Target Hospitality Corp (TH) 2022 Q2 法說會逐字稿

Good morning, and welcome to the Target Hospitality Second Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

早上好，歡迎參加 Target Hospitality 2022 年第二季度收益電話會議。 （操作員說明）請注意正在記錄此事件。

I would now like to turn the conference over to Mark Schuck, Senior Vice President of Investor Relations. Please go ahead.

我現在想將會議轉交給投資者關係高級副總裁 Mark Schuck。請繼續。

Thank you. Good morning, everyone, and welcome to Target Hospitality's Second Quarter 2022 Earnings Call. The press release we issued this morning, outlining our second quarter results can be found in the Investors section of our website. In addition, a replay of this call will be archived on our website for a limited time.

謝謝你。大家早上好，歡迎參加 Target Hospitality 的 2022 年第二季度財報電話會議。我們今天上午發布的新聞稿概述了我們第二季度的業績，可以在我們網站的“投資者”部分找到。此外，本次通話的重播將在我們的網站上限時存檔。

Please note the cautionary language regarding forward-looking statements contained in this 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 9, 2022. 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.

請注意本新聞稿中包含的有關前瞻性陳述的警示性語言。同樣的語言也適用於今天電話會議上的發言。本次電話會議將包含時間敏感信息以及前瞻性陳述，這些信息僅在 2022 年 8 月 9 日當天準確。Target Hospitality 明確表示不承擔更新或修改本次電話會議中包含的信息以反映事件或當天之後可能出現的情況，適用法律要求的除外。

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 Investors section of our website to find a reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures.

有關可能影響未來業績的風險和不確定性的完整列表，請參閱 Target Hospitality 向 SEC 提交的定期文件。我們將在今天的電話會議上討論非 GAAP 財務指標。請參閱我們網站投資者部分發布的收益發布中的表格，以查找今天電話會議中引用的非 GAAP 財務指標及其相應的 GAAP 指標的對賬。

Leading the call today will be Brad Archer, President and Chief Executive Officer; followed by Eric T. Kalamaras, Executive Vice President and Chief Financial Officer. After their prepared remarks, we will be joined by Troy Schrenk Chief Commercial Officer and open the call for questions.

今天領導電話會議的將是總裁兼首席執行官 Brad Archer；其次是執行副總裁兼首席財務官 Eric T. Kalamaras。在他們準備好講話後，我們將加入 Troy Schrenk 首席商務官並開始提問。

I will now turn the call over to our Chief Executive Officer, Brad Archer.

我現在將把電話轉給我們的首席執行官 Brad Archer。

Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Target's record-setting second quarter results illustrate the benefit of Target's strategically located network and superior operating capabilities, which have supported Target's ability to efficiently meet our customers' varying needs.

謝謝，馬克。大家早上好，感謝您今天加入我們的電話會議。 Target 創紀錄的第二季度業績說明了 Target 的戰略定位網絡和卓越的運營能力所帶來的好處，這支持了 Target 有效滿足客戶不同需求的能力。

Target has intentionally aligned itself with premier customers, including the United States government, who find increased value in the flexibility and premium service offering Target provides. We continue to experience consistent increases in customer demand across our HFS segments, supported by strong demand fundamentals. Target HFS customers continue to benefit from the size and scale of our network, which provides premium hospitality solutions and logistical flexibility for their dynamic labor allocation requirements. The intrinsic value of Target's network has supported an over 90% customer renewal rate for more than 6 years, and an 18% increase in customer labor allocation from the second quarter of 2021.

Target 有意與包括美國政府在內的主要客戶保持一致，他們發現 Target 提供的靈活性和優質服務產品具有更高的價值。在強勁的需求基本面的支持下，我們的 HFS 細分市場的客戶需求持續增長。目標 HFS 客戶繼續受益於我們網絡的規模和規模，為他們動態的勞動力分配需求提供優質的酒店解決方案和後勤靈活性。 Target 網絡的內在價值已支持超過 90% 的客戶續訂率超過 6 年，以及從 2021 年第二季度起客戶勞動力分配增加了 18%。

We anticipate consistent increases in customer activity throughout 2022, and are well positioned to benefit from this positive momentum across our network and HFS segment. Target's operating capabilities and network flexibility provided the foundation to expand our critical service offering to the United States Government through the expanded humanitarian contract, which we announced last month.

我們預計整個 2022 年客戶活動將持續增加，並有能力從我們的網絡和 HFS 部門的這種積極勢頭中受益。 Target 的運營能力和網絡靈活性為通過我們上個月宣布的擴大人道主義合同擴大我們向美國政府提供的關鍵服務奠定了基礎。

As a reminder, this contract represents a 60% increase from the initial contract we announced in 2021 and includes significantly enhanced amenities and support services for a population of approximately 6,400 individuals. These critical humanitarian services are centered around minimum revenue contracts backed by the United States government, which provide enhanced long-term revenue and cash flow visibility.

提醒一下，該合同比我們在 2021 年宣布的初始合同增加了 60%，其中包括為大約 6,400 人提供的顯著增強的便利設施和支持服務。這些關鍵的人道主義服務以美國政府支持的最低收入合同為中心，從而提高了長期收入和現金流的可見性。

Our intentional focus to expand the critical hospitality service offerings we provide the United States government has materially strengthened Target's financial profile. Target's Government segment represented over 68% of second quarter 2022 revenue and is expected to represent approximately 73% of full year 2022 revenue. This is a clear illustration of our commitment to diversify and expand Target's end markets, while simultaneously high-grading counterparty exposure and contract structure.

