Target Hospitality(TH) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income (loss), statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's accounting policies, revenue recognition, asset composition, debt structure, equity changes, and other financial details for the periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets The Consolidated Balance Sheets show a significant decrease in total assets and liabilities from December 31, 2024, to June 30, 2025, primarily driven by a substantial reduction in cash and the current portion of long-term debt | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $19,237 | $190,668 | $(171,431) | | Total current assets | $83,047 | $249,336 | $(166,289) | | Total assets | $533,714 | $725,774 | $(192,060) | | Current portion of long-term debt, net | $— | $180,328 | $(180,328) | | Total current liabilities | $56,619 | $233,404 | $(176,785) | | Total liabilities | $132,529 | $304,684 | $(172,155) | | Total stockholders' equity | $401,185 | $421,090 | $(19,905) | Unaudited Consolidated Statements of Comprehensive Income (Loss) For the three and six months ended June 30, 2025, the company reported a net loss, a significant decline from net income in the prior year periods, primarily due to decreased revenue and increased service costs | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :----------- | | Total Revenue | $61,606 | $100,721 | $(39,115) | | Net Income (Loss) | $(14,918) | $18,386 | $(33,304) | | Basic EPS | $(0.15) | $0.18 | $(0.33) | | Diluted EPS | $(0.15) | $0.18 | $(0.33) | | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :----------- | | Total Revenue | $131,503 | $207,393 | $(75,890) | | Net Income (Loss) | $(21,377) | $38,769 | $(60,146) | | Basic EPS | $(0.22) | $0.39 | $(0.61) | | Diluted EPS | $(0.22) | $0.38 | $(0.60) | Unaudited Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $421,090 thousand at December 31, 2024, to $401,185 thousand at June 30, 2025, primarily due to net losses, partially offset by stock-based compensation - Total stockholders' equity decreased by $19,905 thousand from December 31, 2024 ($421,090) to June 30, 2025 ($401,185)[16] - Net loss for the six months ended June 30, 2025, was $(21,392) thousand attributable to common stockholders[13][16] - Stock-based compensation, net, contributed $3,806 thousand to additional paid-in capital for the six months ended June 30, 2025[16][113] Unaudited Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased, while net cash used in investing and financing activities increased for the six months ended June 30, 2025, compared to the prior year, leading to a substantial net decrease in cash and cash equivalents | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------- | | Net cash provided by operating | $15,001 | $89,696 | $(74,695) | | Net cash used in investing | $(24,911) | $(16,137) | $(8,774) | | Net cash used in financing | $(161,543) | $(23,187) | $(138,356) | | Net increase (decrease) in cash | $(171,431) | $50,367 | $(221,798) | - The decrease in operating cash flow was driven by lower cash collections and increased interest payments, partially offset by lower income taxes and operating expenses[144][230] - Financing activities included the full redemption of $181.4 million of 2025 Senior Secured Notes and a net draw of $24 million on the ABL Facility in 2025[19][234] Notes to Unaudited Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, revenue recognition, asset composition, debt structure, equity changes, and other financial details, offering context to the consolidated financial statements 1. Organization and Nature of Operations, Basis of Presentation, and Summary of Significant Accounting Policies Target Hospitality Corp. is a major North American provider of vertically integrated specialty rental and hospitality services, serving natural resources and government sectors. The financial statements are prepared under US GAAP, with revenue recognized over time for services and as earned for operating leases, and construction fees using the percentage of completion method - Company provides vertically integrated specialty rental and comprehensive hospitality services to natural resources and government sectors[21] - Revenue is recognized from specialty rental and hospitality services (ASC 606) and operating leases (ASC 842). Construction fee income is recognized using the percentage of completion method[28][29][33] - Recently issued accounting standards (ASU 2023-09 and ASU 2024-03) are being evaluated for disclosure impact, with no early adoption planned for ASU 2024-03[35][36] 2. Revenue Total revenue decreased significantly for both