Target Hospitality Q4 2024 Earnings Report

Target Hospitality EPS Results

• Actual EPS: $0.12
• Consensus EPS: $0.06
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.29

Target Hospitality Revenue Results

• Actual Revenue: $83.70 million
• Expected Revenue: $80.10 million
• Beat/Miss: Beat by +$3.60 million
• YoY Revenue Growth: -33.70%

Target Hospitality Announcement Details

• Quarter: Q4 2024
• Date: 3/26/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, March 26, 2025
• Conference Call Time: 9:00AM ET

Target Hospitality (NASDAQ:TH) (NASDAQ: TH) provides specialty hospitality and workforce accommodation services in North America. The company supports organizations that require temporary or long-term housing and related services in remote, industrial, government, and other challenging operating environments.

Its offerings include modular and prefabricated accommodations, lodging management, food and catering services, housekeeping, maintenance, transportation, security, and other on-site support. Target Hospitality develops and operates integrated facilities designed to provide residents with housing, dining, recreation, and essential amenities.

The company serves customers in sectors including energy, infrastructure, natural resources, and government. Its operations have included workforce lodging communities in U.S. energy-producing regions and specialized facilities supporting government programs. Target Hospitality was formed through a 2019 business combination involving Target Logistics and Platinum Eagle Acquisition Corp., bringing the operating business to the public market.

Target Hospitality Q4 2024 Earnings Call Transcript

Key Takeaways

• In Q4 2024, Target Hospitality generated approximately $84 million in revenue and $41 million of adjusted EBITDA, with government revenue impacted by PCC contract termination but bolstered by the new Dilley contract worth over $246 million across five years.
• The government segment saw the reactivation of the Dilley community and ongoing discussions to recontract the West Texas facility, aligning with projected demand for 110,000–150,000 beds under the current administration’s immigration policies.
• In the HFS segment, consistent customer activity and network optimization drove strong performance, highlighted by a multi-year workforce subcontract with Lithium Americas at Thacker Pass and potential expansion phases beyond 2027.
• Target ended 2024 with zero net debt, $191 million cash, and $366 million total liquidity, redeemed its 2025 senior notes saving $19.5 million in annual interest, and returned $33 million to shareholders via share repurchases.
• For 2025, the company projects total revenue of $265 million–$285 million and adjusted EBITDA of $47 million–$57 million, reflecting the PCC termination offset by the Dilley award and continued margin optimization.

Presentation

[Operator]

Good morning and welcome to the Target Hospitality Fourth Quarter and Full Year 2024 Earnings Call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, March 26, 2025. I would now like to turn the conference over to Mark Schuck, Senior Vice President of Investor Relations. Please go ahead.

[Mark Schuck, VP of Investor Relations at Target Hospitality]

Thank you. Good morning, everyone, and welcome to Target Hospitality's Fourth Quarter and Full Year 2024 Earnings Call. The press release we issued this morning outlining our Fourth Quarter and Full Year results can be found in the investor 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. This call will contain time-sensitive information as well as forward-looking statements which are only accurate as of today, March 26, 2025. Target expressly disclaims any obligation to update or amend the information contained in this conference call to reflect events or circumstances that may arise after today's date, except as required by applicable law.

[Mark Schuck, VP of Investor Relations at Target Hospitality]

For a complete list of risks and uncertainties that may affect future performance, please refer to Target Hospitality's periodic filings with the SEC. We will discuss non-GAAP financial measures on today's call. Please refer to the tables in our earnings release posted in the investor 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 Jason Vlacich, Chief Financial Officer and Chief Accounting Officer. After their prepared remarks, we will open the call for questions. I'm now turning the call over to our Chief Executive Officer, Brad Archer.

[Brad Archer, CEO at Target Hospitality]

Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Target Hospitality's 2024 results illustrate the benefits of our established network capabilities and strong operating platform. Our efficient operating structure, together with our approach to disciplined capital allocation, form the basis of a highly flexible and resilient business model. These elements support our ability to provide premium service offerings to customers across our network while producing strong financial results and maintaining financial flexibility to quickly react to the growth opportunities. These characteristics consistently support our ability to successfully navigate through cycles while maintaining focus on key strategic growth and diversification initiatives. Turning to our segment, regarding our HFS segment, we continue to benefit from consistent customer activity and constructive market dynamics. Additionally, we remain focused on identifying opportunities to strengthen margin contribution through enhanced network optimization and operational efficiencies.

