Target Hospitality Corp. (TH) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome back to the 29th Annual Deutsche Bank High Yield Conference. With me this afternoon is Eric Kalamaras, Executive Vice President and CFO of Target Hospitality Corp. Eric will be running through the company's presentation before we open it up for Q&A. Eric, do you want to take it over?

Great. Thank you so much for allowing Target Hospitality to participate in the Deutsche Bank Leveraged Finance Conference. Target Hospitality has a differentiated offering services, and I think we have a real unique story in the marketplace. It's really a unique story in North America. Your Target Hospitality is North America's largest remote accommodations and modular hospitality services provider, with approximately 14,700 beds predominantly in the southwestern portion of the United States, really serving a variety of customers all the way from business and industry, natural resources to the government segment, which generates approximately 40% of the revenue on an LTM basis with business and industry and energy and national resources, 58%. Now Target has been a company with transition over the past year as we've really spent a great deal of time and effort and energy, repositioning the business and doing it in a way where we're adding a lot of value to knowing our customers, but ultimately, our stakeholders as well. And really, we're doing it through a couple of different areas. One, is our -- operating our own network, which [ is considered for ] our customers a tremendous amount of flexibility and look to talk about in the case of that moment. But also, our customers are willing to engage in long-term contracts with us under long-term [ in ] revenue commitments, which offers us tremendous cash flow, stability and growth, under a diversified service offering under a whole suite of hospitality and remote modular housing and accommodation solutions. So with that, what is Target? Well, Target operates in really distinct competencies that you think about as a -- all the things going to it from building and extracting and servicing a modular town. Now that includes modular buildings, often in very remote locations with limited -- it's little infrastructure. We provide all food and management and comprehensive housing solutions. We provide all the modular field solutions for recreational activities. We're providing workforce accommodation. We're providing logistics and infrastructure, and of course, all the facilities management that goes into that network of 26 locations. And in addition to that, we're also providing a suite of hospitality services to all the guests that are staying with us in those 14,700 rooms on a daily and nightly basis. So like I said, these are a number of small modular communities and towns and we're operating them on a full scale, a full turnkey basis, which allows us to cater to some of the largest companies in the world, and of course, the United States government. As we embark on 2021, we have entered into a phase of transitory diversification and the diversification has led us into a much more stable business and cash flow profile. As you can see that the tremendous progress we're making on Slide 2, really, as we look to migrate the business from a more of an energy and natural resources focus in prior years into a much more government services focus. And what that will allow us to do is really expand our suite of services to a variety of other end markets within the U.S. government do it under stickier contracts and they're attractive -- very attractive margins and doing a great deal of stability. What that allows us to do, as we think about various growth avenues for Target, is taking an $84 billion market and look to expand our suite of services in the government marketplace. And as we think about our service offering, it's [ standard ] room accommodation and hospitality services. It's also in addition to that food management, logistics, facilities management, and out of the $84 billion in government facilities management opportunity set, Target has the ability to participate in that expense. And so as we look at taking our same suite of services they're operating for business in the industry, we look to extend over into the government value chain. And we look to do that over time, and we think this is very attractive, growing addressable market for us. We can do all of that under really attractive economics. Now Target Hospitality has really a phenomenal profile of exceptional margins, really excellent cash flow generating capability and the ability to scale capital spending, which we'll talk about in a moment, which has really allowed us to accelerate the balance sheet strengthening and profile we've enjoyed thus far. And in line in all that, we still have a really attractive value proposition for all the stakeholders, both equity and the debt. The business given a smaller company and being in the transitional nature still gets to take hold with some investors. And so we think this is a really unique opportunity for some value creation on the -- both the equity