Q2 2023 Target Hospitality Corp Earnings Call
Hello, and welcome to the target hospitality second quarter 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after today's presentation there.
There will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone. Please note. This event is being recorded I would like now to turn the conference over to Mark Schuck Senior Vice President Investor Relations and financial planning. Please go ahead.
Thank you.
Morning, everyone and welcome to target hospitality second quarter 2023 earnings call. The press release, we issued this morning outlining our second quarter 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.
This call will contain time sensitive information as well as forward looking statements, which are only accurate as of today August nine 2023.
Hospitality 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.
For a complete list of risks and uncertainties that may affect future performance. Please refer to target hospitality 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 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 Calomiris Executive Vice President and Chief Financial Officer. After their prepared remarks, we will open the call for questions.
I'll now turn the call over to our Chief Executive Officer, Brad Archer. Thanks.
Thanks, Mark Good morning, everyone and thank you for joining us on the call today are 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 material expanded presence, providing critical hospitality solutions for the U S. Government. That's intentional focus has resulted in over 70% of second quarter revenue being derived from committed contract backed by the United States government with 78% of second quarter revenue, having minimum revenue commit.
These elements supported over $368 million of discretionary cash flow over the last 12 months, representing an impressive discretionary cash flow yield to revenue of over 61% over that time.
This materially enhanced operating platform has allowed target to efficiently serve its world class customers, while positioning the company to quickly respond to strategic growth opportunities.
All while continuing to generate impressive operating income.
And our HFF South segment, we have remained focused on providing premium full service hospitality solutions to our world class customers, many of whom have been customers for over a decade.
As a result target continues to benefit from consecutive quarterly increases in customer demand.
<unk> and an 18% year over year increase in utilization with consistent customer renewal rates of over 90%, which we have enjoyed for over seven years.
We continue to benefit from the strong demand fundamentals and the forum 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 mentioned they were designed to support.
Now exceeding the expectation of our partners in the U S government since our first community was established in 2014.
Targets communities are frequently visited by the agencies they serve as well as adjacent agencies and consistently received 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 government's humanitarian mission.
Regarding our existing Pecos children's centers community as we've previously announced several key milestones have been achieved related to securing a long term contract with this community.
Our existing nonprofit partner was awarded an indefinite delivery indefinite quantity contract, which establishes the contracting vehicle required by the U S government to appropriately find multiyear contract awards.
Importantly, the performance of work statement, coinciding with the IQ contract material materially aligns with the existing specifications and capabilities of P. C C.
This is significant as our community has established a blueprint for the government to 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 10000 individuals.
Requiring a total of three influx care facility contract awards or two in addition to the established BCC community.
As the government has continually stated additional humanitarian housing capacity is urgently needed to manage the increasing number of unaccompanied children, arriving into the U S.
<unk> Ics sites are critical to the U S government and Paramount and their ability to adequately support surge capacity in excess of existing shelter capacity, which had remained static for many years.
In response to the government's stated desire to increase their ICF capacity. We are 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 nonprofit partners.
In summary.
We have positioned target to participate in a much larger influx care opportunity set than just P. C C.
We remain committed to our existing nonprofit 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 Ics solutions for the U S government.
I'll now turn the call over to Eric to discuss our second quarter financial results, expanding humanitarian focus and capital allocation initiatives in more detail.
Thank you Brad.
Second quarter, we continued to benefit from our established operational scale and ability to align with customer demand and consistently deliver strong financial results.
Second quarter 2020, total revenue was $144 million.
Adjusted EBITDA was approximately nine $1 million.
Our government segment produced quarterly revenue approximately $101 million compared to $75 million in the same period last year.
The significant increase was attributed to extended PCC community.
All right. So first segments delivered quarterly revenue of $42 million compared to $35 million in the same period last year.
This increase was driven by sustained momentum in customer demand for targets premium service offerings.
Current corporate expenses for the quarter for approximately $9 million and we anticipate recurring corporate expenses will remain around $9 million to $10 million per quarter for the remainder of the year.
