# Target Hospitality Corp.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Target Hospitality Corp.](/companies/th.md) (CIK 1712189)
- Form: 10-Q
- Filed: 2024-05-08
- Accepted by EDGAR: May 8, 2024, 15:52 ET
- Period: 2024-03-31
- Accession: 0001558370-24-007326
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1712189/000155837024007326/th-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1712189/000155837024007326/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $72.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $49.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $14.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $30.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $6.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $20.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 102,362,542 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $50.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $21.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $124.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $186.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $687.2m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $66.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $311.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $178.6m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-03-31 | $375.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,087 characters.

### TARGET HOSPITALITY CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Target Hospitality Corp. and is intended to help the reader understand Target Hospitality Corp., our operations and our present business environment. This discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

### Executive Summary

Target Hospitality Corp. is one of North America’s largest providers of vertically integrated specialty rental and value-added hospitality services including: catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation facilities, overall workforce community management, concierge services and laundry service. As of March 31, 2024, our network included 28 communities, to better serve our customers across the US and Canada.

#### Economic Update

During the three months ended March 31, 2024, the Company continued to experience increasing revenue in the HFS – South segment as compared to the first quarter of 2023. The Company’s Government segment continued to benefit from the Pecos Children’s Center (“PCC”) and the New PCC Contract that became effective November 16, 2023. The PCC Community contributed lower revenues as compared to the first quarter of 2023 driven primarily by lower non-cash revenue amortization of an advanced payment for community expansion associated with the prior contract that became fully amortized as of November 2023, and to a lesser extent, by a decrease in the minimum lease revenue component of the New PCC Contract compared to the prior contract that ended in November 2023. The Company generated cash inflows from operations for the three months ended March 31, 2024 of approximately $50.6 million compared to approximately $14.5 million for the three months ended March 31, 2023, representing an increase in cash flows from operations of approximately $36.1 million or 248% driven by an increase in cash collections, a decrease in operating expenses, and an $8.6 million decrease in cash paid for interest driven by a significant reduction in debt outstanding during the current period compared to the prior period. During the three months ended March 31, 2024, the Company also purchased 2,274,440 shares of Common Stock for an aggregate purchase price of approximately $21.2 million (exclusive of estimated excise taxes of approximately $0.2 million).

#### For the three months ended March 31, 2024, other key drivers of financial performance included:

- Decreased revenue of $41.1 million, or 28% compared to the same period in 2023, driven by lower revenue generated from the Government segment primarily from lower non-cash revenue amortization of an advanced payment for community build-out and mobilization of asset activities associated with the Company’s PCC community, which was fully amortized as of November 2023 in line with the prior PCC Contract termination date, partially offset by an increase in revenue from the HFS – South segment led by an increase in customer activity and average daily rate.
- Generated net income of approximately $20.4 million for three months ended March 31, 2024, as compared to a net income of approximately $43.8 million for the three months ended March 31, 2023, which is primarily attributable to a decrease in revenue and the change in the estimated fair value of warrant liabilities, partially offset by a decrease service costs driven primarily by lower costs in the Government segment as a result of operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC Community, a decrease in specialty rental costs, a decrease in depreciation of specialty rental assets, a decrease in loss on extinguishment of debt, a decrease in interest expense, net led by a significant reduction in debt, a decrease in selling, general, and administrative expenses, a decrease in asset disposal costs reported in other expense (income), net, and a decrease in income tax expense led by a decrease in income before income tax.
- Generated consolidated Adjusted EBITDA of $53.7 million representing a decrease of $36.9 million, or 41% as compared to the same period in 2023, driven primarily by the decrease in revenue led by the lower non-cash

revenue amortization mentioned above that ended in November 2023 associated with the prior PCC Contract, partially offset by an 11% decrease in operating expenses comprised of a decrease in services costs and specialty rental costs.

Adjusted EBITDA is a non-GAAP measure. The GAAP measure most comparable to Adjusted EBITDA is Net Income. Please see “Non-GAAP Financial Measures” for a definition and reconciliation to the most comparable GAAP measure.

Our Government segment, including the South Texas Family Residential Center and several communities in West, Texas supporting critical United States government humanitarian aid efforts, delivers essential services and accommodations near the southern United States border where there is insufficient housing and infrastructure solutions to appropriately care for asylum-seeking families and unaccompanied minor immigrants. Demand for these communities and services is influenced by immigration activity, where continued increases in migrant populations has increased government spending and demand for appropriate government supported solutions.

Our proximity to customer activities influences occupancy and demand. 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. 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. 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 in our 2023 Form 10-K. 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.

#### Supply and Demand for Natural Resources

As a provider of vertically integrated specialty rental and hospitality services, we are not directly impacted by commodity price fluctuations. However, these price fluctuations indirectly influence our activities and results of operations because the natural resource development workforce is directly affected by price fluctuations and the industry’s expansion or contraction as a result of these fluctuations. Our occupancy volume depends on the size of the workforce within the natural resources industry and the demand for labor. Commodity prices are volatile and influenced by numerous factors beyond our control, including the domestic and global supply of and demand for natural resources, the commodities trading markets, as well as other supply and demand factors that may influence commodity prices.

