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spk06: Welcome to the Brookfield Business Partners third quarter 2021 results conference call and webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star and one on your touchtone telephone. Should you need assistance during the call, you may signal an operator by pressing star, then zero. Now, I'd like to turn the conference over to Alan Fleming. Senior Vice President of Investor Relations. Please go ahead, Mr. Fleming.
spk20: Thank you, Operator, and good morning. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the U.S., which are available on our website. Joining me today on the call is Cyrus Madden, Chief Executive Officer, Dennis Turcotte, Chief Operating Officer, and Jaspreet Dal, our Chief Financial Officer. I'll turn the call first over to Cyrus to provide an update on our business. Dennis will then discuss recent activities at our Nuclear Technology Services operations, and Jaspreet will finish with a review of our financial results. We'll then be available to take your questions. And with that, I'll pass it over to Cyrus.
spk03: Thanks, Ellen, and good morning, everyone. Appreciate you joining us today. We had a great quarter. We generated strong growth in EBITDA and FFO, and we continue to be really pleased with how our overall business is performing. We're working on a number of initiatives to continue building long-term value, and our balance sheet is in great shape. Last week, we reached an agreement to acquire Scientific Games Lottery Business for $5.8 billion. This business... is an essential provider of services and technology to most of the major government sponsored lottery programs around the world. Lotteries represent a critical and growing source of funding for governments globally. In many cases, proceeds from these programs are directly earmarked to fund important social infrastructure initiatives related to health care, education, senior services, infrastructure, and environmental protection. In fact, over $100 billion of lottery sales annually are directed to funding these types of programs. And with increasing budget deficits, we expect governments to rely even more on the proceeds generated from lottery programs as a funding alternative. Scientific games lottery business is really well positioned with long-term partnerships and the capabilities to meet the standards of service and security required by highly regulated lottery programs. Its broad offering includes design, distribution, systems, and turnkey technology solutions. The business is integrated across the lottery ecosystem, and its very clear value proposition has contributed to a high level of customer retention. We think we're acquiring this high quality business at a reasonable value. We plan to work with management to support its growth. We see opportunities to enhance service offerings to existing customers and also grow the customer base. As an essential service provider with a strong technology offering, the business is also very well positioned to benefit from the expected growth of digital lotteries around the world. We're funding approximately 30% of the equity on closing and with the balance of the equity from our institutional partners. In October, we closed our acquisition of Dexco Global. And just as a reminder, Dexco is a leading provider of highly engineered components, primarily for industrial trailers and towable equipment manufacturers. We invested about $400 million of the equity for 35% ownership stake. We're now in the early stages of onboarding and developing our plans for continued growth, expanding into adjacent products, and supporting its very successful acquisition strategy. We're also working to close our acquisition of Modulair Group, a leading provider of modular unit leasing services in Europe and Asia. We hope to complete this deal by year-end. These are all great businesses, and over the past few years, we've focused on acquiring similar types of larger scale, resilient operations, which has enhanced the overall profile of BBU. And when it comes time to start selling the larger businesses we've acquired, the size and scale of our monetizations will increase very substantially. From time to time, we'll also opportunistically acquire smaller businesses that we can grow and scale. Our recent acquisition of Aldo, which closed in August, is a great example of this. Aldo is a distributor of solar power kits for the distributed generation market in Brazil. This is a rapidly growing market in Brazil and Aldo is really well positioned. It's a market leader with scale, an efficient cost position, and a network of more than 11,000 independent resellers. We plan to support its growth by expanding its service offerings and broadening its product portfolio into adjacent markets that can benefit from increased demand for energy. On an overall basis, our business continues to grow. Our adjusted EBITDA is now $1.6 billion for the last year, well above $240 million it was five years ago. And our recent acquisitions will add about $400 million to our EBITDA based on their annual historical performance, which will increase as we execute on our value creation plan. On a per unit basis, our NAV has increased at an annual compound rate of 18%. We're very pleased with our overall progress. Looking forward, We're focused on closing and onboarding our recent acquisitions. We're also working to complete the launch of our paired corporate entity, Brookfield Business Corporations, and we hope to get this done around the end of this year, subject to regulatory approval. So with that, I'm going to hand it over to Dennis.
spk16: Thanks, Cyrus. Good morning, everyone. As Cyrus mentioned, we have business operations professionals working closely with the management teams at each of our operations to advance their business plans. We provide support and expertise to unlock value, enhance cash flows, and grow our businesses. Westinghouse, our nuclear technology services operation, is one of our businesses where our team has had a meaningful, positive impact. I wanted to spend some time today providing you with an update on our progress there. As a reminder, Westinghouse is our global service provider to the nuclear power industry The business plays a critical role in ensuring the safe and uninterrupted operation of our customers' power facilities globally. Westinghouse is the technology provider for approximately half of the global nuclear power fleet. The majority of the business's profitability is generated from regularly recurring plant and refueling maintenance outages and ongoing operating improvement initiatives. Through all the economic disruptions of the last two years, performance at Westinghouse has remained remarkably resilient. The business continues to generate a lot of free cash flow that will continue to support distributions up to BBU, while also supporting reinvestment opportunities within the business, building on a broad base of technologies to maintain its industry-leading position. Westinghouse's core business is the delivery of fuel and maintenance services. The vast majority of its services are delivered under multi-year contracts and the critical and specialized nature of this work ensures very high customer retention. Within its core business, the total value of orders on a per quarter basis has continued to trend upwards since 2019, underpinned by its stable customer base with predictable demand driven by the scheduled timing of outage and maintenance activity at customer facilities. Currently, the company is experiencing a strong fall outage maintenance season, executing almost 30 outages in the Americas with significantly higher scope and volumes compared to the same period last year. During the quarter, we identified increased costs on two legacy manufacturing projects at one of Westinghouse's manufacturing facilities in Europe. Both projects have been underway since before we acquired the business in 2018. contracted in 2010 and 2011 and are progressing toward completion. The costs are predominantly related to lower than expected labor productivity and higher engineering testing and inspection costs on these first-of-a-kind projects. These two projects are unique in their complexity and structure and are not core to the company's ongoing operations. As required