TH 10-K & 10-Q changes, risk factors and insider trading

Growth, and Development and Financing Risks

The loss of our most significant customer or, in the future, any one of our largest customers in any of our business segments could adversely affect our results of operations.

Furthermore, our relationship with the U.S. government subjects us and our government contractor customerscustomer to unique risks such as unanticipated increased costs and litigation that could materially adversely affect our or their business, financial condition, or results of operations. These operational risks and others associated with privately managing residential facilities could result in higher costs associated with staffing and lead to increased litigation. Lawsuits, to which we are not a party, have challenged the government's policy of detaining migrant families, and government policies with respect to family immigration may impact the demand for our facilities. Any court decision or government action that impacts our customers’ existing contractscontract with the government could impact our subcontractssubcontract for the facilities and result in a reduction in demand for our services or reputational damage to us and require us to devote a significant amount of time and expense to the defense of our operations and reputation, which could materially affect our business, financial condition, and results of operations.

While a substantial portion of our cost structure is fixed, a substantial portion of our revenue is generated under facility management contracts that, to a certain extent, are based on variable occupancy levels. We are dependent upon our customers and, with respect to our subcontractssubcontract with the U.S. government, U.S. government agencies,agency, to provide occupants for facilities we operate. We cannot control occupancy levels at the facilities we operate. Under a variable rate structure, a decrease in our occupancy rates could cause a decrease in revenue and profitability. Occupancy rates have decreased in the past and may decrease in the future, including as a result of changes in public policy or increased public resistance to our industry. When combined with relatively fixed costs for operating each facility, a decrease in occupancy levels could have an adverse impact on our revenues and profitability.

Our business and growth strategies depend in large part on customers outsourcing some or all of the services that we provide. We cannot be certain that these customer preferences for outsourcing will continue or that customers that have outsourced accommodations will not decide to perform these functions themselves or only outsource accommodations during the development or construction phases of their projects. For example, the Data Center Community Contract involves the provision of our services during the development phase of a regional data center campus. In addition, labor unions representing customer employees and contractors may oppose outsourcing accommodations to the extent that the unions believe that third-party accommodations negatively impact union membership and recruiting. The reversal or reduction in customer outsourcing of accommodations could negatively impact our financial results and growth prospects.

Our financial performance is dependent on the level of demand for our facilities and services, which is sensitive to the level of demand within various sectors, in particular, the natural resource developmentdevelopment, AI data center infrastructure projects, and government end-markets. Each of these sectors is influenced not only by the state of the general global economy but by a number of more specific factors as well. For example, demand for workforce accommodations within the natural resources sector may be materially adversely affected by a decline in global commodity prices. Demand for our facilities and services may also vary among different localities or regions. The levels of activity in these sectors and geographic regions may also be cyclical, and we may not be able to predict the timing, extent or duration of the activity cycles in the markets in which we or our key customers operate.operate, for example data center development cycles may fluctuate based on cooling-infrastructure availability, supply-chain delays in electrical components, and shifts in cloud and AI infrastructure investment, resulting in variability in occupancy levels at our communities. A decline or slowed growth in any of these sectors or geographic regions could result in reduced demand for our products and services, which may materially adversely affect our business, results of operations, and financial condition.

Certain of our major communities are located on land subject to leases. Accordingly, while we own the accommodations assets, we only own a leasehold interest in those properties. If we are found to be in breach of a lease, we could lose the right to use the property. In addition, unless we can extend the terms of these leases before their expiration, as to which no assurance can be given, we will lose our right to operate our facilities located on these properties upon expiration of the leases. In that event, we would be required to remove our accommodations assets and remediate the site. Generally, our leases have an average term of sevenfive years and generally contain unilateral renewal provisions. We can provide no assurances that we will be able to renew our leases upon expiration on similar terms, or at all. If we are unable to renew leases on similar terms, it may have an adverse effect on our business.

