Target Hospitality Corp. Common Stock 2026 Q2 Earnings Call

Good morning, everyone, and welcome to Target Hospitality's second quarter 2026 earnings call. The press release we issued this morning outlining our second quarter results is available in the Investors section of our website. In addition, a replay of this call will be archived on our website for a limited time. Please note the cautionary language regarding forward-looking statements contained in the press release. This same language applies to statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are only accurate as of today, August 10, 2026. Target Hospitality expressly disclaims any obligation to update or amend the information contained in this conference call to reflect events or circumstances that may arise after today's date, except as required by applicable law.

For a complete list of risks and uncertainties that may affect future performance, please refer to Target Hospitality's periodic filings with the SEC. We will discuss non-GAAP financial measures on today's call. Please refer to the tables in our earnings release, posted in the Investors section of our website, to find a reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures. Leading the call today will be Brad Archer, President and Chief Executive Officer, followed by Jason Vlacich, Chief Financial Officer. After their prepared remarks, we will open the call for questions. I'll now turn the call over to our Chief Executive Officer, Brad Archer.

Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. We delivered a strong second quarter, defined by disciplined execution on recent WHS contract awards and continued advancement of our growth pipeline. Our focus on converting commercial wins into operating results underscores the momentum driving Target's performance. Since January 2026, we have secured over 9,000 contracted beds, representing more than $1.4 billion of multiyear contracts, supporting unprecedented growth in our WHS segment and reinforcing Target's role as a leading provider of essential mission-critical solutions for AI-driven data center development and critical power generation expansion. That commercial momentum is translating directly into operational execution, with average WHS utilized beds surpassing 4,000 during the second quarter. We are delivering on recent contract wins while our Target HyperScale platform and proven operating capabilities support accelerating customer demand.

We continue to see expanding opportunities across North America, with active discussions supporting a pipeline exceeding 20,000 beds. This breadth and durability of demand across our WHS end markets give us confidence in our ability to advance the largest commercial pipeline in our history, supported by a multi-trillion dollar long-term investment cycle. Turning to our individual segments, our HFS South segment continues to support world-class customers through an established network of communities across an expansive operating region. Target's reliable service delivery, network scale, and long-standing customer relationships consistently support an over 90% renewal rate, highlighting the value of our differentiated offering. Moving to our Workforce Hospitality Solutions, or WHS segment. The unprecedented growth in our WHS segment reflects building commercial momentum, disciplined operational execution, and our intentional pivot toward high-value end markets.

We continue to demonstrate the value of our Target HyperScale platform and our scalable speed-to-market solutions, positioning Target to benefit from accelerating customer activity and long-term demand dynamics. Importantly, as we mobilize a growing number of contracted beds across concurrent community development, our focus remains on execution, delivering the essential solutions our customers need to advance complex, time-sensitive projects. Together, accelerating end market demand, growing awareness of our mission-critical solutions, and our proven ability to execute continue to drive advanced discussions on additional large-scale community development. Building on this momentum, we are finalizing multiple definitive agreements to establish large-scale Workforce Hubs supporting new customers' long-term AI data center development. As these customers face increasingly compressed development schedules, the urgency to secure workforce accommodations continues to grow, giving us confidence that we will see incremental contract awards in the coming quarters.

This expanding customer base and sustained commercial momentum further validates why customers choose Target. Our proven ability to deliver scale, speed, customization, and proven execution through our differentiated Target HyperScale offering. These same capabilities are creating opportunities for incremental scope expansion within existing communities. As customers accelerate activity levels, they increasingly seek expanded solutions in fast-paced environments where reliability, flexibility, and speed are critical. As large-scale infrastructure developments grow more complex, remote, and time sensitive Target is uniquely positioned to meet this demand through a vertically integrated turnkey model that gives customers a single partner for their dynamic requirements. These capabilities are supported by Target's multi-decade operational track record and full lifecycle model, spanning design and development through full service operations. This integrated approach enables us to deliver essential solutions for customers, support local communities, and remain well-positioned as demand continues to build.

Looking ahead, we continue to see expanding geographic opportunities across North America, with active, ongoing discussions supporting a pipeline exceeding 20,000 beds. As our presence across these end markets grow, we're confident in our ability to capitalize on accelerating demand, advance our strategic growth initiatives, and deliver durable long-term value. I'll now turn the call over to Jason to discuss our financial results and 2026 outlook in more detail.

