19MAR202017133202
2022
| ANNUAL REPORT
ABOUT TARGET HOSPITALITY
Target Hospitality Corp. (Nasdaq: TH) is one of the largest vertically integrated specialty rental
and hospitality services companies in North America. We have an extensive network of
geographically relocatable specialty rental accommodation units with 16,830 beds across
27 communities. We also operate 2 communities not owned or leased by the Company. The
majority of our revenues are generated under committed contracts which provide visibility to
future earnings and cash flows. We believe our customers enter into contracts with us because
of our differentiated scale and ability to deliver premier accommodations and in-house culinary
and hospitality services across many key geographies in which they operate. For the year ended
December 31, 2022, we generated revenues of approximately $502 million. Approximately
66.5% of our revenue was earned from specialty rental with vertically integrated hospitality,
specifically lodging and related ancillary services, whereas the remaining 33.5% of revenues
were earned through leasing of lodging facilities for the year ended December 31, 2022.
Target Hospitality, though initially founded in 1978, began operating as a specialty rental and
hospitality services company in 2006. Our company operates across the U.S., primarily in the
Southwest and the Midwest. We also own and operate the largest family residential center in the
U.S. Target Hospitality provides comprehensive turnkey solutions to customers’ unique needs,
from the initial planning stages through the full cycle of development and ongoing operations.
We provide cost-effective and customized specialty rental accommodations, culinary services
and hospitality solutions, including site design, construction, operations, security, housekeeping,
catering, concierge services and health and recreation facilities.
We have established a leadership position in providing a fully integrated service offering to our
large customer base, which is comprised of the United States government service providers,
major companies supporting natural resource developments, and large-scale infrastructure
projects throughout the United States. Our company is built on the foundation of the following
core values: safety, care, excellence, integrity and collaboration.
You may obtain copies of our annual report, and the 10-K included therein without charge
by contacting us. Written requests should be directed to our executive office located at
9320 Lakeside Blvd., Suite 300, The Woodlands, Texas 77381.
2022 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38343
TARGET HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
98-1378631
(I.R.S. Employer
Identification No.)
9320 Lakeside Boulevard, Suite 300
The Woodlands, TX 77381
(Address, including zip code, of principal executive offices)
(800) 832-4242
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.0001 per share
Warrants to purchase common stock
Trading Symbol(s)
TH
THWWW
Name of each exchange on which is registered
The Nasdaq Capital Market
The Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No .
The aggregate market value of common shares held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2022, was $158,952,993.
There were 110,394,182 shares of Common Stock, par value $0.0001 per share, issued and 100,963,517 outstanding as of March 8, 2023.
Documents Incorporated by Reference
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement for the
2023 annual meeting of stockholders, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this Report relates.
Target Hospitality Corp.
TABLE OF CONTENTS
Annual Report on FORM 10-K
December 31, 2022
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchase of
Equity Securities
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executives, Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
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Item 1. Business
Part I
Unless the context otherwise requires, references to “we”, “us”, “our”, “the Company”, or “Target Hospitality” refer to
Target Hospitality Corp. and its consolidated subsidiaries. During 2021, the Company changed the names of select
reportable segments to appropriately align with its diversified hospitality and facilities service offerings. The segments
formerly known as Permian Basin and Bakken Basin are now referred to as Hospitality & Facilities Services – South
(“HFS – South”) and Hospitality & Facilities Services – Midwest (“HFS – Midwest”), respectively. All other reportable
segment names remain unchanged.
Overview
Our company, Target Hospitality, is one of the largest vertically integrated specialty rental and hospitality services
companies in North America. We have an extensive network of geographically relocatable specialty rental
accommodation units with 16,830 beds across 27 communities. We also operate 2 communities not owned or leased by
the Company. The majority of our revenues are generated under committed contracts which provide visibility to future
earnings and cash flows. We believe our customers enter into contracts with us because of our differentiated scale and
ability to deliver premier accommodations and in-house culinary and hospitality services across many key geographies
in which they operate. For the year ended December 31, 2022, we generated revenues of approximately $502 million.
Approximately 66.5% of our revenue was earned from specialty rental with vertically integrated hospitality, specifically
lodging and related ancillary services, whereas the remaining 33.5% of revenues were earned through leasing of lodging
facilities for the year ended December 31, 2022.
For additional information on our revenue related to December 31, 2022 and 2021, refer to “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” located in Part II, Item 7 of this Annual Report on Form
10-K.
Target Hospitality, though initially founded in 1978, began operating as a specialty rental and hospitality services
company in 2006. Our company operates across the U.S., primarily in the Southwest and the Midwest. We also own
and operate the largest family residential center in the U.S. Target Hospitality provides comprehensive turnkey solutions
to customers’ unique needs, from the initial planning stages through the full cycle of development and ongoing
operations. We provide cost-effective and customized specialty rental accommodations, culinary services and
hospitality solutions, including site design, construction, operations, security, housekeeping, catering, concierge services
and health and recreation facilities.
We have established a leadership position in providing a fully integrated service offering to our large customer base,
which is comprised of the United States government service providers, major companies supporting natural resource
developments, and large-scale infrastructure projects throughout the United States. Our company is built on the
foundation of the following core values: safety, care, excellence, integrity and collaboration.
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Background
For discussion of the background of the business combination, please read the “Background” section located in the
Item 1. Business section in our Annual Report on Form 10-K/A for the year ended December 31, 2020 filed on May 24,
2021 and is incorporated herein by reference.
Upon completion of the business combination on March 15, 2019, the Nasdaq trading symbols of our common stock,
par value $0.0001 per share (the “Common Stock”), and our Warrants (as defined below) were changed to “TH” and
“THWWW,” respectively.
Business Model
Our business model allows our customers to focus their efforts and resources on their core businesses. This makes us
an integral part of the planning and execution phases for all customers.
We provide a safe, comfortable, and healthy environment to our guests, employees and workers across the U.S. and
anywhere our customers need our facilities and services. Under our “Target 12” service model, we provide benefits to
our customers, delivering high quality food, rest, connection, wellness, community, and hospitality, which optimizes
our customers’ workforce engagement, performance, safety, loyalty, and productivity during work hours.
This facility and service model is provided directly by our employees, who deliver the essential services 24 hours per
day for 365 days a year. We provide all of the hospitality services at our sites, and as a result, we believe we deliver
more consistent and high-quality hospitality services at each community compared to our peers. Our company and
employees are driven by our primary objective of helping our customers’ workforce reach their full potential every day.
Our professionally trained hospitality staff has the unique opportunity to live with our customers as most of our
employees live on location at the communities where our customers’ workforce reside. This allows our employees to
develop powerful customer empathy, so we are better able to deliver consistent service quality and care through the
Target 12 platform each day. Our employees are focused on the “other 12 hours”—the time our customers and their
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employees are not working—making sure we deliver a well fed, well rested, happier, loyal, safer and more productive
employee every day. What we provide our customers’ workforce “off the clock” optimizes their performance when they
are “on the clock.” The investment our customers make in their employees the “other 12 hours” is an essential part of
their strategy and overall business and operations execution plan.
Using our expansive community network, unique core competencies and full-service turnkey hospitality solutions, we
provide critical facilities and hospitality support services for fully integrated natural resource development companies
and contractors of the United States Government. Our assets are well-suited to support the full lifecycle of development
plans and we are able to scale our facility size to meet customers’ growing needs. We are well-positioned to continue
serving our customers throughout the full cycle of their projects, which typically last for several decades. Our integrated
model provides value to our customers by reducing project timing and counterparty risks associated with projects. More
broadly, our accommodations networks, combined with our integrated value-added hospitality and facilities services
creates value for our customers by optimizing their engagement, performance, safety, loyalty, productivity, preparedness
and profitability.
Summary of Value-Added Services
We take great pride in the premium customer experience we offer across our range of community and hospitality services
offerings. The majority of Target’s communities include in-house culinary and hospitality services. Our world-class
culinary and catering professionals serve approximately 14,000,000 meals on average each year with fresh ingredients
and many of our meals are made from scratch. We self-manage most culinary and hospitality services, which provides
us with greater control over service quality as well as incremental revenue and profit potential. Our communities are
designed to promote rest and quality of life for our customers’ workforces and include amenities such as:
Summary of Amenities at various Communities:
● Innovative Modular Design
● Single Occupancy Design
● Swimming Pool, Volleyball, Basketball courts
● Commercial Kitchen
● Fast Food Lounges
● Full & Self Service Dining Areas
● TV Sport/Entertainment Lounges
● Training/conference Rooms
● Core Passive Recreation Areas
● Active Fitness Centers
● Lodge Recreation Areas
● Locker/Storage/Boot-up Areas
● Parking Areas
● Waste Water Treatment Facility
● On-site Commissary
● Media Lounges and WIFI Throughout
● Individual Xbox/PSII Pods
● Flat-Screen TVs in Each Room
● 40+ Premium TV Channel Line-up
● Personal Laundry Service
● Individually Controlled HVAC System
● Hotel Access Unity Lock Systems
● 24 Hour No-Limit Dining
● Free DVD Rentals
● Self Dispensing Free Laundry
● Commercial Laundry
● Transportation to Project Site
● 24 Hour Gated Security
● Daily Cleaning & Custodial Service
● Professional Uniformed Staff
Our hospitality services and programming are designed to promote safety, security and rest, which in turn promote
greater on-the-job productivity for our customers’ workforces. Our communities strictly adhere to our community code
of conduct, which, among other things, prohibits drugs, illegal firearms, co-habitation and guests. We work closely with
our customers to ensure that our communities are an extension of the safe environment and culture they aim to provide
to their employees while they are on a project location. Our community code of conduct is adopted by each corporate
customer and enforced in conjunction with our customers through their documented health, safety and environmental
policies, standards and customer management. We recognize that safety and security extends beyond the customers’
jobsite and is a 24-hour responsibility which requires 24-hour services by Target Hospitality in close collaboration with
our customers.
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History and Development
Target Hospitality’s legacy businesses have grown and developed since they were created. The chart below sets out
certain key milestones for each business.
● 1978: Target Logistics was founded
1978-2010
● 1990: Signor Farm and Ranch Real Estate was founded
● Target awarded contracts for logistics services for Olympics in
1984 (Sarajevo), 1992 (Barcelona), 1996 (Atlanta), 2000 (Sydney),
2002 (Salt Lake City), 2004 (Athens), 2006 (Turin) and 2010
(Vancouver)
● The Vancouver project consisted of a 1,600 bed facility, a
portion of which was subsequently transferred to North Dakota and
remains in use today
● 2005: Target operated 1,100-bed cruise ship anchored in the Gulf
of Mexico to support relief efforts during aftermath of Hurricane
Katrina
● In addition, built and managed 700-person modular camp in
New Orleans with running water, electricity and on-site kitchen
services
● 2007: Target hired by Freeport-McMoRan to build and operate
425-bed facility in Morenci, AZ in support of copper mining
operations (re-opening 10/2012)
● 2008: Target provided catering/food services for 600 personnel
in support of relief operations in aftermath of Hurricane Ike
● 2009: Target provided housing and logistics services for 1,500
workers during a refurbishment of a refinery in St. Croix
● 2009: Signor Lodging was formed
● 2010: Target opened Williston Lodge, Muddy River, Tioga and
Stanley Cabins in western North Dakota
2011-Present
● 2011: Target expanded capacity in Williston, Stanley and Tioga with long-
term customers Halliburton, Hess, ONEOK, Schlumberger, Superior Well
Service, Key Energy Services and others
● 2011: Signor Lodge opened in Midland, TX (84 rooms)
● 2011: Signor Barnhart Lodge opened in Barnhart, TX (160 beds)
● 2012: Target developed additional North Dakota facilities in Dunn County
(Q1), Judson Lodge(Q3), Williams County (Q3) and Watford City (Q4)
● 2012: Target expanded service into Texas with the opening of Pecos Lodge
(90 beds) in Q4
● 2013: Target awarded TCPL Keystone KXL pipeline project to house and
feed over 6,000 workers (project terminated July 23, 2021)
● 2014: Target awarded lodge contract for new 200-bed community in the HFS
– South region
● 2014: Target awarded contract and built 2,400-bed community for U.S.
federal government
● 2015: Opened new community in Mentone, TX in Q4 for Anadarko
Petroleum Company
● 2016: Signor expanded Midland Lodge several phased expansions 1,000 beds
● 2016: Signor Kermit Lodge opens with 84 rooms
● 2017: Signor opened Orla Lodge with 208 rooms
● 2017: Target expanded network with the expansion of both Wolf Lodge and
Pecos Lodge in Q2
● 2017: Target expanded presence in New Mexico and West Texas with the
acquisition of 1,000-room Iron Horse Ranch in Q3
● 2017: Signor opened El Reno Lodge with 345 rooms
● 2017: Target expanded presence with 280-room Blackgold Lodge in Q3
● 2018: Target Logistics rebranded as Target Lodging in March 2018
● 2018: Target opened new 600-room community in Mentone, Texas
● 2018: Target added approximately 1,600 rooms across HFS – South network
● 2018: Target expanded community network in the HFS – South region
through acquisition of Signor, adding 7 locations and approximately 4,500 beds
to the network
● 2019: Target announced new 400-bed community in the HFS – South network
● 2019: Target expanded its community network in the HFS – South region
through the acquisitions of Superior and ProPetro, adding 4 locations and
approximately 758 beds to the network.
● 2019: El Capitan 200 beds
● 2019: El Capitan expansion 100 beds
● 2019: Seven Rivers expansion 200 beds
● 2021: Government Segment expansion 4,000 beds
● 2022: Government Segment expansion 2,375 beds
We are one of the few vertically integrated specialty rental and hospitality services providers that service the entire
value chain from site identification to long-term community development and facilities management. Our industry
divides specialty rental accommodations into three primary types: communities, temporary worker lodges and mobile
assets. We are principally focused on communities across several end markets, including natural resource developments,
large-scale infrastructure and U.S. government.
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Communities typically contain a larger number of rooms and require more time and capital to develop. These facilities
typically have commercial kitchens, dining areas, conference rooms, medical and dental services, recreational facilities,
media lounges and landscaped grounds where climate permits. A substantial portion of our communities are built and
underpinned by multi-year committed contracts which often include exclusivity provisions. These facilities are designed
to serve the long-term needs of customers regardless of the end markets they serve. Our communities provide fully-
integrated and value-added hospitality services, including but not limited to: catering and food services, housekeeping,
health and recreation facilities, laundry services and overall workforce community management, as well as water and
wastewater treatment, power generation, communications and personnel logistics where required. In contrast, temporary
lodges are usually smaller in number of rooms and generally do not include hospitality, catering, facilities services or
other value-added on-site services and typically serve customers on a spot or short-term basis without long-term
committed contracts. These temporary facilities are “open” for any customer who needs lodging services. Finally,
mobile assets, or rig housing, are designed to follow customers’ activities and are generally used for drilling rig
operators. They are often used to support conventional drilling crews and are contracted on a project-by-project or short-
term basis.
Our specialty rental modular assets and hospitality services deliver the essential services and accommodations when
and where there is a lack of sufficient accessible or cost-effective housing, infrastructure or local labor. Many of the
geographic areas near the southern U.S. border lack sufficient temporary housing and infrastructure for asylum-seeking
immigrants or may require additional infrastructure in the future. In the U.S. natural resource development industry,
many of the largest hydrocarbon reservoirs are in remote and expansive geographic locations, like the Southwestern
portion of the United States and North Dakota where limited infrastructure exists. We support the development of these
necessary natural resources by providing the fully-integrated and value-added hospitality services described above.
Our communities and integrated hospitality services allow our customers to outsource their accommodations needs to
a single provider, optimizing employee morale, productivity, safety, and loyalty while focusing their investment on
their core businesses and long term planning.
The communities we own, operate, or manage, as well as those facilities we own but are managed by other operators,
are subject to competition for residents from other private operators. We compete primarily on location, cost, the quality
and range of services offered, our experience in the design, construction, and management of facilities, and our
reputation. We compete with government agencies that are responsible for residential facilities. Government sector
demand for facilities is affected by a number of factors, including the demand for beds, general economic conditions
and the size of the populations needing these services.
Demand for accommodations and related services within the natural resource development end market is influenced by
four primary factors: (i) available infrastructure, (ii) competition, (iii) workforce requirements, and (iv) capital spending.
Anticipated capital spending, and our customers’ expectations for future capital spending as well as larger infrastructure
requirements, influence customers’ development on current productive assets, maintenance on current assets, expansion
of existing assets and development of greenfield, brownfield or new assets. In addition to capital requirements, different
types of customer activity require varying workforce sizes, influencing the demand for accommodations. Also, competing
locations and services influence demand for our assets and services.
Demand within our government end market is primarily influenced by immigration, including the ongoing need to
accommodate asylum seekers and unaccompanied minors as well as federal governmental policy and budgets.
Continued increases in immigration activity have influenced government spending on infrastructure in immigration-
impacted regions and consequentially demand for accommodations and related services.
Another factor that influences demand for our rooms and services is the type of customer we are supporting. Generally,
natural resource development customers require larger workforces during construction and expansionary periods and
therefore have a higher demand for accommodations. Due to the contiguous nature of their land positions, a “hub and
spoke” model is utilized. Customers that support natural resource development also require larger and more mobile
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workforces which, in many cases, consist of employees sourced from outside of the work areas. These employees,
described as rotational workers, permanently reside in another region or state and commute to the regions served by our
HFS – South or HFS – Midwest segments on a rotational basis (often, two weeks on and one week off).
In addition, proximity to customer activities influences occupancy and demand. We have built, own and operate the two
largest specialty rental and hospitality services networks available to customers operating in the regions served by our
HFS – South and HFS – Midwest segments. These networks allow our customers to utilize one provider across a large
and expansive geographic area. Our broad network often results in us having communities that are the closest to our
customers’ job sites, which reduces commute times and costs, and improves the overall safety of our customers’
workforce.
Generally, if a community is within a one hour drive of a customer’s work location, our contractual exclusivity
provisions with our customers require the customers to have their workforce lodge at one of our communities. Our
communities provide customers with cost efficiencies, as they are able to jointly use our communities and related
infrastructure (power, water, sewer and IT) services alongside other customers operating in the same vicinity.
Demand for our services is dependent upon activity levels, particularly our customers’ capital spending on natural
resource development activities and government housing programs. Our customers’ spending plans generally are based
on their view of commodity supply and demand dynamics, as well as the outlook for their medium and long-term
commodity prices and annual government appropriations. Our current footprint supporting natural resource development
customers is strategically concentrated in the southwestern portion of the United States near the Permian Basin region
served by our HFS – South segment. The Permian stretches across the southeast corner of New Mexico and through a
large portion of land in western Texas, encompassing approximately a hundred thousand square miles and dozens of
counties and is the lowest cost basin in the U.S., providing the most economic natural resource development inventory.
Business Strengths & Strategies
Strengths
• Market Leader in Strategically Located Geographies. We are one of North America’s largest providers
of turnkey specialty rental units with premium catering and hospitality services including 29
strategically located communities with approximately 16,800 beds primarily in the highest demand
regions of the southwestern United States. Utilizing our large network of communities with the most
bed capacity, particularly within the regions served by our Government, HFS – South and HFS –
Midwest segments, we believe we are the only provider with the scale and regional density to serve all
of our customers’ needs in these key areas. Additionally, our network and relocatable facility assets
allow us to transfer the rental fleet to locations that meet our customer service needs across our
segments allowing us to achieve a higher return on capital. We leverage our scale and experience to
deliver a comprehensive service offering of vertically integrated accommodations and hospitality
services that provides a compelling economic value proposition to our customers.
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• Long-Standing Relationships with Diversified Large Integrated Customers. We have long standing
relationships with our diversified base of approximately 300 customers, which includes some of the
largest blue-chip, investment grade natural resource development and integrated infrastructure
companies in North America. We believe we have also established strong relationships in our U.S.
government end market with our contract partners and the federal agencies we serve. We initially won
our large government sub-contract in 2014 based upon our differentiated ability to develop and open
a permanent large-scale facility on an accelerated timeline. This contract was renewed and extended
in 2016 and 2020, demonstrating our successful execution and customer satisfaction. The relationships
we have established over the past decade have been built on trust and credibility given our track record
of performance and delivering value to our customers by providing a broad range of hospitality service
offerings within a community atmosphere. Target’s customers’ willingness to enter into multi- year
committed contracts, and our historical client retainment rate of over 90%, demonstrates the strength
of these long-standing relationships.
• Committed Revenue and Exclusivity Produce Highly Visible, Recurring Revenue. The vast majority
of our revenues are generated under multi-year contracts that include committed payment terms or
exclusivity provisions, under which our customers agree to use our network for all their
accommodation needs within the geographies we serve. In 2022, approximately 74% of our revenues
had committed payment provisions and approximately 99% were under long-term contract, including
exclusivity. The weighted average length of our contracts is approximately 50 months and we have
maintained a consistent client renewal rate of over 90% for the last 5 years. Our customers enter into
long-term agreements and consistently renew their contracts to ensure that sufficient accommodations
and hospitality services are in place to properly care for their large workforces. Our multi-year
contracts and consistent renewal rates provide recurring revenue and high visibility on future financial
performance.
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• Proven Performance and Resiliency Through the Various Economic Cycles. Our business model is
generally well insulated from economic cycles. For example, we secured a major new contract in 2021
as well as a renewal and extension in 2020 and in 2022, each under our Government Segment which
together represents approximately 72% of Target Hospitality’s 2022 revenue. Additionally, we utilize
the same asset base across our operating segments, which allows us to efficiently optimize our modular
assets and redeploy them, as warranted by customer demand. In 2022, this asset continuity allowed
us to quickly react to dynamic growth opportunities in our Government segment by redeploying
underutilized assets from our HFS – Midwest segment.
• Long-lived Assets Requiring Minimal Maintenance Capital Expenditures. Our long-lived specialty
rental assets support robust cash flow generation. Our rental assets have an average life in excess of
15 years, and we typically recover our initial investment within the first few years of initial capital
deployment. Our maintenance capital between 2018 and 2022 has ranged from approximately 0.4% to
4% of annual revenue with an average of 1.8% of annual revenue. We maintain low maintenance
capital expenditures, as cleaning and routine maintenance costs are included in day-to-day operating
costs and recovered through the average daily rates that we charge our customers. This continual care
of our assets supports extended asset lives and the ongoing ability to operate with only nominal
maintenance capital expenditures. The investment profile of our rental assets underpins our industry
leading unit economics. Our contract discipline underpins our investment decision making and any
spending on new growth investments is underwritten by contracts, with no speculative building.
Generally, we do not invest capital unless we expect to meet our internal return thresholds. Due to the
high revenue visibility from long-term contracts, we are poised to generate robust and stable cash flows
driven by historical strategic growth investments and minimal future maintenance capital expenditure
requirements.
Strategies
We believe that we can further develop our business by, among other things:
• Expansion Through Acquisitions and Diversify Our Service Offerings. We selectively pursue
acquisitions and business combinations related to specialty rental and hospitality services in the
markets we currently serve as well as adjacent markets that offer existing complimentary services to
ours. Leveraging our core competencies related to facilities management, culinary services, catering
and site services, we believe that we can further scale these elements of our business and replicate it
in other geographies and end markets. We continue to assess targeted acquisitions and business
combinations that would be accretive to us while also expanding our end markets.
• Maintaining and Expanding Existing Customer Relationships. Growing and maintaining key customer
relationships is a strategic priority. We fill existing bed capacity within our communities, while
optimizing our inventory for existing customer expansion or for new customers. Keeping this balance
provides us with flexibility and a competitive advantage when pursuing new contract opportunities as
top-tier customers find enhanced value in the scale and flexibility of Target’s world class network,
which supports their comprehensive and dynamic housing and food management requirements. With
the scale of our accommodations network, a significant number of our key customers are commercially
exclusive to Target Hospitality as their primary and preferred provider of accommodations and
hospitality services throughout the U.S. or for a designated geographic area.
• Enhancing Contract Scope and Services. One of our strategic focus areas is to enhance the scope and
terms of our customer contracts. We intend to continue our historical track record of renewing and
extending these contracts at favorable commercial and economic terms, while also providing additional
value added services to our customers. For example, we have expanded our presence across multiple
government agencies creating broad reaching opportunities to extend reach beyond our core
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accommodations platform. Intentionally growing revenue in an attractive government services end
market, allowed us to high-grade contracts and significantly expand Target’s growth pipeline.
• Disciplined Growth Capital Expenditures to Increase Capacity. We selectively pursue opportunities to
expand existing communities and develop new communities to satisfy customer demand. We employ
rigorous discipline to our capital expenditures to grow our business. Our investment strategy is
generally to only deploy new capital with visibility—typically a contract—to revenue and returns to
meet our internal return hurdles often with capital recovery mechanisms. We target high returns on
invested capital and achieve these returns due to our high cash-on-cash margin profile.
• Growing and Pursuing New Customer/Contract Opportunities. We continually seek additional
opportunities to lease our facilities to government, natural resource development, and other third-party
owners or operators in need of specialty rental and hospitality services. We have a proven track record
of success in executing our specialty rental and facilities management model across several end
markets for ongoing needs as well as major projects that have finite project life cycle durations. A
strong national presence creates a platform to expand geographical reach into a wide range of industry
applications, while significantly expanding Target’s longterm growth pipeline by utilizing existing
core competencies to broaden service offerings across a variety of business and commercial
applications. While special projects do not constitute a large portion of our business, it is typical for
us to secure some special projects that can last anywhere from 1-5 years (or more). We have designated
sales-related resources that focus on special finite life cycle projects and maintain a dynamic business
pipeline which includes but is not limited to special projects across end markets.
Business Operations
Target Hospitality provides specialty rental and hospitality services, temporary specialty rental and hospitality services
solutions and facilities management services across North America. The Company’s primary customers are U.S.
Government related contractors, investment grade natural resource development companies and other workforce
accommodation providers operating in the regions served by our HFS – South and Midwest segments. The Company’s
specialty rental and hospitality and management services are highly customizable and are tailored to each customer’s
needs and requirements. Target Hospitality is also an approved U.S. General Services Administration (“GSA”) contract
holder and offers a comprehensive range of housing, deployment, operations and management services through its GSA
professional services schedule agreement. The GSA contract allows U.S. federal agencies to acquire our products and
services directly from Target Hospitality which expedites the commercial procurement process often required by
government agencies.
Target Hospitality operates its business in four key end markets: (i) government (“Government”), which includes the
facilities, services and operations of (a) the family residential center and the related support communities in Dilley,
Texas (the “South Texas Family Residential Center”) provided pursuant to its lease and services agreement with a
national provider of migrant programming; and (b) several facilities in West, Texas provided pursuant to its lease and
services agreement with a leading national nonprofit organization (“NP Partner”) in support of their humanitarian aid
efforts, both locations backed by committed United States Government contracts; (ii) HFS – South, which includes the
facilities and operations in fourteen communities located across Texas and New Mexico; (iii) HFS – Midwest, which
includes facilities and operations in three communities in North Dakota; and (iv) TCPL Keystone (“TCPL Keystone”),
which provided ongoing preparatory work and plans for facilities and services provided in connection with the TC
Energy (formerly TransCanada) Keystone pipeline project. The Company terminated the underlying contract and settled
with TC Energy in July 2021 related to these ongoing preparatory work and plans, which eliminated all activity from
this end market subsequent to July 2021.
11
The map below shows the Company’s primary community locations in the HFS – South and the HFS – Midwest segments
(including three locations outside of these segments).
12
The table below presents the Company’s owned and leased communities in the HFS – South, HFS – Midwest,
Government, and All Other segments as of December 31, 2022.
Segment
Location
Dilley, Texas
Pecos, Texas
Pecos, Texas
Pecos, Texas
Orla, Texas
Community Name
Dilley (STFRC)
Government
Pecos Children's Center
Government
Pecos Blue Lodge
Government
Railhead Lodge
Government
Delaware Lodge
Government
Skillman Station Lodge Mentone, Texas
Government
Lodge 118
Government
Pecos Trail Lodge
Government
Government & HFS - South Pecos South Lodge
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - South
HFS - Midwest
HFS - Midwest
HFS - Midwest
All Other
All Other
Total Number of Beds
Orla North Lodge
Orla South Lodge
El Capitan Lodge
Odessa West Lodge
Odessa East Lodge
Mentone Wolf Lodge
Midland Lodge
Midland East Lodge
Kermit Lodge
Kermit North Lodge
Carlsbad Lodge
Seven Rivers Lodge
Jal Lodge
Williams County Lodge Williston, North Dakota
Judson Executive Lodge Williston, North Dakota
Watford City Lodge
Cheecham Lodge
El Reno Lodge
Status
Own
Own
Own
Lease/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Own/Operate
Watford City, North Dakota Own/Operate
Own/Operate
Alberta, Canada
Own/Operate
El Reno, Oklahoma
Pecos, Texas
Pecos, Texas
Pecos, Texas
Orla, Texas
Orla, Texas
Orla, Texas
Odessa, Texas
Odessa, Texas
Mentone, Texas
Midland, Texas
Midland, Texas
Kermit, Texas
Kermit, Texas
Carlsbad, New Mexico
Carlsbad, New Mexico
Jal, New Mexico
Number of Beds
2,556
2,000
1,000
225
425
1,038
1,398
558
772
155
240
429
805
280
530
843
168
232
180
606
640
466
300
100
334
215
335
16,830
Government
The Government segment includes, but is not limited to, two primary end markets which make up approximately 72% of
our revenue for the year ended December 31, 2022:
• Residential Facilities. Residential facilities, including the South Texas Family Residential Center (discussed
below), provide space and residential services in an open and safe environment to women with children.
Residential facilities offer services including, but not limited to, educational programs, medical care, recreational
activities, counseling, and access to religious and legal services.
• Humanitarian Aid Efforts. Community facilities providing a suite of comprehensive service offerings supporting
humanitarian aid efforts.
Target Hospitality built and currently leases and operates the South Texas Family Residential Center through a sub-lease
and services agreement with a national provider of migrant programming, which provides management services. Target
Hospitality owns the facility and provides select on-site services including catering, culinary, management, janitorial and
light maintenance. The South Texas Family Residential Center includes 524,000 square feet of building space including
residential housing units with 2,400 beds, as well as classrooms, a library, chapels, an infirmary with full medical, dental,
pharmaceutical and x-ray capabilities, a dining hall, offices and an industrial laundry center.
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In March 2021, the Company entered into a lease and services agreement with our NP Partner, backed by a committed
United States Government contract, to provide a suite of comprehensive service offerings in support of their humanitarian
aid efforts at a residential housing facility. During the year ended December 31, 2022, the Company executed a new
contract with our NP Partner that became effective on May 16, 2022, which represented a significantly expanded lease
and services agreement (“Expanded Humanitarian Contract”) to provide enhanced infrastructure and comprehensive
facility services that support the critical hospitality solutions the Company provides to the NP Partner and the U.S.
Government in their humanitarian aid missions. The Expanded Humanitarian Contract provided for a significant scope
expansion and term extension for the continuation of services provided under the agreement that originated in March
2021 with approximately 6,375 beds. This partnership is consistent with our Government segment and strategy of
diversifying end-markets through high quality contracts with premier partners that provide strong revenue visibility and
cash flows.
We look forward to expanding the products and services of our Government segment through our GSA designations,
specifically our designation to maintain the professional services schedule (“PSS”) for logistics service solutions, which
are designed to assist federal agencies in procuring comprehensive logistics solutions, including planning, consulting,
management, and operational support when deploying supplies, equipment, materials and associated personnel. GSA’s
PSS is a multiple award schedule (“MAS”) contract for innovative solutions, offered to federal, state and local
governments, for their professional service’s needs. Having a PSS signifies that we have been vetted as a responsible
supplier, our pricing has been determined to be fair and reasonable and we are in compliance with all applicable laws and
regulations. PSS is one of the GSA’s schedule contracts, which are indefinite delivery, indefinite quantity (“IDIQ”), long-
term contracts under the GSA MAS program. GSA schedule contracts were developed to assist federal employees in
purchasing products and services and they contain pre-negotiated prices, delivery terms, warranties, and other terms and
conditions which streamline the buying process.
The Government segment generated approximately 72% or $360.3 million of the Company’s revenue for the year ended
December 31, 2022. The map below shows the Company’s primary community locations in the Government segment.
14
Hospitality & Facilities Services - South
The HFS – South segment serves an area that stretches across the southeast corner of New Mexico and a large portion of
western Texas, encompassing approximately a hundred thousand square miles and dozens of counties. This geographic
area, also known as the Permian Basin, is one of the world’s oldest natural resource producing regions. Our customers
utilize both unconventional and conventional development techniques, encompassing multiple stacked development
zones, which increases the potential recoverable resource and lengthens their development lifecycle.
While understanding the significant economic potential in this region, Target entered the market in 2012, ahead of many
of our competitors. We started in HFS – South with an 80-bed community in Pecos, TX.
As of December 31, 2022, with 14 communities and approximately 6,000 beds across HFS – South, we offer the largest
network of turnkey specialty rental accommodations and hospitality services.
The HFS - South segment generated approximately 26% or $132.4 million of the Company’s revenue for the year ended
December 31, 2022. The map below shows the Company’s primary community locations in the HFS – South region.
Hospitality & Facilities Services - Midwest
The HFS – Midwest segment serves an area that spans North Dakota and is home to the largest concentration of natural
resource development in the geographic region.
In 2009, we entered this regional market and built our first community in Williston, North Dakota for a large natural
resources services company. The community was the first of its kind in the region and provided specialty rental and
hospitality services for more than 150 remote workers. As of December 31, 2022, the Company had three community
locations and 706 available beds serving customers in the HFS – Midwest region. We are the largest specialty rental
and hospitality services provider in the region with approximately 35% of the market share with the next closest direct
competitor having less than 16% of the market share.
15
The HFS - Midwest segment generated approximately 1% or $6.2 million of the Company’s revenue for the year
ended December 31, 2022. The map below shows the Company’s community locations in the region.
TCPL Keystone
Future Pipeline Services Plans
We contracted with TC Energy to construct, deliver, cater and manage all accommodations and hospitality services in
conjunction with the planned construction of the TCPL Keystone project. Our contract with TC Energy was executed
in 2013. In October 2018, we received partial release for certain pre-work related to the project and performed a limited
scope of work based on work orders issued by TC Energy.
During 2020, activity related to this segment increased to a level that resulted in revenue exceeding 10% of our
consolidated revenues for the first time and as such, this segment became a reportable segment in 2020.
In January 2021, the TCPL Keystone project was suspended due to the revocation of the Keystone XL Presidential
Permit. Consequently, on July 23, 2021, the Company executed a Termination and Settlement Agreement (the
“Termination and Settlement Agreement”) terminating the Company’s contract with TC Energy that was originated in
2013. As a result of the Termination and Settlement Agreement, no further activity is expected in this segment.
All Other
In addition to the four reportable segments above, the Company: (i) has facilities and operations for one community in
Oklahoma; (ii) has facilities and operations for one community in Canada; and (iii) provides catering and other services
to communities and other workforce accommodation facilities for the natural resource development industries not
owned by Target Hospitality (“Facilities Management”).
16
The Company provides specialty rental and hospitality services including concierge, culinary, catering, maintenance,
security, janitorial and related services at facilities owned by other companies. We currently provide Facilities
Management, culinary and catering services and site services for one facility located in Wyoming for which we do not
own the specialty rental accommodation assets.
Segment information for December 31, 2022 and 2021
For additional information on our segments, including Government, HFS - South, HFS - Midwest, TCPL Keystone, and
Other, related to December 31, 2022 and 2021, refer to Note 20 of our audited consolidated financial statements located
in Part II, Item 8 within this Annual Report on Form 10-K.
Customers and Competitors
The Company’s principal customers include U.S. Government contractors, investment grade natural resource development
companies and energy infrastructure companies. For the year ended December 31, 2022, we had two customers, who
accounted for approximately 61% and 11% of our revenue, respectively.
For the year ended December 31, 2021, we had two customers, who accounted for approximately 35% and 19% of our
revenue, respectively.
For the year ended December 31, 2020, we had two customers, who accounted for approximately 28% and 19% of our
revenue, respectively.
Generally, the Company competes based on factors including quality and breadth of available locations and room
utilization, modular construction time and development expertise, proactive logistics management, geographic areas
serviced, average daily rate, facility quality, and food management.
17
The accommodation facilities market in our HFS business is segmented into competitors that serve components of the
overall value chain, but very few offer the entire suite of hospitality services to our customers. Our HFS competitors
primarily include small, independent businesses with a few locations, often with little to no contracts and with significantly
fewer rooms, or RV parks that offer no turn-key services or modular accommodation solutions.
The accommodations market within our government business is generally segmented into competitors that primarily serve
as temporary facilities with seasonal contracts, and tent providers with limited scale and services. U.S. Government sites
typically do not own and operate the full suite of hospitality solutions, but contract out to third-parties for more limited
offerings and on a shorter-term basis.
