Company Quick10K Filing
Quick10K
Platinum Eagle Acquisition
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-05-21 Officers, Shareholder Vote, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-26 Accountant
8-K 2019-04-12 Regulation FD, Exhibits
8-K 2019-03-30 Accountant, Exhibits
8-K 2019-03-15 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Control, Officers, Amend Bylaw, Code of Ethics, Shell Status, Other Events, Exhibits
8-K 2019-03-15 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Control, Officers, Amend Bylaw, Code of Ethics, Shell Status, Other Events, Exhibits
8-K 2019-03-06 Enter Agreement, Other Events, Exhibits
8-K 2019-02-20 Other Events, Exhibits
8-K 2019-02-07 Regulation FD, Exhibits
8-K 2019-01-31 Regulation FD, Exhibits
8-K 2019-01-10 Officers, Exhibits
8-K 2019-01-10 Regulation FD, Exhibits
8-K 2018-11-28 Regulation FD, Exhibits
8-K 2018-11-13 Regulation FD, Exhibits
8-K 2018-11-13 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-03-05 Exhibits
8-K 2018-01-17 Other Events, Exhibits
8-K 2018-01-11 Enter Agreement, Sale of Shares, Officers, Amend Bylaw, Other Events, Exhibits
SPG Simon Property Group 53,690
EXPD Expeditors International of Washington 12,770
PSO Pearson 8,180
PRSP Perspecta 3,840
QD Qudian 2,140
BLMN Bloomin' Brands 1,830
MC Moelis 1,690
NBLX Noble Midstream Partners 1,240
VICA Rafina Innovations 0
LCLP Life Clips 0
EAGL 2019-03-31
Part I – Financial Information
Item 1. Financial Statements
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 th-20190331ex311ba2824.htm
EX-31.2 th-20190331ex312337a04.htm
EX-32.1 th-20190331ex32158fdf8.htm
EX-32.2 th-20190331ex3225dea8d.htm

Platinum Eagle Acquisition Earnings 2019-03-31

EAGL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 th-20190331x10q.htm 10-Q th_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file number 001-38343


TARGET HOSPITALITY CORP.

(Exact name of registrant as specified in its charter)


 

 

 

 

Delaware

 

 

98-1378631

(State or other jurisdiction of

 

 

(I.R.S. Employer

incorporation or organization)

 

 

Identification No.)

 

2170 Buckthorne Place, Suite 440

The Woodlands, TX 77380-1775

(Address, including zip code, of principal executive offices)

 

(800) 832‑4242

(Registrant’s telephone number, including area code)

 (Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which is registered

Common stock, par value $0.0001 per share

TH

The Nasdaq Capital Market

Warrants to purchase common stock

THWWW

The Nasdaq Capital Market

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☐  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☐  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒.

There were 105,232,933 shares of Common Stock, par value $0.0001 per share, outstanding as of May 10, 2019.

 

 


 

Target Hospitality Corp.

TABLE OF CONTENTS

FORM 10‑Q

March 31, 2019

PART I — FINANCIAL INFORMATION 

 

Item 1. Financial Statements 

 

Consolidated Balance Sheets 

5

Unaudited Consolidated Statements of Comprehensive Loss 

6

Unaudited Consolidated Statements of Changes in Stockholders’ Equity 

7

Unaudited Consolidated Statements of Cash Flows 

8

Notes to Unaudited Consolidated Financial Statements 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

35

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

50

Item 4. Controls and Procedures 

50

PART II — OTHER INFORMATION 

50

Item 1. Legal Proceedings 

50

Item 1A. Risk Factors 

51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

51

Item 3. Defaults upon Senior Securities 

51

Item 4. Mine Safety Disclosures 

51

Item 5. Other Information 

51

Item 6. Exhibits 

51

SIGNATURES 

54

 

 


 

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Target Hospitality Corp.

Unaudited Consolidated Financial Statements as of March 31, 2019 and December 31, 2018 and for the Three Months Ended March 31, 2019 and 2018

 

 

 

 

 

 


 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

Target Hospitality Corp.

Consolidated Balance Sheets

($ in thousands)

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

Assets

 

 

(Unaudited)

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

23,120

 

$

12,194

Accounts receivable, less allowance for doubtful accounts of $35 and $39, respectively

 

 

55,132

 

 

57,106

Prepaid expenses and other assets

 

 

4,387

 

 

3,965

Notes due from affiliates

 

 

 —

 

 

638

Notes due from officers

 

 

 —

 

 

1,083

Total current assets

 

 

82,639

 

 

74,986

 

 

 

 

 

 

 

Restricted cash

 

 

257

 

 

257

Specialty rental assets, net

 

 

305,458

 

 

293,559

Other property, plant and equipment, net

 

 

18,678

 

 

18,882

Goodwill

 

 

34,180

 

 

34,180

Other intangible assets, net

 

 

123,857

 

 

127,383

Deferred tax asset

 

 

14,457

 

 

12,420

Deferred financing costs revolver, net

 

 

5,782

 

 

2,865

Notes due from officers

 

 

 —

 

 

500

Other non-current assets

 

 

78

 

 

 —

Total assets

 

$

585,386

 

$

565,032

 

 

 

 

 

 

 

Liabilities

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

40,940

 

$

21,597

Accrued liabilities

 

 

21,591

 

 

23,300

Deferred revenue and customer deposits

 

 

16,852

 

 

17,805

Current portion of capital lease and other financing obligations (Note 9)

 

 

971

 

 

2,446

Total current liabilities

 

 

80,354

 

 

65,148

 

 

 

 

 

 

 

Other liabilities:

 

 

  

 

 

  

Long-term debt (Note 9):

 

 

 

 

 

 

Principal amount

 

 

340,000

 

 

 —

Less: unamortized original issue discount

 

 

(3,281)

 

 

 —

Less: unamortized term loan deferred financing costs

 

 

(16,232)

 

 

 —

Long-term debt, net

 

 

320,487

 

 

 —

Revolving credit facility (Note 9)

 

 

40,000

 

 

20,550

Long-term capital lease and other financing obligations

 

 

 —

 

 

14

Note due to affiliates

 

 

 —

 

 

108,047

Deferred revenue and customer deposits

 

 

16,699

 

 

19,571

Asset retirement obligations

 

 

2,664

 

 

2,610

Other non-current liabilities

 

 

 —

 

 

101

Total liabilities

 

 

460,204

 

 

216,041

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

  

 

 

  

Stockholders' Equity:

 

 

  

 

 

  

Common Stock, $0.0001 par, 380,000,000 authorized, 105,232,933 issued and outstanding as of March 31, 2019 and 74,786,327 issued and outstanding as of December 31, 2018.

 

 

10

 

 

 7

Additional paid-in-capital

 

 

110,135

 

 

319,968

Accumulated other comprehensive loss

 

 

(2,463)

 

 

(2,463)

Accumulated earnings

 

 

17,500

 

 

31,479

Total stockholders' equity

 

 

125,182

 

 

348,991

Total liabilities and stockholders' equity

 

$

585,386

 

$

565,032

See accompanying notes to the unaudited consolidated financial statements.

5


 

Target Hospitality Corp.

Unaudited Consolidated Statements of Comprehensive Loss

($ in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Revenue:

 

 

 

 

 

 

Services income

 

$

61,073

 

$

24,916

Specialty rental income

 

 

13,730

 

 

13,730

Construction fee income

 

 

7,179

 

 

 —

Total revenue

 

 

81,982

 

 

38,646

Costs:

 

 

 

 

 

 

Services

 

 

32,009

 

 

13,510

Specialty rental

 

 

2,318

 

 

2,430

Depreciation of specialty rental assets

 

 

9,901

 

 

6,603

Gross profit

 

 

37,754

 

 

16,103

Selling, general and administrative

 

 

44,752

 

 

10,182

Other depreciation and amortization

 

 

3,763

 

 

1,290

Restructuring costs

 

 

168

 

 

6,256

Other income, net

 

 

(38)

 

 

(450)

Operating loss

 

 

(10,891)

 

 

(1,175)

Loss on extinguishment of debt

 

 

907

 

 

 —

Interest expense, net

 

 

4,031

 

 

3,945

Loss before income tax

 

 

(15,829)

 

 

(5,120)

Income tax benefit

 

 

(1,850)

 

 

(926)

Net loss

 

 

(13,979)

 

 

(4,194)

Other comprehensive loss

 

 

 

 

 

 

Foreign currency translation

 

 

 —

 

 

(907)

Comprehensive loss

 

$

(13,979)

 

$

(5,101)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number shares outstanding - basic and diluted

 

 

79,589,905

 

 

25,686,327

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

 

$ (0.18)

 

 

$ (0.16)

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

6


 

Target Hospitality Corp.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2019 and 2018

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid

 

 

    

Accumulated Other

    

Accumulated

    

Total

 

    

Shares

    

Amount

    

In Capital

    

Equity (Deficit)

    

Comprehensive Loss

    

Earnings

    

Stockholders' Equity

Balances at December 31, 2017 as previously reported

 

 —

 

$

 —

 

$

 —

 

$

(12,606)

 

$

(1,622)

 

$

39,132

 

$

24,904

Retroactive application of recapitalization

 

25,686,327

 

 

 3

 

 

 —

 

 

12,606

 

 

 —

 

 

(12,609)

 

 

 —

Adjusted Balances at December 31, 2017

 

25,686,327

 

$

 3

 

$

 —

 

$

 —

 

$

(1,622)

 

$

26,523

 

$

24,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,194)

 

 

(4,194)

Cumulative translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(907)

 

 

 —

 

 

(907)

Balances at March 31, 2018

 

25,686,327

 

$

 3

 

$

 —

 

$

 —

 

$

(2,529)

 

$

22,329

 

$

19,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018 as previously reported

 

 —

 

$

 —

 

$

 —

 

$

307,366

 

$

(2,463)

 

$

44,088

 

$

348,991

Retroactive application of recapitalization

 

74,786,327

 

 

 7

 

 

319,968

 

 

(307,366)

 

 

 —

 

 

(12,609)

 

 

 —

Adjusted Balances at December 31, 2018

 

74,786,327

 

$

 7

 

$

319,968

 

$

 —

 

$

(2,463)

 

$

31,479

 

$

348,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(13,979)

 

 

(13,979)

Contribution

 

 —

 

 

 —

 

 

39,107

 

 

 —

 

 

 —

 

 

 —

 

 

39,107

Recapitalization transaction

 

30,446,606

 

 

 3

 

 

314,194

 

 

 —

 

 

 —

 

 

 —

 

 

314,197

Recapitalization transaction - cash paid to Algeco Seller

 

 —

 

 

 —

 

 

(563,134)

 

 

 —

 

 

 —

 

 

 —

 

 

(563,134)

Balances at March 31, 2019

 

105,232,933

 

$

10

 

$

110,135

 

$

 —

 

$

(2,463)

 

$

17,500

 

$

125,182

 

See accompanying notes to the unaudited consolidated financial statements.

7


 

Target Hospitality Corp.

