Midera Food Processing, Inc. (MFP) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Midera Food Processing Q2 2026 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Rob Bagan, Vice President, FP&A and Investor Relations.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Midera's Second Quarter 2026 Earnings Call, which is also our first earnings call as an independent public company. Alongside me today are Mark Salman, Chief Executive Officer; Amy Campbell, Chief Financial Officer; and Mark Bowie, Chief Operating Officer. This conference call is being webcast live within the Investors section of our website at midera.com and a downloadable version of today's presentation is available there as well. A webcast replay will be posted to our site following the call. You can also reach our Investor Relations team at investors.midera.com. Before we begin, please note that today's discussion will include forward-looking statements regarding our business outlook, operating performance, capital allocation plans, market conditions and other future events. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Please refer to today's earnings release and our SEC filings for a discussion of these risk factors. We undertake no duty to update forward-looking statements except as required by law. We will also refer to certain non-GAAP financial measures. The company believes that its presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that it uses internally for purposes of assessing its core operating and financial performance. One specific item to this first report in regards to non-GAAP measures, our separation from Middleby was completed on July 6, 2026, after the close of the second quarter. The historical results we are discussing today are therefore presented on a carve-out basis, where we refer to estimated stand-alone adjusted EBITDA that measure reflects management's view of profitability fully burdened by our estimated stand-alone public company costs, which are not reflected in Middleby's historical segment reporting and are not fully captured in the carve-out financial statements. We intend to present our recent historical results on this estimated stand-alone adjusted basis for the next several quarters, so that our reported performance, our guidance and our medium-term framework are all measured in the same way. Historical reconciliations to the most directly comparable GAAP measures are available in today's earnings release and accompanying materials posted on our Investor Relations website. A reconciliation of forward-looking estimated stand-alone adjusted EBITDA to the most directly comparable GAAP financial measure, net earnings, is not available because the timing and magnitude of certain items cannot be reasonably estimated at this time without unreasonable effort. With that, I would like to turn the call over to Mark.