the three and six months ended June 30, 2025, compared to 2024, primarily due to the termination of the PCC Contract and STFRC Contract in the Government segment, partially offset by new construction fee income from the WHS segment and the DIPC Contract reactivation - Total revenue for the six months ended June 30, 2025, was $131.5 million, down from $207.4 million in 2024[13][37] - The PCC Contract (Government segment) was terminated effective February 21, 2025, contributing $24.1 million in revenue for the six months ended June 30, 2025, compared to $98.0 million in 2024[39][41] - The STFRC Contract was terminated in August 2024; assets were reactivated under the DIPC Contract effective March 5, 2025, expected to generate over $246 million in revenue over five years[38][142] - The new WHS segment generated $19.2 million in construction fee income for the six months ended June 30, 2025, from the Workforce Housing Contract[13][172] 3. Specialty Rental Assets, Net Net specialty rental assets slightly decreased to $317.4 million as of June 30, 2025, from $320.9 million at December 31, 2024, despite a $15.5 million asset acquisition in January 2025 to support the WHS segment | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Specialty rental assets, net | $317,375 | $320,852 | - Depreciation expense of specialty rental assets was $27.3 million for the six months ended June 30, 2025[13][44] - In January 2025, the Company purchased $15.5 million in assets (land and specialty rental assets) to support the WHS segment[45] 4. Other Property, Plant and Equipment, Net Other property, plant and equipment, net, increased to $36.9 million as of June 30, 2025, from $34.9 million at December 31, 2024, primarily due to land acquisition for the WHS segment | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total other property, plant and equipment, net | $36,889 | $34,935 | - Depreciation expense for these assets was $1.3 million for the six months ended June 30, 2025[47] - Approximately $0.6 million of the $15.5 million asset acquisition in January 2025 was allocated to land within this asset group for the WHS segment[48] 5. Goodwill and Other Intangible Assets, net Goodwill remained stable at $41.0 million, attributable to the HFS-South segment. Other intangible assets, primarily customer relationships and tradenames, decreased to $46.1 million net, due to amortization - Goodwill balance: $41,038 thousand (June 30, 2025 and Dec 31, 2024), all attributable to HFS-South[50][51] | Intangible Assets (in thousands) | June 30, 2025 Net Book Value | December 31, 2024 Net Book Value | | :------------------------------- | :--------------------------- | :------------------------------- | | Customer relationships | $29,498 | $36,194 | | Non-compete agreement | $178 | $213 | | Tradenames | $16,400 | $16,400 | | Total intangible assets other than goodwill | $46,076 | $52,807 | - Amortization expense for intangible assets was $6.7 million for the six months ended June 30, 2025[51] 6. Accrued Liabilities Total accrued liabilities decreased to $17.2 million as of June 30, 2025, from $25.8 million at December 31, 2024, primarily due to a significant reduction in accrued interest on debt | Accrued Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Employee accrued compensation expense | $7,358 | $7,732 | | Other accrued liabilities | $9,591 | $12,139 | | Accrued interest on debt | $219 | $5,911 | | Total accrued liabilities | $17,168 | $25,782 | 7. Debt The Company fully redeemed its $181.4 million 2025 Senior Secured Notes in March 2025, incurring a $2.4 million loss on extinguishment. The ABL Facility had a $24 million outstanding balance as of June 30, 2025, with $151 million unused capacity. Total debt, net, significantly decreased to $28.8 million - The $181.4 million 2025 Senior Secured Notes were fully redeemed on March 25, 2025, resulting in a $2.4 million loss on extinguishment of debt[54][73] - ABL Facility outstanding balance: $24,000 thousand (June 30, 2025) with $151 million unused capacity[12][60][237] | Debt (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Finance lease and other financing obligations | $4,754 | $3,311 | | ABL Facility | $24,000 | $— | | 10.75% Senior Secured Notes due 2025, face amount | $— | $181,446 | | Total debt, net | $28,754 | $183,639 | - Interest expense, net, decreased to $5.3 million for the six months ended June 30, 2025, from $8.9 million in 2024, primarily due to the redemption of the Senior Secured Notes[72][200] 8. Warrant Liabilities The Private Warrants, previously classified as liabilities, expired unexercised on March 15, 2024, resulting in no outstanding