#### Availability and Cost of Capital

Capital markets conditions could affect our ability to access the debt and equity capital markets to the extent necessary to fund our future growth. Interest rates on future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly, and could limit our ability to raise funds, or increase the price of raising funds, in the capital markets and may limit our ability to expand.

#### Regulatory Compliance

We are subject to extensive federal, state, local, and foreign environmental, health and safety laws and regulations concerning matters such as air emissions, wastewater discharges, solid, and hazardous waste handling and disposal and the investigation and remediation of contamination. In addition, we may be subject, indirectly, to various statutes and regulations applicable to doing business with the U.S. government as a result of our contracts with U.S. government contractor clients. The risks of substantial costs, liabilities, and limitations on our operations related to compliance with 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.

#### Public Policy

We derive a significant portion of our revenues from our subcontracts with government contractors. The U.S. government and, by extension, our U.S. government contractor customers, may from time to time adopt, implement or modify certain policies or directives that may adversely affect our business. Changes in government policy, presidential administration or other changes in the political landscape relating to immigration policies may similarly result in a decline in our revenues in the Government segment.

#### 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 public health threats or outbreaks, labor difficulties, equipment failure, capacity expansion difficulties or unscheduled maintenance could cause operational disruptions of varied duration. These types of disruptions could materially adversely affect our financial condition and results of operations to varying degrees dependent upon the facility, the duration of the disruption, our ability to shift business to another facility or find alternative solutions.

### Overview of Our Revenue and Operations

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 68% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 32% of revenues were earned through leasing of lodging facilities for the three months ended March 31, 2024. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with our customers. In certain of our contracts, rates may vary over the contract term, in these cases, revenue is generally recognized on a straight-line basis over the contract term. We enter into arrangements with multiple deliverables for which arrangement consideration is allocated between lodging and services based on the relative estimated standalone selling price of each deliverable. The estimated price of lodging and services deliverables is based on the prices of lodging and services when sold separately or based upon the best estimate of selling price.

### 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 tend to review these measurements frequently for consistency and trend analysis. We primarily review the following profit and loss information when assessing our performance:

#### Revenue

We analyze our revenues by comparing actual revenues to our internal budgets and projections for a given period and to prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing for our services. Key drivers to change in revenues may include average utilization of existing beds, levels of development activity in the HFS – South segment, the consumer price index impacting government contracts, and government spending on housing programs.

#### Adjusted Gross Profit

We analyze our adjusted gross profit, which is a Non-GAAP measure, which we define as revenues less cost of sales, excluding impairment and depreciation of specialty rental assets to measure our financial performance. Please see “Non-GAAP Financial Measures” for a definition and reconciliation to the most comparable GAAP measure. We believe adjusted gross profit is a meaningful metric because it provides insight into the financial performance of our revenue streams without consideration of company overhead. Additionally, using adjusted gross profit gives us insight on factors impacting cost of sales, such as efficiencies of our direct labor and material costs. When analyzing adjusted gross profit, we compare actual adjusted gross profit to our budgets and internal projections and to prior period results for a given period in order to assess our performance.

We also use Non-GAAP measures such as EBITDA, Adjusted EBITDA, and Discretionary cash flows to evaluate the operating performance of our business. For a more in-depth discussion of the Non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.

### Segments

We have identified 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.

#### 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”). 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 suite of comprehensive service offerings in support of their humanitarian aid efforts.

#### 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.

### 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:

#### Government Segment

During the year ended December 31, 2022, the Company executed the Expanded Humanitarian Contract that went into effect in May 2022 to provide enhanced infrastructure and comprehensive facility services that support the critical hospitality solutions the Company provides to the NP Partner and the United States Government in their humanitarian aid missions. The Expanded Humanitarian Contract provided for a significant scope expansion and term extension for the continuation of services provided under the agreement that originated in March 2021. The Expanded Humanitarian Contract 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. 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. Inclusive of all potential occupancy-based variable services revenue, the Expanded Humanitarian Contract provided for a maximum initial annual total contract amount of approximately $575 million. 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. The Expanded Humanitarian Contract expired as of November 15, 2023. The non-recurring infrastructure enhancement revenue was generated from an advance payment made during the year ended December 31, 2022 for the community build-out, and mobilization of asset activities related to the community expansion associated with the Expanded Humanitarian Contract. The advanced payment was determined to be related to future services to be amortized to revenue over the estimated term of the Expanded Humanitarian Contract. This advance payment revenue amortization ended when the Expanded Humanitarian Contract expired on November 15, 2023. As such, the prior period included this revenue amortization in the amount of approximately $34.5 million whereas the current period does not. Additionally, the Expanded Humanitarian Contract included an annual minimum lease revenue commitment of approximately $196 million that impacted the prior period compared to the current period being impacted by an annual minimum lease revenue commitment of approximately $178 million under the New PCC Contract explained below.

