Target Hospitality Reports Impressive Second Quarter 2024 Results with Continued Strong Operational Performance

Press Release

THE WOODLANDS, Texas, Aug. 7, 2024 /PRNewswire/ — Target Hospitality Corp. (“Target Hospitality”, “Target” or the “Company”) (NASDAQ: TH), one of North America’s largest providers of vertically-integrated modular accommodations and value-added hospitality services, today reported results for the three months ended June 30, 2024.

Financial and Operational Highlights

• Revenue of $100.7 million for the three months ended June 30, 2024.
• Net income of $18.4 million for the three months ended June 30, 2024.
• Basic and diluted income per share of $0.18 for the three months ended June 30, 2024.
• Adjusted EBITDA⁽¹⁾ of $52.2 million for the three months ended June 30, 2024.
• Strong cash generation with approximately $39.1 million of Net Cash Provided by Operating Activities and $32.8 million of Discretionary Cash Flow⁽¹⁾ (“DCF”) for the three months ended June 30, 2024.
• Strong cash generation with approximately $39.1 million of Net Cash Provided by Operating Activities and $32.8 million of Discretionary Cash Flow⁽¹⁾ (“DCF”) for the three months ended June 30, 2024.
• Continued progress towards achieving zero net debt by year end 2024.
• Materially enhanced financial position supports continued evaluation of a robust pipeline of potential diversifying growth opportunities.

Executive Commentary

“The second quarter performance illustrates the benefits of our efficient operating model and network capabilities which allow us to provide premium solutions to our world-class customers, while simultaneously delivering strong financial results,” stated Brad Archer, President and Chief Executive Officer.

“These attributes have consistently supported the achievement of our financial goals and have established an enhanced financial position centered on the strength of our balance sheet and robust liquidity profile.  These elements support our ability to continue providing premier hospitality solutions to our customers, while simultaneously evaluating opportunities to grow and diversify our contract portfolio,” concluded Mr. Archer.

Financial Results

Second Quarter Summary Highlights

 

Revenue was $100.7 million for the three months ended June 30, 2024, compared to $143.6 million for the same period in 2023.

Net income was $18.4 million for the three months ended June 30, 2024, compared to $46.5 million for the same period in 2023.

Adjusted EBITDA was $52.2 million for the three months ended June 30, 2024, compared to $90.9 million for the same period in 2023.

The year over year decreases were primarily driven by non-cash, nonrecurring, infrastructure enhancement revenue amortization (“Infrastructure Revenue Amortization”) associated with the Company’s Pecos Children’s Center (“PCC”) community within the government segment.  As previously announced, on July 8, 2022, the Infrastructure Revenue Amortization was associated with material expansion and enhancement of the PCC community and was fully amortized as of November 2023.

Capital Management

The Company had approximately $8.6 million of capital expenditures for the three months ended June 30, 2024.  Capital expenditures were predominantly focused on enhancing and maintaining Target’s modular accommodations across its expansive network.

As of June 30, 2024, the Company had approximately $154 million of cash and cash equivalents with approximately $329 million of total available liquidity, no outstanding borrowings on the Company’s $175 million credit facility, and a net leverage ratio of 0.1 times.

Business Update and Full Year Outlook

Target’s robust operating platform, network flexibility and commitment to maximize operational efficiencies has established an enhanced financial position.  These attributes support a highly durable and flexible operating model centered on an optimized balance sheet and liquidity profile.

These strengths support Target’s continued evaluation of a robust pipeline of organic growth opportunities focused on diversifying Target’s contract portfolio and broadening the Company’s customer reach.  These opportunities remain centered on Target’s full-turnkey hospitality solutions as well as expanding Target’s value chain participation through individual elements of existing core competencies.  Importantly, as Target evaluates these opportunities there remains a sharp focus on maintaining its strong financial position through disciplined capital deployment.

As previously announced, on June 10, 2024, the Company received notice that the U.S. government intends to terminate the South Texas Family Residential Center contract (“STFRC Contract”), effective in 60 days, or on or about August 9, 2024.  Target’s 2024 outlook gives effect to the recent STFRC Contract termination.

Regarding Target’s PCC community, since 2021, the PCC community has served as a cornerstone to the U.S. government’s critical domestic humanitarian aid mission supporting unaccompanied minors and the Company anticipates a normal course renewal of this contract in November of 2024.  However, given the dynamic fluctuations in community population, Target believes it prudent to exclude from its 2024 outlook any incremental PCC variable revenue.

Target’s contract portfolio provides a high degree of revenue visibility, coupled with an efficient operating structure, these elements support strong cash generation and an optimized balance sheet.  As such, the Company is reiterating its 2024 outlook of:

• Total revenue between $375 and $385 million
• Adjusted EBITDA⁽¹⁾ between $184 and $190 million
• Total capital spending between $25 and $30 million, excluding acquisitions
• Zero net debt by year end 2024
• Year end 2024 total available liquidity exceeding $350 million

TDR Proposal Update

On March 25, 2024 Target announced that the Board of Directors of Target Hospitality (“the Board”) received an unsolicited non-binding proposal from Arrow Holdings S.à r.l. (“Arrow”), an affiliate of TDR Capital LLP (“TDR”), to acquire all of the outstanding shares of common stock of Target Hospitality that are not owned by any of Arrow, any investment fund managed by TDR or any of their respective affiliates, for cash consideration of $10.80 per share (the “Proposal”).

The Board has established a special committee of independent directors (the “Special Committee”), and the Special Committee has retained Centerview Partners LLC and Ardea Partners LP as its financial advisors and Cravath, Swaine & Moore LLP as its legal advisor.  The Special Committee continues its review and evaluation of the Proposal, as well as evaluating alternative proposals and other strategic alternatives.

The Special Committee has made no decision at this time with respect to the Proposal, and the Company does not undertake any obligation to provide any updates with respect to the Proposal or any other transaction, except as required by applicable law or other regulatory requirements.  There can be no assurance that any transaction will result from the Special Committee’s evaluation of the Proposal, or, if so, the timing, terms and conditions of such transaction.

Segment Results – Second Quarter 2024

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