Good morning, ladies and gentlemen, and welcome to the Target Hospitality Third Quarter 2025 Earnings Call. This call is being recorded on Thursday, November 6, 2025. I would now like to turn the call over to Mr. Mark Schuck. Please go ahead.

Thank you. Good morning, everyone, and welcome to Target Hospitality's Third Quarter 2025 Earnings Call. The press release we issued this morning, outlining our third quarter results can be found 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, November 6, 2025. 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 and Chief Accounting 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 continue to build on the progress we've made in advancing our strategic growth initiatives, which focus on expanding and diversifying Target's business portfolio. This focus has led to notable operational achievements for 2025, including multiple long-term contract awards across various end markets. Since the second quarter, we have added over $55 million in committed revenue contracts, bringing the total value of new multiyear contract awards announced in 2025 to more than $455 million. These contracts accomplish multiple elements of our growth objectives by strengthening Target's business portfolio and expanding our reach in new end markets. Target's ability to deliver highly customized solutions that meet specific customer needs highlights our unique value proposition and has opened new growth opportunities in rapidly expanding markets. Strong long-term growth trends and sustained momentum reinforce these opportunities, including the multitrillion dollar investment cycle in data center and AI infrastructure, power generation and critical mineral development. The strengthening market fundamentals have laid the groundwork for a robust and expanding growth pipeline, offering distinct opportunities to continue advancing our strategic growth initiatives. Turning to our segments and specific growth opportunities. Our HFS segment continues to support our world-class customers' evolving labor allocation needs by delivering premium services through our extensive network. Target's unique vertically integrated operating model, combined with the scale and efficiencies of our HFS network, allow us to support our customers throughout business cycles. Additionally, these attributes continue to support customer renewal rates exceeding 90%, with the average existing customer relationship exceeding 5 years. This proven operating model is key to Target's success and has served as a blueprint for potential new customers, illustrating the benefit and distinct value propositions of our vertically integrated accommodations platform. These distinctive capabilities and highly customizable solutions have supported multiple contract awards in our WHS segment this year. In February, we announced the Workforce Hub Contract to support the development of critical minerals in Nevada. Construction began, and this contract has been expanded several times to support community improvement and contract modifications, resulting in a 19% increase from the original contract value. These enhancements highlight the importance of this community to the project's success and demonstrate how Target's operating capabilities enable us to deliver tailored solutions that meet specific customer needs. These unique capabilities and customizable solutions supported the data center community contract we announced in August. We have completed the initial construction mobilization of the 250-bed community, and initial occupancy is beginning to increase. As a reminder, this community has the potential to expand and accommodate up to 1,500 individuals, a sixfold increase from the initial community. Our customers' growth plans are accelerating, driven by rapidly growing demand for AI infrastructure. As a result, we are finalizing the first community expansion to keep pace with anticipated customer activity levels. We expect this expansion to add several hundred rooms to the community and plan to provide additional details soon. With increasing demand for AI infrastructure, the pace of data center development and capital investment is accelerating. To meet this demand, estimates suggest that over $7 trillion in global capital investment will be required over the next 5 years as large-scale data center infrastructure becomes increasingly remote. A significant challenge in expanding these projects is attracting and retaining the skilled labor essential to their success. Target's unique capabilities in creating highly customized, all-inclusive communities address this challenge and provide integrated solutions for our customer-specific needs. Aligned with these attributes, Target recently launched its Target Hyper/Scale brand, highlighting our ability to provide central hospitality solutions supporting multiple facets of the data center value chain. This focused initiative showcases Target's unique ability to build communities that enable quick time-to-market solutions that can rapidly scale alongside customers' dynamic workforce housing needs. These factors have created the most significant commercial growth pipeline we have ever seen. Our reputation as the leading provider of remote hospitality solutions uniquely positions Target to support this rapidly expanding end market demand. We are excited about these growth opportunities, which we believe establish a vital long-term commercial vertical capable of accelerating Target's strategic growth objectives. Now moving to the Government segment. We completed the planned ramp-up of our Dilley, Texas assets in September, and the community is now fully operational and capable of supporting up to 2,400 individuals. The successful reopening of this facility highlights the importance of our decision to keep this community ready to reopen alongside our partner. We continue to actively remarket our West Texas asset and remain confident in this community's ability to provide a vital solution aligned with the government's policy goals to expand available bed capacity. In summary, we have made significant progress toward our strategic goals by expanding and diversifying Target's business portfolio. We are encouraged by the strongest and most active growth pipeline we have ever seen, supported by solid market fundamentals and long-term growth trends. We are well positioned as we pursue these opportunities, which offer multiple pathways to expand our business portfolio and continue advancing our strategic objectives. I will now hand the call over to Jason to discuss our financial results in more detail.

