Okay. Hi, everybody. Good morning.
Good morning.
Good morning. I'm Rebecca Ellin, SVP of Investor Strategy and Corporate Development. Welcome to the Middleby and Midera Investor Day. The agenda for this morning, Timothy FitzGerald, the CEO of Middleby, is going to start us off with an overview and discuss the company and industry growth drivers. We also have the entire senior leadership team here that will go through a deep dive of the initiatives that's going to drive Middleby over the next few years.
The story that we are here to learn about today is about two industrial technology leaders that are at fundamentally distinct stages of their growth journey, which is what makes this a different kind of spin. At its core, these are two businesses that have a lot in common. They both have an extraordinary heritage, are mission critical to their customers, and have a superior financial profile.
After the JV of the residential business was complete earlier this year, and the spin-off of the Food Processing business is complete in early July, we are now at the last step of Middleby's transformation into a pure play Commercial Foodservice leader. Middleby is poised to emerge as a scale platform, an innovation leader, and deliver strong returns to shareholders. To give you a little more insight into Middleby, we have a short video to show you.
[Presentation]
Okay. I think I'd be walking up to AC/DC here. Hopefully it's a good way to start the day. Welcome everybody. Thank you all for being here. We're excited about the day. We've got a lot of great stuff to cover on the things that we have been doing over the last three to five years, which honestly has been very transformational for Middleby.
We're excited to be at this point, too, also with a spin. As Rebecca said, two amazing businesses with Food Processing and commercial. Very excited with the future of where Food Processing is going as well, 'cause they've got a great journey ahead and excited for Mark and team to present what that vision is as well.
Obviously we'll be going through commercial and the journey that we are on right now. We have come a long way in the last three to five years. I think that's one of the hidden parts of this story, which sometimes is hard to understand given that we did have three portfolios and also our industry had some challenging dynamics. If you look at Middleby where it is today, it is very different than where we were five years ago.
I think that's one of the things that we really want to come across today in terms of how we're leveraging scale, the investments that we've made to drive organic growth, and we think we're very well positioned in kind of this next chapter. Maybe just kinda hitting some of the key highlights here.
We've got an industry leading portfolio of brands, and we think we are extending our competitive advantages with really the initiatives that we've taken underway the last few years. We're accelerating innovation, and we think we are doing that in a very meaningful way. We're also driving those innovations and solutions into the marketplace with a go-to-market engine that you'll hear a little bit more about today that we've built.
Operational excellence is a competency that we've built up over the last several years, which is starting to take hold and gain traction and we're confident that's gonna give us a roadmap or we have a roadmap to expanding margins. Next item. A hallmark of Middleby has been strong free cash flow.
Certainly that is the case, but actually with the portfolio transformation, the profile of our cash flow, I think, actually is enhanced. That's going to be even stronger and that translates to compounding shareholder value. Lastly, you know, just kind of underpin, you know, I mean, I think we have really built the machine to take us to the next level. We have built this business together over several decades in a very thoughtful and strategic way.
The brands are number one and number two in the categories that we serve, globally recognized. They kind of stand for quality and service. I think, you know, importantly, we're packaging these more and more as solutions over time to our customers. That's really unlocking cross-selling opportunities and we're gaining traction because of that approach in the marketplace. Commercial Foodservice at a glance.
I think, you know, many of you know we're a global organization and it's got attractive growth drivers. You know, if you look at the sales by demand, really over 50% of our revenues are coming from recurring base. It's not only parts and service, but really the replacement market. That creates a lot of stability and repeat customers and it connects us to customers in a very important way.
If you look at the sales by product, obviously the long hallmark of Middleby has really been the Cooking and Warming segment. Now we're a meaningful player in Ice and Beverage, and we'll talk about that a bit more today because we see significant market expansion opportunities. That pie will likely continue to grow.
I'll just kind of call out at the bottom, like we're very proud of the customer base that we have. It's a blue chip customer base that we have. It's kind of the who's who of the industry. We are partnered with those customers closer than ever before. I mean, I think as we have broadened out our solutions, we really are becoming, in many cases, the most preferred partner and thought leader with those customers.
That's opening up opportunities to unlock a lot of solution selling and additional brands. I think a really good example for that is Ice and Beverage. A lot of the customers that we've been selling Cooking and Warming to for a long time are now buying ice and we're engaged with beverage solutions.
That strategy is working and the relationships we have with those customers are very important. The other thing I'd just call out is even though these are large companies, for us, a large customer is only, there's very few that are over 1% of revenue. It's a very diversified base as well. We don't have any customers that are, you know, 5% or nearing 5%. I think that's really one of the strengths of the business is the relationships, but as well as the breadth of the customers.
A little bit more on, we kind of dive deeper into Middleby today by the numbers. Cooking and Warming, obviously we've got a phenomenal platform here. There are additional levers of new growth that are coming out right now as we've got strong NPI and we're putting more digital, et cetera, onto Cooking and Warming.
There is growth avenues and we will continue to grow Cooking and Warming. Ice and Beverage, we're relatively new on the scene. We've made significant headway in a pretty short period of time, but there's significant expansion opportunities. If you look at the margins of the business, which are already very strong, it is still in early stages of our development.
We're investing in R&D, new product launches, commercializing products that are now going to customers. There's an opportunity for those margins to come up to cooking, and we expect that to happen. I think one of the things also importantly, and we'll talk about this quite a bit today, is the platform investments that we're making, which are very strategic in nature.
I'll just kinda call it those platform investments are what the pillars that we've been putting in place over the last three, four years that are driving. It's our engine to drive organic growth across the businesses, as well as profitability. If you were to go back four years ago, that number was zero.
We are reinvesting in our business in a very thoughtful, strategic way to really drive growth into the next chapter. A little bit more on that. This is the $35 million that I had on the other slide. These are the strategic pillars of growth that we have invested in. We've talked about some of these on investor calls, but I don't think we've really taken everybody through this.
That is one of the things that we're gonna do a little bit in ad nauseam today. I'll just touch on those a little bit here. Go- to- market. You know, we really do have new capabilities that did not exist three to five years ago that are very much focused on the end user. We'll talk about what those capabilities are, but they're really driving solutions and innovation into our customer base.
Innovation and technology, we're taking it to the next level, really accelerating innovation, but we're accelerating innovation of where we think the industry is going. Certainly talk about things like controls, software, IoT, and automation. That's really what fits into that platform. Operational excellence, which is a competency we've been building up.
I would say we're pretty far along in supply chain, and we're extending that into other areas, and we really believe that gives us an opportunity to expand margins in the next several years. The last one, which I call the Holy Grail internally, which is service and aftermarket. We're building a unique capability and engine here that's tech-enabled.
It's dedicated. It's captive service agents to really transform the service relationship. The journey that we're gonna go on with the customers, which is really about the life cycle of the equipment out there. Service is the biggest pain point for our customers. If we solve that is a big game changer, and it's a solution sale across the whole platform.
A lot of this here is really about leveraging the scale of the platform. That is a strategy, and that is sort of what we embarked on, really kind of as we were coming out of COVID in the last three to four years, kind of in a very thoughtful and strategic way. The good news on a lot of this stuff is much of this is already in place.
Like, we are starting to see the benefits and bear the fruit of this right now, and it's hidden in many ways because the restaurant industry's been pretty difficult. It's like taking everybody a little bit lower behind the scenes to understand what we're doing, is what we're gonna be doing today, which we're excited about.
Just talking about the food service industry, a little bit more backing up. Food away from home has been growing for a long time. You can see the blue chart, or is the dollars, and it's grown about, this is over a 30-year period. It's grown about 5% as a CAGR over that period. Also importantly, the food away from home spend has gone up. If you go back 30 years ago, it's 48%. Now it's about 59%. Food away from home is 10% more than what it used to be. That is a long-term trend. We don't see that trend continuing.
That is very good for the food service industry, and that kinda drives a lot of the category attractiveness into where we play in terms of the installed base, and also a lot of kinda the trends and the dynamics that are in the industry. One of the reasons why food away from home is growing is because food is more convenient, you know, you got drive-through, you got delivery.
This all requires new equipment, new solutions for our customers, and that's one of the demand drivers. It is a long-term, stable, growing industry. That being said, it's been challenging the last couple years as well. As we've kinda gone through, if you look on the left here, this is real restaurant sales.
We went through, I'll say, the massive whipsaw that we kind of saw in a lot of industries and certainly ours with COVID. Then we kind of came out with a very uneven demand cycle, and I'll say challenged demand cycle, really in the last two years. If you kind of look at what happened to restaurants the last couple years, traffic has been down, and probably more importantly, there's been a lot of operating cost pressures on the restaurant operators. In particular, you know, food costs raised significantly.
Labor has been a challenge. You know, with Combination of the restaurant traffic as well as operator profitability, that deferred equipment demand in the last couple years. Certainly we've seen that. The good news, you know, I'll say, A, it's a long standing growth industry that we're in. We are seeing the beginning of signs of recovery. As we look at our customers, a lot of the challenges that they were faced with last year, they've addressed those.
Like you see value pricing on the menu, you see LTOs driving traffic back into restaurants. You see menu shifts where they're bringing chicken on the menu, which is more profitable for the operators. They're bringing beverage, which is very profitable. We're well-positioned into that trend. They're kind of resetting where they're at right now, and you can actually see that in some of the results if you look at the QSRs into the Q1.
They're at a very different place and seeing, you know, the benefits of some of the strategic initiatives that they took last year. As you kinda look, you know, here at what we were seeing, the 0.6% is what the traffic and the real restaurant sales were down. The forecast is that for to return to growth.
Even though that doesn't seem like huge swings in percentages, it's actually very meaningful to our operating customers. It's a little bit of the backdrop of what we've lived through in the last couple of years. Now if you take that to Middleby, this is Middleby sales for a long period of time. I've been here through this whole period, actually a few years before.
We have grown the business pretty consistently over several decades. It's a Combination of acquisition growth and organic growth. During this period, it was actually 4% organic growth that we have grown over a long period. You can see we kinda came into the COVID period in 2021 that everybody did, and then the last couple of years has really been that restaurant disruption in 2024 and 2025 that I just talked about.
We experienced the same thing that our customers experienced. We are starting to see some of the beginning of the inflection right now. I mean, I think you know, we are forecasting and giving guidance that we're gonna be growing this year, and some of that is tied to some of the turn in the backdrop of the industry that I just talked about.
Now taking it another step deeper, this is kind of what our sales look like by channel last year. I think it sheds kind of a light on a lot of things. We were flattish down to negative two last year. You can see how it breaks down between chains, the general market, both North America, international, as well as our parts and service.
I think the, you know, there's probably multiple call-outs here, but I would say the one big takeaway is like, you know, we're a very strong index to the chains. That is by design. Right. Like, the chains have been faster growing over time. They're the ones who adopt technologies, which is great for us 'cause we are the innovation player, and they grow at scale.
We think that that will happen again. Last year, they were very difficult. I can tell you, we gained market share in chains last year when we posted down 8%. We have better relationships. We have more products approved in the system of those customers, and we have a strong, you know, pipeline.
Really, if you look, you know, we had made progress in a lot of areas, particularly in the general market dealer, where the strategies that we were employing were causing us to take market share, bring more sales into that market. Chains was really the headwind, and so I kinda call, and some of you have heard me say this is where we're losing, where we're winning, right?