warrant liabilities as of June 30, 2025 - Private Warrants expired unexercised on March 15, 2024[81][203] - Change in fair value of warrant liabilities was $0 for the six months ended June 30, 2025, compared to a gain of $(0.7) million in 2024[13][81][203] 9. Income Taxes The Company reported an income tax benefit of $(4.3) million for the six months ended June 30, 2025, a significant change from an expense of $13.0 million in 2024, primarily due to the net loss before income tax. The effective tax rate for the six months ended June 30, 2025, was 16.6% | Income Tax (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :----------------------------- | :----------------------------- | | Income tax expense (benefit) | $(4,253) | $13,035 | - Effective tax rate for the six months ended June 30, 2025, was 16.6%, compared to 25.2% in 2024[82] - The fluctuation in the tax rate is primarily due to the relationship of income (loss) before income tax[82] 10. Fair Value of Financial Instruments The fair values of cash, receivables, payables, and other current liabilities approximate their carrying amounts due to short-term maturities. The fair value of the ABL Facility is based on observable market data, while the Senior Secured Notes were redeemed - Fair value of ABL Facility ($24,000 thousand) approximates its carrying amount as of June 30, 2025[89] - Senior Secured Notes had a carrying amount of $(180,328) thousand and fair value of $(185,075) thousand as of December 31, 2024, but are no longer outstanding[89] 11. Commitments and Contingencies The Company is involved in various lawsuits and claims in the ordinary course of business, but management believes the ultimate liability not covered by insurance will not materially impact financial condition or results of operations - Company involved in ordinary course lawsuits and claims[90] - Management's opinion: no material adverse effect on financial condition or results of operations from these proceedings[90] 12. Earnings (Loss) per Share The Company reported a basic and diluted loss per share of $(0.15) for the three months and $(0.22) for the six months ended June 30, 2025, compared to positive EPS in the prior year, with potential dilutive securities excluded due to the net loss - Basic and diluted LPS for three months ended June 30, 2025: $(0.15)[13][92] - Basic and diluted LPS for six months ended June 30, 2025: $(0.22)[13][92] - Potential dilutive securities were anti-dilutive and excluded from LPS calculation for 2025 periods due to net loss[91][92] 13. Stockholders' Equity As of June 30, 2025, the Company had 99.8 million shares of Common Stock outstanding. Public Warrants expired in March 2024. The stock repurchase program had a remaining capacity of $66.6 million, with no repurchases made in the current period - Common Stock outstanding: 99,778,072 shares as of June 30, 2025[12][94] - Public Warrants expired on March 15, 2024, with no outstanding warrants as of June 30, 2025[99] - Stock repurchase program had a remaining capacity of approximately $66.6 million as of June 30, 2025, with no repurchases made during the three and six months ended June 30, 2025[102] 14. Stock-Based Compensation The Company granted new RSUs and PSUs in February and May 2025. The Plan Amendment, approved by stockholders in May 2025, increased authorized shares, leading to the reclassification of liability-based PSUs to equity. Stock option and SAR awards had no unrecognized compensation expense as of June 30, 2025 - Stockholders approved a Plan Amendment on May 22, 2025, increasing authorized shares by 5,000,000, leading to reclassification of liability-based PSUs to additional paid-in capital[106][111] - RSU compensation expense: $2.1 million for six months ended June 30, 2025. Unrecognized RSU expense: $8.2 million over 2.59 years[109] - PSU compensation expense: $1.7 million for six months ended June 30, 2025. Unrecognized PSU expense: $6.0 million over 2.45 years[113] - No unrecognized compensation expense related to stock options or SARs as of June 30, 2025[116][120] 15. Retirement plans The Company offers a 401(k) retirement plan with matching contributions, recognizing $0.6 million in expense for the six months ended June 30, 2025 - 401(k) plan with matching contributions (100% match on first 3% employee contribution and 50% match on the next 2% contribution)[121] - Matching contributions expense: $0.6 million for the six months ended June 30, 2025[121] 16. Business Segments The Company operates in three reportable segments: HFS – South (natural resources), Government (government contracts), and WHS (critical mineral development), plus an "All