and the [ debt ] side as well as Target continues to expand and mature in the capital markets. Now the following slide we have is really, I think, encompasses the value proposition and the investment highlights that Target best serves. And I think we crystallize it well here under 4 key remarks. We had a diversified committed revenue base where the average contract lives are in excess of 4 years and under long-term take-or-pay contracts and minimum revenue contracts to some of the largest companies in the world as well as United States Government. Because who you do business with matters. And we have said that for many years, and it continues to hold true. It gives us a great deal of stability as we head into 2022 and beyond. In addition to that, we have a 35% discretionary cash [ flow ]. So when we think about discretionary cash flow relative to revenue, it's really a tremendous number, and that gives us a great deal of optionality we have, both commercially and financially. And it's really pretty remarkable for a company our size to generate that sort of cash flow profile. Third, enhance liquidity and maintaining operational flexibility, we have paid down nearly $80 million in revolving debt this year alone. We have 0 additional debt on our ABL of $125 million, plus we have a tremendous amount of cash on the balance sheet, with no prepayable debt left. And so it's leaving us with $175 million of available liquidity which is really, again, a really meaningful profile. We in the second quarter, we had cash on the balance sheet of over $50 million and no -- nothing's wrong with [indiscernible]. And I think when we think about that profile, it really puts us in a really great opportunity to continue to expand the business and really make our own way and not be a [ price kick ]. I think as we move forward here, we talked about the discretionary cash flow, I think that's something that really has to be appreciating the business because now we're entering a phase now with that sort of cash profile, increasing EBITDA, lowering debt and then having excess liquidity, which really allowed us to reach our financial targets faster than we expected. Earlier in the year, we had set a target to have leverage by below 4x by the end of the year. We subsequently have moved that number down to about 3.5x, and we've made excellent progress in that regard. And I think this shows the progress that we've made in that regard. What that allows us to do was really think about how we can transition to growth in the business even faster through both tuck-in acquisitions and as well as through some other potential commercial activities that allow us to do things that other companies just frankly can't do in our marketplace. For Target Hospitality this past year was really able to position its growth through a government contract that was has been really exceptional for us, and we look forward to enjoying more of those contracts. We were able to do that primarily because of the capital strength that we have and the ability to move and the ability to have additional flexibility where frankly, other companies in the marketplace, just didn't happen. And then you see that here we have on the slide with the balance sheet, which is we're really having a nice opportunity to shift the mix of the credit profile over time, which we'll love to do. We have the 9.5% notes that are maturing here in the next 2 years and reach par drop here in next spring. And so we have a nice opportunity to further enhance that credit profile by looking to refi those bonds to something much more attractive and much more favorable to deal with, which will continue just to create more cash flow than what we've already experienced. And I think as we move forward, we look at the efficient capital deployment of the business, you can really see kind of how we operate, take hold here over time. We are very disciplined around how we allocate capital. We have a tremendous effort to view all dollars spent truly from a return on invested capital perspective. We look at every contract from a return on invest capital perspective, where other companies may look at it purely just on a margin basis, we don't look at it that way. We look at it -- well, that's important, it's only half of the equation. The other part of the equation is how flexible and nimble can you be with your existing asset base? What sort of optionality does it give you? I think what you're seeing here is our cumulative capital spending over the past couple of years of less than $50 million, generating nearly $450 million of net cash. And that's really a tremendous number. Now as we look forward, we hope to continue to achieve such results. We will deploy capital where we need to. The capital needs to be -- meet our return threshold. It needs to be on our contractual thresholds. And in doing so, we look to continue to add commercial opportunities that are highly attractive to not only Target, but also to new customers. And we look forward to talking more about that in our call in Q3 and Q4. And we'll right now, I think, we'll open up the call for questions.