The Company’s Community and Services Contracts
For the year ended December 31, 2022, revenue related to the HFS – South and HFS – Midwest segments represented
approximately 26% and 1% of our revenue, respectively, revenue related to our Government segment represented 72%
of our revenue, revenue related to our TCPL Keystone segment represented 0% of our revenue, and Other revenue
represented less than 1% of our revenue.
Lease and Services Agreements
The Company’s operations in the HFS – South and HFS – Midwest segments are primarily conducted through committed
contractual minimum revenue arrangements with its customers. For certain of the Company’s largest customers, it uses
network lease and services agreements (“NLSAs”) which cover the customer’s full enterprise and are exclusive
agreements with set terms and rates for all geographic regions in which the Company operates. The NLSAs obligate the
customers to use the Company’s facilities and services across the U.S. The Company’s NLSAs have an average set term
of two to three years.
Certain other customers are subject to lease and services agreements (“LSAs”) which are more limited in geographic
scope and cover only specified areas with the same structural commercial terms as the NLSAs. The LSAs obligate
customers to pay for a fixed amount of rooms over a term regardless of occupancy with terms that can range from one
month to multiple years. LSAs generally do not have termination provisions in favor of the customer.
The Company also has master services agreements (“MSAs”) with certain customers which are typically exclusive
arrangements without the committed component of the NLSAs and LSAs and no minimum contractual liability for the
customer.
The Company’s operations in the Government segment includes the South Texas Family Residential Center pursuant
to a contractual arrangement (the “Family Residential Center Contract” or “FRCC”) with a national provider of migrant
programming (the “FRCC Partner”). This FRCC provides for the Company’s sublease and ongoing operation of the
South Texas Family Residential Center through September 2026.
Our FRCC Partner depends on the U.S. government and its funding. Any impasse or delay in reaching a federal budget
agreement, debt ceiling or government shutdowns, and the subsequent lack of funding to the applicable government
entity, could result in material payment delays, payment reductions or contract terminations. The government may
terminate the contract with our FRCC Partner for convenience on 60 days’ notice; in the event this should occur, our
FRCC Partner may terminate its agreement with us upon 60 days’ notice.
The Company also operates several facilities in connection with a lease and services agreement with the NP Partner,
backed by a committed United States Government contract, to provide a suite of comprehensive service offerings in
support of their humanitarian aid efforts. The initial contract, including subsequent change orders and amendments,
had a value of approximately $129 million and was fully committed over its initial one-year term, which commenced
March 18, 2021. During the year ended December 31, 2022, the Company executed the Expanded Humanitarian
18
Contract with our NP Partner that became effective on May 16, 2022, which represented a significantly expanded lease
and services agreement to provide enhanced infrastructure and comprehensive facility services supporting the NP
Partner and the U.S. Government in their humanitarian aid missions. The Expanded Humanitarian Contract provided
for a significant scope expansion and term extension for the continuation of services provided under the agreement that
originated in March 2021. The Expanded Humanitarian Contract operates with similar structure to the Company’s
existing government services contracts, which are centered around minimum revenue commitments supported by the
United States Government. Additionally, the Expanded Humanitarian Contract includes variable services revenue that
will align with monthly community population. The minimum revenue commitments, which consist of annual recurring
lease revenue and nonrecurring infrastructure enhancement revenue, provide for a minimum annual revenue
contribution of approximately $390 million and is fully committed over its initial contract term. The services revenue
component provides for a maximum initial annual total contract value of approximately $575 million.
Our NP Partner depends on the U.S. government and its funding. Any impasse or delay in reaching a federal budget
agreement, debt ceiling or government shutdowns, and the subsequent lack of funding to the applicable government
entity, could result in material payment delays, payment reductions or contract terminations. The government may
terminate this contract with our NP Partner for convenience; in the event this should occur, our NP Partner may terminate
its agreement with us for convenience.
Regulatory and Environmental Compliance
Our business and the businesses of the Company’s customers can be affected significantly by federal, state, municipal
and local laws and regulations relating to the natural resource and mining industries, food safety and environmental
protection. The Company incurs significant costs to comply with these laws and regulations in operating its business.
However, changes in these laws, including more stringent regulations and increased levels of enforcement of these laws
and regulations, or new interpretations thereof, and the development of new laws and regulations could impact the
Company’s business and result in increased compliance or operating costs associated with its or its customers’
operations.
In addition, our customers include U.S. government contractors, which means that we may, indirectly, be subject to
various statutes and regulations applicable to doing business with the U.S. government. U.S. government contracts and
grants normally contain additional requirements that may increase our costs of doing business, reduce our profits, and
expose us to liability for failure to comply with these terms and conditions. If we fail to maintain compliance with these
requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability
under its contracts or under the Federal Civil False Claims Act (the “False Claims Act”).
To the extent that these laws and regulations impose more stringent requirements or increased costs or delays upon the
Company’s customers in the performance of their operations, the resulting demand for the Company’s services by those
customers may be adversely affected. Moreover, climate change laws or regulations could increase the cost of consuming,
and thereby reduce demand for natural resources, which could reduce the Company’s customers’ demand for its services.
The Company cannot predict changes in the level of enforcement of existing laws and regulations, how these laws and
regulations may be interpreted or the effect changes in these laws and regulations may have on the Company or its
customers or on our future operations or earnings. The Company also cannot predict the extent to which new laws and
regulations will be adopted or whether such new laws and regulations may impose more stringent or costly restrictions
on its customers or its operations.
Human Capital
The Company’s key human capital management objectives are to attract, retain and develop talent to deliver on the
Company’s strategy. To support these objectives, the Company’s human resources programs are designed to: keep
employees safe and healthy; enhance the Company’s culture through efforts aimed at making the workplace more
19
inclusive; acquire and retain diverse talent; reward and support employees through competitive pay and benefit programs;
develop talent to prepare them for critical roles and leadership positions; and facilitate internal talent mobility to create a
high-performing workforce.
The Company employed approximately 921 people as of December 31, 2022. Our workforce is comprised of all full-time
employees. Of the total population as of December 31, 2022, approximately 518 of our employees worked in the HFS –
South segment, approximately 29 of our employees worked in the HFS – Midwest segment, no employees worked in the
TCPL Keystone segment, approximately 288 of our employees worked in the Government segment, and approximately
26 of our employees worked in the All Other segment. The remaining 60 employees worked in Corporate. None of the
Company’s employees are unionized or members of collective bargaining arrangements.
The Company focuses on the following in managing its human capital:
•Health and safety: We have a safety program that focuses on implementing management systems, policies
and training programs and performing assessments to see that workers are trained properly, and that injuries
and incidents are prevented. All of our employees are empowered with stop-work authority which enables
them to immediately stop any unsafe or potentially hazardous working condition or behavior they may
observe. We utilize a mixture of indicators to assess the safety performance of our operations, including total
recordable injury rate, preventable motor vehicle incidents and corrective actions. We also recognize
outstanding safety behaviors through us at the local community level. Importantly, during the COVID-19
pandemic, our continuing focus on health and safety enabled us to preserve business continuity without
sacrificing our commitment to keeping our colleagues safe.
•Employee wellness: The Company’s Safe & Healthy program is a comprehensive approach to wellness that
encourages healthy behaviors and is intended to raise morale, productivity, and overall employee
engagement. The program includes a health assessment, no cost preventive care through the medical plan,
two personal paid days off to be used for physical and mental health, tobacco cessation support through our
medical insurance carrier, and an employee assistance program. Approximately 40% of eligible employees
participated in the Health & Safety program in 2022.
•Diversity & Inclusion (“D&I”): Inclusion is how we foster an environment where various backgrounds are
celebrated and encouraged to grow and learn by valuing the skills and expertise a diverse workforce provides.
We believe that an inclusive and a diverse team is key to the success of our culture and aim to drive D&I
initiatives. The Company’s D&I initiatives are operationalized through three core elements: (1) senior
management’s endorsement of and alignment with the programs; (2) focused efforts in increasing diversity
in the talent pipeline and our hiring; (3) creating an inclusive work environment where differences are
welcomed. In addition, the Company has made hiring and supporting veterans and minorities, especially in
leadership roles, a priority. The Company analyzes diversity in the workforce on at least an annual basis and
develops action plans from the results to spark dialogue among employees and leaders in an effort to build a
more inclusive, diverse and empowered culture at the Company. As of December 31, 2022, women
constituted approximately 41% of our workforce and self-identified racial or ethnic minorities represented
35% of our workforce. Diversity, Equity and Inclusion are core to our culture, and we believe that a diverse
workforce is critical to our success.
•Compensation programs and employee benefits: Our compensation and benefits programs provide a
package designed to attract, retain and motivate employees. In addition to competitive base salaries, the
Company provides a variety of short-term, long-term, and commission-based incentive compensation
programs to reward performance relative to key metrics. We offer comprehensive benefit options including
retirement savings plans, medical insurance, prescription drug benefits, dental insurance, vision insurance,
accident and critical illness insurance, life and disability insurance, health savings accounts, flexible spending
accounts, legal insurance, auto/home insurance and identity theft insurance.
20
•Employee experience and retention: To evaluate our employee experience and retention efforts, we
monitor a number of employee measures, such as employee retention. To provide an open and frequent line
of communication for all employees, we encourage staff meetings at every community.
•Training and development: The Company is committed to the continued development of its people. We
aim for all applicable new hires to attend new hire orientation training within 90 days of hire. Additionally,
we offer a wide array of training solutions (classroom, hands-on and e-learning) for our employees. In 2022,
our employees enhanced their skills through training, including safety training, leadership training and
equipment-related training from our suppliers. Our performance process encourages performance and
development check-ins throughout the year to provide for development at all levels across the Company.
Intellectual Property
Target Hospitality owns a number of trademarks important to the business. Its material trademarks are registered or
pending registration in the U.S. Patent and Trademark Office. The business operates primarily under the Target
Hospitality brand.
Properties
Corporate Headquarters
Target Hospitality’s headquarters are located in The Woodlands, Texas. Its executive, financial, accounting, legal,
administrative, management information systems and human resources functions operate from this single, leased office.
For a list of real property owned material to the operations of Target Hospitality, refer to Part I Item 2 within this Annual
Report on Form 10-K.
Communities/Owned and Leased Real Estate
Target Hospitality operates 29 communities, of which it owns the underlying real property of 38%, leases the
underlying real property of 42%, and both owns and leases the underlying real property of 10%. The remaining 10%
are customer sites.
Available Information
Our website address is www.targethospitality.com. We make available, free of charge through our website, our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon
as reasonably practicable after such documents are electronically filed with, or furnished to, the United States Securities
and Exchange Commission (the “SEC”). The SEC maintains an internet website at www.sec.gov that contains reports,
proxy and information statements and other information regarding Target Hospitality Corp.
21
Item 1A. Risk Factors
Risk Factors Summary
Below is a summary of the principal factors that make an investment in our Common Stock speculative or risky. This
summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor
summary, and other risks that we face, can be found immediately following this summary and should be carefully
considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC before
making an investment decision regarding our Common Stock.
Operational Risks
• Our operations are and will be exposed to operational, economic, political and regulatory risks.
• We face significant competition in the specialty rental sector.
• We depend on several significant customers. The loss of one or more such customers or the inability of one or
more such customers to meet their obligations could adversely affect our results of operations.
• Our business depends on the quality and reputation of the Company and its communities, and any deterioration
in such quality or reputation could adversely impact its market share, business, financial condition or results of
operations.
• We derive a substantial portion of our revenue from the Government segment. The loss of, or a significant
decrease in revenues from, any customer in this concentrated segment could seriously harm our financial
condition and results of operations.
• Our business may be adversely affected by periods of low commodity prices or unsuccessful exploration results
which may decrease customers’ spending and our results.
• Demand for our products and services is sensitive to changes in demand within a number of key industry end-
markets and geographic regions
•
Increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our specialty
rental and hospitality services contracts may constrain its ability to make a profit.
• Our future operating results may fluctuate, fail to match past performance, or fail to meet expectations.
• Public health crises such as the COVID-19 pandemic and their impact on business and economic conditions and
government requirements could adversely affect our business, financial condition or results of operations.
Financial Accounting Risks
•
If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges,
which would negatively impact our reported operating results.
• The valuation of our Private Warrants could cause volatility in our net income (loss).
Social, Political and Regulatory Risks
• Failure to comply with government regulations related to food and beverages may subject us to liability.
• Unanticipated changes in our tax obligations, the adoption of a new tax legislation, or exposure to additional
income tax liabilities could affect profitability.
• We are subject to various laws and regulations including those governing our contractual relationships.
Obligations and liabilities under these laws and regulations may materially harm our business.
• We are subject to evolving public disclosure, financial reporting and corporate governance expectations and
regulations that impact compliance costs and risks of noncompliance.
22
Growth, Development and Financing Risks
• We may not be able to successfully acquire and integrate new operations, which could cause our business to
suffer.
• Global, national or local economic movements could have a material adverse effect on our business.
Information Technology and Privacy Risks
• Any failure of our management information systems could disrupt our business and result in decreased revenue
and increased overhead costs.
• Our business could be negatively impacted by security threats, including cyber-security threats.
Risks Related to Our Indebtedness
• Our leverage may make it difficult for us to service our debt and operate our business.
• Global capital and credit markets conditions could materially adversely affect our ability to access the capital
and credit markets or the ability of key counterparties to perform their obligations to it.
• We are, and may in the future become, subject to covenants that limit our operating and financial flexibility and,
if we default under our debt covenants, we may not be able to meet our payment obligations.
Risks Related to Ownership of Our Common Stock
• We have incurred and expect to continue to incur significantly increased costs as a result of operating as a public
company, and our management is required to devote substantial time to compliance efforts.
• Our principal stockholder has substantial control over our business, which may be disadvantageous to other
stockholders.
• We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements
applicable to emerging growth companies, our Common Stock may be less attractive.
Risk Factors
Operational Risks
Our operations are and will be exposed to operational economic, political and regulatory risks.
Our operations could be affected by economic, political and regulatory risks. These risks include:
•
•
•
•
•
•
•
multiple regulatory requirements that are subject to change and that could restrict our ability to build
and operate our communities and other sites;
inflation or other increases in costs relating to personnel, utilities, insurance, medical and food, recession,
fluctuations in interest rates;
compliance with applicable export control laws and economic sanctions laws and regulations;
trade protection measures, including increased duties and taxes, and import or export licensing
requirements;
ownership regulations;
compliance with applicable antitrust and other regulatory rules and regulations relating to potential
future acquisitions;
different local product preferences and product requirements;
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•
•
•
•
•
•
•
•
•
challenges in maintaining, staffing and managing national operations;
bankruptcy or insolvency of our customers, thereby reducing demand for our services;
different labor regulations;
potentially adverse consequences from changes in or interpretations of tax laws;
political and economic instability;
federal government budgeting and appropriations;
enforcement of remedies in various jurisdictions;
the risk that the business partners upon whom we depend for technical assistance or management and
acquisition expertise will not perform as expected; and
differences in business practices that may result in violation of our policies including but not limited to
bribery and collusive practices.
These and other risks could have a material adverse effect on our business, results of operations and financial condition.
We face significant competition as a provider of specialty rental and hospitality services in the specialty rental sector.
If we are unable to compete successfully, we could lose customers and our revenue and profitability could decline.
Although our competition varies significantly by market, the specialty rental and hospitality services industry, in general,
is highly competitive. We compete on the basis of a number of factors, including equipment availability, quality, price,
service, reliability, appearance, functionality and delivery terms. We may experience pricing pressures in our operations
in the future as some of our competitors seek to obtain market share by reducing prices. We may also face reduced demand
for our products and services if our competitors are able to provide new or innovative products or services that better
appeal to our potential customers. In each of our current markets, we face competition from national, regional and local
companies who have an established market position in the specific service area. We expect to encounter similar
competition in any new markets that we may enter. Some of our competitors may have greater market share, less
indebtedness, greater pricing flexibility, more attractive product or service offerings, or superior marketing and financial
resources. In addition, if some of our government customers have capacity at the facilities which they operate, they may
choose to use less capacity at our facilities. Increased competition could result in lower profit margins, substantial pricing
pressure, and reduced market share. Price competition, together with other forms of competition, may materially adversely
affect our business, results of operations, and financial condition.
We depend on several significant customers. The loss of one or more such customers or the inability of one or more
such customers to meet their obligations could adversely affect our results of operations.
We depend on several significant customers. For the year ended December 31, 2022, our five largest customers accounted
for approximately 81% of our total revenue. For a more detailed explanation of our customers, see the section of this
Annual Report on Form 10-K entitled “Business.” The loss of any one of our largest customers in any of our business
segments or a sustained decrease in demand by any of such customers could result in a substantial loss of revenues and
could have a material adverse effect on our results of operations. In addition, the concentration of customers in the
industries in which we operate may impact our overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic, political and industry conditions.
As a result of our customer concentration, risks of nonpayment and nonperformance by our counterparties are a concern
in our business. We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. Failure
to manage our credit risk and receive timely payments on our customer accounts receivable may result in the write-off of
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customer receivables. If we are not able to manage credit risk, or if a number of significant customers should have financial
difficulties at the same time, our credit and equipment losses would increase above historical levels. If this should occur,
our business, financial condition, and results of operations may be materially and adversely affected. The inability or
failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect
our financial results.
Our business depends on the quality and reputation of the Company and its communities. Any deterioration in the
quality and reputation of the Company or public resistance, potential legal challenges to, and increasing scrutiny of
our industry, could affect our ability to obtain new contracts or result in the loss of existing contracts and negatively
impact our brand or reputation, each of which could have a material adverse effect on our business, financial condition
and results of operations.
Many factors can influence our reputation and the value of our communities, including quality of services, food quality
and safety, availability and management of scarce natural resources, supply chain management, diversity, human rights
and support for local communities. In addition, events that may be beyond our control could affect the reputation of one
or more of our communities or more generally impact the reputation of the Company, including protests directed at
government immigration policies, violent incidents at one or more communities or other sites or criminal activity.
Reputational value is also based on perceptions, and broad access to social media makes it easy for anyone to provide
public feedback that can influence perceptions of the Company and its communities, and it may be difficult to control or
effectively manage negative publicity, regardless of whether it is accurate. While reputations may take decades to build,
negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social
media publicity, governmental investigations or penalties, or litigation. Negative incidents could lead to tangible adverse
effects on our business, including customer boycotts, loss of customers, loss of development opportunities or employee
retention and recruiting difficulties. A decline in the reputation or perceived quality of our communities or corporate image
could negatively affect its market share, reputation, business, financial condition or results of operations.
Increased public resistance, including negative media attention and public opinion, to the use of private companies for the
management and operation of facilities supporting immigration, may negatively impact our brand and the public perception
of the Company. Maintaining and promoting our brand will depend largely on our ability to differentiate ourselves from
the direct participants in the ongoing conflict around immigration policy. If we are portrayed negatively in the press or
associated with the ongoing social and political debates around immigration policy, our public image and reputation could
be irreparably tarnished and our brand could be harmed. If we are unable to counter such negative media attention
effectively, investors may lose confidence in our business, which could result in a decline in the trading price of our
Common Stock, and our business could be materially adversely affected.
Furthermore, our relationship with the U.S. government subjects us and our government contractor customers to unique
risks such as unanticipated increased costs and litigation that could materially adversely affect our or their business,
financial condition, or results of operations. These operational risks and others associated with privately managing
residential facilities could result in higher costs associated with staffing and lead to increased litigation. Lawsuits, to which
we are not a party, have challenged the government's policy of detaining migrant families, and government policies with
respect to family immigration may impact the demand for our facilities. Any court decision or government action that
impacts our customers’ existing contracts with the government could impact our subcontracts for the facilities and result
in a reduction in demand for our services or reputational damage to us, and require us to devote a significant amount of
time and expense to the defense of our operations and reputation, which could materially affect our business, financial
condition, and results of operations.
We derive a substantial portion of our revenue from the Government segment. The loss of, or a significant decrease in
revenues from, any customer in this concentrated segment could seriously harm our financial condition and results of
operations.
We derive a significant portion of our revenues from our subcontracts with government contractors. These revenues depend
on the U.S. government and its contractors receiving sufficient funding and providing it with timely payment under the
terms of our contracts. If the applicable government entity does not receive sufficient appropriations to cover its contractual
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obligations, it may delay or reduce payment to its contractors and, as a result, our government contractor customers may
delay or reduce payments to or terminate their contracts with us. Any future impasse or struggle impacting the federal
government’s ability to reach agreement on the federal budget, debt ceiling or any future federal government shut downs
could result in material payment delays, payment reductions or contract terminations. Additionally, our current and
potential future government contractor customers may request in the future that we reduce our contract rates or forego
increases to those rates as a way for those contractors to control costs and help their government customers to control their
spending and address their budgetary shortfalls. For additional information regarding our operation of the Government
segment, see the section entitled “Business—Business Operations—Government”.
The U.S. government and, by extension, our U.S. government contractor customers, may also from time to time adopt,
implement or modify certain policies or directives that may adversely affect our business. For example, while the U.S.
government is currently using private immigration sites like the South Texas Family Residential Center, federal, state or
local governmental partners may in the future choose to undertake a review of their utilization of privately operated
facilities, or may cancel or decide not to renew existing contracts with their government contractors, who may, in turn,
cancel or decide not to renew their contracts with us. Changes in government policy, presidential administration or other
changes in the political landscape relating to immigration policies may similarly result in a decline in our revenues in the
Government segment. In addition, lawsuits, to which we are not a party, have challenged the U.S. government’s policy of
detaining migrant families, and government policies with respect to immigration may impact the demand for our facilities
and any facilities that we may operate in the future. Any court decision or government action that impacts our existing
contracts or any future contracts for similar facilities could materially affect our cash flows, financial condition and results
of operations. Further, we may not be able to renew our agreements with the government contractors or enter new
agreements with these contractors. Any renewals or new agreements we may enter may be on terms that are materially
less favorable to us than those in our current agreements.
Our natural resource development customers are exposed to a number of unique operating risks and challenges which
could also adversely affect us.
Demand for our services is sensitive to the level of exploration, development and production activity of, and the
corresponding capital spending by, natural resource development companies. The natural resource development industries’
willingness to explore, develop, and produce depends largely upon the availability of attractive resource prospects and the
prevailing view of their future cash flows. Prices for energy products can be subject to large fluctuations in response to
changes in the supply of and demand for these commodities, market uncertainty, and a variety of other factors that are
beyond our control. This volatility causes natural resource development companies to change their strategies and
expenditure levels. Accordingly, we could be impacted by disruptions to our customers’ operations caused by, among
other things, any one of or all of the following singularly or in combination:
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worldwide economic activity including growth in developing countries, U.S. and international tax
policies, pricing and demand for the natural resources being produced at a given project (or proposed
project);
national government political requirements, including the ability of the Organization of Petroleum
Exporting Companies (“OPEC”) to set and maintain production levels and government policies which
could nationalize or expropriate natural resource development exploration, production, refining or
transportation assets;
the level of activity in U.S. shale development;
unexpected problems, higher costs and delays during the development, construction, and project start-
up which may delay the commencement of production;
unforeseen and adverse geological, geotechnical, and seismic conditions;
lack of availability of sufficient water or power to maintain their operations;
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lack of availability or failure of the required infrastructure necessary to maintain or to expand their
operations;
the breakdown or shortage of equipment and labor necessary to maintain their operations;
risks associated with the natural resource industry being subject to various regulatory approvals. Such
risks may include governmental actions;
interruptions to the operations of our customers caused by industrial accidents or disputes or weather
conditions and natural disasters; and
delays in or failure to commission new infrastructure in timeframes so as not to disrupt customer
operations.
The carrying value of our communities could be reduced by extended periods of limited or no activity by our customers,
which would require us to record impairment charges equal to the excess of the carrying value of the communities over
fair value. We may incur asset impairment charges in the future, which charges may affect negatively our results of
operations and financial condition as well as our borrowing base.
Our business is contract intensive. Servicing existing contracts may lead to customer disputes or delays in receipt of
payments, and failure to retain our current customers, renew existing customer contracts, and obtain new customer
contracts, or the termination of existing contracts, could adversely affect our business.
Our business is contract intensive and we are party to many contracts with customers. We periodically review our
compliance with contract terms and provisions. If customers were to dispute our contract determinations, the resolution of
such disputes in a manner adverse to our interests could negatively affect sales and operating results. In the past, some of
our customers have opted to withhold payment due to contract or other disputes, which has delayed our receipt of
payments. While we do not believe any reviews, audits, delayed payments, or other such matters should result in material
adjustments, if a large number of our customer arrangements were modified or payments withheld in response to any such
matter, the effect could be materially averse to our business or results of operations.
Our success depends on our ability to retain our current customers, renew or replace our existing customer contracts, and
obtain new business. Our ability to do so generally depends on a variety of factors, including overall customer expenditure
levels and the quality, price and responsiveness of our services, as well as our ability to market these services effectively
and differentiate ourselves from our competitors. We cannot assure you that we will be able to obtain new business, renew
existing customer contracts at the same or higher levels of pricing, or at all, or that our current customers will not turn to
competitors, cease operations, elect to self-operate, or terminate contracts with us. In the context of a potential depressed
commodity price environment, our customers may not renew contracts on terms favorable to us or, in some cases, at all,
and we may have difficulty obtaining new business. As a result, our customers may choose to terminate their contracts.
The likelihood that a customer may seek to terminate a contract is increased during periods of market weakness as we
encountered with various customers during the COVID-19 pandemic. Further, if any of our customers fail to reach final
investment decisions with respect to projects for which such customers have already awarded us contracts to provide
related accommodations, those customers may terminate such contracts. Customer contract cancellations, the failure to
renew a significant number of our existing contracts, or the failure to obtain new business would have a material adverse
effect on our business, results of operations and financial condition.
We may be adversely affected if customers reduce their specialty rental and hospitality services outsourcing.
Our business and growth strategies depend in large part on customers outsourcing some or all of the services that we
provide. We cannot be certain that these customer preferences for outsourcing will continue or that customers that have
outsourced accommodations will not decide to perform these functions themselves or only outsource accommodations
during the development or construction phases of their projects. In addition, labor unions representing customer employees
and contractors may oppose outsourcing accommodations to the extent that the unions believe that third-party
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accommodations negatively impact union membership and recruiting. The reversal or reduction in customer outsourcing
of accommodations could negatively impact our financial results and growth prospects.
Our operations could be subject to natural disasters and other business disruptions, which could materially adversely
affect our future revenue and financial condition and increase its costs and expenses.
Our operations could be subject to natural disasters and other business disruptions such as fires, floods, hurricanes,
earthquakes, outbreaks of epidemic or pandemic disease and terrorism, which could adversely affect its future revenue and
financial condition and increase its costs and expenses. For example, extreme weather, particularly periods of high rainfall,
hail, tornadoes, or extreme cold, in any of the areas in which we operate may cause delays in our community construction
activities or result in the cessation of customer operations at one or more communities for an extended period of time. See
“We are exposed to various possible claims relating to our business and our insurance may not fully protect us.” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Results of
Operations—Natural Disasters or Other Significant Disruption.” In addition, the occurrence and threat of terrorist attacks
may directly or indirectly affect economic conditions, which could in turn adversely affect demand for our communities
and services. In the event of a major natural or man-made disaster, we could experience loss of life of our employees,
destruction of our communities or other sites, or business interruptions, any of which may materially adversely affect our
business. If any of our communities were to experience a catastrophic loss, it could disrupt our operations, delay services,
staffing and revenue recognition, and result in expenses to repair or replace the damaged facility not covered by asset,
liability, business continuity or other insurance contracts. Also, we could face significant increases in premiums or losses
of coverage due to the loss experienced during and associated with these and potential future natural or man-made disasters
that may materially adversely affect our business. In addition, attacks or armed conflicts that directly impact one or more
of our properties or communities could significantly affect our ability to operate those properties or communities and
thereby impair our results of operations.
More generally, any of these events could cause consumer confidence and spending to decrease or result in increased
volatility in the global economy and worldwide financial markets. Any of these occurrences could have a material adverse
effect on our business, results of operations and financial condition.
Construction risks exist which may adversely affect our results of operations.
There are a number of general risks that might impinge on companies involved in the development, construction and
installation of facilities as a prerequisite to the management of those assets in an operational sense. We are exposed to the
following risks in connection with our construction activities:
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the construction activities of our accommodations are partially dependent on the supply of appropriate
construction and development opportunities;
development approvals, slow decision making by counterparties, complex construction specifications,
changes to design briefs, legal issues, and other documentation changes may give rise to delays in
completion, loss of revenue, and cost over-runs which may, in turn, result in termination of
accommodation supply contracts;
other time delays that may arise in relation to construction and development include supply of labor,
scarcity of construction materials, real estate or leasing issues, lower than expected productivity levels,
inclement weather conditions, land contamination or environmental claims, cultural heritage claims,
difficult site access, or industrial relations issues;
objections to our activities or those of our customers aired by community interests, political,
environment and/or neighborhood groups which may cause delays in the granting or approvals and/or
the overall progress of a project;
where we assume design responsibility, there is a risk that design problems or defects may result in
rectification and/or costs or liabilities which we cannot readily recover; and
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there is a risk that we may fail to fulfill our statutory and contractual obligations in relation to the quality
of our materials and workmanship, including warranties and defect liability obligations.
Demand for our products and services is sensitive to changes in demand within a number of key industry end-markets
and geographic regions.
Our financial performance is dependent on the level of demand for our facilities and services, which is sensitive to the
level of demand within various sectors, in particular, the natural resource development and government end-markets. Each
of these sectors is influenced not only by the state of the general global economy but by a number of more specific factors
as well. For example, demand for workforce accommodations within the natural resources sector may be materially
adversely affected by a decline in global commodity prices. Demand for our facilities and services may also vary among
different localities or regions. The levels of activity in these sectors and geographic regions may also be cyclical, and we
may not be able to predict the timing, extent or duration of the activity cycles in the markets in which we or our key
customers operate. A decline or slowed growth in any of these sectors or geographic regions could result in reduced
demand for our products and services, which may materially adversely affect our business, results of operations, and
financial condition.
Certain of our major communities are located on land subject to leases. If we are unable to renew a lease, we could be
materially and adversely affected.
Certain of our major communities are located on land subject to leases. Accordingly, while we own the accommodations
assets, we only own a leasehold interest in those properties. If we are found to be in breach of a lease, we could lose the
right to use the property. In addition, unless we can extend the terms of these leases before their expiration, as to which no
assurance can be given, we will lose our right to operate our facilities located on these properties upon expiration of the
leases. In that event, we would be required to remove our accommodations assets and remediate the site. Generally, our
leases have an average term of three years and generally contain unilateral renewal provisions for up to seven additional
years. We can provide no assurances that we will be able to renew our leases upon expiration on similar terms, or at all. If
we are unable to renew leases on similar terms, it may have an adverse effect on our business.
Third parties may fail to provide necessary services and materials for our communities and other sites.
We are often dependent on third parties to supply services and materials for our communities and other sites. We typically
do not enter into long-term contracts with third-party suppliers. We may experience supply problems as a result of
logistical, financial or operating difficulties or the failure or consolidation of our suppliers. We may also experience supply
problems as a result of shortages and discontinuations resulting from product obsolescence or other shortages or allocations
by suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase
products. In the future, we may not be able to negotiate arrangements with third parties to secure products and services
that we require in sufficient quantities or on reasonable terms. If we cannot negotiate arrangements with third parties to
produce or supply our products or if the third parties fail to produce our products to our specifications or in a timely
manner, our business, results of operations, and financial condition may be materially adversely affected.
It may become difficult for us to find and retain qualified employees, and failure to do so could impede our ability to
execute our business plan and growth strategy.
One of the most important factors in our ability to provide reliable and quality services and profitably execute our business
plan is our ability to attract, develop and retain qualified personnel. The competition for qualified personnel in the
industries in which we operate is intense and there can be no assurance that we will be able to continue to attract and retain
all personnel necessary for the development and operation of our business. In periods of higher activity, it may become
more difficult to find and retain qualified employees which could limit growth, increase operating costs, or have other
material adverse effects on our operations. In addition, labor shortages, the inability to hire or retain qualified employees
nationally, regionally or locally or increased labor costs could have a material adverse effect on our ability to control
expenses and efficiently conduct operations.
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Many of our key executives, managers, and employees have knowledge and an understanding of our business and our
industry that cannot be readily duplicated and they are the key individuals that interface with customers. In addition, the
ability to attract and retain qualified personnel is dependent on the availability of qualified personnel, the impact on the
labor supply due to general economic or political conditions, and the ability to provide a competitive compensation
package.
Significant increases in operating costs, including raw material and labor costs, could increase our operating costs
significantly and harm our profitability.
We incur labor costs and purchase raw materials, including steel, lumber, siding and roofing, fuel and other products to
construct and perform periodic repairs, modifications and refurbishments to maintain physical conditions of our facilities
as well as the construction of our communities and other sites. The volume, timing, and mix of such work may vary
quarter-to-quarter and year- to-year. Generally, increases in labor and raw material costs will increase the acquisition costs
of new facilities and also increase the construction, repair, and maintenance costs of our facilities. During periods of rising
prices for labor or raw materials, and in particular, when the prices increase rapidly or to levels significantly higher than
normal, we may incur significant increases in our costs for new facilities and incur higher operating costs that we may not
be able to recoup from customers through changes in pricing, which could have a material adverse effect on our business,
results of operations and financial condition.
Our profitability can also be adversely affected to the extent we are faced with cost increases for food, wages and other
labor related expenses, insurance, fuel and utilities, especially to the extent we are unable to recover such increased costs
through increases in the prices for our services, due to one or more of general economic conditions, competitive conditions
or contractual provisions in our customer contracts. Substantial increases in the cost of fuel and utilities have historically
resulted in cost increases in our communities. From time to time we have experienced increases in our food costs. In
addition, food prices can fluctuate as a result of inflation, foreign exchange rates and temporary changes in supply,
including as a result of incidences of severe weather such as droughts, heavy rains, and late freezes. Although we negotiate
the pricing and other terms for the majority of our purchases of food and related products directly with national
manufacturers, we purchase these products and other items through national distributors and suppliers. If our relationship
with, or the business of a primary distributor were to be disrupted, we would have to arrange alternative distributors and
our operations and cost structure could be adversely affected in the short term. We may be unable to fully recover costs,
and such increases would negatively impact its profitability on contracts that do not contain such inflation protections.
Our future operating results may fluctuate, fail to match past performance, or fail to meet expectations.
Our operating results may fluctuate, fail to match past performance, or fail to meet the expectations of analysts and
investors. Our financial results may fluctuate as a result of a number of factors, some of which are beyond our control,
including but not limited to:
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general economic conditions in the geographies and industries where we own or operate communities;
natural disasters, including pandemics and endemics, and business interruptions;
executive and legislative policies where we provide our services;
the budgetary constraints of the government and/or our customers;
the success of our strategic growth initiatives;
the costs associated with the launching or integrating new or acquired businesses;
the cost, type, and timing of customer orders;
the nature and duration of the needs of our customers;
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the raw material or labor costs of servicing our facilities;
the timing of new product or service introductions by us, our suppliers, and our competitors;
changes in end-user demand requirements;
the mix, by state and region, of our revenue, personnel, and assets;
movements in interest rates, or tax rates;
changes in, and application of, accounting rules;
changes in the regulations applicable to us;
litigation matters;
the success of large scale capital intensive projects;
liquidity, including the impact of our debt service costs; and
attrition and retention risk.
As a result of these factors, our historical financial results are not necessarily indicative of our future results.
We are exposed to various possible claims relating to our business, and our insurance may not fully protect us.
We are exposed to various possible claims relating to our business, and our operations are subject to many hazards. In the
ordinary course of business, we may become the subject of various claims, lawsuits, and administrative proceedings
seeking damages or other remedies concerning our commercial operations, products, employees, and other matters,
including occasional claims by individuals alleging exposure to hazardous materials as a result of our products or
operations. Some of these claims relate to the activities of businesses that we have acquired, even though these activities
may have occurred prior to our acquisition of such businesses.
Our insurance policies have deductibles or self-insured retentions which would require us to expand amounts prior to
taking advantage of coverage limits. We believe that we have adequate insurance coverage for the protection of our assets
and operations. However, our insurance may not fully protect us for certain types of claims such as dishonest, fraudulent,
criminal or malicious acts; terrorism, war, hostile or warlike action during a time of peace; automobile physical damage;
natural disasters; and certain cyber-crime. A judgment could be rendered against us in cases in which we could be
uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters. Even a partially
uninsured or underinsured claim, if successful and of significant size, could have a material adverse effect on our results
of operations or consolidated financial position. The specifications and insured limits under those policies, however, may
be insufficient for such claims. We also face the following other risks related to our insurance coverage, including we may
not be able to continue to obtain insurance on commercially reasonable terms; the counterparties to our insurance contracts
may pose credit risks; and we may incur losses from interruption of our business that exceed our insurance coverage each
of which, individually or in the aggregate, could materially and adversely impact our business. Further, due to rising
insurance costs and changes in the insurance markets, we cannot provide any assurance that our insurance coverage will
continue to be available at all or at rates or on terms similar to those presently available.
