Target Hospitality(TH) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Highlights Financial Highlights Target Hospitality reported a significant decrease in Q2 2025 revenue and a net loss, primarily due to government contract terminations, while maintaining strong liquidity and announcing substantial new multi-year contracts, reflecting progress in strategic diversification Financial Highlights | Metric | Q2 2025 ($'000s) | Q2 2024 ($'000s) | | :-------------------------- | :---------------- | :---------------- | | Revenue | 61,606 | 100,721 | | Net income (loss) | (14,918) | 18,366 | | Income (loss) per share – basic | (0.15) | 0.18 | | Income (loss) per share – diluted | (0.15) | 0.18 | | Adjusted EBITDA(1) | 3,503 | 52,179 | - Net Cash Provided by Operating Activities for the six months ended June 30, 2025, was $15.0 million[7] - Approximately $170 million of total available liquidity, with a net leverage ratio of 0.1x as of June 30, 2025[7] Operational Achievements Target Hospitality secured over $400 million in new multi-year contracts in 2025, including a strengthened Workforce Hub Contract ($154M through 2027) and a 5-year $246 million Dilley Contract, demonstrating successful strategic diversification - Target announced over $400 million in multi-year contracts in 2025, supporting diverse end-markets and making substantial progress toward achieving key strategic initiatives[7] - Strengthened multi-year workforce hub contract now expected to generate approximately $154 million of revenue through 2027, supporting a North American critical mineral supply chain[7] - Announced 5-year $246 million contract award, reactivating strategically located South Texas assets in Dilley, Texas, supporting critical U.S. government initiatives[7] Executive Commentary President and CEO Brad Archer highlighted remarkable progress in expanding and diversifying Target's business portfolio, securing over $400 million in new contracts, emphasizing strong momentum, an unprecedented domestic investment cycle, and increased government demand as drivers for robust growth, focusing on strategic goals and shareholder value - Target has made remarkable progress in strategic initiatives to expand and diversify its business portfolio, announcing two new contracts valued at over $400 million in the first half of 2025[4] - Strong momentum, combined with an unprecedented domestic investment cycle and increased demand in the government sector, supports the most robust growth pipeline seen in years[5] Detailed Financial Results Second Quarter Summary Financials Target Hospitality's second quarter 2025 financial performance saw a significant decline in revenue, net income, and Adjusted EBITDA compared to the prior year, primarily due to contract changes Second Quarter Summary Financials | Metric | June 30, 2025 ($'000s) | June 30, 2024 ($'000s) | | :-------------------------- | :--------------------- | :--------------------- | | Revenue | 61,606 | 100,721 | | Net income (loss) | (14,918) | 18,366 | | Income (loss) per share – basic | (0.15) | 0.18 | | Income (loss) per share – diluted | (0.15) | 0.18 | | Adjusted EBITDA(1) | 3,503 | 52,179 | | Average utilized beds | 7,482 | 14,370 | | Utilization | 45 % | 89 % | Revenue Analysis Revenue for Q2 2025 decreased to $61.6 million from $100.7 million in Q2 2024, mainly due to the termination of the Pecos Children's Center (PCC) and South Texas Family Residential Center (STFRC) contracts, partially offset by the new Dilley Contract and growth in the Workforce Hub Contract - Revenue for the three months ended June 30, 2025, was $61.6 million, a decrease from $100.7 million for the same period in 2024[8] - The decrease was primarily attributable to the government segment, driven by the termination of the Pecos Children's Center Contract (PCC Contract) effective February 21, 2025, and partially by the termination of the South Texas Family Residential Center Contract (STFRC Contract) effective August 9, 2024[9] - These decreases were partially offset by the Dilley Contract award effective March 5, 2025, and growth in the WHS operating segment attributable to the Workforce Hub Contract[9] Net Income and Adjusted EBITDA Analysis Target Hospitality reported a net loss of $(14.9) million and Adjusted EBITDA of $3.5 million for Q2 2025, down from a net income of $18.4 million and Adjusted EBITDA of $52.2 million in Q2 2024, primarily due to decreased revenue and higher operating expenses related to construction services for the Workforce Hub Contract - Net income (loss) was $(14.9) million for the three months ended June 30, 2025, compared to $18.4 million for the same period in 2024[10] - Adjusted EBITDA was $3.5 million for the three months ended June 30, 2025, compared to $52.2 million for the same period in 2024[10] - The decreases in net income (loss) and Adjusted EBITDA were primarily attributable to the decrease in Revenue and higher operating expenses primarily related to construction services activity associated with the Workforce Hub Contract[11] Capital Management Target Hospitality invested approximately $6.0 million in capital expenditures during Q2 2025, focused on strategic diversification, maintaining