Unaudited Consolidated Statements of Cash Flows

($ in thousands)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(13,979)

 

$

(4,194)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

  

 

 

  

Depreciation

 

 

10,138

 

 

6,649

Amortization of intangible assets

 

 

3,526

 

 

1,244

Accretion of asset retirement obligation

 

 

54

 

 

35

Amortization of deferred financing costs

 

 

315

 

 

 —

Amortization of original issue discount

 

 

21

 

 

 —

Officer loan compensation expense

 

 

1,583

 

 

295

Gain on involuntary conversion

 

 

 —

 

 

(450)

Loss on extinguishment of debt

 

 

907

 

 

 —

Deferred income taxes

 

 

(2,037)

 

 

(1,156)

Provision for loss on receivables

 

 

 —

 

 

86

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

1,974

 

 

654

Prepaid expenses and other assets

 

 

(422)

 

 

778

Accounts payable and other accrued liabilities

 

 

(4,801)

 

 

3,526

Deferred revenue and customer deposits

 

 

(3,825)

 

 

(1,730)

Other non-current assets and liabilities

 

 

(199)

 

 

(2,222)

Net cash (used in) provided by operating activities

 

 

(6,745)

 

 

3,515

Cash flows from investing activities:

 

 

  

 

 

  

Purchase of specialty rental assets

 

 

(14,623)

 

 

(21,888)

Purchase of property, plant and equipment

 

 

(37)

 

 

(162)

Repayments from (advances to) affiliates

 

 

638

 

 

(500)

Receipt of insurance proceeds

 

 

 —

 

 

2,250

Net cash used in investing activities

 

 

(14,022)

 

 

(20,300)

Cash flows from financing activities:

 

 

  

 

 

  

Proceeds from borrowings on Senior Secured Notes, net of discount

 

 

336,699

 

 

 —

Principal payments on finance and capital lease obligations

 

 

(1,475)

 

 

(3,527)

Proceeds from notes with affiliates

 

 

 —

 

 

10,000

Principal payments on borrowings from ABL

 

 

(27,790)

 

 

(1,076)

Proceeds from borrowings on ABL

 

 

47,240

 

 

5,500

Repayment of affiliate note

 

 

(3,762)

 

 

 —

Contributions from affiliate

 

 

39,107

 

 

 —

Recapitalization

 

 

218,752

 

 

 —

Recapitalization - cash paid to Algeco Seller

 

 

(563,134)

 

 

 —

Payment of deferred financing costs

 

 

(13,944)

 

 

 —

Net cash provided by financing activities

 

 

31,693

 

 

10,897

 

 

 

 

 

 

 

Net increase (decrease) in cash and  cash equivalents

 

 

10,926

 

 

(5,888)

Cash and cash equivalents - beginning of period

 

 

12,194

 

 

12,533

Cash and cash equivalents - end of period

 

$

23,120

 

$

6,645

 

 

 

 

 

 

 

Non-cash investing and financing activity:

 

 

  

 

 

  

Non-cash change in accrued capital expenditures

 

$

(7,177)

 

$

(3,716)

Non-cash change in accrued deferred financing cost

 

$

(6,424)

 

$

 —

Non-cash contribution from affiliate - forgiveness of affiliate note

 

$

104,285

 

$

 —

Non-cash distribution to PEAC - liability transfer from PEAC, net

 

$

(8,840)

 

$

 —

Non-cash change in specialty rental assets due to effect of exchange rate changes

 

$

 —

 

$

907

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

8


 

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements

(Amounts in Thousands, Unless Stated Otherwise)

1. Summary of Significant Accounting Policies

Organization and Nature of Operations

Target Hospitality Corp. (“Target Hospitality” or the “Company”) was formed on March 15, 2019 and is one of the largest vertically integrated specialty rental and hospitality services companies in the United States. The Company provides vertically integrated specialty rental and comprehensive hospitality services including: catering food services, maintenance, housekeeping, grounds-keeping, on-site security, overall workforce lodge management, and laundry service. Target Hospitality serves clients in oil, gas, mining, alternative energy, government and immigrations sectors principally located in the West Texas, South Texas, Oklahoma and Bakken regions, as well as various large linear-construction (pipeline and infrastructure) projects in the United States.

 

The Company, whose securities are listed on the Nasdaq Capital Market, serves as the holding company for the businesses of Target Logistics Management, LLC and its subsidiaries (“Target”) and RL Signor Holdings, LLC and its subsidiaries (“Signor”). TDR Capital LLP (“TDR Capital” or “TDR”) owns approximately 71% of Target Hospitality and the remaining ownership is broken out among the founders of the Company’s legal predecessor, Platinum Eagle Acquisition Corp. (“Platinum Eagle” or “PEAC”), investors in Platinum Eagle’s private placement transaction completed substantially and concurrently with the Business Combination (as defined below) (the “PIPE”), and other public shareholders. Platinum Eagle was originally incorporated on July 12, 2017 as a Cayman Islands exempted company, for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. References in this Quarterly Report on Form 10-Q to the Company refer to Target Hospitality for all periods at or after March 15, 2019 and Platinum Eagle for all periods prior to March 15, 2019, unless the context requires otherwise.