with projects in a lost position, we've recognized all estimated future increased costs this quarter. More broadly, our team continues to work closely with management to advance our ongoing transformation agenda, focused on optimizing manufacturing, supply chain, and G&A costs, and on driving organic and inorganic growth. The team has made meaningful progress on enhancing its commercial excellence by aligning the business strategy and organization with customer priorities regionally, driving standardization and processes and leveraging data analytics to improve the business. We think there is still more room to improve and have a line of sight to achieving our annual EBITDA target of in excess of $700 million towards $800 million over the next few years through a combination of ongoing operational improvements and contributions from recent add-on acquisitions. Westinghouse has successfully executed seven add-on acquisitions since 2019. Each of these is relatively small but strategically important in augmenting the business's core engineering and services capabilities, bolstering its digital product offerings, and increasing its presence in newer markets. In October, the business agreed to acquire a partial interest in a Spanish engineering company The investment further strengthens the business's outage maintenance and digital service offerings, which will increase its competitiveness with customers in Europe and globally. Once fully integrated and ramped up, we expect total annualized EBITDA from the seven add-on acquisitions completed since 2019 to reach approximately 70 million annualized, which equates to 10% of total annual run rate EBITDA. The company continues to lead the industry in innovation as well. As part of its growth strategy, Westinghouse is developing and deploying new products aimed at enhancing the value proposition of its service offerings. It is leading the way in the development of next generation accident tolerant fuel and working on innovative new digital solutions, including the first ever 3D printed fuel component installed inside a commercial nuclear reactor. As the industry leader in technology and innovation, Westinghouse is also well positioned to lead the way in commercializing the next generation of nuclear reactor design and energy storage solutions, including the development of modular reactors with wide-ranging applications. Nuclear power will play an increasing role as a clean energy source to meet global decarbonization goals. Westinghouse remains very well positioned to fulfill its critical role in supporting the safety and reliability of the nuclear power industry, which underpins our confidence in the business's long-term growth potential. With that, I'll hand it to Jaspreet.
spk23: Thanks, Dennis, and good morning, everyone. As Cyrus mentioned, we reported strong performance in the third quarter, generating adjusted EBITDA, or what we formally called company EBITDA, of $443 million compared to $381 million last year. Adjusted FFO increased to $276 million or $1.86 per unit compared to $208 million or $1.39 per unit in 2020. Performance within business services was very strong compared to the prior year. We generated adjusted EBITDA of $163 million. Our residential mortgage insurer contributed $81 million and benefited from low loss ratios, increased market share, and robust new underwriting activity. Home price appreciation in Canada has moderated over the last few months, but the market remains above 2019 levels and is expected to remain resilient in 2022. The business is operating with excess capital relative to the required capital adequacy levels. Yesterday, the Canadian financial regulator lifted a moratorium on dividend increases for banks and insurance companies. We hope with this announcement, we'll be able to distribute some of the excess cash in the business through a special dividend by the end of the year. Our healthcare services in Australia generated adjusted EBITDA of $17 million. Demand for elective surgeries at our hospitals remains strong. Performance during the quarter was impacted by intermittent lockdowns and government restrictions in New South Wales and Victoria. As these restrictions ease, we're hopeful that activity levels will recover quickly. Our construction business reported adjusted EBITDA of $22 million. Performance benefited from strong project execution in Australia. Bidding on new business has been strong. We secured eight new projects and ended the quarter with a backlog of approximately $7.8 billion, consistent with the second quarter. Moving on to our industrial segment. We generated adjusted EBITDA of $171 million for the third quarter. Our advanced energy storage operations performed well and reported adjusted EBITDA of $120 million. battery demand from auto manufacturers during the quarter because of global production reductions was more than offset by growing demand for higher margin advanced batteries in the aftermarket. We continue to progress our targeted $400 million of annual profit improvements and are pleased with the cash flow generation of the business. And finally, moving to our infrastructure services segment, where we generated adjusted EBITDA of $140 million for the third quarter of 2021. Nuclear technology services reported EBITDA of $56 million. Strong performance was driven by higher volumes, primarily due to the timing and scope of the fall audit cycle across the business. During the quarter, we identified higher costs on two legacy projects in Europe, which impacted overall financial performance, and Dennis discussed this in a little bit of detail earlier. Excluding the impact of these legacy project costs, EBITDA for the quarter increased by about 15% over prior periods. Our work access services business contributed $19 million in adjusted EBITDA for the quarter. Industrial and market activity levels are improving, North American commercial end markets have been slower to recover, and the business is experiencing some impacts from tighter labor markets in some of its regions. During the quarter, we acquired Brace Industrial Group, which extends our footprint into strategic US end markets and service lines. Before I finish my comments, I'd like to spend a couple of minutes on liquidity. Our balance sheet is in great shape. We ended the quarter with $2.3 billion of corporate liquidity, which provides us ample capacity to continue funding our growth. We currently have initiatives underway to increase liquidity and maintain a strong corporate balance sheet. Our operations generate significant cash flows, which will fund distributions to support our growth. As the earnings of our operations grow, their borrowing capacities also increase. and this can provide opportunities to increase debt as a means of generating additional corporate liquidity. That said, we remain mindful to finance each of our operations with an appropriate level of long-dated debt at favorable rates, which is non-recourse to BBU and can be readily serviced and sustained across all market cycles. And finally, over time, we will generate significant proceeds as we monetize some of our investments. We also recently increased our corporate borrowing capacity by approximately $500 million, which will contribute to us maintaining a strong corporate liquidity position. With that, I'd like to close our comments and turn the call back over to the operator for questions.
spk06: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Jeff Kwan with RBC Capital Markets.
spk11: Hi, good morning. My first question was on Sage and Jasprit. You mentioned obviously the news out of OSFI yesterday. And I'm just wondering, the comments that they had made was it seemed like they expect companies to be kind of more measured in terms of, you know, dividend increases, returning capital or buybacks and whatnot. But given Sajan isn't public or not really public, do you think you might have more flexibility to reduce your excess capital faster than the publicly traded banks insurers? And then the second part of my question was, Based on the numbers that came out of Sajan with the MICAT at 170%, my rough math kind of suggests, sorry, the MICAT was at 214, but if I assumed 170%, which is above historical, I think the math cuts out to about U.S. 300 million that could be pulled out to BBU. Is that correct?
