Thank you for joining the Middleby Second Quarter 2023 Conference Call. With us today from management are CEO, Tim FitzGerald; CFO, Bryan Mittelman; Chief Operating and Technology Officer, James Pool; and Chief Commercial Officer, Steve Spittle. We will open the call with management comments and then open the lines for questions. Directions on entering the queue will be given at that time. Now I'd like to turn the call over to Tim Fitzgerald. Please go ahead, sir.

Good morning, and thank you all for joining us today on our second quarter earnings call. As we begin, please note, there are slides to accompany the call on the investor page of our website. We are pleased to have posted solid results, reporting a record second quarter with strong performance at both our commercial and food processing businesses. And we continue to progress our residential business, while it is impacted by the challenging market conditions and destocking of inventory at our channel partners. We posted overall improved profitability during the quarter and continue to make progress towards our longer towards margin targets. Our profitability is benefiting from our focus on new product innovation to drive improved sales mix. We are realizing efficiency gains reflecting the impact from our manufacturing investments and we are focused on longer-term supply chain opportunities with ongoing product design and sourcing initiatives, providing for greater improvements over the next year. While market conditions have proven to be challenging, particularly in the residential segment, the inventory destocking, which has impacted the first half for our commercial and residential businesses, we believe will largely be normalized by the end of the third quarter. And we continue to have strong engagement with our customers across all three of our foodservice businesses. Our new product introductions have accelerated over the past several years as we target growing market trends and launched game-changing innovations, addressing customer challenges of labor, speed, energy, food waste and sustainability. In our Commercial Foodservice segment, we've expanded our electrified and ventless cooking solutions. Developed new and exciting ice and beverage offerings in a large addressable market. And establish Middleby as the leader in controls, IoT and automation solutions, positioning ourselves to capture the future of the industry. Residential, we have significantly broadened our portfolio of…

Thank you, Tim. Today will discuss some exciting developments in our product lineup, focusing on sustainability and electrification in the residential space. La Cornue, Rangemaster, AGA, Novy and Viking have recently launched or launching a full suite of induction products for homes. These offerings provide our residential customers with the same benefits that our commercial customers rely on today. Safety, speed, precision, performance and sustainability. Additionally, CookTek, one of our commercial brands is introducing a few unique products for the residential use, such as the Drop In Induction Wok. Middleby is also proud to bring the most extensive lineup of induction, range tops and ranges to the market with designs ranging from classic French to strong American commercial. And Novy is introducing an innovative undercounter product called the Invisible Hub, which allows users to cook directly on their countertops. As before, you can find these new products in our investor deck I've also included a slide that compares the benefits of induction versus electric and gas cooktops, highlighting the near perfect efficiency that induction yields, along with a brief explanation on how induction works. Now let's revisit a highly successful product that continues to gain traction in the commercial space, the Taylor NextGen Grill. Why has been the griddle of choice for a few high-volume quick service restaurants for the past couple of years, the general market introduction of the NextGen Grill continues to generate strong interest and adoption among our customers. Especially those who've had the chance to come experience the grill's capabilities first-hand at our Middleby Innovations Kitchens Automation pod at NAFEM and the NRA shows. The NextGen Grill brings embedded automation through active compression cooking, allowing for cooking for both sides simultaneously. With its continuously variable gap control, this innovation, this innovative cooking method offers next-generation precision. The NextGen Grill can control its platinum gap or compression with an accuracy of 5,000s of an inch and a platen parallelism within 10,000s of an inch. This level of precision enables our customers to achieve consistent cooking back to front and side to side dramatically improving consistency and reducing cook times up to 80%. Furthermore, this automation significantly improves food quality by reducing instances of over or under cooking, thereby ensuring safer offerings and minimizing food waste, ultimately enhancing our customer profitability and consumer satisfaction. Before I conclude, I'd like to give you a glimpse of what's coming up. In the next quarter, we will focus on new products slated for launch in Q4 and Q1 in 2024 and expect exciting introductions such as the rapid cook oven from TurboChef, a groundbreaking frying innovation from Pitco and a new residential platform from Viking consisting of cooking refrigeration, dishwashing and built-in accessories. Thank you, and now I'll pass it over to Bryan.

