Target Hospitality Corp 10-Q for FY2020 Q2

Target Hospitality Corp. (TH)

10-Q 2020-08-10 For: 2020-06-30

Added on April 12, 2026

About this 10-Q

Target Hospitality Corp filed this 10-Q on August 10, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $53.62M; down 34.1% from $81.36M a year earlier
Net loss: $14.2M; compared with net income of $10.58M a year earlier

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Delaware			98-1378631
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which is registered
Common stock, par value $0.0001 per share	TH	The Nasdaq Capital Market
Warrants to purchase common stock	THWWW	The Nasdaq Capital Market


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☒

PART I — FINANCIAL INFORMATION	5
Item 1. Financial Statements	5
Consolidated Balance Sheets	5
Unaudited Consolidated Statements of Comprehensive Income (Loss)	6
Unaudited Consolidated Statements of Changes in Stockholders’ Equity	7
Unaudited Consolidated Statements of Cash Flows	8
Notes to Unaudited Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	56
PART II — OTHER INFORMATION	56
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3. Defaults upon Senior Securities	60
Item 4. Mine Safety Disclosures	60
Item 5. Other Information	60
Item 6. Exhibits	61
SIGNATURES	62

Consolidated Financial Statements

Consolidated Balance Sheets	5
Unaudited Consolidated Statements of Comprehensive Income (Loss)	6
Unaudited Consolidated Statements of Changes in Stockholders’ Equity	7
Unaudited Consolidated Statements of Cash Flows	8
Notes to Unaudited Consolidated Financial Statements	9


	June 30,		December 31,
	2020		2019
Assets		(Unaudited)
Current assets:
Cash and cash equivalents	$	19,929	$	6,787
Accounts receivable, less allowance for doubtful accounts of $1,893 and $989, respectively		43,110		48,483
Prepaid expenses and other assets		5,720		4,649
Related party receivable		572		876
Total current assets		69,331		60,795

Restricted cash		52		52
Specialty rental assets, net		336,218		353,695
Other property, plant and equipment, net		10,805		11,541
Goodwill		41,038		41,038
Other intangible assets, net		110,456		117,866
Deferred tax asset		9,104		6,427
Deferred financing costs revolver, net		4,058		4,688
Other non-current assets		6,123		4,690
Total assets	$	587,185	$	600,792

Liabilities
Current liabilities:
Accounts payable	$	14,182	$	7,793
Accrued liabilities		25,409		35,330
Deferred revenue and customer deposits		13,331		16,809
Current portion of capital lease and other financing obligations (Note 10)		1,004		989
Total current liabilities		53,926		60,921

Other liabilities:
Long-term debt (Note 10):
Principal amount		340,000		340,000
Less: unamortized original issue discount		(2,613)		(2,876)
Less: unamortized term loan deferred financing costs		(12,598)		(13,866)
Long-term debt, net		324,789		323,258
Revolving credit facility (Note 10)		85,000		80,000
Long-term capital lease and other financing obligations		1,017		996
Deferred revenue and customer deposits		4,837		9,390
Asset retirement obligations		2,914		2,825
Total liabilities		472,483		477,390

Commitments and contingencies (Note 14)
Stockholders' equity:
Common Stock, $0.0001 par, 380,000,000 authorized, 105,441,664 issued and 101,108,217 outstanding as of June 30, 2020 and 105,254,929 issued and 100,840,162 outstanding as of December 31, 2019.		10		10
Common Stock in treasury at cost, 4,414,767 shares as of June 30, 2020 and December 31, 2019, respectively.		(23,559)		(23,559)
Additional paid-in-capital		113,559		111,794
Accumulated other comprehensive loss		(2,624)		(2,558)
Accumulated earnings		27,316		37,715
Total stockholders' equity		114,702		123,402
Total liabilities and stockholders' equity	$	587,185	$	600,792


