Target Hospitality Corp. Q4 FY2025 earnings call

• Entered 2025 with mandate to advance strategic growth priorities, diversifying contract portfolio and accelerating transition into high-growth end markets. • Secured over $740M in long-term contract awards since Feb 2025, over $495M in WHS segment. • Launched Target Hyperscale, demonstrating ability to deliver customized solutions through vertically integrated accommodations platform. • HFS segment supports customers with premium service, high renewal rates. • WHS segment benefits from accelerating demand in key sectors, reactivated nearly 3,000 beds, data center community grew 320%, new contracts in West Texas and Pecos. • Government segment revenue affected by PCC contract termination but offset by asset reactivation. • Corporate expenses included true-up to 2025 short-term incentive plan. • Strong cash conversion and balance sheet, ended quarter with zero net debt and significant liquidity.

HFS segment: Continues to support customers with premium service across extensive network, customer renewal rates above 90%, average relationships over 5 years. WHS segment: Benefiting from accelerating demand in AI infrastructure, critical minerals, power generation projects. Since Feb 2025, secured over $495M in WHS awards, reactivated nearly 3,000 beds. Data center community grew 320% from initial 250-bed footprint. West Texas Power Community and Pecos Power Community contracts reactivate over 1,800 beds with over $150M in multiyear contracts. Government segment: Revenue declined due to PCC contract termination, partially offset by reactivation of Dilley, Texas, assets. Fourth quarter total revenue ~$90M, adjusted EBITDA ~$7M. HFS South and All Other segments: ~$36M revenue. WHS segment: ~$40M revenue, workforce hub contract value increased to ~$170M, data center community contract expected to generate ~$134M committed minimum revenue, West Texas and Pecos contracts support reactivation of over 1,800 beds with over $150M in multiyear committed minimum revenue. Government segment: ~$14M revenue. Corporate expenses ~$18M. Cash flows from operations over $74M, discretionary cash flow $66M for 2025. Ended quarter with zero net debt and ~$183M total available liquidity.

• 2026 outlook: Total revenue between $320M and $330M, adjusted EBITDA between $60M and $70M, capital spending (excluding acquisitions) between $65M and $75M. • Q1 to be low point as contracts start to ramp up, with expansions and new contracts ramping up in Q2, Q3, and Q4. • WHS segment projected to be largest operating segment by 2026, contributing over 40% of consolidated revenue. • Two new contracts announced are immediately accretive, with full effects seen in later quarters. • Annual run rate revenue over $160M, adjusted EBITDA over $90M based on fixed minimum revenue commitments for contracted projects.

Q: Could you elaborate on the pipeline, potential to reactivate remaining West Texas assets and how we should think about the ripeness of that?

A: Pipeline is strongest ever with over 20,000 beds, expected to keep stacking wins in 2026, in advanced late-stage negotiations with multiple customers, available fleet quoted within 20,000 beds, expect to reach into market for available fleet if needed.

Q: Could you elaborate on potential for variable revenue contribution?

A: Related to new contracts, over $150M is fixed minimum, there is variable component with all-in rate around $100 a night, not built into outlook.

Q: Any more color on how to think about the cadence as we move through this year and unique modeling dynamics?

A: Q1 is low point, two new contracts immediately accretive, expanded data center community ramps up full force in Q3, power community contract in Nevada ramps up in June and full effects seen in Q3, will continue to ramp up until reaching announced run rate.

Q: When you talk about the run rate exiting 2026, is that just based on announced contracts to date?

A: Absolutely.

Q: When you mentioned the capacity in remaining inventory, are you seeing urgency from customers yet?

A: Fear of lack of capacity is warranted due to supply and demand in certain areas, projects in clusters like Permian Basin already lack rooms with new projects adding, supply and demand in those areas in favor.

Q: HFS South business, oilfield had better-than-expected fourth quarter from completions perspective but numbers down a bit, is that seasonality and noise?

A: HFS basically steady state year over year from 2025 to 2026, fluctuations are moderate seasonality.

Q: Rough plans on what you intend to acquire given remaining inventory and 20,000 pipeline? How would that be reflected in contracts?

A: Incremental beds built into contract economics, many contracts have upfront capital requirements from customers, projects phase over time, have secondary market purchases and project-level structures, advanced discussions with suppliers.

Q: As you are seeing strong demand in private sector, are you interested in pursuing government-related opportunities?

A: Focused on growing WHS segment as it offers greatest value creation opportunities, more commercial and predictable.

Q: Could you characterize the 20,000 beds pipeline in terms of cadence, achievable in next couple of years vs next five years?

A: Actionable within next twelve to twenty-four months, some much sooner, one to twenty-four months is how to look at it.

Q: As hyperscale, data center, and power generation accelerate, is workforce housing becoming a bottleneck, giving pricing power or longer durations?

A: Workforce housing is critical, working in favor, helps on maximizing price.

Q: On CapEx requirements, is $65M to $75M to be assumed, expect to continue for next year, cadence through year and financing?

A: CapEx range doesn't require incremental financing above current liquidity, well positioned, contract structures built to fund minimum return thresholds, could have incremental CapEx for incremental wins but nothing anticipated for executed contracts.

Q: On Pecos facility, any news on reactivating or contracting to government?

A: Focused on growth in WHS segment and related pipeline, most West Texas assets very fungible, beds left expected to be put in use under WHS.

Q: When exiting 2026, would you be disappointed if bulk of 3,000 to 4,000 idle beds were not under contract?

A: 1,100% would be upset, strategic to place beds to help win projects, pipeline is advanced, things are starting to grow.

Q: Based on network approach, is there any idle capacity in HFS South that could be mobilized?

A: There is a little bit, think optimized in area, have great customer base with long-term customers, will take opportunities to high-grade rates and beds while taking care of right customers.