Target Hospitality Corp.: Form 10-Q for the period ended Jun 30, 2026

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 modular accommodations and full-service 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 June 30, 2026, 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

During the first half of 2026, the Company entered into four significant workforce accommodations and hospitality services contracts supporting AI infrastructure development and power generation projects. Collectively, these agreements are expected to generate more than $1.4 billion of contracted revenue and support approximately 9,000 individuals over contractual terms ranging from 26 to approximately 60 months. The contracts include the West Texas Power Community, Pecos Power Community, Data Center Hub, and AI Infrastructure Community projects (each as defined in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2026), each of which began generating revenue during the six months ended June 30, 2026, and is reported within the Company's WHS segment. The projects utilize a combination of existing infrastructure and newly deployed assets and are expected to require significant capital investment (as outlined in the Capital Expenditures Requirements section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations), while providing long-term revenue visibility and positioning the Company to benefit from continued growth in AI infrastructure and power generation development.

The Company generated cash flows from operations for the six months ended June 30, 2026 of approximately $111.0 million compared to approximately $15.0 million for the six months ended June 30, 2025, representing an increase in cash flows from operations of approximately $96 million or 640% attributable to an increase in cash collections, which in turn was driven by a significant increase in advanced payments from customers associated with several new WHS segment contracts for community builds that are being recognized as revenue over the related contract periods, an $11.2 million decrease in cash paid for interest driven by the early payoff of the 2025 Senior Secured Notes on March 25, 2025, and a decrease in cash paid for income taxes, partially offset by an increase in cash paid for operating expenses and payroll (led by growth in the WHS segment), and a decrease in interest income.

For the three months ended June 30, 2026, other key drivers of financial performance included:

• Increased revenue of $23.8 million, or 39% compared to the same period in 2025, driven by increased revenue from the WHS segment, and partially driven by reactivation of community assets in the Government segment on March 5, 2025 to service the DIPC Contract (as defined in the 2025 Form 10-K). These increases were partially offset by lower revenue generated from the HFS-South segment led by lower utilization.
• Generated a net loss of approximately ($9) million for the three months ended June 30, 2026 as compared to net loss of approximately ($14.9) million for the three months ended June 30, 2025, an improvement of approximately $5.9 million, primarily attributable to the revenue increase discussed above, partially offset by an increase in service, specialty rental, and depreciation of specialty rental asset costs led by growth in the WHS segment and partially driven by reactivation of community assets in the Government segment on March 5, 2025

to service the DIPC Contract, an increase in selling, general and administrative expenses (led by an increase in compensation and benefits costs, professional fees, and transaction expenses), an increase in income tax expense, and an increase in other expense, net led by community pre-opening costs in the WHS segment.

• Generated consolidated Adjusted EBITDA of $18.2 million representing an increase of $14.7 million, or 420% as compared to the same period in 2025, driven primarily by the increase in revenue as noted above, partially offset by an increase in operating expenses comprised of an increase in services and specialty rental costs led by growth in the WHS segment, and an increase in compensation and benefits and professional fees in selling, general and administrative expenses.

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.

Outlook

We expect margins to continue to improve as the Company progresses towards the end of 2026, driven primarily by growth in the WHS segment. This improvement is expected to result from the ramp-up of communities under recently executed WHS contracts, namely those associated with the West Texas Power Community, the Pecos Power Community, the Data Center Hub contract, and the AI Infrastructure Community project contract, including those discussed in our 2025 Form 10-K. These expectations are supported by the contract terms, planned community development and ramp-up timelines, and the Company’s internal analysis of the anticipated 2026 revenue mix, as summarized above and in the 2025 Form 10-K. However, we cannot assure you that margin improvement will be achieved, as it depends on the effective execution, ramp-up timing, and servicing of these contracts.

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 are insufficient housing and infrastructure solutions supporting the critical mineral supply chain. The WHS segment also includes specialty rental and hospitality services provided to communities in the Southwestern United States, including Texas, where there is also insufficient housing and infrastructure solutions supporting the development of power generation and data center infrastructure projects. 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, power generation, 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 power generation and data centers in remote locations.

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-related program needs.

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 2025 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, 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 data center and energy infrastructure. 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 data center and 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.

As discussed in Note 17 of the notes to our unaudited consolidated financial statements, included elsewhere in this Form 10-Q, subsequent to June 30, 2026, the Company entered into the New ABL Facility, which replaced the ABL Facility and provides aggregate revolving commitments of up to $660 million, together with an accordion feature of up to $190 million, subject to customary conditions and lender commitments. Additional information regarding the New ABL Facility is included in Note 17 of the notes to our unaudited consolidated financial statements, included elsewhere in this Form 10-Q.