 

On November 13, 2018, PEAC entered into: (i) the agreement and plan of merger, as amended on January 4, 2019 (the “Signor Merger Agreement”), by and among PEAC, Signor Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Platinum Eagle and sister company to the Holdco Acquiror (defined below as Topaz Holdings LLC) (“Signor Merger Sub”), Arrow Holdings S.a.r.l., a Luxembourg société à responsabilité limitée (the “Arrow Seller”) and Signor Parent (as defined below), and (ii) the agreement and plan of merger, as amended on January 4, 2019 (the “Target Merger Agreement” and, together with the Signor Merger Agreement, the “Merger Agreements”), by and among Platinum Eagle, Topaz Holdings LLC, a Delaware limited liability company (“Topaz”), Arrow Bidco, LLC, a Delaware limited liability company (“Bidco”), Algeco Investments B.V., a Netherlands besloten vennotschap (the “Algeco Seller”) and Target Parent (as defined below), to effect a business combination (the “Business Combination”). Pursuant to the Merger Agreements, on March 15, 2019, Platinum Eagle, through its wholly-owned subsidiary, Topaz, acquired all of the issued and outstanding equity interests of Arrow Parent Corp., a Delaware corporation (“Signor Parent”), the owner of BidCo and the owner of Signor from the Arrow Seller, and all of the issued and outstanding equity interests of Algeco US Holdings LLC, a Delaware limited liability company (“Target Parent”), the owner of Target, from the Algeco Seller, for approximately $1.311 billion. The purchase price was paid in a combination of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), and cash. The Arrow Seller and the Algeco Seller are hereinafter referred to as the “Sellers.”

 

Target Parent, was formed by TDR in September 2017. Prior to the Business Combination, Target Parent was directly owned by Algeco Scotsman Global S.a.r.l. (“ASG”) which is ultimately owned by a group of investment funds managed and controlled by TDR. During 2018, ASG assigned all of its ownership interest in Target Parent to the Algeco Seller, an affiliate of ASG that is also ultimately owned by a group of investment funds managed and controlled by TDR. Target Parent acted as a holding company that included the U.S. corporate employees of ASG and certain of its affiliates and certain related administrative costs and was the owner of Target, its operating company. Target Parent received capital contributions, made distributions, and maintained cash as well as other amounts owed to and from affiliated entities. As

9


 

Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

discussed above, in connection with the closing of the Business Combination, Target Parent merged with and into Bidco, with Bidco as the surviving entity.

Signor Parent owned 100% of Bidco until the closing of the Business Combination in connection with which Signor Parent merged with and into Topaz with Topaz being the surviving entity. Prior to the Business Combination, Signor Parent was owned by the Arrow Seller, which is ultimately owned by a group of investment funds managed and controlled by TDR. Signor Parent was formed in August 2018 and acted as a holding company for Bidco, which was formed in September 2018, also as a holding company. Bidco acquired Signor on September 7, 2018 (see Note 3). Neither Signor Parent nor Bidco had operating activity, but each received capital contributions, made distributions, and maintained cash as well as other amounts owed to and from affiliated entities. Signor Parent was dissolved upon consummation of the Business Combination and merger with Topaz described above on March 15, 2019.

 

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) has been condensed or omitted pursuant to those rules and regulations. The financial statements included in this report should be read in conjunction with the audited combined financial statements of Target Parent and Signor Parent and accompanying notes thereto for the year ended December 31, 2018 as well as the consolidated financial statements and notes included in the PEAC Annual Report on Form 10-K for the year ended December 31, 2018.

The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results that may be expected for the full fiscal year ending December 31, 2019 or any future period.

Due to the Restructuring discussed in the audited combined financial statements of Target Parent and Signor Parent and accompanying notes thereto for the year ended December 31, 2018, there are approximately $0.4 million and $11.4 million of additional expenses related to the activity of Target Parent included in the unaudited consolidated statements of comprehensive loss for the periods ended March 31, 2019 and 2018, respectively. Approximately $0.2 million and $6.3 million are reported in restructuring costs for the periods ended March 31, 2019 and 2018, respectively. Approximately $0.2 million and $5.1 million of these expenses are reported in selling, general and administrative expenses for the periods ended March 31, 2019 and 2018, respectively. 

The accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, except for the adjustments described above as part of the Restructuring and the adjustments described as part of the Business Combination discussed in Note 2, necessary for a fair statement of its financial position as of March 31, 2019, and its results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the three months ended March 31, 2019 and 2018. The consolidated balance sheet as of December 31, 2018, was derived from the audited combined financial statements of Target Parent and Signor Parent but does not contain all of the footnote disclosures from those annual financial statements.

Reclassifications

 

Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net loss and comprehensive loss, stockholders’ equity or cash flows.

 

 

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying unaudited consolidated financial statements.

Principles of Consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany balances and transactions are eliminated. The Business Combination was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Although Platinum Eagle was the indirect acquirer of Target Parent and Signor Parent for legal purposes, Target Parent and Signor Parent were considered the acquirer for accounting and financial reporting purposes.

As a result of Target Parent and Signor Parent being the accounting acquirer in the Business Combination, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” Target Parent and Signor Parent are the accounting predecessor of the Company. The historical operations of Target Parent and Signor Parent are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Target Parent and Signor Parent prior to the Business Combination; (ii) the consolidated results of the Company, Target Parent and Signor Parent following the Business Combination on March 15, 2019; (iii) the assets and liabilities of Target Parent and Signor Parent at their historical cost; and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of Common Stock attributable to the purchase of Target Parent and Signor Parent in connection with the Business Combination is reflected retroactively to the earliest period presented and will be utilized for calculating loss per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse recapitalization of Target Parent and Signor Parent.