Thank you, Rob, and good afternoon, everyone. Before I get to the quarter, let me acknowledge the moment. This is our first earnings call as Midera Food Processing. We completed our separation from the Middleby Corporation on July 6 and subsequently began trading on NASDAQ under the ticker MFP. Thank you to the Middleby team and our Board for positioning us for this chapter and to our 2,800 colleagues for delivering uninterrupted service throughout the launch of the new company. I've never seen this team more energized or more aligned around where we're headed and that enthusiasm is already showing up in how we're executing. That energy carries right into the quarter. We beat our own expectations. Net sales of $245.4 million, an estimated stand-alone adjusted EBITDA of $41.8 million both came in above the high end of the previous guided range when including $8 million for estimated quarterly stand-alone public company costs. We also had a strong growth in orders and ended the quarter with a record backlog. With that strong quarter as a backdrop, on today's call, I'll start by addressing the value creation opportunity that I see as a stand-alone company and why we believe we can accelerate shareholder value faster as a stand-alone company. Then I'll discuss the quarter against the 4 pillars we laid out at our Investor Day in May. Finally, I'll hand it over to Amy for the financial review, and we will take your questions. This platform started out representing a single brand addressing a single category. Today, we design, build and service complete lines for bacon, hotdogs, charcuterie, breads, cakes and tortillas, just to name a few. We manufacture out of 29 plants and sell across 6 continents. Building that expertise took over 2 decades which is why customers facing complex manufacturing challenges look to meter for solutions. The question I expect from all of you is why is Midera works more on its own than a segment of a larger diversified company. The answer is focus every dollar of capital, every engineering hour and every acquisition decision at Midera now serves 1 purpose, building the best food processing technology platform in the world. Focus is not a slogan for us. It shows up in how quickly we can say yes to a customer. And whether the next brand we want to acquire gets funded on its own merits rather than against someone else's priorities. That focus is why we believe independent unlocks value we couldn't fully realize before and you will hear it in each of the 4 pillars I covered this afternoon. Midera is the pure play leader in the further processing segment of food processing technology. The part of the industry with the most complex, highest value engineering problems. We operate more than 30 industry leading brands across protein, bakery and snacks. Recurring aftermarket parts and service make up roughly 40% of our revenue on an installed base of more than 100,000 units and systems. Our growth strategy consists of building where we hold the engineering edge and acquiring category leadership where that's faster and more capital efficient than building from scratch. Every 1 of those units or systems sits in a plant we know, running products, our customers send every day, a familiarity that is difficult to replicate. We sell into a roughly $70 billion market that remains highly fragmented with more than 2,500 smaller up in single category manufacturers serving much of the market. We intend to leverage that fragmentation organically through share shift and inorganically through disciplined consolidation. Our strategy rests on 4 growth pillars: total line solutions, market penetration, aftermarket and acquisitions. Every decision with regard to these 4 pillars run through 1 filter. Does it materially improve outcomes for our customers? Total line solutions is our ability to design, integrate and support a complete production line rather than sell a single machine. Take bacon, for instance, pork value comes in at roughly $2 to $3 a pound and through further processing is transformed as a precooked package bacon, which has 4 to 5x the value. That is made possible by our total line solution that integrates 6 brands we acquired. One recent example saved the customer $4.4 million a year, a 55% return and it paid for itself in about 2 years. We now offer the total line solutions across more than 20 product lines shifting the conversation from price to performance and ROI. When we sell a line instead of a machine, we own the outcome. The yield uptime and labor on that line are ours to answer for. And that accountability changes the aftermarket relationship. A customer running 1 of our machines might call us for a part a customer running 1 of our lines call us for a partnership, and our service level agreement attachment rate at the time of sale on the total line solution is more than 90%. And parts of our industry are navigating a tougher environment with some large CPG customers flower to commit capital, but we continue to see projects funded where the ROI case is clear, better yields, less waste, lower energy cost and labor automation. That is exactly what a total line solution delivers and is 1 reason why our order trends have strengthened over the last 12 months. Total line solution orders continue to outgrow the rest of our business, and the second quarter included our first major execution of that strategy with our newly acquired company, Frigomeccanica the Parma Italy-based brand serving the charcuterie, dry cured meat and ready-to-eat portable protein categories. This total line solution, which is a collaboration between 4 of our brands reinforce our clear market leadership in the charcuterie category and is an excellent example of the strategy at work. Our second pillar is market penetration, driven by innovation and geographic expansion. Innovation here does not start in a lab. It starts with the problem a customer brings to us and our teams working with them until we sold their problem. New products contributed approximately $340 million of revenue over the last 3 years, representing more than 20% of our equipment sales. Our fund today has more than 17 innovations in development, 3 of them we would consider to be game changers. Our heel expire level for poultry, for example, delivers 3% to 5% higher yield and 40% to 60% faster cook times in half the footprint of a conventional order. Poultry is our fastest-growing category, up from roughly 6% of our net sales a couple of years ago to more than 10% today. We validate this pipeline in 4 innovation centers where customers test complete solutions using their own ingredients and products and where they can witness the yield improvement for themselves before committing capital. Our newest innovation center opened in Italy last October and has already generated over $33 million of orders through Q2. Our third pillar is aftermarket, which represents roughly 40% of our revenue mix and supports our significant installed base of over 100,000 units and systems to drive recurring parts, service and modernization. We are focused on growing our service revenue over the long term by delivering the consistency and reliability of our customers increasingly value as they modernize their lines. Our aftermarket team comprises of over 300 service technicians and 20 offices worldwide, and we're investing to grow it further. When the line goes down at 2 in the morning, that team is through our customer calls and how we enter that goal is what earns us the next order. Finally, acquisitions, which have underpinned our platform for decades. Since 2005, we've acquired more than 30 companies and deployed roughly $850 million of capital. We're tracking a pipeline of more than 100 companies today and of those, we are evaluating currently more than 35 active opportunities. Roughly 1/3 of our existing brands are still run by their founders. When they sell off the business, they spent a lifetime building, that name stays on the door, and in many cases, they stay on to run it. That reputation is why many of our deals never go to auction. Acquisition timing is hard to predict, but it's a perpetual process for us. We are targeting completing 3 to 5 deals per year on average. This quarter, post-spin, we've reengaged our pipeline and activity consistent with that base. Acquisition execution is what this team is known for. which consistently driven meaningful adjusted EBITDA margin expansion at the companies we acquired, and we underwrite every deal to target double-digit ROIC by year 3. That discipline is what keeps our balance sheet strong and flexible with long-term net leverage targeted at less than 3x trailing adjusted EBITDA. In fact, our net leverage at separation was approximately 1.3x, which speaks to the significant flexibility and capacity to execute our growth strategy. Underneath all 4 pillars is the Midera operating system. Our lean manufacturing toolbox, quality systems technology integration, including AI, along with supply chain optimization and design efforts working together in unison and it is what underpins our margin expansion opportunity over the long term as the platform grows. As an example of this action is how we pared skin renders with welding robots, which lifted bundling rates dramatically on a process coming across our facilities, multiplied that's 1 process across 29 plants, and you start to see the opportunity. While there is room to automate and drive labor efficiency across our factories, the biggest opportunity to expand margin under the Midera operating system is material cost and supply chain management. Reducing logistics costs consolidated in purchasing power, utilizing low-cost country sourcing and deploying intentional make or buy strategies all will offer significant cost opportunity to harvest. We remain in the early innings of this journey with margin expansion still ahead of us, not behind us. Before I hand it to Amy, let me give you a sense of how the first half has shaped up across our categories. The headline is that we are seeing broad-based strength. At protein, we saw strength at both ends of the spectrum, premiumization in charcuterie and bacon and steady value-driven demand in poultry and dairy with GLP-1 users shifting towards higher protein and fiber content which supports the entire category. In bakery, artisan and long fermentation format like sourdough remain our strongest growing solutions alongside demand for smaller better-for-you portions. In snack, Mexican-inspired and protein forwards formats continue to outpace the category, which is why our tortilla and chip platform remains a priority. None of this is a trend we're chasing from the outside. Every time a customer reformulates or launches a new format, they need different equipment and that's the moment they call us. With that, I'll turn it over to Amy for a detailed financial review.

