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What changed in Target Hospitality Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Target Hospitality Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+353 added−315 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-10)

Top changes in Target Hospitality Corp.'s 2023 10-K

353 paragraphs added · 315 removed · 239 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

64 edited+19 added−13 removed89 unchanged
Biggest changeThe 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 Table of Contents 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 Table of Contents 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 ​ Community Name ​ Location ​ Status ​ Number of Beds Government ​ Dilley (STFRC) ​ Dilley, Texas ​ Own ​ 2,556 Government ​ Pecos Children's Center ​ Pecos, Texas ​ Own ​ 2,000 Government ​ Pecos Blue Lodge ​ Pecos, Texas ​ Own ​ 1,000 Government ​ Railhead Lodge ​ Pecos, Texas ​ Lease/Operate ​ 225 Government ​ Delaware Lodge ​ Orla, Texas ​ Own/Operate ​ 425 Government ​ Skillman Station Lodge ​ Mentone, Texas ​ Own/Operate ​ 1,038 Government ​ Lodge 118 ​ Pecos, Texas ​ Own/Operate ​ 1,398 Government ​ Pecos Trail Lodge ​ Pecos, Texas ​ Own/Operate ​ 558 Government & HFS - South ​ Pecos South Lodge ​ Pecos, Texas ​ Own/Operate ​ 772 HFS - South ​ Orla North Lodge ​ Orla, Texas ​ Own/Operate ​ 155 HFS - South ​ Orla South Lodge ​ Orla, Texas ​ Own/Operate ​ 240 HFS - South ​ El Capitan Lodge ​ Orla, Texas ​ Own/Operate ​ 429 HFS - South ​ Odessa West Lodge ​ Odessa, Texas ​ Own/Operate ​ 805 HFS - South ​ Odessa East Lodge ​ Odessa, Texas ​ Own/Operate ​ 280 HFS - South ​ Mentone Wolf Lodge ​ Mentone, Texas ​ Own/Operate ​ 530 HFS - South ​ Midland Lodge ​ Midland, Texas ​ Own/Operate ​ 843 HFS - South ​ Midland East Lodge ​ Midland, Texas ​ Own/Operate ​ 168 HFS - South ​ Kermit Lodge ​ Kermit, Texas ​ Own/Operate ​ 232 HFS - South ​ Kermit North Lodge ​ Kermit, Texas ​ Own/Operate ​ 180 HFS - South ​ Carlsbad Lodge ​ Carlsbad, New Mexico ​ Own/Operate ​ 606 HFS - South ​ Seven Rivers Lodge ​ Carlsbad, New Mexico ​ Own/Operate ​ 640 HFS - South ​ Jal Lodge ​ Jal, New Mexico ​ Own/Operate ​ 466 HFS - Midwest ​ Williams County Lodge ​ Williston, North Dakota ​ Own/Operate ​ 300 HFS - Midwest ​ Judson Executive Lodge ​ Williston, North Dakota ​ Own/Operate ​ 100 HFS - Midwest ​ Watford City Lodge ​ Watford City, North Dakota ​ Own/Operate ​ 334 All Other ​ Cheecham Lodge ​ Alberta, Canada ​ Own/Operate ​ 215 All Other ​ El Reno Lodge ​ El Reno, Oklahoma ​ Own/Operate ​ 335 Total Number of Beds ​ ​ ​ ​ ​ ​ ​ 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 .
Biggest changeThe map below shows the Company’s primary community locations in the HFS – South segment (including five locations outside of this segment). ​ 11 Table of Contents The table below presents the Company’s communities in the HFS – South, Government, and All Other segments as of December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment ​ Community Name ​ Location ​ Status ​ Number of Beds Government ​ Dilley (STFRC) ​ Dilley, Texas ​ Own ​ 2,556 Government ​ Pecos Children's Center ​ Pecos, Texas ​ Own ​ 2,000 Government ​ Pecos Blue Lodge ​ Pecos, Texas ​ Own ​ 1,000 Government ​ Delaware Lodge ​ Orla, Texas ​ Own/Operate ​ 425 Government ​ Lodge 118 ​ Pecos, Texas ​ Own/Operate ​ 1,402 Government ​ Pecos Trail Lodge ​ Pecos, Texas ​ Own/Operate ​ 558 Government & HFS - South ​ Skillman Station Lodge ​ Mentone, Texas ​ Own/Operate ​ 1,038 Government & HFS - South ​ Pecos South Lodge ​ Pecos, Texas ​ Own/Operate ​ 772 HFS - South ​ Orla North Lodge ​ Orla, Texas ​ Own/Operate ​ 169 HFS - South ​ Orla South Lodge ​ Orla, Texas ​ Own/Operate ​ 240 HFS - South ​ El Capitan Lodge ​ Orla, Texas ​ Own/Operate ​ 429 HFS - South ​ Odessa West Lodge ​ Odessa, Texas ​ Own/Operate ​ 805 HFS - South ​ Odessa East Lodge ​ Odessa, Texas ​ Own/Operate ​ 280 HFS - South ​ Mentone Wolf Lodge ​ Mentone, Texas ​ Own/Operate ​ 530 HFS - South ​ Midland Lodge ​ Midland, Texas ​ Own/Operate ​ 843 HFS - South ​ Midland East Lodge ​ Midland, Texas ​ Own/Operate ​ 168 HFS - South ​ Kermit Lodge ​ Kermit, Texas ​ Own/Operate ​ 232 HFS - South ​ Kermit North Lodge ​ Kermit, Texas ​ Own/Operate ​ 180 HFS - South ​ Carlsbad Lodge ​ Carlsbad, New Mexico ​ Own/Operate ​ 496 HFS - South ​ Seven Rivers Lodge ​ Carlsbad, New Mexico ​ Own/Operate ​ 640 HFS - South ​ Jal Lodge ​ Jal, New Mexico ​ Own/Operate ​ 466 HFS - South ​ Big Spring Lodge ​ Big Spring, Texas ​ Own/Operate ​ 665 All Other ​ Williams County Lodge ​ Williston, North Dakota ​ Own/Operate ​ 300 All Other ​ Judson Executive Lodge ​ Williston, North Dakota ​ Own/Operate ​ 100 All Other ​ Watford City Lodge ​ Watford City, North Dakota ​ Own/Operate ​ 334 All Other ​ Cheecham Lodge ​ Alberta, Canada ​ Own/Operate ​ 215 Total Number of Beds ​ ​ ​ ​ ​ ​ ​ 16,843 ​ ​ 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, 2023: ● Residential Facilities .
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.
Properties Target Hospitality’s corporate 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.
Croix ​ ● 2015: Opened new community in Mentone, TX in Q4 for Anadarko Petroleum Company ● 2009: Signor Lodging was formed ​ ● 2016: Signor expanded Midland Lodge several phased expansions 1,000 beds ● 2010: Target opened Williston Lodge, Muddy River, Tioga and Stanley Cabins in western North Dakota ​ ● 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.
Croix ​ ● 2015: Opened new community in Mentone, TX in Q4 for Anadarko Petroleum Company ● 2009: Signor Lodging was formed ​ ● 2016: Signor expanded Midland Lodge several phased expansions 1,000 beds ● 2010: Target opened Williston Lodge, Muddy River, Tioga and Stanley Cabins in western North Dakota ​ ● 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 ​ ​ ● 2023: HFS – South Segment expansion 665 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.
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.
For certain of the Company’s 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.
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.
Utilizing our large network of communities with the most bed capacity, particularly within the regions served by our Government and HFS – South 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.
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. 13 Table of Contents 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.
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. 12 Table of Contents 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.
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.
For additional information on our revenue related to December 31, 2023 and 2022, 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.
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.
The weighted average length of our contracts is approximately 45 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.
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 have long standing relationships with our diversified base of approximately 290 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.
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 world-class culinary and catering professionals serve approximately 16,000,000 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.
The map below shows the Company’s primary community locations in the Government segment. 14 Table of Contents 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.
The map below shows the Company’s primary community locations in the Government segment. 13 Table of Contents 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.
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.
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 28 strategically located communities with approximately 16,800 beds primarily in the highest demand regions of the southwestern United States.
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.
Additionally, we offer a wide array of training solutions (classroom, hands-on and e-learning) for our employees. In 2023, our employees enhanced their skills through training, including safety training, leadership training and equipment-related training from our suppliers.
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 ​ ● Media Lounges and WIFI Throughout ​ ​ ● Single Occupancy Design ​ ● Individual Xbox/PSII Pods ​ ​ ● Swimming Pool, Volleyball, Basketball courts ​ ● Flat-Screen TVs in Each Room ​ ​ ● Commercial Kitchen ​ ● 40+ Premium TV Channel Line-up ​ ​ ● Fast Food Lounges ​ ● Personal Laundry Service ​ ​ ● Full & Self Service Dining Areas ​ ● Individually Controlled HVAC System ​ ​ ● TV Sport/Entertainment Lounges ​ ● Hotel Access Unity Lock Systems ​ ​ ● Training/conference Rooms ​ ● 24 Hour No-Limit Dining ​ ​ ● Core Passive Recreation Areas ​ ● Free DVD Rentals ​ ​ ● Active Fitness Centers ​ ● Self Dispensing Free Laundry ​ ​ ● Lodge Recreation Areas ​ ● Commercial Laundry ​ ​ ● Locker/Storage/Boot-up Areas ​ ● Transportation to Project Site ​ ​ ● Parking Areas ​ ● 24 Hour Gated Security ​ ​ ● Waste Water Treatment Facility ​ ● Daily Cleaning & Custodial Service ​ ​ ● On-site Commissary ​ ● 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 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 ​ ● On-site Commissary ​ ​ ● Single Occupancy Design ​ ● Media Lounges and WIFI Throughout ​ ​ ● Swimming Pool, Volleyball, Basketball courts ​ ● Flat-Screen TVs in Each Room ​ ​ ● Commercial Kitchen ​ ● 40+ Premium TV Channel Line-up ​ ​ ● Fast Food Lounges ​ ● Personal Laundry Service ​ ​ ● Full & Self Service Dining Areas ​ ● Individually Controlled HVAC System ​ ​ ● TV Sport/Entertainment Lounges ​ ● Hotel Access Lock Systems ​ ​ ● Training/conference Rooms ​ ● 24 Hour No-Limit Dining ​ ​ ● Core Passive Recreation Areas ​ ● Self Dispensing Laundry ​ ​ ● Active Fitness Centers ​ ● Commercial Laundry ​ ​ ● Lodge Recreation Areas ​ ● Transportation to Project Site ​ ​ ● Locker/Storage/Boot-up Areas ​ ● 24 Hour Gated Security ​ ​ ● Parking Areas ​ ● Daily Cleaning & Custodial Service ​ ​ ● Waste Water Treatment Facility ​ ● 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.