Total capital spending was approximately $16 million with the majority related to expanding our government portfolio in anticipation of the government's request to increase the ICF network capacity.
We expect a more moderate pace capital spending through the remainder of the year, excluding potential acquisitions or government contract awards.
We ended the quarter with $70 million cash and $195 million could lead.
Zero borrowings under the company's $125 million revolving credit facility.
And a net leverage ratio of four times.
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.
The opportunities as they arise.
Before we discuss the specifics around the extent and humanitarian opportunities.
I would like to touch on the influx camp facility concept and its intended purpose and serving as the government's humanitarian mission.
As a reminder, the government has a network of shelter capacity that consists of smaller facilities located across the United States.
All of these facilities are fraction of the size of targets existing PCC ICF community.
And utilized as they shelter facilities to address the humanitarian housing solutions.
Minors prior to occupy an influx of yourselves.
And flex care facilities on tenant demand surge capacity beyond the U S government's existing shelf.
However, PCC and the government's dissolve influx care network capacity.
Plenty of critical and necessary goal and supporting this humanitarian mission.
Due to the small size of individuals' shelter sites. The government has focused on its approach an increasing influx of capacity that is urgently needed to manage the increasing and consistent numbers of unaccompanied children entering the U S that could strain the government shelter now.
Simply stated the influx of care network isn't a central element, allowing the U S government to put in.
The managed service capacity inefficient.
Military and seamless manner.
As a result.
The occupancy at government influx kept facilities, including P. C C.
With meaningful changes in occupancy over any given period of time.
Now turning to our expanded humanitarian community opportunities and ongoing organic growth initiatives.
To meet the desired ICF network capacity for unaccompanied minors, United States government has indicated their intention to bring a total of three ICA contracts supporting the population of up to 10000 individuals.
As it relates specifically to PCC, we believe the existing community and to solidify our relationship with our nonprofit partners who were.
Main a critical solution for the government to ICF capacity.
Further the alignment of existing PCC specifications and capabilities.
As all of the government ICF blueprint provides additional confidence as we've worked through ongoing contract discussions.
We remain pleased with the progress and anticipate additional contract specifications to be finalized later this year.
In addition target has strategically partner with another established government service provider and is jointly submitted several proposals supporting approximately $1 billion of cumulative capital deployment to create additional highly customized and purpose built solutions for the United States government.
Importantly, these proposed solutions span numerous geographic locations, providing the U S government with maximum flexibility as they determine the desired locations for new ICF sites.
As a reminder, targeted recently acquired strategic humanitarian assets in anticipation of this request in the U S government.
These assets have been proposed as a viable solution to meet the government's desired increase and ICU capacity.
So are there targets established presence, providing these critical and highly customized solutions to the U S. Government is an essential element and we believe positioned to target advantageously to pursue these additional opportunities.
We are excited about the opportunity to expand our critical humanitarian service offerings, Udf's government and and it's an eight in this humanitarian mission.
We continue to evaluate an active pipeline of strategic growth opportunities.
Company is providing 2023 financial outlook, which includes revenue between 550 and $580 million.
Adjusted EBITDA between $3, 46, and $365 million and excluding acquisitions 2023 capital spending should approach more normal levels between 25 and $35 million per year predominantly focused on organic growth capital.
As we discussed by their very nature.
Facilities are designed to support a dynamic population and can experience meaningful fluctuations in occupancy over any given period of time.
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 strategic initiatives targeted pursuing an expanding pipeline of growth opportunities and partnerships.
These opportunities are designed to jointly leverage targets operating expertise with contract vehicles that will create a number of solutions across various U S government agencies.
<unk> support National Defense energy transition and humanitarian projects.
As previously stated target is prepared to allocate over $500 billion of net growth capital to these high return opportunities over the next several years.
We are pleased with the progress of discussion.
Many of these large scale projects and look forward to providing additional updates in the coming quarters.
Opportunities hopefully progressed.
