Target Hospitality Corp. (TH)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

Executive Summary

Target Hospitality Corp. is one of North America’s largest providers of vertically integrated specialty rental 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.

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Economic Update

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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.

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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.

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

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

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Outlook

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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.

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Our proximity to customer activities influences occupancy and demand. We have built, own and operate the largest specialty rental and hospitality services network available to customers operating in the HFS – South region. Our broad network often results in us having communities that are 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.

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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

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Executive Summary

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

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Economic Update

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

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

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

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

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

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

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

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

The Company generated cash flows from operations of approximately $74.1 million representing a decrease in cash flows from operations of approximately $77.6 million or 51% for the year ended December 31, 202

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