During the year ended December 31, 2023, the Company executed the New PCC Contract, pursuant to an Indefinite Delivery, Indefinite Quantity Task Order between our NP Partner and the United States Government, that replaced the Expanded Humanitarian Contract and became effective on November 16, 2023. The New PCC Contract includes a one-year base period through November 15, 2024, an option to extend for up to four additional one-year periods, and an option to extend for up to six months upon the conclusion of the base period or any of the option periods. Under the New PCC Contract, the Company will maintain similar facility size and operational scope compared to the Expanded Humanitarian Contract. The New PCC Contract operates 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. Additionally, the New PCC Contract includes occupancy-based variable services revenue that will align with active community population. The minimum revenue commitments, which consist of annual recurring lease revenue, provide for a minimum annual revenue contribution of approximately $178 million. Assuming all option periods are exercised, the 5-year cumulative minimum revenue commitment of the New PCC Contract is expected to be approximately $892 million through 2028.

As such, the change from the prior Expanded Humanitarian Contract to the New PCC Contract impacts comparability between periods.

### Results of Operations

The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our unaudited consolidated financial statements. The following discussion should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this document.

### Consolidated Results of Operations for the three months ended March 31, 2024 and 2023($ in thousands):

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ Amount of Increase (Decrease) ​ ​ | ​ ​ ​ ​ | ​ Percentage Change Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Services income | ​ | $72,398 | ​ | $94,836 | ​ | $(22,438) |  | (24)% |
| Specialty rental income | ​ | 34,274 | ​ | 52,983 | ​ | (18,709) |  | (35)% |
| Total revenue | ​ | 106,672 | ​ | 147,819 | ​ | (41,147) |  | (28)% |
| Costs: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Services | ​ | 36,915 | ​ | 39,700 | ​ | (2,785) |  | (7)% |
| Specialty rental | ​ | 5,908 | ​ | 8,559 | ​ | (2,651) |  | (31)% |
| Depreciation of specialty rental assets | ​ | 14,781 | ​ | 17,597 | ​ | (2,816) |  | (16)% |
| Gross Profit | ​ | 49,068 | ​ | 81,963 | ​ | (32,895) |  | (40)% |
| Selling, general and administrative | ​ | 14,855 | ​ | 15,199 | ​ | (344) |  | (2)% |
| Other depreciation and amortization | ​ | 3,885 | ​ | 3,803 | ​ | 82 |  | 2% |
| Other expense (income), net | ​ | (110) | ​ | 1,004 | ​ | (1,114) |  | (111)% |
| Operating income | ​ | 30,438 | ​ | 61,957 | ​ | (31,519) |  | (51)% |
| Loss on extinguishment of debt | ​ | ​ — | ​ | ​ 2,128 | ​ | ​ (2,128) |  | (100)% |
| Interest expense, net | ​ | 4,587 | ​ | 7,498 | ​ | (2,911) |  | (39)% |
| Change in fair value of warrant liabilities | ​ | ​ (675) | ​ | ​ (3,711) | ​ | ​ 3,036 | ​ | (82)% |
| Income before income tax | ​ | 26,526 | ​ | 56,042 | ​ | (29,516) |  | (53)% |
| Income tax expense | ​ | 6,143 | ​ | 12,217 | ​ | (6,074) |  | (50)% |
| Net income | ​ | $20,383 | ​ | $43,825 | ​ | $(23,442) |  | (53)% |

#### For the three months ended March 31, 2024 compared to the three months ended March 31, 2023

***Total Revenue.*** Total revenue was $106.7 million for the three months ended March 31, 2024 and consisted of $72.4 million of services income and $34.3 million of specialty rental income. Total revenue for the three months ended March 31, 2023 was $147.8 million, which consisted of $94.8 million of services income and $53.0 million of specialty rental income.

Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services, including room revenue, catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management, health and recreation facilities, concierge services, and laundry service. The main driver of the decrease in services income revenue year over year was lower revenue in the Government segment in the current period from the decrease in the non-cash revenue amortization that ended in November 2023 associated with the advanced payment from the prior Expanded Humanitarian Contract that expired on November 15, 2023 and partially by lower minimum lease revenue generated by the New PCC contract in the current period, partially offset by a continued increase in revenue in the HFS – South segment led by an increase in average daily rate and an increase in customer activity.

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 decreased primarily as a result of lower revenue in the Government segment from the decrease in the non-cash revenue amortization that ended in November 2023 associated with the advanced payment from the prior Expanded Humanitarian Contract that expired on November 15, 2023 and partially by lower minimum lease revenue generated by the New PCC contract in the current period.

***Cost of services.*** Cost of services was $36.9 million for the three months ended March 31, 2024 as compared to $39.7 million for the three months ended March 31, 2023. The decrease in services costs is primarily due to a decrease in services costs from the Government segment driven by operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC Community, including lease terminations as a result of the purchase of certain previously leased equipment.

***Specialty rental costs.*** Specialty rental costs were $5.9 million for the three months ended March 31, 2024 as compared to $8.6 million for the three months ended March 31, 2023. The decrease in specialty rental costs is primarily due to a decrease in costs from the Government segment driven by operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC Community.

