Brookfield Business Partners L.P.

Welcome to the Brookfield Business Partners second quarter 2023 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 one one on your touchtone phone. I would now like to turn the conference over to Alan Fleming, head of investor relations. Please go ahead, Mr. Fleming.

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 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 on the call today is Cyrus Madden, Chief Executive Officer, Anuj Ranjan, President, and Jaspreet Dal, our Chief Financial Officer. We're also joined today by Pat McHugh, the Chief Executive Officer of Scientific Games, our lottery services and technology operation. Cyrus will lead off the call today and provide an update on our strategic initiatives, followed by Anuj, who will discuss the evolution of our technology strategy. Patrick will provide an update on Scientific Games, and Jaspreet will finish with a review of our financial results. The team will then be available to take your questions. And with that, I'll pass it along to Cyrus.

Thanks, Alan. Good morning, everyone. Thanks for joining us on the call today. We had a good quarter. Adjusted EBITDA increased 15% over last year, and our adjusted EBITDA margin continues to improve. Our largest businesses are performing well. Most of these are industry leaders. They're critical to their customers. They can't be easily replaced, and they have strong pricing power, which is really important during periods of inflation, and this has all contributed to their stable earnings and resilient cash flows. While the operating environment still has its challenges today, things seem to be normalizing. Energy costs have eased. In most cases, material prices are down from last year. Freight rates are well below where they were below peak levels, and the worst of the global supply chain issues seem to be behind us. Labor markets, though, are still very tight, although wage rates are stabilizing in most regions, and we're seeing slight reductions in absenteeism and turnover rates across our businesses. For the most part, volumes are holding up. We have some pockets of softness, but for the most part, they're holding up. The pricing we've put in place across many of our operations is contributing to resilient margins. Global capital markets are also turning the corner. The risk of material increases to short-term interest rates is lower as inflation subsides, and longer-term rates are still at a reasonable level. Credit markets are opening for higher-quality issuers to extend or refinance existing borings which is a benefit for most of our businesses. In fact, over the last few weeks, we refinanced about $5 billion of debt at four of our businesses. Three of these refinancings were done at an all-in cost, slightly less than the cost of debt that was replaced. We're also continuing to make progress on sales processes. Greenergy, our road fuels distribution operation, reached an agreement to sell its North American gas station assets during the quarter. The sale will deleverage that business, enable it to focus on the growth of its European renewable fuels business, and generate about $75 million of proceeds for us. In July, we sold a majority of Cardone, our automotive aftermarket parts-free manufacturing operation, to a larger competitor. Cardone was subscaled, and it struggled to fully recover from the severe impacts of the pandemic. Merging it with a larger competitor, taking back a royalty interest on the performance of a bigger business, was the best path forward for a tough investment. And finally, the sale of Westinghouse remains on track. We're working through the remaining regulatory approvals. We're targeting to close the transaction in the next several months. All in all, we're pleased with our continued progress. Our operations are well positioned as we look forward. We may have some opportunities to acquire high-quality businesses from owners who don't have access to capital as the impacts of recent rate increases continue to work their way through the system. With that, I'm going to hand it over to Anuj to talk about the evolution of our strategy in technology and the recent acquisition of Network International. Thanks, Anuj.