With that I'll turn the call back over to Brad for closing comments.
Thanks, Eric a record setting second quarter results are a testament to the operational efficiencies and scale, we have created enabling us to appropriately match customer demand while simultaneously.
Simultaneously generating strong financial results.
We are well positioned and excited to participate in the expanding influx care opportunity set we are competent and 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 government.
In addition, we believe our new partnership and the numerous Ics solutions. We have proposed created an exciting opportunity to potentially expand our critical service offering to the U S government.
We are well position and remain focused on pursuing this expanded pipeline of growth opportunities, while continuing to accelerate value creation for our shareholders. I appreciate everyone. Joining us on the call today and thank you again for your interest in target hospitality.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our.
Our roster.
Our first question comes from Scott Schneeberger of Oppenheimer go ahead.
Thank you very much good morning, everyone a good morning.
Good morning, My first question I'd like to inquire I guess ericsson's would be for you the guidance range adjustment.
The low.
The low end and high end, what does that contemplate for occupancy at.
The tailings facility.
Hi, Good morning, Scott. Thanks, Louise Thanks for the question.
When we look to modify.
The outlook.
Yeah. The revisions that we stand you were specifically related to the variable services revenue right. So.
As we think about going forward.
Specifically for 2020 story at this point.
And our partner certainly we're anticipating higher variable.
It's been well received in the first part of the year.
And so I think as we look forward, we're not assuming that there's any verbal surface write them at this point.
Which I think is prudent based on what we've seen that I think it's safe to say, we all somewhat surprised by that.
But having said that nothing has changed about how we can how we view the contract. It certainly its durability going forward I think as we think about.
Going.
And looking at all the opportunities we have.
When you think about the upside there.
Yes.
A lot of opportunity, where we can we can certainly get towards the high end of that just kind of got the cadence and timing.
Winter does.
Oh sure.
It's by themselves.
Thanks, and obviously.
Yeah, not not not activity at pesos at the at the moment could you just a bit given what we've seen with with Lowe's. This summer and maybe compare and contrast that to recent years past just give us an update on seasonality considerations are.
And are you.
Is there it doesn't sound like it's baked into your guidance, but what you've seen with with flows and your conversations with the government do you anticipate a chance of utilization.
Prior to two year end thanks.
Sure. So I think it's too early to say let.
Let me say this but I'm never going to say that we're not going to get it to get increase occupancy that right. I mean, I think that's always the optionality. If you recall, we can get just a week's notice.
Two.
What the government plans to do their take rates that in fact, I would say even going back in the summer you were having gain.
England calls in and around the top tax rate.
<unk>.
Yeah.
Thanks for putting particular occupants.
So that's always a possibility at any given point in time I think it's really a function of.
<unk>.
What's happening.
Alright, so when we were looking at <unk>, there was a tremendous amount of demand really across a number of entry points.
I think what's happened is perhaps that's that's a P I.
And 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 yet.
Yes.
I think maybe just to clear the air.
Variable piece and utilization as it sits today I think it's really important to kind of bifurcate those two because if you look at utilization, where we sit today in Pecos. There is no correlation between utilization and the ultimate need for 10000 ICF beds.
The need is there for insurance.
For the government.
Look at this three years ago, they did Pecos theyre moving and now too.
Adding additional facilities as we've said in our release.
But there's no correlation when you look at how many if kids, if you will or setting in there today and the need and the change in how they're envisioning. This theres a difference on.
Once they're there we can all look at boarder flows.
We see that and say, okay, they're going to do is we're gonna be variable or will absolutely be some variable there has for many many years, but this is for influx capacity.
Thanks, Brad I appreciate that going up going up a level.
The some discussion on this call about.
The government looking at not not just pay coast, but a couple of other locations and I guess not that you'll be able to answer this with certainty because you don't know what your government customer will ultimately do but do you get a sense from your discussions with them that.
Okay.
Some of them are in isolation or are all of these.
There and does it feel more like the government may put them altogether.
It makes it a final decision and kind of.
