Target Hospitality Corp.

Previous wording

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, overall workforce community management, concierge services and laundry service. As of September 30, 2024, our network included 28 communities, to better serve our customers across the US and Canada.

Current wording

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 March 31, 2025, our network included 27 communities, to better serve our customers across the US and Canada. We also operate 2 communities not owned or leased by the Company.

Previous wording

On June 10, 2024, the Company received notice that the U.S. government intended to terminate the South Texas Family Residential Center contract (“STFRC Contract”), effective in 60 days, on August 9, 2024. As such, effective on August 9, 2024, the STFRC Contract was terminated and no longer contributed to total consolidated revenue of the Company from that termination date of August 9, 2024. The STFRC Contract was based on a fixed minimum lease revenue commitment and for the year ended December 31, 2023, contributed approximately $55.9 million in total consolidated revenue, all of which is related to the Company’s Government segment. The Company will retain ownership of the South Texas Family Residential Center assets enabling the Company to continue utilizing these modular solutions to support customer demand across its existing operating segments and other potential growth opportunities. The Company’s Government segment continued to benefit from the Pecos Children’s Center (“PCC”) and the New PCC Contract that became effective November 16, 2023. The PCC Community contributed lower revenues as compared to the third quarter of 2023 driven primarily by lower non-cash revenue amortization of an advanced payment for community expansion associated with the prior contract that became fully amortized as of November 2023, and to a lesser extent, by a decrease in the minimum lease revenue component of the New PCC Contract compared to the prior contract that ended in November 2023.* *The Company generated cash inflows from operations for the nine months ended September 30, 2024 of approximately $121.1 million compared to approximately $118.5 million for the nine months ended September 30, 2023, representing an increase in cash flows from operations of approximately $2.6 million or 2% driven by an increase in cash collections, a decrease in operating expenses, partially offset by an increase in cash paid for income taxes, an $8.7 million decrease in cash paid for interest driven by a significant reduction in debt outstanding during the current period compared to the prior period, and an increase in interest income. During the nine months ended September 30, 2024, the Company also purchased 2,424,440 shares of Common Stock for an aggregate purchase price of approximately $22.3 million (exclusive of estimated excise taxes of approximately $0.1 million).

Current wording

During the year ended December 31, 2024, the STFRC Contract in the Company’s Government segment was terminated effective August 9, 2024. The STFRC Contract was based on a fixed minimum lease revenue amount and for the three months ended March 31, 2024, contributed approximately $14 million in total consolidated revenue. The assets associated

Previous wording

Our Government segment, including several communities in West, Texas supporting critical United States government humanitarian aid efforts, delivers essential services and accommodations near the southern United States border where there is insufficient housing and infrastructure solutions to appropriately care for unaccompanied minor immigrants. Demand for these communities and services is influenced by immigration activity, where continued increases in migrant populations has increased government spending and demand for appropriate government supported solutions. Demand for these communities and services is also impacted by federal government budgeting, appropriations, and federal government administration policy decisions.

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 68% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 32% of revenues were earned through leasing of lodging facilities the nine months ended September 30, 2024. 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.

Current wording

We derive the majority of our revenue from specialty rental accommodations and vertically integrated hospitality services. Approximately 72% of our revenue was earned from specialty rental with vertically integrated hospitality services, specifically lodging and related ancillary services, whereas the remaining 28% of revenues were earned through leasing of lodging facilities (21)% and construction fee income (7)% for the three months ended March 31, 2025. Revenue is recognized in the period in which lodging and services are provided pursuant to the terms of contractual relationships with our customers. 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.