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.

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 62% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 38% of revenues were earned through leasing of lodging facilities (30)% and construction fee income (8)% for the six months ended June 30, 2026. 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 (the “Workforce Housing Contract”) to provide construction of workforce housing (the “Workforce Hub”), 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. As of June 30, 2026, construction of the Workforce Hub was substantially complete, and during the six months ended June 30, 2026, revenue under this contract was split nearly evenly between construction services and services income, with construction services representing approximately 51% of revenue on this Workforce Housing Contract.

Upon completion of the construction phase, the Workforce Hub will be capable of supporting a population of approximately 2,000 individuals. In addition to constructing the Workforce Hub, the Company is also providing turnkey operational support, including culinary services, facilities management, and other support services, which generated services revenue during the six months ended June 30, 2026 for the completed portions of the Workforce Hub. The Workforce Housing Contract has an initial term through 2027 with first occupancy that began in September 2025. During the construction phase, the Company is recognizing construction fee income revenue under the percentage of completion method as costs are incurred, 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, 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 in the WHS segment, and the consumer price index impacting government contracts, and government spending on housing programs in the Government segment.

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 rental 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 the Company. 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. The WHS segment also includes the West Texas Power Community, the Pecos Power Community, and the Power Community, and will include the communities associated with the Data Center Hub Contract, and the AI Infrastructure Contract.

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 non-profit partner (the “PCC Contract”). This arrangement was supported by a U.S. government contract to provide a suite of comprehensive service offerings in support of their aid efforts. The PCC Contract was terminated effective February 21, 2025. The related assets associated with the PCC Contract were re-deployed or are in process of being re-deployed to support growth in the 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

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 $177.4 million of revenue over its initial term, with approximately $113.2 million of committed minimum revenue. Revenue realized during 2025 and early 2026 on the Workforce Housing Contract was 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 $2.9 million and $14.4 million of construction fee income for the three months ended June 30, 2026 and 2025, respectively, and approximately $12.6 million and $19.2 million of construction fee income for the six months ended June 30, 2026 and 2025, respectively. As the construction phase of the Workforce Housing Contract was substantially complete as of June 30, 2026, lower-margin construction fee income represented a significantly smaller portion of segment revenue in 2026 compared to 2025, while higher-margin hospitality service revenue under the Workforce Housing Contract and higher-margin hospitality services revenue and specialty rental income from other WHS contracts represented a larger share of revenue in 2026 compared to 2025. In addition, several newer WHS contracts were more fully ramped up during the current period. Accordingly, the combination of (i) the predominance of lower-margin construction fee income under the Workforce Housing Contract during the prior period, and (ii) the increased contribution from higher-margin services and specialty rental income in the current period, resulted in higher adjusted gross profit margins for the three months ended June 30, 2026 compared to the same period in the prior year, and limits comparability between periods. As previously discussed, as the WHS contracts continue to ramp up, we anticipate continued margin expansion. However, we cannot assure you that margin improvement will be achieved, as it depends on the effective execution, ramp-up timing, and servicing of these contracts.

Government Segment

As discussed in the 2025 Form 10-K, the PCC Contract was terminated effective February 21, 2025. The PCC Contract generated total revenue of $0 and $24.1 million for the six months ended June 30, 2026 and 2025, respectively, with no revenue generated during the three months ended June 30, 2026 and 2025. The PCC Contract included a minimum annual revenue contribution of approximately $168 million, all of which was attributable to the Government reportable segment. No further revenue is expected from the PCC Contract. 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.

As discussed in the 2025 Form 10-K, the assets associated with the STFRC Contract, which terminated on August 9, 2024, 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 as of June 30, 2026. The DIPC Contract generated total revenue of approximately $13.5 million and $7.5 million for the three months ended June 30, 2026 and 2025, respectively, and approximately $26.9 million and $9.1 million for the six months ended June 30, 2026 and 2025, respectively.

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 June 30, 2026 and 2025 ($ in thousands):

For the three months ended June 30, 2026 compared to the three months ended June 30, 2025

Total Revenue. Total revenue was $85.5 million for the three months ended June 30, 2026 and consisted of $51.8 million of services income, $30.8 million of specialty rental income and $2.9 million of construction fee income. Total revenue for the three months ended June 30, 2025 was $61.6 million, which consisted of $40.5 million of services income, $6.7 million of specialty rental income, and $14.4 million of construction fee income.

Services 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 services.

