Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Target Hospitality Corp. and is intended to help the reader understand Target Hospitality Corp., our operations and our present business environment. This discussion should be read in conjunction with the Company's audited consolidated financial statements and notes to those statements included in Part II, Item 8 within this Annual Report on Form 10-K. References to "we," "us," "our", "Target Hospitality," or "the Company" refer to Target Hospitality Corp. and its consolidated subsidiaries.

Executive Summary

Target Hospitality Corp. is one of North America's largest providers of vertically integrated specialty rental and value-added hospitality services including: catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation facilities, community design and construction, overall workforce community management, concierge services and laundry service. As of December 31, 2025, our network included 29 communities to better serve our customers across the US and Canada. We also operate 2 communities not owned or leased by the Company.

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Economic Update

In February 2025, the Company entered into the Workforce Housing Contract to provide construction of workforce housing, facility services, and hospitality solutions to Lithium Nevada in support of Lithium Nevada's development of Thacker Pass (the "Thacker Pass Project") and a North American critical minerals supply chain. The workforce housing community, located in Winnemucca, Nevada ("Workforce Hub") is located near Thacker Pass, which contains one of the largest known measured lithium resources. The Thacker Pass Project is expected to play a significant role in the domestic production of lithium batteries. At the time of entering into the Workforce Housing Contract, Lithium Nevada had commenced site preparation, and the Company began construction of the Workforce Hub. As of December 31, 2025, construction of the Workforce Hub was substantially complete. When fully operational, the Workforce Hub will be capable of supporting a population of approximately 2,000 individuals. The assets associated with the Workforce Hub that support this capacity are not owned by the Company. The Workforce Housing Contract has an initial term through 2027 with first occupancy that began in September 2025. In addition to constructing the Workforce Hub, the Company is providing turnkey operational support for the Workforce Hub, including culinary services, facilities management, and other support services. The Workforce Housing Contract, which consists of construction and services revenue, is expected to generate approximately $175.2 million of revenue over its initial term, with approximately $111.1 million of committed minimum revenue. Revenue recognized during 2025 on the Workforce Housing Contract is largely comprised of construction fee income recognized using the percentage of completion method with progress towards completion measured using the cost-to-cost method as the basis to recognize revenue. This contract activity is reported within the newly formed WHS segment.

In February 2025, the Company received notice that the U.S. government terminated the PCC Contract with the Company's NP Partner, effective immediately on February 21, 2025 ("PCC Termination Effective Date"), and the NP Partner provided notice to the Company of their intention to terminate the PCC Contract as of the PCC Termination Effective Date. The Company provided facility and hospitality solutions to the NP Partner under the PCC Contract utilizing the Company's owned modular assets and real property, capable of supporting up to 6,000 individuals. The PCC Contract included a minimum annual revenue contribution of approximately $168 million, all of which was attributable to the Government reportable segment. In connection with the PCC Contract termination, on August 1, 2025, the Company entered into an agreement with the NP Partner related to the close-out and settlement of the PCC Contract. The agreement provided the Company with reimbursement for certain costs incurred following the termination of the PCC Contract and resulted in a payment to the Company of approximately $11.8 million ("PCC Contract Close-Out Payment"), which was received in cash and recognized as revenue during the year ended December 31, 2025 and is included as a component of services income for the year ended December 31, 2025 and is included as a component of cash flows from operations for the year ended December 31, 2025. No further payments are expected from the PCC Contract. The PCC Contract generated

total revenue of approximately $36.3 million (inclusive of the PCC Contract Close-Out Payment) and $186.4 million for the years ended December 31, 2025 and 2024, respectively. The Company retained ownership of the related assets that were associated with the PCC Contract, enabling the Company to continue utilizing these modular solutions and real property to support customer demand across its operating segments and other potential growth opportunities. Certain assets previously associated with servicing the PCC Contract were redeployed to the WHS segment to service the requirements of the Data Center Community Contract described below. The Company is actively engaged in remarketing the remaining assets, which are generally interchangeable across segments, as it evaluates a diverse pipeline of business opportunities that include an increasing number of potential solutions supporting data center infrastructure projects within the WHS segment.

During the year ended December 31, 2024, the STFRC Contract in the Company's Government segment was terminated effective August 9, 2024. The STFRC Contract was based on a fixed minimum lease revenue amount and for the year ended December 31, 2024, contributed approximately $38.3 million, in total consolidated revenue. The assets associated with the STFRC Contract were reactivated under the DIPC Contract effective March 5, 2025, which is a lease and services agreement with an anticipated five-year term. The DIPC retains a similar facility size and operational scope as the prior operations under the STFRC Contract. The DIPC is capable of supporting up to 2,400 individuals and provides an environment to appropriately care for the community population. The consistency of the community layout required no capital investment, allowing for seamless community reactivation. The Company is providing facility and hospitality solutions under the DIPC Contract, which has a similar economic structure to the previous STFRC Contract, including fixed minimum revenue regardless of occupancy that amounts to a cumulative fixed minimum revenue amount of approximately $246 million over the anticipated five-year term. As such, the DIPC Contract is expected to provide over $246 million of revenue over its anticipated five-year term, to March 2030, and was subject to a ramp up period based on utilization during the first six months of the contract term resulting in lower fixed minimum revenue amounts during the ramp up period. The ramp up period was completed as scheduled as of September 30, 2025 with the maximum fixed minimum revenue amount now being recognized. The maximum fixed minimum revenue amount is based on utilization of 2,400 beds. The DIPC Contract is supported by an amended IGSA between the city of Dilley, Texas and ICE. As is customary for U.S. government contracts and subcontracts, the IGSA and the DIPC Contract are subject to annual U.S. government appropriations and can be canceled for convenience with a 60-day prior notice.