Thank you, Brad. Third quarter total revenue was approximately $99 million, with adjusted EBITDA of approximately $22 million. Our government segment generated approximately $24 million in revenue during the quarter. The declines compared to the previous year were mainly due to the termination of the PCC Contract, partially offset by the reactivation of our Dilley, Texas assets. Additionally, revenue for the quarter included approximately $11.8 million in reimbursements for certain closeout costs related to the PCC Contract termination. We do not expect any further payments related to the PCC Contract in future periods. We completed the planned ramp-up of the Dilley community in September, and it is now fully operational. As a result, subsequent quarters will reflect revenue contributions aligned with the entire 2,400-bed community. As a reminder, this contract is based on fixed monthly revenue regardless of occupancy. It is projected to generate approximately $30 million in revenue in 2025 with over $246 million over its expected 5-year term. Excluding the impact of the PCC Contract closeout payment, we anticipate increased contributions from the government segment in the coming quarters following completion of the Dilley ramp-up. Regarding our West Texas assets. As a reminder, we have decided to keep these assets in a ready state while actively remarketing them. This approach, similar to our strategy with the Dilley assets, will involve carrying costs of approximately $2 million to $3 million per quarter until a new contract is potentially awarded. Turning to our HFS and all other segments. These segments generated approximately $39 million in quarterly revenue. Target's customers continue to value our premium service offerings and extensive network scale. These qualities, combined with Target's operational efficiencies, enable us to provide unmatched solutions across our network in a competitive market. Additionally, we remain focused on finding opportunities to improve margin contribution while meeting customer demand. Moving on to the expanding Workforce Hospitality Solutions segment, or WHS. This segment, which includes our Workforce Hub Contract and the data center contract generated approximately $37 million in revenue in the third quarter, primarily from construction activity related to the Workforce Hub contract. As announced today, the importance of the Workforce Hub contract led to additional modifications and scope expansion during the third quarter. The increased scope of the contract raises the total contract value to approximately $166 million, reflecting a 19% increase from the original contract value. These community improvements will lead to more construction activity, which we expect to be substantially completed by the end of 2025. However, this will shift some previously forecasted services revenue into 2026 and slightly impact margins as construction revenue has a lower contribution profile. As we finish construction, we expect increased services revenue to begin in 2026 and continue through 2027. The scope expansion and contract modifications highlight our ability to deliver customized and tailored solutions for our customers, creating long-term revenue streams that support large-scale remote operations. Regarding the data center contract, we are pleased with the progress of this community and have completed the construction and mobilization of the initial 250-bed facility. As a reminder, this contract is expected to generate approximately $43 million in committed minimum revenue over its initial term through September 2027, with approximately $5 million of revenue in 2025. As we discussed, we are finalizing the first community expansion to support our customers' growing demand. This expansion will have limited impacts in 2025 but will increase revenue in future years. We plan to share additional details once the expansion terms are finalized. Recurring corporate expenses for the quarter were approximately $11 million. As a matter of practice, we continually look for opportunities to optimize our cost structure and enhance margin contributions. Total capital spending for the quarter was approximately $29 million with net capital spending of approximately $15 million. Net capital spending reflects the upfront customer payments we received for the construction and mobilization of the initial 250-bed data center community. Target's strong business fundamentals and durable operating model supported robust cash conversion, resulting in over $68 million of cash flows from operations and $61 million of discretionary cash flow for the 9 months ended September 30, 2025. These fundamentals are reflected in the strength of our balance sheet and our ability to maintain significant financial flexibility through prudent capital management. We ended the quarter with $30 million in cash and 0 net debt, resulting in total available liquidity of approximately $205 million. This strong liquidity position further enhances our financial flexibility and positions Target to continue executing its strategic growth initiatives. This momentum and positive operating environment support our reaffirmed 2025 outlook, which includes total revenue of $310 million to $320 million and adjusted EBITDA of $50 million to $60 million. Target is well positioned with a flexible operating model and an optimized balance sheet as we continue to evaluate a robust growth pipeline, which we believe offers the greatest opportunity to accelerate value creation for our shareholders. Most importantly, as we pursue these opportunities, we will remain focused on maintaining the strong financial profile we've built while maximizing margin contribution through our efficient operating structure. With that, I will hand it back to Brad for closing remarks.

