Q1 2025 Target Hospitality Corp Earnings Call
Operator: Our immediate assistance, please press star zero for the operator.
Press Star Zero for the operator this call is being recorded on Monday May 1920, 25, I would now like to turn the conference over to Marshall. Please go ahead Sir.
Operator: This call is being recorded on Monday, May 19, 2025.
Mark Schuck: I would now like to turn the conference over to Mark Schuck. Please go ahead. Thank you.
Speaker Change: Thank you good morning, everyone and welcome to target hospitality <unk> first quarter 2025 earnings call.
Brad Archer: Good morning, everyone, and welcome to Target Hospitality's first quarter 2025 earnings call. The press release we issued this morning, outlining our first quarter results, can be found in the investor section of our website. In addition, a replay of this call will be archived on our website for a limited time.
Speaker Change: Press release, we issued this morning outlining our first quarter results can be found in the investors section of our website.
Speaker Change: In addition, a replay of this call will be archived on our website for a limited time.
Brad Archer: 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, May 19, 2025. Target Hospitlty 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.
Speaker Change: Please note the cautionary language regarding forward looking statements contained in the press release.
Speaker Change: This same language applies to statements made on today's conference call.
Speaker Change: This call will contain time sensitive information as well as forward looking statements, which are only accurate as of today may 19 2025.
Speaker Change: 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.
Brad Archer: For a complete list of risks and uncertainties that may affect future performance, please refer to Target Hospitlty'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 the website to find a reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures.
Speaker Change: For a complete list of risks and uncertainties that may affect future performance. Please refer to target hospitality is periodic filings with the SEC.
Speaker Change: We will discuss non-GAAP financial measures on today's call.
Speaker Change: Please refer to the tables in our earnings release posted in the investors section of the website to find the reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures.
Mark Schuck: 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.
Speaker Change: Leading the call today will be Brad Archer, President and Chief Executive Officer, followed by Jason Bossage, Chief Financial Officer, and Chief Accounting Officer. After their prepared remarks, we will open the call for questions.
Brad Archer: I would now like to 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.
Speaker Change: I would now like to turn the call over to our Chief Executive Officer, Brad Archer.
Speaker Change: Thanks, Mark Good morning, everyone and thank you for joining us on the call today, we delivered strong first quarter results centered on the strength of our business fundamentals and proven capabilities.
Brad Archer: We deliver strong first quarter results centered on the strength of our business fundamentals and proven capabilities. These elements illustrate the benefits of Target's efficient and durable operating model, supporting our ability to successfully navigate a variety of economic environments.
Speaker Change: These elements illustrate the benefits of targets efficient and durable operating model supporting our ability ability to successfully navigate a variety of economic environments.
Brad Archer: During the first quarter, we announced two multi-year contracts, which are expected to generate over $380 million in revenue over the coming years. These contracts illustrate our unique ability to support a range of critical domestic initiatives, spanning both commercial and government-end markets. We are well-positioned with strong momentum as we continue evaluating and pursuing the most active and robust growth pipeline we have had in many years. We are excited about this opportunity set and focused on accelerating our strategic growth initiative.
Speaker Change: During the first quarter, we announced two multi year contracts, which are expected to generate over $380 million in revenue over the coming years. These contracts illustrate our unique ability to support a range of critical domestic initiatives spanning both commercial and government end market.
Speaker Change: We are well positioned with strong momentum as we continue evaluating and pursuing the most active and robust growth pipeline. We have had many years. We are excited about this opportunity set and focused on accelerating our strategic growth initiatives now.
Brad Archer: Now turning to our segments and growth pipeline. Our HFS segment continues to benefit from consistent demand where our world-class customers find added value in the unmatched solutions our network provides. These capabilities support Target's longstanding customer relationship, some for over a decade, and a consistent 90% renewal rate since 2015. This consistency illustrates the value proposition of our network and ability to appropriately match customer demand through a variety of economic cycles. These characteristics support a well-optimized network and enhance revenue cash flow visibility. The workforce subcontract, which we announced in February, continues to progress in line with expectations.
Now turning to our segments and growth pipeline.
Speaker Change: Our Hff's segment continues to benefit from consistent demand, where our world class customers find added value in the unmatched solutions. Our network provides these capabilities support targets, a long standing customer relationships some for over a decade and a consistent 90% renewal rate since 2015.
Speaker Change: This consistency illustrates the value proposition of our network and the ability to appropriately match customer demand through a variety of economic cycles.
Speaker Change: These characteristics support a well optimize network and enhance revenue cash flow visibility.
Speaker Change: The work for sub contract, which we announced in February continues to progress in line with expectations. This expansion and diversification further illustrate our ability to utilize our distinct core competencies to advance our strategic growth initiatives.
Brad Archer: This expansion and diversification further illustrate our ability to utilize our distinct core competencies to advance our strategic growth initiative. Our ability to provide customized solutions across industries highlights the reach of our capabilities as we continue evaluating a strong commercial growth pipeline. This pipeline is predominantly centered around large capital investments focused on modernizing critical domestic infrastructure and advancing 21st century technology. As this potential historic capital investment cycle takes shape, we have seen growing demand for hospitality solutions to support the significant workforce requirements associated with these initiatives. These opportunities include large industrial projects throughout the U.S. including technology infrastructure, increased domestic critical mineral development, and other related large capital investment programs. As a reminder, the size and scale of these growth opportunities inherently leads to longer sales cycles.
Speaker Change: Our ability to provide customized solutions across industries highlights the reach of our capabilities as we continue evaluating our strong commercial growth pipeline.
Speaker Change: This pipeline is predominantly centered around large capital investments focused on modernizing critical domestic infrastructure and advancing 20 <unk> century technologies as this potential historic capital investment cycle takes shape, we have seen growing demand for hospitality solutions to support the significant workforce requirement.
Speaker Change: Associated with these initiatives.
Speaker Change: These opportunities include large industrial projects throughout the U S.
