Q1 2024 Target Hospitality Corp Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Target Hospitality First Quarter 2024 Earnings Call Conference Call. At this time, all lines are in listen-only mode.
Good morning, ladies and gentlemen, and welcome to the target hospitality first quarter 2024 earnings call Conference call.
Operator: At this time all lines are in listen only mode.
Operator: 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, May 8, 2024. I would like to turn the conference over to Mark Schuck. Please go ahead.
Operator: Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance. Please press star zero for the operator.
Mark Schuck: Call's being recorded on Wednesday may eight 2024.
Operator: Like to turn the conference over to Marshall. Please go ahead.
Mark Schuck: Thank you. Good morning, everyone, and welcome to Target Hospitality's first quarter 2024 earnings call. The press release we issued this morning outlining our first quarter 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.
Mark Schuck: Thank you good morning, everyone and welcome to target hospitality <unk> first quarter 2024 earnings call.
Mark Schuck: Press release, we issued this morning outlining our first 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.
Mark Schuck: 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, May 8, 2024. Target 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.
Mark Schuck: Please note the cautionary language regarding forward looking statements contained in the press release.
Mark Schuck: 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 may eight 2024.
Mark Schuck: 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. Finally, as previously announced on March 25, 2024, Errol Holdings, an affiliate of TDR Capital, proposed to acquire all outstanding shares of common stock of Target Hospitality that it or its affiliates do not already own.
Mark Schuck: The 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.
Mark Schuck: Please list of risks and uncertainties that may affect future performance. Please refer to target hospitality is periodic filings with the SEC.
Mark Schuck: We will discuss non-GAAP financial measures on today's call. Please refer to the table that 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.
Mark Schuck: Finally, as previously announced on March 25, 2020 for Aero Holdings, an affiliate of T. D. Our capital propose to acquire all outstanding shares of common stock have target hospitality, it or affiliates do not already own.
Mark Schuck: The Board of Directors of Target Hospitality has established a special committee of independent directors to evaluate this proposal. The special committee has retained its own independent outside financial and legal advisors, and collectively, they have commenced their review and evaluation of the proposal. At this time, the special committee has made no decision with respect to the proposal.
Mark Schuck: The board of directors of target Hospitality has established a special committee of independent directors to evaluate this proposal.
Mark Schuck: The Special Committee has retained their own independent outside financial and legal advisors and collectively they have commenced their review and evaluation of their proposal.
Mark Schuck: At this time the special Committee has made no decision with respect to their proposal.
Mark Schuck: As a result, management will be unable to comment on the proposal or the evaluation process during today's call. 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'll open the call for questions. I'll now turn the call over to our CEO, Brad Arkin.
Mark Schuck: As a result management will be unable to comment on the proposal or the evaluation process during today's call.
Jason Paul Vlacich: Leading the call today will be Brad Archer, President and Chief Executive Officer, followed by Jason velocity, <unk>, Chief Financial Officer, and Chief Accounting Officer. After their prepared remarks, we will open the call for questions.
James Bradley Archer: Thanks, Mark. Good morning, everyone.
Mark Schuck: I'll now turn the call over to our Chief Executive Officer, Brad Archer.
James Bradley Archer: And thank you for joining us on the call today. Our impressive first quarter performance reflects the benefits of our network capabilities, which allow us to maximize operational efficiencies while simultaneously providing world-class solutions to our customers. The scale and flexibility of our efficient operating structure continue to support seamless alignment with changes in customer demand, allowing us to preserve strong operating margins through the cycle. These attributes have significantly enhanced our financial position and materially strengthened our balance sheet, supporting a highly durable and flexible operating model.
James Bradley Archer: Thanks, Mark Good morning, everyone and thank you for joining us on the call today.
James Bradley Archer: Our impressive first quarter performance reflects the benefits of our network capabilities, which allow us to maximize operational efficiencies, while simultaneously providing world class solutions to our customers.
James Bradley Archer: The scale and flexibility of our efficient operating structure continues to support seamless alignment with changes in customer demand, allowing us to preserve strong operating margins through cycles.
James Bradley Archer: Attributes have significantly enhanced our financial position and materially strengthen our balance sheet supporting a highly durable and flexible operating model.
James Bradley Archer: In the government segment, these elements have supported the longevity of our PCC community, which has entered its fourth year of operations and is the longest operating influx care facility in the United States. Since its inception in 2021, this community has served approximately 2 million meals to unaccompanied children, illustrating its importance as a cornerstone of the government's influx care facility network.
James Bradley Archer: In the government segment. These elements have supported the longevity of our PCC community.
James Bradley Archer: Which has entered its fourth year of operations and is the longest operating influx care facility in the United States.
James Bradley Archer: Since its inception in 2021. This community has served approximately 2 million meals to unaccompanied children illustrating its importance as a cornerstone to the government's influx care facility network.
James Bradley Archer: This established presence supports Target's continued engagement with the U.S. government and other strategic partners to jointly pursue the creation of a third ICS site not currently in the government's portfolio. We remain actively engaged and are pleased with continued dialogue regarding this opportunity. As we have previously stated, we anticipate additional details regarding the third ICS site in the back half of 2024. In addition, our South Texas Family Residential Center is entering its 10th year of operations, a testament to the operational success of that community.
James Bradley Archer: This established presence supports targets continued engagement with the U S government and other strategic partners to jointly pursue the creation of a third Ics site.
James Bradley Archer: Currently on the government's portfolio.
James Bradley Archer: We remain actively engaged and are pleased with continued dialogue regarding this opportunity.