Like, I think long term, we win here. This will influx, but this is really what, you know, we were impacted by last year. I don't have it broken out in the Q1, but, you know, in the Q1, we just reported 8% organic growth. What changed? It was the chains. I mean, there's maybe a few other pieces, it is really the chains turned back positive. We were already had kind of a head of steam in the general market.
We were outperforming what we think a lot of the indicators were there. Chains, as they kinda come back all of a sudden, that a negative turns into a positive, and then the number on the right, you know, changes pretty significantly. There's a lot of trends in the industry. I can go through them for a long period of time, I'll kinda move past that right now. I would just say we're very tied to the trends, whether it's chicken, beverage, automation, et cetera. Maybe going to size and scale a bit of the market that we are in.
The overall commercial food service market, so this is kind of the restaurant sales globally, is about $4 billion. The equipment market that supports our customers is about $43 billion, of which $13 billion is in North America. Middleby is $2.4 billion, so roughly 5% market share overall. It's a higher market share in the U.S. but it is a large global market.
We are operating at scale. We're one of the top operators, but there still is room to grow through market share gains. Taking it down a little bit more in really the markets that we serve. This is Cooking and Warming. We're $1.6 billion in sales. The TAM in North America for Cooking and Warming is about $4.5 billion, and then globally, it's $16 billion.
Just kinda shaping out the size of the market. You can see the categories that we play and how that kinda fits within our Middleby wheel overall, as well as our position. We are number one, number two in most positions. There's a few that we're not, and those are targeted growth opportunities for us.
Kind of as we look at where we play, we're really heavily focused on the faster growing parts of Cooking and Warming. That is automated cooking, we talk about that a lot, and ventless rapid cook. Both of them are on trend, as you would imagine, because they're solving labor needs, there's smaller kitchens, speed of service is very important, that's why those are faster growing segments.
We're extremely well positioned in those areas, and we'll benefit as those segments grow. Also as importantly, just because we're very, you know, strong in many of these categories, there are still market share opportunities that we're going after. In ovens, we lead really in convection ovens, there's a market called Combi ovens.
We are not the leader. We just came out with a new product that is a targeted market of growth, that's a meaningful TAM within the $4.5 billion and the $16 billion that we will be going after for the next several years. You've got warming and holding, which is a pretty big category as well.
Just as we are selling solutions more and more, bringing things together, warming and holding goes very naturally in with cooking solutions, and we're gaining share in that area as well. We've got a story of faster growing markets and market share opportunities here, as well as other things like controls, IoT, etc., that will drive and accelerate growth across all the categories, including fryers, ranges, etc.
Now taking a little bit of the same slant at where we're at with Ice and Beverage. Ice and Beverage, what's interesting to me, and hopefully to all of you on this, it's actually a bigger TAM. It's about the same in North America. It's slightly bigger internationally. We're going after a large market. Our objective is to have similar market shares, frankly, you know, in Ice and Beverage.
I think we've made a lot of runway actually, already. We are a player, I would say, in Ice and Beverage, and it's not necessarily on this slide, but we actually have the broadest portfolio of solutions, and it's really the most innovative and tech-enabled solutions in Ice and Beverage. We're very excited about where we're at with this platform.
Just kind of calling out, you know, a couple of things. Even though we are actually a large player in ice, we're one of the biggest right now, but it is also interesting because there's really two categories. There's nugget ice, which we are the leader in. It's the faster-growing spot. The bigger category in ice is cubed ice, and we're a new entrant. That was an acquisition. We came out with a full-line solution.
Despite the fact that is a big part of this wheel and we've got a market-leading position already today, there's significant market share opportunities still. Beverage dispense and coffee, you know, which I think we'll hit quite a bit today, including some exciting products that we have out in the hallway there so you can visualize actually what we are doing.
We're kind of new on the scene. We are the disruptor. Those are both big market segments. There's a lot of trends that are tied to beverage dispensing and coffee. We're gonna be going after that over the next several years, so expecting to grow. Okay. Hitting financial outlook pretty quickly.
Obviously, Britt will cover this in detail. What, what does all some of this mean? You know, we're forecasting over the next several years, our guidance is 3%-6% organic growth. About one-third of that is coming from the market recovery, market demand, which includes both price and volume, and two-thirds is really kind of the self-help initiatives, which is our driving innovation and our go-to-market initiatives, really going after some of those market share opportunities that we're well on our way.
We do expect to expand margins kind of as I mentioned, 200-400 basis points. About a third of that is also volume driven, a lot of that is our operational initiatives as we expand margins kind of across the platform. As I mentioned, a hallmark of strong cash flow, which we're gonna redeploy, that really kind of all translates to double-digit EPS growth. Digging a little bit more in the setup for the team is kind of we talk about how are we approaching growth and what are we actually doing.
This is really our strategy here. The first is driving innovation. We lead in innovation, but we are taking it to another level. Selling our portfolio as solutions, which is not an approach that we had three to five years ago. We're doing that very effectively today. Expanding into new addressable markets. It's really the Ice and Beverage that I talked about.
It is also international, where you saw we have some of that white space, and we've made significant investments in international over the last several years. Then leveraging our go-to-market engine, and which we've built out, and that is gaining traction. Kind of the last piece here is really driving operational excellence across our business units. I'm gonna talk briefly about the four, and then we're gonna go kind of in a deeper dive.
What is accelerating innovation? We've made significant investments in our capabilities over the last handful of years. Some of these were acquisitions. We bought control companies, software companies. We bought an IoT company. We have embedded capabilities in Middleby. This is part of the investment that I put up there early on. Our competitors do not have these capabilities.
It's unique to say, "Hey, we've got a connected device," but it's very different to have a business that's focused on it every day. That's a sustainable model, and it's, you know, I'll say, far ahead. I'm pointing out Open Kitchen in particular because that allows us to scale leverage of the platform and really bring a solution with many products tied to it into our customers that drives a high ROI.
I'll say all of these solutions here and capabilities are accelerating the pace of growth. A lot of the NPI that James will be talking comes out, we would not be able to have that pace of NPI, and it's game-changing NPI, if we hadn't made these investments. We're taking innovation and accelerating it to the next level. Go-to-market. Some of you've seen this slide before.
We kind of beat on it, but this is a real thing. This is not just a concept. Like, these are people and teams and capabilities within Middleby where we're really focused on the end user customer, and we've really retooled the organization, whether it's our selling organizations, our Innovation Kitchens, which many of you've seen. Those are easy to see because they're on video.
Alongside that, a culinary team, which Middleby did not have culinary a number of years ago, and we went from last to first. Digital marketing, which is the way of the world, and I think we're doing game-changing things there. Certainly our key account management with our national accounts where, you know, that's really building a pipeline and how do we bring innovation in into those customers really as partners.
A lot of exciting things here that Steve will go through. On that wheel, kind of as I mentioned before, how do we go after the service market? This is a little bit behind where we're at with innovation and a little bit behind where we're at with the go-to-market, but it is in flight. We have developed a tech-enabled service stack.
We are retooling our service agents, which again, are dedicated and they're captive. We're reimagining service, and we're gonna be providing a differentiated platform, which it's a simplified platform. It's really data-driven, and The way I think about it is we're going on the journey with the customer on the life cycle of the equipment. I think that opens up more equipment sales.
I think it opens up, obviously, different revenue models, as we think about managed service programs as well. Operational excellence. This really started with supply chain, which kind of hit really right at COVID is when we started. Again, all those folks have been on defense. Initially, it was, "Hey, we couldn't get any products."
It was, "Hey, everything skyrocketed with inflation." Followed by, "Hey, there's a whole bunch of tariffs." The tariffs changed every quarter, including this last quarter. We are going to reposition from defense to offense kind of over the next several years, but they really did build up some strong capabilities over the years as well. As we really leverage supply chain, we see cost savings opportunities.
There's significant other areas that we really built up tools and capabilities. These are, again, people and teams that are focused on product line simplification, design, manufacturing, and how we do product teardowns. We're just starting on our journey of lean manufacturing, which is a unique journey 'cause it's, we brought a lot of people from the outside that are focused on Industry 4.0 that are really tech and digitally enabled.
We think, you know, all this can drive 3- 300 basis points. The last thing I'm gonna talk about here is AI. AI is just a topic, so I really wanted to make sure the audience know AI is real within Middleby. We started this journey two years ago. It was where we kind of identified what the high use cases were within Middleby, and then really started taking action on them.
I think one of the big things with AI is making sure, especially when you have a diversified portfolio, how do you get all of the data accurately in the same place so that you can use that as an engine for AI to run a lot of initiatives over. I was just gonna leave you with a lot of these initiatives are in flight or already out there, and we're using them commercially. I would say the service, you know, platform is gonna be hugely, you know, AI, it'll be a huge engine for that. We're doing a lot of that commercially today, including in kind of our sales tools as well.
I would just say, I think our objective is to use this as a competitive advantage and be ahead of others in the industry, and I think, you know, we're well on our way. Just wanna, you know, talk about some of the principles of Middleby that is very core to us now, which a lot of this has to do with focus, and it has to do with leveraging the platform at scale. Obviously, the first thing is really having strategic focus after this transaction. You have a commercial team that is very much focused on this business every day, and that is going to drive benefits.
The- as you kinda think about the customers, the platform innovation, the operational simplification, and service transformation, those are our growth pillars that I went through there too. Really, if you think about that also, a great deal of focus where we're leveraging the scale of the platform.
We think that we're gonna have much better execution because of the way we're approaching the business and approaching the market. Then just portfolio discipline. How do we keep going every day after products, customers, drive simplification, making sure we're investing dollars and time to where we need to most. Last slide here as I'm already starting to run over. You can't do it without a team. I'm very proud of this team.
I can confidently say this is the best team in the industry. I don't think I'm being arrogant by saying it. It really is the best team in the industry. It's been assembled over time. That executive leadership team, it is very commercially focused. We are operators, we are frontline, we know the customers, we know the products. It is a very good team to lead this next chapter. We built out the team around us as well. Like, we have great leaders across the business, and as we've talked about strategic initiatives, we have new seats, right?
Because we didn't always have somebody leading channel or chains or service, et cetera. Like, we have my only disappointment is I should have a whole bunch more names on here, by the way. As you kind of look at the, you know, the some of the faces up here who have tremendous amount of experience, some of them came from our competitors. We stole all the best. Some of them are sitting here in the front row with them, or with us today here.
You know, they're leading our market expansion and efforts such as in international, leading our go-to-market as we kind of think about chains and channel partner, what are we doing to transform service, leading the world in digital, and in operational excellence, right. We have people who are focused on initiatives.
I mean, I think that has been part of the transformational journey too, really, is to rebuild the structure of the organization so we can execute on all this and really we can kind of surge in our growth strategy. Okay. With that, we're gonna move on. We'll be talking about, yeah, a lot of these strategic pillars here. The next one up is go-to-market, which Steven Spittle, our Chief Commercial Officer, is going to cover. Thank you.
I thought we were chest bumping. No, I think you missed the memo coming up or you forgot, so. Good morning, everyone. Whoo. I think everybody needs to go hit the automated beverage and get re-caffeinated outside with the Middleby equipment we have, so. It's great to be with all of you this morning. I'm excited to walk everybody through all of our go-to-market initiatives that Tim was referencing. What is so exciting is so many of these initiatives are either brand new or have been completely reinvented over the last three to five years.
