might leave the government alone.

For this call, but I would just say as we've thought about pricing throughout the year I mean to piggyback on what Tim said, it's certainly a very dynamic certainly not static conversation. So we kind of approached it in waves throughout the year. So we kind of go back to the beginning of the year I would call kind of wave one when we took.

Pricing to start the year.

And I would say, we're kind of in the completion are backside of implementing wave two but pricing, which I would say has been the most strategic we've tried to be extremely transparent with especially the larger chains, knowing those can be tough conversations, but I think again.

<unk>.

Transparent.

Perspective, really explaining where costs are on our side, what we obviously were seeing commodities, what we're seeing in materials and really trying to explain our pain points and I think that from a tactical standpoint has been effective but then I'll also say.

Even though wave two is kind of wrapping up wave three will certainly be coming more or less to start 2022. So we've tried to be very open with our customers, but it is tough to the other tough discussions right now.

We're in the middle of it and it will continue certainly as we go into next year. So I would tell you from across all of our brands and across all of our team that manages our national accounts and key key customers.

It's one of the most important initiatives we have in the company right now.

Okay.

That's helpful.

And the last question for me is sort of a clarification.

Appreciate it all the guidance detail that you've given but.

It's going to take me a lot to figure out what all of that actually means for now.

If I'm thinking about.

<unk> full year outlook that you have provided roughly a month ago.

Yes.

Has anything changed materially.

Relative to that to get to that full year outlook either in terms of.

Of revenue or in terms of how you thought about margin in what was implied in that outlook.

<unk>.

The simple answer is.

No.

We are we are sticking with that right.

We do have line of sight to that margin.

Mt.

I think we've been pretty clear there are challenges there what happens with <unk>.

Delta or hopefully not other variance here, but what happens in the general business and customer environment as.

As well as maybe more significantly.

Our numbers.

What happens with supply chain do things take a turn for the worse.

And we're not we're not haven't really baked in things worsening.

Nor have we really banked and things improving right. So that view is based on the state today.

Could could obviously evolve.

The revenue side is a little bit also potentially constrained for the same factors I mean, we are certainly working to increase output and as I indicated.

We do think we'll have some growth.

Sequentially for each of the next couple of quarters, which gets us to that full year number maybe with.

Some opportunity to overachieve that slightly but again supply chain is the most constraining factor, but the overall take is we feel those numbers for the year are still.

Reasonable.

Okay. Thank you for taking my questions you bet.

Okay.

As a reminder to ask a question simply press star one on your telephone keypad and our next question is from Joel <unk> with BMO.

Hey, guys How's it going good how are you Joel Alright, you start opening up the door on too much information in the questions never stopped.

Yes.

I Wonder if you have you given us a sense of how much like how many basis points of margin impact that you might see from from price cost. Just just recovering is it just more of a mathematical.

More of a mathematical kind of question.

Are you talking kind of near term second half yes.

Yes in the second half of this year.

Well.

As I talked to as I mentioned with margins compressing or getting smaller in Q2.

To a smaller modest degree right. It is going to turn against us slightly but I mean, you can do the math also with the forecast information that's out there and see that the decline if I speak in terms of round numbers is.

100 basis points is what we're talking about again.

As you noted putting numbers out there is a dangerous thing, but I'm not going to avoid them.

Completely because they are out there I'll look forward to when we get past these periods and that can get back to normal middleby.

We'll give you the results as the results happened, but that's kind of how the.

How the math does play out.

Okay, and then just more of an easy question.

Stainless shortages is that an issue or is it more on the controller side in terms of the supply chain and just the way your conversations are going and what you're hearing and seeing.

That more of it will be cleaned up in 2022 or is it more of a second half of 'twenty two just any sense thats all thank you.

Yes. So I mean, you characterized that as easy question I think that is the Crystal ball question, which I think all companies are facing right now I mean, I think there's a multitude of supply issues right. So it's not just stainless steel right I mean for us at any point in time, we're dealing with 100 plus supply.

Our issues I mean, I think what's unique.

