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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 June 30, 2021

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

NASDAQ Global Market

Warrants to purchase common stock

THWWW

NASDAQ Global 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 every Interactive Data File required to be submitted 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 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 101,827,537 shares of Common Stock, par value $0.0001 per share, outstanding as of August 7, 2021.

Target Hospitality Corp.

TABLE OF CONTENTS

FORM 10-Q

June 30, 2021

PART I — FINANCIAL INFORMATION

5

Item 1. Financial Statements

5

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

33

Item 3. Quantitative and Qualitative Disclosures About Market Risk

52

Item 4. Controls and Procedures

52

PART II — OTHER INFORMATION

52

Item 1. Legal Proceedings

52

Item 1A. Risk Factors

53

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

53

Item 3. Defaults upon Senior Securities

53

Item 4. Mine Safety Disclosures

53

Item 5. Other Information

53

Item 6. Exhibits

54

SIGNATURES

55

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Target Hospitality Corp.

Unaudited Consolidated Financial Statements as of June 30, 2021 and December 31, 2020 and for the six months ended June 30, 2021 and 2020

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Target Hospitality Corp.

Consolidated Balance Sheets

($ in thousands)

June 30, 

December 31, 

    

2021

    

2020

Assets

 

(Unaudited)

 

(Restated)

Current assets:

 

  

 

  

Cash and cash equivalents

$

6,467

$

6,979

Accounts receivable, less allowance for doubtful accounts of $2,257 and $2,977, respectively

 

29,862

 

28,183

Prepaid expenses and other assets

 

5,505

 

7,195

Related party receivable

1,205

Total current assets

 

41,834

 

43,562

Specialty rental assets, net

 

300,329

 

311,487

Other property, plant and equipment, net

 

10,356

 

11,019

Goodwill

 

41,038

 

41,038

Other intangible assets, net

 

95,800

 

103,121

Deferred tax asset

 

17,307

 

15,179

Deferred financing costs revolver, net

 

2,794

 

3,422

Other non-current assets

4,518

5,409

Total assets

$

513,976

$

534,237

Liabilities

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

14,772

$

10,644

Accrued liabilities

 

25,472

 

24,699

Deferred revenue and customer deposits

 

35,650

 

6,619

Current portion of capital lease and other financing obligations (Note 8)

 

1,151

 

3,571

Total current liabilities

 

77,045

 

45,533

Other liabilities:

 

  

 

  

Long-term debt (Note 8):

 

 

Principal amount

340,000

340,000

Less: unamortized original issue discount

(2,009)

(2,319)

Less: unamortized term loan deferred financing costs

(9,687)

(11,182)

Long-term debt, net

328,304

326,499

Revolving credit facility (Note 8)

5,000

48,000

Long-term capital lease and other financing obligations

269

Other non-current liabilities

 

1,259

 

479

Deferred revenue and customer deposits

 

10,531

 

11,752

Asset retirement obligations

 

2,385

 

2,284

Warrant liabilities

3,253

533

Total liabilities

 

427,777

 

435,349

Commitments and contingencies (Note 12)

 

  

 

  

Stockholders' equity:

 

  

 

  

Common Stock, $0.0001 par, 400,000,000 authorized, 105,682,808 issued and 101,827,537 outstanding as of June 30, 2021 and 105,585,682 issued and 101,170,915 outstanding as of December 31, 2020.

10

10

Common Stock in treasury at cost, 4,414,767 shares as of June 30, 2021 and December 31, 2020, respectively.

(23,559)

(23,559)

Additional paid-in-capital

 

107,924

 

106,551

Accumulated other comprehensive loss

 

(2,446)

 

(2,434)

Accumulated earnings

 

4,270

 

18,320

Total stockholders' equity

 

86,199

 

98,888

Total liabilities and stockholders' equity

$

513,976

$

534,237

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

For the Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

2021

    

2020

Revenue:

 

(Restated)

(Restated)

Services income

$

53,648

$

25,257

$

86,585

$

79,195

Specialty rental income

 

20,827

 

12,968

 

32,448

 

29,551

Construction fee income

 

511

 

15,395

 

1,445

 

16,528

Total revenue

 

74,986

 

53,620

 

120,478

 

125,274

Costs:

 

 

 

 

Services

 

29,422

 

31,459

 

48,771

 

60,466

Specialty rental

 

4,587

 

1,701

 

6,829

 

4,304

Depreciation of specialty rental assets

 

13,908

 

12,266

 

26,348

 

25,162

Gross profit

 

27,069

 

8,194

 

38,530

 

35,342

Selling, general and administrative

 

11,677

 

10,101

 

23,009

 

20,092

Other depreciation and amortization

 

4,096

 

4,098

 

8,092

 

8,214

Other expense (income), net

 

444

 

446

 

690

 

(569)

Operating income (loss)

 

10,852

 

(6,451)

 

6,739

 

7,605

Interest expense, net

 

9,744

 

10,178

 

19,594

 

20,200

Change in fair value of warrant liabilities

2,080

(533)

2,720

(2,187)

Loss before income tax

 

(972)

 

(16,096)

 

(15,575)

 

(10,408)

Income tax benefit

 

(60)