Thanks, Jason. We continue to make significant progress on our strategic growth initiatives to expand and diversify our business portfolio. This year, we have announced long-term contracts within our existing segment and expanded our reach into new end markets, supporting the unprecedented surge in AI infrastructure and critical mineral investment. These achievements have led to over $455 million in new multiyear contracts in 2025. Additionally, we are in advanced discussions on other opportunities to further expand our contract portfolio, supporting AI infrastructure development. We remain focused on maintaining this momentum as we evaluate the strongest and most active growth pipeline we have ever seen, driven primarily by the extraordinary increase in data center and AI infrastructure investment. As market fundamentals and demand strengthen, we are actively exploring opportunities encompassing over 15,000 beds, underscoring the depth of demand in this end market. Target's unique capabilities position us to become an essential partner providing critical solutions vital to the success of this rapidly expanding marketplace. We are excited about these opportunities and believe they offer multiple ways to further our strategic goals and accelerate value creation for our shareholders. Thank you for joining us on the call today. And once again, we appreciate your interest in Target Hospitality. We will now open the call for questions.

And your first question comes from Scott Schneeberger from Oppenheimer.

I guess, first question would be on repurposing of the Pecos, West Texas assets. Could you give us an update, please, on what you're hearing with government customers? And if there are other customers with whom you are speaking, please share perhaps some insight to the extent you would on the potential repurposing of those assets?

Yes, let me just touch quickly on the government and then give you some color around the assets kind of in West Texas. But really on the government, there's no new developments from our last call. We continue to have active dialogue with the government on the West Texas assets. Look, we believe these assets provide a solution aligned with the government's objective and their sentiments have not changed around the use of this equipment. With that said, let me touch on the Permian Basin, as you suggested, and really West Texas in general. As we are in discussions on several large data center projects as well as the large-scale power projects that would energize them. Several projects in that area have been announced already, and we expect several more to make final investment decisions very soon with others in the pipeline that we're talking to. The capital spend in this area will be large. It's very big. And it will require many thousands of skilled workers coming into these areas. I say all of this to tell you, there is no other company in our industry that is better positioned to take advantage of this unprecedented spend we're beginning to see in West Texas. The opportunity set in West Texas maximizes our chances to put underutilized or idle assets back on lease for long-term projects. And look, I would tell you, I have very little doubt that the majority of the growth you will see in West Texas will come from data centers and the large-scale power projects that are required to energize them. This doesn't mean that we will not try to take care of the government as well. But as you are well aware, and we've talked about this many times over the years, our assets can be repurposed across many industries. And fortunately for us today, it’s a good problem to have. There are multiple paths to maximizing our assets and utilization other than just the government, right? And that pipeline continues to build. And again, fortunately, a lot of this work sets right in the Permian basin.

