Market Overview

Target Hospitality Announces Third Quarter 2019 Results

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  • Revenue of $81.6 million, up 35%
  • Net income of $9.6 million and Adjusted net income(1) of $11.3 million, up 14%
  • Adjusted EBITDA(1) of $40.6 million, up 30%, with Adjusted EBITDA margin(1) of 49.7%
  • Net cash provided by operating activities of $25.5 million; $42.6 million when excluding $17.1 million in cash paid for interest

Target Hospitality Corp. ("Target Hospitality" or the "Company") (NASDAQ:TH), the largest provider of vertically-integrated specialty rental accommodations with premium catering and value-added hospitality services in the U.S., today reported results for the third quarter ended September 30, 2019.

Financial and Operational Highlights for the Third Quarter 2019

  • Revenues increased to $81.6 million, up 35% year-over-year, led by growth in the Permian Basin
  • Net income of $9.6 million, and Adjusted net income of $11.3 million, up 14% year-over-year
  • Basic and diluted earnings per share of $0.10, and Adjusted earnings per share(1) of $0.11
  • Adjusted EBITDA of $40.6 million, up 30% year-over-year with Adjusted EBITDA margin of 49.7%
  • Increased average utilized beds to a record 10,340, up 41% year-over-year, driven by a combination of acquisitions and organic bed additions
  • Continued robust cash generation; excluding cash paid for interest of $17.1 million, net cash provided by operating activities of $42.6 million for the quarter
  • Integration of communities acquired from Superior Lodging and ProPetro progressing according to plan; converted all four recently acquired communities into full turnkey facilities
  • Two new communities in Carlsbad, New Mexico and Orla, Texas became operational for a total of 600 beds, with expansion activities for an additional 200 beds on track

"Our third quarter 2019 results demonstrate the resiliency of our business as we made meaningful progress in executing our growth plans. Target Hospitality crossed 13,000 total beds and operated over 9,000 total beds in the Permian Basin, which were all time records for the company," said Brad Archer, President & Chief Executive Officer of Target Hospitality.

"Target Hospitality also successfully integrated two acquisitions, completed construction and started operations at two brand new communities, and generated a record amount of cash flow from operations. These achievements are noteworthy, and the Company remains focused on executing highly accretive growth initiatives, which is a core tenet of our business strategy. Looking ahead, our revenue visibility remains strong with no significant contract roll-offs next year. We remain focused on factors within our control, and look forward to executing our business strategy and delivering exceptional results," concluded Mr. Archer.

Financial Results – Third Quarter 2019(2)

Summary Highlights

Refer to exhibits to this earnings release for reconciliation of non-GAAP financial measures to GAAP financial measures

Three Months Ended

($ in ‘000s, except ADR and per share amounts)

September 30,

2019

 

September 30,

2018

 

Change

Revenue

$81,643

 

$60,326

 

35%

Net income

$9,569

 

$849

 

1,027%

Earnings per share – basic and diluted

$0.10

 

$0.02

 

400%

 

 

 

Adjusted net income

$11,336

 

$9,922

 

14%

Adjusted earnings per share(1) – basic and diluted

$0.11

 

$0.26

 

(58%)

 

 

 

Adjusted EBITDA

$40,610

 

$31,233

 

30%

Adjusted EBITDA margin

49.7%

 

51.8%

 

(203 bps)

 

 

 

Average daily rate (ADR)

$80.8

 

$82.7

 

(2%)

Average available beds

12,485

 

8,595

 

45%

Average utilized beds

10,340

 

7,358

 

41%

Utilization

83%

 

86%

 

(3%)

Total revenue for the third quarter of 2019 increased by 35% to $81.6 million compared to $60.3 million for the third quarter of 2018. This revenue growth was driven by new bed additions resulting primarily from acquisitions, new communities, and expansions, partially offset by lower ADR. Net income for the third quarter of 2019 was $9.6 million, or $0.10 per share. This compares to net income for the third quarter of 2018 of $0.8 million, or $0.02 per share. Excluding certain after-tax charges of approximately $1.8 million, Adjusted net income for the third quarter of 2019 was $11.3 million, or $0.11 per share.

Adjusted EBITDA increased by 30% to $40.6 million for the third quarter of 2019 compared to $31.2 million for the third quarter of 2018. Adjusted EBITDA margin was 49.7% compared to 51.8% for the third quarter of 2018. Adjusted EBITDA margin declined primarily due to slightly higher selling, general and administrative expense in the third quarter of 2019, partially offset by lower operating costs due to improved cost optimization.