The main driver of the increase in services income revenue was higher revenue in the WHS segment led by the new contracts entered into since June 30, 2025 and partially due to the reactivation and ramp-up of assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025 as previously discussed.

Specialty Rental 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 increased primarily due to growth in the WHS segment, and partially due to the reactivation and ramp-up of assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025 as previously discussed.

Construction Fee Income

The decrease in construction fee income for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025, was driven solely by the construction related activities for the Workforce Housing Contract within the WHS segment substantially concluding as of December 31, 2025.

Margin Considerations

The termination of the PCC Contract in the Government segment resulted in the loss of a significant source of historically high-margin revenue. Nevertheless, consolidated margins improved during the three months ended June 30, 2026, compared to the prior-year period, primarily due to changes in revenue mix within the WHS segment. As the construction phase of the Workforce Housing Contract became substantially complete, lower-margin construction fee income represented a smaller portion of WHS revenue, while higher-margin hospitality services revenue generated under the Workforce Housing Contract represented a larger share of segment revenue. In addition, several newer WHS contracts were more fully ramped up during the current period, increasing the contribution of higher-margin hospitality services and specialty rental income within the WHS segment. Accordingly, the favorable shift in revenue mix more than offset the loss of the PCC Contract's historically high-margin revenue and contributed to improved consolidated margins compared to the prior-year period.

Cost of services and construction. Cost of services and construction were $47.6 million for the three months ended June 30, 2026 as compared to $45.6 million for the three months ended June 30, 2025. The increase in services costs is primarily due to an increase in costs of approximately $3.7 million in the WHS segment led by an increase in service costs from the ramp-up of communities associated with new WHS contracts, partially offset by a decrease in construction costs associated with the wind down of the construction phase associated with the Workforce Housing Contract. This net increase was partially offset by costs associated with the Government segment decreasing by ($1.4) million between periods largely due to the termination of the PCC Contract.

Specialty rental costs. Specialty rental costs were $4.7 million for the three months ended June 30, 2026 as compared to $2.8 million for the three months ended June 30, 2025. The increase in specialty rental costs was primarily due to the growth of the WHS segment.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $17.4 million for the three months ended June 30, 2026 as compared to $13.6 million for the three months ended June 30, 2025. 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 leading to an increase of $8.3 million between periods, partially offset by a decrease in depreciation expense of approximately $(4.1) million associated with Government segment specialty rental assets driven by the termination of the PCC Contract on February 21, 2025, and a decrease of approximately $0.4 million in the HFS-South segment associated with certain assets becoming fully depreciated since the prior period.

Selling, general and administrative. Selling, general and administrative was $18.8 million for the three months ended June 30, 2026 as compared to $12.7 million for the three months ended June 30, 2025. The increase in selling, general and administrative expense from the prior period was primarily driven by an increase of $3.3 million in compensation and benefits costs between periods led by an increase in the short-term incentive bonus plan expense, reflecting new contract wins during 2026, which drove up the estimated payout based on the Company’s continued strong execution on strategic growth initiatives. The remaining increase was driven by an increase in professional fees of approximately $0.6 million, an increase in transaction fee expense of approximately $0.4 million associated with the secondary public offerings completed by the Selling Stockholders during the second quarter of 2026, as discussed in Note 13 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q, an increase in stock compensation expense of approximately $0.2 million led by new awards being granted, an increase in recruiting fees of approximately $0.3 million, an increase in system implementation costs of approximately $0.2 million, an increase in travel expenses of approximately $0.2 million, an increase in bad debt expense of approximately $0.1 million, and an increase in other corporate expenses.

Other depreciation and amortization. Other depreciation and amortization expense was $4.1 million for the three months ended June 30, 2026 and approximated the prior period amount of $4.1 million for the three months ended June 30, 2025.

Other expense (income), net. Other expense (income), net was $0.4 million for the three months ended June 30, 2026 compared to less than $(0.2) million for the three months ended June 30, 2025. The change in other expense (income), net was primarily driven by an increase in community pre-opening costs of $0.6 million associated with ramp-up activities for community expansions and new customer contracts in the WHS segment. The WHS segment has experienced increased community expansion and new contract activity during the period. Community pre-opening costs primarily relate to certain operating costs incurred prior to a community becoming fully operational.

Interest expense, net. Interest expense, net was $1.0 million for the three months ended June 30, 2026 as compared to $0.9 million for the three months ended June 30, 2025.

Income tax expense (benefit). Income tax expense (benefit) was $0.5 million for the three months ended June 30, 2026 as compared to $(2.9) million for the three months ended June 30, 2025. The change in income tax expense (benefit) is primarily attributable to the increase in income before taxes for the three months ended June 30, 2026 led by growth in the WHS segment as previously discussed.