On March 25, 2025, the Company redeemed $181.4 million aggregate principal amount of the 2025 Senior Secured Notes for a redemption price equal to 101.000% of the principal amount of the 2025 Senior Secured Notes plus accrued and unpaid interest. The 2025 Senior Secured Notes are no longer outstanding, and such redemption is expected to generate an annual interest expense savings of approximately $19.5 million.

During the year ended December 31, 2025, the Company entered into the Data Center Community Contract to construct and provide comprehensive facility services and hospitality solutions supporting the Data Center Community. The Company will provide full turnkey support for the Data Center Community, including premium culinary offerings, facilities management, and comprehensive support services. The purpose-built and highly customized Community will support an initial population of 250 individuals, with the capability to expand to approximately 1,500 individuals. Construction and mobilization of the Community for the initial 250 beds was completed as of September 30, 2025, and first occupancy of the Community began in September 2025 for the initial 250 beds. During the three months ended December 31, 2025, the scope of the Data Center Community Contract was amended to add an additional 800 beds to the Data Center Community by June 2026, representing a 320% increase from the initial Community size, resulting in a customized and purpose-built community capable of supporting up to 1,050 individuals ("Expanded Community Contract"). The assets comprising the 1,050 beds supporting the Data Center Community will be owned and managed by the Company. The Company anticipates additional potential Community expansions to meet growing customer demand in future years. The Expanded Community Contract, which has an initial term through September 2027 for the initial 250 beds and, as amended, an initial term through May 2028 for the additional 800 beds, is expected to generate approximately $134 million of committed minimum revenue over the initial terms, which includes advanced payments to be paid in installments during the initial construction and mobilization phase of the Expanded Community Contract to fund the initial construction and mobilization of the Community and related expansions. The Company utilized a portion of its existing asset portfolio to construct the premium Data Center Community and, during the year ended December 31, 2025, began receiving advanced payments from the customer to fund the construction and mobilization of the Community. The majority of the advance payments were received as of December 31, 2025, and are reflected as cash flows from operations during

the year ended December 31, 2025. The advanced payments were determined to be related to future services and will be amortized as revenue over the estimated term of the contract. The Data Center Community Contract began to generate revenue during the year ended December 31, 2025, and is reported within the Company's WHS segment.

In December 2025, the Company entered into a 25-month contract to build and operate a community in Northern Nevada, supporting power generation expansion for mining and data center projects (the "Power Community Contract"). It is expected to generate approximately $35 million in revenue over its initial 25-month term starting in June of 2026, accommodate up to 250 individuals, and leverage the Company's existing regional infrastructure with minimal capital investment of $8 million to $10 million. The operating results for this contract are expected to be reported within the WHS operating segment beginning in June of 2026 as the contract generated no operating revenues for the year ended December 31, 2025.

The Company generated cash flows from operations of approximately $74.1 million representing a decrease in cash flows from operations of approximately $77.6 million or 51% for the year ended December 31, 2025 compared to the year ended December 31, 2024 led by a decrease in cash collections, an increase in cash paid for operating expenses and payroll, and a decrease in interest income, partially offset by a $26 million decrease in cash paid for income taxes, and a $5.0 million decrease in cash paid for interest driven by the redemption of the 2025 Senior Secured Notes on March 25, 2025.

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For the year ended December 31, 2025, key drivers of financial performance included:

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2026 Forward Look

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We anticipate margin improvement as the Company progresses through 2026 led by the new contracts previously described, including the Expanded Community Contract, the Power Community Contract, the DIPC Contract, and the services portion of the Workforce Housing Contract. We expect this anticipated improvement to be driven by (i) transition of 2025 construction activity toward higher-margin services operations on the Workforce Housing Contract, (ii) full-run-rate economics on the DIPC Contract following the 2025 ramp completion, and (iii) the mobilization related to the Power Community Contract and the Expanded Community Contract. These dynamics are supported by the contract terms and ramp timing summarized above and by the Company's internal analysis of 2026 mix. We cannot assure you that we will be able to deliver margin improvement through the effective servicing of the above mentioned contracts.

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Adjusted EBITDA is a non-GAAP measure. The GAAP measure most comparable to Adjusted EBITDA is Net income (loss). Please see "Non-GAAP Financial Measures" for a definition and reconciliation to the most comparable GAAP measure.

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Our proximity to customer activities influences occupancy and demand. We have built, own and operate the largest specialty rental and hospitality services network available to customers operating in the HFS - South region. Our broad network often results in us having communities that are the closest to our customers' job sites, which reduces commute times and costs, and improves the overall safety of our customers' workforce. Our communities provide customers with cost efficiencies, as they are able to jointly use our communities and related infrastructure (i.e., power, water, sewer and IT) services alongside other customers operating in the same vicinity. Demand for our services is dependent upon activity levels, particularly our customers' capital spending on natural resource development activities.

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Our WHS segment includes construction and hospitality services provided to a community in Winnemucca, Nevada where there is insufficient housing and infrastructure solutions supporting the critical mineral supply chain. The WHS segment also includes specialty rental and hospitality services provided to a community in the Southwestern United States where there is also insufficient housing and infrastructure solutions supporting the development of a regional data center campus. Our communities provide our customers with a strategic competitive advantage in attracting and retaining a highly skilled workforce to support their objectives in areas of critical mineral development and the building of data centers in remote locations. Demand for our services in this segment is dependent on capital spending supporting the critical mineral supply chain, such as lithium mining, as well as capital spending on the development of data centers in remote locations.

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Our Government segment includes the DIPC community in Dilley, Texas supporting critical U.S. government efforts, delivering essential services and accommodations near the southern U.S. border where there is insufficient housing and infrastructure solutions to appropriately address immigration and deportation.