What is the most exciting is we're seeing those go-to-market initiatives start to pay off in customer wins right now in real time, but also setting us up for what we feel is a great run of growth over the next couple of years. As Tim mentioned, it all starts with a portfolio. You can have the best go-to-market strategy in the world, but if you have the wrong brands, the wrong products, or in our case, the wrong portfolio, I guarantee it will fall short.
We're very fortunate that our portfolio at Middleby is our competitive advantage. It obviously starts with the core cooking brands on the left-hand side, the brands that have been at Middleby for pretty much from day one, the Pitcos, the Blodgetts, the Southbends, the core cooking brands in our portfolio.
It's been complemented now with the expansion into Ice and Beverage. Why does this matter? It gives us the full range that we can go to any customer, any kitchen, and do everything in the back of the house. Fundamentally, what does that get you? It gets you closer to your customers. You're close to your customers, what does that lead to?
You're going to gain a bigger share of their spend. Timothy FitzGerald referenced this earlier. We've shared this slide before. This to me represents everything I'm gonna talk about. Everything on the right-hand side of the wheel are all the go-to-market initiatives that we have been working on over the last three to five years.
These are all about how do we make it easy to do business with Middleby for ultimately that end user customer, the customer that's working the fryer, the customer that's loading a TurboChef oven, the customer that's dispensing Follett ice. How do we make it easy for them to understand and navigate Middleby?
All of these go-to-market initiatives do one fundamental thing. That is move us from being transactional with our customers to being more consultative with our customers. I can't stress that enough. I wanted to start with an explanation of the foodservice channel. I think we all take it for granted because we live it every day until you put it up on a chart and it looks somewhat complex.
I will walk you through it, I would say from a high-level standpoint, even though there is complexity in what this chart looks like, I can tell you the Middleby approach to everything on here is incredibly well orchestrated. It's not just a portfolio of brands that are off doing their own thing.
Everything up on this page that I'm gonna walk through is highly coordinated across all the various channels. On the left-hand side, it starts with our brand sales team. This is our individual brands, the Pitcos, the Blodgetts. They're working very closely in the U.S. with our manufacturers' rep groups, which I'm gonna talk a little bit more about, our frontline selling organization.
Those manufacturers' reps, along with our sales teams, are calling on the consultants, which I'll talk about, the dealers, which is our transactional arm in the U.S., ultimately servicing again that end user in the middle of the circle. As you move over to the right, again, I'll talk more about, we have a dedicated national account team that again is on point for all of the big accounts over on the left-hand side of things.
Their goal is to, again, make it easy to navigate Middleby, make it easy to sell the complete portfolio and solutions that we have. Now I want to move into some of the areas that we have on the left-hand side, and it starts with, in the U.S., our frontline selling organization, which is our manufacturing rep partners.
This is our true extension of the Middleby selling organization. This has gone through a tremendous journey over the last several years. Going back not that long ago, we actually had 156 rep groups across the entire country. As we did acquisitions, you'd have more and more groups come in. What that led to is if you were in a place like here in New York and you wanted to open a restaurant or you were a dealer that wanted to specify a project and you wanted to use all Middleby, you were literally going to five, six, seven different companies to help you do that.
It was incredibly complex to work with Middleby. We knew we had to do something different. Over the course of these last several years, we have pared it down to having a dedicated consolidated rep in every market. Now we're down to 16 groups because even over time, we fine-tuned it more and more. We've gone intentionally after we've taken the best reps from Welbilt. We've taken the best reps from ITW.
We've taken the best reps from Ali Group. That is the group you see on the page today. 16 of by far the best manufacturing rep groups that are in the industry. Why is that critically important? It becomes an extension of us. Just like us, they're selling the complete portfolio of brands. They've made their own investments in their own people.
You can see just in the last couple of years, we have averaged 20- 25 additional reps on the street with our manufacturer rep groups. They've invested in culinary experts. They've invested in beverage specialists. They have truly become an extension of Middleby. The manufacturing reps specifically help us call on our dealer channel partners, right? Again, this is the transactional arm of Middleby in the U.S. Again, this, just like our reps, has gone through a tremendous journey over the last several years.
In the U.S., there's roughly 400 dealers across the country. At various stages, we transact with most of them. We took a very specific approach over the last several years to intentionally go after the top 25, knowing that that is the group that drives volume and controls MIKs better than anybody else.
You can see these are some of the biggest dealers up on the left-hand side and the top buying groups that were on the right side. As we've leaned into this group, we've leveraged our Innovation Kitchens for training. We've given them dedicated resources like their own commercial app.
We've given them an e-learning platform with Middleby University to help better understand Middleby. What does that ultimately lead to? We want those dealer salespeople not just to be order takers, but to become, again, Middleby extensions of our sales team. I can tell you, we have never been more aligned with our dealer partners than we are today. You're seeing it happen, especially these last several quarters, as the business, and this primarily is focused on the general market that the dealers cover.
It's general market. It's institutional. It's emerging chains. Where we are winning because how we've leaned in is these dealers historically, yes, they buy the Pitcos, they buy the Blodgetts, the core cooking brands. Now because of how we've leaned in and we're selling the portfolio, now they're pulling in Ice. They're pulling in the TurboChef. They're pulling in Combi.
What may be on a project would be three or four Middleby brands has now become five, six, or seven. If there are any kids in the room, I just said six, seven. I'd get harassed from my kids. The point is we are gaining more market share with our dealer partners than we ever have before. It's been very intentional. Again, you're seeing it happen in real time.
One of the areas we probably haven't talked quite as much about is the role of consultants in our go-to-market strategy. This is really the farthest upstream in the selling process that you can go. Consultants are the ones that are specifying. It could be large stadiums. It could be B&I type applications. A consultant comes in and they specify cooking equipment. They specify the HVAC. They specify the utilities.
They do the layout of the kitchen. It goes from the left-hand side of doing that design process all the way through a bid process with our dealers and then ultimately to an order. This process that's represented up here can be 12- 18 months. Going back a couple years ago, we frankly did a horrible job calling in this space.
We didn't have a presence. We weren't focused on them. Today, we have a dedicated team that all they do is focus on consultants. I feel like we've gone from probably being one of the worst to being the best in that short period of time. I know if I can drive the specification here to our brands, to Middleby portfolio, to pull in the additional brands we've talked about, the likelihood of it leading to an order downstream gets obviously greater and greater.
Tons of focus from our team, a dedicated team focused on the FCSI consultants. Again, there's roughly 1,500 around the world. So far, I've covered off the left-hand side, going back to the channel of, again, us, our manufacturers' reps, consultants, and dealers. Now I'm shifting over to the right-hand side of the column, which is our global national account team.
This is the dedicated Middleby team that's focused on four specific areas of customers. Number one, the big global chains, which I'll talk a little bit more about. Most recently, we have a team focused on aggressive growth accounts. These are up-and-coming, emerging chains. Could be anywhere from a couple locations to a couple hundred locations. The goal is to get in early with them and ride them up as they grow and to get them thinking Middleby from early days.
The last two groups are retail grocery and then the ever-evolving world of C-stores, which I'll talk a little bit more about. This group, just like our reps, just like our dealers, is very focused on selling solutions, selling the entire portfolio, and that is what this team is all about. We've been very intentional about the people that are on this team, many of which have come from an operator background.
They have done what our customers are doing in prior life. It gives them tons of credibility, but also finding the right people that are hungry and aggressive to go after new business, not just farm existing accounts. You may be saying, "Hey, Steve, everything you've gone through, that sounds great, dedicated team, selling solutions." Maybe it's, it sounds pretty hypothetical, but let me give you a very real-world example.
We're very grateful to Yum! and to KFC, first of all, for letting us share, this partnership that we've embarked on over the last several years. This all started with KFC approaching Middleby about 18 months ago. KFC has been a very good long-time customer of Middleby for decades.
They came to us, and they said, "Hey, we are interested in adding a new beverage platform to our restaurants." I have to be honest with you, I think our first reaction was, "Wow," or like, "Are you, are you crazy?" Like, we did not expect a KFC to come to us with something like this. They said, "We do not know how to do this. We know we need to do something to drive additional day parts.
We know we have to drive additional traffic. How can we do this?" We started the Innovation Kitchen in Dallas, the Middleby team, the Yum! team, some of their suppliers on the actual product side. We literally sat in the ad hoc kitchen, in the Innovation Kitchen, and started working on how could we bring this idea, this concept to life. We did testing in Dallas.
We did testing in our innovation kitchen in the U.K., the end result is what you see on the right-hand side, a complete Middleby solution with Taylor for doing milkshakes, complemented with Flavor Burst to do different type of flavors, Marco doing the dispense for their coffees, their lemonades, refreshers, Terry Water Solutions doing the filtration, and then QualServ building the complete bench on the right side.
KFC would not be doing Kwench if it was not for Middleby. You can go find it. They're very public about where they've rolled it out so far, which has primarily been in Canada, the U.K., and Australia. You can see their goals. You can see their targets for this. It is having a meaningful impact in those markets in KFC.
I would go back to why is everything I've just talked about so important? Let's walk through the scenario. If we don't have the relationship with KFC, this doesn't happen. If we don't have the Middleby Innovation Kitchens in Dallas and the U.K., it doesn't happen. If we don't have the portfolio with beverage brands to complement the cooking brands, it doesn't happen.
If we don't have a global network, which I'll touch upon, from Taylor to do the delivery, the installation, the after-sale service, it doesn't happen. There's no one else in our industry that could have done this. We are delivering this in real time for KFC. A huge win for Middleby, a huge win for KFC. Couldn't be more excited about where this is, where this is going. Think about this with other QSR segments.
You're seeing more and more beverage coming to life. Think about other areas where you're seeing beverage. It is not just a concept. It is happening in real time. One more case study, just to round it out in the C-store market, a little bit different case study, where we were approached, again, through a channel partner to work with an emerging regional C-store operator.
If you haven't been to a C-store recently, I will tell you it is not the good old days of, you know, roller grill hot dogs and bad coffee. It is a very good food service experience, and the leading C-stores have heavily invested in premium beverages. This C-store in particular knew that they were behind, and they knew they had to do something different.
Their channel partner said, "You have to come talk to Middleby." Again, we came to the MIK. We brought them to the MIK. We did testing across the beverage portfolio, across the cooking portfolio. It started with rolling out the Concordia coffee machines, which are on the left side, eventually rolled out the TurboChef ovens for foodservice and Follett Ice.
The coolest thing in this scenario, which was a great case, makes this a great case study, is the operations team of the C-store, after we actually rolled out the equipment, said, "Hey, it would really be great if we could understand better what's happening in the stores. How could we see what's happening with the coffee machines, TurboChef ovens in real time?" We said, "Well, we have a solution for you.
It's called Open Kitchen." We actually went back with them, and we installed Open Kitchen on all the equipment, very easy to do in the field, and now in real time, they're seeing everything that's happening with their equipment in the rest- or in the C-stores. Again, a great example of working with a channel partner, taking our core cooking equipment and layering in unbelievable technology. Again, nobody else could do this except for Middleby.