Consolidated Results of Operations for the six months ended June 30, 2026 and 2025 ($ in thousands):

For the six months ended June 30, 2026 compared to the six months ended June 30, 2025

Total Revenue. Total revenue was $158.2 million for the six months ended June 30, 2026 and consisted of $98.3 million of services income, $47.3 million of specialty rental income and $12.6 million of construction fee income. Total revenue for the six months ended June 30, 2025 was $131.5 million, which consisted of $90.6 million of services income, $21.7 million of specialty rental income, and $19.2 million of construction fee income.

Services 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 services.

The main driver of the increase in services income revenue was due to the growth in the WHS segment, and partially by reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025 as previously discussed.

Specialty Rental 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 increased primarily due to growth in the WHS segment, and partially due to the reactivation and ramp-up of assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March

2025 as previously discussed. This increase was partially offset by a decrease in the Government segment led by the termination of the PCC Contract.

Construction Fee Income

The decrease in construction fee income for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025, was driven solely by the construction related activities for the Workforce Housing Contract within the WHS segment substantially concluded as of December 31, 2025.

Margin Considerations

The termination of the PCC Contract in the Government segment resulted in the loss of a significant source of historically high-margin revenue; however, consolidated margins improved during the six months ended June 30, 2026, compared to the prior-year period, primarily due to changes in revenue mix within the WHS segment. As the construction phase of the Workforce Housing Contract became substantially complete, lower-margin construction fee income represented a smaller portion of WHS revenue, while higher-margin hospitality services revenue generated under the Workforce Housing Contract represented a larger share of segment revenue. In addition, several newer WHS contracts were more fully ramped up during the current period, increasing the contribution of higher-margin hospitality services and specialty rental income within the WHS segment. Accordingly, the favorable shift in revenue mix more than offset the loss of the PCC Contract's historically high-margin revenue and contributed to improved consolidated margins compared to the prior-year period.

Cost of services and construction. Cost of services and construction were $94.3 million for the six months ended June 30, 2026 as compared to $81.3 million for the six months ended June 30, 2025. The increase in services costs is primarily due to an increase in costs of approximately $13.4 million in the WHS segment led by an increase in service costs from the ramp-up of communities associated with new WHS contracts, partially offset by a decrease in construction costs associated with the wind down of the construction phase associated with 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 $0.2 million. These cost increases were partially offset by cost decreases in the HFS-South segment by approximately $(0.8) million led by lower community operating costs driven by lower occupancy.

Specialty rental costs. Specialty rental costs were $8.2 million for the six months ended June 30, 2026 as compared to $5.3 million for the six months ended June 30, 2025. The increase is largely due to the growth in the WHS segment, and partially due to the reactivation and ramp-up of assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025 as previously discussed.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $33.0 million for the six months ended June 30, 2026 as compared to $27.3 million for the six months ended June 30, 2025. 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 leading to an increase of approximately $12 million between periods, partially offset by a decrease in depreciation expense of approximately $(5.6) million associated with Government segment specialty rental assets driven by the termination of the PCC Contract on February 21, 2025, and a decrease of approximately $0.7 million in the HFS-South segment associated with certain assets becoming fully depreciated since the prior period.

Selling, general and administrative. Selling, general and administrative was $33.3 million for the six months ended June 30, 2026 as compared to $27.5 million for the six months ended June 30, 2025. The increase in selling, general and administrative expense is primarily driven by an increase of approximately $5.4 million in compensation and benefits costs led by an increase in the short-term incentive plan bonus expense, reflecting new contract wins during 2026, which drove up the estimated payout based on the Company’s continued strong execution on strategic growth initiatives. The remaining increase was driven by an increase in professional fees of approximately $0.4 million, an increase in stock compensation expense of approximately $0.2 million led by new awards being granted, an increase in recruiting fees of approximately $0.5 million, an increase in system implementation costs of approximately $0.2 million, an increase in travel expenses of approximately $0.3 million, an increase in bad debt expense of approximately $0.2 million, and an increase in other corporate expenses. This increase was partially offset by a decrease in transaction fees expense by approximately $2.1 million driven primarily by the prior period including legal, advisory, and audit fees associated with debt related transaction activity related to the 2025 Senior Secured Notes that were paid off on March 25, 2025, and, to a lesser extent, other business development project related transaction activity and remaining costs associated with the evaluation of the Arrow Proposal in 2024 (as defined in the 2025 Form 10-K).

