TH - Earnings call transcript Q3 2021 | Target Hospitality Corp.

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Operator

Good morning, and welcome to the Target Hospitality's Third Quarter 2021 Earnings Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Mark Schuck, Senior Vice President of Investor Relations. Please go ahead.

Mark Schuck

Thank you. everyone. morning, Good Target to quarter earnings XXXX And Hospitality's call. welcome third our we The in outlining of issued our release the third Section found morning be this press could quarter Investor website. results

well sensitive today's XXXX. this will same call disclaims addition, only amend website as a statements applicable law. language November information, in to regarding applies except as time. circumstances limited this which the as accurate or replay may are or events contain language on in that forward- In looking note cautionary statements date, will to for the Target as statements, a conference arise Please conference required forward-looking of today, archived reflect call today's call on be press the update any time by XX, information call. our contained This expressly of to contained Hospitality release. made The obligation after

and a future risks For may refer SEC. the filings list please Target affect performance, complete Hospitality's with periodic of uncertainties that to

Brad our remarks, for Officer, Kalamaras, Brad Chief Executive to questions. of prepared referenced followed joined President discuss in and Leading We be turn Vice table Executive call. GAAP corresponding refer to Archer. the T open today's Please Chief financial our the call Troy a on Archer, the measures call the and Officer will Chief GAAP Section measures the call website Officer. find reconciliation GAAP today Schrenk, posted Eric I'll financial of earnings to Investor in and call and release their we'll our President by today's non in measures. non- their Chief will Executive be, by Financial After Officer; over now Commercial

Brad Archer

and for everyone. in margins experienced demand resulted fundamentals strengthened and demand reflection Thanks third are And to take the XX% action the since consistent the increased facility premium intentional quarter customers Target's increase today. results These over Since operating we here demand. Target of of a renewal the in segments. Target's joining demonstrates demand XXXX attributes And customer class allocating call XX% appropriately you This holistic utilization our service by execution has continued years. direct labor allocation have customers their world Top hospitality of Demand HFS building to across find best-in-class offerings. it XXXX, continue Target objectives. support on network XXXX. supported many taken hospitality strategic and in enjoyed value increases XXXX. offerings. throughout XX services for we rate, in customer advantage and have to This premier our labor over of in has exceptional robust an supported throughout Target's service thank have which expansion of Mark. its to in position have for have us Target's mid morning, over customer Good XX% has

flexibility, its This cash in operating XX% strengthening growth are requirements. and with intentional operating the towards have These net flow a has leverage in target allowed Target's structure. robust enhance from optimization in its business XXXX. diversifying reduction has and increases, we're an efficient margin to and directed efficiencies simultaneously of a generation, materially operational which accelerated in mix has accomplishments reduction our to debt have created the contribution utilize Target's resulted This significant and negligible while pipeline. been ideal ratio focus position. each establishing financial approaching maximizes operating capital of we scale Target's This beginning and ideal utilization optimization resulted network As bed structure the benefit from environment within level an meaningful network creates

full anticipated over representing focus, has Additionally, quarter its year revenue. with XX% its government now advanced segment of diversification and Target third

contracts our continue As ability Midwest and in we assets government segment of our generate to to our optimize optimization, focus be the to our network to returns. the existing flexibility This from of our utilized on highest service HFS relocated a number we within recently assets segment. network illustrates

pursue value translate our enhancing company pursue illustrated so, strategic have ability these We appropriately range have growth to across United continue to offerings. of doing of States to a initiatives. growth the support a enhancing Target expanding the which while to a unique execute through its diversified markets strategy to our reach systematically opportunities in simultaneously we capabilities of the By focused provide objectives. position its on end service and critical focused providing Target's the government. on portfolio established trajectory opportunity pursuing will variety on value remaining

