Target Hospitality Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 6 speakers on the call.

Operator

Hello, and welcome to Target Hospitality Second Quarter 2023 Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would like now to turn the conference over to Mark Shuck, Senior Vice President, Investor Relations and Financial Planning. Please go ahead.

Speaker 1

Only mode. Thank you.

Speaker 2

Good morning, everyone, and welcome

Speaker 3

to Target Hospitality's Q2 2023 earnings call. The press release we issued this morning outlining our Q2 results can be found in the Investors section of our website. In addition, a replay of this call will be archived on our website for a limited time. Please note the cautionary language regarding forward looking statements contained in the press release. This same language applies to statements made on today's conference call.

Speaker 3

This call will contain time sensitive information as well as forward looking statements, which are only accurate as of today, August 9, 2023. That may arise after today's date, except as required by applicable law. For a complete list of risks and uncertainties we will discuss non GAAP financial measures on today's call. Please refer to the tables in our earnings release posted in the Investors section of our website to find a reconciliation of non GAAP financial measures referenced in today's call and their corresponding GAAP measures. Leading the call today will be Brad Archer, President and Chief Executive Officer followed by Eric T.

Speaker 3

Calameras, Executive Vice President and Chief Financial Officer. After their prepared remarks, we will open the call for questions.

Speaker 4

I'll now turn the call over to

Speaker 3

our Chief Executive Officer, Brad Archer.

Speaker 4

Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Our record setting second quarter results reflect the positive momentum we have sustained over the past year. We have established significant operational flexibility and scale enabling us to appropriately match customer demand while continuing to generate strong financial results. We continue to benefit from our materially expanded presence providing critical hospitality solutions to the U.

Speaker 4

S. Government. This intentional focus has resulted in over 70% of 2nd quarter revenue being derived from committed contracts backed by the United States government, with 78% of 2nd quarter revenue having minimum revenue commitments. These elements supported over 368,000,000 on discretionary cash flow over the last 12 months, representing an impressive discretionary cash flow yield to revenue of over 61% over that time. Up to quickly respond to strategic growth opportunities, all while continuing to generate impressive operating income.

Speaker 4

To our world class customers, many of whom have been customers for over a decade. As a result, Target continues to benefit from on executive quarterly increases in customer demand, resulting in an 18% year over year increase in utilization with consistent customer renewal rates of over 90%, which we have enjoyed for over 7 years. We continue to benefit from the strong demand fundamentals and the more fully optimized network we have created over the past year. These elements have supported a more normalized pricing environment, and we anticipate continued positive momentum in the coming quarters. Regarding our government segment, our purpose built portfolio of assets continue to serve the critical humanitarian aid mission they were designed to support, while exceeding the expectation of our partners in the U.

Speaker 4

S. Government since our first community was established in 2014. Target's communities are frequently visited by the agencies they serve as well as adjacent agencies and consistently receive the highest government ratings on all of their operating specifications and metrics. This is a testament to the world class solutions we have created to serve the specific needs of the U. S.

Speaker 4

Government's humanitarian mission. Regarding our existing Pecos Children's Center community, as we previously announced, several key milestones have been achieved related to securing a long term contract for this community. Our existing non profit partner to appropriately fund multi year contract awards. Importantly, the performance of work statement coinciding with the IDIQ contract materially aligns with the existing specifications and capabilities of PCC. This is significant as only.

Speaker 4

Our community has established a blueprint for the government's desired influx care facility sites. Further, in connection with the performance of work statement, The government outlined their desire to increase their ICF capacity to accommodate up to 10,000 individuals, requiring a total of 3 influx care facility contract awards or 2 in addition to the established PCC community. Into the U. S. These ICS sites are critical to the U.

Speaker 4

S. Government and paramount in their ability to adequately support surge capacity in excess of existing shelter capacity, which has remained static for many years. In response to the government's stated desire to increase their ICF capacity. We have partnered with multiple established government service providers and jointly submitted several solutions for new ICF sites. These new ICS sites are in addition to the established PCC community and our ongoing relationship with our non profit partner.