Thanks, Cyrus. Good morning, everyone. Most of our value creation over the years has been achieved by acquiring high-quality industrial and services businesses at reasonable prices and improving their operating performance. The returns we've generated over the last two decades have been excellent, and we're now applying this very same playbook to the technology sector. We're targeting mature software and technology services businesses that have all the same qualities which Cyrus talked about earlier. These are market leaders with strong pricing power and durable competitive positions, which provide products and services that customers need in any environment. Over the past few years, spent a lot of time building out dedicated capability to grow our technology presence. We started on a smaller scale, acquiring businesses like Everized, a tech-enabled customer experience company for large global healthcare and technology clients. In a short amount of time, we've tripled the EBITDA of the business by scaling its servicing capabilities, growing its addressable market, and increasing its margins. There's good interest for this business from potential buyers, and we think an eventual sale is likely to generate multiples of what we bought it for. More recently, we've acquired larger scale technology businesses. As you know, last year we acquired CDK Global, our dealer software and technology services operation. Since then, we've made excellent progress in our value creation plans, improving margins by 10% and increasing annualized EBITDA by over $200 million. And in June, we agreed to acquire Network International for about $3 billion. Network is the market-leading payment processor in the Middle East. The business provides services to support the financial backbone of the economies in which it operates. Its technology allows businesses and governments to securely process both physical and online payments. It also acts on behalf of banks to manage transactions for 18 million credit and debit cards. The business has all the hallmarks of an essential service provider and a strong track record, supported by a leading technology stack and relationships with more than 150,000 enterprise customers. Payments are an enormous industry benefiting from strong secular tailwinds. The global digital payment space is more than $2 trillion today and growing at an estimated 10% annually. The shift in consumer spending from traditional cash to digital and online transactions is underpinning the strong industry fundamentals and growth. The opportunity for us is to combine network with Magnati, the Middle East payment processor we acquired last year. These are two highly complementary businesses with limited overlap in customer footprints. We expect that combining them will result in meaningful operational synergies and create a platform with significant scale that is the clear industry leader in the region. With that, I'll pass it off to Pat and be available to take your questions.

Thank you, Anuj. Good morning, everyone. Scientific Games is a trusted leader in the lottery industry, offering a broad suite of innovative technology, products, analytics, and services. We have a truly global reach, serving over 140 customers across 50 countries. Our customers view us as an essential service provider and an important strategic partner. As a result, we've been able to foster long-term relationships with government lotteries, many of which have developed over multiple decades. Fundamentally, lotteries exist to support funding for good causes. On an annual basis, lotteries around the world generate over $100 billion of proceeds, which are directed at important social initiatives, including healthcare, infrastructure development, education, and senior and veteran services. Lotteries have been around for hundreds of years, A little known fact is that Scientific Games owns the largest collection of historic lottery tickets and artifacts, some of which have been signed by the likes of George Washington and Thomas Jefferson. Lotteries have funded much of the early infrastructure investment in the U.S. and other nations. We expect these funding sources to become increasingly important, particularly as governments around the world continue to deal with fiscal challenges. At Scientific Games, We have designed comprehensive solutions to support the entire lottery ecosystem. Our largest segment is Instant Products, where we provide products and services to scratch card lotteries, including marketing, data analytics, logistics, and printing. We are by far the market leader in Instant Products, with approximately four times the market share of our nearest competitor. Our success in this segment is partially attributed to our unique Scientific Games Enhanced Partnership Model, or SGEP. a comprehensive and value-added solution for lotteries which has proven to deliver above-market performance while generating increased economics for scientific games. Complementing our instant products is our systems and iLottery segments. Through these segments, we provide essential technology and hardware systems that are the backbone for many lottery programs around the globe. We also have a full suite of digital capabilities to support the development and operation of government-sponsored iLottery programs. The combination of our unique differentiated solutions and attractive industry fundamentals creates a compelling business model with favorable margins, low ongoing capital requirements, and stable recurring revenue. Our earnings are underpinned by resilient lottery sales, which have grown consistently across economic cycles over the past 30 years. We're also well-positioned to meet strict regulatory framework and oversights mandated by government lotteries, which require high standards of service and security. We believe these attractive characteristics position the business well for future growth. Over the last year, we've focused on leveraging our strong commercial offering to secure several contract wins. These include new contracts to provide products, services, and technology to global operators, including the UK, Vietnam, and Brazil. Each of these are strategically important wins for the business, which will allow us to greatly expand our global competitive position. In the UK, we were able to secure contracts to support the entire lottery ecosystem across both retail and digital channels. In Vietnam, we secured a national instant products contract by demonstrating the success of our SGEP program across the world. In Brazil, we secured a greenfield opportunity in a country which has limited existing lottery offerings, positioning us well for larger upcoming contracts. Together, these contracts should increase annual EBITDA by 10% once fully ramped. Over the past 12 months, We've also focused on addressing short-term headwinds related to input cost inflation and electronic component availability. To accomplish this, we've implemented a series of targeted actions, which included, one, executing inflation pass-through mechanics that existed in our contracts, two, repricing contracts ahead of inflation, three, renegotiating key vendor contracts as input costs have started to decline, four, advanced ordering of long-lead components, And five, strengthening our supply chain to increase diversity and flexibility. We believe the worst of the headwinds are behind us and expect the full benefit of these actions to be realized by 2024. We plan to execute on the next phase of growth through four key pillars, converting customers to our high-performing SGEP model, securing new customers and markets, expanding our iLottery offering, and executing on identified operational enhancements. iLottery is a particular area of focus where we expect meaningful growth from the adoption of government-run lottery programs. In simple terms, iLottery is the digital equivalent of physical lotteries, providing consumers with access to lotteries on their smartphones, tablets, and computers. iLottery is still in its infancy in the U.S. today with only 11 active programs. These programs have proven to be highly successful at generating growth, which is incremental to the existing lottery sales. Over time, we expect broader adoption of iLottery programs. We believe we're well positioned to capitalize on this growth by virtue of our industry experience, which includes supporting three of the top iLottery programs, our leading capabilities, and the long-term relationships we've developed with many of the existing physical lottery programs. Overall, it's an exciting time for Scientific Games. Our unique value proposition has been resonating with customers as evidenced by the recent commercial wins. This success is creating momentum for future opportunities, including significant anticipated expansion in iLottery. As a result of these efforts, we are primed for sustained and profitable growth as a leader in the technology-driven, omnichannel solutions for government lotteries around the world. With that, I'll hand it over to Jaspreet, and I'll be available to answer questions during the Q&A.