Our established to critical our variety existing creates across of aid services, support core humanitarian including platform to agencies. utilize avenues efforts a competencies federal

evaluating and across underpinned Target's and is strengths opportunities commercial services the offerings legacy services. Additionally, offerings the initiatives service These diversification by currently a commercial markets. critical holistic a markets. and existing range our existing commercial multiple portfolio. suite include core offerings, These initiatives other Target's maintenance, asset building pipeline management, create broadening inorganic expansion include within growth identified government our both and facilities and a of operation, accommodation of robust services and focused Target levers are support and has end extend beyond broad of

active critical of government agencies solutions. service humanitarian in our comprehensive to relates government, to viewed productive premier Target's set, providing continued the solutions. US multiple and favorably for it various their to Target's regarding services have permanent is offering these continue humanitarian offering and with opportunity support avenues conversation need by we government expand As

by sure government. frequency our dialogue with encouraged contract never outcome, ongoing very successful of we the be and a the are US of scope we While can

solutions. strategically We vertically as premier have and leader positioned North Target America's integrated hospitality

Target's its accelerate and enhanced growth greatest We evaluate value value greatest expand Target growth leadership by business have and opportunity opportunities, and identifying capabilities which to identify provides to effectively transitioning mix believes its creation. pipeline. capture accomplished has these the to and this creation intentionally long-term the intentionally operational it

of on the ongoing as Eric more into the solutions. encouraged been represents to America's North results third and have is initiatives throughout financial growth the which results The initiatives XXXX. positive We impressive, in I'll outlook and to our momentum our second expectations. strategic our to while made progress progress illustrated year. priorities discuss has exceeded is of And our momentum premier for our strategic the progress experience now as have this raised in in we integrated financial by over our our staying detail. anticipate shareholders. strategic hospitality vertically positioning This outlook, increase our to call our executing as have provider illustrated turn benefits and sustained XXXX We XXXX and creating to we continue financial value XXXX, focused quarter recently this

Eric Kalamaras

This support our $XX impressive flow flow EBITDA exceptional total for third Good quarterly of a you, and demand Thank discretionary improvement cash and everyone. $XX XX% in discretionary in of revenue. with In $XX fifth hospitality Brad. modular continued with core in million yield value cash revenue the quarter, third realized we million approximately morning, solutions. million, to performance, added consecutive experienced accommodations operating adjusted metrics, representing our premium improvements an

year. compared of produced revenue Our period a $XX of was of to which XXXX, US the the million contributed result The government in contract March government approximately approximately significant in million segment in last the $XX $XX increase quarterly quarter. executed revenue same million

supported government reminder, States segment by contract fully a government Target's contracts, revenue by over backed respective As minimum the are is which their United terms.

increase service year. in Target's HFS This customer by $XX same premium strengthening to segments commercial delivered second million areas. $XX supported revenue the period offerings of Our sustained by activity quarter was for our last service momentum within and million compared driven demand

to chain inflationary pressure demand As our us adjust our benefit service impacts our and input resulting We active the an pace activity flexibility, on associated continues allows pressure. monitor cost supply the from economic mitigate strengthening and in momentum to of primary build, any services. pricing we approach costs managing impacts of our to continue economic offering components to cost which take from

quarter ranges input we our have services cost our impacted point. recently EBITDA, in such, significant updated financial within expenses had increases commensurate were have outlook. $XX current Despite for for reflected remained and margin costs. costs not expectation this increase the And within within have have not the As approximately corporate our The at revenue materially we our expected our corporate and of million.

us have business allows model minimal We growth to that expand substantially costs. highly a excess with scalable

of providing ended $XX non and million with growth leverage anticipate as coupled our including $XXX liquidity on million XXXX. new are approximately in towards we a maximizing million $XX of return the Because on $X a remain remainder invested capital capital, government As a capital total industry the and million, directed million government not the well enhanced with spending, level flexibility. capital. return minimal do high invested Target's on as additional financial segment services and services of focused of has We X.Xx. generation remain result, requirements We debt, of leading were which million net and quarter cash available cash XXXX. approximately anticipate with recurrent significant for $X expenses per ratio achieving maintenance quarter we award an we quarter million have corporate capital for $XXX $X capital approximately expenditures within enhancements Total to around the of significantly through