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.
Residential facilities, including the South Texas Family Residential Center (discussed below), provide space and residential services in an open and safe environment. 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.
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.
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 segment. These networks allow our customers to utilize one provider across a large and expansive geographic area.
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 Table of Contents
The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding Target Hospitality Corp. 20 Table of Contents
For example, we have expanded our presence across multiple government agencies creating broad reaching opportunities to extend reach beyond our core 10 Table of Contents 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 .
For example, we have expanded our presence across multiple government agencies creating broad reaching opportunities to extend reach beyond our core 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 .
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.
A strong national presence creates a platform to expand geographical reach into a wide range of industry applications, while significantly expanding Target’s long-term growth pipeline by utilizing existing core competencies to broaden service offerings across a variety of business and commercial applications.
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.
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.
During the year ended December 31, 2022, the Company executed the Expanded Humanitarian 18 Table of Contents 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.
During the year ended December 31, 2022, the Company executed the Expanded Humanitarian 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.
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.
Target’s customers’ willingness to enter into multi-year 8 Table of Contents 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.
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 Table of Contents 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.
For the year ended December 31, 2021, we had two customers, who accounted for approximately 35% 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. ​ 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.
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. 8 Table of Contents ​ ​ ● Long-Standing Relationships with Diversified Large Integrated Customers.
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. ​ ● Long-Standing Relationships with Diversified Large Integrated Customers.
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.
Approximately 38% of eligible employees participated in the Health & Safety program in 2023. ​ • 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.
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.
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 the Company for convenience.
Customers that support natural resource development also require larger and more mobile 7 Table of Contents workforces which, in many cases, consist of employees sourced from outside of the work areas.
Customers that support natural resource development also require larger and more mobile workforces which, in many cases, consist of employees sourced from outside of the work areas.
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 Table of Contents 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.
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 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 984 people as of December 31, 2023.
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. 6 Table of Contents Communities typically contain a larger number of rooms and require more time and capital to develop.
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 development, and the U.S. government. 6 Table of Contents Communities typically contain a larger number of rooms and require more time and capital to develop.
Our multi-year contracts and consistent renewal rates provide recurring revenue and high visibility on future financial performance. ​ 9 Table of Contents ● Proven Performance and Resiliency Through the Various Economic Cycles. Our business model is generally well insulated from economic cycles.
Our multi-year contracts and consistent renewal rates provide recurring revenue and high visibility on future financial performance. ​ ● Proven Performance and Resiliency Through the Various Economic Cycles. Our business model is generally well insulated from economic cycles.
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.
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. 15 Table of Contents ​ Segment information for December 31, 2023 and 2022 ​ For additional information on our segments, including Government, HFS - South, and All Other, related to December 31, 2023 and 2022, 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.
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 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 2023, approximately 73% of our revenues had committed payment provisions and approximately 99% were under contract, including exclusivity.
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 .
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 and Diversification Through Acquisitions, Diversifying Our Service Offerings as well as our Customer base .
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.
These employees, 7 Table of Contents described as rotational workers, permanently reside in another region or state and commute to the regions served by our HFS – South segment on a rotational basis (often, two weeks on and one week off). In addition, proximity to customer activities influences occupancy and demand.
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 Table of Contents • Employee experience and retention: To evaluate our employee experience and retention efforts, we monitor a number of employee measures, such as employee retention.
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, and flexible spending accounts. ​ • Employee experience and retention: To evaluate our employee experience and retention efforts, we monitor a number of employee measures, such as employee retention.
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.
Government related contractors, investment grade natural resource development companies and other workforce accommodation providers operating in the regions served by our HFS – South segment. 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.
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.
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 16,843 beds across 26 communities. We also operate 2 communities not owned or leased by the Company.
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.
Our rental assets have an average life of approximately 15 years, and we typically recover our initial investment within the first few years of initial capital deployment. Our maintenance capital between 2019 and 2023 has ranged from approximately 0.4% to 4.0% of annual revenue with an average of 2% of annual revenue.
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.
Government contractors, and investment grade natural resource development companies. For the year ended December 31, 2023, we had one customer, who accounted for approximately 62% of our revenue. ​ 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, 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 the year ended December 31, 2023, we generated revenues of approximately $564 million. Approximately 64.9% of our revenue was earned from specialty rental with vertically integrated hospitality, specifically lodging and related ancillary services, whereas the remaining 35.1% of revenues were earned through leasing of lodging facilities for the year ended December 31, 2023.
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.
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 remained unchanged.
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 typically have commercial kitchens, dining areas, conference rooms, medical and dental services, recreational facilities, media lounges and landscaped grounds where climate permits. A 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.
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.
As of December 31, 2023, with 16 communities and approximately 7,900 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 $148.7 million of the Company’s revenue for the year ended December 31, 2023.
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.
Government sites 16 Table of Contents 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, 2023, revenue related to the HFS – South segment represented approximately 26% of our revenue, revenue related to our Government segment represented 72% of our revenue, and All Other revenue represented 2% of our revenue.
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.
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.
The Government segment generated approximately 72% or $360.3 million of the Company’s revenue for the year ended December 31, 2022.
The Government segment generated approximately 72% or $403.7 million of the Company’s revenue for the year ended December 31, 2023.
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 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. MSAs make up the largest portion of the Company’s operations in the HFS – South segment.
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.
Target Hospitality operates its business in two 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; and (ii) HFS – South, which includes the facilities and operations in sixteen communities located across Texas and New Mexico.
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.
For example, we secured a major new contract in November 2023 for the continued operation of the humanitarian community in Pecos, Texas as well as a renewal and extension in 2020 for another contract, each under our Government Segment which together represents approximately 72% of Target Hospitality’s 2023 revenue.
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.
The program includes a health assessment, no cost preventive care through the medical plan, tobacco cessation support through our medical insurance carrier, and an employee assistance program.
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.
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. ​ ● Long-lived Assets Requiring Minimal Maintenance Capital Expenditures. Our long-lived specialty rental assets support robust cash flow generation.
As of December 31, 2022, women constituted approximately 41% of our workforce and self-identified racial or ethnic minorities represented 35% of our workforce.
As of December 31, 2023, women constituted approximately 39% of our workforce and self-identified racial or ethnic minorities represented 81% of our 19 Table of Contents workforce.
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.
Additionally, the New PCC Contract includes occupancy-based variable services revenue that will align with active community population. This ongoing 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 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.
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.
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.
We have established a leadership position in providing a fully integrated service offering to our large customer base, which is comprised of United States government service providers, and major companies supporting natural resource development. Our company is built on the foundation of the following core values: elevate the experience, pursue excellence, act with integrity and collaboration.
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 Table of Contents The Company provides specialty rental and hospitality services including concierge, culinary, catering, maintenance, security, janitorial and related services at facilities owned by other companies.
The map below shows the Company’s primary community locations in the HFS – South region. 14 Table of Contents All Other In addition to the two reportable segments above, the Company: (i) has facilities and operations for one community in Canada; (ii) has facilities and operations for three communities in North Dakota; 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”).
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 minimum revenue commitments, which consisted of annual recurring lease revenue and nonrecurring infrastructure enhancement revenue, provided for a minimum annual revenue contribution of approximately $390 million and was fully committed over its initial contract term.
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.
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”). 18 Table of Contents 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.
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.
Lease and Services Agreements The Company’s operations in the HFS – South segment are conducted through several different types of agreements with customers. Certain customer agreements include committed contractual revenue arrangements, some of which contain minimum revenue commitments.
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.
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. ​ ● Enhance Financial Strength and Create Shareholder Value . The Company follows a disciplined approach to maintaining and enhancing financial strength to create shareholder value.
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.
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.
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.
Our workforce is primarily comprised of full-time employees. Of the total population as of December 31, 2023, approximately 570 of our employees worked in the HFS – South segment, approximately 287 of our employees worked in the Government segment, and approximately 59 of our employees worked in the All Other segment. The remaining 68 employees worked in Corporate.
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.
Inclusive of the minimum revenue commitment and all potential occupancy-based variable services revenue, the New PCC Contract provides for a maximum total contract amount of approximately $1.8 billion through 2028, assuming all option periods are exercised. Our NP Partner depends on the U.S. government and its funding.
Our company is built on the foundation of the following core values: safety, care, excellence, integrity and collaboration. 3 Table of Contents Background ​ For discussion of the background of the business combination, please read the “Background” section located in the Item 1.
We believe that when our team is living these values corporate responsibility comes naturally. The map below shows the Company’s community locations in North America: 3 Table of Contents Background ​ For discussion of the background of the business combination, please read the “Background” section located in the Item 1.
Removed
These facilities are designed to serve the long-term needs of customers regardless of the end markets they serve.
Added
Furthermore, as discussed in Note 20 (Business Segments) of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K, during 2023, the Company reduced the number of reportable segments from four to two, as the additional two previously reportable segments (“TCPL Keystone” and “HFS – Midwest”) became quantitatively immaterial and are now combined in the “All Other” category for all periods presented.
Removed
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.