James Bradley Archer: As we have previously stated we anticipate additional details regarding the third Ics site in the back half of 2024.
James Bradley Archer: In addition, our South Texas family residential center is entering its 10th year of operations, a testament to the operational success of that community.
James Bradley Archer: This community has evolved through multiple contract renewals across three different federal administrations, exemplifying its importance as a critical humanitarian solution for the U.S. government. Regarding our HFS segment, we continue to benefit from strong customer demand, which has supported positive momentum over the past year. This demand illustrates the value our world-class customers find in the network flexibility and premium hospitality solutions we provide. We have taken deliberate steps to enhance operational efficiencies across this segment and will continue to evaluate opportunities to optimize margin contribution through enhanced network optimization.
James Bradley Archer: This community has evolved through multiple contract renewals across three different federal administrations exemplifying its importance as a critical humanitarian solution for the U S government.
James Bradley Archer: Regarding our Hff's segment, we continue to benefit from strong customer demand, which has supported positive momentum over the past year.
James Bradley Archer: This demand illustrates the value of our world class customer sign in the network flexibility and premium hospitality solutions, we provide.
James Bradley Archer: We have taken deliberate steps to enhance operational efficiencies across the segment and we'll continue to evaluate opportunities to optimize margin contribution through enhanced network optimization.
James Bradley Archer: Our ability to utilize the scale of our network to seamlessly align with changes in customer demand has consistently supported strong financial results. This focus has materially strengthened our financial position and established a robust balance sheet with significant liquidity.
James Bradley Archer: Our ability to utilize the scale of our network to seamlessly align with changes in customer demand has consistently supported strong financial results. This focus has materially strengthened our financial position and established a robust a robust balance sheet with significant liquidity.
James Bradley Archer: These elements continue to support impressive operating income and industry-leading cash conversion, which establishes the ideal position to continue evaluating a pipeline of growth initiatives. We believe these naturally adjacent opportunities will complement our existing service offering while establishing multiple avenues to expand Target's long-term growth opportunity set. In addition to the third ICS, we remain engaged with multiple federal agencies on a variety of solutions they are seeking to implement pertaining to increased activity along the U.S. southern border.
James Bradley Archer: These elements continue to support an impressive operating income and industry, leading cash conversion, which establishes the ideal position to continue evaluating a pipeline of growth initiatives.
James Bradley Archer: We believe these naturally adjacent opportunities will complement our existing service offer.
James Bradley Archer: While establishing multiple avenues to expand targets long term growth opportunity set.
James Bradley Archer: In addition to the third Ics, we remain engaged with multiple federal agencies on a variety of solutions. They are seeking to implement pertaining to increase activity along the U S southern border.
James Bradley Archer: Further, we continue to actively pursue a robust pipeline of non-government growth initiatives. As we have previously discussed, these opportunities include large industrial projects throughout the U.S., including technology infrastructure, energy transition, and the increase in domestic rare development. As a reminder, these growth opportunities tend to have longer sell cycles. While we are pleased with the active dialogue and progress of discussions, the timing and final outcomes are uncertain and can be difficult to predict.
James Bradley Archer: Further we continue to actively pursue a robust pipeline of non government growth initiatives.
James Bradley Archer: As we have previously discussed these opportunities include large industrial projects throughout the U S.
James Bradley Archer: Including technology infrastructure energy transition and the increase in domestic rare development.
James Bradley Archer: As a reminder, these.
James Bradley Archer: These growth opportunities tend to have longer sales cycles. While we are pleased with the active dialogue and progress of discussions the timing and final outcomes are uncertain and can be difficult to predict.
Jason Paul Vlacich: As we evaluate these initiatives, we remain committed to achieving defined objectives of our growth trend. Our primary objective is focused on diversifying our customer base and contract portfolio, which we believe is essential in broadening our long-term growth pipeline. By accomplishing this, we will establish a foundation to identify and consistently execute repeatable growth opportunities while remaining focused on generating strong operating income and industry-leading cash conversion. In summary, we have established an enhanced financial position centered on the strength of our balance sheet and an efficient operating structure.
James Bradley Archer: As we evaluate these initiatives, we remain committed to achieving define objectives of our growth strategy.
Jason Paul Vlacich: Our primary objective is focused on diversifying our customer base and contract portfolio.
Jason Paul Vlacich: Which we believe is essential and broadening our long term growth pipeline.
Jason Paul Vlacich: By accomplishing this we will establish a foundation to identify and consistently execute repeatable growth opportunities.
Jason Paul Vlacich: While remaining focused on generating strong operating income and industry, leading cash conversion.
Jason Paul Vlacich: In summary, we have established and enhanced financial position centered on the strength of our balance sheet and an efficient operating structure.
Jason Paul Vlacich: These elements support our ability to provide a premier service offering to our customers while simultaneously delivering strong financial results and pursuing attractive growth opportunities. I'll now turn the call over to Jason to discuss our first quarter financial results in more detail.
Jason Paul Vlacich: These elements support our ability to provide a premier service offering to our customers, while simultaneously delivering strong financial results and pursuing attractive growth opportunities.
Jason Paul Vlacich: I'll now turn the call over to Jason to discuss our first quarter financial results in more detail.
Jason Paul Vlacich: Thank you, Brad. In the first quarter, our enhanced operating platform continued to support operational efficiencies across our network, allowing us to produce strong financial results driven by the strength in our core service offer. First quarter 2024 total revenue was approximately $107 million, and adjusted EBITDA was approximately $54 million. Our government segment produced quarterly revenue of approximately $68 million.