Previous wording

The Government segment includes the facilities and operations of the family residential center and the related support communities in Dilley, Texas (the “South Texas Family Residential Center”) provided under a lease and services agreement with a national provider of migrant programming (the “FRCC Partner”). As previously mentioned, the contract for the South Texas Family Residential Center with the FRCC Partner terminated on August 9, 2024. The Company retains ownership of the assets associated with the South Texas Family Residential Center enabling the Company to continue utilizing these modular solutions to support customer demand across its existing operating segments and other potential growth opportunities. Additionally, this segment also includes facilities and operations provided under a lease and services agreement with our NP Partner, backed by a committed U.S. Government contract, to provide a suite of comprehensive service offerings in support of their humanitarian aid efforts.

Current wording

Additionally, this segment included the facilities and operations provided under a lease and services agreement known as the PCC Contract with our NP Partner, backed by a U.S. government contract, to provide a suite of comprehensive service offerings in support of their aid efforts. As previously discussed, the PCC Contract was terminated effective February 21, 2025. The related assets associated with the PCC Contract continue to be included in this segment.

Previous wording

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.

Current wording

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, the WHS operating segment that 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, and the catering and other services provided to communities and other workforce accommodation facilities for the natural resource development industries not owned by us.

Previous wording

Total Revenue. Total revenue was $95.2 million for the three months ended September 30, 2024 and consisted of $65.8 million of services income and $29.4 million of specialty rental income. Total revenue for the three months ended September 30, 2023 was $145.9 million, which consisted of $93.5 million of services income and $52.4 million of specialty rental income.

Current wording

Total Revenue. Total revenue was $69.9 million for the three months ended March 31, 2025 and consisted of $50.1 million of services income, $15.0 million of specialty rental income and $4.8 million of construction fee income. Total revenue for the three months ended March 31, 2024 was $106.7 million, which consisted of $72.4 million of services income, and $34.3 million of specialty rental income.

Previous wording

Services income consists primarily of specialty rental and vertically integrated and comprehensive hospitality services, including room revenue, catering and food services, maintenance, housekeeping, grounds-keeping, security, overall workforce community management, health and recreation facilities, concierge services, and laundry service. The main driver of the decrease in services income revenue 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 Humanitarian Contract that expired on November 15, 2023, partially 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 STFRC Contract.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Cost of services. Cost of services was $31.3 million for the three months ended September 30, 2024 as compared to $34.0 million for the three months ended September 30, 2023. The decrease in services costs is primarily due to a decrease in services costs from the Government segment driven by operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC Community, including lease terminations as a result of the purchase of certain previously leased equipment and partially by the termination of the STFRC contract in the Government segment as previously discussed. These decreases were partially offset by an increase in costs of approximately $2.2 million in the HFS-South segment to support increased customer demand.

Current wording

Cost of services. Cost of services was $35.8 million for the three months ended March 31, 2025 as compared to $36.9 million for the three months ended March 31, 2024. The decrease in services costs is primarily due to a decrease in services costs from the Government segment driven by lower occupancy led by the contract terminations previously discussed. These decreases were partially offset by an increase in costs of approximately $3.1 million in the All Other category of operating segments driven by the construction services activity under the Workforce Housing Contract in the WHS operating segment. Additionally, costs associated with the HFS-South segment increased by approximately $0.9 million driven by an increase in customer activity.

Previous wording

Specialty rental costs. Specialty rental costs were $4.7 million for the three months ended September 30, 2024 as compared to $7.5 million for the three months ended September 30, 2023. 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 that were terminated at the PCC Community, and partially by the termination of the STFRC contract in the Government segment as previously discussed.

Current wording

Specialty rental costs. Specialty rental costs were $2.5 million for the three months ended March 31, 2025 as compared to $5.9 million for the three months ended March 31, 2024. The decrease in specialty rental costs is primarily due to a decrease in costs from the Government segment driven by the contract terminations previously discussed.

Previous wording

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $14.1 million for the three months ended September 30, 2024 as compared to $17.7 million for the three months ended September 30, 2023. The decrease in depreciation expense is primarily attributable to a decrease in depreciation on certain specialty rental assets and related leasehold improvements acquired or built in 2022 to support growth of the Government segment related to the contract that originated in May of 2022 with the NP Partner, which became fully depreciated during the year ended December 31, 2023. Decreases in depreciation expense associated with HFS-South specialty rental assets also partially contributed to this decrease in depreciation of specialty rental assets for certain site work assets that became fully depreciated during 2024.