We incur labor costs and purchase raw materials, including steel, lumber, siding and roofing, fuel and other products to construct and perform periodic repairs, modifications and refurbishments to maintain physical conditions of our facilities as well as the construction of our communities and other sites. The volume, timing, and mix of such work may vary quarter-to-quarter and year- to-year. Generally, increases in labor and raw material costs will increase the acquisition costs of new facilities and also increase the construction, repair, and maintenance costs of our facilities. We also have experienced and in the future may experience building material shortages, which have led to and may in the future lead to delays in our construction projects. During periods of rising prices for labor or raw materials, and in particular, when the prices increase rapidly or to levels significantly higher than normal, we may incur significant increases in our costs for new facilities and incur higher operating costs that we may not be able to recoup from customers through changes in pricing, which could have a material adverse effect on our business, results of operations and financial condition.

●changes in end-user demand requirements, including variable occupancy levels associated with contracts inwith therevenue Governmentdriven segmentoff of actual occupancy or utilization levels;

●liquidity, including the impact of our debt service costs; and

●attrition and retention risk.risk; and

We are subject to various laws and regulationsregulations, including those governing our contractual relationships with the U.S. government and a U.S. government contractorscontractor and the health and safety of our workforce and our customers. Obligations and liabilities under these laws and regulations may materially harm our business.

Our customers include a U.S. government contractors,contractor, which means that we may, indirectly, be subject to various statutes and regulations applicable to doing business with the U.S. government. These types of contracts customarily contain provisions that give the U.S. government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors, including provisions that allow the government to unilaterally terminate or modify our customers’ federal government contracts, in whole or in part, at the government’s convenience. Under general principles of U.S. government contracting law, if the government terminates a contract for convenience, the terminated party may generally recover only its incurred or committed costs and settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting party may be liable for any extra costs incurred by the government in procuring undelivered items from another source. In addition, our or our customers’ failure to comply with these laws and regulations might result in administrative penalties or the suspension of our customers’ government contractscontract or debarment and, as a result, the loss of the related revenue which would harm our business, results of operations and financial condition. We are not aware of any action contemplated by any regulatory authority related to any possible non-compliance by or in connection with our operations.

If we fail to maintain compliance with these requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under its contractscontract or under the False Claims Act. The False Claims Act’s “whistleblower” provisions allow private individuals, including present and former employees, to sue on behalf of the U.S. government. The False Claims Act statute provides for treble damages and other penalties and, if our operations are found to be in violation of the False Claims Act, we could face other adverse action, including suspension or prohibition from doing business with the U.S. government. Any penalties, fines, suspension or damages could adversely affect our financial results as well as our ability to operate our business.

Growth, and Development and Financing Risks

While we have a cybersecurity programprogram, including an incident response plan, designed to protect and preserve the integrity of our information systems, the Company also maintains cybersecurity insurance in line with industry standards to manage potential liabilities resulting from specific cyber-attacks. However, it is important to note that no system is fully immune from attack and although we maintain cybersecurity insurance, there can be no guarantee that our insurance coverage limits will protect against any future claims or that such insurance proceeds will be paid to us in a timely manner.

In the future, we may need to raise additional funds to, among other things, refinance existing indebtedness, fund existing operations, improve or expand our operations, respond to competitive pressures or make acquisitions. If adequate funds are not available on acceptable terms, we may be unable to achieve our business or strategic objectives or compete effectively. Our ability to pursue certain future opportunities may depend in part on our ongoing access to debt and equity capital markets. We cannot assure you that any such financing will be available on terms satisfactory to us or at all. If we are unable to obtain financing on acceptable terms, we may have to curtail our growth.

The ABL Facility and the Indenture,Facility, as well as any instruments that will govern any future debt obligations, contain covenants that impose significant restrictions on the way the Arrow Bidco and its subsidiaries can operate, including restrictions on the ability to:

Although these limitations will be subject to significant exceptions and qualifications, these covenants could limit our ability to finance future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest. Arrow Bidco’s ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If Arrow Bidco defaults on their obligations under the ABL Facility and the 2025 Senior Secured Notes Indenture (as defined below),Facility, then the relevant lenders or holders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing that debt. If the debt under the ABL Facility, the Indenture or any other material financing arrangement that we enter into were to be accelerated, our assets may be insufficient to repay in full the ABL Facility, theor 2025 Senior Secured Notes and oursuch other debt.