ADR decreased by approximately $1.9, or 2%, to $80.8 for the third quarter of 2019 compared to ADR of $82.7 for the third quarter of 2018. This decrease in ADR was primarily due to a lower average ADR from the acquired Signor communities. Excluding the Signor communities, ADR at the remaining communities remained relatively stable on a year-over-year basis. Average available beds were 12,485 for the third quarter of 2019, an increase of 3,890 beds or 45%, compared to 8,595 average available beds for the third quarter of 2018. Average utilized beds, which represents contracted and paid for beds, were 10,340 for the third quarter of 2019, an increase of 2,982 utilized beds or 41%, compared to 7,358 average utilized beds for the third quarter of 2018. Utilization, which represents the proportion of average available beds that are contracted and paid for, was 83% for the third quarter of 2019 compared to 86% for the third quarter of 2018. The year-over-year decrease in utilization was due to a comparatively higher number of new bed additions in the third quarter of 2019 that had not been contracted as of quarter end.

Continued strong operating performance and reduced working capital requirements resulted in significant cash generation during the third quarter of 2019. The Company reported $25.5 million of net cash provided by operating activities for the third quarter of 2019. Excluding $17.1 million in cash interest paid, net cash provided by operating activities was $42.6 million for the quarter.

Portfolio Expansions and Acquisitions

The Company commenced operations at two new communities during the third quarter of 2019 – a 400-bed community in Carlsbad, New Mexico previously announced in February 2019 and a 200-bed community in Orla, Texas previously announced in May 2019. Like the Company's other communities, these two new communities are underwritten by multi-year contracts that include Target Hospitality's full suite of turnkey accommodations and hospitality services. Expansion activities to add 100 beds at each of these two new communities are currently underway. The additional 200 rooms are expected to be operational in the fourth quarter of 2019.

Integration of three Texas communities in Orla North, Orla South, and Kermit acquired from Superior Lodging late in the second quarter, and one community in Midland, Texas acquired from ProPetro early in the third quarter is progressing according to plan. Target Hospitality signed a long-term contract with ProPetro concurrent with the acquisition transaction closing and continues to focus on contract conversions for the former Superior Lodging communities. In addition, Target Hospitality completed the conversion of all four communities into full turnkey facilities with 24-hour catering and value-added hospitality services.

Capital Management

Capital expenditures for the third quarter of 2019 were approximately $27.0 million. Capital expenditures related to investments in new community development and expansion, along with upgrades and conversions at the Signor communities were $21.6 million. Capital expenditures also included the $5.0 million purchase price for the acquisition of one community in Midland, Texas from ProPetro on July 1, and maintenance capital expenditures of $0.4 million.

As of September 30, 2019, the Company had $3.5 million of cash and cash equivalents, and $410.0 million of long-term debt, which included $340.0 million in aggregate principal amount of its Senior Secured Notes due 2024 and borrowings of $70.0 million under its $125.0 million revolving credit facility. The Company had consolidated net leverage of 2.4x as defined in the credit facility.

As of November 12, 2019, the Company repurchased 2,080,900 shares of its common stock for approximately $13.1 million. The stock repurchases were executed pursuant to the $75.0 million stock repurchase program announced on August 16, 2019 and represent approximately 17.5% of total share repurchase authorization executed to date. This repurchase program may be suspended from time to time, modified, extended or discontinued at any time. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. Any shares of common stock repurchased will be held as treasury shares.

For the third quarter of 2019, the Company had 100,102,641 weighted average shares of common stock outstanding, excluding the 5,015,898 shares of common stock issued and held in escrow.

(2) The results presented in this press release reflect the combined results of Target Lodging and Signor for the third quarter of 2019 and only include the results of Signor from September 7, 2018 onward for the third quarter of 2018.

Segment Results – Third Quarter 2019

Permian Basin

Refer to exhibits to this earnings release for reconciliation of non-GAAP financial measures to GAAP financial measures

Three Months Ended

($ in ‘000s, except ADR)

September 30,

2019

 

September 30,

2018

 

Change

Revenue

$56,524

 

$34,278

 

65%

Adjusted gross profit(1)

$33,285

 

$20,430

 

63%

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