0001104659-26-058542
SEC filingRevenue grew 4% YoY to $72.8M, but net loss widened to $12.9M due to lower-margin WHS mix and PCC Contract termination.
For the three months ended March 31, 2026, Target Hospitality reported total revenue of $72.8 million, a 4% increase from $69.9 million in the prior-year period. The growth was driven by a $18.4 million surge in the WHS segment, partially offset by a $12.3 million decline in the Government segment due to the termination of the PCC Contract. Services income fell 7% to $46.5 million, while specialty rental income rose 11% to $16.6 million and construction fee income more than doubled to $9.7 million.
Gross profit plummeted 62% to $6.9 million, with gross margin contracting from 25.7% to 9.5%. The decline was primarily attributable to a $11.0 million increase in services and construction costs (up 31%), driven by WHS segment growth and the lower-margin construction phase of the Workforce Housing Contract. Selling, general and administrative expenses decreased slightly to $14.6 million, while other expense, net ballooned to $2.6 million from $0.3 million, largely due to $1.6 million in community pre-opening costs in the WHS segment.
Net loss widened to $12.9 million from $6.5 million, reflecting the margin compression and higher operating costs. Adjusted EBITDA fell 54% to $9.9 million, as the loss of high-margin PCC Contract revenue and the predominance of lower-margin construction income weighed on profitability. Interest expense, net decreased 79% to $0.9 million following the early redemption of the 2025 Senior Secured Notes in March 2025.
HFS – South: Revenue declined 8% to $33.1 million, driven by lower utilization. Adjusted gross profit fell 24% to $8.4 million, partially offset by reduced community operating costs.
WHS: Revenue surged 354% to $23.6 million, fueled by new contract awards including the Data Center Community Contract and West Texas Power Community, as well as the progression of the Workforce Housing Contract from construction to services. Adjusted gross profit jumped to $9.3 million from $1.3 million, though margins were tempered by $1.4 million in short-term mobilization costs.
Government: Revenue dropped 48% to $13.4 million, as the PCC Contract termination eliminated $24.1 million in revenue, partially offset by $11.8 million from the DIPC Contract reactivation. Adjusted gross profit fell 74% to $5.0 million, with margins pressured by $1.8 million in residual carrying costs for legacy West Texas Community assets.
All Other: Revenue decreased 8% to $2.7 million, with adjusted gross profit turning negative.
Management expects margins to improve through 2026 as WHS segment contracts (West Texas Power, Pecos Power, Data Center Hub) ramp up. The Data Center Hub Contract, with an estimated $550 million in minimum revenue over five years, is expected to begin occupancy in Q3 2026. Growth capital expenditures for 2026 are projected at $330 million to $340 million, net of customer advances and asset redeployments, primarily to support WHS expansion. The company maintains $145 million of undrawn capacity under its ABL Facility, but may seek additional financing if growth opportunities exceed available liquidity.
Operating cash flow of $7.0M exceeded the net loss of ($13.0M), indicating solid cash generation from operations after non-cash add-backs (depreciation $16.2M, amortization $3.4M, stock-based compensation $1.7M). The primary driver of the improvement versus the prior year was a favorable swing in accounts receivable ($10.5M inflow vs. $7.6M outflow) and higher deferred revenue ($11.2M vs. $0.3M). However, a large working capital outflow in accounts payable and other accrued liabilities ($22.1M) partially offset these gains.
Capex intensity was very high at $32.8M (mostly specialty rental assets), far exceeding operating cash flow and resulting in negative free cash flow of ($25.8M). The company relied on net ABL borrowings ($30.0M) to fund the investment gap. Dividends paid to noncontrolling interest were minimal ($0.1M). The cash balance declined by $2.9M to $5.5M.
Anomalies: The large swing in accounts receivable and deferred revenue suggests timing of customer payments and project milestones. The non-cash change in accrued capital expenditures of ($5.5M) indicates capex was partially financed through payables in prior periods.