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Factors Affecting Results of Operations

We expect our business to continue to be affected by the key factors discussed below, as well as factors discussed in the section titled "Risk Factors" included elsewhere in this report. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

Supply and Demand for Natural Resources, Mining, Energy Demand, and Infrastructure

Demand for our services is influenced by broader trends in natural resource development, mining activity, energy demand, and the availability of supporting infrastructure in the regions where our customers operate. Although we are not directly exposed to commodity price movements, customer capital spending and workforce deployment are closely tied to commodity supply-demand dynamics across natural resources, including lithium, and other critical minerals. As these industries expand or contract, the size and duration of customer workforces-particularly in remote areas-impact our occupancy levels and utilization rates.

Mining and critical mineral projects, including large-scale lithium developments, often occur in remote locations with limited existing housing or utilities. Our integrated, scalable communities provide essential infrastructure-such as power,

water, wastewater treatment, and communications-to support these workforce needs. Similarly, growth in energy-intensive sectors, including data center development and associated power-generation projects, can increase demand for turnkey accommodations when regional infrastructure is insufficient to sustain project activity.

The timing and visibility of future demand may be affected by commodity price volatility, permitting timelines, energy availability, and regional infrastructure constraints, all of which influence the pace of customer investment and workforce mobilization in natural resources, mining, and emerging energy-related projects.

Availability and Cost of Capital

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

Regulatory Compliance

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

Public Policy

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

Although our primary growth strategy continues to center on expanding opportunities outside the government sector in our WHS segment, where we are seeing increasing demand for our services, we remain available to support the federal government and continue to evaluate opportunities to assist where our capabilities align with government needs. However, available government funding and economic incentives are subject to change for a variety of reasons that are beyond our control, including budget and policy initiatives and priorities of current and future administrations at the federal and state level. We cannot predict what actions the current U.S. presidential administration may take with respect to the previously executed government contract.

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Natural Disasters or Other Significant Disruption

An operational disruption in any of our facilities could negatively impact our financial results. The occurrence of a natural disaster, such as earthquake, tornado, severe weather including hail storms, flood, fire, or other unanticipated problems such as public health threats or outbreaks, labor difficulties, equipment failure, capacity expansion difficulties or unscheduled maintenance could cause operational disruptions of varied duration. These types of disruptions could materially adversely affect our financial condition and results of operations to varying degrees dependent upon the facility, the duration of the disruption, our ability to shift business to another facility or find alternative solutions.

Overview of Our Revenue and Operations

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 58.5% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 14.3% of revenues were earned through leasing of lodging facilities and 27.2% of revenues were earned through construction fee income for the year ended December 31, 2025. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with our customers. In certain of our contracts, rates may vary over the contract term, in these cases, revenue is generally recognized on a straight-line basis over the contract term. We enter into arrangements with multiple deliverables for which arrangement consideration is allocated between lodging and services based on the relative estimated standalone selling price of each deliverable. The estimated price of lodging and services deliverables is based on the prices of lodging and services when sold separately or based upon the best estimate of selling price.

In February 2025, the Company entered into the Workforce Housing Contract to construct workforce housing, and provide facility and hospitality services to Lithium Nevada in support of the Thacker Pass Project and the broader North American critical minerals supply chain. As of December 31, 2025, construction of the Workforce Hub was substantially complete and most of the revenue recognized under this contract for the year ended December 31, 2025 reflected construction services performed during this phase. In addition to constructing the Workforce Hub, the Company is also providing turnkey operational support, including culinary services, facilities management, and other support services. During the construction phase, the Company is recognizing revenue under the percentage of completion method as costs are incurred, as further described in Note 1 of the notes to our audited consolidated financial statements, included in Part II, Item 8, of this Annual Report on Form 10-K.

Key Indicators of Financial Performance

Our management uses a variety of financial and operating metrics to analyze our performance. We view these metrics as significant factors in assessing our operating results and profitability and intend to review these measurements frequently for consistency and trend analysis. We primarily review the following profit and loss information when assessing our performance:

Revenue

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

Adjusted Gross Profit

We analyze our adjusted gross profit, which is a Non-GAAP measure, which we define as revenues less services and construction costs, and specialty rentals costs, excluding impairment, certain severance costs, and depreciation of specialty rental assets to measure our financial performance. Please see "Non-GAAP Financial Measures" for a definition and reconciliation to the most comparable GAAP measure. We believe adjusted gross profit is a meaningful metric because it provides insight on financial performance of our revenue streams without consideration of company overhead, noncash impairment and depreciation expenses, and certain severance costs not reflective of the ongoing results of Target Hospitality. Additionally, using adjusted gross profit gives us insight on factors impacting cost of sales, such as efficiencies of our direct labor and material costs. When analyzing adjusted gross profit, we compare actual adjusted gross profit to our budgets and internal projections and to prior period results for a given period in order to assess our performance.

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

Segments

We have identified three reportable business segments: HFS - South, WHS, and Government:

HFS - South

The HFS - South segment reflects our facilities and operations in the HFS - South region from customers in the natural resources development industry and includes our 16 communities located across Texas and New Mexico.

WHS

The WHS segment includes one community in Winnemucca, Nevada to establish a new regional workforce hub network capacity for lithium and related critical mineral development as well as the Workforce Housing Contract for construction of workforce housing and delivery of comprehensive hospitality and facility services. The WHS segment also includes the Data Center Community Contract to construct and provide comprehensive facility services and hospitality solutions supporting the Data Center Community.

Government

The Government segment includes facilities and operations of the DIPC provided under the previous STFRC Contract, which was terminated effective August 9, 2024, but was reactivated under the DIPC Contract effective March 5, 2025.