Speaker 4

In summary, we have positioned Target to participate in a much larger influx care opportunity set than just PCC. We remain committed to our existing non profit partner and the exceptional community and service offering we have jointly created at the Pecos facility. We have also expanded our strategic government service partnerships and jointly submitted several bids across numerous geographic locations for the creation of new ICF solutions for the U. S. Government.

Speaker 4

I'll now turn the call over to Eric to discuss our 2nd quarter financial results, expanding humanitarian focus and capital allocation initiatives in more detail.

Speaker 1

Thank you, Brad. In the Q2, we continue to benefit from our established operational scale and ability to align with customer demand and consistently deliver strong financial results. 2nd quarter of 2023 total revenue was $144,000,000 and adjusted EBITDA was approximately $91,000,000 our government segment produced quarterly revenue of approximately $101,000,000 compared to $75,000,000 in the same period last year. A significant increase was attributed to the expanded PCC community. Our HFS segments delivered quarterly revenue of $42,000,000 compared to $35,000,000 in the same period last year.

Speaker 1

This increase was driven by sustained momentum in customer demand for Target's premium service offerings. Current corporate expenses for the quarter were approximately $9,000,000 and we anticipate recurring corporate expenses will remain around $9,000,000 to $10,000,000 per quarter for the remainder of the year. Total capital spending was approximately $16,000,000 with the majority related to expanding our government portfolio in anticipation of the government's request to increase their ICF network capacity. We expect more moderate pace capital spending through the remainder of the year, on the call, excluding potential acquisitions or government contract awards. We ended the quarter with $70,000,000 cash and $195,000,000 liquidity with 0 borrowings under the company's $125,000,000 revolving credit facility and a net leverage ratio of 0.4 times.

Speaker 1

As it relates to the outstanding senior notes, we continue to evaluate a range of liability management initiatives focused on further strengthening our financial position, while balancing the expanded pipeline of strategic growth opportunities. This approach is centered on maximizing financial flexibility, enabling us to quickly react to value enhancing growth opportunities as they arise. Before we discuss the on the specifics around our expanded humanitarian opportunities. I would like to touch on the Influx Care facility concept and its intended purpose in serving the government's humanitarian mission. As a reminder, the government has a network of shelter capacity only that consists of smaller facilities located across the United States.

Speaker 1

While these facilities are a fraction of the size of Target's existing PCC ICF community, the government utilizes the shelter facilities to address their humanitarian housing solutions for unaccompanied minors prior to occupying Influx Care subs. Influx Care facilities are intended to manage surge capacity beyond the U. S. Government's existing shelter capacity. However, PCC and the government's desired influx care network capacity play a critical and a necessary role in supporting this humanitarian mission.

Speaker 1

Only. Due to the small size of individual shelter sites, the government has focused on its efforts in increasing influx capacity that is urgently needed to manage the increasing and consistent numbers of unaccompanied children entering the U. S. That could strain the government's shelter network. Simply stated, the Influx Care network is an essential element allowing the U.

Speaker 1

S. Government to appropriately manage surge capacity in efficient, on a humanitarian and seamless manner. As a result, the occupancy at government influx care facilities, including PCC, fluctuate with meaningful changes in occupancy over any given period of time. Now turning to our expanded on humanitarian community opportunities and ongoing organic growth initiatives. To meet the desired ICF network capacity for earned company miners, on the United States government has indicated their intention to report a total of 3 ICF contracts, supporting the population of up to 10,000 individuals.

Speaker 1

As it relates specifically to PCC, we believe the existing community and the solidified relationship with our non profit partner will remain a critical solution to the government's ICF capacity. Further, the alignment of existing PCC specifications and capabilities with the desired government ICF blueprint provides additional confidence as we work through ongoing contract on our discussions. We remain pleased with the progress and anticipate additional contract specifications to be finalized later this year. In addition, Target has strategically partnered with another established government service provider and has jointly submitted several proposals supporting approximately $1,000,000,000 of cumulative capital deployment to create additional highly customized and purpose built ICF solutions for the United States government. Only.