Thanks, Pat, and good morning, everyone. Adjusted EBITDA for the second quarter was $606 million and adjusted EFO was $185 million. Looking at segment performance, our industrial segment generated second quarter adjusted EBITDA of $196 million compared to $204 million last year. Strong performance at our advanced energy storage operation was offset by lower contributions from our smaller, more cyclical natural gas producer and graphite electrode operations. Adjusted EFO was $63 million and included the impact of higher interest and higher tax expense at our advanced energy storage operation. Performance at our advanced energy storage operation remains strong, generating increased adjusted EBITDA of $113 million for the second quarter. Results benefited from improved technology mix driven by the growing demand for higher margin advanced batteries and the impact of pricing actions, which are more than offsetting inflationary pressures. Our engineered components manufacturing operation is performing well and contributed $44 million to adjusted EBITDA. While volumes have softened, margins continue to improve driven by ongoing cost-saving and commercial optimization initiatives. Moving to infrastructure services. Adjusted EBITDA for the second quarter increased to $216 million from $205 million last year. Results benefited from improved performance at our work access services operation and higher contributions from our lottery services operations. Adjusted EFO was $88 million and included a $19 million impact from higher interest expense at our nuclear technology services operation, primarily due to higher borrowings and higher rates. Performance at our work access services operations have improved meaningfully since last year, generating adjusted EBITDA of $31 million in the quarter. We're working closely with management on accelerating initiatives to reduce costs optimize commercial terms, and reposition the business in the current environment. Our modular building leasing services operations generated $41 million of adjusted EBITDA in line with last year. Utilization of our units is mixed. The UK continues to be soft, given a downturn in broader construction activity, while Germany, France, and Asia-Pacific have remained resilient. Strong demand for higher margin value-added products and services is contributing to performance. Finally, our business services segment generated second quarter adjusted EBITDA of $223 million, which increased from $153 million last year, primarily driven by the contribution from our dealer software and technology services operation. Adjusted EFO was $119 million and included the impact of a $15 million increase in taxes at our residential mortgage insurer. Our dealer software and technology services business generated adjusted EBITDA of $56 million. Performance continues to benefit from growth of the business's subscription-based service offering and progress achieved on value creation initiatives to optimize the organizational structure Our residential mortgage insurer generated 46 million of adjusted EBITDA. Results are normalizing compared to exceptionally strong levels last year, given the impact of higher mortgage rates on borrowers. Mortgage delinquencies and loss ratios remain low compared to historical levels, but are expected to revert to the long-term averages over time. Our Australian healthcare services operation generated EBITDA of 16 million. While activity levels improved, higher labor and medical and surgical costs impacted overall performance during the quarter. Turning to our balance sheet, as Cyrus mentioned, over the last few weeks, we've completed a number of refinancings within our business. To give you a bit more color, in July, we completed a $1.2 billion refinancing at One Toronto, our GTA casino business. and a $300 million refinancing at Dexco. This week, we priced about a $750 million refinancing of a term loan at CDK Global, our dealer software business. All of these were done at a cost of about 8%. In addition, we refinanced about $2.7 billion of Brand Safeway's work access solutions business, their existing debt, This was done at about 1% higher cost and allowed us to extend maturities of the debt. We did put capital into the business. Our share was about $195 million. The additional capital we provided will delever the business and give it flexibility to continue to execute on its growth plans. And finally, we ended the quarter with approximately $2.2 billion of corporate liquidity after accounting for planned funding commitments and expected proceeds from announced business sales. With that, I'd like to close out our comments and turn the call back over to the operator for questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Once again, to ask a question, please press star 11. And our first question comes from the line of Gary Ho with Desjardins Capital Markets.