spk23: So in the first part, thanks for your questions, Jeff. But on the first part of your question, you know, you're right. Cajun is now private, but we're still a regulated entity. And, you know, more importantly, we also want to make sure that we're managing the business with the appropriate level of capital reserves that are required for the business. And we're also mindful of the credit rating because that's important for our customers and maintaining a strong credit rating for Sajan. Having said that, you're right. The MICAT ratio today is at 214%, which is significantly higher than the minimal requirement, which is 150%, 150%. and the target that management typically operates with, which is 160% to 165%. So based on kind of the current available liquidity within the business, as well as ensuring that we've got appropriate capital reserves, our view is that we could dividend out approximately at least $500 million U.S. And, you know, BBU would get its share of that 500. So that's kind of the plan for now. But then, you know, as you know well, Cajun continues to do very well, continues to generate strong free cash flow, and, you know, there will hopefully be opportunities for additional distributions down the road.
spk11: Okay. And then with respect to GravTech, they announced that $150 million share buyback program is
spk03: intent to kind of tender pro rata or to the extent that there's opportunity to go higher or how are you approaching that hey Jeff Cyrus here look whether we tender into into that we could and we'll just do what's opportunistic for us and as and when we want the liquidity we'll just pick an opportune time we're not in any rush to sell our shares here you know, if anything, the backdrop is pretty strong for this company right now. So we'll just be prudent, do what's best for our balance sheet.
spk11: Okay. And just my last question kind of ties into at the Holdco liquidity. Obviously, you guys have run with more debt just because you've been more active this past year, year and a bit. Do you have an idea with some liquidity stuff that you're looking at, you know, when you think you might get back to a net cash position. I know obviously there's been some monetizations you've contemplated that could be quite huge and get you back to cash very quickly, but just curious your thoughts around timing and when that might happen.
spk03: Yeah, we're not, you know, we're not running our business around any specific timeframe, Jeff. You know, we feel we have a huge amount of flexibility today Just given everything Jaspreet just talked about, ongoing distributions, the possibility for up-financings within our portfolio are real and could be quite substantial. At the same time, I think just given the size of our business and the number of businesses we own today, you should assume, actually, that we always have something for sale. And I'm pretty confident that something we have for sale will sell at some point. Again, we just want to maximize value. We have no need to sell anything today. But if we want to create more liquidity, we can always do that.
spk09: Okay, great. Thank you.
spk06: Thank you. And our next question comes from the line of Devin Dodge with BMO Capital Markets.
spk05: All right, thanks. So just a question on the sanitation business in Brazil. You know, earnings have been growing pretty substantially there. I think EBITDA was up something in the neighborhood of like 40% in the first half of the year. Can you speak to what the earnings power of that business could be as more of the concession investments that you're making become income generating?
spk23: Yeah. Hi, it's Jess Preece. So you're right that the water and wastewater business in Brazil has been doing well. We had a bit of a slow start out of the gate, but over the last couple of years, we've been seeing strong execution on the CAPEX programs at the business, which adds new economies and supports EBITDA growth. We also added a pretty substantial new concession that was operationalized in the middle of this year, which is all accretive to the bottom line in EBITDA. And we're going to continue to work with the team there, invest in the business. And there may be opportunities, you know, to monetize some of the more mature concessions and reinvest those proceeds. But I'd say, you know, overall the business is doing well and continues to do well.
spk05: Okay. Thanks for that. Maybe just switching over to Altera. Fairly significant EBITDA lift there versus what you've been the last few quarters. Just can you talk to the drivers of that? Q3 performance and how we should think about its earnings going forward?
spk23: Sure. It's Jaspreet again. I can start and Dennis can add. So, you know, look, the business is still operating in a challenging environment. We had a little bit of an uplift this quarter. because we had some profit-sharing arrangements on oil price and volume increases at our customers that were helpful. But the backdrop is still challenging for Altera, and we're continuing to work with the management team there to make sure we're supporting initiatives that are ongoing.
spk05: Okay, thanks for that. And maybe just one clarification. Those problematic projects at Westinghouse that Dennis was referring to, how much longer are you guys going to be working on that? When do they wrap up? If you can kind of get some context for how long that will be in the portfolio.
spk16: Sure. It's two projects. One is to provide five segments to Westinghouse. kind of a global fusion reactor project. The other one is to provide 12 steam generators to EDF. Each contract was in place in 2010-2011, so are well underway. The fusion reactor project should wrap up by before the end of 2023, and the steam generator project should wrap up by, I think, around 2028. with the final delivery of the 12th unit planned for that point.
spk04: Okay. Thanks for that. I'll turn it over.
spk06: Thank you. Our next question comes from the line of Gary Ho with Desjardins Capital.
spk14: Thanks, and good morning. Just going back to Declarios, you mentioned the chip shortage impacting OEM sales. I'll be a significant business in your portfolio that might be impacted by these chip shortage issues. Just wondering, you know, can you comment on any other ones that you're seeing that might be impacted by these and or other supply chain disruptions that we're seeing in the space? You mean Clarios specifically? Yeah, Clarios and any other significant businesses that you might be experiencing it.
spk16: No, we have a great line of sight to all of the issues. We don't see anything degrading from this point, and in fact everything is improving with each passing day, not just at Clarios, but even more broadly. But this will be with us for a period of time, and we're focused on everything we can control in that case.
spk14: Okay. And then, Cyrus, just going back to Jeff's question on the monetization side, maybe can you give us an update on the ones that you might be looking at that's more mature businesses? Anything imminent?
spk03: Yeah, look, we aren't going to comment on specific things that are for sale or when it might be sold, but... As I said, you should assume something is for sale at any point in time, just given the number of businesses we own now, and a number of them are more mature. But I think it's better if we don't comment, and if that's okay. But I just want to be very clear, we do not have to sell anything today. We are in a really strong position here.
spk14: and uh our preference is to be very disciplined as we sell things just as we are when we buy things okay and then cyrus why why have you just going back to this scientific games transaction i think it was reported that the company the parent company was going through a dual track process on the ipo price was even higher than the 5.8 billion that you're paying for Can you give us a glimpse on kind of why you've been successful with these corporate carve-outs, valuation aside?