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue:
Services income	$	25,257	$	59,832	$	79,195	$	120,905
Specialty rental income		12,968		15,143		29,551		28,873
Construction fee income		15,395		6,383		16,528		13,562
Total revenue		53,620		81,358		125,274		163,340
Costs:
Services		31,459		29,736		60,466		61,745
Specialty rental		1,701		2,490		4,304		4,808
Depreciation of specialty rental assets		12,266		9,960		25,162		19,861
Gross profit		8,194		39,172		35,342		76,926
Selling, general and administrative		10,101		10,925		20,092		55,676
Other depreciation and amortization		4,098		3,816		8,214		7,579
Restructuring costs		—		—		—		168
Other expense (income), net		446		(123)		(569)		(161)
Operating income (loss)		(6,451)		24,554		7,605		13,664
Loss on extinguishment of debt		—		—		—		907
Interest expense, net		10,178		9,853		20,200		13,884
Income (loss) before income tax		(16,629)		14,701		(12,595)		(1,127)
Income tax expense (benefit)		(2,429)		4,121		(2,196)		2,272
Net income (loss)		(14,200)		10,580		(10,399)		(3,399)
Other comprehensive income
Foreign currency translation		45		(144)		(66)		(144)
Comprehensive income (loss)	$	(14,155)	$	10,436	$	(10,465)	$	(3,543)


Weighted average number shares outstanding - basic and diluted		96,003,079		100,217,035		95,926,467		89,960,451

Net income (loss) per share - basic and diluted	$	(0.15)	$	0.11	$	(0.11)	$	(0.04)


	Common Stock			Common Stock in Treasury
							Additional Paid				Accumulated Other		Accumulated		Total
	Shares	Amount		Shares	Amount		In Capital		Equity (Deficit)		Comprehensive Loss		Earnings		Stockholders' Equity
Balances at December 31, 2018 as previously reported	—	$	—	—	$	—	$	—	$	307,366	$	(2,463)	$	44,088	$	348,991
Retroactive application of recapitalization	74,786,327		7	—		—		319,968		(307,366)		—		(12,609)		—
Adjusted Balances at December 31, 2018	74,786,327	$	7	—	$	—	$	319,968	$	—	$	(2,463)	$	31,479	$	348,991

Net loss	—		—	—		—		—		—		—		(13,979)		(13,979)
Recapitalization transaction	30,446,606		3	—		—		314,194		—		—		—		314,197
Contribution	—		—	—		—		39,107		—		—		—		39,107
Recapitalization transaction - cash paid to Algeco Seller	—		—	—		—		(563,134)		—		—		—		(563,134)
Balances at March 31, 2019	105,232,933	$	10	—	$	—	$	110,135	$	—	$	(2,463)	$	17,500	$	125,182

Net income	—		—	—		—		—		—		—		10,580		10,580
Stock-based compensation	—		—	—		—		210		—		—		—		210
Cumulative translation adjustment	—		—	—		—		—		—		(144)		—		(144)
Balances at June 30, 2019	105,232,933	$	10	—	$	—	$	110,345	$	—	$	(2,607)	$	28,080	$	135,828

Balances at December 31, 2019	100,840,162	$	10	4,414,767	$	(23,559)	$	111,794	$	—	$	(2,558)	$	37,715	$	123,402
Net income	—		—	—		—		—		—		—		3,801		3,801
Stock-based compensation	83,831		—	—		—		884		—		—		—		884
Shares used to settle payroll tax withholding	—		—	—		—		(83)		—		—		—		(83)
Cumulative translation adjustment	—		—	—		—		—		—		(111)		—		(111)
Balances at March 31, 2020	100,923,993	$	10	4,414,767	$	(23,559)	$	112,595	$	—	$	(2,669)	$	41,516	$	127,893

Net loss	—		—	—		—		—		—		—		(14,200)		(14,200)
Stock-based compensation	184,224		—	—		—		1,038		—		—		—		1,038
Shares used to settle payroll tax withholding	—		—	—		—		(74)		—		—		—		(74)
Cumulative translation adjustment	—		—	—		—		—		—		45		—		45
Balances at June 30, 2020	101,108,217	$	10	4,414,767	$	(23,559)	$	113,559	$	—	$	(2,624)	$	27,316	$	114,702