Additionally, this segment includes the facilities and operations previously provided under a lease and services agreement known as the PCC Contract with our NP Partner. This arrangement was supported by a U.S. government contract to provide a suite of comprehensive service offerings in support of their aid efforts. As previously discussed, the PCC Contract was terminated effective February 21, 2025. The majority of the assets associated with the PCC Contract continue to be included in this segment, however, certain assets were redeployed to the WHS segment to service the requirements of the Data Center Community Contract previously described. The Company is actively engaged in remarketing the remaining assets, which are generally interchangeable across segments, as it evaluates a diverse pipeline of business opportunities. These opportunities include an increasing number of potential solutions supporting data center infrastructure projects within our WHS segment.

All Other

Our other facilities and operations which do not meet the criteria to be a separate reportable segment are consolidated and reported as "All Other" which represents the facilities and operations of one community in Canada, three communities in North Dakota, and the catering and other services provided to communities and other workforce accommodation facilities for the natural resource development industries not owned by us.

Key Factors Impacting the Comparability of Results

The historical results of operations for the periods presented may not be comparable, either to each other or to our future results of operations, for the reasons described below:

WHS Segment

As discussed in the Economic Update section, the Company originated the Workforce Housing Contract in February 2025. The Workforce Housing Contract, which consists of construction and services revenue, is expected to generate approximately $175.2 million of revenue over its initial term, with approximately $111.1 million of committed minimum revenue. The revenue recognized for the year ended December 31, 2025 on the Workforce Housing Contract is largely comprised of construction fee income recognized using the percentage of completion method with progress towards completion measured using the cost-to-cost method as the basis to recognize revenue. The Workforce Housing Contract generated approximately $89.2 million of revenue for the year ended December 31, 2025, most of all of which is reported as construction fee income associated with construction services provided through December 31, 2025. As noted above,

the construction fee income generated for the year ended December 31, 2025 carries lower margins when compared to the margins generated under the terminated PCC Contract described below, which contributed to lower gross profit margins overall for the Company for the year ended December 31, 2025 when compared to the prior year.

Government Segment

As discussed in the Economic Update section, the PCC Contract with the NP Partner was terminated effective February 21, 2025. The PCC Contract generated total revenue of approximately $36.3 million, $186.4 million, and $347.8 million for the years ended December 31, 2025, 2024, and 2023, respectively. For the year ended December 31, 2023, the revenue generated from the PCC Contract included approximately $118.2 million of revenue amortization from nonrecurring infrastructure enhancement revenue generated from an advance payment made during the year ended December 31, 2022 for the community build-out, and mobilization of asset activities related to the community expansion. The advanced payment was determined to be related to future services and was fully amortized to revenue as of December 31, 2023. At the time of termination, the PCC Contract included a minimum annual revenue contribution of approximately $168 million, all of which was attributable to the Government reportable segment.In addition to the decline in revenue, the termination of the PCC Contract removed a significant source of historically high-margin revenue from our results. The incremental revenue generated for the year ended December 31, 2025 from construction services provided under the Workforce Housing Contractwithin the WHS segment described below carries lower margins than the PCC Contract, resulting in a shift in our revenue mix that further pressured our gross profit and consolidated margins.

As discussed in the Economic Update section, the STFRC Contract was terminated effective August 9, 2024. The STFRC Contract was based on a fixed minimum lease revenue amount and for the year ended December 31, 2024, contributed approximately $38.3 million in total consolidated revenue. The assets associated with the STFRC Contract were reactivated under the DIPC Contract effective March 5, 2025. The DIPC Contract is expected to provide over $246 million of revenue over its anticipated five-year term, to March 2030, and was subject to a ramp up period based on utilization during the first six months of the contract term resulting in lower fixed minimum revenue amounts during the ramp up period. The ramp up period was completed as scheduled in September 2025 with the maximum fixed minimum revenue amount now being recognized. The DIPC Contract generated total revenue of approximately $34.5 million for the year ended December 31, 2025.

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Results of Operations

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

Consolidated Results of Operations for the years ended December 31, 2025, 2024 and 2023($ in thousands):

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Comparison of Years Ended December 31, 2025 and 2024

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Total Revenue. Total revenue was $320.6 million for the year ended December 31, 2025 as compared to $386.3 million for the year ended December 31, 2024, and consisted of $187.5 million of services income, $45.8 million of specialty rental income and $87.3 million of construction fee income. Total revenue for the year ended December 31, 2024 consisted of $265.9 million of services income and $120.4 million of specialty rental income.

Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services including room revenue, catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management services, health and recreation facilities, concierge services, and laundry service. The main drivers of the decrease in services income revenue year over year was lower revenue in the Government segment led by the termination of the PCC Contract and termination of the STFRC Contract, and partially by lower revenue in HFS-South led by lower ADR. This decrease was partially offset by reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025, as well as growth in the WHS segment. As discussed above, services income for the period included the PCC Contract Close-Out Payment of $11.8 million, which also partially offset the net decrease in services income.

In addition to the decrease in services income, the termination of the PCC Contract also resulted in the loss of a significant source of historically high-margin revenue. The PCC Contract generated recurring, high-margin services and specialty rental income revenue within the Government segment, and its termination materially reduced our consolidated margin profile. Although construction fee income generated by the WHS segment for the year ended December 31, 2025 partially offset the revenue decline, this construction-driven revenue carries materially lower margins compared to the PCC

Contract. As a result, the shift in our revenue mix from high-margin PCC Contract activity to lower-margin construction services revenue contributed meaningfully to the overall reduction in gross profit for the period.

Specialty rental income consists primarily of revenues from leasing rooms and other facilities at certain communities that include contractual arrangements with customers that are considered leases under the authoritative accounting guidance for leases. Specialty rental income decreased primarily as a result of lower revenue in the Government segment led by the termination of the PCC Contract and termination of the STFRC Contract as previously discussed, partially offset by the reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025.