 

(2,429)

 

(1,523)

 

(2,196)

Net loss

 

(912)

 

(13,667)

 

(14,052)

 

(8,212)

Other comprehensive income (loss)

 

 

 

 

Foreign currency translation

 

7

 

45

 

(12)

 

(66)

Comprehensive loss

$

(905)

$

(13,622)

$

(14,064)

$

(8,278)

Weighted average number shares outstanding - basic and diluted

 

96,545,441

 

96,003,079

 

96,398,732

 

95,926,467

Net loss per share - basic and diluted

$

(0.01)

$

(0.14)

$

(0.15)

$

(0.09)

See accompanying notes to the unaudited consolidated financial statements

6

Target Hospitality Corp.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

For the Three and Six Months Ended June 30, 2021 and 2020

($ in thousands)

Common Stock

Common Stock in Treasury

    

Shares

Amount

    

Shares

Amount

    

Additional Paid In Capital

    

Accumulated Other Comprehensive Loss

    

Accumulated Earnings

    

Total Stockholders' Equity

Balances at December 31, 2019, as restated

100,840,162

$

10

4,414,767

$

(23,559)

$

103,178

$

(2,558)

$

43,451

$

120,522

Net income

5,454

5,454

Stock-based compensation

83,831

884

884

Shares used to settle payroll tax withholding

(83)

(83)

Cumulative translation adjustment

(111)

(111)

Balances at March 31, 2020, as restated

100,923,993

$

10

4,414,767

$

(23,559)

$

103,979

$

(2,669)

$

48,905

$

126,666

Net loss

(13,667)

(13,667)

Stock-based compensation

184,224

1,038

1,038

Shares used to settle payroll tax withholding

(74)

(74)

Cumulative translation adjustment

45

45

Balances at June 30, 2020, as restated

101,108,217

$

10

4,414,767

$

(23,559)

$

104,943

$

(2,624)

$

35,238

$

114,008

Balances at December 31, 2020, as restated

101,170,915

$

10

4,414,767

$

(23,559)

$

106,551

$

(2,434)

$

18,320

$

98,888

Net loss

(13,138)

(13,138)

Shares used to settle payroll tax withholding

(51)

(51)

Cumulative translation adjustment

(19)

(19)

Stock-based compensation

65,338

761

761

Balances at March 31, 2021

101,236,253

$

10

4,414,767

$

(23,559)

$

107,261

$

(2,453)

$

5,182

$

86,441

Net loss

(912)

(912)

Shares used to settle payroll tax withholding

(34)

(34)

Cumulative translation adjustment

7

7

Stock-based compensation

591,284

697

697

Balances at June 30, 2021

101,827,537

$

10

4,414,767

$

(23,559)

$

107,924

$

(2,446)

$

4,270

$

86,199

See accompanying notes to the unaudited consolidated financial statements.

7

Target Hospitality Corp.

Unaudited Consolidated Statements of Cash Flows

($ in thousands)

For the Six Months Ended

June 30, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

(Restated)

Net loss

$

(14,052)

$

(8,212)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

  

Depreciation

 

27,119

 

25,957

Amortization of intangible assets

 

7,321

 

7,410

Accretion of asset retirement obligation

 

101

 

89

Amortization of deferred financing costs

 

2,124

 

1,899

Amortization of original issue discount

310

263

Change in fair value of warrant liabilities

2,720

(2,187)

Stock-based compensation expense

2,238

1,936

Gain on involuntary conversion

(619)

Deferred income taxes

 

(2,127)

 

(2,667)

Provision for loss on receivables, net of recoveries

658

2,050

Changes in operating assets and liabilities

 

Accounts receivable

 

(2,407)

 

3,440

Related party receivable

1,225

295

Prepaid expenses and other assets

 

1,691

 

(1,109)

Accounts payable and other accrued liabilities

 

3,868

 

6,336

Deferred revenue and customer deposits

 

27,809

 

(8,031)

Other non-current assets and liabilities

 

843

 

(1,491)

Net cash provided by operating activities

 

59,441

 

25,359

Cash flows from investing activities:

 

  

 

  

Purchase of specialty rental assets

 

(14,107)

 

(12,310)

Purchase of property, plant, and equipment

 

(104)

 

(70)

Receipt of insurance proceeds

 

 

619

Net cash used in investing activities

 

(14,211)

 

(11,761)

Cash flows from financing activities:

 

  

 

  

Principal payments on finance and capital lease obligations

 

(2,690)

 

(10,115)

Proceeds from borrowings on finance and capital lease obligations

10,151

Principal payments on borrowings from ABL

 

(65,000)

 

(37,500)

Proceeds from borrowings on ABL

 

22,000

 

42,500

Restricted shares surrendered to pay tax liabilities

(85)

(159)

Purchase of treasury stock

(5,318)

Net cash used in financing activities

 

(45,775)

 

(441)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

33

(15)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

(512)

 

13,142

Cash, cash equivalents and restricted cash - beginning of period

 

6,979

 

6,839

Cash, cash equivalents and restricted cash - end of period

$

6,467

$

19,981

Non-cash investing and financing activity:

Non-cash change in accrued capital expenditures

$

(1,085)

$

Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets:

Cash and cash equivalents

$

6,467

$

19,929

Restricted cash

52

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$

6,467

$

19,981

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. Organization and Nature of Operations, Basis of Presentation, and 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 North America’s largest provider of vertically integrated modular accommodations and value-added hospitality services. The Company provides vertically integrated specialty rental and comprehensive hospitality services including catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation services, overall workforce community 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 Midwest 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 Global 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 64% 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 vennootschap (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 discussed above, in connection with the closing of the Business Combination, Target Parent merged with and into Bidco, with Bidco as the surviving entity.