I appreciate that. Following up, I have a question for you and then one for Jason related to that topic. Could you discuss what you're doing with the Target Hyper/Scale brand in terms of branding and your marketing strategy? Brad, that would be directed to you. Jason, on a similar note, could you provide insights into the expected revenue and EBITDA run rate for the third quarter, what you anticipate for the fourth quarter regarding the data center contract, and how you foresee that run rate evolving in 2026?

Yes, Scott, let me address the question regarding the Target Hyper/Scale initiative and our reasons for pursuing it. The significant capital investments in this industry across the U.S., not just in Texas, require a more concentrated and dedicated strategy. We have spent two years researching this opportunity and the relevant markets. We’ve brought on several new team members with experience in the data center sector specifically for this initiative. Given the scale of the long-term opportunity we foresee, we believe it's essential to create a distinct brand focused on hyperscalers and the general contractors involved. This is a different audience, as many are now required to operate remotely, having traditionally set up in major cities. The transition to using facilities like ours is new for them, and educating them will take time. Consequently, we feel that this branding is apt for our offering, and the customer interactions we are having now are unlike anything we've experienced before. The feedback on the branding has been positive from our current and prospective clients, and we anticipate this trend will continue.

And I think on the second question regarding the data center contract run rates and revenue and adjusted EBITDA. So we anticipate on that contract to recognize about $5 million of revenue this year. I would say from a run rate standpoint, it's more forward-looking beyond this year. Approximately, I would say, the balance of that contract, which is $43 million less than $5 million, will be relatively evenly split between 2026 and 2027. The margin profile on that is very similar to Dilley because it's a lease and services agreement where we own the assets and we operate them, and it's exclusively for one customer. So as a matter of fact, a lot of the opportunities that we're looking at in our pipeline are very similar to that type of margin profile that we're experiencing at Dilley. Now Dilley, from a run rate standpoint, you'll see will come to life in Q4. But essentially, it's approximately $50 million a year on the full 2,400-bed community at a margin profile very similar to the previous contract.

And your next question comes from Greg Gibas.

Congrats on the results. I wanted to ask how maybe does your existing data center community contract compare to the other opportunities you're in advanced discussions with? From, I guess, a high level, how would you say it kind of stacks up to the relative scope and size of the opportunities that you're seeing?

Yes, I want to point out that on average, we are considering opportunities that involve more than 1,000 rooms. These projects typically take 5 to 8 years to grow in scale, beginning at a smaller number, similar to how we initiated our first contract with 250 rooms, with plans to gradually increase that number. We anticipate the next increase to involve several hundred additional beds, followed by further expansions until we achieve full construction capacity, after which growth will stabilize for an extended period. However, variations exist, as some projects may be smaller or larger depending on specific needs. Currently, we are not only focusing on the data center aspects but also addressing power requirements, which is increasing the demand for additional rooms.

Got it. That's helpful. I appreciate that. And maybe for Jason, to dive into the implications of guidance. Could you maybe speak to the quarter-to-quarter dynamics or expectations implied there? You already mentioned the data center contract and $5 million expected this year. But anything else as I think about Q4 versus Q3 from a modeling perspective?

Yes. I think Q4, you're going to see the full ramp-up for the Dilley contract, right, which, as I said, is annualized $50 million a year in revenue, approximately 40% to 50% margin is what you could anticipate there. The item that you're not going to see recur is the $11.8 million that we recognized for the PCC closeout payment. That's kind of the biggest delta between Q3 and Q4 is going to be that combined with now we're fully ramped up on Dilley. And I think everything else will be relatively steady state.

Great. That's helpful. And if I could, I wanted to ask, given you were named on that $10 billion WEXMAC DOD award. Wondering if there's anything you could share related to, I guess, how you could serve their efforts and then maybe what level of capacity you're positioned to provide?

Yes. Look, first, we don't know exactly what's going to come out on those bids, but we're positioned there, right? We're on the contract vehicle, which was the first step. We'll see what comes out. And if it works for us, we'll definitely go after it, right? If we have available assets or we can structure it another way, we will take a look at that if it fits us. But we first wanted to get on the contract vehicle and then take a look at any bids that come from that.

And your next question comes from Rajiv Sharma.

This is Raj. I wanted to ask about the workforce EBITDA. What kind of shift in EBITDA can we expect from this year to next year? Additionally, could you provide details on the community enhancements? Will this involve higher bed pricing, new service modules, or client-funded capital expenditures?

Yes. So I'll take the first one right off the bat. So the community enhancements are not going to increase the number of expected beds. We're still going to be around 2,000 beds. So it doesn't impact any of the economics around the services piece that will largely kick in beginning next year. It's strictly related to the construction, the majority of that, we anticipate to be recognized this year as we hopefully have the construction substantially complete by the end of this year. I'll stop there and see if there's any other follow-up on that. Otherwise...

Go ahead. Yes, I'm sorry, go ahead. Yes. No, I wanted to understand the community enhancements, what does it entail?

Well, it doesn't entail building out more beds, and it certainly doesn't increase the economics on the services piece. The services piece, which is the balance of the contract that's roughly $75 million or so that will start to kick in next year through 2027. I would look at that as relatively evenly split between the 2 years at a margin profile closer to 30% on the services piece going forward as opposed to the construction piece where our margin profile is closer to 20% to 25%.

Got it. Did I hear correctly that the Dilley facility is now fully operational with 2,400 beds? And is the ramp to steady-state utilization occurring in Q4?

Yes. So we completed the ramp-up at the beginning of September, and you'll see the full quarterly economics on the 2,400 beds in Q4.

Right. And then just on the Pecos the PCC, any active RFPs or renewal discussions you are engaged in that could replace or supplement that?

Yes. As I mentioned earlier on the call, lots of activity in the Permian Basin, West Texas, right? So we have multiple paths there to utilize that equipment other than just the government on that for all of our equipment. And look, to be clear, we're already utilizing some of our existing assets for the first data center, and we expect to use more of those assets in the future. We've always been very good. Look first, we're going to utilize our existing assets, right? We want to drive utilization and put those back to work. So that's our first look all the time. And we've been very good about that, and we'll continue to do that.

Okay. Great. And then just lastly, can you elaborate on the Target, the Hyper/Scale? How does that differentiate from the core workforce? And what type of clients or geographies are you targeting first?

Yes, we are focusing heavily on the data center, which involves significant investment. We have brought in specialists who have extensive experience in the data center industry to strengthen our team. We recognized the need for increased attention in this area, and it has proven to be a sound decision that has been positively received in the industry. Many of our current clients are now realizing the importance of remote work and the need for our services. This is a learning process for them, and the customer base we are engaging with now is different from what we have encountered previously, but in a positive way. They are very open to our solutions and are committed to supporting their employees, similar to what our other clients do. Furthermore, they have capable partners involved in the contracts we are negotiating, and their priority is to complete these projects on schedule. They are willing to invest the necessary resources to ensure safety and minimize risks in their projects.

Yes. Raj, this is Mark. Just to kind of put a fine point. I think you asked, too, if there was any differentiation around the Hyper/Scale brand. And look, to be clear, it fits squarely in Target's core competencies, as Brad described, it is just really an intentional focus on the customers and the applications that Brad described.

Yes, buildings are the same, right? Like our same fleet that is being used for HFS can be used for the data centers as well, and we're doing that today. So that doesn't change to Mark's point.

Congratulations.

And your next question comes from Stephen Gengaro.