Jason: Thank you, Brad and the first quarter, our enhanced operating platform continue to support operational efficiencies across our network.
Jason Paul Vlacich: Allowing us to produce strong financial results driven by the strength in our core service offering.
Jason Paul Vlacich: First quarter 2024, total revenue was approximately $107 million and adjusted EBITDA was approximately $54 million.
Jason Paul Vlacich: Our government segment produced quarterly revenue of approximately $68 million.
Jason Paul Vlacich: The decrease in revenue from the prior period was driven by the non-cash, non-recurring infrastructure enhancement revenue associated with the significant expansion that occurred at our PCC community in 2022, which was fully amortized as of November 2023. Our HFS and all other segments delivered quarterly revenue of $39 million compared to $38 million in the same period last year. This increase was driven by sustained momentum in customer demand for Target's premium service offerings, illustrating the value our customers find in our premier hospitality solution.
Jason Paul Vlacich: The decrease in revenue from the prior period was driven by the noncash nonrecurring infrastructure enhancement revenue associated with the significant expansion that occurred at our PCC community in 2022, which was fully amortized as of November 2023.
Jason Paul Vlacich: Our HFF and all other segments delivered quarterly revenue of $39 million compared to $38 million in the same period last year.
Jason Paul Vlacich: This increase was driven by sustained momentum in customer demand for targets premium service offerings illustrating the value our customers find in our premier hospitality solutions.
Jason Paul Vlacich: Recurring corporate expenses for the quarter were approximately $10 million, and we anticipate these will remain around $9 to $10 million per quarter for the remainder of the year. Total capital spending for the quarter was approximately $10 million, with the majority focused on enhancing operational efficiencies through the purchase of previously leased equipment. The strength in our core service offering continues to support strong cash generation and an enhanced financial profile. We ended the quarter with $124 million in cash and $299 million of liquidity with zero borrowings under the company's $175 million revolving credit facility and a net leverage ratio of 0.2 times.
Jason Paul Vlacich: Corporate expenses for the quarter were approximately $10 million and we anticipate these will remain around $9 million to $10 million per quarter for the remainder of the year.
Jason Paul Vlacich: Total capital spending for the quarter was approximately $10 million with the majority focused on enhancing operational efficiencies through the purchase of previously leased equipment.
Jason Paul Vlacich: The strength in our core service offering continues to support strong cash generation and an enhanced financial profile. We ended the quarter with $124 million in cash and $299 million of liquidity with zero borrowings under the company's $175 million revolving credit facility and a net leverage ratio of <unk>.
Jason Paul Vlacich: <unk> two times.
Jason Paul Vlacich: These impressive financial results illustrate the strength of our operating platform and the sustained momentum we have created over the last several years. These elements support our reiterated preliminary 2024 financial outlook, which consists of total revenue of between $410 and $425 million and adjusted EBITDA of between $195 and $210 million, with anticipated 2024 capital expenditures of between $25 and $30 million. Regarding our revenue and adjusted EBITDA ranges, as a reminder, there is minimal PCC variable revenue contemplated at the low end of our outlook ranges, and this revenue contribution was materially achieved during the first quarter of 2024. However, it's important to remember that PCC variable revenue contributions will inherently be uneven over the balance of the year.
Jason Paul Vlacich: These impressive financial results illustrate the strength of our operating platform and the sustained momentum we have created over the last several years. These elements support our reiterated preliminary 2024 financial outlook, which consist of total revenue of between 410 and $425 million and adjusted EBITDA of between one.
Jason Paul Vlacich: <unk> hundred 95, and $210 million with anticipated 2020 for capital expenditures of between 25 and $30 million.
Jason Paul Vlacich: Regarding our revenue and adjusted EBITDA ranges as a reminder, there is minimal PCC variable revenue contemplated at the low end of our outlook ranges and this revenue contribution was materially achieved during the first quarter of 2024.
Jason Paul Vlacich: However, it's important to remember that PCC variable revenue contributions will inherently be uneven over the balance of the year.
Jason Paul Vlacich: Any additional 2024 PCC variable revenue contribution will likely occur in the back half of the year. This enhanced financial profile supported our ability to return approximately $21 million to our shareholders by repurchasing approximately 2.3 million shares of common stock during the three months ended March 31, 2024. In addition, the strength of our balance sheet, the high degree of revenue visibility, and continued strong cash conversion provide the ability to continue actively evaluating and pursuing a strong pipeline of organic growth initiatives.
Jason Paul Vlacich: Any additional 2024 PCC variable revenue contribution will likely occur in the back half of the year.
Jason Paul Vlacich: This enhanced financial profile supported our ability to return approximately $21 million to our shareholders by repurchasing approximately $2 3 million shares of common stock during the three months ended March 31 2024.
Jason Paul Vlacich: In addition, the strength of our balance sheet high degree of revenue visibility and continued strong cash conversion provides the ability to continue actively evaluating and pursuing a strong pipeline of organic growth initiatives.
Jason Paul Vlacich: These opportunities are designed to jointly leverage Target's operating expertise and existing core competencies to establish a robust service offering across various U.S. government agencies and commercial applications. These initiatives encompass Target's existing full turnkey hospitality solutions, while also focusing on opportunities to broaden Target's customer base and service offering portfolio. We are focused on establishing a platform to continue diversifying our revenue streams while simultaneously creating repeatable growth vectors. As previously stated, Target is seeking to allocate over $500 million of net growth capital to these opportunities over the next several years.
Jason Paul Vlacich: These opportunities are designed to jointly leverage targets operating expertise and existing core competencies to establish a robust service offering across various U S government agencies and commercial applications.