Other depreciation and amortization. Other depreciation and amortization expense was $8.1 million for the six months ended June 30, 2026 and approximated the prior period amount of $8.1 million for the six months ended June 30, 2025.

Other expense, net. Other expense, net was $3.0 million for the for the six months ended June 30, 2026 compared to less than $0.1 million for the six months ended June 30, 2025. The change in other expense, net was primarily driven by an increase in community pre-opening costs of approximately $2.3 million associated with ramp-up activities for community expansions and new customer contracts in the WHS segment. The WHS segment has experienced increased community expansion and new contract activity during the period. Community pre-opening costs primarily relate to certain operating costs incurred prior to a community becoming fully operational. The remaining increase in other expense, net was primarily attributable to a loss on the disposal of assets in the All Other category of operating segments during the current period.

Loss on extinguishment of debt. Loss on extinguishment of debt was $0 for the six months ended June 30, 2026 as compared to $2.4 million for the six months ended June 30, 2025. The decrease in loss on extinguishment of debt is due to the redemption of the 2025 Senior Secured Notes on March 25, 2025 with no such transaction activity during the six months ended June 30, 2026.

Interest expense, net. Interest expense, net was $1.9 million for the six months ended June 30, 2026 as compared to $5.3 million for the six months ended June 30, 2025. 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 benefit. Income tax benefit was $(1.8) million for the six months ended June 30, 2026 as compared to $(4.3) million for the six months ended June 30, 2025. The change in income tax benefit is primarily attributable to the increase in income before taxes for the six months ended June 30, 2026 led by growth in the WHS segment as previously discussed.

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 June 30, 2026 and 2025 ($ in thousands, except for Average Daily Rate amounts).

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.

HFS – South

Revenue for the HFS – South segment was $32.6 million for the three months ended June 30, 2026, as compared to $36.2 million for the three months ended June 30, 2025.

Adjusted gross profit for the HFS – South segment was $7.4 million for the three months ended June 30, 2026, as compared to $10.5 million for the three months ended June 30, 2025.

The decrease in revenue of approximately ($3.6) million was attributable to a decrease in utilization.

The decrease in adjusted gross profit of approximately ($3.1) million was primarily attributable to the decrease in revenue noted above, partially offset by a decrease in operational costs led by a decrease in community operating costs from lower occupancy.

WHS

Revenue for the WHS segment was $36.3 million for the three months ended June 30, 2026, as compared to $15.0 million for the three months ended June 30, 2025.

Adjusted gross profit for the WHS segment was $19.4 million for the three months ended June 30, 2026, as compared to $3.7 million for the three months ended June 30, 2025.

The increase in revenue of approximately $21.3 million was primarily driven by revenue generated from new contract awards since June 30, 2025, as previously discussed within this Form 10-Q and as discussed in the 2025 Form 10-K and Form 10-Q for the quarter ended March 31, 2026. The increase was also attributable to continued progression of the Workforce Housing Contract originated in February 2025 from the construction phase into the services phase. As construction activities under this contract conclude and additional beds are placed into service, a greater proportion of revenue is being generated from ongoing services, resulting in increased services revenue during the current period.

The increase in adjusted gross profit of approximately $15.7 million was primarily attributable to the increase in revenue noted above, including higher-margin hospitality services revenue generated under the Workforce Housing Contract representing a larger share of segment revenue during the current period. In addition, several newer WHS contracts were more fully ramped up during the current period, increasing the contribution of higher-margin hospitality services and specialty rental income, partially offset by increased operating costs associated with communities under new contract awards that were not active during the prior period.

Government

Revenue for the Government segment was $13.5 million for the three months ended June 30, 2026, as compared to $7.5 million for the three months ended June 30, 2025.

Adjusted gross profit for the Government segment was $6.4 million for the three months ended June 30, 2026, as compared to $(1.1) million for the three months ended June 30, 2025.

Revenue increased by $6.0 million primarily due to the reactivation of the assets associated with the STFRC Contract under the DIPC Contract in March 2025.

Adjusted gross profit increased by $7.5 million primarily driven by the DIPC Contract which led to an increase in revenue in the period as previously discussed.

Segment Results

The following table sets forth our selected results of operations for each of our reportable segments and All Other for the six months ended June 30, 2026 and 2025 ($ in thousands, except for Average Daily Rate amounts).

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.

HFS – South

Revenue for the HFS – South segment was $65.7 million for the six months ended June 30, 2026, as compared to $72.2 million for the six months ended June 30, 2025.

Adjusted gross profit for the HFS – South segment was $15.8 million for the six months ended June 30, 2026, as compared to $21.6 million for the six months ended June 30, 2025.