Thank you, James. I'm excited to be reporting these record results from our Blodgett facilities. And before I get to discussing the past quarter and some record results, I'd like to look back a lot longer. During this past quarter, Blodgett celebrated its 175th year of making ovens right here in Vermont. This is certainly our oldest domestic company. And I have not attempted to estimate how many pizzas and cookies have come out of their ovens, but I know they are responsible for my favorites. Also, when Tim began executing our M&A strategy at the beginning of this century, the process began here. As we look forward, logic innovations are helping to lead the way. So I want to thank the entire Blodgett family for helping build the foundation of Middleby and for leading the charge as we reach new heights. Speaking of new heights, Q2 was a record quarter, our highest revenues ever. They well exceeded $1 billion. And in spite of continued challenging market conditions, our organic adjusted EBITDA margin was 22%, with nearly $229 million of adjusted EBITDA having been generated. On a last 12-month basis, we are at $885 million of adjusted EBITDA. While our total organic revenue was down slightly given the residential headwinds, we were still able to grow our adjusted EBITDA dollars 4% over the prior year. Our total company margins expanded 130 basis points and all the margin values I will discuss hereafter are on an organic basis, meaning excluding any acquisitions and foreign exchange impacts. GAAP earnings per share were $2.16. Adjusted EPS which excludes amortization expense and non-operating pension income as well as other items noted in the reconciliation in the back of our press release was $2.47. Commercial Foodservice revenues were up nearly 3% organically over the prior…

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Saree Boroditsky of Jefferies. Please go ahead.

Thanks. Good morning. I wanted to see if you could quantify the impact of destocking on the quarter and then how you're thinking about it for the full year for both segments. And I think we could argue that in a flat demand environment, this destocking should really be a tailwind into next year. So if you could help us size that, I think it would be very helpful for people. Thanks.

Saree, it's Bryan. Given the Middleby way, I'm not going to offer you specific numbers to size that. I think it's important to consider, as you know, overall what's happening in the market and the results we put out there, right? So Q3, I'm sorry, Q2 is really strong. And when I commented that we expect Q3 to be similar to Q2. And starting with commercial here, given what's happening in the market with our dealers and customers about their levels. But then Q4 does improve. And as we've noted, based on the trends and the customer needs, we do think it does present a tailwind beyond when we get past the third quarter. As you think about the residential markets, obviously, they're challenging these days in a variety of product categories and certainly our customers, the dealers, the retailers are being cautious in managing their balance sheets as well. Q3 is often a seasonally somewhat weaker quarter as well for a variety of our products within the residential segment. But that's where we think things do start to pick up in Q4 for us.

Maybe phrasing a question a different way. Could you go through what you're seeing from a sellout perspective in commercial foodservice and in residential?

Yes. So Saree, I think we're going to have a hard time quantifying it the way you would like. I would say the impact is more significant in residential than commercial. Certainly, we think that the -- that our channel partners will be -- it's a headwind that will go away. And then I think the channel partners will be a little bit more cautious in terms of how they reload stock in going to next year so that it will be become more neutral. And then I think as you're alluding to, it will become more of a tailwind as we kind of move into next year, particularly in the back half. We don't have -- there's a lot of brands and then you're kind of across those two segments. When we have engaged with the partners on commercial there's pretty strong sell-through. So I mean I think that's one of the things that gives us confidence as we're closer to them than ever and really understanding what is selling through and how we kind of fit into their business plans. And then certainly, I think there's 2 aspects there. One is kind of the general market, and then there's the chain. So the general market, I mean, we kind of understand where inventory levels are with our channel partners, and we think we're kind of nearing the end of that as I kind of said in the comments at the end of the third quarter. With the change, I mean I think there's a lot of public information out there where you can see store openings and plans are pretty strong. So there's a little bit of inventory in the channel as they wanted to make sure that they had the equipment to ensure that they could execute on those plans. So I think we feel pretty good about the end markets in commercial and certainly where we're situated there. Residential, I mean, certainly, as you kind of pull it apart. The biggest impact is on the outdoor grill brand. So we think that there will be -- we'll be in a much better position as we exit the year. We do actually believe we turned positive and outdoor grows as we hit the fourth quarter because we really started to see a lot of the impact in the growth category at the end of last year and some of the dynamics there. So there's a little bit of color around that. I know it's not quantifying it specifically, certainly, feel like we finished the year in a pretty good place, and it kind of sets a pretty good backdrop for 2024.

Appreciate the color. I'll leave it there. Thanks.

The next question is from Mig Dobre of Baird. Please go ahead.