Speaker 1

Importantly, these proposed solutions span numerous geographic locations, providing the U. S. Government with maximum flexibility as they determine their desired location for new ICF only. As a reminder, Target recently acquired strategic humanitarian assets in anticipation of this request from the U. S.

Speaker 1

Government. On these assets have been proposed as a viable solution to meet the government's desired increase in ICF capacity. Further, Target's established presence providing these critical and highly customized solutions to the U. S. Government is an essential element on the opportunity to expand our critical humanitarian service offering to U.

Speaker 1

S. Government and in its and aid in this humanitarian mission. We continue to evaluate an active pipeline of strategic growth opportunities. The company is providing 2023 financial outlook, on, which includes revenue between $550,000,000 $580,000,000 just EBITDA between $346,000,000 $365,000,000 and excluding acquisitions, 2023 capital spending should approach more normal levels between $25,000,000 $35,000,000 per year, predominantly focused on organic growth capital. And can experience meaningful fluctuations in occupancy over any given period of time.

Speaker 1

The range of 2023 revenue reflects the adjustment of anticipated variable service revenue associated with PCC community only for the remainder of 2023. As it relates to Target's strategic initiatives, Target is pursuing an expanding pipeline of growth opportunities and partnerships. Only. These opportunities are designed to jointly leverage Target's operating expertise with contract vehicles that will create a number of solutions across various U. S.

Speaker 1

Government agencies for projects that support national defense, energy transition and humanitarian projects. As previously stated, Target is prepared to allocate over $500,000,000 of net growth capital to these high return opportunities over the next several years. We are pleased with the progress of discussion for many of these large scale projects and look forward to providing additional updates in the coming quarters as the opportunities hopefully progress. With that, I'll turn the call back over to Brad for closing comments.

Speaker 4

Thanks, Eric. Our record setting second quarter results are a testament to the operational efficiencies and scale we have created, enabling us to appropriately match customer demand, only simultaneously generating strong financial results. We are well positioned and excited to participate in the expanding Nplus Care opportunity set. We are confident in the exceptional community and service offering we have jointly created with our leading national nonprofit partner and that PCC will remain a critical solution for the U. S.

Speaker 4

Government. In addition, we believe our new partnership and the numerous ICS solutions we have proposed create an exciting opportunity to potentially expand our critical service offering to the U. S. Government. We are well positioned and remain focused on pursuing this expanding pipeline of growth opportunities, while continuing to accelerate value creation for our shareholders.

Speaker 4

I appreciate everyone joining us on the call today and thank you again for your interest in Target Hospitality.

Operator

Only mode. We will now begin the question and answer session. Our first question comes from Scott Schneeberger of Oppenheimer. Go ahead.

Speaker 5

Thank you very much. Good morning, everyone. Good morning. Good morning. For my first question, I'd like to inquire, I guess Eric, this would For you, the guidance range adjustment low end and high end, What does that contemplate for occupancy at the Pecos facility?

Speaker 1

Hi, good morning, Scott. Thanks, Felipe. Thanks for the question. When we look to modify the outlook, Yes. The revisions as we stated were specifically related to the variable services revenue, right?

Speaker 1

So as we think about going forward, Specifically for 2023 at this point. We and our partners certainly were participating in higher variable occupancy there than what we would have received for the 1st part of

Speaker 5

the year.

Speaker 1

And so I think as we look at going forward, we're not assuming that there's any variable services revenue at this point, which We know, which I think is prudent based on what we've seen. I think it's safe to say that we all are somewhat surprised by that. But having said that, nothing Change about how we view the contract or certainly its durability going forward. I think as we think about going and looking at all the opportunities we have ahead of us and we think about the upside of the outlook. There's certainly a lot of opportunity where we can certainly fit towards the high end of that just depending on the cadence and timing of when those opportunities

Speaker 5

Thanks. And obviously, yes, not activity at Pecos at the moment. Could you just given what we've seen with flows this summer and maybe compare and contrast that to Recent years passed. Just give us an update on seasonality considerations and are is there it doesn't sound like it's baked into your guidance, but, what you've seen with flows and your conversations with the government. Do you anticipate a chance of utilization prior to year end?