Speaker Change: Including technology infrastructure increased domestic critical mineral development and other related large capital investment programs.
Speaker Change: As a reminder, the size and scale of these growth opportunities inherently leads to longer sales cycles. However, we are encouraged by the pace of active conversations and progress on certain initiatives.
Brad Archer: However, we are encouraged by the pace of active conversations and progress on certain initiatives. We believe these commercial growth opportunities provide meaningful long-term growth potential and are an important element of Target's strategic growth and diversification strategy.
Speaker Change: We believe these commercial growth opportunities provide meaningful long term growth potential and are on and are an important element of target strategic growth and diversification strategy.
Brad Archer: Moving to the government segment, our government segment experienced a transition as we moved into 2025. However, amidst evolving policy initiatives, Target has illustrated its ability to provide unmatched solutions, supporting a range of critical U.S. government missions. This execution underpins our ability to actively pursue a significant growth opportunity set supporting the current administration's immigration initiatives. The reactivation of our Dilley, Texas facility is progressing. And the community was able to receive an active population ahead of schedule. Our decision to maintain this community in a ready state was critical to the contract award and our ability, along with our partner, to quickly facilitate the community reopening.
Speaker Change: Moving to the government segment, our government segment experienced a transition as we moved into 2025, however, amidst evolving policy initiatives target as illustrated its ability to provide unmatched solution supporting a range of critical U S government mission.
Speaker Change: This execution underpins our ability to actively pursue a significant growth opportunity set supporting the current administration's immigration initiatives.
Speaker Change: The reactivation of our daily Texas facility is progressing.
Speaker Change: And the community was able to receive an active population are ahead of schedule.
Speaker Change: Our decision to maintain this community in a ready state was critical to the contract award and our ability along with our partner to quickly facilitate the community reopening.
Brad Archer: Regarding our West Texas assets, we are encouraged by the continued interest from the U.S. government in utilizing this readily accessible community. We have conducted numerous site visits and tours of the facility, with positive feedback indicating this community's ability to serve the current administration's policy objectives. Further, the substance of our conversations has indicated the U.S. government's desire to utilize this facility consistent with its current layout, minimizing the need for additional capital investment. However, timing remains uncertain as there are likely administrative steps required, including securing necessary funding prior to potential contract award. While we are actively remarketing our West Texas assets, we are simultaneously evaluating multiple opportunities to support immigration initiatives beyond Target's existing asset portfolio and available bids.
Regarding our west Texas assets, we are encouraged by the continued interest from the U S government and utilizing this readily accessible community. We have conducted numerous site visits and tours of the facility with positive feedback, indicating this community's ability to serve the current administration's policy objectives.
Speaker Change: The substance of our conversations has indicated the U S government's desire to utilize this facility consistent with its current layout minimizing.
Speaker Change: Minimizing the need for additional capital investment.
Speaker Change: However, timing remains uncertain as they are likely administrative step required including securing necessary funding prior to potential contract award.
Speaker Change: While we are actively remarketing, our west Texas assets, we are simultaneously evaluating multiple opportunity to support immigration initiatives beyond target's existing asset portfolio and available beds.
Brad Archer: Giving the scope of executive orders and resources required to adequately implement the government's current immigration policies, there is a significant demand for solutions aligned with Target's core copy. We are taking intentional steps to demonstrate Target's capabilities and believe there are multiple avenues to support these critical policy initiatives. Further, our strong operational reputation and partnerships with industry-leading companies uniquely positions Target to participate in many of these mission-critical solutions. In summary, the strength of our existing customer Network Capabilities and Proven Operational Flexibility support a resilient business model.
Speaker Change: Given the scope of executive orders and resources required to adequately adequately implement the governments current immigration policies. There is a significant demand for solutions align with target's core competence.
Speaker Change: We are taking intentional steps to demonstrate targets capabilities and believe there are multiple avenues to support these critical policy initiatives.
Speaker Change: Further our strong operational reputation and partnerships with industry, leading companies uniquely positions target to participate in many of these mission critical solutions.
Speaker Change: In summary, the strength of our existing customer base network capabilities and proven operational flexibility support a resilient business model. This foundation supports our continued focus on pursuing strategic growth initiatives aimed at expanding and diversifying targets contract portfolio crossed and Mark.
Brad Archer: This foundation supports our continued focus on pursuing strategic growth initiatives aimed at expanding and diversifying Target's contract portfolio across end markets.
Brad Archer: I'll now turn the call over to Jason to discuss our financial results in more detail. Thank you, Brad.
Speaker Change: Right.
Speaker Change: I'll now turn the call over to Jason to discuss our financial results in more detail.
Jason Bossage: Thank you Brad first quarter total revenue was approximately $70 million with adjusted EBITDA of approximately $22 million.
Jason Vlacich: First quarter total revenue was approximately $70 million with adjusted EBITDA of approximately $22 million. Our government segment produced quarterly revenue of approximately $26 million.
Jason Bossage: Our government segment produced quarterly revenue of approximately $26 million.
Jason Vlacich: The decrease from prior year was primarily driven by the termination of the PCC contract, effective February 21st, 2025, and partially by the termination of the South Texas Family Residential Center contract on August 9th, 2024. These declines were modestly offset by the reactivation of our Dilley, Texas assets, and the Dilley Contract Award effective March 5th, 2025. As a reminder, this contract is based on fixed monthly revenue regardless of occupancy. and it's expected to generate approximately $30 million of revenue in 2025 with over $246 million of revenue over its anticipated five-year term. However, as the community progressively reopens, 2025 monthly revenue contributions will correlate with the reactivation of each neighborhood within the facility.
Jason Bossage: The decrease from prior year was primarily driven by the termination of the PCC contract.
Jason Bossage: At February 21, 2025, and partially by the termination of the South Texas family residential center contracts on August nine 2024.
Jason Bossage: These declines were modestly offset by the reactivation of our daily Texas assets and the Daily contract Award effective March 5th 2025.