[Brad Archer, CEO at Target Hospitality]

This segment continues to exhibit positive momentum where our customers find added value in our network capabilities and unmatched hospitality solutions. These attributes supported the expansion of existing customer relationships in 2024, as well as adding new customers who find incremental value in our unique capabilities and strategically located assets. These distinct core competencies supported the recent announcement of our multi-year workforce hub contract supporting Lithium Americas' development of Thacker Pass. We have referenced this opportunity and growth initiative for some time, and we were excited to finalize this contract. As we have consistently stated, these large industrial opportunities inherently have longer sales cycles prior to contract award. However, the workforce hub contract exemplifies Target's focus and commitment in utilizing its existing service offering to deliver on strategic diversification initiatives. We're excited about this partnership and establishing a regional presence as we continue evaluating additional growth opportunities in the area.

[Brad Archer, CEO at Target Hospitality]

Now moving to the government segment. Our government segment experienced a transition as we moved through the election cycle of 2024 and into a new administration in January. However, amidst this disruption, Target Hospitality has illustrated its ability to provide unmatched solutions supporting a range of critical U.S. government initiatives. The reactivation of our Dilley community early this month exemplifies the importance of our proven reputation, unmatched capabilities, and strategically located assets. These elements have supported a seamless reactivation of this community and further illustrate the benefits of our flexible operating model and ability to quickly respond to customer demand. In addition, the current administration has indicated the need for a significant increase in facility and hospitality solutions required to adequately implement their stated immigration policy initiatives. Target Hospitality's existing government-focused network capacity and operational capabilities align with this increased demand, providing a natural solution to support this critical mission.

[Brad Archer, CEO at Target Hospitality]

Further, our strong operational reputation and partnerships with industry-leading companies uniquely position Target Hospitality to quickly and effectively implement these mission-critical solutions. Specifically, Target Hospitality's existing West Texas assets offer the benefit of purpose-built, readily accessible solutions. We believe this establishes a distinct advantage as we actively pursue opportunities to recontract these assets in support of these critical U.S. government initiatives. We are actively engaged in discussions with industry-leading partners and U.S. government agencies regarding opportunities to reactivate our West Texas community. These conversations have included proposals regarding our capability and tours of the facility. We are encouraged by the level of interest in the West Texas community and believe it can quickly satisfy a portion of the government's significant demand for appropriate housing solutions. While final outcomes remain uncertain, we are encouraged by the frequency and substance of ongoing dialogue.

[Brad Archer, CEO at Target Hospitality]

While we're actively engaged in pursuing these unique opportunities supporting the U.S. government, we are also continuing to evaluate non-government growth initiatives. As we have previously discussed, these opportunities center on Target Hospitality's existing capabilities and include a variety of large industrial projects throughout the U.S. As illustrated by the Lithium Americas Workforce Hub contract award, the size of these growth opportunities inherently leads to longer sales cycles. However, we believe pursuing these non-government growth initiatives is an important element of our diversification strategy, and we remain committed to pursuing these opportunities. In summary, the strength of our existing customer base, network capabilities, and proven operational flexibility support a resilient business model. These elements have consistently supported our ability to navigate through cycles while maintaining focus on our strategic objectives. This foundation supports our continued focus of providing premium services to our customers while simultaneously pursuing attractive growth opportunities. I'll now turn the call over to Jason to discuss our financial results in more detail.

[Jason Vlacich, CFO at Target Hospitality]

Thank you, Brad. Our fourth quarter results continue to reflect the benefits of our flexible and efficient operating model. Fourth quarter 2024 total revenue was approximately $84 million, with adjusted EBITDA of approximately $41 million. Our government segment produced quarterly revenue of approximately $44 million. The decrease from the prior period was primarily driven by lower PCC variable services revenue and no infrastructure revenue amortization, which was fully amortized as of November 2023. In addition, the decrease was partially a result of the termination of the South Texas Family Residential Center contract effective August 9, 2024. However, the Dilley assets associated with the prior South Texas Family Residential Center contract were recently recontracted effective March 5, 2025, under a new contract that is expected to provide over $246 million of revenue over its anticipated five-year term.