Cost of services and construction. Cost of services and construction were $209.3 million for the year ended December 31, 2025 as compared to $132.1 million for the year ended December 31, 2024. The increase is primarily due to an increase in costs of approximately $75.8 million in the WHS segment led by construction costs for the construction services activity under the Workforce Housing Contract. Additionally, costs associated with the HFS-South segment increased by approximately $1.9 million led by an increase in catering food costs. Costs associated with the Government segment increased by approximately $0.9 million led by costs under the DIPC Contract. These cost increases were partially offset by a decrease in costs of approximately ($1.3) million in the All Other category of operating segments driven by a community that incurred lodge removal and transportation costs in the prior period that did not recur in the current period, and partially driven by approximately ($0.4) million in lower labor costs.

Specialty rental costs. Specialty rental costs were approximately $11.4 million for the year ended December 31, 2025 as compared to $18.8 million for the year ended December 31, 2024. The decrease in specialty rental costs is primarily due to a decrease in costs from the Government segment driven by the PCC Contract termination previously discussed, partially offset by an increase in the Government segment driven by the DIPC Contract.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $57.2 million for the year ended December 31, 2025 as compared to $57.2 million for the year ended December 31, 2024.The slight increase in depreciation expense is primarily attributable to an increase in depreciation expense for specialty rental assets of approximately $5.0 million driven by growth in the WHS segment, largely offset by a decrease in depreciation expense associated with HFS-South and Government specialty rental assets for certain site work assets that became fully depreciated during 2024.

Selling, general and administrative. Selling, general and administrative was $58.5 million for the year ended December 31, 2025 as compared to $54.3 million for the year ended December 31, 2024. The increase in selling, general and administrative expenses of $4.3 million was primarily driven by an increase in compensation and benefits costs of approximately $5.7 million led by an increase in the short-term incentive plan bonus expense, reflecting strong new contract wins during 2025, which drove the payout to the maximum level based on the Company's better than expected execution, an increase in bad debt expense of approximately $0.6 million, an increase in recruiting expenses of approximately $0.5 million, an increase in other corporate expenses of approximately $0.5 million, an increase in professional fees of approximately $0.4 million, and an increase in stock-compensation expense of approximately $0.2 million. These increases were partially offset from the prior period by a decrease in severance costs of approximately $1.0 million for certain terminated employees during the year ended December 31, 2024, amortization of system implementation costs also decreased by approximately $0.7 million from the prior year as such costs became fully amortized in 2024 as scheduled, a decrease in transaction fees expense by approximately $1.1 million driven primarily by the prior period including costs associated with the evaluation of the offer from Arrow Holdings S.a.r.l. ("Arrow"), an affiliate of TDR, to acquire all of the outstanding common stock of the Company not owned by Arrow (the "Arrow Proposal"), and a decrease in expense for a non-cash share settlement on December 12, 2024 with a former non-employee director of the Company of approximately $0.8 million based on the value of the settlement shares on the settlement date.

Other depreciation and amortization. Other depreciation and amortization expense was $16.2 million for the year ended December 31, 2025 as compared to $15.6 million for the year ended December 31, 2024. The increase in other depreciation and amortization is primarily driven by an increase in depreciation associated with an increase in finance leases for commercial use vehicles.

Other expense (income), net. Other expense (income), net was $2.7 million for the year ended December 31, 2025 as compared to ($0.5) million for the year ended December 31, 2024. This increase in other expense is primarily driven by community pre-opening costs in the WHS segment.

Loss on extinguishment of debt.Loss on extinguishment of debt was $2.4 million for the year ended December 31, 2025 as compared to $0 for the year ended December 31, 2024. The increase in loss on extinguishment of debt is due to the redemption of the 2025 Senior Secured Notes on March 25, 2025. Refer to Note 7 of the notes to our audited consolidated financial statements in Part II, Item 8 within this Annual Report on Form 10-K for further discussion regarding extinguishment of debt.

Interest expense, net. Interest expense, net was $6.1 million for the year ended December 31, 2025 as compared to interest expense, net of $16.6 million for the year ended December 31, 2024. The change in interest expense, net was primarily driven by a decrease in interest expense on the 2025 Senior Secured Notes led by their early redemption on March 25, 2025, partially offset by the increase in interest expense on the ABL Facility, and a decrease in interest income earned on cash equivalents. Refer to Note 7 of the notes to our audited consolidated financial statements in Part II, Item 8 within this Annual Report on Form 10-K.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities represents the fair value adjustments to the outstanding Private Warrant liabilities based on the change in their estimated fair value at each reporting period end. The change in fair value of the warrant liabilities was $0 for the year ended December 31, 2025 as compared to ($0.7) million for the year ended December 31, 2024. The change in the fair value of the warrant liabilities is the result of the Private Warrants expiring unexercised on March 15, 2024 as discussed in Note 8 of the notes to our audited consolidated financial statements in Part II, Item 8 within this Annual Report on Form 10-K.

Income tax expense (benefit). Income tax expense (benefit) was ($6.1) million for the year ended December 31, 2025 as compared to $21.4 million for the year ended December 31, 2024. The change in income tax expense (benefit) is primarily attributable to a decrease in income before income tax for the year ended December 31, 2025 led by a decrease in revenue and by cost increases previously mentioned.

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Comparison of the Years Ended December 31, 2024 and 2023

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For discussion of the comparison of our operating results for the years ended December 31, 2024 and 2023, please read the "Comparison of Years Ended December 31, 2024 and 2023" section located in the Management Discussion & Analysis section in our Annual Report on From 10-K for the year ended December 31, 2024 filed with the SEC on March 26, 2025, which is incorporated herein by reference.