Okay. Great. Okay. So that was a very good high level, I think, on the business. Just looking back a little bit. It appears that you really made a determined switch in the business, where you decided that you're going to go after more government revenue. What was sort of the impetus behind that? And what is driving that decision, please?

Sure. Well, we've had the government business for about 7 years, and it's been a -- it's always been an important part of the business. However, we have also known that we need to diversify the business as well, right? It's something we've worked out for really a couple of years, and these things take a longer time. We always felt like the obvious extension for that diversification is likely into the U.S. government. They have a variety of various housing and modular needs that are pretty well known. And so I think we've used our case study that we had in our South Texas residential family business. And used that as a template that's really sort of served us very well and the government very well for 7 years. And we took that template and used that template for some other humanitarian efforts that the government has obviously been dealing with over and over a number of years. And we had an opportunity to partner with the government on that. And it's gone well. We're looking for other opportunities to partner with them. And so it just became a logical extension for us. And similarly, now we're taking all of these services that we are doing for the government and saying, okay, how can we do that now for other agencies within government. Maybe we do that more of a capital-light perspective. Maybe we don't provide as much of the PP&E, but we provide more of the service. And so certainly, if the government needs more of the remote accommodation infrastructure, we're happy to provide that. We're happy to engage with them on that. But I think a variety of applications as we move forward of business and industry and time relative to the U.S. government as well. And so I think that could also come into our food management and our logistics services in some of our facilities management services to all of these things that we do for our own account, we can also do for others as well. And so speaking a lot to folks that just...

It makes a lot of sense. And just maybe at a high level, can you talk about sort of the terms, given that these government contracts are sort of a larger piece of your revenue chunk? Can you talk about what sort of the specified terms on them as much as you can disclose please?

Sure. Well...

So maybe a contract tenure and...

Sure. There's only so much I can say regarding some of it because we haven't given out all that [ detail ]. In the case of the family residential side. Now that contract has shifted to a 5-year contract we announced last year, we added an extra year to it. That's on a new 5-year term. These contracts are generally under annual appropriations. So that's how the U.S. government generally operates. So we have a 5-year contract at this point, subject to a new appropriations and the new contract we put forth also has new appropriation. That's a 1-year churn, initially. But that was put in place where we expected that to be longer term, right? So even though it's subject to annual appropriations, we expect the assets to continue to serve its functions for hopefully an extended period of time. And that was certainly the intent of that latest contract, and that's what we hope it goes forward in the future. As it relates to the margins on that, of course, we disclosed that within our earnings release and other financial filings. But the margins are quite attractive. We aim for our solid margins on that, that are certainly exceeding what we see, what we call the hospitality and facilities management side of the business. So right now, those margins are attractive, and we try to shoot for things that are -- look, when we put out capital or when we utilize our assets, we're trying to get return on investments within the next 2 to 3 years for us. And so that's something we've been able to accomplish over a really extended period of time. And so these contracts are no different in that regard than what we would do for other -- any other contract commercially.

We actually have a couple of questions from the audience here. The first one would be, have you begun having any thoughts regarding the contract signed in March 2021 to renew that going forward?

Sure. Great question. We do get that question often. I think it's important to remember that we are less than 6 months into that contract. And so it would be a little bit early to start proactive negotiations on that. Now having said that, we do a lot of business with government. And so we are talking to them nearly daily on a variety of topics, whether it be new commercial opportunities or existing opportunities that we are currently servicing. And so rest assured, conversations are happening in and around all those things all the time. We're not at liberty to say at this point in time whether or not, but where we are on that renegotiation stage currently, because we haven't begun those discussions yet. I expect we start to look at those discussions later this year or early into next year. But having said that, we're having a variety of other commercial discussions with the United States government. And I think those discussions over time will portend well for how we view the -- this new latest contract that we just announced.

Great. And then another one from the audience. Given expectations for you to reach somewhere around 3.5x of net leverage or lower by year-end, are you actively looking to refinance in 9.5% notes due 2024?

Sure. So you're right, we're always looking to optimize our capital structure. It's something that we've been focused on. We've never been really excited about that rate, frankly, to begin with. And so we'll look at opportunities to do that. Reluctant to say exactly when we might do that. I think the marketplace is certainly approaching a time where certainly it can start becoming advantageous for us to do that. So -- in due time we'll address that as soon as we can. Rest assured that we would like to take those out in some capacity. But it's a little too early to say something now.

