Target Hospitality Corp. Q2 FY2025 earnings call

• Entered 2025 focused on accelerating strategic growth initiatives and diversifying contract portfolio, with 2 multiyear contracts over $400M announced and data center contract discussions ongoing.
• HFS segment has >90% contract renewal rates, with a recent multiyear contract extension and contract modifications for community enhancements.
• Government segment's Dilley assets reactivation on track, West Texas assets have ongoing government interest and proprietary solutions for immigration initiatives.
• WHS segment's Workforce Hub Contract expanded to ~$154M, with construction revenue timing shifted and services revenue expected from 2026.

The HFS segment benefits from consistent customer demand, with clients valuing premium service offerings and network capability, and has a recent multiyear contract extension with a large customer. The Government segment's Dilley, Texas assets reactivation is on schedule, with community ramp-up expected in September; West Texas assets have ongoing government interest. The WHS segment generated ~$15M in Q2 revenue, with the Workforce Hub Contract modified to ~$154M, and construction revenue shifting to later quarters. Total revenue for Q2 was ~$62M, with HFS and other segments contributing ~$39M, and Government segment contributing ~$7M.

• Raised 2025 outlook to total revenue of $310M to $320M and adjusted EBITDA of $50M to $60M, a 15% increase in midpoint revenue and 6% increase in midpoint adjusted EBITDA from previous outlook.
• Driven by Workforce Hub Contract expansion and PCC Contract settlement.

• Uncertainty in government contract award timing due to broad scope and resource needs for border security initiatives.
• Market competition and potential changes in domestic investment cycles affecting growth opportunities.

Q: How should we think about the steps from site visits in West Texas and potential for contracts comparable to prior ones?

A: Timelines remain consistent, with good discussions with government, being on their acquisition list, and positive feedback on West Texas assets.

Q: How should we think about the structure of data center contracts regarding duration?

A: Long-term, similar to oil and gas with multiyear facilities for workforce in one location for years.

Q: Is bed sourcing for data centers from oil and gas network, incremental CapEx, etc.?

A: Utilize excess capacity first, then open market and new builds, with capital structure to support buying new products.

Q: How competitive was the bidding for the data center contract and key factors for selection?

A: Not price-driven, but based on ability to get the job done, retain and attract workforce on time.

Q: What's changed regarding the updated guidance?

A: Main drivers are Workforce Hub Contract expansion to $154M and PCC Contract settlement, shifting construction revenue timing.