我們有意專注於擴大我們為美國政府提供的關鍵酒店服務產品，這大大加強了 Target 的財務狀況。 Target 的政府部門佔 2022 年第二季度收入的 68% 以上，預計將佔 2022 年全年收入的約 73%。這清楚地表明了我們致力於多元化和擴大 Target 終端市場的承諾，同時提供高等級的交易對手風險敞口和合同結構。

These accomplishments have materially strengthened Target's financial position and establish the foundation to continue pursuing strategic growth initiatives. These elements, along with Target's unmatched operating capabilities and distinct core competencies create the optimal scenario to pursue a balanced portfolio of value-enhancing growth initiatives. These opportunities span Target's existing end market portfolio as well as naturally adjacent business and industry applications, which we believe creates the greatest opportunity to accelerate value creation.

這些成就大大加強了 Target 的財務狀況，並為繼續推行戰略增長計劃奠定了基礎。這些要素，加上 Target 無與倫比的運營能力和獨特的核心競爭力，創造了最佳方案，以追求平衡的增值增長計劃組合。這些機會跨越了 Target 現有的終端市場組合以及自然相鄰的業務和行業應用，我們認為這為加速創造價值創造了最大的機會。

We are encouraged by the sustained momentum experienced in the first half of 2022 and believe we are well positioned to continue benefiting from our strategic position as North America's leading provider of comprehensive hospitality solutions and value-added services.

我們對 2022 年上半年所經歷的持續勢頭感到鼓舞，並相信我們有能力繼續受益於我們作為北美領先的綜合酒店解決方案和增值服務提供商的戰略地位。

I'll now turn the call over to Eric to discuss our second quarter financial results and ongoing growth initiatives in more detail.

我現在將電話轉給 Eric，以更詳細地討論我們第二季度的財務業績和正在進行的增長計劃。

Thank you, Brad. In the second quarter, we experienced continued strong demand fundamentals and positive momentum in customer activity, predominantly driven by the materially expanded government services contract we announced last month. Second quarter total revenue was $110 million, and adjusted EBITDA was approximately $56 million. Our Government segment produced quarterly revenue of approximately $75 million compared to $45 million in the same period last year. The significant increase was attributed to the expanded humanitarian contract that we announced on July 6, which had an effective date of May 16, 2022. As a result, the new humanitarian contract contributed approximately 6 weeks of earnings during the quarter.

謝謝你，布拉德。在第二季度，我們經歷了持續強勁的需求基本面和客戶活動的積極勢頭，主要受我們上個月宣布的大幅擴大的政府服務合同的推動。第二季度總收入為 1.1 億美元，調整後的 EBITDA 約為 5600 萬美元。我們的政府部門的季度收入約為 7500 萬美元，而去年同期為 4500 萬美元。顯著增長歸因於我們在 7 月 6 日宣布的擴展人道主義合同，該合同的生效日期為 2022 年 5 月 16 日。因此，新的人道主義合同在本季度貢獻了大約 6 週的收入。

As a reminder, Target's Government segment including the expanded humanitarian contract center around annual minimum revenue commitments. Additionally, the expanded humanitarian contract includes variable services revenue that will align with monthly changes to community population.

提醒一下，Target 的政府部門包括圍繞年度最低收入承諾擴大的人道主義合同中心。此外，擴展的人道主義合同包括可變服務收入，這些收入將與社區人口的每月變化保持一致。

Our HFS segments delivered strong second quarter revenue of $34 million compared to $29 million in the same period last year. This increase was driven by sustained momentum in customer demand for Target's premium service offerings, supported by constructive economic and demand fundamentals. While Target has significantly grown its revenue and adjusted EBITDA over the past year, we have remained diligent in appropriately managing cost components across the organization. We take an active approach managing our input cost and benefit from our service offering flexibility, which allows us to adjust primary cost components to mitigate pricing pressure.

我們的 HFS 部門在第二季度實現了 3400 萬美元的強勁收入，而去年同期為 2900 萬美元。這一增長是由於客戶對 Target 優質服務產品的需求持續增長，並得到建設性經濟和需求基本面的支持。儘管 Target 在過去一年中顯著增加了收入並調整了 EBITDA，但我們仍然努力適當地管理整個組織的成本構成。我們採取積極的方式管理我們的投入成本，並從我們的服務提供靈活性中受益，這使我們能夠調整主要成本組成部分以減輕定價壓力。

Recurring corporate expenses for the quarter were approximately $8 million and illustrate our ability to significantly grow the business, while incurring minimal incremental corporate costs. As a result of this scalable business model, we anticipate recurring corporate expenses to remain around $8 million to $9 million per quarter through 2022.

本季度的經常性公司費用約為 800 萬美元，這表明我們有能力顯著發展業務，同時產生最小的增量公司成本。由於這種可擴展的商業模式，我們預計到 2022 年，經常性公司費用將保持在每季度 800 萬至 900 萬美元左右。

Total capital expenditures for the quarter were approximately $37 million, with $35 million related to the substantial infrastructure enhancements associated with the expanded humanitarian contract. As a reminder, this expanded contract will result in a transitory increase in 2022 capital spending. However, this increase will be balance sheet neutral with continuing leverage improvement occurring by year-end 2022.

本季度的總資本支出約為 3700 萬美元，其中 3500 萬美元用於與擴大人道主義合同相關的大量基礎設施改進。提醒一下，這份擴展合同將導致 2022 年資本支出暫時增加。然而，隨著到 2022 年底槓桿率的持續改善，這一增長將是資產負債表中性的。

Further, Target anticipates additional balance sheet strengthening continuing into next year, with the expectation of having 0 net debt by year-end 2023. We ended the quarter with $10 million of cash and total available liquidity of $114 million, including $104 million available under the company's $125 million revolving credit facility and a net leverage ratio of 2.3x.