The decrease in revenue of approximately $(6.5) million was attributable to a decrease in utilization.

The decrease in adjusted gross profit of approximately $(5.8) million was primarily attributable to the decrease in revenue noted above, partially offset by a decrease in operational costs led by a decrease in community operating costs from lower occupancy.

WHS

Revenue for the WHS segment was $59.9 million for the six months ended June 30, 2026, as compared to $20.2 million for the six months ended June 30, 2025.

Adjusted gross profit for the WHS segment was $28.7 million for the six months ended June 30, 2026, as compared to $5.0 million for the six months ended June 30, 2025.

The increase in revenue of approximately $39.7 million during the six months ended June 30, 2026, was primarily driven by revenue generated from new contract awards since June 30, 2025, as previously discussed within this Form 10-Q and as discussed in the 2025 Form 10-K and Form 10-Q for the quarter ended March 31, 2026. The increase was also attributable to continued progression of the Workforce Housing Contract originated in February 2025 from the construction phase into the services phase. As construction activities under this contract conclude and additional beds are placed into service, a greater proportion of revenue is being generated from ongoing services, resulting in increased services revenue during the period.

The increase in adjusted gross profit of approximately $23.7 million was primarily attributable to the increase in revenue noted above, including higher-margin hospitality services revenue generated under the Workforce Housing Contract representing a larger share of segment revenue in the current period. In addition, several newer WHS contracts were more fully ramped up during the current period, increasing the contribution of higher-margin hospitality services and specialty rental income, partially offset by increased operating costs associated with communities under new contract awards that were not active during the prior period.

Government

Revenue for the Government segment was $26.9 million for the six months ended June 30, 2026, as compared to $33.2 million for the six months ended June 30, 2025.

Adjusted gross profit for the Government segment was $11.4 million for the six months ended June 30, 2026, as compared to $18.1 million for the six months ended June 30, 2025.

Revenue decreased primarily due to the termination of the PCC Contract as previously discussed, partially offset by the reactivation of the assets associated with the STFRC Contract under the DIPC Contract in March 2025. Approximately $24.1 million of the revenue decrease was attributable to the PCC Contract termination, partially offset by an increase in revenue of approximately $18.1 million attributable to the DIPC Contract mentioned above.

Adjusted gross profit decreased as a result of the decrease in revenue mentioned above, and partially driven by higher costs driven by the DIPC Contract reactivation, mentioned above, leading to an increase in costs of $0.5 million between periods.

Government segment margins for the six months ended June 30, 2026, reflected residual carrying costs of approximately $3.1 million associated with legacy West Texas Community assets that previously serviced the PCC Contract. These costs were primarily driven by lease and utility expenses incurred while the assets were being remarketed.

During the latter part of the three months ended March 31, 2026, many of these assets were re-contracted or redeployed to support growth in the WHS segment, which is expected to reduce such carrying costs in the Government segment, excluding the anticipated leased asset demobilization costs discussed below.

The remaining undeployed or uncontracted leased assets are expected to be demobilized over the next few quarters. The demobilization process may result in additional costs, which are not expected to recur once these actions are completed.

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 June 30, 2026, the ABL Facility had available borrowing capacity of $135 million.

As discussed in Note 17 of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q, subsequent to June 30, 2026, on July 24, 2026, the Company entered into the New ABL Facility, which replaced the ABL Facility and provides aggregate revolving commitments of up to $660 million, together with an accordion feature of up to $190 million, subject to customary conditions and lender commitments. The New ABL Facility matures five years from its closing date and is expected to enhance the Company's liquidity and financial flexibility through increased borrowing capacity, expanded letter of credit availability and an extended maturity profile. Management believes the New ABL Facility, together with cash generated from operations and cash on hand, provides sufficient liquidity and financial flexibility to support the Company's anticipated working capital requirements, growth capital expenditures and other general corporate purposes for at least the next 12 months. Additional information regarding the New ABL Facility is included in Note 17 of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q. However, the pursuit of certain growth and diversification initiatives discussed in Item 1, “Business” of the Company’s 2025 Form 10-K, may require capital resources in excess of these sources, which could necessitate additional debt or equity financing. We cannot assure you that such financing will be available on commercially reasonable terms or at all.

Capital Expenditures Requirements

During the six months ended June 30, 2026, we incurred approximately $177.4 million in capital expenditures, with approximately $171.9 million driven by growth capital expenditures in the new WHS segment, and approximately $0.1 million driven by growth capital expenditures in the Government segment. Maintenance capital expenditures for specialty rental assets amounted to approximately $2.8 million for the six months ended June 30, 2026, while approximately $2.1 million was attributable to an increase in finance leases for commercial-use vehicles.