Added
We continue to focus on strengthening our balance sheet through strong cash flow generation and debt reduction to provide flexibility to execute upon targeted acquisitions and business combinations that would be accretive to us while also diversifying our customer base, reducing customer concentration, and expanding our end markets. ​ 9 Table of Contents ● Maintaining and Expanding Existing Customer Relationships .
Removed
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.
Added
This strategy is centered on the Company’s ability to drive profitable growth, and maximize net earnings, cash flows and operating margins; maintain consistent financial policies to ensure a strong balance sheet, liquidity level and access to capital; and retain the financial flexibility needed to strategically allocate and deploy capital as circumstances change.
Removed
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.
Added
The Company's disciplined financial approach also allows it to maintain sufficient liquidity and to reduce refinancing risk, with the nearest significant debt maturity of $181.4 million occurring in June 2025 consisting of our approximately $181.4 million in aggregate principal amount of 10.75% senior secured notes due June 15, 2025 (the “2025 Senior Secured Notes”).
Removed
As of December 31, 2022, the Company had three community locations and 706 available beds serving customers in the HFS – Midwest region.
Added
The Company had total liquidity of approximately $278.9 million as of December 31, 2023, which consisted of up to $175 million of unused capacity under its ABL Facility, and cash and cash equivalents of $103.9 million.
Removed
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 Table of Contents The HFS - Midwest segment generated approximately 1% or $6.2 million of the Company’s revenue for the year ended December 31, 2022.
Added
This also further enhances the Company’s financial flexibility to allow for, among other things, executing the Company’s diversification strategy. ​ ​ ​ 10 Table of Contents ​ 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.
Removed
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.
Added
On May 15, 2023, the Company executed a six-month extension of the Expanded Humanitarian Contract, which extended the period of performance through November 15, 2023 and increased the contract value, with no change to contract structure or any other existing economic terms.
Removed
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.
Added
During the year ended December 31, 2023, the Company executed a new contract with our NP Partner (“New PCC Contract”), pursuant to an Indefinite Delivery, Indefinite Quantity Task Order between our NP Partner and the U.S.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

66 edited+27 added−21 removed176 unchanged
Biggest changeAs 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. 38 Table of Contents Our leverage could have important consequences, including: ● 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.
Biggest changeOur leverage could have important consequences, including: ● making it more difficult to satisfy our obligations with respect to our various debt (including the 2025 Senior Secured 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. 37 Table of Contents Our ability to meet our debt service obligations, including those under the ABL Facility and the 2025 Senior Secured 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.
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 one or more of 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.
We are exposed to the following risks in connection with our construction activities: ● 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 28 Table of Contents ● 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.
We are exposed to the following risks in connection with our construction activities: ● 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 ● 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.
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: ● 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; 26 Table of Contents ● 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.
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: ● 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; ● 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.
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.
Some of our competitors may have greater market share, 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.
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.
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 services, funding, and other intercompany transactions.
Acquisitions that are completed involve numerous risks, including the following: ● difficulties in integrating the operations, technologies, products and personnel of the acquired companies; 36 Table of Contents ● 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.
Acquisitions that are completed involve numerous risks, including the following: ● difficulties in integrating the operations, technologies, products and personnel of the acquired companies; ● 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.
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; 23 Table of Contents ● 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 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, recessions, 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; ● challenges in maintaining, staffing and managing national operations; 22 Table of Contents ● 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.
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: ● 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.
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: ● 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; 38 Table of Contents ● 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.
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.
In addition, we may not be able to effect 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.
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.
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 adverse to our business or results of operations.
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.
During periods of rising prices for labor or raw materials, and in particular, when the prices increase rapidly or to levels significantly higher than 29 Table of Contents 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.
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.
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 expend amounts prior to taking advantage of coverage limits.
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.
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 27 Table of Contents 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.
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.
Cybersecurity 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.
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.
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. 21 Table of Contents ● We are subject to various laws and regulations including those governing our contractual relationships.
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.
As a result, we may not achieve the benefits we may have been anticipating from any new technology or system 36 Table of Contents 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.
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.
Violations of the FCPA or other anti- 33 Table of Contents 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 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.
We face various security threats, including cybersecurity 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.
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.
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 cybersecurity threats.
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.
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 32 Table of Contents 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.
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.
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 35 Table of Contents impairment testing and potential periodic impairment charges; or incur amortization expenses related to certain intangible assets.
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.
A decline or slowed growth in any of these sectors or geographic regions could result in reduced 28 Table of Contents 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.
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.
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. 39 Table of Contents Credit rating downgrades could adversely affect our businesses, cash flows, financial condition and operating results.
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: ● 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; 30 Table of Contents ● 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.
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: ● 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; ● 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, including variable occupancy levels associated with contracts in the Government segment; ● 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. 30 Table of Contents As a result of these factors, our historical financial results are not necessarily indicative of our future results.
In addition, labor unions representing customer employees and contractors may oppose outsourcing accommodations to the extent that the unions believe that third-party 27 Table of Contents 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.
In addition, labor unions representing customer employees and contractors may oppose outsourcing accommodations to the extent that the unions believe that third-party 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.
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.
In that event, we would be required to remove our accommodations assets and remediate the site. Generally, our leases have an average term of seven years and generally contain unilateral renewal provisions. We can provide no assurances that we will be able to renew our leases upon expiration on similar terms, or at all.
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.
Although the Indenture governing our 2025 Senior Secured Notes 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.
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.
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. 23 Table of Contents Our business depends on the quality and reputation of the Company and its communities.
We have 31 Table of Contents 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.
We have 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.
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.
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 24 Table of Contents spending and address their budgetary shortfalls.
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.
The loss of one or more of 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, 2023, our five largest customers accounted for approximately 83% of our total revenue.
If the applicable government entity does not receive sufficient appropriations to cover its contractual 25 Table of Contents 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.
If the applicable government entity does not receive sufficient appropriations to cover its contractual 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.
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.
While we do not believe any reviews, audits, delayed payments, or other such matters should result in material 26 Table of Contents 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 adverse to our business or results of operations.
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.
Tax authorities may disagree with our intercompany charges, 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.
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.
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 such as during the COVID-19 pandemic.
Our business could be negatively impacted by security threats, including cyber-security threats and other disruptions.
Our business could be negatively impacted by security threats, including cybersecurity threats and other disruptions.
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.
As of December 31, 2023, we had approximately $41.0 million and $66.3 million of goodwill and other intangible assets, net, respectively, in our statement of financial position, which represents approximately 5.9% and 9.5% of total assets, respectively. We review goodwill and intangible assets at least annually for impairment.
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.
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 are subject to extensive procurement laws, regulations and procedures, including those that enable the U.S. government to terminate contracts for convenience. ● 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 ● We are subject to fluctuations in occupancy levels, and a decrease in occupancy levels could cause a decrease in revenues and profitability ● 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.
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.
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.
Environmental laws and regulations are likely to change in the future under the Biden administration, possibly resulting in more stringent requirements.
Environmental laws and regulations are likely to change in the future under different administrations, possibly resulting in more stringent requirements.
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.
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.
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.
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.
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. 41 Table of Contents Our principal stockholder has substantial control over our business, which may be disadvantageous to other stockholders.
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.
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.
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.
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 Arrow Bidco defaults on their obligations under the ABL Facility and the 2025 Senior Secured Notes Indenture (as defined below), 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.
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 2025 Senior Secured Notes and our other debt. The ABL Facility also requires our subsidiaries to satisfy specified financial maintenance tests.
It remains unclear what additional actions President Biden will take 35 Table of Contents and what support he will have for any potential legislative changes from Congress.
It remains unclear what additional actions President Biden, or a future administration, will take and what support he will have for any potential legislative changes from Congress.
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. 34 Table of Contents 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.
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.
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.
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 that contain cross-acceleration or cross-default provisions also may be accelerated or become payable on demand.
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.
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. 34 Table of Contents 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.
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.
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).
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.
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.
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.
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 customer receivables.
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.
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.
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.
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 64% of our outstanding shares of Common Stock as of December 31, 2023.
If we are not able to adjust our business in a timely 37 Table of Contents and effective manner to changing economic conditions, our business, results of operations and financial condition may be materially adversely affected.
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 and effective manner to changing economic conditions, our business, results of operations and financial condition may be materially adversely affected.
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.
The Private Warrants, which expire on March 15, 2024, 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).
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. 29 Table of Contents 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, 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.
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 Table of Contents 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.
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.
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.
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 are subject to fluctuations in occupancy levels, and a decrease in occupancy levels could cause a decrease in revenues and profitability.
In addition, tax laws in certain jurisdictions may limit the ability to use carryforwards upon a change in control. 33 Table of Contents 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.
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.
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.
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.
If we are unable to obtain financing on acceptable terms, we may have to curtail our growth. 39 Table of Contents Economic disruptions affecting key counterparties could also have a material adverse effect on our business.
Economic disruptions affecting key counterparties could also have a material adverse effect on our business.
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.
Obligations and liabilities under these laws and regulations may materially harm our business .” below. Our natural resource development customers are exposed to a number of unique operating risks and challenges which could also adversely affect us.
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). 32 Table of Contents 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.
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.
Removed
Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in the write-off of 24 Table of Contents customer receivables.
Added
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.
Removed
In particular, the continued spread of COVID-19 and its variants and efforts to contain the virus could: ● 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.
Added
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. We are subject to extensive procurement laws, regulations and procedures, including those that enable the U.S. government to terminate contracts for convenience.
Removed
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.
Added
Our business and reputation could be adversely affected if we or those we do business with fail to comply with or adapt to existing or new procurement laws and regulations, which are regularly evolving.
Removed
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.
Added
As a U.S. government subcontractor, we and others with which we do business must comply with laws and regulations relating to the award, administration and performance of U.S. government contracts. Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business.
Removed
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.