Speaker 5

Thanks.

Speaker 1

Sure. So I think it's too early to say let me say this, but I'm never going to say that we're not going to get increased items either, Right. I mean, I think that's always the optionality. If you recall, we can get just a week's notice as to what the government plans to do there to increase only. In fact, I would say even going back in early summer, we were having daily calls in and around top tier 2 about on.

Speaker 1

You're putting potentially putting particular occupants at the site. So that's always a possibility at any given point in time. I think it's really a function of what's happening. So let me give an example, right. So when we were looking at TEGAL42, there was a tremendous amount of demand really across a number of entry points.

Speaker 1

And so I think what's happened is perhaps that's appended the timing a little bit, Right. And so we'll just have to wait and see how that ebbs and flows over time. It's really hard to predict.

Speaker 4

Yes. And I I think maybe just to clear the air on the variable piece and utilization as it sits today. I think it's really important to Kind of bifurcate those 2, because if you look at utilization where we sit today in Pecos, There is no correlation between utilization and the ultimate need for 10,000 ICF beds. The need is there for insurance Sorry, for the government. They looked at this 3 years ago, they did Pecos, they're moving in now to adding on additional facilities as we've said in our release.

Speaker 4

But there's no correlation when you look at how many kids, if you will, are Setting in there today and the need and the change in how they're envisioning this. There's a difference Once they're there, we can all look at order flows and see that and say, okay, they're going to is there going to be variable. There will absolutely be It's a variable there has for many, many years, but this is for influx capacity.

Speaker 5

Thanks, Brad. Appreciate that. Going up a level, some discussion on this call about the government looking at not just Pecos, but a couple other locations. And I guess not that you'll be able to answer this with certainty because you don't know what Sure. The government customer will ultimately do.

Speaker 5

But do you get a sense from your discussions with them that That's it, Brad. Thanks.

Speaker 4

I don't know if it's on our end or your end, but you were breaking up, but we caught probably 30%. But I think what you were asking, Do you think all 10,000 beds basically would be awarded and or is this an isolation? I'm not I didn't hear the whole question. So If you can hear me good, let me just give you kind of an update on what we think about the IDIQ process. Can you hear us okay?

Speaker 5

Yes, I heard everything you said, if you can hear me. And yes, you got the question. Do you think PECOS will be awarded in isolation and extension or all three being grouped together as the government considers it for award. Thanks.

Speaker 1

Yes. And let me give you

Speaker 4

everybody just kind of an update on where we're in the IDIQ process. Last call, we had just received the performance of work statement and literally right before our call, we did not have time to go through it. Now in our release, you see they're asking for 10,000 total beds, 3 separate facilities, and they need that. In conversations with them, We worked on our bids with our partners for the past several months. We submitted Phase 1 technical proposals a few months ago.

Speaker 4

The government goes in, they grade your proposals, they look at your partnerships, how you're going to actually take on the job and get it done, right? We were selected to move forward with all of our bids into what they call Phase 2 pricing. Phase 2 is the last phase of this bid before an award. So there's important to note, there's a limited number of of companies that were selected out of Phase 1 to move into Phase 2. All of our bids were pushed into Phase 2.

Speaker 4

We submitted our bids on July 26, our pricing for Phase 2. So now it's a waiting game on when this gets awarded. We're being told 4th quarter would be the award. And look, could these be staggered? They absolutely could be.

Speaker 4

These are very large, very big bid. So even with some of those, could a number 3 go on a little bit further than the Q4? It absolutely could. But look, I definitely think there's an award happening in 4th quarter. How many?