Thank you, Mark, and good afternoon, everyone. I'm excited to be here for Midera's first earnings report to a stand-alone company. Today, I'll cover our second quarter results, followed by a review of our balance sheet before providing our outlook for the fiscal year. But before I begin, I want to reiterate Rob's comments about the presentation of results. Midera's separation from Middleby was completed on July 6, which was after the close of the second quarter. The historical results we are discussing today are therefore presented on a carve-out basis, where we refer to the non-GAAP measure estimated stand-alone adjusted EBITDA that measure reflects management's view of profitability, fully burdened by our estimated stand-alone public company costs, which are not reflected in Middleby's historical segment reporting and are not fully captured in the carve-out financial statements. So in simple math and modeling terms, estimated stand-alone adjusted EBITDA represents previously reported Middleby segment results, minus $8 million per quarter for estimated quarterly stand-alone public company costs and minus 4x that or $32 million of cost on an annualized full fiscal year basis. Now with that administrative details out of the way, let's cover the quarter. Second quarter net sales grew 13% to $245 million. Organic net sales growth was 1%, which excludes the impact of acquisitions and foreign exchange rates, and the impact of foreign exchange was 1%. Inorganic sales contributed 11% to the top line growth, favorably impacted by the completion of a large charcuterie project at Frigomeccanica, that we had expected to recognize in the second half. This is the total line solution win that Mark described. From an organic perspective, growth was driven by strong aftermarket parts and service which grew across the installed base. This was partially offset by the snack category were delayed equipment shipments due to late deliveries by a third-party vendor waited on the quarter. Given the value of our equipment and the reality that shipments can pull forward or slip for any number of reasons, including customer needs, we believe it is important to evaluate Midera's performance over a number of quarters and not in a specific quarter. Geographically, we saw a 31% growth outside the United States and Canada versus the prior year period with particular strength in Europe and the bakery category. Demand drivers can differ by region. In Europe, customers are often investing to offset labor scarcity and rising energy costs. While in the U.S., the driver is more often yield and throughput. In both cases, the projects moving forward are the ones with a clear near-term return. Aftermarket parts and service represented 38% of net sales in the quarter and 40% on a trailing 12-month basis as of the end of the second quarter. As Mark mentioned, we continue to invest to accelerate growth in parts and service. Estimated standalone adjusted EBITDA was $41.8 million, which reflects Middleby's segment results burdened with $8 million of estimated quarterly stand-alone public company costs, and was above the high end of the previously provided guidance range of $37 million to $41 million when you include the estimated stand-alone cost. The 11% increase in estimated stand-alone adjusted EBITDA relative to the prior year was driven primarily by higher sales of aftermarket parts and service and higher equipment sales including the contribution from recent acquisitions, partially offset by the impact of cost inflation, including tariffs. Estimated standalone adjusted EBITDA margin was 17% compared to 17.4% in the prior year period. The year-over-year decline in margin percentage primarily reflects delayed equipment shipments in the snack category and the impact of cost inflation, particularly transportation costs and tariffs. Sequentially, estimated stand-alone adjusted EBITDA margins increased 220 basis points as the health of the backlog continues to improve. As we indicated previously, we are now lapping prior year tariff pressure that weighed on margin, and we expect it to be largely behind us in the second half. With no material tariff refunds recognized in the quarter that affect margin comparability. To address inflation, we continue to price contracts against expected costs at the time of order, lock supplier contracts where we can on large projects. And midyear, we took additional pricing actions on aftermarket parts to offset the impact from inflation. Now shifting to results on a year-to-date basis. Net sales were $470 million, an increase of 22% compared to the prior year period. Organic net sales growth was 12% and excludes the impact of acquisitions and foreign exchange rates. This was driven by the demand strength we are seeing across all categories as customers invest to drive returns in their businesses. Year-to-date, estimated stand-alone adjusted EBITDA grew 26% to $75 million, and margin expanded by approximately 40 basis points year-over-year to 16%. This performance was driven by growth in aftermarket parts and equipment sales, partially offset by inflationary costs. While not presented in the second quarter, we intend to present an adjusted earnings per share figure going forward. Orders in the quarter were $275 million, up approximately 16% from the prior year, including approximately 11% organic growth. Backlog ended the quarter at a record $446 million, up approximately 51% year-over-year, and backlog as of the end of the quarter, gave us visibility to over 80% of our second half equipment sales assumed in the guidance we provided today. Book-to-bill was 1.12x in the quarter, up from 1.02x in the first quarter of this year, a reflection of continued strong broad-based demand and the willingness of our customers to invest where there is a quantifiable return. We ended the quarter with cash of $51 million and total debt of $259 million for net debt of $208 million. Net leverage was 1.3x based on LTM estimated stand-alone adjusted EBITDA, and we ended the quarter with $823 million of liquidity, which includes cash and cash equivalents along with $772 million of availability under the revolving credit facility. Our capital structure is deliberately simple. It was designed to support growth and our capital allocation priorities, which are unchanged from our Investor Day in May. First, organic reinvestment to protect and grow what we have; second, disciplined, return-driven acquisitions; and third, we manage all of it within a net leverage framework below 3x. Capital expenditures were $6.6 million for the first half of 2026 compared to $25.7 million during the first half of 2025. Capital expenditures in the first half of 2026 were primarily for upgrades of both production equipment and manufacturing facilities. Capital expenditures for the prior year period also included investments in our innovation center in Italy. In addition, our Board authorized a $50 million share repurchase program with a 3-year expiration from the date of approval, primarily to mitigate stockholder dilution from equity grants. Now turning to our outlook. Given our strong performance, we are updating our full year 2026 guidance to reflect an increase in the midpoint of expected ranges for net sales and estimated stand-alone adjusted EBITDA. At the midpoint, the revised guidance represents an increase of $20 million in net sales and $3 million in estimated stand-alone adjusted EBITDA and versus our prior guidance. Again, as a reminder, the estimated stand-alone adjusted EBITDA figures we are presenting are net of the $32 million of estimated corporate costs that I mentioned earlier. For the full year 2026, we expect net sales in the range of $935 million to $965 million an estimated stand-alone adjusted EBITDA in the range of $160 million to $176 million. At the midpoint, that implies estimated stand-alone adjusted EBITDA margin expansion of approximately 130 basis points versus 2025, reflecting the continued improvement in the health of the backlog strong aftermarket parts and service growth and a favorable mix. In lieu of an adjusted earnings per share estimate, we are providing additional modeling assumptions, including depreciation and amortization, interest expense and weighted average diluted shares outstanding. These are all detailed in our press release that was issued this afternoon. However, given complexities with spin and carve-out reporting methodologies, we are not providing modeling assumptions for free cash flow, the effective tax rate nor stock-based compensation expense. We typically have a soft third quarter, given fewer hours worked across our European divisions during the summer. While the fourth quarter is typically our strongest for both net sales and adjusted EBITDA, and as customers focus on getting capital projects delivered before their fiscal year ends. We expect this trend to continue in the second half of the year, with about 46% of the rest of year sales in the third quarter and the remainder in the fourth quarter. We also expect margins to sequentially improve throughout the rest of the year with 50 bps of sequential margin improvement from the second quarter to the third quarter and further improvement in the fourth quarter on improving mix in the backlog, improved pricing, absorption of fixed costs and higher sales and the benefits from the Midera operating system. With that, I'll turn it back to Mark.