Added
A violation of these laws and regulations by us, our employees, others working on our behalf or a supplier could harm our reputation and result in the imposition of fines and penalties, the termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to export products or perform services and civil or criminal investigations or proceedings.
Removed
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.
Added
In addition, costs to comply with new government regulations can increase our costs, reduce our margins and adversely affect our competitiveness. Government contract laws and regulations can impose terms or obligations that are different than those typically found in commercial transactions.
Removed
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.
Added
One of the significant differences is that the U.S. government generally may terminate its contracts, not only for default based on our performance, but also at its convenience. Generally, prime contractors have a similar right under subcontracts related to government contracts.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ Location ​ Description HFS – Midwest ​ ​ ​ ​ ​ ​ Williston, North Dakota ​ Williams County Lodge ​ ​ Williston, North Dakota ​ Judson Executive Lodge ​ ​ Watford City, North Dakota ​ Watford City Lodge ​ ​ ​ ​ ​ Government ​ ​ ​ ​ ​ ​ Dilley, Texas ​ Dilley (STFRC) ​ ​ Pecos, Texas ​ Pecos Children’s Center ​ ​ Pecos, Texas ​ Pecos Blue Lodge ​ ​ Pecos, Texas ​ Railhead Lodge (Leased) ​ ​ Orla, Texas ​ Delaware Lodge ​ ​ Mentone, Texas ​ Skillman Station Lodge ​ ​ Pecos, Texas ​ Lodge 118 ​ ​ Pecos, Texas ​ Pecos Trail Lodge ​ ​ Pecos, Texas ​ Pecos South Lodge* ​ ​ ​ ​ ​ HFS – South ​ ​ ​ ​ ​ ​ Pecos, Texas ​ Pecos South Lodge* ​ ​ Orla, Texas ​ Orla North Lodge ​ ​ Orla, Texas ​ Orla South Lodge ​ ​ Orla, Texas ​ El Capitan Lodge ​ ​ Odessa, Texas ​ Odessa West Lodge ​ ​ Odessa, Texas ​ Odessa East Lodge ​ ​ Mentone, Texas ​ Mentone Wolf Lodge ​ ​ Midland, Texas ​ Midland Lodge ​ ​ Midland, Texas ​ Midland East Lodge ​ ​ Kermit, Texas ​ Kermit Lodge ​ ​ Kermit, Texas ​ Kermit North Lodge ​ ​ Carlsbad, New Mexico ​ Carlsbad Lodge ​ ​ Carlsbad, New Mexico ​ Seven Rivers Lodge ​ ​ Jal, New Mexico ​ Jal Lodge ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ Canada ​ Cheecham Lodge ​ ​ El Reno, Oklahoma ​ El Reno Lodge ​ *This location is shared between HFS – South and Government. ​ ​ ​ 43 Table of Contents
Biggest changeFor a discussion about how each of our business segments utilizes its respective properties, see Item 1, “Business” of this Annual Report on Form 10-K. ​ ​ ​ ​ ​ ​ ​ ​ ​ Location ​ Description Government ​ ​ ​ ​ ​ ​ Dilley, Texas (leased land) ​ Dilley (STFRC) ​ ​ Pecos, Texas (owned and leased land) ​ Pecos Children’s Center ​ ​ Pecos, Texas (leased land) ​ Pecos Blue Lodge ​ ​ Orla, Texas ​ Delaware Lodge ​ ​ Mentone, Texas (leased land) ​ Skillman Station Lodge (1) ​ ​ Pecos, Texas ​ Lodge 118 ​ ​ Pecos, Texas ​ Pecos Trail Lodge ​ ​ Pecos, Texas ​ Pecos South Lodge (1) ​ ​ ​ ​ ​ HFS – South ​ ​ ​ ​ ​ ​ Pecos, Texas ​ Pecos South Lodge (1) ​ ​ Orla, Texas ​ Orla North Lodge ​ ​ Orla, Texas ​ Orla South Lodge ​ ​ Orla, Texas (leased land) ​ El Capitan Lodge ​ ​ Odessa, Texas (owned and leased land) ​ Odessa West Lodge ​ ​ Odessa, Texas ​ Odessa East Lodge ​ ​ Mentone, Texas (leased land) ​ Mentone Wolf Lodge ​ ​ Mentone, Texas (leased land) ​ Skillman Station Lodge (1) ​ ​ Midland, Texas ​ Midland Lodge ​ ​ Midland, Texas (leased land) ​ Midland East Lodge ​ ​ Kermit, Texas (leased land) ​ Kermit Lodge ​ ​ Kermit, Texas ​ Kermit North Lodge ​ ​ Carlsbad, New Mexico (leased land) ​ Carlsbad Lodge ​ ​ Carlsbad, New Mexico (leased land) ​ Seven Rivers Lodge ​ ​ Jal, New Mexico (owned and leased land) ​ Jal Lodge ​ ​ Big Spring, Texas ​ Big Spring Lodge ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ Canada (leased land) ​ Cheecham Lodge ​ ​ Williston, North Dakota ​ Williams County Lodge ​ ​ Williston, North Dakota ​ Judson Executive Lodge ​ ​ Watford City, North Dakota (leased land) ​ Watford City Lodge (1) Location is shared between the HFS – South and Government segments. ​ ​
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.
Item 2. Properties Our corporate headquarters are located in The Woodlands, Texas. Our executive, financial, accounting, legal, administrative, management information systems and human resources functions operate from this single, leased office. Except as indicated, we own all of the real property at the locations listed below.
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.
Subject to certain exceptions, substantially all of our owned personal property and material real property in the U.S. are encumbered under our ABL Facility and the 2025 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.
Added
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and Note 8 – Debt to the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information concerning our ABL Facility (as defined below) and the 2025 Senior Secured Notes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn 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.
Biggest changeIn 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 results of operations, or liquidity.
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.
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 43 Table of Contents and subcontractors, and customers over contract specifications and contract interpretations among other things.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSpecifically, 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 Table of Contents ● 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.
Biggest changeSpecifically, 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, including growing the HFS and Government segments; ● effective management of our communities; ● natural disasters and other business disruptions including outbreaks of epidemic or pandemic disease; ● the duration of 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; ● changes in end-user demand requirements, including variable occupancy levels associated with contracts in the Government segment; ● 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 or any future administration; ● federal government budgeting and appropriations; ● our ability to effectively manage our credit risk and collect on our accounts receivable; ● 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 refinance debt on favorable terms and meet our debt service requirements and obligations; and ● risks related to Arrow Bidco’s obligations under the 2025 Senior Secured 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.
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.
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 Executive Performance Stock Unit Agreements.
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.
Holders As of December 31, 2023, 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.
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.
No share repurchases were made during the years ended December 31, 2023 and 2022, respectively. ​ 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.
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 Table of Contents Item 6. Reserved
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. ​ ​ ​ 48 Table of Contents Item 6. Res erved
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 below compares the cumulative total return of our Common Stock from December 31, 2018, through December 31, 2023, with the comparable cumulative return of two indices, the Russell Broadbased Total Returns and the Nasdaq US Benchmark TR Index.
Information on our equity compensation plans can be found in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity Compensation Plan Information Plan Category 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 ​ Common Shares Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Shares Reflected in the first column in this table) Equity compensation plan approved by Target Hospitality stockholders (1) ​ 5,664,259 ​ $ 6.13 ​ ​ 825,577 Equity compensation plans not approved by security holders ​ — ​ ​ — ​ ​ — Total ​ 5,664,259 ​ $ 6.13 ​ ​ 825,577 (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.
Information on our equity compensation plans can be found in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity Compensation Plan Information Plan Category 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 ​ Common Shares Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Shares Reflected in the first column in this table) Equity compensation plan approved by Target Hospitality stockholders (1) ​ 3,781,513 ​ $ 6.55 ​ ​ 1,207,138 Equity compensation plans not approved by security holders ​ — ​ ​ — ​ ​ — Total ​ 3,781,513 ​ $ 6.55 ​ ​ 1,207,138 (1) The number of common shares reported in Column (a) excludes liability-based stock appreciation right awards of 714,539 and shares associated with grants that were withheld for tax liabilities and grants that were forfeited or expired on or before December 31, 2023, as shares associated with grants that were withheld for tax liabilities and forfeited and expired grants are available for reissuance under the Plan.
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.
As of December 31, 2023, 10,082,940 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.
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 Warrants expire at 5:00 pm New York City time on March 15, 2024. As of December 31, 2023, there were 8,044,287 Warrants outstanding. Of the 8,044,287 outstanding, 1,533,334 are Private Warrants and 6,510,953 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 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.
The amounts and values in Column (a) comprise 1,682,206 equity-based RSUs at a weighted average grant price of $4.65, 1,358,868 equity-based PSUs (assumed at a payout of 100% of Target) at a weighted average grant price of $5.23, and 740,439 stock options at a weighted average exercise price of $6.55.