Last quarter, you basically realigned your divisions not by changing sort of the contribution of revenue from each, but I believe you did rename the divisions. Could you just give us the high-level summary of what occurred there?

Sure. So we had repositioned the businesses by naming convention, all the revenue, historical financials, the asset, PPE mix all remains the same, so you can rely on previous financial information to align accordingly. But why did we make the change? Why did we do that convention change. The reason is quite simple, we view the business much more holistically than what we felt the existing segment names met. And so what we wanted to do was illustrate to the marketplace what we see ourselves as a holistic facilities and hospitality management solutions company. I didn't feel like those names represented exactly what services we were providing and those names were regional, if you recall. And so we felt like moving away from a regional naming convention and moving towards natural solutions and services naming convention really better represented what it is that we felt we were trying to accomplish. And hopefully try to get the investor community a little bit more clarity as to exactly what services we were providing there.

Got you. In your last transcript, you noted that there is some flexibility in their service offering that allows you to adjust primary components. Is there any way to kind of clarify that a little bit more?

Sure. Sure. I think that was in regard to the inflationary pressures. And so what we're describing there is we have the ability to shift mix of services. We have the ability also to shift mix of input costs. And so to give you an example. We are not subject to some of the same restrictions as a restaurant might be whereby they set [ an example ]. We have the ability, there is limited supply in certain products, we'll swap out certain [ class supply ] for days, weeks or months if we need to, to manage either cost or to manage supply or what we need to do in that regard. So what I was referring to when we mentioned that was the ability to have a flexible service plan, right? And so to give us some optionality around what we offer in certain applications, particularly in that application, you could think about food management price points. There have been certain inflationary pressures that have been experienced in the marketplace on various food items. However, we do not have the same necessarily of the same pressure because we can shut product mix. Now that's important. When you're serving nearly [ 50 million ] meals a year, as we do, you need to have the flexibility. And so that's how we're able to manage cost effectively, not see these inflationary price increases and other companies, frankly, that are smaller than us are experiencing this. And this is partially it's a function of our flexibility of our service model, which allows us to manage costs, maybe better than some other sort of other mechanisms.

Since you sort of mentioned it, are those the only -- is that the only angle in which you're really experiencing some inflationary costs? Are there some inflationary costs that are more difficult to pass through?

I mean, let's say the variable cost of the business are primarily food, utilities and like those are really the really biggest cost comps for us that create any sort of variability. We just experienced a little bit of pressure around labor, although we've been able to manage that so far, I think unlike a lot of companies, they're experiencing some labor pressure. But we have a more flexible model in that regard, we can actually allocate labor across various facilities because we operate 26 locations within a reasonable geographic reach from one another. We catch the [ okay ] labor. And we do that. Other companies don't have that same labor flexibility. So that allows us some optionality there. Of course, you have the food management component that I mentioned. And then the other big line item then are utilities, and utilities, generally, not a lot I can do in that regard. And we have a pretty good read in advances and what we expect that to be. So those are really the 3 major components that we manage. And I think that helps explain why we haven't seen as much of the cost pressure, perhaps, as what some other folks have seen.

Thank you. Switching gears a little bit. There's been a number of news articles about what's going on down at the border. Can you sort of characterize has that situation worsened? Or has it gotten better? And does that provide a market opportunity to you?

So I think this have been pretty well publicized. It does provide an opportunity in so far as we are the premier provider of hospitality solutions for the government. So certainly, to the extent that there is incremental demand, which there is, that certainly bodes well for the services that we can provide. We are generally attempting to provide a longer-term solution to displaced people, whether that is through the integration, whether that's homelessness or what have you. So our -- we got to look at our suite of services as being a bit broader than that. But certainly, the immigration element has been an important element. We're happy to provide the services with the government, specifically for women and children. And I think that's an important part of that humanitarian aid effort that we're working with the government on. Certainly, those immigration levels are records in highs. And so there is demand there. And so obviously, for that reason, you target it being a more permanent player in that marketplace is obviously well positioned there. A number of other providers are in the market as well, but they're providing short-term solutions. And that's -- there's a place for that. It's not really where Target's trying to participate, just like we don't provide short-term solutions in the business and industry side. Well, we don't provide short-term solutions on the disaster combination side. So we're a long-term solution provider. And I think that works better for Target's shareholders and Target's stakeholders because it allows us to put in place really projects and programs at much more attractive economics with much greater [indiscernible].