Jason Bossage: As a reminder, this contract is based on fixed monthly revenue, regardless of occupancy and is expected to generate approximately $30 million of revenue in 2025 with over $246 million of revenue over its anticipated five year term.
Jason Bossage: However, as the community progressively reopened 2025 monthly revenue contributions will quarterly with the reactivation of each neighborhood within the facility.
Jason Vlacich: Further, this paced reopening will result in lower margin contribution through the second and third quarter of 2025 prior to full reactivation.
Jason Bossage: Further this paste reopening will result in lower margin contribution through the second and third quarter of 2025 prior to full reactivation.
Jason Vlacich: We anticipate the community will be fully activated by September of 2025, at which point we will realize revenue and margin contribution commensurate with the entire 2400-bed community.
Jason Bossage: We anticipate the community will be fully activated by September of 2025 at which point, we will realize revenue and margin contribution commensurate with the entire 2400 bed community.
Jason Vlacich: Regarding our West Texas assets, as a reminder, we have decided to maintain these assets in a ready state as we actively re-market them. This decision, which is similar to the approach we took regarding our DILI assets, will result in carrying costs prior to a potential new contract award of approximately $2 to $3 million per quarter.
Jason Bossage: Regarding our West Texas assets as a reminder, we have decided to maintain these assets in a ready state as we actively re market down.
Jason Bossage: This decision, which is similar to the approach we took regarding our daily assets will result in carrying costs prior to potential new contract award of approximately $2 million to $3 million per quarter.
Jason Vlacich: Turning to our HFS and all other segments. Our HFS and all other segments delivered quarterly revenue of approximately $44 million. These segments continue to experience consistent customer demand, illustrating the value our customers find in our premium service offering and network capabilities. We have benefited from a more fully optimized HFS South segment, which continues to perform in line with our expectations in a competitive market. We're pleased with the Workforce Hospitality Solutions segment, which includes our recently announced Workforce Hub contract. Instruction activity associated with the Workforce Hub contract is pacing on schedule and generated approximately $5 million of revenue in the first quarter.
Turning to our Hff's in all other segments.
Jason Bossage: Our hff's in all other segments delivered quarterly revenue of approximately $44 million. These.
Jason Bossage: These segments continued to experience consistent customer demand illustrating the value of our customers find in our premium premium service offering and network capabilities.
Jason Bossage: We have benefited from a more fully optimized HFF South segment, which continues to perform in line with our expectations in a competitive market.
Jason Bossage: We're pleased with the workforce hospitality solutions segment, which includes our recently announced workforce have contract.
Jason Bossage: Construction activity associated with the workforce <unk> contract is pacing on schedule and generated approximately $5 million of revenue in the first quarter we.
Jason Vlacich: We anticipate that the majority of the construction revenue will be realized in the second and third quarter of 2025. with completion in the fourth quarter of 2025. As a reminder, this contract also provides for service revenue, which will support the premium workforce hub with comprehensive hospitality solutions through 2027. The contract exemplifies the benefits of our full service capabilities and establishes a long-term revenue stream.
Jason Bossage: We anticipate that the majority of the construction revenue will be realized in the second and third quarter of 2025.
Jason Bossage: With completion in the fourth quarter of 2025.
Jason Bossage: As a reminder, this contract also provides for service revenue.
Jason Bossage: Which will support the premium workforce hub with comprehensive hospitality solutions through 2027.
Jason Bossage: The contract exemplifies the benefits of our full service capabilities and establishes a long term revenue stream.
Jason Vlacich: Recurring corporate expenses for the quarter were approximately $10 million. As we move through the year, we will continue to look for opportunities to optimize our cost structure and strengthen margin contribution. Total capital spending for the quarter was approximately $21 million, including approximately $16 million of growth capital to expand strategic network capacity and support the Workforce Hub contract.
Jason Bossage: Our current corporate expenses for the quarter were approximately $10 million as we move through the year. We will continue to look for opportunities to optimize our cost structure and strengthened margin contribution.
Jason Bossage: Total capital spending for the quarter was approximately $21 million, including approximately $16 million of growth capital to expand strategic network capacity and support the workforce hub contract.
Jason Vlacich: As we previously announced on March 25, 2025, we redeemed all outstanding senior notes due in June of 2025 at a redemption price of 101% of par, resulting in an expected annual interest savings of over $19 million. Our decision to redeem the senior notes was focused on maintaining a balanced capital structure and financial flexibility as we continue pursuing a pipeline of strategic growth initiatives. We believe the current structure supports our ability to react to value-enhancing growth opportunities as they arise, while appropriately balancing our obligations.
Jason Bossage: As we previously announced on March 25, 2025, we redeemed all outstanding Senior notes due in June of 2025 at a redemption price of 101% of par, resulting in an expected annual interest savings of over $19 million.
Jason Bossage: Our decision to redeem the senior notes was focused on maintaining a balanced capital structure and financial flexibility as we continue pursuing a pipeline of strategic growth initiatives. We believe the current structure supports our ability to react to value enhancing growth opportunities as they arise while appropriately balancing.
Jason Bossage: Our obligations.
Jason Vlacich: He ended the quarter with $35 million in cash and $169 million in total liquidity with $41 million of borrowings under the company's $175 million revolving credit facility and a net leverage ratio of 0.1 times. We will continue to prudently manage the capital structure and look for opportunities to further reduce outstanding borrowings as we progress through 2025.
Jason Bossage: We ended the quarter with $35 million in cash and $169 million in total liquidity with $41 million of borrowings under the company's $175 million revolving credit facility and a net leverage ratio of <unk> one times.
Jason Bossage: We will continue to prudently manage the capital structure and look for opportunities to further reduce outstanding borrowings as we progressed through 2025.