Added
During the year ended December 31, 2023, holders of Public Warrants exercised 17,369 Public Warrants for shares of Common Stock resulting in the Company receiving cash proceeds of approximately $0.2 million and issuing 17,369 shares of Common Stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved 50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 65 Item 8. Financial Statements and Supplementary Data 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 113 Item 9A. Controls and Procedures 113
Biggest changeItem 6. Reserved 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Financial Statements and Supplementary Data 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 115 Item 9A. Controls and Procedures 115

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSegment 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). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) Revenue: 2022 ​ 2021 ​ 2020 ​ ​ 2022 vs. 2021 ​ 2022 vs. 2021 ​ ​ 2021 vs. 2020 ​ 2021 vs. 2020 Government $ 360,294 ​ $ 156,250 ​ $ 63,259 ​ $ 204,044 ​ 131% ​ $ 92,991 ​ 147% Hospitality & Facilities Services - South ​ 132,373 ​ ​ 116,958 ​ ​ 112,126 ​ ​ 15,415 ​ 13% ​ ​ 4,832 ​ 4% Hospitality & Facilities Services - Midwest ​ 6,168 ​ ​ 4,150 ​ ​ 6,605 ​ ​ 2,018 ​ 49% ​ ​ (2,455) ​ (37)% TCPL Keystone ​ - ​ ​ 12,283 ​ ​ 41,911 ​ ​ (12,283) ​ (100)% ​ ​ (29,628) ​ (71)% All Other ​ 3,150 ​ ​ 1,696 ​ ​ 1,247 ​ ​ 1,454 ​ 86% ​ ​ 449 ​ 36% Total revenues $ 501,985 ​ $ 291,337 ​ $ 225,148 ​ $ 210,648 ​ 72% ​ $ 66,189 ​ 29% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government $ 246,598 ​ $ 94,801 ​ $ 47,523 ​ $ 151,797 ​ 160% ​ $ 47,278 ​ 99% Hospitality & Facilities Services - South ​ 54,558 ​ ​ 52,344 ​ ​ 51,518 ​ ​ 2,214 ​ 4% ​ ​ 826 ​ 2% Hospitality & Facilities Services - Midwest ​ (258) ​ ​ (711) ​ ​ 161 ​ ​ 453 ​ (64)% ​ ​ (872) ​ (543)% TCPL Keystone ​ - ​ ​ 9,161 ​ ​ 8,617 ​ ​ (9,161) ​ (100)% ​ ​ 544 ​ 6% All Other ​ (937) ​ ​ (636) ​ ​ (699) ​ ​ (301) ​ 47% ​ ​ 63 ​ (9)% Total Adjusted Gross Profit $ 299,961 ​ $ 154,959 ​ $ 107,120 ​ $ 145,002 ​ 94% ​ $ 47,839 ​ 45% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Daily Rate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Hospitality & Facilities Services - South $ 73.39 ​ $ 74.64 ​ $ 81.67 ​ $ (1.25) ​ ​ ​ $ (7.03) ​ ​ Hospitality & Facilities Services - Midwest $ 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.
Biggest changeSegment Results The following table sets forth our selected results of operations for each of our reportable segments for the years ended December 31, 2023, 2022 and 2021 ($ in thousands, except for Average Daily Rate amounts). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) Revenue: 2023 ​ 2022 ​ 2021 ​ ​ 2023 vs. 2022 ​ 2023 vs. 2022 ​ ​ 2022 vs. 2021 ​ 2022 vs. 2021 Government $ 403,724 ​ $ 360,294 ​ $ 156,250 ​ $ 43,430 ​ 12% ​ $ 204,044 ​ 131% HFS - South ​ 148,677 ​ ​ 132,373 ​ ​ 116,958 ​ ​ 16,304 ​ 12% ​ ​ 15,415 ​ 13% All Other ​ 11,207 ​ ​ 9,318 ​ ​ 18,129 ​ ​ 1,889 ​ 20% ​ ​ (8,811) ​ (49)% Total revenues $ 563,608 ​ $ 501,985 ​ $ 291,337 ​ $ 61,623 ​ 12% ​ $ 210,648 ​ 72% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government $ 332,480 ​ $ 246,598 ​ $ 94,801 ​ $ 85,882 ​ 35% ​ $ 151,797 ​ 160% HFS - South ​ 51,444 ​ ​ 54,558 ​ ​ 52,344 ​ ​ (3,114) ​ (6)% ​ ​ 2,214 ​ 4% All Other ​ (1,974) ​ ​ (1,195) ​ ​ 7,814 ​ ​ (779) ​ 65% ​ ​ (9,009) ​ (115)% Total Adjusted Gross Profit $ 381,950 ​ $ 299,961 ​ $ 154,959 ​ $ 81,989 ​ 27% ​ $ 145,002 ​ 94% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Daily Rate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ HFS - South $ 75.22 ​ $ 73.39 ​ $ 74.64 ​ $ 1.83 ​ ​ ​ $ (1.25) ​ ​ ​ 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.
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.
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 51 Table of Contents for our services.
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.
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 50 Table of Contents the investigation and remediation of contamination.
The risks of substantial costs, liabilities, and limitations on our operations related to compliance with 51 Table of Contents 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.
The risks of substantial costs, liabilities, and limitations on our operations related to compliance with 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.
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.
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, 2022 and 2021 ​ For discussion of the comparison of our operating results for the years ended December 31, 2022 and 2021, please read the “Comparison of Years Ended December 31, 2022 and 2021” section located in the Management Discussion & Analysis section in our Annual Report on From 10-K for the year ended December 31, 2022 filed on March 10, 2023 and is incorporated herein by reference.
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.
Additionally, this segment also includes facilities and operations provided under a lease and services agreement with our NP Partner, backed by a committed U.S. Government contract, to provide a suit of comprehensive service offerings in support of their humanitarian aid efforts.
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.
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, the Notes Exchange Offer, and the 2025 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.
Comparison of the Years Ended December 31, 2022 and 2021 ​ For discussion of the comparison of our operating results for the years ended December 31, 2022 and 2021, please read the “Comparison of Years Ended December 31, 2022 and 2021” section located in the Management Discussion & Analysis section in the our Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 10, 2023 and is incorporated herein by reference.
The change in fair value of the warrant liabilities was $31.7 million for the year ended December 31, 2022 as compared to 56 Table of Contents $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 change in fair value of the warrant liabilities was ($9.1) million for the year ended December 31, 2023 as compared 55 Table of Contents to $31.7 million for the year ended December 31, 2022. 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.
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.
Maintenance capital expenditures for specialty rental assets amounted to approximately $14.2 million, $12.3 million, and $11.7 million for the years ended December 31, 2023, 2022 and 2021, 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.
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.
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 operated with similar structure to the Company’s prior and existing government services subcontracts, which are centered around minimum revenue commitments supported by the United States Government.
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 Table of Contents 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.
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, 2023 and 2022 ​ Government Revenue for the Government segment was $403.8 million for the year ended December 31, 2023 as compared to $360.3 million for the year ended December 31, 2022. 56 Table of Contents Adjusted gross profit for the Government segment was $332.5 million for the year ended December 31, 2023 as compared to $246.6 million for the year ended December 31, 2022.
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.
The Company’s finance lease and other financing obligations as of December 31, 2022, consisted of approximately $2.2 million of finance leases related to commercial-use vehicles with the same terms as described above.
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.
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 4.0% of annual revenue between 2019 and 2023, with an average cost of approximately 2% of annual revenue.
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.
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, and (iv) debt service interest payments.
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.
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.
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.
The 2024 Notes Indenture was entered into by and among Arrow Bidco, the guarantors named therein (the “2024 Senior Secured Note Guarantors”), and Deutsche Bank Trust Company Americas, as trustee and as collateral agent. Interest was payable semi-annually on September 15 and March 15 and began September 15, 2019.
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.
Revenue and adjusted gross profit increased as a result of the contracts originated in the Government segment in May of 2022 and November of 2023 as previously mentioned.
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.
Net cash provided by operating activities was $156.8 million for the year ended December 31, 2023 compared to $305.6 million for the year ended December 31, 2022.
Approximately 66.5% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 33.5% of revenues were earned through leasing of lodging facilities for the year ended December 31, 2022.
Approximately 64.9% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 35.1% of revenues were earned through leasing of lodging facilities for the year ended December 31, 2023.
The following table sets forth general information derived from our audited consolidated statements of cash flows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ 2022 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ $ 305,612 ​ $ 104,599 ​ $ 46,781 Net cash used in investing activities ​ (140,228) ​ (35,915) ​ ​ (10,949) Net cash used in financing activities ​ (7,098) ​ (52,271) ​ ​ (35,683) Effect of exchange rate changes on cash and cash equivalents ​ ​ (19) ​ ​ 14 ​ ​ (9) Net increase in cash and cash equivalents ​ $ 158,267 ​ $ 16,427 ​ $ 140 ​ Comparison of Years Ended December 31, 2022 and 2021 ​ Cash flows provided by operating activities .
The following table sets forth general information derived from our audited consolidated statements of cash flows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ 2023 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by operating activities ​ $ 156,801 ​ $ 305,612 ​ $ 104,599 Net cash used in investing activities ​ (68,180) ​ (140,228) ​ ​ (35,915) Net cash used in financing activities ​ (166,369) ​ (7,098) ​ ​ (52,271) Effect of exchange rate changes on cash and cash equivalents ​ ​ 4 ​ ​ (19) ​ ​ 14 Net increase (decrease) in cash and cash equivalents ​ $ (77,744) ​ $ 158,267 ​ $ 16,427 ​ Comparison of Years Ended December 31, 2023 and 2022 ​ Cash flows provided by operating activities .
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.
Indebtedness The Company’s finance lease and other financing obligations as of December 31, 2023 consisted of $2.4 million of finance leases. The finance leases pertain to leases entered into during 2019 through 2023, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2026.
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.
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. In January 2021, the project was suspended due to the Keystone XL Presidential Permit being revoked.
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.
Net cash used in financing activities was $166.4 million for the year ended December 31, 2023 compared to $7.1 million for the year ended December 31, 2022.
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.
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, acquisition, and diversification strategy discussed in Item 1, “Business” of this Annual Report on Form 10-K, lease obligations, contingent liabilities and working capital investments for at least the next 12 months.
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.
Selling, general and administrative was $56.1 million for the year ended December 31, 2023 as compared to $57.9 million for the year ended December 31, 2022.
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.
Interest expense, net was $22.6 million for the year ended December 31, 2023 as compared to interest expense, net of $36.3 million for the year ended December 31, 2022.
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.
These decreases were partially offset by approximately $1.0 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.
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.
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 a national provider of migrant programming (the “FRCC Partner”).
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.
Hospitality & Facilities Services - South Revenue for the HFS – South segment was $148.7 million for the year ended December 31, 2023, as compared to $132.4 million for the year ended December 31, 2022. ​ Adjusted gross profit for the HFS – South segment was $51.4 million for the year ended December 31, 2023, as compared to $54.6 million for the year ended December 31, 2022.