此外，Target 預計資產負債表的進一步加強將持續到明年，預計到 2023 年底淨債務為 0。我們在本季度結束時擁有 1000 萬美元的現金和 1.14 億美元的總可用流動資金，其中 1.04 億美元可用於公司 1.25 億美元的循環信貸額度和 2.3 倍的淨槓桿率。

We expect leverage to come down materially by year-end 2022. These strong business fundamentals and intentional focus on increasing our critical service offering in support of the United States government's domestic humanitarian missions has materially strengthened Target's management profile and contract structure. These elements have resulted in a significant increase in long-term revenue visibility with approximately 99% of Target's 2022 revenue under contract and approximately 75% of contracted revenue having minimum revenue commitments.

我們預計到 2022 年底，槓桿率將大幅下降。這些強勁的業務基本面和有意增加我們提供的關鍵服務以支持美國政府的國內人道主義任務，大大加強了 Target 的管理形象和合同結構。這些因素導致長期收入可見性顯著提高，Target 2022 年約 99% 的收入是根據合同簽訂的，約 75% 的合同收入有最低收入承諾。

Target's enhanced balance sheet will allow the company to continue evaluating a range of capital allocation initiatives focused on maximizing long-term shareholder value. Additionally, this strong financial position creates the optimal platform to continue pursuing our strategic growth aspirations focused on further expanding the company's long-term opportunities. Our established and growing presence within the government services end market creates a natural opportunity to expand our reach across agencies and geographies. These broad-reaching opportunities utilize key elements of Target's existing capabilities including construction and facilities management, offering long-term growth opportunity pipelines.

Target 增強的資產負債表將使公司能夠繼續評估一系列旨在最大化長期股東價值的資本分配計劃。此外，這種強大的財務狀況為繼續追求我們專注於進一步擴大公司長期機會的戰略增長目標創造了最佳平台。我們在政府服務終端市場中建立並不斷增長的影響力創造了一個自然的機會，可以擴大我們在機構和地區的影響力。這些影響廣泛的機會利用了 Target 現有能力的關鍵要素，包括建設和設施管理，提供長期增長機會管道。

These strategic growth initiatives will focus on utilizing Target's existing operating capabilities to pursue a balanced portfolio of value-enhancing opportunities across Target's existing end market portfolio and adjacent end market applications, which we believe provides the greatest opportunity to continue accelerating long-term value creation.

這些戰略增長計劃將側重於利用 Target 現有的運營能力，在 Target 現有終端市場組合和相鄰終端市場應用中尋求平衡的增值機會組合，我們認為這為繼續加速長期價值創造提供了最大機會。

With that, I will turn the call back over to Brad for closing comments.

有了這個，我將把電話轉給布拉德以結束評論。

Thanks, Eric. Our record-setting second quarter results are a direct reflection of our superior operating capabilities and unmatched network flexibility, which supports Target's unique position as North America's largest provider of premium vertically integrated hospitality services and solutions. These attributes have supported strong demand from our world-class customers, including the United States government, which has significantly strengthened Target's financial profile. This operating platform creates the ideal scenario to continue pursuing value-enhancing growth initiatives, focused on expanding Target's long-term growth pipeline.

謝謝，埃里克。我們創紀錄的第二季度業績直接反映了我們卓越的運營能力和無與倫比的網絡靈活性，這支持了 Target 作為北美最大的優質垂直整合酒店服務和解決方案提供商的獨特地位。這些屬性支持了我們世界級客戶的強勁需求，包括美國政府，這大大加強了 Target 的財務狀況。該運營平台為繼續追求增值增長計劃創造了理想的場景，專注於擴展 Target 的長期增長管道。

We believe this intentional focus creates the greatest opportunity to continue accelerating value creation for our shareholders. I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospitality.

我們相信，這種有意識的關注創造了最大的機會，可以繼續為我們的股東加速創造價值。感謝大家今天加入我們的電話會議，並再次感謝您對 Target Hospitality 的興趣。

(Operator Instructions) First question will come from Scott Schneeberger with Oppenheimer.

（操作員說明）第一個問題將來自 Scott Schneeberger 和 Oppenheimer。

I'd like to start off by asking just about how the ramp-up is going with the expansion of the West Texas government facility. Do you see that progressing as on pace with the original schedule that you had anticipated? Just any additional color on that.

我想首先詢問一下隨著西德克薩斯州政府設施的擴建而增加的情況。您是否認為進度與您預期的原始時間表一樣？只是任何額外的顏色。

Scott, this is Brad. Thanks. Look, no change from the last time we all talked, it's actually progressing very well. We've hit all the milestones, some of the turnover already on some of the buildings as well for the customer. But fully on schedule, and we anticipate that to continue on that way with a full turnover sometime in early October.

斯科特，這是布拉德。謝謝。看，和上次大家聊的沒什麼變化，其實進展的很好。我們已經達到了所有的里程碑，一些建築物的營業額以及客戶的一些營業額已經完成。但完全按計劃進行，我們預計這種情況將在 10 月初的某個時候以全面營業額繼續下去。

That's great. And then with that how should we think about -- I don't know if you're going to quantify exactly, but how should we think about the ramp in utilization levels in that facility. And then really the second part of that question is, how should we anticipate a margin progression in the back half of this year as well?

那太棒了。然後我們應該如何考慮 - 我不知道你是否要準確量化，但我們應該如何考慮該設施利用率水平的上升。然後這個問題的第二部分真的是，我們應該如何預期今年下半年的利潤率增長？

Scott, it's Eric. Yes. So as we think about this, the thing about utilization there, we're not going to be specifically disclosing what that trend looks like. Bear in mind that the entire -- the entirety of the facility is not up and running. There are a couple of phases here. So we'll see that progressing as we move here over the next month or two. And then specifically, it will depend partially on how the government decides to nominate its variable component, which is a question mark for us.