Public health crises such as the COVID-19 pandemic and their impact on business and economic conditions and
government requirements could adversely affect our business, financial condition or results of operations.
We are subject to risks related to public health crises, such as the COVID-19 pandemic and the various measures that are
implemented to protect public health, which can adversely affect the economy and financial markets. We have
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implemented business continuity plans to continue to provide specialty rental and hospitality services to our customers
and to support our operations, while taking health and safety measures such as incentivizing employee vaccination,
implementing worker distancing measures and masking measures and using a remote workforce where possible. There
can be no assurance that the continued spread of COVID-19, or any future health public crisis, and efforts to contain such
public health crisis (including, but not limited to, vaccination, social distancing and masking policies, restrictions on travel
and reduced operations) will not materially impact our results of operations and financial position. In particular, the
continued spread of COVID-19 and its variants and efforts to contain the virus could:
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impact customer demand for our specialty rental and hospitality services;
reduce the availability and productivity of our employees;
cause us to experience an increase in costs as a result of our emergency and business continuity
measures;
impact our ability to complete any strategic plans on time, or at all; and
cause other unpredictable events.
The situation surrounding COVID-19 remains fluid and the likelihood of an impact on us that could be material increases
the longer the virus impacts activity levels in the locations in which we operate. Even after the COVID-19 pandemic
subsides, the U.S. economy and other major global economies may experience a recession, and we anticipate our business
and operations could be materially adversely affected by a prolonged recession in the U.S. and other major markets.
Therefore, it remains difficult to predict the potential impact of the virus on our results of operations and financial position.
In addition, to the extent that COVID-19 adversely affects our results of operations or financial position, it may also
heighten the other risks described in this Item 1A-Risk Factors.
Financial Accounting Risks
If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges,
which would negatively impact our reported operating results.
We have goodwill, which represents the excess of the total purchase price of our acquisitions over the fair value of the
assets acquired, and other intangible assets. As of December 31, 2022, we had approximately $41.0 million and $75.2
million of goodwill and other intangible assets, net, respectively, in our statement of financial position, which represents
approximately 5.3% and 9.7% of total assets, respectively. We review goodwill and intangible assets at least annually for
impairment. In the event impairment is identified, a charge to earnings would be recorded. Impairment may result from
significant changes in the manner of use of the acquired asset, negative industry or economic trends and significant
underperformance relative to historic or projected operating results. Any impairment charges could adversely affect our
reported results of operations and financial condition.
The valuation of our Private Warrants could increase the volatility in our net income (loss) in our consolidated
statements of comprehensive income (loss).
The change in fair value of our Private Warrants is the result of changes in stock price and Private Warrants outstanding
at each reporting period. Our Private Warrants are required to be carried at fair value, with changes in the valuation
impacting net income (loss). The Private Warrants are valued using a Black-Scholes option-pricing model under which
fair value is impacted by various assumptions, including the volatility of stock prices. Significant changes to our stock
price or number of Private Warrants outstanding may adversely affect our net income (loss) in our consolidated statements
of comprehensive income (loss).
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Social, Political, Regulatory and Litigation Risks
A failure to maintain food safety or comply with government regulations related to food and beverages may subject us
to liability.
Claims of illness or injury relating to food quality or food handling are common in the food service industry, and a number
of these claims may exist at any given time. Because food safety issues could be experienced at the source or by food
suppliers or distributors, food safety could, in part, be out of our control. Regardless of the source or cause, any report of
food-borne illness or other food safety issues such as food tampering or contamination at one of our locations could
adversely impact our reputation, hindering our ability to renew contracts on favorable terms or to obtain new business, and
have a negative impact on our sales. Future food product recalls and health concerns associated with food contamination
may also increase our raw materials costs and, from time to time, disrupt its business.
A variety of regulations at various governmental levels relating to the handling, preparation, and serving of food (including,
in some cases, requirements relating to the temperature of food), and the cleanliness of food production facilities and the
hygiene of food-handling personnel are enforced primarily at the local public health department level. We cannot assure
you that we are in full compliance with all applicable laws and regulations at all times or that we will be able to comply
with any future laws and regulations. Furthermore, legislation and regulatory attention to food safety is very high.
Additional or amended regulations in this area may significantly increase the cost of compliance or expose us to liabilities.
If we are unable to maintain food safety or comply with government regulations related to food and beverages, the effect
could be materially averse to our business or results of operations.
Unanticipated changes in our tax obligations, the adoption of a new tax legislation, or exposure to additional income
tax liabilities could affect profitability.
We are subject to income taxes in the United States. Our tax liabilities are affected by the amounts charged for inventory,
services, funding, and other intercompany transactions. Tax authorities may disagree with our intercompany charges,
cross- jurisdictional transfer pricing or other tax positions and assess additional taxes. We regularly assess the likely
outcomes of examinations in order to determine the appropriateness of its tax provision. However, there can be no
assurance that we will accurately predict the outcomes of potential examinations, and the amounts ultimately paid upon
resolution of examinations could be materially different from the amounts previously included in our income tax provision
and, therefore, could have a material impact on its results of operations and cash flows. In addition, our future effective
tax rate could be adversely affected by changes to its operating structure, changes in the mix of earnings in countries and/or
states with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws,
and the discovery of new information in the course of our tax return preparation process.
We may be unable to recognize deferred tax assets and, as a result, lose future tax savings, which could have a negative
impact on our liquidity and financial position.
We recognize deferred tax assets primarily related to deductible temporary differences based on our assessment that the
item will be utilized against future taxable income and the benefit will be sustained upon ultimate settlement with the
applicable taxing authority. Such deductible temporary differences primarily relate to tax loss carryforwards and deferred
revenue. Tax loss carryforwards arising in a given tax jurisdiction may be carried forward to offset taxable income in
future years from such tax jurisdiction and reduce or eliminate income taxes otherwise payable on such taxable income,
subject to certain limitations. We may have to write down, via a valuation allowance, the carrying amount of certain of the
deferred tax assets to the extent we determine it is not probable such deferred tax assets will continue to be recognized.
The taxing authorities could challenge our calculation of the amount of our tax attributes, which could reduce certain of
our recognized tax benefits. In addition, tax laws in certain jurisdictions may limit the ability to use carryforwards upon a
change in control.
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We are subject to various laws and regulations including those governing our contractual relationships with the U.S.
government and U.S. government contractors and the health and safety of our workforce and our customers.
Obligations and liabilities under these laws and regulations may materially harm our business.
Our customers include U.S. government contractors, which means that we may, indirectly, be subject to various statutes
and regulations applicable to doing business with the U.S. government. These types of contracts customarily contain
provisions that give the U.S. government substantial rights and remedies, many of which are not typically found in
commercial contracts and which are unfavorable to contractors, including provisions that allow the government to
unilaterally terminate or modify our customers’ federal government contracts, in whole or in part, at the government’s
convenience. Under general principles of U.S. government contracting law, if the government terminates a contract for
convenience, the terminated party may generally recover only its incurred or committed costs and settlement expenses and
profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting party
may be liable for any extra costs incurred by the government in procuring undelivered items from another source. In
addition, our or our customers’ failure to comply with these laws and regulations might result in administrative penalties
or the suspension of our customers’ government contracts or debarment and, as a result, the loss of the related revenue
which would harm our business, results of operations and financial condition. We are not aware of any action contemplated
by any regulatory authority related to any possible non-compliance by or in connection with our operations.
In addition, U.S. government contracts and grants normally contain additional requirements that may increase our costs of
doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These
requirements include, for example:
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specialized disclosure and accounting requirements unique to U.S. government contracts;
financial and compliance audits that may result in potential liability for price adjustments, recoupment
of government funds after such funds have been spent, civil and criminal penalties, or administrative
sanctions such as suspension or debarment from doing business with the U.S. government;
public disclosures of certain contract and company information; and
mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination
and affirmative action programs and environmental compliance requirements.
If we fail to maintain compliance with these requirements, our contracts may be subject to termination, and we may be
subject to financial and/or other liability under its contracts or under the False Claims Act. The False Claims Act’s
“whistleblower” provisions allow private individuals, including present and former employees, to sue on behalf of the U.S.
government. The False Claims Act statute provides for treble damages and other penalties and, if our operations are found
to be in violation of the False Claims Act, we could face other adverse action, including suspension or prohibition from
doing business with the U.S. government. Any penalties, fines, suspension or damages could adversely affect our financial
results as well as our ability to operate our business.
Further, our operations are subject to an array of other governmental regulations in each of the jurisdictions in which we
operate. Our activities are subject to regulation by several federal and state government agencies, including OSHA and by
federal and state laws. Our operations and activities in other jurisdictions are subject to similar governmental regulations.
Similar to conventionally constructed buildings, the workforce housing industry is also subject to regulations by multiple
governmental agencies in each jurisdiction relating to, among others, environmental, zoning and building standards, and
health, safety and transportation matters. Noncompliance with applicable regulations, implementation of new regulations
or modifications to existing regulations may increase costs of compliance, require a termination of certain activities or
otherwise have a material adverse effect on our business, results of operations, and financial condition.
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We are subject to various anti-corruption laws and we may be subject to other liabilities which could have a material
adverse effect on our business, results of operations and financial condition.
We are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign
governments and their officials by a U.S. person for the purpose of obtaining or retaining business. Our activities create
the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of
various laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”). We have implemented safeguards and
policies to discourage these practices by our employees and agents. However, existing safeguards and any future
improvements may prove to be ineffective and employees or agents may engage in conduct for which we might be held
responsible.
If employees violate our policies or we fail to maintain adequate record-keeping and internal accounting practices to
accurately record its transactions, we may be subject to regulatory sanctions. Violations of the FCPA or other anti-
corruption laws may result in severe criminal or civil sanctions and penalties, including suspension or debarment from
U.S. government contracting, and we may be subject to other liabilities which could have a material adverse effect on our
business, results of operations and financial condition. We are also subject to similar anti-corruption laws in other
jurisdictions.
We may be exposed to certain regulatory and financial risks related to climate change and other environmental laws
and regulations.
All of our and our customers’ operations may be affected by federal, state and local laws and regulations governing the
discharge of substances into the environment or otherwise relating to environmental protection. Among other things, these
laws and regulations impose limitations and prohibitions on the discharge and emission of, and establish standards for the
use, disposal and management of, regulated materials and waste, and impose liabilities for the costs of investigating and
cleaning up, and damages resulting from, present and past spills, disposals or other releases of hazardous substances or
materials. In the ordinary course of business, we use and generate substances that are regulated or may be hazardous under
environmental laws. We have an inherent risk of liability under environmental laws and regulations, both with respect to
ongoing operations and with respect to contamination that may have occurred in the past on our properties or as a result
of our operations. From time to time, our operations or conditions on properties that we have acquired have resulted in
liabilities under these environmental laws. We may in the future incur material costs to comply with environmental laws
or sustain material liabilities from claims concerning noncompliance or contamination. We have no reserves for any such
liabilities. Environmental laws and regulations are likely to change in the future under the Biden administration, possibly
resulting in more stringent requirements. Our or any of our customers’ failure to comply with applicable environment laws
and regulations may result in any of the following:
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issuance of administrative, civil and criminal penalties;
denial or revocation of permits or other authorizations;
reduction or cessation of operations; and
performance of site investigatory, remedial or other corrective actions.
While it is not possible at this time to predict how environmental legislation may change or how new regulations that may
be adopted would impact our business, any such future laws and regulations could result in increased compliance costs or
additional operating restrictions for us or our customers and could have a material adverse effect on our business or demand
for our services.
There are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in various
phases of discussion or implementation. For example, on January 27, 2021, President Biden issued an executive order that
commits to substantial action on climate change, calling for, among other things, an indefinite suspension of new oil and
natural gas leases on public lands pending completion of a comprehensive review and reconsideration of federal energy
and natural resource permitting and leasing practices. It remains unclear what additional actions President Biden will take
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and what support he will have for any potential legislative changes from Congress. The outcome of U.S. federal, regional,
provincial, and state actions to address global climate change could result in a variety of regulatory programs including
potential new regulations, additional charges to fund energy efficiency activities, or other regulatory actions. These actions
could:
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result in increased costs associated with our operations and our customers’ operations;
increase other costs to our business;
reduce the demand for carbon-based fuels; and
reduce the demand for our services.
Any adoption of these or similar proposals by U.S. federal, regional, provincial, or state governments mandating a
substantial reduction in greenhouse gas emissions could have far-reaching and significant impacts on the energy industry.
Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address
greenhouse gas emissions would impact our business, any such future laws and regulations could result in increased
compliance costs or additional operating restrictions, and could have a material adverse effect on our business or demand
for our services. See “Business—Regulatory and Environmental Compliance” for a more detailed description of our
climate-change related risks.
We may be subject to litigation, judgments, orders or regulatory proceedings that could materially harm our business.
We are subject to claims arising from disputes with customers, employees, vendors and other third parties in the normal
course of business. The risks associated with any such disputes may be difficult to assess or quantify and their existence
and magnitude may remain unknown for substantial periods of time. If the plaintiffs in any suits against us were to
successfully prosecute their claims, or if we were to settle such suits by making significant payments to the plaintiffs, our
business, results of operations and financial condition would be harmed. Even if the outcome of a claim proves favorable
to us, litigation can be time consuming and costly and may divert management resources. To the extent that our senior
executives are named in such lawsuits, our indemnification obligations could magnify the costs.
We are subject to evolving public disclosure, financial reporting and corporate governance expectations and
regulations that impact compliance costs and risks of noncompliance.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory
organizations, including the SEC and Nasdaq, as well as evolving investor expectations around disclosures, financial
reporting, corporate governance and environmental and social practices. These rules and regulations continue to evolve in
scope and complexity, and many new requirements have been created in response to laws enacted by the U.S. and foreign
governments, making compliance more difficult and uncertain. The increase in costs to comply with such evolving
expectations, rules and regulations, as well as any risk of noncompliance, could adversely impact us.
Growth, Development and Financing Risks
We may not be able to successfully acquire and integrate new operations, which could cause our business to suffer.
We may not be able to successfully complete potential strategic acquisitions for various reasons. We anticipate that we
will consider acquisitions in the future that meet our strategic growth plans. We cannot predict whether or when
acquisitions will be completed, and we may face significant competition for certain acquisition targets. Acquisitions that
are completed involve numerous risks, including the following:
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difficulties in integrating the operations, technologies, products and personnel of the acquired
companies;
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diversion of management’s attention from normal daily operations of the business;
difficulties in entering markets in which we have no or limited direct prior experience and where our
competitors in such markets have stronger market positions;
difficulties in complying with regulations, such as environmental regulations, and managing risks related
to an acquired business;
an inability to timely complete necessary financing and required amendments, if any, to existing
agreements;
an inability to implement uniform standards, controls, procedures and policies;
undiscovered and unknown problems, defects, liabilities or other issues related to any acquisition that
become known to us only after the acquisition, particularly relating to rental equipment on lease that are
unavailable for inspection during the diligence process; and
potential loss of key customers or employees.
In connection with acquisitions we may assume liabilities or acquire damaged assets, some of which may be unknown at
the time of such acquisitions; record goodwill and non-amortizable intangible assets that will be subject to future
impairment testing and potential periodic impairment charges; or incur amortization expenses related to certain intangible
assets.
The condition and regulatory certification of any facilities or operations acquired is assessed as part of the acquisition due
diligence. In some cases, facility condition or regulatory certification may be difficult to determine due to that facility
being on lease at the time of acquisition and/or inadequate certification records. Facility acquisitions may therefore result
in a rectification cost which may not have been factored into the acquisition price, impacting ability to deploy and ultimate
profitability of the facility acquired.
Acquisitions are inherently risky, and no assurance can be given that our future acquisitions will be successful or will not
materially adversely affect our business, results of operations, and financial condition. If we do not manage new markets
effectively, some of our new communities and acquisitions may lose money or fail, and we may have to close unprofitable
communities. Closing a community in such circumstances would likely result in additional expenses that would cause our
operating results to suffer. To successfully manage growth, we will need to continue to identify additional qualified
managers and employees to integrate acquisitions within our established operating, financial and other internal procedures
and controls. We will also need to effectively motivate, train and manage our employees. Failure to successfully integrate
recent and future acquisitions and new communities into existing operations could materially adversely affect our results
of operations and financial condition.
Global, national or local economic movements could have a material adverse effect on our business.
We operate in the United States, but our business may be negatively impacted by economic movements or downturns in
that market or in global markets generally, including those that could be caused by policy changes by the U.S.
administration in areas such as trade and immigration. These adverse economic conditions may reduce commercial
activity, cause disruption and volatility in global financial markets, and increase rates of default and bankruptcy. Reduced
commercial activity has historically resulted in reduced demand for our products and services. For example, reduced
commercial activity in the natural resource development sector in certain markets in which we operate may negatively
impact our business. U.S. federal spending cuts or further limitations that may result from presidential or congressional
action or inaction may also negatively impact our arrangements with government contractor customers. Disruptions in
financial markets could negatively impact the ability of our customers to pay their obligations to us in a timely manner
and increase our counterparty risk. If economic conditions worsen, we may face reduced demand and an increase, relative
to historical levels, in the time it takes to receive customer payments. If we are not able to adjust our business in a timely
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and effective manner to changing economic conditions, our business, results of operations and financial condition may be
materially adversely affected.
Information Technology and Privacy Risks
Any failure of our management information systems could disrupt our business and result in decreased revenue and
increased overhead costs.
We depend on our management information systems to actively manage our facilities and provide facility information,
and availability of our services. These functions enhance our ability to optimize facility utilization, occupancy, costs of
goods sold, and average daily rate. The failure of our management information systems to perform as anticipated could
damage our reputation with our customers, disrupt our business or result in, among other things, decreased revenue and
increased overhead costs. For example, an inaccurate utilization rate could cause us to fail to have sufficient inventory to
meet consumer demand, resulting in decreased sales. Any such failure could harm our business, results of operations and
financial condition. In addition, the delay or failure to implement information system upgrades and new systems effectively
could disrupt our business, distract management’s focus and attention from business operations and growth initiatives, and
increase our implementation and operating costs, any of which could materially adversely affect our operations and
operating results. Furthermore, these technologies may require refinements and upgrades. The development and
maintenance of these technologies may require significant investment by us. As various systems and technologies become
outdated or new technology is required, we may not be able to replace or introduce them as quickly as needed or in a cost-
effective and timely manner. As a result, we may not achieve the benefits we may have been anticipating from any new
technology or system
Like other companies, our information systems may be vulnerable to a variety of interruptions due to events beyond our
control, including, but not limited to, telecommunications failures, computer viruses, security breaches (including cyber-
attacks), and other security issues. In addition, because our systems contain information about individuals and businesses,
the failure to maintain the security of the data we hold, whether the result of our own error or the malfeasance or errors of
others, could harm our reputation or give rise to legal liabilities leading to lower revenue, increased costs, regulatory
sanctions, and other potential material adverse effects on our business, results of operations, and financial condition.
Our business could be negatively impacted by security threats, including cyber-security threats and other disruptions.
We face various security threats, including cyber-security threats to gain unauthorized access to sensitive information or
to render data or systems unusable; threats to the safety of our employees; threats to the security of our facilities and
infrastructure or third- party facilities and infrastructure; and threats from terrorist acts. Although we utilize various
procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that
these procedures and controls will be sufficient in preventing security threats from materializing. If any of these events
were to materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities
essential to our operations and could have a material adverse effect on our reputation, financial position, results of
operations or cash flows. Cyber-security attacks in particular are evolving and include, but are not limited to, malicious
software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions
in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. Even
if we are fully compliant with legal standards and contractual or other requirements, we still may not be able to prevent
security breaches involving sensitive data. Breaches, thefts, losses or fraudulent uses of customer, employee or company
data could cause consumers to lose confidence in the security of our website, point of sale systems and other information
technology systems and choose not to stay in our communities or contract with us in the future.
Risks Related to Our Indebtedness
Our leverage may make it difficult for us to service our debt and operate our business.
As of December 31, 2022, we, through our wholly-owned indirect subsidiary, Arrow Bidco, LLC (“Arrow Bidco”), had
$334.5 million of total indebtedness consisting of $0 of borrowings under the ABL Facility and $334.5 million of our 2024
Senior Secured Notes.
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Our leverage could have important consequences, including:
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making it more difficult to satisfy our obligations with respect to our various debt (including the Notes)
and liabilities;
requiring us to dedicate a substantial portion of our cash flow from operations to debt payments, thus
reducing the availability of cash flow to fund internal growth through working capital and capital
expenditures on our existing communities or new communities and for other general corporate purposes;
increasing our vulnerability to a downturn in our business or adverse economic or industry conditions;
limiting our flexibility in planning for or reacting to changes in our business and industry;
restricting us from pursuing strategic acquisitions or exploiting certain business opportunities or causing
us to make non-strategic divestitures; and
limiting, among other things, our ability to borrow additional funds or raise equity capital in the future
and increasing the costs of such additional financings.
Our ability to meet our debt service obligations, including those under the ABL Facility and the Notes, or to refinance our
debt depends on our future operating and financial performance, which will be affected by our ability to successfully
implement our business strategy as well as general economic, financial, competitive, regulatory and other factors beyond
our control. If our business does not generate sufficient cash flow from operations, or if future borrowings are not available
to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to
refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital
investments or seek to raise additional capital, any of which could have a material adverse effect on our operations. In
addition, we may not be able to affect any of these actions, if necessary, on commercially reasonable terms or at all. Any
refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which
could further restrict our business operations. The terms of our existing or future debt instruments may limit or prevent us
from taking any of these actions. If we default on the payments required under the terms of certain of our indebtedness,
that indebtedness, together with debt incurred pursuant to other debt agreements or instruments that contain cross-default
or cross-acceleration provisions, may become payable on demand, and we may not have sufficient funds to repay all of
our debts. As a result, our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance
or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be
material, on our business, financial condition and results of operations, as well as on our ability to satisfy our debt
obligations.
We and our subsidiaries may be able to incur substantial additional indebtedness (including additional secured obligations)
in the future. Although the Indenture governing our 2024 Senior Secured Notes (defined below) and the ABL Facility
contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant
qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in
compliance with these restrictions could be substantial. If new debt, including future additional secured obligations, is
added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase.
Global capital and credit markets conditions could materially adversely affect our ability to access the capital and credit
markets or the ability of key counterparties to perform their obligations to it.
In the future, we may need to raise additional funds to, among other things, refinance existing indebtedness, fund existing
operations, improve or expand our operations, respond to competitive pressures or make acquisitions. If adequate funds
are not available on acceptable terms, we may be unable to achieve our business or strategic objectives or compete
effectively. Our ability to pursue certain future opportunities may depend in part on our ongoing access to debt and equity
capital markets. We cannot assure you that any such financing will be available on terms satisfactory to us or at all. If we
are unable to obtain financing on acceptable terms, we may have to curtail our growth.
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Economic disruptions affecting key counterparties could also have a material adverse effect on our business. We monitor
the financial strength of our larger customers, derivative counterparties, lenders, and insurance carriers on a periodic basis
using publicly-available information in order to evaluate its exposure to those who have or who it believes may likely
experience significant threats to their ability to adequately perform their obligations to it. The information available will
differ from counterparty to counterparty and may be insufficient for us to adequately interpret or evaluate our exposure
and/or determine appropriate or timely responses.
We are, and may in the future become, subject to covenants that limit our operating and financial flexibility and, if we
default under our debt covenants, we may not be able to meet our payment obligations.
The ABL Facility and the Indenture, as well as any instruments that will govern any future debt obligations, contain
covenants that impose significant restrictions on the way the Arrow Bidco and its subsidiaries can operate, including
restrictions on the ability to:
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incur or guarantee additional debt and issue certain types of stock;
create or incur certain liens;
make certain payments, including dividends or other distributions, with respect to our equity securities;
prepay or redeem junior debt;
make certain investments or acquisitions, including participating in joint ventures;
engage in certain transactions with affiliates;
create unrestricted subsidiaries;
create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances
to, and on the transfer of, assets to the issuer or any restricted subsidiary;
sell assets, consolidate or merge with or into other companies;
sell or transfer all or substantially all our assets or those of our subsidiaries on a consolidated basis; and
issue or sell share capital of certain subsidiaries.
Although these limitations will be subject to significant exceptions and qualifications, these covenants could limit our
ability to finance future operations and capital needs and our ability to pursue acquisitions and other business activities
that may be in our interest. Arrow Bidco’s ability to comply with these covenants and restrictions may be affected by
events beyond our control. These include prevailing economic, financial and industry conditions. If Arrow Bidco defaults
on their obligations under the ABL Facility and the Indenture, then the relevant lenders or holders could elect to declare
the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against
any collateral securing that debt. If the debt under the ABL Facility, the Indenture or any other material financing
arrangement that we enter into were to be accelerated, our assets may be insufficient to repay in full the ABL Facility, the
Notes and our other debt.
The ABL Facility also requires our subsidiaries to satisfy specified financial maintenance tests in the event that certain
excess liquidity requirements are not satisfied. The ability to meet these tests could be affected by deterioration in our
operating results, as well as by events beyond our control, including increases in raw materials prices and unfavorable
economic conditions, and we cannot assure you that these tests will be met. If an event of default occurs under the ABL
Facility, the lenders thereunder could terminate their commitments and declare all amounts borrowed, together with
accrued and unpaid interest and other fees, to be immediately due and payable. Borrowings under other debt instruments
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that contain cross-acceleration or cross-default provisions also may be accelerated or become payable on demand. In these
circumstances, Target Hospitality’s assets may not be sufficient to repay in full that indebtedness and its other indebtedness
then outstanding.
The amount of borrowings permitted at any time under the ABL Facility will be subject to compliance with limits based
on a periodic borrowing base valuation of the borrowing base assets thereunder. As a result, our access to credit under the
ABL Facility will potentially be subject to significant fluctuations depending on the value of the borrowing base of eligible
assets as of any measurement date, as well as certain discretionary rights of the agent in respect of the calculation of such
borrowing base value. As a result of any change in valuation, the availability under the ABL Facility may be reduced, or
we may be required to make a repayment of the ABL Facility, which may be significant. The inability to borrow under the
ABL Facility or the use of available cash to repay the ABL Facility as a result of a valuation change may adversely affect
our liquidity, results of operations and financial position.
Restrictions in Arrow Bidco’s existing and future debt agreements could limit our growth and our ability to respond to
changing conditions.
The ABL Facility contains a number of significant covenants including covenants restricting the incurrence of additional
debt. The credit agreement governing the ABL Facility requires Arrow Bidco, among other things, to maintain certain
financial ratios or reduce our debt. These restrictions also limit our ability to obtain future financings to withstand a future
downturn in its business or the economy in general, or to otherwise conduct necessary corporate activities. We may also
be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive
covenants under the ABL Facility and the Indenture impose on it. In addition, complying with these covenants may also
cause us to take actions that are not favorable to our securityholders and may make it more difficult for us to successfully
execute our business strategy and compete against companies that are not subject to such restrictions.
Credit rating downgrades could adversely affect our businesses, cash flows, financial condition and operating results.
Arrow Bidco’s credit ratings will impact the cost and availability of future borrowings, and, as a result, cost of capital.
Arrow Bidco’s ratings reflect each rating agency’s opinion of our financial strength, operating performance and ability to
meet our debt obligations. Each rating agency will review these ratings periodically and there can be no assurance that
such ratings will be maintained in the future. A downgrade in Arrow Bidco’s rating could adversely affect our businesses,
cash flows, financial condition and operating results.
Risks Related to Ownership of Our Common Stock
We have incurred and expect to continue to incur significantly increased costs as a result of operating as a public
company, and our management is required to devote substantial time to compliance efforts.
We have incurred and expect to continue to incur significant legal, accounting, insurance, and other expenses as a result
of being a public company. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the
“Dodd-Frank Act”) and the Sarbanes-Oxley Act of 2002, as amended (“SOX”), as well as related rules implemented by
the SEC, have required changes in corporate governance practices of public companies. In addition, rules that the SEC is
implementing or is required to implement pursuant to the Dodd-Frank Act may require additional change. Compliance
with these and other similar laws, rules and regulations, including compliance with Section 404 of SOX, will substantially
increase our expenses, including legal and accounting costs, and make some activities more time-consuming and costly.
It is possible that these expenses will exceed the increases projected by management. These laws, rules, and regulations
may also make it more expensive to obtain director and officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage, which may
make it more difficult to attract and retain qualified persons to serve on its board of directors or as officers. Although the
JOBS Act may, for a limited period of time, somewhat lessen the cost of complying with these additional regulatory and
other requirements, we nonetheless expect a substantial increase in legal, accounting, insurance, and certain other expenses
in the future, which will negatively impact its results of operations and financial condition.
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Our principal stockholder has substantial control over our business, which may be disadvantageous to other
stockholders.
Arrow Holdings and MFA Global S.a r.l., entities controlled by TDR Capital, together beneficially owned approximately
65% of our outstanding shares of Common Stock as of December 31, 2022. As a result of its ability to control a significant
percentage of the voting power of our outstanding Common Stock, TDR Capital may have substantial control over matters
requiring approval by our stockholders, including the election and removal of directors, amendments to our certificate of
incorporation and bylaws, any proposed merger, consolidation or sale of all or substantially all of our assets and other
corporate transactions. TDR Capital may have interests that are different from those of other stockholders.
We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements
applicable to emerging growth companies, our Common Stock may be less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and we intend to utilize some of the exemptions from
reporting requirements that are applicable to other public companies that are not emerging growth companies, including
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and adopting new
accounting standards using private company effective dates. We cannot predict if investors will find our Common Stock
less attractive because we will rely on these exemptions. If some investors find our Common Stock less attractive as a
result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. We will
take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an
emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the
completion of the Public Offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which
we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-
affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion
in non-convertible debt during the prior three-year period.
42
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are located in Woodlands, Texas. Our executive, financial, accounting, legal, administrative,
management information systems and human resources functions operate from this single, leased office. We own and
operate 26 branch locations across the U.S. and Canada. We also lease and operate 1 branch location in the U.S. Subject
to certain exceptions, substantially all of our owned personal property and material real property in the U.S. and Canada
is encumbered under our ABL Facility and the 2024 Senior Secured Notes. We do not believe that the encumbrances will
materially detract from the value of our properties, nor will they materially interfere with their use in the operation of our
business.
HFS – Midwest
Government
HFS – South
Location
Description
Williston, North Dakota
Williston, North Dakota
Watford City, North Dakota
Williams County Lodge
Judson Executive Lodge
Watford City Lodge
Dilley, Texas
Pecos, Texas
Pecos, Texas
Pecos, Texas
Orla, Texas
Mentone, Texas
Pecos, Texas
Pecos, Texas
Pecos, Texas
Pecos, Texas
Orla, Texas
Orla, Texas
Orla, Texas
Odessa, Texas
Odessa, Texas
Mentone, Texas
Midland, Texas
Midland, Texas
Kermit, Texas
Kermit, Texas
Carlsbad, New Mexico
Carlsbad, New Mexico
Jal, New Mexico
Dilley (STFRC)
Pecos Children’s Center
Pecos Blue Lodge
Railhead Lodge (Leased)
Delaware Lodge
Skillman Station Lodge
Lodge 118
Pecos Trail Lodge
Pecos South Lodge*
Pecos South Lodge*
Orla North Lodge
Orla South Lodge
El Capitan Lodge
Odessa West Lodge
Odessa East Lodge
Mentone Wolf Lodge
Midland Lodge
Midland East Lodge
Kermit Lodge
Kermit North Lodge
Carlsbad Lodge
Seven Rivers Lodge
Jal Lodge
Other
Canada
El Reno, Oklahoma
Cheecham Lodge
El Reno Lodge
*This location is shared between HFS – South and Government.
43
Item 3. Legal Proceedings
We are involved in various lawsuits, claims and legal proceedings, most of which arise out of the ordinary course of
business. The nature of the Company’s business is such that disputes occasionally arise with vendors including suppliers
and subcontractors, and customers over contract specifications and contract interpretations among other things. The
company assesses these matters on a case-by-case basis as they arise. Reserves are established, as required, based on its
assessment of exposure. We have insurance policies to cover general liability and workers’ compensation related claims.
In the opinion of management, the ultimate amount of liability not covered by insurance, if any, under such pending
lawsuits, claims and legal proceedings will not have a material adverse effect on its financial condition or results of
operations. Because litigation is subject to inherent uncertainties including unfavorable rulings or developments, it is
possible that the ultimate resolution of our legal proceedings could involve amounts that are different from our currently
recorded accruals, and that such differences could be material.
Item 4. Mine Safety Disclosures
Not applicable.
44
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Our Common Stock is listed on the Nasdaq Capital Market under the symbol “TH.” Through March 15, 2019, our common
stock, warrants and units were quoted under the symbols “EAGL,” “EAGLW” and “EAGLU,” respectively. Upon
consummation of the business combination on March 15, 2019, (i) our public units automatically separated into their
component securities and, as a result, no longer trade as a separate security and were delisted; (ii) our Common Stock (into
which Platinum Eagle’s ordinary shares were converted) continued to trade on Nasdaq under the ticker symbol “TH”; and
(iii) the Warrants continued to trade on Nasdaq under the ticker symbol “THWWW”.
Holders
As of December 31, 2022, there were eleven holders of record of our Common Stock and one holder of record of our
Warrants. The number of holders of record does not include a substantially greater number of “street name” holders or
beneficial holders whose Common Stock or Warrants are held of record by banks, brokers and other financial institutions.
Dividend Information
We do not currently pay any cash dividends on our Common Stock. The declaration and amount of any dividends in the
future will be at the discretion of our board of directors and will depend upon many factors, including our financial
condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants
associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the
board of directors deems relevant. We can give no assurances that we will pay a dividend in the future.
Warrants
Platinum Eagle issued warrants to purchase its common stock as components of units sold in the Public Offering (the
“Public Warrants”, together with the Private Warrants, the “Warrants”). Platinum Eagle also issued, in connection with
the Public Offering, the Private Warrants.
As of December 31, 2022, there were 8,061,656 Warrants outstanding. Of the 8,061,656 outstanding, 1,533,334 are Private
Warrants and 6,528,322 are Public Warrants. The Private Warrants are classified as liabilities under ASC 815-40,
Derivatives and Hedging—Contracts in Entity’s Own Equity guidance. The Public Warrants are classified as equity based
on the guidance outlined in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity. Each Warrant
entitles its holder to purchase Common Stock in accordance with its terms. During the year ended December 31, 2022,
holders of Public Warrants exercised 7,101 Public Warrants for shares of Common Stock resulting in the Company
receiving cash proceeds of approximately $0.1 million and issuing 7,101 shares of Common Stock. See Note 9 and 17 of
the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional
information.
Warrant Exchange
On December 22, 2022, the Company closed on an offer to exchange the Warrants for shares of its Common Stock in a
cashless transaction (the “Warrant Exchange”). Pursuant to the terms of the Warrant Exchange, the Company issued
2,996,201 shares of Common Stock. See Note 9 and 17 of the audited consolidated financial statements included in Part
II, Item 8 of this Annual Report on Form 10-K for additional information.
45
Performance Graph
The following stock price performance graph should not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report on Form 10-K into any filing under the Exchange Act or the Securities Act
of 1933, as amended (the “Securities Act”), except to the extent that we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such acts.
The graph below compares the cumulative total return of our Common Stock from January 12, 2018, through
December 31, 2022, with the comparable cumulative return of two indices, the Russell Broadbased Total Returns and the
Nasdaq US Benchmark TR Index. The graph plots the change in value of an initial investment in each of our Common
Stock, the Russell 2000 Index, and the Nasdaq US Benchmark Index over the indicated time periods. We have not paid
any cash dividends and, therefore, the cumulative total return calculation for us is based solely upon the change in share
price. The share price performance shown on the graph is not necessarily indicative of future price performance.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2022
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
01/12/2018
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
Target Hospitality Corp.
NASDAQ US Benchmark TR
Russell Broadbased
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
On November 3, 2022, the Company’s Board of Directors approved a stock repurchase program that authorizes the
Company to repurchase up to $100 million of its outstanding shares of Common Stock. The stock repurchase program
does not obligate the Company to purchase any particular number of shares, and the timing and exact amount of any
repurchases will depend on various factors, including market pricing and conditions, business, legal, accounting, and other
considerations.