Jason Vlacich: Target's strong business fundamentals have established a flexible and durable operating model. These elements support the company's reiterated 2025 financial outlook, which consists of total revenue of between $265 and $285 million, and adjusted EBITDA of between $47 and $57 million. Target is well positioned with a flexible operating model and optimized balance sheet as we continue evaluating a robust growth pipeline, which we believe provides the greatest opportunity to accelerate value creation for our shareholders. While we continue to thoughtfully evaluate a holistic set of capital allocation initiatives, our primary focus is growing and diversifying Target's contract portfolio. As we focus on strategic growth initiatives, we believe it is prudent to maintain the financial flexibility we have established to quickly react to value-enhancing opportunities as they arise.
Jason Bossage: <unk> strong business fundamentals have established a flexible and durable operating model. These elements support the company's reiterated 2025 financial outlook, which consists of total revenue of between 265 and $285 million and.
Jason Bossage: <unk> EBITDA of between 47% and $57 million.
Jason Bossage: Target is well positioned with a flexible operating model and optimized balance sheet as we continue evaluating our robust growth pipeline, which we believe provides the greatest opportunity to accelerate value creation for our shareholders.
Jason Bossage: We continue to thoughtfully evaluate a holistic set of capital allocation initiatives. Our primary focus is growing and diversifying targets contract portfolio as.
Jason Bossage: As we focus on strategic growth initiatives. We believe it is prudent to maintain the financial flexibility. We have established so quickly react to value enhancing opportunities as they arise.
Jason Vlacich: Importantly, as we evaluate these opportunities, we will remain focused on maintaining the strong financial profile we have established while optimizing margin contribution through our efficient operating structure.
Brad Archer: Importantly, as we evaluate these opportunities we will remain focused on maintaining the strong financial profile, we have established while optimizing margin contribution through our efficient operating structure with that I will turn the call back over to Brad for closing comments.
Brad Archer: With that, I will turn the call back over to Brad for closing comments. Thanks, Jason. Our first quarter results were supported by strong business fundamentals and continued momentum across our operating segment. We are focused on sustaining this momentum as we evaluate one of the strongest growth pipelines we have had in many years. The breadth of these opportunities spans both commercial and government and market. underpinned by strong secular tailwinds, promoting significant domestic capital investments and national security initiatives. The growth opportunities are robust, extending beyond our existing asset portfolio and across multiple end markets. We are excited about these opportunities and believe Target's capabilities and proven reputation uniquely position the company as we actively pursue these strategic growth initiatives.
Brad Archer: Thanks, Jason.
Brad Archer: Our first quarter results were supported by strong business fundamentals and continued momentum across our operating segments. We are focused on sustaining this momentum as we evaluate one of the strongest growth pipelines, we have had in many years.
Brad Archer: Breadth of these opportunities spans both commercial and government end markets.
Brad Archer: Underpinned by strong secular tailwind promoting significant domestic capital investments and national security initiatives the.
Brad Archer: The growth opportunities are robust extended beyond our existing asset portfolio and across multiple end markets.
Brad Archer: We are excited about these opportunities and believe targets capabilities and proven reputation.
Brad Archer: Uniquely positioned the company as we actively pursue the strategic growth initiatives.
Brad Archer: We remain focused on enhancing Target's business mix and contract portfolio, which we believe will accelerate value creation for our shareholders.
Brad Archer: We remain focused on enhancing targets business mix and contract portfolio, which we believe will accelerate value creation for our shareholders.
Brad Archer: I appreciate everyone joining us on the call today, and thank you again for your interest in Target Hospitality.
Brad Archer: I appreciate everyone joining us on the call today and thank you again for your interest in target hospitality, but now like to open the call for questions.
Brad Archer: I would now like to open the call for questions. Thank you.
Brad Archer: Thank you.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you use a speakerphone, please lift the handset before pressing any.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your Touchtone filing and you will hear upfront that your hand has been race should you wish to decline from the polling process. Please press the star followed by the number two if you use the speaker phone. Please.
Brad Archer: Lift the handset before pressing any keys.
Operator: One moment, please, for your first question.
Brad Archer: One moment. Please for your first question.
Stephen Gengaro: Your first question comes from Stephen Gengaro with Stifel. Please. Thanks. Good morning, everybody. Good morning.
Speaker Change: Your first question comes from Stephen <unk> with Stifel. Please go ahead.
Stephen: Thanks, Good morning, everybody.
Speaker Change: Good morning.
Brad Archer: So there's two for me. The first is just around the sort of opportunities on the idle assets and the government side. And is there, like, can you give us any kind of incremental detail about the? the conversations you're having, the opportunity to put those to work, and kind of what we should be thinking about as far as data points around it or what's driving the demand. I'm just trying to kind of get a sense from, I know you can't tell us timing or economics, but any more color around that would be helpful.
Speaker Change: So theres two for me.
Speaker Change: First is just around this.
Speaker Change: Sort of opportunities on that on the idle assets in the government side and is there.
Speaker Change: Can you give us any kind of incremental detail about the.
Speaker Change: The conversations youre, having the opportunity to put those to work and kind of what we should be thinking about.
Speaker Change: As far as.
Speaker Change: Data points around it or what's driving the demand I'm, just trying to kind of get us get a sense for.
Speaker Change: No you can't tell us timing or economics, but but any more color around that would be helpful.
Brad Archer: Yeah, Stephen, this is Brad. Good morning. Let me just kind of give you a high level on some of the things that have happened, you know, since our last call. And I'll address kind of the government segment as a whole, but specifically starting on the West Texas assets. We continue to have strong interest, as we said before, high level, you know, conversations with the government and our partners. Since our last quarterly call, we've led several tours of the facility, which has really increased the excitement around this asset. You know, as we said before, and this hasn't changed, the government fully intends to increase their bed capacity by approximately 100,000 beds.
Speaker Change: Yes, Stephen this is Brad good morning, let me just kind of give you a high level.
Speaker Change: Some of the things that has happened.
Speaker Change: Since our last call and I'll address kind of the government segment as a whole.
Speaker Change: But specifically starting on the West Texas assets, we continue to have strong interest as we said before.
Speaker Change: High level conversations with the government and our partners.