strong liquidity with $19 million in cash and equivalents, $24 million in borrowings on its credit facility, and approximately $170 million in total available liquidity, resulting in a net leverage ratio of 0.1 times as of June 30, 2025 - Approximately $6.0 million of capital expenditures for the three months ended June 30, 2025, primarily focused on enhancing asset capabilities aligned with strategic diversification initiatives[12] - As of June 30, 2025, the Company had approximately $19 million of cash and cash equivalents and borrowings of approximately $24 million on the Company's $175 million credit facility[12] - Total available liquidity of approximately $170 million and a net leverage ratio of 0.1 times as of June 30, 2025[12] Business Update and Full Year 2025 Outlook Strategic Diversification Progress Target Hospitality is making significant progress in expanding and diversifying its business, securing over $400 million in multi-year contracts in 2025 across various industries, leveraging its vertically integrated solutions for remote workforce communities - Target continues to make significant progress towards its primary strategic objectives of expanding and diversifying the Company's business portfolio, while simultaneously establishing attractive growth platforms underpinned by robust long-term growth trends[13] - This progress has facilitated numerous multi-year contract awards in 2025, totaling over $400 million[13] - Target's distinctive capacity to deliver vertically integrated solutions, ranging from community construction to comprehensive turnkey hospitality services, aligns seamlessly with the holistic hospitality platform required by these remote workforce communities[17] Workforce Hub Contract Update The Workforce Hub Contract, supporting a North American critical mineral supply chain, has seen scope expansion and community enhancements, which will shift some expected services revenue to 2026 due to additional construction in 2025, but increases the total contract value to approximately $154 million, with potential for further expansion - The Workforce Hub Contract includes both construction and services revenue, with community enhancements requiring additional construction activity in 2025[15] - Additional construction activity will shift a portion of the expected services revenue into 2026 but will increase the total contract value to approximately $154 million[15] - Target believes there are further opportunities for expanded contract scope and term extension for the Workforce Hub Contract[15] Data Center Community Development Target is in advanced contract discussions for a multi-year lease and services agreement for a Data Center Community, supporting the rapidly expanding AI and data center market, with preliminary construction having begun and further economic details to be provided upon contract finalization - Target's capabilities have supported advanced contract discussions for the anticipated Data Center Community, which will support the rapidly expanding AI and data center end-market[16] - Preliminary construction activity has begun for this highly customized community as contract discussions conclude[16] Government Sector Initiatives Target's established presence in the government sector led to the five-year, $246 million Dilley Contract, highlighting its ability to provide essential infrastructure and hospitality solutions for critical U.S. government initiatives, with the company anticipating continued strong demand from this sector - Target's established presence in supporting critical infrastructure solutions for the U.S. government provided the foundation of its five-year, $246 million Dilley Contract[18] - This contract highlights Target's dynamic capabilities in responding to critical U.S. government policy initiatives and delivering a range of essential infrastructure and hospitality solutions[19] - Target believes it is uniquely positioned to support these mission-critical services and the continued strong demand from the government sector[19] Full Year 2025 Outlook Driven by robust momentum and the expansion of the Workforce Hub Contract, Target Hospitality has increased its full-year 2025 outlook for total revenue and Adjusted EBITDA - The robust momentum and positive environment, combined with the expansion of the Workforce Hub Contract scope, support the Company's increased 2025 outlook[19] Full Year 2025 Outlook | Metric | Full Year 2025 Outlook | | :---------------- | :--------------------- | | Total revenue | $310 - $320 million | | Adjusted EBITDA(1) | $50 - $60 million | Segment Performance Government Segment The Government segment's revenue significantly decreased in Q2 2025 due to the termination of the PCC and STFRC contracts, partially offset by the new Dilley Contract, with increased contributions expected from this segment as the Dilley community becomes fully operational in H2 2025, and an $11.8 million reimbursement secured for PCC Contract close-out costs Government Segment Performance | Metric | June 30, 2025 ($'000s) | June 30, 2024 ($'000s) | | :------------------ | :--------------------- | :--------------------- | | Revenue | 7,487 | 59,860 | | Adjusted gross profit | (1,080) | 48,844 | - Decreases were primarily driven by the termination of the PCC Contract effective February 21, 2025, and partially by the termination of the STFRC Contract effective August 9, 2024, partially offset by the Dilley Contract award effective March 5, 2025[21] - The Company anticipates increased contributions from this segment as the Dilley community becomes fully operational following the Dilley Contract ramp-up period in the second half of 2025[21] - An agreement for the close-out and settlement of the PCC Contract will result in a payment to the Company of approximately $11.8 million[22] Hospitality & Facilities Services - South Segment The Hospitality & Facilities Services - South segment experienced a slight revenue decrease in Q2 2025, but maintained consistent customer demand and utilization rates, with average utilized beds increasing slightly, reflecting the company's ability to optimize assets in a competitive market Hospitality & Facilities Services - South Segment Performance | Metric | June 30, 2025 ($'000s) | June 30, 2024 ($'000s) | | :------------------ | :--------------------- | :--------------------- | | Revenue | 36,166 | 38,232 | | Adjusted gross profit | 10,547 | 13,065 | | Average daily rate (ADR) | 69.62 | 74.33 | | Average utilized beds | 5,632 | 5,595 | | Utilization | 76 % | 76 % | - Target's premium service offering and network scale continue to support consistent customer demand, enabling unparalleled solutions and robust asset optimization[24] Workforce Hospitality Solutions Segment The Workforce Hospitality Solutions segment generated $15.0 million in revenue and $3.7 million in adjusted gross profit in Q2 2025, a new contribution attributable to construction services activity associated with the multi-year Workforce Hub Contract, highlighting successful strategic growth initiatives Workforce Hospitality Solutions Segment Performance | Metric | June 30, 2025 ($'000s) | June 30, 2024 ($'000s) | | :------------------ | :--------------------- | :--------------------- | | Revenue | 15,042 | — | | Adjusted gross profit | 3,687 | — | - The increases were attributable to construction services activity associated with the multi-year Workforce Hub Contract, further illustrating the Company's successful progress on key strategic growth initiatives[27] All Other Segment The 'All Other' operating segment, comprising hospitality services not included elsewhere, saw a slight increase in revenue to $2.9 million in Q2 2025 from $2.6 million in Q2 2024, and turned a positive adjusted gross profit All Other Segment Performance | Metric | June 30, 2025 ($'000s) | June 30, 2024 ($'000s) | | :------------------ | :--------------------- | :--------------------- | | Revenue | 2,911 | 2,629 | | Adjusted gross profit | 102 | (234) | - This category of operating segments consists of hospitality services revenue not included in other segments[28] Corporate Information & Disclosures Conference Call Target Hospitality scheduled a conference call for August 7, 2025, at 8:00 a.m. Central Time to discuss Q2 2025 results, accessible via live webcast or phone - A conference call is scheduled for August 7, 2025, at 8:00 a.m. Central Time (9:00 am Eastern Time) to discuss the second quarter 2025 results[30] - The call will be available by live webcast through the Investors section of Target Hospitality's website or by phone[30] About Target Hospitality Target Hospitality is a leading North American provider of vertically integrated modular accommodations and value-added hospitality services, building, owning, and operating customized communities with a full suite of services for diverse end-users - Target Hospitality is one of North America's largest providers of vertically integrated modular accommodations and value-added hospitality services in the United States[33] - The company builds, owns and operates a customized and growing network of communities for a range of end users through a full suite of value-added solutions including premium food service management, concierge, laundry, logistics, security and recreational facilities services[33] Cautionary Statement Regarding Forward Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements, emphasizing that actual results may differ materially due to various factors including operational, economic, political, and regulatory risks, market competition, and reliance on third parties, with the company disclaiming any obligation to update these statements - Statements in the press release are 'forward looking statements' subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially[34] - Important factors include operational, economic (including inflation), political and regulatory risks; competition; effective management of communities; natural disasters; changes in demand; reliance on third-party manufacturers; and ability to retain key personnel[34] - The company undertakes no obligation to update or revise any forward-looking statements, except as required by law[34] Non-GAAP Financial Measures (Definitions and Utility) Target Hospitality uses non-GAAP financial measures like Adjusted gross profit, EBITDA, and Adjusted EBITDA to