Speaker 4

Only. We will see, but definitely there could be some staggering of the work just based on how large they are.

Speaker 5

Okay, great. Thanks. I appreciate that color, Brad. I'll pass it along.

Operator

Our next question comes from Stephen Gengaro of Stifel. Go ahead.

Speaker 1

Thanks. Good morning, everybody. A couple of things for me. And I just think just first one clarification, the 10,000 beds, Is that are they designed for children and staff or is it just or is that just the unaccompanied Myers portion?

Speaker 4

Yes. There's definitely more to go here, right? This is just for children. This doesn't account for what we would have to supply for our partners and our own workforce for housing. So at the end of the day, at each of these facilities, just like It depends on I'm not for competitive reasons, I'm not going to tell you where these are located and what we bid, but some might be closer to a city where you can actually have some there.

Speaker 4

But there will be a number of extra rooms, if you will, and some fairly substantial, depending on what locations they pick would add to this number for us and the contract would get bigger.

Speaker 1

Okay. Thanks. And then that does make sense. Yes. Thanks.

Speaker 1

And then two other things. First, You addressed this to an extent, but I'm just curious. So when we we're looking at and these fact sheet utilization has been 0 for several months. And then we sort of are trying to triangulate that It's a long term demand, which you noted on the call earlier was a flawed approach. When an unaccompanied minor enters the country, maybe it will be helpful for us to the extent you can.

Speaker 1

What are the different paths For this unaccompanied minor and at what points would he be utilizing any Influx Care facility versus The other parts of the system.

Speaker 4

Yes. And let me I'll let Eric jump on this, but let me say, it's not so much a flawed approach And how you look at border crossings that eventually happens to become influx, right? I'm saying it's probably a full it's the flawed approach today. They've known they've had this issue for many, many years. This is their solution for many, many more years because influx is going to come.

Speaker 4

Try and put your finger on when that happens is the kind of the $1,000,000 question, if you will. But what we do know is so that's kind of my Saying that, you can't correlate those 2. So hopefully that.

Speaker 1

I got you. No, that makes sense. Even to further expand on that. I think as we've likely discussed It's really a function the movement from into influx is really a function of on the shelf capacity, right? So there are approximately 9,000 beds within the shelter system.

Speaker 1

And so at that certain level and now those are tended to be across a number of states. And so it can be easy at times for those to potentially get strange and have too many occupants in any given site. At that point in time, there's obviously some logistical maneuvering that the government will do. But beyond the shelter capacity, once it gets to a certain threshold level, Let's start moving into influx, right? So right now, we're let's say we're about 70%, 75% occupied within the Sheltrics system, at some level above that, then they start moving and shifting into influx.

Speaker 1

So I would say though it's not that far away, but it's the last half of the year. I think regardless to Brad's point, this is an insurance policy regardless of what that shelter capacity, occupancy looks like at any given point in time because to the extent it does exceed that, you absolutely need the influx Right, to offset immediately. So it's not something where the government can wait, which is the whole purpose around the IDIQ and this session. So hopefully that gives you a little bit of additional context as to how that process works. Yes, great.

Speaker 1

Thanks. And then Just one final, and I know this is small and you may not want to comment specifically, but when we look at the government revenue for the quarter, The numbers that we get based on the knowns that we have, which are probably not perfect, was that the utilization of the ICF was in the low 30s in the Q1, but we also there also was some revenue contribution in the 2nd quarter despite What I thought was an empty facility. Am I thinking about that wrong or is there still some and I mean some variable revenue? Yes. I don't think, look, it's a couple of things.

Speaker 1

1, we haven't specifically talked about the variable contribution per quarter, but I think if there were any, it's been wasn't that much.

Speaker 3

Okay. All

Speaker 1

right. We can talk about it. We can talk about it a little bit further.

Operator

Only. Our next question comes from Greg Gibas of Northland Security. Please go ahead.

Speaker 2

Hey, good morning. Good morning, Brad and Eric. Thanks for taking the questions. Congrats on the quarter. When we think about that 10,000 on the number that the government is demanding.