spk03: Well, look, scientific games... Now, this is all rumour, rumour on the street, so take it for what it is. But, you know, it was rumoured that there was at least one large strategic party looking at the business and... perhaps that reduced the interest of some financial buyers. It was also rumored and I think it's probably correct that they were running a dual track process for an IPO. That may have also reduced the interest of some buyers. And I think we were just able to offer them speed and certainty and immediate liquidity. You know, as you know, when you IPO a business, then if you want all the proceeds, it could take some time. It could take years, right, to get off that size of position. So I think we offer them speed and certainty and a reasonable valuation. And we are... We have a reputation as a reasonable buyer and not difficult to deal with through these processes. So I think that reputational advantage made a difference here.
spk23: Maybe if I could just add one thing, I'd say just on your question on the operational side, on the carve-outs, we've got a really strong operations team that works with Dennis. And we've now done, quite successfully, stood up a few corporate carve-outs like Seijin and Clarios. So again, that gives us a high level of conviction when we buy a business like this that we'll be able to stand it up and operate it and enhance the underlying business.
spk14: Okay, makes sense. And then just last one for me, Jaspreet. Outside of the dividend from Seijin, these internal initiatives that you've highlighted, distributions are up financing. Any way that you can give us a range or magnitude of what that total can be?
spk23: Yes. So, you know, as Cyrus said, without going into specifics, you know, we've got a few different fires going. Definitely the Sage and Dividend, you know, the other business that you've seen over the last number of years where They've pretty regularly given us $250 million distribution as Westinghouse, and that business continues to perform well, and our expectation is that we'll continue to have dividends there. There's a number of businesses within the portfolio that are quite mature, more stabilized EBITDA with potential for up-financing. So we feel quite comfortable that we've got enough initiatives underway that will maintain a strong balance sheet and liquidity positions and have no problem funding all of our announced transactions, including the scientific gaming lottery business, and even post that, continue to maintain significant liquidity to fund future growth.
spk13: Great. Thanks for the comments. That's it for me.
spk06: Thank you. And our next question comes from the line of Jamie Goyne with National Bank.
spk07: Yeah, thanks. Good morning. I just wanted to dig into the other segment of the business services segment. So obviously we have the data on the bigger investments, but that other segment seems to be doing pretty well also. Would you be able to provide any color on which businesses or is it broad-based that are performing well and driving some of that nice EBITDA growth?
spk23: Sure, I could provide some high-level colour. As you noted, we don't usually go into details on all of the smaller businesses, but broadly, the One Toronto, the casino business in Canada, the casinos have opened back up and we've seen kind of strong foot traffic there, so that's driving positive EBITDA. Our fuel distribution and marketing business in the UK and Canada has been performing quite well. You would have seen some of the news on fuel shortages in the UK, which has been positive just in terms of being able to supply additional volume in the market for that business, so that's had a positive impact as well. I'd say those are the two bigger drivers there.
spk07: Okay, great. And then in the industrial segment with Cardone, can you talk about some of the dynamics that are at play there in the auto parts manufacturing space? Maybe a little bit of color on how that business is performing and some of the risks you're seeing.
spk16: Sure. The basic driver there is fundamentally miles driven, which if you have access to that data is down materially. Starting to recover, though. But that's the fundamental issue. We're actually very pleased with the turnaround underway. We're actually ahead of plan on many fronts, and the management team there continues to reposition our product mix in very favorable ways. But we do need Miles Driven to come up. We are not losing and, in fact, are gaining market share in certain product lines. So it's really just the fundamental macro factors in that situation.
spk24: Okay, great. Thank you.
spk06: Thank you. Our next question comes from the line of Matthew Weeks with IA Capital Markets.
spk02: Good morning. Thanks for taking my question. I think most of mine have been asked at this point, so I'll probably just ask a quick clarification question. I believe you said earlier that in relation to the two legacy projects in Westinghouse that there were kind of some cost overruns. That those had been, those expected increased costs were all recognized in the current quarter, is that correct?
spk17: Correct.
spk02: Okay, thank you. So is it fair to say that there might not be an income statement impact going forward, but will that reflect in sort of cash flows as time goes on and the work is completed on those projects?
spk23: Yeah, it's Jaspreet. We've worked through both of the projects and have ensured that we've now accrued our best estimate of cost to complete. So we don't anticipate any additional P&L impact. And because they are loss-making contracts, as we incur additional costs, that will have a cash flow impact. And, you know, we will be talking to at least one of the customers on potential commercial remediations, but that's still to TBD at this point. And, you know, it'll be small if we are successful.
spk16: And in parallel, we're going to relaunch an effort focused on getting the productivity of the operations up So, you know, hope to have a positive effect from that over the next couple of years.
spk02: Okay, thank you. That's helpful. I'll turn the call back. Have a great weekend.
spk06: Thank you. We have a follow-up question from the line of Jeff Kwan with RBC Capital Markets.
spk11: Yeah, just my question was, with all this talk about higher inflation and higher rates, you know, within your portfolio, which ones do you see as, likely to perform the best, and if you had to pick a few businesses that you own that might be a little bit more vulnerable in that environment, which ones would they be?
spk16: Well, from my point of view, I think of materials, energy, and productivity, labor, and in that regard, the businesses that are more dependent on those as part of its cost to manufacture are inherently more vulnerable. Brand Safeway, as an example, There are challenges associated with turnover. But again, the good news is the management teams are hyper-focused on these things. And the worst seems to be, I'll say, closely behind us. And we see things improving moving forward in all regards. There are areas, raw material resin, for example, through our Scholler operation, we've had significant increases over the last 18 to 24 months. Having said that, we've been able to pass those increases through to our customers. So, you know, we're very actively engaged on the commercial side of all of these businesses, including brand, to make sure that we're getting ahead where we can and quickly catching up where we can't get ahead to pass through all these incremental costs.
spk08: Okay. Thank you.
spk06: Thank you. I'll now turn the conference back over to CEO Cyrus Madden for any closing remarks.
spk03: Thank you very much for joining us this quarter, and we'll speak to you in three months. Thank you.
