Good day, everyone, and welcome to today's Third Quarter 2025 Middleby Corp. Earnings Call. [Operator Instructions] Please note today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to CEO, Tim FitzGerald. Please go ahead.

Good morning, and thank you for joining today's call. I'll begin this morning with an overview of the announced strategic review of our Residential Kitchen business before discussing highlights of the third quarter and for each of our business segments. As part of our efforts to drive long-term shareholder value, we've been undertaking a strategic review of our overall business portfolio. We continue to believe that our shares are significantly undervalued, and we're taking deliberate steps to close that gap, including with the planned spin-off of our Food Processing business targeted for the completion in the second quarter of 2026 and also through our significant share repurchasing activities. As we further continue to evaluate opportunities to unlock the value at each of our 3 industry-leading segments, we have embarked on a review of options to maximize the value of our Residential Kitchen business. This includes an evaluation of a range of options, one of which is a potential separation of our Residential Kitchen business. During the quarter, in connection with that review, we recorded a noncash impairment charge of $709 million. This is an accounting-driven valuation adjustment and does not reflect any change in our confidence in the segment's underlying strength. In fact, we believe our Residential business is positioned better than ever. We have a portfolio of iconic brands. We have invested in new state-of-the-art manufacturing centers of excellence. We are introducing new products with exciting features, and we have strengthened our team across the platform. While the residential market remains challenging, our business is positioned to benefit from a recovery. We intend to pursue options that will maximize shareholder value while benefiting our customers and employees. But please note, we will not be making any further comments on the status of this strategic review on the call. As…

Thanks, Tim. Looking back at the third quarter, we were pleased to see revenue, adjusted EBITDA and adjusted EPS performance all exceeding the guidance we initiated last quarter. I note that adjusted EPS was positively impacted by $0.15 related to stock comp. For commercial foodservice, despite market conditions that continue to be challenging, we delivered 1.6% organic revenue growth. Positive impacts we're seeing from general market, institutional and fast casual customer segments. We delivered $606 million of revenue and a solid EBITDA margin of nearly 27%. This would have exceeded 28% if not for tariff impacts. Customer engagement and interest in our leading technologies remain strong, especially in beverage dispense and ice products. At residential, on a year-over-year basis, we saw growth across our premium indoor businesses. Tariff impacts had a rather detrimental impact on outdoor products revenues and also pressured margins. Revenues were nearly $175 million, and our EBITDA margin was slightly below 10%. The cost impact of tariffs was a drag of more than 150 basis points on margins. At food processing, Q3 revenues exceeded $201 million, and our organic EBITDA margin was 21%. This would have been nearly 22% if not for tariff impacts. Margins were further impacted by geographic mix. The Q3 performance exhibited some of the short-term lumpiness that can sometimes be seen in this business ahead of what will be a rather strong Q4, especially across our brands serving the protein space and in automation solutions. We are experiencing a strengthening order rate and growing backlog. On a consolidated basis, total company adjusted EBITDA for Q3 was over $196 million and adjusted EPS was $2.37. As noted in our earnings release today, we recorded impairment charges of $709 million during the quarter to write down the book value of the Residential segment to its…

[Operator Instructions] We'll move first to Mig Dobre with Baird.

So -- gosh, there's a whole lot to talk about here, I guess. And maybe where I would start is with a question on just the strategic evaluation of the company more broadly. You've obviously told us that residential is now part of this review process. I understand you don't want to comment further. But the way I interpreted your statement, Tim, is to suggest that there's more to it than just the spin of processing, maybe strategic evaluation of resi. Is there something going on in commercial foodservice as well that maybe you're working on or that shareholders need to be aware of? And then for food processing specifically, I appreciate the time line. I'm curious as to how you're thinking about the management team that will be running this business? Anything that you can share with us procedurally in terms of the things that you have accomplished thus far in anticipation of this spin?