so to several we continue remain on Importantly our our next for sheet this and continue flexibility, as focused expect we that can Target trend balance accelerate investors, to growth. we in quarters the

our target Xx. a ratio As made significant result, progress being end company net XXXX year leverage the has below towards

and third of provisions and activity the remainder provide contracted is These a approximately for services. our of accosted We contractual commercial by related strong XX% of are perspective, payment XX% the of with confidence offerings. Target's under committed XXXX. contract, midpoint excited service the results approximately for demand committed and revenue revenue demand and quarter strengthening in of elements XXXX supported cadence outlook XX% have associated Target's to has revenue government From

now a with target in $XXX million XXXX. this excluding increases year between and $XX impressive, result, million of and sustained XXXX flow acquisitions, and The has consists our a raised $XX throughout outlook. $XXX experienced is Xx to multiple to full leverage and which net $XXX between ratio led to we between momentum EBITDA $XX outlook, year end XXXX per discretionary Adjusted our capital million million revenue $XXX as and million recently cash and million. million $XX Now financial million below spending, Target

this ability as financial market enhancing meaningful strategy growth. reach over The adjacent our EBITDA our on XXXX opportunity current has in accelerated positive will our of to by a reduction, our foundation enhance greatest additional XX% market services has balanced pursue financial accomplish to leader flow to These significant integrated sets and on modular unique markets capabilities that and made revenue well existing growth channels flexibility potential competencies in through believe solutions The service with markets. have profile strategically within progress economic and creates and strategic greatest providing has selected a we focus highly turning Target core America's a financial as Target's solutions. expanding experienced as a outlook customers on strategic momentum Our With anticipate portfolio the offer maximize a the We hospitality of world intentionally these our generates XXXX cash platform increase Target's government reaching growth full to its XX% year debt positioned focus execute adjusted that initiatives. to end revenue its and our best-in-class respectively. portfolio while substantial to growth utilizing vertically Target potential class the offerings, represents North commercial returns. add long-term focusing conversion. services solutions. margins capabilities attractive asset a to value while We established principles fleet broad existing of proposition. network itself offer premier, optimizing and

efficient Additionally, our leading strategic and us cash These Target's maintenance growth growth to allows into flows principles This discretionary meaningfully characteristics complementary requires significant asset cash markets, fleet aligning to long-term little strategy, of discussing materialize. stakeholders. reinvest expanding our profile flow. Target's capital, with We pipeline. financial I'll strengthen growth greatest to opportunities to returns, With value and forward creation for believe we progress to for comments. that, economic visibility, the these closing Brad as our call look revenue our accelerate the create turn which back increase over opportunity

Brad Archer

and Eric. modular leader quarter illustrate Target's benefits third America's accommodation of impressive solutions. position North unique the results Thanks in as hospitality Target's

varying strategic exemplifying While Target's strength commitment and objectives, to significantly allowed position and enhancing strategic supporting meet our customers to has to our pursuing our operational and our commitment our financial position, us on growth while executing strategy. exceed needs, Target's

to into in have sustained We this we amount created focus initiatives. will And look momentum as utilize tremendous of on our and XXXX, growth a momentum we XXXX. strategic

of opportunities to to United a including expands range This to growth the a have identify to focused support enhancing steps markets, across We evaluate critical of offerings. additional capabilities and balanced of intentional portfolio variety a taken enhance on our end set States value government. effectively opportunity services service providing

the Importantly, thank for initiatives Target's in existing And you these creates core joining to appreciate our shareholders. call the optimal utilize I Target creation believe your for on scenario interest growth which accelerate we value again today. Hospitality. everyone competencies, us

Operator

comes [Operator Instructions] Our Oppenheimer/ from first Schneeberger question Scott with

ScottSchneeberger

very Thanks everyone. regard Has any with follow that established And with to XXXX. well, I'd well, potential guess there? in renewed, morning, new to up much. as March that new like of I'll Thank a any asking question, contract. all. regard one you was contracts developments extended, by that there the front start contract developments government discussions I year been Good Believe with up has then to government? was are the a ask