spk06: This concludes today's conference call. Thank you for participating, and you may now disconnect. Thank you. Music Playing Thank you. Thank you. Thank you. Welcome to the Brookfield Business Partners third quarter 2021 results conference call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star and one on your touchtone telephone. Should you need assistance during the call, you may Thank you. Welcome to the Brookfield Business Partners third quarter 2021 results conference call and webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star and one on your touchtone telephone. Should you need assistance during the call, you may signal an operator by pressing star, then zero. Now, I'd like to turn the conference over to Alan Fleming. Senior Vice President of Investor Relations. Please go ahead, Mr. Fleming.
spk20: Thank you, Operator, and good morning. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the U.S., which are available on our website. Joining me today on the call is Cyrus Madden, Chief Executive Officer, Dennis Turcotte, Chief Operating Officer, and Jaspreet Dal, our Chief Financial Officer. I'll turn the call first over to Cyrus to provide an update on our business. Dennis will then discuss recent activities at our Nuclear Technology Services operations, and Jaspreet will finish with a review of our financial results. We'll then be available to take your questions. And with that, I'll pass it over to Cyrus.
spk03: Thanks, Ellen, and good morning, everyone. Appreciate you joining us today. We had a great quarter. We generated strong growth in EBITDA and FFO, and we continue to be really pleased with how our overall business is performing. We're working on a number of initiatives to continue building long-term value, and our balance sheet is in great shape. Last week, we reached an agreement to acquire Scientific Games Lottery Business for $5.8 billion. This business... is an essential provider of services and technology to most of the major government sponsored lottery programs around the world. Lotteries represent a critical and growing source of funding for governments globally. In many cases, proceeds from these programs are directly earmarked to fund important social infrastructure initiatives related to health care, education, senior services, infrastructure, and environmental protection. In fact, over $100 billion of lottery sales annually are directed to funding these types of programs. And with increasing budget deficits, we expect governments to rely even more on the proceeds generated from lottery programs as a funding alternative. Scientific Games' lottery business is really well positioned with long-term partnerships and the capabilities to meet the standards of service and security required by highly regulated lottery programs. Its broad offering includes design, distribution, systems, and turnkey technology solutions. The business is integrated across the lottery ecosystem, and its very clear value proposition has contributed to a high level of customer retention. We think we're acquiring this high quality business at a reasonable value. We plan to work with management to support its growth. We see opportunities to enhance service offerings to existing customers and also grow the customer base. As an essential service provider with a strong technology offering, the business is also very well positioned to benefit from the expected growth of digital lotteries around the world. We're funding approximately 30% of the equity on closing and with the balance of the equity from our institutional partners. In October, we closed our acquisition of Dexco Global. And just as a reminder, Dexco is a leading provider of highly engineered components, primarily for industrial trailers and towable equipment manufacturers. We invested about $400 million of the equity for 35% ownership stake. We're now in the early stages of onboarding and developing our plans for continued growth, expanding into adjacent products, and supporting its very successful acquisition strategy. We're also working to close our acquisition of Modulair Group, a leading provider of modular unit leasing services in Europe and Asia. We hope to complete this deal by year-end. These are all great businesses, and over the past few years, we've focused on acquiring similar types of larger scale, resilient operations, which has enhanced the overall profile of BBU. And when it comes time to start selling the larger businesses we've acquired, the size and scale of our monetizations will increase very substantially. From time to time, we'll also opportunistically acquire smaller businesses that we can grow and scale. Our recent acquisition of Aldo, which closed in August, is a great example of this. Aldo is a distributor of solar power kits for the distributed generation market in Brazil. This is a rapidly growing market in Brazil and Aldo is really well positioned. It's a market leader with scale, an efficient cost position, and a network of more than 11,000 independent resellers. We plan to support its growth by expanding its service offerings and broadening its product portfolio into adjacent markets that can benefit from increased demand for energy. On an overall basis, our business continues to grow. Our adjusted EBITDA is now $1.6 billion for the last year, well above $240 million it was five years ago. And our recent acquisitions will add about $400 million to our EBITDA based on their annual historical performance, which will increase as we execute on our value creation plan. On a per unit basis, our NAV has increased at an annual compound rate of 18%. We're very pleased with our overall progress. Looking forward, We're focused on closing and onboarding our recent acquisitions. We're also working to complete the launch of our paired corporate entity, Brookfield Business Corporations, and we hope to get this done around the end of this year, subject to regulatory approval. So with that, I'm going to hand it over to Dennis.
spk16: Thanks, Cyrus. Good morning, everyone. As Cyrus mentioned, we have business operations professionals working closely with the management teams at each of our operations to advance their business plans. We provide support and expertise to unlock value, enhance cash flows, and grow our businesses. Westinghouse, our nuclear technology services operation, is one of our businesses where our team has had a meaningful, positive impact. I wanted to spend some time today providing you with an update on our progress there. As a reminder, Westinghouse is our global service provider to the nuclear power industry The business plays a critical role in ensuring the safe and uninterrupted operation of our customers' power facilities globally. Westinghouse is the technology provider for approximately half of the global nuclear power fleet. The majority of the business's profitability is generated from regularly recurring plant and refueling maintenance outages and ongoing operating improvement initiatives. Through all the economic disruptions of the last two years, performance at Westinghouse has remained remarkably resilient. The business continues to generate a lot of free cash flow that will continue to support distributions up to BBU, while also supporting reinvestment opportunities within the business, building on a broad base of technologies to maintain its industry-leading position. Westinghouse's core business is the delivery of fuel and maintenance services. The vast majority of its services are delivered under multi-year contracts, and the critical and specialized nature of this work ensures very high customer retention. Within its core business, the total value of orders on a per quarter basis has continued to trend upwards since 2019, underpinned by its stable customer base with predictable demand driven by the scheduled timing of outage and maintenance activity at customer facilities. Currently, the company is experiencing a strong fall outage maintenance season, executing almost 30 outages in the Americas with significantly higher scope and volumes compared to the same period last year. During the quarter, we identified increased costs on two legacy manufacturing projects at one of Westinghouse's manufacturing facilities in Europe. Both projects have been underway since before we acquired the business in 2018. contracted in 2010 and 2011 and are progressing toward completion. The costs are predominantly related to lower than expected labor productivity and higher engineering testing and inspection