Yes. So I'll take the second one first. So as Bryan just kind of mentioned in his remarks, we have made significant progress, I'll say, in separating -- standing up the company. So we feel like we are on track. I know that there -- we've made kind of limited announcements thus far, but we do anticipate in the fourth quarter that we'd start shedding light on some of the things that we've already accomplished and the plans going forward, kind of along with maybe a little bit more details around the time line of execution of the spin in the first half of next year. So we do feel like we are in good shape and have line of sight of separating of the companies and remain excited about that. Yes. I mean, I think the -- as I said in my comments and said probably for a long time, we have 3 industry-leading portfolios. So we think they're best-in-class. They have highest margins, and they are well positioned with a lot of the strategic investments that we've made in each of those portfolios. So really, as we've kind of undergone this exercise, which started last year is really how do we maximize the value of those portfolios for the long term, make sure they all reach their full potential, and we think there's a lot of shareholder value creation there. So it's really a continuation of that process and kind of our long-term vision for each of those segments. So I mean you shouldn't read anything into commercial. Commercial, it's our core business. It's a phenomenal business. I think as we kind of go through this process, that will allow us to ensure that we've got greater focus on that segment and each of those segments. So I think the strategic review aligns with the journey that we've been on in each of those platforms for a long period of time.

Okay. Okay. That's helpful. Then my follow-up on commercial foodservice. I'm looking at the fourth quarter guidance, and there is -- if I'm doing the math right, it seems to imply an organic decline of somewhere around mid-single digit on a year-over-year basis and the business down sequentially. And from a seasonal standpoint, this is a departure from what we normally see in the fourth quarter being down, call it, mid-single digits sequentially. So I guess I'm curious as to what's driving that. It sounds like QSR is driving that. But the point here is that while we're looking at Q3, we saw a bit of a recovery, that's not carrying into Q4. So was Q3 unique in any way? Was there some demand pull forward or stocking or anything of the sort? And how do you assess the broader trends in this business, especially as we start thinking about 2026, is that going to be yet another year of erosion based on what you know thus far? Or is there any reason to be more optimistic?

I think Bryan can comment on the numbers. I'll start off and then kick it to Steve. I mean the markets are volatile, right? Like I think as we mentioned in the comments, like we are seeing strength in certain areas, and we're performing well in those areas. So the general market with our dealers, I think we're doing well there. Some of that is because of the investments that we've made over time. Other areas of growth, the emerging chains, retail. But QSR has been tougher, right? Like I mean I think you can look across the segment and what's been reported over the course of the year, not just this quarter with traffic, et cetera. So that -- we feel we're very well positioned in the QSR segment. I think our relationships are stronger. The pipeline of opportunities, the products that we've got approved were a meaningful part of what we think is the future plans that they have for, I'll say, operational efficiencies and menu development. But because of the market backdrop, you see different purchasing patterns across those chains, right? So I think that's what we've been challenged with and create some volatility from quarter-to-quarter, but it does give us optimism as we go into next year because of how we are positioned. And I think some of the things that we see them executing on strategically today are benefits, I think, that they will see in their business next year, and we're kind of part of those plans. So I'll say that's kind of a broader comment. Steve, I think why don't you...

Yes. Mig, I would just add on a couple of thoughts to comment on what Tim just said. Again, I think the chains, the QSR specifically that Tim said, obviously, have been challenged the last really 12 to 18 months. And as Tim said, I think the relationships that we have there continue to be strong. And I think as traffic in that space continues to be tough, it remains obviously challenged for the fourth quarter and probably into early next year. I think the positive is what you're seeing in the third quarter is investments we've made in other segments beyond just the QSR space that are starting to come through, the dealer segment, which Tim talked about. But I also want to highlight, as we think about emerging chains, there's a lot of focus in the U.S. There's a lot of focus internationally as well for us. It's a completely new white space that I feel like we're very underpenetrated in, and we've made a lot of investments in our people, in our innovation kitchens we've opened in Europe, both now in Munich and in Spain. And I think there's so many emerging chains in those spaces that probably many of us in the U.S. have not heard of that are big opportunities for us. So I think as we think about how next year unfolds, I think the dealer business, the emerging chain business, a lot of the fast casual space is very positive next year. And I think even though the QSR space remains challenged, I do think you're starting to see some of the QSRs even this quarter as they've reported, start to see some trend in the right direction. So I think QSRs as we get into next year, to answer the question, trend better. But I also think there's so much underlying demand in the other segments that we're just starting to see our investments pay off. And so I think that's why we feel good about next year, even though fourth quarter with the QSRs remains somewhat challenged.

We'll move next to Saree Boroditsky with Jefferies.

This is James on for Saree. I guess sticking with the commercial foodservice here, you just talked about like QSR traffic like remains a headwind. And like based on the data, that's kind of weakening further as of the latest data available. And in this backdrop, like what are the like non-traffic levers that can still drive sales among QSRs? Or is traffic the sole driver here? And how many periods of like traffic recovery would you need to see before chains kind of step up investment here?