	For Three Months Ended				For Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Permian Basin
Services income	$	18,340	$	47,100	$	61,627	$	95,898
Construction fee income		-		494		-		494
Total Permian Basin revenues		18,340		47,594		61,627		96,392

Bakken Basin
Services income	$	366	$	5,739	$	4,551	$	10,511
Total Bakken Basin revenues		366		5,739		4,551		10,511

Government
Services income	$	6,426	$	6,030	$	12,280	$	12,767
Total Government revenues		6,426		6,030		12,280		12,767

All Other
Services income	$	125	$	1,008	$	738	$	1,818
Construction fee income		15,395		5,846		16,528		12,980
Total All Other revenues		15,519		6,854		17,266		14,798

Total revenues	$	40,652	$	66,217	$	95,724	$	134,468


		For the Years Ended December 31,
	2020		2021		2022		Thereafter		Total
Revenue expected to be recognized as of June 30, 2020	$	23,183	$	35,366	$	14,952	$	-	$	73,501


	Recapitalization
Cash - Platinum Eagle's Trust (net of redemptions)	$	146,137
Cash - PIPE		80,000
Gross cash received by Target Hospitality from Business Combination		226,137
Less: fees to underwriters		(7,385)
Net cash received from Recapitalization		218,752
Plus: non-cash contribution - forgiveness of related party loan		104,285
Less: non-cash net liabilities assumed from PEAC		(8,840)
Net contributions from Recapitalization Transaction	$	314,197


	Contributions from Affiliate
Transaction bonus amounts	$	28,519
Payment of historical ABL facility		9,904
Payment of affiliate amounts		684
Total contributions	$	39,107

Cash paid to Algeco Seller	$	563,134


Shares by Type					Number of shares by type as of March 15, 2019
Platinum Eagle Class A Shares outstanding prior to the Business Combination					32,500,000
Less: Redemption of Platinum Eagle Class A Shares					(18,178,394)
Class A Shares of Platinum Eagle					14,321,606
Founder Shares					8,050,000
Former Platinum Eagle Director Shares					75,000
Shares issued to PIPE investors					8,000,000
Shares issued to PEAC and PIPE investors					30,446,606
Shares issued to the Sellers					74,786,327
Total Outstanding Shares of Common Stock issued and outstanding					105,232,933
Less: Founders Shares in escrow					(5,015,898)
Total Shares of Common Stock outstanding for earnings per share computation (See Note 16)					100,217,035


Property and equipment	$	18,342
Customer relationships		4,800
Goodwill		6,858
Total assets acquired	$	30,000


Period	Revenue		Income before taxes
2019 pro forma from January 1, 2019 to June 30, 2019	$	168,089	$	1,378
2019 pro forma for the three months ended June 30, 2019	$	85,463	$	16,738


	June 30, 2020
	Weighted	Gross
	average	Carrying		Accumulated		Net Book
	remaining lives	Amount		Amortization		Value
Intangible assets subject to amortization
Customer relationships	6.9	$	132,720	$	(38,664)	$	94,056
Total			132,720		(38,664)		94,056
Indefinite lived assets:
Tradenames			16,400		—		16,400
Total intangible assets other than goodwill		$	149,120	$	(38,664)	$	110,456


	December 31, 2019
	Weighted	Gross
	average	Carrying		Accumulated		Net Book
	remaining lives	Amount		Amortization		Value
Intangible assets subject to amortization
Customer relationships	7.4	$	132,720	$	(31,254)	$	101,466
Total			132,720		(31,254)		101,466
Indefinite lived assets:
Tradenames			16,400		—		16,400
Total intangible assets other than goodwill		$	149,120	$	(31,254)	$	117,866