斯科特，我是埃里克。是的。因此，當我們考慮這一點時，關於那裡的利用率的事情，我們不會具體披露這種趨勢是什麼樣的。請記住，整個設施都沒有啟動和運行。這裡有幾個階段。因此，當我們在接下來的一兩個月搬到這裡時，我們會看到這種進展。然後具體來說，這將部分取決於政府如何決定提名其可變成分，這對我們來說是一個問號。

So look, we expect it to continue to improve over the next few months, and then we get to more of a steady state. And then from there, the government will make its elections as it sees fit. As we think about the margin movement, what I would say is this. So look, there is a ramp, as you can imagine, right, in a big project like this. And so as we think about moving this forward, you obviously have the numbers that we put out for Q2.

所以看，我們預計它會在接下來的幾個月內繼續改善，然後我們會進入更穩定的狀態。然後從那裡，政府將按照它認為合適的方式進行選舉。當我們考慮保證金變動時，我想說的是。所以看，有一個斜坡，你可以想像，對，在這樣的一個大項目中。因此，當我們考慮向前推進時，您顯然擁有我們為第二季度提供的數字。

Look, those will continue to move in the right direction as we move through time here. Is there something specific on the margin that you're thinking about as opposed to just speaking of generalities?

看，隨著我們在這裡穿越時間，這些將繼續朝著正確的方向發展。您正在考慮的邊緣是否有一些具體的東西，而不是僅僅談論一般性？

No. Thanks, Eric. Yes, I guess we'll watch as that progresses. I would imagine as occupancy increases, we would see a bit of margin improvement assuming that the margin rate, the gross margin of the West Texas facility will be attractive relative to overall corporate rate. That's actually what I'm getting at. Just kind of circling back by year-end, Brad mentioned probably the expansion should be largely complete or certainly the bed parts by October if everything goes as planned, it sounds like it is. Could we see a potential maximum occupancy from the government by year-end? I know you don't want to speak because you don't know that yet, but that's kind of to this as well. So you have kind of a 2-part to response there..

不，謝謝，埃里克。是的，我想我們會觀察它的進展。我可以想像，隨著入住率的增加，假設利潤率、西德克薩斯工廠的毛利率相對於整體公司利潤率具有吸引力，我們會看到利潤率有所改善。這就是我要說的。只是在年底前回過頭來，布拉德提到可能擴張應該在很大程度上完成，或者如果一切按計劃進行的話，肯定在 10 月之前完成床部分，聽起來是這樣。我們能否在年底看到政府的潛在最大入住率？我知道你不想說話，因為你還不知道，但這也是這種情況。所以你有一種兩部分的回應。

Yes. I'll let Brad address the trend in terms of how we think about the -- what the government disposition may be. Look, on the margin specifically, a couple of things to bear in mind. So you're right, as we continue to get occupancy levels there, that does -- that margin will continue to get better. However, there's also an effective economic promote, if you will, in terms of how we think about the margin, because there's the minimum revenue piece and then there's the variable piece. Those margins are not created the same, right? And so as you get additional per head numbers, occupancy in the variable piece, that incremental margin actually steps down slightly from the minimum.

是的。我將讓布拉德根據我們如何看待政府的處置方式來解決這一趨勢。看，特別是在邊緣，有幾件事要記住。所以你是對的，隨著我們繼續在那裡提高入住率，確實如此——利潤率將繼續提高。然而，如果你願意的話，就我們如何看待利潤率而言，還有一個有效的經濟促進，因為有最低收入部分，然後是可變部分。這些邊距不一樣，對吧？因此，當您獲得額外的人均人數時，可變部分的佔用率實際上會從最小值略微下降。

So you have to just think about it in terms of if a couple of different tranches. So either way, in the short run, you'll see margin get better. As you move out in time and as you get additional occupancy there, there is a bit of a plateauing effect as it relates to margin. And then once you get to kind of peak the incremental margin actually steps down slightly all the while nominal dollars start obviously getting bigger.

因此，您必鬚根據幾個不同的部分來考慮它。因此，無論哪種方式，在短期內，您都會看到利潤率變得更好。當您及時搬出並在那裡獲得更多入住時，會出現一些與利潤相關的平台效應。然後，一旦達到某種峰值，增量保證金實際上會一直略有下降，而名義美元顯然開始變大。

And hopefully, that helps. So we can certainly talk about that more offline to put a little finer point on that if we need to.

希望這會有所幫助。因此，如果需要，我們當然可以更離線地討論這個問題，以便更詳細地說明這一點。

Sorry, maybe on your ramp-up question as well. As you know, we don't control that part of it. What we do control is delivering on time, the number of beds and the contracts so they can ramp up. I would just say everybody knows how much money is being spent, what type of facility this is that we're delivering. They'll have that ability to do that. There's a big need for beds out there. The hope would be that they utilize this quickly and begin to ramp up. Not in our numbers. We're not telling that's going to happen, but I think there's -- as you look at this, that's what you think would happen as the year goes on, right?

對不起，也許你的加速問題也是如此。如您所知，我們無法控制其中的那一部分。我們控制的是按時交付、床位數量和合同，以便他們能夠增加。我只想說每個人都知道花了多少錢，我們提供的是什麼類型的設施。他們將有能力做到這一點。那裡對床的需求很大。希望他們能迅速利用這一點並開始增加。不在我們的數字中。我們並沒有說這會發生，但我認為有——當你看到這個時，這就是你認為隨著時間的推移會發生的事情，對吧？

Yes. Totally understood. Got that, Brad. And Eric, I think you made a good point. Even if on the side, even if yes, you do have diminishing on the improving incremental margin, your absolute dollars are still going up is, I think, the takeaway point there. So thanks. I've asked a bunch of I'll turn it over, but 1 last kind of high level. I'm guessing there's no update, but just any thoughts on long-term extension of this government contract, it's a frequent question. Just want to see if you have any incremental comments.