Speaker 2

How many incremental beds is that? Should we think about that 6,400 on the current capacity at Pecos and then, I don't know if they're like, I think 2,200 that you have in another contract with the government. I mean, how should we think about incremental beds? And I guess that's kind of the follow-up there is, the assets that you've acquired, that aren't currently contracted with the government, would you say those Basically meet the government's needs or requirements, I guess, right now. And maybe I guess as they stand today or would additional capacity or Anything requiring capital will be required.

Speaker 4

Yes. The facility we acquired, I will tell you, was only used in our bid process. So we definitely think it meets some of the needs for this bid. As I mentioned earlier, there will definitely be customer beds, employee beds, if you will, on top of on each facility on top of the $3,000 per facility, right? I'm not again, for competitive reasons, this is an open bid.

Speaker 4

Not going to get into how many that is or how large that is. Just again, it would be inappropriate at this time to do that. Hopefully, we're awarding them and then we can talk more about kind of how it's built. What's out there is definitely the 3,000 beds for the government. And what we haven't put out is how many other beds we would need to put out for the customer ups for the employee side.

Speaker 1

And Greg, to address the incrementalization of your question, as it relates specifically to Dilly, Right. That's not included here, right? So everything we're talking about is obviously over and above that. But PCC is effectively embedded within that 10,000 number, right? So effectively, when you think about PCC in up.

Speaker 1

So an additional 6,000 But only 3,000, not the 6 and 4. That's right. That's what I'm talking just 3,000. So it'd be the additional $6,000 for children that's incremental. So hopefully that gives a little bit more clarification.

Speaker 2

That does. Thanks for clarifying that and appreciate the color there. I guess just a follow-up on previous question regarding, I guess variable revenue. What I guess the reason for the maybe slight guide down in EBITDA Our relation of just less variable contributions you're expecting this year. And, I guess, overall, just wondering what your updated assumptions Or variable revenue are this year?

Speaker 1

Typically, we see a stronger only in and around the late spring through the summertime. I think a lot of that was pulled forward because of the Title 42. And so which again is not an expectation that we would I'm going to get to this. So I think as we look at that and we see that shift earlier in the year than we would expect specifically in the title for you, then I think it's caused us to look at it and we try to be thoughtful and conservative as to how we provide outlook, Right. So as a function of that, it's prudent and appropriate adjustment to make as we look at the balance of the year.

Speaker 1

That being said, There's nothing that says that, but that can't

Speaker 5

come back, right? As I mentioned

Speaker 1

a moment ago, I mean, Capacity is 70%, 75%. At some level, over and above that, you certainly would look at Influx Care.

Speaker 2

Great. Very helpful. I guess lastly, just anything you can share on your new government service provider partner and maybe how they offer new market opportunities versus your existing non profit partner?

Speaker 4

Look, I'm not going to go into names again. Open bid, right, still out there. We're very excited about who we partner with, Very large government services firm. This bid really takes in it's much larger than what we're doing today, right? We're going after all of the bid.

Speaker 4

We've bid on all facilities. Geography wise, it stretches much further than where we're at. So going in and partnering with a firm like that really made sense. I will tell you, Very happy with the existing partner that we have in PCC. As you know, we're aligned there.

Speaker 4

So we have an 11 year agreement with them on that facility, And we provided everything they asked for in what they wanted to submit to the government for this bid. But we wanted to go only. All of it and grow try to grow our government business. We think we have the ability to do that with this new partner.

Speaker 2

Great. Appreciate it guys.

Speaker 1

Thank you.

Operator

Our next question comes from Stephen Gengaro of Stifel. Go ahead.

Speaker 1

Thanks. Thanks for taking the follow-up. Just on the on the oil patch. Just when we look at activity levels there, I mean, clearly rig counts are down, Completion activity is likely down in the second half of the year, but it does seem like we're stabilizing and looking at a recovery likely next year. Are you seeing much change in that piece of the business?