Yes. Good morning. I'm going to stick with this topic that sorry, brought up, destocking. Just to be clear here, is the destocking occurring in the general market with distributors and such? Or is it happening with some of the QSR customers. This kind of sounded like it's happening with both. But I'm not clear as to how much visibility you have in terms of where these inventories are and whether or not you can be firm in your assessment that, yes, by the end of Q3, this problem is really solved.

We don't have perfect visibility, right? Like we don't have the inventory that's in the channel, but we're heavily engaged with the channel. So I think we get a lot of indications and sharing of certain numbers, particularly with -- in the larger areas. So I mean I think we do have some pretty good visibility. And yes, the issue has been in both. Now in the general market, it tends not to be our product. I mean, I think they -- as you kind of went through supply chain, a lot of the channel would get their hands on anything that they could, right? So I think it's much like our business, people want to normalize their inventory. So as they work through the inventory and maybe destocking some other products that they wouldn't have bought under ordinary situations that don't kind of get -- they'll start to kind of drop those orders back with us and then perhaps move to some normalized level of stock with us. So that is kind of what we've seen in the marketplace. So and yes, with the change, I mean, I think they're carrying a little bit more of in maturity that they had in the past. But I think given where we see their growth plans versus what we think is in the channel. I mean, I think we do have a pretty high level of confidence that this is, by and large, all move through certainly by the end of the year. But largely by the end of the third quarter. So I mean, it will -- we think we got one more quarter to go here and then certainly becomes a nominal headwind versus what it's been in Q2 and what we see. I think will still have at the beginning of Q3.

When you're talking about a headwind here, has this destocking resulted in a headwind to your shipments to your realized revenues in the quarter? Or is this a headwind to your bookings and orders?

I would say both. Yes, because I think -- so we didn't touch on lead times. But I mean, I think, again, we've got a lot of brands in the world is still resettling to normalization. If you kind of look across much of our portfolio, we're back to very normal or reasonable lead times. They're still out a little bit in a few categories. So -- but let's say, for 80% of the portfolio, orders are starting to equal, sales kind of on a normalized basis.

Right. And that's kind of what I was trying to get at because if I'm looking at the last reported backlog data that you've given us for commercial food service at the end of '22, that was, call it, $755 million pre-COVID when lead times were normalized. I mean backlog was less than $200 million. So I'm sort of curious as to how you think about this dynamic towards 2023, where backlog is going to be exiting '23 as these lead times have normalized. And related to this, does this backlog burn then become a headwind for production because you have to normalize your own production into 2024?

Yes. This is Bryan. I mean, obviously, our -- well, our backlog continues to be, I'll call it, as an elevated level when you make those comparisons to pre-COVID times. I don't think I think you're getting after what's going to be the absorption impact from bringing down the backlog to what I would kind of say a normal level is. And we don't think that will have a meaningful negative impact on absorption. Certainly, we expect the new normal to be higher than it was pre-COVID times. Given inflation given our business is larger and how our relationships have changed with the customers, given the growth that they are still going through over the next coming years in terms of expansion just leads to ordering patterns that are more ahead of their need a delivery date than it used to be, right? So we're a backlog for, again, focused on commercial here used to be closer to a quarter of-quarter we'll still see where the new normal is. I'm not sure that we've know exactly yet, but I'll say I'd expect it to potentially be closer to half of a quarter in the backlog. And again, given our current backlog levels, given some supply chain challenges, in a few narrow areas. I don't think we're ready to yet say we are completely in normal times, but that's a little bit of an indication how I think things will play out over the next 12 to 24 months.

One final question, and I apologize for insisting on this, but I get this question a lot from investors. If I take what you just mentioned a moment ago, it sounds to me like by the end of 2023, clearly, backlog is going to come down relative to where it exited '22. Implicitly, what that means is that your shipments have exceeded your order intake for 2023. So is it fair for us to assume that demand just catches back up in 2024 and you won't have an impact on production. Or will you have to adjust production into 2024, again, if nothing else changes. Thank you. And I'll finish there.