Speaker Change: Since our last quarterly call. We've led several tours of the facility.
Speaker Change: She has really increased the excitement around this asset.
Speaker Change: As we said before.
Speaker Change: And this hasnt changed the government fully intends to increase their bed capacity by approximately 100000 beds and the west Texas facility, it's ready for immediate occupancy, giving them kind of what I've said before is an easy button right for once funding is in place and at this point that that is kind of the waiting game.
Brad Archer: And the West Texas facility, it's ready for immediate occupancy, giving them kind of what I've said before is an easy button, right, for once funding is in place. And at this point, that is kind of the waiting game, right? Once funding gets in place, the budget's approved. But from all conversations we've had, we believe this facility is part of the government's acquisition plan. And we've been told that, you know, through the conversation. So we feel good about this facility and what happens to it in the future. What I would say, and as a reminder, I know there's a lot of focus always on the West Texas assets, and rightfully so.
Speaker Change: Right, what's funding gets in place that budgets are approved.
Speaker Change: From all conversations we've had we believe this facility is part of the government's acquisition plan and we've been told that through the conversation. So we feel good about this facility.
Speaker Change: And what happens to it in the future.
Speaker Change: What I would say and as a reminder, I know theres a lot of focus always on the west, Texas assets and rightfully so.
Brad Archer: But what really gets us excited is all the other potential for more beds, more opportunities to service the government. From the DOD side, to the ICE side, to other, you know, folks within the DHS community. We're seeing more and more every week that is hitting our pipeline. So, you know, in summary, I would just say, look, the opportunity set is strong. Target strong operational reputation. It positioned just well to get some of this business in the future. We put ourselves in a really good position to grow this segment. Now we need to execute, and I believe we will.
Speaker Change: But what really gets us excited is all of the other potential.
Speaker Change: For more beds more opportunities to service the government.
Speaker Change: From the Dod side to the eisai to other.
Speaker Change: Folks within the DHS community.
Speaker Change: We're seeing more and more.
Speaker Change: Every week.
Speaker Change: That is hitting our pipeline. So in summary, I would just say look the opportunity set is strong.
Speaker Change: Target strong operational reputation it positions us well to <unk>.
Speaker Change: Get some of this business in the future.
Speaker Change: We've put ourselves in a really good position to grow this segment now we need to execute and I believe we will.
Stephen Gengaro: Gotcha. Okay, great. No, that's helpful.
Speaker Change: Gotcha, Okay, great no that's helpful.
Jason Vlacich: And the other question I just had was the The contract you have on the lithium front, and just how do we think about how that, like, so what's contracted right now and kind of what that means for, for contribution this year and next? And kind of how do we think about the upside to that in 26 plus?
Speaker Change: I just had was.
Speaker Change: The.
Speaker Change: The contracts you have on the lithium front and just how do we think about how that.
Speaker Change: So whats contracted right now and kind of what that means for for contribution this year and next and kind of how do we think about the upside to that in 'twenty six plus.
Jason Vlacich: Yeah, this is Jason. So, in terms of the Workforce Hub contract, you know, this year, the majority of the revenue generated is going to be from the construction activities, which we expect to wrap up this year in Q4. You know, we think the majority of that activity is going to occur in Q2, and with the majority in Q3 and a wrap-up in Q4, that's going to contribute about $65 million of revenue for the year on the construction piece, with an estimated margin of between 25% and 30%. After that, that's when the services part kind of more fully kicks in through 2027.
Speaker Change: Yeah. This is Jason so in terms of the workforce up contract. This year. The majority of the revenue generated is going to be from the construction activities, which we expect to wrap up this year in <unk>.
Speaker Change: Q4.
Speaker Change: We think the majority of that activity is going to.
Speaker Change: Occur in Q2 with the majority in Q3 and a wrap up in Q4, that's going to contribute about $65 million of revenue for the year on the construction piece with an estimated margin of between <unk>.
Speaker Change: 25% and 30% after that that's when the services part of kind of more fully kicks in through 2027.
Jason Vlacich: So, that's the balance of that $140 million revenue contract will be attributable to services. And then on the lithium project as a whole, there's the potential for multiple phases, which we're well-positioned to participate in beyond 2027. These phases can go all the way through 2040. Yeah, that's why we really like this project, right? We like it for the first phase, but we really like it for multiple phases that they've publicly been out there and talked about. Look, as we know, GM has taken all the capacity on the first phase, a big portion already on the second phase.
Speaker Change: So thats the balance of that $140 million revenue contract will be attributable to services and then on the lithium project as a whole there is the potential for multiple phases, which we're well positioned to participate and beyond 2027. These phases can go all the way through 2040.
Speaker Change: Yes, that's why we really like this project we liked it for the first phase, but we really like it for multiple phases that they've publicly about out there and talked about.
Look as we know GM has.
Speaker Change: Taken all the capacity on the first phase a big portion already on the second phase So theyre set up pretty well to continue to extend it again, we need to continue to perform so were there some service provider and the second and the third phase on this and we believe we will so I.
Stephen Gengaro: So they're set up pretty well to continue to extend it. Again, we need to continue to perform. So where there's a service provider in the second and the third phase on this, and we believe we will. So I look at that as the upside of this, just the longevity of the project itself. Great. No, thanks for the details, gentlemen. That's great.
Speaker Change: I looked at that as the upside of this just the longevity of the project itself.
Speaker Change: Great no. Thanks for the details gentlemen, thats great.
Speaker Change: Yes.
Speaker Change: Thank you.
The next question comes from Scott <unk>.
Speaker Change: Barker with Oppenheimer. Please go ahead.
Gregory Gibas: and John Heimer. Please go ahead. Thanks very much.
Speaker Change: Thanks, very much good morning.
Gregory Gibas: Good morning. Morning, Scott. Just kind of following up on the theme of new opportunities, Brad, you did a nice job of outlining kind of what's occurred since last call with regard to West Texas. Could you – and you touched on the government opportunity as a whole. Could you – I thought I heard in there, in prepared remarks somewhere, maybe looking at things that you may not already own. And so, in the answer to this question, could you address maybe M&A or new asset consideration that you might pursue? And then maybe – that's more on the government side.