And what does it mean to be chosen as a direct prime contractor by the U.S. government? Is that a specific term? Or is that...

It is a specific term and Target Hospitality is not active and engaged with the U.S. government as a direct prime contractor at this point. Technically speaking, we are an effective subcontractor over the United States government through other various agencies and other sort of prime contractors. Effectively, a prime contractor is the one who is subject to all the internal audit functions that the U.S. government imposes. And so for that reason, it shows us primarily that as a prime. Now the downside is that while we don't -- while we're on the subject to all the -- [ to a lot of ] functions, we don't have always the direct access and we're launching in certain programs. And so over time, we've talked about moving to that prime position on select basis. But up until now, we have chosen to be a subcontractor and work in conjunction with other primes.

Excellent. Just turning to 2021. How much of your 2021 revenue is actually under contract through the end of the year?

Sure. So when we look at our contract mix, we've got approximately 90% of the contracts that are -- 90% of revenue is under contract in some form or fashion. We have a few different contract mechanisms. We tend to think about the 90% as being not necessarily a firm take-or-pay contract structure, but under contract in terms of either firm take-or-pay or under firm exclusivity or under firm pricing. And so that's what we mean when we say under term contract. The remaining 10% or so is about less than that, in fact, is really where you think about that as being more sort of spot market activity for customers, primarily in the business and industry side who aren't large enough to warrant a full contract. And we kind of use that to manage utilization levels to the extent that we have openings in some of our facilities. And -- but beyond that, we tend to discourage that. We are really catering to the large multinational or the government who can underwrite long-term contracts and do that primarily under a NIM revenue commitment, under a multiyear basis.

Thank you. If we could turn a little bit to the HFS side of the business. I believe your top 50 customers have increased bed utilization by approximately 20% this year. Can you give us a little bit of what you're seeing there at the markets, please?

Sure. So when we came in 2021. We expected the marketplace to continue to improve and it has. We expected it to continually gradually improve and it has. The pace of improvement took off pretty aggressively in the first half of the year. But it just moderated a little very slow and then [ traded light ], which we think is perfectly acceptable for the market as the companies balance their human capital needs primarily in West Texas. Now as we move forward, what we've seen is a bit of a bifurcation between the rise in commodity prices and perhaps human capital levels that we've seen in account spending. I do think over time, that spread probably starts to narrow. But that may take into 2022 as many of the companies have been really focused, as they've heard no doubt from shareholders and investors to manage their capital spending and to eventually return capital back to stakeholders, primarily the large multinational integrators who many of whom are our customers. And to that reason, they've curtailed some spending. Now a smaller provider has certainly increased spending, particularly in the private companies. However, when we think about our customer base, it's not we need to produce. Certainly, they may be part of our customer pool, but that's not really the lion's share of the revenue by any stretch. Our main customers are primarily large service providers and the large integrators. And particularly the domestic large integrators. And so those are really our customer base. And they have been pretty sticky in terms of how they manage account spending. I do expect to see some modest increases in capital spending as we move into 2022. And what that will pertain to is that a greater amount of servicing needs, which is really where the human capital needs are. And those end up being the same people that generally or stay in our facilities and our locations.

Could you talk about the advantage that you have over maybe a hotel or motel? And maybe one of these more rural areas? And why working with an integrated is so beneficial to them?

Sure, sure. So I'll...

So for example -- sorry, go ahead.

No, please finish your talk.