Yes. I think it's the effect of normalization. So we are going to have a lower backlog as we exit 2023 than 2022. There was a lot of orders that got pulled ahead, and you would have had periods where our order rates significantly outpaced our shipments as you went through the last several years, right? So I mean, I think some of this has been, I'll say, normalized by our production rates. So as you kind of go through the back half of this year, backlog will normalize. The inventory in the channel will normalize. The order patterns will normalize. And I think we will fundamentally see order patterns and shipments that will kind of match the demand. So I mean, I think that's where we look at what's happening in the marketplace and the strength of what we see with us and the dealer channel, where we're at with the chains, certainly, some of the business opportunities that we are developing with new customer wins, new products, et cetera. So I mean, I think that's where we're -- and obviously, as I mentioned, the chains are healthy with their store opening plans. So I think that we believe yes, there are all these moving pieces that's kind of the world of disruption and supply chain that we've all lived through in the last several years. And we see that kind of being in a much healthier normalized situation going into 2024. So I think the backlog coming down is not necessarily headwind for us. And I think that backlog is still a healthy backlog relative to where we would have been in a pre-COVID period.

Appreciate the color. Thank you.

Next question is from Jeff Hammond of KeyBanc. Please go ahead.

Hey, guys. Good morning.

Good morning

Just want to, I guess, cutting through the destock noise? I'm just trying to get a better sense of underlying business momentum. The QSRs have kind of been blowing and going on new store growth. And talk about rollouts, just maybe update us on what you're seeing in real business momentum. And then again, I think concerns over tightening lending standards, what you're seeing on the smaller independent side around that?

Good morning, Jeff, it's Steve. So maybe I'll give you a couple of areas of what we're seeing just the underlying demand market. So you touched upon the large QSRs, which we've hit before. As Tim said earlier, we've been very close to them. And again, they've been very transparent around their new store opening pipeline, obviously, the back half of this year and even into the first half of next year. So they've really recommitted to those plans and so continue to see that really be a strong point of demand for us. Also seeing the change certainly still trying to solve for all the challenges that we've talked about over the last couple of years, whether it's labor, whether it's be a service et cetera. And I think that is driving adoption of new technologies, which I do think will lead to some rollouts as we get into the back half of this year and into next year, especially. Tim also talked about just the general dealer side of the business, which has been, I think, an area of focus more so than ever the last year. A big part of that has been we have more dealer trainings and dealer events coming through the innovation kitchen in Dallas, which I think has been a huge success for us. So allow us to get closer to the dealer market, which, again, I think does continue to do well for us, which I guess would lead into the last comment, you asked about the smaller independent restaurants, which really does fall probably more in that dealer side of the business. I would say, by and large, Jeff, we have not seen a lot of issues from a lending standpoint, causing issues and equipment demand. So we have not really run into that. And then I would just say maybe the last thing I've touched upon before, but I think it's an important one to note. We talked about change. We talked about the dealer business, the consultant side, of our business as well, I think is always a very good indicator of both short term, but actually the next 12 to 18 months of demand, whether it's around schools, institutions. And I think that is a segment, especially the last several months that we can track projects specifically that I think give us some pretty good visibility into demand in those specific areas, especially for 2024.

Okay. Real helpful, Steve. Just on the resi, it seems like maybe the snapback or the bottoming process is taking a little bit longer. I'm just wondering if that's destocking being deeper? Or is it something in the order rates? I think you mentioned UK, I know on the girls side trigger was kind of out to clearing victory on destock and their stock is bouncing. Just maybe frame what's different versus maybe previous expectations?

Yes. I think the residential market has been tougher this year, right? I mean I think interest rates continue to rise. Housing market has been a bit challenging. So I think generally, not that we were expecting a robust market. But I think some of the headwinds there have been a little bit more challenging as you kind of, again, think about the pace of interest rates in particular as you went through the front half of the year. So I think that in the UK, which is a big piece of our business in residential has probably been even a little bit more challenged than the US market. So I mean, I think those are some of the things that we've seen as we've gone through the front half, along with the destocking, which is, again, hits the grill business more than some of our other businesses, which tend to have a little bit more of a make-to-order aspect to it. So that being said, I do think we've seen things start to what we think bottom out. I think any time there's a lot of uncertainty and disruption, things kind of slow on in place, and that's been the case with residential. We've seen -- I'll say, some improving order trends as of late, particularly in our core cooking categories. So -- and also, I would say, the electric -- our electric products are as -- along with the market overall. And you can see we've got a lot of investment there with an exciting portfolio and certainly bringing some of the technology from commercial into residential there as well. I mean, those are areas of even some type of growth. So I think it's been a little bit more challenging, but I think we're also at the beginning of inflection, healthier inventories and outdoor a little bit of hitting the trough improvement. So I mean I do feel like Q3 certainly is going -- is the challenge. But I mean, I think we're -- we kind of see what's coming in Q4 a little bit as well. So I feel like we're approaching the turn there.

