Q2 2024 Target Hospitality Corp Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Target Hospitality second quarter 2024 earnings call. At this time, all lines are in listen-only mode.
Operator: Good morning, ladies and gentlemen, and welcome to the Target Hospitality second quarters 2024 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.
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 operation. This call is being recorded on August 7, 2024. I would now like to turn the conference over to Mr. Mark Schuck, Senior Vice President of Investor Relations. Please go ahead.
Operator: If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded at August 7th, 2024.
Speaker Change: 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.
Speaker Change: This call is being recorded August 7th of 'twenty 'twenty four I would now like to turn the conference over to Mr. Mark Schuck Senior Vice President of Investor Relations. Please go ahead.
Mark Schuck: I would now like to turn the conference over to Mr. Mark Schuck, Senior Vice President of Investor Relations. Please go ahead.
Mark Schuck: Thank you. Good morning, everyone, and welcome to Target Hospitality second quarter 2024 earnings call. The press release we issued this morning, outlining our second 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. Please note the cautionary language regarding forward-looking statements contained in the press release. This same language applies to the 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 7th, 2024.
Mark Schuck: Thank you. Good morning, everyone, and welcome to Target Hospitality's second quarter 2024 earnings call. The press release we issued this morning outlining our second 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 second quarter 2024 earnings call. The press release, we issued this morning outlining our second quarter results can be found in the investors section of our website.
Mark Schuck: 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, August 7, 2024. Target Hospital 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 law.
Mark Schuck: Please note the cautionary language regarding forward looking statements contained in the press release the same language applies to statements made on today's conference call.
Mark Schuck: 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 law.
Mark Schuck: For a complete list of risks and uncertainties that may affect future performance, please refer to Target Hospitality's periodic filing with the SEC. We will discuss non-GAAP financial measures on today's call. Please refer to the tables in our earnings release, post an investor section of our website, to find the reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures.
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.
Mark Schuck: Finally, as previously announced on March 25th, 2024, Aerial Holdings and affiliate of TDR Capital propose to acquire all outstanding shares of common stock of Target Hospitality, it for affiliates do not already own. The Board of Directors of Target Hospitality has established a special committee of independent directors to evaluate this proposal. The special committee has retained their own independent outside financial and legal advisors, and collectively they are continuing their review and evaluation of the proposal, as well as evaluating alternative proposals and other strategic alternatives. At this time, the special committee has made no decision with respect to the proposal.
Mark Schuck: Finally, as previously announced, on March 25, 2024, Arrow 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. The Board of Directors of Target Hospitality has established a special committee of independent directors to evaluate this proposal. The Committee has retained its own independent outside financial and legal advisors, and collectively they are continuing their review and evaluation of the proposal, as well as evaluating alternative proposals and other strategic alternatives. At this time, the Committee has made no decision with respect to the proposal.
Mark Schuck: As a result, management will be unable to comment on the proposal or the evaluation process during today's call.
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 will open the call for questions. I'll now turn the call over to our CEO, Brad Archer.
Mark Schuck: Leading the call today will be Brad Archer, President and Chief Executive Officer, followed by Jason Blasich, Chief Financial Officer, and Chief Accounting Officer. After their prepared remarks, we will open the call for questions.
Brad Archer: I'll now turn the call over to our Chief Executive Officer for Ad Archer. Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Our second quarter performance continues to illustrate the benefits of our efficient operating structure and network capabilities. These elements support our ability to deliver strong financial results while remaining focused on delivering the premium hospitality solutions our customers demand. and the scale and flexibility of our network has established a highly durable operating model that supports the consistent achievement of our financial goals and has established a materially enhanced financial position centered on the strength of our balance sheet.
Brad Archer: Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Our second quarter performance continues to illustrate the benefits of our efficient operating structure and network capabilities. These elements support our ability to deliver strong financial results while remaining focused on delivering the premium hospitality solutions our customers demand. The scale and flexibility of our network have established a highly durable operating model that supports the consistent achievement of our financial goals and has established a materially enhanced financial position, centered on the strength of our balance. We are confident these fundamentals will continue to support strong operating margins through the cycle, enabling us to support our world-class customers while continuing to pursue diversifying growth opportunities. Turning to our segment,
Brad Archer: We are confident these fundamentals will continue to support strong operating margins through cycles, enabling us to support our world-class customers' want—continuing to pursue diversifying growth opportunities.
Brad Archer: Turning to our segments. In the government segment, our PCC community has entered its fourth year of service and is the longest-serving influx care facility in the United States. Our operational commitment has solidified PCC as a cornerstone in supporting the government's critical domestic humanitarian aid mission, and we anticipate a normal course renewal of this contract in November of this year. Further, this established presence and consistent operational performance supports targets' 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 are pleased with continued dialogue regarding this opportunity, and as we have previously stated, we anticipate additional details regarding the third ICS site later in 2024.