Thanks, and good morning. Maybe I'll just start off with a question for Cyrus. I just wanted to get an update on what you're seeing on both the deployment and monetization side. Just hearing from other corporates that, you know, there's a bit of a pickup in activity as of late. I just want to hear your thoughts. Perhaps you can tie that into kind of where you stand with monetizations for Clarios and BRK as well.

Yeah, so look... I would say as a general comment, the credit markets have definitely improved. You can see it in the substantial activity we've had and leveraged finances starting to become available for transactions, which will ultimately lead to more activity in the market. I also think many sponsors Many private equity sponsors are under some pressure from their limited partners to generate proceeds, so there's some motivation to transact. As for our own activity, we've told you what we're up to. We don't have any specific timeline for BRK and Clarios. They are both excellent candidates for an eventual monetization. We're making progress in both of them. But there are still some things we want to do in each of those businesses before an eventual monetization. We don't have any specific timeline there.

Okay, great. Thanks for the color. And then my second question, maybe for Pat, just on the scientific games, specifically the iLottery side, wondering if you can elaborate. I think you mentioned 11 programs for the iLottery right now. Do you envision kind of most of the U.S. states would move to having a program over time. Just want to gauge the potential market growth opportunity. Do most of the primary providers also service both the physical and the iLottery side or are there other players that only cater to the iLottery products? And maybe just lastly, just competitive landscape. I know Pollard and others are in the space. Just wondering if they're kind of fairly rational in terms of pricing.

Yeah, great question. We're incredibly focused on expanding the iLottery presence, both our position in the market and have continued to support the passage of legislation across the U.S. through our government relations team, working with our government partners to educate them on the value of iLottery. So eventually we do see the market continuing to open in all states at some point. We expect we'll be selling iLottery along with traditional retail sales. And we've had great performance on that. Every place where the industry has introduced internet lottery sales, retail sales have grown. We've had a great history of that. I think we're uniquely positioned, to answer your question competitively, in being a full line provider, being able to provide the entire ecosystem for lotteries to leverage our analytics and consumer insights to drive performance seamlessly across the retail and digital channels. So that's been a key differentiator for us. So the traditional systems providers do provide iLottery. I think our performance, particularly being the market leader in instant win games, gives us a unique differentiator. There are some new entrants, just one in particular that is PurePlay iLottery. And I think our position, particularly in being able to service the full ecosystem seamlessly for lotteries, gives us a very unique advantage. So we're very bullish on the opportunity.

Okay, great. And then maybe just the last question, either for Cyrus or Jaspreet. Surprised to hear the refi of three of the four recent investments at rates below the last issue. kind of what's driving that and what were the maturity dates on these and maybe just a general comment can just remind us the cost of borrowings and the length of maturity overall.

Yeah, I'll take that and then Cyrus can add to it. So, we're really pleased with the outcomes on the refinancing that we've been able to accomplish. And really, it's a testament to the types of businesses that we own. We've said this before, but these businesses have strong market positions, their cash flowing, and they perform well in any environment. And quite frankly, the credit investors really like these businesses. which has supported refinancings. And we're seeing a real differentiation now between the high-quality businesses versus businesses that are not as high-quality around the availability of financing. So I think being able to do these refinancings at the rates that we've been able to accomplish is really a testament to the types of businesses that we own and that we've refinanced. In terms of the overall cost, as Cyrus said, three of the four that we did more recently were done at an all-in cost lower than where they were. And Dexco and CDK, both of these, we've taken financing to do some tuck-in acquisition. At CDK, we did a... refinancing on a smaller piece of debt, about $750 million of the total cap stack. And again, it was just the type, both of these businesses have been performing really well and we were able to refinance at about 8% all in cost. And then, sorry, just on your last piece on the maturity. So all of the maturities are in that five to seven year range.

And the only thing... The only thing I'd add, Cyrus, here is that there is a very clear flight to quality that we're observing in the markets and high quality issuers, meaning high quality businesses, can raise capital. And then businesses that aren't so over levered can also raise capital. The flip side of that is we're seeing a lot of good companies that are over levered or companies that aren't performing so well really struggling and their yields have really ballooned out, that's probably going to create quite a bit of opportunity for new investments as well. Okay.

Thanks for those answers. Thank you very much. Thank you. One moment, please, for our next question. Our next question comes from the line of Andrew Kuski with Credit Suisse.

Thanks. Good morning. I think my first question is really directed to Pat, and it's just on the iLottery transition. As you go from, say, more physical sales to your physical model to an iLottery model, does that ultimately involve margin expansion? And are you in this sort of transitionary phase where you're really running both systems right now, or it could be a bit more expensive, but ultimately you get to an end state that just has higher margins?

Yeah, great question. So let me start with a broader view of iLottery and how it impacts, which I think may be part of it. So what we're finding very consistently when we expand into iLottery is that we see growth in the overall portfolio. A great example is in Pennsylvania, where we launched one of the most successful iLottery programs in the industry in 2018. That quickly grew to a billion dollars in sales via the iLottery program. In parallel with that operating the retail lottery systems, we grew that business from $4 billion to $5 billion by 20%. So over that period of time, the lottery's gone from $4 to $6 billion. So it shows the ability to drive that. We personally, as we've done a carve-out from our previous structure, we had shared resources across our iCasino and iLottery business. We're much more nimble now. We expect to continue to see efficiencies and economy of scale with just focusing 100% on lottery pure play. And as we scale the business, we continue to expect to see margins increase in that area as well. Hopefully that answers your questions.

That does. That's excellent. I'm going to take the second question a different track and maybe to Cyrus. Just on the market environment, and you mentioned the refis that you've done and the desire for high yield to go to more quality credits and how that's helped you. More broadly, where are you seeing just sort of better investment opportunities on the debt side with the toeholds or really equity market dislocations that may exist?