Speaker Change: Kind of following up on the on the theme of new opportunities.
Speaker Change: Brad you did nice job outlining and kind of what's occurred since last call with regard to West, Texas could you and you touched on the government opportunity as a whole could you I thought I heard in there now in prepared remarks somewhere.
Speaker Change: Maybe looking at things that you may not already owned so in the answering this question could you address maybe M&A or new.
Speaker Change: Asset consideration that you might pursue.
Speaker Change: And then maybe that's more on the on the government side and then on the nongovernment side.
Gregory Gibas: And then on the non-government side, just a discussion of – rightness of what's occurring out there.
Speaker Change: A discussion of.
Speaker Change: Miss of what's occurring out there. Thanks.
Brad Archer: Yeah, let me take the first on the non-government, kind of all things other than government, right, for you, and I'll touch base on that. Then I'll let Jason touch on on some of the other as well. But outside of the government pipeline, we continue to see very strong bid activity in large domestic infrastructure projects, such as mining, power, and data centers, to name a few. With that said, I want to spend a little time on the data center industry, more specifically, as we're seeing the need for services across the U.S. increase dramatically, and very encouraged with the progress our business development team is making here.
Speaker Change: Yes, let me take the first on the nongovernment.
Speaker Change: All things other than government right.
Speaker Change: For you and I will touch based on that then I'll, let Jason touch on on some of the other as well, but outside of the government pipeline. We continue to see very strong bid activity and large domestic.
Speaker Change: Infrastructure projects, such as mining power.
Speaker Change: And Datacenters to name a few.
Speaker Change: With that said.
Speaker Change: I want to spend a little time on the data center industry more specifically.
Speaker Change: We're seeing the need for services across the U S increased dramatically and very encouraged with the progress our business development team is making here we've talked about it a little before in the other calls.
Brad Archer: You know, we've talked about it a little before in the other calls, but we've definitely moved the ball down the field on several of these projects. These projects tend to have a three-year to six-plus years kind of a build cycle. And look, I think everybody's aware of the massive amount of capital being pumped into this industry, and there's no doubt our services are needed on many of these that we're working on. So internally, there's a lot of excitement on this data center movement, especially since our last call, as we continue, again, kind of move the ball down the field, feeling pretty good about some of these projects.
Speaker Change: But we definitely move the ball down the field on several of these projects.
Speaker Change: These projects tend to have a three year.
Speaker Change: Six plus years kind of a build cycle.
Speaker Change: And look I think everybody is aware of the massive amount of capital being pumped into this industry and there is no doubt our services are needed on many of these that we're working on.
Speaker Change: Internally there is a lot of excitement.
Speaker Change: On this data center movement.
Speaker Change: Especially since our last call we continue to again kind of move the ball down the field.
Speaker Change: Feeling pretty good about some of these projects.
Jason Vlacich: So, you know, in summary, aside from data centers, our pipeline's the strongest it's been. What we really like about it is some of these, especially in the data center, They're approved. They're shovel ready. They have the capital and they're spending it now. So we put ourselves, again, like I said, in the government, in a really good spot to execute here. And we have to go and do that. That's bottom line. But I think we're close on some of these. And on the government side, I would just say, with respect to assets, a lot of the opportunities we're looking at that are right in front of us don't necessarily require a lot of capital investment, specifically in the West Texas assets, the layout there, based on all of our conversations and facility site tours that Brad had mentioned in conversations with the government, the layout seems to fit the government's need as is, so we don't anticipate a lot of capital investment for those immediate government opportunities.
Speaker Change: Projects so.
Speaker Change: Summary.
Speaker Change: Aside from data centers, our pipelines are strong as it's been.
Speaker Change: What we really like about it is some of these especially in the data centers.
Speaker Change: They're approved they're shovel ready there is they have the capital and they are spending it now so we've put ourselves again like I said in the government in a really good spot to execute here and we just we have to go and do that that's bottom line, but I think.
Speaker Change: We're close on some of these.
Speaker Change: And on the government side I would just say with respect to assets a lot of the opportunities. We're looking at that are right in front of us don't necessarily require a lot of capital investment specifically in the West Texas assets those lay out there based on all of our conversations.
Speaker Change: Facility site tours.
Speaker Change: Brad had mentioned and conversations with the government the lay out seems to fit the governments.
Speaker Change: Need as as it is so we don't anticipate a lot of capital investment for those immediate government opportunities.
Jason Vlacich: However, if there are requirements around capital deployments, we'll certainly consider those to the extent that they're accretive, and many times those will be built into the economics in terms of reimbursement and such.
Speaker Change: However, if there are requirements around capital deployment, we will certainly consider those to the extent that they are accretive and many times those will be built into the economics in terms of reimbursement and such on the inorganic front, that's definitely still part of our diversification strategy I would look at that as more of the medium.
Jason Vlacich: On the inorganic front, that's definitely still part of our diversification strategy.
Brad Archer: I would look at that as more the medium and long term, and the immediate term we're focused on our organic growth. Yeah, just one comment on the government side there, Scott, is there is no doubt, you know, the amount of rooms we have available compared to what the government needs, if we're lucky enough to win that much, would require us to spend some capital, right? To Jason's point, it would be structured in a way where we're not stuck, you know, with that capital, we're going to, we're going to bid it into the job, we're going to get that capital back, there'll be guarantees if there's early termination, those types of things.
Speaker Change: And long term in the immediate term we're focused on our organic growth.
Scott: One comment on the government side there Scott is that there is no doubt.
Scott: The amount of rooms, we have available compared to what the government needs.
Scott: If we're lucky enough to win that much would require us to spend some capital right to Jason's point it would be structured in a way where we're not stuck.
