The Middleby Corporation (NASDAQ:MIDD) Q4 2023 Earnings Call Transcript

The Middleby Corporation (NASDAQ:MIDD) Q4 2023 Earnings Call Transcript February 20, 2024

The Middleby Corporation beats earnings expectations. Reported EPS is $2.65, expectations were $2.44. The Middleby Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for joining us for The Middleby Corporation Fourth Quarter Earnings Conference Call. With us today from management are Tim FitzGerald, CEO; Bryan Mittelman, CFO; James Pool, Chief Technology and Operations Officer; Steve Spittle, Chief Commercial Officer; and John Joyner, Vice President of Investor Relations. We will begin the call with comments from management, then open the line for questions. Instructions on how to get into the queue will be given at that time. Please note, this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead.

Tim FitzGerald: Good morning. Thank you for joining us today on our fourth quarter earnings call. As we begin, please note, there are slides to accompany the call on the Investor page of our website. We are proud of the accomplishments The Middleby team delivered across the business in 2023. The year proved once again to be challenging marked by supply chain disruptions, inflationary costs, and the impact of interest rates, presenting operational challenges across all three businesses, and materially affecting the demand in our Residential business. Our teams focused on delivering every day for our customers while executing on our long-term strategic growth initiatives and delivering the strong financial results we reported for the year.

We’re pleased to have closed 2023 with a record EBITDA eclipsing $900 million, record operating cash flows exceeding $600 million, and significant — made significant progress towards the long-term profitability goals we’ve set out, achieving combined Company margins which expanded to over 22%. While delivering the financial performance for the year, we have continued to remain focused on investing in and advancing our strategic initiatives, launching industry-leading innovations in customer-focused solutions, developing our highly differentiated go-to-market capabilities, and investing in our operational capability to support profitability and growth. In 2023, we brought to market an exciting pipeline of innovations addressing operator needs and customer demand for automation, energy savings, labor reduction, speed, simplicity, and flexibility.

We expanded our offerings of electrified energy-efficient and ventless equipment. We launched our Middleby OneTouch control now across many of our commercial products. We furthered our lineup of integrated full-line solutions providing for the latest in automation for customers of our Food Processing Group. And we made significant strides expanding our offerings of IoT-enabled products now launching in the marketplace. Across all three of our Foodservice businesses, we enter 2024 with a portfolio of customer-focused solutions, positioning Middleby as the innovation leader with offerings to address the current and future trends of the market. In 2023, we continued to invest heavily in our go-to-market capabilities that we believe are uniquely positioning us for the long term.

We’ve made great progress developing our digital sales and marketing capabilities. We’ve expanded our Culinary and Food Science teams that engage with our customers on a daily basis, and we have deepened the partnerships with our strategic channel partners. The investments we have made in our innovation centers continue to prove to be a strategic asset for our businesses. With successful new additions in 2023 of our Middleby Innovation Kitchen in Madrid, serving our commercial customers internationally, and our Middleby Residential Showroom in Chicago, featuring exciting offerings across our Residential brands. Engagement at our innovation centers continues to be meaningful and is providing benefits across our Commercial, Residential, and Food Processing businesses.

In 2023, we continued to make smart investments in our operations with over $80 million invested in factory automation and facility expansion to bolster profitability initiatives across our businesses and support growth opportunities in our brands. In 2023, we were pleased with the improvements in our overall profitability as we progressed towards our longer-term margin targets. We are benefiting from our focus on new product innovation to drive improved profitability in our sales mix. We are realizing efficiency gains reflecting the impact from our manufacturing investments, and we are focused on long-term supply chain opportunities with ongoing product design and sourcing initiatives, providing for additional Op improvements over the course of the next year.

Market conditions remain challenging as we begin 2024, and while inventory destocking is largely behind us, the housing market remains difficult, and customers in our Commercial and Food Processing segments are cautious given uncertain — uncertainty and macro conditions and challenges facing their businesses in the start of the year. Despite what may be a slow start, we are optimistic on the year as we expect improving market conditions for the residential market as we progress through the year, with significant long-term growth opportunities ahead as the market recovers from the current disrupted lows and returns to normalized levels. And we have a building pipeline of opportunities with our Commercial and Food Processing customers, which we expect will gain momentum as they execute against their established growth plans as we continue through the year.