Just jumping over, I've primarily been talking a lot about our domestic footprint, our domestic go-to-market strategy. I would certainly be remiss in not highlighting everything that we have done to expand our footprint from a global standpoint. You can see the orange dots represent all of our major sales and distribution offices across the world from obviously Latin America, Europe, the U.K., throughout India, the Middle East, and multiple locations in Asia.
I can tell you our international teams have never been stronger. There are so many opportunities for us. One, as the global chains continue to grow, a lot of their growth, let's go back to Kwench, is in international markets. There are so many emerging chains that nobody in this room has ever heard of.
They are growing in places like China, in places like Europe, in places like Brazil, and making sure we have the right people, the right resources, the right Innovation Kitchens in those markets to support that growth has been critically important. We are on a journey for sure internationally.
In some ways, even though we've had many of these offices, I feel like we're early days in the opportunities that we're going to unlock in the international markets. Now, I'm going to talk a little about the Innovation Kitchens on the next slide. I would also be remiss in not calling out specific to our China facilities. We have two manufacturing facilities in Qingdao and Zhuhai where we are operating world-class manufacturing facilities.
They're building Middleby brands, Middleby brands that we're selling both local in Asia, but we're also starting to sell to support our customers in some international markets. Really starting to leverage the investments we've made in those China facilities. The Middleby Innovation Kitchens. We've talked a fair bit about this. It's hard to believe that the flagship Middleby Innovation Kitchen in Dallas just crossed our five-year mark and we just crossed 45,000 visitors that have actually been through the MIK.
It is by far the best way to experience Middleby. You can see all of our equipment. You can see everything together. You can see the solutions that we're talking about as it comes to life because of a world-renowned culinary team led by a Certified Master Chef, Russell Scott. The opportunities that have come from having the Innovation Kitchens are measurable. I go back to Kwench.
I go back to C-Stores. Those do not happen if we do not have the Innovation Kitchens. Based off the success of Dallas, we've taken the similar blueprint. We've opened the facility in the U.K. where Middleby U.K. is headquartered up in the top right. The three in Europe have been the last several years. Madrid, Spain, the first one.
Last year opened our very first location in Germany in Munich. The Vemac Italy facility in conjunction with the Food Processing team, which we'll talk a little bit more about. This has become part of the Middleby DNA, right? This is, we've proven it time and time again. There's no better way. It's great to go to a trade show. Yes, you can learn. Yes, you can go to a website. Yes, you can read about Middleby.
There's no better way to experience Middleby than the Innovation Kitchens. Every day there's a building pipeline of opportunities that come from customers and channel partners that come to our mix. My last area going around the circle, I know I've hit everything pretty quickly, is digital sales. Tim says a lot, you know, when you think of digital sales, people say digital marketing.
I think everybody says, okay, hey, do you have a nice website? Yes, we have a nice website. It is important. We have invested a dedicated team, a team that has a tremendous background in all things digital. One of our biggest investments, it's not the most sexy thing in the world, but has been the investment in our PIM, our Product Information Management System. Think about all the brands we have in our portfolio, all the products.
How do we make sure that we have all of the information from a digital perspective for those products in one location, one source of truth that just makes it easy to interact with Middleby from a digital perspective? That PIM now powers everything on the right-hand side, our app that we've given to our customers, our websites. You go through the SEOs, our product catalog.
The most exciting thing that the digital team has recently launched is what we call Middleby Shop. I would encourage you, the website's on the bottom of the screen, shop.middleby.com. We launched this in September. We know that there is a growing, continued growing market of customers out there who want to find Middleby online, right? They know they want to buy a Pitco fryer. They know they want to buy a TurboChef oven.
They go online to try to figure out how to buy that. Oftentimes they can get lost into the world of e-commerce. How do we make sure we grab that customer, we make it an easy experience, they better understand Middleby, but how do we make sure that eventually leads to an order as quickly and easy as possible? That is where Middleby Shop comes in.
Today, if you go to middlebyshop.com or shop.middleby.com, you can learn about every product in the Middleby portfolio. It helps you select the products if you don't know what you're looking for. You can engage with Grillbert, our AI-based customer service agent. Fundamentally, you can go in, select the products that you're interested in, build your own cart, and then it seamlessly works with our reps and our dealer partners to convert that to a quote.
It's the easy button to go hit the order button. We're shortening the time from interest to quote to actual order shorter than we ever have before. I can tell you, I keep saying it today, there's nobody else that is doing this in our industry. There's nobody else that could do this in the industry for two reasons. One, it's the investment that we've made.
You have to invest in everything behind the scenes, which we have. Two, you have to have the right portfolio of brands to do it. Again, this is incredibly powerful, the information we're getting from customers, the data we're collecting from customers. Most importantly, like all of these initiatives, how are we being easy to do business with to fundamentally gain that order and gain market share?
I guess just to wrap it up, I know I fit everything pretty quickly, but I fundamentally do believe that we are taking market share across our respective customer markets. We're gaining momentum with our go-to-market initiatives, and I think, again, it's being driven by several specific areas. The portfolio depth, number one, a global selling organization that's aligned across markets and channels, proven integrated solutions helping customers grow and evolve.
The Middleby Innovation Kitchens, which we've talked about, has become part of our DNA. Everyday customer visits are driving real opportunities. Lastly, the digital platforms. They're not just the nice website, but it's a strategic part of our selling team and initiatives, driving new opportunities like Middleby Shop. I can tell you, I've been at Middleby for 16 years.
I can tell you without question, our selling organization and our selling initiatives have never been stronger. I am very excited about all the work we've put in now starting to pay off and very excited about the future. Thank you very much. Very pleased to introduce my colleague, James Pool, our Chief Technology and Operations Officer.
Thank you. Good morning. I'm going to hit three main topics today in my 20 minutes that I'm going to be with you, or 25 minutes. First is our ability to accelerate innovation at Middleby, which is fairly unique, and that allows us to drive a tremendous number of new products into the field every year.
Secondly, I'm going to hit our continued investments in connectivity and also our investments in trying to digitally automate the kitchen. Lastly, I'm going to cover our efforts to reimagine service and our journey to improve our customer's experience with the Middleby product. Let's dig into innovation and talk why, you know, we're able to innovate so quickly in Middleby.
We'll hit the, you know, what I like to call the Middleby innovation ecosystem. Our ecosystem is really strategically derived from two factors. Number one, our acquisition strategy, and number two, our continued investments in technology platforms. These are what, you know, help fuel innovation at Middleby. We run our brands and our engineering departments decentralized, innovation starts at the brand level, right?
Every new product we have coming out is coming out from a brand, and this is because the brands have the deep-seated knowledge of how to innovate the best fryer, the best combi oven, the best rapid cook oven. They have the know-how, they have the show-how, and they have access to the IP to drive innovation through their organization at a rapid rate.
Once we decide to do a program, meaning we've looked at the development, we've decided it provides a meaningful customer benefit or ROI and a meaningful benefit for Middleby, we start to layer on these technology strategies to the development program in order to fully further accelerate the innovation.
I like to call these, you know, technology synergies that we layer on our Middleby technology toolkit. We have five tools in the toolkit. The first one is our common controls platform. This platform started in 2020 when we went to go standardize controls across all the various Middleby brands to give the small brands, the big brands, access to the latest technology, the best UX and UI.
This has driven a lot of, you know, benefit and acceleration in R&D within Middleby because now our brands don't have to spend time developing a new control for every project that they undertake. Now, invariably, they're gonna have to adapt the control to the new technology, the new product that they're innovating, and that's where our company Blue Sparq comes in.
Blue Sparq is a team of 30 engineers outside of Coral Gables, Florida, and they specialize in hardware and software design. They can take the brand's innovation, they can take our common control platform and adapt it to the new technology. Now, in some cases, you know, our common control platform will not be, you know, adequate for the new innovation.
In this case, you know, we have the ability, Blue Sparq, to redesign the hardware, you know, redesign the software, you know, platform, and we can even bring that to production in low to medium scale. Open Kitchen, that's our investment in IoT. Every new product that we have coming out at Middleby is IoT connected, and this is gonna be important in a minute, and I'll get to that here in a second.
Middleby India Engineering, this is a group out of Bangalore, India, that allows our engineering teams to kind of flex up and flex down on engineering hours as needed. Finally, our secret secret weapon is the team at Newton CFV in Sebastian, Florida, where they are helping us innovate the latest beverage dispensing technologies on the market today, which are helping us future-proof beverage dispense for the industry.
Give me a second here. I need to take a drink. Middleby, what does this mean for our customers? Number one, it means that all the technology in Middleby is organically grown. We own all of our IP, and we're able to readily support IP. You know, a lot of times when you rely on a third party to develop IP and you need support on that IP, their priorities don't align with your priorities, and the project is delayed. You know, I talked about Open Kitchen and the benefits that, you know, that brings.
When we develop a new product, I said it was connected, but when we test that product, it's also connected. Our engineers are looking at that product development in real time. They're looking at the experience of that product in the field, and they're solving problems almost immediately and continuously improving that product.
Many times they're doing that without the customer even realizing that there is an issue because we're getting the data, and we understand what's going on with the product in the field. You know, the Middleby customers, our customers really trust our innovation, and they trust our process.
Now, we have the brands to thank for that, but we also have Steve's global, you know, account team to thank for that because they come in and help us manage that relationship between the brand and the chain during the testing process, thus helping us, you know, streamline communication and very rapidly get that product into approval so we can be selling it to the chain.
I talked a little bit about Middleby India Engineering, a group of 50 engineers in Bangalore, India, and these engineers are there to help the brands with new product development, sustaining engineering, cost out activities. They also have 15 full stack developers on the team in India, and these full stack developers are helping do a lot of the digital work that Steve talked about from the PIM to Middleby Shop.
The other big benefit is, you know, with our team in India, we're able to do follow-the-sun development. While we're working, they're sleeping. While we're sleeping, they're working. We can really double time the engineering hours and crank through projects much faster with the team in Bangalore. Now to the fun part. I love talking about innovation. We have a ton of new products coming out, you know, both on the hot side, Cooking and Warming, and on the Beverage side.
It's actually a record number of new products and a record number of award-winning new products. I don't have time to go through each product 'cause they're only giving me 25 minutes. I could really, you know, geek out and spend 25 minutes on each product. We have a great innovation video playing out in the lobby, so I would encourage everybody to watch the video 'cause it goes through each one of these innovations one by one, gives you features and benefits of the product, so you can better understand what's going on.
The other thing that I wanna point out is these aren't just, you know, minor improvements to an existing design. These are really fundamentally new innovations that bring a tremendous amount of automation to the kitchen to provide our customer that benefit to where these products drive meaningful ROI. I'm gonna jump in. I get to pick a favorite. Now, everybody would normally think I would pick TurboChef because that's where I grew up in the industry.
I'm gonna pick the Pitco TorQ fryer. This is the first ever commercialized continuously filtering fryer on the market. What does that mean? That means as we're frying, we're continuously filtering the oil and filtering that particulate out of the oil. It's the particulate that denatures the oil, causes the oil to go bad, and thus for you to have to dispose of the oil. A traditional fryer, you fry, you filter, or maybe you don't filter.