Yes, James, this is Steve again. Good question. I do think traffic is certainly a major driver. And I think as traffic starts to inflect, I think that's when you start to see the QSRs pick back up, whether it's on new store openings or investment in the kitchen. I think one of the trends that we have spoken about that we're really seeing in the QSR space is, as they are challenged on, I would say, traditional traffic through the restaurant, they're all looking at how do I drive additional dayparts. A big trend there has been the emphasis around beverage. And I think you're seeing in the QSR space, concepts that you would never expect to have a premium beverage offering in their portfolio are moving towards that. And that is 100% to drive new dayparts. If breakfast is challenged, how do I get people coming in, in the afternoon between lunch and dinner as an example. That is very well -- we're very well positioned from that front because there's really no other company that can offer a full beverage solution that goes anywhere from ice to dispense, coffee, beer, water. And so if you're incorporating a new beverage platform as a QSR to be able to go one company that can give you the whole solution and support from a global standpoint is, we think, a very powerful proposition for our customers. But like that's how I think the QSRs are trying to overcome the traffic challenges is by looking at additional dayparts for traffic.

Got it. That's very helpful. And I guess on the guidance here -- on EBITDA guidance, can you kind of please walk us through like the contribution by each segment for 4Q, how you think about it?

We've provided the level of guidance that we're going to provide for now. So I don't have specific numbers for each segment. But I think if you do the math, I mean, there's not going to be significant deviations from where we've been currently.

We'll move next to Tami Zakaria with JPMorgan.

This is Alec Mcguire on for Tami. So my first one is on the tariff front. I was wondering if you're taking any incremental pricing for the latest Section 232 tariff announced back in, I think it was August. And if there's any additional color on how the customer reception on pricing has been in the industry across the board? That would be much appreciated.

Yes. This is Steve. Maybe I'll take the first pass, then -- and pass it around. Specific in commercial foodservice, again, our approach when tariffs first broke in the beginning of the year was to take a little bit more of a wait-and-see approach before we went announcing massive potential price increases as so many of our competitors did. So I think we were -- we tried to be very thoughtful to get as many facts and data to support pricing initiatives to offset the tariffs. So we did announce and execute a July 1 increase -- price increase within commercial that has as this year -- back half of the year has unfolded, obviously, comes through more and more. We've additionally spent a lot of time focused on operational initiatives, whether in-sourcing more and more into the U.S. or leveraging capabilities we have in facilities like Nogales, Mexico, where we have some in-house manufacturing, coupled with supply chain, just our overall supply chain leverage that we have from a broad base. So as this fourth quarter finishes up, we have expected to be covering the tariff impact from a cost standpoint through pricing and those other initiatives by the end of the year. And as you go through the other 2 platforms, residential is slightly more -- is more impacted than food processing just because of the grill platform in the China space. Food processing does not source as many components from the China space as well. So that's why they're a little bit less impacted. But really still across all 3 platforms, we have said since the middle of this year that our expectation was to be neutral in terms of covering the tariff cost impact through pricing, supply chain initiatives and operational initiatives, and we remain on target to do so.

Understood. And just a quick follow-up. I think FP appears to be seeing some improved market dynamics, realizing solid order growth in the quarter. But I was wondering if you could, I guess, share some additional color on what the key drivers were for improved conversion of some of those larger projects that are out there?

This is Bryan. I will address that one. As I noted, it's skewing a little bit more to the protein side of things as well as automation and washing type of solutions we have, I'll call it, adjacencies to just handling the proteins. You may also understand that we tend to be a little bit more exposed to red meats and dry cured meats and the like, and we're just seeing some greater investments coming together there. Having said that, there's a little bit of signs of some improvements on the bakery side as well. I will say we have seen good strength in snacks and are very happy with the performance that we're seeing in acquisitions made over the past year that address positive trends in things related to tortilla chips and prepared cakes and the like. But again, it's -- we're seeing further investments and I think some of our customers' confidence in the protein markets that we serve. Also benefiting some in poultry, too. Obviously, our exposure there is not significant, and that is an area we've noted for desire for growth and expanding our capabilities.

We'll take our next question from Jeff Hammond with KeyBanc Capital Markets.