Brad Archer: In the government segment, our PCC community has entered its fourth year of service and is the longest-serving in-flux care facility in the United States. Our operational commitment has solidified PCC as a cornerstone in supporting the government's critical domestic humanitarian aid mission, and we anticipate a normal course renewal of this contract in November of this year. In addition, this established presence and consistent operational performance 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.
Brad Archer: We are pleased with continued dialogue regarding this opportunity, and as we have previously stated, we anticipate additional details regarding the third ICS site later in 2024. Regarding our HSS segment, we continue to benefit from consistent customer demand as our world-class customers find added value and our network flexibility in the range of premium solutions we provide. As an example, our unmatched capabilities supported the expansion of existing customer relationships during the quarter, further illustrating the broad reach of our service offerings to meet a variety of customer needs.
Brad Archer: Regarding our HFF segment, we continue to benefit from consistent customer demand as our world-class customers find added value and our network flexibility in the range of premium solutions we provide. As an example, our unmatched capability supports the expansion of existing customer relationships during the quarter, further illustrating the broad reach of our service offerings to meet a variety of customer needs. Additionally, we continue to take steps to realize incremental operational efficiencies across this segment and evaluate opportunities to strengthen margin contribution through enhanced network optimization. Our existing contract portfolio and commitment to network optimization continues to support impressive operating income and industry-leading cash conversion.
Brad Archer: Target's enhanced financial profile establishes the ideal position to continue evaluating a pipeline of attractive growth initiatives. We believe these naturally adjacent opportunities will complement our existing service offerings while establishing multiple avenues to expand targets' long-term growth opportunity set.
Brad Archer: Target's enhanced financial profile establishes the ideal position to continue evaluating a pipeline of attractive growth initiatives. As Target continues to evaluate these opportunities, we are actively seeking to utilize our existing strategically located South Texas assets to support these solutions. As we evaluate these initiatives, we remain committed to achieving the defined objectives of our growth strategy while simultaneously delivering strong financial results and pursuing attractive growth opportunities. I'll now turn the call over to Jason to discuss our second quarter financial results in more detail.
Brad Archer: Within the government end market, we remain engaged with multiple federal agencies on a variety of solutions they are seeking to implement along the U.S. Southern Border. As Target continues to evaluate these opportunities, we are actively seeking to utilize Target's existing strategically located South Texas assets to support these solutions.
Brad Archer: Further, we continue to pursue a growing 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. Importantly, these opportunities remain centered on targets full-turn key hospitality solutions, as well as expanding our value chain participation through individual elements of existing. As a reminder, the size of these growth opportunities inherently leads to longer cell cycles. While we are pleased with the continued dialogue on many of these opportunities, the timing and final outcomes are uncertain and can be difficult to predict.
Brad Archer: As we evaluate these initiatives, we remain committed to achieving to find objectives with our growth strategy. Our primary objective remains focused on diversifying our contract portfolio and broadening our customer reach. While continuing to generate strong operating income and industry-leading cash conversion.
Brad Archer: In summary, we have established an enhanced financial position centered on the strength of our balance sheet and strong cash flow generation. 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 Vlacich: I will now turn the call over to Jason to discuss our second quarter financial results in more detail. Thank you, Brad. Our second quarter results continued to reflect the benefits of our efficient operating model and network flexibility. Second quarter, 2024 total revenue was approximately $101 million, and adjusted EBITDA was approximately $52 million. Our government segment produced quarterly revenue of approximately $60 million.
Mark Schuck: Our financial results in more detail.
Mark Schuck: Thank you, Brian our second quarter results continued to reflect the benefits of our efficient operating model and network flexibility second.
Brian: Second quarter 2024, total revenue was approximately $101 million and adjusted EBITDA was approximately $52 million.
Brian: Our government segment produced quarterly revenue of approximately $60 million.
Jason Vlacich: The decrease in revenue from the prior period was driven by 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 other segments delivered quarterly revenue of $41 million. These segments continued to benefit from the consistent customer demand, illustrating the value our customers find in our premier hospitality solutions. Recurring corporate expenses for the quarter were approximately $9 million. We anticipate these will remain around $9 to $10 million per quarter for the remainder of the year.
Jason Vlacich: The decrease in revenue from the prior period was driven by 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. These segments continue to benefit from consistent customer demand, illustrating the value our customers find in our premier hospitality solution.
Speaker Change: The decrease in revenue from the prior period was driven by noncash nonrecurring infrastructure enhancement revenue associated with these significant expansion that occurred at our PCC community in 2022, which was fully amortized as of November 2023.
Speaker Change: Our hff's in other segments delivered quarterly revenue of $41 million.
Speaker Change: These segments continue to benefit from the consistent customer demand illustrating the value of our customers find in our premier hospitality solutions.
Jason Vlacich: The current corporate expenses for the quarter were approximately $9 million, and we anticipate these will remain around $9 to $10 million per quarter for the remainder of the year. We ended the quarter with $154 million in cash and $329 million of liquidity with zero borrowings under the company's $175 million revolving credit facility and a network leverage ratio of 0.1 times. These impressive financial results, coupled with a high degree of revenue visibility and strong cash conversion, support our 2024 financial outlook. With that, I will turn the call back over to Brad for closing comments.