The Company may repurchase its shares in open market transactions from time to time or through privately negotiated
transactions in accordance with federal securities laws, at the Company's discretion. The repurchase program, which has
no expiration date, may be increased, suspended, or terminated at any time. The program is expected to be implemented
46
over the course of several years and is conducted subject to the covenants in the agreements governing the Company's
indebtedness. No share repurchases were made during the year ended December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans
On March 6, 2019, our shareholders approved a long-term incentive award plan (the "Plan") in connection with the
Business Combination. The Plan is administered by the Compensation Committee. Under the Plan, the Compensation
Committee may grant an aggregate of 4,000,000 shares of Common Stock in the form of stock options, stock appreciation
rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards.
On May 19, 2022, the Company’s stockholders approved an amendment to the Plan to increase the number of shares
authorized under the plan by 4,000,000 shares.
Please refer to Note 18 in the audited consolidated financial statements included in Part II, Item 8 within this Annual
Report on Form 10-K for details of the forms of Executive Nonqualified Stock Option Award Agreements, the forms of
Executive Restricted Stock Unit Agreements, the form of Executive Stock Appreciation Rights Award Agreement, and
the forms of Performance Stock Unit Agreements.
As of December 31, 2022, 9,490,532 securities had been granted under the Plan, excluding 116,837 Restricted Stock Units
(“RSUs”) paid in cash, and including 1,578,537 of Stock Appreciation Right Awards (“SARs”), which are intended to
settle in cash.
Information on our equity compensation plans can be found in the table below.
Equity Compensation Plan Information
Common shares to
be issued upon
Exercise of
Outstanding
Options, Restricted
Stock Units, and
Performance Stock
Units
(a)
Weighted Average
Exercise Price of
Outstanding
Options
5,664,259
—
5,664,259
$
$
6.13
—
6.13
Common Shares
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Shares
Reflected in the first
column in this table)
825,577
—
825,577
Plan Category
Equity compensation plan approved by Target Hospitality stockholders(1)
Equity compensation plans not approved by security holders
Total
(1) The number of common shares reported in Column (a) excludes liability-based stock appreciation right awards of
1,537,776 and shares associated with grants that were withheld for tax liabilities and grants that were forfeited or
expired on or before December 31, 2022, as shares associated with grants that were withheld for tax liabilities and
forfeited and expired grants are available for reissuance under the Plan. The amounts and values in Column
(a) comprise 2,658,581 equity-based RSUs at a weighted average grant price of $2.98, 1,495,017 equity-based PSUs
at a weighted average grant price of $5.22 and 1,510,661 stock options at a weighted average exercise price of $6.13.
For additional information on the awards outstanding under the Plan, see Note 18 in the audited consolidated financial
statements included in Part II, Item 8 within this Annual Report on Form 10-K.
47
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the
Securities Act , and Section 21E of the Exchange Act. These forward-looking statements relate to expectations for future
financial performance, business strategies or expectations for the post-combination business. Specifically, forward-looking
statements may include statements relating to:
• operational, economic, including inflation, political and regulatory risks;
• our ability to effectively compete in the specialty rental accommodations and hospitality services industry;
• effective management of our communities;
• natural disasters and other business disruptions including outbreaks of epidemic or pandemic disease;
• the duration of the COVID-19 pandemic or any future public health crisis, related economic repercussions
and the resulting negative impact to global economic demand;
• the effect of changes in state building codes on marketing our buildings;
• changes in demand within a number of key industry end-markets and geographic regions;
• our reliance on third party manufacturers and suppliers;
• failure to retain key personnel;
• increases in raw material and labor costs;
• the effect of impairment charges on our operating results;
• our future operating results fluctuating, failing to match performance or to meet expectations;
• our exposure to various possible claims and the potential inadequacy of our insurance;
• unanticipated changes in our tax obligations;
• our obligations under various laws and regulations;
• the effect of litigation, judgments, orders, regulatory or customer bankruptcy proceedings on our business;
• our ability to successfully acquire and integrate new operations;
• global or local economic and political movements, including any changes in policy under the Biden
administration;
• federal government budgeting and appropriations;
• our ability to effectively manage our credit risk and collect on our accounts receivable;
48
• our ability to fulfill our public company obligations;
• any failure of our management information systems;
• fluctuations in the fair value of warrant liabilities;
• our ability to meet our debt service requirements and obligations; and
• risks related to Arrow Bidco’s obligations under the Notes;
These forward-looking statements are based on information available as of the date of this Annual Report on Form 10-K
and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and
uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any
subsequent date. We undertake no obligation to update forward-looking statements to reflect events or circumstances after
the date they were made, whether as a result of new information, future events or otherwise, except as may be required
under applicable securities laws.
49
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital
resources of Target Hospitality Corp. and is intended to help the reader understand Target Hospitality Corp., our operations
and our present business environment. This discussion should be read in conjunction with the Company’s audited
consolidated financial statements and notes to those statements included in Part II, Item 8 within this Annual Report on
Form 10-K. References to “we,” “us,” “our”, “Target Hospitality,” or “the Company” refer to Target Hospitality Corp.
and its consolidated subsidiaries.
Executive Summary
Target Hospitality Corp. is one of North America’s largest providers of vertically integrated specialty rental and value-
added hospitality services including: catering and food services, maintenance, housekeeping, grounds-keeping, security,
health and recreation facilities, overall workforce community management, concierge services and laundry service. As
of December 31, 2022, our network included 29 communities to better serve our customers across the US and Canada.
Economic Update
During the year ended December 31, 2022, the Company continued to experience significant growth in the Government
segment due to the origination of a significantly expanded lease and services agreement in the second quarter of 2022 with
an existing Government segment customer to provide enhanced infrastructure and comprehensive facility services that
support the critical hospitality solutions the Company provides. This growth generated positive cash flows from operations
of approximately $305.6 million representing a increase in cash flows from operations of approximately $201 million or
192% for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The financial results for the year ended December 31, 2022 also reflect continued improving customer demand and
increasing activity in the HFS – South and Midwest segments as compared to the year ended December 31, 2021 as global
activity and economic demand continue to strengthen from lows experienced during the height of the COVID-19
pandemic.
For the year ended December 31, 2022, key drivers of financial performance included:
•
•
Increased consolidated revenue by $210.6 million or 72% compared to the year ended 2021 primarily due to
additional revenue generated from growth in the Government segment as well as increase in customer demand in
the HFS – South segment.
Increased revenue in the HFS – South segment by $15.4 million or 13% as compared to the year ended
December 31, 2021 as a result of increase in customer demand.
• Generated net income of approximately $73.9 million for the year ended December 31, 2022 as compared to a
net loss of approximately $4.6 million for the year ended December 31, 2021. This increase in net income is
primarily attributable to an increase in gross profit driven by the increase in revenue as well as a decrease in
interest expense driven by significant debt reduction, partially offset by an increase in operating expenses, an
increase in the estimated fair value of warrant liabilities, and an increase in income tax expense due to improved
results.
• Generated consolidated Adjusted EBITDA of $264.7 million representing an increase of $145.5 million or 122%
as compared to the year ended December 31, 2021, driven primarily by the increase in revenue, partially offset
by the increase in operating expenses mentioned above.
Adjusted EBITDA is a non-GAAP measure. The GAAP measure most comparable to Adjusted EBITDA is Net income
(loss). Please see “Non-GAAP Financial Measures” for a definition and reconciliation to the most comparable GAAP
measure.
50
Our proximity to customer activities influences occupancy and demand. We have built, own and operate the two largest
specialty rental and hospitality services networks available to customers operating in the HFS – South and HFS – Midwest
regions. Our broad network often results in us having communities that are the closest to our customers’ job sites, which
reduces commute times and costs, and improves the overall safety of our customers’ workforce. Our communities provide
customers with cost efficiencies, as they are able to jointly use our communities and related infrastructure (i.e., power,
water, sewer and information technology) services alongside other customers operating in the same vicinity. Demand for
our services is dependent upon activity levels, particularly our customers’ capital spending on natural resource
development activities and government housing programs.
Factors Affecting Results of Operations
We expect our business to continue to be affected by the key factors discussed below, as well as factors discussed in the
section titled “Risk Factors” included elsewhere in this report. Our expectations are based on assumptions made by us and
information currently available to us. To the extent our underlying assumptions about, or interpretations of, available
information prove to be incorrect, our actual results may vary materially from our expected results.
Public health threats or outbreaks of communicable diseases, including COVID-19, could have a material adverse effect
on the Company’s operations and financial results.
The Company may face risks related to public health threats or outbreaks of communicable diseases, including COVID - 19.
A widespread healthcare crisis, such as an outbreak of a communicable disease, like COVID-19, could adversely affect
the economy and the Company’s ability to conduct business for an indefinite period of time. This situation combined with
the commodity price volatility discussed below has had, and could continue to, have a material adverse effect on the
Company’s results of operations. Refer to section titled “Risk Factors” in Part I Item 1A of this Annual Report on Form
10-K for further information on this situation.
Supply and Demand for Natural Resources
As a provider of vertically integrated specialty rental and hospitality services, we are not directly impacted by commodity
price fluctuations. However, these price fluctuations indirectly influence our activities and results of operations because
the natural resource development workforce is directly affected by price fluctuations and the industry’s expansion or
contraction as a result of these fluctuations. Our occupancy volume depends on the size of the workforce within the natural
resources industry and the demand for labor. Commodity prices are volatile and influenced by numerous factors beyond
our control, including the domestic and global supply of and demand for natural resources, the commodities trading
markets, as well as other supply and demand factors that may influence commodity prices. As a result of the commodity
price volatility experienced in early 2020, the Company temporarily closed and consolidated communities in the HFS –
South and HFS – Midwest segments. However, these communities began re-opening in July 2020 as conditions started to
improve.
Availability and Cost of Capital
Capital markets conditions could affect our ability to access the debt and equity capital markets to the extent necessary to
fund our future growth. Interest rates on future credit facilities and debt offerings could be higher than current levels,
causing our financing costs to increase accordingly, and could limit our ability to raise funds, or increase the price of
raising funds, in the capital markets and may limit our ability to expand.
Regulatory Compliance
We are subject to extensive federal, state, local, and foreign environmental, health and safety laws and regulations
concerning matters such as air emissions, wastewater discharges, solid, and hazardous waste handling and disposal and
the investigation and remediation of contamination. In addition, we may be subject, indirectly, to various statutes and
regulations applicable to doing business with the U.S. government as a result of our contracts with U.S. government
contractor clients. The risks of substantial costs, liabilities, and limitations on our operations related to compliance with
51
these laws and regulations are an inherent part of our business, and future conditions may develop, arise, or be discovered
that create substantial compliance or environmental remediation liabilities and costs.
Natural Disasters or Other Significant Disruption
An operational disruption in any of our facilities could negatively impact our financial results. The occurrence of a natural
disaster, such as earthquake, tornado, severe weather including hail storms, flood, fire, or other unanticipated problems
such as labor difficulties, equipment failure, capacity expansion difficulties or unscheduled maintenance could cause
operational disruptions of varied duration. These types of disruptions could materially adversely affect our financial
condition and results of operations to varying degrees dependent upon the facility, the duration of the disruption, our ability
to shift business to another facility or find alternative solutions.
Overview of Our Revenue and Operations
We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services.
Approximately 66.5% of our revenue was earned from specialty rental with vertically integrated hospitality services,
specifically lodging and related ancillary services, whereas the remaining 33.5% of revenues were earned through leasing
of lodging facilities for the year ended December 31, 2022. Revenue is recognized in the period in which lodging and
services are provided pursuant to the terms of contractual relationships with our customers. In certain of our contracts,
rates may vary over the contract term, in these cases, revenue is generally recognized on a straight-line basis over the
contract term. We enter into arrangements with multiple deliverables for which arrangement consideration is allocated
between lodging and services based on the relative estimated standalone selling price of each deliverable. The estimated
price of lodging and services deliverables is based on the prices of lodging and services when sold separately or based
upon the best estimate of selling price.
The Company originated a contract in 2013 with TC Energy Pipelines to construct, deliver, cater and manage all
accommodations and hospitality services in conjunction with the planned construction of the Keystone XL pipeline project.
During the construction phase of the contract, the Company recognized revenue as costs were incurred in connection with
the project under the percentage of completion method of accounting as more fully discussed in Note 1 of the notes to our
audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K. One of these
communities was completed and opened in September 2020 and subsequently closed in mid-December 2020. The revenue
recognized on the community post construction for the year ended December 31, 2020, is recognized in services income
along with our other revenue from specialty rental with vertically integrated hospitality services. In January 2021, the
project was suspended due to the Keystone XL Presidential Permit being revoked. Then on July 23, 2021, the Company
executed the Termination and Settlement Agreement, which effectively terminated the Company’s contract with TC
Energy that was originated in 2013 and no further revenue will be generated from the contract with TC Energy.
Key Indicators of Financial Performance
Our management uses a variety of financial and operating metrics to analyze our performance. We view these metrics as
significant factors in assessing our operating results and profitability and intend to review these measurements frequently
for consistency and trend analysis. We primarily review the following profit and loss information when assessing our
performance:
Revenue
We analyze our revenues by comparing actual revenues to our internal budgets and projections for a given period and to
prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing
for our services. Key drivers to change in revenues may include average utilization of existing beds, levels of development
activity in the HFS – South and HFS – Midwest segments, and the consumer price index impacting government contracts.
52
Adjusted Gross Profit
We analyze our adjusted gross profit, which is a Non-GAAP measure, which we define as revenues less cost of sales,
excluding impairment and depreciation of specialty rental assets to measure our financial performance. Please see “Non-
GAAP Financial Measures” for a definition and reconciliation to the most comparable GAAP measure. We believe
adjusted gross profit is a meaningful metric because it provides insight on financial performance of our revenue streams
without consideration of company overhead. Additionally, using adjusted gross profit gives us insight on factors impacting
cost of sales, such as efficiencies of our direct labor and material costs. When analyzing adjusted gross profit, we compare
actual adjusted gross profit to our budgets and internal projections and to prior period results for a given period in order to
assess our performance.
We also use Non-GAAP measures such as EBITDA, Adjusted EBITDA, and Discretionary cash flows to evaluate the
operating performance of our business. For a more in-depth discussion of the Non-GAAP measures, please refer to the
"Non-GAAP Financial Measures" section.
Segments
We have identified four reportable business segments: Hospitality & Facilities Services - South, Hospitality & Facilities
Services - Midwest, Government, and TCPL Keystone:
Hospitality & Facilities Services - South
The HFS – South segment reflects our facilities and operations in the HFS – South region and includes our 14 communities
located across Texas and New Mexico.
Hospitality & Facilities Services - Midwest
The HFS – Midwest segment reflects our facilities and operations in the HFS – Midwest region and includes our 3
communities in North Dakota.
Government
The Government segment includes the facilities and operations of the family residential center and the related support
communities in Dilley, Texas (the “South Texas Family Residential Center”) provided under a lease and services
agreement with our FRCC Partner. Additionally, this segment also includes facilities and operations provided under a
lease and services agreement with our NP Partner, backed by a committed United States Government contract, to provide
a suit of comprehensive service offerings in support of their humanitarian aid efforts.
TCPL Keystone
The TCPL Keystone segment reflects initial preparatory work and plans for facilities and services provided in connection
with the TC Energy Keystone pipeline project. In January 2021, the TCPL project was suspended due to the Keystone XL
Presidential Permit being revoked. Then on July 23, 2021, the Company executed the Termination and Settlement
Agreement, which effectively terminated the Company’s contract with TC Energy that was originated in 2013. As a result
of the Termination and Settlement Agreement, no further activity is expected in this segment.
All Other
Our other facilities and operations which do not meet the criteria to be a separate reportable segment are consolidated and
reported as “All Other” which represents the facilities and operations of one community in Oklahoma, one community in
Canada, and the catering and other services provided to communities and other workforce accommodation facilities for
the natural resource development industries not owned by us.
53
Key Factors Impacting the Comparability of Results
The historical results of operations for the periods presented may not be comparable, either to each other or to our future
results of operations, for the reasons described below:
COVID-19 and Commodity Price Volatility
The COVID-19 pandemic and the disruption in the natural resource development industry has had a material adverse effect
on our business and results of operations. The financial results for the year ended December 31, 2020 reflect the reduced
activity in the HFS – South and HFS – Midwest segments resulting from the negative effects of the commodity price
volatility compounded by the effects of COVID-19 as these disruptions created significant challenges for our natural
resource development end-market customers during the year ended December 31, 2020. This drove a significant reduction
in our utilization in these segments during 2020, and, although we have experienced steady increases in utilization into
2022, such utilization levels have not yet reached pre-pandemic levels experienced during the first quarter of 2020. During
2020, these events also impacted the liquidity of our natural resources development end market customers resulting in a
greater level of bad debt expense during 2020. However, total Company consolidated results have exceeded pre-pandemic
levels driven primarily by Government segment growth and expansion.
Termination of the TCPL Keystone Contract
In January 2021, the TCPL project was suspended due to the Keystone XL Presidential Permit being revoked. Then on
July 23, 2021, the Company executed the Termination and Settlement Agreement, which effectively terminated the
Company’s contract with TC Energy that was originated in 2013. As a result of the Termination and Settlement
Agreement, no further activity is expected in the TCPL Keystone segment.
Government Segment Growth
A significant new contract was originated in the Government segment in March of 2021 with our NP Partner, backed by
a committed United States Government contract, to provide a suite of comprehensive service offerings in support of their
humanitarian aid efforts. During the year ended December 31, 2022, the Company executed the Expanded Humanitarian
Contract to provide enhanced infrastructure and comprehensive facility services that support the critical hospitality
solutions the Company provides to the NP Partner and the U.S. Government in their humanitarian aid missions. The
Expanded Humanitarian Contract provides for significant scope expansion and term extension for the continuation of
services provided under the agreement that originated in March 2021. The Expanded Humanitarian Contract operates with
similar structure to the Company’s existing government services contracts, which are centered around minimum revenue
commitments supported by the United States Government. Additionally, the Expanded Humanitarian Contract includes
variable services revenue that will align with monthly community population. The minimum revenue commitments, which
consist of annual recurring lease revenue and nonrecurring infrastructure enhancement revenue, provide for a minimum
annual revenue contribution of approximately $390 million and is fully committed over its initial contract term. The
services revenue component provides for a maximum initial annual total contract value of approximately $575 million.
Results of Operations
The period to period comparisons of our results of operations have been prepared using the historical periods included in
our audited consolidated financial statements. The following discussion should be read in conjunction with the audited
consolidated financial statements and related notes included elsewhere in this document.
54
Consolidated Results of Operations for the years ended December 31, 2022, 2021 and 2020 ($ in thousands):
Revenues:
Services income
Specialty rental income
Construction fee income
Total revenues
Costs:
2022
For the Years Ended
December 31,
2021
$ 333,702 $ 203,134 $ 132,430 $
76,909
11,294
291,337
168,283
-
501,985
52,960
39,758
225,148
2020
Services
Specialty rental
Depreciation of specialty rental assets
Gross profit
Selling, general and administrative
Other depreciation and amortization
Other expense (income), net
Operating income
Interest expense, net
Change in fair value of warrant liabilities
Income (loss) before income tax
Income tax expense (benefit)
Net income (loss)
174,200
27,824
52,833
247,128
57,893
14,832
36
174,367
36,323
31,735
106,309
32,370
73,939 $
120,192
16,186
53,609
101,350
46,461
16,910
880
37,099
38,704
1,067
(2,672)
1,904
(4,576) $
109,185
8,843
49,965
57,155
38,128
15,649
(723)
4,101
40,034
(2,347)
(33,586)
(8,455)
(25,131) $
$
Comparison of Years Ended December 31, 2022 and 2021
Amount of
Increase
(Decrease)
Percentage
Change
Increase
(Decrease)
2022 vs. 2021 2022 vs. 2021
Amount of
Increase
(Decrease)
2021 vs. 2020
70,704
23,949
(28,464)
66,189
64% $
119%
(100)%
72%
45%
72%
(1)%
144%
25%
(12)%
(96)%
370%
(6)%
2874%
(4,079)%
1600%
(1,716)% $
11,007
7,343
3,644
44,195
8,333
1,261
1,603
32,998
(1,330)
3,414
30,914
10,359
20,555
Percentage
Change
Increase
(Decrease)
2021 vs. 2020
53%
45%
(72)%
29%
10%
83%
7%
77%
22%
8%
(222)%
805%
(3)%
(145)%
(92)%
(123)%
(82)%
130,568
91,374
(11,294)
210,648
54,008
11,638
(776)
145,778
11,432
(2,078)
(844)
137,268
(2,381)
30,668
108,981
30,466
78,515
Total Revenue. Total revenue was $502.0 million for the year ended December 31, 2022 as compared to $291.3 million
for the year ended December 31, 2021, and consisted of $333.7 million of services income and $168.3 million of specialty
income. Total revenue for the year ended December 31, 2021 consisted of $203.1 million of services income, $76.9 million
of specialty rental income and $11.3 million of construction fee income.
Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services
including catering, food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community
management services, health and recreation facilities, concierge services and laundry service. The main driver of the
increase in services income revenue year over year was growth in the Government segment combined with an increase in
customer activity in the HFS – South segment as well as a slight increase in HFS – Midwest, along with increased customer
demand at one community in Canada included within the All Other segment. This growth was partially offset by a
reduction in activity in the TCPL Keystone segment as a result of the termination discussed below contributed to an
offsetting decrease in services income of approximately $1.0 million during 2022. The net increase was also partially offset
by a decrease of approximately $0.7 million from one community in the All Other segment driven by the shutdown of that
community in February 2022.
Construction fee income consists primarily of revenue from the construction phase of the TCPL contract with the prior
year consisting almost exclusively of revenue related to the Termination and Settlement Agreement. The decrease in
construction fee income in 2022 compared to 2021 was due to the project being suspended at the end of January 2021,
subsequently cancelled in June 2021, and finally resulted in the contract being terminated in July 2021 pursuant to the
Termination and Settlement Agreement.
Specialty rental income consists primarily of revenues from renting rooms at facilities leased or owned. Specialty rental
income increased as a result of growth in the Government segment as a result of the revenue generated by the new
Government contracts entered into in March 2021 and May 2022.
Cost of services. Cost of services was $174.2 million for the year ended December 31, 2022 as compared to $120.2 million
for the year ended December 31, 2021. The increase in services costs is primarily due to an increase related to growth in
55
the Government segment as mentioned above. Additionally, there was also an increase in services costs in HFS – South,
HFS – Midwest, and one community in Canada included in the All Other segment driven by the increase in customer
activity mentioned above. These increases were partially offset by the suspension of the TCPL project at the end of January
2021 and subsequent cancellation in June 2021 driven by the Presidential Permit being revoked. Pursuant to the
Termination and Settlement Agreement, the underlying contract with TC Energy was terminated in July 2021.
Specialty rental costs. Specialty rental costs were approximately $27.8 million for the year ended December 31, 2022 as
compared to $16.2 million for the year ended December 31, 2021. The increase in specialty rental costs is primarily due
to an increase in costs related to growth in the Government segment.
Depreciation of specialty rental assets. Depreciation of specialty rental assets was $52.8 million for the year ended
December 31, 2022 as compared to $53.6 million for the year ended December 31, 2021. The decrease in depreciation
expense is primarily attributable to a decrease for a location within the Government segment as a result of site work being
fully depreciated as of September 30, 2021. This decrease was partially offset by an increase in depreciation expense
driven by growth in the Government segment related to the contract that originated in March of 2021 and the new
subcontract that originated in May of 2022 with the NP Partner.
Selling, general and administrative. Selling, general and administrative was $57.9 million for the year ended
December 31, 2022 as compared to $46.5 million for the year ended December 31, 2021. The increase in selling, general
and administrative expense of $11.4 million was primarily attributable to an increase in stock compensation expense of
approximately $14.0 million largely from RSUs and liability-based SARs driven by an increase in the Company’s stock
price during the current year. Marketing and advertising, office costs, and other corporate costs (including public company
costs) increased by approximately $0.5 million, $0.7 million, and $0.5 million, respectively. These increases were partially
offset by a decrease of approximately $2.1 million led primarily by commissions, bonus, and severance expenses, as there
has been no material changes in corporate head count from the prior period. Legal and professional fees are also down
from the prior period by approximately $0.8 million driven largely by the prior period including an advisory fee associated
with corporate development activity experienced during the year ended December 31, 2021 that did not recur during the
year ended December 31, 2022. Additionally, there was a decrease in other legal and advisory fees of approximately $0.9
million primarily related to the previously announced non-binding proposal made by Arrow Holdings S.à r.l. (“Arrow”),
an affiliate of TDR Capital LLP (“TDR”), to acquire all of the outstanding shares of Common Stock of Target Hospitality
not owned by Arrow or its affiliates for cash consideration of $1.50 per share (the “Proposal”). On March 29, 2021, this
Proposal was withdrawn and the Company did not incur any further costs related to this Proposal. Bad debt expense also
decreased by approximately $1.2 million, which was driven in part by net recoveries of previously reserved bad debt
amounts.
Other depreciation and amortization. Other depreciation and amortization expense was $14.8 million for the year ended
December 31, 2022 as compared to $16.9 million for the year ended December 31, 2021. The decrease in other
depreciation and amortization is primarily driven by a decrease in customer related intangible asset amortization associated
with customer related intangible assets that became fully amortized in March 2022.
Other expense, net. Other expense, net was less than $0.1 million for the year ended December 31, 2022 as compared to
$0.9 million for the year ended December 31, 2021. The decrease in expense was primarily driven by an increase in gains
generated from the sale of assets and the reduction of COVID-19 procedure related expenses in the current year.
Interest expense, net. Interest expense, net was $36.3 million for the year ended December 31, 2022 as compared to
interest expense, net of $38.7 million for the year ended December 31, 2021. The change in interest expense is driven by
approximately $0.9 million of interest that was capitalized during the year ended December 31, 2022 in connection with
capital project activity driven by the expansion in the Government segment associated with the Expanded Humanitarian
Contract. Interest was not capitalized during the year ended December 31, 2021 as there were no such expansion activities
during that period. Additionally, the decrease in interest expense, net is driven by an increase in interest income earned.
Change in fair value of warrant liabilities. Change in fair value of warrant liabilities represents the fair value adjustments
to the outstanding Private Warrant liabilities based on the change in their estimated fair value at each reporting period end.
The change in fair value of the warrant liabilities was $31.7 million for the year ended December 31, 2022 as compared
56
to $1.1 million for the year ended December 31, 2021. The change in the fair value of the warrant liabilities is the result
of changes in market prices deriving the value of the financial instruments. The estimated value of the Private Warrants
have increased in both the prior and current year, generating a reduction to income in both years.
Income tax expense. Income tax expense was $32.4 million for the year ended December 31, 2022 as compared to $1.9
million for the year ended December 31, 2021. The increase in income tax expense is primarily attributable to an increase
in income before income tax as well as an increase in state tax expense based off of gross receipts as a result of the increase
in revenues due to improvements in overall operations and growth in the business from the Government segment.
Comparison of the Years Ended December 31, 2021 and 2020
For discussion of the comparison of our operating results for the years ended December 31, 2021 and 2020, please read
the “Comparison of Years Ended December 31, 2021 and 2020” section located in the Management Discussion & Analysis
section in our 2021 Annual Report on From 10-K filed on March 11, 2022 and is incorporated herein by reference.
Segment Results
The following table sets forth our selected results of operations for each of our reportable segments for the years ended
December 31, 2022, 2021 and 2020 ($ in thousands, except for Average Daily Rate amounts).
Revenue:
2022
2021
2020
For the Years Ended
December 31,
Amount of
Increase
(Decrease)
2022 vs.
2021
Percentage
Change
Increase
(Decrease)
2022 vs.
2021
Government
Hospitality & Facilities Services - South 132,373
Hospitality & Facilities Services -
Midwest
TCPL Keystone
All Other
Total revenues
6,168
-
3,150
2,018
(12,283)
1,454
$ 501,985 $ 291,337 $ 225,148 $ 210,648
6,605
41,911
1,247
4,150
12,283
1,696
$ 360,294 $ 156,250 $ 63,259 $ 204,044
15,415
116,958
112,126
131% $
13%
Amount
of
Increase
(Decrease)
2021 vs.
2020
92,991
4,832
Percentage
Change
Increase
(Decrease)
2021 vs.
2020
147%
4%
(37)%
(71)%
36%
29%
99%
2%
(543)%
6%
(9)%
45%
49%
(100)%
86%
72% $
(2,455)
(29,628)
449
66,189
160% $
4%
47,278
826
(64)%
(100)%
47%
94% $
(872)
544
63
47,839
Adjusted Gross Profit
Government
Hospitality & Facilities Services - South
Hospitality & Facilities Services -
Midwest
TCPL Keystone
All Other
Total Adjusted Gross Profit
$ 246,598 $ 94,801 $ 47,523 $ 151,797
2,214
54,558
52,344
51,518
(258)
-
(937)
453
(9,161)
(301)
$ 299,961 $ 154,959 $ 107,120 $ 145,002
161
8,617
(699)
(711)
9,161
(636)
Average Daily Rate
Hospitality & Facilities Services - South $
Hospitality & Facilities Services -
Midwest
$
73.39 $
74.64 $
81.67 $
(1.25)
$
(7.03)
61.20 $
68.91 $
79.69 $
(7.71)
$
(10.78)
Note: Adjusted gross profit for the chief operating decision maker’s (“CODM”) analysis includes the services and rental
costs recognized in the financial statements and excludes depreciation on specialty rental assets, certain severance costs,
and loss on impairment. Average daily rate is calculated based on specialty rental income and services income received
over the period indicated, divided by utilized bed nights.
Comparison of Years Ended December 31, 2022 and 2021
Government
Revenue for the Government segment was $360.3 million for the year ended December 31, 2022 as compared to $156.3
million for the year ended December 31, 2021.
57
Adjusted gross profit for the Government segment was $246.6 million for the year ended December 31, 2022 as compared
to $94.8 million for the year ended December 31, 2021.
Revenue and adjusted gross profit increased as a result of the new contracts originated in the Government segment in
March of 2021 and May of 2022 as previously mentioned.
Hospitality & Facilities Services - South
Revenue for the HFS – South segment was $132.4 million for the year ended December 31, 2022, as compared to $117.0
million for the year ended December 31, 2021.
Adjusted gross profit for the HFS – South segment was $54.6 million for the year ended December 31, 2022, as compared
to $52.3 million for the year ended December 31, 2021.
The increase in revenue of $15.4 million and increase in adjusted gross profit of approximately $2.3 million was primarily
attributable to an increase in utilization driven by a significant increase in customer demand.
Hospitality & Facilities Services - Midwest
Revenue for the HFS – Midwest segment was $6.2 million for the year ended December 31, 2022, as compared to $4.1
million for the year ended December 31, 2021.
Adjusted gross profit for the HFS – Midwest segment was ($0.3) million for the year ended December 31, 2022, as
compared to ($0.7) million for the year ended December 31, 2021.
The increase in revenue of $2.0 million and increase in adjusted gross profit of $0.5 million was primarily attributable to
an increase in utilization driven by an increase in customer demand.
TCPL Keystone
Revenue for the TCPL Keystone segment was $0 million for the year ended December 31, 2022, as compared to $12.3
million and $41.9 million for the years ended December 31, 2021 and 2020, respectively.
Adjusted gross profit for the TCPL Keystone segment was $0 million for the year ended December 31, 2022, as compared
to $9.2 million and $8.6 million for the years ended December 31, 2021 and 2020, respectively.
The decrease in revenue and adjusted gross profit was due to the TCPL project being suspended at the end of January
2021, subsequently cancelled in June 2021, and finally resulting in the TCPL contract being terminated in July 2021. As
a result of the Termination and Settlement Agreement, no further activity or revenue is expected in this segment.
Comparison of the Years Ended December 31, 2021 and 2020
For discussion of the comparison of our operating results for the years ended December 31, 2021 and 2020, please read
the “Comparison of Years Ended December 31, 2021 and 2020” section located in the Management Discussion & Analysis
section in our Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 11, 2022 and is
incorporated herein by reference.
Liquidity and Capital Resources
We depend on cash flow from operations, cash on hand and borrowings under our ABL Facility to finance our acquisition
strategy, working capital needs, and capital expenditures. We currently believe that our cash on hand, along with these
sources of funds will provide sufficient liquidity to fund debt service requirements, support our growth strategy, lease
obligations, contingent liabilities and working capital investments for at least the next 12 months. However, we cannot
58
assure you that we will be able to obtain future debt or equity financings adequate for our future cash requirements on
commercially reasonable terms or at all.
If our cash flows and capital resources are insufficient, we may be forced to reduce or delay additional acquisitions, future
investments and capital expenditures, and seek additional capital. Significant delays in our ability to finance planned
acquisitions or capital expenditures may materially and adversely affect our future revenue prospects.
We will continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase
of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as
to the timing of any such issuance or repurchase. From time to time, we may also seek to streamline our capital structure
and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities
for cash or other consideration. For additional discussion of risks related to our liquidity and capital resources, refer to the
section titled “Risk Factors” in Part I Item 1A of this Annual Report on Form 10-K.
Capital Requirements
During the year ended December 31, 2022, we incurred approximately $140.9 million in capital expenditures, which
increased by approximately $104.1 million compared to the year ended December 31, 2021. Our total annual 2022 capital
spending included growth projects to increase community capacity, mainly in the Government segment. In 2020, in
response to anticipated lower utilization levels resulting from the impact of commodity price volatility and COVID-19, as
previously discussed, the Company reduced its anticipated 2020 capital expenditures by 50%. In 2021, capital expenditures
incurred increased from 2020. This increase was primarily driven by growth in the Government segment and maintenance
capital expenditures that were delayed in 2020 to conserve cash. Although growth capital expenditures are largely
discretionary, our long-lived specialty rental assets require a certain level of maintenance capital expenditures, which have
ranged from approximately 0.4% to 4% of annual revenue between 2018 and 2022, with an average cost of approximately
1.8% of annual revenue. Maintenance capital expenditures for specialty rental assets amounted to approximately $12.5
million, $11.7 million, and $0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. As we
pursue growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our
future financial obligations, planned capital expenditure activities and liquidity requirements. However, future cash flows
are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage
our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a
reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on
acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than
the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital
expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or
at all.
The following table sets forth general information derived from our audited consolidated statements of cash flows:
($ in thousands)
For the Years Ended
December 31,
2022
2021
2020
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
$
$
305,612
(140,228)
(7,098)
(19)
158,267
$
$
104,599 $
(35,915)
(52,271)
14
16,427 $
46,781
(10,949)
(35,683)
(9)
140
Comparison of Years Ended December 31, 2022 and 2021
Cash flows provided by operating activities. Net cash provided by operating activities was $305.6 million for the year
ended December 31, 2022 compared to $104.6 million for the year ended December 31, 2021. This increase in cash
provided by operating activities relates primarily to an increase in cash collections of approximately $277.5 million, of
59
which approximately $291.1 million resulted from growth in the Government segment, partially offset by advance
collection on approximately $24.9 million of revenue recognized in the current year. Such revenue was collected in cash
during the year ended December 31, 2021, which partially offset the increase in cash flows from operations for the year
ended December 31, 2022. The additional change was driven by an increase in cash collections of approximately $26.9
million from our other segments, partially offset by a decrease in cash collections from TC Energy of approximately $14.5
million, and a decrease in cash collections associated with a related party receivable of approximately $1.2 million. This
net increase in cash collections of approximately $277.5 million was partially offset by an increase in cash paid for income
taxes of approximately $4.1 million and an increase in cash payments for operating expenses and payroll of approximately
$76.7 million resulting from growth and increased activity year-over-year. The remaining change was driven primarily by
a decrease in cash paid for interest of approximately $1.1 million and an increase in cash received for interest of
approximately $1.3 million.
Cash flows used in investing activities. Net cash used in investing activities was $140.2 million for the year ended
December 31, 2022 compared to $35.9 million for the year ended December 31, 2021. This increase in cash used in
investing activities primarily relates to the increase in capital expenditures driven by growth in the Government segment.
Cash flows used in financing activities. Net cash used in financing activities was $7.1 million for the year ended
December 31, 2022 compared to $52.3 million for the year ended December 31, 2021. The decrease in cash used in
financing activities was driven primarily by a $48 million decrease in net repayments on the ABL Facility driven by a
higher net outstanding balance on the ABL Facility in the prior year prior to it being fully paid. The prior period also
includes $2.9 million in cash outflows related to an insurance financing arrangement fully paid off in the prior period that
did not recur in the current period as the insurance was paid in cash upon renewal. These decreases in cash used in financing
activities were partially offset by the current period including an elective $5.5 million repayment of the 2024 Senior
Secured Notes.
Comparison of the Years Ended December 31, 2021 and 2020
For discussion of the comparison of our operating results for the years ended December 31, 2021 and 2020, please read
the “Comparison of Years Ended December 31, 2021 and 2020” section located in the Management Discussion & Analysis
section in the our Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 11, 2022 and is
incorporated herein by reference.