Hi, Corrado.
I don't know what yeah.
Yeah, that's it thanks.
I don't know if it's on our end or year end, but you were breaking up but we probably 30%, but I think what you were asking.
Do you think all 10000 beds basically would be awarded in the door 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 a kind of an update on what we think about the <unk> Iq.
IQ process.
Can you hear us okay.
Yeah I heard everything you said if you can hear me and yet you you got the question do you think pay codes will be awarded in isolation and extension or all three being grouped together as the government considers it Force award.
Yeah, and let me get everybody just kind of an update on where we're at in the Audi IQ process last call. We had just received apartment 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 are asking for 10000 total beds three separate facilities.
And they need that in conversations with them we've worked.
On our bids with our partners for the past several months.
Submitted phase one technical proposals a few months ago.
The government goes in the Grainger proposals they look at your partnerships, how youre going to actually.
It 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 II pricing phase two is the last phase.
Of this bid before an award so there is important to note. There is a limited number of companies that were selected out of phase one to move into phase III all of our bids were pushed into phase II.
We submitted our bids on July 26, our pricing for phase II. So now it's a waiting game on when this gets awarded.
We're being told fourth quarter would be it would be the award and look could these be staggered they absolutely could be these are very large very big bids.
Bid so even with some of those could get a number three to go on a little bit farther and farther than the fourth quarter. It absolutely could.
But I definitely think Theres an award happening in fourth quarter.
How many well we will see but definitely there could be some staggering up they weren't just based on how large they are.
Okay, great. Thanks, I appreciate that color, Brad I'll pass it along.
Our next question comes from Stephen King Garro of Stifel Go ahead.
Hi, Thanks, good morning, everybody.
A couple a couple of things from me.
I just think just first one clarification the 10000 beds is that.
Are they designed for children and staff or is it just or is that just that.
The unaccompanied minors portion.
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.
At the end of the day at each of these facilities just like Pecos, there would be a number of beds also on top of this for staffing.
Some of them are different depends on for competitive reasons I'm not going to tell you where things are located in what we bid, but some might be closer to a city, where you can actually have some there, but there will be a number.
All those 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 will get bigger.
Okay.
And then.
That doesn't make sense, yes, and then two other things first.
You addressed this to an extent, but I'm just curious so when we.
So we're looking at and are these fact sheets towels utilization has been zero for several months and then we and then we sort of we're trying to triangulate that enter into long term demand, which you you noted on the call earlier was it was a flawed approach where we're not we're not when a unaccompanied minor enters the country.
Maybe it would be helpful for us to the extent you can what are the different paths for for this unaccompanied minor.
And at what points, where he'd be utilizing any influx care facility versus the.
The other other parts of the system.
Yes.
I'll, let Eric jump on that but let me say, it's not so much a flawed approach in and.
How you look at border crossings that eventually happens become influx right I'm, saying, it's probably a flawed approach for the need if youre looking at just that for the need of these facilities. These needs are much deeper than just looking at if you will what's coming across today, they've known they've had this issue for many many.
Yes. This is their solution for many many more years because influx is going to call trying to put your finger on when that happens is the kind of the million dollar question. If you will.
No.
So that's kind of my my saying that you don't.
You can't correlate those two.
Alright gotcha.
That makes sense.
Even two to further expand that.
Thanks Anthony.
I would like to discuss before it's really a function the movement from into influx, it's really a function of the extreme if you will.
On the shelf capacity alright.
<unk> 9000 beds within the shelter system and so at a certain level and now those are tend to be small across a number of states and so it's it can be easier at times for those to potentially get stranger to many occupants in any given site at that point in time, Theres, obviously, just maneuvering that the government will do but.
On the shelf capacity once it gets to a certain threshold level.
Moving onto influx right. So right now we're let's say, we're about 70, 75%.
With the shelter system.
Some level above that that may start moving and shifting into influx. So yeah, I would say, it's not that far away but.
It still hasn't happened, yet I think regardless to brad's point.