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Segment Results

The following table sets forth our selected results of operations for each of our reportable segments and the All Other category of operating segments for the years ended December 31, 2025, 2024 and 2023 ($ in thousands, except for Average Daily Rate amounts).

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

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Comparison of Years Ended December 31, 2025 and 2024

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Hospitality & Facilities Services - South

Revenue for the HFS -South segment was $141.7 million for the year ended December 31, 2025, as compared to $149.9 million for the year ended December 31, 2024.

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Adjusted gross profit for the HFS -South segment was $40.4 million for the year ended December 31, 2025, as compared to $50.8 million for the year ended December 31, 2024.

The decrease in revenue of approximately ($8.2) million was primarily attributable to a decrease in ADR.

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The decrease in adjusted gross profit of approximately ($10.4) million was primarily attributable to the decrease in revenue noted above, and partially by an increase in operational costs led by an increase in catering food costs of approximately $1.7 million and partially by an increase in utilities.

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WHS

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Revenue for the WHS segment was $96.8 million for the year ended December 31, 2025, as compared to $0 for the year ended December 31, 2024.

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Adjusted gross profit for the WHS segment was $20.6 million for the year ended December 31, 2025, as compared to $0 for the year ended December 31, 2024.

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The increase in revenue of approximately $96.8 million was primarily attributable to the increase in construction fee income, which was due to construction services provided under the Workforce Housing Contract originated in February 2025.

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The increase in adjusted gross profit of approximately $20.6 million was primarily attributable to the increase in revenue noted above, partially offset by higher costs due to construction activity and short-term costs incurred of approximately $1.7 million to mobilize existing assets to service the new Data Center Community Contract.

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Government

Revenue for the Government segment was $70.8 million for the year ended December 31, 2025 as compared to $224.7 million for the year ended December 31, 2024.

Adjusted gross profit for the Government segment was $38.6 million for the year ended December 31, 2025 as compared to $185.3 million for the year ended December 31, 2024.

Revenue decreased primarily due to the termination of the PCC Contract as previously discussed, partially offset by reactivation of the assets associated with the STFRC Contract under the DIPC Contract in March 2025. Approximately $150 million of the revenue decrease was attributable to the PCC Contract, of which approximately $9.3 million was related to lower variable services revenue from the PCC Contract. The remaining decrease in revenue of approximately $3.9 million was attributable to the STFRC Contract termination, partially offset by the DIPC Contract mentioned above. Note that revenue for the year ended December 31, 2025 included the PCC Contract Close-Out Payment of $11.8 million previously discussed, which also partially offset the net decrease in revenue.

Adjusted gross profit decreased as a result of the decrease in revenue mentioned above, partially offset by lower costs driven by the previously described PCC Contract termination. Approximately $9.3 million of the cost decrease was associated with community operations related to the PCC Contract, partially offset by an increase in costs of approximately $2 million related to community operations under the DIPC Contract mentioned above.

Comparison of the Years Ended December 31, 2024 and 2023

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For discussion of the comparison of our operating results for the years ended December 31, 2024 and 2023, please read the "Comparison of Years Ended December 31, 2024 and 2023" section located in the Management Discussion & Analysis section in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 26, 2025, which is incorporated herein by reference.

Liquidity and Capital Resources

We depend on cash flow from operations, cash on hand and borrowings under our ABL Facility to finance our growth and diversification strategy, working capital needs, and capital expenditures. As of December 31, 2025, the ABL Facility had unused available borrowing capacity of $175 million. We currently believe that our cash on hand, together with these sources of funds, will provide sufficient liquidity to support our growth and diversification strategy discussed in Item 1, "Business" of this Annual Report on Form 10-K, as well as our lease obligations, contingent liabilities and working capital investments for at least the next 12 months. However, we cannot assure you that we will be able to obtain future debt or equity financings adequate for our future cash requirements on commercially reasonable terms or at all.

Our ABL Facility is scheduled to terminate on February 1, 2028. Prior to its maturity, we expect to evaluate renewal or replacement alternatives, although there can be no assurance that we will be able to renew or replace the facility on commercially reasonable terms or at all. If we are unable to renew or replace the ABL Facility, our liquidity could be adversely affected, which could in turn adversely impact our financial condition and results of operations.

If our cash flows and capital resources are insufficient, we may be forced to reduce or delay additional growth opportunities, future investments and capital expenditures, and seek additional capital. Significant delays in our ability to

finance planned growth initiatives or capital expenditures may materially and adversely affect our future revenue prospects.

We continue to review available growth opportunities with the awareness that pursuing such opportunities may require us to incur additional indebtedness or issue shares of our Common Stock or other equity securities as part of an overall financing plan. We will continue to evaluate alternatives to optimize our capital structure, which may include the issuance of additional unsecured or secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing or availability of any such issuance. From time to time, we may also seek to modify or replace our ABL Facility to support our liquidity and capital resources. For additional discussion of risks related to our liquidity and capital resources, refer to the section titled "Risk Factors" in Part I Item 1A of this Annual Report on Form 10-K.

Capital Expenditure Requirements

During the year ended December 31, 2025, we incurred approximately $72.7 million in capital expenditures, which increased by approximately $40.2 million compared to the year ended December 31, 2024, largely driven by an increase in growth capital expenditures in the new WHS segment, including the $15.5 million acquisition of community assets in January 2025, partially offset by lower growth capital expenditures in the Government segment by approximately $1.8 million, and lower maintenance capital expenditures by approximately $12.6 million. The increase in WHS segment related growth capital expenditures was primarily attributable to development and expansion activities supporting the Data Center Community Contract and other WHS contract wins, consistent with our strategic focus on scaling this segment. In 2024, capital expenditures incurred decreased from 2023, primarily driven by lower growth capital expenditures, led by the HFS-South segment and partially driven by the Government segment, partially offset by higher maintenance capital expenditures of approximately $6.5 million, and an increase in finance lease assets of approximately $1 million.