Current wording

Depreciation of specialty rental assets. Depreciation of specialty rental assets was $13.7 million for the three months ended March 31, 2025 as compared to $14.8 million for the three months ended March 31, 2024. The decrease in depreciation expense is primarily attributable to a decrease in depreciation expense associated with HFS-South specialty rental assets for certain site work assets that became fully depreciated during 2024.

Previous wording

Selling, general and administrative. Selling, general and administrative was $41.6 million for the nine months ended September 30, 2024 as compared to $43.9 million for the nine months ended September 30, 2023. The decrease in selling, general and administrative expense of $(2.3) million was primarily driven by a decrease in stock compensation expense of approximately $8.3 million led primarily by the liability-based stock appreciation right awards (“SARs”) driven by a lower number of SAR awards outstanding during the current period compared to the prior period as approximately 50% of such awards were outstanding as of September 30, 2023 compared to 0% in the current period as there are no remaining awards outstanding as of September 30, 2024 as these awards vested and were exercised as of September 30, 2024. Other corporate costs (i.e. recruiting, market research, and outside services) also decreased by approximately $0.5 million from the prior period. These decreases were partially offset by an increase in severance of approximately $1 million for certain terminated employees during the nine months ended September 30, 2024, other compensation and benefits cost increases of approximately $0.8 million, audit fee increases of approximately $0.4 million, other professional fee increases of approximately $0.5 million, insurance expense increase of approximately $0.3 million, and an increase in transaction fees of approximately $3.5 million associated with certain transactions, including primarily the Proposal described in “Recent

Current wording

Selling, general and administrative. Selling, general and administrative was $14.8 million for the three months ended March 31, 2025 as compared to $14.9 million for the three months ended March 31, 2024. The decrease in selling, general and administrative expense from the prior period as a result of a decrease in stock compensation expense of approximately $1 million led primarily by the liability-based SARs driven by a lower number of SAR awards outstanding during the current period compared to the prior period as approximately 50% of such awards were outstanding during the three months ended March 31, 2024 compared to 0% in the current period as there are no remaining awards outstanding as of March 31, 2025 as these awards vested and were exercised as of December 31, 2024. Additionally, there were also decreases in severance costs of approximately $1 million for certain terminated employees during the three months ended March 31, 2024, amortization of system implementation costs also decreased by approximately $0.4 million from the prior year as such costs became fully amortized in May of 2024 as scheduled, compensation and benefits costs decreased by approximately $0.4 million, marketing and advertising costs as well as insurance costs decreased collectively by approximately $0.3 million. This was offset by an increase in transaction fees of approximately $2.6 million driven primarily by 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 offer from Arrow Holdings S.a.r.l. (“Arrow”), an affiliate of TDR, to acquire all of the outstanding common stock of the Company not owned by Arrow (the “Arrow Proposal”). The remaining change was primarily driven by an increase in professional fees and recruiting.

Previous wording

Other depreciation and amortization. Other depreciation and amortization expense was $3.9 million for the three months ended September 30, 2024 as compared to $3.8 million for the three months ended September 30, 2023. The increase in other depreciation and amortization is primarily driven by an increase in depreciation associated with an increase in finance leases for commercial use vehicles.

Current wording

Other depreciation and amortization. Other depreciation and amortization expense was $4.0 million for the three months ended March 31, 2025 as compared to $3.9 million for the three months ended March 31, 2024. The increase in other depreciation and amortization is primarily driven by an increase in depreciation associated with an increase in finance leases for commercial use vehicles.

Previous wording

Other expense (income), net. Other expense (income), net was less than $(0.1) million for the three months ended September 30, 2024 as compared to ($0.1) million for the three months ended September 30, 2023.