Rest of 2020	$	7,246
2021		14,656
2022		13,302
2023		12,881
2024		12,881
Thereafter		33,090
Total	$	94,056


		Principal		Unamortized Original Issue Discount		Unamortized Deferred Financing Costs
9.50% Senior Secured Notes, due 2024	$	340,000	$	2,613	$	12,598


	Permian Basin
Balance at January 1, 2019	$	34,180
Acquisition of Superior		6,858
Balance at December 31, 2019		41,038
Changes in Goodwill		-
Balance at June 30, 2020	$	41,038


			Redemption
Year			Price
2021			104.750%
2022			102.375%
2023 and thereafter			100.000%


	June 30, 2020				December 31, 2019
Financial Assets (Liabilities) Not Measured at Fair Value	Carrying Amount			Fair Value	Carrying Amount		Fair Value
ABL facilities (See Note 10) - Level 2	$	(85,000)	$	(85,000)	$	(80,000)	$	(80,000)
Senior Secured Notes (See Note 10) - Level 1	$	(324,789)	$	(264,911)	$	(323,258)	$	(325,693)


	Number of Shares		Weighted Average Grant Date Fair Value per Share
Balance at December 31, 2019	401,797	$	9.31
Granted	1,374,085		3.07
Vested and released	(362,503)		6.45
Forfeited	(21,159)		10.83
Balance at June 30, 2020	1,392,220	$	3.93


	Options		Weighted Average Exercise Price Per Share	Weighted Average Contractual Life (Years)		Intrinsic Value
Outstanding Options at December 31, 2019	579,370	$	9.44	9.48	$	-
Granted	1,140,875		4.51	-		-
Forfeited	(16,842)		10.83	-		-
Outstanding Options at June 30, 2020	1,703,403	$	6.13	9.44	$	-


		Assumptions
Weighted average expected stock volatility	%	25.80
Expected dividend yield	%	0.00
Expected term (years)		6.25
Risk-free interest rate (range)	%	0.82 - 2.26
Exercise price (range)	$	4.51 - 10.83
Weighted-average grant date fair value	$	1.87


	June 30, 2020		December 31, 2019
Total reportable segment assets	$	382,221	$	400,319
Other assets		5,840		5,955
Restricted cash		52		52
Other unallocated amounts		199,072		194,466
Total Assets	$	587,185	$	600,792


	For the Three Months Ended				Amount of		Percentage Change
	June 30,				Increase		Favorable
	2020		2019		(Decrease)		(Unfavorable)
Revenue:
Services income	$	25,257	$	59,832	$	(34,575)	-58%
Specialty rental income		12,968		15,143		(2,175)	-14%
Construction fee income		15,395		6,383		9,012	141%
Total revenue		53,620		81,358		(27,738)	-34%
Costs:
Services		31,459		29,736		1,723	6%
Specialty rental		1,701		2,490		(789)	-32%
Depreciation of specialty rental assets		12,266		9,960		2,306	23%
Gross Profit		8,194		39,172		(30,978)	-79%
Selling, general and administrative		10,101		10,925		(824)	-8%
Other depreciation and amortization		4,098		3,816		282	7%
Other expense (income), net		446		(123)		569	-463%
Operating income (loss)		(6,451)		24,554		(31,005)	-126%
Interest expense, net		10,178		9,853		325	3%
Income (loss) before income tax		(16,629)		14,701		(31,330)	-213%
Income tax expense (benefit)		(2,429)		4,121		(6,550)	-159%
Net income (loss)	$	(14,200)	$	10,580	$	(24,780)	-234%


							Percentage
	For the Three Months Ended June 30,				Amount of Increase		Change Favorable
	2020		2019		(Decrease)		(Unfavorable)
Revenue:
Government	$	16,671	$	16,729	$	(58)	0%
Permian Basin		21,064		52,037		(30,973)	-60%
Bakken Basin		366		5,738		(5,372)	-94%
All Other		15,519		6,854		8,665	126%
Total Revenues	$	53,620	$	81,358	$	(27,738)	-34%