***Depreciation of specialty rental assets.*** Depreciation of specialty rental assets was $14.8 million for the three months ended March 31, 2024 as compared to $17.6 million for the three months ended March 31, 2023. The decrease in depreciation expense is primarily attributable to a decrease in depreciation on certain specialty rental assets and related leasehold improvements acquired or built in 2022 to support growth of the Government segment related to the contract that originated in May of 2022 with the NP Partner, which became fully depreciated during the year ended December 31, 2023.

***Selling, general and administrative.*** Selling, general and administrative was $14.9 million for the three months ended March 31, 2024 as compared to $15.2 million for the three months ended March 31, 2023. The decrease in selling, general and administrative expense of $0.3 million was primarily driven by a decrease in stock compensation expense of approximately $2.8 million from the liability-based stock appreciation right awards (“SARs”) led by a lower number of SAR awards outstanding during the current period compared to the prior period as approximately 50% of such awards were vested and exercised during the first quarter of 2023. This was partially offset by an increase in severance of approximately $1 million for certain terminated employees during the three months ended March 31, 2024, other compensation and benefits cost increases of approximately $0.8 million, audit fee increases of approximately $0.4 million, and an increase in transaction fees of approximately $0.2 million associated with certain transactions, including the Proposal described in “Recent Developments” in Note 1 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

***Other depreciation and amortization.*** Other depreciation and amortization expense was $3.9 million for the three months ended March 31, 2024 as compared to $3.8 million for the three months ended March 31, 2023. The increase in other depreciation and amortization is primarily driven by an increase in depreciation associated with an increase in finance leases for commercial use vehicles.

***Other expense (income), net.*** Other expense (income), net was ($0.1) million for the three months ended March 31, 2024 as compared to $1.0 million for the three months ended March 31, 2023. The decrease in expense was primarily driven by the prior period including costs incurred on the disposal of assets in the All Other segment category, which didn’t recur in the current period.

***Loss on extinguishment of debt.*** Loss on extinguishment of debt was $0 for the three months ended March 31, 2024 as compared to $2.1 million for three months ended March 31, 2023. The decrease in loss on extinguishment of debt is due to the partial redemption of the 2024 Senior Secured Notes on March 15, 2023, which was accounted for as a partial extinguishment of debt and resulted in a charge of approximately $1.7 million related to the write-off of unamortized deferred financing costs and unamortized original issue discount. Approximately $0.4 million of the change related to the write-off of unamortized deferred financing costs for non-continuing lenders in connection with the First Amendment to the ABL Facility on February 1, 2023. No such activity occurred in the current period.

***Interest expense, net.*** Interest expense, net was $4.6 million for the three months ended March 31, 2024 as compared to $7.5 million for the three months ended March 31, 2023. The change in interest expense, net was primarily driven by a decrease in interest expense on the Senior Secured Notes driven by the lower outstanding debt balance in the current period as approximately $153.1 million of the Senior Secured Notes were paid off during the year ended December 31, 2023. Approximately $0.8 million of this decrease was driven by lower deferred financing cost amortization on the Senior Secured Notes during the current period due to the write-off of unamortized deferred financing costs during the three months ended March 31, 2023 driven by the partial extinguishment of debt associated with the partial redemption of the 2024 Senior Secured Notes on March 15, 2023 discussed above. These decreases were partially offset by an increase in Senior Secured Note original issue discount amortization of approximately $0.2 million driven by fees incurred in connection with the Senior Note Exchange that closed on November 1, 2023 as more fully discussed in Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

***Change in fair value of warrant liabilities.*** Change in fair value of warrant liabilities represents the fair value adjustments to the outstanding Private Warrant liabilities based on the change in their estimated fair value at each reporting period end. The change in fair value of the warrant liabilities was ($0.7) million for the three months ended March 31, 2024 as compared to ($3.7) million for the three months ended March 31, 2023. The change in the fair value of the warrant liabilities is the result of changes in market prices deriving the value of the financial instruments. The estimated fair value of the Private Warrants have decreased in the current period, generating an increase to income in the current period. There is also a lower number of outstanding Private Warrants in the current period compared to the prior period given the Private Warrants expired on March 15, 2024 as discussed in Note 9 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

***Income tax expense.*** Income tax expense was $6.1 million for the three months ended March 31, 2024 as compared to $12.2 million for the three months ended March 31, 2023. The decrease in income tax expense is primarily attributable to the decrease in income before taxes for the three months ended March 31, 2024 led by a decrease in revenue, partially offset by cost decreases previously mentioned.

### Segment Results

The following table sets forth our selected results of operations for each of our reportable segments and All Other for the three months ended March 31, 2024 and 2023 ($ in thousands, except for Average Daily Rate).