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”).
Senior Secured Notes 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”) under an indenture dated March 15, 2019 (the “2024 Notes Indenture”).
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.
Additionally, the Expanded Humanitarian Contract included occupancy-based variable services revenue that aligned with active community population. The minimum revenue commitments, which consisted of annual recurring lease revenue and nonrecurring infrastructure enhancement revenue, provided for a minimum annual revenue contribution of approximately $390 million and was fully committed over its initial contract term.
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 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.
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.
The occurrence of a natural disaster, such as earthquake, tornado, severe weather including hail storms, flood, fire, or other unanticipated problems such as public health threats or outbreaks, labor difficulties, equipment failure, capacity expansion difficulties or unscheduled maintenance could cause operational disruptions of varied duration.
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.
Target Hospitality defines Adjusted gross profit, as gross profit plus depreciation of specialty rental assets, loss on impairment, and certain severance costs. 61 Table of Contents 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.
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.
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.
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.
During the year ended December 31, 2022, the Company made an elective repayment of approximately $5.5 million on the 2024 Senior Secured Notes, reducing the principal balance outstanding to $334.5 million from an original principal balance of $340 million. On March 15, 2023, Arrow Bidco redeemed $125 million in aggregate principal amount of the outstanding 2024 Senior Secured Notes.
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.
This increase in net income is primarily attributable to an increase in gross profit driven by the increase in revenue, a decrease in costs of service, a decrease in interest expense driven by significant debt reduction as well as a decrease in the 49 Table of Contents estimated fair value of warrant liabilities, partially offset by an increase in loss on extinguishment of debt and an increase in income tax expense due to improved results. ● Generated consolidated Adjusted EBITDA of $344.2 million representing an increase of $79.5 million or 30% as compared to the year ended December 31, 2022, driven primarily by the increase in revenue, and decrease in costs of services as mentioned above, partially offset by an increase in specialty rental costs.
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.
Total revenue for the year ended December 31, 2022 consisted of $333.7 million of services income and $168.3 million of specialty rental income. Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services including catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management services, health and recreation facilities, concierge services, and laundry service.
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.
The increase in specialty rental costs is primarily due to an increase in costs related to growth in the Government segment. 54 Table of Contents Depreciation of specialty rental assets. Depreciation of specialty rental assets was $68.6 million for the year ended December 31, 2023 as compared to $52.8 million for the year ended December 31, 2022.
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.
The Company had no significant contracts with lease terms or contract terms determined to have been over or under-estimated during the reporting periods included herein. ​ 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.
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.
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. 62 Table of Contents 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.
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.
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. As of December 31, 2023, the ABL Facility had unused available borrowing capacity of $175 million.
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 was $563.6 million for the year ended December 31, 2023 as compared to $502.0 million for the year ended December 31, 2022, and consisted of $365.6 million of services income and $198.0 million of specialty rental income.
The following table presents a reconciliation of Target Hospitality’s consolidated gross profit to Adjusted gross profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2022 ​ 2021 2020 Gross Profit ​ $ 247,128 ​ $ 101,350 ​ $ 57,155 Depreciation of specialty rental assets ​ ​ 52,833 ​ ​ 53,609 ​ ​ 49,965 Adjusted gross profit ​ $ 299,961 ​ $ 154,959 ​ $ 107,120 ​ 63 Table of Contents The following table presents a reconciliation of Target Hospitality’s consolidated net income (loss) to EBITDA and Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2022 ​ 2021 2020 Net income (loss) ​ $ 73,939 ​ $ (4,576) ​ $ (25,131) Income tax expense (benefit) ​ ​ 32,370 ​ ​ 1,904 ​ ​ (8,455) Interest expense, net ​ ​ 36,323 ​ ​ 38,704 ​ ​ 40,034 Other depreciation and amortization ​ ​ 14,832 ​ ​ 16,910 ​ ​ 15,649 Depreciation of specialty rental assets ​ ​ 52,833 ​ ​ 53,609 ​ ​ 49,965 EBITDA ​ ​ 210,297 ​ ​ 106,551 ​ ​ 72,062 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustments ​ ​ ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ ​ 36 ​ ​ 878 ​ ​ 416 Transaction expenses ​ ​ 283 ​ ​ 1,198 ​ ​ 979 Stock-based compensation ​ ​ 19,121 ​ ​ 5,082 ​ ​ 3,592 Change in fair value of warrant liabilities ​ ​ 31,735 ​ ​ 1,067 ​ ​ (2,347) Other adjustments ​ ​ 3,242 ​ ​ 4,400 ​ ​ 3,786 Adjusted EBITDA ​ $ 264,714 ​ $ 119,176 ​ $ 78,488 ​ ​ The following table presents a reconciliation of Target Hospitality’s Net cash provided by operating activities to Discretionary cash flows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2022 ​ 2021 2020 Net cash provided by operating activities ​ $ 305,612 ​ $ 104,599 ​ $ 46,781 Less: Maintenance capital expenditures for specialty rental assets ​ ​ (12,314) ​ ​ (11,659) ​ ​ (888) Discretionary cash flows ​ $ 293,298 ​ $ 92,940 ​ $ 45,893 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase of specialty rental assets ​ ​ (120,287) ​ ​ (35,488) ​ ​ (12,177) Purchase of property, plant and equipment ​ ​ (20,556) ​ ​ (427) ​ ​ (381) Receipt of insurance proceeds ​ ​ - ​ ​ - ​ ​ 619 Proceeds from sale of specialty rental assets and other property, plant and equipment ​ ​ 615 ​ ​ - ​ ​ 990 Net cash used in investing activities ​ $ (140,228) ​ $ (35,915) ​ $ (10,949) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from borrowings on finance and finance lease obligations ​ ​ - ​ ​ - ​ ​ 13,437 Principal payments on finance and finance lease obligations ​ ​ (1,008) ​ ​ (4,172) ​ ​ (11,581) Principal payments on borrowings from ABL ​ ​ (70,000) ​ ​ (76,000) ​ ​ (74,500) Proceeds from borrowings on ABL ​ ​ 70,000 ​ ​ 28,000 ​ ​ 42,500 Repayment of Senior Notes ​ ​ (5,500) ​ ​ - ​ ​ - Payment of issuance costs from warrant exchange ​ ​ (774) ​ ​ - ​ ​ - Proceeds from issuance of Common Stock from exercise of warrants ​ ​ 80 ​ ​ - ​ ​ - Proceeds from issuance of Common Stock from exercise of stock options ​ ​ 225 ​ ​ - ​ ​ - Purchase of treasury stock ​ ​ - ​ ​ - ​ ​ (5,318) Restricted shares surrendered to pay tax liabilities ​ ​ (121) ​ ​ (99) ​ ​ (221) Net cash used in financing activities ​ $ (7,098) ​ $ (52,271) ​ $ (35,683) ​ ​ 64 Table of Contents
The following table presents a reconciliation of Target Hospitality’s consolidated gross profit to Adjusted gross profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2023 ​ 2022 2021 Gross Profit ​ $ 313,324 ​ $ 247,128 ​ $ 101,350 Depreciation of specialty rental assets ​ ​ 68,626 ​ ​ 52,833 ​ ​ 53,609 Adjusted gross profit ​ $ 381,950 ​ $ 299,961 ​ $ 154,959 ​ The following table presents a reconciliation of Target Hospitality’s consolidated net income (loss) to EBITDA and Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2023 ​ 2022 2021 Net income (loss) ​ $ 173,700 ​ $ 73,939 ​ $ (4,576) Income tax expense ​ ​ 51,050 ​ ​ 32,370 ​ ​ 1,904 Interest expense, net ​ ​ 22,639 ​ ​ 36,323 ​ ​ 38,704 Loss on extinguishment of debt ​ ​ 2,279 ​ ​ - ​ ​ - Other depreciation and amortization ​ ​ 15,351 ​ ​ 14,832 ​ ​ 16,910 Depreciation of specialty rental assets ​ ​ 68,626 ​ ​ 52,833 ​ ​ 53,609 EBITDA ​ ​ 333,645 ​ ​ 210,297 ​ ​ 106,551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustments ​ ​ ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ ​ 1,241 ​ ​ 36 ​ ​ 878 Transaction expenses ​ ​ 4,875 ​ ​ 283 ​ ​ 1,198 Stock-based compensation ​ ​ 11,174 ​ ​ 19,121 ​ ​ 5,082 Change in fair value of warrant liabilities ​ ​ (9,062) ​ ​ 31,735 ​ ​ 1,067 Other adjustments ​ ​ 2,344 ​ ​ 3,242 ​ ​ 4,400 Adjusted EBITDA ​ $ 344,217 ​ $ 264,714 ​ $ 119,176 ​ 63 Table of Contents The following table presents a reconciliation of Target Hospitality’s Net cash provided by operating activities to Discretionary cash flows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ($ in thousands) ​ December 31, ​ ​ 2023 ​ 2022 2021 Net cash provided by operating activities ​ $ 156,801 ​ $ 305,612 ​ $ 104,599 Less: Maintenance capital expenditures for specialty rental assets ​ ​ (14,218) ​ ​ (12,314) ​ ​ (11,659) Discretionary cash flows ​ $ 142,583 ​ $ 293,298 ​ $ 92,940 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase of specialty rental assets ​ ​ (60,808) ​ ​ (120,287) ​ ​ (35,488) Purchase of property, plant and equipment ​ ​ (3,066) ​ ​ (20,556) ​ ​ (427) Acquired intangible assets ​ ​ (4,547) ​ ​ - ​ ​ - Proceeds from sale of specialty rental assets and other property, plant and equipment ​ ​ 241 ​ ​ 615 ​ ​ - Net cash used in investing activities ​ $ (68,180) ​ $ (140,228) ​ $ (35,915) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Principal payments on finance and finance lease obligations ​ ​ (1,404) ​ ​ (1,008) ​ ​ (4,172) Principal payments on borrowings from ABL ​ ​ - ​ ​ (70,000) ​ ​ (76,000) Proceeds from borrowings on ABL ​ ​ - ​ ​ 70,000 ​ ​ 28,000 Repayment of Senior Notes ​ ​ (153,054) ​ ​ (5,500) ​ ​ - Payment of issuance costs from warrant exchange ​ ​ (1,504) ​ ​ (774) ​ ​ - Proceeds from issuance of Common Stock from exercise of warrants ​ ​ 209 ​ ​ 80 ​ ​ - Proceeds from issuance of Common Stock from exercise of stock options ​ ​ 1,396 ​ ​ 225 ​ ​ - Payment of deferred financing costs ​ ​ (5,194) ​ ​ - ​ ​ - Taxes paid related to net share settlement of equity awards ​ ​ (6,818) ​ ​ (121) ​ ​ (99) Net cash used in financing activities ​ $ (166,369) ​ $ (7,098) ​ $ (52,271) ​ ​
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.