Jason Paul Vlacich: These initiatives encompass targets existing full turnkey hospitality solutions, while also focusing on opportunities to broaden targets customer base and service offering portfolio.
Jason Paul Vlacich: We are focused on establishing a platform to continue diversifying our revenue streams, while simultaneously, creating repeatable growth vectors. As previously stated target is seeking to allocate over $500 million of net growth capital to these opportunities over the next several years importantly, as we evaluate these initiatives we will remain.
Jason Paul Vlacich: Importantly, as we evaluate these initiatives, we will remain focused on maintaining the enhanced financial profile we have achieved through discipline, capital allocation, and strong discretionary cash flow conversion. With that, I will turn the call back over to Brad for closing comments.
Jason Paul Vlacich: <unk> focused on maintaining the enhanced financial profile, we have achieved through disciplined capital allocation and strong discretionary cash flow conversion with that I will turn the call back over to Brad for closing comments.
James Bradley Archer: Thanks, Jason. Our strong first quarter results continue to illustrate the benefits of our enhanced operating platform. The network scale and flexibility we have established allow us to deliver a premium service offering to our customers, while simultaneously supporting strong financial results. This consistent execution is reflected in the strength of our balance sheet and enhanced financial position. With this foundation, we are continuing to evaluate and pursue the strongest pipeline of growth opportunities we have seen in many years and remain focused on expanding and diversifying our service offering. I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospitality. Ladies and gentlemen, we will now go.
Brad: Thanks, Jason our strong first quarter results continue to illustrate the benefits of our enhanced operating platform.
James Bradley Archer: The network scale and flexibility, we have established allow us to deliver a premium service offering to our customers while simultaneously supporting strong financial results.
James Bradley Archer: This consistent execution is reflected in the strength of our balance sheet and enhanced financial position.
James Bradley Archer: With this foundation, we are continuing to evaluate and pursue the strongest pipeline of growth opportunities. We have seen in many years and we remain focused on expanding and diversifying our service offering I appreciate everyone joining us on the call today and thank you again for your interest in target hospitality.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any button.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your Touchtone phone. He will hear prompts that your head has been re should you wish to decline from the polling process. Please press the star.
Operator: By the number two.
Operator: If you are using a speaker phone please lift the handset before pressing any keeps one moment. Please for Chris' question.
Operator: One moment, please, for our first question. Your first question comes from Scott Schneeberger from Oppenheimer. Please ask your question.
Operator: Your first question comes from Scott Schneeberger from Oppenheimer. Please ask your question.
Daniel Erik Hultberg: It's Daniel Hultberg, Scott. Can you please elaborate a little bit on the new opportunities you see, the organic ones, and help us think about where you see the most opportunities, and maybe some color on how ripe the pipeline could be?
Operator: It's Daniel on for Scott.
Scott Andrew Schneeberger: Can you please elaborate a little bit on the on the new opportunities you will see the organic ones and.
Daniel Erik Hultberg: And help us think about where you see the most opportunities and maybe some color on.
Daniel Erik Hultberg: That pipeline could be.
James Bradley Archer: Yeah, good morning. Thanks. Let's take the organic opportunities, you know, as we mentioned, kind of a couple of different buckets. But if you look at government, and we talked about this in March as well, still making progress outside of the ICF here with other government agencies. So that's kind of front and center.
Daniel Erik Hultberg: Yes.
Daniel Erik Hultberg: Thanks.
Daniel Erik Hultberg: Let's see organic opportunities.
James Bradley Archer: As we mentioned.
James Bradley Archer: Kind of a couple of different buckets, but if you look at government.
James Bradley Archer: And we talked about this in March.
James Bradley Archer: As well still making progress in outside of the Ics here.
James Bradley Archer: Still hot on the radar, lots of discussions there with multiple different agencies. I won't get into the agencies, but I just say it's not with the ICF. With the ICF, we're still going after the third ICF. Still pursuing that, expect that to be awarded sometime in the back half of 2024. So nothing's changed from our last call there. And then, again, as mentioned in our remarks earlier, if you look at some of the rare earths, some of the technology, some, you know, some very large bids, so very hard to predict the kind of timing on, you know, when they award them. It's hard to predict the timing, but it's not hard to say that we've always been successful on some of these large projects, and we'll continue to do that.
James Bradley Archer: With other government agencies, so that's kind of front and center.
James Bradley Archer: It's still it's still hot.
James Bradley Archer: On the radar lots of discussions there with multiple different agencies I won't get into the agencies, but I would just say there are it's not with the Ics with the Ics, we're still going after the.
James Bradley Archer: The third Ics still pursuing that expect that to award sometime in the back half of 2024, So nothing's changed from our last call there.
James Bradley Archer: And then again as mentioned in our in our remarks earlier, if you look at some other railroad some of the technology.
James Bradley Archer: Some very large bids so very hard to predict kind of timing on.
James Bradley Archer: When when they award, but I would tell you we feel really good about some of these we've had dialogues from.
James Bradley Archer: Some of these been going on for well over a year so.
James Bradley Archer: And at some point they come to a conclusion and we look.
James Bradley Archer: We think we should be positive on some of these I think if you look just look over the history.
James Bradley Archer: <unk> target.
James Bradley Archer: When you talk organic growth that's how we built the company will continue to build the company off the backs of the organic growth, it's hard to predict timing.
James Bradley Archer: But it's not hard to say that we've always been successful.
James Bradley Archer: On some of these large projects will continue to do that.