The ABL Facility also requires our subsidiaries to satisfy specified financial maintenance tests. The ability to meet these tests could be affected by deterioration in our operating results, as well as by events beyond our control, including increases in raw materials prices and unfavorable economic conditions, and we cannot assure you that these tests will be met. As previously disclosed by the Company in its Current Report on Form 8-K filed with the SEC on December 29, 2025, the Company amended the ABL Credit Facility on December 23, 2025 to revise the Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) covenant that the Company must comply with during calendar 2026, to provide additional flexibility in connection with the timing of anticipated capital expenditures associated with planned growth projects. If an event of default occurs under the ABL Facility, the lenders thereunder could terminate their commitments and declare all amounts borrowed, together with accrued and unpaid interest and other fees, to be immediately due and payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions also may be accelerated or become payable on demand. In these circumstances, Target Hospitality’s assets may not be sufficient to repay in full that indebtedness and its other indebtedness then outstanding.

The ABL Facility contains a number of significant covenants including covenants restricting the incurrence of additional debt. The credit agreement governing the ABL Facility requires Arrow Bidco, among other things, to maintain certain financial ratios or reduce our debt. These restrictions also limit our ability to obtain future financings to withstand a future downturn in its business or the economy in general, or to otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants under the ABL Facility and the Indenture impose on it. In addition, complying with these covenants may also cause us to take actions that are not favorable to our securityholders and may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.

As part of our capital allocation strategy, since November 2022, the Company’s Board of Directors has authorized several share repurchase programs. Decisions regarding share repurchases and dividends are within the discretion of the Board of Directors, and will be influenced by a number of factors, including the price of our Common Stock, general business and economic conditions, our financial condition and operating results, the emergence of alternative investment or acquisition opportunities, changes in business strategy and other factors. Changes in, or the elimination of, our share repurchase programs could have a negative effect on the price of our Common Stock. Our share repurchase program could change, and would be influenced by several factors, including business and market conditions. During the year ended December 31, 2024,2025, theno Companyshare repurchasedrepurchases 3,866,265were shares of Common Stock for an aggregated price of approximately $33.4 million (exclusive of estimated excise taxes of approximately $0.2 million).made. As of December 31, 2024,2025, the stock repurchase program had a remaining capacity of approximately $66.6 million. For more information on our dividends and share repurchase programs, see “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchase of Equity Securities”.

Target Hospitality Corp. is one of North America’s largest providers of vertically integrated specialty rental and value-added hospitality services including: catering and food services, maintenance, housekeeping, grounds-keeping, security, health and recreation facilities, community design and construction, overall workforce community management, concierge services and laundry service. As of December 31, 2024,2025, our network included 2629 communities to better serve our customers across the US and Canada. We also operate 2 communities not owned or leased by the Company.

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

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

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 contractscontract with a U.S. government contractor clients.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.

We have derived, and in the future may derive,derived a significant portion of our revenues from our subcontractssubcontract with a U.S. government contractors.contractor. The U.S. government and, by extension, our U.S. government contractor customers,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.

WeAlthough our primary growth strategy continues to center on expanding opportunities outside the government sector in our WHS segment, where we are continuingseeing increasing demand for our services, we remain available to pursuesupport anthe expanding pipeline offederal government services growth opportunities, and we believe there is significant opportunity to continue to evaluate opportunities to assist thewhere federalour government.capabilities align with government needs. However, available government funding and economic incentives are subject to change for a variety of reasons that are beyond our control, including budget and policy initiatives and priorities of current and future administrations at the federal and state level. We cannot predict what actions the newcurrent TrumpU.S. presidential administration may take with respect to government contracts that werethe previously executed.executed government contract.

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 68.8%58.5% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 31.2%14.3% of revenues were earned through leasing of lodging facilities and 27.2% of revenues were earned through construction fee income for the year ended December 31, 2024.2025. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with our customers. In certain of our contracts, rates may vary over the contract term, in these cases, revenue is generally recognized on a straight-line basis over the contract term. We enter into arrangements with multiple deliverables for which arrangement consideration is allocated between lodging and services based on the relative estimated standalone selling price of each deliverable. The estimated price of lodging and services deliverables is based on the prices of lodging and services when sold separately or based upon the best estimate of selling price.