About us is we have a phenomenal supply chain team and that team has gotten stronger as we've gone through the last several years and there is a lot of cooperation collaboration.

Leveraging kind of the capabilities and relationships across middleby, so, but I think that has led us to where we really have not had any major disruption in our business to this point and think that we'll manage through it better than others. Certainly steel is one of the headline items given its one of our biggest input costs I think people are aware of.

I think we.

Daily issue managing steel I think given.

The scale of Middleby in the relationships, we have our suppliers there.

<unk> done pretty well have been able to.

<unk> supply so.

In terms of timing I mean, I think that again crystal ball I mean, I think this is a supply chain issues, we will be.

Dealing with certainly into 2022, I mean, it's hard to say when.

The manufacturing world gets beyond that but I mean.

That is going to be.

Something that we're very focused on throughout the year.

As you listen to.

The industry analysts out there and as we talk to our suppliers I mean, I think it starts to improve probably as we go through.

The first part of next year, but probably hangs on until middle of next year, but again I would say thats a crystal ball answer so.

So significant disruption and uncertainty through the back half of the year improving as we go through the front half of next year, perhaps normalizing as we get through.

Somewhere in mid 2022.

Alright, thanks, very much at least you guys have a crystal ball, we only have like that magic eight ball.

Alright, thank you.

Okay.

Our next question is from Jeff Hammond with Keybanc capital markets.

Hey, good morning, guys. Good morning, Jeff Hey, Jeff.

So just on.

There's a lot of labor issues out there and I'm just wondering if.

One youre seeing any kind of slowing around in our new store openings as people make sure. They have the appropriate labor or Conversely, if youre seeing a lot more uptake on kind of labor efficiency.

Driven products.

So if you want to take that one yes. So.

Jeff I don't think we've seen a slowdown in new store openings from the bigger chains I mean, they've all been pretty open with their projections for <unk>.

The rest of this year and certainly into next year I have not seen a slowdown on that front.

Now I do think they have a great challenge ahead of them.

It's dynamic.

Yes, again, I'm, probably speaking more to the <unk> segment at this point, where the new stores are coming from but they have a real challenging dynamic of theyre trying to improve speed through the drive thru, which has always been a challenge for them and even taking a couple of seconds out of the drive thru can be a big deal and so you see a lot.

Emphasis on that front just to expand capacity through drive thru. Meanwhile, you have this dynamic of.

Can't find labor.

The kitchen, so and then the impact of not having labor is of course extended drive through time. So they have a huge dynamic they have to solve and I think it well positions us for.

Equipment that could be used to take labor out and increase drive through capacity. So.

If you have anything James maybe kick it to you to from a product standpoint of things we've seen that can help.

Just in our discussions overall.

I think.

Talking.

We certainly talk about what are.

Products day to day can do to reduce labor improve efficiencies I think one of the <unk>.

Since that we have out there that it is now.

Getting more and more traction is the open kitchen platform through its ability to really automate all facets of the restaurant from the front end operations, all the way back to equipment connectivity.

It also providing.

Automated task management within.

The space and we see customers turning to these these technologies because of the labor issues that we that we're all seeing so.

I think we're well positioned from a product standpoint, and as we develop the products that we have in the pipeline will be even.

More position.

In the future to address.

<unk>.

The labor issue, which.

We will probably likely not subside.

Yes.

Just cap it off and repeat a little bit to be repetitive, but labor.

Jeff you are asking the question right because it is a massive issue for our customers right now and I think we're uniquely positioned with our solutions right like we've been going after technology and innovation here and if you think about the.

A lot of things that James has talked about in the slide deck and so forth.

It's automation.

That we can bring to our customers to really solve what is today their number one issue.

Okay, Great and then just maybe some color on <unk> can you talk about the what the purchase price was margins look pretty good but what's the long term opportunity to take margins up and then just.

Kind of cross fertilization and revenue synergy opportunities.

Yes, so I'll make couple of comments.

Our Q is coming out later today, so I'll kind of leave the purchase price for for that.