As we start 2024, we’ll continue to focus on business execution, driving profitability and cash flow, while executing on our strategic initiatives that we continue to build upon our growing competitive advantage at each of our three industry-leading Foodservice businesses. Now I’ll pass the call over to James to spotlight some of the exciting things that we have in store at the upcoming Kitchen and Bath show which is at the end of this month in Las Vegas. It’s a great opportunity to see all our latest in products, designs, and technologies across our entire portfolio of leading indoor and outdoor brands. We’ll be featuring a record number of innovative product launches and some — and demonstrating all the exciting things we have to offer across the portfolio of our Residential brands.

James?

James Pool: Thank you, Tim. I’m proud to start off the call with an affirmation of Middleby’s commitment to innovation. Each year, the National Restaurant Association with applications for manufacturers for their best innovations in Commercial Foodservice launching in 2024. The awards are known as The Kitchen Innovation Awards, and the winners are displayed each year at the NRA show. The NRA show is May 18 through 21st. Without giving too much away, I’m pleased to announce that Middleby has garnered a large percentage of the 25 honorees, aka, winners. And while I’d like to share all the Middleby product honorees, I must wait for the National Restaurant Association to publicly announce the awards tomorrow. Please check Middleby’s various social media channels for a list of all Middleby’s winning innovations upon announcement.

Now, per Tim, let’s shift our focus to the Kitchen and Bath industry show which happens next week in Las Vegas where Middleby Residential is set to make a statement. Referring to our slide deck, you will see a selection of new design and innovations Middleby Residential is showcasing. Our expansive booth will display 250 Middleby appliances representing 16 different Middleby brands. It’s worth noting that the majority of these 250 pieces will be seen for the first time in KBIS. From indoor to outdoor cooking, grills, ventilation, ice, and refrigeration, Middleby Residential has the most comprehensive lineup of premium appliances in the industry. We are also excited to announce two entrants to the U.S. market from our well-known European brands Novy and Josper.

Novy’s elegant and highly innovative induction, surface cooking, and ventilation products, bringing modern European design to Middleby’s Residential U.S. lineup, while the Josper Casa brings the ultimate Michelin Star cooking experience to Middleby outdoors in your backyard with their Spanish charcoal ovens. While I can’t go into every product in the deck or on display KBIS, I’d like to highlight some of the design and technology themes that will be on display. First and foremost, color has become an integral part in Middleby’s DNA. We are expanding our color offerings across Middleby Residential with the introduction of 20 luxury colors from Viking range, eight colors from Lynx grills, as well as the introduction of Lynx’s premium outdoor kitchen cabinetry will be offered in the same colors.

While our iconic brands such as AGA and La Cornue have always celebrated a rich history of color. Viking and Lynx’s new colors offer designers and architects the ultimate power of expression for their clients. Lastly, we are unveiling the AGA ERA which is a complete modern makeover of our classic AGA cast-iron cooker which has been a staple in European homes for centuries. From a technology standpoint, induction will share the stages and Middleby booth. Each Middleby cooking brand will showcase their newest induction products, demonstrating Middleby’s commitment to electrification. We firmly believe our induction cooking will be rapidly adopted by consumers. With Middleby’s commitment to high quality and high design, people will experience the remarkable speed, precision, and efficiency that our induction appliances bring, allowing them to rapidly embrace electrification in the most positive of ways.

Continuing on with our innovations, connectivity remains a focus for Middleby. In our outdoor section, we will — we are displaying our full line of connected digital charcoal products from Kamado Joe and Masterbuilt, including the new premium connected Masterbuilt’s Gravity Series grill, the XT. At Viking Indoors, we are introducing our new contemporary REVEAL line, which I previously discussed on past calls. The REVEAL single and double wall ovens feature our new connected and guided cooking platform, VikingCloud. By simply connecting the REVEAL oven to the VikingCloud app, you can enjoy a connected culinary journey. The VikingCloud provides complete control of your REVEAL oven. You can browse through a wide range of recipes, select your favorite, and the app will guide you step-by-step for the cooking process while sending instructions to your oven along the way.