So what we see is are many, many, many companies that continue to be, I'll use the word orphaned in the capital markets from an equity perspective. And some of them are great businesses trading at really good valuations. That's an opportunity set. And we found opportunities there before, and we continue to look there. The other side, as I mentioned earlier, there are a lot of businesses that are perhaps over levered, perhaps not hitting their full potential in terms of margins and cash flows. And many of them are struggling. In fact, I can't give, I can't recall the exact number, but there are, you know, I recently saw a list with a couple of hundred names of different businesses that had very high yielding debt, like double digits. plus yielding yield to worse. And the owners of those businesses are going to need help to de-lever if they don't have the wherewithal to come up with the capital themselves. So that's really where we're focused today, I would say, on stressed, perhaps distressed situations.

Okay. I appreciate that. Thank you.

Thank you. One moment, please, for our next question. And our next question comes from the line of Jane Gloyne with National Bank.

Yeah, thanks. Question on SG Water here, maybe a couple. The first one, I guess, is I would have thought that iLottery might cannibalize the physical retail, and clearly in Pennsylvania, the example is otherwise. I guess maybe a little bit of color as to why do you think that is, and do you think that's maybe just a temporary outcome, and eventually it will start to cannibalize physical? Just a little bit more of your perspective on that dynamic.

Sure. It's a great question. So I'll cut to the chase, and the answer is no. As you've noted, it doesn't cannibalize. We don't expect it in the long term to cannibalize either. We think it's incremental. And there's a long history. Outside the U.S., Europe in particular, where lotteries have been selling on the Internet for quite a period of time, more than a decade, what we've seen is those lotteries that introduced Internet and mobile sales accelerated faster on their retail sales than lotteries that hadn't. Here in the U.S., where the first states have been alive for about seven years, the same dynamic. They've had record retail sales and outpaced the industry, those lotteries that launched in Taiwan. There's a couple of reasons for that in our belief. Number one is broad appeal of the products, of lottery products. We find both in the retail segment and digital, when you expand points of distribution and make it easier to purchase a product, we see increase in sales without cannibalization. And again, that's true in retail and digital. More than 50% of the adult population plays the lottery once a year. So a broad appeal to a small purchase and distribution, expanded distribution makes it easier. The other piece, and I think this is consistent with any consumer product, is that when lotteries start reaching out via internet, you get more presence digitally, digital advertising, awareness of the product, and so you're not only selling on retail, but when people see the product that, I'm sorry, digital, they see the product at retail, they're more adept to buy it because it's top of mind. Many lotteries are still, traditional lotteries without an internet presence are still doing much of their advertising in traditional markets like media, TV media and print. So when they move into the digital world, they continue to expand that presence. So we see this as a long-term dynamic, and it's

it's been very very very consistent for for quite some time okay great um in terms of the uh the growth outlook um you know the the letter in your commentary mentions the the uk vietnam brazil um and uh and the ramping once fully ramped should increase even by 10 i guess the first question side of that is like, what kind of timeframe does it take to get these, uh, these operations, uh, fully, fully ramped? And then the, uh, the, the next part of the question is, um, You know, are these, are these kind of total positions in those, uh, in those jurisdictions with an opportunity to kind of land and expand or, or how does that, uh, how do these, these new relationships set up those, uh, those jurisdictions, those regions?

Yeah, great question. So in established regions like UK and New Zealand, for example, we're going in and displacing a competitor. Generally, you look at a year of implementation and then ramping up over the next year, so it's pretty short-term. And greenfield markets like Brazil may take a little longer, but again, adoption once we roll out is generally over the first year. first couple of years in the green market, maybe slightly longer, but not far off of that. And we've been very successful, especially when we move into a managed service environment with our customers to find incremental growth, both for our customers with, you know, analytic-driven performance gains and the add-on value. So we go into the market, as you say, get a Even in an established jurisdiction with a base contract, out of the gate, we're providing products and services that are add-on on top of the base contract. Everything's around driving performance for our lottery customer, but it also drives economic performance for us, adding on top of the base and accelerating not only increased revenue from the sale of the product, but all of those products increase sales. sales of lottery tickets and we're in participation contracts.