Indebtedness
The Company’s finance lease and other financing obligations as of December 31, 2022 consisted of $2.2 million of finance
leases. The finance leases pertain to leases entered into during 2019 through 2022, for commercial-use vehicles with 36-
month terms expiring through 2025. Refer to Notes 1, 8, and 13 of the notes to our audited consolidated financial
statements included in Part II, Item 8 within this Annual Report on Form 10-K for further discussion regarding finance
leases.
The Company’s finance lease and other financing obligations as of December 31, 2021, consisted of approximately $1.4
million of finance leases related to commercial-use vehicles with the same terms as described above.
ABL Facility
On the Closing Date, in connection with the closing of the Business Combination, Topaz, Arrow Bidco, Target, Signor
and each of their domestic subsidiaries entered into an ABL credit agreement that provides for a senior secured asset-based
revolving credit facility in the aggregate principal amount of up to $125 million (the “ABL Facility”). Approximately $40
million of proceeds from the ABL Facility were used to finance a portion of the consideration payable and fees and
expenses incurred in connection with the Business Combination. During the year ended December 31, 2021, the Company
repaid a net amount of $48 million of borrowings under the ABL Facility from excess cash available, which reduced the
outstanding balance to $0 as of December 31, 2021. During the year ended December 31, 2022, $70 million was drawn
and $70 million was repaid on the ABL Facility resulting in an outstanding balance of $0 as of December 31, 2022. As of
December 31, 2022, the maturity date of the ABL Facility was September 15, 2023. On February 1, 2023, the ABL
60
Facility was amended to, among other things, extend the maturity date to February 1, 2028. Refer to Note 21 of the notes
to our audited consolidated financial statements located in Part II, Item 8 within this Annual Report on Form 10-K for
additional information on this amendment. Refer to Note 8 of the notes to our audited consolidated financial statements
located in Part II, Item 8 within this Annual Report on Form 10-K for additional information on the ABL Facility.
Senior Secured Notes
In connection with the closing of the Business Combination, Arrow Bidco issued $340 million in aggregate principal
amount of 9.50% senior secured notes due March 15, 2024 (the “2024 Senior Secured Notes” or “Notes”) under an
indenture dated March 15, 2019 (the “Indenture”). The Indenture was entered into by and among Arrow Bidco, the
guarantors named therein (the “Note Guarantors”), and Deutsche Bank Trust Company Americas, as trustee and as
collateral agent. Interest is payable semi-annually on September 15 and March 15 and began September 15, 2019. During
the year ended December 31, 2022, the Company made an elective repayment of approximately $5.5 million on the Notes,
reducing the principal balance outstanding to $334.5 million from an original principal balance of $340 million. Refer to
Note 8 of the notes to our audited consolidated financial statements located in Part II, Item 8 within this Annual Report on
Form 10-K for additional discussion of the 2024 Senior Secured Notes.
Cash requirements
We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations
will be to primarily fund (i) operating activities and working capital, (ii) maintenance capital expenditures for specialty
rental assets, (iii) payments due under finance and operating leases, (iv) debt service, (v) elective repayments on our 2024
Senior Secured Notes. We plan to fund such cash requirements from our existing sources of liquidity as previously
discussed. The table below presents information on payments coming due under the most significant categories of our
needs for cash (excluding operating cash flows pertaining to normal business operations, other than operating lease
obligations) as of December 31, 2022 ($ in thousands):
Interest Payments on 2024 Senior Secured
Notes(1)
2024 Senior Secured Notes
Operating lease obligations, including imputed
interest(2)
Total
Total
2023
2024
2025
2026
2027
$ 47,667
334,500
$ 31,778 $ 15,889 $
— 334,500
— $
—
— $
—
25,499
$ 407,666
12,942
4,654
$ 44,720 $ 355,043 $
4,012
4,012 $
3,283
3,283 $
—
—
608
608
(1) We will incur and pay interest expense at 9.50% of the remaining face value of $334.5 million annually, or $31.8
million in connection with our 2024 Senior Secured Notes due March 15, 2024. Over the remaining term of the Notes,
interest payments total approximately $47.7 million.
(2) Represents interest on operating lease obligations calculated using the appropriate discount rate for each lease as noted
in Note 13 of the notes to our audited consolidated financial statements located in Part II, Item 8 within this Annual
Report on Form 10-K.
Commitments and Contingencies
The Company leases certain land, building, office, modular units, and equipment under non-cancellable operating leases,
the terms of which vary and generally contain renewal options.
Refer to Note 13 of the notes to our audited consolidated financial statements located in Part II, Item 8 within this Annual
Report on Form 10-K for disclosure of future minimum lease payments over the next five years and thereafter at
December 31, 2022, by year and in the aggregate, under non-cancelable operating leases.
61
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our audited
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting
principles (“US GAAP”). For a discussion of the critical accounting policies and estimates that we use in the preparation
of our audited consolidated financial statements, including assumptions and estimates used to test goodwill and other
intangible assets for impairment, when a quantitative test is required, refer to Note 1 of the notes to our audited consolidated
financial statements included in Part II, Item 8 within this Annual Report on Form 10-K.
Principles of Consolidation
Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual
Report on Form 10-K for a discussion of principles of consolidation.
Recently Issued and Adopted Accounting Standards
Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual
Report on Form 10-K for our assessment of recently issued and adopted accounting standards.
Non-GAAP Financial Measures
We have included Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows which are
measurements not calculated in accordance with US GAAP, in the discussion of our financial results because they are key
metrics used by management to assess financial performance. Our business is capital-intensive and these additional metrics
allow management to further evaluate our operating performance.
Target Hospitality defines Adjusted gross profit, as gross profit plus depreciation of specialty rental assets, loss on
impairment, and certain severance costs.
Target Hospitality defines EBITDA as net income (loss) before interest expense and loss on extinguishment of debt,
income tax expense (benefit), depreciation of specialty rental assets, and other depreciation and amortization.
Adjusted EBITDA reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect
of what management considers transactions or events not related to its core business operations:
• Other expense, net: Other expense, net includes miscellaneous cash receipts, gains and losses on disposals
of property, plant, and equipment, involuntary asset conversion gains and losses, COVID-19 related
expenses, and other immaterial charges.
• Transaction expenses: Target Hospitality incurred certain transaction costs during 2020, 2021 and 2022,
including legal and professional fees, associated with the Proposal and Warrant restatement in 2021 as well
as other immaterial items in 2020 and 2022.
• Stock-based compensation: Charges associated with stock-based compensation expense, which has been,
and will continue to be for the foreseeable future, a significant recurring expense in our business and an
important part of our compensation strategy.
• Change in fair value of warrant liabilities: Non-cash change in estimated fair value of warrant liabilities.
• Other adjustments: System implementation costs, including primarily non-cash amortization of capitalized
system implementation costs, claim settlement, business development, accounting standard implementation
costs and certain severance costs.
62
We define Discretionary cash flows as cash flows from operations less maintenance capital expenditures for specialty
rental assets.
EBITDA reflects net income (loss) excluding the impact of interest expense and loss on extinguishment of debt, provision
for income taxes, depreciation, and amortization. We believe that EBITDA is a meaningful indicator of operating
performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business.
We also use EBITDA, as do analysts, lenders, investors, and others, to evaluate companies because it excludes certain
items that can vary widely across different industries or among companies within the same industry. For example, interest
expense can be dependent on a company’s capital structure, debt levels, and credit ratings. Accordingly, the impact of
interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary
because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in
which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies.
EBITDA also excludes depreciation and amortization expense, because companies utilize productive assets of different
ages and use different methods of both acquiring and depreciating productive assets. These differences can result in
considerable variability in the relative costs of productive assets and the depreciation and amortization expense among
companies.
Target Hospitality also believes that Adjusted EBITDA is a meaningful indicator of operating performance. Our Adjusted
EBITDA reflects adjustments to exclude the effects of additional items, including certain items, that are not reflective of
the ongoing operating results of Target Hospitality. In addition, to derive Adjusted EBITDA, we exclude gains or losses
on the sale and disposal of depreciable assets and impairment losses because including them in EBITDA is inconsistent
with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale and disposal of
depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous
periods, and depreciation is excluded from EBITDA.
Target Hospitality also presents Discretionary cash flows because we believe it provides useful information regarding our
business as more fully described below. Discretionary cash flows indicate the amount of cash available after maintenance
capital expenditures for specialty rental assets for, among other things, investments in our existing business.
Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows are not measurements of Target
Hospitality’s financial performance under GAAP and should not be considered as alternatives to gross profit, net income
(loss) or other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating
activities as measures of Target Hospitality’s liquidity. Adjusted gross profit, EBITDA, Adjusted EBITDA, and
Discretionary cash flows should not be considered as discretionary cash available to Target Hospitality to reinvest in the
growth of our business or as measures of cash that is available to it to meet our obligations. In addition, the measurement
of Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows may not be comparable to similarly
titled measures of other companies. Target Hospitality’s management believe that Adjusted gross profit, EBITDA,
Adjusted EBITDA, and Discretionary cash flows provide useful information to investors about Target Hospitality and its
financial condition and results of operations for the following reasons: (i) they are among the measures used by Target
Hospitality’s management team to evaluate its operating performance; (ii) they are among the measures used by Target
Hospitality’s management team to make day-to-day operating decisions, (iii) they are frequently used by securities
analysts, investors and other interested parties as a common performance measure to compare results across companies in
Target Hospitality’s industry.
The following table presents a reconciliation of Target Hospitality’s consolidated gross profit to Adjusted gross profit:
($ in thousands)
Gross Profit
Depreciation of specialty rental assets
Adjusted gross profit
2022
247,128
52,833
299,961
$
$
63
For the Years Ended
December 31,
2021
101,350 $
53,609
154,959 $
$
$
2020
57,155
49,965
107,120
The following table presents a reconciliation of Target Hospitality’s consolidated net income (loss) to EBITDA and
Adjusted EBITDA:
($ in thousands)
Net income (loss)
Income tax expense (benefit)
Interest expense, net
Other depreciation and amortization
Depreciation of specialty rental assets
EBITDA
Adjustments
Other expense, net
Transaction expenses
Stock-based compensation
Change in fair value of warrant liabilities
Other adjustments
Adjusted EBITDA
For the Years Ended
December 31,
2021
$
$
(4,576) $
1,904
38,704
16,910
53,609
106,551
878
1,198
5,082
1,067
4,400
119,176 $
2022
73,939
32,370
36,323
14,832
52,833
210,297
36
283
19,121
31,735
3,242
264,714
$
$
2020
(25,131)
(8,455)
40,034
15,649
49,965
72,062
416
979
3,592
(2,347)
3,786
78,488
The following table presents a reconciliation of Target Hospitality’s Net cash provided by operating activities to
Discretionary cash flows:
($ in thousands)
Net cash provided by operating activities
Less: Maintenance capital expenditures for specialty rental assets
Discretionary cash flows
Purchase of specialty rental assets
Purchase of property, plant and equipment
Receipt of insurance proceeds
Proceeds from sale of specialty rental assets and other property, plant
and equipment
Net cash used in investing activities
Proceeds from borrowings on finance and finance lease obligations
Principal payments on finance and finance lease obligations
Principal payments on borrowings from ABL
Proceeds from borrowings on ABL
Repayment of Senior Notes
Payment of issuance costs from warrant exchange
Proceeds from issuance of Common Stock from exercise of warrants
Proceeds from issuance of Common Stock from exercise of stock
options
Purchase of treasury stock
Restricted shares surrendered to pay tax liabilities
Net cash used in financing activities
$
$
$
$
For the Years Ended
December 31,
2022
305,612
(12,314)
293,298
$
$
2021
104,599 $
(11,659)
92,940 $
2020
46,781
(888)
45,893
(120,287)
(20,556)
-
(35,488)
(427)
-
615
(140,228) $
-
(35,915) $
-
(1,008)
(70,000)
70,000
(5,500)
(774)
80
-
(4,172)
(76,000)
28,000
-
-
-
225
-
(121)
(7,098) $
-
-
(99)
(52,271) $
(12,177)
(381)
619
990
(10,949)
13,437
(11,581)
(74,500)
42,500
-
-
-
-
(5,318)
(221)
(35,683)
64
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our principal market risks are our exposure to interest rates and commodity risks.
Interest Rates
We are exposed to interest rate risk through our ABL Facility which is subject to the risk of higher interest charges
associated with increases in interest rates. As of December 31, 2022, we had $0 of outstanding floating-rate obligations
under our credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event
of increases in short-term interest rates. If floating interest rates increased by 100 basis points, our consolidated interest
expense would not be impacted, however, based on our floating-rate debt obligations, which had no outstanding balances
as December 31, 2022.
Commodity Risk
Commodity price fluctuations also indirectly influence our activities and results of operations over the long-term because
they may affect production rates and investments by natural resource development companies in the development of
commodity reserves.
We have limited direct exposure to risks associated with fluctuating commodity prices. However, both our profitability
and our cash flows are affected by volatility in commodity prices. We do not currently hedge our exposure to commodity
prices.
65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID:42)
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
67
68
69
70
71
72
66
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Target Hospitality Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Target Hospitality Corp. (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), changes in
stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Houston, Texas
March 10, 2023
67
Item 8. Financial Statements and Supplementary Data
Target Hospitality Corp.
Consolidated Balance Sheets
($ in thousands)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $4 and $43, respectively
Prepaid expenses and other assets
Total current assets
Specialty rental assets, net
Other property, plant and equipment, net
Operating lease right-of-use assets, net
Goodwill
Other intangible assets, net
Deferred tax asset
Deferred financing costs revolver, net
Other non-current assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue and customer deposits
Current portion of operating lease obligations
Current portion of finance lease and other financing obligations (Note 8)
Total current liabilities
Other liabilities:
Long-term debt (Note 8):
Principal amount
Less: unamortized original issue discount
Less: unamortized term loan deferred financing costs
Long-term debt, net
Long-term finance lease and other financing obligations
Long-term operating lease obligations
Other non-current liabilities
Deferred revenue and customer deposits
Deferred tax liability
Asset retirement obligations
Warrant liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders' equity:
December 31, December 31,
2022
2021
$
$
$
$
$
$
181,673
42,153
12,553
236,379
357,129
31,898
27,298
41,038
75,182
—
896
1,907
771,727
17,563
39,642
120,040
12,516
1,135
190,896
334,500
(971)
(4,681)
328,848
1,088
11,104
6,309
5,479
15,172
2,247
9,737
570,880
23,406
28,780
8,350
60,536
291,792
11,252
—
41,038
88,485
14,710
2,159
3,420
513,392
11,803
33,126
27,138
—
729
72,796
340,000
(1,681)
(8,107)
330,212
696
—
1,465
7,273
—
2,079
1,600
416,121
Common Stock, $0.0001 par, 400,000,000 authorized, 109,747,366 issued and 100,316,701 outstanding as
of December 31, 2022 and 106,367,450 issued and 101,952,683 outstanding as of December 31, 2021.
Common Stock in treasury at cost, 9,430,665 shares as of December 31, 2022 and 4,414,767 shares as of
December 31, 2021.
Additional paid-in-capital
Accumulated other comprehensive loss
Accumulated earnings
Total stockholders' equity
Total liabilities and stockholders' equity
10
10
(23,559)
139,287
(2,574)
87,683
200,847
771,727
$
(23,559)
109,538
(2,462)
13,744
97,271
513,392
$
See accompanying notes which are an integral part of these consolidated financial statements.
68
Target Hospitality Corp.
Consolidated Statements of Comprehensive Income (Loss)
($ in thousands, except per share amounts)
For the Years Ended
December 31,
2021
2020
2022
Revenue:
Services income
Specialty rental income
Construction fee income
Total revenue
Costs:
Services
Specialty rental
Depreciation of specialty rental assets
Gross profit
Selling, general and administrative
Other depreciation and amortization
Other expense (income), net
Operating income
Interest expense, net
Change in fair value of warrant liabilities
Income (loss) before income tax
Income tax expense (benefit)
Net income (loss)
Other comprehensive income (loss)
Foreign currency translation
Comprehensive income (loss)
$
333,702
168,283
-
501,985
174,200
27,824
52,833
247,128
57,893
14,832
36
174,367
36,323
31,735
106,309
32,370
73,939
(112)
73,827
$
203,134 $
76,909
11,294
291,337
120,192
16,186
53,609
101,350
46,461
16,910
880
37,099
38,704
1,067
(2,672)
1,904
(4,576)
(28)
(4,604)
132,430
52,960
39,758
225,148
109,185
8,843
49,965
57,155
38,128
15,649
(723)
4,101
40,034
(2,347)
(33,586)
(8,455)
(25,131)
124
(25,007)
Weighted average number shares outstanding - basic
Weighted average number shares outstanding - diluted
97,213,166
100,057,748
96,611,022
96,611,022
96,018,338
96,018,338
Net income (loss) per share - basic
Net income (loss) per share - diluted
$
$
0.76
0.74
$
$
(0.05) $
(0.05) $
(0.26)
(0.26)
See accompanying notes which are an integral part of these consolidated financial statements
69
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Target Hospitality Corp.
Consolidated Statements of Cash Flows
($ in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation
Amortization of intangible assets
Noncash operating lease expense
Accretion of asset retirement obligation
Amortization of deferred financing costs
Amortization of original issue discount
Change in fair value of warrant liabilities
Stock-based compensation expense
(Gain) loss on sale of specialty rental assets and other property, plant and equipment
Gain on involuntary conversion
Deferred income taxes
Provision for loss on receivables, net of recoveries
Changes in operating assets and liabilities
Accounts receivable
Related party receivable
Prepaid expenses and other assets
Accounts payable and other accrued liabilities
Deferred revenue and customer deposits
Operating lease obligation
Other non-current assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of specialty rental assets
Purchase of property, plant and equipment
Proceeds from the sale of specialty rental assets and other property, plant and equipment
Receipt of insurance proceeds
Net cash used in investing activities
Cash flows from financing activities:
Principal payments on finance and finance lease obligations
Proceeds from borrowings on finance and finance lease obligations
Principal payments on borrowings from ABL
Proceeds from borrowings on ABL
Repayment of Senior Notes
Payment of issuance costs from warrant exchange
Proceeds from issuance of Common Stock from exercise of warrants
Proceeds from issuance of Common Stock from exercise of stock options
Restricted shares surrendered to pay tax liabilities
Purchase of treasury stock
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
Supplemental Cash Flow Information:
Cash paid for interest, net of amounts capitalized
Income taxes paid, net of refunds received
Decrease in accrued capital expenditures
Operating lease liabilities arising from obtaining operating lease assets
Non-cash investing and financing activity:
Non-cash capital contribution - warrant liabilities from warrant exchange
Non-cash change in accrued issuance costs from warrant exchange
Non-cash change in finance lease obligations
For the Years Ended
December 31,
2021
2020
2022
$
73,939
$
(4,576)
$
(25,131)
54,363
13,302
10,782
168
4,689
711
31,735
19,242
(101)
—
29,882
407
(13,692)
—
(10,120)
6,371
91,108
(8,617)
1,443
305,612
(120,287)
(20,556)
615
—
(140,228)
(1,008)
—
(70,000)
70,000
(5,500)
(774)
80
225
(121)
—
(7,098)
(19)
158,267
23,406
181,673
32,653
4,865
1,864
(32,501)
23,598
(1,504)
(1,881)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
55,883
14,636
—
(204)
4,338
638
1,067
5,084
383
—
469
1,630
(2,228)
1,224
(1,156)
9,926
16,040
—
1,445
104,599
(35,488)
(427)
—
—
(35,915)
(4,172)
—
(76,000)
28,000
—
—
—
—
(99)
—
(52,271)
14
16,427
6,979
23,406
33,766
765
862
—
—
—
(1,780)
$
$
$
$
$
$
$
$
50,870
14,744
—
(389)
3,950
557
(2,347)
3,606
(205)
(619)
(8,751)
4,001
16,267
(280)
(2,549)
1,038
(7,827)
—
(154)
46,781
(12,177)
(381)
990
619
(10,949)
(11,581)
13,437
(74,500)
42,500
—
—
—
—
(221)
(5,318)
(35,683)
(9)
140
6,839
6,979
35,600
1,273
3,487
—
—
—
—
See accompanying notes which are an integral part of these consolidated financial statements.
71
Target Hospitality Corp.
Notes to Consolidated Financial Statements
(Amounts in Thousands, Unless Stated Otherwise)
1. Organization and Nature of Operations, Basis of Presentation, and Summary of Significant Accounting Policies
Organization and Nature of Operations
Target Hospitality Corp. (“Target Hospitality” and, together with its subsidiaries, the “Company”) was formed on
March 15, 2019 and is one of North America’s largest providers of vertically integrated specialty rental and value-added
hospitality services. The Company provides vertically integrated specialty rental and comprehensive hospitality services
including: catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation
services, overall workforce community management, and laundry service. Target Hospitality serves clients in energy and
natural resources and government sectors principally located in the West Texas, South Texas, Oklahoma and Midwest
regions.
The Company, whose securities are listed on the Nasdaq Capital Market, together with its 100% owned subsidiaries, Topaz
Holdings LLC, a Delaware limited liability company (“Topaz”), and Arrow Bidco, LLC, a Delaware limited liability
company (“Arrow Bidco”), serve as the holding companies for the businesses of Target Logistics Management, LLC and
its subsidiaries (“Target” or “TLM”) and RL Signor Holdings, LLC and its subsidiaries (“Signor”). TDR Capital LLP
(“TDR Capital” or “TDR”) indirectly owns approximately 65% of Target Hospitality and the remaining ownership is
broken out among the founders of the Company’s legal predecessor, Platinum Eagle Acquisition Corp. (“Platinum Eagle”
or “PEAC”), investors in Platinum Eagle’s private placement transaction, and other public shareholders.
Basis of Presentation
The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods,
actual amounts may differ from those included in the accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries that it controls
due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the
date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The
financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany
balances and transactions are eliminated.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash
equivalents.
72
Receivables and Allowances for Doubtful Accounts
Receivables primarily consist of amounts due from customers from the delivery of specialty rental services. The trade
accounts receivable is recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is based
upon the amount of losses expected to be incurred in the collection of these accounts. The estimated losses are based upon
a review of outstanding receivables, including specific accounts and the related aging, and on historical collection
experience. Specific accounts are written off against the allowance when management determines the account is
uncollectible. Activity in the allowance for doubtful accounts was as follows:
Balances at Beginning of Year
Charges to bad debt expense
Recoveries
Write-offs
Balances at End of Year
2022
Years Ended December 31,
2021
2020
43
1,052
(645)
(446)
4
$
$
2,977 $
1,877
(247)
(4,564)
43 $
989
4,821
(820)
(2,013)
2,977
$
$
Charges to bad debt expense, net of recoveries for the period are included within selling, general and administrative
expenses in the accompanying consolidated statements of comprehensive income (loss).
Prepaid Expenses and Other Assets
Prepaid expenses of approximately $8.6 million and $5.0 million at December 31, 2022 and 2021, respectively, primarily
consist of insurance, taxes, rent, deposits and permits. Prepaid insurance, rent, and permits are amortized over the related
term of the respective agreements. Prepaid taxes are recognized as expense over the related future tax period. Other assets
of approximately $3.9 million and $3.4 million at December 31, 2022 and 2021, respectively, primarily consist of $1.9
million and $1.8 million of deposits as of December 31, 2022 and 2021, respectively, and $2.0 million and $1.6 million of
hospitality inventory as of December 31, 2022 and 2021, respectively. Inventory, primarily consisting of food and
beverages, is accounted for by the first-in, first-out method and is stated at the lower of cost and net realizable value.
Concentrations of Credit Risk
In the normal course of business, the Company grants credit to its customers based on credit evaluations of their financial
condition and generally requires no collateral or other security. Major customers are defined as those individually
comprising more than 10.0% of the Company’s revenues or accounts receivable. For the year ended December 31, 2022,
the Company had two customers who accounted for 60.6% and 11.1% of revenues, respectively. The largest customers
accounted for 12% and 11% of accounts receivable, respectively, while no other customer accounted for more than 10%
of the accounts receivable balance as of December 31, 2022.
For the year ended December 31, 2021, the Company had two customers representing 34.7% and 18.9% of total revenues,
respectively. The largest customers accounted for 15% and 10% of accounts receivable, respectively, at
December 31, 2021.
For the year ended December 31, 2020, the Company had two customers representing 28.1% and 18.6% of total revenues,
respectively.
Major suppliers are defined as those individually comprising more than 10.0% of the annual goods purchased. For the
years ended December 31, 2022 and 2021, the Company had one major supplier representing 13.4% and 15.3% of goods
purchased, respectively. For the year ended December 31, 2020, the Company had three major suppliers, representing
16.2%, 10.3%, and 10.2% of goods purchased, respectively.
The Company provides services almost entirely to customers in the governmental and natural resource industries and as
such, are almost entirely dependent upon the continued activity of such customers.
73
Interest Capitalization
Interest costs for the construction of certain long-term assets are capitalized by applying the weighted average interest rate
applicable to the borrowings of the Company to the average amount of accumulated expenditures outstanding during the
construction period. Such capitalized interest costs are depreciated over the related assets’ estimated useful lives.
Specialty Rental Assets
Specialty rental assets (units, site work and furniture and fixtures comprising lodges) are measured at cost less accumulated
depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Costs of improvements and betterments to units are capitalized when such costs extend the useful life of the unit or increase
the rental value of the unit. Costs incurred for units to meet a particular customer specification are capitalized and
depreciated over the lease term. Maintenance and repair costs are expensed as incurred.
Depreciation is computed using the straight-line method over estimated useful lives and considering the residual value of
those assets. The estimated useful life of modular units is 15 years. The estimated useful life of site work (above ground
and below ground infrastructure) is 5 years. The estimated useful life of furniture and fixtures is 7 years. Assets leased
under capital leases are depreciated over the shorter of the lease term or their useful lives unless it is reasonably certain
that the Company will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual
values are adjusted prospectively, if a revision is determined to be appropriate.
Other Property, Plant, and Equipment
Other property, plant, and equipment is stated at cost, net of accumulated depreciation and impairment losses. Assets
leased under capital leases are depreciated over the shorter of the lease term or their useful lives unless it is reasonably
certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated. Maintenance and
repair costs are expensed as incurred.
Depreciation is computed using the straight-line method over estimated useful lives, as follows:
Buildings
Machinery and office equipment
Furniture and fixtures
Software
5-15 years
3-5 years
7 years
3 years
Depreciation methods, useful lives and residual values are reviewed and adjusted prospectively, if appropriate.
Business Combinations
Business combinations are accounted for using the acquisition method. Consideration transferred for acquisitions is
measured at fair value at the acquisition date and includes assets transferred, liabilities assumed and equity issued.
Acquisition costs incurred are expensed and included in selling, general and administrative expenses. When the Company
acquires a business, the financial assets and liabilities assumed are assessed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date.
Any contingent consideration transferred by the acquirer is recognized at fair value at the acquisition date. Any subsequent
changes to the fair value of contingent consideration are recognized in profit or loss. If the contingent consideration is
classified as equity, it is not re-measured and subsequent settlement is accounted for within equity.
Goodwill
The Company evaluates goodwill for impairment at least annually at the reporting unit level. A reporting unit is the
operating segment, or one level below that operating segment (the component level) if discrete financial information is
prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit
74
if they have similar economic characteristics. For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the Company’s reporting units that are expected to benefit from the combination. The
Company evaluates changes in its reporting structure to assess whether that change impacts the composition of one or
more of its reporting units. If the composition of the Company’s reporting units’ changes, goodwill is reassigned between
reporting units using the relative fair value allocation approach.
The Company performs the annual impairment test of goodwill at October 1. In addition, the Company performs
impairment tests during any reporting period in which events or changes in circumstances indicate that impairment may
have occurred. To test goodwill for impairment, the Company first performs a qualitative assessment to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is
the case, the Company then performs a quantitative impairment test. Otherwise, the quantitative impairment test is not
required. Under the quantitative impairment test, the Company would compare the estimated fair value of each reporting
unit to its carrying value.
In assessing the fair value of the reporting units, the Company considers the market approach, the income approach, or a
combination of both. Under the market approach, the fair value of the reporting unit is based on quoted market prices of
companies comparable to the reporting unit being valued. Under the income approach, the fair value of the reporting unit
is based on the present value of estimated cash flows. The income approach is dependent on several significant
management assumptions, including estimated future revenue growth rates, gross margin on sales, operating margins,
capital expenditures, tax rates and discount rates.
If the carrying amount of the reporting unit exceeds the calculated fair value, a loss on impairment is recognized in an
amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Additionally, the
Company considers the income tax effect from any tax-deductible goodwill on the carrying amount of the reporting unit,
if applicable, when measuring the goodwill impairment charge.
Intangible Assets Other Than Goodwill
Intangible assets that are acquired by the Company and determined to have an indefinite useful life are not amortized, but
are tested for impairment at least annually. The Company’s indefinite-lived intangible assets consist of trade names. The
Company calculates fair value by comparing a relief-from-royalty method to the carrying amount of the indefinite-lived
intangible asset. This method is used to estimate the cost savings that accrue to the owner of an intangible asset who would
otherwise have to pay royalties or license fees on revenues earned through the use of the asset. A loss on impairment would
be recorded to the extent the carrying value of the indefinite-lived intangible asset exceeds the fair value.
Other intangible assets that have finite useful lives are measured at cost less accumulated amortization and impairment
losses, if any. Subsequent expenditures for intangible assets are capitalized only when they increase the future economic
benefits embodied in the specific asset to which they relate. Amortization is recognized in profit or loss on a straight-line
basis over the estimated useful lives of intangible assets. The Company has customer relationship assets with lives ranging
from 5 to 9 years. Amortization of intangible assets is included in other depreciation and amortization on the consolidated
statements of comprehensive income (loss).
Impairment of Long-Lived and Amortizable Intangible Assets
Fixed assets including rental equipment and other property, plant and equipment and amortizable intangible assets are
reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an
asset group to future undiscounted cash flows, without interest charges, expected to be generated by the asset group. If
future undiscounted cash flows, without interest charges, exceed the carrying amount of an asset, no impairment is
recognized. If management determines that the carrying value cannot be recovered based on estimated future undiscounted
cash flows, without interest charges, over the shorter of the asset’s estimated useful life or the expected holding period, an
impairment loss would be recorded based on the estimated fair value of the asset.
75
Assets Held for Sale
Management considers an asset to be held for sale when management approves and commits to a formal plan to actively
market the asset for sale and it is probable that the sale will be completed within twelve months. A sale may be considered
probable when a signed sales contract and significant non-refundable deposit or contract break-up fee exist. Upon
designation as held for sale, management records the carrying value of the asset at the lower of its carrying value or its
estimated fair value, less estimated costs to sell, and management stops recording depreciation expense. As of
December 31, 2022, no assets were considered held for sale.
Other Non-Current Assets
Other non-current assets primarily consist of capitalized software implementation costs for the implementation of cloud
computing systems primarily during 2020 and 2019. The Company capitalizes expenditures related to the implementation
of cloud computing software as incurred during the application development stage. Such capitalized costs are amortized
to selling, general, and administrative expenses over the term of the cloud computing hosting arrangement, including
reasonably certain renewals, beginning when the module or component of the hosting arrangement is ready for its intended
use.
Deferred Financing Costs Revolver, net
Deferred financing costs revolver are associated with the issuance of the ABL Facility and the Algeco ABL facility
(“Algeco ABL Facility”) discussed in Note 8. Such costs are amortized over the contractual term of the line-of-credit
through initial maturity using the straight-line method. Amortization expense of deferred financing costs revolver is
included in interest expense, net in the consolidated statement of comprehensive income (loss).
Term Loan Deferred Financing Costs
Term loan deferred financing costs are associated with the issuance of the 2024 Senior Secured Notes discussed in Note 8.
The Company presents unamortized deferred financing costs as a direct deduction from the principal amount of the 2024
Senior Secured Notes on the consolidated balance sheets. Such costs are deferred and amortized over the term of the debt
based on the effective interest rate method.
Original Issuance Discounts
Debt original discounts are associated with the issuance of the 2024 Senior Secured Notes discussed in Note 8 and are
recorded as direct deductions to the principal amount of the 2024 Senior Secured Notes on the consolidated balance sheets.
Debt discounts are deferred and amortized over the term of the debt based on the effective interest rate method.
Asset Retirement Obligations
The Company recognizes asset retirement obligations (“AROs”) related to legal obligations associated with the operation
of the Company’s specialty rental assets. The fair values of these AROs are recorded on a discounted basis, at the time the
obligation is incurred and accreted over time for the change in present value over the expected timing of settlement.
Changes in the expected timing or amount of settlement are recognized in the period of change as an increase or decrease
in the carrying amount of the ARO and related asset retirement costs with decreases in excess of the carrying value of the
related asset retirement cost being recognized in the consolidated statement of comprehensive income (loss). The Company
capitalizes asset retirement costs by increasing the carrying amount of the related long-lived assets and depreciating these
costs over the remaining useful life. The carrying amount of AROs included in the consolidated balance sheets were $2.2
million and $2.1 million as of December 31, 2022 and 2021, respectively, which represents the present value of the
estimated future cost of these AROs of approximately $2.7 million. Accretion expense of approximately $0.2 million,
($0.2) million and ($0.4) million was recognized in specialty rental costs in the accompanying consolidated statements of
comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020, respectively.
76
Foreign Currency Transactions and Translation
The Company’s reporting currency is the US Dollar (USD). Exchange rate adjustments resulting from foreign currency
transactions are recognized in profit or loss, whereas effects resulting from the translation of financial statements are
reflected as a component of accumulated other comprehensive loss, a component of equity.
The assets and liabilities of subsidiaries whose functional currency is different from the USD are translated into USD at
exchange rates at the reporting date and revenue and expenses are translated using average exchange rates for the respective
period.
Foreign exchange gains and losses arising from a receivable or payable to a consolidated Company entity, the settlement
of which is neither planned nor anticipated in the foreseeable future, are considered to form part of a net investment in the
Company entity and are included within accumulated other comprehensive loss.
Revenue Recognition
The Company derives revenue from specialty rental and hospitality services, specifically lodging and related ancillary
services. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of
contractual relationships with the customers. Certain arrangements contain a lease of lodging facilities to customers. The
leases are accounted for as an operating lease under the authoritative guidance for leases and are recognized as income is
earned over the term of the lease agreement.
Because performance obligations related to specialty rental and hospitality services are satisfied over time, the majority of
our revenue is recognized on a daily basis, for each night a customer stays, at a contractual day rate. Our customers typically
contract for accommodation services under committed contracts with terms that most often range from several months to
multiple years. Our payment terms vary by type and location of our customer and the service offered. The time between
invoicing and when payment is due is not significant.
When lodging and services are billed and collected in advance, recognition of revenue is deferred until services are
rendered. Certain of the Company’s contractual arrangements allow customers the ability to use paid but unused lodging
and services for a specified period. The Company recognizes revenue for these paid but unused lodging and services as
they are consumed, as it becomes probable the lodging and services will not be used, or upon expiration of the specified
term.
Cost of services includes labor, food, utilities, supplies, rent and other direct costs associated with operating the lodging
units. Cost of rental includes leasing costs and other direct costs of maintaining the lodging units. Costs associated with
contracts includes sales commissions which are expensed as incurred and reflected in selling, general and administrative
expenses in the consolidated statements of comprehensive income (loss).
The Company recognizes revenue associated with community construction using the percentage of completion method
with progress towards completion measured using the cost-to-cost method as the basis to recognize revenue. Management
believes this cost-to-cost method is the most appropriate measure of progress to the satisfaction of a performance obligation
on the community construction. Provisions for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract
settlements may result in revisions to projected costs and revenue and are recognized in the period in which the revisions
to estimates are identified and the amounts can be reasonably estimated. Factors that may affect future project costs and
margins include weather, production efficiencies, availability and costs of labor, materials and subcomponents. Revenues
associated with community construction using the percentage of completion method are reflected as construction fee
income in the consolidated statements of comprehensive income (loss).
Additionally, the Company collects sales, use, occupancy and similar taxes, which the Company presents on a net basis
(excluded from revenues) in the consolidated statements of comprehensive income (loss).
77
Fair Value Measurements
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair
value:
Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.
Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical
or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at
the measurement date.
Income Taxes
The Company’s operations are subject to U.S. federal, state and local, and foreign income taxes. The Company accounts
for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of
a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment
date.
The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized.
In making such determination, the Company considers all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations.
Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized.
When a valuation allowance is established or there is an increase in an allowance in a reporting period, tax expense is
generally recorded in the Company’s consolidated statements of comprehensive income (loss).