[Jason Vlacich, CFO at Target Hospitality]

Regarding the PCC community, as we previously announced, Target's contract for this community was canceled effective February 21, 2025. However, as a reminder, Target owns the modular assets and real property associated with this community, and we are actively remarketing these assets to prospective customers. We are encouraged by the ongoing conversations and interest in these assets, and as a result, we have elected to keep this community in a ready state. We believe maintaining these assets in a readily accessible manner provides a distinct advantage as we pursue growth opportunities, particularly in the government end market. This decision, which is similar to the approach we took regarding our Dilley assets, will result in carrying costs prior to a potential new contract award of approximately $2–$3 million per quarter. Turning to our HFS segment, our HFS and All Other segments delivered quarterly revenue of approximately $40 million.

[Jason Vlacich, CFO at Target Hospitality]

These segments continue to benefit from consistent customer demand, illustrating the value our customers find in our premium service offering and network capabilities. Recurring corporate expenses for the quarter were approximately $9 million. As we move through the year, we will continue to look for opportunities to optimize our cost structure and strengthen margin contribution. Total capital spending for the quarter was approximately $4 million, primarily focused on enhancing and maintaining Target Hospitality's asset base across our expansive network. We have continued to prudently manage our capital allocation initiatives while benefiting from strong cash generation. We ended the quarter with $191 million in cash and $366 million in total liquidity, with zero borrowings under the company's $175 million revolving credit facility and a net leverage ratio of 0.0 x. This focus supported the achievement of zero net debt as of year-end 2024.

[Jason Vlacich, CFO at Target Hospitality]

Our strong financial positions supported our ability to return approximately $33 million to our shareholders during 2024 by repurchasing approximately 3.8 million shares of Common Stock. These repurchases illustrate our focus on utilizing a broad range of initiatives to pursue value-enhancing opportunities for our shareholders. Regarding the 2025 senior notes, on March 25, 2025, we redeemed all outstanding senior notes due June 2025 at a redemption price of 101% of par, resulting in expected annual interest expense savings of $19.5 million. Our decision to redeem all outstanding senior notes was focused on maintaining a balanced capital structure and financial flexibility as we continue pursuing a pipeline of strategic growth initiatives. We believe the current structure supports our ability to react to value-enhancing growth opportunities as they arise while appropriately balancing our obligations.

[Jason Vlacich, CFO at Target Hospitality]

Hospitality's strong business fundamentals, including an efficient operating structure and commitment to network optimization, have established a flexible and durable operating model. These elements support the company's revised 2025 financial outlook, which consists of total revenue of between $265 million and $285 million and adjusted EBITDA of between $47 million and $57 million. Our revised 2025 outlook gives effect to the previously announced PCC contract termination effective February 21, 2025, and the recently announced Dilley contract award effective March 5, 2025. Target Hospitality is well-positioned with a flexible operating model and distinct core competencies as we continue pursuing value-enhancing growth initiatives. Importantly, as we evaluate these opportunities, we will remain focused on maintaining a strong financial profile centered on disciplined capital allocation while optimizing margin contribution through our efficient operating structure. With that, I will turn the call back over to Brad for closing comments.

[Brad Archer, CEO at Target Hospitality]

Thanks, Jason. Our 2024 performance benefited from the strong operating platform and durable business model we have established. Target's flexible and efficient network provides the ability to appropriately match customer demand while simultaneously remaining focused on strategic growth initiatives. We are excited about the government and market opportunity, and we believe we are well-positioned to support the U.S. government's increased demand for hospitality solutions. In addition, we remain intentionally focused on pursuing opportunities to grow and diversify our customer reach and contract portfolio. We are encouraged as we pursue these growth initiatives, intent on further strengthening Target's business fundamentals and contract portfolio while accelerating value creation for our shareholders. I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospitality.

