Target Hospitality (TH) Tops Q3 EPS by 4c, Revenues Beat; Offers FY20 Revenue Mid-Point Guidance Above Consensus

Target Hospitality (NASDAQ: TH) reported Q3 EPS of ($0.08), $0.04 better than the analyst estimate of ($0.12). Revenue for the quarter came in at $48.3 million versus the consensus estimate of $42.26 million.

Financial and Operational Highlights for the Third Quarter 2020

• Revenues of $48.3 million for the three months ended September 30, 2020 as compared to $81.6 million for the same period in 2019
• Net income (loss) of $(7.9) million for the three months ended September 30, 2020, compared to a net income of $9.6 million for the third quarter of 2019
• Basic and diluted (loss) per share of $(0.08) for the three months ended September 30, 2020
• Adjusted EBITDA(1) of $17.0 million, compared to $40.6 million for the third quarter of 2019
• Strong cash generation in a challenging environment, with net cash provided by operating activities of $28.6 million and Discretionary Cash Flow ("DCF") (1) of $27.8 million for the nine months ended September 30, 2020
• Strong balance sheet with liquidity of $64.1 million and net leverage of 4.1 times as of September 30, 2020
• Maintaining focus on utilizing $15 million of third quarter discretionary cash flow to reduce borrowings on the Company's revolving credit facility
• Meaningful project activity from TC Energy Corporation's Keystone XL pipeline project, contributing approximately $11.6 million in revenue
• Renewed and extended lease and services agreement with CoreCivic, Inc. ("CoreCivic") servicing the South Texas Family Residential Center ("STFRC") for five years, expiring September 2026, securing approximately $265 million in previously uncontracted revenue

Executive Commentary

"As we continue to navigate through a challenging operating environment, Target produced solid third quarter results across our business. We continued to experience positive trends in customer activity levels, providing steady improvement in Target's operating metrics, from lows experienced during the second quarter, including occupancy and utilization. These trends, along with the Company's contract structure, including exclusivity, allowed us to benefit from improving customer demand for our premium accommodations across our network. Further, Target is benefiting from the cost reduction initiatives it outlined early in the second quarter, which have created a leaner and more efficient operating structure. This has allowed Target to meet the increase in accommodation demand with little incremental cost, resulting in margin expansion during the quarter. As these trends materialized, we maintained our heightened focus on preserving our financial strength, evidenced by our strong cash generation and disciplined capital allocation, providing the ability to reduce our outstanding borrowings by $15 million during the quarter," stated Brad Archer, President and Chief Executive Officer.

"While we remain encouraged by the increase in demand for our services offerings and continued stabilization in customer activity levels, we are cognizant that the economic recovery remains fragile. The pace of the global demand recovery remains volatile and could be slowed, or paused, if the persistent global pandemic results in heightened restrictions being reimplemented on resurging economic activity. Amidst these market uncertainties, we remain focused on maintaining our strong financial position with an emphasis on preserving our liquidity position. Targets premium accommodation network has achieved substantial scale within our operating areas, allowing us to reduce capital spending and continue generating meaningful cash flow from operations over the long term," concluded Mr. Archer.

GUIDANCE:

Target Hospitality sees FY2020 revenue of $207-212 million, versus the consensus of $208.12 million.

Business Update

Target continued to see steady improvements in its operating metrics during the third quarter, as customer activity levels stabilized and demand for its Permian Basin accommodations increased. Target anticipates these trends will continue, at a moderated pace, through the rest of the year and into 2021 providing persistent stabilizing fundamentals. However, as market uncertainty remains Target will also be focused on maintaining financial strength through balance sheet flexibility and ongoing debt reduction.

Target has executed a five-year renewal and extension of its government services contract with CoreCivic, servicing the STFRC. The five-year extension will expire September 30, 2026 and adds approximately $265 million in committed revenue, at the current facilities and catering services rate, over the contract term. The combination of this government services contract renewal with CoreCivic and recent contract modifications has added, in the aggregate, over $325 million in committed revenue from 2021 into 2026.

Targets core business remains strong, and its customer base and contract structure, including exclusivity, have allowed the Company to take advantage of stabilizing market trends that reflect an increased demand for its premium hospitality and accommodation services. These trends support the Company's revised 2020 financial outlook. As a result, the Company is reiterating its previously issued revised 2020 financial outlook of:

• Total revenue between $207 and $212 million
• Adjusted EBITDA(1) between $67 and $72 million
• Total capital spending between $8 and $12 million, excluding acquisitions
• Discretionary Cash Flow between $27 and $32 million

Target anticipates limited activity related to the TCPL project for the remainder of 2020, as a result the revised 2020 revenue outlook excludes additional revenue related to this project for the remainder of 2020.

For earnings history and earnings-related data on Target Hospitality (TH) click here.

You May Also Be Interested In

• Tesla plans 'flying' Roadster stunt at SpaceX Texas site as early as August
• Pro Diversity Network (IPDN) Reports Q2 Loss of $0.15
• Star Equity Holdings (STRR) Misses Q2 EPS by 8c