Speaker Change: Got it. Thank you I saw in the release was mentioned you focus on operational efficiency I think you mentioned in the prepared remarks as well.
James Bradley Archer: Thank you. I saw in the release that it was mentioned you focused on operations. Thank you very much. Yeah, sure. We're always continuing to evaluate those operations.
Speaker Change: Could you speak to that please is there any incremental initiatives you're pursuing that could be margin accretive as we look at.
James Bradley Archer: Yeah, sure. We're always continuing to evaluate those operational efficiency opportunities. We believe there are still operational efficiencies to be gained. As we move through the year, we executed on some of those in Q1, as you saw with the operating performance that we released in the release earlier today. So we do feel there are additional opportunities. That being said, we are running a highly efficient platform currently, so it becomes a little bit challenging to identify additional opportunities, but there are some, and we will continue to execute on those.
Speaker Change: Yes sure.
James Bradley Archer: We are we're always continuing to evaluate those operational efficiency opportunities. We believe there are still operational efficiencies to be gained.
James Bradley Archer: As we move through the year, we executed on some of those in Q1 as you saw with the <unk>.
James Bradley Archer: Operating performance that we've released and the release earlier today.
James Bradley Archer: So we do feel there are additional opportunities that being said we are running a highly efficient platform. Currently so it becomes a law.
James Bradley Archer: Little bit challenging to identify additional opportunities, but there are some and we will continue to execute on those somewhat marginal.
Speaker Change: Thanks, so much guys.
Operator: Your next question comes from Stephen Gengaro from Steve-O. Please ask your question. [inaudible]
James Bradley Archer: Your next question comes from Stephen <unk> from Stifel. Please ask your question.
Stephen David Gengaro: Thanks. Good morning, everybody. All right. Good morning.
Stephen David Gengaro: Thanks, Good morning, everybody.
Stephen David Gengaro: Good morning.
Stephen David Gengaro: I guess.
Stephen David Gengaro: I guess. Two things for me, but the first is, can you give us some help and color around the government's gross margins? I mean, they were pretty flat sequentially from the fourth quarter, actually probably up a little bit. We had assumed that the mixed shift in the new contract would affect that. But how should we think about those government gross margins, assuming relatively low utilization at PECOS?
Stephen David Gengaro: Two things from me.
Stephen David Gengaro: First is can you give us some some help and color around the government.
Stephen David Gengaro: Gross margins I mean, they were.
Stephen David Gengaro: I think pretty flat sequentially from the fourth quarter actually probably up a little bit.
Stephen David Gengaro: We had assumed that the mix shift and the new contract would affect that but how should we think about those government gross margins assuming relatively low utilization are you guys.
Jason Paul Vlacich: Yeah, so good question. You know, over the years and working with this, this contract, we've gotten really good at controlling our costs in response to occupancy level fluctuations. And so that's essentially what you're seeing there as we move from Q4 into Q1, executing on that operational efficiency strategy that we've had in place since the contract has been in place, including the old contract. So you know, our margins, we expect to continue to be healthy as we move through the year. And obviously, there's a bit of margin expansion associated with lower occupancy levels as we control our costs.
Speaker Change: Yes, so good question.
Jason Paul Vlacich: You know over the years in working with this this contract we've gotten obviously really good at controlling our costs in response to occupancy level fluctuations.
Jason Paul Vlacich: So that's essentially what youre seeing there as we move from Q4 into Q1.
Jason Paul Vlacich: It's executing on that operational efficiency strategy that we've had in place since the contracts been in place, including the old contract.
Jason Paul Vlacich: So you know our margins, we expect to continue to be healthy as we move through the year and obviously, there's a there's a bit of margin expansion associated with lower occupancy levels as we control our costs.
Jason Paul Vlacich: Okay.
Jason Paul Vlacich: Okay, so that in the quarter, there was nothing in 77.6% of the first quarter that was an anomaly that was just mix inefficiency. Correct. Yep. Okay, great. Thank you.
Speaker Change: Okay. So that's sort of the quarter there was nothing in our 77, 6% in the first quarter that was an anomaly that was just mix and efficiency.
Stephen David Gengaro: And then the second one is, is just around HFS South. I mean, we sort of see what's going on in the Permian. I mean, it feels like activity levels are kind of flat from these levels for the next couple of quarters. I'm not sure if you agree with that or not, but in that environment of, if we assumed, flattish, is that?
Jason Paul Vlacich: Correct Yep, Okay, great. Thanks, Thank you.
Stephen David Gengaro: And then the second one is just around Hff's South I mean, we serve.
Stephen David Gengaro: See what's going on in the Permian and I'm Gonna feels like activity levels are kind of flat from these levels for the next couple of quarters I'm not sure if you agree with that or not but in that environment.
Stephen David Gengaro: If we assume flattish is that.
Stephen David Gengaro: how those revenues should act, or are there any contracts or obligations or take or pay or anything in there that would affect HFS-South not sort of acting like the drilling and completion activity does in the permit.
Stephen David Gengaro: Now those revenue should act or are there any.
Stephen David Gengaro: Contracts are obligations are take or pays or anything in there that would affect each of our south not sort of acting like drilling and completion activity in the Permian.
Jason Paul Vlacich: Yeah, so we've seen obviously, moderate levels of improved utilization; we expect that to remain the case for the rest of the year. So I mean, overall utilization will trend somewhat similar to last year. And that's what we expect to continue. There are no, you know, additional material changes that would cause us to believe otherwise as we move through the year with respect to utilization trends.