You fry, you filter. You have to pump that oil back in the fryer. It's a process. Depending on how well you filter or how often you filter, you know, drives the life of your oil. Since we're continuously filtering in the TorQ fryer, we get near infinite oil life, thus driving oil savings and a massive ROI for our customers.
I really do believe the TorQ fryer will change frying in the commercial food industry for freezer-to-fryer type products and very excited about it. I'm pretty excited about everything else too. The beverage innovations. We have six groundbreaking beverage innovations coming to market.
I would like to point out one of them has been on the market since the beginning of 2025, but the other five on the screen have either just come to market or will be coming into the market at the end of the year. Every one of these products on the screen have a tremendous amount of customer interest or pent-up customer demand behind their launch. Again, these are all part of the innovation video in the lobby, so again, encourage you to see that. We also have someone special in the lobby. We have Jillian Callahan. She is the President of Newton CFV.
Remember, they were that fifth tool in the toolkit, that company in Sebastian, Florida, that really has helped us unlock beverage dispensing technologies by developing a unique valve that future-proofs beverage dispense. She can talk to you about the three products we have in the lobby: the Sip, the Gravity, and the Fizz Bot.
Please, when we're done, spend five to 10 minutes talking to Jillian, 'cause she'll be able to go through these products in great detail. The one that I'm gonna, you know, pick on or talk about is the new NextGen FDM from Taylor. This is a new innovation that the Taylor team really did such a good job on in driving through so many innovative new features to this product.
It literally doubled the cost of the product for the customer that we are developing it for. Even with all that technology and the features and benefits that we add and the cost that we added to the product, the customer is still seeing a less than six-month ROI on this product that costs twice as much as the product, it costs. Why is it doing that?
It's doing that because of the automation that they've embedded in the new NextGen FDM. That automation is all around cleaning and operation. On the cleaning side of it, they've increased the time between deep cleaning breakdowns from 28- 96 days. That means you only have to break this machine down and clean it every 96 days, up from 28 days.
We've also reduced the daily clean cycle by 50%, down from like four hours to well under two hours. Lastly, with the new cleaning features, we can now dispense product while the machine is being cleaning, which allows our customers to dispense product at a near 24/7 rate in the restaurant, which helps them drive incremental sales because the machine is never down for an extended amount of time in the restaurant.
Tim talked about Open Kitchen. I talked about Open Kitchen. Let's do a deep dive in Open Kitchen. Open Kitchen is our restaurant automation platform. It is the only enterprise IoT platform on the market, period. What do I mean by enterprise IoT platform? I mean it has front of the house automation with HVAC, lighting, and energy management.
It has middle of the house automation with HACCP reporting, labor tracking, and cold chain monitoring. It has back of the house connectivity with the products to allow us to push menus for LTOs, new firmware to the products, but also to get alerts from the products to tell us when there is an issue with the product in the field so we can react to it. I will also tell you that Open Kitchen is the only OEM-agnostic platform on the market. We have 32 other competitive OEMs on the platform for the benefit of our customer.
Nobody else in the industry has it. They either have front of the house, middle of the house, or back of the house, but nobody has a single pane of glass that has all three elements working together, for the sake of automation. Powerhouse Dynamics, a group of 54 people in Boston that we acquired in 2019, while they are, you know, working to develop the latest, greatest IoT platforms, they're also supporting over 18,000 locations in between the U.S. and Europe, with over 85,000 pieces of connected equipment in the field.
Open Kitchen is not vaporware. It is a very much a scaled solution on the market today. Now, getting to scale was kind of a unique challenge for Middleby. When we acquired Open Kitchen in 2019, we had kind of a oh no moment when we realized that our controls were not capable of being connected.
That's what really launched the common controls strategy in 2020. It took us from 2020 to the end of 2024 to build up enough critical scale, meaning putting enough connectable controls on Middleby product to where we could legitimately sell a complete kitchen connectivity package.
We hit that at the beginning of 2025. Because of that, we believe we're gonna be able to very quickly start to ramp up our connectivity sales at Middleby. If you wanna think about a TAM, this is gonna be the Middleby TAM. In 2025, we produced 60,000 connectable products. We connected 4,200 of those products, about 7%. There is a lot of growth between that 7% and 100% for us, you know, over the next several years.
Because we have scale, we are now able to do it rapidly, and this curve should start to go- Now. Now, how do we monetize Open Kitchen? We do it three ways. First is our enterprise SaaS sale. Enterprise SaaS sale, that means we're selling the front-of-the-house automation, the middle-of-the-house automation, and back-of-the-house connectivity. It's the complete Open Kitchen platform. We're also selling connected equipment SaaS.
That means as our dealer is selling a Pitco fryer, a TurboChef rapid cook oven, a Blodgett Combi, or all three at once, they're also able to sell connectivity at that point of sale, further driving installations of Open Kitchen in the market. What I'm most excited about is in 2025, we won $45 million worth of rollouts because of connectivity.
Let me say it differently. If we did not have connectivity on these products, we would not have won had we not invested in Open Kitchen in 2019 all the way up through today and driven connectivity throughout the Middleby brands. Because we did that, we added over $45 million to our 2026 and 2027 revenue.
Connectivity is been a very big game changer for Middleby. Now, with all the great innovations that we have coming down the, you know, the pike, you know, comes the need for service. No matter how good we are as engineers, things tend to break. Korey's over here shaking his head.
When they break, you know, you've really gotta, you know, put the full effect of your service team on it to make sure that your customer is well taken care of in the timeframe that they expect you to. I will tell you that service has not recovered from COVID. Our service response times, our first-time fix rates are all way out there. Again, it's really because of COVID.
Before COVID, we used to be able to fix a product typically in under 24 hours. Now that we're outside of COVID, you know, we're generally around three days, and we're trying to drive that back down to a day. The other challenge that we have in the industry is the way service is conducted. We go to, you know, the service network through independent third-party ASAs. The challenge is these ASAs do all the same work that they do for us, for our competitors, which means everything is transactional.
There's really no way for us to strategically partner with that agent 'cause he essentially has the same relationship with our direct customer. What we decided to do is step back and take a three-prong approach to reinventing service at Middleby. The first step is to create a new Middleby First service network, and this network is going to be comprised of service agents who are exclusive to Middleby and are strategic partners to Middleby and are contracted to put Middleby's needs and our customers' needs first.
We're also building out a new lifecycle management tool by the name of AMI, or Advanced Middleby Insights, and this lifecycle management tool is designed to help the brands and our chain customers manage warranty and manage life after warranty through insights, reporting, and a whole bunch of AI that I'll talk about a little bit later. When I take these two items together, Middleby First and AMI, that allows us to expand our product offering with our Middleby Advantage service platform.
Now we can start offering services to our customers to where we can start driving service revenue beyond our historic parts sales. The Middleby First network I think is on the same journey as Steve mentioned about his reps. Remember he talked about taking the rep groups down from 156 reps to 16. Well, our brands today service their customers with over 1,000+ ASAs in the market.
Again, these are all transactional ASAs. Our goal with the Middleby Service First network is to whittle that down or distill that down to a little over 100 strategically aligned service partners who are contractually obligated to put Middleby first and our customers first. We started the journey in 2025. We're continuing it through 2026, we should be at the goal line or the finish line of our journey in Q1 of 2027. AMI, Advanced Middleby Insights, is our lifecycle management tool.
This is just kind of an engineering block diagram of all the features that AMI has embedded in it. Very simply, it's here to help us manage warranty, dispatch service, produce reliability reports, warehouse data, such that our customers and our brands can understand what's going on with their products at any one time. I encourage everybody to spend a little bit of time on this slide just to see all the great capabilities that AMI is gonna bring to Middleby and service.
Where I get particularly excited is now that we have AMI, we have this tech stack that we've evolved around AMI, that tech stack includes Open Kitchen, right? As I have issues in the field, Open Kitchen is reporting that service instance to AMI, which then creates a service ticket, which then automatically dispatches the call to the service agent. That means a restaurant manager is no longer having to spend time on the phone calling Middleby for service. Number two is we're embedding a ton of AI into AMI.
We have this Ask AMI feature, which then queries our Middleby data lake. The Ask AMI feature is a great tool for the service tech, 'cause as that service tech is en route to fix the Pitco fryer, sorry Phil, or the TurboChef oven, he can, you know, type the serial number into AMI, and AMI will then go out to the data lake and it'll come back with a very concise, condensed service history of that product.
If that technician further has a, you know, deep technical question of, "Hey, you know, how do I resolve this issue? I haven't seen it," he can ask AMI, and if AMI knows it, he'll know it in about a second. We also have an AI parts predictor that, when a service agent is going to a call and looks at the reported fault, well, that AI parts predictor has already scrubbed all of the historic service records, and it'll recommend to the agent the service part or two that he or she needs to effectuate a first-time fix rate of 90%-95% before he even leaves the warehouse.
So he's ensured to have the right part on the van every single time. Lastly, we have Middleby University. This is our learning management platform that is built into AMI. Our service techs are able to stay current on our new products and our existing products by taking short refresher courses. We also track that on AMI and give them credits, which then go towards certain, you know, incentives that we offer our new Middleby First service agents.
We talked about Middleby Advantage. Middleby Advantage is really leveraging this new captive network that we have with Middleby First. It's managing all the data that AMI is, you know, providing to now allow us to be able to go offer these managed services to our customers, such as installation services, bundled installation services like Kwench or the C-store program that Steve had talked about, extended warranties or even selling Open Kitchen connectivity.
When you take Middleby First Service, AMI, and partner that or pair that with Middleby Advantage, we really do come to a point where we have best-in-class service in the industry. I am out of time at exactly 25 minutes. I'm going to introduce Korey Kohl. Korey Kohl is the Group President of Middleby Beverage and Ice.
Well. I have lost a monitor, so bear with me. First off, I'm gonna be just talking about operational excellence. Some of you are gonna be wondering, why is an Ice and Beverage guy talking about operational benefit or excellence? Twofold. One, James stole all my good source and information.
Two, I've been in the commercial food service industry for 43 years. 35 of those have been on the operational side of the business. Worked through a lot of different things, and I'm gonna apologize as I kinda turn since I can't see what I'm talking to up front here. We really, as part of the operational excellence, are focused on, we take the scale and leverage that comes along with Middleby.
We also take the skill sets at the centralized location, and we work very, very closely with that. This whole roadmap is to target a 200- 300 basis points. Tim mentioned 200 to 400 earlier for the overall. As you mentioned, about a third of that is from a volume impact. The rest of that comes from things like we're gonna talk about right now. Like to talk a little bit our manufacturing locations.
We have 38 locations globally. 10 of those we refer to as our manufacturing centers of excellence. Those are multiple branded locations, so it's not just geared towards one particular location. We have 22 independent brand manufacturing locations. We'll take a couple of examples on the one of the 10, the center of excellence, we'll use Star, which is located in Tennessee.
It has 11 different brands of products coming out of that facility. When we purchased the Standex hot side of the business several years ago, there were a lot of common items that were in that product portfolio that were also at Star. We consolidated that all into the one location in Star as far as the assembly goes. We kept the manufacturing and fabrication in Nogales, Texas, and that became a shared service center.
Shared service center is a vertically integrated high volume facility that gives us the ability to help and support our sister companies as we do the fabrication and vertical integration. Couple things I wanna point out about the first 32 facilities is we feel we've done a good. There's work-life balance in your job. There is a centralized, decentralized balance in our in our factories.