costs on these first-of-a-kind projects. These two projects are unique in their complexity and structure and are not core to the company's ongoing operations. As required with projects in a lost position, we've recognized all estimated future increased costs this quarter. More broadly, our team continues to work closely with management to advance our ongoing transformation agenda, focused on optimizing manufacturing, supply chain, and G&A costs, and on driving organic and inorganic growth. The team has made meaningful progress on enhancing its commercial excellence by aligning the business strategy and organization with customer priorities regionally, driving standardization and processes and leveraging data analytics to improve the business. We think there is still more room to improve and have a line of sight to achieving our annual EBITDA target of in excess of $700 million towards $800 million over the next few years through a combination of ongoing operational improvements and contributions from recent add-on acquisitions. Westinghouse has successfully executed seven add-on acquisitions since 2019. Each of these is relatively small but strategically important in augmenting the business's core engineering and services capabilities, bolstering its digital product offerings, and increasing its presence in newer markets. In October, the business agreed to acquire a partial interest in a Spanish engineering company, The investment further strengthens the business's outage maintenance and digital service offerings, which will increase its competitiveness with customers in Europe and globally. Once fully integrated and ramped up, we expect total annualized EBITDA from the seven add-on acquisitions completed since 2019 to reach approximately 70 million annualized, which equates to 10% of total annual run rate EBITDA. The company continues to lead the industry in innovation as well. As part of its growth strategy, Westinghouse is developing and deploying new products aimed at enhancing the value proposition of its service offerings. It is leading the way in the development of next generation accident tolerant fuel and working on innovative new digital solutions, including the first ever 3D printed fuel component installed inside a commercial nuclear reactor. As the industry leader in technology and innovation, Westinghouse is also well positioned to lead the way in commercializing the next generation of nuclear reactor design and energy storage solutions, including the development of modular reactors with wide-ranging applications. Nuclear power will play an increasing role as a clean energy source to meet global decarbonization goals. Westinghouse remains very well positioned to fulfill its critical role in supporting the safety and reliability of the nuclear power industry, which underpins our confidence in the business's long-term growth potential. With that, I'll hand it to Jaspreet.
spk23: Thanks, Dennis, and good morning, everyone. As Cyrus mentioned, we reported strong performance in the third quarter, generating adjusted EBITDA, or what we formally called company EBITDA, of $443 million compared to $381 million last year. Adjusted FFO increased to $276 million or $1.86 per unit compared to $208 million or $1.39 per unit in 2020. Performance within business services was very strong compared to the prior year. We generated adjusted EBITDA of $163 million. Our residential mortgage insurer contributed $81 million and benefited from low loss ratios, increased market share, and robust new underwriting activity. Home price appreciation in Canada has moderated over the last few months, but the market remains above 2019 levels and is expected to remain resilient in 2022. The business is operating with excess capital relative to the required capital adequacy levels. Yesterday, the Canadian Financial Regulator lifted a moratorium on dividend increases for banks and insurance companies. We hope with this announcement, we'll be able to distribute some of the excess cash in the business through a special dividend by the end of the year. Our healthcare services in Australia generated adjusted EBITDA of $17 million. Demand for elective surgeries at our hospitals remains strong. Performance during the quarter was impacted by intermittent lockdowns and government restrictions in New South Wales and Victoria. As these restrictions ease, we're hopeful that activity levels will recover quickly. Our construction business reported adjusted EBITDA of $22 million. Performance benefited from strong project execution in Australia. Bidding on new business has been strong. We secured eight new projects and ended the quarter with a backlog of approximately $7.8 billion, consistent with the second quarter. Moving on to our industrial segment. We generated adjusted EBITDA of $171 million for the third quarter. Our advanced energy storage operations performed well and reported adjusted EBITDA of $120 million. battery demand from auto manufacturers during the quarter because of global production reductions was more than offset by growing demand for higher margin advanced batteries in the aftermarket. We continue to progress our targeted $400 million of annual profit improvements and are pleased with the cash flow generation of the business. And finally, moving to our infrastructure services segment, where we generated adjusted EBITDA of $140 million for the third quarter of 2021. Nuclear technology services reported EBITDA of $56 million. Strong performance was driven by higher volumes, primarily due to the timing and scope of the fall outage cycle across the business. During the quarter, we identified higher costs on two legacy projects in Europe, which impacted overall financial performance, and Dennis discussed this in a little bit of detail earlier. Excluding the impact of these legacy project costs, EBITDA for the quarter increased by about 15% over prior periods. Our work access services business contributed $19 million in adjusted EBITDA for the quarter. Industrial and market activity levels are improving, North American commercial end markets have been slower to recover, and the business is experiencing some impacts from tighter labor markets in some of its regions. During the quarter, we acquired Brace Industrial Group, which extends our footprint into strategic US end markets and service lines. Before I finish my comments, I'd like to spend a couple of minutes on liquidity. Our balance sheet is in great shape. We ended the quarter with $2.3 billion of corporate liquidity, which provides us ample capacity to continue funding our growth. We currently have initiatives underway to increase liquidity and maintain a strong corporate balance sheet. Our operations generate significant cash flows, which will fund distributions to support our growth. As the earnings of our operations grow, their borrowing capacities also increase. and this can provide opportunities to increase debt as a means of generating additional corporate liquidity. That said, we remain mindful to finance each of our operations with an appropriate level of long-dated debt at favorable rates, which is non-recourse to BBU and can be readily serviced and sustained across all market cycles. And finally, over time, we will generate significant proceeds as we monetize some of our investments. We also recently increased our corporate borrowing capacity by approximately $500 million, which will contribute to us maintaining a strong corporate liquidity position. With that, I'd like to close our comments and turn the call back over to the operator for questions.
spk06: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Jeff Kwan with RBC Capital Markets.
spk11: Hi, good morning. My first question was on Sage and Jasprit. You mentioned obviously the news out of OSFI yesterday. And I'm just wondering, the comments that they had made was it seemed like they expect companies to be kind of more measured in terms of, you know, dividend increases, returning capital or buybacks and whatnot. But given Sajan isn't public or not really public, do you think you might have more flexibility to reduce your excess capital faster than the publicly traded banks insurers? And then the second part of my question was, Based on the numbers that came out of Sajan with the MICAT, 170%, my rough math kind of suggests – sorry, the MICAT was at 214, but if I assumed 170%, which is above historical, I think the math cuts out to about U.S. $300 million that could be pulled out to BBU. Is that correct?