We have built, own and operate the largest specialty rental and hospitality services network available to customers operating in the HFS – South region. 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.
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.
We have identified two reportable business segments: HFS – South and Government: HFS - South The HFS – South segment reflects our facilities and operations in the HFS – South region from customers in the natural resources development industry and includes our 16 communities located across Texas and New Mexico.
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 investing activities was $68.2 million for the year ended December 31, 2023 compared to $140.2 million for the year ended December 31, 2022. This decrease in net cash used in investing activities was primarily related to a decrease in growth capital expenditures in the Government segment compared to the prior period.
EBITDA reflects net income (loss) excluding the impact of interest expense and loss on extinguishment of debt, provision for income taxes, depreciation, and amortization. We believe that EBITDA is a meaningful indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business.
We believe that EBITDA is a meaningful indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business.
The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this document. 54 Table of Contents ​ Consolidated Results of Operations for the years ended December 31, 2022, 2021 and 2020 ($ in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) Revenues: 2022 ​ 2021 ​ 2020 ​ 2022 vs. 2021 ​ 2022 vs. 2021 ​ 2021 vs. 2020 ​ 2021 vs. 2020 Services income $ 333,702 ​ $ 203,134 ​ $ 132,430 ​ $ 130,568 ​ 64% ​ $ 70,704 ​ 53% Specialty rental income ​ 168,283 ​ ​ 76,909 ​ ​ 52,960 ​ ​ 91,374 ​ 119% ​ ​ 23,949 ​ 45% Construction fee income ​ - ​ ​ 11,294 ​ ​ 39,758 ​ ​ (11,294) ​ (100)% ​ ​ (28,464) ​ (72)% Total revenues ​ 501,985 ​ ​ 291,337 ​ ​ 225,148 ​ ​ 210,648 ​ 72% ​ ​ 66,189 ​ 29% Costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Services ​ 174,200 ​ ​ 120,192 ​ ​ 109,185 ​ ​ 54,008 ​ 45% ​ ​ 11,007 ​ 10% Specialty rental ​ 27,824 ​ ​ 16,186 ​ ​ 8,843 ​ ​ 11,638 ​ 72% ​ ​ 7,343 ​ 83% Depreciation of specialty rental assets ​ 52,833 ​ ​ 53,609 ​ ​ 49,965 ​ ​ (776) ​ (1)% ​ ​ 3,644 ​ 7% Gross profit ​ 247,128 ​ ​ 101,350 ​ ​ 57,155 ​ ​ 145,778 ​ 144% ​ ​ 44,195 ​ 77% Selling, general and administrative ​ 57,893 ​ ​ 46,461 ​ ​ 38,128 ​ ​ 11,432 ​ 25% ​ ​ 8,333 ​ 22% Other depreciation and amortization ​ 14,832 ​ ​ 16,910 ​ ​ 15,649 ​ ​ (2,078) ​ (12)% ​ ​ 1,261 ​ 8% Other expense (income), net ​ 36 ​ ​ 880 ​ ​ (723) ​ ​ (844) ​ (96)% ​ ​ 1,603 ​ (222)% Operating income ​ 174,367 ​ ​ 37,099 ​ ​ 4,101 ​ ​ 137,268 ​ 370% ​ ​ 32,998 ​ 805% Interest expense, net ​ 36,323 ​ ​ 38,704 ​ ​ 40,034 ​ ​ (2,381) ​ (6)% ​ ​ (1,330) ​ (3)% Change in fair value of warrant liabilities ​ 31,735 ​ ​ 1,067 ​ ​ (2,347) ​ ​ 30,668 ​ 2874% ​ ​ 3,414 ​ (145)% Income (loss) before income tax ​ 106,309 ​ ​ (2,672) ​ ​ (33,586) ​ ​ 108,981 ​ (4,079)% ​ ​ 30,914 ​ (92)% Income tax expense (benefit) ​ 32,370 ​ ​ 1,904 ​ ​ (8,455) ​ ​ 30,466 ​ 1600% ​ ​ 10,359 ​ (123)% Net income (loss) $ 73,939 ​ $ (4,576) ​ $ (25,131) ​ $ 78,515 ​ (1,716)% ​ $ 20,555 ​ (82)% ​ ​ Comparison of Years Ended December 31, 2022 and 2021 ​ Total Revenue.
The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this document. 53 Table of Contents Consolidated Results of Operations for the years ended December 31, 2023, 2022 and 2021($ in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) ​ Amount of Increase (Decrease) ​ Percentage Change Increase (Decrease) Revenues: 2023 ​ 2022 ​ 2021 ​ 2023 vs. 2022 ​ 2023 vs. 2022 ​ 2022 vs. 2021 ​ 2022 vs. 2021 Services income $ 365,627 ​ $ 333,702 ​ $ 203,134 ​ $ 31,925 ​ 10% ​ $ 130,568 ​ 64% Specialty rental income ​ 197,981 ​ ​ 168,283 ​ ​ 76,909 ​ ​ 29,698 ​ 18% ​ ​ 91,374 ​ 119% Construction fee income ​ - ​ ​ - ​ ​ 11,294 ​ ​ - ​ 0% ​ ​ (11,294) ​ (100)% Total revenues ​ 563,608 ​ ​ 501,985 ​ ​ 291,337 ​ ​ 61,623 ​ 12% ​ ​ 210,648 ​ 72% Costs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Services ​ 151,574 ​ ​ 174,200 ​ ​ 120,192 ​ ​ (22,626) ​ (13)% ​ ​ 54,008 ​ 45% Specialty rental ​ 30,084 ​ ​ 27,824 ​ ​ 16,186 ​ ​ 2,260 ​ 8% ​ ​ 11,638 ​ 72% Depreciation of specialty rental assets ​ 68,626 ​ ​ 52,833 ​ ​ 53,609 ​ ​ 15,793 ​ 30% ​ ​ (776) ​ (1)% Gross profit ​ 313,324 ​ ​ 247,128 ​ ​ 101,350 ​ ​ 66,196 ​ 27% ​ ​ 145,778 ​ 144% Selling, general and administrative ​ 56,126 ​ ​ 57,893 ​ ​ 46,461 ​ ​ (1,767) ​ (3)% ​ ​ 11,432 ​ 25% Other depreciation and amortization ​ 15,351 ​ ​ 14,832 ​ ​ 16,910 ​ ​ 519 ​ 3% ​ ​ (2,078) ​ (12)% Other expense, net ​ 1,241 ​ ​ 36 ​ ​ 880 ​ ​ 1,205 ​ 3347% ​ ​ (844) ​ (96)% Operating income ​ 240,606 ​ ​ 174,367 ​ ​ 37,099 ​ ​ 66,239 ​ 38% ​ ​ 137,268 ​ 370% Loss on extinguishment of debt ​ 2,279 ​ ​ - ​ ​ - ​ ​ 2,279 ​ 100% ​ ​ - ​ 0% Interest expense, net ​ 22,639 ​ ​ 36,323 ​ ​ 38,704 ​ ​ (13,684) ​ (38)% ​ ​ (2,381) ​ (6)% Change in fair value of warrant liabilities ​ (9,062) ​ ​ 31,735 ​ ​ 1,067 ​ ​ (40,797) ​ (129)% ​ ​ 30,668 ​ 2874% Income (loss) before income tax ​ 224,750 ​ ​ 106,309 ​ ​ (2,672) ​ ​ 118,441 ​ 111% ​ ​ 108,981 ​ (4,079)% Income tax expense ​ 51,050 ​ ​ 32,370 ​ ​ 1,904 ​ ​ 18,680 ​ 58% ​ ​ 30,466 ​ 1600% Net income (loss) $ 173,700 ​ $ 73,939 ​ $ (4,576) ​ $ 99,761 ​ 135% ​ $ 78,515 ​ (1,716)% ​ Comparison of Years Ended December 31, 2023 and 2022 ​ Total Revenue.
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 Table of Contents 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”).
(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. ​ 60 Table of Contents 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”).
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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total 2023 ​ 2024 ​ 2025 ​ 2026 ​ 2027 Interest Payments on 2024 Senior Secured Notes (1) ​ $ 47,667 ​ $ 31,778 ​ $ 15,889 ​ $ — ​ $ — ​ $ — 2024 Senior Secured Notes ​ 334,500 ​ — ​ ​ 334,500 ​ ​ — ​ ​ — ​ ​ — Operating lease obligations, including imputed interest (2) ​ ​ 25,499 ​ ​ 12,942 ​ ​ 4,654 ​ ​ 4,012 ​ ​ 3,283 ​ ​ 608 Total ​ $ 407,666 ​ $ 44,720 ​ $ 355,043 ​ $ 4,012 ​ $ 3,283 ​ $ 608 (1) We will incur and pay interest expense at 9.50% of the remaining face value of $334.5 million annually, or $31.8 million in connection with our 2024 Senior Secured Notes due March 15, 2024.