In accordance with applicable authoritative guidance, the Company accounts for uncertain income tax positions using a
benefit recognition model with a two-step approach; a more-likely-than-not recognition criterion; and a measurement
approach that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized
upon ultimate settlement. If it is not more-likely-than-not that the benefit of the tax position will be sustained on its
technical merits, no benefit is recorded. Uncertain tax positions that relate only to timing of when an item is included on a
tax return are considered to have met the recognition threshold. The Company classifies interest and penalties related to
uncertain tax positions within income tax expense.
Warrant Liabilities
We evaluated the warrants issued by Platinum Eagle, our legal predecessor, to purchase its common stock in a private
placement concurrently with its initial public offering (the “Private Warrants”) under ASC 815-40, Derivatives and
Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in
stockholders’ equity. Specifically, the provisions in the Private Warrant agreement provide for potential changes to the
settlement amounts dependent upon the characteristics of the warrant holder and because the holder of a warrant is not an
input into the pricing of a fixed-for-fixed option on equity shares, such a provision would preclude the warrant from being
classified in equity. Since the Private Warrants meet the definition of a derivative under ASC 815, we recorded these
Private Warrants as liabilities on the balance sheet at fair value, with subsequent changes in their respective fair values
recognized in the consolidated statements of comprehensive income (loss) at each reporting date. The fair value
adjustments were determined by using a Black-Scholes option-pricing model based on inputs less observable in the
marketplace as described in Note 11. The Private Warrants are deemed equity instruments for income tax purposes, and
accordingly, there is no tax accounting related to changes in the fair value of the Private Warrants recognized.
78
Stock-Based Compensation
The Company sponsors an equity incentive plan, the Target Hospitality Corp. 2019 Incentive Award Plan, as amended
(the “Plan”), in which certain employees and non-employee directors participate. The Plan is administered by the
compensation committee of the board of directors of the Company (the “Compensation Committee”). The Company
measures the cost of services received in exchange for an award of equity instruments (typically restricted stock unit
awards (“RSUs”), performance stock unit awards (“PSUs”) and stock options) based on the grant-date fair value of the
awards issued under the Plan that are equity classified. Liability classified RSUs are valued based on the fair value of the
stock at each reporting period until the date of settlement or until they become equity classified, whichever occurs first,
with changes in fair value recognized as increases or decreases in stock-based compensation expense in the accompanying
consolidated statements of comprehensive income (loss) each reporting period over the period during which an employee
or non-employee director is required to provide service in exchange for the awards, usually the vesting period. The fair
value of the stock options is calculated using the Black-Scholes option-pricing model and the fair value of the PSUs that
are based on market conditions (“Market-Based PSUs”) are calculated using a Monte Carlo simulation while the fair value
of the RSUs and performance-based PSUs not based on market conditions (“Performance-Based PSUs”) are calculated
based on the Company’s share price on the grant-date and the assessment of the probability of achieving defined
performance measures for Performance-Based PSUs. The resulting compensation expense is recognized over the period
during which an employee or non-employee director is required to provide service in exchange for the awards, usually the
vesting period. Similarly, for time-based awards subject to graded vesting, compensation expense is recognized on a
straight-line basis over the service period. For Market-Based PSUs, the probability of satisfying a market condition is
considered in the estimation of the grant-date fair value for Market-Based PSUs and the compensation cost is not reversed
if the market condition is not achieved, provided the requisite service has been provided. Forfeitures are accounted for as
they occur. The Plan also includes Stock Appreciation Rights awards (“SARs”) issued to certain of the Company’s
executive officers and other employees. Each SAR represents a contingent right to receive, upon vesting, payment in cash
or the Company’s Common Stock, as determined by the compensation committee, in an amount equal to the difference
between (a) the fair market value of a Common Share on the date of exercise, over (b) the grant date price. Under the
authoritative guidance for stock-based compensation, these SARs are considered liability-based awards that are included
in accrued liabilities and other non-current liabilities in the consolidated balance sheets at fair value and are remeasured at
fair value each reporting period until the date of settlement using the Black-Scholes option pricing model. Changes in the
estimated fair value of the SARs along with the resulting cost is recognized as increases or decreases in stock-based
compensation expense in the accompanying consolidated statements of comprehensive income (loss) each reporting period
over the period during which an employee is required to provide service in exchange for the SARs, usually the vesting
period. Forfeitures are accounted for as they occur. Refer to Note 18 for further details of activity related to the Plan.
Treasury Stock
Treasury stock is reflected as a reduction of stockholders’ equity at cost. We use the weighted average purchase price to
determine the cost of treasury stock that is reissued, if any.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance revised existing practice related
to accounting for leases under ASC Topic 840 Leases (ASC 840) for both lessees and lessors. The new guidance requires
lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the
definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-
use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement
purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating
or finance. Operating leases will result in straight-line expense (similar to prior accounting by lessees for operating leases
under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to prior accounting by lessees
for capital leases under ASC 840). While the new standard maintains similar accounting for lessors as under ASC 840, the
new standard reflects updates to, among other things, align with certain changes to the lessee model. Topic 842 allows an
entity to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective
approach or to adopt under the new optional transition method that allows an entity to recognize a cumulative-effect
adjustment to the opening balance of retained earnings as of the adoption date.
79
The Company adopted Topic 842, along with its related clarifications and amendments, on the effective date of January 1,
2022 to be presented in the consolidated financial statements for the year ended December 31, 2022 in this Annual Report
on Form 10-K using the modified retrospective transition approach, whereby the Company elected the transition option to
the new standard that allows entities to apply the transition provisions of the new standard at its adoption date instead of
the earliest comparative period presented in its financial statements. For leases with an initial term of 12 months or less,
the Company will not recognize a right-of-use asset and a lease liability on the consolidated balance sheet and lease
expense will be recognized on a straight-line basis over the lease term. The Company did not elect the hindsight practical
expedient nor the land easements practical expedient as the latter is not applicable to the Company given all of the
Company’s land leases were previously identified as leases and were accounted for as such under ASC 840. In addition,
the Company elected the following practical expedients in adopting the new standard:
• The Company elected the package of practical expedients that allows the Company to not reassess:
(i)
(ii)
whether any expired or existing contracts meet the definition of a lease;
the lease classification for any expired or existing leases; and
(iii)
the initial direct costs for any existing leases.
• The Company elected the lessee practical expedient to make an accounting policy election by class of underlying
asset to not separate non-lease components from lease components and instead to account for each separate lease
component and non-lease components associated with that lease component as a single lease component.
Lessee Perspective: Adoption of the new standard resulted in the Company recording net balance sheet adjustments for
right-of-use (“ROU”) assets, net and related lease obligations totaling $16.6 million and $16.6 million for its operating
leases, respectively, primarily related to the leasing of land, and certain community units. The adjustments related to
operating leases affected the Company’s January 1, 2022 consolidated balance sheet as follows:
Balance
Balance
Operating lease right-of-use assets, net
Total asset adjustments
Operating lease obligations, current and long-term
Total liability adjustments
$
$
- $
$
- $
$
16,574 $
16,574
16,574 $
16,574
Pre-Adoption
Adjustments
Post-Adoption
16,574
16,574
Upon adoption of the new standard, the Company reclassified amounts related to its finance leases, which relate to
commercial-use vehicles, as follows:
Other property, plant and equipment, net
Total asset adjustments
Finance lease and other financing obligations, current and long-term $
$
Capital lease and other financing obligations, current and long-term
Total liability adjustments
$
1,494 $
$
- $
1,411
$
- $
-
1,411 $
(1,411) $
-
1,411
-
Balance
Pre-Adoption
Adjustments
Balance
Post-Adoption
1,494
The adoption of this standard had no impact to the Company’s consolidated statements of comprehensive income (loss),
no impact to the consolidated statement of changes in stockholders’ equity, and it had no impact to net cash provided by
operating activities, net cash used in investing activities, or net cash used in financing activities in the accompanying
consolidated statements of cash flows, other than certain presentation changes within the consolidated statement of cash
flows.
80
The Company determines if a contract is a lease at inception. Leases with an initial term of 12 months or less are not
recorded on the balance sheet. Expense for these short-term leases is recognized on a straight-line basis over the lease
term. For leases with an initial term greater than 12 months, the Company records a ROU asset and a corresponding lease
obligation. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations
represent the Company’s obligation to make fixed lease payments as stipulated by the lease. As a lessee in a lease contract,
the Company recognizes a ROU asset and a lease liability on the consolidated balance sheet. The Company is a lessee in
a variety of lease contracts, such as land, building, real estate, modular units, equipment and vehicle leases. The Company
classifies its leases as either an operating lease or a finance lease based on the principle of whether or not the lease is
effectively a financed purchase of the leased asset. For operating leases, the Company recognizes lease expense on a
straight-line basis over the term of the lease. For finance leases, the Company recognizes lease expense using the effective
interest method, which results in the interest component of each lease payment being recognized as interest expense and
the lease right-of-use asset being amortized into other depreciation and amortization expense in the accompanying
consolidated statement of comprehensive income (loss) using the straight-line method over the term of the lease. Operating
lease obligations are recognized at the lease commencement date based on the present value of lease payments over the
lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate
(“IBR”) based on information available at the commencement date in determining the present value of lease payments
over the lease term. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over
a similar term an amount equal to the lease payments in a similar economic environment. The Company determined its
IBR for each lease by using the IBR in effect as of the start of the quarter of the lease commencement date (or ASC 842
transition date of January 1, 2022, whichever comes sooner). In order to estimate the Company’s IBR, the Company first
looks to its own unsecured debt offerings, and adjusts the rate for both length of term and secured borrowing using available
market data as well as consultations with leading national financial institutions that are active in the issuance of both
secured and unsecured notes.
Operating ROU assets are recognized at the lease commencement date, and include the amount of the initial operating
lease obligation, any lease payments made at or before the commencement date, excluding any lease incentives received,
and any initial direct costs incurred. For leases that have extension options that the Company can exercise at its discretion,
management uses judgment to determine if it is reasonably certain that the Company will in fact exercise such option. If
the extension option is reasonably certain to occur, the Company includes the extended term’s lease payments in the
calculation of the respective lease liability. Certain lease contracts may include an option to purchase the leased property,
which is at the Company's sole discretion. None of the Company’s leases contain any material residual value guarantees
or material restrictive covenants. The Company reviews its right-of-use assets for indicators of impairment. If such assets
are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment loss is
recognized. The impairment loss recognized is measured by the amount by which the carrying amount of the assets exceeds
the estimated fair value of the assets. Based on the Company’s review, no operating or finance lease ROU assets were
impaired during 2022.
The Company's leases include a base lease payment, which is recognized as lease expense on a straight-line basis over the
lease term. In addition, certain of the Company's leases may include an additional lease payment for items such as common
area maintenance, real estate taxes, utilities, operating expenses, insurance, personal property expense, or other related
charges all of which are recognized as variable lease expense, when incurred, in the consolidated statement of
comprehensive income (loss). The variable lease expense incurred by the Company was not based on an index or rate.
Lessor Perspective: For lease agreements in which the Company is the lessor, the Company analyzed the impact of the
standard and determined that there was no material impact to the recognition, measurement, or presentation of these
revenues as all of our leases are operating leases, which will continue to result in the same recognition pattern for rental
income as was done prior to adopting this new leasing standard. Upon adoption, the Company analyzed the lease and
nonlease components of its lease agreements and determined that the timing and pattern of transfer for both components
are the same. In addition, the leases will continue to qualify as operating leases and the Company will account for and
present the lease component under ASC 842 and the nonlease component under ASC 606. Refer to Note 2 for the breakout
of revenue under each standard.
Refer to Notes 13 and 14 for additional lease disclosures.
81
Recently Issued Accounting Standards
The Company meets the definition of an emerging growth company (“EGC”) as defined under the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”). In reliance on exemptions provided under the JOBS Act for EGCs, the Company
has elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer
(as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such standards. As such,
compliance dates included below pertain to non-issuers, and as permitted, early adoption dates are indicated. These
standards will be effective for the Company on January 1, 2023.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASU 2016-13 or Topic 326). This
new standard changes how companies account for credit impairment for trade and other receivables as well as changing
the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value
through net income. ASU 2016-13 will replace the current "incurred loss" model with an "expected loss" model. Under
the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment
delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected
loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads
to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model
considers past events and current conditions, while the "expected loss" model includes expectations for the future which
have yet to occur. ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, was
issued in November 2018 and excludes operating leases from the new guidance. In 2019, the FASB voted to delay the
effective date for the new standard for financial statements issued for reporting periods beginning after December 15, 2022
and interim periods within those reporting periods. The Company is currently evaluating the impact of this new standard
on its consolidated financial statements.
2. Revenue
Total revenue under contracts recognized under Topic 606 was approximately $333.7 million for the year ended
December 31, 2022, while $168.3 million was specialty rental income subject to the guidance of ASC 842 for the year
ended December 31, 2022. Total revenue under contracts recognized under Topic 606 was $214.4 million for the year
ended December 31, 2021, while $76.9 million was specialty rental income subject to the guidance of ASC 840 for the
year ended December 31, 2021. Total revenue under contracts recognized under Topic 606 was $172.2 million for the year
ended December 31, 2020, while $53.0 million was specialty rental income subject to the guidance of ASC 840 for the
year ended December 31, 2020.
82
The following table disaggregates our services and construction fee revenues by our four reportable segments as well as
the All Other category: HFS – South, HFS – Midwest, Government, TCPL Keystone, and All Other for the years indicated
below:
Hospitality & Facilities Services – South
Services income
Total Hospitality & Facilities Services – South revenues
Hospitality & Facilities Services – Midwest
Services income
Total Hospitality & Facilities Services – Midwest revenues
Government
Services income
Total Government revenues
TCPL Keystone
Services income
Construction fee income
Total TCPL Keystone revenues
All Other
Services income
Total All Other revenues
Total services and construction fee revenues
For the Years Ended December 31,
2021
2022
2020
126,135
126,135
6,168
6,168
198,249
198,249
-
-
-
3,150
3,150
$
$
$
$
$
108,183 $
108,183
98,888
98,888
4,150 $
4,150
6,605
6,605
88,115 $
88,115
23,538
23,538
989 $
11,294
12,283
2,153
39,758
41,911
1,696 $
1,696
1,247
1,247
333,702
$
214,427 $
172,189
$
$
$
$
$
$
On July 23, 2021, the Company executed a Termination and Settlement Agreement with TC Energy (the “Termination
and Settlement Agreement”), which effectively terminated the Company’s contract with TC Energy that was originated in
2013. The Termination and Settlement Agreement also released the Company from any outstanding work performance
obligations under the 2013 contract (including all change orders, limited notices to proceed, and amendments).
Additionally, the Termination and Settlement Agreement resulted in an agreed upon termination fee of approximately
$5.0 million that was collected in cash on July 27, 2021. This Termination and Settlement Agreement also resulted in the
recognition of approximately $4.9 million of deferred revenue as of the effective date of the Termination and Settlement
Agreement. All such revenue is recognized in construction fee income within the TCPL Keystone segment included in
the above table as well as in the accompanying consolidated statements of comprehensive income (loss) for the year ended
December 31, 2022. No further revenue will be generated from the 2013 contract and as of December 31, 2022, there are
no unrecognized deferred revenue amounts or costs for incomplete projects related to this contract following such
termination.
The Company routinely monitors the financial stability of our customers, which involves a high degree of judgment in
assessing customers’ historical time to pay, financial condition and various customer-specific factors.
Contract Assets and Liabilities
We do not have any contract assets.
Contract liabilities primarily consist of deferred revenue that represent payments for room nights that the customer may
use in the future as well as an advanced payments for community builds, and mobilization of asset activities related to
83
community expansions that are being recognized over the related contract period. Activity in the deferred revenue accounts
as of the dates indicated below was as follows:
Balances at Beginning of Year
Additions to deferred revenue
Revenue recognized
Balances at End of Year
For the Years Ended December 31,
2021
2022
2020
$
$
34,411
172,760
(81,652)
125,519
$
$
18,371 $
127,391
(111,351)
34,411 $
26,199
12,907
(20,735)
18,371
As of December 31, 2022, for contracts greater than one year, the following table discloses the estimated revenues related
to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue, and
only represents revenue expected to be recognized from contracts where the price and quantity of the product or service
are fixed (in thousands):
Revenue expected to be recognized as of December 31, 2022
2023
$ 181,759
2024
$ 19,068
For the Years Ended December 31,
2025
2026
Total
$ 18,775 $ 14,044 $ 233,646
The Company applied some of the practical expedients in Topic 606, including the “right to invoice” practical expedient,
and does not disclose consideration for remaining performance obligations with an original expected duration of one year
or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. Due to the
application of these practical expedients, the table above represents only a portion of the Company’s expected future
consolidated revenues and it is not necessarily indicative of the expected trend in total revenues.
3. Specialty Rental Assets, Net
Specialty rental assets, net at the dates indicated below consisted of the following:
Specialty rental assets
Construction-in-process
Less: accumulated depreciation
Specialty rental assets, net
December 31,
2022
December 31,
2021
$
$
698,095
4,653
(345,619)
357,129
$
$
582,527
3,557
(294,292)
291,792
There were no specialty rental assets under finance lease as of as of December 31, 2022 and 2021, respectively.
Depreciation expense of these assets is presented in depreciation of specialty rental assets in the accompanying
consolidated statements of comprehensive income (loss). During the year ended December 31, 2020, the Company
disposed of assets with accumulated depreciation of approximately $9 million along with the related gross cost of
approximately $10 million. These disposals were associated with a sale of assets with a net book value of approximately
$0.8 million as well as fully depreciated asset retirement costs. The asset sale resulted in a loss on the sale of assets of
approximately $0.1 million and is reported within other expense (income), net in the accompanying consolidated
statements of comprehensive income (loss) for the year ended December 31, 2020.
On October 1, 2021, the Company purchased a group of assets consisting primarily of modular units for $6.2 million,
which was funded by cash on hand as of the acquisition date. The assets were previously leased from the seller to service
the Company’s Government segment, and effective with the purchase, the lease was terminated. These assets are included
in the Specialty rental assets group in the table above and will continue to be used in the Company’s Government segment
discussed in Note 20. No personnel were assumed as a part of this transaction.
84
In September of 2022, the Company purchased land and specialty rental assets (modular units, site work, and furniture &
fixtures) for approximately $22.3 million, of which approximately $18.7 million is included within this assets group, to
support growth of the Government segment discussed in Note 20, which was funded by cash on hand. The acquisition was
accounted for as an asset acquisition. The Company allocated the total purchase price to identifiable tangible assets based
on their relative fair values, which resulted in the entire purchase price being allocated to land and specialty rental assets
as noted above. No personnel were assumed as a part of this transaction.
4. Other Property, Plant and Equipment, Net
Other property, plant, and equipment, net at the dates indicated below, consisted of the following:
Land
Buildings and leasehold improvements
Machinery and office equipment
Other
Less: accumulated depreciation
Total other property, plant and equipment, net
December 31,
2022
December 31,
2021
28,483 $
769
1,581
7,341
38,174
(6,276)
31,898 $
9,163
191
1,300
5,347
16,001
(4,749)
11,252
$
$
Depreciation expense related to other property, plant and equipment was approximately $1.5 million, $2.3 million and
$0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included in other depreciation
and amortization in the consolidated statements of comprehensive income (loss).
Included in other property, plant and equipment, net are certain assets under finance lease. The gross cost of the assets
under finance lease was approximately $5.0 million and $3.1 million as of December 31, 2022 and 2021, respectively. The
accumulated depreciation related to assets under capital leases totaled approximately $2.6 million and $1.6 million as of
December 31, 2022 and 2021, respectively. Such amounts under finance lease are included in the other category in the
above table as of December 31, 2022 and 2021, respectively.
In June of 2022, the Company purchased land for approximately $15.5 million to support growth of the Government
segment, which was funded by cash on hand. The land is included in the other property, plant and equipment assets group
in the table above.
In September of 2022, the Company purchased land and specialty rental assets (modular units, site work, and furniture &
fixtures) for approximately $22.3 million, of which approximately $3.6 million is included within this assets group for the
land, to support growth of the Government segment discussed in Note 20, which was funded by cash on hand. The
acquisition was accounted for as an asset acquisition. The Company allocated the total purchase price to identifiable
tangible assets based on their relative fair values, which resulted in the entire purchase price being allocated to land and
specialty rental assets as noted above. No personnel were assumed as a part of this transaction.
85
5. Goodwill and Other Intangible Assets, net
The financial statements reflect goodwill from previous acquisitions that is all attributable to the HFS – South business
segment and reporting unit.
Changes in the carrying amount of goodwill were as follows:
Balance at December 31, 2020
Changes in Goodwill
Balance at December 31, 2021
Changes in Goodwill
Balance at December 31, 2022
$
$
HFS – South
41,038
-
41,038
-
41,038
In connection with our annual assessment on October 1, we performed a qualitative assessment based on information
currently available in determining if it was more likely than not that the fair value of the Company’s HFS – South reporting
unit was less than the carrying amount. This assessment considered various factors, including changes in the carrying value
of the reporting unit, forecasted operating results, other qualitative key events and circumstances, including the
macroeconomic environment, the industry, market conditions, cost factors, and events specific to the reporting unit. Based
on the results of this qualitative assessment, management concluded that it is not more likely than not that the fair value
of the Company's HFS – South reporting unit was less than its carrying amount.
Intangible assets other than goodwill at the dates indicated below consisted of the following:
Weighted
average
remaining lives
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
December 31, 2022
Intangible assets subject to amortization
Customer relationships
Total
Indefinite lived assets:
Tradenames
4.6
$
Total intangible assets other than goodwill
$
128,907
128,907
16,400
145,307
$
$
(70,125) $
(70,125)
—
(70,125) $
58,782
58,782
16,400
75,182
Intangible assets subject to amortization
Customer relationships
Total
Indefinite lived assets:
Tradenames
Total intangible assets other than goodwill
Weighted
average
remaining lives
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
December 31, 2021
5.6 $
128,907 $
128,907
(56,822) $
(56,822)
$
16,400
145,307
$
—
(56,822) $
72,085
72,085
16,400
88,485
During the year ended December 31, 2022, certain customer relationship intangible assets became fully amortized. The
aggregate amortization expense for intangible assets subject to amortization was $13.3 million, $14.6 million and $14.7
million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included in other depreciation and
amortization in the consolidated statements of comprehensive income (loss).
86
The estimated aggregate amortization expense as of December 31, 2022 for each of the next five years and thereafter is as
follows:
2023
2024
2025
2026
2027
Thereafter
Total
6. Other Non-Current Assets
$
$
12,881
12,881
12,881
12,285
7,676
178
58,782
Other non-current assets include capitalized software implementation costs for the implementation of cloud computing
systems. As of the dates indicated below, capitalized implementation costs and related accumulated amortization in other
non-current assets on the consolidated balance sheets amounted to the following:
Cloud computing implementation costs
Less: accumulated amortization
Other non-current assets
December 31,
2022
December 31,
2021
$
$
7,198
(5,357)
1,841
$
$
7,198
(3,844)
3,354
Such systems were placed into service beginning January of 2020 at which time the Company began to amortize these
capitalized costs on a straight-line basis over the period of the remaining service arrangements of between 2 and 4
years. Such amortization expense amounted to approximately $1.5 million, $2.2 million, and $1.7 for the years ended
December 31, 2022, 2021, and 2020, respectively and is included in selling, general and administrative expense in the
accompanying consolidated statements of comprehensive income (loss).
7. Accrued Liabilities
Accrued liabilities as of the dates indicated below consists of the following:
Employee accrued compensation expense
Other accrued liabilities
Accrued interest on debt
Total accrued liabilities
December 31,
2022
December 31,
2021
11,873 $
18,230
9,539
39,642 $
12,473
11,033
9,620
33,126
$
$
Other accrued liabilities in the above table relates primarily to accrued utilities, rent, real estate and sales taxes, state
income taxes, liability-based stock compensation awards (see Note 18), and other accrued operating expenses.
8. Debt
Senior Secured Notes 2024
On March 15, 2019, Arrow Bidco issued $340 million in aggregate principal amount of 9.50% senior secured notes due
March 15, 2024 (the “2024 Senior Secured Notes” or “Notes”) under an indenture dated March 15, 2019 (the “Indenture”).
The Indenture was entered into by and among Arrow Bidco, the guarantors named therein (the “Note Guarantors”), and
Deutsche Bank Trust Company Americas, as trustee and as collateral agent. Interest is payable semi-annually on
September 15 and March 15 and began September 15, 2019. During the year ended December 31, 2022, the Company
87
made an elective repayment of approximately $5.5 million on the Notes. Refer to table below for a description of the
amounts related to the Notes.
9.50% Senior Secured Notes, due 2024
Unamortized
Original
Issue
Discount
Unamortized
Deferred
Financing
Costs
971 $
4,681
Principal
334,500
$
$
If Arrow Bidco undergoes a change of control or sells certain of its assets, Arrow Bidco may be required to offer to
repurchase the Notes. On or after March 15, 2021, Arrow Bidco at its option, may redeem the Notes, in whole or part,
upon not less than fifteen (15) and not more than sixty (60) days’ prior written notice to holders and not less than twenty
(20) days’ prior written notice to the trustee (or such shorter timeline as the trustee may agree), at the redemption price
expressed as percentage of principal amount set forth below, plus accrued and unpaid interest thereon but not including
the applicable redemption date (subject to the right of Note holders on the relevant record date to receive interest due on
an interest payment date falling on or prior to the redemption date), if redeemed during the 12-month period beginning
March 15 of each of the years set below.
Year
2022
2023 and thereafter
Redemption
Price
102.375%
100.000%
The Notes are unconditionally guaranteed by Topaz and each of Arrow Bidco’s direct and indirect wholly-owned domestic
subsidiaries (collectively, the “Note Guarantors”). Target Hospitality is not an issuer or a guarantor of the Notes. The Note
Guarantors are either borrowers or guarantors under the ABL Facility. To the extent lenders under the ABL Facility release
the guarantee of any Note Guarantor, such Note Guarantor is also released from obligations under the Notes. These
guarantees are secured by a second priority security interest in substantially all of the assets of Arrow Bidco and the Note
Guarantors (subject to customary exclusions). The guarantees of the Notes by TLM Equipment, LLC, a Delaware limited
liability company (“TLM Equipment LLC”) which holds certain of Target Hospitality’s assets, are subordinated to its
obligations under the ABL Facility (as defined below).
The Notes contain certain negative covenants, including limitations that restrict Arrow Bidco’s ability and the ability of
certain of its subsidiaries, to directly or indirectly, create additional financial obligations. With certain specified exceptions,
these negative covenants prohibit Arrow Bidco and certain of its subsidiaries from: creating or incurring additional debt;
paying dividends or making any other distributions with respect to its capital stock; making loans or advances to Arrow
Bidco or any restricted subsidiary of Arrow Bidco; selling, leasing or transferring any of its property or assets to Arrow
Bidco or any restricted subsidiary of Arrow Bidco; directly or indirectly creating, incurring or assuming any lien of any
kind securing debt on the collateral; or entering into any sale and leaseback transaction.
In connection with the issuance of the Notes, there was an original issue discount of $3.3 million and the unamortized
balance of $1.0 million is presented on the face of the consolidated balance sheet as of December 31, 2022 as a reduction
of the principal. The discount is amortized over the life of the Notes using the effective interest method.
Arrow Bidco’s ultimate parent, Target Hospitality, has no significant independent assets or operations except as included
in the guarantors of the Senior Secured Notes, the guarantees under the Notes are full and unconditional and joint and
several, and any subsidiaries of Target Hospitality that are not subsidiary guarantors of the Notes are minor. There are
also no significant restrictions on the ability of Target Hospitality or any guarantor to obtain funds from its subsidiaries by
dividend or loan. See discussion of certain negative covenants above. Therefore, pursuant to the SEC Rules, no individual
guarantor financial statement disclosures are deemed necessary.
88
Finance Lease and Other Financing Obligations
The Company’s finance lease and other financing obligations as of December 31, 2022 consisted of $2.2 million of finance
leases. The finance leases pertain to leases entered into during 2019 through 2022, for commercial-use vehicles with 36-
month terms expiring through 2025. Refer to Note 13 for further discussion of finance leases, including the weighted
average discount rate applicable to these finance leases.
The Company’s finance lease and other financing obligations as of December 31, 2021, primarily consisted of $1.4 million
of finance leases related to commercial-use vehicles with the same terms as described above.
ABL Facility
On March 15, 2019 (the “Closing Date”), Topaz, Arrow Bidco, Target, Signor and each of their domestic subsidiaries
entered into an ABL credit agreement that provides for a senior secured asset based revolving credit facility in the
aggregate principal amount of up to $125 million (the “ABL Facility”). The historical debt of Arrow Bidco, Target and
their respective subsidiaries under the Algeco ABL Facility was settled on March 15, 2019. During the year ended
December 31, 2021, the Company repaid a net amount of $48 million of borrowings under the ABL Facility from excess
cash available, which reduced the outstanding balance to $0 as of December 31, 2021. During the year ended
December 31, 2022, $70 million was drawn and $70 million was repaid on the ABL Facility resulting in an outstanding
balance of $0 as of December 31, 2022.
Borrowings under the ABL Facility, at the relevant borrower’s (the borrowers under the ABL Facility, the “ABL
Borrowers”) option, bear interest at either (1) an adjusted LIBOR or (2) a base rate, in each case plus an applicable margin.
The applicable margin is 2.50% with respect to LIBOR borrowings and 1.50% with respect to base rate borrowings.
Commencing at the completion of the first full fiscal quarter after the Closing Date, the applicable margin for borrowings
under the ABL Facility is subject to one step-down of 0.25% and one step-up of 0.25%, based on achieving certain excess
availability levels with respect to the ABL Facility.
The ABL Facility provides borrowing availability of an amount equal to the lesser of (i) (a) $125 million and (b) the
Borrowing Base (defined below) (the “Line Cap”).
The Borrowing Base is, at any time of determination, an amount (net of reserves) equal to the sum of:
•
•
•
85% of the net book value of the Borrowers’ eligible accounts receivables, plus
the lesser of (i) 95% of the net book value of the Borrowers’ eligible rental equipment and (ii) 85% of the net
orderly liquidation value of the Borrowers’ eligible rental equipment, minus
customary reserves
The ABL Facility includes borrowing capacity available for standby letters of credit of up to $15 million and for
‘‘swingline’’ loan borrowings of up to $15 million. Any issuance of letters of credit or making of a swingline loan will
reduce the amount available under the ABL Facility.
In addition, the ABL Facility will provide the Borrowers with the option to increase commitments under the ABL Facility
in an aggregate amount not to exceed $75 million plus any voluntary prepayments that are accompanied by permanent
commitment reductions under the ABL Facility. The termination date of the ABL Facility is September 15, 2023.
The obligations under the ABL Facility are unconditionally guaranteed by Topaz and each existing and subsequently
acquired or organized direct or indirect wholly-owned U.S. organized restricted subsidiary of Arrow Bidco (together with
Topaz, the “ABL Guarantors”), other than certain excluded subsidiaries. The ABL Facility is secured by (i) a first priority
pledge of the equity interests of Topaz, Arrow Bidco, Target, and Signor (the “Borrowers) and of each direct, wholly-
owned US organized restricted subsidiary of any Borrower or any ABL Guarantor, (ii) a first priority pledge of up to 65%
of the voting equity interests in each non-US restricted subsidiary of any Borrower or ABL Guarantor and (iii) a first
priority security interest in substantially all of the assets of the Borrower and the ABL Guarantors (in each case, subject to
customary exceptions).
89
The ABL Facility requires the Borrowers to maintain a (i) minimum fixed charge coverage ratio of 1.00:1.00 and
(ii) maximum total net leverage ratio of 4.00:1.00, at any time when the excess availability under the ABL Facility is less
than the greater of (a) $15.625 million and (b) 12.5% of the Line Cap.
The ABL Facility also contains a number of customary negative covenants. Such covenants, among other things, limit or
restrict the ability of each of the Borrowers, their restricted subsidiaries, and where applicable, Topaz, to:
•
incur additional indebtedness, issue disqualified stock and make guarantees;
•
incur liens on assets;
•
engage in mergers or consolidations or fundamental changes;
•
sell assets;
•
pay dividends and distributions or repurchase capital stock;
• make investments, loans and advances, including acquisitions;
•
amend organizational documents and master lease documents;
•
enter into certain agreements that would restrict the ability to pay dividends;
•
repay certain junior indebtedness; and
•
change the conduct of its business.
The aforementioned restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness,
liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to
compliance with certain financial metrics and certain other conditions and (ii) a number of other traditional exceptions that
grant the ABL Borrowers continued flexibility to operate and develop their businesses. The ABL Facility also contains
certain customary representations and warranties, affirmative covenants and events of default.
The carrying value of debt outstanding as of the dates indicated below consist of the following:
Finance lease and other financing obligations (Note 13)
ABL Facility
9.50% Senior Secured Notes due 2024, face amount
Less: unamortized original issue discount
Less: unamortized term loan deferred financing costs
Total debt, net
Less: current maturities
Total long-term debt
Interest expense, net
December 31,
2022
December 31,
2021
2,223 $
—
334,500
(971)
(4,681)
331,071
(1,135)
329,936 $
1,425
—
340,000
(1,681)
(8,107)
331,637
(729)
330,908
$
$
The components of interest expense, net (which includes interest expense incurred) recognized in the consolidated
statements of comprehensive income (loss) for the periods indicated below consist of the following:
Interest incurred on finance lease and other financing
obligations
Interest expense incurred on ABL Facility and Notes
Amortization of deferred financing costs on ABL facilities and
Notes
Amortization of original issue discount on Notes
Interest capitalized
Interest income
Interest expense, net
$
$
For the Years Ended December 31,
2022
2021
2020
72
$
58 $
33,464
4,605
711
(983)
(1,546)
36,323
$
33,670
4,338
638
—
—
38,704 $
131
35,396
3,950
557
—
—
40,034
90
Deferred Financing Costs and Original Issue Discount
The Company incurred and deferred approximately $16.3 million of deferred financing costs and approximately $3.3
million of original issue discount in connection with the issuance of the Notes in 2019, which are included in the carrying
value of the Notes as of December 31, 2022 and 2021. The Company presents unamortized deferred financing costs and
unamortized original issue discount as a direct deduction from the principal amount of the Notes on the consolidated
balance sheets as of December 31, 2022 and 2021. Accumulated amortization expense related to the deferred financing
costs was approximately $11.2 million and $7.8 million as of December 31, 2022 and 2021, respectively. Accumulated
amortization of the original issue discount was approximately $2.3 million and $1.6 million as of December 31, 2022 and
2021, respectively.
The Company also incurred deferred financing costs associated with the ABL Facility in the amount of approximately
$3.9 million, which are capitalized and presented on the consolidated balance sheet as of December 31, 2022 and 2021
within deferred financing costs revolver, net. These costs are amortized over the contractual term of the line-of-credit
through the initial maturity date using the straight-line method.
The ABL Facility was considered a modification of the Algeco ABL Facility for accounting purposes. Certain of the
lenders under the Algeco ABL Facility are also lenders under the ABL Facility. As the borrowing capacity of each of the
continuing lenders in the ABL Facility is greater than the borrowing capacity of the Algeco ABL Facility, the unamortized
deferred financing costs at the time of the modification of approximately $1.8 million associated with the continuing
lenders of the Algeco ABL Facility was deferred and amortized over the remaining term of the ABL Facility.
Accumulated amortization related to revolver deferred financing costs for both the Algeco ABL Facility and ABL Facility
was approximately $4.8 million and $3.7 million as of December 31, 2022 and 2021, respectively.
Refer to the components of interest expense table in Note 8 for the amounts of the amortization expense related to the
deferred financing costs and original issue discount recognized for each of these debt instruments for the years ended
December 31, 2022, 2021 and 2020, respectively.
Future maturities
The aggregate annual principal maturities of debt and finance lease obligations for each of the next five years, based on
contractual terms are listed in the table below. Refer to Note 13 for additional information on our finance lease obligations,
including contractual terms.
The schedule of future maturities as of December 31, 2022 consists of the following:
2023
2024
2025
Total
9. Warrant Liabilities
$
$
1,135
335,256
332
336,723
On January 17, 2018, Harry E. Sloan, Joshua Kazam, Fredric D. Rosen, the Sara L. Rosen Trust and the Samuel N. Rosen
2015 Trust, purchased from Platinum Eagle an aggregate of 5,333,334 Private Warrants at a price of $1.50 per warrant
(for an aggregate purchase price of $8.0 million) in a private placement that occurred simultaneously with the completion
of its initial public offering. Each Private Warrant entitles the holder to purchase one share of common stock at $11.50 per
share. The purchase price of the Private Warrants was added to the proceeds from Platinum Eagle’s initial public offering
and was held in the Trust Account until the formation of the Company on March 15, 2019. The Private Warrants (including
the shares of Common Stock issuable upon exercise of the Private Warrants) were not transferable, assignable or salable
91
until 30 days after the formation of the Company on March 15, 2019, and they may be exercised on a cashless basis and
are non-redeemable so long as they are held by the initial purchasers of the Private Warrants or their permitted transferees.