Adjusted Gross Profit
Government	$	12,909	$	12,317	$	592	5%
Permian Basin		6,860		32,588		(25,728)	-79%
Bakken Basin		(1,169)		2,698		(3,867)	-143%
All Other		1,860		1,529		331	22%
Total Adjusted Gross Profit	$	20,460	$	49,132	$	(28,672)	-58%

Average Daily Rate
Government	$	74.58	$	74.87	$	(0.29)
Permian Basin	$	88.65	$	84.49	$	4.16
Bakken Basin	$	70.26	$	77.18	$	(6.92)
Total Average Daily Rate	$	81.72	$	80.85	$	0.87



	For the Six months ended June 30,				Amount of Increase		Percentage Change Favorable
	2020		2019		(Decrease)		(Unfavorable)
Revenue:
Government	$	33,263	$	33,285	$	(22)	0%
Permian Basin		70,195		104,748		(34,553)	-33%
Bakken Basin		4,551		10,511		(5,960)	-57%
All Other		17,265		14,796		2,469	17%
Total Revenues	$	125,274	$	163,340	$	(38,066)	-23%

Adjusted Gross Profit
Government	$	24,488	$	24,168	$	320	1%
Permian Basin		33,652		65,182		(31,530)	-48%
Bakken Basin		235		4,333		(4,098)	-95%
All Other		2,129		3,104		(975)	-31%
Total Adjusted Gross Profit	$	60,504	$	96,787	$	(36,283)	-37%

Average Daily Rate
Government	$	74.68	$	75.02	$	(0.34)
Permian Basin	$	81.82	$	85.38	$	(3.56)
Bakken Basin	$	77.02	$	77.46	$	(0.44)
Total Average Daily Rate	$	79.07	$	81.67	$	(2.60)


Contractual Obligations	Total		2020		2021 and 2022		2023 and 2024		2025 and beyond
Capital lease and other financing obligations	$	2,021	$	1,004	$	1,017	$	—	$	—
Asset retirement obligations		3,274		—		3,274		—		—
Interest payments⁽¹⁾		129,200		16,150		64,600		48,450		—
New ABL Facility		85,000		—		—		85,000		—
2024 Senior Secured Notes		340,000		—		—		340,000		—
Total	$	559,495	$	17,154	$	68,891	$	473,450	$	—


Rest of 2020	$	1,473
2021		1,857
2022		1,151
2023		674
2024		42
Total	$	5,197


Exhibit No.		Exhibit Description
3.1*		Certificate of Validation of Platinum Eagle Acquisition Corp.

10.1		Form of Executive Restrictive Stock Units Termination Agreement (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).

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1*		Target Hospitality Corp. Board of Directors resolutions dated April 17, 2020 ratifying the filing and effectiveness of Target Hospitality Corp.’s Amended and Restated Certificate of Incorporation

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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

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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.

	Target Hospitality Corp.

Dated: August 10, 2020	By:	/s/ ERIC T. KALAMARAS
		Eric T. Kalamaras
		Executive Vice President and Chief Financial Officer

	By:	/s/ Kelly D. Tlachac
	Name:	Kelly D. Tlachac
	Title:	Assistant Secretary


	By:	/s/ James B. Archer
	Name:	James B. Archer
	Title:	Director


	By:	/s/ Stephen Robertson
	Name:	Stephen Robertson
	Title:	Director


	By:	/s/ Gary Lindsay
	Name:	Gary Lindsay
	Title:	Director


	By:	/s/ Jeff Sagansky
	Name:	Jeff Sagansky
	Title:	Director


	By:	/s/ Martin L. Jimmerson
	Name:	Martin L. Jimmerson
	Title:	Director


	By:	/s/ Eli Baker
	Name:	Eli Baker
	Title:	Director


	By:	/s/ Andrew P. Studdert
	Name:	Andrew P. Studdert
	Title:	Director