Speaker Change: Recurring corporate expenses for the quarter were approximately $9 million and we.
Speaker Change: The fate these will remain around $9 million to $10 million per quarter for the remainder of the year.
Jason Vlacich: Total capital spending for the quarter was approximately $9 million, primarily focused on enhancing and maintaining target asset base across our expansive network. The strength in our core service offering continues to support strong cash generation and an enhanced financial profile. We ended the quarter with $154 million in cash and $329 million of liquidity, with zero borrowings under the company's $175 million revolving credit facility and a network leverage ratio of 0.1 times. These impressive financial results, coupled with a high degree of revenue visibility and strong cash conversion, support our 2024 financial outlook, which consists of total revenue of between $375 and $385 million.
Speaker Change: Total capital spending for the quarter was approximately $9 million.
Speaker Change: Primarily focused on enhancing and maintaining targets asset base across our expansive network.
Speaker Change: The strength in our core service offering continues to support strong cash generation and an enhanced financial profile.
Jason Vlacich: It's just between $184 and $190 million, with anticipated 2024 capital expenditures of between $25 million and $30 million.
Jason Vlacich: We continue to progress towards achieving zero net debt and anticipate ending the year with over $350 million in total liquidity.
Jason Vlacich: As a reminder, given the dynamic fluctuations in the PCC community population, we believe it is prudent to exclude any incremental PCC occupancy-based variable revenue from our 2024 financial outlook. Regarding our outstanding 2025 senior notes, we continue to evaluate a range of possible liability management initiatives focused on further strengthening our financial position, while balancing and expanding the pipeline of strategic growth opportunities. This approach is centered on maximizing financial flexibility, enabling us to quickly react to value-enhancing growth opportunities as they arise. The strength of our balance sheet, high degree of revenue visibility, and continued strong cash conversion, provides the ability to continue to actively evaluate and pursue a strong pipeline of growth initiatives.
Jason Vlacich: These opportunities are designed to leverage targets' operating expertise and existing core competencies to establish a robust service offering across various U.S. government agencies and commercial applications.
Jason 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.
Brad Archer: With that, I will turn the call back over to Brad for closing comments. Thanks, Jason. Our second quarter performance reflects the flexibility of our operating model and our abilities consistently deliver strong financial results. This execution is reflected in the strength of our balance sheet, strong liquidity profile, and enhanced financial position. These fundamentals provide tremendous confidence and our ability to continue delivering impressive financial results while simultaneously pursuing a growth pipeline focused on expanding and diversifying our contract portfolio and customer reach.
Brad Archer: These fundamentals provide tremendous confidence in our ability to continue delivering impressive financial results while simultaneously pursuing a growth pipeline focused on expanding and diversifying our contract portfolio and customer reach.
Brad Archer: I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospital.
Operator: Thank you.
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 touch tone. 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 speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question.
Stephen Gengaro: Our first question is from Stephen General from Steveville. Thanks. Good morning, everybody. Good morning.
Operator: Our first question is from Stephen Gengaro from Seafill.
Brad Archer: So two things to me, the first, trying to think about exactly how to ask it, but when we think about the HFS South business and you think about the capacity that you have that's dedicated to, you know, sort of the traditional core oil field businesses, how is that capacity versus sort of demand and contract commitments? And I think what I'm trying to get to is a how do we think about that business in general going forward? And I know that there's been kind of a drop off in activity here near term and B.
Stephen Gengaro: I'm trying to think about exactly that answer. But when we think about the HFS South business, and you think about the capacity that you have that's dedicated to, you know, sort of the traditional core oil field businesses, how is that capacity versus sort of demand and contract commitments? And I think what I'm trying to get to is A.
Stephen Gengaro: How do we think about that business in general going forward? And I know that there's been kind of a drop off in activity here near term. And B, are you in a kind of a critical mess where you can't reallocate any of those assets if something was to pop up? Or just trying to kind of gauge the capacity versus utilization and demand in the oil patch?
Brad Archer: Are you a kind of a critical mess where you can't reallocate any of those assets if something was to pop up, or I just trying to kind of gauge the capacity versus utilization of demand in the oil patch. And in our customer spend and just recently we relocated some assets, you know, from one location to another. So we still have the ability to do that. Stephen will continue to look at that. The business has been good there, and it's been steady. We look for that to continue as we said. We're optimizing, you know, just some of the efficiencies, but overall the business has been good and strong for us there.
Brad Archer: Yeah, look, I think we're pretty appropriately optimized throughout the network. I would tell you, you know, there are shifts in our customer spend. And just recently, we relocated some assets from one location to another. So we still have the ability to do that, Stephen.
Brad Archer: We'll continue to look at that. The business has been good there. It's been steady. We look for that to continue. As we said, we're optimizing, you know, just some of the efficiencies. But overall, the business has been good and strong for us there. Optimization, I think, is probably the best we've seen it in a long time.