As we pursue growth initiatives, we monitor the availability of capital resources, including operating cash flows and equity and debt financings, to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Future cash flows are subject to a number of variables, including our ability to maintain existing contracts, obtain new contracts and manage operating expenses. Based on currently contracted projects, we expect growth capital expenditures, excluding acquisitions, in 2026 to increase compared to 2025. Capital requirements for these projects, impacting 2026, are currently expected to range from approximately $480 million to $500 million, although the timing and magnitude of such expenditures may vary based on project schedules and execution. A substantial portion of the anticipated capital investment relates to the Company's largest AI infrastructure development projects, which are supported by long-term customer contracts and are expected to contribute significantly to future revenue and operating cash flows.

However, we cannot assure you that these projects will generate such future revenue and operating cash flows, as this depends on the effective execution, ramp-up timing, and servicing of these contracts.

We currently expect to fund these capital requirements with a combination of operating cash flows, and available liquidity.

Our disciplined investment framework generally requires visibility into long-term contracted minimum revenues prior to deploying significant growth capital. Failure to achieve anticipated revenue levels or cash flows from operations could result in a reduction or deferral of future capital spending.

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

($ in thousands)

For the six months ended June 30, 2026 compared to the six months ended June 30, 2025

Cash flows provided by operating activities. Net cash provided by operating activities was $111 million for the six months ended June 30, 2026 compared to $15 million for the six months ended June 30, 2025.

The current period increased by approximately $96 million when compared to 2025 driven by an increase in cash collections from customers of approximately $135.7 million (led by growth in the WHS segment), an $11.2 million decrease in cash paid for interest driven by the early payoff of the 2025 Senior Secured Notes on March 25, 2025, a $1.8 million decrease in cash paid for income taxes, partially offset by a net increase in payments for operating expenses and payroll of approximately $50.3 million driven primarily by growth of the WHS segment, and a decrease in interest received by approximately $2.3 million (driven by a lower average outstanding cash balance in the current period that generated interest income).

Cash flows used in investing activities. Net cash used in investing activities was $150.9 million for the six months ended June 30, 2026 compared to $24.9 million for the six months ended June 30, 2025. This increase in net cash used in investing activities was primarily related to an increase in growth capital expenditures in the WHS segment to support the new WHS contracts that were executed and expanded upon since prior period (a portion of which is being funded by customer advance payments reported within cash flows from operations), partially offset by the prior period including a $15.5 million acquisition of community assets in January 2025 to support growth of the WHS segment, and by lower maintenance capital expenditures in the Government segment.

Cash flows used in financing activities. Net cash provided by (used in) financing activities was $37.6 million for the six months ended June 30, 2026 compared to $(161.5) million for the six months ended June 30, 2025. This decrease in net cash used in financing activities was primarily driven by the prior period including 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, partially offset by the prior period including net draws on the ABL of approximately $24 million. The current period activity was primarily driven by net draws on the ABL of approximately $40 million to fund growth in the WHS segment.

Indebtedness

Finance lease and other financing obligations

The Company’s finance lease and other financing obligations as of June 30, 2026 consisted of approximately $4.7 million of finance leases. The finance leases pertain to leases entered into during 2023 through June 30, 2026, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2029.

The Company’s finance lease and other financing obligations as of December 31, 2025, consisted of approximately $3.8 million of finance leases related to commercial-use vehicles with the same terms as described above.

ABL Facility

During the six months ended June 30, 2026, the Company drew a net amount of $40 million under the ABL Facility resulting in an outstanding balance of $40 million and an unused available borrowing capacity of $135 million as of June 30, 2026, subject to borrowing base availability, excess availability requirements and other conditions pursuant to the Sixth Amendment. The ABL Facility had a scheduled maturity date of February 1, 2028. Refer to Note 8 of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information regarding the ABL Facility, including the Sixth Amendment.

Subsequent to June 30, 2026, the Company entered into the New ABL Facility providing aggregate revolving commitments of up to $660 million, which replaced and terminated the ABL Facility. The New ABL Facility also includes an accordion feature permitting additional commitments of up to $190 million, subject to customary conditions and lender commitments. Arrow Bidco borrowed $65.7 million under the New ABL Facility concurrently with its closing to repay all outstanding indebtedness under the ABL Facility. Refer to Note 17 of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information regarding the refinancing transaction and the New ABL Facility.