Current wording

Other expense (income), net. Other expense (income), net was $0.3 million for the three months ended March 31, 2025 as compared to $(0.1) million for the three months ended March 31, 2024. The increase in other expense was primarily driven by losses on leased assets.

Previous wording

Loss on extinguishment of debt. Loss on extinguishment of debt was $0 for the nine months ended September 30, 2024 as compared to $2.1 million for the nine months ended September 30, 2023. The decrease in loss on extinguishment of debt is due to the partial redemption of the 2024 Senior Secured Notes on March 15, 2023, which was accounted for as a partial extinguishment of debt and resulted in a charge of approximately $1.7 million related to the write-off of unamortized deferred financing costs and unamortized original issue discount. Approximately $0.4 million of the change related to the write-off of unamortized deferred financing costs for non-continuing lenders in connection with the First Amendment to the ABL Facility on February 1, 2023. No such activity occurred in the current period.

Current wording

Loss on extinguishment of debt. Loss on extinguishment of debt was $2.4 million for the three months ended March 31, 2025 as compared to $0 for the three months ended March 31, 2024. The increase in loss on extinguishment of debt is due to the redemption of the 2025 Senior Secured Notes on March 25, 2025.

Previous wording

Interest expense, net. Interest expense, net was $3.8 million for the three months ended September 30, 2024 as compared to $5.0 million for the three months ended September 30, 2023. The change in interest expense, net was primarily driven by an increase in interest income earned on cash equivalents funded by the increase in available cash as a result of cash flows from operations.

Current wording

Interest expense, net. Interest expense, net was $4.3 million for the three months ended March 31, 2025 as compared to $4.6 million for the three months ended March 31, 2024. The change in interest expense, net was primarily driven by an

Previous wording

The change in fair value of the warrant liabilities was $0 for the three months ended September 30, 2024 as compared to $2.6 million for the three months ended September 30, 2023 as a result of the Private Warrants expiring unredeemed on March 15, 2024 as discussed in Note 9 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

Current wording

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 three months ended March 31, 2025 as compared to $(0.7) million for the three months ended March 31, 2024 as a result of the Private Warrants expiring unexercised on March 15, 2024 as discussed in Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q.

Previous wording

Income tax expense. Income tax expense was $4.1 million for the three months ended September 30, 2024 as compared to $14.6 million for the three months ended September 30, 2023. The decrease in income tax expense is primarily attributable to the decrease in income before taxes for the three months ended September 30, 2024 led by a decrease in revenue, partially offset by cost decreases previously mentioned.

Current wording

Income tax expense (benefit). Income tax expense (benefit) was $(1.3) million for the three months ended March 31, 2025 as compared to $6.1 million for the three months ended March 31, 2024. The change in income tax expense (benefit) is primarily attributable to the decrease in income before taxes for the three months ended March 31, 2025 led by a decrease in revenue, partially offset by cost decreases previously mentioned.

Previous wording

Adjusted gross profit decreased as a result of the decrease in revenue mentioned above, partially offset by lower costs due to operational efficiencies and reduced leasing costs associated with certain leases that were terminated at the PCC

Current wording

Adjusted gross profit decreased as a result of the decrease in revenue mentioned above, partially offset by lower costs due to lower occupancy driven by the contract terminations previously discussed. Approximately $4.8 million of the decrease in costs were associated with community operations related to the PCC Contract, while approximately $3.9 million of the decrease in costs were associated with community operations related to the STFRC Contract.

Previous wording

The decrease in adjusted gross profit of approximately $ (1.7) million was primarily attributable to an increase in operational costs to support increased customer demand.

Current wording

The decrease in adjusted gross profit of approximately $(1.8) million was primarily attributable to an increase in operational costs driven by an increase in customer activity, and partially driven by the decrease in revenue noted above.