9

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. 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 Target Hospitality Annual Report on Form 10-K/A for the year ended December 31, 2020, filed with the SEC on May 24, 2021 (the “2020 Form 10-K/A”).

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results that may be expected for the full fiscal year ending December 31, 2021 or any future period.

The accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, except for the restatement discussed below, necessary for a fair statement of financial position as of June 30, 2021, and results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the three and six months ended June 30, 2021 and 2020. The consolidated balance sheet as of December 31, 2020, was derived from the audited consolidated balance sheets of Target Hospitality Corp. but does not contain all of the footnote disclosures from those annual financial statements.

Restatement of Previously Issued Consolidated Financial Statements

The notes included herein should be read in conjunction with the Company's restated audited consolidated financial statements included in the 2020 Form 10-K/A.

As previously disclosed in the 2020 Form 10-K/A, we restated the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2020, as well as each of the quarters within 2020 to make the necessary accounting corrections related to warrant accounting. We have restated herein our consolidated financial statements as of and for the quarter and period ended June 30, 2020. We have also restated related amounts within the accompanying footnotes to the consolidated financial statements. The impact of this restatement on the financial statements for the three and six months ended June 30, 2020 was a decrease to net loss of approximately $0.5 million and $2.2 million, respectively.

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.

10

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.

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. 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.

Because performance obligations related to specialty rental and hospitality services are satisfied over time, the majority of our revenue is recognized on a daily basis, for each night a customer stays, at a contractual day rate.  Our customers typically contract for accommodation services under committed contracts with terms that most often range from several months to three years. Our payment terms vary by type and location of our customer and the service offered.  The time between invoicing and when payment is due is not significant.   

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. The Company recognizes revenue for these paid 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 as well as costs associated with construction services. Cost of rental includes leasing costs and other direct costs of maintaining the lodging units. Costs associated with contracts include sales commissions which are expensed as incurred and reflected in selling, general and administrative expenses in the consolidated statements of comprehensive loss.

The Company recognizes revenue associated with community construction using the percentage of completion method with progress towards completion measured using the cost-to-cost method as the basis to recognize revenue. Management believes this cost-to-cost method is the most appropriate measure of progress to the satisfaction of a performance obligation on the community construction. 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.  

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.

11

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. In June 2020, the FASB issued ASU No. 2020-05 to delay the effective date for the new standard for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 for non-issuers (including EGCs).  Early application continues to be allowed.  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 or Topic 326). This new standard changes how companies account for credit impairment for trade and other receivables as well as changing the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the current "incurred loss" model with an "expected loss" model. Under the "incurred loss" model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been "incurred"). Under the "expected loss" model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur. The "incurred loss" model considers past events and current conditions, while the "expected loss" model includes expectations for the future which have yet to occur.  ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, was issued in November 2018 and excludes operating leases from the new guidance. In 2019, the FASB voted to delay the effective date for the new standard for financial statements issued to reporting periods beginning after December 15, 2022 and interim periods within those reporting periods. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

Recent Developments – COVID-19 and Disruption to Global Demand

The global outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020 has presented new and continuing risks to the Company’s business.  Prior to March 2020, the Company’s results of operations were largely in line with expectations and subsequent to March 2020, we began to experience a decline in revenues.  The COVID-19 pandemic has not impacted the Company’s ability to operate nor has it materially disrupted the Company’s supply chain, disrupted service, or caused a shortage of critical products at our communities. However, the situation surrounding COVID-19 and the decrease in global economic demand had a material adverse impact on the Company’s operating results, as a result of which the Company implemented several cost containment measures primarily initiated in April of 2020, including salary reductions, reductions in workforce, furloughs, reduced discretionary spending and elimination of all non-essential travel.  In addition to these measures, the Company temporarily closed and consolidated several communities in the Hospitality & Facilities Services - South segment and in May of 2020, the Company temporarily closed all communities in the Hospitality & Facilities Services - Midwest segment. The Company began re-opening communities in both the Hospitality & Facilities Services - South and Midwest segments in July of 2020 as customer activity levels began to increase.  Additionally, the Company executed contract modifications with several customers resulting in extended terms and reduced minimum contract commitments in 2020.  These modifications utilize multi-year contract extensions to maintain contract value and provide the Company with greater visibility on long-term revenue and cash flow.  This mutually beneficial approach balanced average daily rates with contract term and positions the Company to take advantage of a more balanced market.