[Jason Vlacich, CFO at Target Hospitality]

We would now like to open the call for questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your cell phone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the star followed by the number two. Once again, please press the star one to join the queue. Your first question comes from the line of Stephen Gengaro with Stifel. Please go ahead.

[Stephen Gengaro, Analyst at Stifel]

Thanks. Good morning, everybody.

[Jason Vlacich, CFO at Target Hospitality]

Good morning.

[Stephen Gengaro, Analyst at Stifel]

I think.

[Jason Vlacich, CFO at Target Hospitality]

Good morning.

[Stephen Gengaro, Analyst at Stifel]

Good morning. Thanks. Two things from me. The first one would be when you think about remarketing the West Texas PCC assets and we sort of think about the economics of the Gili contract versus where PCC was, is there anything about the specific assets or the application that would warrant a higher economic contract for you for the West Texas assets versus Gili? Just maybe help us understand if there is any difference in the assets and the application.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. Good question, Stephen. I would say the best proxy for the economics at this point are the Dilley assets. It's possible they could be slightly better, but that would be what I would point you to at this point.

[Brad Archer, CEO at Target Hospitality]

Yeah. I think it depends on the population, right, on what you put on there. Jason's right. The thought is that model kind of where Dilley's at. The upside could be if there's a little bit of a different population mix on there.

[Stephen Gengaro, Analyst at Stifel]

Okay. Good. That's helpful. The second question I had was that when you look at the Lithium Americas contract and sort of the opportunity set there over multiple years, is there any way to sort of think about the size opportunity of that market and kind of what we need to see from a development perspective by them or others that would sort of accelerate their demand needs?

[Jason Vlacich, CFO at Target Hospitality]

Yeah. I would say that there is potential to go beyond 2027 in multiple phases. We feel pretty well-positioned in that regard. No guarantees, obviously, but we've expanded our workforce hub capacity there with some asset purchases in Q1, as we outlined in our release, so $15 million–$20 million in the project is pacing quite well. We feel we're well-positioned to potentially go into multiple phases beyond 2027. Economics would be tough to say at this point. I'd say the best proxy is what we've already announced.

[Brad Archer, CEO at Target Hospitality]

Yeah. Just a little bit on that project. It's publicly out there. Their idea is not to do just one phase of this project, right? Just as late as last week, the governor of Nevada was out there. We were out on site at site as well for that tour. Their CEO was there and talking about their plan is to do a second phase, right? If you look at the resource play itself, it's some of the best that there is out there in the world. Their plan is not to stick with just one phase for sure. Nothing's guaranteed, but we'd like this project from day one as we think there's more years in it than what we've got in today, right? That's the hope. When you look at the resource play around that within a 150-mile radius, there's a lot of other mines.

[Brad Archer, CEO at Target Hospitality]

There's a lot of money being poured into that area. We think it can kind of be that launching point for more work. Our sales force is actively knocking on doors, talking to folks about the need out there, gathering capital project information. We look for this to be more of a long-term area to get some growth out of.

[Stephen Gengaro, Analyst at Stifel]

Great. Thanks. Just a follow-up to that, and I'm not sure how to exactly ask this, but when we think about the lithium opportunity, so when I think about HFS South and the oil and gas and the network approach you took, which was obviously an excellent way to approach that business because these projects tend to be short-term and your customers move around a lot versus some other markets where the customer is more stationary, right? Is this a market where the customer moves around and you need more of a network approach, or is this a market where the labor force is really more in one location and you can have sort of a single facility that houses a number of employees? Do you understand what I'm asking?

[Brad Archer, CEO at Target Hospitality]

Yeah. For sure. We like the mining industry itself, right? When you talk about lithium, copper, gold, these are long-term investments, right? Usually, if there is one mine, there are multiple mines around. Very similar to the thought process, if you will, in an area like the Permian for an investment. What you are not having is that workforce moving from one facility to the other, right? For our type of assets, like we have invested in there, we can literally house multiple different contractors, right? Not so much on the LAC side, but our thought process was spending a little bit of capital, getting that going, and it will not just serve LAC as we believe there are others out there that will. That area itself, I think, could look like a Permian, but the workforce itself is not so much a traveler. The difference, again, is the long-term nature of these mining projects, right? They're not a three-year investment. They're a 10, they're a 15, they're a 20, and they continually are putting money into these.