I was just saying, depending on where you're working, maybe you're in Odessa and you go to Midland or what does that offer in integrated that maybe some of these other [ post panel ]?

Sure. So that's a great question. And it all goes back to the network and the reason why the network exists, of these 26 locations, why does the network exists? The network exists because we realize in about 2014, 2015 that we need to provide a solution that was different than a conventional solution. A conventional solution is primarily a stick-built infrastructure that can't be moved that is designed to stay in place for a number of years, not decades. Well, that leaves very little flexibility as human capital moves. Now what happens, particularly in the West Texas area in the energy and natural resources market, is that those [indiscernible] shift. They shift because [ we weigh the ] production and mechanisms of production shifts. And so what's required is some amount of flexibility. And so one of the things we realized in 2014, 2015 was that we needed to provide a different solution and we didn't want to do it in a way [ we cap the ] contracts. And the way you [ cap a ] contract was if you say, fine, we will provide you a variety of solutions, but you have to be exclusive to us. And so we think that's worked out well, not only for us, but also primarily for our customers. We now have going forward 5, 6, 7 years later, we now have 26 locations. We now have nearly 15,000 beds in an 87,000 square mile area that allows our customers to have capital -- human capital flexibility every 40, 50 or 60 miles. Whereas, with the hotel, they may not have human capital flexibility for combinations for a couple of hour drop, which certainly just doesn't work for your personnel. That's the operational flexibility piece. The financial flexibility piece is that, in many cases, our combinations on a fully blended basis can be at least 50% cheaper and maybe more. Now there are periods a year or 2 ago -- 2 years ago. where we're substantially less expensive, with hotel rates of $300 -- $200, $300 a night. Relative to ours, so call it, $90 to $100 a night. And so -- and then, of course, we have full service combinations, which included there to not be able to pay a $60 to $75, $80 per night, per diem on top of that, right, which made us, in some cases, 60%, 70%, 80% less expensive. And so when you couple the cost savings with the flexibility, I think that is the driving force behind what's allowed us to thrive in that sort of marketplace. And it's what allowed us to be really in a leadership position in taking, frankly, a significant market share in that area, but primarily raise the flexibility in our service products.

And it's my understanding there are 2 verified sources I've known people that have actually come stayed at your camp and eaten the food and really came back raving about how delicious it was. But how are you thoughtful about the contractor who maybe is out working in the field comes in, needs to sleep during the day. I understand some of your amenities are actually sort of focused on making their lives a little bit better, what they value?

Yes, that's right. So this is the art into providing a service. So what we are doing is really trying to provide a high-class accommodation relative to some other providers. And these are, we call them lodges for a reason. They truly are lodges. We spend a great deal of time trying to provide recreational accommodations for them, whether it be video gaming or whether that be recreational-filled facilities, swimming pools, multiple dining options, 24-hour dining. A variety of different options that, frankly, other providers can't have it and just won't provide. And one of the ways we do that is, and when you're dealing with 10,000 folks, particularly in West Texas, for instance. Many of them working on the field for 10, 12 hours a day. And one of the things they want, as you can imagine, is a really high-quality meal. Some of these folks are eating 5,000, 6,000, 7,000 calories a day. And we are providing really high-quality meals for that purpose. That is one area, you do not skimp on, and we have not. And so we've retained executive chefs out of New York. So we have really done the things that I think we need to do to run high-quality restaurants, except we're doing it in some cases, for 1,000 people. And it's an art. We spend a lot of time doing it. We spend a lot of time understanding what the needs of the customers are. Sometimes, we will cater rooms to the customers. Sometimes we'll pay their certain accommodations to customers. We heard feedback a few years ago that we didn't have as many dining options as they wanted. So we came up with multiple dining options with entirely different setting and an entirely different building which operates as a separate restaurant to provide a fast casual environment with pizza and chicken wings and et cetera. And so totally different from our sit-down dining options that we have at other parts of the community. So we've done it in a way where we're really trying to make it a modular town with different options to not only relax, but also different options in terms of how you want to rest and care for yourself as well.