是的。完全明白。明白了，布拉德。埃里克，我認為你說得很好。即使在另一方面，即使是，你的增量利潤率確實在減少，你的絕對美元仍在上升，我認為，那裡的要點。那謝謝啦。我問了一堆我會把它翻過來，但最後一種高水平。我猜沒有更新，但只是關於長期延長這份政府合同的任何想法，這是一個常見的問題。只是想看看您是否有任何增量評論。

Yes. Really no update there, Scott, other than what we've all talked about, you look at what's being spent upfront on this project, just the overall design of a purpose-built really look at this very similar to what happened at our Dilley project, and it's being built for the long term, and we expect that to continue on. Even though it's a 1 year with a 6-month option on this first contract, we look at this as does our partners as a long-term solution.

是的。真的沒有更新，斯科特，除了我們都談到的，你看看這個項目的前期花費，只是一個專門建造的整體設計真的看起來非常類似於我們 Dilley 項目中發生的事情，並且它是長期建設的，我們希望這種情況會繼續下去。儘管第一份合同為期 1 年，有 6 個月的選擇權，但我們將其視為長期解決方案，我們的合作夥伴也將其視為長期解決方案。

Our next question will come from Greg Gibas with Northland Securities.

我們的下一個問題將來自北國證券的 Greg Gibas。

Congrats on the results. Just curious if -- what maybe drove the upside to your outlook for Q2 here? It seems like it came in a little bit above your range. And just kind of wondering if anything maybe changed with respect to your full year expectations?

祝賀結果。只是好奇——是什麼推動了你對第二季度的展望？看起來它有點超出你的範圍。只是想知道您的全年預期是否有任何變化？

Greg, so regarding full year, no change there. Look, it's -- I think any way you cut it, this has been a transformative project for the company and extremely accretive and so no change there. As it relates to the outperformance, look, this is a large project. And it is a substantial project in terms of not just operational scope, but also financial positioning. And so I think the outperformance you're largely seeing is a function of when you do projects like this, sometimes the margin in the early months can be front line a bit. And so that's effectively what we saw in this quarter.

格雷格，所以關於全年，沒有變化。看，它 - 我認為無論你怎麼削減它，這對公司來說都是一個變革性的項目，而且非常具有增值性，因此沒有任何變化。因為它涉及到出色的表現，看，這是一個大項目。它不僅在運營範圍上，而且在財務定位上都是一個重大項目。所以我認為你在很大程度上看到的優異表現是你做這樣的項目時的一個函數，有時最初幾個月的利潤可能有點靠前。所以這實際上就是我們在本季度看到的。

Bear in mind that does normalize. And so we'll continue to -- as we talked about that progressive occupancy continues to get better on an incremental margin basis. But at some point in time, it does normalize, right? So look, but that's largely driving the outperformance. And I think as well as just look good, solid operational execution was what drove that.

請記住，這確實會正常化。因此，我們將繼續 - 正如我們所說的那樣，漸進式入住率在增量利潤率的基礎上繼續變得更好。但在某個時間點，它確實會正常化，對嗎？所以看，但這在很大程度上推動了出色的表現。我認為，除了看起來不錯，堅實的運營執行是推動這一點的原因。

Great. Good to hear. And I guess, any commentary you can provide on how the new contract might impact cadence in the back half, maybe if we think about kind of traditional seasonality, if there'd be any change there this year?

偉大的。很高興聽到。而且我想，你可以就新合同如何影響後半場的節奏提供任何評論，也許如果我們考慮一下傳統的季節性，今年是否會有任何變化？

Wouldn't expect any modifications in terms of seasonality there. Sometimes we see -- we do see a little -- a couple of percent degradation in that fourth quarter on the HFS side specifically just from holiday turnover, particularly in December time frame. I wouldn't expect to see that here.

預計不會在季節性方面進行任何修改。有時我們會看到——我們確實看到了一點——HFS 方面的第四季度下降了幾個百分點，特別是假期營業額，特別是在 12 月的時間範圍內。我沒想到會在這裡看到。

Okay. Great. I guess just last one, kind of maybe putting in perspective how we should view potential upside to guidance for the full year in terms of maybe what you are kind of implying in your expectations on the variable side of the contract. Just wondering if you can comment on any -- maybe what your assumptions are for that?

好的。偉大的。我想只是最後一個，有點可能是考慮到我們應該如何看待全年指導的潛在上行空間，這可能意味著你對合同可變方面的期望所暗示的內容。只是想知道您是否可以評論任何 - 也許您對此的假設是什麼？

So we have not, as you know, specifically given a variable occupancy component or an occupancy component at all. So it makes it -- it does make it challenging to address that question. Partially, it's -- primarily, it's a function of the -- our partners and the government have to make their nominations on the variable side, right? And so until you know that number, you can't -- you really can't determine too much more in terms of upside. I would say this. We are absolutely enthusiastic about the project, excited about the opportunity here. But I wouldn't make any modifications to what we put out thus far.

因此，如您所知，我們根本沒有專門給出可變佔用分量或占用分量。所以它做到了——它確實使解決這個問題變得具有挑戰性。部分原因是——主要是——我們的合作夥伴和政府必須在可變方面進行提名，對吧？所以在你知道這個數字之前，你不能——你真的不能確定更多的上行空間。我會這麼說。我們對這個項目充滿熱情，對這裡的機會感到興奮。但我不會對我們迄今為止發布的內容進行任何修改。

Our next question will come from Stephen Gengaro with Stifel.

我們的下一個問題將來自 Stephen Gengaro 和 Stifel。

Just a couple of things. And I think the first was the HFS South piece of the business, it feels like -- and I want to sort of get your sense for this, but it feels like the revenue growth sort of was lagging rig activity and completion activity in the quarter. And I think you guys incur more baseload demand. So maybe you don't -- you're not -- you don't swing as much as maybe activity does. But can you just sort of give us a sense for what's going on in that part of the business?