The app will turn your oven on, will notify you when you would — when you’re oven is pre-heated and of course when your food is perfectly cooked. Moreover, our AI-powered tool in the app allows you to transform any recipe on the web into a step-by-step guided cooking experience, just like the recipes from Viking. This innovative feature let you take control of the Internet for a never-ending culinary journey with the REVEAL. I encourage you to visit the Middleby booth at the Kitchen and Bath Innovation Show — Industry Show to witness these market-leading designs and innovations first hand. Thank you, and over to you Bryan.

Bryan Mittelman: Thanks, James. One year ago, I noted that when I thought about 2022, one word came to mind and that was records. I also reminded everyone that records are meant to be broken, and we plan to make that happen in 2023. Well, mission accomplished. For 2023, we delivered record sales, record earnings, and record cash flows, and we plan to do more in ’24. While I think that could to sum it up very well, I won’t refrain from digging a little deeper into ’23 and touching on ’24 as well. For 2023, we generated record revenues that exceeded $4 billion. Our adjusted EBITDA exceeded $900 million, representing a profit margin of over 22%. Our margins expanded over 100 basis points from ’22. GAAP earnings per share were $7.41.

Adjusted EPS, which excludes amortization expense and impairment charges, non-operating pension income, as well as other items noted in the reconciliation at the back of our press release, was $9.70, up over 6.5% versus 2022. We achieved this while facing especially challenging market conditions in the Residential segment. While I don’t enjoy about — talking about red numbers, but I believe doing so here helps put in context how much we have accomplished. We delivered solid results, even while Residential saw a nearly 25% decline in revenues. As a result, our top-line growth for the Company was nominal yet we grew our adjusted EBITDA 5.5%. We also more than doubled our free cash flow. We are focused on operational excellence. We are focused on innovation.

We are focused on our customers’ needs. We have invested and we’ll continue to do so in all these areas. These investments are generating returns. You can see that in our results. But even while we invest, we also focus on driving strong cash flows and continually expanding our margins. We earn these margins by being leaders in innovation and having best-in-class solutions across our entire Company. We manage costs well. We have a deep understanding of our customers’ needs and have deep relationships with them. All this drives our differentiated results. And we plan to do more in ’24. You’ve seen that for the fourth quarter, we generated revenue of over $1 billion and record adjusted EBITDA at over $235 million with a profit margin of 23.3% or 23.6% on an organic basis.

Q4 GAAP earnings per share were $1.42. Adjusted EPS was $2.65. In Residential, we saw an organic revenue decline of nearly 15% versus 2022. The adjusted EBITDA margin was 10%. Commercial Foodservice revenues globally were down 2% organically over the prior year, yet the adjusted EBITDA margin was over 29%. By the way, all the margin values I will discuss are on an organic basis as well, meaning excluding any acquisitions and FX impacts. Given the volatility that can exist when looking at quarter-to-quarter results, I find it more insightful to examine where our businesses stand by looking at full year results. Organic revenue growth for this year was almost 3%. Nonetheless, we expanded our organic margins by approximately 200 basis points to over 28% in Commercial.

In Food Processing, total record revenues for a quarter were nearly $192 million. Our adjusted EBITDA margin was 27.6%. Looking at the full year, our organic revenue growth of nearly 11% helped expand margins by over 300 basis points to over 25%. And that looks like success to me, and we will not be stopping here, we will continue to reach higher. I’ve hopefully made it clear that in the face of rather challenging market conditions impacting Residential, and we are not facing an easy environment by any means in any segment, we are delivering some of our best results ever. You can see this in our cash flow too. Our operating cash flows were over $255 million for Q4, and nearly $629 million for all of ’23. Our free cash flow conversion was around 180% for Q4 and 120% for the year.

Looking forward, we expect that our cash flow generation should grow and likely achieve at least the same level of conversion again in ’24. Our total leverage ratio is now below 2.5 times. So, to sum it up, strong P&L, strong cash flows, strong balance sheet. So, where do we take the powerful Middleby culinary universe from here? Let me start with a quick view on Q1, and then provide some commentary on our outlook for ’24 in whole. Taking a historical perspective, recall the Q1 results overall typically take a step down sequentially from Q4 across all our segments. I know there is much attention on the challenges Residential is facing and as we look to the start of ’24, we unfortunately do not yet see improving market conditions in this segment.

Looking at Q1 of ’24 versus the prior year, we will see a revenue decline in Residential. In the beginning of ’23, we were still benefiting from fulfilling orders and the then larger backlog. Our margins will also be a little challenging to start ’24, given the impact of attending the KBIS show this year. For the other two segments, results of Q1 ’24 will likely be similar to those seen in the prior year quarter. When you put this all together, from a total Company perspective, Q1 of ’24 will be behind Q1 of ’23 due to declines in Residential and relatively flat performance in the other two segments. As we progress through ’24, across all the segments, I expect to see sequential improvements. Let me expand on those thoughts for the full year ’24.

Starting with Residential, as James noted, we are innovating and expanding our product offerings. We have built an outstanding product portfolio. We are positioned well for long-term growth and thus we’ll return to and ultimately exceed prior profitability levels. But given what we are seeing in the economies where we operate, it is hard to offer a specific outlook, but there are some signs of potential improvement that we hope to materialize in the second half of ’24, but we may not see progress until ’25. We will have to see how housing markets, mortgage rates, and remodeling activity progress. I will reinforce that we remain profitable and at levels well ahead of other public appliance companies. We are poised to continue to grow our market share and thus grow our revenues and expand our margins.

Across Food Processing and Commercial Foodservice, looking at full year ’24, we expect to see organic revenue growth over ’23. Food Processing had an amazing year in ’23. Total revenue growth of over 22% and we jumped our revenue to above $700 million. We have delivered our target margin. The opportunity set in front of us remains very large, really as big as it has ever been. You’ve seen over the past few years how our best-in-class individual solutions have become integrated full-line solutions that resonate with our customers. These customers are facing labor shortages and margin pressure. They need highly efficient and reliable equipment. Our automation benefits them greatly. And as we help them improve their operations and profitability, we will see continued growth in our revenues, hopefully at least mid-single-digits as we look across ’24 and the potential for modest margin expansion as well.

Onto Commercial, where our growth is a result of our strategic investments in broad capabilities. We are targeting higher organic growth in ’24 over the almost 3% we saw in ’23. We should also get closer to our target margin of 30%. We’ve often talked about how our beverage and dispensing platform is still relatively new to Middleby, yet represents about a third of the segment. It will drive outsized growth in ’24. Some of my favorite drinks from a large coffee chain are now being served over Follett’s nugget ice. Newton and its revolutionary valve may be small, but they are definitely mighty. They are making a difference in many ways. And I could go on about Wonder Bar, as well as Marco and our Coffee Solutions Group. But come see us at the MIC or at the Specialty Coffee Show in Chicago in April to see and taste for yourself.

But ’24 and beyond are looking strong. In our stalwart, the hot side is not cooling off. Our customers are growing their operations and they need our newest solutions. Just flip through our quarterly presentations to remind yourself of what we have been up to. But automated, energy efficient, easy to control, internet-connected, fast solutions abound. So, take your pick. Are we cool? Are we hot? I like to think we have it all. For ’24, we intend to deliver organic revenue growth, higher margins, and profitability growth at rates in excess of our revenue growth. We will continue to improve our working capital management and have strong cash conversion. Free cash flow will be up too. We are doing all we can do to earn the trading multiples we deserve.

So, while ’23 was another year full of challenges for Middleby and our most successful year yet in many respects, EBITDA over $900 million, operating cash flow over $600 million, leverage now below 2.5 times, but we are never satisfied. We are constantly pushing, but we are also extremely proud of what we have built and what we deliver. And we plan to do more in ’24. Alright, Andrea, will you please now open the line for questions?

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Mig Dobre of Baird. Please go ahead.

Mig Dobre: Thank you for taking the question. Good morning, everyone.

Tim FitzGerald: Good morning, Mig.

Steve Spittle: Good morning, Mig.

Mig Dobre: I guess my first question is on Commercial Foodservice. If I understand — and I guess there is two parts to it. If I understand the guidance commentary, we’re starting a little bit slower here, maybe flat year-over-year in terms of revenue. But if you expect to outgrow relative to ’23 for the full year, that implies pretty significant acceleration and growth, maybe like 5% or thereabouts, if my math is right, for the rest of the year. So, I guess I’m curious, what gives you the confidence that we’ll be able to see that kind of growth for the remaining of — remainder of ’24? And related to all of this, I know we’re going to get this in a 10-K, but can you talk a little bit about your backlog in this business exiting ’23?

Steve Spittle: Mig, good morning. It’s Steve. Maybe I’ll take the first crack at your question. Just kind of what gives us confidence in the year overall? I come back to three things, I think specifically, that we’ve talked about in the past. So, if you look at the big chain customers, especially, getting back to the new store development, which was certainly lacking, going into COVID, it was pretty weak. So, we’ve seen that pick up, obviously, the last call it two years. I do expect new store openings to continue this year. The chains that we worked very closely with have all reiterated, recommitted to their new store opening plan, still working through challenges around some construction labor permitting, but by and large, their total new store — net new store openings for the year, they’ve committed to.

So in my opinion, that is, if you roll that up, is ahead of ’23 from a new store development pipeline. So, that’s kind of point number one. Point number two, all the challenges that we’ve talked about over these last several years, whether it’s labor, dealing with the utility costs, speed of service, consistency, take your pick on the challenges, they still have to solve all these. And you’re seeing the chains, especially, I think being very focused on their franchisee efficiency and franchisee profitability. So, you’re seeing the chains invest more and more in these areas, knowing they have to keep the other franchisee community happy. So, I think you’re going to see that continued investment in those areas. And then point number three, which we’ve talked about in the past, I still think we’re substantially behind on a replacement cycle.

The chain’s been so focused on new store openings after trying to get through COVID, they have really not focused on going back and replacing and upgrading equipment in their locations. I think that’s true. Obviously, we focus a lot on chains, but you go through a number of the segments, it’s true in all those areas that I think we’re way past due on just a general replacement upgrade cycle. So, when you kind of layer those three together, Mig, again, new store openings, still have to solve for all the challenges of what’s going on in the store and a deferred replacement cycle, I think that’s what gives us confidence in the market and growing it for this year and certainly in the years to come.

Bryan Mittelman: And then Mig, this is Bryan. Regarding the backlog, obviously, we have consumed a good amount of it this year, and we’ll be disclosing that next week in the 10-K. As you noted, we’d say that the backlog is pretty much at, well, consider normalized levels now. But we also have seen some positive trends over the past, I’ll say over the back half of last year and even in the start of this year on orders and backlog is trending modestly, but even up a little bit to start the year. So, and when you put all that together, what Steve was talking about, what we’ve seen in some of the data points I’ve noted what we’re engaging with customers on, what we have underway with them is what gives us the confidence that has underlined our comments.

Tim FitzGerald: And just to round it out, as you kind of think about the year and the backlog, we came in with a lot of backlogs. So there’s a lot of shipments in the first quarter. We talked about the inventory destocking. So then as our channel partners really worked down their inventory in the back half of the year, that’s been a little bit of a headwind in Q3 and Q4, but that goes away as we kind of look at comparatives in the back half of the year. So one of the reasons I think was just the underlying activities Steve talked about, and then the lack of the headwinds in the back half of the year. Because our orders on Commercial were actually up in Q3 and Q4, but that’s obviously not how revenues were as we continue to kind of face the destocking.

Mig Dobre: Okay. That’s helpful. Thank you. Then my follow-up is on Residential. And just the way you kind of framed ’24, I don’t know, maybe a little bit slower than what I was hoping for or what I was thinking. And — but the question here also on visibility and sort of what needs to happen here, it sounds like you actually need to see more of a recovery in the housing market and lower interest rates in order for this segment to start growing. And maybe the question on margin here more so than anything else, what sort of volume do you think or revenue do you think you need in this segment in order to be able to achieve your 25% target? Thank you.

Tim FitzGerald: So, I’ll start off and then I’ll let Bryan kind of hit that second part. Yes, I mean, I think certainly we were hoping that the housing market would start to be a little bit more robust. And I think the good news is we’ve bottomed out. It’s a pretty low bottom, right? I mean, relative to the last decade-plus, I mean, it’s pretty much the worst housing market that anybody’s seen in a long time. And obviously, the interest rate hikes were very significant in the middle of last year. So, that’s not that really long ago for the market to absorb all that. We saw a little bit of signs late in the year. The beginning of the year is a bit softer. So, we’re kind of bouncing around the bottom. Our Residential orders also were positive in Q3 and Q4, relative to last year.

But again, we had worked down the backlog from a revenue standpoint. So, I mean, I think we are seeing improvements. It’s just that we’re looking for a big step up in improvement where things kind of move, start to back to more normalized levels as kind of versus slight improvements off of the low. So, I think we’re confident that we are going to see improvement as we go through the year. I guess the question is when is that better inflection point happen? But we do think that we will see some more meaningful step up in the back half of the year based on industry stats that we look at. So, Bryan, maybe?

Bryan Mittelman: Yes. No, Mig, hey, it’s Bryan. Regarding the margin side of things, if I look back to ’22 when we were over a billion dollars in revenue and our margins were in the high teens and we had a [Technical Difficulty] fully benefited from the cost actions and [Technical Difficulty] again. So I think if you put that all together, we’d hope to start to be again closer to the high teens or 20% around a billion. Again, that’s just using past results as an indication of things going forward. And then we’re making ongoing improvements in our businesses in a variety of ways. But let’s — I think the short answer is that first digit of the revenues needs to be one, we’d like to be over the billion dollars level to start releasing things, jump up nicely from the volume contribution of margins.

Tim FitzGerald: Maybe just to kind of add some color and pick it apart. I mean, you’ve got a lot of bigger pieces there. I mean, Viking had — historically, we’ve gotten it well into the 20% margin. So, it’s certainly fallen below there, but we’ve been operating at a long point in time well into the 20%s. AGA, which we bought the company, it was at 3%. We had — we’re just coming on to 20% and we’ve made significant investments at AGA over the last three years as we’ve gone through COVID. So, as it emerges, we have not only better, exciting products, but we have a much better cost base. So, I mean, there’s kind of a built-in margin improvement for AGA in outdoor, obviously, which has been challenged like all the rest of Residential would make — the team there has made significant progress in consolidating the platform around logistics.

And we have a lot of new, exciting products that James touched on in the past and even in this call, they’re coming out that brings the higher price points into the specialty market. So, kind of structurally, so, A, we’re getting back to what we’ve already proven in the past and then structurally we’ve made improvements to the business while we’ve kind of gone through this period. So, we’re pretty confident that margins get to be to a pretty attractive place in a normalized market.

Mig Dobre: Alright, appreciate it. Thank you.

Operator: The next question comes from Saree Boroditsky of Jefferies. Please go ahead.

Jae Hyun Ko: Hi, this is James on for Saree. Thanks for taking questions. So I just wanted to kind of stick to inventory de-stocking that you talked about in the Commercial Foodservice again. So, you noted that the orders were actually up in 3Q and 4Q. So, can you kind of quantify or give some level of magnitude on the headwind from de-stocking in 2023? And do you expect de-stocking to continue into 1Q or is the de-stocking done in 4Q of 2023? Thank you.

Tim FitzGerald: I think it’s very difficult for us to quantify. I mean, I think we would venture to guess it’s tens of millions, but there is — we know from discussing with our channel partners, they had a lot of inventory. It was not only Middleby inventory. A lot of dealers are trying to get with long lead times in the industry, any product they could get. And then there was concerted effort across many of the partners to work that inventory down in the back half of the year. So, I know it impacted us and it’s really hard to quantify it. I mean, I think the indications that we’ve had by and large is that it is out of the system now. I mean, certainly, there may be some minor pockets left, but we don’t view it to be in the same vein of the headwind that we had in the back half.

Jae Hyun Ko: Got it. And kind of sticking to Commercial Foodservice again. So, one of your competitors talked about like weak restaurant performance. So, can you talk about what you’re seeing in the restaurant market and your expectation in 2024? And can you kind of give us an update on your progress in growing the institutional side of the business? Thank you.

Steve Spittle: Yes. This is Steve. I would go back to just kind of some of my opening comments. I’m probably more positive on what’s going on in the restaurant segment broadly. Yes, there are some tough kind of market backdrops, if you will. But again, going back to large QSRs, opening new locations like they haven’t done in the last 10 years. So, I think that’s very encouraging. I think again, you see a lot of large chains being very focused on helping their franchisees’ profitability, grow their unit economics, that will always come back to be very favorable for us because everything we do for them from an equipment standpoint helps solve those items. I think the institutional side of our business, whether it’s schools, healthcare, those have been good areas for us.

I mean, schools primarily have been a good area, but it’s not as predominant as the large chains, pizza, C-stores, retail. When you think about segments of our customer base, the institutional side just isn’t quite as big as some of the other areas. So, I guess to answer your question, fundamentally, I think we’re probably more positive on the end user restaurant business for this year and really years to come based on kind of those two or three backdrops driving demand.

Tim FitzGerald: I think it’s, as Steve said, I mean, with the QSRs, it’s a little bit more visibly, you can see some of the targets that they’ve laid out, but the fast-casual segment also has continued to do very well. So, I mean, we see a lot of new entrants coming to market and the ones that are out there expanding. So, we do pretty well in that segment. And convenience stores is also another area where they continue to push into food and beverage. And now we’re a stronger player with greater offerings in beverages. We’ve kind of identified that as a growth opportunity for us. I think those are some other things to kind of round out. I’d also mention international, particularly Asia, I mean, as you look at some of the long-term growth opportunities and plans there, whether that gets executed this year or in the future years, we feel pretty good about our positioning.

You know, as we talk about a lot of the investments we’ve made with our strategic initiatives, we really have also bolstered our operations in internationally, particularly China, as well as India. So, we’re better positioned to serve the local markets there.

Bryan Mittelman: And I’d also note that as we, I’ll say, satisfy the demands across the areas that Tim and Steve noted, we’ve also been able to manage our portfolio and we’re delivering the innovations that are also earning us higher margins at the current levels. And as we grow, that obviously offers an additional tailwind to us too.

Jae Hyun Ko: Got it. I appreciate the color. I will leave it there. Thanks.

Operator: The next question comes from Larry DeMaria of William Blair. Please go ahead.

Larry DeMaria: Thanks. Good morning, everybody. Appreciate the comments on CFS in ’24 on the outlook. Obviously, we’ve gone from strong growth coming out of COVID to kind of a slowdown, negative growth, and then a recovery here. So, I’m kind of wanting to follow up on where we think we are in the cycle and the industry. So, in other words, are we back towards this sort of long-term load and mid-single-digit industry growth from here? And secondly, if that is the case, what do you think you can outgrow the market on a sort of annualized basis from here? Thank you.

Steve Spittle: Larry, this is Steve. I mean, I will say, I think we’ve gone through a period of, I’ll call it normalization, and not to keep hitting on how customers have ordered and working through inventory in the channel. We have gone through this period. So I do think as we start this year, I do think we’re back to, I’ll call it, a more normalized rate of how customers order from us, engage with us going forward. So, I do think, as Bryan said in his comments, you’re getting back to kind of that low-mid single-digit growth for the year we are confident about. Again, I think it goes back to everything we’ve already tried to hit on this call, maybe I would take a little bit different view, because we’ve talked a lot about chains, but we obviously have a lot other types of customers.

I think we’re starting to see the benefit too of a lot of the investments we’ve made in our channel partners throughout the last several years, trying to get closer to them, giving them tools, you have to invest in us. One of the dynamics that is relatively new is, there’s a lot of new people in kind of our channel in terms of the dealer segment. So the more we’re investing in training, the more we’re bringing people through the MIC, I think we’re really starting to see that pay off. So, I know, again, we talked a lot about change that gives us confidence and growth, but really investing and being closer to our key channel partners on the dealer side, domestically, I think has been a big deal for us. And then the third area I would just highlight, talked about in prior calls.