Other" category. Segment performance is evaluated based on revenue and adjusted gross profit - Reportable segments: HFS – South, Government, WHS, and All Other[122][124][125][126] | Segment (6 Months Ended June 30, in thousands) | 2025 Revenue | 2024 Revenue | Change (YoY) | 2025 Adj. Gross Profit | 2024 Adj. Gross Profit | Change (YoY) | | :--------------------------------------------- | :----------- | :----------- | :----------- | :--------------------- | :--------------------- | :----------- | | Government | $33,204 | $127,466 | $(94,262) | $18,098 | $101,277 | $(83,179) | | HFS - South | $72,234 | $75,165 | $(2,931) | $21,580 | $25,906 | $(4,326) | | WHS | $20,245 | $— | $20,245 | $4,956 | $— | $4,956 | | All Other | $5,820 | $4,762 | $1,058 | $258 | $(1,659) | $1,917 | 17. Subsequent Events On August 1, 2025, the Company entered into an agreement for the close-out and settlement of the PCC Contract, which will result in an $11.8 million reimbursement payment to the Company - PCC Contract close-out and settlement agreement on August 1, 2025[131] - Company to receive approximately $11.8 million reimbursement for costs incurred post-termination[131] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operating results, liquidity, and capital resources. It highlights key business developments, economic factors, and detailed analysis of revenue and expense changes across consolidated and segment-specific operations, along with discussions on critical accounting policies and non-GAAP financial measures Executive Summary Target Hospitality, a leading provider of specialty rental and hospitality services, initiated a new Workforce Housing Contract for the Thacker Pass Project in February 2025, while terminating the PCC Contract and reactivating STFRC assets under the DIPC Contract. Financial performance for Q2 2025 saw decreased revenue and a net loss, with Adjusted EBITDA significantly down - New Workforce Housing Contract with Lithium Nevada for Thacker Pass Project, expected to generate $153.5 million in revenue over its initial term, with first occupancy anticipated by late-2025[138][159] - PCC Contract terminated February 21, 2025, previously contributing $168 million minimum annual revenue[139][170] - STFRC Contract assets reactivated under DIPC Contract effective March 5, 2025, with an anticipated $246 million in revenue over five years[140][142][171] - For the three months ended June 30, 2025: Total revenue decreased by 39% to $61.6 million, net loss was $(14.9) million (vs. $18.4 million net income in 2024), and Adjusted EBITDA decreased by 93% to $3.5 million[145] Factors Affecting Results of Operations The Company's operations are indirectly influenced by natural resource commodity price fluctuations, capital market conditions affecting funding, and regulatory compliance. Government policy changes, particularly regarding immigration, and potential impacts from natural disasters or operational disruptions also pose significant risks - Indirect impact from natural resource commodity price fluctuations on workforce demand[151] - Capital market conditions affect ability to fund growth, with potential for higher interest rates[152] - Significant portion of revenue from U.S. government contracts, subject to changes in government policy and appropriations[155][156] - Exposure to federal, state, local, and foreign environmental, health, and safety laws and regulations, and risks from natural disasters or other significant disruptions[154][157] Overview of Our Revenue and Operations The majority of revenue is derived from specialty rental accommodations and vertically integrated hospitality services (69%), with the remainder from leasing lodging facilities (16%) and construction fee income (15%) for the six months ended June 30, 2025. Revenue recognition varies by service type, with construction fees recognized using the percentage of completion method - Revenue composition (6 months ended June 30, 2025): 69% from specialty rental/hospitality services, 16% from lodging facility leases, 15% from construction fee income[158] - Construction fee income from the Workforce Housing Contract is recognized using the percentage of completion method[161] Key Indicators of Financial Performance Management assesses performance using revenue, Adjusted Gross Profit, EBITDA, Adjusted EBITDA, and Discretionary Cash Flows. The Company operates in three reportable segments: HFS – South, Government, and WHS, along with an "All Other" category - Key performance metrics include Revenue, Adjusted Gross Profit, EBITDA, Adjusted EBITDA, and Discretionary Cash Flows[162][163][164] - Reportable segments: HFS – South (natural resources in Texas/New Mexico), Government (U.S. government contracts in Texas), WHS (critical mineral development in Nevada)[165][166][168] Key Factors Impacting the Comparability of Results Comparability of results is significantly impacted by the termination of the PCC Contract (effective Feb 2025, $73.9 million revenue decrease for 6 months ended June 30, 2025 vs 2024) and the STFRC Contract (terminated Aug 2024), partially offset by the reactivation under the DIPC Contract and new revenue from the WHS segment's Workforce Housing Contract ($19.2 million for 6 months ended June 30, 2025) - PCC Contract termination (Feb 21, 2025) led to a $73.9 million revenue decrease for the Government segment for the six months ended June 30, 2025, compared to 2024[170][218] - STFRC Contract termination (Aug 9, 2024) and subsequent DIPC Contract reactivation (March 5, 2025) impacted Government segment revenue, with DIPC generating $9.1 million for the six months ended June 30, 2025[171] - WHS segment generated $19.2 million in construction fee income for the six months ended June 30, 2025, from the new Workforce Housing Contract[172] Results of Operations This section provides a detailed analysis of the company's consolidated and segment-specific financial performance for the three and six months ended June 30, 2025, compared to the prior year, highlighting significant changes in revenue, costs, and net income/loss drivers Consolidated Results of Operations for the three months ended June 30, 2025 and 2024 For the three months ended June 30, 2025, total revenue decreased by 39% to $61.6 million, leading to a net loss of $(14.9) million, primarily due to lower Government segment revenue from contract terminations, partially offset by new WHS construction fee income. Service costs increased due to WHS construction, while specialty rental costs and interest expense decreased - Total revenue decreased by $39.1 million (39%) to $61.6 million[174] - Net income (loss) shifted from $18.4 million income in 2024 to $(14.9) million loss in 2025[174] | Revenue Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :----------------------------- | :----------------------------- | :----------- | | Services income | $40,467 | $67,491 | $(27,024) | | Specialty rental income | $6,716 | $33,230 | $(26,514) | | Construction fee income | $14,423 | $— | $14,423 | - Cost of services increased by $12.0 million (36%) due to WHS construction. Specialty rental costs decreased by $2.7 million (49%)[174][178][179] - Interest expense, net, decreased by $3.3 million (78%) due to 2025 Senior Secured Notes redemption[174][184] Consolidated Results of Operations for the six months ended June 30, 2025 and 2024 For the six months ended June 30, 2025, total revenue decreased by 37% to $131.5 million, resulting in a net loss of $(21.4) million. This was driven by significant revenue declines in the Government segment due to contract terminations, partially offset by new WHS construction revenue. Service costs increased due to WHS activity, and a $2.4 million loss on debt extinguishment was recorded - Total revenue decreased by $75.9 million (37%) to $131.5 million[186][188] - Net income (loss) shifted from $38.8 million income in 2024 to $(21.4) million loss in 2025[186] | Revenue Type (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :----------------------------- | :----------------------------- | :----------- | | Services income | $90,574 | $139,889 | $(49,315) | | Specialty rental income | $21,711 | $67,504 | $(45,793) | | Construction fee income | $19,218 | $— | $19,218 | - Cost of services increased by $10.9 million (15%) due to WHS construction. Specialty rental costs decreased by $6.1 million (54%)[186][193][194] - Loss on extinguishment of debt was $2.4 million due to 2025 Senior Secured Notes redemption[186][199] - Interest expense, net, decreased by $3.6 million (41%) due to 2025 Senior Secured Notes redemption[186][200] Segment Results This section details the financial performance of the Company's reportable segments, Government, HFS-South, and WHS, for the three and six months ended June 30, 2025 and 2024, highlighting the impact of contract changes and new business on revenue and adjusted gross profit Segment Results for the three months ended June 30, 2025 and 2024 Government segment revenue decreased by 87% to $7.5 million, and adjusted gross profit decreased by 102% to $(1.1) million, primarily due to contract terminations. HFS-South revenue decreased by 5% to $36.2 million due to lower ADR. WHS segment generated $15.0 million in revenue and $3.7 million in adjusted gross profit from new construction activity | Segment (3 Months Ended June 30, in thousands) | 2025 Revenue | 2024 Revenue | Change (YoY) | 2025 Adj. Gross Profit | 2024 Adj. Gross Profit | Change (YoY) | | :--------------------------------------------- | :----------- | :----------- | :----------- | :--------------------- | :--------------------- | :----------- | | Government | $7,487 | $59,860 | $(52,373) | $(1,080) | $48,844 | $(49,924) | | HFS - South | $36,166 | $38,232 | $(2,066) | $10,547 | $13,065 | $(2,518) | | WHS | $15,042 | $— | $15,042 | $3,687 | $— | $3,687 | | All Other | $2,911 | $2,629 | $282 | $102 | $(234) | $336 | - HFS-South Average Daily Rate (ADR) decreased from $74.33 in 2024 to $69.62 in 2025[206] Segment Results for the six months ended June 30, 2025 and 2024 For the six months ended June 30, 2025, Government segment revenue decreased by 74% to $33.2 million, and adjusted gross profit decreased by 82% to $18.1 million, mainly due to PCC and STFRC contract terminations. HFS-South revenue decreased by 4% to $72.2 million due to lower ADR. WHS segment generated $20.2 million in revenue and $5.0 million in adjusted gross profit from new construction | Segment (6 Months Ended June 30, in thousands) | 2025 Revenue | 2024 Revenue | Change (YoY) | 2025 Adj. Gross Profit | 2024 Adj. Gross Profit | Change (YoY) | | :--------------------------------------------- | :----------- | :----------- | :----------- | :--------------------- | :--------------------- | :----------- | | Government | $33,204 | $127,466 | $(94,262) | $18,098 | $101,277 | $(83,179) | | HFS - South | $72,234 | $75,165 | $(2,931) | $21,580 | $25,906 | $(4,326) | | WHS | $20,245 | $— | $20,245 | $4,956 | $— | $4,956 | | All Other | $5,820 | $4,762 | $1,058 | $258 | $(1,659) | $1,917 | - HFS-South Average Daily Rate (ADR) decreased from $74.60 in 2024 to $69.85 in 2025[216] Liquidity and Capital Resources The Company relies on cash flow from operations, cash on hand, and its ABL Facility for liquidity. Net cash provided by operating activities decreased significantly to $15.0 million for the six months ended June 30, 2025, while investing activities used $24.9 million (driven by WHS asset acquisition) and financing activities used $161.5 million (due to debt redemption) - Unused available borrowing capacity on ABL Facility: $151 million as of June 30, 2025[224][237] - Capital expenditures for six months ended June 30, 2025: $27.2 million, including $15.7 million for the new WHS segment[228] | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $15,001 | $89,696 | | Net cash used in investing activities | $(24,911) | $(16,137) | | Net cash used in financing activities | $(161,543) | $(23,187) | - Net cash used in investing activities for the six months ended June 30, 2025, was driven by a $15.5 million acquisition of community assets for the WHS segment[231] - Net cash used in financing activities for the six months ended June 30, 2025, was primarily due to the $181.4 million full redemption of the 2025 Senior Secured Notes[234] | Cash Requirements (in thousands) | Total | Rest of 2025 | 2026 | 2027 | 2028 | | :------------------------------- | :---- | :----------- | :--- | :--- | :--- | | ABL Facility | $24,000 | — | — | — | $24,000 | | Operating lease obligations | $9,623 | $5,095 | $3,266 | $1,259 | $3 | | Total | $33,623 | $5,095 | $3,266 | $1,259 | $24,003 | Concentration of Risks The Company has significant customer concentration, with three customers accounting for 18%, 15%, and 12% of revenues for the six months ended June 30, 2025. It also has one major supplier (18% of goods purchased) and is highly dependent on the government and natural resource industries - Three major customers accounted for 18%, 15%, and 12% of revenues for the six months ended June 30, 2025[243] - Largest customer accounted for 43% of accounts receivable as of June 30, 2025[243] - One major supplier represented 18% of goods purchased for the six months ended June 30, 2025[245] - Services are almost entirely provided to customers in the government and natural resource industries[246] Commitments and Contingencies The Company has non-cancellable operating lease obligations for land, buildings, and equipment, recognized on the balance sheet. Rent expense for these leases was $5.8 million for the six months ended June 30, 2025 - Operating lease obligations are recognized on the consolidated balance sheet[247] - Rent expense for cancelable and non-cancelable leases was $5.8 million for the six months ended June 30, 2025[248] Critical Accounting Policies and Estimates Key accounting policies involve significant estimates, particularly revenue recognition for community