The Company evaluated Private Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own
Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity and should be classified as
liabilities. Since the Private Warrants meet the definition of a derivative under ASC 815, the Company recorded the Private
Warrants as liabilities on the balance sheet at their estimated fair value.
Subsequent changes in the estimated fair value of the Private Warrants are reflected in the change in fair value of warrant
liabilities in the accompanying consolidated statements of comprehensive income (loss). The change in the estimated fair
value of the Private Warrants resulted in a loss (gain) of approximately $31.7 million, $1.1 million, and ($2.4) million
during the years ended December 31, 2022, 2021, and 2020, respectively.
As of December 31, 2021, the Company had 5,333,334 Private Warrants issued and outstanding. On December 22, 2022,
holders exchanged 3,800,000 Private Warrants for shares of Common Stock resulting in the estimated fair value of these
exchanged Private Warrants being reclassified to additional paid-in-capital within the stockholders’ equity section in the
accompanying consolidated balance sheet as more fully discussed in the “Warrant Exchange” section included in Note 17.
As of December 31, 2022, the Company had 1,533,334 Private Warrants issued and outstanding.
The Company determined the following estimated fair values for the outstanding Private Warrants as of the dates indicated
below:
Warrant liabilities
Total
10. Income Taxes
December 31,
2022
December 31,
2021
$
$
9,737
9,737
$
$
1,600
1,600
The components of the provision for income taxes are comprised of the following for the years ended December 31:
Domestic
Foreign
Current
Deferred
Current
Deferred
Total income tax expense (benefit)
2022
2021
2020
2,488
29,882
$
1,365 $
469
296
(8,751)
—
—
32,370
$
70
—
1,904 $
—
—
(8,455)
$
$
92
Income tax results differed from the amount computed by applying the U.S. statutory income tax rate to income (loss)
before income taxes for the following reasons for the years ended December 31:
Statutory income tax expense (benefit)
State tax expense
Effect of tax rates in foreign jurisdictions
Change in fair value of warrant liabilities
Transaction costs
Valuation allowances
Compensation
Other
Reported income tax expense (benefit)
2022
22,325
2,797
(28)
6,664
—
310
383
(81)
32,370
$
$
2021
(561) $
1,120
30
224
—
452
500
139
1,904 $
2020
(7,053)
(450)
(17)
(494)
(899)
(279)
201
536
(8,455)
$
$
Income tax expense (benefit) was $32.4 million, $1.9 million and $ (8.5) million for the years ended December 31, 2022,
2021 and 2020, respectively. The effective tax rate for the years ended December 31, 2022, 2021, and 2020 was 30.4%,
(71.3)% and 25.2%, respectively. The fluctuation in the rate for the years ended December 31, 2022, 2021 and 2020,
respectively, results primarily from the relationship of year-to-date income (loss) before income tax, the fluctuation in the
permanent add-back related to the change in fair value of warrant liabilities on the Company’s warrants, the impact of
state tax expense based off of gross receipts, and a compensation deduction limitation during each of the years ended
December 31, 2022, 2021, and 2020.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases, as well as from net operating loss and carryforwards.
Significant components of the deferred tax assets and liabilities for the Company are as follows:
Deferred tax assets (liabilities)
Stock-based compensation
Deferred revenue
Intangible assets
Tax loss carryforwards
Operating lease obligations
Interest carryforwards
Other - net
Deferred tax assets gross
Valuation allowance
Net deferred income tax asset
Deferred tax liabilities
Rental equipment and other plant, property and equipment
Operating lease right-of-use assets
Software
Deferred tax liability
Net deferred income tax asset (liability)
2022
2021
$
4,793
1,621
9,157
30,649
5,152
4,997
23
56,392
(4,486)
51,906
(60,771)
(5,955)
(352)
(67,078)
(15,172)
$
1,182
7,779
9,640
34,303
—
—
402
53,306
(4,176)
49,130
(33,709)
—
(711)
(34,420)
14,710
$
$
Tax loss carryovers for federal and foreign income tax purposes totaled $136.9 million at December 31, 2022 as shown in
the below table. Approximately $6.7 million of these foreign income tax loss carryovers expire between 2023 and 2043.
The remaining $130.2 million of federal income tax loss carryovers do not expire. The availability of these tax losses to
offset future income varies by jurisdiction. Furthermore, the ability to utilize the tax losses may be subject to additional
limitations upon the occurrence of certain events, such as changes in ownership of the Company. Realization is dependent
on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured,
the Company believes it is more likely than not that all of the United States related deferred tax assets will be realized.
93
The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future taxable
income during the carryforward period are reduced. A valuation allowance has been established against the deferred tax
assets to the extent it is not more likely than not they will be realized.
United States
Canada
Mexico
Total
Unrecognized Tax Positions
2022
$ 130,212
6,123
527
$ 136,862
Expiration
Unlimited
2023-2043
2024-2033
Valuation
Allowance
— %
100 %
100 %
No amounts have been accrued for uncertain tax positions as of December 31, 2022 and 2021. However, management's
conclusion regarding uncertain tax positions may be subject to review and adjustment at a later date based on ongoing
analyses of tax laws, regulations, and interpretations thereof and other factors. The Company does not have any
unrecognized tax benefits as of December 31, 2022 and 2021 and does not expect that the total amount of unrecognized
tax benefits will materially change over the next twelve months. Additionally, no interest or penalty related to uncertain
taxes has been recognized in the accompanying consolidated financial statements.
The Company is subject to taxation in US, Canada, Mexico and state jurisdictions. The Company’s tax returns are subject
to examination by the applicable tax authorities prior to the expiration of the statute of limitations for assessing additional
taxes, which generally ranges from two to five years. Therefore, as of December 31, 2022, tax years for 2016 through 2022
generally remain subject to examination by the tax authorities. In addition, in the case of certain tax jurisdictions in which
the Company has loss carryforwards, the tax authority in some of these jurisdictions may examine the amount of the tax
loss carryforward based on when the loss is utilized rather than when it arises.
11. Fair Value of Financial Instruments
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale.
The Company has assessed that the fair value of cash and cash equivalents, trade receivables, related party receivables,
trade payables, other current liabilities, and other debt approximates their carrying amounts largely due to the short-term
maturities or recent commencement of these instruments. The fair value of the ABL Facility is primarily based upon
observable market data, such as market interest rates, for similar debt. The fair value of the Notes is based upon observable
market data.
Level 1 & 2 Disclosures:
The carrying amounts and fair values of financial assets and liabilities, which are either Level 1 or Level 2, are as follows:
December 31, 2022
December 31, 2021
Financial Assets (Liabilities) Not Measured at Fair Value
ABL Facility (See Note 8) - Level 2
Senior Secured Notes (See Note 8) - Level 1
Recurring fair value measurements
Level 3 Disclosures:
Carrying
Amount
Carrying
Amount
$
$ (328,848)
— $
Fair Value
Fair Value
—
$ (335,403) $ (330,212) $ (348,075)
— $
— $
There were 1,533,334 and 5,333,334 Private Warrants outstanding as of December 31, 2022 and 2021, respectively. Based
on the fair value assessment that was performed, the Company determined a fair value price per Private Warrant of $6.35
94
and $0.30 as of December 31, 2022 and 2021, respectively. The fair value is classified as Level 3 in the fair value hierarchy
due to the use of pricing inputs that are less observable in the marketplace combined with management judgment required
for the assumptions underlying the calculation of value. The Company determined the estimated fair value of the Private
Warrants using the Black-Scholes option-pricing model. The table below summarizes the inputs used to calculate the fair
value of the warrant liabilities at each of the dates indicated below:
Exercise Price
Stock Price
Dividend Yield
Expected Term (in Years)
Risk-Free Interest Rate
Expected Volatility
Per Share Value of Warrants
December 31,
2022
December 31,
2021
11.50 $
15.14 $
0.00 %
1.20
4.56 %
70.00 %
6.35 $
11.50
3.56
0.00
2.20
0.78
64.00
0.30
$
$
%
%
%
$
The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2021:
Balance at December 31, 2020
Change in fair value of warrant liabilities
Balance at December 31, 2021
$
$
Private Placement Warrants
533
1,067
1,600
The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2022:
Balance at December 31, 2021
Change in fair value of warrant liabilities
Additional paid-in-capital reclass for warrant exchange (Note 17)
Balance at December 31, 2022
$
$
Private Placement Warrants
1,600
31,735
(23,598)
9,737
There were no transfers of financial instruments between the three levels of the fair value hierarchy during the years ended
December 31, 2022 and 2021, respectively.
12. Commitments and Contingencies
The Company is involved in various lawsuits or claims in the ordinary course of business. Management is of the opinion
that there is no pending claim or lawsuit which, if adversely determined, would have a material impact on the financial
condition of the Company.
Refer to Note 13 for disclosure regarding future minimum lease payments over the next five years and thereafter at
December 31, 2022, by year and in the aggregate, under non-cancelable operating leases.
13. Leases
Lessee Accounting
The Company has both finance and operating leases. The finance leases are solely comprised of the Company’s
commercial-use vehicles, maturing in dates ranging from 2023 to 2025, including expected renewal options. Including all
renewal options available to the Company, the lease maturity date may extend on a month-to-month basis for an unlimited
period of time. Operating leases consist of land, building, office, certain community units, and equipment leases, maturing
in dates ranging from 2023 to 2027, including expected renewal options. Including all renewal options available to the
Company, the lease maturity date extends to 2118.
95
Leases were included on the Company’s consolidated balance sheet as follows:
Finance Lease:
Right-of-use assets, net(1)
Current portion of finance lease obligations(2)
Long-term finance lease obligations(3)
Total lease obligation
Weighted average remaining lease term
Weighted average discount rate
Operating Leases:
Right-of-use assets, net(4)
Current portion of operating lease obligations
Long-term operating lease obligations
Total lease obligations(4)
Weighted average remaining lease term
Weighted average discount rate
$
$
$
$
$
$
December 31,
2022
2,313
1,135
1,088
2,223
2.2 Years
6.30%
27,298
12,516
11,104
23,620
2.8 Years
5.37%
(1) Finance lease right-of-use assets, net are included in other property, plant and equipment, net on the Company's
consolidated balance sheet.
(2) Current portion of finance lease obligations are included in current portion of finance lease and other financing
obligations on the Company's consolidated balance sheet. As of December 31, 2022, this financial statement line item
is solely comprised of the current portion of finance lease obligations given the current portion of other financing
obligations is $0.
(3) Long-term finance lease obligations are included in long-term finance lease and other financing obligations on the
Company's consolidated balance sheet. As of December 31, 2022, this financial statement line items is solely
comprised of the long-term finance lease obligations given the long-term other financing obligations is $0.
(4) The difference between the operating lease right-of-use assets, net and operating lease obligations, current and long-
term, as of December 31, 2022 primarily relates to approximately $3.7 million of unamortized prepaid delivery and
installation costs that were paid at or before lease commencement and capitalized to the right-of-use assets in
accordance with ASC 842.
The components of lease expense were as follows:
Finance lease cost:
Amortization of right-of-use asset
Interest on lease obligations
Total finance lease cost
Operating lease cost
Short-term lease cost
Variable lease cost(1)
$
$
$
$
$
2022
2,647
72
2,719
11,927
8,308
1,789
(1) Consists primarily of common area maintenance, real estate taxes, utilities, operating expenses and insurance for real
estate leases; insurance and personal property expense for equipment leases; and certain vehicle related charges for
finance leases. The amount of variable lease costs disclosed above also includes approximately $0.3 million of lease
costs related to base rent associated with long-term immaterial leases with a present value of total minimum lease
payments less than $25,000 and long-term leases that terminated within 3 months of the implementation date
(January 1, 2022) with an average lease term of approximately 1.6 years.
96
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases(1)
Financing cash flows from finance leases
$
$
$
2022
72
15,605
1,008
(1) Includes approximately $5.9 million of prepaid delivery and installation costs that were paid at or before lease
commencement and capitalized to the right-of-use assets in accordance with ASC 842.
Future maturities of the Company’s finance and operating lease obligations at December 31, 2022 were as follows:
2023
2024
2025
2026
2027
Total lease payments
Less: interest(1)
Present value of lease obligations
$
$
Finance Lease
Operating Leases
1,166
850
383
-
-
2,399
(176)
2,223
$
$
12,942
4,654
4,012
3,283
608
25,499
(1,879)
23,620
(1) Calculated using the appropriate discount rate for each lease.
Rent expense included in services costs in the consolidated statements of comprehensive income (loss) for cancelable and
non-cancelable operating leases was $13.9 million and $5.6 million for the years ended December 31, 2021 and 2020,
respectively. Rent expense included in the selling, general, and administrative expenses in the consolidated statements of
comprehensive income (loss) for cancelable and non-cancelable operating leases was $0.4 million and $0.5 million for the
years ended December 31, 2021 and 2020, respectively.
Prior to the Company’s adoption of the new leases standard, as of December 31, 2021, capital lease assets were included
in other property, plant and equipment, net on the Company’s consolidated balance sheets as follows:
Gross capital lease asset - vehicles
Accumulated Depreciation
Net capital lease assets
December 31,
2021
$
3,079
(1,627)
1,452
Prior to the Company’s adoption of the new leases standard, as of December 31, 2021, future minimum undiscounted
operating lease payments, along with the aggregate annual principal maturities of capital lease obligations were as follows:
2022
2023
2024
2025
2026
Thereafter
Total operating lease payments
$
$
Operating Leases
5,003
4,514
4,118
3,593
2,874
376
20,478
97
2022
2023
2024
Total capital lease payments
14. Rental Income
Lessor Accounting
$
$
Capital Leases
729
503
193
1,425
Certain arrangements contain a lease of lodging facilities (Lodges) to customers. Rental income from these leases for 2022,
2021 and 2020 was approximately $168.3 million, $76.9 million and $53.0 million, respectively. Each Lodge is leased
exclusively to one customer and is accounted for as an operating lease under the authoritative guidance for leases. Revenue
related to these lease arrangements is reflected as specialty rental income in the consolidated statements of comprehensive
income (loss).
Scheduled future minimum lease payments to be received by the Company as of December 31, 2022 for each of the next
five years is as follows:
2023
2024
2025
2026
Total
$
$
176,486
34,392
34,300
25,657
270,835
The leased assets consists primarily of specialty rental assets with a gross cost of approximately $199.8 million and $133.5
million as of December 31, 2022 and 2021, respectively, with accumulated depreciation of approximately $90.8 million
and $76.8 million as of December 31, 2022 and 2021, respectively. The leased assets have a balance net of accumulated
depreciation of approximately $109.0 million and $56.7 million as of December 31, 2022 and 2021, respectively, and are
included within specialty rental assets, net in the accompanying consolidated balance sheets. Such assets are depreciated
on a straight-line basis over the shorter of the term of the lease or their estimated useful lives. The corresponding
depreciation expense was $14.0 million in 2022, $15.7 million in 2021, and $11.0 million in 2020 and is recognized within
depreciation of specialty rental assets in the accompanying consolidated statements of comprehensive income (loss).
15. Related Parties
During the years ended December 31, 2022, 2021 and 2020, respectively, the Company incurred $0.0 million, $0.6 million
and $0.8 million in commissions owed to related parties, included in selling, general and administrative expense in the
accompanying consolidated statements of comprehensive income (loss). The underlying commission agreement driving
these charges expired in 2021 and was not renewed; therefore, no amounts were accrued for these commissions as of
December 31, 2022 and December 31, 2021, respectively.
Prior to the closing of the formation of the Company, Mr. Diarmuid Cummins (the “Advisor”) provided certain consulting
and advisory services (the “Services”) to Target’s former parent and certain of its affiliated entities (collectively,
“Algeco”), including Target. The Advisor was compensated for these Services by Algeco. Following the formation of the
Company, the Advisor continued to provide these Services to Algeco and to the Company and is serving as an observer
on the board of directors of the Company. The Advisor is currently compensated for these services by Chard Camp
Catering Services Ltd. (“Chard”), a wholly-owned subsidiary of the Company. In June 2019, Chard and Algeco Global
Sarl (“Algeco Global”) entered into a reimbursement agreement, as amended in July 2019, (the “Agreement”), pursuant
to which Algeco Global agreed to reimburse Chard for 100% of the total compensation paid by it to the Advisor, from and
after January 1, 2019, with such amounts to be paid monthly. The Company and Algeco Global are each majority owned
by TDR Capital. The initial term of the Agreement ran through December 31, 2019 and automatically extended for an
additional 12 month term. The reimbursement income generated from this agreement for the year ended December 31,
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2020 amounted to approximately $1.1 million and is included in the other expense (income), net line within the
consolidated statement of comprehensive income (loss). The agreement terminated on December 31, 2020 and was not
renewed; therefore, no amounts were reimbursed and no reimbursement income was recognized within the consolidated
statement of comprehensive income (loss) for the years ended December 31, 2022 and December 31, 2021, respectively,
and no amounts are recorded as a related party receivable on the consolidated balance sheets as of December 31, 2022 and
2021, respectively. The related party receivable amount of approximately $1.2 million that was reported on the
consolidated balance sheet as of December 31, 2020 was paid in full in March of 2021 and is reflected as an operating
cash inflow and included as a component of net cash provided by operating activities within the accompanying
consolidated statement of cash flows for the year ended December 31, 2021. No further income or cash flows are expected
from this reimbursement arrangement.
16. Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS” or “LPS”) is calculated by dividing net income or loss attributable to Target
Hospitality by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is
computed similarly to basic net earnings per share, except that it includes the potential dilution that could occur if dilutive
securities were exercised. The following table reconciles net income (loss) attributable to common stockholders and the
weighted average shares outstanding for the basic calculation to the weighted average shares outstanding for the diluted
calculation for the periods indicated below ($ in thousands, except per share amounts):
December 31,
2022
For the Years Ended
December 31,
2021
December 31,
2020
Numerator
Net income (loss) attributable to Common Stockholders - basic
Net income (loss) attributable to Common Stockholders - diluted
Denominator
Weighted average shares outstanding - basic
Dilutive effect of outstanding securities:
PSUs
Stock options
RSUs
Weighted average shares outstanding - diluted
Net income (loss) per share - basic
Net income (loss) per share - diluted
$
$
$
$
73,939
73,939
$
$
(4,576) $
(4,576) $
(25,131)
(25,131)
97,213,166
96,611,022
96,018,338
466,563
518,409
1,859,610
100,057,748
-
-
-
96,611,022
-
-
-
96,018,338
0.76
0.74
$
$
(0.05) $
(0.05) $
(0.26)
(0.26)
5,015,898 shares of the 8,050,000 shares of common stock held by the Founders, were placed into escrow subject to release
pursuant to the terms of the earnout agreement entered into in connection with the formation of the Company by and
between Harry E. Sloan, Jeff Sagansky, Eli Baker and the Company (the “Earnout Agreement”). Upon being placed into
escrow, the voting and economic rights of the shares were suspended for the period they were in escrow. Given that the
Founders were not entitled to vote or participate in the economic rewards available to the other shareholders with respect
to these shares, these shares were not included in the basic and diluted LPS calculations for the years ended December 31,
2021 and 2020. In accordance with the Earnout Agreement, as of the expiration date of the earnout period (March 15,
2022), the 5,015,898 Founder Shares in escrow had not been released and were cancelled and returned to the Company to
be held in treasury. As such, these cancelled shares were reclassed from common stock to common stock in treasury and
continued to be excluded from the computations of basic and diluted EPS for the year ended December 31, 2022.
When liability-classified warrants are in the money and the impact of their inclusion on diluted EPS is dilutive, diluted
EPS also assumes share settlement of such instruments through an adjustment to net income available to common
stockholders for the fair value (gain) loss on common stock warrant liabilities and inclusion of the number of dilutive
shares in the denominator. The Public and Private Warrants representing 8,061,656 shares, 16,166,650 shares, 16,166,650
shares of the Company’s common stock for the years ended December 31, 2022, 2021, and 2020, respectively, were
excluded from the computation of diluted EPS and LPS because they are considered anti-dilutive.
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As discussed in Note 18, stock-based compensation awards were outstanding for the years ended December 31, 2022,
2021 and 2020, respectively. These stock-based compensation awards were excluded from the computation of diluted
LPS for the years ended December 31, 2021 and 2020 because their effect would have been anti-dilutive. For the year
ended December 31, 2022, certain stock-based compensation awards were included in the computation of diluted EPS
because their effect is dilutive as noted in the above table.
Shares of treasury stock have been excluded from the computation of LPS and EPS.
17. Stockholders’ Equity
Common Stock
As of December 31, 2022, Target Hospitality had 109,747,366 shares of Common Stock, par value $0.0001 per share
issued and 100,316,701 outstanding. Each share of Common Stock has one vote, except the voting rights related to the
5,015,898 of Founder Shares that were placed in escrow were suspended subject to release pursuant to the terms of the
Earnout Agreement. As of the expiration date of the earnout period (March 15, 2022), the 5,015,898 Founder Shares in
escrow had not been released and were cancelled and returned to the Company to be held in treasury pursuant to the terms
of the Earnout Agreement. As such, these cancelled Founder Shares were reclassed from common stock to common stock
in treasury during the year ended December 31, 2022 as presented in the accompanying consolidated statements of changes
in stockholders’ equity.
Preferred Shares
Target Hospitality is authorized to issue 1,000,000 preferred shares with par value of $0.0001 per share. As of
December 31, 2022, no preferred shares were issued or outstanding.
Public Warrants
On January 17, 2018, PEAC sold 32,500,000 units at a price of $10.00 per unit (the “Units”) in its initial public offering
(the “Public Offering”), including the issuance of 2,500,000 Units as a result of the underwriters’ partial exercise of their
overallotment option. Each Unit consisted of one Class A ordinary share of PEAC, par value $0.0001 per share (the “Public
Shares”), and one-third of one warrant to purchase one ordinary share (the “Public Warrants”).
Each Public Warrant entitles the holder to purchase one share of the Company’s Common Stock at a price of $11.50 per
share. No fractional shares will be issued upon exercise of the Public Warrants. If upon exercise of the Public Warrants, a
holder would be entitled to receive a fractional interest in a share, the Company will upon exercise, round down to the
nearest whole number, the number of shares to be issued to the Public Warrant holder. Each Public Warrant became
exercisable 30 days after the formation of the Company.
As of December 31, 2021, the Company had 10,833,316 Public Warrants issued and outstanding with the same terms as
described above. During the year ended December 31, 2022, holders of Public Warrants exercised 7,101 Public Warrants
for shares of Common Stock resulting in the Company receiving cash proceeds of approximately $0.1 million and issuing
7,101 shares of Common Stock. During the year ended December 31, 2022, holders exchanged 4,297,893 Public Warrants
for shares of common stock as part of the Warrant Exchange discussed below. As of December 31, 2022, the Company
had 6,528,322 Public Warrants issued and outstanding.
Warrant Exchange
On November 18, 2022, the Company commenced an offer to exchange the Public and Private Warrants for shares of its
common stock in a cashless transaction (the “Warrant Exchange”). In the offer, each warrant holder had the opportunity
to receive 0.37 shares of Common Stock, par value $0.0001 per share, of the Company in exchange for each warrant
tendered by the holder and exchanged pursuant to the offer.
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The Warrant Exchange offer expired on December 16, 2022 and a total of 8,097,893 of the outstanding Public and Private
Warrants were tendered and accepted for exchange, which consisted of 4,297,893 Public Warrants and 3,800,000 Private
Warrants. Pursuant to the terms of the Warrant Exchange, The Company issued 2,996,201 shares of Common Stock on
December 22, 2022. In lieu of issuing fractional shares of Common Stock, the Company paid $319 in cash to holders of
warrants who would otherwise have been entitled to receive fractional shares, after aggregating all such fractional shares
of such holder, in an amount equal to such fractional part of a share multiplied by the last sale price of a share of the
Company’s Common Stock on December 16, 2022. In connection with the Warrant Exchange, the Company capitalized
$2.3 million of offering expenses within additional paid-in capital in December 2022, which resulted in a reduction to
additional paid-in capital.
In connection with the Warrant Exchange, the 3,800,000 Private Warrants exchanged for Common Stock as discussed
above, were marked to their estimated fair value of approximately $23.6 million through the Warrant Exchange closing
date on December 22, 2022 with the change in the estimated fair value during the year ended December 31, 2022
recognized as change in fair value of warrant liabilities in the accompanying consolidated statement of comprehensive
income (loss) for the year ended December 31, 2022. On the closing date of the Warrant Exchange, the estimated fair
value of the exchanged Private Warrants of approximately $23.6 million were reclassified to additional paid-in-capital
within the stockholders’ equity section from warrant liabilities, which resulted in a reduction to warrant liabilities and an
increase to additional paid-in-capital in the accompanying consolidated balance sheet as of December 31, 2022.
Common Stock in Treasury
On August 15, 2019, the Company's board of directors approved the 2019 Share Repurchase Program (“2019 Plan”),
authorizing the repurchase of up to $75.0 million of our Common Stock from August 30, 2019 to August 15, 2020. During
the year ended December 31, 2019, the Company repurchased 4,414,767 shares of our Common Stock for an aggregated
price of approximately $23.6 million. As of August 15, 2020, the 2019 Plan had a remaining capacity of approximately
$51.4 million. The 2019 Plan terminated on August 15, 2020 and was not renewed.
On November 3, 2022, the Company’s Board of Directors approved a stock repurchase program that authorizes the
Company to repurchase up to $100 million of its outstanding shares of common stock. The stock repurchase program does
not obligate the Company to purchase any particular number of shares, and the timing and exact amount of any repurchases
will depend on various factors, including market pricing and conditions, business, legal, accounting, and other
considerations.
The Company may repurchase its shares in open market transactions from time to time or through privately negotiated
transactions in accordance with federal securities laws, at the Company's discretion. The repurchase program, which has
no expiration date, may be increased, suspended, or terminated at any time. The program is expected to be implemented
over the course of several years and is conducted subject to the covenants in the agreements governing the Company's
indebtedness. No share repurchases were made during the year ended December 31, 2022.
18. Stock-Based Compensation
On March 15, 2019, the Company’s board of directors approved the Plan, under which 4,000,000 of the Company’s shares
of Common Stock were reserved for issuance pursuant to future grants of share awards. The expiration date of the Plan,
on and after which date no awards may be granted, is March 15, 2029.
On March 4, 2020, the Compensation Committee adopted a new form of Executive Nonqualified Stock Option Award
Agreement (the “Stock Option Agreement”) and a new form of Executive Restricted Stock Unit Agreement (the “RSU
Agreement” and together with the Stock Option Agreement, the “Award Agreements”) with respect to the granting of
nonqualified stock options and restricted stock units, respectively, granted under the Plan. The new Award Agreements
will be used for all awards to executive officers made on or after March 4, 2020.
The Award Agreements have material terms that are substantially similar to those in the forms of award agreements last
approved by the Compensation Committee and disclosed by the Company, except for the following: under the new Award
Agreements, if the participant’s employment or service terminates due to Retirement (as defined in the Plan), and the
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participant has been continuously employed by the Company for at least twelve months following the grant date, then any
portion of the participant’s awarded securities scheduled to become vested within twelve months after the participant’s
termination date shall be vested on his or her termination date.
On February 25, 2021, the Compensation Committee adopted a new form Executive Restricted Stock Unit Agreement (the
“RSU Agreement”) and a form Executive Stock Appreciation Rights Award Agreement (the “SAR Agreement” and
together with the RSU Agreement, the “RSU and SAR Agreements”) with respect to the granting of restricted stock units
and stock appreciation rights, respectively, under the Plan. The new RSU and SAR Agreements will be used for all awards
to executive officers made on or after February 25, 2021.
The RSU Agreement has material terms that are substantially similar to those in the form Executive Restricted Stock Unit
Agreement last approved by the Compensation Committee and previously disclosed by the Company, except for the
following: (x) 50% of the restricted stock units (each an “RSU”) will vest on the second grant date anniversary and 50%
of the RSUs will vest on the third grant date anniversary and (y) if the participant’s employment or service terminates due
to Retirement (as defined in the Plan), and the participant has been continuously employed by the Company for at least
twelve months following the grant date, then a pro-rata portion of the participant’s RSUs scheduled to vest on the next
following vesting date shall vest on his or her termination date based on completed calendar months since either (a) the
grant date or (b) the initial vesting date, as applicable.
The SAR Agreement has material terms that are substantially similar to those in the form Executive Nonqualified Stock
Option Award Agreement last approved by the Compensation Committee and previously disclosed by the Company,
except for the following: (x) the change in the equity instrument to a stock appreciation right (“SAR”), which may be
settled in shares or cash, (y) 50% of the SARs will vest on the second grant date anniversary and 50% of the SARs will
vest on the third grant date anniversary, and (z) if the participant’s employment or service terminates due to Retirement
(as defined in the Plan), then (a) if the participant has been continuously employed by the Company for at least twelve
months following the grant date, then a pro-rata portion of the SARs scheduled to become vested on the next vesting date
shall be vested on the participant’s termination date based on completed calendar months since either (i) the grant date or
(ii) the initial vesting date, as applicable; (b) following the application of clause (a), the unvested portion of the SARs shall
expire upon such termination of employment or service and (c) the participant may exercise the vested portion of the
SARs, but only within such period of time ending on the earlier of (i) two years following such termination of employment
or service, or (ii) the Expiration Date (as defined in the SAR Agreement).
On February 24, 2022, the Compensation Committee adopted a new form Executive Restricted Stock Unit Agreement (the
“RSU Agreement”) and a new form Executive Performance Stock Unit Agreement (the “PSU Agreement” and together
with the RSU Agreement, the “RSU and PSU Agreements”) with respect to the granting of RSUs and performance
restricted stock units (“PSUs”), respectively, under the Plan. The new RSU and PSU Agreements will be used for all
awards to executive officers made on or after February 24, 2022.
The RSU Agreement has material terms that are substantially similar to those in the form Executive Restricted Stock Unit
Agreement last approved by the Compensation Committee and previously disclosed by the Company, except for the
following: (x) the RSUs will vest in four equal installments on each of the first four anniversaries of the grant date and (y)
if approval by the Company’s shareholders of the proposed increase in the number of shares available for issuance under
the Plan at the 2022 annual meeting of the Company’s shareholders was not received, then all payments under the RSU
Agreement would have been made in cash. However, such approval to increase the number of shares available for issuance
under the Plan was received at the 2022 annual meeting as noted below.
Each PSU awarded under the PSU Agreement represents the right to receive one share of the Company’s Common Stock,
or, at the Compensation Committee’s sole discretion, cash or part cash and part common stock with the cash amount equal
to the fair market value of the common stock as of the date on which the restricted period ends. PSUs vest and become
unrestricted on the third anniversary of the grant date. The number of PSUs that vest range from 0% to 150% of the Target
Level (as defined in the PSU Agreement) depending upon the achievement of specified three-year cumulative operating
cash flow amounts as determined based on the net cash flow from operations disclosed in the Company’s Annual Reports
on Form 10-K for the period from January 1, 2022 through December 31, 2024. Vesting of PSUs is contingent upon the
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executive’s continued employment through the vesting date, unless the executive’s employment is terminated by reason
of death, without Cause, for Good Reason, or in the event of a Change in Control (each term as defined in the Plan).
On May 19, 2022, the Company’s stockholders approved an amendment to the Plan to increase the number of shares
authorized under the plan by 4,000,000 shares. As a result of this, the Company reclassified all of the outstanding liability-
based RSUs and PSUs from accrued liabilities and other non-current liabilities to additional paid-in capital based on the
change in the ability to settle these awards in shares upon vesting as a result of the additional shares added to the Plan. The
reclassified amount of these awards at the date of this change was approximately $2.4 million and is included in the
accompanying consolidated statements of changes in stockholders’ equity for the year ended December 31, 2022.
On May 24, 2022 and July 12, 2022, the Compensation Committee adopted another form of PSU Award Agreement with
respect to awarding PSUs. The award agreement is substantially similar to the PSU agreement adopted on February 24,
2022 except for the number of PSUs that vest are determined based upon the achievement of specified share prices over
the period between the grant date and June 30, 2025. Participants will earn a corresponding number of PSUs upon the
achievement of specified share price thresholds, the first of which is $12.50 per share. If all Performance Goals (as defined
in the Agreement) are met during the performance period then the participant will be entitled to receive a maximum number
of PSUs awarded.
Restricted Stock Units
On May 21, 2019, the Compensation Committee granted time-based RSUs to certain of the Company’s executive officers,
other employees, and directors. Each RSU represents a contingent right to receive, upon vesting, one share of the
Company’s Common Stock or its cash equivalent, as determined by the Company. The number of RSUs granted to certain
named executive officers and certain other employees totaled 212,621. These RSU awards granted vest in four equal
installments on each of the first four anniversaries of the grant date, on May 21, 2020, 2021, 2022, and 2023. On
September 3, 2019, our Chief Financial Officer received a grant of 81,434 RSUs and 48,860 RSUs, which vested on
March 15, 2020 and on each of the first four anniversaries of the grant date, respectively. The number of RSUs granted
to non-executive directors of the board amounted to 81,967 and were also granted on May 21, 2019. The RSU awards
granted to non-executive directors of the board vest over one year on the anniversary of the date of grant or the date of the
first annual meeting of the stockholders following the grant date, whichever is sooner.
Additionally, on May 21, 2019, the Compensation Committee approved the election by Mr. Archer, the CEO, pursuant to
his employment agreement dated January 29, 2019, to receive his annual base salary for the period July 1, 2019 to
December 31, 2019 in the form of 30,000 RSUs. These RSUs vested in six equal installments on the first of each month,
beginning on July 1, 2019 through December 1, 2019.
On January 2, 2020, the Compensation Committee approved the election by Mr. Archer, the CEO, pursuant to his
employment agreement dated January 29, 2019, to receive his annual base salary for the period January 1, 2020 to
December 31, 2020 in the form of 124,741 RSUs. These RSUs vested in twelve equal installments on the first of each
month, except for one twelfth vested on January 9, 2020. On August 5, 2020 (the “Effective Date”), the Company and
Mr. Archer, entered into the Executive Restricted Stock Units Termination Agreement (the “Agreement”) following the
Company’s Compensation Committee of the Board of Directors’ approval of the election by Mr. Archer, pursuant to his
employment agreement, to receive his base salary in cash, rather than in the form of RSUs as previously elected. Pursuant
to the Agreement (i) Mr. Archer forfeited a portion of his currently unvested RSUs as of the Effective Date and (ii) the
Company recommenced payment of 80% of Mr. Archer’s base salary for the period between the Effective Date and
December 31, 2020.
Further, on March 4, 2020, the Compensation Committee granted time-based RSUs to certain of the Company’s executive
officers and other employees. Each RSU represents a contingent right to receive, upon vesting, one share of the
Company’s Common Stock or its cash equivalent, as determined by the Company. The number of RSUs granted to certain
named executive officers and certain other employees totaled 503,757. These RSU awards granted vest in four equal
installments on each of the first four anniversaries of the grant date, on March 4, 2021, 2022, 2023, and 2024.
On May 20, 2020, the Company awarded 482,723 restricted stock units to each of our non-employee directors.
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As a result of the volatility in the global financial and commodity markets created by the COVID-19 pandemic, the
Company implemented measures to reduce the Company’s ongoing cash expenses. Consistent with that goal, the
Compensation Committee approved the Salary Reduction Equity Award Program (the “Salary Program”), effective
April 1, 2020. Pursuant to the Salary Program, the Company reduced the base salary amounts paid to certain executive
officers and other employees by up to 20% for the period between April 1, 2020 and December 31, 2020. On April 1,
2020 and as contemplated by the Salary Program, the Company awarded a total of 201,988 RSUs pursuant to the Plan to
participants in the Salary Program. The RSUs ratably vest on the first of every month through December 2020. Shares
received upon settlement of RSUs granted under the Salary Program are not subject to any sale restrictions that would
otherwise apply under the Company’s ownership guidelines; however, the provisions of the Company’s Securities Trading
Policy continue to apply to such shares.
Concurrent with the approval of the Salary Program, the Compensation Committee approved the Director Retainer
Reduction Equity Award Program (the “Director Retainer Program”), effective April 1, 2020. Pursuant to the Director
Retainer Program, the Company reduced the cash retainer paid to non-employee directors by 20%. During the year ended
December 31, 2020 and as contemplated by the Director Retainer Program, the Company awarded a total of 66,070 RSUs
pursuant to the Plan to the participants in the Director Retainer Program. The RSUs ratably vest on June 30, September 30
and December 31, 2020. Shares received upon settlement of RSUs granted under the Director Retainer Program are not
subject to any sale restrictions that would otherwise apply under the Company’s ownership guidelines; however, the
provisions of the Company’s Securities Trading Policy continue to apply to such shares.
