Target Hospitality Corp.

Good morning and welcome to the Target Hospitality first quarter 2023 ERNICS conference call. All participants will be in listen-only mode. Should you need assistance, please press After today's presentation, there will be the opportunity to ask questions. To ask a question, you may press star and one on your touchstone telephone. To withdraw your question, please press star and two. Please note the event is being recorded. I would now like to turn the conference over to Mark Skook, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Target Hospitality's first quarter 2023 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. 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 9th, 2023. 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 investor 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 Eric T. Calamares, Executive Vice President and Chief Financial Officer. After their prepared remarks, we will open the call for questions. I'll now turn the call over to our Chief Executive Officer, Brad Archer. Thanks, Mark.

Good morning, everyone, and thank you for joining us on the call today. Our strong first quarter performance reflects the positive business momentum we have sustained over the past year, which has supported many strategic achievements. We have meaningfully diversified the business and revenue mix, with over 70% of revenue now derived from committed contracts backed by the United States government. These high-graded contracts have provided enhanced revenue and cash flow visibility, supporting over $339 million of discretionary cash flow over the last 12 months, representing an impressive discretionary cash flow yield to revenue of approximately 60% over that time. These accomplishments have solidified Target's balance sheet with over $350 million of cumulative debt reduction since 2020. and an 80% improvement in Target's net leverage ratio over the past year. We have significantly transformed Target's operating platform while continuing to serve our existing world-class customers and simultaneously positioning the business to quickly respond to strategic growth opportunities. In our HFS South segment, we have remained focused on providing premium, full-service hospitality solutions to our world-class customers many of whom have been customers for over a decade. As a result, Target continues to benefit from consecutive quarterly increases in customer demand, resulting in a 15% year-over-year increase in utilization with consistent customer renewal rates over 90%, which we have enjoyed for over seven years. This continued strong demand and positive customer outlooks supported the acquisition of select community assets in the first quarter, to appropriately align our network capacity with an existing customer's growing labor allocation requirements. In addition, the strategic location of these assets enhances Target's regional presence and provides opportunities to further expand our premier customer base. We are pleased with our current HFS utilization and its ability to meet our strong customer demand, while benefiting from the more fully optimized network we have created over the past year. Regarding our government segment, our purpose-built portfolio of assets continue to serve the critical humanitarian aid mission that they were designed to support, while exceeding the expectation of our partners and the U.S. government since our first community was established in 2014. Further, the U.S. government has continued to state its urgent need for additional humanitarian housing capacity, particularly with the impending removal of Title 42. which is anticipated to result in a substantial increase of individuals crossing the U.S. southwest border. In preparation for this meaningful increase in demand and to ensure uninterrupted access to existing humanitarian housing solutions, including targets expanded humanitarian community, the U.S. government has indicated it intends to exercise the existing contract six-month option. This decision will allow for seamless continuity of the service offering at the expanded humanitarian community and serve as a bridge prior to long-term contract specification being finalized. As previously discussed, our nonprofit partner was awarded an indefinite delivery indefinite quantity contract related to the extension of our humanitarian community in Pecos. As a reminder, this award consisting of a base five-year term with an additional five-year option establishes the contracting vehicle required by the U.S. government to appropriately fund multi-year contract awards. The IDIQ award to our nonprofit partner is one of the final steps in the government's contract award process prior to working through definitive agreements. We remain highly pleased with the ongoing discussions with the U.S. government and our nonprofit partner, and we anticipate working through additional contract specifications over the coming months. with likely culmination in the fall of this year. We look forward to solidifying the longevity of this community and the critical humanitarian mission it was purpose-built to support. In summary, we have achieved our strategic objectives to materially strengthen Target's financial position while simultaneously diversifying our customer base and continuing to accelerate value creation for our shareholders. I'll now turn the call over to Eric to discuss our first quarter financial results 2023 outlook, and capital allocation initiatives in more detail. Thank you, Brad.