Previous wording

We depend on cash flow from operations, cash on hand and borrowings under our ABL Facility to finance our acquisition strategy, working capital needs, and capital expenditures. As of September 30, 2024, the ABL Facility had unused available borrowing capacity of $175 million. We currently believe that our cash on hand, along with these sources of funds will provide sufficient liquidity to fund debt service requirements, support our growth, acquisition, and diversification strategy discussed in Item 1, “Business” of the Company’s 2023 Form 10-K, lease obligations, contingent liabilities and working capital investments for at least the next 12 months. However, we cannot assure you that we will be able to obtain future debt or equity financings adequate for our future cash requirements on commercially reasonable terms or at all.

Current wording

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 March 31, 2025, the ABL Facility had unused available borrowing capacity of $134.1 million. We currently believe that our cash on hand, along with these sources of funds will provide sufficient liquidity to fund debt service requirements, support our growth and diversification strategy discussed in Item 1, “Business” of the Company’s 2024 Form 10-K, lease obligations, contingent liabilities and working capital investments for at least the next 12 months. However, we cannot assure you that we will be able to obtain future debt or equity financings adequate for our future cash requirements on commercially reasonable terms or at all.

Previous wording

If our cash flows and capital resources are insufficient, we may be forced to reduce or delay additional acquisitions, future investments and capital expenditures, and seek additional capital. Significant delays in our ability to finance planned acquisitions or capital expenditures may materially and adversely affect our future revenue prospects.

Current wording

If our cash flows and capital resources are insufficient, we may be forced to reduce or delay additional growth opportunities, future investments and capital expenditures, and seek additional capital. Significant delays in our ability to finance planned growth initiatives or capital expenditures may materially and adversely affect our future revenue prospects.

Previous wording

During the nine months ended September 30, 2024, we incurred approximately $28.1 million in capital expenditures, with approximately $14.3 million driven by capital expenditures in the Government segment. Maintenance capital expenditures for specialty rental assets amounted to approximately $18 million for the nine months ended September 30, 2024. As we pursue growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a

Current wording

During the three months ended March 31, 2025, we incurred approximately $21.2 million in capital expenditures, with approximately $15.5 million driven by capital expenditures in the new WHS operating segment within the All Other category. Maintenance capital expenditures for specialty rental assets amounted to approximately $4 million for the three months ended March 31, 2025. As we pursue growth initiatives, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and

Previous wording

reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or at all.

Current wording

liquidity requirements. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or at all.

Previous wording

Cash flows provided by operating activities. Net cash provided by operating activities was $121.1 million for the nine months ended September 30, 2024 compared to $118.5 million for the nine months ended September 30, 2023.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $3.9 million for the three months ended March 31, 2025 compared to $50.6 million for the three months ended March 31, 2024.

Previous wording

The current period is up by approximately $2.6 million when compared to 2023 driven by an increase in cash collections from customers of approximately $2.5 million, and a net decrease in payments for operating expenses and payroll of approximately $9.7 million driven by a decrease of approximately $3.9 million in cash payments for the vested SAR awards, and by a decrease in operating expenses led by the Government segment, partially offset by an increase in cash paid for severance, and an increase in cash paid for audit and other professional fees. There was also an increase in interest received by approximately $2.3 million (driven by a higher average outstanding cash balance in the current period that generated interest income), and a decrease in cash paid for interest during the period of approximately $8.7 million driven by lower debt as a result of a decrease in the outstanding balance of the Senior Secured Notes. These increases in net cash flows from operations were partially offset by an increase in cash paid for income taxes of approximately $20.5 million as our United States federal tax loss carryforward deductions were fully utilized during the year ended December 31, 2023.

