Target Hospitality Corp.

Hello and welcome to Target Hospitality's second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. Please note this event is being recorded. I would like now to turn the conference over to Mark Schuch, Senior Vice President, Investor Relations and Financial Planning. Please go ahead.

Thank you. Good morning, everyone, and welcome to Target Hospitality's second quarter 2023 earnings call. The press release we issued this morning outlining our second 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, August 9, 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 record-setting second quarter results reflect the positive momentum we have sustained over the past year. We have established significant operational flexibility and scale, enabling us to appropriately match customer demand while continuing to generate strong financial results. We continue to benefit from our materially expanded presence, providing critical hospitality solutions to the U.S. government. This intentional focus has resulted in over 70% of second quarter revenue being derived from committed contracts backed by the United States government, with 78% of second quarter revenue having minimum revenue commitments. These elements supported over $368 million of discretionary cash flow over the last 12 months, representing an impressive discretionary cash flow yield to revenue of over 61% over that time. This materially enhanced operating platform has allowed Target to efficiently serve its world-class customers while positioning the company to quickly respond to strategic growth opportunities, all while continuing to generate impressive operating income. 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 an 18% year-over-year increase in utilization with consistent customer renewal rates of over 90%, which we have enjoyed for over seven years. We continue to benefit from these strong demand fundamentals and the more fully optimized network we have created over the past year. These elements have supported a more normalized pricing environment, and we anticipate continued positive momentum in the coming quarters. Regarding our government segment, our purpose-built portfolio of assets continue to serve the critical humanitarian aid mission they were designed to support, while exceeding the expectation of our partners in the U.S. government since our first community was established in 2014. Targets communities are frequently visited by the agencies they serve, as well as adjacent agencies, and consistently receive the highest government ratings on all of their operating specifications and metrics. This is a testament to the world-class solutions we have created to serve the specific needs of the U.S. government's humanitarian mission. Regarding our existing Pecos Children's Center community, as we previously announced, several key milestones have been achieved related to securing a long-term contract for this community. Our existing nonprofit partner was awarded an indefinite delivery, indefinite quantity contract, which establishes the contracting vehicle required by the U.S. government to appropriately fund multi-year contract awards. Importantly, the performance of work statement coinciding with the IDIQ contract materially aligns with the existing specifications and capabilities of PCC. This is significant as our community has established a blueprint for the government's desired influx care facility sites. Further, in connection with the performance of work statement, the government outlined their desire to increase their ICF capacity to accommodate up to 10,000 individuals, requiring a total of three influx care facility contract awards or two in addition to the established PCC community. As the government has continually stated, additional humanitarian housing capacity is urgently needed to manage the increasing number of unaccompanied children arriving into the U.S. These ICF sites are critical to the U.S. government and paramount in their ability to adequately support surge capacity in excess of existing shelter capacity, which has remained static for many years. In response to the government's stated desire to increase their ICF capacity, we have partnered with multiple established government service providers and jointly submitted several solutions for new ICF sites. These new ICF sites are in addition to the established PCC community and our ongoing relationship with our nonprofit partner. In summary, we have positioned Target to participate in a much larger influx care opportunity set than just PCC. We remain committed to our existing nonprofit partner and the exceptional community and service offering we have jointly created at the Pecos facility. We have also expanded our strategic government service partnerships and jointly submitted several bids across numerous geographic locations for the creation of new ICF solutions for the U.S. government. I'll now turn the call over to Eric to discuss our second quarter financial results, expanding humanitarian focus, and capital allocation initiatives in more detail.