Target Hospitality Corp (TH) 2021 Q4 法說會逐字稿

Good morning, and welcome to Target Hospitality's Fourth Quarter and Full Year 2021 Earnings Call. (Operator Instructions) Please note, this event is being recorded.

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

Thank you. Good morning, everyone, and welcome to Target Hospitality's Fourth Quarter and Full Year 2021 Earnings Call. The press release we issued this morning outlining our fourth quarter and full year results can be found in the Investors section of our website. In addition, a replay of this call will be archived on our website for a limited time. Please note the cautionary language regarding forward-looking statements contained in this press release. The same language applies to statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are only accurate as of today, March 10, 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 laws.

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

Leading the call today will be Brad Archer, President and Chief Executive Officer; followed by Eric T. 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.

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

Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. Before we get into our 2021 results, I want to briefly touch on the leadership transition announcement we made last week. It was important for us to ensure there was ample time to have a smooth and orderly transition.

And as we said, I will continue to lead the company through the balance of 2022 and then transition into a strategic advisory role. I'm excited about Target's opportunity set and look forward to progressing its strategic initiatives in 2022 and ensuring business continuity through this transition.

Now I would like to look back at Target's significant 2021 accomplishments. Target's impressive 2021 results illustrate the strength of the company's operating position and commitment to our defined strategic initiatives. We entered 2021 with a goal to diversify our end markets, while significantly strengthening Target's balance sheet and operational flexibility.

We accomplished these objectives with the deliberate actions we took to create an efficient operating structure while simultaneously positioning the company to take advantage of improving demand fundamentals.

Since year-end 2020, Target has experienced an over 47% increase in customer demand across its HFS segments. This illustrates the value our best-in-class customers find in allocating labor to Target's world-class network and premier service offerings.

These attributes continue to support an over 90% customer renewal rate, which we have enjoyed for many years. As Target's utilization and customer activity increases, we have matched this demand with minimal incremental capital and continue to benefit from the scale and efficiencies we have created within our operating structure.

This network optimization creates an ideal scenario and maximizes the margin contribution from each additional utilized bed, supporting robust margins and significant cash generation. Additionally, our superior operational capabilities and unmatched hospitality solutions were the catalyst in securing a new government service contract award, one of the largest in the company's history.

Target's Government segment represented 54% of 2021 revenue, supported by fully committed minimum revenue contracts backed by the U.S. government. 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.

These positive business fundamentals accelerated progress on our strategic objectives. Target generated operating cash flow of $105 million, a 124% increase from 2020 and discretionary cash flow of $93 million. This significant cash generation materially strengthened Target's balance sheet and resulted in a 58% reduction to Target's net leverage ratio in 2021. These accomplishments have allowed Target to materially enhance its operational flexibility, while simultaneously diversifying its business mix and establishing a foundation to continue pursuing strategic growth initiatives. These growth initiatives will be focused on broadening Target's end markets, while significantly expanding our long-term growth opportunities. Target will pursue these initiatives while simultaneously remaining focused on expanding its reach, providing critical support to the United States government.

Target has intentionally established itself as the premier provider of permanent hospitality solutions for the U.S. government's long-term domestic humanitarian aid missions. Target's premier and comprehensive service offering is viewed favorably by the U.S. government, and our scale and operational capabilities are unmatched in North America.

As it relates to our government service contract, which began in March of last year, discussions have meaningfully progressed regarding the extension and expansion of this contract. These discussions have recently evolved in -- to include options for multiyear terms and expansion opportunities considerably greater than the current contract.

The government has recently posted its public notice of intent to award a sole-source contract for the continuation of the current service offering. This marks a critical and one of the final steps in the government's notice and ultimate contract award procedures. We are highly confident in the successful outcome to these contract discussions and the continuation of our critical humanitarian support to the United States government.

We were encouraged by the sustained momentum experienced throughout 2021, and our results illustrated the benefits of our strategic positioning as North America's premier provider of vertically integrated hospitality solutions. We have strategically positioned Target and diversified our business mix to intentionally focus on expanding our long-term growth opportunities, which we believe creates the greatest value for our shareholders. The progress we have made executing on our strategic initiatives is impressive, and we are focused on sustaining this momentum in 2022.

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

Thank you, Brad, and good morning, everyone. In the fourth quarter, we experienced a continuation of the strengthening demand fundamentals, which benefited Target throughout 2021. Since year-end 2020, Target has experienced a 123% increase in customer demand for our premium modular accommodations and hospitality solutions.

This impressive and sustained demand supported strong fourth quarter and full year 2021 financial results, which exceeded the high end of our 2020 financial outlook.

Full year 2021 total revenue was $291 million and adjusted EBITDA was approximately $119 million. For the year, we had discretionary cash flow of $93 million, representing an impressive 32% DCF yield, which illustrates the cash flow resiliency within our business and allows us to continue enhancing our operating flexibility as we move through 2022.

Our Government segment produced quarterly revenue of approximately $47 million compared to $14 million in the same period last year. A significant increase is from an additional U.S. government contract award executed in March 2021, which contributed approximately $33 million of revenue in the fourth quarter. As a reminder, Target's Government segment is supported by minimum revenue contracts, which are fully backed by the U.S. government over their respective contract terms.

Our HFS segments delivered fourth quarter revenue of $34 million compared to $24 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 strengthening commercial activity and economic demand. 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 to managing our input costs and benefit from our service offering flexibility, which allows us to adjust primary cost components to mitigate pricing pressure. As such, our input costs have remained within our expected ranges and have not materially impacted margin.

We will continue to monitor signs of inflationary pressure and look to evaluate pricing of our services to compensate for negative cost impacts to the extent they occur. As a matter of practice, Target's maintained a disciplined approach to managing costs throughout the organization. This provides significant flexibility, which has allowed Target to preserve margins across a variety of operating environments.

Recurring corporate expenses for the quarter were approximately $8 million and illustrate our ability to significantly grow the business while incurring minimal incremental costs. As a result of the scalable business model, we anticipate recurring corporate expenses to remain around $7 million to $8 million per quarter through 2022.

Total capital expenditures for the quarter were approximately $13 million, predominantly directed towards enhancements within our Government Services segment, directly supporting the new contract award. As a result, the Government segment experienced 242% year-over-year quarterly revenue growth.

We ended the year with $23 million of cash and $340 million of total debt, providing available liquidity of approximately $148 million with a net leverage ratio of 2.7x. Because of our high level of cash generation, we achieved a 58% improvement in our net leverage ratio during 2021, well ahead of our business plan. Because we are achieving a high level of cash generation, coupled with minimal capital spending, we have industry-leading return on invested capital. We are enthusiastic about 2022 and expect these high levels of past generation to continue.

We are excited by the strengthening commercial activity and associated demand for our service offerings. These elements supported Target's strong fourth quarter and full year results and provide confidence in the cadence of customer demand in 2022. As a result, we anticipate 2022 HFS revenue to increase between 12% and 17% from 2021 levels. Additionally, we are pleased with the progress made in contract discussions regarding extension and expansion of our 2021 humanitarian aid contract award supporting U.S. government. The government has proposed an award of a sole-source, indefinite delivery, indefinite quantity contract, otherwise known as an IDIQ.

This is a contract for our partner who serves as the prime contractor with the U.S. government and is a continuation of services at our influx care facility as well as for all the humanitarian services Target Hospitality currently provides. This contract shifts the nature of the facility from an emergency influx site to a permanent site.

As a reminder, the government direct prime counterparty and our partner to this contract is a leading national nonprofit organization. Target is the subcontractor to this agreement, providing comprehensive hospitality solutions to our non-profit customer through a fully committed contract backed by the U.S. government. The government contract award process is complex and requires many procedural steps prior to contract award. This IDIQ allows the government to streamline the procurement process and provides for other agencies that are looking to procure the same services across various agencies.

One of the final steps prior to contract award is for the government to publicly post its notice of intent for services that outline the contract type, the duration and other relevant scope of details. This critical step occurred in late February, is nearing completion of the statutory 15-day notice and response period.

Once the formal contract is awarded to our partner, Target anticipates finalizing the terms of our subcontract with our customers. While Target's new subcontract is being finalized, we intend to enter a 1-month extension of the existing contract, ensuring there will be no interruption to the influx care facility or the humanitarian services Target is providing. Additionally, the existing economics will remain in place prior to the new contract being finalized, ensuring a seamless continuation of these critical humanitarian services.

As a result of Target's and our customers' past performance as well as the United States government's desire to maintain existing facility and services without interruption, we are highly confident of the successful outcome to this contract renewal and extension discussions.

Strong business fundamentals have continued to support sustained momentum entering into 2022 and provide confidence in the continued cadence of customer demand throughout the year. As a result, today, we announced our preliminary 2022 financial outlook, which consists of revenue between $325 million and $335 million, and adjusted EBITDA between $125 million and $135 million. We also anticipate $12 million to $17 million of capital spending.

Target has strategically positioned itself as North America's market leader in providing premier, vertically-integrated hospitality solutions. We accomplished this by intentionally focusing on markets and world-class customers that offer the greatest long-term revenue growth potential, while optimizing our existing asset fleet and unique capabilities to maximize the economic returns. These principles have established a highly attractive financial profile that generates best-in-class margins with substantial cash flow conversion.

Additionally, our asset fleet requires limited maintenance capital, leading to significant discretionary cash flow. This is illustrated by an impressive 103% increase in discretionary cash flow from full year 2020. Impressive cash flow generation coupled with focused capital allocation resulted in significantly enhancing our balance sheet and financial flexibility. With this accomplished, we anticipate turning our focus to strategic growth.

Target's enhanced financial position and strong cash flow profile builds the foundation to pursue strategic growth initiatives focused on broadening Target's end markets while significantly expanding long-term growth opportunities. Target's growth strategy will focus on utilizing its existing core competencies to pursue a balanced portfolio of service offerings while expanding its reach within the government services end market as well as select adjacent commercial markets.

The foundation of our existing network and broad-reaching capabilities creates a platform to pursue these opportunities with limited capital requirements, creating impressive return on invested capital simultaneously preserving the financial flexibility we have created. These characteristics of our growth strategy meaningfully increase revenue visibility and strengthen economic returns while enhancing Target's unique value proposition. We believe these attributes create the greatest opportunity to accelerate value creation for our shareholders.

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

Thanks, Eric. Target's 2021 results illustrate the benefits of Target's unique position as North America's leader in modular accommodation and hospitality solutions, while exemplifying our commitment to executing on our strategic objectives. These attributes allowed us to meet and exceed our customers' varying needs while significantly enhancing Target's financial position in 2021. These accomplishments have created a tremendous amount of momentum as we enter 2022, which we will utilize to continue progressing our strategic growth initiatives.

As we have stated, we will remain focused on aligning our strategic growth with Target's existing core competencies while preserving the strong financial position we have achieved. We believe this creates the optimal scenario to accelerate value creation for our shareholders.

I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospitality. I will now pass the call back to the operator for Q&A.

(Operator Instructions) The first question comes from Stephen Gengaro with Stifel.

Congrats, Brad, on your transition. The 2 things I wanted to ask about, I think, first, your guidance, it seems to include an extension of the existing government contract. And I was just curious, based on what we had seen on the government website, it looks like that contract could be up to 50% larger. Is -- am I right that your current guidance includes sort of an extension at the current size?

Steve, it's Eric. Thanks for the question. It's a good question. So as we have said historically, when we entered the contract nearly a year ago, we expected this to continue to live on, and so yes, sure, we have always assumed that. That continues to live on at existing economics. And that's been underwriting assumption for some time now and not changing anything as it relates to the 2022 outlook.

Okay. And is there a -- do you envision -- and I know it's probably hard to answer, but do you envision that on a per unit basis, the economics remain pretty similar?

Look, here's what I would say. Look, the scope of the IDIQ is complex. It will take some time to work through the economics of that. There are a variety of puts and takes that can be flexed in a number of ways depending on what the customer ultimately desires at the end of the day. There are certainly a number of specs in the IDIQ. Look -- but that being considered, all that takes time to evaluate operationally and financially. But I think for your purposes, and frankly, for our purposes, we've assumed that that continues to move on with similar economics.