Thank you, Amy. Before we take questions, let me put the key takeaways together. Midera doesn't arrive as a startup. We arrived with more than 20 years of operating history a proven growth record and a platform that compounded net sales growth at approximately 12% annually from 2019 through 2025, including acquisitions with organic growth exceeding 5%. The separation doesn't create the performance. It sharpens the focus. That growth is also structural, not cyclical. Rising protein consumption, dietary shifts, including GLP-1 derivative formulation labor scarcity, food security, sustainability and food safety, all push customers toward the equipment we make. This spending is need-based, not discretionary. And even where customers are being more selective with capital, we continue to see them invest when the project pays for itself through yield improvements, waste reduction, energy saving or automation and that discipline is exactly what shows up in our order book today. The margin story from here is in our control. It comes from mix, absorption, acquisition maturing to our platform margins and the Midera operating system. It does not require a market recovery or another acquisition. And we pursue that growth with a strong balance sheet to play offense from day 1 in a fragmented $70 billion market where the acquirer of choice becomes the compounder of choice. We intend to be both and we intend to keep earning that distinction. We are committed to generating a return on your time and on your investment. With that, operator, please open the lines for questions.

[Operator Instructions] Our first question comes from Justin Ages with CJS Securities.

Congrats on the nice quarter. First question, I was hoping to get a little more detail on Total Line Solutions sales in the quarter. I know you called out that's 1 of the pillars and the recent acquisition, that was a big win. Can you give us any sense of how much of sales in the quarter or maybe some of the orders are part of the total line solutions?