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

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

We have identified twothree reportable business segments: HFS – SouthSouth, WHS, and Government:

Additionally,The thisGovernment segment includes the 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.

Total Revenue. Total revenue was $320.6 million for the year ended December 31, 2025 as compared to $386.3 million for the year ended December 31, 20242024, asand comparedconsisted toof $563.6$187.5 million of services income, $45.8 million of specialty rental income and $87.3 million of construction fee income. Total revenue for the year ended December 31, 2023, and2024 consisted of $265.9 million of services income and $120.4 million of specialty rental income. Total revenue for the year ended December 31, 2023 consisted of $365.6 million of services income and $198.0 million of specialty rental income.

Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services including room revenue, catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management services, health and recreation facilities, concierge services, and laundry service. The main drivers of the decrease in services income revenue year over year was lower revenue in the Government segment in the current period from the decrease in the non-cash revenue amortization that ended in November 2023 associated with the advanced payment from the prior Expanded Contract that terminated on November 15, 2023, partiallyled by lower minimum lease revenue as well as lower variable services revenue generated by the New PCC contract and the New PCC Contract amendment in the current period, and the termination of the PCC Contract and termination of the STFRC Contract.Contract, and partially by lower revenue in HFS-South led by lower ADR. This decrease was partially offset by reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025, as well as growth in the WHS segment. As discussed above, services income for the period included the PCC Contract Close-Out Payment of $11.8 million, which also partially offset the net decrease in services income.

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 from the decrease in the non-cash revenue amortization that ended in November 2023 associated with the advanced payment from the prior Expanded Contract that terminated on November 15, 2023, partiallyled by lower minimum lease revenue as well as lower variable services revenue generated by the New PCC contract in the current period, and the termination of the PCC Contract and termination of the STFRC Contract.Contract as previously discussed, partially offset by the reactivation of the assets associated with the STFRC Contract under the DIPC Contract within the Government segment in March 2025.

Specialty rental costs. Specialty rental costs were approximately $11.4 million for the year ended December 31, 2025 as compared to $18.8 million for the year ended December 31, 2024 as compared to $30.1 million for the year ended December 31, 2023.2024. The decrease in specialty rental costs is primarily due to a decrease in costs from the Government segment driven by operational efficiencies and reduced leasing costs associated with certain leases terminated at the PCC Community andContract termination ofpreviously thediscussed, STFRCpartially Contractoffset by an increase in the Government segment.segment driven by the DIPC Contract.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $57.2 million for the year ended December 31, 20242025 as compared to $68.6$57.2 million for the year ended December 31, 2023.2024. The decreaseslight increase in depreciation expense is primarily attributable to aan decreaseincrease in depreciation onexpense certainfor specialty rental assets andof relatedapproximately leasehold$5.0 improvementsmillion acquireddriven orby builtgrowth in 2022 to support growth of the GovernmentWHS segmentsegment, relatedlargely to the Expanded Contract, which became fully depreciated during the year ended December 31, 2023, while approximately $3 million of this decrease was drivenoffset by a decrease in depreciation ofexpense associated with HFS-South and Government specialty rental assets in the HFS-South segment for certain site work assets that became fully depreciated during 2024.