I guess just on res kitchen, just I think when you did the food processing spin, you got a lot of questions on why not res kitchen. And just from your view, what's changed to kind of revisit that? And then just on the grill business, around tariffs. Just what are you doing or thinking about to structurally change your footprint going forward to kind of manage those -- that tariff issue?

Yes. So we did start moving some of our production from China to other parts of Asia and elsewhere. So that was something that we mentioned last quarter. So that actually is underway and being executed in the fourth quarter. So that will better position the platform going into next year. The slight reduction also kind of announced in tariffs here recently in China does help that platform as well. So we pick up a bit on the bottom line, but it also better positions us on the top line from a pricing standpoint going forward. Part of the outdoor platform is manufactured in the U.S. as well kind of on the premium end of things with the Lynx Grills. And certainly, we're continuing to evaluate opportunities to onshore some of the products there. Yes, I'm sorry. So Jeff, your first question, I mean I think that's been an ongoing review of the portfolio. And I'll say I'll probably just be repetitive with the comments I made earlier. I think we were looking at the portfolio holistically even as of last year that kind of led us to the sequence of activities and announcements, which has led to most recently, the announced review of residential.

Okay. That's helpful. And then just on food processing, margins have stepped down quite a bit year-to-year, and I think you mentioned mix and tariff and maybe you can spike that out a little more. But as you look at the pipeline and you look at maybe some of the incoming orders, how are you thinking about margins as we go into 4Q and as we go into '26 and the spin?

Yes. Jeff, this is Bryan. And I'll -- as I go through my comments here, I am thinking of things on an organic basis because obviously, there's always an impact of, I'll say, improving the operations once we've acquired them. So in terms of, I'll say, the year-over-year margin pressure because that's really what we're seeing, I think Q3 and Q4 are pretty close together, even with a little less operating leverage that comes through in Q3 given the volumes and also how -- there's a fair amount of our factories are in Europe that have different, I'll call it, work patterns in the third quarter. So we did notice a note -- and I'll say, in the neighborhood of 100 basis points of impacts from tariffs that we'll continue to try and work through on a cost-wise perspective. But there are also, I'll call it, market dynamics at play that are driving a pricing impact as well. So that would be the other factor, I would say. As we look into Q4 with the improving revenues and trends, we do expect the fourth quarter to be better than the third quarter. And as we take more of that medium-term outlook, as we do have larger orders and we're selling on return and the great benefits that we bring our customers, that does tend to be margin enhancing for us. There are actions we've been taking on pricing, whether it's on the parts and service side of the business or also making sure we're being responsive in how we manage pricing on the contract. So I think, again, given the actions we're taking, given the improving orders and backlogs, with that should drive a positive margin trend as we think about what may come in '26 versus '25.

I think just from a spend standpoint, I mean I think we're inflecting right now. So I mean I think it's a good -- we've got some momentum building as we go through the latter part of the year and the first half of next year. The pipeline has been strong. And now think -- now as orders convert, that puts us in a pretty strong position. And I think typically, that's going to be the biggest driver with margins. And I think then as Steve kind of talked about, we'll have overcome some of the tariff challenges as well. So I mean I think we feel like it's a pretty good setup for the first half of next year as we start to execute on the spend.

[Operator Instructions] We'll move next to Tim Thein with Raymond James.

I've got 2, if I may, on the commercial business. The first, just thinking back to the framework we talked about a couple of years ago with respect to kind of what's going to drive EBITDA or what can drive EBITDA margins in that commercial business, sales mix was one of the big levers that we saw. And obviously, you fast forward and the volumes quite haven't come through probably like we expected. But I'm just curious, as you kind of revisit that and think through that technology and automation was highlighted earlier. So presumably, that continues to be an emphasis. But I'm curious how that -- how kind of that has developed in terms of -- as a catalyst to support margins, but also the emphasis and the strength in ice and beverage. I'm just curious, I'm assuming that would be additive or kind of supportive of that sales. But not sure given that -- given the growth in that channel, is that a fair assumption, i.e., it is favorable to mix. So we'll start with that one, please.