What we try to do is we have resources that are still centralized at the main facility, very dedicated, and we're gonna talk about those in the next several slides. The factories themselves are very, very decentralized. We're responsible for our own P&L, our own engineering, our own selling, our own operations, and it allows us to be very flexible, nimble, and responsive.
The various categories that we're gonna talk about are listed up here. I wanna highlight that the centralized team associated with each of these, there's an expert team for each one of those categories. Again, a strong resource for all the individual brands to pull to and to work to. Supply chain. Our supply chain teams manage about $850 million worth of spend.
Again, somewhat centralized in that we have a team that allows us to negotiate steel pricing in particular, but they also work with all the brands. We use them a lot when we acquire companies, bring them on board. They're part of the onboarding process with making sure we're using approved suppliers.
We have what we call the Middleby Yellow Pages, which is a booklet of approved sources by category. We have a new company come on board, maybe needs to get into injection molding. We have a approved team of injection molded suppliers out there. It's again, one of the collaborative supplier relationships to where we work very closely with these groups and to grow the business and to bring it forward.
We have a targeted savings by using these teams of roughly $35 million cumulative over the next couple of years. As part of these teams, I also wanna highlight we do have weekly phone calls. Every Monday morning at 10:00 A.M. Central, all of the supply chain teams get together. They have conversations on best practices.
They have conversations on where they're running into trouble in the industry, how they're fixing it, very different suppliers and how we're working that all together. Product line simplification, PLS. Very near and dear to my heart. Done a lot of this over the years. A lot of people will hear it referred to somewhat as 80/20. Basically, we've got 20% of our customers drive 80% of our revenue. 20% of the products drive 80% of that revenue.
We spend a very disproportionate amount of time on the other 80% of the products and the other 80% of the customers. What we wanna do is we highlight very, very closely and focus on the high volume customers that are buying the high volume products. We take the low volume customers, try to drive them to the high volume products where it makes sense for them.
We do a lot of things to standardize the lines, and I'll show you in just the next slide some examples of things we are doing at Taylor to do that. Again, all of it is about simplifying, removing complexity, making life easier on your factories, on your facilities, on all of your people in the teams.
The other thing that comes with this is as we reduce the amount of products that we're trying to support and maintain, we now have engineering resources available to work on other product. Instead of trying to maintain and sustain existing product lines, they're actually developing new products, high volume products, higher margin products, increasing our road to profitability.
PLS, again, this is a case study at Taylor, specific to Taylor, and this is specific to the freezer portion of that product line. Over $100 million in revenue today for these product lines. Through PLS, we are reducing the number of modules from 462- 123. 73% reduction. Again, huge simplification. The idea behind this and what it did do at Taylor is it's driving 500 basis points, improved EBITDA margin or gross margin, I'm sorry, for this particular product and family.
We're now gonna take that through the rest of the freezer lines, and then we'll be taking it through the hot side of the lines as well. Overall, on the freezers, we anticipate cutting from 1,004 independent bill of materials down to 309. One of the other benefits is by simplifying this product, reducing costs, being able to be more competitive in the market, it's gonna allow us to take these higher volume products to the general market, which is higher margin, but we should see an approximately 18% revenue growth. Teardown and benchmarking.
This is another great practice, done this many times. Sometimes it can be extremely simple. An example is when we were looking at buying Kloppenberg, and we're looking, they are an ice bin manufacturer. We already own Follett, which also has an ice bin line. Simple thing, we took a look at the weight of the bins. We felt Kloppenberg had a cost issue. Kloppenberg bin weighed 45% more than a Follett bin.
Right there, that told you we had a material issue, overbuilt, overengineered. They were extremely proud of it's what was killing that business. We went through, and we worked and developed and reduced the cost. They had features like a single-piece bin where Follett's was a multi-piece. Customers liked each one. This gave us the ability to deliver both of those particular needs.
Where we really did a deep dive is on the ranges. This is commercial, related to Southbend, but in the benchmarking we did, we had a couple different Southbend grills, ranges. We had some other sister brands, such as Imperial and Lang. We had the heavy duty, residential, such as Viking.
We had competitors' grills. We brought them all inside. We did a deep dive on every one of them. We took a look at best practices. We were able to take some of those best practices. As an example, you see there in the gas train, between the burners, the valving, the controls, we're able to save 25% in cost of those products.
The other benefit is we found the most efficient burners in that process, and we were able to carry some of those burners, which I wanna say came from our Viking line, into the commercial product lines as well. It allowed us to take and bring overall benefit, allow us to be more competitive and a very high-quality product through the process. Last thing I wanna talk about is M-Lean.
Again, this is a play on lean manufacturing, but it's taking the best lean manufacturing practices, taking Industry 4.0 practices, taking the best of all those worlds and building them into our factories. We have a team, James mentioned a team in India related to the innovation side. There is also a team in India related to the M-Lean side and to the digitizing side of factories.
Effectively, we have the digital twin models to where we will take an actual factory layout, we'll set up a digital simulation of that layout, and we can rearrange and move things around and understand where the most efficient way is to lay out that particular factory. We've taken the digital model, we've laid it out, we run real-time data, we understand what the real savings are gonna be, but then we actually take it down to the final level to where we're going into the actual workstations associated on each one of these lines.
We optimize that workstation, reduce the number of steps that are required, make sure we have the parts there when they need them. We are able, through animation, train the new hires as we bring new employees on. One of the big difficult things when you bring a new employee in is you train them. You have now taken an existing staff member, you just reduced their capacity by 50% while they're trying to train this new person in.
While using these digital tools, we still do some of the hands-on, but we're able to do a lot of the digital and the virtual training with them. They can actually click the video as they are going to the next steps in the process to make sure they stay caught up, stay trained, and are following all the appropriate steps to make sure we're building a very high-quality product. Shared fabrication services. I mentioned earlier the Standex acquisition, that we kept the fabrication in Nogales, Mexico. We have three of these similar type facilities around the world.
Some of our factories are very, very vertically integrated. A lot of our factories are not. They're more of an assembly type facility. We were paying third-party companies to do these fabrications. They were getting the margins on them. By using this facility, which it was very strong technically, very high-end fabrication equipment, we're actually able to take and use those benefits within Middleby to support Middleby.
Our sister companies have seen anywhere from 10%- 50% savings on products coming out of this facility, especially if you're comparing it to things coming out of high tariff countries. We're able to manufacture it and fabricate it in Mexico, bring it into the U.S. with no tariff. It is a huge impact and benefit and has been great to many companies. All right. With that, I'm gonna turn it over to Brittany Cerwin, our CFO.
Thank you, Korey. All right. My goal today in the financial section is to bring together all the initiatives that the team has just talked about and translate those into our financial foundation that will allow us to have sustained organic growth in our outlook that we are about to present as we stand up as a pure play Commercial Foodservice company. There's four key growth drivers that I'd like to emphasize that give us confidence in our growth strategy.
First is scale. Middleby, for the past 25 years, has been a disciplined M&A strategy that has grown the commercial platform to more than $2 billion in revenue. This scale, Combined with the deep product portfolio, serves as a key strategic advantage to accelerate our growth and profitability. Next is innovation.
As James highlighted, our Commercial Foodservice companies outpace the competition in earning awards recognizing innovation. This demonstrates our commitment to our customers to drive technologies that will fuel our growth pipeline. We invest and partner with our customers to bring solutions that address their efficiency needs and address emerging trends in the foodservice industry.
We already have, as we begin as a standalone company, industry-leading Adjusted EBITDA margins of near 23%. We have conviction in our margin expansion plan that will further optimize our operating model that we began heavily investing upon through all the strategies the team just covered. Finally, we have a strong, proven track record of delivering strong free cash flow built on our sustained organic growth, strong margin profile, and low capital-intensive operating model.
This allows us to reinvest back into our business and also provide a meaningful return back to our shareholders. Let's take a minute to highlight some of our financial profile statistics. First of all, over the last 15 years, from 2010- 2025, we've recognized average organic net sales growth of 4%. This shows the resiliency of our portfolio through macro and industry trends.
Our strong Adjusted EBITDA margin profile is witnessed at the 23% total company Adjusted EBITDA margin, which includes about $80 million worth of corporate costs, and our 27% adjusted segment EBITDA margins give us a modest baseline to build upon for the future. While we've been executing over the last 15 months portfolio transformations, we have remained dedicated to deploying the vast majority of our free cash flow to our shareholders.
We spent more than $1.2 billion, or equating to about 15% of our shares outstanding, over the April 2026 LTM period on repurchases. This was feasible due to our targeted free cash flow conversion of near 100% and our strong organic growth. These charts here really highlight the Commercial Foodservice segment historical performance. We just highlighted the average organic net sales growth over the last 15 years.
What that sales pipeline has also proven is that over that same time period, we executed on 40 platform building acquisitions. Those acquisitions allowed us to build from the ground up the Beverage and Ice platform and heavily focused on technology investments. On the Adjusted EBITDA side, the segment margins over the last 15 years have averaged between 26%-29%.
What we wanna highlight here is over the last few years post-COVID, there have been two factors that have caused a little bit of compression in our margins. First is the macro trends associated with longer lead times, inflationary costs, and tariffs. While those, you can put together some operating initiatives to reduce those, you'll still have some short-term headwinds before strategic pricing actions can offset those.
Also, we've highlighted today the investments that we have prioritized in our go-to-market strategies and our technology advancements over the last few years that we also believe will set us up and position us for growth into the future. Okay. Now let's take a few minutes to focus Middleby's financials as a standalone company. These results reflect restating Middleby's financials without Food Processing. Starting in the Q3 of 2026, the Food Processing segment will be reported as discontinued operations.
We have reflected here the 2025 numbers without Food Processing. On a net sales basis, going from 2025- 2026, we have sales growth expected at the midpoint of 5% of organic growth. This aligns to our guidance that we put out last week in conjunction with our Q1 earnings release, where we increased our fiscal year 2026 guidance to be between $2.44 billion and $2.49 billion for sales growth. In 2026, this would result in us achieving $2.465 billion in sales.
We believe through our strong Q1 results of 8% organic growth, that we are starting to see some inflection in the demand within the Commercial Foodservice business. On our Adjusted EBITDA margins of 23%, inclusive of the corporate costs, we believe our margins are resilient right now as we navigate some current mix impacts and the headwinds in the first half of 2026 from the carryover of 2025 tariffs.
As announced in our most recent quarterly earnings results, we are facing current inflationary headwinds in the areas of freight and control spend associated with AI. Finally, a number we are greatly proud of is our adjusted EPS growth that we expect in 2026 of high single-digit 9% growth. Let's walk through the bridge going from 2025 actuals to 2026 expected results. This chart is going to highlight some of the key drivers to the changes and headwinds that we faced coming into 2026.
You will see a $0.34 impact associated with increased interest costs as last year in September of 2025, we had the maturing of our $750 million convertible notes. Those notes had a stated interest rate of 1%. The $0.34 represents our increased interest costs that we'll face through Q3 of 2026.
You will see a significant increase in stock compensation costs of $0.43. This is coming off the fiscal year 2025, where we had several reductions in the performance tranches of outstanding vestings. Let's talk about the fun stuff, the growth drivers. The $0.09 improvement you will see is associated with the over $200 million dividend that is expected once we spin Food Processing.