Current wording

The current period is down by approximately $(46.7) million when compared to 2024 driven by a decrease in cash collections from customers of approximately $56.2 million and a $3.1 million increase in cash paid for interest driven by the early payoff of the 2025 Senior Secured Notes on March 25, 2025. These decreases were partially offset by a net decrease in payments for operating expenses and payroll of approximately $11.8 million driven by a decrease of approximately $1.3 million in cash payments for the vested SAR awards, and by a decrease in operating expenses led by the Government segment. There was also an increase in interest received by approximately $0.7 million (driven by a higher average outstanding cash balance in the current period that generated interest income), and a decrease in cash paid for income taxes of approximately $0.1 million.

Previous wording

Cash flows used in investing activities. Net cash used in investing activities was $23.4 million for the nine months ended September 30, 2024 compared to $60.9 million for the nine months ended September 30, 2023. This decrease in net cash used in investing activities was primarily related to a decrease in growth capital expenditures in the HFS – South segment with the largest single driver being the $18.6 million acquisition of community assets and related intangibles in January 2023, supporting continued customer demand. To a lesser extent, the decrease was related to a $5.0 million acquisition of community assets in April 2023 and $1.3 million worth of land acquisitions during the three months ended September 30, 2023, supporting Government segment growth. The remainder of the decrease was driven by a decrease in other growth capital expenditures in the Government segment as the prior period included expansion related activities associated with the Expanded PCC Community contract that became effective on May 16, 2022 and drove a significant amount of capital expenditure spend into 2023.

Current wording

Cash flows used in investing activities. Net cash used in investing activities was $17.2 million for the three months ended March 31, 2025 compared to $8.9 million for the three months ended March 31, 2024. This increase in net cash used in investing activities was primarily related to an increase in growth capital expenditures in the WHS operating segment within the All Other category related to the $15.5 million acquisition of community assets in January 2025 to support growth of the WHS operating segment.

Previous wording

Cash flows used in financing activities. Net cash used in financing activities was $23.9 million for the nine months ended September 30, 2024 compared to $134.2 million for the nine months ended September 30, 2023. This decrease in net cash used in financing activities was primarily driven by the $125 million partial redemption of the 2024 Senior Secured Notes on March 15, 2023 combined with the prior period including the payment of deferred financing costs of $1.4 million associated with the ABL Facility amendment, payment of accrued issuance costs from the warrant exchange of $1.5 million that closed in December of 2022, and taxes paid related to net share settlement of equity awards of approximately $6.8 million, partially offset by the current period increase in net cash used in financing activities of approximately $21.9 million for the repurchase of Common Stock as part of the share repurchase program, combined with taxes paid related to net share settlement of equity awards of $2.6 million in the current period.

Current wording

Cash flows used in financing activities. Net cash used in financing activities was $142.9 million for the three months ended March 31, 2025 compared to $21.3 million for the three months ended March 31, 2024. This increase in net cash used in financing activities was primarily driven by the $181.4 million full redemption of the 2025 Senior Secured Notes on March 25, 2025 and the related payment of 2025 Senior Secured Notes debt extinguishment premium costs of $1.8 million, partially offset by a net draw on the ABL Facility of approximately $40.9 million in the current period and the prior period including approximately $21.2 million for the repurchase of Common Stock as part of the share repurchase program.

Previous wording

The Company’s finance lease and other financing obligations as of September 30, 2024 consisted of approximately $2.5 million of finance leases. The finance leases pertain to leases entered into during 2017 through September 30, 2024, for commercial-use vehicles with 36-month terms (and continue on a month-to-month basis thereafter) expiring through 2027.

Current wording

The Company’s finance lease and other financing obligations as of March 31, 2025 consisted of approximately $4.3 million of finance leases. The finance leases pertain to leases entered into during 2017 through March 31, 2025, for

Previous wording

The Company’s finance lease and other financing obligations as of December 31, 2023 consisted of approximately $2.4 million of finance leases related to commercial-use vehicles with the same terms as described above.