Okay. Thanks, guys.

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

Hi. Good morning, Tim and Brian. I hope you're doing well. So my first question is for the Food Processing segment margin, I think it was lower sequentially on the higher revenues anything unexpected happened there? How should we think about margins for food processing for the next two quarters?

Yes, this is Bryan. The second quarter margins are just impacted by just some of the nature of the mix and the projects that we delivered. I do think the second half of the year will be at least in line. And then as we get into the fourth quarter, trending better than we did in the first half of the year. So I think if you look at the first half of the year as a proxy for Q3, that makes more sense. And then Q4 always is stronger than the third quarter.

Got it. That's very helpful. And then I'm not sure I missed it, but where does your backlog stand for the commercial food and food processing segment today?

Yes. That isn't a specific number where we were regularly disclosing.

Okay. Fair enough. Thank you so much.

You bet.

The next question is from Larry De Maria from William Blair. Please go ahead.

Thanks. Good morning, everybody. I wanted to follow up on processing. I know you don't want to give an absolute backlog number, but can you maybe talk to year-over-year sequential processing order specifically? Obviously, there's some weakness in the market. Others are calling out. You mentioned some of it. So curious about the order levels and what kind of coverage do you think you have over the next few quarters? And since you, I think, called out that you think that the weakness is temporary. So I just wanted to get some confidence that that's going to look better into 2024 or not?

Yes. The backlog remains strong, I'll say, within, on a percentage basis, still within single digits of the peak, right? So I feel like we have very good coverage in many areas for the rest of the year into next year. But it is a business that I'll say that is mixed, right? We have some orders that come in that are for products that get delivered in one three months and then we have other projects that live in the backlog for 12 to 24 months. So certainly, last year and maybe into the beginning of this year, were periods of very robust orders and things with the interest rate environment have moderated. If I want to be careful with my comments here, it isn't like what we've gone from I'll say, good to bad. I think it's -- we've gone from great to still very good. But again, there are some pockets in there that are challenging as we look at the underlying besides the interest rates, the underlying food cost and what that means for customer margins and cause a couple of areas, as I noted to be a little bit weaker than others. But I guess, to put it all together, backlog still at what I'll call very high, very strong levels. We talked about some of the lumpiness of the business that caused me to say Q3 won't be the strongest Q2. But again, Q4 will be stronger. And again, I don't think anything has fundamentally changed for as kind of a general health of the business.

Thank, Bryan. And then I guess maybe a second question on processing would be are there larger potentially actionable M&A deals in processing out there? I know you're trying to get that up to $1 billion business. But is there a potential for larger M&A there? Or is it more likely to continue to pursue some of these smaller ones that you've done and have grown nicely.

Yes. So Larry, we're really not going to say, comment on -- I mean certainly, we work on M&A. That's been a 20 plus year history. So I mean I think I would just say that we see significant opportunities to continue to grow the platform, both through acquisition and organically. So I feel like there's still a long runway there.

Okay. Fair enough. If I could just sneak 1 more in here. Just to clarify. In commercial, we're seeing more concerns around destocking next year. But in the second half, are you underproducing versus retail specifically, I guess, mostly, if so, in the third quarter. I'm just trying to understand how you're planning on getting that -- dealing with the destocking versus the big backlog is so are we actually underproducing versus retail? And I'll leave it there Thanks.

Can you clarify what you mean by retail? I mean do you mean by dealer inventory?

No. I mean the dealer inventory and then their sell-through into the retail, the dealers selling into the end user. And are you going to underproduce versus the retail? Or we potentially if we don't, then potentially pushing the inventory issue out further, right?

Yes. So I think the answer to that is yes, we are. I mean I would say in both the first half as well as kind of what we talking about here in Q3 is that the sell-through, if you want to call it that, whether that's dealers selling to end users or maybe some of the supply chain that's in the channel that goes to the chains, we are underproducing and our revenues would be less than what we can believe is being sold to the end market, and hence, some of the destocking in the channel.

[Operator Instructions] The next question is from Walter Liptak of Seaport. Please go ahead.