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ ​ ​ For the Three Months Ended March 31, 2024 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Amount of Increase (Decrease) ​ ​ | ​ ​ ​ ​ | ​ Percentage Change Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Government | ​ | $67,607 | ​ | $109,503 | ​ | $(41,896) |  | (38)% |
| HFS - South | ​ | 36,934 | ​ | 35,772 | ​ | 1,162 |  | 3% |
| All Other | ​ | 2,131 | ​ | 2,544 | ​ | (413) |  | (16)% |
| Total Revenues | ​ | $106,672 | ​ | $147,819 | ​ | $(41,147) |  | (28)% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Adjusted Gross Profit | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Government | ​ | $52,433 | ​ | $88,774 | ​ | $(36,341) |  | (41)% |
| HFS - South | ​ | 12,842 | ​ | 11,656 | ​ | 1,186 |  | 10% |
| All Other | ​ | (1,426) | ​ | (870) | ​ | (556) |  | 64% |
| Total Adjusted Gross Profit | ​ | $63,849 | ​ | $99,560 | ​ | $(35,711) |  | (36)% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| Average Daily Rate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ |
| HFS - South | ​ | $74.89 | ​ | $73.42 | ​ | $1.47 | ​ | ​ |

*Note: Adjusted gross profit for the chief operating decision maker’s (“CODM”) analysis includes the services and rental costs recognized in the financial statements and excludes depreciation on specialty rental assets, certain severance costs, and loss on impairment. Average daily rate is calculated based on specialty rental income and services income received over the period indicated, divided by utilized bed nights.*

### Government

Revenue for the Government segment was $67.6 million for the three months ended March 31, 2024, as compared to $109.5 million for the three months ended March 31, 2023.

Adjusted gross profit for the Government segment was $52.4 million for the three months ended March 31, 2024, as compared to $88.8 million for the three months ended March 31, 2023.

Revenue decreased primarily due to the decrease in the non-cash revenue amortization that ended in November 2023 associated with the advanced payment from the prior Expanded Humanitarian Contract that expired on November 15, 2023 and partially by lower minimum lease revenue generated by the New PCC contract in the current period.

Adjusted gross profit decreased as a result of the decrease in revenue mentioned above, partially offset by lower costs due to operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC Community, including lease terminations as a result of the purchase of certain previously leased equipment.

### HFS – South

Revenue for the HFS – South segment was $36.9 million for the three months ended March 31, 2024, as compared to $35.8 million for the three months ended March 31, 2023.

Adjusted gross profit for the HFS – South segment was $12.8 million for the three months ended March 31, 2024, as compared to $11.7 million for the three months ended March 31, 2023.

The increase in revenue of approximately $1.2 million was primarily attributable to an increase in average daily rate and an increase in customer activity, which led to more communities in operation during the current period, including a new community acquired in January 2023 to support growth in the HFS – South segment.

The increase in adjusted gross profit of approximately $1.2 million was primarily attributable to the increase in revenue discussed above, with no associated increase in services costs driven by the prior period including asset mobilization and integration costs associated with the new community acquired in January 2023 that didn’t recur in the current period and partially driven by operational efficiencies achieved in the current period.

### 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 March 31, 2024, the ABL Facility had unused available borrowing capacity of $175 million. 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 the Company’s 2023 Form 10-K, lease obligations, contingent liabilities and working capital investments for at least the next 12 months. 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. Significant delays in our ability to finance planned acquisitions or capital expenditures may materially and adversely affect our future revenue prospects.

We continue to review available acquisition opportunities with the awareness that any such acquisition may require us to incur additional debt to finance the acquisition and/or to issue shares of our Common Stock or other equity securities as acquisition consideration or as part of an overall financing plan. We will continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing of any such issuance or repurchase. From time to time, we may also seek to streamline our capital structure and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities for cash or other consideration.

#### Capital Requirements

During the three months ended March 31, 2024, we incurred approximately $9.7 million in capital expenditures, with approximately $6.6 million driven by capital expenditures in the Government segment. Maintenance capital expenditures for specialty rental assets amounted to approximately $3.1 million for the three months ended March 31, 2024. As we pursue growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or at all.

The following table sets forth general information derived from our unaudited consolidated statements of cash flows:

*($ in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Net cash provided by operating activities | ​ | $50,591 | ​ | $14,529 |
| Net cash used in investing activities | ​ | (8,918) | ​ | (28,445) |
| Net cash used in financing activities | ​ | (21,296) | ​ | (125,325) |
| Effect of exchange rate changes on cash and cash equivalents | ​ | ​ (4) | ​ | ​ 6 |
| Net increase (decrease) in cash and cash equivalents | ​ | $20,373 | ​ | $(139,235) |

#### For the three months ended March 31, 2024 compared to compared to the three months ended March 31, 2023

*Cash flows provided by operating activities*. Net cash provided by operating activities was $50.6 million for the three months ended March 31, 2024 compared to $14.5 million for the three months ended March 31, 2023.

The current period is up by approximately $36.1 million when compared to 2023 driven by an increase in cash collections from customers of approximately $15 million, and a net decrease in payments for operating expenses and payroll of approximately $13 million driven by a decrease of approximately $8.7 million in cash payments for the vested SAR awards, and partially driven by a decrease in other payroll and operating expenses led by the Government segment. There was also a decrease in cash paid for interest during the period of approximately $8.6 million driven by lower debt as a result of a decrease in the outstanding balance of the Senior Secured Notes. These increases in net cash flows from operations were partially offset by a decrease in interest received of approximately $0.4 million (driven by a higher average outstanding cash balance in the prior period that generated interest income) and an increase in cash paid for income taxes of approximately $0.1 million.