There have been significant changes to the global economic situation and to public securities markets as a result of  COVID-19.  A delay in wide distribution of vaccines, a lack of public acceptance of vaccines or the efficacy of the

12

vaccines, could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. Further, even if vaccines are widely distributed and accepted, there can be no assurance that the vaccines will ultimately be successful in limiting or stopping the spread of COVID-19 or its variants.  It is possible that these changes could cause changes to estimates as a result of the markets in which the Company operates, the price of the Company’s publicly traded equity and debt in comparison to the Company’s carrying value. Such changes to estimates could potentially result in impacts that would be material to the Company’s consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment, the fair value of long-lived and other intangible assets in relation to potential impairment and the allowance for doubtful accounts.

As a result of the impact of COVID-19 and the disruption to the global economy, in the first quarter of 2020 we also concluded a trigger event had occurred and we tested our long-lived and intangible assets, including goodwill, for impairment.  Based upon our impairment assessments, which utilized the Company’s current long-term projections, we determined the carrying amount of these assets were not impaired.  Due to the uncertain and rapidly evolving nature of the conditions surrounding the COVID-19 pandemic as well as the decrease in global economic demand, changes in economic outlook may change our long-term projections.  During the second quarter of 2021, we did not identify further triggers or indicators of impairment and therefore did not perform a quantitative impairment test.    

Additionally, in connection with COVID-19, on March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The CARES Act, among other things, included provisions relating to the 80 percent limitation of net operating loss and modifications to the business interest deduction limitations. We evaluated how the provisions in the CARES Act would impact our consolidated financial statements and concluded that the CARES Act did not have a material impact on our provision for income taxes for the three and six months ended June 30, 2021 and 2020.

2. Revenue

Total revenue recognized under Topic 606 was $88.0 million and $95.7 million for the six months ended June 30, 2021 and 2020, respectively, while specialty rental income was $32.4 million and $29.6 million subject to the guidance of ASC 840 for the six months ended June 30, 2021 and 2020, respectively. Total revenue recognized under Topic 606 was $54.2 million and $40.7 million for the three months ended June 30, 2021 and 2020, respectively, while specialty rental income was $20.8 million and $13.0 million subject to the guidance of ASC 840 for the three months ended June 30, 2021 and 2020, respectively.

The following table disaggregates our revenue by our four reportable segments as well as the All Other category: Hospitality & Facilities Services - South, Hospitality & Facilities Services - Midwest, Government, TCPL Keystone, and All Other for the dates indicated below:

13

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

2021

2020

2021

2020

Hospitality & Facilities Services - South

Services income

$

25,796

$

18,340

$

48,997

$

61,627

Total Hospitality & Facilities Services - South revenues

25,796

18,340

48,998

61,627

Hospitality & Facilities Services - Midwest

Services income

$

730

$

366

$

1,327

$

4,551

Total Hospitality & Facilities Services - Midwest revenues

730

366

1,327

4,551

Government

Services income

$

26,355

$

6,426

$

34,665

$

12,280

Total Government revenues

26,355

6,426

34,665

12,280

TCPL Keystone

Services income

$

422

$

-

$

958

$

-

Construction fee income

511

15,395

1,445

16,528

Total TCPL Keystone revenues

933

15,395

2,403

16,528

All Other

Services income

$

345

$

125

$

637

$

738

Total All Other revenues

345

125

637

738

Total revenues

$

54,159

$

40,652

$

88,030

$

95,724

As a result of the current market environment discussed in Note 1 Recent Developments – COVID-19 and Disruption to Global Demand”, the Company considered the increased risk of delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies. The Company routinely monitors the financial stability of our customers, which involves a high degree of judgment in assessing customers’ historical time to pay, financial condition and various customer-specific factors.

Contract Assets and Liabilities

We do not have any contract assets.

Contract liabilities primarily consist of deferred revenue that represent payments for room nights that the customer may use in the future as well as an advanced payment for a community build that is being recognized over the related contract period, and advanced payments for TCPL Keystone in the amount of approximately $4.9 million that have been deferred in connection with the suspension of the project and ongoing negotiated terms of cancellation of the contract (see Note 19). Activity in the deferred revenue accounts as of the dates indicated below was as follows:

For Six Months Ended

June 30, 

    

2021

2020

Balances at Beginning of the Period

$

18,371

$

26,199

Additions to deferred revenue

 

61,045

 

2,812

Revenue recognized

 

(33,235)

 

(10,843)

Balances at End of the Period

$

46,181

$

18,168

As of June 30, 2021, for contracts greater than one year, the following table discloses the estimated revenues related to performance obligations that are unsatisfied (or partially unsatisfied) and when we expect to recognize the revenue, and

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only represents revenue expected to be recognized from contracts where the price and quantity of the product or service are fixed:

For the Years Ended December 31,

    

2021

    

2022

    

2023

2024

2025

2026

    

Total

Revenue expected to be recognized as of June 30, 2021

$

65,911

$

48,680

$

18,699

$

18,748

$

18,699

$

13,987

$

184,724

The Company applied some of the practical expedients in Topic 606, including the “right to invoice” practical expedient, and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations.  Due to the application of these practical expedients, the table above represents only a portion of the Company’s expected future consolidated revenues and it is not necessarily indicative of the expected trend in total revenues.    