[Stephen Gengaro, Analyst at Stifel]

Yeah. I sort of think about it more like an oil sands than a Permian oil and gas well. Is that reasonable?

[Brad Archer, CEO at Target Hospitality]

That is reasonable. Yep.

[Stephen Gengaro, Analyst at Stifel]

Perfect. Great. Thank you.

[Brad Archer, CEO at Target Hospitality]

Yep. You're welcome.

[Operator]

Your next question comes from the line of Scott Schneeberger with Oppenheimer. Please go ahead.

[Scott Schneeberger, Analyst at Oppenheimer]

Thanks very much. Good morning, all.

[Stephen Gengaro, Analyst at Stifel]

Morning.

[Scott Schneeberger, Analyst at Oppenheimer]

I think it would be helpful with all the moving parts, the new contract wins, losses in the first quarter. We appreciate the guidance for 2025. Could you speak as kind of a two-parter to the first quarter as things are starting? How should we think about revenue and EBITDA in the first quarter upcoming? Also, not asking for 2026 guidance, but how should we think about run rate for the contracts, the major contracts you have set at this point? Thanks.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. Sure. To take the second question first, the run rate, for example, on Gili, is that what you're getting at on that one, for example? I would say the run rate on that, once we get through the ramp-up phase, is very similar to the prior contract, right? So roughly $50–$55 million of annual revenue and approximately a 40%–50% margin on that. Slightly less than the last one because on the last one, we had some minor deferred revenue amortization that we had burned off on the last contract of a couple of million dollars a year. Outside of that, the economics on that from a run rate standpoint should be pretty similar. On the LAC deal, I would say that the bulk of the revenue is going to be recognized this year on the construction.

[Jason Vlacich, CFO at Target Hospitality]

About $65 million of that is recognized this year for the construction at a 25%-30% margin. The remaining portion of the contract would be recognized at approximately a 30% margin, not materially dissimilar from the HFS margin profile. In terms of Q1, you'll have obviously a very minimal amount of the Gili contract in Q1 as it just started on March 5, and there's a ramp-up period. For whatever revenue we end up recognizing on that in Q1, it'll be pretty minimal, but largely a 40%–50% margin on that. We'll have a prorated portion of the PCC contract through February 21 at the same margin profile as we had last year. HFS will be pretty steady.

[Jason Vlacich, CFO at Target Hospitality]

I would say the utilization trends on that are actually slightly ahead of last year, but I would estimate pretty similar utilization to that of last year for Q1.

[Brad Archer, CEO at Target Hospitality]

Hey, Scott, this is Brad. Just to follow on to Jason's comment there too, specifically related to the Lithium Americas piece, that is going to be a little lumpy through 2025. The majority of that is going to be back half-weighted. Anyways, we can get into more details offline, but I would not assume that's straight line through 2025.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. To follow on to that, I would say Q1, very minimal activity on the LAC contract and ramps up in the latter half, as Mark said.

[Brad Archer, CEO at Target Hospitality]

Excellent. Thanks. Appreciate all that color for both horizons, guys. I guess I'll follow with the more fundamental, the asset that was acquired back in May of 2023. Could you give us an update on how that's being marketed right now? What purposes you're looking at for that? Thanks.

[Stephen Gengaro, Analyst at Stifel]

Yeah. Scott, this is Brad. Thanks for joining. Let me just maybe this will probably answer it, but let me give maybe everybody a little bit of a high level. Take a minute to touch on our government segment as a whole, and I think this will answer your question. While we recently lost a major contract in this segment, I'll tell you, we've never in my 30-year career had this many real opportunities in front of us. The government has publicly stated for them to be able to manage their mission around immigration, they need somewhere between 110,000–150,000 beds. Today, they sit around 50,000, give or take a few thousand beds. We are actively quoting and have quoted many different opportunities ranging in size from 250 beds all the way up to 5,000 beds and anywhere in between that, right?