And then, and then sorry, just to, to get a sense as to like the geographic expansion opportunities. So are these, forgive me for not, not having the deep dive here, but like is the UK a beachhead into Europe? Is Vietnam a beachhead into Asia, Brazil, Latin America, or are you well-established elsewhere in those, in those areas?

Yeah, different markets. In Europe, we're well established as a technology provider. We provide systems to probably 30 lotteries throughout Europe. What's unique about the UK, not only its size, it's one of the largest lotteries in the world, but we'll be providing the entire ecosystem. And it's a services-based contract as well. So in some jurisdictions, we're just providing the technology. In Europe, this is an example of taking the ecosystem, putting in game category management, analytics and other services to drive performance and being centered on a percent of sales so it's much like taking the u.s. model that we've been successful at and moving it into your and in New Zealand Australia we have almost no penetration on the technology standpoint so that's you know moving into those markets moving into Africa Latin America this other year we could you know, pick up significant markets here.

Okay. Got it. Good. Just switching gears over to Cyrus, just in one of your other answers, you talked about perhaps having that a few things to do before eventual monetizations in, in Clarios and BRK. Clarios obviously still, still some cost savings initiatives to do the BRK dive last, last investor day. That seemed to hint that maybe that was, that was pretty close to a monetization and with Brazilian stock market doing a little better this year or improving through the, from the beginning of the year, maybe a little bit more color on what those like, some things that need to be done might be and how much time you need to execute on that front.

Look, on BRK, we are in the middle of an efficiency program and cost-out program that's still progressing. We think there's another leg up there. As to timing to get all that done, maybe it's six months. sort of timeline, maybe a year, probably six months. And then as to when's the right time to sell it, the markets there are still pretty weak. Now rates are starting to come down. They've just started to come down. We expect them to drop further throughout the year there. And that should lead to a recovery in their capital markets and create all sorts of options for us at that time. We're not in any rush. The business is cash flowing. It's performing well. We think it can perform better. So that's where we stand today.

Okay, great. Thanks very much. Thank you. One moment, please, for our next question. Our next question comes from the line of Devin Dodd with BMO Capital Markets.

Thanks. Good morning. I want to start with a question on CDK. You mentioned in your prior remarks there's been a lot of progress in terms of improving profitability in really a short amount of time. Can you talk about where you've seen the most success so far and what other parts of the value creation plan still need to play out?

Why don't I start on this one? Look, our team has done a terrific job here and the management team has done a terrific job. Number one, just reducing overhead, grabbing low-hanging fruit, part of our playbook when we buy a new business. Number two, we're making a lot of progress on offshoring a bunch of services. Number three, they put in place a more logical go-to-market strategy, providing better value to their customers where they need this product and service. and also putting in place more rational pricing where it makes sense and we can still provide great value for our customers. So that's sort of been the initial effort at CDK. The ongoing effort now is to conduct a technology transformation and really upgrade the technology stack so the company can provide even better products and services to its customer base.

Okay, excellent. Very good. Good color. Okay. And then we'll be switching over to Jaspreet. I think in your comments about refinancing, I think one of the ones you talked about was Brand Safeway. And we saw that, you know, BBU, I think, contributed some more capital to reduce leverage and improve flexibility there. I believe we saw something similar at Healthscope earlier this year. So just looking forward, when you look across the portfolio, where do you see the most upcoming refinances and are you expecting to commit additional equity to facilitate that rollover of debt?

Yeah, thanks for the question. So you're right. We did put some additional capital into brands and it helped deliver the business, provided a bit more flexibility. We're seeing really strong kind of growth in that business now over the last few quarters. So it's really to kind of support the overall business and help the refinancing as well. You know, at Healthscope, the capital that we put in was very small. And again, it helped pay down some of the RCF that was borrowed within the business and just gives it a bit more flexibility. As I'm looking forward, you know, we've got circa 5% of our debt now maturing in the next 12 months. So it's not a whole lot and it's very much manageable. Nothing in any of the businesses where we'd have to put any capital in. So at this point, I'm not anticipating that if we did opportunistically look to refinance something to get better pricing, push out maturities that we need to put capital in. And quite frankly, there's not a whole lot that we have to do. This will be more opportunistic where it just helps the capital structure for our businesses if we did do anything more.