只是幾件事。我認為第一個是 HFS South 業務，感覺就像 - 我想了解一下你的感覺，但感覺收入增長有點落後於本季度的鑽機活動和完成活動.而且我認為你們會產生更多的基本負載需求。所以也許你沒有——你不是——你沒有像活動那樣擺動。但是，您能否讓我們了解這部分業務的情況？

Yes, sure, a couple of things. Look, I wouldn't say there's anything going on that is not reflective of our expectations that we've really had for some time. We have talked a while about the market there continuing to get better over time, and that is what has happened. However, I think even last quarter, I had indicated that the pace of progression has started to slow and moderate to levels that are feeling much more stable.

是的，當然，有幾件事。聽著，我不會說發生的任何事情都不能反映我們一段時間以來真正的期望。我們已經討論了一段時間，那裡的市場隨著時間的推移繼續好轉，這就是發生的事情。但是，我認為即使在上個季度，我也表示進展的速度已經開始放緩並緩和到感覺更加穩定的水平。

So I think that's really what you're seeing. If you're looking at the top line, we did a little bit of an improvement there. We did have some degradation on margin, although that has nothing to do with the activity level, that is more of a function of some lower costs we had last year relative to some higher costs we had this year and just as part of enhancing the business, a little bit of mismatching cost there, which impacted the margin.

所以我認為這就是你所看到的。如果您正在查看頂線，我們在那裡做了一些改進。我們確實有一些利潤率下降，儘管這與活動水平無關，這更多是由於我們去年的一些較低成本相對於我們今年的一些較高成本，並且只是作為增強業務的一部分，那裡有一點不匹配的成本，這影響了利潤率。

But look, our margins were up in HFS, South, specifically 100 basis points quarter-to-quarter sequentially. So I would say that is continuing to move in the right direction. The last thing I would say is that labor is a -- look, it is a lagging component by a quarter or so, typically 3, 4 months. And so as an improvement gets better in the market, we will tend to see that increase from the labor side. But it is not a kind of a prompt corollary of activity.

但是看，我們在南部 HFS 的利潤率上升了，特別是季度環比上升了 100 個基點。所以我想說，這將繼續朝著正確的方向發展。我要說的最後一件事是勞動力是一個 - 看，它是一個四分之一左右的滯後部分，通常是 3、4 個月。因此，隨著市場的改善越來越好，我們將傾向於從勞動力方面看到這種增長。但這不是活動的一種即時推論。

Okay. It's not a huge piece. I just kind of wanted to triangulate the model a bit. So 2 things on the government side of the business. And just 1 question that I get pretty often is when you're bidding on this work and you're looking at additional opportunities maybe along the same lines, maybe in different areas, who are you competing against? Because it doesn't feel like a lot of people have your track record and infrastructure to meet the demand, right? So I'm sort of just trying to get a sense of what's the competitive landscape when you're bidding on the government contracts?

好的。這不是一塊巨大的。我只是有點想對模型進行三角測量。所以政府方面的兩件事。我經常遇到的一個問題是，當您競標這項工作並且您正在尋找可能沿著相同路線，可能在不同領域的其他機會時，您與誰競爭？因為感覺很多人都沒有你的業績記錄和基礎設施來滿足需求，對吧？所以我只是想了解當你競標政府合同時的競爭格局是什麼？

Look, this is Brad. I'm not going to call out the names, but there's definitely competition out there, right? I would tell you, I mean, your point is right, not a lot of folks that are setting with the assets that we have, the ability to get those installed, construction done in just really a few short months. Also just the track record we've had for years with Dilley, and we have some great partners. So there's definitely competition. They get competed, but we're set up very well to continue to go after even new business. We have a great track record of performing.

看，這是布拉德。我不會說出名字，但肯定有競爭，對吧？我會告訴你，我的意思是，你的觀點是正確的，不是很多人都在設置我們擁有的資產，有能力在短短幾個月內完成安裝和施工。也只是我們多年來與 Dilley 的往績記錄，我們有一些很棒的合作夥伴。所以肯定有競爭。他們競爭激烈，但我們已經做好了繼續追求新業務的準備。我們有很好的表演記錄。

Okay. Okay. And then just 1 final one. The variable component of the new contract, I think it's like $185 million a year. A, is that linear with the 6,400 beds as far as utilization? And I think the other question around that is, I would think -- and correct me if I'm wrong, but as I look into next year, the government wouldn't be spending this money if they didn't expect the occupancy rates on that piece to be very high. Can you comment on that?

好的。好的。然後只有 1 個最後一個。新合同的可變部分，我認為每年大約 1.85 億美元。 A，就利用率而言，這與 6,400 張床位成線性關係嗎？我認為另一個問題是，如果我錯了，請糾正我，但是當我展望明年時，如果他們沒有預料到入住率，政府就不會花這筆錢在那片上要很高。你能對此發表評論嗎？

Sure. As it relates to -- I'll take the first part first. So as it relates to the linearity, it is not exactly linear because when I was talking to Scott about the margin movement and the promote in that, that causes it not to be quite linear. But it is -- look, it is proportional in movement, okay? So as that is to say differently, that as you do see additional occupancy there, you will continue to see nominal dollars continue to increase, albeit at a slightly lower rate than you would have seen in prior quarters, okay, on prior volume periods. So hopefully, that does help a little bit. We can certainly try to unpack this a little bit more if we need to.

當然。因為它涉及 - 我將首先採取第一部分。因此，當它與線性相關時，它並不是完全線性的，因為當我與 Scott 談論邊際移動和其中的提升時，這導致它不是很線性。但它是——看，它在運動中是成比例的，好嗎？換句話說，當您確實看到那裡有更多的入住率時，您將繼續看到名義美元繼續增加，儘管速度略低於您在前幾個季度看到的速度，好吧，在之前的交易量期間。所以希望，這確實有點幫助。如果需要，我們當然可以嘗試將其解包更多。

As it relates to your point on spend and volume, it has been our expectation that look this facility will be utilized to a level that a government sees fit. And to a level that will obviously give them satisfaction as it relates to the amount of dollars that are being spent as they're part of their humanitarian solution. So we'll have to wait and see exactly what that looks like over time. But certainly, to your point, it's certainly something that the government obviously is intending to use at a fairly fulsome level. Otherwise, they would have chosen a different decision.