Thanks, Good morning, guys . I wanted to ask about the -- in the resi business, some of your comments about the outdoor destocking and the seasonality, I want to make sure that I understand this. So it sounded to me like that's where you think some of the destocking has ended? And then if that's right, what's the seasonality here? Like if the orders have picked up a little bit, to fill in how does third quarter look? And then what -- how does the seasonality impact the fourth quarter?

Okay. So Yes, the sell-through has not been great, but the destocking is a greater impact, right, to our revenue, right? So like both our headwinds. So -- but the inventory is continuing to come down. The seasonality, you start to get an initial load in typically in the fourth quarter and then you kind of get into the heavy part of the grill season in the spring. So I mean as we've kind of gone through it this year, I mean, everybody has been a little bit off of their inventory levels. So that's all got to get to a normal level. So we kind of think that, by and large, is the case as you get to the back end of the year. And then in the fourth quarter, then you get into some load-in for the grill season going into the next year. Now we do think that retailers will be more conservative in that load in going into next year. So you may not be quite back to, let's say, where it was in the past. But as you start thinking about our comparatives, we really started getting hit with the grills in the fourth quarter of last year. So meaning there was massive -- there wasn't a load in there, it was destocking, right? So I think we're going to be largely work through the inventory, maybe not 100% because you got different brands, different retailers, different SKUs out there. But you'll have a lion's share of that behind you and then you will kind of move into, I'll say, maybe a conservative stocking season, and then that will kind of lead you to seeing what the growth season for 2024 looks like and probably healthier orders and sales in that period if you have a more normalized season. So that being said, also, I just -- we've had a lot of great new product launches, and they've been well received. I mean, they Konnected Joe, which James has highlighted a couple of times here, I mean, that's been kind of sold through. We're trying to keep up with it right now. So I mean, I think we've got the gravity connected series on master built as well, which we're very excited about. I mean I think we believe that we're the innovators with -- in the Charcoal category, which we believe is a category that will had some growth in the years to come, and we've got really a great suite of products with some added launches as we go into next year. So I mean, I think we've got some added floor space there with some deepening partnerships there. And we've also been expanding some of our, I'll say, digital marketing capabilities there. So I mean I think as you kind of look forward to getting into a more normalized Grill environment. We're very excited about the portfolio that we have. So we think we've got a long runway there.

Okay. That's great. Okay. Thanks very much. That helps. And then Brian, during your presentation, you called out the risk of Europe pretty clearly. But I wonder if you could just help us size how of Europe like how much is the UK versus the rest of Europe.

Yes. The UK is a strong majority of it. I don't have the breakdown right at my fingertips for the past quarter, but I'm sure it's in excess of half of the Europe's revenue for residential.

Okay. Great. All right. Thank you.

And the next question is from Todd Brooks of The Benchmark Company. Please go ahead

Hey, good morning, everyone. Thanks for taking the questions. First is on commercial. I'm just wondering and you've talked in the past about how the cycle now is very driven by the new unit builds that and we're talking more from the chain customer scale player standpoint. We're new build driven now, but eventually we shift to an upgrade replacement cycle. Just wondering if you have any thoughts on or from discussions with the customer with these larger chain customer is largely being in a much better staffed position from a labour standpoint and with commodity cost rapidly easing. Is some of the urgency for either specific pieces of equipment that would attack labor or food waste or more broadly, the upgrade appetite? Does it get slowed in the environment that we're in? Or do you think that the appetite is still as strong when you get to the upgrade remodel phase for the existing fleet?

Yes. Good morning, Todd, it's Steve. So I don't think there has been any slowdown in customers need upgrade to solve for challenges, specifically call out labor. I think I maybe give you a nuance. When we think about labor challenges in restaurants, there's a number of areas to think about. One, it is finding great employees, which has gotten, I would say, a little bit better over the last six months for restaurants. The cost of those employees, which continues to be elevated. I think the third thing I would call out, where we're actually seeing the adoption of some of these new technologies is actually the ease of actually doing the job. And the training that comes around with it, James hit the Taylor double-side grill. I think is a great example of this because working a grill, traditionally, it's probably one of the least fun jobs in the back of a kitchen, right? It's nuance. There's a little bit more of an art to it. another piece of equipment. So it's a high level of training. And obviously, you want to make sure you're cooking your chicken, your stake, whatever it may be coming off the grill appropriately and that's also a very hot and greasy position. So when you can move to something like the Taylor Grill where you're putting the product down, pushing a button and walking away, you're eliminating the training and that becomes one of the easiest jobs in the kitchen. So I'm giving you that as a nuance of even though parts of labor may be getting better, there are still major challenges that every restaurant faces in terms of labor and training. So and I think to answer maybe your second question, we still do see the new store builds, I think, continuing on a strong pace back half of this year into next year. And I do think you still have that pent-up demand that we've talked about, both in replacement and upgrade that I do think you start to see more of that kick in, certainly, the first half and well into next year.

