Target Hospitality (TH) Highlighting Continued Positive Trends, Updates FY20 Guidance

Target Hospitality Corp. (“Target Hospitality”, “Target” or the “Company”) (NASDAQ: TH), the largest provider of vertically-integrated specialty hospitality accommodations with premium catering and value-added hospitality services in the U.S., today is providing the following business updates as a result of continued positive trends in its core business.

“As the economic outlook became increasingly uncertain during the second quarter of this year, we took aggressive actions to appropriately position Target to navigate this unprecedented operating environment. We quickly aligned our business to match customer demand, while maintaining a heightened focus on preserving our financial strength. Our second quarter results reflected Target’s ability to execute in a challenging environment and continue to deliver strong financial results, while generating meaningful discretionary cash flow,” stated Brad Archer, President and Chief Executive Officer.

“We have continued to see positive trends in our operating metrics following our second quarter results, including occupancy and utilization. Target’s customer base and contract structure, including exclusivity, have allowed the Company to take advantage of a market that continues to reflect increased demand for our hospitality and accommodation services. Target’s accommodation network has achieved substantial scale within our operating areas, allowing us to reduce capital spending and continue to generate strong margins. This scale has provided the foundation to continue generating meaningful cash flow from operations as we progress into 2021 and over the long-term,” concluded Mr. Archer.

Business Update

Target has continued to see steady improvements in its operating metrics during the third quarter, with the pace of these improvements exceeding expectations. Demand for the Company’s Permian Basin accommodations continues to improve, as customer activity has steadily increased from lows experienced during the second quarter. Target anticipates these trends will continue, at a moderated pace, through the rest of the year and into 2021. In addition, the Company has made progress in renewal discussions for its government services contract and anticipates a positive outcome for a contract renewal, at attractive economics, by the end of 2020.

The pace of the improving operational trends, combined with a focus on capital discipline, has provided for significant cash generation despite a highly challenging economic environment. In the second quarter of 2020, the Company generated net cash provided by operating activities of $14.8 million and discretionary cash flow (“DCF”)(1) of $14.7 million, representing a 27% DCF yield to revenue. The Company’s continued focus on its previously outlined cost reduction initiatives has allowed Target to meet growing customer demand with little incremental costs, creating a more efficient operating structure. These efficiency gains have allowed the Company to capture incremental margin as activity levels continue to improve, further enhancing discretionary cash flow.

Target continues to benefit from its first-class customer base, premium service offering and contract structure, including network exclusivity. These elements have contributed to approximately 52% of remaining 2020 revenue having committed payment provisions. In addition, these components are the foundation for a consistent customer renewal rate of over 90%, and in combination with the Company’s recent contract modifications, have resulted in revenue weighted average contract length of over 6 years, approximately 74% longer than the weighted duration prior to recent contract modifications. Additionally, Target has increased its effective market share within its core Permian Basin region as customers see increased value in allocating labor within Target’s vast network where Target consistently delivers a higher level of service with greater flexibility than existing competitors.

Corporate Strategy

Target continues to maintain a long-term strategic focus on growing and diversifying its service markets and organically expanding commercial reach in its existing core business. As part of this long-term approach, Target has sought to develop additional growth channels within its existing core competencies of accommodations, facilities management, and commercial food servicing. As part of this strategy, Target is intent on differentiating the Company’s unique business model and capabilities. Target’s diversification strategy will focus on expanding services beyond its core accommodations platform into vertical service lines, positioning Target as a more complete provider of hospitality services with multiple growth channels. These value-added growth channels are in adjacent hospitality markets that service a diversified suite of end market customers through multiple platforms that will allow Target to begin unlocking value within its existing core competencies. The growth of these service lines can then be augmented by strategic acquisitions that offer additional platforms for accelerating value creation. While Target continues to identify high quality opportunities in which to execute its diversification strategy, any potential opportunity will meet Target’s strict criteria for return on invested capital. The Company remains focused on creating long-term value for its stakeholders, while maintaining financial strength through balance sheet flexibility and debt reduction.

Revised 2020 Outlook

The increase in customer demand and continued improvement in operating metrics have provided greater clarity on the Company’s 2020 financial outlook. As a result, the Company is providing the following revised 2020 financial outlook:

• 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 (“DCF”) between $27 and $32 million

(*Consensus sees FY revenue of $211.4 million)

Target anticipates limited activity related to TC Energy Corporation’s Keystone XL Pipeline 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.

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