由於它與您關於支出和數量的觀點有關，我們一直期望該設施將被利用到政府認為合適的水平。並且顯然會讓他們感到滿意，因為這與花費的美元數量有關，因為它們是他們人道主義解決方案的一部分。因此，我們將不得不等待，看看隨著時間的推移會是什麼樣子。但可以肯定的是，就您而言，這肯定是政府顯然打算在相當豐富的水平上使用的東西。否則，他們會選擇不同的決定。

(Operator Instructions) Our next question will be a follow-up from Stephen Gengaro from Stifel.

（操作員說明）我們的下一個問題將是來自 Stifel 的 Stephen Gengaro 的後續問題。

Well, thanks. I should have just asked the question, I guess.

非常感謝。我想我應該只是問這個問題。

You never know, Stephen, you never know.

你永遠不會知道，斯蒂芬，你永遠不會知道。

I didn't want to be rude, so I figured I'd get back in line. So -- when you guys look out -- and you -- I guess there's 2 things. One is when you look out at other opportunities, and you referenced this a little bit in the press release, but in general terms, like I mean, outside of what you're already doing, what are the kinds of end markets that you feel like your capabilities are most applicable to?

我不想變得粗魯，所以我想我會重新排隊。所以 - 當你們注意時 - 而你 - 我想有兩件事。一個是當你看到其他機會時，你在新聞稿中提到了一點，但總的來說，就像我的意思一樣，除了你已經在做的事情之外，你覺得終端市場的種類是什麼喜歡你的能力最適用於什麼？

Yes. Look, I think there are several right from building maintenance to facilities management, inclusive of catering. A lot of that, I think, fits within exactly what we do today. And it's a huge market out there that's just -- it's untapped for us. And that's really more looking at something different. If you look the organic side for us, it's continuing on with what we're doing, growing some of the HFS side but more getting into the full government services, not just what we do today. But reaching out further into different government agencies and providing similar product and services and what we offer at this point to -- on our government contract.

是的。看，我認為從建築維護到設施管理有幾個權利，包括餐飲。我認為，其中很多都與我們今天所做的完全吻合。這是一個巨大的市場，對我們來說還沒有開發。這真的更多的是在尋找不同的東西。如果您為我們尋找有機方面，它會繼續我們正在做的事情，增加一些 HFS 方面，但更多的是進入全面的政府服務，而不僅僅是我們今天所做的。但進一步接觸不同的政府機構並提供類似的產品和服務以及我們目前提供的服務——根據我們的政府合同。

So continuing to expand that. I mean government reaches many different directions. And some of it, we just haven't went after. But we have a great name to continue to go out there and take advantage of.

所以繼續擴大。我的意思是政府達到了許多不同的方向。其中一些，我們只是沒有去追求。但我們有一個偉大的名字可以繼續走出去並利用。

I think, Stephen, the other point that I would mention, and Brad had in this is if you look at the entirety of the solutions that we provide today, generally, those are full turnkey solutions. And there is a lot of white space to, in many ways, perhaps disintermediate some of that, right? So meaning maybe you don't provide all the solutions, maybe provide a handful of our suite of solutions to a variety of different applications.

我認為，斯蒂芬，我要提到的另一點，布拉德在這方面的觀點是，如果您查看我們今天提供的全部解決方案，通常來說，這些都是完整的交鑰匙解決方案。而且有很多空白，在很多方面，也許可以去中介化其中的一些，對吧？所以意思是也許你不提供所有的解決方案，也許為各種不同的應用程序提供一些我們的解決方案套件。

I think at the end of the day though, what's the ultimate objective? It's to take Target from a business that has talked about $500 million of revenue and very substantial margin and pushing that to over time, close to $1 billion in revenue, right, with the numerous contracts, whether -- and look, whether that's with government or whether that's with other business and industry or combined.

我想，歸根結底，最終目標是什麼？目標是從一個已經談論過 5 億美元收入和非常可觀的利潤的企業中拿走，然後隨著時間的推移將其推向接近 10 億美元的收入，對，有大量合同，是否——看看，是否與政府簽訂或者是否與其他業務和行業或結合。

And so look, that is the strategic objective. And that is very much something that we have focused on. And -- but doing it in a way that it's smart, doing it in a way that we are not putting a number of legs to the stool so that none of them are meaningful at the end of the day, doing it in a way that's been very, very complementary to what we're doing.

所以看，這就是戰略目標。這是我們非常關注的事情。而且——但是以一種聰明的方式來做，以一種我們不會把很多條腿放在凳子上的方式來做，這樣在一天結束時它們都沒有意義，以一種這樣的方式來做與我們正在做的事情非常非常互補。

And look, we have seen a number of opportunities. And frankly, we've passed on a number of opportunities, and I'm speaking transaction, of course. And the reason is because it hasn't either met the return objective and/or they have not met the operational and commercial scope where there are just clear eye synergies that are -- that fit very nicely with what we're trying to do today. To be clear, there are opportunities out there, and we are looking and evaluating those and we'll continue to do so. But to Brad's point, there are a lot of opportunities for us, whether it be full turnkey or whether it be in a disintermediate fashion.