Brad Archer: Optimization, I think, is probably the best we've seen it in a long time. It's kind of been that way for about a year. And we're starting to see a few customers ask for more. So that's nice. I'm not going to guarantee that comes, but it's nice to see some of these larger, you know, folks that have now entered the Permian over the past few years looking at doing more on the round. They're kind of getting into some more remote areas and talking to us about doing something. So we look, you know, that business to continue.
Brad Archer: It's kind of been that way for about a year, and we're starting to see a few customers ask for more. So that's nice. I'm not going to guarantee that it will come, but it's nice to see some of these larger, you know, folks that have now entered the Permian over the past few years looking at doing more on their own. They're kind of getting into some more remote areas and talking to us about doing some things. So we look, you know, for that business to continue. And we did that came to pass.
Brad Archer: And we did that to pass the last year. We purchased some assets Q1 last year. And then we also re-deploy some assets from the government segment as well. So we feel like the capacities in a pretty good spot, but we still have the ability to move things around if we need to.
Brad Archer: We did add capacity last year. We purchased some assets in Q1 of last year, and then we also redeployed some assets from the government segment as well. So we feel like the capacity is in a pretty good spot, but we still have the ability to move things around if we need to.
Brad Archer: And then, just as a follow-up to that, is the, and glad you mentioned kind of the larger customer base. There's the, there's the M&A activity and there being kind of fewer larger players and the bigger players getting bigger. Does that, does that help in certain negotiations, maybe not a price, but on sort of contract duration and kind of visible demand from your customers?
Brad Archer: And then just as a follow-up to that, I'm glad you mentioned kind of the larger customer base. Does the M&A activity and there being kind of fewer larger players and the bigger players getting bigger, does that help in sort of negotiations, maybe not on price, but on sort of contract duration and kind of visible demand from your customers?
Brad Archer: Well, as you know, you've been in us a long time as well as me on some of the energy side when a, when, when you get a more mature company in there, the Exons, the Chevrons, the Oxys that are spending, they look longer terms. So, you know, our ability to do that is helped as well, right. So, so we like that. We think that's a positive. They also look at the HR side a little differently than some of your smaller firms. They want to take care of, it's not that the others don't, but they put a priority on making sure their workforce is taken care of.
Brad Archer: Look, as you know, you've been in this a long time, as well as I on some of the energy side. When you get a more mature company in there, the Exxons, the Chevrons, the Oxys that are spending, they look longer term.
Speaker Change: <unk> been in this a long time as well as me on some of the energy side.
Speaker Change: When you get them or mature.
Speaker Change: The company and they're the Exxon Chevron Theocracies that are spending.
Speaker Change: They look longer terms, so our ability to do that.
Speaker Change: Helped as well right. So so we like that we think Thats a positive.
Speaker Change: They also look at the HR side, a little differently than some of your smaller firms they want to take care of its not that the others don't but they put a priority on making sure. Their workforce is taken care of so as they ramp up we think that helps us in that.
Brad Archer: So, you know, as they ramp up, we think that that helps us in that. Great.
Brad Archer: And then just one final follow-up to that and just kind of given what exons doing in there, there's sort of expectations on the, on the DLE on the lithium side. Does your relationship historically with companies like Exxons is one that comes to mind in the, in the oil patch, give you a leg up when you start talking about potential contractual agreements around alternative place.
Speaker Change: Great and then just one final follow up to that and just kind of given what Exxon is doing.
Speaker Change: There is sort of expectations on the on the deal.
Speaker Change: On the lithium side does your relationship historically with companies like Exxon is one that comes to mind in the oil patch gives you a leg up when you start talking about potential contractual agreements around alternative place.
Brad Archer: Yeah, I would just say in general, right, if you're doing business with one of the larger companies, it, your door, the doors open, you don't have to beat on it a lot to get in and talk to them about an Arkansas or, or wherever they might be looking at doing some different work that's not so much oil and gas. So, yeah, definitely help. Okay, great. Thank you for the details.
Speaker Change: Yes, I would just say in general right, if youre doing business with one of the larger.
Brad Archer: So, you know, our ability to do that is helped as well, right? So we like that. We think that's a positive. They also look at the HR side a little differently than some of your smaller firms. They want to take care of; it's not that the others don't, but they put a priority on making sure their workforce is taken care of. So, you know, as they ramp up, we think that that helps us.
Brad Archer: give you a leg up when you start talking about potential contractual agreements around alternative places?
Speaker Change: Companies if youre. The doors opened you don't have to beat on it a lot to get in and talk to them about in Arkansas or or wherever they might be looking at doing some different work that's not so much oil and gas so yes definitely helps.
Brad Archer: Yeah, I would just say in general, if you're doing business with one of the larger companies, their door is open, you don't have to beat on it a lot to get in and talk to them about Arkansas or or or wherever they might be looking at doing some different work. That's not so much oil and gas.
Brad Archer: So yeah, definitely help. Okay, great. Thank you for the details. You bet.
Stephen Gengaro: Okay, great. Thank you for the details.
Speaker Change: Great. Thank you for the detail.