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) growth capital expenditures associated primarily with growing the WHS segment as previously discussed in the Capital Expenditures Requirements section (iii) maintenance capital expenditures for specialty rental and other property, plant, and equipment assets, (iv) payments due under finance and operating leases, and (v) debt service interest payments on the ABL Facility and New 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 June 30, 2026:

($ in thousands)

(1) Represents interest on operating lease obligations calculated using the appropriate discount rate for each lease.

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 six months ended June 30, 2026, we had two customers, who accounted for 17% and 16% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 13% and 14% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of June 30, 2026.

We had three customers for the six months ended June 30, 2025 that accounted for 18%, 15% and 12% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 43% and 10% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of June 30, 2025.

Major suppliers are defined as those individually comprising more than 10% of the annual goods purchased by the Company. For the six months ended June 30, 2026, we had no major suppliers which represent more than 10% of goods purchased. For the six months ended June 30, 2025, we had one major supplier that represented 18% of goods purchased.

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 June 30, 2026 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 June 30, 2026.

Rent expense included in services and construction costs in the unaudited consolidated statements of comprehensive loss for cancelable and non-cancelable leases was $7.2 million and $5.8 million for the six months ended June 30, 2026 and

2025 respectively. Rent expense included in services and construction costs in the unaudited consolidated statements of comprehensive loss for cancelable and non-cancelable leases was $4.6 million and $3.0 million for the three months ended June 30, 2026 and 2025, respectively. Rent expense included in selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive loss for cancelable and non-cancelable leases was $0.4 million and $0.2 million for the six months ended June 30, 2026 and 2025, respectively. Rent expense included in selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive loss for cancelable and non-cancelable leases was $0.3 million and $0.1 million for the three months ended June 30, 2026 and 2025, 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 financial 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 judgment 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, 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 additional adjustments to EBITDA to exclude certain non-cash items and expense or income items that management believes are not indicative of the Company’s ongoing operating performance:

• Other expense (income), net: Other expense (income), net includes miscellaneous cash receipts, gains and losses on disposals of property, plant, and equipment and leased assets, community pre-opening costs incurred during ramp-up periods for new customer contracts, and other immaterial expenses and non-cash items. Community pre-opening costs primarily relate to certain operating costs incurred prior to the community becoming fully operational.
• Transaction expenses: During 2026, the Company incurred legal, advisory, and audit-related fees associated with the secondary public offerings discussed in Note 13 to the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q, as well as legal costs related to certain contemplated transactions. During 2025, transaction costs primarily related to legal, advisory and audit-related fees associated with debt related transaction activity related to the 2025 Senior Secured Notes, which were redeemed and paid off on March 25, 2025, and, to a lesser extent, other business development project related transaction activity and remaining costs associated with the Arrow Proposal.
• Stock-based compensation: Charges associated with stock-based compensation expense, which has been, and is expected to continue to be, for the foreseeable future, a significant recurring expense and an important component of the Company’s compensation strategy.
• Other adjustments: Claim settlement, system implementation costs, and corporate development related costs.

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:

($ in thousands)

The following table presents a reconciliation of Target Hospitality’s consolidated net loss to EBITDA and Adjusted EBITDA:

($ in thousands)

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

($ in thousands)

Our principal market risks are our exposure to interest rates and commodity risks.

Interest Rates

We are exposed to interest rate risk through our ABL Facility and the New ABL Facility, which is subject to the risk of higher interest charges associated with increases in interest rates. Refer to Note 17 of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information regarding the New ABL Facility. As of June 30, 2026, we had $40 million of outstanding floating-rate obligations under our ABL Facility. This floating-rate obligation exposes us to the risk of increased interest expense in the event of increases in short-term interest rates. If floating interest rates increased by 100 basis points, our consolidated interest expense would increase by approximately $0.4 million annually, based on our floating-rate debt obligations in effect as of June 30, 2026.

Commodity Risk

Commodity price fluctuations also indirectly influence our activities and results of operations over the long-term because they may affect production rates and investments by natural resource development companies in the development of commodity reserves.

We have limited direct exposure to risks associated with fluctuating commodity prices. However, both our profitability and our cash flows are affected by volatility in commodity prices. We do not currently hedge our exposure to commodity prices.

As of the end of the period covered by this report, the Company’s management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, the Company’s management and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2026, at the reasonable assurance level.

During the second quarter of 2026, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within the Company’s control, and which may cause actual performance to differ materially from historical or projected future performance. “Item 1A. Risk Factors” of our 2025 Form 10-K includes a discussion of our risk factors. For additional information about our risk factors, you should carefully consider the risk factors included in our 2025 Form 10-K and our Form 10-Q for the period ended March 31, 2026.