But as you mentioned.

There will be nobody is margins are strong already right. So amit as we bring it into the platform.

It's not diluting and perhaps additive to our margins which is great.

We think there are many synergies with Dolby.

Say growth number one.

Certainly there are synergies from a profit standpoint, as well as we kind of think about areas that we can leverage.

Across the businesses, but.

We are excited about the product platform.

Built in as a growing market.

An area that we've been developing products, but nobody really kind of adds to.

Our focus there and.

Certainly.

They are very strong in the markets that they're in right now.

Particularly Europe, and the Benelux area, but.

The opportunity for those products in markets, such as the UK and the U S is strong so.

So certainly we see a lot of <unk>.

Strategic merits on all those fronts.

Okay I appreciate it.

Alright, thank you.

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

Yes, Thank you Tina.

Thanks, everybody for joining us on today's call.

Joining in and we look forward to speaking to you next quarter.

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

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Yes.

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Okay.

Sure.

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Good morning, and thank you for joining us for the Middleby second quarter conference call with US today from management are Tim Fitzgerald, Chief Executive Officer, Bryan Mittelman, Chief Financial Officer, Steve Spittle, Chief Commercial Officer, and James Polk, Chief Technology, and operations Officer, we will begin.

Today with opening comments from management.

Well then open up the call for questions directions on how to get in the queue will be given at that time now I'd like to turn the call over to Mr. Fitzgerald for opening comments. Please go ahead Sir.

Good morning, Thank you for joining us today on our second quarter earnings call. As we begin. Please note there are slides to accompany this call on the Investor page of our website.

Start the call. This morning with comments on our decision not to counter and further increase our offer on welbilt we.

We continue to stand by our view that the originally accepted offer to acquire welbilt through a merger transaction offer superior value to welbilt shareholders.

By participating in the ongoing growth of the Middleby along with sharing in the benefits of the combined organization.

On prior calls we shared our enthusiasm for the transaction, we're even more enthusiastic about the many opportunities we havent middleby and the growing momentum of our business.

As we contemplated the decision of the wallboard to accepted all cash offer.

Unwilling to further increase the consideration of our offer at the expense to our Middleby shareholders.

Particularly in light of the excitement around our standalone business prospects.

We remain extremely strong financial position that will allow us to make investments to support our strategic sales and profitability initiatives.

And execute on our long standing track record of smart strategic and shareholder value enhancing M&A.

Although a welbilt transaction would've been sizable we have a considerable pipeline of other strategic acquisition opportunities consistent with our history over the past 20 years. These.

These opportunities will provide a higher return to our shareholders as we continue to successfully build our business for the long term.

Now as it relates to the quarter, we continued to build upon the positive momentum across all three of our segments.

Investing in technology and product innovations addressing market trends.

Further.

Further our strategic sales initiatives and adding to our brand portfolio with strategic acquisitions.

We remain focused on evolving our business to meet increasing customer expectations.

Rapid Lee changing industry dynamics.

While we execute our strategic initiatives. We also continue to make progress against our financial goals.

We posted improvements in EBITDA margins at each of our three business segments, all in excess of 20% and all exceeding pre covid levels of 2019.

While we face near term pressures with massive supply chain disruption and material cost increases we remain committed to our long term profitability targets as we drive profit improvement.

Through acquisition integration initiatives manufacturing and supply chain activities at.

An improvement in the mix of product sales as we promote higher technology solutions.

As we move into the second half of 2021, we continue with our optimism around market demand and the strength of <unk>.

Our positioning in each business segment.

For our commercial foodservice business the restaurant industry remains disrupted while continues to improve and our customers are making strategic investments in their foodservice operations, leading to greater acceptance of new technologies to address rapidly changing consumer trends and the increased operating challenges most importantly, the availability.

Labor.

At our residential business new home starts continue to be robust while strong existing home sales and increased time spent at home is supporting kitchen Remodels. These.

These conditions support a continued favorable backdrop to our business for the year and carrying into 2022.