看，我們已經看到了許多機會。坦率地說，我們已經放棄了很多機會，當然，我說的是交易。原因是它沒有達到回報目標和/或它們沒有達到運營和商業範圍，只有明顯的眼睛協同作用——這非常適合我們今天嘗試做的事情.需要明確的是，那裡有機會，我們正在尋找和評估這些機會，我們將繼續這樣做。但在布拉德看來，我們有很多機會，無論是完全交鑰匙還是非中間方式。

And the other one I wanted to hit on was -- so you have $330-ish million in long-term debt. If our model is correct, then you have a lot of visibility, you're going to generate probably $200 million-plus of free cash in '22 -- excuse me, in '23 and '24. What do you do? I mean, do you delever? Do you refinance the debt to cheaper levels now that you have this contract visibility? Do you start an aggressive program of giving capital back to shareholders, either dividend or share repurchase? How should we think about the benchmarks you look at and the ratios you're comfortable with when you start to maybe give more cash back to shareholders?

我想談的另一個問題是——所以你有 3.3 億美元的長期債務。如果我們的模型是正確的，那麼你就有很大的知名度，你將在 22 年產生可能超過 2 億美元的自由現金——對不起，在 23 年和 24 年。你做什麼工作？我的意思是，你會去槓桿嗎？既然您擁有這種合同可見性，您是否將債務再融資到更便宜的水平？您是否啟動了一項積極的計劃，將資本回饋給股東，無論是股息還是股票回購？當您開始向股東返還更多現金時，我們應該如何考慮您所關注的基準以及您感到滿意的比率？

Sure. So a couple of things. So look, you're right. You're right on your perspective on amounts of cash generation. As it relates to capital structure, return of capital and just general use of cash. There are like 5 users, right? You pay down debt, you can repurchase stock, you can do a dividend, you can make transactions, et cetera. As we think about this cascade of those, there's an orderly operation of events there for us. And so let's walk through a couple of those. The immediate order of operations is not necessarily to return capital back to shareholders, but to continue to focus on the balance sheet, right? Our objective is to get leverage down to a point where we have maximum flexibility to continue to diversify the business, the way we've talked about just a moment ago. So what that means is continue to harvest cash in the short run.

當然。所以有幾件事。所以看，你是對的。您對現金產生量的看法是正確的。因為它與資本結構、資本回報和現金的一般用途有關。大概有5個用戶，對吧？你償還債務，你可以回購股票，你可以分紅，你可以進行交易，等等。當我們考慮這一系列事件時，我們會發現那裡的事件有條不紊地運作。讓我們來看看其中的幾個。當務之急不一定是把資金返還給股東，而是繼續關注資產負債表，對吧？我們的目標是將槓桿率降低到我們擁有最大靈活性的程度，以繼續使業務多樣化，就像我們剛才談到的那樣。所以這意味著在短期內繼續收穫現金。

And then -- look, initially, then looking at the balance sheet in ways that we can optimize that a little bit. I've mentioned before, I've never been comfortable with the cost of capital on the debt side. We certainly have mechanisms in our place to look at that. High-end markets a little bit -- it's been a little bit sloppy recently. We will continue to evaluate that. But look, putting ourselves in a spot where we can reduce indebtedness is kind of priority #1.

然後 - 看看，最初，然後以我們可以優化一點的方式查看資產負債表。我之前提到過，我從來沒有對債務方面的資本成本感到滿意。我們當然有機制來研究這一點。高端市場有點——最近有點馬虎。我們將繼續對此進行評估。但是看，把自己放在一個可以減少債務的地方是第一要務。

As we think about priority #2, it will be to continue to have excess capital where we can be additive to a transaction. And put ourselves in a spot where we can have maximum accretion from a transaction perspective. Then look, failing either priorities 1 or 2, that puts you back in the spot to think about dividend share repurchases, et cetera. But again, there's a lot of progression that we need to go through. And of course, we need the full cash accumulation to really even start those exercises. But hopefully, that gives you a kind of an order of cadence as to which we may think through this.

當我們考慮優先事項 #2 時，它將繼續擁有多餘的資本，我們可以在交易中添加。從交易的角度來看，我們可以將自己置於一個可以實現最大增值的地方。然後看看，如果沒有優先級 1 或 2，這會讓你回到考慮股息股票回購等問題的位置。但同樣，我們需要經歷很多進步。當然，我們需要全部的現金積累才能真正開始這些練習。但希望這能給你一種節奏順序，我們可以考慮這個順序。

The only thing I would add there, all the things Eric mentioned is none of them are mutually exclusive, right? With the cash we're going to generate over time. There's multiple things at once that we could go after to maximize shareholder value.

我唯一要補充的是，埃里克提到的所有事情都不是相互排斥的，對吧？隨著時間的推移，我們將產生現金。我們可以同時採取多種措施來最大化股東價值。

Do you have a -- is there a priority either at the Board level or with the major shareholders of dividends versus buybacks?

您是否有 - 在董事會層面或大股東中是否優先考慮股息與回購？

I wouldn't say that there is a priority over the either two of those at this point.

在這一點上，我不會說這兩者中的任何一個都具有優先級。

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

我們的問答環節到此結束。我想將會議轉回給布拉德·阿徹（Brad Archer）以發表任何結束語。

Thank you. Before we close, I would just like to give a big thank you to all of our dedicated Target Hospitality team members. Without you leading the way every day and taking care of our customers, we would not be able to deliver the record-breaking results we did today. Thank you again for your business or your relentless dedication to each other and for what you do every day. It's very appreciated.

謝謝你。在我們結束之前，我想非常感謝我們所有敬業的 Target Hospitality 團隊成員。如果沒有您每天帶路並照顧我們的客戶，我們將無法取得今天取得的破紀錄成績。再次感謝您的業務或您對彼此的不懈奉獻以及您每天所做的事情。非常感謝。

With that said, I would like to thank all of you who joined the call today, and we look forward to speaking again in November. Operator, that concludes the call.

話雖如此，我要感謝今天參加電話會議的所有人，我們期待著在 11 月再次發言。接線員，結束通話。

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

會議現已結束。感謝您參加今天的演講。您現在可以斷開連接。