Revenue Recognition

The Company derives revenue from specialty rental and hospitality services, specifically lodging and related ancillary services. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with the customers. In certain of the Company’s contracts, rates may vary over the contract term. In these cases, revenue is generally deferred and recognized on a straight-line basis over the contract term. Certain arrangements contain a lease of lodging facilities to customers. The leases are accounted for as an operating lease under the authoritative guidance for leases and are recognized as income using the straight-line method over the term of the lease agreement. When the Company enters into arrangements with multiple deliverables, arrangement consideration is allocated between the deliverables based on the relative estimated selling price of each deliverable. The estimated price of lodging and service deliverables is based on the price of lodging and services when sold separately, or based upon the best estimate of selling price.

When lodging and services are billed and collected in advance, recognition of revenue is deferred until services are rendered. Certain of the Company’s contractual arrangements allow customers the ability to use paid but unused lodging and services for a specified period beyond the expiration of the contract. The Company recognizes revenue for these paid

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

but unused lodging and services as they are consumed, as it becomes probable the lodging and services will not be used, or upon expiration of the specified term.

Cost of services includes labor, food, utilities, supplies, rent and other direct costs associated with operating the lodging units. Cost of rental includes leasing costs and other direct costs of maintaining the lodging units. Incremental direct costs of acquiring contracts includes sales commissions which are expensed as incurred and reflected in selling, general and administrative expenses in the consolidated statements of comprehensive loss.

The Company also originated a contract in 2013 with TransCanada Pipelines (“TCPL”) to construct, deliver, cater and manage all accommodations and hospitality services in conjunction with the planned construction of the Keystone XL pipeline project.  During the construction phase of the contract, the Company is currently performing services under limited notices to proceed (“LNTP”) and change orders. The Company recognizes revenue associated with the LNTPs using the percentage of completion method with progress towards completion measured using the cost-to-cost method as the basis to recognize revenue. Billings on the LNTPs in excess of costs incurred and estimated profits are classified as deferred revenue. Costs incurred and estimated profits in excess of billings on these contracts are recognized as unbilled receivables. Management believes this cost-to-cost method is the most appropriate measure of progress to the satisfaction of a performance obligation on the LNTPs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to projected costs and revenue and are recognized in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. Factors that may affect future project costs and margins include weather, production efficiencies, availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of our estimates and materially impact our future reported earnings.  The Company recognizes revenues associated with change orders during the construction phase as costs are incurred in connection with the project change orders. The revenue recognized on the change orders includes a margin mark-up on costs incurred as allowable under the contract terms. Revenues associated with this contract are reflected as construction fee income in the consolidated statements of comprehensive loss and amounted to approximately $7.2 million and $0 for the three months ended March 31, 2019 and 2018, respectively. 

 

Additionally, the Company collects sales, use, occupancy and similar taxes, which the Company presents on a net basis (excluded from revenues) in the consolidated statements of comprehensive loss.

Recently Issued Accounting Standards

The Company meets the definition of an emerging growth company (“EGC”) as defined under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). In reliance on exemptions provided under the JOBS Act for EGCs, the Company has elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such standards. As such, compliance dates included below pertain to non-issuers, and as permitted, early adoption dates are indicated.

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606), which prescribes a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers. The new guidance will supersede virtually all existing revenue guidance under US GAAP. The new standard becomes effective for the Company’s year ended December 31, 2019 financial statements and interim periods thereafter. Topic 606 allows either full or modified retrospective transition, and the Company currently plans to use the modified retrospective method of adoption. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings. As part of the modified retrospective approach in the year of adoption, the Company will present the comparative periods under legacy GAAP and disclose the amount by which each financial statement line item was affected as a result of applying the new standard and an explanation of significant changes. The core principle

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

contemplated by this new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. In April and May 2016, the FASB also issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, non-cash considerations, contract modifications and completed contracts at transition. The Company is currently evaluating the impact that the updated guidance will have on the Company’s financial statements and related disclosures. As part of the evaluation process, the Company is holding regular meetings with key stakeholders from across the organization to discuss the impact of the standard on its existing contracts. The Company is utilizing a bottom-up approach to analyze the impact of the standard on its portfolio of contracts by reviewing the Company’s current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to the Company’s existing revenue contracts.

In February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842). This guidance revises existing practice related to accounting for leases under ASC Topic 840 Leases (ASC 840) for both lessees and lessors. The new guidance requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). While the new standard maintains similar accounting for lessors as under ASC 840, the new standard reflects updates to, among other things, align with certain changes to the lessee model. The new standard will be effective for the Company during the year ended December 31, 2020 and interim periods thereafter. Topic 842 allows an entity to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or to adopt under the new optional transition method that allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings as of the adoption date. The Company is currently evaluating the impact of the pronouncement on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments - Credit Losses  (ASU 2016‑13). This new standard changes how companies will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016‑13 is effective for financial statements issued for reporting periods beginning after December 15, 2019 and interim periods within the reporting periods. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016‑16, Income Taxes (Topic 740): Intra-entity Transfers of Assets other than Inventory. This guidance requires an entity to recognize the income tax consequences of intra-entity sale or transfers of assets, other than inventory, at the time of transfer. The new standard requires the Company to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sale or transfer occurs. The exception to recognizing the income tax effects of intercompany sales or transfers of assets remains in place for intercompany inventory sales and transfers. The new standard will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted for all entities as long as entities adopt at the beginning of an annual reporting period. The Company adopted the pronouncement on January 1, 2019 and determined that it had no impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016‑18, Statement of cash flows (Topic 230): Restricted cash. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. This update addresses stakeholder concerns around the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The provisions of ASU No. 2016‑18 are effective for fiscal years beginning after December 15, 2018, and interim periods with fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The amendments in this update should be applied retrospectively. The Company does not plan to early adopt. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. Companies that elect to reclassify these amounts must reclassify stranded tax effects for all items accounted for in accumulated other comprehensive income. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance requires qualitative disclosure of the accounting policy for releasing income tax effects from accumulated other comprehensive income and if the reclassification election is made, the impacts of the change on the consolidated financial statements. The Company adopted ASU 2018-02 in the first quarter of 2019, did not reclassify the tax effects stranded in accumulated other comprehensive income, and there was no impact on the Company's consolidated results of operations or cash flows. The Company's policy for releasing disproportionate income tax effects from AOCI utilizes the portfolio approach.

