Target Hospitality Corp. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Business Fundamentals: Delivered strong first quarter results driven by business fundamentals. Announced two multi-year contracts expected to generate over $380 million in revenue over the coming years.
• Segments and Growth Pipeline:
  • HFS segment benefits from consistent demand, 90% renewal rate, and progress on the Workforce Hub contract. Commercial growth pipeline focuses on large capital investments in infrastructure and technology.
  • Government segment transitioned in 2025, with reactivation of Dilley facility progressing. West Texas assets have strong interest from the government, but timing of contract awards is uncertain. Evaluating multiple opportunities beyond existing asset portfolio to support immigration initiatives.
• Financials: First quarter total revenue ~$70 million, adjusted EBITDA ~$22 million. Recurring corporate expenses ~$10 million. Total capital spending ~$21 million, including $16 million growth capital. Redeemed Senior Notes, saving ~$19 million annually. Ended quarter with $35 million cash and $169 million total liquidity.
• Growth Initiatives: Focus on pursuing strategic growth initiatives across commercial and government end markets, leveraging strong secular tailwinds.

Segment Performance

• HFS Segment: Quarterly revenue of approximately $44 million, contributing ~62.86% of total revenue. Benefits from consistent demand, 90% renewal rate since 2015, and the Workforce Hub contract. Construction revenue from the Workforce Hub contract was $5 million in Q1, with majority expected in Q2 and Q3 2025, and completion in Q4 2025. Services revenue from this contract will support the Workforce Hub through 2027.
• Government Segment: Quarterly revenue of approximately $26 million. Decrease from prior year due to contract terminations, but offset by reactivation of Dilley, Texas, assets. The Dilley contract is expected to generate ~$30 million in 2025 and over $246 million over a five-year term. West Texas assets are maintained in a ready state with carrying costs of ~$2-3 million per quarter.

Guidance

• Total revenue expected to be between $265 million and $285 million in 2025.
• Adjusted EBITDA expected to be between $47 million and $57 million in 2025.
• Workforce Hub contract construction revenue majority in Q2 and Q3 2025, completion in Q4 2025, with services revenue through 2027.
• Dilley contract expected to be fully activated by September 2025, with Q4 2025 likely the best quarter from a run rate perspective on that contract.

Risks

• Uncertain timing of government contract awards, including administrative steps and securing funding.
• Longer sales cycles for large growth opportunities, which could impact revenue recognition timing.
• Dependence on successful execution of strategic growth initiatives to realize expected benefits.

Question and Answer

• Q: Opportunities on idle assets on the government side, details on conversations and demand? **A: Continued strong interest in West Texas assets, with several tours of the facility increasing excitement. The government intends to increase bed capacity by approximately 100,000 beds. The West Texas facility is ready for immediate occupancy. There are other potential opportunities in DoD, DHS, and other areas in the pipeline.
• Q: Contract on lithium front, revenue contribution and upside? **A: Workforce subcontract construction revenue is expected to be ~$65 million in 2025 with a margin of 25%-30%. Services revenue will continue through 2027. There are multiple phases potential through 2040.
• Q: M&A or new asset consideration for government and non-government? **A: Non-government: strong bid activity in infrastructure projects, particularly data centers. Government: look to existing assets first, then consider the open market or building new. Inorganic growth is considered for the medium to long term, with focus on organic growth in the immediate term.
• Q: Workforce Hub contract financial cadence and government immigration policy opportunities beyond existing assets? **A: Workforce Hub construction revenue will be majority in Q3 2025, with completion in Q4 2025. For government immigration policy opportunities beyond existing assets, first use existing assets, then look to the open market or build new.
• Q: Repurposing of assets for other markets? **A: Assets can be repurposed for data centers, mines, etc. There is a commitment to the Permian Basin for oil and gas customers, but there is opportunity to maximize efficiencies by moving assets elsewhere.