spk23: So in the first part, thanks for your questions, Jeff. But on the first part of your question, you know, you're right. Cajun is now private, but we're still a regulated entity. And, you know, more importantly, we also want to make sure that we're managing the business with the appropriate level of capital reserves that are required for the business. And we're also mindful of the credit rating and, you know, because that's important for our customers and maintaining a strong credit rating for Sajan. Having said that, you're right. You know, the MICAD ratio today is at 214%, which is significantly higher than the minimal requirement, which is, you know, 150, 150%. and the target that management typically operates with, which is 160 to 165%. So based on kind of the current available liquidity within the business, as well as ensuring that we've got appropriate capital reserves, our view is that we could dividend out approximately at least 500 million U.S. And, you know, BBU would get its share of that $500. So that's kind of the plan for now. But then, you know, as you know well, Cajun continues to do very well, continues to generate strong free cash flow, and, you know, there will hopefully be opportunities for additional distributions down the road.
spk11: Okay. And then with respect to GravTech, they announced that $150 million share buyback program is
spk03: intent to kind of tender pro rata or to the extent that there's opportunity to go higher or how are you approaching that hey Jeff Cyrus here look whether we tender into into that we could and we'll just do what's opportunistic for us and as and when we want the liquidity we'll just pick an opportune time we're not in any rush to sell our shares here
spk11: uh you know if anything the backdrop is pretty strong for this company right now uh so we'll just be we'll just be uh prudent do what's best for our balance sheet okay and just my last question kind of ties into um at the holdco liquidity um obviously you guys have run with more debt just because you've been more active um this past year year and a bit um do you have an idea with some liquidity stuff that you're looking at, you know, when you think you might get back to a net cash position. I know obviously there's been some monetizations you've contemplated that could be quite huge and get you back to cash very quickly, but just curious your thoughts around timing and when that might happen.
spk03: Yeah, we're not, you know, we're not, we're not running our business around any specific timeframe, Jeff. You know, we feel we have a huge amount of flexibility today. Just given everything Jaspreet just talked about, ongoing distributions, the possibility for up-financings within our portfolio are real and could be quite substantial. At the same time, I think just given the size of our business and the number of businesses we own today, you should assume, actually, that we always have something for sale. And I'm pretty confident that something we have for sale will sell at some point. Again, we just want to maximize value. We have no need to sell anything today. But if we want to create more liquidity, we can always do that.
spk09: Okay, great. Thank you.
spk06: Thank you. And our next question comes from the line of Devin Dodge with BMO Capital Markets.
spk05: All right, thanks. So just a question on the sanitation business in Brazil. You know, earnings have been growing pretty substantially there. I think EBITDA was up something in the neighborhood of like 40% in the first half of the year. Can you speak to what the earnings power of that business could be as more of the concession investments that you're making become income generating?
spk23: Yeah. Hi, it's Jess Preet. So you're right that the water and wastewater business in Brazil has been doing well. We had a bit of a slow start out of the gate, but over the last couple of years, we've been seeing strong execution on the CAPEX programs at the business, which adds new economies and supports EBITDA growth. We also added a pretty substantial new concession that was operationalized in the middle of this year, which is all accretive to the bottom line in EBITDA. And we're going to continue to work with the team there, invest in the business. And there may be opportunities, you know, to monetize some of the more mature concessions and reinvest those proceeds. But I'd say, you know, overall the business is doing well and continues to do well.
spk05: Okay. Thanks for that. Maybe just switching over to Altera. Fairly significant EBITDA lift there versus what you've been the last few quarters. Just can you talk to the drivers of that? Q3 performance and how we should think about its earnings going forward?
spk23: Sure. It's Jaspreet again. I can start and Dennis can add. So, you know, look, the business is still operating in a challenging environment. We had a little bit of an uplift this quarter. because we had some profit-sharing arrangements on oil price and volume increases at our customers that were helpful. But the backdrop is still challenging for Altera, and we're continuing to work with the management team there to make sure we're supporting initiatives that are ongoing.
spk05: Okay, thanks for that. And maybe just one clarification. Those problematic projects at Westinghouse that Dennis was referring to, how much longer are you guys going to be working on that? When do they wrap up? If you can kind of get some context for how long that will be in the portfolio.
spk16: Sure. It's two projects. One is to provide five segments to Westinghouse. kind of a global fusion reactor project. The other one is to provide 12 steam generators to EDF. Each contract was in place in 2010-2011, so are well underway. The fusion reactor project should wrap up by before the end of 2023, and the steam generator project should wrap up by, I think, around 2028. with the final delivery of the 12th unit planned for that point.
spk04: Okay. Thanks for that. I'll turn it over.
spk06: Thank you. Our next question comes from the line of Gary Ho with Desjardins Capital.
spk14: Thanks, and good morning. Just going back to Declarios, you mentioned the chip shortage impacting OEM sales. Of your significant business in your portfolio that might be impacted by these chip shortage issues, just wondering, you know, can you comment on any other ones that you're seeing that might be impacted by these and or other supply chain disruptions that we're seeing in the space? You mean at Clarios specifically? Yeah, Clarios and any other significant businesses that you might be experiencing it.
spk16: Yeah, no, we have a great line of sight to all of the issues. We don't see anything degrading from this point, and in fact, everything is improving with each passing day, not just at Clarios, but even more broadly. But this will be with us for a period of time, and we're focused on everything we can control in that case.
spk14: Thanks. And then, Cyrus, just going back to Jeff's question on the monetization side, maybe can you give us an update on the ones that you might be looking at that's more mature businesses? Anything imminent?
spk03: Yeah, look, we aren't going to comment on specific things that are for sale or when it might be sold, but... As I said, you should assume something is for sale at any point in time, just given the number of businesses we own now and a number of them are more mature. But I think it's better if we don't comment and if that's okay. But I just want to be very clear. We do not have to sell anything today. We are in a really strong position here. And our preference is to be very disciplined as we sell things, just as we are when we buy things.
spk14: Okay. And then Cyrus, while I have you, just going back to this scientific games transaction, I think it was reported that the parent company was going through a dual track process and the IPO price was even higher than the $5.8 billion that you're paying for. Can you give us a glimpse on kind of why you've been successful with these corporate carve-outs, valuation aside?