Speaker 1

It doesn't appear so from your guidance, but I just wanted to check that. We have said we start saying earlier in the year that we're expecting some margin expansion as we head into the back half of this year. We started seeing that really starting in the second quarter as we saw some additional inflation pressures come down and some cost containment and create some operating efficiencies. So to that extent, things are getting better. I think as we I think really your question is the heart of what does the legislation look like Going forward, right, and there's really a real change there.

Speaker 1

And I wouldn't tell you that we have we are expecting anything significantly different from that high seventy up. Utilization that we're running out, I would expect that to continue. Hopefully, that play that continues to get better. Yes, there is some potential for consolidation, which is starting to take hold a bit. So that could be helpful to us over time.

Speaker 1

But look, I wouldn't think that there is still some steady, slight growth there, but I wouldn't expect anything material at this point. Okay. Thanks. And then just one other quick one on the government. When you should we think about the potential structure of contracts You're giving your assets for utilization for a long period of time, plus some variable portion.

Speaker 1

Like, is that the standard So I think the way you think about these contracts going forward is the structure we have with PCC Specifically related to how that was structured from a revenue piece to variable piece As well as to the capital and the payback portions, I think you should think about those generally being roughly very similar in concept instruction. Okay, great. Thank you for all the details.

Operator

Our next question comes from Scott Schneeberger of Oppenheimer. Go ahead.

Speaker 5

Thank you. Thanks for taking the call. I just wanted to touch base on, it didn't come up much on this call, because a lot of the ICF discussion was prominent, but you previously alluded to across other government agencies. And I was just wondering if you could give an update on some of the non ICF opportunities you're pursuing, if there are any updates there. Thank you.

Speaker 1

Sure.

Speaker 4

So definitely there's some organic progress being made as far as Not going to get into specifics, but some of the same things we've always talked about from natural resources, also other government services than the ICF piece. We continually are out trying to expand our government piece of the business. There's some even in the HFS side that could happen as well. But very Strong pipeline organically out there and we continue to say stronger than what we've had in many years past. Again, projects very large.

Speaker 4

They take time to kind of get done, but we're making headway on some.

Speaker 1

Yes. I think to that point, we have said over the past several quarters that we're continually looking to only. And further regions of the government, right. I think having the digital partner, having multiple sites, we're clearly executing on that. These are big and I think we want to be thoughtful around what we're looking at here.

Speaker 1

We're not taking our eye off the ball and on continue to grow the business really throughout government. There are other things that we're working on in addition to these as well as as Brad mentioned with the government and of course with other business and industry. So look, the pipeline is robust and we look forward to trying to execute on it.

Speaker 5

Great. Thanks. And then last one for me. I heard in prepared remarks CapEx moderating through the end of the year, But the guidance did increase for the year. Was that all what you were doing in the second quarter working with that newly acquired strategic asset?

Speaker 5

Am I point on there or is there a little bit more to it? And what might

Speaker 1

Go ahead, Scott. Go ahead.

Speaker 5

That's it. And 'twenty four considerations on CapEx after that one. Thanks.

Speaker 1

Sure. No, you're right. We had most of that Spending was in the first was really in the first half, particularly in the Q1. So that was the nature of the comment around moderating really towards back after the year. As you think about going into 2024, look, I would say at a base level, I would kind with something that looks similar to what we've got for 2023 as well.

Speaker 1

Look, the nature of what we're talking about here on capital spending, look, it could be significant at gross level. But if the structure is what we believe it to be from a capital spending level with the asset contracts on a net capital level, It looks very similar as we got this year. So you get a very big nameplate number, but not so big number on a net basis.

Operator

This concludes our question and answer session. I would like now to turn the conference back over to Brad Archer for any closing remarks.

Speaker 4

Thanks for joining us on our call today and thanks again for your interest in Target Hospitality. We look forward to speaking again in November on our Q3 call. Have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Target Hospitality Q2 2023
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