construction using the percentage of completion method and the allocation of contract consideration between lease (ASC 842) and non-lease (ASC 606) components - Revenue from community construction is recognized using the percentage of completion method (cost-to-cost)[252] - Judgment is required to allocate contract consideration between lease (ASC 842) and non-lease (ASC 606) components based on relative standalone selling price[253] Non-GAAP Financial Measures The Company uses non-GAAP measures like Adjusted Gross Profit, EBITDA, Adjusted EBITDA, and Discretionary Cash Flows to assess financial performance, service debt, fund capital expenditures, and evaluate operating performance, providing reconciliations to comparable GAAP measures - Adjusted Gross Profit: Gross profit + depreciation of specialty rental assets + loss on impairment + certain severance costs[257] - EBITDA: 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[257] - Adjusted EBITDA: EBITDA adjusted for other expense (income) net, transaction expenses, stock-based compensation, change in fair value of warrant liabilities, and other adjustments[258][262] - Discretionary Cash Flows: Cash flows from operations less maintenance capital expenditures for specialty rental assets[258] | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Adjusted Gross Profit | $13,256 | $61,675 | $44,892 | $125,524 | | EBITDA | $748 | $48,264 | $17,317 | $98,043 | | Adjusted EBITDA | $3,503 | $52,179 | $25,072 | $105,866 | - Discretionary Cash Flows: $9,270 thousand (6 months ended June 30, 2025) vs. $80,309 thousand (2024)[266] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to interest rate risk from its floating-rate ABL Facility, where a 100 basis point increase would raise annual interest expense by approximately $0.2 million. It also faces indirect commodity risk through its natural resource development customers - Interest rate risk: $24 million outstanding floating-rate obligations under ABL Facility as of June 30, 2025[268] - A 100 basis point increase in floating interest rates would increase annual interest expense by approximately $0.2 million[268] - Indirect commodity risk: Profitability and cash flows are affected by volatility in commodity prices, influencing natural resource development activity[269][270] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025 - Disclosure controls and procedures were effective as of June 30, 2025[271] PART II — OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in routine legal proceedings, but management believes these will not have a material adverse effect on its financial condition or results of operations, with reserves established as needed - Company involved in various lawsuits, claims, and legal proceedings in the ordinary course of business[272] - Management's opinion: no material adverse effect on financial condition or results of operations from these proceedings[272] Item 1A. Risk Factors The Company's financial position and results are subject to various risks, which are detailed in the 2024 Form 10-K and have not materially changed - Reference to risk factors in the 2024 Form 10-K[273] - No material changes to risk factors since the 2024 Form 10-K[273] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company did not engage in any unregistered sales of equity securities during the quarter ended June 30, 2025 - No unregistered sales of equity securities during the quarter ended June 30, 2025[274] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the reported period - No defaults upon senior securities[275] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Item 4, Mine Safety Disclosures, is not applicable[276] Item 5. Other Information Two executive officers, Heidi D. Lewis and Troy C. Schrenk, adopted Rule 10b5-1 trading plans in June 2025 for the sale of Common Stock - Heidi D. Lewis adopted a Rule 10b5-1 plan on June 12, 2025, to sell 89,972 shares by May 31, 2026[277] - Troy C. Schrenk adopted a Rule 10b5-1 plan on June 20, 2025, to sell 258,548 shares by April 30, 2026[278] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and amendments to the incentive award plan - Includes certifications (31.1, 31.2, 32.1, 32.2) and XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[283] - Lists Second Amendment to the Target Hospitality Corp. 2019 Incentive Award Plan (10.1)[283] SIGNATURES SIGNATURES The report is signed on behalf of Target Hospitality Corp. by Jason P. Vlacich, Chief Financial Officer and Chief Accounting Officer, dated August 7, 2025 - Signed by Jason P. Vlacich, Chief Financial Officer and Chief Accounting Officer[287] - Report dated August 7, 2025[287]