Current wording

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

Previous wording

During the nine months ended September 30, 2024, no amounts were drawn or repaid on the ABL Facility resulting in an outstanding balance of $0 as of September 30, 2024. The maturity date of the ABL Facility is February 1, 2028, which extended termination date is subject to a springing maturity that will accelerate the maturity of the ABL Facility if any of the 2025 Senior Secured Notes remain outstanding on the date that is ninety-one days prior to the stated maturity date thereof. Refer to Note 8 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q for additional discussion of the ABL Facility.

Current wording

During the three months ended March 31, 2025, a net amount of $40.9 million was drawn on the ABL Facility resulting in an outstanding balance of $40.9 million and an unused available borrowing capacity of $134.1 million as of March 31, 2025. The maturity date of the ABL Facility is February 1, 2028. Refer to Note 7 of the notes to our unaudited consolidated financial statements included elsewhere within this Form 10-Q for additional discussion of the ABL Facility.

Previous wording

We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations and obligations will be to primarily fund (i) operating activities and working capital, (ii) maintenance and growth capital expenditures for specialty rental and other property, plant, and equipment assets, (iii) payments due under finance and operating leases, (iv) principal payments on the 2025 Senior Secured Notes, and (v) debt service interest payments. We plan to fund such cash requirements from our existing sources of liquidity as previously discussed.

Current wording

We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations and obligations will be to primarily fund (i) operating activities and working capital, (ii) maintenance capital expenditures for specialty rental and other property, plant, and equipment assets, (iii) payments due under finance and operating leases, and (iv) debt service interest payments on the ABL Facility. We plan to fund such cash requirements from our existing sources of liquidity as previously discussed.

Previous wording

In the normal course of business, we grant credit to customers based on credit evaluations of their financial condition and generally require no collateral or other security. Major customers are defined as those individually comprising more than 10% of our revenues or accounts receivable. For the nine months ended September 30, 2024, we had two customers, who accounted for 47% and 13% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 31% and 10% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of September 30, 2024.

Current wording

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 three months ended March 31, 2025, we had two customers, who accounted for 34% and 11% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customer accounted for 43% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of March 31, 2025.

Previous wording

Our largest customer for the nine months ended September 30, 2023 accounted for 63% of revenues, while no other customer accounted for more than 10% of revenues. The largest customer accounted for 21% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of September 30, 2023.

Current wording

We had two customers for the three months ended March 31, 2024 that accounted for 50% and 13% of revenues, respectively, while no other customers accounted for more than 10% of revenues. The largest customers accounted for 39% and 8% of accounts receivable, respectively, while no other customers accounted for more than 10% of the accounts receivable balance as of March 31, 2024.

Previous wording

Major suppliers are defined as those individually comprising more than 10% of the annual goods purchased by the Company. For the nine months ended September 30, 2024, we had one major supplier representing 20% of goods purchased. For the nine months ended September 30, 2023, we had one major supplier that represented 16.6% of goods purchased.

Current wording

Major suppliers are defined as those individually comprising more than 10% of the annual goods purchased by the Company. For the three months ended March 31, 2025, we had one major supplier representing 20% of goods purchased. For the three months ended March 31, 2024, we had one major supplier that represented 19% of goods purchased.

Previous wording

Rent expense included in services costs in the unaudited consolidated statements of comprehensive income for cancelable and non-cancelable leases was $9.6 million and $18.0 million for the nine months ended September 30, 2024 and 2023, respectively. Rent expense included in services costs in the unaudited consolidated statements of comprehensive income for cancelable and non-cancelable leases was $2.9 million and $5.6 million for the three months ended September 30, 2024 and 2023, respectively. Rent expense included in the selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income for cancelable and non-cancelable leases was $0.4 million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively. Rent expense included in the selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income for cancelable

Current wording

Rent expense included in services costs in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $2.8 million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively. Rent expense included in the selling, general, and administrative expenses in the unaudited consolidated statements of comprehensive income (loss) for cancelable and non-cancelable leases was $0.1 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

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

Current wording

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