Scott Schneeberger: You bet. More next question will be coming from Scott Schneeberger from Oppenheimer. Thanks very much.
Speaker Change: You bet.
Speaker Change: Our next question will be coming from Scott Schneeberger from Oppenheimer.
Scott Schneeberger: Thanks, very much good morning.
Brad Archer: Good morning. I want to start out in discussing Pecos. That's on a one-year review of extension. It will be around the time the third quarter call where that's around renewal time, that's around election time. I'm just curious. I know you probably can't say too much, Brad, right now, but what type of conversations are you having with the government? Do you have a sense of if that will be renewed or not, or is that start much closer to that time? Yep. I knew somebody would ask that question, right? But yeah, so look, we anticipate an interrupted service, you know, operating through the November election and a normal course PCC renewal.
Scott Schneeberger: Hey, guys good morning.
Scott Schneeberger: One on one I want to start out in discussing.
Scott Schneeberger: Pecos, you know, that's on a one-year review of extension, and, you know, we won't, it'll be around the time of the third-quarter call where that, that's around renewal time, that's around election time. I'm just curious, I know you probably can't say too much, Brad, right now, but what type of conversations are you having with the government? Do you have a sense of if that will be renewed or not, or will that start much closer to that time? Yep.
Scott Schneeberger: Peco's.
Speaker Change: That's on a one year review of extension.
Speaker Change: And we won't it'll be around the time, the third quarter call where that.
Speaker Change: That's around renewal time, that's around election time.
Speaker Change: Just curious I know you probably can't say too much Brad right now, but what type of conversations are you having with the government.
Speaker Change: Do you have a sense of if that will be renewed or not.
Brad: Start much closer to that time, yes, yes.
Brad Archer: Yeah, I knew somebody would ask that question, right? But yeah, so look, we anticipate uninterrupted service, you know, operating through the November election and a normal course PCC renewal. There have been some discussions already about that, and that's what kind of frames my statement to you, Scott, on the normal course PCC renewal. I won't get into too much detail.
Speaker Change: Yes.
Brad: I knew somebody would ask that question, but.
Speaker Change: Yes, So look we anticipate an interrupted service operated through the November election, and a normal course PCC renewal.
Brad Archer: There has been some discussions already about that, and that's what kind of frames my statement to you, Scott, on the normal course PCC renewal. I won't get into too much detail. We do expect that look in November right up at the time, and they're not going to do it early, just kind of how these IDI cues work. But there's nothing that has been discussed that would tell us any differently, and in fact, it's quite the opposite, right? So we feel good about that going into November. I think I appreciate that. And then this third potential contract for ICF, I think I already say anticipating something to happen before the end of the year.
Brad: There has been some discussions already about that and that's where kind of frames my statement to you Scott.
Speaker Change: On the normal course, PCC renewal I won't get into too much detail.
Brad Archer: We do expect that, look, in November, right at the time. They're not going to do it early, just kind of how these IDIQs work. But there's nothing that has been discussed that would tell us any differently. And, in fact, it's quite the opposite, right? So we feel good about that going into November.
Brad: We do expect that the look.
Brad: Look in November right up at the time and they're not going to do it early just kind of how these <unk> work.
Brad: But there's nothing that has been discussed that would tell us any differently and in fact, it's quite the opposite right. So we feel good about that going into November.
Brad Archer: All right, thanks. I appreciate that. And then this third potential contract for ICF. I think I heard you say you're anticipating something to happen before the end of the year. So this is a similar question. What type of timeline is that on, and what's the level of certainty you're feeling? Obviously, there's a change at Dilley, so the government's considering things in a lot of different ways these days. Just curious how you feel there.
Speaker Change: Hi, Thanks, I appreciate that and then there's this third potential contract for ICF.
Speaker Change: I heard you say anticipating something to happen before the end of the year. So this is a similar question what type of timeline is that on and what's the what's the level of certainty year, feeling obviously there was a change.
Brad Archer: So this is a similar question. What type of timeline is that on? And what's the, what's the level of certainty you're feeling? Obviously, there's a change at Delhi. So, you know, the government's considering things in a lot of different ways these days. Just curious, do you feel there? Yeah, I think the difference, you know, for everybody, and we've talked about this a lot, is when you look at the, you know, the laws that protect the children. You know, the unaccompanied minors; it's different than what was going on in Delhi. So they had some flexibility and some reasons they did that.
Speaker Change: So.
Speaker Change: The government's considering things and a lot of different ways. These days just curious do you feel there. Thanks.
Brad Archer: I think the difference, you know, for everybody, and we've talked about this a lot, is when you look at the laws that protect the children, you know, the unaccompanied minors, it's different than what was going on in Dilley. So they had some flexibility and some reasons they did that. But at the ICF, they still need this emergency influx capacity.
Speaker Change: Yes, I think the difference you know for everybody and we've talked about this a lot is when you look at the the laws that protect the children.
Speaker Change: The unencumbered minors, it's different than what was going on and on and daily. So they had some flexibility and some reasons they did that.