Speaker Change: Yes. So we you know we've seen obviously moderate levels of improved utilization, we expect that to remain the case for the rest of the year. So I mean overall utilization will trend somewhat similar to last year and that's what we expect to continue Theres no additional.
Jason Paul Vlacich: Material changes that would cause us to believe otherwise as we move through the year with respect to utilization trends.
Stephen David Gengaro: Okay, great. Thanks. And then just one final one for me. The third ICS contract that is out there that you talked about, is that something to your knowledge that the government will award, that they're considering awarding, like is that part of the mix? And it's just a real question of whether or not you're successful, or it might not get awarded.
Speaker Change: Okay great.
Speaker Change: Great. Thanks, and then just just one final one for me.
Stephen David Gengaro: Third Ics.
Stephen David Gengaro: Contract that is out there that you talked about.
Stephen David Gengaro: Is that something to your knowledge that the government.
Stephen David Gengaro: Real award that Theyre, considering awarding like is that part of the mix with certainty and it's just a question of whether or not you're.
Stephen David Gengaro: You're successful or is it.
Stephen David Gengaro: Not yet get awarded.
James Bradley Archer: So based on all of our discussions, they definitely want and need and plan to award the third ICF. You know, for us, we're bidding on it, right. And so we can't say we're going to get it. But we have one. We're going after this one aggressively, and we expect it to be awarded sometime in the back half of 2024. Okay, great. Thank you for the details.
Stephen David Gengaro: So based on all of our discussions.
James Bradley Archer: They definitely want and need and plan to award.
James Bradley Archer: Third Ics for us were bidding on it right.
James Bradley Archer: <unk>.
James Bradley Archer: So we.
James Bradley Archer: We can't say, we're going to get it but.
James Bradley Archer: But we have won we're going after this one aggressively and we expect it to be awarded awarded sometime in the back half of 2024.
Speaker Change: Okay, great. Thank you for the details.
James Bradley Archer: Yes.
James Bradley Archer: Yeah.
James Bradley Archer: Okay.
Operator: As a reminder, if you wish to ask a question, please press star one. Should you wish to decline from the polling process, please press the star followed by the number. Your next question comes from Greg Gibas from Northland Securities. Please ask your question.
Speaker Change: As a reminder, if you wish to ask a question. Please press star one should you wish to decline from the polling process. Please press the star followed by the number to.
Gregory Thomas Gibas: Your next question comes from Greg gave us from Northland Securities. Please ask your question.
Gregory Thomas Gibas: Hey, good morning, Brad and Jason. Nice quarter. Thanks for taking the questions. Just to follow up on that third ICS site opportunity, you've been pretty clear on it being the back half is when we're going to hear additional details. Is it kind of a safe assumption that the contract will likely look similar to the first two awards? And, you know, are you kind of seeing the same players bid for it?
Gregory Thomas Gibas: Hey, good morning, Brad Jason Nice quarter, Thanks for taking the questions.
Gregory Thomas Gibas: Just to follow up on that third Ics site opportunity.
Gregory Thomas Gibas: You've been pretty clear on it being in the back half is when we're going to hear additional details.
Gregory Thomas Gibas: Is it kind of a safe assumption that we should assume that contract will likely look similar to the first two awards.
Gregory Thomas Gibas: Are you seeing the same players bid for it.
James Bradley Archer: Yeah, so look, I think it'll be similar, if you will, in design and structure. Too early to say yet if it'll be exact in size and those types of things.
Speaker Change: Yeah. So look I think it'll be similar if you will in design and structure.
James Bradley Archer: Too early to say yet.
James Bradley Archer: If it'll be exact.
James Bradley Archer: Size and those types of things so well.
James Bradley Archer: So, well, let's get further into this, and maybe in August, we'll have some more info. But right now, it's a little early. But look, I would say, very, very similar in nature, especially how we're going to take a look at it where we are in the value chain as well.
Speaker Change: Let's get further into this.
James Bradley Archer: It may be in August we'll have some more more info, but.
James Bradley Archer: Right now, it's a little early but I would say.
James Bradley Archer: Very similar in nature, especially how we're going to take a look at it where we set in the value chain as well.
Jason Paul Vlacich: Yeah, mechanically, in terms of the revenue streams, they'll be very similar.
James Bradley Archer: Yeah mechanically in terms of the revenue streams will be very similar yes.
Gregory Thomas Gibas: Got it. Fair enough.
James Bradley Archer: And, you know, curious if you could just discuss, it sounds like there's just more of an emphasis now that the renewal of PECOS is no longer a priority or using resources. Could you maybe discuss how you're shifting your resources towards targeting those non-governmental opportunities? I guess, you know, from a commentary perspective, it just sounds like you're putting a little more emphasis on it. And, you know, for that reason, like I know you said, they're kind of typically have longer sales cycles.
Speaker Change: Got it fair enough.
Gregory Thomas Gibas: <unk>.
James Bradley Archer: Curious if you could just discuss it sounds like there is just a more morgan emphasis now that.
James Bradley Archer: Now the renewal of pig houses.
James Bradley Archer: No longer a priority or <unk>.
James Bradley Archer: Utilizing resources could you maybe discuss how you're shifting your resources towards targeting those nongovernment opportunities like.
James Bradley Archer: I guess from a commentary perspective, it just sounds like you are putting a little more emphasis on it and.
James Bradley Archer: For that reason like I know you said, they're kind of a typically longer sales cycles, but do we think about these potentially being contributors this year or more longer term opportunity.