The table below presents information on payments coming due under the most significant categories of our needs for cash (excluding operating cash flows pertaining to normal business operations, other than operating lease obligations) as of December 31, 2023 ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total 2024 ​ 2025 ​ 2026 ​ 2027 Interest Payments (1) ​ $ 31,696 ​ $ 17,067 ​ $ 14,629 ​ $ — ​ $ — 2025 Senior Secured Notes ​ 181,446 ​ ​ — ​ ​ 181,446 ​ ​ — ​ ​ — Operating lease obligations, including imputed interest (2) ​ ​ 21,838 ​ ​ 12,518 ​ ​ 5,429 ​ ​ 3,283 ​ ​ 608 Total ​ $ 234,980 ​ $ 29,585 ​ $ 201,504 ​ $ 3,283 ​ $ 608 (1) We will incur and pay interest expense at 10.75% of the face value of $181.4 million annually, or $19.5 million in connection with our 2025 Senior Secured Notes due June 15, 2025.
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 Table of Contents 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.
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 Canada, three communities in North Dakota, and the catering and other services provided to communities and other workforce accommodation facilities for the natural resource development industries not owned by us. 52 Table of Contents 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: Termination of the TCPL Keystone Contract In January 2021, the TCPL project was suspended due to the Keystone XL Presidential Permit being revoked.
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.
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.
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.
Significant delays in our ability to finance planned acquisitions or capital expenditures may materially and adversely affect our future revenue prospects.
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.
This decrease was partially offset by an increase in average daily rate. ​ Comparison of the Years Ended December 31, 2022 and 2021 ​ For discussion of the comparison of our operating results for the years ended December 31, 2022 and 2021, please read the “Comparison of Years Ended December 31, 2022 and 2021” section located in the Management Discussion & Analysis section in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 10, 2023 and is incorporated herein by reference.
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.
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 IT) services alongside other customers operating in the same vicinity.
However, we cannot 58 Table of Contents 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.
However, we cannot 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.
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.
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.
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.
Interest was not capitalized during the year ended December 31, 2023 as there were no such expansion activities during that period. 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.
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.
Demand for our services is dependent upon activity levels, particularly our customers’ capital spending on natural resource development activities. ​ 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.
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.
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.
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”).
ABL Facility On March 15, 2019, as amended on February 1, 2023, August 10, 2023, and October 12, 2023, 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 $175 million (the “ABL Facility”) with a termination date of February 1, 2028, which termination date is subject to a springing maturity that will accelerate the maturity of the ABL Facility if any of the 2025 Senior Secured Notes remain outstanding on the date that is ninety-one days prior to the stated maturity date thereof.
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.
The main drivers of the increase in services income revenue year over year was the growth in the Government segment, primarily from fixed minimum contractual revenue commitments that are unaffected by changes in occupancy, combined with a continued increase in customer activity in the HFS – South segment as well as a slight increase in the All Other segment.
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.
A summary of our significant accounting policies is provided 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.
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.
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 .
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 Table of Contents We define Discretionary cash flows as cash flows from operations less maintenance capital expenditures for specialty rental assets.
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, COVID-19 related expenses, and other immaterial expenses and non-cash items. ● Transaction expenses: Target Hospitality incurred certain transaction costs during 2021, 2022 and 2023, including legal and professional fees, associated with the Proposal (previously defined in the Item 7.
Over the remaining term of the Notes, interest payments total approximately $47.7 million.
Over the remaining term of the 2025 Senior Secured Notes, interest payments total approximately $31.7 million, which includes any accrued interest due at the maturity date.
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.
Income tax expense. Income tax expense was $51.1 million for the year ended December 31, 2023 as compared to $32.4 million for the year ended December 31, 2022.
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.
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.
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.
Other expense, net was $1.2 million for the year ended December 31, 2023 as compared to less than $0.1 million for the year ended December 31, 2022. This increase in expense is primarily driven by costs incurred on the disposal of assets in the All Other segment category in the current period. Loss on extinguishment of debt.
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 Table of Contents 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.
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.
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.
Our business is capital-intensive and these additional metrics allow management to further evaluate our operating performance.
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.
Other depreciation and amortization expense was $15.4 million for the year ended December 31, 2023 as compared to $14.8 million for the year ended December 31, 2022. The increase in other depreciation and amortization is primarily driven by an increase in depreciation associated with an increase in finance leases. Other expense, net.
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.
As of December 31, 2023, our network included 28 communities to better serve our customers across the US and Canada. ​ Economic Update During the year ended December 31, 2023, the Company continued to experience increasing revenue in the HFS – South segment due to continued improving customer demand and increasing activity in the HFS – South segment as compared to the year ended December 31, 2022.
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 Table of Contents the Government segment as mentioned above.
Cost of services was $151.6 million for the year ended December 31, 2023 as compared to $174.2 million for the year ended December 31, 2022.
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 .
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 . 57 Table of Contents Capital Requirements During the year ended December 31, 2023, we incurred approximately $65.6 million in capital expenditures, which decreased by approximately $75.3 million compared to the year ended December 31, 2022 as the prior period included growth projects to increase community capacity, mainly in the Government segment, which was largely completed in the prior year .
On February 1, 2023, the ABL 60 Table of Contents 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 in Part II, Item 8 within this Annual Report on Form 10-K for further discussion regarding extinguishment of debt and the Notes Exchange Offer. Interest expense, net.
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.
Specialty rental income consists primarily of revenues from leasing rooms and other facilities at certain communities that include contractual arrangements with customers that are considered leases under the authoritative accounting guidance for leases. Specialty rental income increased primarily as a result of growth in the Government segment. Cost of services.
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.
Following the Notes Exchange Offer, approximately $28.1 million aggregate principal amount of 2024 Senior Secured Notes remained outstanding, which were subsequently redeemed on November 21, 2023. ​ For the year ended December 31, 2023, key drivers of financial performance included: ​ ● Increased consolidated revenue by $61.6 million or 12% compared to the year ended 2022 primarily due to additional revenue generated from growth in the Government segment as well as an increase in customer demand in the HFS – South segment. ● Increased revenue in the HFS – South segment by $16.3 million or 12% as compared to the year ended December 31, 2022 as a result of an increase in customer demand. ● Generated consolidated net income of approximately $173.7 million for the year ended December 31, 2023 as compared to a net income of approximately $73.9 million for the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+8 added−2 removed5 unchanged
Biggest changeWe 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.
Biggest changeThose 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. 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.
We do not currently hedge our exposure to commodity prices. ​ ​ 65 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ TABLE OF CONTENTS Page ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID:42) ​ 67 ​ ​ ​ Consolidated Balance Sheets ​ 68 ​ ​ ​ Consolidated Statements of Comprehensive Income (Loss) ​ 69 ​ ​ ​ Consolidated Statements of Changes in Stockholders’ Equity ​ 70 ​ ​ ​ Consolidated Statements of Cash Flows ​ 71 ​ ​ ​ Notes to the Consolidated Financial Statements ​ 72 ​ ​ ​ 66 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Stockholders and the Board of Directors of Target Hospitality Corp.
We do not currently hedge our exposure to commodity prices. ​ ​ 64 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ TABLE OF CONTENTS Page ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID:42) ​ 66 ​ ​ ​ Consolidated Balance Sheets ​ 68 ​ ​ ​ Consolidated Statements of Comprehensive Income (Loss) ​ 69 ​ ​ ​ Consolidated Statements of Changes in Stockholders’ Equity ​ 70 ​ ​ ​ Consolidated Statements of Cash Flows ​ 71 ​ ​ ​ Notes to the Consolidated Financial Statements ​ 72 ​ ​ ​ 65 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Stockholders and the Board of Directors of Target Hospitality Corp.
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.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
(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”).
(the Company) as of December 31, 2023 and 2022, 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, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).
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.
As of December 31, 2023, 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.
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, 2023.
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 are a public accounting firm registered with the 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.
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Houston, Texas March 13, 2024 67 Table of Contents
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.
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.
Removed
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.
Added
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2024 expressed an unqualified opinion thereon.
Removed
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.
Added
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.
Added
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. ​ ​ ​ ​ ​ ​ ​ ​ Determination of Expected Lease End Date for the Expanded Humanitarian Contract ​ Description of the Matter As described in Note 2 to the consolidated financial statements, revenue recognized for the year ended December 31, 2023, included approximately $118.2 million of revenue from the amortization of the advanced payment associated with the Expanded Humanitarian Contract with the NP Partner.
Added
The advanced payment was amortized over the estimated term of the contract ending November 2023. The term ending November 2023 included an extension option that the Company concluded to be reasonably certain of exercise.
Added
Approximately $62.5 million of the $118.2 million of revenue was recognized 66 Table of Contents as services income under Topic 606, while approximately $55.7 million of the $118.2 million of revenue was recognized as specialty rental income under ASC 842. In May 2023, the NP Partner Expanded Humanitarian Contract was modified to include an additional extension option, through May 2024.
Added
The Company concluded the additional lease extension was not reasonably certain of exercise and continued to recognize the advance payment as revenue over the term ending November 2023. ​ Auditing management’s determination of the expected lease end date was complex due to the judgmental nature of assumptions used by management in assessing whether the NP Partner was reasonably certain to exercise the May 2023 extension option, including judgment in contemplating the significance of any penalties the NP Partner may have incurred should it have chosen not to exercise the extension option.
Added
Auditing this assessment required a higher degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to the determination of the expected lease end date. ​ How We Addressed the Matter in Our Audit To test management’s determination of the expected lease end date we performed audit procedures that included, among others, evaluating the reasonableness of significant judgments utilized by management in determining whether the NP Partner was reasonably certain to exercise the May 2023 extension option.
Added
For example, we evaluated whether the unamortized portion of the advanced payment represented a penalty to the NP Partner should it have chosen not to exercise the May 2023 extension option, and whether that penalty affected the conclusion regarding whether the NP Partner was reasonably certain to exercise the extension option. ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018.

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