3. Specialty Rental Assets, Net

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

    

June 30, 

December 31,

2021

    

2020

Specialty rental assets

$

563,406

$

547,375

Construction-in-process

 

5,434

 

5,828

Less: accumulated depreciation

 

(268,511)

 

(241,716)

Specialty rental assets, net

$

300,329

$

311,487

Depreciation expense related to specialty rental assets was $26.3 million and $25.2 million for the six months ended June 30, 2021 and 2020, respectively, and is included in depreciation of specialty rental assets in the consolidated statements of comprehensive loss. For the three months ended June 30, 2021 and 2020, depreciation expense of specialty rental assets was $13.9 million and $12.3 million, respectively.

4. Other Property, Plant and Equipment, Net

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

    

June 30, 

December 31,

2021

    

2020

Land

$

9,163

$

9,163

Buildings and leasehold improvements

 

115

 

115

Machinery and office equipment

 

1,175

 

1,072

Software and other

 

3,754

 

3,752

 

14,207

 

14,102

Less: accumulated depreciation

 

(3,851)

 

(3,083)

Total other property, plant and equipment, net

$

10,356

$

11,019

Depreciation expense related to other property, plant and equipment was $0.8 million and $0.8 million for the six months ended June 30, 2021 and 2020, respectively, and is included in other depreciation and amortization in the consolidated statements of comprehensive loss.  For the three months ended June 30, 2021 and 2020, depreciation expense related to other property, plant and equipment was $0.4 million and $0.4 million, respectively.

5. Goodwill and Other Intangible Assets, net

The financial statements reflect goodwill from previous acquisitions that is all attributable to the Hospitality and Facilities Services – South business segment and reporting unit.

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Changes in the carrying amount of goodwill were as follows:

    

Hospitality and Facilities Services - South

Balance at January 1, 2020

$

41,038

Changes in Goodwill

-

Balance at December 31, 2020

41,038

Changes in Goodwill

-

Balance at June 30, 2021

$

41,038

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

June 30, 2021

Weighted

Gross

average

Carrying

Accumulated

Net Book

    

remaining lives

    

Amount

    

Amortization

    

Value

Intangible assets subject to amortization

    

  

    

  

    

  

    

  

Customer relationships

 

6.0

$

128,907

$

(49,507)

$

79,400

Total

128,907

(49,507)

79,400

Indefinite lived assets:

 

  

 

  

 

  

 

  

Tradenames

 

  

 

16,400

 

 

16,400

Total intangible assets other than goodwill

 

  

$

145,307

$

(49,507)

$

95,800

December 31, 2020

Weighted

Gross

average

Carrying

Accumulated

Net Book

    

remaining lives

    

Amount

    

Amortization

    

Value

Intangible assets subject to amortization

Customer relationships

    

6.4

    

$

128,907

    

$

(42,186)

    

$

86,721

Total

128,907

(42,186)

86,721

Indefinite lived assets:

 

  

 

  

 

  

 

  

Tradenames

 

  

 

16,400

 

 

16,400

Total intangible assets other than goodwill

 

  

$

145,307

$

(42,186)

$

103,121

For the six months ended June 30, 2021 and 2020, amortization expense related to intangible assets was $7.3 million and $7.4 million, respectively, and is included in other depreciation and amortization in the consolidated statements of comprehensive loss. For the three months ended June 30, 2021 and 2020, amortization expense related to intangible assets was $3.7 million and $3.7 million, respectively.

The estimated aggregate amortization expense as of June 30, 2021 for each of the next five years and thereafter is as follows:

Rest of 2021

    

$

7,334

2022

13,302

2023

12,881

2024

12,881

2025

12,881

Thereafter

20,121

Total

$

79,400

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6. Other Non-Current Assets

Other non-current assets include capitalized software implementation costs for the implementation of cloud computing systems. As of the dates indicated below, capitalized implementation costs and related accumulated amortization in other non-current assets on the consolidated balance sheets amounted to the following: 

    

June 30, 

December 31, 

2021

    

2020

Cloud computing implementation costs

$

7,198

$

7,094

Less: accumulated amortization

(2,746)

(1,685)

Other non-current assets

$

4,452

$

5,409

The majority of such systems were placed into service beginning January of 2020 at which time the Company began to amortize these capitalized costs on a straight-line basis over the period of the remaining service arrangements of between 2 and 4 years. Such amortization expense amounted to approximately $1.1 million and $0.8 million for the six months ended June 30, 2021 and 2020, respectively and is included in selling, general and administrative expense in the accompanying consolidated statements of comprehensive loss. For the three months ended June 30, 2021 and 2020, amortization expense related to other non-current assets was $0.6 million and $0.4 million, respectively.

7. Accrued Liabilities

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

    

June 30, 

December 31, 

2021

    

2020

Employee accrued compensation expense

$

7,084

$

6,177

Other accrued liabilities 

 

8,518

 

8,873

Accrued interest on debt

9,870

9,649

Total accrued liabilities 

$

25,472

$

24,699

Other accrued liabilities in the above table relates primarily to accrued utilities, rent, real estate and sales taxes, state income taxes, and other accrued operating expenses.