*Cash flows used in investing activities*. Net cash used in investing activities was $8.9 million for the three months ended March 31, 2024 compared to $28.4 million for the three months ended March 31, 2023. This decrease in net cash used in investing activities was primarily related to a decrease in growth capital expenditures in the HFS – South segment with the largest single driver being the $18.6 million acquisition of community assets and related intangibles in January 2023, supporting continued customer demand.

*Cash flows used in financing activities*. Net cash used in financing activities was $21.3 million for the three months ended March 31, 2024 compared to $125.3 million for the three months ended March 31, 2023. This decrease in net cash used in financing activities was primarily driven by the $125 million partial redemption of the 2024 Senior Secured Notes on March 15, 2023, partially offset by the current period increase in net cash used in financing activities of approximately $21.2 million for the repurchase of Common Stock as part of the share repurchase program.

### Indebtedness

#### Finance lease and other financing obligations

The Company’s finance lease and other financing obligations as of March 31, 2024 consisted of approximately $2.8 million of finance leases. The finance leases pertain to leases entered into during 2017 through March 31, 2024, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2027.

The Company’s finance lease and other financing obligations as of December 31, 2023 consisted of approximately $2.4 million of finance leases related to commercial-use vehicles with the same terms as described above.

#### ABL Facility

During the three months ended March 31, 2024, no amounts were drawn or repaid on the ABL Facility resulting in an outstanding balance of $0 as of March 31, 2024. The maturity date of the ABL Facility is February 1, 2028, which extended 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. Refer to Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q for additional discussion of the ABL Facility.

#### Senior Secured Notes

On March 15, 2019, Arrow Bidco issued $340 million in aggregate principal amount of 2024 Senior Secured Notes under the 2024 Notes Indenture by and among Arrow Bidco, the 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. 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. In connection with the Notes Exchange Offer (as defined in the Company’s 2023 Form 10-K), on November 1, 2023, approximately $181.4 million of 2024 Senior Secured Notes were exchanged by Arrow Bidco and Arrow Bidco issued approximately $181.4 million in aggregate principal amount of the 2025 Senior Secured Notes under the 2025 Senior Secured Notes Indenture by and among Arrow Bidco, the guarantors from time to time party thereto and Deutsche Bank Trust Company Americas, as trustee and collateral agent. Interest is payable semi-annually on March 15 and September 15 of each year, and began on March 15, 2024. Following this issuance and related transactions, approximately $28.1 million aggregate principal amount of 2024 Senior Secured Notes remained outstanding, which were subsequently redeemed on November 21, 2023 resulting in an outstanding balance of $0. As of March 31, 2024, none of the 2024 Senior Secured Notes remain outstanding and the 2025 Senior Secured Notes had an outstanding principal balance of $181.4 million. Refer to Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q for additional discussion of the 2024 Senior Secured Notes, the Notes Exchange Offer, and the 2025 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 expenditures for specialty rental assets, (iii) payments due under finance and operating leases, and (iv) debt service interest payments. We plan to fund such cash requirements from our existing sources of liquidity as previously discussed.

The table below presents information on payments coming due under the most significant categories of our needs for cash (excluding operating cash flows pertaining to normal business operations, other than operating lease obligations) as of March 31, 2024:

*($ in thousands)*

| ​ | ​ | ​ ​ Total | ​ | ​ ​ Rest of 2024 | ​ ​ | ​ ​ 2025 | ​ ​ | ​ ​ 2026 | ​ ​ | ​ ​ 2027 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Interest Payments(1) | ​ | $24,382 | ​ | $9,753 | ​ | $14,629 | ​ | $— | ​ | $— |
| 2025 Senior Secured Notes | ​ | 181,446 | ​ | — | ​ | ​ 181,446 | ​ | ​ — | ​ | ​ — |
| Operating lease obligations, including imputed interest(2) | ​ | ​ 17,965 | ​ | ​ 8,641 | ​ | ​ 5,232 | ​ | ​ 3,425 | ​ | ​ 667 |
| Total | ​ | $223,793 | ​ | $18,394 | ​ | $201,307 | ​ | $3,425 | ​ | $667 |

(1) We will incur and pay interest expense at 10.75% of the remaining face value of $181.4 million annually, or $19.5 million in connection with our 2025 Senior Secured Notes. Over the remaining term of the Notes, interest payments total approximately $24.4 million.

(2) Represents interest on operating lease obligations calculated using the appropriate discount rate for each lease.

### Concentration of Risks

In the normal course of business, we grant credit to customers based on credit evaluations of their financial condition and generally require no collateral or other security. Major customers are defined as those individually comprising more than 10% of our revenues or accounts receivable. For the three months ended March 31, 2024, we had two customers, who accounted for 50% and 13% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 39% and 8% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of March 31, 2024.

Our largest customer for the three months ended March 31, 2023 accounted for 65% of revenues, while no other customer accounted for more than 10% of revenues. The largest customers accounted for 18% and 10% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of March 31, 2023.