On October 1, 2020, both the Salary Program and the Director Retainer Program were terminated. Pursuant to the
termination of the Salary Program, the Company recommenced payment of 100% of the base salary of the participating
executive officers and other employees, on October 1, 2020, and each participating executive officer and employee agreed
to forfeit RSUs awarded to him or her pursuant to the Salary Program scheduled to vest on or after October 1,
2020. Pursuant to the termination of the Director Retainer Program, the Company recommenced payment of 100% of the
director fees of each non-employee director, on October 1, 2020, and each non-employee director agreed to forfeit RSUs
awarded to him or her pursuant to the Director Retainer Program scheduled to vest on or after October 1, 2020.
On February 25, 2021, the Compensation Committee granted time-based RSUs to certain of the Company’s executive
officers and other employees. Each RSU represents a contingent right to receive, upon vesting, one share of the Company’s
Common Stock or its cash equivalent, as determined by the Company. The number of RSUs granted to certain named
executive officers and certain other employees totaled 1,134,524. Also, in August 2021, 30,899 of additional time-based
RSUs were granted to certain of the Company’s other employees.
Additionally, on May 18, 2021, the Company awarded an aggregate of 326,926 time-based RSUs to each of the Company’s
non-employee directors, which vest on the first grant date anniversary or, if earlier, the date of the 2022 Annual Meeting
of the Stockholders. Also, on August 4, 2021 and September 20, 2021, the Company awarded 22,087 and 17,351 time-
based RSUs, respectively, to two new non-employee directors, which have the same vesting schedule as those issued on
May 18, 2021.
Accelerated Vesting of Restricted Stock Unit Grants
Due to certain non-employee resignations and as permitted by the Plan, effective December 31, 2021, the Board approved
the accelerated vesting of 115,386 RSUs granted on May 18, 2021.
On January 3, 2022, the Compensation Committee awarded 10,861 time-based RSUs to one of the Company’s non-
employee directors, which vested in full during the six months ended June 30, 2022.
On February 24, 2022, the Compensation Committee awarded an aggregate of 1,085,548 time-based RSUs to certain of
the Company’s executive officers and other employees, which vest ratably over a four-year period.
On May 19, 2022, the Compensation Committee awarded an aggregate of 159,766 time-based RSUs to the Company’s
non-employee directors, which vest in full on May 19, 2023 or, if earlier, the date of the first Annual Meeting of the
Stockholders of the Company following the Grant Date.
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On September 6, 2022, the Compensation Committee awarded 4,969 time-based RSUs to an employee of the Company,
which vests ratably over a four-year period.
For the year ended December 31, 2022, as approved by the Compensation Committee, 116,837 of the employee related
vested RSUs shown in the table below were paid in cash in the amount of $0.4 million based on the closing price of the
Company’s Common Stock on the vesting date.
For the years ended December 31, 2020, 2021, and 2022, respectively, certain of the Company's employees surrendered
RSUs owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of
RSUs issued under the Plan.
The table below represents the changes in RSUs for the year ended December 31, 2022:
Balance at December 31, 2021
Granted
Vested
Forfeited
Balance at December 31, 2022
Number of
Shares
1,862,590 $
1,261,129
(432,787)
(32,351)
2,658,581 $
Weighted
Average Grant
Date Fair Value
per Share
3.00
3.40
4.09
4.51
2.98
The total fair value of RSUs vested during the years ended December 31, 2022, 2021 and 2020 was $2.0 million, $2.1
million, and $1.0 million, respectively. The weighted-average grant date fair value per RSU of RSUs granted during the
years ended December 31, 2022, 2021 and 2020 was $3.40, $2.10, and $3.07, respectively. RSUs granted during the years
ended December 31, 2022, 2021 and 2020, were 1,261,129; 1,531,787; and 1,374,085; respectively.
Stock-based compensation expense for these RSUs recognized in selling, general and administrative expense in the
consolidated statement of comprehensive income (loss) for the year ended December 31, 2022 was approximately $5.4
million, with an associated tax benefit of approximately $1.4 million. Stock-based compensation expense for these
RSUs recognized in selling, general and administrative expense in the consolidated statement of comprehensive income
(loss) for the year ended December 31, 2021 was approximately $3.1 million, with an associated tax benefit of
approximately $0.7 million. Stock-based compensation expense for these RSUs recognized in selling, general and
administrative expense in the consolidated statement of comprehensive income (loss) for the year ended
December 31, 2020 was approximately $3.0 million, with an associated tax benefit of approximately $0.7 million. At
December 31, 2022, unrecognized compensation expense related to RSUs totaled approximately $7.9 million and is
expected to be recognized over a remaining term of approximately 2.45 years.
Under the authoritative guidance for stock-based compensation, 537,047 of the RSUs outstanding at December 31, 2021
were considered liability-based awards due to an insufficient number of shares available under the plan to service these
awards upon vesting. As such, the Company recognized a liability associated with these RSUs of approximately $0.8
million as of December 31, 2021, of which approximately $0.5 million is included in accrued liabilities and approximately
$0.3 million is included in other non-current liabilities in the accompanying consolidated balance sheet as of
December 31, 2021. The estimated fair value of these liability-based awards was $3.56/RSU as of December 31, 2021.
As noted above, all such liability-based RSUs were reclassified to additional paid-in-capital, a component of total
stockholders’ equity, during the year ended December 31, 2022, and are no longer included in liabilities as of
December 31, 2022.
Performance Stock Units
On February 24, 2022, the Company awarded an aggregate of 245,017 time and performance-based PSUs to certain of the
Company’s executive officers and management, which vest upon satisfaction of continued service with the Company until
the third anniversary of the Grant Date and attainment of Company cash flow performance criteria as previously defined.
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On May 24, 2022, the Company and the Company’s President and Chief Executive Officer, James B. Archer, entered into
the Executive Performance Stock Unit Agreement (the “Archer PSU Agreement”) in connection with Mr. Archer’s
previously disclosed intention to continue to serve as President and Chief Executive Officer of the Company and as a
member of the Company’s Board of Directors. Each PSU awarded under the Agreement represents the right to receive
one share of the Company’s common stock. The PSUs awarded pursuant to the Archer PSU Agreement vest and become
unrestricted on June 30, 2025. The number of PSUs that vest are determined based upon the achievement of specified
share prices over the period between the grant date and June 30, 2025 (the “Performance Period”). Mr. Archer will earn
a corresponding number of PSUs upon the achievement of specified share price thresholds, the first of which is $12.50 per
share. If all Performance Goals (as defined in the Archer PSU Agreement) are met during the Performance Period, Mr.
Archer will be entitled to receive a maximum of 500,000 PSUs. Vesting is contingent upon Mr. Archer’s continued
employment through the vesting date, unless Mr. Archer’s employment is terminated by reason of death or Disability,
without Cause, for Good Reason, or in the event of a Qualifying Termination in connection with a Change in Control (each
term as defined in the Plan, as amended, or Mr. Archer’s employment agreement with the Company, as amended). These
PSUs were valued using a Monte Carlo simulation with the following assumptions on the grant date: the expected volatility
was approximately 53.82%, the term was 3.10 years, the dividend rate was 0.0% and the risk-free interest rate was
approximately 2.65%, which resulted in a calculated fair value of approximately $2.21 per PSU as of the grant date.
On July 12, 2022, the Compensation Committee granted 750,000 PSUs aimed at retaining, motivating and incentivizing
certain of the Company’s executive officers, including its named executive officers (“NEOs”), under and pursuant to the
Plan.
The form of agreement with respect to the granting of the PSUs has material terms that are substantially similar to those
in the Archer PSU Agreement. Such PSUs represent the right to receive one share of the Company’s common stock, par
value $0.0001 per share. PSUs vest and become unrestricted on June 30, 2025. The number of PSUs that vest is determined
based upon the achievement of specified share prices over the Performance Period. The executives will each earn a
corresponding number of PSUs upon the achievement of specified share price thresholds, the first of which is $12.50 per
share. If all Performance Goals (as defined in the applicable award agreement) are met during the Performance Period, the
executives will be entitled to receive the maximum PSUs granted to them. Vesting is contingent upon the applicable
executive’s continued employment through the vesting date, unless the applicable executive’s employment is terminated
by reason of death or Disability, without Cause, for Good Reason, or in the event of a Qualifying Termination in connection
with a Change in Control (each term as defined in the Plan, or each executive’s employment agreement, as amended, with
the Company). These PSUs were valued using a Monte Carlo simulation with the following assumptions on the grant date:
the expected volatility was approximately 55.76%, the term was 2.97 years, the dividend rate was 0.0% and the risk-free
interest rate was approximately 3.05%, which resulted in a calculated fair value of approximately $6.96 per PSU as of the
grant date.
The table below represents the changes in PSUs for the year ended December 31, 2022:
Balance at December 31, 2021
Granted
Balance at December 31, 2022
Number of
Shares
— $
1,495,017
1,495,017 $
Weighted
Average Grant
Date Fair Value
per Share
—
4.72
4.72
Stock-based compensation expense for these PSUs recognized in selling, general and administrative expense in the
consolidated statement of comprehensive income (loss) for the year ended December 31, 2022 was approximately $1.5
million with an associated tax benefit of $0.3 million. At December 31, 2022, unrecognized compensation expense related
to PSUs totaled approximately $6.4 million and is expected to be recognized over a remaining term of approximately 2.42
years.
106
Stock Option Awards
On May 21, 2019, the Compensation Committee granted 482,792 time-based stock option awards to certain employees.
On September 3, 2019 the Compensation Committee made an additional grant of 171,429 time-based stock options to our
the Compensation Committee
newly appointed Chief Financial Officer. Additionally, on March 4, 2020
granted 1,140,873 time-based stock option awards to certain employees. Each option represents the right upon vesting, to
buy one share of the Company’s common stock, par value $0.0001 per share, for $4.51 to $10.83 per share. The stock
options vest in four equal installments on each of the first four anniversaries of the grant date and expire ten years from
the grant date.
The table below represents the changes in stock options for the year ended December 31, 2022:
Outstanding Options at December 31, 2021
Forfeited
Exercised
Outstanding Options at December 31, 2022
Weighted
Average
Exercise Price
Per
Share
Weighted
Average
Contractual Life
(Years)
6.11
6.24
5.78
6.13
7.95 $
-
-
6.86 $
Options
1,643,135
(20,494)
(111,980)
1,510,661
$
$
Intrinsic Value
-
-
1,055
13,615
842,267 shares were exercisable at December 31, 2022 with a weighted average exercise price per share of $6.65 and an
intrinsic value of $7.15 million. The total fair value of stock option awards vested during the years ended
December 31, 2022, 2021 and 2020 was $0.8 million, $0.8 million, and $0.4 million, respectively.
Stock-based compensation expense for these stock option awards recognized in selling, general and administrative expense
in the consolidated statement of comprehensive income (loss) for the year ended December 31, 2022 was approximately
$0.8 million with an associated tax benefit of approximately $0.2 million. Stock-based compensation expense for these
stock option awards recognized in selling, general and administrative expense in the consolidated statement of
comprehensive income (loss) for the year ended December 31, 2021 was approximately $0.8 million with an associated
tax benefit of approximately $0.2 million. Stock-based compensation expense for these stock option awards recognized in
selling, general and administrative expense in the consolidated statement of comprehensive income (loss) for the year
ended December 31, 2020 was approximately $0.8 million with an associated tax benefit of approximately $0.2 million.
At December 31, 2022, unrecognized compensation expense related to stock options totaled $0.6 million and is expected
to be recognized over a remaining term of approximately 1 year.
The fair value of each option award at the grant date was estimated using the Black-Scholes option-pricing model with the
following assumptions:
Weighted average expected stock volatility (range)
Expected dividend yield
Expected term (years)
Risk-free interest rate (range)
Exercise price (range)
%
%
%
$
Assumptions
25.94 - 30.90
0.00
6.25
0.82 - 2.26
4.51 - 10.83
The weighted-average grant date fair value per option of options granted during the years ended December 31, 2022, 2021
and 2020 was $0, $0, and $1.42, respectively. Options granted during the years ended December 31, 2022, 2021 and 2020,
were 0; 0; and 1,140,875; respectively.
The volatility assumption used in the Black-Scholes option-pricing model is based on peer group volatility as the Company
does not have a sufficient trading history as a stand-alone public company to calculate volatility. Additionally, due to an
insufficient history with respect to stock option activity and post vesting cancellations, the expected term assumption is
107
based on the simplified method permitted under SEC rules, whereby, the simple average of the vesting period for each
tranche of award and its contractual term is aggregated to arrive at a weighted average expected term for the award. The
risk-free interest rate used in the Black-Scholes model is based on the implied US Treasury bill yield curve at the date of
grant with a remaining term equal to the Company’s expected term assumption. The Company has never declared or paid
a dividend on its shares of common stock.
Stock-based payments are subject to service based vesting requirements and expense is recognized on a straight-line basis
over the vesting period. Forfeitures are accounted for as they occur.
Stock Appreciation Right Awards
On February 25, 2021, the Compensation Committee granted SARs to certain of the Company’s executive officers and
other employees. Each SAR represents a contingent right to receive, upon vesting, payment in cash or the Company’s
Common Stock, as determined by the Compensation Committee, in an amount equal to the difference between (a) the fair
market value of a Common Share on the date of exercise, over (b) the grant date price. The number of SARs granted to
certain named executive officers and certain other employees totaled 1,578,537 (including 26,906 granted on August 5,
2021).
The following table summarizes SARs outstanding at December 31, 2022:
Outstanding SARs at December 31, 2021
Forfeited
Outstanding SARs at December 31, 2022
Number of Units
Weighted-Average
Exercise Price
1,578,537
(40,761)
1,537,776
$
$
1.82
1.79
1.82
Weighted-Average
Remaining Contractual
Term (Years)
9.17
-
8.17
Under the authoritative guidance for stock-based compensation, these SARs are considered liability-based awards. The
Company recognized a liability, associated with its SARs of approximately $12.6 million as of December 31, 2022, of
which approximately $6.3 million is included in accrued liabilities and approximately $6.3 million is included in other
non-current liabilities in the accompanying consolidated balance sheet as of December 31, 2022. The liability associated
with these SAR awards recognized as of December 31, 2021 was approximately $1.2 million, all of which was included
in other non-current liabilities in the accompanying consolidated balance sheet as of December 31, 2021. These SARs
were valued using the Black-Scholes option pricing model with the following assumptions on the grant date: the expected
volatility was approximately 43.5%, the term was 6.25 years, the dividend rate was 0.0% and the risk-free interest rate was
approximately 1.07%, which resulted in a calculated fair value of approximately $0.78 per SAR as of the grant date. The
fair value of these liability awards will be remeasured at each reporting period until the date of settlement. At December 31,
2022, these SARs were valued using the Black-Scholes option pricing model with the following assumptions for awards
granted on February 25, 2021 and August 5, 2021, respectively: the expected volatility was approximately 46.86% and
47.27%, the term was 0.65 years and 1.10 years, the dividend rate was 0.0% and 0.0%, the risk-free interest rate was
approximately 4.70% and 4.65%, and the exercise price was $1.79 and $3.54, which resulted in a calculated fair value of
approximately $13.40 and $11.78 per SAR, respectively, as of December 31, 2022. At December 31, 2021, these SARs
were valued using the Black-Scholes option pricing model with the following assumptions for awards granted on February
25, 2021 and August 5, 2021, respectively: the expected volatility was approximately 25.94% and 25.94%, the term was
6.25 years and 6.25 years, the dividend rate was 0.0% and 0.0%, the risk-free interest rate was approximately 1.33% and
1.33%, and the exercise price was $1.79 and $3.54, which resulted in a calculated fair value of approximately $2.72 and
$1.03 per SAR, respectively, as of December 31, 2021.
The estimated weighted-average fair value of each SAR as of December 31, 2022 and December 31, 2021 was $13.61 and
$2.69, respectively. Increases and decreases in stock-based compensation expense are recognized over the vesting period,
or immediately for vested awards. For the year ended December 31, 2022, the Company recognized compensation expense
related to these awards of approximately $11.4 million in selling, general and administrative expense in the consolidated
statement of comprehensive income (loss). For the year ended December 31, 2021, the Company recognized compensation
expense related to these awards of approximately $1.2 million in selling, general and administrative expense in the
108
consolidated statement of comprehensive income (loss). At December 31, 2022, unrecognized compensation expense
related to SARs totaled approximately $7.9 million and is expected to be recognized over a remaining term of
approximately 1.16 years. At December 31, 2022 and December 31, 2021, the intrinsic value of the SARs was $20.5
million and $2.7 million, respectively.
The volatility assumption used in the Black-Scholes option-pricing model is based on peer group volatility as the Company
does not have a sufficient trading history as a stand-alone public company to calculate volatility. Additionally, due to an
insufficient history with respect to stock appreciation right activity and post vesting cancellations, the expected term
assumption on the grant date is based on the simplified method permitted under SEC rules, whereby, the simple average
of the vesting period for each tranche of award and its contractual term is aggregated to arrive at a weighted average
expected term for the award. The risk-free interest rate used in the Black-Scholes model is based on the implied US
Treasury bill yield curve at the date of grant with a remaining term equal to the Company’s expected term assumption.
The Company has never declared or paid a dividend on its shares of common stock.
Stock-based payments are subject to service based vesting requirements and expense is recognized on a straight-line basis
over the vesting period. Forfeitures are accounted for as they occur.
19. Retirement Plans
We offer a defined contribution 401(k) retirement plan to substantially all of our U.S. employees. Participants may
contribute from 1% to 90% of eligible compensation, inclusive of pretax and/or Roth deferrals (subject to Internal Revenue
Service limitations), and we make matching contributions under this plan on the first 5% of the participant’s compensation
(100% match of the first 3% employee contribution and 50% match on the next 2% contribution). Our matching
contributions fully vest upon participation. We recognized expense of $0.9 million, $0.7 million and $0.7 million related
to matching contributions under our various defined contribution plans during the years ended December 31, 2022, 2021
and 2020, respectively.
20. Business Segments
The Company has six operating segments, none of which qualify for aggregation. Four of the segments are disclosed as
reportable segments, based on the 10% test. The aggregate external revenues of these reportable segments exceeded 75%
of the Company’s consolidated revenues. The remaining operating segments were combined in the “All Other” category.
As of June 30, 2021, the Company changed the names of select reportable segments to appropriately align with its
diversified hospitality and facilities service offerings. The segments formerly known as Permian Basin and Bakken Basin
are now referred to as HFS – South and HFS – Midwest, respectively. All other reportable segment names remain
unchanged.
The Company is organized primarily on the basis of geographic region and customer industry group and operates in four
reportable segments. These reportable segments are also operating segments. Resources are allocated, and performance
is assessed by our CEO, whom we have determined to be our Chief Operating Decision Maker (CODM).
Our remaining operating segments have been consolidated and included in an “All Other” category.
The following is a brief description of our reportable segments and a description of business activities conducted by All
Other.
Hospitality & Facilities Services – South — Segment operations consist primarily of specialty rental and vertically
integrated hospitality services revenue from customers located primarily in Texas and New Mexico.
Hospitality & Facilities Services – Midwest — Segment operations consist primarily of specialty rental and vertically
integrated hospitality services revenue from customers located primarily in North Dakota.
109
Government — Segment operations consist primarily of specialty rental and vertically integrated hospitality services
revenue from customers with Government contracts located in Texas.
TCPL Keystone – Segment operations consist primarily of revenue from the construction phase of the contract with
TCPL. As a result of the Termination and Settlement Agreement discussed in Note 2, no further activity is expected in this
segment.
All Other — Segment operations consist primarily of revenue from specialty rental and vertically integrated hospitality
services revenue from customers located outside of the HFS – South and HFS – Midwest segments.
The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting
Policies” for the Company. The Company evaluates performance of their segments and allocates resources to them based
on revenue and adjusted gross profit. Adjusted gross profit for the CODM’s analysis includes the services and specialty
rental costs in the financial statements and excludes depreciation, loss on impairment, and certain severance costs.
The table below presents information about reported segments for the years ended December 31:
2022
Revenue
Adjusted gross profit
Capital expenditures
Total Assets
2021
Revenue
Adjusted gross profit
Capital expenditures
Total Assets
2020
Revenue
Adjusted gross profit
Capital expenditures
HFS – South
132,373
$
54,558
$
8,686
$
176,637
$
HFS – Midwest Government TCPL Keystone All Other
Total
$
$
$
$
6,168
$ 360,294 $
(258) $ 246,598 $
$ 130,871 $
214
$ 217,029 $
30,152
- $ 3,150 (a) $ 501,985
- $
$ 299,961
- $
(937)
125
3,007 $ 1,563
$ 428,388
HFS – South
116,958
$
52,344
$
8,835
$
206,774
$
HFS – Midwest Government TCPL Keystone All Other
Total
$
$
$
$
$ 156,250 $
4,150
(711) $ 94,801 $
$ 27,525 $
150
$ 87,308 $
43,504
12,283 $ 1,696 (a) $291,337
(636)
9,161 $
$154,959
57
- $
3,007 $ 2,412
$343,005
HFS – South
112,126
$
51,518
$
8,160
$
HFS – Midwest Government TCPL Keystone All Other
Total
$
$
$
6,605
161
67
$ 63,259 $
$ 47,523 $
24 $
$
41,911 $ 1,247 (a) $ 225,148
(699)
8,617 $
$ 107,120
656
164 $
(a) Revenues from segments below the quantitative thresholds are attributable to operating segments of the Company and
are reported in the “All Other” category previously described.
110
A reconciliation of total segment adjusted gross profit to total consolidated income (loss) before income taxes for years
ended as of the dates indicated below, is as follows:
December 31, 2022
December 31, 2021
Total reportable segment adjusted gross profit
Other adjusted gross profit
Depreciation and amortization
Selling, general, and administrative expenses
Other income (expense), net
Interest expense, net
Change in fair value of warrant liabilities
$
Consolidated income (loss) before income taxes
$
300,898
(937)
(67,665)
(57,893)
(36)
(36,323)
(31,735)
106,309
$
$
155,595 $
(636)
(70,519)
(46,461)
(880)
(38,704)
(1,067)
(2,672) $
December 31, 2020
107,819
(699)
(65,614)
(38,128)
723
(40,034)
2,347
(33,586)
A reconciliation of total segment assets to total consolidated assets as of December 31, 2022 and 2021, respectively, is as
follows:
Total reportable segment assets
Other assets
Other unallocated amounts
Total Assets
2022
2021
$
$
426,825
3,240
341,662
771,727
$
$
340,593
3,489
169,310
513,392
Other unallocated assets are not included in the measure of segment assets provided to or reviewed by the CODM for
assessing performance and allocating resources, and as such, are not allocated. Other unallocated assets consist of the
following as reported in the consolidated balance sheets of the Company as of the dates indicated below:
December 31,
2022
December 31,
2021
Total current assets
Other intangible assets, net
Operating lease right-of-use assets, net
Deferred tax asset
Deferred financing costs revolver, net
Other non-current assets
Total other unallocated amounts of assets
$
$
236,379
75,182
27,298
-
896
1,907
341,662
$
$
60,536
88,485
-
14,710
2,159
3,420
169,310
For 2022 and 2021, revenues from the Company’s Government segment were from two customers and represented
approximately $360.3 million and $156.3 million of the Company’s consolidated revenues for the years ended
December 31, 2022 and 2021, respectively. Revenues from one customer within the Government segment represented
approximately 60.6% and 34.7% of the Company’s consolidated revenues for the years ended December 31, 2022 and
2021, respectively. Revenues from another customer within the Government segment represented approximately 11.1%
and 18.9% of the Company’s consolidated revenues for the years ended December 31, 2022 and 2021, respectively. For
2020, revenues from the Company's Government segment were from one customer and represented approximately $63.3
million or 28.1% of the Company’s consolidated revenues for the year ended December 31, 2020.
There were no single customers from the HFS – South segment for the years ended years ended December 31, 2022, 2021
and 2020 that represented 10% or more of the Company’s consolidated revenues. Revenues from one customer in the
TCPL Keystone segment represented approximately $41.9 million of the Company’s consolidated revenues for the year
ended December 31, 2020. There were no revenues generated from transactions between reportable operating segments
for the years ended December 31, 2022, 2021, and 2020, respectively.
111
21. Subsequent Events
On January 18, 2023, the Company purchased a group of assets consisting primarily of land, specialty rental assets and
intangibles for approximately $18.6 million, which was funded by cash on hand. These assets will be utilized for growth
in the Company’s HFS – South segment.
On February 1, 2023, the ABL Facility agreement discussed in Note 8 was amended to, among other things, (i) extend the
maturity date until February 1, 2028; (ii) convert the reference interest rate for Existing Revolver Loans (as defined in the
amendment) from a LIBOR-based rate to a Term SOFR-based rate; and (iii) update certain other provisions regarding
successor interest rates to LIBOR.
112
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements on any matters of accounting principles or financial statement disclosure
between us and our independent auditors during our two most recent fiscal years or any subsequent interim period.
Item 9A. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required
to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed
or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, the Company’s management, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. Our
disclosure controls and procedures are designed to provide reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. Based upon this evaluation, the Company’s management and our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e)
under the Exchange Act) were effective as of December 31, 2022.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2022, there were no changes in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) which have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures
are being made only in accordance with authorizations of management and our directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving
their control objectives.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an assessment
of the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment,
113
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control–Integrated Framework (2013 Framework). Based on this assessment the Company’s
management and our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, our
internal controls over financial reporting were effective.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Defaults upon Senior Securities
None.
114
Item 10. Directors, Executives, Officers and Corporate Governance
Part III
The information required by Item 10 hereby is incorporated by reference to such information as set forth in the Company's
Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders. The Board of Directors of the Company (the
“Board”) has documented its governance practices by adopting several corporate governance policies. These governance
policies, including the Company's Corporate Governance Guidelines, Corporate Code of Business Conduct and Ethics and
Financial Code of Ethics for Senior Officers, as well as the charters for the committees of the Board (Audit Committee,
Compensation Committee, and Nominating and Corporate Governance Committee) may also be viewed at the Company's
website. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers applies to our principal
executive officer, principal financial officer, principal accounting officer and certain other senior officers. We intend to
disclose any amendments to or waivers from our Code of Ethics for the Chief Executive Officer and Senior Financial
Officers by posting such information on our website at www.targethospitality.com,within four business days following
the date of the amendment or waiver. Copies of such documents will be sent to shareholders free of charge upon written
request to the corporate secretary at the address shown on the cover page of this report.
Item 11. Executive Compensation
The information required by Item 11 hereby is incorporated by reference to such information as set forth in the Company's
Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders under the headings “Executive Compensation,”
“Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” to be filed with the SEC.
Item 12. Security Ownership of Certain Beneficial Owners and Management Related Shareholder Matters
The information required by Item 12 hereby is incorporated by reference to such information as set forth in the Company's
Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders under the heading “Security Ownership of
Certain Beneficial Owners and Management” to be filed with the SEC.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 hereby is incorporated by reference to such information as set forth in the Company's
Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders under the headings “Certain Relationships and
Related Party Transactions” and “Director Independence” to be filed with the SEC.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 hereby is incorporated by reference to such information as set forth in the Company's
Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders under the heading “Audit Fee Disclosure” to be
filed with the SEC.
115
Item 15. Exhibits
Exhibit
No.
Part IV
Exhibit Description
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
3.4
4.1
Agreement and Plan of Merger, among Platinum Eagle Acquisition Corp., Topaz Holdings Corp.,
Arrow Bidco, LLC and Algeco Investments B.V., dated as of November 13, 2018 (incorporated by
reference to the corresponding exhibit to Platinum Eagle’s Registration Statement on Form S-4 (File
No. 333-228363), filed with the SEC on November 13, 2018).
Agreement and Plan of Merger, among Platinum Eagle Acquisition Corp., Topaz Holdings Corp.,
Signor Merger Sub Inc. and Arrow Holdings S.a.r.l., dated as of November 13, 2018 (incorporated
by reference to the corresponding exhibit to Platinum Eagle’s Registration Statement on Form S-4
(File No. 333-228363), filed with the SEC on November 13, 2018).
Amendment to Agreement and Plan of Merger, among Platinum Eagle Acquisition Corp., Topaz
Holdings LLC, Arrow Bidco, LLC, Algeco Investments B.V. and Algeco US Holdings LLC, dated
as of January 4, 2019 (incorporated by reference to the corresponding exhibit to Amendment No. 2
to Platinum Eagle’s Registration Statement on Form S-4 (File No. 333-228363), filed with the SEC
on January 4, 2019).
Amendment to Agreement and Plan of Merger, among Platinum Eagle Acquisition Corp., Topaz
Holdings LLC, Signor Merger Sub LLC, Arrow Parent Corp. and Arrow Holdings S.a.r.l., dated as
of January 4, 2019 (incorporated by reference to the corresponding exhibit to Amendment No. 2 to
Platinum Eagle’s Registration Statement on Form S-4 (File No. 333-228363), filed with the SEC on
January 4, 2019).
Asset Purchase Agreement, dated as of June 19, 2019, by and among Superior Lodging, LLC,
Superior Lodging Orla South, LLC, Superior Lodging Kermit, LLC, WinCo Disposal, LLC, the
Members of WinCo Disposal, LLC, Superior Lodging, LLC, as the representative of the Sellers and
Target Logistics Management, LLC (incorporated by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on June 21, 2019).
Certificate of Incorporation of Target Hospitality Corp. (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Certificate of Validation of Platinum Eagle Acquisition Corp. (incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on August 10, 2020).
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Target
Hospitality Corp. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form
8-K, filed with the SEC on May 23, 2022).
Second Amended and Restated Bylaws of Target Hospitality Corp. (incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 28, 2022).
Form of Specimen Common Stock Certificate of Target Hospitality Corp. (incorporated by reference
to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
116
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6+
10.7+
10.8+
10.9+
Form of Warrant Certificate of Target Hospitality Corp. (incorporated by reference to Exhibit 4.2 to
the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Warrant Agreement between Platinum Eagle Acquisition Corp. and Continental Stock Transfer &
Trust Company, dated as of January 11, 2018 (incorporated by reference to Exhibit 4.1 to Platinum
Eagle’s Current Report on Form 8-K, filed with the SEC on January 18, 2018).
Indenture dated March 15, 2019, by and among Arrow Bidco, the guarantors party thereto and
Deutsche Bank Trust Company Americas, as trustee and collateral agent (incorporated by reference
to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Description of the Company’s Securities (incorporated by reference to Exhibit 4.5 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11,
2022).
ABL Credit Agreement dated March 15, 2019, by and among Arrow Bidco, LLC, Topaz Holdings
LLC, Target Logistics Management, LLC, RL Signor Holdings, LLC and each of their domestic
subsidiaries, and the lenders named therein (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Earnout Agreement dated March 15, 2019 by and among the Company and the Founder Group (as
defined therein) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K, filed with the SEC on March 21, 2019).
Escrow Agreement dated March 15, 2019 by and among the Company, the Founder Group and the
escrow agent named therein (incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K, filed with the SEC on March 21, 2019).
Amended and Restated Registration Rights Agreement dated March 15, 2019 by and among the
Company, Arrow Seller, the Algeco Seller and the other parties named therein (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on
March 21, 2019).
Amended and Restated Private Placement Warrant Purchase Agreement among Platinum Eagle
Acquisition Corp., Platinum Eagle Acquisition LLC, Harry E. Sloan and the other parties thereto,
dated as of January 16, 2018 (incorporated by reference to Exhibit 10.14 to Platinum Eagle’s Current
Report on Form 8-K, filed with the SEC on January 18, 2018).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Target Hospitality 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Employment Agreement with James B. Archer (incorporated by reference to Exhibit 10.8 to the
Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Amendment to Employment Agreement with James B. Archer (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 10, 2021).
117
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
Employment Agreement with Heidi D. Lewis (incorporated by reference to Exhibit 10.10 to the
Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Amendment to Employment Agreement with Heidi D. Lewis.(incorporated by reference to Exhibit
10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed
with the SEC on March 13, 2020).
Second Amendment to Employment Agreement with Heidi D. Lewis (incorporated by reference to
Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,
filed with the SEC on March 11, 2022).
Employment Agreement with Troy Schrenk (incorporated by reference to Exhibit 10.11 to the
Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2019).
Amendment to Employment Agreement with Troy Schrenk (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 1, 2021).
Second Amendment to Employment Agreement with Troy Schrenk (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on December 10,
2021).
Form of Executive Nonqualified Stock Option Award Agreement (2019 Awards) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
May 24, 2019).
Form of Executive Restricted Stock Unit Agreement (2019 Awards) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on May 24, 2019).
Employment Agreement with Eric Kalamaras (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed with the SEC on August 15, 2019).
Amendment to Employment Agreement with Eric Kalamaras (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on December 10, 2021).
Employment Agreement with Jason Vlacich (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K/A, filed with the SEC on August 15, 2019).
Amendment to Employment Agreement with Jason Vlacich (incorporated by reference to Exhibit
10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed
with the SEC on March 11, 2022).
Employment Agreement with J. Travis Kelley (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2021).
Amendment to Employment Agreement with J. Travis Kelley (incorporated by reference to Exhibit
10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed
with the SEC on March 11, 2022).
Form of Executive Restricted Stock Unit Agreement (2020 Awards) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on March 6, 2020).
118
10.25+
10.26+
10.27+
10.28+
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
10.36+
10.37+
Form of Executive Nonqualified Stock Option Award Agreement (2020 Awards) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
March 6, 2020).
Form of Restricted Stock Unit Agreement (Non-Employee Directors 2020) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
May 21, 2020).
Form of Restricted Stock Unit Agreement (Executives – 2020 Salary Reduction) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
April 2, 2020).
Form of Restricted Stock Unit Agreement (Non-Employee Directors – 2020 Retainer Reduction)
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on April 2, 2020).
Form of Salary Program Termination Agreement (Executives with Employment Agreements)
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with
the SEC on October 2, 2020).
Form of Director Retainer Program Termination Agreement (Non-Employee Directors)
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on October 2, 2020).
Executive Restricted Stock Units Termination Agreement, dated August 5, 2020, by and between the
Company and James B. Archer (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the SEC on August 7, 2020).
Form of Executive Restricted Stock Unit Agreement (2021 Awards) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on March 1, 2021.
Form of Executive Stock Appreciation Rights Award Agreement (2021 Awards) (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on
March 1, 2021).
Form of Restricted Stock Unit Agreement (Non-Employee Directors) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 19, 2021).
Form of Executive Restricted Stock Unit Agreement (2022 Awards) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 28,
2022).
Form of Executive Performance Unit Agreement (2022 Awards) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 28,
2022).
Form of Restricted Stock Unit Agreement (Non-Employee Directors) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 23, 2022).
119
10.38+
10.39+
10.40+
10.41+
14.1
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
Executive Performance Stock Unit Agreement, by and between the Target Hospitality Corp. and
James B. Archer, dated May 24, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed with the SEC on May 25, 2022).
Form of Executive Performance Stock Unit Agreement (Executives) (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 12, 2022).
Form of Executive Restricted Stock Unit Agreement (2023 Awards) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 6, 2023).
Form of Executive Performance Unit Agreement (2023 Awards) (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on March 6, 2023).
Code of Ethics for the Chief Executive Officer and Senior Financial Officers, effective March 15,
2019 (incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on March 21, 2019).
Subsidiaries of the registrant
Consent of Ernst & Young LLP
Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
Certification of Chief Executive Officer Pursuant to 18 USC. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
Certification of Chief Financial Officer Pursuant to 18 USC. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File––the cover page interactive data file does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
120
* Filed herewith
** The certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will
not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the
registrant specifically incorporates it by reference.
+ Management contract or compensatory plan or arrangement
121
Pursuant to the requirements of the Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Target Hospitality Corp.
By:
/s/ James B. Archer
Name: James B. Archer
Title: President & Chief Executive Officer
Title:
Date:
Director, President and Chief Executive Officer (Principal Executive
Officer)
March 10, 2023
Chief Financial Officer (Principal Financial Officer)
March 10, 2023
Chief Accounting Officer (Principal Accounting Officer)
March 10, 2023
Dated: March 10, 2023
Signature
/s/ James B. Archer
James B. Archer
/s/ Eric T. Kalamaras
Eric T. Kalamaras
/s/ Jason P. Vlacich
Jason P. Vlacich
/s/ Stephen Robertson
Stephen Robertson
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
Chairman of the Board
/s/ Barbara J. Faulkenberry Director
Barbara J. Faulkenberry
/s/ Pamela H. Patenaude
Pamela H. Patenaude
Director
/s/ Jeff Sagansky
Jeff Sagansky
/s/ Linda Medler
Linda Medler
Director
Director
/s/ Martin Jimmerson
Martin L. Jimmerson
Director
/s/ Joy Berry
Joy Berry
Director
122
19MAR202017133202