I have a couple of questions, and I apologize if I missed anything as I joined the call late. Looking ahead to next year, I believe there are about 6,000 idle beds, which seems to be the approximate figure. Can you discuss the implications of the government shutdown on the timing of new awards? I'm interested in any insights regarding the timing of these contracts, both with the government and outside of it, as we begin to consider the developments for 2026.

Well, I would just say on the beds, we have about 8,000 available beds going into next year. We've utilized some of those to build out the initial 250-bed data center community. In terms of timing, very difficult to nail down exact timing. But in terms of the data center opportunities, we're already in advanced discussions on expanding that contract. As a reminder, we said at the forefront of the call, and also in our announcement, the land base can accommodate up to 1,500 beds. That's obviously going to be driven by customer demand. But again, we're already in advanced discussions on increasing that bed count from 250 to several hundred more in terms of the opportunities. I would say the pipeline, and Brad can certainly elaborate. It's growing in the area of data centers, the government we talked about, the opportunity set there. There's still a high degree of interest. The West Texas assets are still on the acquisition list for the government; obviously, the administrative process is something you can't exactly nail down from a timing standpoint in terms of approvals and when a contract award might come. But we are keeping those assets in a ready state. We continue to incur the cost to do that of $2 million to $3 million a quarter, because there continues to be a high degree of interest, but the timing is a little difficult to nail down.

Yes, Stephen, if you missed the first part of the call, I mentioned that we have multiple avenues to maximize our assets and utilization in the Permian Basin beyond government contracts, while still planning to fulfill our commitments to the government, who is very interested in this facility. As you're aware, demand in the Permian for data centers and large-scale power projects is significantly increasing, with several already announced and more expected to be announced soon. We also have non-disclosure agreements in place for projects that have yet to be revealed. We believe we are well-positioned, particularly in the Permian and West Texas, to improve the utilization of our currently idle or underutilized units. Therefore, our strategy isn't solely focused on government opportunities, and we are fortunate to be in a strong position to take on these projects.

When considering the availability of your capacity and the growth of data centers, alongside developments in critical minerals and government involvement, is there any urgency from your customer bases regarding concerns about insufficient capacity if they do not secure contracts in the near term?

When you look at how data centers are constructed, you'll notice that one large facility is built, and soon after, others cluster around it. There is definitely a shortage of qualified workers, whether in electrical or mechanical roles, and companies often compete for the same individuals. They can secure equipment faster than competitors because of the limited availability, which helps mitigate project risks. That concern is certainly justified, as there's not much excess capacity right now, and new projects are continually being announced, further increasing the demand.

Yes. That's helpful because I hear clearly on the power gen side, and I was just curious if that urgency and sort of filtered down to take your business from at least part of the customer base.

Absolutely.

Great. And then just the final question I had was the economics of the different pieces, it sounds like the data center side from our prior conversations is kind of in a pretty similar to Dilley, like should we expect kind of those similar type economics as other opportunities surface?

Yes. I mean I would say a lot of the opportunities we're looking at in our pipeline have economics from a margin profile standpoint, very similar to Dilley. A lot of these are take-or-pay assets that we own and will operate exclusively for the customer. So those economics will tend to be very similar to the Dilley economics.

I have a quick question regarding the long-term deals. Given the inflationary costs we've experienced, particularly with food and labor, are we protected against a significant portion of that in our contracts? Is that correct?

It varies. Going forward, we might experience some cost increases over the years. However, we are somewhat limited in that regard, but we aim to manage it with the appropriate rate and operational efficiencies. We have been very effective in achieving that.

There are no further questions at this time. Brad Archer, you may continue.

Yes. Thanks to all of you for joining our call today and for your continued support of Target Hospitality. We look forward to speaking to all of you again in the New Year. Operator, that will conclude our call for today.

Ladies and gentlemen, this does conclude today's conference call. Thank you very much for your participation. You may now disconnect. Have a great day.