Also, you will see a 45% increase in adjusted EPS that was driven by the $565 million of proceeds that we received earlier this year as we sold 51% of our investment in our Residential Kitchen segment. Finally, the number that's the biggest on this chart is the $0.80, which supports our strong organic growth. Let's go into what you've all been waiting for.
Even though Tim stole my thunder a little bit earlier in the presentation, let's walk through in these next few slides, what are our key drivers of growth and targets for the next three years. On a net sales basis, we expect to achieve 3%-6% organic revenue CAGR. This is driven one-third by industry growth, and the other two-thirds is really executing on the initiatives that the team put forth.
On the Adjusted EBITDA side, we're expecting to achieve 6%-9% organic CAGR. This is driven by our volume and our operational excellence initiatives that Korey highlighted earlier. Using those same volume-driven scale and operational excellence initiatives, we also expect to expand the Adjusted EBITDA margins by the year 2028 within a range of 200-400 basis points.
This will also include some impacts of favorable mix and our disciplined cost management and sustaining margin expansion. Finally, on the adjusted EPS, we expect our three-year target to be a 10%-15% EPS CAGR. This will be supported by the net sales growth, our margin expansion, and our disciplined capital allocation priorities. Let's talk about the net sales growth initiatives that are ahead of us.
As we said, one-third of our expected growth is to come from the industry growth. We believe post-COVID, we are coming off some pent-up demand in the replacement cycle, given prolonged cost pressures face restaurant operators. Within this industry growth, we have included what we believe as some of our realized pricing that will go through expected on an annual basis of about 1%-1.5%.
Here's where the exciting growth initiatives come in and really center around everything that James, Steve, and Korey talked about. First is through product innovation. This is a core competency to Middleby. Our customers value it and expect it as they're addressing the needs of their business.
Our recent investments in IoT, automation, and particularly in the Beverage and Ice segment, have positioned us to address industry trends and demand with a clear line of sight to organic growth. Let's not forget, embedded in Middleby's DNA is a true pipeline on the Cooking and Warming side of product innovation.
James highlighted one of them, the TorQ fryer by Pitco, also the NextGen grill by Taylor, will also provide a strong pipeline into the future. Let's move into the go-to-market initiative that Steve highlighted. We had a complete transformation of our go-to-market strategies that made Middleby easier to do business with.
This included consolidating our third-party reps, enhancing our partnerships with our top dealer and chain customers, and really putting differentiated tools to support our sales strategies, such as the Middleby Innovation Kitchens and extensive digital training and educational content to really showcase the breadth of our portfolio and the expansive ROI our customers can get from our equipment.
Where the most recent investment we've been talking about is on the aftermarket sales and service side. As Tim mentioned earlier in his slides, parts and service, combined with the replacement business of Middleby, represents 56% of our 2025 actual sales. This is a solid recurring revenue base that through the advancement of our service network, we expect to expand upon.
We are going to be leveraging Middleby's scale and relationships to launch a digital platform that provides real-time insight to addressing and improving quality throughout our products. We feel that these investments will and have made our growth strategy focused around the voice of our customer and position us to deliver sustained organic growth ahead of what we anticipate from the industry.
Now let's dive deeper into the three-year expected margin expansion on Adjusted EBITDA margins. Starting in 2025 at 23%, we expect our range to, by 2028 to be within 25%-27% of Adjusted EBITDA. As discussed on the previous slide, we expect that volume will continue to drop through with strong contribution margins in excess of 30%. Next, we want to focus on what Korey highlighted earlier, and that is by leveraging Middleby's scale to expand our margins.
First is primarily within the supply chain areas. We have been able to centralize, spend, and evaluate those for future savings. We've built up 10 manufacturing centers of excellence, which really have gained manufacturing efficiencies across product technologies. Korey also explained about us expanding our capabilities in-house to drive divisional operational excellence.
We're utilizing this through product teardowns, through product line simplification, and lean manufacturing. Those divisional case studies that Korey highlighted are going to be proven and repeatable tactics that we can drive margin expansion throughout the rest of the platform. Finally as our customers adopt new product innovations, we realize the scale in manufacturing those. It will further expand our margins and improve our mix. Our mix benefits don't stop there.
What we'd like to do over the next few minutes is take you on a journey of where Middleby has been in our portfolio Pareto initiatives. The first three lines on this chart are really where Steve had focused on the go-to-market initiatives. We have been driving organic growth that we are starting to realize here in the beginning of 2026 and believe will position us for sustained growth through 2028.
That consolidation effort that Steve mentioned is where, for the service agents, we feel we can also gain great leverage by building strategic partnerships on the aftermarket service. The last two lines on this chart are where we're just starting to scratch the surface. The product line simplification is where we will continue to have concerted efforts to drive this through the platform.
The margin expansion will be realized through sourcing, through scheduling, and through the manufacturing operations. On the commodity spend side, Tim mentioned this earlier. Our global supply chain team has really been operating over the last few years on a defensive mechanism, really trying to address those macro trends of long lead times, inflation and tariffs rather than being able to focus more of their time on the strategic pricing and sourcing initiatives that will position us for further margin expansion into the future.
We've embedded in all our division leadership as we have annual budget and business reviews with our division leadership and our executive leadership team. The focus is on financial growth, but there is detailed analysis that supports those models using customer and product volume and profitability to address any needs of rationalization or strategic initiatives to address outliers.
A prime example of this was as we were within COVID, Middleby faced a regression in top line in front of us. We made the strategic decision to rationalize over $100 million in net sales across two of our product lines in commodity products that we offer to the market. This positioned Middleby to come out while on a lower top line, a more profitable and seamless operating model going forward.
We believe that this list will expand and evolve as we continue to provide a consistent margin opportunity. Our strong free cash flow and balance sheet position is evidenced by these statistics. Our targeted CapEx in the near term is expected to remain under 2%. This is where our historical spend has been and primarily used to invest back in our manufacturing operations and provide automated equipment to gain efficiencies in our operations.
As we mentioned earlier, we have strong free cash flow generation and expect that in the midterm to remain at near 100% of adjusted net earnings. By the year 2028, we expect our free cash flow to be near $400 million given our profitability of the company, our organic growth strategy, and also the low capital intensive nature of our business. Our targeted net working capital is expected to be around 20%.
As mentioned in the Product Line Simplification and other operational excellence initiatives, we expect that we will benefit from simplification driven through the manufacturing operations here. Finally, through all these statistics, we will remain balanced with a 2x-3x targeted net leverage, which we believe supports our strong balance sheet position and ability to execute our capital allocation priorities as shown here.
Our first priority is always to reinvest organically within the business. We believe that we have to maintain the growth of our existing business by investing in the capital expenditures to improve operations. The return of capital on a consistent and meaningful basis to our shareholders remains a disciplined priority for us with deploying the majority of our free cash flow towards share repurchases.
Finally, Middleby was built on an M&A strategy, and while we have scaled the platform, we will continue to evaluate any potential opportunistic or strategic acquisitions that could enhance the portfolio. As previously noted, we will maintain all of these priorities while operating within a 2x- 3x net leverage ratio.
Hopefully, as we believe with a conviction, this presentation has demonstrated Middleby's foundation of historical performance, and as we start our next journey as a pure-play Commercial Foodservice business is poised to benefit from immense organic growth opportunities in the near term, a renewed focus on clear strategic initiatives to optimize our operating model and deliver solutions to our customers while returning consistent value to our shareholders. All right. At this time, I'm gonna call the rest of the management team back up, and we'll open it up to Q&A.
There you go. Yeah.
Okay. I'm gonna be taking questions. There should be some mics in the room, and if everybody could just say their name and their firm before they ask a question for the webcast. We can start with Mirc.
All right. Good morning, everyone. I'm Mircea Dobre with Baird. Appreciate all the effort that went into the presentation. Lots of detail here. I have a lot of questions, but I'm just gonna start with one. Your commentary on service I found to be very interesting and very different than what I have heard from Middleby in the past. I just wanna maybe clarify a couple of things here. As I understood it, you're sort of applying a very similar strategy to what you've done with the reps to your service operation. These folks remain independent third parties
At the same time you talked about Middleby being able to derive some service revenue, so if they're third parties, presumably that revenue accrues to them. I'm trying to understand that distinction and that difference. In a optimal state of Q1 2027 and beyond when you have this network all set up, what does that do in terms of driving your ability to grow?
How does it differentiate you relative to your competitors? I mean, we all know, for instance, that ITW has a pretty comprehensive service offering. What would you look like relative to someone like that?
I think we're trying to build a different service model. Ours is less capital intense, so we're really trying to drive it on the brains, the data, how do we stay with that customer on the life cycle. I think that's why the AMI platform that James talked about is so important because having information, just like we see with IoT, is kind of a game changer.
A lot of customers don't know what's happening in their own operations, and being able to track data over time, data is kind of power, and then you can then tie that to an ROI of a piece of equipment, which is very important. If you can tie that into the upfront sale, that is very powerful. I mean, I would say just that whole data element is something that's unique relative to others in the industry.
Being able to do that at scale, right? I mean, as we talked about leveraging the platform a lot. If you can do that across a whole kitchen, whether it's ice machines, fryers, speed cook, and you can facilitate, you know, the customer seeing really what's going on across their kitchen, we think that's a competitive advantage.
The first benefit of that is frankly selling more equipment, because if you can do that, then you can really tie that into an ROI to a customer. Again, you're talking about one of the biggest pain points to customers, which is service, right? Like, it is not only a nuance, but it takes your kitchen down, which you've got a loss of revenues. It's an employee situation. Service is very expensive.
You know, maintenance, there's a huge ROI just by avoiding a service call. Controlling that aspect, there's a lot of value there. I think, having the captive network, I mean, you're aligned and tied together. Maybe we don't have the trucks and the parts, we don't necessarily want to manage all that. We just wanna have aligned partnerships that can execute the same understanding and expectations of KPIs, et cetera.
Number one is sell more equipment sales with higher ROI to the customer with less pain points. It's like, well, what kind of managed service programs can you have? How do you tie IoT together with services? There's a number of different revenue models that you can have without actually having all the feet on the street trucks, et cetera. That's kind of the general direction that we're headed.
Go to Jeff. Okay. Since you have the mic, I'll go to Tami. Sorry, Jeff. She's next.
Hi. Good morning. This is Tami Zakaria from JP Morgan. I was wondering if you could shed some light on how long the replacement cycle for cooking equipment is, and over the life of the product, what's the average service opportunity versus the original cost of an average equipment, and how much of that do you capture now, and is there a target to raise that to a certain level by 2028?
Could you wanna take the first part?
Why don't I start the first part. When we think about the replacement cycle on the equipment, I would say it's tough because obviously we have a broad portfolio of products. I would say you know, seven years is kind of the rough average life that you would expect. You know, we've talked a lot about that just given that we feel like we've had this deferred replacement cycle, which is not the what you're asking, I would just be remiss in not mentioning that.
Another great opportunity we feel like we could capture some growth. seven years is just, say, the average life cycle. Maybe my kick over to James is, you know, really that first year or first or second year when the product is in warranty is obviously when we have the most visibility into what's going on with our customers from a service-related standpoint.