BradArcher

Hey, is Scott. Brad. morning, this Good

Let here segment. cover and the me off -- on in expansion I'll extensions, government

look, performing and So, contracts existing US continue as existing access with government, have customer -- conversations we the the services West to consistent our marks the continue on premium offer on receive extending we the to we Texas. the expected, that high performing to in contract contract, they're

XXXX. the March confident I on of feel And the XXXX. think contract extension runs very of a remember existing through quarter to first of by the it's important term end successful we

got we've XX% look, left contract. So, on about this

after further the the of but the a again, of think, conclusion by and -- road first down moves it I the first happening, to are year, the end comes quarter. gets it discussions

efforts. US Additionally, providing the premier solutions itself hospitality government remember, US span permanent important trusted established by It's has established Target of the administrations. government. humanitarian term its three to I two comprehensive would long also say now the Target the That's as aid reputation the for solutions has provider different hospitality largest throughout

in With backdrop growing and the need the more active business, solutions. and I more this are expansions on So government government various think that's having regarding with conversations important an we point. for new productive aid humanitarian agencies

While is the conversations leave headed. a facility. good to would these we Very that we're that's It how Last in than and in a similar forward of conversations about on very be certain, thing government, can built contract, this we as a move normal. feel and out I'll this It's but mature do location, this, the never about at XXXX. we it approach year-to-year feel segment very permanent moving we active new I not most. built daily, And slower are say very a where and very started we outcome not good new great basis. little now that of kind to both us. on seven But is they this years,

So how we with moving is feel very comfortable along. this

ScottSchneeberger

probably segment. from I then average quarter; that, was up pass daily the think for Great, the This second revenue XX XX in and keep government more it is the I'll thanks in one that over. Brad. third And Eric, up for in follow quarter. it But I'll just the quick

probably quarter contribution in second had when you quarter. March the think gotten I from full contract

curious what that that there? So something increases. escalator inflation just Thanks. based Is or an else

EricKalamaras

Sure, Scott. Are the quarter? referring to sequential you

ScottSchneeberger

Yes, quarter-over-quarter.

EricKalamaras

Sure.

that's question. So good -- it's

all really look, -- the rata as is increased to to you've quarter. It's just benefit, move it that's from So right got you pro the the reality is.

can So see you that.

that was and in a had are that benefit. scope. first -- moving last into there there see large as we we were change the we a orders, through project But You quarter are scale still process recall that have was number, moving really that quarter, -- did

that. result So that, benefit this of got additional quarter as from we a

seeing. what really that's you're So

recognizing positive was in because were So QX, movements it there in but scope of as and some scale ADR there QX. relates it

Scott Schneeberger

Got here it. bit and maybe Thanks. And little or Thanks. wait off has or a it probably see. topped more,

Eric Kalamaras

the looking look, things. the a look, government question, the is, of scope scale No, and at lot

posted now. a and movement with not that and And always there's scope not going there. so I is say in I that scale. in there's I'm we to to But seeing increase. work scale scope opportunity increase have think mean I right what we're for what not look, would and positive decrease

Operator

with question comes from Stephen Our next Gengaro Stifel.

Stephen Gengaro

start should $XX.X until seems million you I is to gentlemen. quarter? guided be about? sequentially. EBITDA there's down bridge can feels morning, you're the in like things anything of Three just which it to expectations seasonality. there I'll give Good $XX.X like, with like on But us Thanks. else the fourth to Because your we million me, there adjusted a little know is thinking it

Eric Kalamaras

percent you're things, seasonality Look, impact I no, does there in a the Yes, have the we right; couple think is that, quarter. that so. don't

need to not want talked phone probably that. you through to specific think any haven't nothing but of in are don't about, I really have accounted the do you happy that the look, haven't there in on already, interest, specific going that we going you call, So you anything after if QX. I mind But already it's get that we on bear for on nuances and specific think that walk think

Stephen Gengaro

we're Okay, next in growth spending XX% the thanks. hearing year, US to I think which is upstream XX% When reasonable.