 

In August 2018, the FASB issued ASU No. 2018‑15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018‑15”). The amendments in this update align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software under Subtopic 350‑40. The amendments require certain costs incurred during the application development stage to be capitalized and other costs incurred during the preliminary project and post-implementation stages to be expensed as they are incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement including reasonably certain renewals, beginning when the module or component of the hosting arrangement is ready for its intended use. Accounting for the hosting component of the arrangement is not affected. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company early adopted this pronouncement on January 1, 2019 and determined that it had no impact on its consolidated financial statements for the period ended March 31, 2019.

 

2. Business Combination

On March 15, 2019, Platinum Eagle consummated the Business Combination pursuant to the terms of the Merger Agreements and acquired all of the issued and outstanding equity interests in Target Parent and Signor Parent from the Sellers.

 

Pursuant to the Merger Agreements, Topaz purchased from the Sellers all of the issued and outstanding equity interests of Target Parent and Signor Parent for $1.311 billion, of which $563.1 million was paid in cash and the remaining $747.9 million was paid to the Sellers in the form of 25,686,327 shares of Common Stock, to Algeco Seller, and 49,100,000 shares of Common Stock, to Arrow Seller. 

 

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

The following tables reconcile the elements of the Business Combination to the consolidated statement of cash flows for the three months ended March 31, 2019.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recapitalization

Cash - Platinum Eagle's Trust (net of redemptions)

    

 

 

 

 

 

 

 

    

$

146,137

Cash - PIPE

 

 

 

 

 

 

 

 

 

 

80,000

Gross cash received by Target Hospitality from Business Combination

 

 

 

 

 

 

 

 

 

 

226,137

Less: fees to underwriters

 

 

 

 

 

 

 

 

 

 

(7,385)

Net cash received from Recapitalization

 

 

 

 

 

 

 

 

 

 

218,752

Plus: non-cash contribution - forgiveness of related party loan

 

 

 

 

 

 

 

 

 

 

104,285

Less: non-cash net liabilities assumed from PEAC

 

 

 

 

 

 

 

 

 

 

(8,840)

Net contributions from Recapitalization Transaction

 

 

 

 

 

 

 

 

 

$

314,197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions from Affiliate

Transaction bonus amounts

 

 

 

 

 

 

 

 

 

$

28,519

Payment of historical ABL facility

 

 

 

 

 

 

 

 

 

 

9,904

Payment of affiliate amounts

 

 

 

 

 

 

 

 

 

 

684

Total contributions

 

 

 

 

 

 

 

 

 

$

39,107

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid to Algeco Seller

 

 

 

 

 

 

 

 

 

$

563,134

 

The cash paid to Algeco Seller was funded from the proceeds from debt (described below), net cash received from Recapitalization (described above), offset by deferred financing costs and certain other transaction costs incurred in connection with the Business Combination.

 

The $340 million of gross proceeds from Bidco’s offering of Senior Secured Notes less $3.3 million of original issuance discount and $40 million through Bidco’s entry into a new ABL facility are shown separately in the consolidated statement of cash flow for the three months ended March 31, 2019.

 

Prior to the Business Combination, Platinum Eagle had 32,500,000 shares of Class A common stock, par value $0.0001 per share (the “Class A Shares”) outstanding and 8,125,000 shares of Class B common stock, par value $0.0001 per share (the “Class B Shares”) outstanding, which comprised of Founder Shares held by the Founders (as defined below) and Former Platinum Eagle Director Shares held by individuals who are not founders but were directors of PEAC.

 

On March 15, 2019, Platinum Eagle was renamed Target Hospitality Corp. and each currently issued and outstanding share of Platinum Eagle Class B Shares automatically converted on a one-for-one basis, into shares of Platinum Eagle Delaware Class A Shares. Immediately thereafter, each currently issued and outstanding share of Platinum Eagle Class A Shares automatically converted on a one-for-one basis, into shares of the common stock of Target Hospitality. In connection with the Business Combination, 18,178,394 Class A Shares were redeemed.

 

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

The number of shares of Common Stock of Target Hospitality issued immediately following the consummation of the Business Combination is summarized as follows:

 

 

 

 

 

 

 

Shares by Type

 

 

 

 

Number of shares by type at March 31, 2019

Platinum Eagle Class A Shares outstanding prior to the Business Combination

 

 

 

 

32,500,000

Less: Redemption of Platinum Eagle Class A Shares

 

 

 

 

(18,178,394)

Class A Shares of Platinum Eagle

 

 

 

 

14,321,606

Founder Shares

 

 

 

 

8,050,000

Former Platinum Eagle Director Shares

 

 

 

 

75,000

Shares issued to PIPE investors

 

 

 

 

8,000,000

Shares issued to PEAC and PIPE investors

 

 

 

 

30,446,606

Shares issued to the Sellers

 

 

 

 

74,786,327

Total Shares of Common Stock issued and outstanding

 

 

 

 

105,232,933

Less: Founder Shares in escrow

 

 

 

 

