Brookfield Business Partners 2026 Q3 Earnings Call

Welcome to Brookfield Business Corporation's 3rd quarter 2026 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. Welcome to Brookfield Business Corporation's 3rd quarter 2026 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 1-1 on your touchtone phone. Now I'd like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming.

Thank you, operator, and good morning. And thank you everyone on the line for joining us today. 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 all to review our filings with the securities regulators in Canada and the U.S., which are available on our website. We'll begin today's call with Anuj Ranjan, our Chief Executive Officer, who will provide an update on the progress we're making in executing against our strategic priorities. Anuj will then turn the call over to Mark Wallace, Chief Executive Officer of Klaros, who will discuss the business performance and the growth opportunities we see ahead. We'll conclude our prepared remarks with Jaspreet Dehl, our Chief Financial Officer, who will review our financial results. We'll then open the question— the line to your questions. With that, I'd like to pass the call over to Anuj. Thanks, Alan. Good morning, everyone, and thank you for joining us on the call today.

We've had a busy few months. We're making great progress across our business. We agreed to sell an additional 20% interest in Latrobe Financial, our Australian asset manager and lender. We've now realized a 2x cash multiple. And a 35% IRR on our investment, and we still own more than half our original ownership in the business. In addition, last week we closed the sale of Multiplex for over $600 million. These realizations tell us something about the market. Buyers are increasingly willing to pay for more critical, cash-generative industrial and services businesses. In total, we've generated $1.4 billion from capital recycling since the start of the year, which puts us well on our way to exceeding the $2 billion target we set at our Investor Day last year. These 2 sales are just the latest examples of our strategy in action. We acquire high-quality businesses at attractive values, making them stronger through operational improvements, and recycling capital when the time is right to redeploy into new opportunities. And we've been doing just that. We closed new investments in World Freight Company and Gregg Distributors. And reached an agreement to acquire Reliance Worldwide Corporation, a global leader in plumbing products with category-defining brands, resilient demand, and significant opportunities for operational improvement.

Together, These reinvestments represent more than $500 million of capital from BBUC. These investments are great examples of the opportunities we're seeing in today's market. They are high-quality businesses with strong competitive positions and durable cash flows. But what really excites us is the opportunity to make them even better. Around the world, companies are rethinking how they operate in response to changing supply chains, cost pressures, and advances in technology. These shifts are creating significant opportunities to improve productivity, reduce costs, and make businesses more competitive. We've spent decades making businesses better. We believe that experience gives us a distinct advantage. Over the past 2 years, we've committed more than $1.2 billion to acquire 7 market-leading industrial and services businesses. We see significant opportunities in manufacturing efficiency, procurement, commercial execution and technology to grow earnings and cash flow at these businesses. We're still in the early stages of executing our value creation plans, so much of the opportunity is still ahead of us. And remember, we have a long track record of turning these operational improvements into real cash for our shareholders. Since creating BBUC, we've sold about 30 businesses generating roughly $9 billion in proceeds and a 19% realized IRR.

In aggregate, these monetizations were done at about a 12% premium to our NAV. Looking ahead, we have a strong pipeline of new investments, a lot of upside in what we already own, and significant capital coming back to us from monetizations. This puts us in an excellent position to continue compounding value for our shareholders. One of the best examples of our approach in action is Clarios. Since acquiring the business, we've significantly grown its earnings strengthened its operations, and positioned it for the next phase of growth. Today, Clarios is our largest investment, and honestly, we believe the best is yet to come. I'm very pleased to have Mark, Clarios' CEO, joining us today to share more about the business, the progress we're making, and the opportunities ahead. Mark, over to you. Thank you, Anuj, and good morning, everyone.

It's great to be back with you. I'd like to spend a few minutes providing an update on Clarios, including the strength of our core business and the opportunities we are pursuing that will accelerate our growth and expand our addressable markets. From supercapacitors that help stabilize power demand in artificial intelligence data centers to connected services that help commercial fleets reduce downtime while creating new recurring revenue streams. I'll also touch on how our recent portfolio actions support our long-term strategy. Let me start with our performance. We finished fiscal 2026 with our 4th consecutive year of record financial results. That performance underscores the strength and earnings power of our core business, and provides a strong foundation for long-term growth. At the center of the foundation is our highly resilient business model. Kleros is a global leader in low-voltage energy storage, approximately 4 times the size of our nearest competitor. We power roughly 1 in 3 vehicles on the road, and we sell more than 150 million batteries annually. Approximately 80% of our sales are in the stable aftermarket. where battery replacement is essential and recurring. This scale is supported by a well-established circular model that recovers and reuses critical minerals across the battery lifecycle.

That aftermarket exposure provides significant stability while also creating meaningful long-term growth potential. One of the most important drivers is the continued shift toward higher-value advanced batteries, which we expect to be a multi-decade tailwind. Advanced batteries now represents 35% of our units sold, up from just 10% in fiscal 2015. More than 70% of the batteries we sell into the original equipment channel today are advanced batteries. While the aftermarket penetration remains significantly lower, over time we expect the aftermarket to naturally follow as those vehicles move through the replacement cycle. And because advanced batteries generate greater revenue and profit per unit than conventional batteries, that mix shift creates an attractive long-term growth opportunity. At the same time, the role of the low-voltage power in vehicles is becoming more important. Vehicles are becoming more electrified, connected, software-defined, and automated. That evolution requires more sophisticated low-voltage power systems to support electronics, critical vehicle functions, and safety redundancy. Importantly, that trend is largely powertrain agnostic. Internal combustion, hybrid, and fully electric vehicles all require reliable low-voltage power. With more than 620 xEV platform wins to date, we have established a strong position as these architectures continue to evolve. For Clarios, that creates an opportunity to provide greater value to our customers and increase our dollar content per vehicle.

This is the strategy behind the Clarios Power Management System, or CPMS, by bringing together advanced batteries, supercapacitors, electronics, software, and monitoring capabilities we can address a broader portion of the vehicle's low-voltage architecture and solve more of our customers' power management needs. More broadly, our $6 billion U.S. investment plan supports advanced battery production, critical mineral processing and recovery, next-generation technology, and state-of-the-art manufacturing. These investments strengthen our core while building the capabilities needed to support future growth. Alongside these investments, we remain intensely focused on driving operational efficiency across the business. We're utilizing AI and machine learning, advanced automation, and robotics to improve productivity, optimize our supply chain, and enhance our customer service. Continuous operational improvement is an important lever to support margin expansion and long-term value creation. Beyond driving growth and efficiency in our automotive business, we also see opportunities to extend power management technology into new attractive markets. A great example is supercapacitors. Our acquisition of Maxwell Technologies added a complementary fast-response power technology to our portfolio. Within automotive, supercapacitors support peak power requirements, stabilization, and redundancy. Beyond automotive, we see applications in data centers, grid infrastructure, industrial applications, and renewable energy. Data centers are particularly interesting.

AI workloads are creating increasingly volatile power demands that constrain existing infrastructures. Supercapacitors can respond almost instantly, helping smooth power spikes and bridge short-duration gaps between primary and backup power. We see an attractive opportunity as AI computing drives demand for fast, reliable power. We are pursuing a similar opportunity through our connected services. By combining battery data, analytics, and our deep expertise, we can help fleet customers identify potential battery issues before they result in vehicle downtime. Today, our connected services solutions support approximately 20 commercial fleets across North America. These deployments validate the need for actionable battery intelligence that can improve uptime and maintenance planning. Over time, connected services can create recurring revenue opportunities, deepen customer relationships, and generate valuable insight to inform future innovation. As we pursue these opportunities, we remain focused on allocating capital to strengthen our competitive position and create shareholder value. Our recent portfolio actions are good examples. Our planned acquisition of Ecobat U.S. operations include 3 critical mineral recovery and processing facilities, that together process more than 40 million batteries annually. Bringing these capabilities in-house advances our vertical integration, reduces reliance on third-party suppliers, and strengthens access to critical minerals, reinforcing both our closed-loop model and the security of domestic battery supply chains.