Yes. Justin, we -- I cannot tell you exactly the numbers on total line solution. What I can tell you is definitely the high growth, it's double digits. We've seen it across all 3 segments: protein. We've seen in charcuterie and bacon total line solution. We've seen more total line solution in the artisan bread and long fermentation and we've seen it on the snack category.

Okay. And then you mentioned the acquisition pipeline, the funnel looks strong. Is there a particular segment that you guys are more focused on? Or maybe that there are more opportunities? I know it's a fragmented market, but something more in protein or bakery or it's just you'll take the acquisitions as they come?

Yes. No, great question. I'll tell you, every acquisition has to check several criterias and being a sub-$1 billion company, a $70 billion addressable market, obviously, there are a lot of opportunities, a lot of choices we can't control the timing of the specific acquisition. But finally, it's strong. We're having a lot of discussions with companies in, I would say, in all 3 segments and we're going to deliver on our plan to do 3 to 5 acquisitions within a 12-month period.

Our next question comes from Mig Dobre with Baird.

Congratulations on your first report here as a stand-alone company. I had a couple of items just to sort of clean up because there's a little bit of noise here with the numbers and then some questions about your forward outlook, if I may, as well. So maybe on the quarter itself, if I understand correctly, you haven't really had any positive impact from tariff refunds. Going forward, though, how should we think about the impact from tariffs? Because there's some changes here over the past few months. Is this an incremental headwind for you? Or has this become a tailwind?

Yes, Mig, I'm going to -- Mark Bowie is here with us today, have him take that question. Maybe, Mark Salman wants to start. Go ahead, Mark.

Mig, so just I'll just say the fact that we have not had refunds. Yes, it doesn't mean that we will not have some, but I'll stop at that and maybe.

Mig, thanks for the question. Tariffs obviously has been dominating headlines most of the year. And with the 1 tariffs sunsetting and the 301 tariffs coming on, largely we see those impacts is relatively flat. There's not much change for us in our business. The headwinds that were generated through the various tariff regimes for the most part, were passed through to our customers, so we don't see those headwinds as we think about Q3 and Q4. We do continue to pursue refunds, as Mark and Amy alluded to earlier. But needless to say, some of those will need to be passed on to our customers. And then some will obviously stay within the business, but timing is the difficult thing for us to predict around when we would see those.

Okay. Understood. On your outlook, you raised the revenue line by, I believe, a couple of points and about 1 point coming from organic is the rest of it M&A. And when we're thinking about the M&A contribution in the back half, can you sort of help us out in terms of Q3 versus Q4?

Sure. I'll take that question. It's a good question, Mig. And I think it's really an issue of timing. So Frigomeccanica and Oka were 2 acquisitions in the second half of last year, they were both purchased in August. We had expected the Frigomeccanica sale that we talked about to rev rec in the second half of the year and it ended up being able to rev rec in the second quarter. So have that rev rec in the second half of the year that would have been organic growth because it erected in the second quarter, it was inorganic growth. So really no fundamental change there. In fact, what the revised forecast implies with the $20 million raise on the top end sales and the $3 million on EBITDA at the midpoint, both at the midpoint. Is true incremental sales and EBITDA growth in the second half of the year with that pull forward, Frigomeccanica was not the entire amount, but that is what the -- versus last quarter's guide and this quarter's guide for the second half implies. So really from an organic and an inorganic growth in the second half of the year with Oka and Frigomeccanica both acquired in August, there's not really a material difference between those 2 numbers. I think they're about 30 or 40 bps apart.

Okay. I appreciate the split Q3, Q4 from a revenue standpoint. I don't know if I'm doing the math correctly, but it appears to me that we're talking about kind of like high single-digit organic maybe in Q3 and then we're down year-over-year organically in Q4. Please correct me if I'm wrong there. But I guess my question is, is that given the backlog and the order intake growth that you guys have experienced thus far, should organic growth maybe be a little bit better, especially as I think about Q4, is there conservatism that's based in here? Or is there something else to be aware of?