Target Hospitality 2026 Q3 Earnings Call

Good morning, everyone, and welcome to Target Hospitality's Third Quarter 2026 Earnings Call. The press release we issued this morning outlining our third 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. The 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, November 9, 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. Our third quarter results reflect building momentum and disciplined execution across the business. We delivered meaningful year-over-year and sequential increases in both revenue and Adjusted EBITDA. That growth was driven by strong operational execution across our rapidly expanding WHS segment, and it demonstrates our ability to convert commercial wins into tangible financial results. Since January 2026, we have secured more than $1.7 billion of multi-year contract awards, representing over 10,000 beds. These awards span a diverse customer base supporting critical infrastructure development across North America, including data centers and large-scale power generation projects. Central to these wins is our Target Hyper/Scale platform. It delivers comprehensive turnkey solutions with reliable speed-to-market results that are critical to our customers' project success. That commercial momentum is translating directly into operational execution.

We have rapidly scaled WHS utilized beds to more than 6,200, with more beds set to come online over the coming months as recent awards ramp. Our proven ability to execute at scale is resonating with both existing and prospective customers, reinforcing Target's role as a trusted mission-critical partner. That reputation is helping fuel the deepest commercial pipeline in Target's history, now exceeding 25,000 beds of actionable opportunities. The depth of this demand reinforces our view that North American critical infrastructure development is a long-duration capital investment cycle, spanning multiple end markets across power-constrained and housing-scarce geographies. Target is well-positioned to capitalize on the breadth of this growing demand and commercial opportunity, giving us confidence in our ability to create sustainable, compounding annual growth. Turning to our individual segments, our HFS – South segment continues to serve our long-standing customers' workforce requirements through an established network of communities.

We remain committed to this customer base, delivering consistent, reliable hospitality solutions without compromising the service our HFS customers rely on. Moving to our Workforce Hospitality Solutions, or WHS, segment, momentum in this segment continues to validate our strategy of diversifying our contract portfolio into high-value end markets we believe offer sustainable long-term growth. Our third quarter results reflect measurable progress on that strategy. Executing multiple large-scale customer developments at once is translating directly into significant financial contribution, underscoring the strength of our operating platform and the scalability of our business model. As end market demand accelerates, we have been deliberate in prioritizing projects backed by substantial committed customer investment and tangible development activity. That selectivity is paying off, with the projects we support continuing uninterrupted through their planned ramp-up phases.

With our communities building out on schedule, we expect WHS utilized beds to grow at a double-digit percentage rate quarter over quarter through mid-2027. Customer activity has kept pace with this build-out and, in certain communities, has accelerated ahead of schedule. This has generated incremental demand for our services, highlighting the value of our Target Hyper/Scale platform and our ability to adapt quickly to evolving project requirements. That flexibility, combined with the velocity at which we deliver a comprehensive turnkey solution, has supported multiple scope expansions on recently announced WHS contract awards. Total contract value on those awards is now more than 10% above initial terms. These expansions also point to a broader opportunity. As industry adoption grows, existing and prospective customers increasingly recognize the benefit of an integrated offering from a single-source partner.

This positions us to extend our reach and capture a greater share of customer total development spend at both the Workforce Hub and the project site. Our core offering is the foundation for that expansion and for lasting strategic partnerships. We follow a consistent sales motion. Win the initial engagement, demonstrate value, and expand the relationship over time. By adding complementary products and services that address adjacent customer needs, we create additional entry points for new business and repeatable opportunities to grow existing accounts. Because this approach builds on our existing capabilities and commercial relationships, it extends naturally into a more fully bundled solution for our customers. The evolving demands of large-scale infrastructure development further strengthen this opportunity. As projects move deeper into emerging markets, companies face growing challenges in attracting and retaining the skilled labor these projects require, while also limiting strain on regional resources and supporting local communities.

Target is uniquely positioned to help customers address all three. In doing so, we help ease pressure on local housing and infrastructure, an increasingly important consideration for the state and local stakeholders who support these projects depend on. These dynamics are reflected in our commercial pipeline of actionable opportunities, which now exceeds 25,000 beds. A portion of this pipeline is in advanced contract discussions, driven by growing demand for turnkey, scalable solutions that support long-duration capital projects in remote and rural environments across the U.S. Looking ahead, our opportunity is not tied to a single end market's investment cycle. It spans a multi-decade North American critical infrastructure build-out across power generation, AI data centers, and other large-scale industrial projects, particularly in power-constrained and housing-scarce geographies. That diversity expands our repeatable growth opportunity and increases visibility into long-duration revenue.

We believe Target is well-positioned to capture incremental customer demand and continue compounding annual growth. I'll now turn the call over to Jason to discuss our financial results in more detail.

Thank you, Brad. Target delivered strong financial performance and significant growth in the third quarter. Total revenue increased 30% year-over-year to approximately $129 million, while Adjusted EBITDA grew 59% to approximately $34 million. These results were driven by expanding contributions from our high-quality WHS contract portfolio. That performance is also translating into robust cash generation. Year-to-date cash flows from operating activities exceeded $150 million, supported by a sharp increase in customer advance payments tied to recent WHS contract awards. These payments reflect the strength of our customer commitments and the value they place on our ability to rapidly scale communities at the pace of their development activity. Profitability improved meaningfully as well. Adjusted EBITDA margin expanded approximately 480 basis points year-over-year to 27%, driven by continued execution on recent contract awards, strong unit economics, and increasing operating leverage across our communities.

Turning to our individual segment performance, our WHS segment generated approximately $80 million of quarterly revenue, a 116% increase over the prior year. That growth reflects multiple community developments advancing through their ramp-up phases, supported by strong unit economics and operational efficiencies. Based on our current contract portfolio, WHS is on track to generate more than 55% of consolidated revenue in 2026. Average WHS utilized beds exceeded 6,200 in the quarter. That demonstrates the depth of our operating platform and our ability to bring multiple large-scale communities online at once. Beyond 2026, our execution track record and growing customer adoption position WHS for continued expansion. The long-duration projects we support typically come with favorable contract terms, including minimum take-or-pay revenue commitments. Those commitments give us greater revenue visibility and tie our capital deployment directly to contracted customer demand.

Paired with attractive unit economics and margin contribution, these contract terms support efficient capital investment with strong returns. Because we align these terms with our customers' multi-phase project plans, we are building long-term partnerships that we believe will keep WHS the primary driver of Target's growth. Moving on to our other operating segments, our HFS – South segment generated approximately $33 million in quarterly revenue. The moderation in this segment partly reflects our intentional reallocation of existing assets to support a high-return WHS contract award. We remain focused on reliably serving our longstanding HFS customers while preserving the flexibility to optimize capacity and maximize value across our broader portfolio. Our Government segment generated approximately $14 million in revenue during the quarter. The year-over-year decline primarily reflects the approximately $12 million PCC contract closeout payment included in the prior year period, which did not recur in the current period.

We also incurred transitional costs during the quarter related to ongoing network optimization initiatives, and we expect additional costs of approximately $3 million-$5 million of this nature over the balance of 2026. These costs will temporarily pressure Government segment margins and are reflected in our 2026 outlook. Recurring corporate expenses, excluding stock-based compensation and transaction expenses, were approximately $17 million for the quarter. Our 2026 outlook reflects a recalibrated corporate cost structure that provides the resources needed to execute on Target's strategic initiatives, and we remain focused on managing these costs prudently. Turning to capital management. Total capital spending for the quarter was approximately $246 million, primarily supporting long-term customer contracts tied to recent WHS segment contract awards. This investment was funded in part by customer advance payments.