Okay. That's helpful. Thank you. I'll turn it over.

Thank you. One moment, please, for our next question. The next question comes from the line of Nick Reed with CIBC Capital Markets.

Okay, thanks for the question. Just stepping back for a moment, I'd be interested to hear a little bit of color on what you've been hearing from private LPs and the Brookfield-sponsored private equity funds. Like some LPs have become over-allocated to the asset class. So are LPs actively asking for capital return or is their primary concern capital preservation. I'd just be interested to hear some of that feedback and maybe how that factors in, if at all, to the hold versus sell decision-making process more generally.

Well, sure. Cyrus here. Why don't I talk a little bit about what we're hearing from North American LPs and then Anuj, maybe you can comment on some of our other LPs around the world. But I would say nobody's Nobody is demanding capital back, and LPs just don't do that. They understand when they make a commitment it's for 10, 12 years, and they fully expect that to play out. The comment I made earlier was in light of the fact that a lot of GPs want to raise their next fund, and when they go out to conversation with their LPs, The LPs in North America will say, we're already quite allocated, fully allocated to our PE program. We'd be happy to invest in your next fund, but you really need some realizations from you so we can fund you for the next fund. So the conversation is more along that sort of line, and it's pretty consistent, I'd say, in North America. That message is pretty consistent for all GPs.

Yeah, and it's an itch here. In North America, while they're in many cases over-allocated, what we're finding in the Middle East and Asia, for example, is they're actually quite active and deploying probably more capital in this environment. They see it as a good opportunity to get exposure to private equity businesses and the portfolio companies. So there's been an uptick there. But they are deciding to partner with a lesser number of managers instead of having as many managers across a very broad spectrum of investments. They're choosing fewer and fewer GPs to partner with and partnering in a much bigger way with those lesser number of sponsors and GPs. we're thrilled that we're on the right side of that trend, and it's been quite a good relationship we've had with these clients.

Yeah, okay, that's great, very helpful. And then just my second question, you alluded to the success that you've experienced driving earnings growth at EverRise, and I'm aware that that's a relatively smaller investment, but I was wondering if you could just expand on the specific initiatives that drove that step change in earnings, and whether those are things that you would or could seek to replicate for some of your larger investments in the technology sector? I'm just trying to understand that investment a little bit better.

Yeah, absolutely. It's a new scan. I'll take that. So we've owned EverEyes for about two and a half years, and we've managed to triple EBITDA in that time. It's been a combination of a whole bunch of different efforts that are very similar to what we do in our playbook across the board. So one aspect of it was growing its addressable market. How we did that was by doing more what we call nearshoring and offshoring, which is similar to, for example, what we've done in CDK. So having centers in markets closer to the Americas, but in, for example, Latin America with a lower cost, or in Asia, like the Philippines, where we can provide these services, that's been a big benefit to us. to the business. We've focused it on the healthcare sector primarily and grown quite a bit by providing more and more different service capabilities to the healthcare sector, but focusing on one that was quite resilient. The US healthcare sector has grown and continues to grow, and we've been a beneficiary of that. And I'd say that by a combination of that and a large exercise we had on operational value creation, which, again, is something we've done with many businesses in the past. We could apply to other technology services businesses in the future. Paired with some growth, of course, in the underlying markets and Ever-Rise's market share, we've been able to do quite well.

Okay. That's good color. Thanks very much.

Thank you. I would now like to hand the call back over to CEO Cyrus Madden for any closing remarks.

Thank you everyone for joining us this quarter and we look forward to speaking with you next quarter. And of course in the interim, if you have questions, please do contact Alan Fleming who heads up our investor relations.

Thanks very much. Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating