Target Hospitality Corp. (NASDAQ:TH) Q3 2023 Earnings Call Transcript

Eric Kalamaras: Look, I think anytime you have a business that generates a such a large percent of the cash flow. You always have to take these 2 sort of things into consideration. I think here’s the other thing that we would ask you to think about, too, is this is wrapped up in a 5-year IDIQ right which is basically the multiyear funding vehicle for it. So look, so that in and of itself provides a much greater degree of confidence. But look, we look at this long term. And I think, fortunately, we’re in a BS position where our cash generation is really very strong. And so when we look at opportunities for projects, we’re always going to look at this through the life cycle. And we’re going to look at whether that is a project on the HFS side or whether it’s a long-term project, look, it needs to meet the hurdles of not only the return but also the minimum revenue commitment that’s tied to it, right?

And so that’s how we’re going to think about any additional capital deployed and that has not been different, frankly, from the way the company has operated for over a decade.

Brad Archer: And just specifically on this government contract, we can get [indiscernible] 5-year agreement in the base period, the option, that’s very typical, right? The annual appropriations it’s how we’re set up in Deli’s been a 9-year contract. Internally, when we assess these — this is not one we look short term. Yes, it has yearly funding but that’s been typical on every government contract we have done. So we’re not setting and were looking at the short term. We’re looking as a long-term solution for the government.

Stephen Gengaro: And on a similar — along similar lines, it would — therefore, it doesn’t change the way you think about how much cash you may be willing to return to shareholders as well.

Eric Kalamaras: I think that question really goes in concert with how you look at deploying capital at large, right, whether it’s shareholders or whether it’s to enhance the business for the growth profile. Look, all that has to work in concert and so I don’t look at those as really mutually exclusive decision, Stephen. I mean those all have to go together. As Brad mentioned, we have the most active — not only organic pipeline, we have the most active inorganic pipeline we’ve had in years as well. And I’ll tell you that there are a lot of strategic decisions that will be made coming up on that. And so stay tuned. But look, this all has to go together and allows to go in concert with the growth of the business.

Brad Archer: First was to get a 5-year contract; that’s first step and that’s done. So we can move forward.

Stephen Gengaro: Is it a reasonable — like I think us and others have we talked to have sort of thought about 2024 [ph] as contained similar economic contribution from Pecos as 2023 [ph], excluding the CapEx reimbursement. Is that a reasonable starting point still?

Brad Archer: Yes. Look, I think, again, there will be a mix and shift, a shift in mix. So we do have to bear that mind. And we’re a little too early to be talking about that specifically. I think the other thing we have to think about is the favorable revenue contribution has to be considered as well as to what that looks like. But again, the concept is not going to be drastically different. And so look, I wouldn’t — at this point, I wouldn’t look to change things meaningfully because, again, the construct is roughly the same and it’s going to have the same mechanisms and the same components to it. But again, it’s a little too early for us to get too specific as to what that looks like going forward.

Stephen Gengaro: And then, just one final one on the HFS side. When we see what’s going on with activity levels in the oil patch and we’ve had a lull here. We’ve gotten kind of mixed comments about seasonality, et cetera. But there seems to be a consensus that the 24 you’re going to start to get at least some level of recovery in activity, particularly in the Permian. Do you see that in your conversations with your customers? Or any color on what you’re seeing on that front?