Thank you for that. I'm going to shift gears a little bit, if we can, and talk about maybe capital allocation and sort of the path forward. So for 2021, I believe you've guided to, at the midpoint, $265 million of revenue and $102 million of EBITDA for the year. This should take you closer to 3.5 turns, if not below that by year-end. Do you think the plan would be, moving forward, to continue to push leverage lower? Or would you say it's time to sort of switch gears and look just strategically?

Well, I think by definition, in the short run, leverage will continue to come down. Look, we always keep an eye on the strategic aspect of the business, right? We are -- we've viewed ourselves as a company that is nimble and flexible is very desirous of repositioning itself to really maximize growth and in value across all the stakeholder basis. And so in order to do that, you have to have an eye on some strategic piece, that's what we try to identify with the shift more so into the government services angle, and we'll continue to do that through other applications there, as I mentioned, on a capital-light fashion. Now one of the reasons why we have chosen to position ourselves the way we have over the past year to 18 months is because we really look at things when we were trying to invest the capital. We kept a very close eye to it. And what that allows us to do is really modulate how we balanced our spending versus the benefit of receiving across the balance sheet on a net basis, which is how we've been able to reposition the balance sheet so quickly. So in the short run, we'll continue that posture. We will continue to look at opportunities to grow the business, whether that be the for tuck-in transactions or whether that be through some other acquisitions. I don't think we're poised to do anything dramatic. We have said a number of times, I think I said in the last call that we're very mindful of where the balance sheet is. And that means we have a flexible balance sheet that loves to be opportunistic through the cycle. Many companies will take an ebb and flow approach, right? They'll use a blended kind of leverage profiles. They go up to 4.5 and then come back down to 2.5, and hopefully, everybody averages out at 3.25. That's not really the mode that we're in right now. I don't think that's best served for the -- where we are positioned in the marketplace. I think the marketplace is seeking some stability out of Target. I think we look to provide that stability both at the EBITDA line and frankly, the balance sheet. And so right now, our -- when we think about capital, our biggest focus is on -- certainly on optimizing the balance sheet. But not to do anything transformative at this stage, but to do it so that we remain flexible and diligent because I think over time, that will bring a premium to us from both a debt perspective and an equity perspective. And I think that's probably where we're well served to be [ real ].

I think that's right, for sure. And I think from a liquidity perspective, is there a minimum liquidity that you want to have on the balance sheet? Or are you comfortable with where you're at? Or would you like to build cash more immediate potentially?

You can never have enough liquidity. You always want more liquidity. But I think in that context, we don't have the prepayable debt at this point. And so I think as we look at the balance sheet over time, we will evaluate strategic opportunity sets, we'll evaluate where we are commercially with capital opportunity and deployment. We'll evaluate how we balance that against contract structure and pacing in time. And then we'll evaluate where we are from a capital structure perspective and determine if we may shift in terms of how we manage that, whether we shift some of the longer-term debt and move that into more of a prepayable position. But that -- we're a little ways away from that still. But I think that's kind of the next step change. To the extent we don't have overuses of cash in the short run that we think are going to be exceptionally attractive.

So just a question from the audience. Are the bonds prepayable right now? Or are they callable yet?

Sure. They're absolutely callable. They're -- the call is all about price. Certainly, we have not hit the part [ yet that we labored ] this coming spring. But I think like I said, at this point in time, what we're looking to do is a cause of NPV transaction for the company. And so we'll continue to evaluate this on a day-by-day basis and we're getting closer. But I think the marketplace will just have to stay tuned as to how we manage that.

Well, it might help that oil reached a new high today. I know that you're not correlated with oil in that way, but it certainly can't hurt. But thank you very much for your time today. This has been very helpful. And if we don't have any other questions from the audience, I think we can wrap it.

Thanks so much. Appreciate your interest.

Thank you.