We’ve made a ton of investment in the consultant community, both domestically and internationally. And it’s an area that I don’t think Middleby was quite as strong in go back five, six years ago, and I think we’re leaders in this segment today. So, consultants are driving spec from anything from institutional schools to large stadium projects to your local restaurant. And I think the more — and we can see it very clearly, the specs that we’re driving that show up. If you’re specking something a day, it’s probably showing up in a job the back half this year into next year. So, again, just trying to give you color on a couple of different areas beyond just the change where I feel like we’re doing well, but I do think we will take market share and kind of outpace the market overall for the next, I’ll call it two to three years.
Larry DeMaria: Okay. Thanks for the color on that. Then just secondly, can you talk about price and volume in ’23 with everything? How did it shake out? Any pockets of negativity? And then as we’re looking at the ’24 outlook, any pockets of negative price or just overall comments on pricing in general?
Tim FitzGerald: I think we’ve — I would say broadly. Obviously, pricing I talked about in prior calls has been one of the most strategic initiatives to make sure we’re being very thoughtful knowing what costs have done. Obviously, there’s been a lot of pricing over the last several years, so I think it’s enabled us to be in a very good and strategic position as we move into this year. I do think that there is always going to be procs where I think we have to continue to be very thoughtful about where costs are. And so I would say we’re not necessarily done with taking pricing. I think there’s still some pockets where we will look to improve.
Larry DeMaria: Okay. So, put in other words, is it positive pricing on the three segments in ’24?
Tim FitzGerald: I think we’ve been focusing on this several years. And we focus heavily on mix. I mean, I think as we’ve been focusing on technology. So, we’re not saying we’re taking — I think we’re kind of at a pause point. And I would say it’s more of a fine-tuning, right. Because there’s been a lot of cost disruption with inflation, kind of across labor, material, shipping. So, I mean, I think now we’re going back through the portfolio and making adjustments where it makes sense. And I’ll say having the accounting and finance catch up to all this disruption over the last couple of years. So, it’s more of a fine tuning.
Bryan Mittelman: I think the other thing that I would point out as a reminder is, we were very intentional over the last two years about moving away and out of products on the lower side of the marketplace. So, we canceled a lot of SKUs throughout the last several years. So that’s why when you think about kind of the price volume dynamic, it is a little bit difficult to kind of triangulate everything just knowing the products we cut, the pricing we took. So, that’s why it’s a little bit tricky to answer the question, but do feel like to support Tim’s point, we’ve done a very good job controlling mix overall, and I think are in a better position to kind of build going forward from a volume standpoint the next couple of years.
Larry DeMaria: Okay. Thank you so much.
Tim FitzGerald: I think it is worth kind of pointing out and reminding everyone, we did cancel a lot of products as we went through the last three years. So, even as you kind of look at our revenues and organic growth and everything, it’s hard to determine as you go through periods with kind of whipsaw demand effect. We intentionally got out of a lot of SKUs, so we’ve canceled what would have been tens of thousands of products that would have been shipped over the last several years to really reinvest and focus on new products that we were launching into the market at the higher end of the innovation scale.
Larry DeMaria: Okay. Thank you.
Operator: [Operator Instructions] And our next question comes from Walt Liptak of Seaport Research. Please go ahead.
Walt Liptak: Hi. Thank you. Good morning, guys.
Tim FitzGerald: Hi, Walt.
Walt Liptak: Wanted to ask a question about CFS, and just as you were talking about the new store openings, I wonder if you could talk a little bit about where you’re seeing them geographically, is it international markets? I think you talked about Asia, what about Europe? And when you’re talking about the new store openings, are you talking about North America as well?
Steve Spittle: Yeah, it’s a great question. I think what has been exciting is the big chains are back to opening new store locations. It predominantly is in international locations. So, I’m talking about new store openings overall. I’m speaking from a global perspective. So, if you look at most of the bigger chains, there is new store opening growth in North America, but it’s actually predominantly coming from international markets. So, Tim hit on Asia, I mean I think all the big chains are — have been and have pretty substantial growth plans for Asia in general. I think as you go through Europe, I mean, countries, Spain, France, actually Germany has been a good performing market force. You see pockets in areas like India, Brazil, that I think the chains continue to invest in. So, yes, when we think of global new store openings, I would say it’s probably skewed something to 60% to 70% are coming from international markets.