assess financial performance, service debt, fund capital expenditures, and expand business, with these metrics excluding certain non-cash items and non-core business transactions to provide a clearer view of operating performance, though they are not GAAP alternatives - Non-GAAP financial measures (Adjusted gross profit, EBITDA, Adjusted EBITDA) are used by management to assess financial performance and are key metrics for evaluating operating performance[36] - EBITDA is defined as net income (loss) before interest expense, income tax expense, depreciation of specialty rental assets, and other depreciation and amortization, used to measure ability to service debt, fund capital expenditures, and expand business[39] - Adjusted EBITDA further adjusts EBITDA to exclude certain non-cash items and transactions not related to core business operations, such as transaction expenses, stock-based compensation, and changes in fair value of warrant liabilities[39][40] - These non-GAAP measures are not GAAP financial performance measures and should not be considered alternatives to GAAP measures or cash flow from operating activities[44] Investor Contact For investor inquiries, contact Mark Schuck at (832) 702 – 8009 or ir@targethospitality.com - Investor Contact: Mark Schuck, (832) 702 – 8009, ir@targethospitality.com[45] Consolidated Financial Statements Consolidated Statements of Comprehensive Income (loss) The consolidated statements of comprehensive income (loss) show a shift from net income in Q2 2024 to a net loss in Q2 2025, driven by decreased revenue and increased service costs, impacting earnings per share significantly Consolidated Statements of Comprehensive Income (loss) | Metric | Three Months Ended June 30, 2025 ($'000s) | Three Months Ended June 30, 2024 ($'000s) | | :------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total revenue | 61,606 | 100,721 | | Gross profit | (328) | 46,870 | | Operating income (loss) | (16,918) | 29,551 | | Income (loss) before income tax | (17,855) | 25,278 | | Net income (loss) | (14,918) | 18,386 | | Net income (loss) attributable to Target Hospitality Corp. common stockholders - basic | (0.15) | 0.18 | | Net income (loss) attributable to Target Hospitality Corp. common stockholders - diluted | (0.15) | 0.18 | Condensed Consolidated Balance Sheet Data Target Hospitality's balance sheet as of June 30, 2025, shows a decrease in total assets and total liabilities compared to December 31, 2024, primarily due to a significant reduction in cash and cash equivalents and the current portion of long-term debt Condensed Consolidated Balance Sheet Data | Metric | June 30, 2025 ($'000s) | December 31, 2024 ($'000s) | | :----------------------------------- | :--------------------- | :------------------------- | | Cash and cash equivalents | 19,237 | 190,668 | | Total current assets | 83,047 | 249,336 | | Total assets | 533,714 | 725,774 | | Total current liabilities | 56,619 | 233,404 | | Long-term debt, net | 24,000 | — | | Total liabilities | 132,529 | 304,684 | | Total stockholders' equity | 401,185 | 421,090 | Condensed Consolidated Cash Flow Data For the six months ended June 30, 2025, Target Hospitality experienced a significant decrease in cash and cash equivalents, primarily due to substantial net cash used in financing activities, despite positive net cash provided by operating activities Condensed Consolidated Cash Flow Data | Metric | Six Months Ended June 30, 2025 ($'000s) | Six Months Ended June 30, 2024 ($'000s) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash and cash equivalents - beginning of period | 190,668 | 103,929 | | Net cash provided by operating activities | 15,001 | 89,696 | | Net cash used in investing activities | (24,911) | (16,137) | | Net cash used in financing activities | (161,543) | (23,187) | | Change in cash and cash equivalents | (171,431) | 50,367 | | Cash and cash equivalents - end of period | 19,237 | 154,296 | Non-GAAP Reconciliations Reconciliation of Gross Profit to Adjusted Gross Profit The reconciliation shows that Adjusted gross profit for Q2 2025 was $13.3 million, a significant decrease from $61.7 million in Q2 2024, primarily due to the negative GAAP gross profit before depreciation adjustments Reconciliation of Gross Profit to Adjusted Gross Profit | Metric | Three Months Ended June 30, 2025 ($'000s) | Three Months Ended June 30, 2024 ($'000s) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | | Gross Profit | (328) | 46,870 | | Depreciation of specialty rental assets | 13,584 | 14,805 | | Adjusted gross profit | 13,256 | 61,675 | Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA Target Hospitality's EBITDA and Adjusted EBITDA saw substantial declines in Q2 2025 compared to Q2 2024, reflecting the shift from net income to net loss and reduced operational profitability, even after accounting for non-cash and non-core adjustments Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA | Metric | Three Months Ended June 30, 2025 ($'000s) | Three Months Ended June 30, 2024 ($'000s) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net income (loss) | (14,918) | 18,386 | | EBITDA | 748 | 48,264 | | Adjusted EBITDA | 3,503 | 52,179 |