Brad Archer: But on the ICF, they still need this emergency influx capacity. Look, as a recent of last week, we were told this is moving forward. We have actually submitted our design, as did some of some other competitors that they requested. We expect this to become more formalized, if you will, in the fourth quarter towards the end of the year. But today we fully expect this to move forward and them to award that project, and we're in the middle of that. Thanks.
Speaker Change: But on the ICF, they still need this emergency influx capacity.
Brad Archer: Look, as of last week, we were told this is moving forward. We have actually submitted our design, as have some other competitors that they requested. We expect this to become more formalized, if you will, in the fourth quarter, towards the end of the year. But today, we fully expect this to move forward and them to award that project, and we're in the middle of that.
Speaker Change: If you look as of recent of last week. We were told this is moving forward, we've actually submitted our design.
Speaker Change: As did some some other competitors that they requested we expect this to be become more formalized if you will in the fourth quarter towards the end of the year, but today, we fully expect this to move forward and then to award that project and we're in the middle of that.
Scott Schneeberger: Just one more for me on the topic of Dilley. It feels like that's an interesting asset that could certainly be repurposed, and there's a lot that's going to happen over the coming few months with the election and other things, and particularly kind of in the context of how you're answering the prior two questions. But just, Brett, what do you think? HFS could be repurposed for an option there, probably with still government considerations. Just what is the future of Dilly Hold, do you think?
Brad Archer: And just one more for me on the topic of Delhi. It feels like that's an interesting asset that could be certainly we purpose. And there's a lot that's going to happen over the coming few months with the election and other things, and particularly kind of in the context of how you're entering the prior two questions. But just, Brett, what's, you know, HFS could be repurposed for an option there, probably still government considerations. Just what's, what's the future of Delhi holding? Yeah, absolutely. In good question. Look, they asked for one. Let me just high level. The assets are in great shape.
Speaker Change: Thanks, and just one more for me on the topic of daily.
Speaker Change: It feels like that that's an interesting asset that could be certainly we purpose and there's a lot that's going to happen over the coming few months with elections and other things and in particularly all kind of in the context of how you are entering the.
Speaker Change: The prior two questions, but just a broad one.
Speaker Change: <unk>.
Speaker Change: Hff's.
Speaker Change: Could be repurposed for an option there probably still government considerations just what's the what's the assumption of doing whole do you think.
Brad Archer: Yeah, absolutely. And a good question. Look, for one, let me just say high level.
Brad Archer: The assets are in great shape. They've been used for 10 years, but they've been kept up just like all of our facilities. So they are in great shape to go into use again immediately, right?
Speaker Change: Yes, absolutely.
Speaker Change: And good question look the asks for one let me just high level. The assets are in great shape, we have been used for 10 years.
Brad Archer: They've been used for 10 years, but they've been kept up just like all of our facilities. So great shape to go to use again immediately, right? The location of this facility being close to the southern border is a major positive where it sets as it sits, right? We feel strongly that the use case for this facility is very high as well. And I just leave you with this. We've already started remarketing this facility. As soon as we found out about this, right? To government agencies, as well as multiple prime contractors that do business with the government, as well as an HFS.
Speaker Change: But they have been kept up just like all of our facilities. So great shape to go to use again immediately right. The location of this facility being close to the southern border is a major positive where it set as it sits right. We feel strongly they use case for this facility is very high as well.
Brad Archer: The location of this facility being close to the southern border is a major positive, where it sits as it sits, right? We feel strongly the use case for this facility is very high as well. And I just leave you with this.
And I'll just leave you with this we've already started remarketing. This facility as soon as we found out about this right to government agencies as well as multiple prime contractors that do.
Brad Archer: We've already started remarketing this facility as soon as we found out about this, right? To government agencies, as well as multiple prime contractors that do business with the government, as well as the HFS. But we think this facility, where it sits, how it's designed, really has a lot of capabilities to be put back to use and not be moved. I would tell you we're already in the early innings.
Speaker Change: <unk> business with the government as well as in Hff's, but we think this facility where it sits and how it's designed really has a lot of capabilities to be put back to us.
Brad Archer: But we think this facility where it sits, how it's designed really has a lot of capabilities to be put back to use and not be moved. I would tell you, we're already in the early innings. We've had a formal request come through for a proposal. And so we'll get that in here over the next few weeks. We'll see where it goes. But the marketing and just the availability of this is already peaking folks' interest within the government prime contractors that at least to the government as well and provide services there. And look, it's an election year.
And not be moved I would tell you we're already in the early innings, we've had a formal request come through for our proposal.
Brad Archer: We've had a formal request come through for a proposal, and so we'll get that in here over the next few weeks. We'll see where it goes, but the marketing and just the availability of this is already piqueing folks' interest within the government, prime contractors that lease to the government as well and provide services there. And look, it's an election year. I don't care which side of the aisle gets in on that.
Speaker Change: And so we will get that in here over the next few weeks, we will see where it goes but the marketing and just the availability of this.
Speaker Change: Uh huh.