Yes. So you are correct. That has been part of the strategy to expand our margins, right? So as we went through, I'll say, kind of post-COVID, we've cut a lot of SKUs that were lower margin. We've launched a lot of new products. Those new products, we still expect to be a big part of the future, yet to be seen, although certainly, we've gotten traction and there's been announcements of wins that are out there. We see that as continue to be a building pipeline, both to drive automation and efficiency in the kitchen in our core cooking categories as well as new market share gains in categories that we've not been, which is the ice and beverage, and we think those are both attractive margins and will be margin accretive over time. Ice and beverage is still -- it's relatively large now, but it's still a new part of Middleby, and it's got slightly lower margins than the hot side, but they're kind of mid-20s. So they're very attractive and expanding. And as a lot of the new products that James has highlighted on calls come out, we think those are going to be pretty attractive margins kind of as we go forward. As you kind of think about the immediacy, right, like we're, I'll say, holding serve as we're going through all these tariff challenges as well, right? Like those are not insignificant. So there's a lot of puts and takes as we kind of go through the current period, but I think we're well positioned for the next several years as a lot of these new product initiatives, I'll say, come online with our customers, which we feel pretty confident with.

Got it. Okay. And then just can you update us on the backlog in that business and where -- I don't know where the end of the third quarter, where you're expecting to end the year? And just thinking if that's supportive of kind of the earlier discussion as whether or not '26 could be a growth year? Just maybe put that order backlog in the context of where you normally operate into a fiscal year.

I mean backlog is pretty short in that business. So I mean I think we really look at kind of the pipeline of opportunities and how we're pretty close with the customers, both our dealer partners and the chain. So backlog is really not the measurement for the commercial business.

[Operator Instructions] We will take a follow-up from Mig Dobre with Baird.

And -- I just want to go back to commercial foodservice. And you talked about some areas of growth. You talk about international, for instance, as being an area of growth. There are portions of your business, however, that are challenged. And I guess I am wondering, as you're conducting these strategic reviews and you think about growth through the cycle as it were, how do you separate what is cyclical in compressing the growth in your -- in this segment versus what may be more structural in nature? And how do you think about adjusting the portfolio? Do you have the right portfolio in this segment to ensure a return to more sustainable long-term growth? And if the answer is no, that adjustments are needed, what are some of the things that you're contemplating in this regard?

Yes, Mig, this is Steve. I'll take a first crack at it. I think, I think about it in the portfolio in 2 ways. So I'd say, okay, what is the core part of the commercial portfolio that are, again, the core brands that have been part of the portfolio for the last 15 and 20 years that I think support -- I don't know if it's the cyclical growth, but just the core growth that has kind of built Middleby Commercial Foodservice to where it is today. So like I think you have that core platform that I think as we work through these macro backdrops that we've had to navigate whether COVID or supply chain, now tariffs, I do think will support sustainable quarter-over-quarter growth. I then think as we have expanded the portfolio into the new categories that are going to drive growth beyond the core, I think that's where the secret sauce is going to come from. And I think that's what has not been unlocked yet. And I think those, again, are all the categories that we keep talking about, around beverage, ice, automation. And we're such early days, I feel like in those platforms. But -- so I think that we do have the right portfolio because, again, I think we are uniquely positioned that we're the only company that has both of those pieces to it, but the core business and I think the right pieces from products, from technologies that support exponential growth in years to come. So I don't know if it's quite answering your question, but I think the answer is yes, we have the right products in the portfolio. I think we've appropriately added over the last 5 years throughout all this disruption, the right products to the portfolio for when things really get going after, hopefully, the macro backdrop is a little bit more favorable.

I just -- yes, I mean -- and I'll maybe round that out, and it's a little bit repetitive. But I mean, I think a lot of the things that we have talked about with innovation and new investments are around categories that we do think are the longer-term growth drivers in food service, right? So in cooking, you've heard us, we focus on in ventless, we focus on electrification. We see the industry moving to digital, right? So we've invested in a control platform across our portfolio. We've combined that with IoT, which we think we've got long-term significant benefits, right? And that actually cuts across our core cooking portfolio. So we are trying to position where we see the long-term trends and growth and then expanding into the faster-growing categories. That is why we've selected ice and beverage, right? And you can see those trends with our customers. So we've kind of been very specific in the areas that we've invested in and emphasized and shifted to. So I mean I think that's why we feel the portfolio is well positioned, and we'll continue to evolve that thinking. And I think it's a good question. We've always got to go back and review the portfolio in its entirety. But I mean, I think the big levers and themes, those are the areas that we've gone after. And I think that's why we've got a very unique portfolio that is very well positioned as we kind of go through the next 3 to 5 years.

And it does appear that there are no further questions at this time. I would now like to hand it back to management for any additional or closing remarks.

Thank you, everybody, for joining today's call. We appreciate it, and we will speak to you next quarter.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.