spk03: Well, look, scientific games... Now, this is all rumour, rumour on the street, so take it for what it is. But, you know, it was rumoured that there was at least one large strategic party looking at the business and... perhaps that reduced the interest of some financial buyers. It was also rumored, and I think it's probably correct, that they were running a dual track process for an IPO. That may have also reduced the interest of some buyers. And I think we were just able to offer them speed and certainty and immediate liquidity. You know, as you know, when you IPO a business, then if you want all the proceeds, it could take some time. It could take years, right, to get off that size of position. So I think we offer them speed and certainty and a reasonable valuation. And we are... We have a reputation as a reasonable buyer and not difficult to deal with through these processes. So I think that reputational advantage made a difference here.
spk23: Maybe if I could just add one thing, Mr. Jaspreet. I'd say just on your question on the operational side, on the car boats, we've got a really strong operations team that works with Dennis. And we've now done, quite successfully, stood up a few corporate carve-outs like Seijin and Clarios. So again, that gives us a high level of conviction when we buy a business like this. We'll be able to stand it up and operate it and enhance the underlying business.
spk14: Okay, makes sense. And then just last one for me, Jaspreet. Outside of the dividend from Seijin, these internal initiatives that you've highlighted, distributions or up financing, any way that you can give us a range or magnitude of what that total can be?
spk23: Yes. So, you know, as Cyrus said, without going into specifics, you know, we've got a few different fires going. Definitely the Sage and Dividend, you know, the other business that you've seen over the last number of years where They've pretty regularly given us $250 million distribution as Westinghouse, and that business continues to perform well, and our expectation is that we'll continue to have dividends there. There's a number of businesses within the portfolio that are quite mature, more stabilized EBITDA with potential for up-financing. So we feel quite comfortable that we've got enough initiatives underway that will maintain a strong balance sheet and liquidity positions and, you know, have no problem funding all of our announced transactions, including the scientific gaming lottery business, and even post that continue to maintain significant liquidity to fund future growth.
spk13: Great, thanks for the comments. That's it for me.
spk06: Thank you. And our next question comes from the line of Jamie Goyne with National Bank.
spk07: Yeah, thanks. Good morning. I just wanted to dig into the other segment of the business services segment. So obviously we have the data on the bigger investments, but that other segment seems to be doing pretty well also. Would you be able to provide any color on which businesses or is it broad-based that are performing well and driving some of that nice EBITDA growth?
spk23: Sure, I can provide some high-level color. As you noted, we don't usually go into details on all of the smaller businesses, but broadly, the One Toronto, the casino business in Canada, the casinos have opened back up, and we've seen kind of strong foot traffic there, so that's driving positive EBITDA. Our fuel distribution and marketing business in the UK and Canada has been performing quite well. You would have seen some of the news on fuel shortages in the UK, which has been positive just in terms of being able to supply additional volume in the market for that business, so that's had a positive impact as well. I'd say those are the two bigger drivers there.
spk07: Okay, great. And then in the industrial segment with Cardone, can you talk about some of the dynamics that are at play there in the auto parts manufacturing space? Maybe a little bit of color on how that business is performing and some of the risks you're seeing.
spk16: Sure. The basic driver there is fundamentally miles driven, which if you have access to that data, is down materially. Starting to recover, though. But that's the fundamental issue. We're actually very pleased with the turnaround underway. We're actually ahead of plan on many fronts, and the management team there continues to reposition our product mix in very favorable ways. But we do need the miles driven to come up. We are not losing and, in fact, are gaining market share in certain product lines. So it's really just the fundamental macro factors in that situation.
spk24: Okay, great. Thank you.
spk06: Thank you. Our next question comes from the line of Matthew Weeks with IA Capital Markets.
spk02: Good morning. Thanks for taking my question. I think most of mine have been asked at this point, so I'll probably just ask a quick clarification question. I believe you said earlier that in relation to the two legacy projects in Westinghouse that there were kind of some cost overruns. That those had been, those expected increased costs were all recognized in the current quarter, is that correct?
spk17: Correct.
spk02: Okay, thank you. So is it fair to say that there might not be an income statement impact going forward, but will that reflect in sort of cash flows as time goes on and the work is completed on those projects?
spk23: Yeah, it's Jaspreet. We've worked through both of the projects and have ensured that we've now accrued our best estimate of cost to complete. So we don't anticipate any additional P&L impact. And because they are loss-making contracts, as we incur additional costs, that will have a cash flow impact. and we will be talking to at least one of the customers on potential commercial remediations, but that's still TBD at this point, and it'll be small if we are successful.
spk16: And in parallel, we're going to relaunch an effort focused on getting the productivity of the operations up, So, you know, hope to have a positive effect from that over the next couple of years.
spk02: Okay, thank you. That's helpful. I'll turn the call back. Have a great weekend.
spk06: Thank you. We have a follow-up question from the line of Jeff Kwan with RBC Capital Markets.
spk11: Yeah, just my question was, with all this talk about higher inflation and higher rates, you know, within your portfolio, which ones do you see as, likely to perform the best? And if you had to pick a few businesses that you own that might be a little bit more vulnerable in that environment, which ones would they be?
spk16: Well, from my point of view, I think of materials, energy, and productivity, labor. And in that regard, the businesses that are more dependent on those as part of its cost to manufacture are inherently more vulnerable. Brand Safeway, as an example, There are challenges associated with turnover. But again, the good news is the management teams are hyper-focused on these things. And the worst seems to be, I'll say, closely behind us. And we see things improving moving forward in all regards. There are areas, raw material resin, for example, through our Scholler operation, we've had significant increases over the last 18 to 24 months. Having said that, we've been able to pass those increases through to our customers. So, you know, we're very actively engaged on the commercial side of all of these businesses, including brand, to make sure that we're getting ahead where we can and quickly catching up where we can't get ahead to pass through all these incremental costs.
spk08: Okay. Thank you.
spk06: Thank you. I'll now turn the conference back over to CEO Cyrus Madden for any closing remarks.
spk03: Thank you very much for joining us this quarter, and we'll speak to you in three months. Thank you.
spk06: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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