Speaker Change: <unk> already peaking folks interest within the government prime contractors that leased to the government as well and provide services there and look it's an election year.
Brad Archer: I don't care which side of the aisle gets in on that. I think this has a lot of legs. And I feel good about remarketing where it sits. If we don't, we've shown over the past through North Dakota and in Texas, we are very good at reutilizing our assets. So I have no doubt we'll get this back out on least timing. I'm not going to give you, but I like what's happening kind of in the early innings today in the ballgame. All right, thanks.
Speaker Change: I don't care, which.
Brad Archer: I think this has a lot of legs, and I feel good about remarketing it where it sits. If we don't, we've shown in the past, through North Dakota and in Texas, we are very good at reutilizing our assets. So I have no doubt we'll get this back out on lease. Timing, I'm not going to give you, but I like what's happening kind of in the early innings today in the ballgame. Thanks for taking the question. Yes,
Speaker Change: Side of the aisle gets in and on that I think this has a lot of legs.
Speaker Change: And I feel good about remarketing, where it says if we don't we've shown over the past through North Dakota and in Texas. We are very good at re utilizing our assets. So I have no doubt we will get this back out on lease.
Speaker Change: The timing I'm not going to give you, but I like whats happening kind of in the early innings today in the ballgame.
Scott Schneeberger: Alright, thanks for taking the questions.
Operator: Staying in the questions. Yep.
Speaker Change: Alright, thanks for taking the questions.
Speaker Change: Yes.
Operator: Ladies and gentlemen, if you have any questions, please press star followed by a number one on your touch-tone phone. And you will hear a prompt that your hand has been raised. Again, if you have any question, please press the star followed by a number one on your touch-tone phone. And you will hear a prompt that your hand has been raised.
Speaker Change: Ladies and gentlemen, if you have any question. Please press star followed by the number one on your Touchtone phone and you will hear from Mr. Han is being raised.
Speaker Change: Again, if you have any question. Please press the star followed by the number one on your Touchtone phone and you will hear from Mr. Han has been great.
Gregory Gibas: Last question on the line will be coming from Greg Dubis from Northern Security. Thank you.
Greg Gibas: The last question on the line will be coming from Greg Gibas from Northland Security.
Speaker Change: Last question on the line will be coming from Gregg Gilbert from Northland Securities.
Greg Gibas: Hey, good morning, Brad and Jason. Thanks for taking the question. Good morning. You know, nice to hear anticipating, you know, normal course renewal with the PECOS facility. Curious if you just have any visibility or are hearing anything on kind of utilization trends going forward and, you know, when you would expect maybe that to pick up and what maybe you think needs to happen for increased usage of that.
Brad Archer: Good morning, Brad and Jason. Thanks for taking the questions. You know, nice to hear it's stating, you know, normal course renewal with the pay goes facility. Curious to just have any visibility or hearing anything on kind of utilization trends going forward. And you know, when you would expect maybe that to pick up and what, what maybe you think needs to happen for increased usage of that facility. And you mean, with respect to the PCC facility, right, correct utilization. Yeah, so as a reminder, we did have some utilization in Q1, some variable services revenue generated by that.
Gregg Gilbert: Hey, good morning, Brian and Jason Thanks for taking the question good morning.
Gregg Gilbert: Nice to hear.
Gregg Gilbert: In normal course renewal with the Peco facility curious if you have any visibility or hearing anything on kind of utilization trends going forward and when you would expect maybe that to pick up and what not what maybe you think needs to happen for increased usage of that facility.
Speaker Change: You mean with respect to the PCC facility right correct utilization yes.
Brad Archer: Yeah, so as a reminder, we did have some utilization in Q1, and some variable services revenue generated by that. It is possible that utilization trends the way it did last year, where it picked up in, you know, September Q4 timeframe, and so that is, that's a possibility. You know, right now, obviously, there's little to no utilization in it, but it's trending exactly as it trended last year.
Speaker Change: Yes, so as a reminder, we did have some utilization in Q1.
Speaker Change: Some variable services revenue generated by that it.
Brad Archer: It is possible that the utilization trends the way it did last year, where it picked up in, you know, September, Q4 timeframe. And so that is, that's a possibility. You know, right now, obviously there's little to no utilization of it, but it's trending exactly as it trended last year. So that's, you know, certainly within our expectations based on what we experienced last year in terms of utilization trends. If the trend repeated itself, you'd actually see something towards the end of the year, right? Not saying that’s happening. That said, I mean, again, the occupancy is trending exactly in line as it did last year. You know, Q2 to Q2 year over year, the trend is exactly the same.
Speaker Change: It is possible that the utilization trends the way it did last year, where it picked up in September Q4 timeframe.
Speaker Change: And so that is that's a possibility right now obviously there is.
Speaker Change: Little to no utilization.
Speaker Change: But it's.
Speaker Change: Trending exactly as it trended last year.
Speaker Change: So thats certainly within our expectations based on what we experienced last year in terms of utilization.
Speaker Change: Trend repeated itself you would actually see some towards the end of the year right not saying that happening.