rise get you inflation as that in same like productivity mid-teens, rate our will probably the and HFS If utilized cost, roughly is something segment? up at that your beds there's

Eric Kalamaras

question. Sure. Good

Sure, the directly So, spending customer that coming spending the numbers look, capitals the of large are customers. our capital to seen to it's capital bulk those we is haven't extent from the I important really to providers allocation? remember our tied integrated think human that

the we're from thing, the which really with right. think numbers I so is companies, private And and and seeing, small same we're seeing

capital, right. human a is there's due XXXX that of certainly anticipated component that to not So capital

from just well. other So as inflationary pressures

positive just seen we've all capital spending. do We like through would in XXXX, caution correlation to just see that a we to So direct see XXXX. continue expect to I momentum that would there

we in there And to too any spending so just would necessarily. read much point cautious see numbers are put we XXXX our saying. at time this headline, of be don't outlook I abatement capital the until you that though they into

Stephen Gengaro

if And than can do think I you correct work am me you if -- directly EMP. but more wrong, I related I directly think I'm is your service

So Halliburton liberty busy? public are private as and matter if others to the and does if suspending, just it

Eric Kalamaras

capital Sure, to from, the of extent where it that comes right. matters the that bulk the spending

capital where if obviously, so et like cetera, obviously with And swing from. can nominal companies you're Exelon, number dealing Chevron, total comes the that spend

I is mind. not, that need cautious wrong. you correlation the not concept it's so one a in But to just tying to And to that. your about bear think one It's of one

The what I'll versus lag out is point level. capitals have other tend quarter happens about account between thing we to the at today spending a

So well, just mind little bear that as tend as a be do in on we well. lagging to that that bit

Stephen Gengaro

business one that's impact be had the Does do And I'll But open. aware there's still quick potential curious what And all? FPSI, of? Lodge. buyer? back line, in do work [Indiscernible] the or you for potential one in with them. you of third And an pretty do business pending me. imagine should quarter. I I'm with that's you Great. I get if sure that searching Or not I'm Just I'm anything if for at curious sure FPS more acquisition the you

Troy Schrenk

that long for anticipate a for moves potential this will for Steven, again, definitely regarding time. Troy. period that morning. been long relationship, business are forward, continuing question intact we to combination, a and transaction of that has service as we have customer that is continue. time which And Good Good

specifically, expect Basin, question are not that future. So continue we the entire to FPSI one the point throughout Permian in regarding at and wasn't continue your that them I to facility facility servicing open and while is think there

Stephen Gengaro

and if it with Can if business whether you additive, you're be comment buyer you're their could not? actually potential doing

Troy Schrenk

of think as we right, of of piece have. I it's and the estate. Look, network size we even that in with always of combinations, more sheer that number And we of customers business we're mergers real mile doing acquisitions when XX,XXX we've square and the about who Permian past, the service talked that business not, been the across than favorable think Basin because

customers, said, would work this I you outcomes. oilfield with of continue given large that, penetration the regardless the our into that M&A expect So other I tell fully service with to do to FPSI, marketplace, and

Operator

Our next Research. Doug with question Benchmark comes from Becker

Doug Becker

and on on going Thanks. I a margins just little more in drove is sequential decline? what the gross little expectation and detail government looking color South HFS of a more was forward decrease what given for in that services the

Eric Kalamaras

was to full so question commitment, other per take ramp started. giving pretty Sure, answer period, do, the similar you may Similar substantial that minimum contracts when a not contract it first many on I'll good that both. government to full which it but so getting getting is the revenue first, Scott, was had contract. occupancy that we you're to be

the you happens what loaded to due you end relative to margin, up is to with so the higher a revenue spending front And contract. are just higher facilitate cost

contracts end normalizing As looking more through you higher it that of you it's time, so you're steady a state, a number. mature the of get as a start comp up, occupancy need to off at unfortunately, right, and normalize, comes but margin off up of to seeing

that's really good you're segment, in the that seeing a driver the So HFS which effect you is occupancies, South Similar increase thing. see there.