James Bradley Archer: But can we think about these potentially being contributors this year or more longer-term opportunities? Scott Schneeberger, Eric Kalamaras, Scott Schneeberger, Gregory Gibas, Daniel Hultberg, James Archer, Unknown Attendee, Mark Schuck, Alec Scheibelhoffer, Stephen Gengaro, Gregory Gibas, Daniel Hultberg, James Archer, Unknown Attendee, Mark Schuck, Alec Scheibelhoffer, Jason Vlacich, Target Hospitlty, Scott Schneeberger, Gregory Gibas, Unknown Attendee, Mark Schuck, Alec Scheibelhoffer, Jason Vlacich, Scott Schneeberger,
James Bradley Archer: I would tell you that the emphasis has always been there, and if that came across that way, that's not the case. We have a team that's dedicated to everything outside of government. In fact, it's a larger team that's dedicated to government. So that pipeline is actually really large and has been for a while. It's just getting more active, meaning they're getting closer, I would tell you, to final investment decisions and those types of things. Timing, still uncertain, right? They are large,
Speaker Change: Well I would tell you that emphasis has always been there.
James Bradley Archer: And if that came across that way that's not the case, we haven't we have a team that's dedicated to.
James Bradley Archer: Everything outside of government in fact, its a larger team that's been dedicated to government.
James Bradley Archer: So that pipeline is actually really large and has been it's just getting more active meaning they're getting closer.
James Bradley Archer: I would tell you to final investment decisions in those types of things timing still uncertain right. They are large they're very impactful if we get them.
James Bradley Archer: They're very impactful if we get them. So I'm not going to really comment on the timing, but emphasis-wise, I wouldn't tell you that the government or rare earths or technology side is really being sought after more than the other. They're very high priority. And it just depends, right?
James Bradley Archer: So not going to really comment on the timing, but emphasis wise.
James Bradley Archer: I wouldn't tell you that governments or.
James Bradley Archer: Error or technology side.
James Bradley Archer: It is really.
James Bradley Archer: Being sought after than the other.
James Bradley Archer: Theyre very high priority and it just depends right.
James Bradley Archer: What's kind of moving forward? Where do we put our kind of folks? And where do we go after? Where do we see the hotspots? So that's kind of where we shift. But today, I would tell you they're pretty balanced, lots of effort going into the government as there's some front and center things that we're working on, as well as everything outside of government.
James Bradley Archer: Moving forward, where do we put our kind.
James Bradley Archer: Kind of kind of our folks and where do we go after where do we see the hotspots. So that's kind of where we ship, but today I would tell you they're pretty balanced lots lots of effort going into the government as there is some front and center things that we're working on as well as everything outside of government.
Gregory Thomas Gibas: Okay, that's fair and helpful. So, I guess I could follow up on, you know, your commentary about multiple agencies within the government. You know, I think you said they were kind of also near the border. You know, I understand that you don't want to comment until these are maybe closer to the finish line, but, you know, any sense of, or can you provide any color in terms of like what agencies you're in discussions with or see opportunities with?
Speaker Change: Okay, that's fair and helpful.
Gregory Thomas Gibas: So I guess, if I could follow up on your commentary around multiple agencies within the government.
Gregory Thomas Gibas: I think you said them being kind of.
Gregory Thomas Gibas: Also near the border.
Gregory Thomas Gibas: Yeah.
Gregory Thomas Gibas: I understand that you don't want to comment until these are maybe closer to the finish line but.
Gregory Thomas Gibas: Any sense of can you provide any color in terms of like what agencies you are in discussions with her.
Gregory Thomas Gibas: The opportunities with.
James Bradley Archer: Yeah, look, I'd rather not talk about the agency specifically, but I would tell you it is definitely not unaccompanied children on a lot of those. It's outside the ICF network, if you will.
Speaker Change: Yeah look I would rather not.
James Bradley Archer: Talk about the agency specific I would tell you it is definitely not.
James Bradley Archer: Unaccompanied children.
James Bradley Archer: On a lot of those out it's outside the ICF network, if you will.
Gregory Thomas Gibas: Okay, got it. I guess just last one for me then, as it relates to, you know, nice to see the continued share of purchases. I'm wondering if you could, you know, just give us an update on your continued capital priorities, right? Should we expect continued share of purchases? And then can you remind us of the current offers? Yeah, so we continue to have the authorizing.
James Bradley Archer: Okay got it I guess just last one for me then as it relates to nice to see the continued share repurchases I'm wondering if you could just give us an update on continued.
Gregory Thomas Gibas: I guess what are your capital priorities rates, we expect continued share repurchases and then can you remind us on the current authorization.
Jason Paul Vlacich: Yeah, so we continue to have the authorized program in place, which was initiated at the $100 million level, right, of which we've purchased $21 million of that. So roughly $78, $79 million left in that program.
Speaker Change: Yes. So we continue to have the authorized program in place, which was initiated at a $100 million level right up which we.
Jason Paul Vlacich: Purchased $21 million of that so.
Jason Paul Vlacich: Roughly 70 $879 million left in that program.
Jason Paul Vlacich: You know, we're not going to comment on prospective activity, but that program continues to be authorized and will remain in place. And it'll continue to be a long-term sort of capital allocation strategy for us as we move through time when we see opportunities to execute on it. And as a reminder, we executed on it in Q1 because we saw opportunities there with respect to repurchasing shares to the tune of $21 million.
Jason Paul Vlacich: We're not going to comment on prospective activity, but that program continues to be authorized and will remain in place and it will continue to be a long term.
Jason Paul Vlacich: Sort of capital allocation strategy for us as we move through time, where we see opportunities to execute on it and as a reminder, we executed on it in Q1, because we saw opportunities there with respect to repurchasing shares at the tune of $21 million.