Yes. I mean -- just a little bit -- this is Brad. I mean we're highly confident in that moving forward, right? The piece that we're doing today, I think there's a variety of possible final contract terms when it comes to the expansion that's mentioned in the IDIQ. While we feel good about that, the needs there, it's listed in the IDIQ as well. We're still in the middle of finalizing scopes, the potential for an expansion, but feel very good about the extension as it sits today, continuing to move forward.

I understand. And then just 2 others. One was when we think about the -- just one more operational question. When we think about the puts and takes in the oil -- I guess in the oil patch and in the government, but on the cost side, and what you're seeing on the cost side versus what the margin profile looks like? And I honestly didn't run the -- I didn't divide the numbers up. But I'm just kind of curious what -- how you're thinking about that, and the impact it has on margins? I imagine scale helps offset some of that as you get busier, but I'm just curious what the puts and takes are there.

Yes. Let me just touch a little bit on a higher level. When we look at labor, we've been able to maintain adequate staff-to-guest ratio. Definitely, the labor market is tighter, but we've been very good about maintaining that. So we're good there. And when we look at inflationary pressures and different things on food and in that, we are -- our volume, our scale of purchases, the menu flexibility we have at an operational level really allows us -- I'm not going to tell you, in 2021, it didn't affect us some, but we've accounted for that. Those are the inflationary pressures we've seen in 2021, we were able to mitigate very well. I think we'll continue to be able to do that in 2022, and I would tell you, they're accounted for. As far as puts and -- I'll let Eric to touch on that.

Sure. So when we think about the 3 components -- the 3 largest components of the cost of service pool, one will be labor, the other one will be food purchasing and the other -- last one would be utilities. Look, on food servicing, and Brad touched on labor, so let me hit on food servicing for a moment. We're one of the top 20 providers of food servicing in the country in terms of purchases, right? So we have massive scale.

And I don't think the marketplace necessarily appreciates that, but it's substantial scale. So when we think about cost of servicing and we think about it on a per unit basis heading into 2022, we expect that on a per unit basis to continue to come down, right? Just partially as a function of occupancy increasing at a relatively higher pace than we expect cost increase.

We do expect to have some inflationary movement. However, we're able to ameliorate a substantial portion of that. So as opposed to the headline numbers you're seeing of 79%, whether it be CPR or PPI, we're talking low single digits, which would frankly not be drastically different than what we've seen in the past. So we'll continue to monitor it, but I don't think we should look at anything that impacts margin degradation to that point.

Now when you look at things on the top line at a consolidated level for Target, just to bear this in mind, I think it's worth mentioning that we did have TCPL last year, right, included in 2021, and so we won't have that carrying forward into 2022. So at an aggregate level, you'll see a little bit of movement on the margin. Largely, it's a function of having costless revenue last year. So just bear that in mind. I think you know that, but just reminding you.

The next question comes from Scott Schneeberger with Oppenheimer.

I guess I'd like to start on the government contract extension, and kind of a 2-part question. Could you discuss kind of the speed of the process leading up to now, and more importantly, the back part of this question is, how do you envision the timelines going forward? It looks like there is some sort of expiration on the notice posted from a few weeks ago tomorrow evening. So how should we think about this as it goes to your customer and to you? Just to keep that in mind.

Yes. Scott, this is Brad. For relevance purpose, this is very similar to the transition that occurred with our government services contract at the South Texas Family Residential Center. So while the process is kind of cumbersome and slow, we -- it's not new to us and not atypical to how these things work. I think the biggest thing I would point everyone to is the sole-source IDIQ. That was kind of the gating issue. You needed that to happen first. I don't -- I can't remember the exact date, maybe Mark does, but it should -- that 15-day notice period is coming up. So once that happens, we're not sitting still. We've already been talking and negotiating contracts.