Although growth capital expenditures are largely discretionary, our long-lived specialty rental assets require a certain level of maintenance capital expenditures, which have ranged from approximately 2.5% to 5.4% of annual revenue between 2021 and 2025, with an average cost of approximately 3.4% of annual revenue. Maintenance capital expenditures for specialty rental assets amounted to approximately $8.1 million, $20.7 million, and $14.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. We expect maintenance capital requirements to remain toward the lower end of the historical range in the near term due to the redeployment of modular assets from the terminated PCC Contract and efficiencies gained from recent portfolio realignments. Future maintenance capital may increase modestly as WHS segment owned assets are placed into service under the Expanded Community Contract.

As we pursue growth, we monitor which capital resources, including operating cash flows and equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. Based on currently contracted projects, including the 800-bed expansion of the Data Center Community expected to be delivered by mid-2026 and the commencement of the Power Community Contract in June 2026, as well as the contracted projects executed in 2026 as described in Note 19, Subsequent Events, in the audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K, we expect growth capital expenditures, excluding acquisitions, and net of customer advance payments and asset redeployments, in 2026 to increase compared to 2025. Capital requirements for these projects, which will impact 2026, are expected to range from approximately $38 million to $49 million, net of customer advance payments and asset redeployment. Based on current expectations, we anticipate funding these capital requirements with a combination of operating cash flows, and available liquidity, and do not currently expect to utilize external financing for these projects. Actual capital requirements and funding sources may vary depending on project timing, contract execution, and market conditions.

While we believe our available liquidity, including cash on hand and approximately $175 million of undrawn capacity under our ABL Facility as of December 31, 2025, positions us to fund currently planned capital projects, the timing and size of future WHS opportunities may require additional capital. If the capital required to pursue incremental WHS growth exceeds operating cash flows and available ABL Facility capacity, we may adjust the timing of and/or cancel planned investments or seek additional equity or debt financing. There can be no assurance that such financing will be available to us on acceptable terms or at all. Our disciplined investment framework generally requires visibility to long-term contracted

minimum revenues before deploying significant growth capital, and we may continue to leverage redeployment of modular units where feasible to minimize upfront capital requirements and enhance returns. The failure to achieve anticipated revenue and cash flows from operations could result in a reduction in future capital spending.

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

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Comparison of Years Ended December 31, 2025 and 2024

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Cash flows provided by operating activities. Net cash provided by operating activities was $74.1 million for the year ended December 31, 2025 compared to $151.7 million for the year ended December 31, 2024. This decrease in net cash provided by operating activities relates primarily to a decrease in cash collections from customers of approximately $71.1 million (led by the PCC Contract termination in the Government segment), a net increase in payments for operating expenses of approximately $32.3 million driven primarily by growth of the WHS segment, and a decrease in interest received by approximately $4.8 million (driven by a lower average outstanding cash balance in the current period that generated interest income). These decreases were partially offset by a $5.0 million decrease in cash paid for interest driven by the redemption of the 2025 Senior Secured Notes on March 25, 2025. There was also a decrease in cash paid for income taxes of approximately $26 million.

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Cash flows used in investing activities. Net cash used in investing activities was $67.8 million for the year ended December 31, 2025 compared to $28.8 million for the year ended December 31, 2024. This increase in net cash used in investing activities was primarily related to an increase in growth capital expenditures in the WHS segment related to the $15.5 million acquisition of community assets in January 2025 to support growth of the WHS segment and an increase in growth capital expenditures related to the construction of the Data Center Community to service the Data Center Community Contract in the WHS segment (a portion of which was funded by the advance payments reported within cash flows from operations associated with the Data Center Community Contract previously described), partially offset by lower maintenance capital expenditures in the HFS-South segment, and lower growth capital expenditures in the Government segment.

Cash flows used in financing activities. Net cash used in financing activities was $188.6 million for the year ended December 31, 2025 compared to $36.1 million for the year ended December 31, 2024. This increase in net cash used in financing activities was primarily driven by the $181.4 million full redemption of the 2025 Senior Secured Notes on March 25, 2025 and the related payment of 2025 Senior Secured Notes debt extinguishment premium costs of $1.8 million, as well as the prior period including approximately $1.9 million of proceeds from the issuance of Common Stock from the exercise of options that did not recur in the current period, partially offset by the prior period including approximately $33.5 million for the repurchase of Common Stock as part of the share repurchase program.

Comparison of the Years Ended December 31, 2024 and 2023

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For discussion of the comparison of our operating results for the years ended December 31, 2024 and 2023, please read the "Comparison of Years Ended December 31, 2024 and 2023" section located in the Management Discussion & Analysis section in the our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 26, 2025, which is incorporated herein by reference.

Indebtedness

The Company's finance lease and other financing obligations as of December 31, 2025 consisted of $3.8 million of finance leases. The finance leases pertain to leases entered into during 2022 through December 31, 2025, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2028. Refer to Notes 1, 7, and 12 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for further discussion regarding finance leases.

The Company's finance lease and other financing obligations as of December 31, 2024, consisted of approximately $3.3 million of finance leases related to commercial-use vehicles with the same terms as described above.

ABL Facility

On March 15, 2019, as amended on February 1, 2023, August 10, 2023, October 12, 2023, February 24, 2025, February 27, 2025, and December 23, 2025, Topaz, Arrow Bidco, Target, Signor and each of their domestic subsidiaries entered into an ABL credit agreement that provides for a senior secured asset-based revolving credit facility in the aggregate principal amount of up to $175 million (the "ABL Facility") with a termination date of February 1, 2028, which termination date is subject to a springing maturity that will accelerate the maturity of the ABL Facility if any of the 2025 Senior Secured Notes remain outstanding on the date that is ninety-one days prior to the stated maturity date thereof. During the years ended December 31, 2024 and 2023, respectively no amounts were drawn or repaid on the ABL Facility resulting in an outstanding balance of $0 as of December 31, 2024 and 2023, respectively. During the year ended December 31, 2025, all amounts drawn on the ABL Facility were fully repaid resulting in an outstanding balance of $0 as of December 31, 2025. Refer to Note 7 of the notes to our audited consolidated financial statements located in Part II, Item 8 within this Annual Report on Form 10-K for additional information on the ABL Facility.

Sixth Amendment to the ABL Facility Agreement

In December 2025, we entered into the Sixth Amendment to the ABL Facility Agreement, which provides the Company with additional flexibility to support near-term capital investment requirements, particularly related to growth within the WHS segment. The Sixth Amendment temporarily suspends the minimum Consolidated Fixed Charge Coverage Ratio covenant and reduces the maximum Total Leverage Ratio to 1.50:1.00, each of which remain in effect until the earlier of January 1, 2027 or the date on which the Company elects to reinstate the prior covenant structure. The amendment also introduces an Excess Availability condition, whereby the modified covenant framework remains operative only so long as Excess Availability is at least the greater of 40% of the Line Cap or $70 million; should Excess Availability fall below this threshold, the prior financial covenants-including the minimum Consolidated Fixed Charge Coverage Ratio of 1.00:1.00 and maximum Total Leverage Ratio of 2.50:1.00-would again apply. The Company was in full compliance with all applicable covenants under the ABL Facility, including the Sixth Amendment as of December 31, 2025. This discussion is qualified in its entirety by reference to the full text of the Sixth Amendment to the ABL Facility Agreement, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on December 29, 2025.

Senior Secured Notes

As of December 31, 2025, none of the 2025 Senior Secured Notes remain outstanding as the remaining balance was paid off on March 25, 2025. Refer to Note 7 of the notes to our audited consolidated financial statements located in Part II, Item 8, within this Annual Report on Form 10- K for additional discussion of the 2025 Senior Secured Notes.

Cash requirements

We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations will be to primarily fund (i) operating activities and working capital, (ii) growth capital expenditures associated primarily with growing the WHS segment as previously described in the Capital Expenditure Requirements section, (iii) maintenance capital expenditures for specialty rental and other property, plant, and equipment assets as previously described in the Capital Expenditure Requirements section, (iv) payments due under finance and operating leases, and (v) debt service interest payments associated with any future borrowings under the ABL Facility, if drawn. We plan to fund such cash requirements from our existing sources of liquidity as previously discussed. The table below presents information on payments coming due under the most significant categories of our needs for cash (excluding operating cash flows pertaining to normal business operations, other than operating lease obligations) as of December 31, 2025:

($ in thousands)

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Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP"). A summary of our significant accounting policies is provided in Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K. The following section is a summary of certain aspects of those accounting policies involving estimates or assumptions that (1) involve a significant level of estimation uncertainty and (2) have had or are reasonably likely to have a material impact on our financial condition or results of operations. It is possible that the use of different reasonable estimates or assumptions could result in materially different amounts being reported in our consolidated final statements. While reviewing this section, refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K, including terms defined herein.

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Revenue Recognition

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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.

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For contracts that contain both a lease component and a services or non-lease component, the Company adopted an accounting policy to account for and present the lease component under ASC 842 and the non-lease component under the authoritative guidance for revenue recognition ("ASC 606" or "Topic 606"). When allocating the contract consideration to the lease component under ASC 842 and the services or non-lease component under ASC 606, the Company uses judgement in contemplating how to initially measure one or more parts of the contract, to apply the separation and measurement guidance. Factors the Company considers in making this allocation include relative standalone price of lease and services or non-lease components. An over or under-estimate of the consideration allocation between the lease components and the services or non-lease components could result in revenue not being recognized and properly presented in accordance with the authoritative guidance under ASC 842 and ASC 606. With respect to ASC 842, when estimating a customer's lease term, the Company uses judgment in contemplating the significance of: any penalties a customer may incur should it choose not to exercise any existing options to extend the lease or exercise any existing options to terminate the lease; and economic incentives to the customer in the lease. Factors the Company considers in making this assessment include the uniqueness of the purpose or location of the property, the availability of a comparable replacement property, the relative importance or significance of the property to the continuation of the lessee's line of business and the existence of customer leasehold improvements or other assets whose value would be impaired by the customer vacating or discontinuing use of the leased property. With respect to ASC 606, when estimating the contract term where an extension option is present, the Company uses judgment in determining whether the extension option contains a material right under ASC 606. An over-estimate of the term of the lease by management could result in the write-off of any recorded assets associated with rental revenue and acceleration of depreciation and amortization expense associated with costs we incurred related to the lease. Additionally, an over or under-estimate of the contract term could result in revenue not being recognized in the proper period as well as revenue being under recognized, including for any significant advance payments for future services. The Company had no significant contracts determined to have been over or under-allocated during the reporting periods included herein

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Principles of Consolidation

Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for a discussion of principles of consolidation.

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Recently Issued and Adopted Accounting Standards

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Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for our assessment of recently issued and adopted accounting standards.

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Non-GAAP Financial Measures

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

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

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

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

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

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

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

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

Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows are not measurements of Target Hospitality's financial performance under GAAP and should not be considered as alternatives to Gross profit, Net income

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

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

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The following table presents a reconciliation of Target Hospitality's consolidated net income (loss) to EBITDA and Adjusted EBITDA:

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

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