Major suppliers are defined as those individually comprising more than 10% of the annual goods purchased by the Company. For the three months ended March 31, 2024, we had one major supplier representing 19% of goods purchased. For the three months ended March 31, 2023, we had one major supplier that represented 18% of goods purchased.

We provide services almost entirely to customers in the government and natural resource industries and as such, are almost entirely dependent upon the continued activity of such customers.

### Commitments and Contingencies

The Company leases certain land, buildings, offices, modular units, and equipment under non-cancellable operating leases, the terms of which vary and generally contain renewal options. Such operating lease obligations are recognized in the Company’s accompanying consolidated balance sheet as of March 31, 2024 as current portion of operating lease obligations and long-term operating lease obligations. Refer to the Company’s unaudited consolidated balance sheet included elsewhere in this Quarterly Report on Form 10-Q for the amounts recognized as current portion of operating lease obligations and long-term operating lease obligations as of March 31, 2024.

Rent expense included in services costs in the unaudited consolidated statements of comprehensive income for cancelable and non-cancelable leases was $3.5 million and $6.4 million for the three months ended March 31, 2024 and 2023, respectively. Rent expense included in the selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income for cancelable and non-cancelable leases was $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

### Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).

For a discussion of the critical accounting policies and estimates, refer to the “Critical Accounting Policies and Estimates” section in Part II, Item 7 of our 2023 Form 10-K. There have been no material changes during the three months ended March 31, 2024 to the judgments, assumptions and estimates upon which our critical accounting estimates are based.

Additionally, refer to Note 1 of our notes to our unaudited consolidated financial statements included in this Form 10-Q for additional discussion of our summary of significant accounting policies and use of estimates. These estimates require significant judgments and assumptions.

#### Principles of Consolidation

Refer to Note 1 of the notes to our unaudited consolidated financial statements included in this Form 10-Q for a discussion of principles of consolidation.

### Recently Issued Accounting Standards

Refer to Note 1 of the notes to our unaudited consolidated financial statements included in this Form 10-Q for our assessment of recently issued accounting standards.

### Non-GAAP Financial Measures

We have included Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows which are measurements not calculated in accordance with US GAAP, in the discussion of our financial results because they are key metrics used by management to assess financial performance. Our business is capital-intensive and these additional metrics allow management to further evaluate our operating performance.

Target Hospitality defines Adjusted gross profit, as gross profit plus depreciation of specialty rental assets and loss on impairment, and certain severance costs.

Target Hospitality defines EBITDA as net income (loss) before interest expense and loss on extinguishment of debt, income tax expense (benefit), depreciation of specialty rental assets, and other depreciation and amortization.

Adjusted EBITDA reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect of what management considers transactions or events not related to its core business operations:

- ***Other expense (income), net:*** Other expense (income), net includes miscellaneous cash receipts, gains and losses on disposals of property, plant, and equipment, and other immaterial expenses and non-cash items.
- ***Transaction expenses:*** Target Hospitality incurred certain immaterial transaction costs during the first quarter of 2023 and 2024 associated with certain transactions, including the Proposal described in “Recent Developments” in Note 1 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.
- ***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 non-cash amortization of capitalized system implementation costs, business development, accounting standard implementation costs and certain severance costs.

We define Discretionary cash flows as cash flows from operations less maintenance capital expenditures for specialty rental assets.

EBITDA reflects net income (loss) excluding the impact of interest expense and loss on extinguishment of debt, provision for income taxes, depreciation, and amortization. We believe that EBITDA is a meaningful indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors, and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels, and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization expense, because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.

Target Hospitality also believes that Adjusted EBITDA is a meaningful indicator of operating performance. Our Adjusted EBITDA reflects adjustments to exclude the effects of additional items, including certain items, that are not reflective of the ongoing operating results of Target Hospitality. In addition, to derive Adjusted EBITDA, we exclude gains or losses on the sale or disposal of depreciable assets and impairment losses because including them in EBITDA is inconsistent with reporting the ongoing performance of our remaining assets. Additionally, the gain or loss on sale or disposal of depreciable assets and impairment losses represents either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

Target Hospitality also presents Discretionary cash flows because we believe it provides useful information regarding our business as more fully described below. Discretionary cash flows indicate the amount of cash available after maintenance capital expenditures for specialty rental assets for, among other things, investments in our existing business.

Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows are not measurements of Target Hospitality’s financial performance under GAAP and should not be considered as alternatives to gross profit, net income or other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as measures of Target Hospitality’s liquidity. Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows should not be considered as discretionary cash available to Target Hospitality to reinvest in the growth of our business or as measures of cash that is available to it to meet our obligations. In addition, the measurement of Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows may not be comparable to similarly titled measures of other companies. Target Hospitality’s management believes that Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows provides useful information to investors about Target Hospitality and its financial condition and results of operations for the following reasons: (i) they are among the measures used by Target Hospitality’s management team to evaluate its operating performance; (ii) they are among the measures used by Target Hospitality’s management team to make day-to-day operating decisions, (iii) they are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results across companies in Target Hospitality’s industry.