[Stephen Gengaro, Analyst at Stifel]

These opportunities vary in terms from one to five years, with most being a three- to five-year term, very similar to the recent Gili award. We've quoted using any and all of our existing and available fleet, including the assets you mentioned, right? With the demand for beds being so high, we're also quoting projects that would require us to source new equipment or readily available equipment that we can obtain on the open market. All of these opportunities I'm describing, they're all active in some form, meaning some have moved to formal bid process, some we've already submitted formal bids, some are in request for information, the RFI stage for the government. As mentioned earlier, Gili's already been awarded. They are becoming more active in awarding projects, right? We expect other decisions to be made on these projects over the next six months.

[Stephen Gengaro, Analyst at Stifel]

Look, this is going to depend on funding as well, so that can slide. I would also tell you that when I say it's very active, our pipeline continues to build weekly. There are going to be new projects from the government that slide into our pipeline. Suffice to say, very busy. The assets you talk about are in play, just like our West Texas assets are as well, as well as other available equipment. We've quoted thousands and thousands of beds of existing equipment, as well as much more than that on new equipment that we can get in the market.

[Scott Schneeberger, Analyst at Oppenheimer]

Great. Thanks, Brad. Good comprehensive answer. I'm sorry, were you going to say something else?

[Brad Archer, CEO at Target Hospitality]

Nope. That's good. I was just going to say, hopefully, that provides a little bit of color on where we're at kind of in the government on the opportunity set. Maybe the only thing I would add is a little bit more color on our West Texas assets while we're talking all things government. Very strong interest around these assets. That facility checks a lot of boxes for the administration when it comes to, again, their mission around immigration, speed and availability, location, past performance, the acceptance of the local community where we've operated for more than 10 years. Lots of, I would tell you, easy buttons here for them to put this back into their portfolio and increase beds pretty quickly, right? We feel good about where that's headed.

[Scott Schneeberger, Analyst at Oppenheimer]

Excellent. Thanks. Appreciate all that color. I guess one more quick one, just throwing it back to you, Jason. Nice seeing the refinancing activity, balance sheet in great shape. How much did you draw on the revolving credit facility and what do we anticipate seeing drawn on that at the end of, around about this time? Just curious because you had a lot of cash. Looks like you only had to nibble on the facility a little bit. Just thoughts on with the balance sheet in such great shape, how should we see you all be applying that strong balance sheet and maybe applying cash in a return-to-shareholder function given it sounds like many opportunities out there available to you? Thanks.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. No problem. I would say with respect to the first question, it was a very minimal draw on the ABL. I would say specifically to pay off the notes, about $15 million of the ABL draw was used to pay down the notes. To your point, we had an abundance of cash, as you know, at the end of Q4. We had $191 million, as announced this morning. There was some additional draw as well just for working capital requirements, but relatively minimal. The balance sheet's in great shape. We feel really good about that. Virtually debt-free since we went public, and we've got an additional $19.5 million of excess free cash flow that will drive. In terms of capital allocation priorities, I would say we're really focused on these organic opportunities that Brad outlined. We expect that many of them will require very minimal CapEx, but to the extent that some of them do require CapEx, that's where we're going to put our capital.

[Scott Schneeberger, Analyst at Oppenheimer]

Great. Thanks, all.

[Operator]

If you would like to ask a question, simply press the star and one on your cell phone keypad. Your next question comes from the line of Greg Gibas with Northland Securities. Please go ahead.

[Greg Gibas, Analyst at Northland Securities]

Great. Good morning, Brad and Jason. Thanks for taking the questions. One of the follow-ups, I guess, on that last one too regarding just liquidity post-redemption. Do you expect that $15 million or so drawn on the revolver to, I guess, be enough to kind of bridge the gap on liquidity? Sorry if I missed it, but could you provide maybe CapEx expectations for 2025 and maybe how you're thinking about free cash flow with that $19 million of interest savings?

[Jason Vlacich, CFO at Target Hospitality]

Yeah. Right. So free cash flow is expected to be positive. I would say our CapEx spend is projected to be lower than last year. It will depend on the opportunities, right? At this point in time, we had reported $32.5 million or so of CapEx for last year. We expect it to be lower than that. I would say you're going to anticipate free cash flow, lower CapEx this year, unless we get an opportunity where we feel like it's a good enough one with the current economics to go ahead and invest in. I would expect CapEx to be lower than it was last year. What was your other question?