It also allows us to benefit from greater vertical integration, creating an opportunity to improve margins over time. At the same time, we monetized our non-controlling economic interest in an equity stake in a large battery distributor while preserving our longstanding commercial relationship. Taken together, these actions reflect a disciplined approach to managing the portfolio, investing in strategic assets and capabilities while maintaining financial flexibility for future growth and long-term shareholder value creation. So as we look ahead, I'm excited about where Clarios is positioned. We have a resilient, cash-generative core business. We are strengthening our automotive leadership as vehicle architectures become more complex. While extending our capabilities into attractive new markets and recurring revenue opportunities. Together, we believe these growth platforms expand the markets we can address by approximately $32 billion today to an estimated $52 billion by 2040, supported in part by the growing demand for advanced power management solutions in data centers. This strategy gives us multiple avenues to grow while continuing to drive operational efficiency, deploy capital, and with a discipline, and create long-term value. Thank you, and I'll turn it over now to Jaspreet. Thanks, Mark, and good morning, everyone.

We generated 3rd quarter adjusted EBITDA of $594 million compared to $575 million in the prior period. Adjusted EFO for the quarter was $337 million compared to $284 million in the prior period. Current period adjusted EFO includes $44 million of net gains primarily related to the partial sale of Latrobe Financial. Turning to segment performance. Our industrial segment generated 3rd quarter adjusted EBITDA of $348 million compared to $316 million last year. On a same-store basis, adjusted EBITDA increased approximately 8% over the prior period. At Clarios, strong commercial execution, the continued favorable shift towards higher-margin advanced batteries, and higher U.S. production tax credits supported earnings, offsetting some softness in volumes and inflation-related cost pressures. BRK Ambiental delivered double-digit growth in adjusted EBITDA, benefiting from contractual tariff increases and higher volumes. Performance at Descalp was broadly in line with last year despite continued weakness in North American trailer markets. Improved margin within the business benefited from the team's continued effort to align its cost base with current demand, advance its commercial initiatives to offset inflation and tariff pressures, as well as accelerate automation. Moving to our Business Services segment, which generated 3rd quarter adjusted EBITDA of $204 million compared to $188 million last year.

On a same-store basis, adjusted EBITDA increased by approximately 3% over the prior period. Sagen continued to benefit from resilient demand among first-time homebuyers, even as broader housing activity in Canada remains slow. Losses and claims were higher during the quarter, reflecting increased claim severity and reserve strengthening, consistent with our expectations for normalization. The business is very well capitalized with a minimum capital adequacy ratio of 176% and continues to generate significant cash flow. which allowed it to pay us a $90 million distribution in the quarter. CDK delivered double-digit adjusted EBITDA growth over the prior year, supported by cost-saving initiatives as well as continued cross-sell and upsell activities. The business appointed a new CEO in August as the team continues to focus on initiatives to strengthen commercial execution and accelerate customer adoption of its modernized workflow. Finally, our Infrastructure Services segment generated 3rd quarter adjusted EBITDA of $76 million compared to $104 million last year. Prior results also included contributions from Alterra's FPSO operations, which was sold earlier this year. Admiral Air was also impacted by softer demand and competitive pricing pressure alongside operational challenges in the UK. A new CEO joined in September and is focused on strengthening operational execution, improving customer retention, and driving better commercial performance across the business. with the UK as the immediate priority.

At Scientific Games, weaker industry volumes and higher costs associated with new contract implementations weighed on results. This included higher-than-anticipated costs to deliver select international contracts. The business continues to execute on delivering a record number of implementations. These impacts were partially offset by performance improvement at BrandSafeWay. The business is benefiting from strong growth in white space markets, including semiconductors, power and data centers, as well as higher fleet utilization and commercial initiatives. Turning to our balance sheet and capital allocation priorities, we ended the quarter with approximately $2.7 billion of pro forma liquidity at the corporate level. Our strong financial position provides significant flexibility to fund new investments and continue to buy back our shares. Since launching our share repurchase program early last year, we bought back more than 335 million shares. We continue to view repurchases as an attractive use of capital at current trading prices and will remain disciplined as we pursue new investment opportunities. As always, our priority is to deploy capital where we believe it'll generate the greatest long-term value per share. With that, I'll turn the call back to the operator for questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, Please press star 1-1 again. One moment, please. And our first question comes from the line of Gary Ho with Desjardins Capital Markets.