Walt Liptak: Okay. Great. Thank you for that. And just switching gears to Residential, I wonder if you can just talk about if things are maybe slightly — are going to get slightly better throughout the year, where do you think the bigger inflection could come first? Would it be in the Resi Outdoor or in Resi Kitchen? If you have a guess on that.
Tim FitzGerald: Yes. So, it’s a bit hard to say, right. Like I mean I think with the crystal ball that nobody has, so, I think as we think about our indoor platform, that’s going to be kind of more of a radical step up as we go through the year, again, probably starting a bit challenged. Outdoor does have the ability to inflect a bit more, and it could just because of the nature of the grill season and load-ins, et cetera. So, I mean I think as we go through this year, a lot of the channel partners and customers will start to work down some inventory, and they’re reticent to load-in for a grill season. So, I think there’ll be a little bit more of a real-time demand of what happens in the spring. And then I think then we get to the end of the year where people start thinking about 2025.
We’ve got a lot of new exciting products that are taking more floor space in 2024, and so, that could have significant impact in the end of 2024 as people are starting to look at 2025 and what the outlook is and what the sell through has been and what the confidence level has been. So, I mean, I think that’s — that is one that could take a bigger — it’s got a bigger beta to it, let’s put it that way. But it doesn’t have a beta down. It’s only a beta up.
Walt Liptak: Okay. Alright. Great. Thanks for that. Good luck with you.
Operator: The next question comes from Brian McNamara of Canaccord Genuity. Please go ahead.
Brian McNamara: Hey, good morning, guys. Thanks for taking the questions. On de-stocking, could you guys expand on where this has been an issue in particular? Is it the dealer channel, distributor level, or somewhere else? And can you remind us of your rough sales in the segment by channel and CFS whether it be dealer, distributor, or direct?
Tim FitzGerald: I’ll take a pass the first part of the question. I think the de-stocking phenomenon has hit Pretty much every segment. I think it hit the general dealer segment just again going back over the last couple years when they were ordering just to find products whether it was, hopefully from us, but from other manufacturers In the segment, so I think general dealer business did have excess inventory. I think the chain side, the dealers that carried inventory for chains, you also saw inventory show up there and that really is a function of all the chains were placing orders, say a year out going back 12 to 18 months ago, two years ago and as we started to catch up for a manufacturing standpoint, obviously, we started to fulfill more and more and that inventory ended up in the dealer channel or distributor channel.
Now it still lines up against a lot of the new store openings and replacement that the chains are looking for, it just caused kind of back up in the channel, but I think we’ve, as we’ve said, by and large have worked through over the last couple quarters. So, it showed up in all areas of business to answer your question both in the, I’ll call the general market dealer business and definitely in the chain business as well.
Brian McNamara: Got it. Thanks. And then secondly, it looks like Commercial Foodservice revenues were down significantly in pizza, casual dining, and independent restaurants in 2023. Is this de-stocking or is there anything else worth calling out in any of these customer segments and would you expect any of this weakness to continue in 2024? Thanks.
Bryan Mittelman: So, those percentages were — aren’t the revenue decline, but the change in the percentage of our total composition of revenues that they each represent.
Brian McNamara: Understood.
Tim FitzGerald: Yes, I wouldn’t read necessarily too much into some of the nuances. I think it’s just how — has been flowed obviously. I read more, you have QSRs continue to do very well, so you see why that’s — fast casual continues to do very well, so I think that’s why that’s up. So, I think it’s more certain areas doing just better than others more than some areas to be significantly down overall if that makes sense. So, I mean if you go back, pizza has had a great run, really started in COVID for the last couple of years. It was inevitable that at some point it might slow a bit, and you just see the other segments you pick up. So, that’s how I would interpret it more than certain segments being way down.
Brian McNamara: Got it. Alright. Thank you.
Operator: The next question comes from Tami Zakaria of JPMorgan. Please go ahead.
Tami Zakaria: Hi. Good morning, team Middleby. Hope you’re doing well. So, my first question is on the cash flow, very nice cash flow last year. You expect good conversion this year too. And I think you have some convertible debt coming to you in 2025, so overall, can you update us on the capital allocation priorities from here on given the very strong cash generation?
Tim FitzGerald: Yes, so I’ll touch on that. I’m not sure how the convert ties into that and obviously we’re pretty well positioned from a capital structure with a lot of availability in [Technical Difficulty]. It really hasn’t changed [Technical Difficulty]. I mean we may have done a little bit less from an M&A perspective as of late, but that continues to be a core competency and focus of ours. We see continued significant opportunities across all three business platforms to grow them both organically and through acquisition as we’ve done that for a long time to build into the three platforms that we have today. I think as we’ve gone through the bill last year, the market being disrupted with buyers and sellers thinking about what are appropriate multiple, where is market growth, is it going up, down, et cetera.
But our expectations, I would say they were not as aligned so as I think it — as we kind of move into a more normalized environment in 2024 and beyond, I think you’ll see us continue to do smart acquisitions to continue to build out our platform.
Bryan Mittelman: And this is Bryan. Thinking about the converted, obviously it doesn’t come due for a little over a year and a half from now. So I do not have a specific answer to precisely what we’ll be doing at that point in time, but we obviously are generating cash so we could stockpile cash in advance of a coming due. We have availability under our bank facilities. We could roll it into our bank facilities. There’s a variety of other, obviously, debt instruments out there that we could pursue to use as well. So we’re certainly keeping an eye on all those options and balancing things based on the factors Tim talked about as well, but certainly, don’t have a specifically defined course of action that we will be employing a year and a half for now. Again, we have a lot of flexibility I believe available to us.
Tami Zakaria: Wonderful. That’s good to know.
Tim FitzGerald: As you said, Bryan, I mean, I think we do see another strong year of operating cash flow ahead, which is great, obviously, as we reinvest in the business and execute on M&A and de-lever which we were happy to kind of bring down, below 2.5 times. I will also kind of just touch on repeat comments. I mean we have made significant investments this year and last year back into the business from a CapEx standpoint, so that is gone into innovation centers, it’s gone into some really great investments in our factories thinking about ice, coffee, packaging. We’ve really kind of moved forward some of our businesses’ position for growth and we’ve brought a lot of automation into our factories as well. So, I mean that is part of the story of the margin expansion, as we’ve mapped that out over the last couple years which is coming into fruition and continues to position us well into next year.
Tami Zakaria: Got it. If I may ask one more. The Novy and Josper launches, what’s the total TAM or opportunity you see from these two brands in the U.S. over time? I’m essentially trying to gauge the potential revenue lift, let’s say over the next couple of years that we might expect.
Tim FitzGerald: Tami, you probably know that we don’t often quote a lot of TAM numbers out there. I mean, the Josper is an amazing product. It is certainly a very premium product for us. So, we’re excited about what it can do, but by itself, it probably is not large needle-moving. I think Novy is — could certainly be of the two — the bigger difference maker. They have a lot of really great technology, a lot of induction and we see trends moving that way.
Tami Zakaria: Got it. Thank you so much.
Operator: Our last question comes from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.
Jeff Hammond: Hey. Good morning, guys.
Tim FitzGerald: Good morning, Jeff.
Jeff Hammond: Just on Resi, on the 1Q is, seasonally I think that business actually is up 4Q to 1Q. I’m just wondering how you’re thinking about that sequentially.
Tim FitzGerald: I mean, sequentially, obviously, things have been a little bit challenging, right, in this segment. So — and Q4 is typically though, I’ll say a bump up from Q3. And it was this quarter even with tough market conditions, overall, there is still some higher seasonal spending, so I do expect that Q1 could be below Q4 levels. But I think if you look at the past three quarters, you can kind of establish a band in which we’ve been operating and our outlook is that band, it doesn’t stretch down and hopefully it starts to stretch up.