[Greg Gibas, Analyst at Northland Securities]

I guess it was just expectations for do you expect to draw any more on the revolver, or are we kind of, I guess, assuming kind of no changes, right? Like no new cash flow.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. I would anticipate a short-term carrying balance on the revolver of around $40–$50 million. That includes the $15 million and some working capital timing differences related primarily to, for example, the LAC construction project. As you know, with construction projects, there are milestones and things like that that we have to work through. That is kind of the balance that I would expect, no more than about $40–$50 million of an outstanding average balance on the ABL.

[Greg Gibas, Analyst at Northland Securities]

Perfect. That's what I was trying to get to. Great. Thanks very much. Yeah. If I could follow up on the West Texas as our PCC, given you're seeing a lot of opportunities there, great to hear, and it does make sense that you're kind of not closing down the facility completely. Would you expect much in terms of modifications that would be needed to be made to those assets based on maybe those opportunities that you're seeing? You mentioned some getting closer. Just wondering if you had visibility on kind of what changes need to be made there. Do you expect something to be announced to be dependent on funding, like government funding in a way?

[Jason Vlacich, CFO at Target Hospitality]

I will just touch on capital to get that project back open, right? Very little to none, right? I mean, that project is in perfect shape for the use that they are talking to us about. It is not like we would need to go in there and spend really any money, right? I would tell you if they say, "Hey, we want some things changed around," that is things we are going to get them to pay for. Again, just do not see really a capital expense on those projects, the West Texas assets.

[Greg Gibas, Analyst at Northland Securities]

Got it. I guess lastly, you kind of mentioned expectations for Q1. Wanted to kind of get your thoughts on the core HFS business, so maybe ex-LAC expectations for the full year that are maybe implied in guidance.

[Jason Vlacich, CFO at Target Hospitality]

What was that again?

[Greg Gibas, Analyst at Northland Securities]

Just kind of the energy side of the business. Excluding the work.

[Jason Vlacich, CFO at Target Hospitality]

Yeah. I would say.

[Greg Gibas, Analyst at Northland Securities]

Yeah.

[Jason Vlacich, CFO at Target Hospitality]

The HFS business would be relatively similar to last year.

[Greg Gibas, Analyst at Northland Securities]

Okay. Fair enough. Thanks, guys.

[Jason Vlacich, CFO at Target Hospitality]

Yeah.

[Operator]

We do have a follow-up question coming from the line of Stephen Gengaro. Mr. Stephen, please go ahead.

[Stephen Gengaro, Analyst at Stifel]

Thank you. Actually, a follow-up on the question that was just asked on HFS. Your performance there seems to be more stable than kind of what we've seen from an activity-level perspective. Can you talk about sort of the visibility there? I mean, you kind of said flattish year-over-year. Is most of that sort of behind contract with some of your larger customers, or is that sort of an expectation off of your read on activity levels?

[Jason Vlacich, CFO at Target Hospitality]

Yeah. The majority of that is contracted under long-term arrangements with our customers. That is what gives us the visibility.

[Stephen Gengaro, Analyst at Stifel]

Okay. That's what I thought. I just wanted to clarify that. Great. That's all for me. Thank you.

[Jason Vlacich, CFO at Target Hospitality]

Thanks, Stephen. Welcome.

[Operator]

I'm showing no further questions at this time. We'd like to turn it back to Brad Archer for closing remarks.

[Brad Archer, CEO at Target Hospitality]

Yeah. Thanks to all of you who joined today, and we look forward to speaking again very soon on our first quarter call in early May. Operator, that will conclude the call for today.

[Operator]

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Mark Schuck, VP of Investor Relations
• Brad Archer, CEO

Analysts

• Stephen Gengaro, Analyst at Stifel
• Greg Gibas, Analyst at Northland Securities
• Scott Schneeberger, Analyst at Oppenheimer
• Jason Vlacich, CFO at Target Hospitality