Thank you, Brad. Second quarter total revenue was approximately $86 million, with adjusted EBITDA of approximately $18 million, driven primarily by significant growth in our WHS segment. This growth also strengthens year-to-date cash flows from operating activities, which exceeded $110 million and included more than $100 million of advanced payments from customers tied to recent WHS segment contract awards. These payments underscore the strength of our contract fundamentals and the value customers place on our speed to market solutions. More broadly, our results reflect continued execution on recent contract awards, strong unit economics, and increasing operating leverage as communities ramp. This supported more than 700 basis points of adjusted EBITDA margin expansion compared to the first quarter. As these awards come online and communities continue to scale, we expect revenue and adjusted EBITDA to build further through 2026 and into 2027. Turning to our individual segment performance.

Our WHS segment generated approximately $36 million of quarterly revenue, a 142% increase over the prior year, as several communities advanced through their ramp-up phases and activity shifted from construction into full-service operations. Average WHS segment utilized beds surpassed 4,000 during the quarter, further demonstrating the depth of our operational platform, the scalability of our business model, and our ability to execute multiple large-scale customer developments concurrently. This operating momentum reflects accelerating demand across our WHS segment end markets and should translate into greater contribution as communities continue to scale. Supported by strong unit economics, growing operational efficiencies, and increased activity across recently announced large multi-year contract awards, our WHS segment is positioned to become Target's largest segment for full year 2026, contributing more than 50% of consolidated revenues based on the current contracted portfolio.

Moving to our other operating segments, our HFS South segment generated approximately $33 million in quarterly revenue. While the segment experienced some moderation, it continues to deliver strategic value through its established presence in high activity regions and its longstanding customer relationships. We continue to evaluate opportunities to optimize this network while preserving flexibility to redeploy capacity towards high return opportunities across our broader portfolio. Our government segment generated approximately $13 million in revenue during the quarter, driven by the reactivation of our Dilley, Texas assets. As we optimize certain government segment assets to support recently announced WHS segment contract awards, we expect to incur approximately $5 million-$7 million of transitional costs over the next two quarters. These transitory costs will temporarily pressure government segment margins, which is reflected in our 2026 outlook. Recurring corporate expenses, excluding stock-based compensation and transaction expenses, were approximately $15 million for the quarter.

As we advance Target's strategic initiatives, we remain focused on managing costs prudently while ensuring we have the resources needed to execute effectively. Our 2026 outlook reflects the recalibrated corporate expenses required to support this growth over the coming quarters. Turning to capital management. Total capital spending for the quarter was approximately $132 million as mobilization and construction activity began on multiple large community developments tied to recent WHS segment contract awards. We ended the quarter with approximately $141 million in total available liquidity and a net leverage ratio of 0.6 times. As previously announced on July 24th, we replaced our $175 million revolving credit facility with a new $660 million credit facility, nearly quadrupling Target's committed borrowing capacity and meaningfully expanding the company's banking relationships.

This expanded capacity significantly enhances our financial flexibility and lowers our cost of capital, allowing us to execute on recent contract awards and capitalize on our robust multi-year growth pipeline. Driven by the depth of our Target HyperScale offerings and accelerating customer demand, we continue to identify opportunities to expand our value-added solutions and address specific customer challenges. For example, we recently expanded our service offering for an existing customer by providing a temporary full-service workforce solution. This offering supports their ability to accelerate project development ahead of completing their customized multi-thousand-bed community. It further demonstrates how we tailor solutions to customers' unique requirements. Together, our ability to deliver flexible, value-added solutions like this one, combined with growing contributions from recently announced WHS segment contracts, reflects the sustained operating momentum behind our increased 2026 outlook.

This includes total revenue of $410 million-$420 million and adjusted EBITDA of $85 million-$95 million, with capital spending excluding acquisitions of $490 million-$510 million to fund our long-term growth. As I mentioned earlier, a meaningful portion of this capital spending is supported by customer advanced payments associated with recently awarded WHS segment contracts, supporting efficient capital deployment and maintaining strong financial flexibility. As recent contract awards continue to scale, we expect revenue and adjusted EBITDA to build steadily through 2026, with additional operating leverage and improved unit economics supporting margin expansion into 2027. Together, these factors position us to exit 2027 with annualized revenue exceeding $700 million and adjusted EBITDA above $260 million. Importantly, this projection is supported by our existing contract portfolio and does not assume contribution from our broader commercial pipeline.