8. 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

    

Unamortized Deferred Financing Costs

9.50% Senior Secured Notes, due 2024

$

340,000

$

2,009

$

9,687

If Bidco undergoes a change of control or sells certain of its assets, Bidco may be required to offer to repurchase the Notes. On or after March 15, 2021, Bidco at its option, may redeem the Notes, in whole or part, upon not less than fifteen (15) and not more than sixty (60) days’ prior written notice to holders and not less than twenty (20) days’ prior written notice

17

to the trustee (or such shorter timeline as the trustee may agree), at the redemption price expressed as a percentage of principal amount set forth below, plus accrued and unpaid interest thereon but not including the applicable redemption date (subject to the right of Note holders on the relevant record date to receive interest due on an interest payment date falling on or prior to the redemption date), if redeemed during the 12-month period beginning August 15 of each of the years set below.

Redemption

Year

Price

2021

104.750%

2022

102.375%

2023 and thereafter

100.000%

The Notes are unconditionally guaranteed by Topaz and each of Bidco’s direct and indirect wholly-owned domestic subsidiaries (collectively, the “Note Guarantors”). Target Hospitality is not an issuer or a guarantor of the Notes. The Note Guarantors are either borrowers or guarantors under the New ABL Facility. To the extent lenders under the New ABL Facility release the guarantee of any Note Guarantor, such Note Guarantor is also released from obligations under the Notes. These guarantees are secured by a second priority security interest in substantially all of the assets of Bidco and the Note Guarantors (subject to customary exclusions). The guarantees of the Notes by TLM Equipment, LLC, a Delaware limited liability company (“TLM Equipment LLC”) which holds certain of Target Hospitality’s assets, are subordinated to its obligations under the New ABL Facility (as defined below).

The Notes contain certain negative covenants, including limitations that restrict Bidco’s ability and the ability of certain of its subsidiaries, to directly or indirectly, create additional financial obligations. With certain specified exceptions, these negative covenants prohibit Bidco and certain of its subsidiaries from: creating or incurring additional debt; paying dividends or making any other distributions with respect to its capital stock; making loans or advances to Bidco or any restricted subsidiary of Bidco; selling, leasing or transferring any of its property or assets to Bidco or any restricted subsidiary of Bidco; directly or indirectly creating, incurring or assuming any lien of any kind securing debt on the collateral; or entering into any sale and leaseback transaction.

In connection with the issuance of the Notes, there was an original issue discount of $3.3 million and the unamortized balance of $2.0 million is presented on the face of the consolidated balance sheet as of June 30, 2021 as a reduction of the principal. The discount is amortized over the life of the Notes using the effective interest method.

Bidco’s ultimate parent, Target Hospitality, has no significant independent assets or operations except as included in the guarantors of the Senior Secured Notes, the guarantees under the Notes are full and unconditional and joint and several, and any subsidiaries of Target Hospitality that are not subsidiary guarantors of the Notes are minor.  There are also no significant restrictions on the ability of Target Hospitality or any guarantor to obtain funds from its subsidiaries by dividend or loan. See discussion of certain negative covenants above. Therefore, pursuant to the SEC Rules, no individual guarantor financial statement disclosures are deemed necessary.

Capital Lease and Other Financing Obligations

The Company’s capital lease and other financing obligations as of June 30, 2021 consisted of approximately $0.4 million of capital leases related primarily to vehicles and approximately $0.7 million related to insurance financing obligations. In December 2019, the Company entered into a lease for certain equipment with a lease term expiring November 2022 and an effective interest rate of 4.3%. The Company’s lease relates to commercial-use vehicles. In November 2020, the Company entered into an insurance financing arrangement in an amount of approximately $3.3 million at an interest rate of 3.84%.  The insurance financing arrangement requires 9 monthly payments of approximately $0.4 million that began on December 1, 2020. 

The Company’s capital lease and other financing obligations as of December 31, 2020 consisted of approximately $0.9 million of capital leases and $2.9 million related to insurance financing obligations.

18

New ABL Facility

On the Closing Date, in connection with the closing of the Business Combination, Topaz, Bidco, Target, Signor and each of their domestic subsidiaries entered into an ABL credit agreement that provides for a senior secured asset based revolving credit facility in the aggregate principal amount of up to $125 million (the “New ABL Facility”). The historical debt of Bidco, Target and their respective subsidiaries under the ABL facility of Algeco Seller was settled at the time of the consummation of the Business Combination on the Closing Date. Approximately $40 million of proceeds from the New ABL Facility were used to finance a portion of the consideration payable and fees and expenses incurred in connection with the Business Combination.

Borrowings under the New ABL Facility, at the relevant borrower’s (the borrowers under the New ABL Facility, the “ABL Borrowers”) option, bear interest at either (1) an adjusted LIBOR or (2) a base rate, in each case plus an applicable margin. The applicable margin is 2.50% with respect to LIBOR borrowings and 1.50% with respect to base rate borrowings. Commencing at the completion of the first full fiscal quarter after the Closing Date, the applicable margin for borrowings under the New ABL Facility is subject to one step-down of 0.25% and one step-up of 0.25%, based on achieving certain excess availability levels with respect to the New ABL Facility.