(5,015,898)

Total Shares of Common Stock outstanding for loss per share computation (see Note 17)

 

 

 

 

100,217,035

 

 

In connection with the closing of and as a result of the consummation of the Business Combination, certain members of the Company’s management and employees received  bonus payments as a result of the Business Combination being consummated in the aggregate amount of $28.5 million. The bonuses have been reflected in the selling, general and administrative expense line in the consolidated statements of comprehensive loss. The bonuses were funded by a contribution from Algeco Seller in March of 2019 and is reflected as the transaction bonus amount contribution above. The Company also incurred transaction costs related to the Business Combination of approximately $8 million, which are included in selling, general and administrative expenses on the consolidated statement of comprehensive loss for the three months ended March 31, 2019. Upon the consummation of the Business Combination, outstanding loans to officers were forgiven, which resulted in $1.6 million of additional expenses recognized in selling, general and administrative expenses on the consolidated statement of comprehensive loss for the three months ended March 31, 2019 as more fully discussed in Note 16.

 

Earnout Agreement

On March 15, 2019 (the “Closing Date”), in connection with the closing of the Business Combination, Harry E. Sloan, Jeff Sagansky and Eli Baker (together, the “Founders”) and the Company entered into an earnout agreement (the “Earnout Agreement”), pursuant to which, on the Closing Date, 5,015,898 Founder Shares were placed in escrow (the “Escrow Shares”), to be released at any time during the period of three years following the Closing Date upon the occurrence of the following triggering events: (i) fifty percent (50%) of the Escrow Shares will be released to the Founder Group (as defined in the Earnout Agreement) if the closing price of the shares of Target Hospitality’s common stock as reported on Nasdaq exceeds $12.50 per share for twenty (20) of any thirty (30) consecutive trading days and (ii) the remaining fifty percent (50%) of the Escrow Shares will be released to the Founder Group if the closing price of the shares of Target Hospitality’s common stock as reported on Nasdaq exceeds $15.00 per share for twenty (20) of any thirty (30) consecutive trading days, in each case subject to certain notice mechanics.

Upon the expiration of the three-year earnout period, any Founders’ Shares remaining in escrow that were not released in accordance with the Earnout Agreement will be transferred to the Company for cancellation. The fair value of the Company’s contingent right to cancel the Founders’ Shares has been recorded as a component of additional paid in capital, with an equal and offsetting capital contribution from the Founders.

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

3. Signor Acquisition

On September 7, 2018, Bidco purchased 100% of the membership interests of Signor. Bidco acquired Signor for an aggregate purchase price of $201.5 million, excluding $15.5 million of cash and cash equivalents and restricted cash acquired. Included in the purchase price was $1.2 million of amounts owed to the sellers as a result of a subsequent working capital true-up adjustment recognized in accrued liabilities, with a corresponding increase to goodwill, as of December 31, 2018 in the accompanying consolidated balance sheets. The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill.

The following table summarizes the allocation of the total purchase price to the net assets acquired and liabilities assumed at the date of acquisition by Bidco at estimated fair value:

 

 

 

 

Cash, cash equivalents and restricted cash

    

$

15,536

Accounts receivable

 

 

13,008

Property and equipment

 

 

79,026

Other current assets

 

 

581

Goodwill

 

 

26,115

Customer relationships

 

 

96,225

Total assets acquired

 

 

230,491

 

 

 

 

Accounts payable

 

 

(3,678)

Accrued expenses

 

 

(9,051)

Capital lease liability and note payable

 

 

(490)

Unearned revenue

 

 

(201)

Total liabilities assumed

 

 

(13,420)

Net assets acquired

 

$

217,071

 

The aggregate fair value of the acquired accounts receivable approximated the aggregate gross contractual amount. The contractual cash flows not expected to be collected at the acquisition date amounted to approximately $0.7 million.

Intangible assets related to customer relationships represent the aggregate value of those relationships from existing contracts and future operations on a look-through basis, considering the end customers of Signor. The intangible assets received by Bidco will be amortized on a straight-line basis over an estimated useful life of nine years from the date of the business combination.

The purchase price allocation performed resulted in the recognition of approximately $26.1 million of goodwill. The goodwill recognized is attributable to expected revenue synergies generated by the expansion of territory of workforce housing, and costs synergies resulting from the consolidation or elimination of certain functions. All of the goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information presents consolidated financial information as if Signor had been acquired as of January 1, 2018:

 

 

 

 

 

 

 

Period

    

Revenue

    

Loss before taxes

2018 pro forma from January 1, 2018 to March 31, 2018 (Unaudited)

 

$

59,671

 

$

(15,946)

 

Signor added $23.3 million and $8.9 million to our revenue and income before income taxes, respectively, for period ended March 31, 2019.

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Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Signor to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment, and intangible assets had been applied from January 1, 2018.

2018 supplemental pro forma income before taxes was adjusted to include $5.2 million of acquisition-related costs incurred in connection with the Signor acquisition.

4. Specialty Rental Assets, Net

Specialty rental assets, net at the dates indicated below consisted of the following:

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

2019

    

2018

Specialty rental assets

 

$

458,616

 

$

432,158

Construction-in-process

 

 

13,822

 

 

18,356

Less: accumulated depreciation

 

 

(166,980)

 

 

(156,955)

Specialty rental assets, net

 

$

305,458

 

$

293,559

 

Depreciation expense related to Specialty rental assets was $9.9 million and $6.6 million for the period ended March 31, 2019 and 2018, respectively, and is included in depreciation of specialty rental assets in the consolidated statements of comprehensive loss.