Speaker Change: With that capital, we're going to we're going to bid it into the job, we're going to get that capital back there'll be guarantees if theres early termination those types of things. So we will structure that.
Brad Archer: So we will structure that where targets protected on that, as we always have in the past, right?
Our targets protected on that as we always have.
Scott: In the past right.
Gregory Gibas: Very good. Got it. Thanks, guys. Nice color.
Speaker Change: Very good got it thanks, guys our next caller.
Jason Vlacich: For my follow-up, I guess, Jason, probably more for you. In HFS, just curious if you could address trends in ADR, what you anticipate over the balance of the year and going forward. It's kind of a higher level of just what you anticipate from demand and obviously how that's being priced. Yep. So we always balance network optimization with ADR and utilization. The utilization you can see is slightly up from prior year. ADR is down. It's a competitive market, but nothing structurally has changed with respect to the segment. I would anticipate the remaining quarters to look somewhat similar to Q1.
Speaker Change: For my follow up I guess, Jason probably more for you in Hff's just curious.
Speaker Change: If you could address <unk>.
Speaker Change: Trends in ADR, what you anticipate over the balance of the year and going forward, it's kind of a higher level of just what you anticipate from demand and then obviously how thats been priced.
Speaker Change: Yes, so we always balanced network optimization with ADR and utilization.
Speaker Change: Utilization you can see is slightly up from prior year ADR is down it's a competitive market, but nothing structurally has changed with respect to the segment I would anticipate the remaining quarters to look somewhat similar to Q1.
Jason Vlacich: Great, thanks guys. Thank you.
Speaker Change: Great. Thanks, guys I'll turn it over.
Speaker Change: Thank you.
Gregory Gibas: The next question comes from Greg Gibas with Northland Securities. Please go ahead. Great. Hey, good morning, Brad, Jason. Thanks for taking the questions. Congrats on the results.
Speaker Change: The next question comes from Greg <unk> with Northland Securities. Please go ahead.
Speaker Change: Great Hey, good morning, Brad Jason Thanks for taking the questions congrats on the results.
Jason Vlacich: You know, to follow up on kind of the workforce hub contract, excuse me, you know, construction ramping in Q2 and Q3, completion in Q4, wondering if you could just give us a sense of kind of the financial cadence for the remainder of the year as kind of daily ramps and other factors. Yeah, so I guess the best way to put it is, you know, the majority of that activity is going to be in Q3. Q2 will be slightly below Q3. We had a minimal contribution of $5 million of revenue in Q1. It's probably less than 10% complete at that point.
Speaker Change: The follow up on kind of the workhorse for workhorse workforce hub contract excuse me.
Speaker Change: Construction ramping in Q2 and Q3 completion in Q4 I'm wondering if you could just give us a sense of kind of the financial cadence for the remainder of the year.
Speaker Change: Just kind of daily ramp is another factor as well.
Speaker Change: Yes, so I guess the.
Speaker Change: The best way to put it is that.
Speaker Change: A majority of that activity is going to be in Q3, Q2 will be slightly below Q3.
Speaker Change: A minimal contribution of $5 million of revenue in Q1.
Speaker Change: Probably less than 10% complete at that point.
Jason Vlacich: And then Q4 will be sort of more minimal wrap-up activity. On the Dilley ramp-up, the margins are going to be bottomed out in Q2 as we ramp up. It has an accelerated revenue rent schedule as we move through the first six months of the contract as neighborhoods open in phases. And so there's a natural sort of front-loading of expenses as we have to meet certain phased milestones for the reopening. But we expect the full economics on that to begin in September, the full economics associated with the full 2,400 beds. That's how the contract's structured. And Q4 will likely be the best quarter from a run rate standpoint on that contract going forward.
Speaker Change: And then Q4 will be sort of more minimal wrap up activity on the daily ramp up the margins are going to be bottomed out in Q2, as we ramp up.
Speaker Change: It has an accelerated revenue ramp schedule as we move through the first six months of the contract as neighborhoods open in phases.
Speaker Change: And so theres, a natural sort of front loading of expenses as we have to meet certain phase milestone milestones for the reopening but.
Speaker Change: But we expect the full economics on that to begin in September.
Speaker Change: The economics associated with the full 2400 beds, that's how the contracts structured.
Speaker Change: Q4 will likely be the best quarter from a run rate standpoint on that contract going forward.
Gregory Gibas: Perfect. That's really helpful. Great.
Perfect that's really helpful.
Brad Archer: And if I could follow up to just some of your previous commentary on this call, you know, could you give us an example or maybe an idea of those opportunities to assist the government on, you know, the immigration policy? beyond like existing assets like Oriole facilities. Are you saying that you would, you know, these would likely involve like an asset purchase? Or are you saying like there are other opportunities as well? I just wanted to get a sense of what the Yeah, look, we're first going to try and put out our existing anything that we have existing that we can write.
Speaker Change: Great and if I could follow up to some of your previous commentary on this call could you could you give us an example, or maybe an idea of those opportunities to assist the government.
Speaker Change: The immigration policy.
Speaker Change: Beyond like existing assets like were idle facilities or are you, saying that you would these would likely involve like an asset purchase or are you, saying like there are other opportunities as well just wanted to get a sense of what those are.
Speaker Change: Yes look we're first going to try and put out our existing anything that we have existing that we can right and then so if we exceed the beds that we have.
Brad Archer: And then so if we exceed the bed that we have in our own as far as our own resources, we would look to the open market to purchase some of that, right? Or build new on facilities. very similar to how we we ran our business for years, right? Try again, try to put out what we own today and what's not being used and then go to the open market or build new. Makes sense, thank you.
Speaker Change: And our own.
Speaker Change: Part of our own resources.
Speaker Change: We would look to the open market to purchase some of that right or build.
Speaker Change: New <unk>.
Speaker Change: On facilities.
Speaker Change: Very similar to how we ran our business for years right.
Speaker Change: Again tried to put out what we own today and what's not being used.
Speaker Change: And then go to the open market or build note.