The New ABL Facility provides borrowing availability of an amount equal to the lesser of (i) (a) $125 million and (b) the Borrowing Base (defined below) (the “Line Cap”).

The Borrowing Base is, at any time of determination, an amount (net of reserves) equal to the sum of:

85% of the net book value of the Borrowers’ eligible accounts receivables, plus
the lesser of (i) 95% of the net book value of the Borrowers’ eligible rental equipment and (ii) 85% of the net orderly liquidation value of the Borrowers’ eligible rental equipment, minus
customary reserves

The New ABL Facility includes borrowing capacity available for standby letters of credit of up to $15 million and for ‘‘swingline’’ loan borrowings of up to $15 million. Any issuance of letters of credit or making of a swingline loan will reduce the amount available under the New ABL Facility.

In addition, the New ABL Facility will provide the Borrowers with the option to increase commitments under the New ABL Facility in an aggregate amount not to exceed $75 million plus any voluntary prepayments that are accompanied by permanent commitment reductions under the New ABL Facility. The termination date of the New ABL Facility is September 15, 2023.

The obligations under the New ABL Facility are unconditionally guaranteed by Topaz and each existing and subsequently acquired or organized direct or indirect wholly-owned U.S. organized restricted subsidiary of Bidco (together with Topaz, the “ABL Guarantors”), other than certain excluded subsidiaries. The New ABL Facility is secured by (i) a first priority pledge of the equity interests of Topaz, Bidco, Target, and Signor (the “Borrowers) and of each direct, wholly-owned US organized restricted subsidiary of any Borrower or any ABL Guarantor, (ii) a first priority pledge of up to 65% of the voting equity interests in each non-US restricted subsidiary of any Borrower or ABL Guarantor and (iii) a first priority security interest in substantially all of the assets of the Borrower and the ABL Guarantors (in each case, subject to customary exceptions).

The New ABL Facility requires the Borrowers to maintain a (i) minimum fixed charge coverage ratio of 1.00:1.00 and (ii) maximum total net leverage ratio of 4.00:1.00, at any time when the excess availability under the New ABL Facility is less than the greater of (a) $15.625 million and (b) 12.5% of the Line Cap.

The New ABL Facility also contains a number of customary negative covenants. Such covenants, among other things, limit or restrict the ability of each of the Borrowers, their restricted subsidiaries, and where applicable, Topaz, to:

incur additional indebtedness, issue disqualified stock and make guarantees;
incur liens on assets;

19

engage in mergers or consolidations or fundamental changes;
sell assets;
pay dividends and distributions or repurchase capital stock;
make investments, loans and advances, including acquisitions;
amend organizational documents and master lease documents;
enter into certain agreements that would restrict the ability to pay dividends;
repay certain junior indebtedness; and
change the conduct of its business.

The aforementioned restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness, liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to compliance with certain financial metrics and certain other conditions and (ii) a number of other traditional exceptions that grant the ABL Borrowers continued flexibility to operate and develop their businesses. The New ABL Facility also contains certain customary representations and warranties, affirmative covenants and events of default. The carrying value of debt outstanding as of the dates indicated below consist of the following:

    

June 30, 

December 31,

2021

    

2020

Capital lease and other financing obligations

$

1,151

$

3,840

ABL facilities

 

5,000

 

48,000

9.50% Senior Secured Notes due 2024, face amount

340,000

340,000

Less: unamortized original issue discount

(2,009)

(2,319)

Less: unamortized term loan deferred financing costs

(9,687)

(11,182)

Total debt, net

 

334,455

 

378,339

Less: current maturities

 

(1,151)

 

(3,571)

Total long-term debt

$

333,304

$

374,768

Interest expense, net

The components of interest expense, net (which includes interest expense incurred) recognized in the unaudited consolidated statements of comprehensive loss for the periods indicated below consist of the following:

For the three months ended

For the six months ended

June 30, 

June 30, 

June 30, 

June 30, 

2021

    

2020

2021

2020

Interest incurred on capital lease and other financing obligations

$

17

$

52

$

46

$

68

Interest expense incurred on ABL facilities and Notes

8,497

8,990

17,113

17,970

Amortization of deferred financing costs on ABL facilities and Notes

1,073

995

2,125

1,899

Amortization of original issue discount on Notes

 

157

141

 

310

 

263

Interest expense, net

$

9,744

$

10,178

$

19,594

$

20,200

Deferred Financing Costs and Original Issue Discount

The Company presents unamortized deferred financing costs and unamortized original issue discount as a direct deduction from the principal amount of the Notes on the unaudited consolidated balance sheet as of June 30, 2021. Accumulated amortization expense related to the deferred financing costs was approximately $6.2 million and $4.7 million as of June

20

30, 2021 and December 31, 2020, respectively. Accumulated amortization of the original issue discount was approximately $1.3 million and $1.0 million as of June 30, 2021 and December 31, 2020, respectively.

Accumulated amortization related to revolver deferred financing costs for the ABL facilities was approximately $3.0 million and $2.4 million as of June 30, 2021 and December 31, 2020, respectively.

Refer to the components of interest expense in the table above for the amounts of the amortization expense related to the deferred financing costs and original issue discount recognized for each of these debt instruments for the three and six months ended June 30, 2021 and 2020, respectively.