 

5. Other Property, Plant and Equipment, Net

Other property, plant, and equipment, net at the dates indicated below, consisted of the following:

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

 

2019

    

2018

Land

 

$

16,245

 

$

16,245

Buildings and leasehold improvements

 

 

904

 

 

908

Machinery and office equipment

 

 

1,105

 

 

1,083

Software and other

 

 

1,686

 

 

1,667

 

 

 

19,940

 

 

19,903

Less: accumulated depreciation

 

 

(1,262)

 

 

(1,021)

Total other property, plant and equipment, net

 

$

18,678

 

$

18,882

 

Depreciation expense related to other property, plant and equipment was $0.3 million and $0.1 million for the period ended March 31, 2019 and 2018, respectively, and is included in other depreciation and amortization in the consolidated statements of comprehensive loss. The March 31, 2019 and December 31, 2018 land amounts in the table above includes approximately $7.6 million of land acquired as part of the Signor acquisition discussed in Note 3, which is currently not being used in the operations of the business. Management is evaluating future plans for this land with options to potentially sell the land; however, the land is not currently classified as held for sale as it is not expected to be sold within the next twelve months.

6. Goodwill and Other Intangible Assets, net

As discussed in Note 3, the Company reflects Bidco’s acquisition of Signor in September 2018 resulting in the recognition of $26.1 million of goodwill. In connection with the Signor transaction, all goodwill was attributable to the Permian Basin business segment and reporting unit.

18


 

Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

Intangible assets other than goodwill at the dates indicated below consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

Weighted

 

Gross

 

 

 

 

 

 

 

average

 

Carrying

 

Accumulated

 

Net Book

 

 

remaining lives

 

Amount

 

Amortization

 

Value

Intangible assets subject to amortization

    

  

    

 

  

    

 

  

    

 

  

Customer relationships

 

8.1

 

$

127,920

 

$

(20,463)

 

$

107,457

Non-compete Agreements

 

 —

 

 

11,400

 

 

(11,400)

 

 

 —

Total  

 

 

 

 

139,320

 

 

(31,863)

 

 

107,457

Indefinite lived assets:

 

  

 

 

  

 

 

  

 

 

  

Tradenames

 

  

 

 

16,400

 

 

 —

 

 

16,400

Total intangible assets other than goodwill

 

  

 

$

155,720

 

$

(31,863)

 

$

123,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Weighted

 

Gross

 

 

 

 

 

 

 

average

 

Carrying

 

Accumulated

 

Net Book

 

 

remaining lives

 

Amount

 

Amortization

 

Value

Intangible assets subject to amortization

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

    

8.3

    

$

127,920

    

$

(16,937)

    

$

110,983

Non-compete Agreements

 

 —

 

 

11,400

 

 

(11,400)

 

 

 —

Total  

 

 

 

 

139,320

 

 

(28,337)

 

 

110,983

Indefinite lived assets:

 

  

 

 

  

 

 

  

 

 

  

Tradenames

 

  

 

 

16,400

 

 

 —

 

 

16,400

Total intangible assets other than goodwill

 

  

 

$

155,720

 

$

(28,337)

 

$

127,383

 

The aggregate amortization expense for intangible assets subject to amortization was $3.5 million and $1.2 million for the three months ended March 31, 2019 and 2018, respectively, and is included in other depreciation and amortization in the consolidated statements of comprehensive loss.

The estimated aggregate amortization expense for each of the next five years and thereafter is as follows:

 

 

 

 

Rest of 2019

    

$

10,574

2020

 

 

14,100

2021

 

 

14,100

2022

 

 

12,746

2023

 

 

12,325

Thereafter

 

 

43,612

Total

 

$

107,457

 

 

19


 

Table of Contents

Target Hospitality Corp.

Notes to Unaudited Consolidated Financial Statements (continued)

(Amounts in Thousands, Unless Stated Otherwise)

7. Accrued Liabilities

Accrued liabilities as of the dates indicated below consists of the following:

 

 

 

 

 

 

 

   

    

March 31,

 

December 31,

 

 

2019

    

2018

Accrued expenses 

 

$

8,542

 

$

9,104

Employee accrued compensation expense

 

 

5,640

 

 

5,774

Other accrued liabilities 

 

 

7,409

 

 

5,088

Accrued interest due affiliates 

 

 

 —

 

 

3,334

Total accrued liabilities 

 

$

21,591

 

$

23,300

 

 

8. Notes Due from Affiliates

The Company records interest income on notes due from affiliates based on the stated interest rate in the loan agreement. Interest income of $0 and $1.2 million associated with notes due from affiliates is reflected in interest expense, net on the consolidated statements of comprehensive loss for the periods ended March 31, 2019 and 2018, respectively.

The Company recognized a current interest receivable of $0 associated with these notes due from affiliates in the consolidated balance sheets at March 31, 2019 and December 31, 2018, respectively.

All affiliate notes were paid in connection with the Business Combination discussed in Note 2.

9. Debt

Senior Secured Notes 2024

In connection with the closing of the Business Combination, Bidco issued $340 million in aggregate principal amount of 9.50% senior secured notes due March 15, 2024 (the “2024 Senior Secured Notes” or “Notes”) under an indenture dated March 15, 2019 (the “Indenture”). The Indenture was entered into by and among Bidco, the guarantors named therein (the “Note Guarantors”), and Deutsche Bank Trust Company Americas, as trustee and as collateral agent. Interest is payable semi-annually on September 15 and March 15 beginning September 15, 2019. Refer to table below for a description of the amounts related to the Notes.

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

Unamortized Original Issue Discount