So look, I think here we're highly confident. What will happen is we'll receive a 30-day extension to allow for all of us to finalize contracts. The hope would be that we could get that done in that 30-day extension. If not, it would be extended again, but the ultimate goal for everybody based on that IDIQ is to come out of here with a long-term contract. That's what's being awarded. It is just a function of the 15-day period and then finalizing the contract.

Great. And following up on that, it's still in the government segment. The CapEx guide is lower this year than last year. Obviously, there was a lot of CapEx tied to the March contract last year and getting that up and going. What is embedded in the guidance for CapEx this year? Is it anticipating extension? Or is that not in? Should we expect, perhaps, an update if things develop favorably on that government contracts with regard to what may be required for additional CapEx?

Sure. Sure. Good question. So when we put out the guidance, we purposely termed it to be preliminary because of the contract negotiations that were going on. And the reason for that was when we think about the -- not only the extension opportunities, but the expansion opportunities, those can be meaningful. So when we think about moving forward into 2022, just on a stand-alone basis assuming the extension, a lot of that capital has already been assumed, right? We did a lot of that last year. It was a pretty big lift in the first half of last year. So we've got a lot of that. So what you're seeing predominantly is some maintenance work that hits in the HFS side of the business.

Now as we move forward to the extent that there is an expansion opportunity, that capital could be meaningful, and we'll come back and update that accordingly just as we move through those discussions. As I mentioned before, there are a number of different permutations that the customer could ultimately desire over and above the IDIQ, and so that can have implications as it relates to capital spending.

Great. I appreciate that. One more from me, and it's going to be over in the hospitality segment, South. The -- in the overall company guidance, this is more -- you were asked on the cost side, this is more on the demand side. What's embedded in the guidance this year with regard to expected oil price over the course of the year, maybe rig count, labor per rig count. Just -- how are you thinking about that with this guidance at this point? Obviously, oil prices and shale activity likely to be volatile here going forward.

Sure. Good question. So the -- let me give you a little bit of context, just so you have an understanding before I get in the meat of your question. So when we think about the outlook and we think about it as related to commodity pricing, we don't think about it as being -- as linear as perhaps what you're thinking. We think about it in terms of an overall construct of pricing scenarios over the year, right? So when we put the budget together and evaluate the business plan, we were looking at pricing, and you're looking at utilization trends and occupancy rates that typically exhibit something in the, call it, the $65 to $70 type area, and that's what we're basing our occupancy levels on.

And part of the reason for that is because we tend to see about 1/4 to 4-month lag from increasing new permit levels. That's part of the rationale behind that. Not expecting necessarily to see 2 months later, crude prices that would have peaked at $130 a barrel.

That being said, in 2021, we saw consistent gains throughout the entire year, right? It was -- a lot of it was front half weighted, coming out of still some COVID residual hangover, but we saw nice positive movement there. We continue to expect to see that this year. And look, we'll see good solid double-digit year-over-year quarterly revenue growth again, and that's what's going to be embedded in the numbers. A lot of that's going to be weighted in the first half, but we expect that to continue all through the year.

I think what you're seeing now with the current marketplace, we'll wait and see what producers and service companies ultimately do. They've continued to stick with their development plans, which is fine. But look, this -- maybe the current environment we see is more helpful to that and pushes things further [the right] faster than what we expected, but that's not what we're assuming.

Yes. And just one thing to add to that. And Eric's right, what we're not hearing from our customers right now, it's still early, that they're going to start adding a whole bunch of rigs. A lot of buyers are the bigger E&P companies. I would just tell you, if that happens in the back half of the year, it takes a little time for it to trickle down to us. But if it does, the way we built out our network, especially in the Permian Basin, we're setting in a really good seat to capture that business. We're already doing business with those folks. So if that comes, we'd update it. But -- and if it comes at the back of the year, I think we end up getting a lift from that because we're already setting with -- contracts with the customers that would actually go out and start to do some of that drilling. But today, we're not seeing that.

The next question comes from Greg Gibas with Northland Securities.

Brad and Eric, congrats on the quarter. I guess first, I apologize if I missed this, but what are you expecting -- you mentioned government represented 54% of 2021 revenue, what's kind of implied in your guidance for 2022 in terms of the split between government versus energy?