Speaker Change: Makes sense. Thank you.
Stephen Gengaro: Thanks.
Speaker Change: Thank you.
Operator: The next question...
Speaker Change: The next question.
Stephen Gengaro: We have a follow-up question from Stephen Gengaro with Stifel, please go ahead. Thanks. Thanks for taking the follow-up. Just as a kind of a curiosity, but trying to think about your network, your lodges that serve the oil patch right now, I know you kind of haven't maybe as cleanly differentiated as you used to, but are those assets, like as part of the network that you have built to service the customers, are they basically like locked into that market at this or could there be a scenario where you like you need that level of capacity and distribution across the basins or could those assets be repurposed?
Speaker Change: We have a follow up question from Stephen <unk> with Stifel. Please go ahead.
Stephen <unk>: Thanks, Thanks for taking the follow up.
Stephen <unk>: Is it kind of a curiosity, but trying to think about your network.
Stephen <unk>: Sure.
Stephen <unk>: Rogers that serves the oil patch right now I know you kind of.
Stephen <unk>: Maybe as cleanly differentiate as you used to but are those the assets like as part of the network that you have built to service to customers are they basically like.
Stephen <unk>: <unk> locked into that market at this point or could there be a scenario, where you like do you need that level of capacity and distribution across the basins are for those assets be repurposed.
Brad Archer: Look, we have repurposed in the past, and we would definitely do that in the future, right? We're going to look to see what's available, what rates are, so we have not a lot of excess capacity, but where we do to optimize that, we would definitely look at taking some of that and just throwing this out there, using it on a data center, or using it on a mine somewhere. That is always how we look at that first. We want to be 100% maximized with our own equipment if we can, and then look outside if we need to buy something else.
Stephen <unk>: Look we have repurposed in the past and we would definitely do that in the future we're going to look to see what's available what rates are.
Stephen <unk>: So we have not a lot of excess capacity, but where we do to optimize that we would definitely look at taking some of that and just throwing this out there using it on a data center or using egg on our mind somewhere.
Stephen <unk>: That is always how we look at that first we want to be 100% maximize with our own equipment. If we can and then look outside if we need to buy.
Stephen <unk>: Something out, but all of our facilities can be used somewhere else right, whether that's in the government data center mining.
Brad Archer: But all of our facilities can be used somewhere else, right? Whether that's in the government data center, mining, other power projects, whatever. Yeah, we've done that historically, right? I mean, we've built out the government segment with HFS assets, basically, that were underutilized. So, we can quickly repurpose those assets. That's the benefit of having a flexible asset base. And look, to be clear, some of the bids in our pipeline, that's exactly how they're bid, with taking some. of our owned equipment that's set up and using it somewhere else.
Stephen <unk>: Other power projects whatever yes.
Stephen <unk>: Yes, we've done that historically right after having built out the government segment with Hff's assets basically that were underutilized. So we can quickly quickly repurpose those assets. That's the benefit of having a flexible asset base and look to be clear some of the bids in our pipeline that's exactly how they are bid.
Stephen <unk>: Taking some.
Stephen <unk>: Our owned equipment that set up and using it somewhere else.
Brad Archer: Okay, and then as a follow-up, is there... I'm trying to figure out a level of contractual commitment you have to your energy customers that you will have a certain amount of assets in certain basins over a certain period of time. I'm just trying to understand the flexibility of doing that or like are you locked in. because of contractual commitments to having this many rooms available across this large of a swath of land over time. I'm just trying to get a better sense for that. Yeah, let me be, let me be clear. And that's a that's a very good question.
Stephen <unk>: Okay.
Stephen <unk>: As a follow up is there.
I'm trying to figure out is it like a level of contractual commitment you have to your energy customers that you will have a certain amount of assets in certain basins over a certain period of time, but I'm just trying to understand the flexibility of doing that or like you've locked in.
Stephen <unk>: Because of sort of contractual commitments, having just many rooms available across this large of a swath of land over time, I'm, just trying to get a better sense for that.
Stephen <unk>: Yes, let me, let me be cleared and Thats a very good question.
Stephen <unk>: We're absolutely committed to the Permian basin for our oil and gas customers right.
Brad Archer: We are absolutely committed to the Permian Basin for our oil and gas customers, right? We have a big network there. So we would not mothball the network. We have definitely large contracts that we need to continue to service. And it's great business, right? It doesn't take a lot of capital. We're pretty consistent as far as occupancy where we've been, but there's opportunity to maximize the efficiencies there as far as, you know, putting taking those rooms out if we needed them and putting them somewhere else without hurting our customer base. Great, that was what I was looking for and I didn't ask the question as smoothly as I could have.
We have a big network there. So we would not mothball the network, we have definitely large contracts that we need to continue to service that and it's great because it doesn't take a lot of capital.
Stephen <unk>: We're pretty consistent as far as occupancy, where we've been but there is opportunity to maximize.
Stephen <unk>: The efficiencies there as far as putting taking those rooms out if we needed them and putting them somewhere else without hurting our customer base.
Stephen <unk>: Yes.
Stephen <unk>: I'm just looking forward I didn't ask the question as smoothly as I could have thank you.
Brad Archer: Thank you.
Stephen <unk>: Oklahoma.
Stephen <unk>: Okay.
Stephen <unk>: Thank you.
Operator: There are no further questions at this time.
Speaker Change: There are no further questions at this time I would now like to turn the call over to Brad Archer for closing remarks. Please go ahead.
Brad Archer: I would now like to turn the call over to Brad Archer for closing remarks. Please go ahead. Thank you. Yeah, thanks to all of you who have joined the call today and we look forward to speaking again on our second quarter call and we appreciate your support of Target Hospitality.
Speaker Change: Thank you, yes, thanks to all of you who have joined the call today and we look forward to speaking again on our second quarter call and we appreciate your support of target hospitality.
Operator: Operator, that will conclude our call for today. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Speaker Change: Operator that will conclude our call for today. Thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.