We oftentimes do lose visibility once it gets out of that, you know, that timeframe because it's going to a broader range of people who can fix it. I think that's obviously a big benefit to what we're doing with the AMI platforms.
Yeah. I would say one of the big drivers of AMI is really giving the brands visibility to understand what's going on in warranty and out of warranty such that we can improve our products. When I was running engineering, I, you know, used to tell my team the single biggest cost reduction we can do for our products is making them more reliable.
Avoiding, you know, service in that first year or second year, however long that warranty period is, and having good actionable data will help the brands achieve higher levels of profitability through lo wer warranty, you know, spend. You know, AMI's also, along with this network, going to enable us to unlock these managed services.
Even though we're not running the calls, we will still make, you know, margin on these managed services, such as bundled installation, installations, PMs, and, you know, extended warranties to where we can start moving our service revenue from 17%, you know, slowly, you know, tick that up, you know, a few percent.
That's what we're trying to do with service. As Steve said, you know, anybody can sell one product. It's the second product that's the hardest to sell, 'cause how well you take care of that product in the field, will dictate how apt that customer is to, you know, buy another product from you. With our renewed service effort, we believe that service really can be our best-selling tool.
Good morning. Jeff Hammond, KeyBanc Capital Markets. Maybe to focus on the financials. One, are you assuming in that 10%-15% earnings growth that it's 100% buybacks? Or how should we think about the split of M&A and buybacks going forward? Then it looks like in the bridge, your incremental margin is kinda 40%-50% to get to those incrementals, which seems pretty healthy. I'm just wondering a little more color on how you hit those incrementals and maybe what opportunities there are to take out of corporate along the way.
First, let me start with, like, the assumptions that we put in there on the adjusted EPS earnings. We kind of assumed that there would be a healthy balance between about 50% going to share repurchases and some debt repay down as well over those periods. As we look into the margin, incremental margins there.
We've got a few things right now where we've got some mixed headwinds that we talked about, we also believe a lot of these operational initiatives that we're putting through for operational excellence will continue to have, you know, the benefits and those margins and really allow us to expand and achieve those as these volumes grow. I think we believe that really our margin expansion that we're showing, it's not based on solely volume growth.
It's really dedicated by what we've been putting through the factories and what we've been focused on strategic initiatives that should really help us expand those margins. Also, probably the final thing too is the product innovation. James highlighted we're selling equipment that is higher technology-based, which drives a higher ROI for our customers and associates with the higher sales price. As you continue to get leverage on those new products, it'll improve the mix as well.
We'll go to Tim in the back.
All right. Thank you again for hosting. Just a first question on the residential, the forecast that you've laid out. Does that assume ownership of your stake in the residential business or is that just-
Yeah.
-potential optionality?
Yeah. The ownership interest, the 49% that we'll start to get in Q2 of 2026 associated with the Residential Kitchen business, we've excluded those from our adjusted EPS projections, as we really don't believe that's core to our future platform.
Okay.
That is not baked into any of those EPS assumptions.
Potential monetization of it.
Not at this time.
Okay.
Not in the near midterm.
Okay. Maybe a separate one on Steven, you spent a lot of time going through the investment and the work you've done with a lot of those high-profile brick-and-mortar dealers. Maybe just speak to kind of how the online channel is developing. You know, Clark is now almost a $4 billion entity.
You know, Middleby's approach in terms of how you plan to participate with that, you know, fast-growing segment of the market, and what implications that may have in terms of as you think about mix and pricing going forward, if there's any kind of an interplay there, to the extent you become more active in that space?
Yeah. It, Tim, thanks for the question. It's a very good question. Matt, I think that if you look at the big e-commerce dealers, obviously Clark is by far the biggest. They've had a phenomenal run of growth. Actually, we're being recognized as the dealer of the year in our industry next week at NRA, which is appropriately so.
There are a handful of other pretty significant e-commerce players where we have a very strategic relationship with. I will pivot to saying this, emphasis around more and more customers going online to buy products is the big driver of why Middleby Shop was so important, right?
We have to control our own destiny because it's great to have our products have a strategic re-relationship with a Clark or others, but it's also once you go to a website that maybe Pitco took you there, but if it gives you the opportunity to potentially, you know, move to a different product because of how it's being displayed online, that's obviously what we're trying to avoid with Middleby Shop, right?
I think the fact that we're investing so much in this digital platform, again, is to control our own destiny, to get make it as sticky as possible between the online customer coming and buying Middleby. It's still very complementary to our e-commerce partners, right?
Because in many cases, we may take that, you know, quoting opportunity from Middleby Shop and actually still run it through a Clark or a KaTom, as examples. We feel like we're strategically aligned with them, but it's trying to do our own thing that complements them to make sure we're converting as much of that customer to Middleby as possible.
Anybody have another question? Okay. Oh, you do.
Hi, just a couple. I may have missed it, but one CFO question. I didn't catch what leverage would be immediately post-spin. Just second, with the service network, which sounds really interesting, I love the idea of them being aligned, but how are you economically incentivizing them to do so?
On the net leverage, right at time of spin, we've estimated that to be at about 2.8x . As we get through the back half of 2026, we expect to de-lever down to about 2.5x .
I will take the part B of that. We will have, you know, certain metrics for the agents, they will be bonused based on a percentage of their warranty labor dollars.
I think it's also very appealing for our partners to be partnered with Middleby, right? As you guys said, it's very transactional in nature. I think the rep model is a very good example of it. Like, those reps are stronger in the market because they're partnered with Middleby. They actually can make more money because they're selling higher technology equipment.
We try to align our incentives where if we make more money, they make more money. I think given the uniqueness of the service model, they also see the merits and the opportunities of that. They see that as a big opportunity that, frankly, we're bringing to them.
Mirc had another question.
Yeah. Thanks for the follow-up. On beverage, I feel like there was a lot new in that part of the presentation. Are you planning on disclosing how cooking equipment or hot side versus cold side beverage is performing on a go-forward basis? I have a few other follow-ups.
I didn't quite hear it, but I mean, obviously, we gave some information.
No, no. I'm saying going forward. Are you going to be providing insight into how beverage is growing relative to the hot side?
Yeah. Post-spin, we're going to be evaluating the platform in terms of the segmentation that we will be reporting for GAAP. You know, we will continue to evaluate what those specific segments will be. I think no matter what, in our quarterly discussions throughout this year and onto next year with the beverage innovation that's in front of us, we'll continue to highlight how much of our growth is really being driven by the two platforms.
I think a lot of this information you'll see at least annually, and then perhaps a bit, in a bit more regular basis.
In the 3%-6% organic growth plan, how's beverage comparing to that company average?
We're not disclosing that. From the discussion you could see, right, there's more market share opportunities, and there's a significant pipeline. I don't want people to lead anybody to believe that Cooking and Warming is not growing, and there's not significant opportunities there as well. We pointed out some, you know, some markets that we think we can expand into. You know, there's a significant part of the pie which is faster growing. I think, you know, we're baking in growth on both sides of the business.
From my perspective, it seems like this is where your customers are innovating the most. If they're innovating, then that presents opportunities, like your example with KFC, for instance, right? If I remember correctly, the slide where you were showing the margin breakdowns, the lift from a margin standpoint seems to be disproportionately concentrated in beverage as well.
You're growing faster, you're gonna have more margin expansion, which is why I was trying to tease out how much of this plan that you're putting forth here is really kind of driven by beverage itself. Maybe, I don't know, a question for you, Steven. When you think about that platform, where are you from a scale standpoint and product standpoint? Do you need to basically concentrate M&A over the next three years here specifically? Lots in this question.
Yeah.
Maybe you can unpack all of that.
Okay. I'll take part of it, and then. Yeah, I'll take- Steve can jump on after that. I think one of the things that people didn't understand is actually a lot of the M&A that happened over the last several years, which maybe was a bit confusing, was in Ice and Beverage. Some of it was products. You mentioned Flavor Burst, which is part of the Kwench program. I mean, things of nature like that, which are now taking hold.
Also a lot of the investments in technology as well, the CFDs, the Blue Sparqs, like, that is where we've got a strong pipeline of new products coming out. It's a mix of a lot of those investments that were made that were M&A, both from a technology and from a product standpoint. Are there other opportunities to acquire within the beverage space? Yes, there are.
Actually, we're pretty excited about if you look at the platform today, it's the most complete portfolio we've built. One of the advantages is most of the people competing in beverage don't have ice. Actually bringing Ice and Beverage together is a competitive advantage. A lot of the coffee players don't have beverage dispense. The beverage dispense don't have ice cream machines.
When you look at that, it's actually the most complete portfolio out there today. Does not mean that there's not M&A opportunities, we've actually done quite a bit to scale that platform over the last three to four. It kind of goes back to the beginning. These are some of the things I don't think shareholders fully appreciated until it really is game time and all of a sudden it starts to get traction.
Luckily, you know, I mean, our customers are now focused on there, and I think they're focused on higher innovation. I mean, innovation is hitting the spot of the types of products that are coming out in the marketplace right now. We, we think we're very uniquely positioned as the new player, and that's why I say we are a disruptor in beverage right now.
We have one more question for Tami, and that's gonna be our last question. Hi.
This is Tami Zakaria from JPMorgan. One of your slides mentioned international general market was down 10% last year. Could you tell us what the overall industry you think was up or down in those regions that year? Stepping back, do you think price competition from maybe Chinese or local players was part of the reason why you saw that decline? Lastly, overall, do you plan to compete on price or service or innovation or a Combination of these as you wanna take share in international general market going forward?
You wanna start on that?
Sure. I'll do my best. I think maybe I'll go backwards and see if I remember it as we go. I mean, I think no matter if we're selling in the U.S. or selling in Europe or selling in Asia, I think the selling approach is always the same. I think it always starts with great products, and I don't think we've ever been a company that has sold on price, right?
I think we have to have, obviously, competitive, you know, pricing, but it's more about are we delivering a great ROI for our customers. That holds true. I don't care what part of the world we're in. That has always been our approach and will continue to be our approach. I do think now that to piggyback on, we've talked about a lot about service, is now when you layer in service globally, that is a competitive advantage.
It's like you kind of take price off the table a bit because back to what James said, I can guarantee you every chain customer, especially if you can guarantee great service, will pay more for your equipment. It takes pricing off the table. Your question, your first question around just how we thought about international general market last year. It's, it's tough in that, you know, rolled-up slide because I feel like we're actually have made so many great inroads with markets like Europe is doing great.
You have markets like the Middle East that we've actually made a ton of great investments in the last several years, which is obviously in a tough spot right now. Asia is another one where we've made a lot of great investments, which I highlight, but I feel like there's just so much going on there.
That's just a tough market right now. It's kind of like the same thing, Tim talked about where with the chains, you know, we're winning, we're losing or however you said, like we're doing a great job. It's just those inherent markets have just been, you know, tougher last year. I still think we're, as I said in my slide, when I think about the progression of people, resource investments in those markets, it positions us as well as we ever have been.
I think a lot of the challenge last year was focused, concentrated on Asia.
Yeah.
A lot of that was geopolitical. As he just said, like, we actually have made significant strides in Asia in terms of our localization efforts, the quality of the products coming out. We're actually very well-positioned in Asia, particularly China, if those markets also come back, which we think they will.
Okay. So t hanks everyone.