Speaker Change: Alright, thanks, guys.
Operator: You have a follow-up question from Stephen Gengaro from STIFO. Please ask your question.
Speaker Change: You have a follow up question from Stephen <unk> from Stifel. Please ask your question.
Stephen David Gengaro: Thanks. Thanks for taking the follow-up.
Stephen David Gengaro: Thanks, Thanks for taking the follow up.
Stephen David Gengaro: [laughter].
Stephen David Gengaro: I'm not exactly sure how to ask you this, but when we think about the government business versus the HFSL business, they're clearly different. And you guys did a magnificent job in Texas with the network of facilities. How do these other commercial opportunities, Like, where do they fit in? What are they more similar to? Is it like one structure with, you know, 50 or 500 rooms? Or is it a family of facilities around a certain area? Like, how do they kind of compare to the two other pieces of your business?
Stephen David Gengaro: I'm not exactly sure how to ask this but when we think about the government business versus the HFF South business. There are clearly different than and you guys did a magnificent job.
Stephen David Gengaro: Texas with the network of facilities.
Stephen David Gengaro: How do these other commercial opportunities.
Stephen David Gengaro: Or do they like what are they more similar to was it like one structure with <unk>.
Stephen David Gengaro: 5500 rooms or is it a family of facilities around around a certain area.
Stephen David Gengaro: How do they.
Stephen David Gengaro: Compare to the to the two other pieces of your business.
James Bradley Archer: Yeah, I would tell you they're more similar to the HFS model, if you will, if you're talking structural, you know, physical type structures and the way they're set up and operated.
Speaker Change: Yes, I would tell you there are more similar to the Hff's model. If you will if you are talking structural.
James Bradley Archer: Physical type structures.
James Bradley Archer: And the way, they're set up and operated.
James Bradley Archer: and would would they come along with some type of Unknown Attendee, Mark Schuck, Alec Scheibelhoffer, Gregory Gibas, Daniel Hultberg, James Archer?
James Bradley Archer: And where.
James Bradley Archer: Where do they.
James Bradley Archer: Come along with some type of <unk>.
James Bradley Archer: Term contract to support either construction or mobilization of assets.
James Bradley Archer: Yes, absolutely they would definitely support all of that come along with a term contract to certainly support construction expansion certainly would be part of our $500 million goal right, So and our return models and our return models.
James Bradley Archer: Absolutely. It would definitely support all of that and come along with a term contract to certainly support construction and expansion. Certainly would be part of our $500 million goal, right? And our return models. And our return models. We can, it would consistently support our strong cash flow profile that we currently have over on the business. So that's what these kind of look like long-term guaranteed contracts.
James Bradley Archer: It would consistently support our strong cash flow profile that we currently have overall in the business. So that's what these kind of look like long term guaranteed contracts is what we're talking.
James Bradley Archer: and Guaranteed Contracts is what we're talking about. Okay, good.
Stephen David Gengaro: Okay, great. And then just one quick one. You repurchased $21 million of stock in the quarter. Does the pending bid impact your ability to return capital while it's being considered?
Speaker Change: Okay, Great and then just one quick one you you repurchased.
Stephen David Gengaro: $21 million of stock in the quarter.
Stephen David Gengaro: Does the does the pending bid impacts your ability to return capital, while it's being considered.
Jason Paul Vlacich: We're certainly not going to comment on any, you know, any impact that that offer has on our decision-making or, you know, potential future activity other than what we've disclosed in the release. But it, but it
Speaker Change: We're certainly not going to comment on any.
Jason Paul Vlacich: Any impact that that offer has on our decision, making or potential future activity other than what we've disclosed in the release.
Jason Paul Vlacich: But it doesn't, it doesn't sort of, there's no regulation. There's not, is there a legal ruling here versus a decision? Like, are you allowed to? I guess that's what I'm asking.
Jason Paul Vlacich: But it doesn't it doesn't sort of there is no regulation.
Jason Paul Vlacich: Is there a legal ruling here versus a decision.
Jason Paul Vlacich: Like are you allowed to I guess is what I'm asking.
Jason Paul Vlacich: Look, I just don't think we're going to comment on just the possibility that we're going to, you know, be in the market or not on the stock buyback right now. The plans in place we bought in the first quarter will be opportunistic. Okay, great. Thanks. Thanks for all the details.
Speaker Change: Look I, just don't think we're going to comment on.
Jason Paul Vlacich: Just the possibility we're going to do.
Jason Paul Vlacich: It will be in the market are not on the stock buyback right now the plans in place we bought in the first quarter, we could be opportunistic.
Stephen David Gengaro: Okay, great. Thanks. Thanks for all the details. Yep.
Speaker Change: Okay, great. Thanks, Thanks for all the details.
Stephen David Gengaro: Yes.
James Bradley Archer: There are no further questions at this time. I would now like to turn the call over back to Brad Archer. Please continue.
Speaker Change: There are no further questions at this time I would now like to turn the call over back to bad Sir Please continue.
Operator: Thanks. Thank you all for joining us on our call today. We look forward to speaking to you again in August for our second quarter earnings report. Operator, that will conclude the call for today.
James Bradley Archer: Thank you all for joining us on our call today, we look forward to speaking to you again in August for our second quarter earnings report.
Operator: Operator that will conclude the call for today.
Operator: Sure, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Sure that concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: Yeah.
Operator: Okay.
Operator: Okay.
Operator: Okay.
Operator: No.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Yes.
Operator: No.
Operator: Sure.
Operator: Okay.
Operator: Yes.