Future maturities

The aggregate annual principal maturities of debt and capital lease obligations for each of the next five years and thereafter, based on contractual terms are listed in the table below. The schedule of future maturities as of June 30, 2021, consists of the following:

Rest of 2021

    

$

1,072

2022

 

79

2023

 

5,000

2024

 

340,000

Total

$

346,151

9. Warrant Liabilities

On January 17, 2018, Harry E. Sloan, Joshua Kazam, Fredric D. Rosen, the Sara L. Rosen Trust and the Samuel N. Rosen 2015 Trust, purchased from PEAC an aggregate of 5,333,334 warrants at a price of $1.50 per warrant (for an aggregate purchase price of $8.0 million) in a private placement (the “Private Warrants”) that occurred simultaneously with the completion of the Public Offering as defined in Note 15. Each Private Warrant entitles the holder to purchase one share of common stock at $11.50 per share. The purchase price of the Private Warrants was added to the proceeds from the Public Offering and was held in the Trust Account until the closing of the Business Combination. The Private Warrants (including the shares of Common Stock issuable upon exercise of the Private Warrants) were not transferable, assignable or salable until 30 days after the closing date of the Business Combination, and they may be exercised on a cashless basis and are non-redeemable so long as they are held by the initial purchasers of the Private Warrants or their permitted transferees.

The Company evaluated the Private Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity and should be classified as liabilities. Since the Private Warrants meet the definition of a derivative under ASC 815, the Company recorded the Private Warrants as liabilities on the balance sheet at their estimated fair value.

Subsequent changes in the estimated fair value of the Private Warrants are reflected in the change in fair value of warrant liabilities in the accompanying consolidated statement of comprehensive loss. The change in the estimated fair value of the Private Warrants resulted in a loss (gain) of approximately $2.7 million and ($2.2) million for the six months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021 and 2020, the change in the estimated fair value of the Private Warrants resulted in a loss (gain) of approximately $2.1 million and ($0.5) million, respectively. As of June 30, 2021 and 2020, 5,333,334 Private Warrants were outstanding.

The Company determined the following estimated fair values for the outstanding Private Warrants as of the dates indicated below:

June 30,

December 31,

2021

2020 (Restated)

Warrant liabilities

$

3,253

$

533

Total

$

3,253

$

533

21

10. Income Taxes

Income tax benefit was approximately ($1.5) million and ($2.2) million for the six months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021 and 2020, income tax benefit was ($0.1) million and ($2.4) million, respectively. The effective tax rate for the three months ended June 30, 2021 and 2020, was 6.2% and 15.1%, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020, was 9.8% and 21.1%, respectively. The fluctuation in the rate for the six months ended June 30, 2021 and 2020 results primarily from the relationship of year-to-date loss before income tax for the six months ended June 30, 2021 and 2020.

The effective tax rate for the six months ended June 30, 2021 significantly differs from the US federal statutory rate of 21% primarily due to the permanent add-back related to the change in fair value of warrant liabilities on the Company's warrants as well as the impact of state tax expense based off of gross receipts.

The Company accounts for income taxes in interim periods under ASC 740-270, Income Taxes – Interim Reporting, which generally requires us to apply an estimated annual consolidated effective tax rate to consolidated pre-tax income. In addition, the guidance under ASC 740 further provides that, in establishing the estimated annual effective tax rate, the Company excludes losses from jurisdictions in which no tax benefit is expected to be recognized for such losses.

11. Fair Value of Financial Instruments

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The Company has assessed that the fair value of cash and cash equivalents, trade receivables, related party receivables, trade payables, other current liabilities, and other debt approximates their carrying amounts largely due to the short-term maturities or recent commencement of these instruments. The fair value of the ABL Revolver is primarily based upon observable market data, such as market interest rates, for similar debt. The fair value of the Notes is based upon observable market data.

The Company measured the Private Warrant liabilities at fair value on a recurring basis at each reporting period end as more fully discussed below. Changes in the fair value of the Private Warrants at each reporting period end date were recognized within the accompanying consolidated statement of comprehensive loss in the change in fair value of warrant liabilities.

Level 1 & 2 Disclosures:

The carrying amounts and fair values of financial assets and liabilities, which are either Level 1 or Level 2, are as follows:

 

June 30, 2021

 

December 31, 2020

Financial Assets (Liabilities) Not Measured at Fair Value

    

Carrying
Amount

    

Fair Value

    

Carrying
Amount

    

Fair Value

ABL facilities (See Note 8) - Level 2

$

(5,000)

$

(5,000)

$

(48,000)

 

$

(48,000)

Senior Secured Notes (See Note 8) - Level 1

$

(328,304)

$

(346,375)

$

(326,499)

$

(300,900)

Recurring fair value measurements

Level 3 Disclosures:

There were 5,333,334 Private Warrants outstanding as of June 30, 2021 and December 31, 2020. Based on the fair value assessment that was performed, the Company determined a fair value price per Private Warrant of $0.61 and $0.10 as of June 30, 2021 and December 31, 2020, respectively. The fair value is classified as Level 3 in the fair value hierarchy due

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