This is a an insurance policy, regardless of what that shelter capacity occupancy it looks like at any given point in time because to the extent that does exceed that you absolutely need the influx.
Write offs immediate immediately so it's not something where the government can wait which is the whole purpose around the idea of Q and this discussion. So hopefully that gives you a little bit of additional context as to how that process works.
Yes, great. Thanks, and then just just one final I know 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 the knowns that we have which are probably not perfect where's that the utilization of.
The ICF was in the low thirties in the first quarter, but we also there also were some revenue contribution in the second quarter. Despite what I thought was an empty facility.
Thinking about that wrong or is there still some I mean, some variable revenue.
Yeah, I don't think.
Think about a couple of things one we haven't specifically talked about the variable contribution per quarter, but I think its if there were any it wasn't that much.
Okay, Alright, we can talk about right, we can talk about okay and dig into it.
Alright, very good well thanks for all the color. Thank you.
Again, if you have a question. Please press Star then one.
Our next our next question comes from Greg <unk> of Northland Securities. Please go ahead.
Hey, good morning, good morning, Brad and Eric Thanks for taking the questions congrats on the quarter.
When we think about that that 10000 bed number that the government's demanding.
How many incremental beds is that you know should we think about that 6400.
Current capacity at pathos, and then or like I think 22 under that you havent another contract with the government I mean, how should we think about incremental beds and I guess, that's kind of a follow up there as you know the assets that you've acquired.
That aren't currently contracted with the government would you say those basically meet the government's needs requirements I guess right now and.
Maybe I guess as they stand today or with additional capacity or.
Anything requiring capital would be required.
Yeah. The facility, we acquired I will tell you was definitely used in our bid process. So we definitely think it it didn't meet some of the needs are.
For this bid.
As I mentioned earlier, there will definitely be.
Customer bad employee beds, if you will on top of on each facility on top of the 3000 perks.
<unk> I'm not again for competitive.
Competitive reasons. This is an open bid not going to get into how many of that is or how large that is.
Just again.
It would be inappropriate at this time to do that.
Hopefully were awarding them and then we can talk more about kind of how it's built.
There is definitely the 3000 beds for the government and what we haven't put out is how many other beds, we would need to put out for our customer sites for the employee side and Greg too.
To address the Incrementals Asian of your question as it relates specifically to daily right. That's not that's not included here right. So.
Everything we're talking about is obviously over and above that but but PCC is effectively embedded within that 10000.
So so effectively if we think about PCM itself.
An additional 6000.
But <unk> not yes.
That's right that's what I'm talking just only the kids' bed right. Just 3000. So so so it would be the additional 6000 for children.
So hopefully that gives a little bit more clarification.
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 EBIT a relation of gist.
Variable contributions you're expecting this year and.
I guess overall just wondering what your updated assumptions for variable revenue are this year.
Well typically we see we see a stronger a stronger seasonality in and around the late spring through the summer I think a lot of that was pull forward because of the California.
And so which again is not an expectation that we would've had coming into this.
So I.
I think as we look at that and we see that shift.
Earlier in the year.
As expected specifically linking California.
Yes, I think it's caused us to really look at it.
We tried to be thoughtful and conservative as to how we how we provide outlets right. So.
Function of that.
Just feel its prudent and appropriate adjustments maintenance.
The balance of the year that being said Theres nothing theres nothing that says that that can that can.
Alright.
And so capacity 70, 75% at some level over and above that.
You certainly would look at an influx of care.
Great variable.
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 nonprofit partners.
Look I.
I'm not going to go into names again open bid right still out there and we're very excited about who we partner with very large government services firm.
This this bid really takes in it's much larger than what we're doing today right.
Going after all of the olive oil that we bid on all facilities geography wise. It stretch it's much further than where we're at it's still going in and partnering with a with a 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 alive.
There we have an 11 year agreement with them on that facility and we provided everything they asked for.
What they wanted to submit to the government for this bid.
But we wanted to go after.
All of it.