The following table presents a reconciliation of Target Hospitality’s consolidated gross profit to Adjusted gross profit:

*($ in thousands)*

| ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 | ​ ​ | ​ ​ 2023 | ​ ​ ​ ​ |
| --- | ---: | --- | ---: | --- |
| **Gross Profit** | **$49,068** | **​** | **$81,963** | **​** |
| Depreciation of specialty rental assets | ​ 14,781 | ​ | ​ 17,597 | ​ |
| **Adjusted gross profit** | **$63,849** | **​** | **$99,560** | **​** |

The following table presents a reconciliation of Target Hospitality’s consolidated net income to EBITDA and Adjusted EBITDA:

*($ in thousands)*

| ​ ​ ​ | ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| **Net income** | ​ | **$20,383** | **​** | **$43,825** |
| Income tax expense | ​ | 6,143 | ​ | 12,217 |
| Interest expense, net | ​ | 4,587 | ​ | 7,498 |
| Loss on extinguishment of debt | ​ | ​ — | ​ | ​ 2,128 |
| Other depreciation and amortization | ​ | 3,885 | ​ | 3,803 |
| Depreciation of specialty rental assets | ​ | 14,781 | ​ | 17,597 |
| **EBITDA** | ​ | **49,779** | **​** | **87,068** |
| **​** | ​ | ​ ​ | ​ | ​ ​ |
| **Adjustments** | ​ | ​ ​ | ​ | ​ ​ |
| Other expense (income), net | ​ | (110) | ​ | 1,004 |
| Transaction expenses | ​ | 240 | ​ | 51 |
| Stock-based compensation | ​ | ​ 2,748 | ​ | ​ 5,646 |
| Change in fair value of warrant liabilities | ​ | ​ (675) | ​ | ​ (3,711) |
| Other adjustments | ​ | ​ 1,706 | ​ | ​ 539 |
| **Adjusted EBITDA** | ​ | **$53,688** | **​** | **$90,597** |

The following table presents a reconciliation of Target Hospitality’s Net cash provided by operating activities to Discretionary cash flows:

*($ in thousands)*

| ​ ​ ​ | ​ ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 | ​ ​ | ​ ​ 2023 |
| --- | --- | --- | --- | --- |
| **Net cash provided by operating activities** | ​ | $50,591 | **​** | $14,529 |
| Less: Maintenance capital expenditures for specialty rental assets | ​ | ​ (3,082) | ​ | ​ (1,808) |
| **Discretionary cash flows** | ​ | $47,509 | ​ | $12,721 |
| **​** | ​ | ​ ​ | ​ | ​ ​ |
| Purchase of specialty rental assets | ​ | ​ (8,825) | ​ | ​ (23,002) |
| Purchase of property, plant and equipment | ​ | ​ (135) | ​ | ​ (1,015) |
| Acquired intangible assets | ​ | ​ — | ​ | ​ (4,547) |
| Proceeds from sale of specialty rental assets and other property, plant and equipment | ​ | ​ 42 | ​ | ​ 119 |
| **Net cash used in investing activities** | ​ | $(8,918) | ​ | $(28,445) |
| **​** | ​ | ​ ​ | ​ | ​ ​ |
| Principal payments on finance and finance lease obligations | ​ | ​ (407) | ​ | ​ (356) |
| Repayment of Senior Notes | ​ | ​ — | ​ | ​ (125,000) |
| Repurchase of Common Stock | ​ | ​ (21,160) | ​ | ​ — |
| Proceeds from issuance of Common Stock from exercise of warrants | ​ | ​ 3 | ​ | ​ 42 |
| Proceeds from issuance of Common Stock from exercise of options | ​ | ​ 268 | ​ | ​ 1,252 |
| Payment of deferred financing costs | ​ | ​ — | ​ | ​ (1,263) |
| **Net cash used in financing activities** | ​ | $(21,296) | **​** | $(125,325) |

## Market risk

As filed, 1,254 characters.

Our principal market risks are our exposure to interest rates and commodity risks.

### Interest Rates

We are exposed to interest rate risk through our ABL Facility, which is subject to the risk of higher interest charges associated with increases in interest rates. As of March 31, 2024, 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 of March 31, 2024.

### Commodity Risk

Commodity price fluctuations also indirectly influence our activities and results of operations over the long-term because they may affect production rates and investments by natural resource development companies in the development of commodity reserves.

We have limited direct exposure to risks associated with fluctuating commodity prices. However, both our profitability and our cash flows are affected by volatility in commodity prices. We do not currently hedge our exposure to commodity prices.

## Controls and procedures

As filed, 1,106 characters.

As of the end of the period covered by this report, the Company’s management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, the Company’s management and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024, at the reasonable assurance level.

## Risk factors

As filed, 437 characters.

The Company’s financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within the Company’s control and which may cause actual performance to differ materially from historical or projected future performance. For additional information about our risk factors, you should carefully consider the risk factors included in the 2023 Form 10-K, which have not materially changed.

Filed May 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-007326. Last ingested by Listed: Oct 26, 2026, 16:16 ET. No prices; not investment advice.