Speaker Change: But there is definitely the possibility we just thought it was prudent to to note. There is none in our guidance.
Speaker Change: And our revised guidance for the rest of the year, just given the dynamic nature of that occupancy trends and utilization trends that said I mean again the occupancy is trending exactly in line as it did last year Q2 to Q2 year over year. The trend is exactly the same.
Brad Archer: And so that being said, last year we did experience utilization picked up in early September, really rest of the year.
Speaker Change: And so that being said last year, we did experience utilization picked up in early September through the rest of the year.
Gregory Gibas: Great. It makes sense from a forecasting perspective, but I appreciate the color there.
Speaker Change: Great and it makes sense from a forecasting perspective, but appreciate the color there.
Brad Archer: You know, in terms of, I guess, how, like, oh, sorry, outlook on HFS South, what are your guidance maybe assume there from, you know, either, you know, kind of an occupancy perspective? Yeah, we expect the utilization trends to be somewhat comparable to the way they've trended in the first half of this year, with some moderate seasonality and Q4 consistent with prior year trends. So pretty stable in terms of the utilization trending in HFS South for the rest of the year.
Speaker Change: In terms of I guess outlay, sorry outlook on HFF, South what is your guidance, maybe assume there from either kind of an occupancy perspective.
Speaker Change: We expect the utilization trends to be somewhat comparable to the way they trended in the first half of this year with some moderate seasonality in Q4 consistent with prior year trends.
Speaker Change: So pretty stable in terms of the utilization trending in Hff's south for the rest of the year.
Gregory Gibas: Okay, great.
Greg Gibas: Okay, great. And I guess the last one, just more broad about your kind of pipeline of opportunities, just regarding, you know, your evaluation of those organic growth opportunities that you've discussed. You know, any change, I guess, in your pipeline or the outlook or the timing of those potential opportunities? Or, you know, would you just say we're kind of in a similar position as last quarter as you evaluate those opportunities? Yeah, Greg, I would tell you we're still in the same position.
Speaker Change: Okay, Great and I guess last one just more broad about your kind of pipeline of opportunities just regarding your evaluation of those organic growth opportunities that you've discussed.
Brad Archer: And I guess last one just more broad about your kind of pipeline of opportunities, just regarding, you know, your evaluation of those organic growth opportunities that you've discussed. You know, any change, I guess, in your pipeline or the outlook or the timing of those potential opportunities and, or, you know, I'm, would you just say we're kind of in a similar position as last quarter as you evaluate those opportunities? Yeah, Greg, I would tell you we're still in the same position. I would tell you our pipeline and project continues to build. So we've added some quality prospects there.
Speaker Change: Any change I guess in your pipeline or the outlook or the timing of those potential opportunities.
Speaker Change: Sure.
Speaker Change: Would you just say, we're kind of in a similar position as last quarter as you evaluate those opportunities.
Brad Archer: Yeah, Greg, I would tell you we're still in the same position. I would tell you our pipeline of projects continues to build. So we've added some quality prospects there. You know, as we've described in the past, the reality is most, if not all of these are really large projects. So the sales cycle is really long. So, you know, for all of us, the timing is difficult to predict.
Brad Archer: But our focus continues to be, you know, the diversification of our contract portfolio and expanding our customer reach. And look, we have a good track record over the years of closing large projects. We're going to do that, right? We're going to, we will get some of these closed. We have a lot of past value creation ahead of us, and we'll execute on some of these over time.
Speaker Change: Yes, Greg I would tell you we're still in the.
Speaker Change: In the same position I would tell you our pipeline of project continues to build so we've added some quality prospects there.
Brad Archer: You know, as we've described in the past, the reality is most, if not all, of these are really large projects. So the cell cycle is really long. So, you know, for all of us, the timing is difficult to predict, but our focus continues to be, you know, the diversification of our contract portfolio and expanding our customer reach. And look, we have a good track record over the years of closing large projects. We're going to do that, right? We're going to; we will get some of these clothes. We have a lot of past value creation ahead of us, and we'll execute on some of these over time.
Speaker Change: As we described in the past the reality is most if not all of these are really large projects. So the sales cycles really long so for all of us.
Speaker Change: The timing is difficult to predict but our focus continues to be.
Speaker Change: The diversification of our contract portfolio and expanding our customer reach and look we have a good track record over the years.
Speaker Change: Closing large projects, we're going to do that and we're going to.
Speaker Change: We will get some of these closed we have a lot of path to value creation ahead of us and we will execute on some of these over time.
Speaker Change: Okay.
Gregory Gibas: Got it.
Gregory Gibas: Thank you.
Speaker Change: Got it thank you.
Operator: Ladies and gentlemen, please conclude your conference call for today. We thank you for participating and ask that you please disconnect your line. You all have a good one.
Operator: Ladies and gentlemen, this concludes our conference call for today. We thank you for participating and ask that you please disconnect your line. You all have a good day.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today.
Speaker Change: Thank you for participating and ask that you. Please disconnect. Your lines you all have a good one.