And try to grow our government business, we have the ability to do that.
With this new partner.
Okay.
Great I appreciate it guys.
Thank you. Our next question comes from Stephen <unk> of Stifel.
Go ahead.
Hi, Thanks, Thanks for taking the follow up.
Just on the on the <unk> it.
It would be oil patch just.
When we look at activity levels. There I mean, clearly rig counts are down completion activities likely down in the second half of the year, but it does seem like we're stabilizing and looking at a recovery are likely.
Likely next year are you seeing much change in in the <unk>.
And that piece of the business. It doesn't appear so from your guidance I just wanted to I wanted to check that.
Yeah.
We have said we start saying early in the year.
We're expecting some margin expansion as we head into the back half of this year.
Start seeing that let's start in the second quarter.
So we saw some additional inflation pressures come down.
Cost containment and create some operating efficiencies so to.
To that extent, if things are getting better I think as we.
It's really your question is the heart of what is the deflation look like going forward.
Real change there.
I wouldn't tell you that we have we are expecting anything significantly different from that high 70% area utilization that right now.
Hopefully they don't play that continues to get better.
Yes, there is some potential consolidation, which is just starting to take hold a bit so.
That could be helpful to us over time.
But I wouldn't I would I would think that there is still some steady slight growth there but.
Wouldn't expect anything material at this point.
Okay. Thanks, and then just.
Just one other quick one on the government.
Should we think about the potential structure of contracts to be similar to <unk>, where there's sort of this this this fixed piece to kind of protect you can keep your assets.
You're giving your assets for utilization.
For a long period of time, plus some variable portion of it because that is that the standard.
Structure, we should expect.
So I think the way you think about those contracts going forward is the structure we have.
Secondly related to how that was structured.
Roughly piece.
Variable piece as well as to the.
Two the capital and the payback portions I think you should think about those generally being roughly similar from a cost of construction.
Okay, great. Thank you for all the details.
Thanks, Steve.
Our next question comes from Scott Schneeberger of Oppenheimer go ahead.
Thank you thanks for taking the fault.
I just wanted to touch base on.
It didn't come up much on this call because a lot of the the ICF discussion.
Was prominent but previously.
Previously when the opportunity to cross.
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.
Sure. So we definitely theres, some organic progress being made as far as.
I'm not going to get into specifics, but some of the same things. We've always talked about from from natural resources are also other government services than the ICF piece, we continually are out trying to expand our government piece of the business.
There are some even in the HFF 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 in many years past.
Again projects very large they take time to.
Get done, but we're making headway on some.
I think Ian.
To that point, we have said will be over.
The past several quarters that we are continually looking to expand in several regions of the government I think they are having having just partner having more.
Clearly executing on that.
These are these are big and I think we want to be thoughtful about what we're what we're looking at here.
We're not taking our eye off the ball continuing to grow the business.
Throughout railcar and there are other things that we're working on in addition to these as well as as Brian mentioned with the government and of course with other business and industry.
And at what the pipeline is robust.
We're trying to execute on it.
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.
I M I pointed out in there or is there a is there a little bit more to it and what not.
Oh.
Go ahead Scott.
Yes.
And in 'twenty four considerations on Capex after that.
Sure Youre right we had.
Most of that spending was in the first one was really in the first half.
Typically in the first quarter.
So that was good.
The nature of the comment around moderating towards going towards the back half of the year and as you think about going into 2024.
Look I would say.
Base level, I would kind of stick with something that looks that looks similar to.
What we've got for 2020.
Bob.
Then.
Look the nature.
But what we're talking about here on capital spending.
It can be significant at gross level.
But if the structure is what we believe it to be.
Capital spending level contracts on a net capital level.
It's very similar we got this year so.
<unk> got very big nameplate number.
Got it.
So that's a big number on a net basis.
Okay. Thanks very much.
This concludes our question and answer session I would like now to turn the conference back over to Brad Archer for any closing remarks.
Okay.
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 third quarter call have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
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Yeah.
Okay.
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