Shares of accommodations and hospitality services provider Target Hospitality Corp. ( TH ) are trading higher after the company provided a business update and revised its 2024 outlook following the termination of a significant contract.

Recently, the U.S. government notified Target Hospitality ( TH ) that the South Texas Family Residential Center (STFRC) contract will end on August 9, 2024. This contract contributed approximately $55.9 million to Target Hospitality’s revenue in 2023.

With the STFRC contract termination and other factors, Target Hospitality ( TH ) updated 2024 financial projections, with total revenue of $375 million – $385 million (consensus $396.10 million), down from the previous view of $410 million – $425 million, adjusted EBITDA of $184 million – $190 million (prior $195 million – $210 million), and capital spending of $25 million – $30 million, excluding acquisitions.

The Pecos Children’s Center (PCC) contract renewal is expected in November 2024, though Target Hospitality ( TH ) has excluded variable revenue from PCC in its revised outlook due to the fluctuating community population.

Target Hospitality ( TH ) anticipates zero net debt by the end of 2024, with over $350 million in total available liquidity.

As of May-end, Target Hospitality ( TH ) had $147 million in cash and no outstanding borrowings on its $175 million credit facility, resulting in a net leverage ratio of 0.1 times.

On March 25, 2024, Target Hospitality ( TH ) received an unsolicited proposal from Arrow Holdings S.àr.l., an affiliate of TDR Capital LLP, to acquire all outstanding shares for $10.80 per share.

A special committee of independent directors is currently reviewing the proposal with the assistance of financial and legal advisors. No decision has been made, and there is no assurance that a transaction will occur.

Price Action: TH shares are trading higher by 9.85% at $8.14 at last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock