Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

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

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

Executive Summary

Target Hospitality Corp. is one of North America's largest providers of vertically integrated specialty rental and value-added hospitality services including: catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation facilities, community design and construction, overall workforce community management, concierge services and laundry service. As of September 30, 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.

​

Economic Update

​

In February 2025, the Company entered into a multi-year construction and services agreement ("Workforce Housing Contract") to provide construction of workforce housing, comprehensive facility services, and premium hospitality solutions to Lithium Nevada in support of Lithium Nevada's development of Thacker Pass ("Thacker Pass Project" or the "Project") and a North American critical minerals supply chain. The all-inclusive workforce housing community, located in Winnemucca, Nevada ("Workforce Hub") is near Thacker Pass, the world's largest known measured lithium resource. The Thacker Pass Project is expected to play a major role in the domestic production of lithium batteries. Lithium Nevada has commenced site preparation, and the Company is actively engaged in the construction of the Workforce Hub, which will be capable of supporting a population of approximately 2,000 individuals. The Workforce Housing Contract has an initial term through 2027 with first occupancy beginning in September 2025 and substantial completion of the Workforce Hub anticipated by the end of 2025. The Company will construct and provide full turnkey support for the Workforce Hub, including premium culinary offerings, facilities management, and comprehensive support services. The Workforce Housing Contract, which consists of construction and services revenue, is expected to generate approximately $166.5 million of revenue over its initial term, with approximately $102.4 million of committed minimum revenue. The Company anticipates that revenue realized in 2025 on the Workforce Housing Contract will be 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, 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 three months ended September 30, 2025 and is included as a component of services income for the three and nine months ended September 30, 2025 and is included as a component of cash flows from operations for the nine months ended September 30, 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 $142.8 million for the nine months ended September 30, 2025 and 2024, respectively. The Company retains 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. The Company is actively engaged in re-marketing these assets.

​

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 three and nine months ended September 30, 2024, contributed approximately $8.7 million and $38.2 million, respectively, 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 open and safe 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 during the three months ended September 30, 2025 with the maximum fixed minimum revenue amount now being recognized as of September 30, 2025. 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 10, 2025, the Company issued a notice of redemption to redeem all $181.4 million in aggregate principal amount of its 2025 Senior Secured Notes discussed in Note 7 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q on March 25, 2025. The 2025 Senior Secured Notes redeemed pursuant to the Redemption were redeemed for a redemption price equal to 101.000% of the principal amount of the 2025 Senior Secured Notes redeemed plus accrued and unpaid interest to but not including the Redemption Date. As of March 25, 2025, the 2025 Senior Secured Notes were paid in full and are no longer outstanding, which is expected to generate an annual interest expense savings of approximately $19.5 million.

​

During the three months ended September 30, 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 (or the "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 and the Company anticipates potential Community expansions to meet growing customer demand in future years. The Data Center Community Contract, which has an initial term through September 2027, is expected to generate approximately $43 million of committed minimum revenue over its initial term, which includes advanced payments to be paid in installments during the initial construction and mobilization phase of the Data Center Community Contract to fund the initial construction and mobilization of the Community. The Company utilized a portion of its existing asset portfolio to construct the premium Data Center Community and, during the three months ended September 30, 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 September 30, 2025, and are reflected as cash flows from operations during the nine months ended September 30, 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 three months ended September 30, 2025, and is reported within the Company's WHS segment.

​

The Company generated cash flows from operations for the nine months ended September 30, 2025 of approximately $68.4 million compared to approximately $121.1 million for the nine months ended September 30, 2024, representing a decrease in cash flows from operations of approximately $(52.8) million or (44)% 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 $20.0

million decrease in cash paid for income taxes, and a $5.0 million decrease in cash paid for interest driven by early payoff of the 2025 Senior Secured Notes on March 25, 2025.

​

For the three months ended September 30, 2025, other key drivers of financial performance included:

​

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.

​

Our Government segment, including several communities in West, Texas supporting critical U.S. government efforts, deliver essential services and accommodations near the southern U.S. border where there is insufficient housing and infrastructure solutions to appropriately address immigration and deportation.

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 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.

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.

Factors Affecting Results of Operations

We expect our business to continue to be affected by the key factors discussed below, as well as factors discussed in the section titled "Risk Factors" included in our 2024 Form 10-K. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

Supply and Demand for Natural Resources

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

Availability and Cost of Capital

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

Regulatory Compliance

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

Public Policy

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

We are continuing to pursue government services growth opportunities, and we believe there is opportunity to continue to assist the federal government. 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 new Trump administration may take with respect to government contracts that were previously executed.

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 64% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 36% of revenues were earned through leasing of lodging facilities (12)% and construction fee income (24)% for the nine months ended September 30, 2025. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with our customers. 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 a multi-year construction and services agreement to provide construction of workforce housing, comprehensive facility services, and premium hospitality solutions to Lithium Nevada in support of Lithium Nevada's development of Thacker Pass ("Thacker Pass Project") and a North American critical minerals supply chain. The all-inclusive Workforce Hub is near Thacker Pass, the world's largest known measured lithium resource. The Thacker Pass Project is expected to play a major role in the domestic production of lithium batteries. Lithium Nevada has commenced site preparation and the Company is actively engaged in the construction of the Workforce Hub, which will be capable of supporting a population of approximately 2,000 individuals. The Workforce Housing Contract has an initial term through 2027 with first occupancy beginning in September 2025 and substantial completion of the Workforce Hub anticipated by the end of 2025. The Company will construct and provide full turnkey support for the Workforce Hub, including premium culinary offerings, facilities management, and comprehensive support services. During the construction phase of the contract, the Company will recognize revenue as costs are incurred in connection with the Thacker Pass Project under the percentage of completion method of accounting as more fully discussed in Note 1 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

Key Indicators of Financial Performance

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

Revenue

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

Adjusted Gross Profit

We analyze our adjusted gross profit, which is a Non-GAAP measure, which we define as revenues less cost of sales, excluding community pre-opening costs, impairment, and depreciation of specialty rental assets to measure our financial performance. Please see "Non-GAAP Financial Measures" for a definition and reconciliation to the most comparable GAAP measure. We believe adjusted gross profit is a meaningful metric because it provides insight into the financial performance of our revenue streams without consideration of company overhead. Additionally, using adjusted gross profit gives us insight on factors impacting cost of sales, such as efficiencies of our direct labor and material costs. When

analyzing adjusted gross profit, we compare actual adjusted gross profit to our budgets and internal projections and to prior period results for a given period in order to assess our performance.

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

Segments

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

HFS - South

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

Government

The Government segment includes 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 included the facilities and operations provided under a lease and services agreement known as the PCC Contract with our NP Partner, backed 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 related assets associated with the PCC Contract continue to be included in this segment. The Company is actively engaged in re-marketing these assets.

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.

All Other

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

Key Factors Impacting the Comparability of Results

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

Government Segment

As discussed in the Economic Updatesection, the PCC Contract with the NP Partner was terminated effective February 21, 2025. The PCC Contract generated total revenue of approximately $36.3 million and $142.8 million for the nine months ended September 30, 2025 and 2024, respectively. The PCC Contract included a minimum annual revenue contribution of approximately $168 million, all of which was attributable to the Government reportable segment.

As discussed in the Economic Updatesection, the STFRC Contract was terminated effective August 9, 2024. The STFRC Contract was based on a fixed minimum lease revenue amount and for the three and nine months ended September 30, 2024, contributed approximately $8.7 million and $38.2 million, respectively, 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 is 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 as of September 30, 2025. The DIPC Contract generated total revenue of approximately $11.7 million and $20.8 million, respectively, for the three and nine months ended September 30, 2025.

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 $166.5 million of revenue over its initial term, with approximately $102.4 million of committed minimum revenue. The Company anticipates that revenue realized in 2025 on the Workforce Housing Contract will be 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 $35.6 million and $54.8 million of revenue, respectively, for the three and nine months ended September 30, 2025, most of all of which is reported as construction fee income associated with construction services provided through September 30, 2025.

Results of Operations

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

​

Consolidated Results of Operations for the three months ended September 30, 2025 and 2024 ($ in thousands):

​

​

For the three months ended September 30, 2025 compared to the three months ended September 30, 2024

Total Revenue. Total revenue was $99.4 million for the three months ended September 30, 2025 and consisted of $56.0 million of services income, $7.8 million of specialty rental income and $35.6 million of construction fee income. Total revenue for the three months ended September 30, 2024 was $95.2 million, which consisted of $65.8 million of services income, and $29.4 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, health and recreation facilities, concierge services, and laundry service. The main driver of the decrease in services income revenue was lower revenue in the Government segment led by the termination of the PCC Contract as previously discussed, and partially by lower revenue in HFS-South from lower ADR and lower utilization. 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 previously discussed, 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.

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, partially offset by reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025 as previously discussed.

The decrease in services income and specialty rental income was offset by an increase in construction fee income, which was due to construction services provided under the Workforce Housing Contract originated in February 2025 in the WHS segment.

Cost of services. Cost of services was $64.1 million for the three months ended September 30, 2025 as compared to $31.3 million for the three months ended September 30, 2024. The increase in services costs is primarily due to an increase in costs of approximately $30.3 million in the WHS segment led by construction costs for the construction services activity under the Workforce Housing Contract. Additionally, costs associated with the Government segment driven by the reactivation of assets associated with the DIPC Contract increased by approximately $3.5 million. These cost increases were partially offset by the HFS-South segment costs, which decreased by approximately $0.6 million led by lower labor costs, and a decrease in services costs of approximately $0.3 million in the All Other category of operating segments driven by lower labor costs and catering food purchases as a result of lower customer activity.

Specialty rental costs. Specialty rental costs were $3.0 million for the three months ended September 30, 2025 as compared to $4.7 million for the three months ended September 30, 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.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $14.4 million for the three months ended September 30, 2025 as compared to $14.1 million for the three months ended September 30, 2024. The increase in depreciation expense is primarily attributable to an increase in depreciation expense for specialty rental assets driven by growth in the WHS segment, partially offset by a decrease in depreciation expense of approximately $0.8 million associated with HFS-South specialty rental assets for certain site work assets that became fully depreciated during 2024.

Selling, general and administrative.Selling, general and administrative was $12.9 million for the three months ended September 30, 2025 as compared to $13.3 million for the three months ended September 30, 2024. The decrease in selling, general and administrative expense from the prior period was primarily driven by a decrease in transaction fees expense by approximately $1.9 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 legal and professional fees decreased by approximately $0.2 million. This was partially offset by an increase in compensation and benefits of approximately $0.5 million, an increase in bad debt expense of approximately $0.4 million, an increase of approximately $0.3 million related to stock-compensation expense, an increase of approximately $0.1 million related to audit fees, an increase of approximately $0.2 million in other corporate expenses, and an increase in recruiting expenses of approximately $0.1 million.

​

Other depreciation and amortization. Other depreciation and amortization expense was $4.1 million for the three months ended September 30, 2025 as compared to $3.9 million for the three months ended September 30, 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 $0.9 million for the three months ended September 30, 2025 as compared to less than $(0.1) million for the three months ended September 30, 2024. The change in other expense (income), net was primarily driven by community pre-opening costs in the WHS segment.

​

Interest expense, net. Interest expense, net was $0.5 million for the three months ended September 30, 2025 as compared to $3.8 million for the three months ended September 30, 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 a decrease in interest income earned on cash equivalents.

​

Income tax expense (benefit). Income tax expense (benefit) was $0.4 million for the three months ended September 30, 2025 as compared to $4.1 million for the three months ended September 30, 2024. The change in income

tax expense (benefit) is primarily attributable to the decrease in income before taxes for the three months ended September 30, 2025 led by cost increases previously mentioned.

​

Consolidated Results of Operations for the nine months ended September 30, 2025 and 2024 ($ in thousands):

​

​

For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024

​

Total Revenue. Total revenue was $230.9 million for the nine months ended September 30, 2025 and consisted of $146.6 million of services income, $29.5 million of specialty rental income and $54.8 million of construction fee income. Total revenue for the nine months ended September 30, 2024 was $302.6 million, which consisted of $205.7 million of services income, and $96.9 million of specialty rental income.

Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services, including room revenue, catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management, health and recreation facilities, concierge services, and laundry service. The main driver of the decrease in services income revenue was lower revenue in the Government segment led by the termination of the PCC Contract and termination of the STFRC Contract as previously discussed, 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 previously discussed, 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.

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

reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025.

The decrease in services income and specialty rental income was partially offset by an increase in construction fee income, which was due to construction services provided under the Workforce Housing Contract originated in February 2025 in the WHS segment.

Cost of services. Cost of services was $145.4 million for the nine months ended September 30, 2025 as compared to $101.7 million for the nine months ended September 30, 2024. The increase in services costs is primarily due to an increase in costs of approximately $45.6 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 $0.6 million led by an increase in catering food costs, which was driven by an increase in customer activity. These cost increases were partially offset by a decrease in services costs of approximately $1.3 million in the Government segment led by a decrease in occupancy from the contract terminations previously discussed, and a decrease in services costs of approximately $1.2 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 didn't recur in the current period, and partially driven by approximately $0.2 million in lower labor costs.

Specialty rental costs. Specialty rental costs were $8.3 million for the nine months ended September 30, 2025 as compared to $16.1 million for the nine months ended September 30, 2024. The decrease in specialty rental costs is primarily due to a decrease in costs from the Government segment driven by the contract terminations previously discussed.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $41.6 million for the nine months ended September 30, 2025 as compared to $43.6 million for the nine months ended September 30, 2024. The decrease in depreciation expense is primarily attributable to a decrease in depreciation expense associated with HFS-South specialty rental assets for certain site work assets that became fully depreciated during 2024, partially offset by an increase in depreciation expense for specialty rental assets of approximately $1.9 million driven by growth in the WHS segment.

Selling, general and administrative.Selling, general and administrative was $40.4 million for the nine months ended September 30, 2025 as compared to $41.6 million for the nine months ended September 30, 2024. The decrease in selling, general and administrative expense from the prior period was led by decreases in severance costs of approximately $1 million for certain terminated employees during the nine months ended September 30, 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 $0.5 million driven primarily by the prior period including costs associated with the evaluation of the Arrow Proposal, a decrease in marketing and advertising costs as well as insurance costs collectively by approximately $0.2 million, and a decrease in compensation and benefits costs by approximately $0.1 million. . This was partially offset by an increase in bad debt expense of approximately $0.6 million, an increase in recruiting expenses of approximately $0.3 million, and an increase in other corporate expenses of approximately $0.4 million.

​

Other depreciation and amortization. Other depreciation and amortization expense was $12.1 million for the nine months ended September 30, 2025 as compared to $11.7 million for the nine months ended September 30, 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 $1.0 million for the nine months ended September 30, 2025 as compared to $(0.2) million for the nine months ended September 30, 2024. The increase in other expense was 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 nine months ended September 30, 2025 as compared to $0 for the nine months ended September 30, 2024. The increase in loss on extinguishment of debt is due to the redemption of the 2025 Senior Secured Notes on March 25, 2025.

​

Interest expense, net. Interest expense, net was $5.7 million for the nine months ended September 30, 2025 as compared to $12.7 million for the nine months ended September 30, 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 an increase in interest expense on the ABL Facility, and a decrease in interest income earned on cash equivalents.

​

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities represented the fair value adjustments to the previously 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 nine months ended September 30, 2025 as compared to $(0.7) million for the nine months ended September 30, 2024 as a result of the Private Warrants expiring unexercised on March 15, 2024 as discussed in Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

​

Income tax expense (benefit). Income tax expense (benefit) was $(3.9) million for the nine months ended September 30, 2025 as compared to $17.1 million for the nine months ended September 30, 2024. The change in income tax expense (benefit) is primarily attributable to the decrease in income before taxes for the nine months ended September 30, 2025 led by a decrease in revenue and by cost increases previously mentioned.

​

​

Segment Results

The following table sets forth our selected results of operations for each of our reportable segments and All Other for the three months ended September 30, 2025 and 2024 ($ in thousands, except for Average Daily Rate).

​

​

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

​

Government

Revenue for the Government segment was $23.9 million for the three months ended September 30, 2025, as compared to $53.5 million for the three months ended September 30, 2024.

Adjusted gross profit for the Government segment was $15.1 million for the three months ended September 30, 2025, as compared to $46.3 million for the three months ended September 30, 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 $33 million of the revenue decrease was attributable to the PCC Contract termination, partially offset by an increase in revenue of approximately $3.1 million attributable to the DIPC Contract mentioned above. Revenue for the three months ended September 30, 2025 also 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, and partially driven by higher costs due to higher occupancy driven by the DIPC Contract mentioned above. The DIPC Contract drove an increase in costs of approximately $2.5 million, which was partially offset by a decrease in costs of approximately $0.9 million associated with community operations related to the PCC Contract, which was terminated as previously discussed.

HFS - South

Revenue for the HFS - South segment was $35.6 million for the three months ended September 30, 2025, as compared to $38.0 million for the three months ended September 30, 2024.

​

Adjusted gross profit for the HFS - South segment was $10.4 million for the three months ended September 30, 2025, as compared to $12.3 million for the three months ended September 30, 2024.

The decrease in revenue of approximately $(2.5) million was attributable to a decrease in ADR and utilization.

​

The decrease in adjusted gross profit of approximately $(1.9) million was primarily attributable to the decrease in revenue noted above, partially offset by a decrease in operational costs led by a decrease in labor costs.

​

WHS

​

Revenue for the WHS segment was $36.8 million for the three months ended September 30, 2025, as compared to $0 for the three months ended September 30, 2024.

​

Adjusted gross profit for the WHS segment was $6.5 million for the three months ended September 30, 2025, as compared to $0 for the three months ended September 30, 2024.

​

The increase in revenue of approximately $36.8 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.

​

The increase in adjusted gross profit of approximately $6.5 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 $1.3 million to mobilize existing assets to service the new Data Center Community Contract.

Segment Results

The following table sets forth our selected results of operations for each of our reportable segments and All Other for the nine months ended September 30, 2025 and 2024 ($ in thousands, except for Average Daily Rate).

​

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

​

Government

Revenue for the Government segment was $57.1 million for the nine months ended September 30, 2025, as compared to $180.9 million for the nine months ended September 30, 2024.

Adjusted gross profit for the Government segment was $33.2 million for the nine months ended September 30, 2025, as compared to $147.6 million for the nine months ended September 30, 2024.

Revenue decreased primarily due to the termination of the PCC Contract and the termination of the STFRC Contract as previously discussed, partially offset by reactivation of the assets associated with the STFRC Contract under the DIPC Contract in March 2025. Approximately $106.5 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 $17.3 million was attributable to the STFRC Contract termination, partially offset by the DIPC Contract mentioned above.Note that revenue for the nine months ended September 30, 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 due to lower occupancy driven by the contract terminations previously discussed. Approximately $6.9 million of the decrease in costs were associated with community operations related to the PCC Contract, while approximately $2.7 million of the decrease in costs were associated with community operations related to the STFRC Contract, partially offset by the DIPC Contract mentioned above.

HFS - South

Revenue for the HFS - South segment was $107.8 million for the nine months ended September 30, 2025, as compared to $113.2 million for the nine months ended September 30, 2024.

​

Adjusted gross profit for the HFS - South segment was $32.0 million for the nine months ended September 30, 2025, as compared to $38.3 million for the nine months ended September 30, 2024.

The decrease in revenue of approximately $(5.4) million was primarily attributable to a decrease in ADR, partially offset with an increase in customer activity.

​

The decrease in adjusted gross profit of approximately $(6.3) 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 driven by an increase in customer activity.

​

WHS

​

Revenue for the WHS segment was $57.1 million for the nine months ended September 30, 2025, as compared to $0 for the nine months ended September 30, 2024.

​

Adjusted gross profit for the WHS segment was $11.5 million for the nine months ended September 30, 2025, as compared to $0 for the nine months ended September 30, 2024.

​

The increase in revenue of approximately $57.1 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.

​

The increase in adjusted gross profit of approximately $11.5 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 $1.3 million to mobilize existing assets to service the new Data Center Community Contract.

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 September 30, 2025, the ABL Facility had unused available borrowing capacity of $175 million. We currently believe that our cash on hand, along with these sources of funds will provide sufficient liquidity to fund any future debt service obligations, support our growth and diversification strategy discussed in Item 1, "Business" of the Company's 2024 Form 10-K, lease obligations, contingent liabilities and working capital investments for at least the next 12 months. However, we cannot assure you that we will be able to obtain future debt or equity financings adequate for our future cash requirements on commercially reasonable terms or at all.

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

Capital Requirements

During the nine months ended September 30, 2025, we incurred approximately $56.2 million in capital expenditures, with approximately $41.1 million driven by growth capital expenditures in the new WHS segment, and approximately $4.9 million driven by growth capital expenditures in the Government segment. Maintenance capital expenditures for specialty rental assets amounted to approximately $7.0 million for the nine months ended September 30, 2025, while approximately $3 million was attributable to an increase in finance leases for commercial-use vehicles. As we pursue growth initiatives, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or at all.

​

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

​

​

For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024

​

Cash flows provided by operating activities. Net cash provided by operating activities was $68.4 million for the nine months ended September 30, 2025 compared to $121.1 million for the nine months ended September 30, 2024.

The current period is down by approximately $(52.8) million when compared to 2024 driven by a decrease in cash collections from customers of approximately $68.1 million (led by the PCC Contract termination in the Government segment), a net increase in payments for operating expenses and payroll of approximately $6.1 million driven primarily by growth of the WHS segment, and a decrease in interest received by approximately $3 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 early payoff of the 2025 Senior Secured Notes on March 25, 2025. There was also a decrease in cash paid for income taxes of approximately $20 million.

​

Cash flows used in investing activities. Net cash used in investing activities was $41.2 million for the nine months ended September 30, 2025 compared to $23.4 million for the nine months ended September 30, 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 (the majority of which is being funded by the advance payments reported within cash flows from operations associated with the Data Center Community Contract previously discussed), 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 $187.5 million for the nine months ended September 30, 2025 compared to $23.9 million for the nine months ended September 30, 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 didn't recur in the current period, partially offset by the prior period including approximately $21.9 million for the repurchase of Common Stock as part of the share repurchase program.

Indebtedness

Finance lease and other financing obligations

The Company's finance lease and other financing obligations as of September 30, 2025 consisted of approximately $4.2 million of finance leases. The finance leases pertain to leases entered into during 2022 through September 30, 2025, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2028.

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

During the nine months ended September 30, 2025, all amounts drawn on the ABL Facility were fully repaid resulting in an outstanding balance of $0 as of September 30, 2025. The maturity date of the ABL Facility is February 1, 2028. Refer to Note 7 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q for additional discussion of the ABL Facility.

2025 Senior Secured Notes

As of September 30, 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 unaudited consolidated financial statements included elsewhere within this Form 10-Q 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 and obligations will be to primarily fund (i) operating activities and working capital, (ii) maintenance capital expenditures for specialty rental and other property, plant, and equipment assets, (iii) payments due under finance and operating leases, and (iv) debt service interest payments on the ABL Facility. 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 September 30, 2025:

​

Concentration of Risks

In the normal course of business, we grant credit to customers based on credit evaluations of their financial condition and generally require no collateral or other security. Major customers are defined as those individually comprising more than 10% of our revenues or accounts receivable. For the nine months ended September 30, 2025, we had three customers, who accounted for 24%, 16% and 10% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 19% and 10% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of September 30, 2025.

We had two customers for the nine months ended September 30, 2024 that accounted for 47% and 13% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 31% and 10% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of September 30, 2024.

​

Major suppliers are defined as those individually comprising more than 10% of the annual goods purchased by the Company. For the nine months ended September 30, 2025, we had one major supplier representing 15% of goods purchased. For the nine months ended September 30, 2024, we had one major supplier that represented 20% of goods purchased.

​

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

Commitments and Contingencies

The Company leases certain land, buildings, offices, modular units, and equipment under non-cancellable operating leases, the terms of which vary and generally contain renewal options. Such operating lease obligations are recognized in the Company's accompanying consolidated balance sheet as of September 30, 2025 as current portion of operating lease obligations and long-term operating lease obligations. Refer to the Company's unaudited consolidated balance sheet included elsewhere in this Quarterly Report on Form 10-Q for the amounts recognized as current portion of operating lease obligations and long-term operating lease obligations as of September 30, 2025.

Rent expense included in services costs in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $8.6 million and $9.6 million for the nine months ended September 30, 2025 and 2024 respectively. Rent expense included in services costs in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $2.9 million and $2.9 million for the three months ended September 30, 2025 and 2024, respectively. Rent expense included in selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $0.4 million and $0.4 million for the nine months ended September 30, 2025 and 2024, respectively. Rent expense included in selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $0.1 million and $0.1 million for the three months ended September 30, 2025 and 2024, respectively.

Critical Accounting Policies and Estimates

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

​

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.

​

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

​

Revenue Recognition

​

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.

​

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.

​

Principles of Consolidation

​

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

​

Recently Issued Accounting Standards

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

Non-GAAP Financial Measures

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

Target Hospitality defines Adjusted gross profit, as gross profit plus depreciation of specialty rental assets and loss on impairment, certain severance costs, and excluding community pre-opening 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 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:

​

​

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

​

​

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

​

​

​

​

​