thing. revenue a a commitments, larger of which good You've is also portion got minimum

obviously to up have and good the have movement that. You pretty second when cost where that happens, can third we quarter, saw you the sorry, increase periods on the quarter, continue

that basis. has the quick pretty movements moderate does come on levels contract So happen but periods margin in short to see element all up a of temporary to an can't time, these occupancy have where due that over you down you when

Doug Becker

kind South for we it should an say going to margin, or back that fair upper then gross XX% that a XXs in -- government and to we of back to Is move HFS, say,

Eric Kalamaras

now tendency we that in, to, one government to that contract that tilt a would things. you the guide margin I think Yes, that you're quarter scale, have comes have a on the is contract this seeing of particularly new when side, I edge does again, the leading a right

use of edge would leading now kind we I what number. right have is so And

of Of would that's now. course, outlook will, update on I fresh we XXXX for course, view give when that. what use we But

Doug Becker

for sense makes Oh, both government HFS. and

Eric Kalamaras

to no, continues side over margin to I government. right. the strengthen, things. HFS mean, time, marketplace there no, related look, in actually that's On of there's activity continued think as I Look, as Well, are South I terms of they tightened have to benefit over significantly a utilization What market. six us which extent, increase there to it in the a certain to up does the past really we is months. obviously, be able spot is to that prices puts positive and

Doug Becker

That just makes you help as just there's are looking to markets, your that you're end expectations there. I sense. just you then traditional acquisitions, size help the outside And frame was potential at, of looking could might the to be frame expand of hoping contracts what

Eric Kalamaras

Yes, to tuck-in a is question. are the the goal that avenues. explore the look, look, there there's I reality continue they the and tucked we things some around whole size things right, scale, come out a we And looked is it little forget, what we can of it's transactions, a sheet don't this the appreciate and are that We balance to we've smaller, that operating it of at in it can been think certainly in some new with our lot doing certain I want the the various of called of as enterprise in can way, are growth in transformative it hot bias increase have operational in Sure. relates ways. And, a Look, to before do Congratulations I cases of little vary, come leverage where think a we out the it. larger where be a business. do we've specifically flexible looked and of to this at value with by way of M&A a right. continue business, because greater opine regardless good still think I to on on degree to there

that look lot are ways I were that. explore think to marketplace there's has think frankly, this we value businesses could of where we enterprise business. I more a opportunity significantly And a in And think lot commercial than of us. there the

do, we and the an it in whatever right, scale going increase to size to a to thoughtful there way. so can meaningful eye and But one do, this done continuing way, And have whatever and with -- in be a doesn't of a approach. towards it's multi value and the it But we that business be going whatever to step is, yes. do be

Brad Archer

thing add And that right more one just to we're Yes. on now. talking inorganic growth

I think organic let's about not growth. forget our

And think think take good, Troy, It's it's what and very pipeline to inorganic very very here it's speak I a because robust. aside the organically we our few seconds and have a actionable. growth. I it's meaningful, from

Troy Schrenk

think Doug, I Yes, Brad, that's to think the morning. good right it. way about

that. applications, robust. infrastructure multiple When opportunities, actionable. look talking energy encompass pipeline. it's evaluate addition diverse, We're it's energy, excited a one, Eric in management, I right. commercial our Number commercial projects. it's would green inorganic and was we very variety about, Number continue of across the the characterize Also look, facilities mature that at transition two, integrated the And three, mature to including about In we opportunities opportunities to they a very pipeline applications. organic of

for look, So, that's business. exciting think the I

very pursue said, to and continue We actionable, very it, I as very diverse. mature,

Operator

to concludes the This session. back turn Archer closing our question-and-answer to I'd like for any conference over remarks. Brad

Brad Archer

today, want again thanks New you of say the call we the Year. joining after and for us look to just to forward Yes, on all to speaking

Operator

you The conference concluded. has now today's presentation. attending for Thank

disconnect. now may You

Target Hospitality (TH) 12 Nov 212021 Q3 Earnings call transcript