Selling, general and administrative. Selling, general and administrative was $58.5 million for the year ended December 31, 2025 as compared to $54.3 million for the year ended December 31, 2024 as compared to $56.1 million for the year ended December 31, 2023.2024. The decreaseincrease in selling, general and administrative expenses of ($1.9)$4.3 million was primarily driven by aan decreaseincrease in stockcompensation compensationand benefits costs of approximately $5.7 million led by an increase in the short-term incentive plan bonus expense, reflecting strong new contract wins during 2025, which drove the payout to the maximum level based on the Company’s better than expected execution, an increase in bad debt expense of approximately $3.9$0.6 millionmillion, largelyan fromincrease thein liability-basedrecruiting stock appreciation right awards (“SARs”) driven by a lower numberexpenses of SARapproximately awards$0.5 outstandingmillion, duringan theincrease currentin periodother comparedcorporate toexpenses of approximately $0.5 million, an increase in professional fees of approximately $0.4 million, and an increase in stock-compensation expense of approximately $0.2 million. These increases were partially offset from the prior period asby a decrease in severance costs of approximately 50%$1.0 ofmillion suchfor awardscertain wereterminated outstandingemployees asduring ofthe year ended December 31, 20232024, compared to 0% in the current period as there are no remaining awards outstanding as of December 31, 2024 as these awards vested and were exercised as of December 31, 2024. Amortizationamortization of system implementation costs also decreased by approximately $0.7 million from the prior year as such costs became fully amortized in May of 2024 as scheduled.scheduled, Recruitinga expensesdecrease alsoin decreasedtransaction fees expense by approximately $0.4$1.1 million fromdriven primarily by the prior year.period Theseincluding decreasescosts wereassociated partiallywith offsetthe 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 anArrow increase in severance of approximately $1.0 million for certain terminated employees during (the year“Arrow ended December 31, 2024, other compensationProposal”), and benefitsa cost increases of approximately $0.4 million, audit fee increases of approximately $0.4 million, other professional fee increases of approximately $0.5 million, and an increasedecrease in expense for a non-cash share settlement on December 12, 2024 with a former non-employee director of the Company of approximately $0.8 million based on the value of the settlement shares on the settlement date.

Other expense,expense (income), net. Other expense (income), net was $2.7 million for the year ended December 31, 2025 as compared to ($0.5) million for the year ended December 31, 2024 as compared to $1.2 million for the year ended December 31, 2023.2024. This decreaseincrease in other expense is primarily driven by community pre-opening costs incurred on the disposal of assets in the AllWHS Other segment category in the prior year, which did not recur in the current year.segment.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities represents the fair value adjustments to the outstanding Private Warrant liabilities based on the change in their estimated fair value at each reporting period end. The change in fair value of the warrant liabilities was $0 for the year ended December 31, 2025 as compared to ($0.7) million for the year ended December 31, 2024 as compared to ($9.1) million for the year ended December 31, 2023.2024. The change in the fair value of the warrant liabilities is the result of changes in market prices deriving the value of the financial instruments. The estimated value of the Private Warrants decreasedexpiring inunexercised the current year, generating an increase to income in the current year. There was also a lower number of outstanding Private Warrants in the current year compared to the prior year given the Private Warrants expiredon March 15, 2024 as discussed in Note 98 of the notes to our audited consolidated financial statements in Part II, Item 8 within this Annual Report on Form 10-K.

Income tax expense.expense (benefit). Income tax expense (benefit) was ($6.1) million for the year ended December 31, 2025 as compared to $21.4 million for the year ended December 31, 2024 as compared to $51.1 million for the year ended December 31, 2023.2024. The decreasechange in income tax expense (benefit) is primarily attributable to a decrease in income before income tax for the year ended December 31, 20242025 led by a decrease in revenue,revenue partially offsetand by cost decreasesincreases previously mentioned.

For discussion of the comparison of our operating results for the years ended December 31, 20232024 and 2022,2023, please read the “Comparison of Years Ended December 31, 20232024 and 20222023” section located in the Management Discussion & Analysis section in our Annual Report on From 10-K for the year ended December 31, 20232024 filed with the SEC on March 13,26, 20242025, andwhich is incorporated herein by reference.

The following table sets forth our selected results of operations for each of our reportable segments and the All Other category of operating segments for the years ended December 31, 2024,2025, 20232024 and 20222023 ($ 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.

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. TheFor additional information presentedabout belowour updates,risk andfactors, you should becarefully read in conjunction with,consider the risk factors and information disclosedincluded in our 2025 Form 10-K.10-K Exceptand asour presentedForm below,10-Q there have been no material changes fromfor the riskperiod factorsended describedMarch in31, our 2025 Form 10-K.2026.

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 MarchJune 31,30, 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.