Yes, Greg, thanks for the question. It would be exactly the same. We've assumed a lot of those -- a lot of the structures for the government just continue to roll. While we continue to expect positive movement on the energy side, which you would think would tilt that mix, the reality is that we didn't have a full quarter of the government new contract last year, right? So we have to impute another quarter of that. When you look at it on a relative basis, those things actually are close to offset each other. And so you'd expect it to be in that 54%, 55% level. Now to the extent we get the expansion, that obviously will shift that mix obviously towards the government side. However, we'll have to wait and see what that looks like if and when that comes.

Right. That's helpful. And I guess -- I apologize also if I missed this, but relating to the government contract, you remain pretty confident that it will be settled. But are you expecting that to happen by the end of this month? Or are you anticipating a 30-day or a month delay?

So we're definitely anticipating a 30-day extension. Everything rolls as it is today, and within that 30 days, the hope is all of us finalize that contract that we've been working on.

Got it. And I guess last one for me, just relating to your general thoughts on refinancing your existing debt. How much of a priority is that, and kind of timing-related?

Sure. Great question. We look at that -- we've looked at that for some time, and I think we're in a spot now to be able to execute on that to the extent that the market is available to us and to the extent it fits within our other strategic objectives. Right now, the high yield market has not cooperated, just given some of the macro backdrops we've seen over the past number of weeks, but we will continue to evaluate that and we'll look to do out things that are certainly favorable to where the current rate is on the notes. So certainly top of mind for us, but we want to do that on balance with our entire strategic objective as well. And so that will just -- so not only is it an economic decision, it's also a decision strategically.

And we have a follow-up from Stephen Gengaro with Stifel.

Two quick ones, just to follow up. We -- this gets back to the balance sheet question, but -- I understand the leverage ratio, but looking at the strong free cash flow, the very strong free cash flow generation, how do you think about the balance between the debt reduction and returning more cash to shareholders given sort of the outlook, the CapEx and what looks like a lot of visibility from the government work?

Stephen, I'm not surprised you asked that question. I suspected you may. Look, we -- as you know, we've maxed out all our prepayable debt, and so that's obviously the genesis of part of the question here. Look all options that remain on the table to maximize value for Target all the time, right? So there are certainly some options that are better than others.

Look, we have positioned the company, though, over the past couple of years, to begin to the end of the stages of really being able to pursue growth on our terms and do it actively and evaluating a variety of opportunities that really fit nicely with our core competencies. And so we want to continue to pursue that path, right? And so we'll always look at opportunities to return capital back. I think to the extent that some of our other strategic opportunities don't develop for one reason or another, perhaps direct shareholder return opportunities come more to the forefront of the table, but all things remain viable at this point.

But like I said, there are some better opportunities to grow shareholder value for the long term than others, and so I wouldn't consider those to be the highest priority right now.

And then just one final one from me. As -- I'm trying to think how to ask it. But when we think about -- and when I talk to the companies in the oil patch, they clearly have some constraints on their business, right, whether it's frac sand or truck drivers or just labor in general, and they're kind of growing through it. But I'm curious how you guys are thinking about -- what's the impact of a tight labor market for the oil companies, both service and E&Ps on sort of the demand for your services? And what's -- how does that -- how is your competitive position sort of impact that when you take those things into consideration? Is it better or worse for you when the labor market is that tight? And I believe you've said in the past, it's kind of a sort of a selling point for the operators to stay in Target facilities, but kind of curious on your updated views there.

Yes. Almost 30 years in the business, me, and I can tell you in the past, when it's a tight labor market and they're fighting for the truck driver or the frac hand or any of the oil and gas folks that are in the field, it's better for us. We offer a superior product. We're not the cheapest, but they're willing to pay for it when it's part of their hiring package. And if it helps them retain their employee, it becomes even more of a benefit in a tighter labor market than it is just on regular course of business.

So it's not that we like for them to be in the pain, but this is not a bad thing for our business.

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

Thanks for joining the call today, and we look forward to talking with you all again next quarter. Thanks.

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