That's great. Thanks, Steve. And then --

I think Steve answered it well, but I'm sorry, I'm just going to add it. So even though staffing has improved dramatically, turnover is a big issue, which kind of leads to Steve's point, right, because you get -- you bring people in and they're untrained, right? And it was always a major challenge. It's even a bigger challenge today. And I don't think most of the restaurant customers believe that is going away. So that's, again, where you need to have smarter, easier to use automated equipment. The other thing, which is maybe tied to that and you're kind of challenging you really need if you have labor. The speed of service, which has always been something we've talked about has come back in spades, right? I mean the -- as you think about delivery, drive-through more throughput in smaller footprint that is a major issue and a lot of customers today. So I mean I think a lot of the solutions that we have solved for that problem as well. So hence, there continue to seek out the automation.

That's great. Thanks to you both. And then just a final question. As you're looking forward at your commodity basket, what's the picture look like for A) availability through the supply chain, but B) are you seeing any early signs of relief that you'd want to point us towards that could be margin enhancing as we go through the back half of the year? Thanks.

Hi. It's James. I think by and large, we still see pockets of issues in supply chain, and they typically are around electrical items, some motors here and there, but also just kind of around the legacy controls where we've got kind of 10, 20 year old silicon on the board. Those tend to be the items that slow us down. The general availability of steel, copper, things like that, have been fairly strong. We don't see that as a headwind anymore. It's just kind of these nagging legacy components or specialty products that are kind of highly customized motors can tend to be a challenge. So that's kind of our guidance on how we see supply chain affecting us in kind of 24 pockets here and there, but generally good availability.

And any outlook on kind of cost for the core metals, things that have become more readily available as we are headed into '24.

I think we continue to see them at the levels they are or going down slightly.

Perfect. Thanks, James.

The next question is from Brian McNamara of Cannacord Genuity. Please go ahead.

Hey, good morning. Thanks for taking the question. I just want to circle back on Grills. I know, Brian, I think you had mentioned, I guess, selling a little bit below kind of what you were expecting yourself through. I'm just curious, do you think that's just primarily driven by simply brand awareness, like the checks that we perform, you talked to some of your retail partners and grills and half of the associates don't even know of the brands or know that they're in the store. I'm curious, to me, that sounds like an opportunity, but I'd love to hear your thoughts on that. Thanks.

That was -- this is Bryan now, but as Tim was talking about the sell-through before. I think on the Grills, overall, I mean, certainly, we are a smaller brand than some of the other ones that are out there. We think that gives us tons of growth opportunity. I mean we do look at stats around impressions and Internet traffic to our sites, and we are seeing really great trajectory of our brands. As Tim noted, the Konnected Kamado is selling through really, really well. But I think you get after. There is part of the reason we're in this space that there is still growth opportunities out there. There's still positive trends around charcoal and all the benefits that comes through that. So I mean, again, this gets after why we are bullish for things for a long period of time to come, separate from how to managing inventory levels over a relatively short period of time.

Yes. I mean I think the comment is -- I mean, I think it has been a softer growth season. If you listen to a lot of the major retailers in their calls right. I mean, I think that's true for a lot of product categories, right? It's not just the grills. So we are a relatively new brand, right? And we are expanding the awareness, and we do think that there's a greater attraction for innovation and some of the charcoal category. So I mean, certainly, you could talk to one or two, and we may be new on the floor, and we're not in every door yet as well. So I mean I think that's part of the growth opportunity as we're coming into retailers may who not be across the whole system, but we do expect that we'll show up in more and more locations in that system kind of as the inventories normalize and then that kind of provides an opportunity for them to display kind of what they would want to do on a go-forward basis. .

Thanks a lot guys. Best of luck.

Thank you

That is our last question for today. Now I'd like to turn the call back to management for closing remarks.

I'd just like to, once again, thanks everybody for joining us on today's call and we look forward to speaking to you after the end of third quarter.

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