The Company generated cash flows from operations for the threesix months ended MarchJune 31,30, 2026 of approximately $7.0$111.0 million compared to approximately $3.9$15.0 million for the threesix months ended MarchJune 31,30, 2025, representing an increase in cash flows from operations of approximately $3.1$96 million or 79%640% ledattributable byto an increase in cash collections, which in turn was driven by a $10.3significant 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 increasedgrowth constructionin coststhe WHS segment) and payroll,, and a decrease in interest income.

For the three months ended MarchJune 31,30, 2026, other key drivers of financial performance included:

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

Our WHS segment includes construction and hospitality services provided to a community in Winnemucca, Nevada where there isare 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 immigrationimmigration-related andprogram deportation.needs.

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 otherdata criticalcenter minerals.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.

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.

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 64%62% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 36%38% of revenues were earned through leasing of lodging facilities (2330)% and construction fee income (138)% for the threesix months ended MarchJune 31,30, 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 MarchJune 31,30, 2026, construction of the Workforce Hub was substantially completecomplete, and most ofduring the six months ended June 30, 2026, revenue recognized under this contract duringwas thesplit threenearly monthsevenly ended March 31, 2026 reflectedbetween construction services performedand duringservices income, with construction services representing approximately 51% of revenue on this phase.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 threesix months ended MarchJune 31,30, 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.

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 previously describedContract, and the PowerAI CommunityInfrastructure Contract that is currently under development.Contract.

Additionally, this segment included the facilities and operations provided under a lease and services agreement known as the PCC Contractcontract with our NPnon-profit Partner.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 largelyre-deployed or are in process of being re-deployed to support growth in the 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 $176.7$177.4 million of revenue over its initial term, with approximately $112.6$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 $9.7$2.9 million and $4.8$14.4 million of construction fee income for the three months ended MarchJune 31,30, 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 MarchJune 31,30, 2026, lower-margin construction fee income isrepresented expecteda significantly smaller portion of segment revenue in 2026 compared to be2025, 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 minorlarger portionshare of revenue in 2026 compared to 2025. AsIn such,addition, serviceseveral revenuenewer willWHS continuecontracts towere replacemore constructionfully feeramped incomeup over time as we continue to transition from construction activities to ongoing hospitality service delivery underduring the Workforcecurrent Housing Contract. Additionally, the construction fee income generated carries lower margins when compared to the margins generated under the terminated PCC Contract in the Government segment described below, which contributed to lower gross profit margins overall for the Company for the three months ended March 31, 2026, when compared to the same period in the prior year. The additional contracts included in the WHS segment generate higher margins when compared to the construction fee income on the Workforce Housing Contract, but such contracts are still in the early phases of ramping up.period. Accordingly, the combination of (i) the decline in higher-margin revenue following the termination of the PCC Contract, (ii) the predominance of lower-margin construction fee income under the Workforce Housing Contract during the prior period, and (iiiii) the limitedincreased contribution from higher-margin WHSservices contractsand thatspecialty arerental stillincome in the earlycurrent stages of ramping up,period, resulted in lowerhigher adjusted gross profit margins for the three months ended MarchJune 31,30, 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.

As discussed in the 2025 Form 10-K, the PCC Contract with the NP Partner was terminated effective February 21, 2025. The PCC Contract generated total revenue of $0 and $24.1 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.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. The incremental revenue generated for the three months ended March 31, 2026 from construction services provided under the Workforce Housing Contract within the WHS segment carries lower margins than the PCC Contract, resulting in a shift in our revenue mix that further pressured our gross profit and consolidated margins.

As discussed in the 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 upramp-up period based on utilization during the first six months of the contract term resulting in lower fixed minimum revenue amounts during the ramp upramp-up period. The ramp upramp-up period was completed as scheduled in September 2025 with the maximum fixed minimum revenue amount now being recognized as of MarchJune 31,30, 2026. The DIPC Contract generated total revenue of approximately $13.4$13.5 million and $1.6$7.5 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and approximately $26.9 million and $9.1 million for the six months ended June 30, 2026 and 2025, respectively.

Consolidated Results of Operations for the three months ended MarchJune 31,30, 2026 and 2025 ($ in thousands):

For the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025

Total Revenue. Total revenue was $72.8$85.5 million for the three months ended MarchJune 31,30, 2026 and consisted of $46.5$51.8 million of services income, $16.6$30.8 million of specialty rental income and $9.7$2.9 million of construction fee income. Total revenue for the three months ended MarchJune 31,30, 2025 was $69.9$61.6 million, which consisted of $50.1$40.5 million of services income, $15.0$6.7 million of specialty rental income, and $4.8$14.4 million of construction fee income.

The main driver of the decreaseincrease in services income revenue was lowerhigher revenue in the GovernmentWHS segment led by the terminationnew ofcontracts theentered PCCinto Contractsince asJune previously30, discussed. This decrease was largely offset by growth in the WHS segment,2025 and partially offsetdue byto the reactivation and ramp-up 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 increased primarily due to growth in the WHS segment led by the Data Center Community Contract that was entered into September 2025,segment, and partially drivendue byto the activationreactivation and ramp-up of assets associated with the WestSTFRC TexasContract Powerunder Communitythe contractDIPC inContract March 2026. This increase was partially offset by a decrease inwithin the Government segment ledin byMarch the2025 terminationas ofpreviously the PCC Contract.discussed.

Cost of services and construction. Cost of services and construction were $46.7$47.6 million for the three months ended MarchJune 31,30, 2026 as compared to $35.8$45.6 million for the three months ended MarchJune 31,30, 2025. The increase in services costs is primarily due to an increase in costs of approximately $9.8$3.7 million in the WHS segment led by constructionan increase in service costs forfrom the construction services activity under the Workforce Housing Contract as well as ramp-up of communities associated with new WHS contracts.contracts, Additionally,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 drivendecreasing by the reactivation of assets associated with the DIPC Contract increased by approximately $1.6 million. These cost increases were partially offset by the HFS-South segment costs, which decreased by approximately $(0.4$1.4) million ledbetween byperiods lowerlargely communitydue operatingto costs.the termination of the PCC Contract.

Specialty rental costs. Specialty rental costs were $3.6$4.7 million for the three months ended MarchJune 31,30, 2026 as compared to $2.5$2.8 million for the three months ended MarchJune 31,30, 2025. The increase in specialty rental costs was primarily due to higher costs in the Government segment associated with increased activity under the DIPC Contract, as well as growth inof the WHS segment, led by the Data Center Community Contract entered into in September 2025 and the activation of the West Texas Power Community contract in March 2026.segment.

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $15.6$17.4 million for the three months ended MarchJune 31,30, 2026 as compared to $13.7$13.6 million for the three months ended MarchJune 31,30, 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 inof $3.6$8.3 million between periods, partially offset by a decrease in depreciation expense of approximately $(1.54.1) million associated with Government segment specialty rental assets driven by the termination of the PCC contractContract on February 21, 2025.2025, and a decrease of approximately $0.4 million in the HFS-South segment associated with certain assets becoming fully depreciated since the prior period.

Other depreciation and amortization. Other depreciation and amortization expense was $4.0$4.1 million for the three months ended MarchJune 31,30, 2026 and approximated the prior period amount of $4.0$4.1 million for the three months ended MarchJune 31,30, 2025.

Other expense,expense (income), net. Other expense,expense (income), net was $2.6$0.4 million for the three months ended MarchJune 31,30, 2026 compared to less than $0.3$(0.2) million for the three months ended MarchJune 31,30, 2025. The change in other expense,expense (income), net was primarily driven by an increase in community pre-opening costs of approximately $1.6$0.6 million associated with ramp-up activities for community expansions and new customer contracts in the WHS segment. The WHS segment is in an early stage of development and 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.

Income tax benefit.expense (benefit). Income tax expense (benefit) was $0.5 million for the three months ended June 30, 2026 as compared to $(2.32.9) million for the three months ended MarchJune 31, 2026 as compared to $(1.3) million for the three months ended March 31,30, 2025. The change in income tax expense (benefit) is primarily attributable to the decreaseincrease in income before taxes for the three months ended MarchJune 31,30, 2026 led by costgrowth increases and loss ofin the higherWHS marginsegment PCC Contractas previously mentioned.discussed.