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. References to "we,"
"us," "our," or "the Company" refer to Target Hospitality Corp. and its
consolidated subsidiaries at and after March 15, 2019 and to Platinum Eagle
Acquisition Corp., our legal predecessor, for all periods prior to March 15,
2019. For purposes of this section, references to "we," "us," "the Companies,"
"Algeco US Holdings LLC," or "Target Parent" refers to Algeco US Holdings LLC
and its consolidated subsidiaries for periods from and after December 22, 2017
through March 15, 2019 and Target Logistics Management, LLC and its consolidated
subsidiaries for periods prior to December 21, 2017.

Executive Summary and Outlook


Target Hospitality Corp. is one of the largest vertically integrated specialty
rental and hospitality service providers in the United States. The Company
provides vertically integrated specialty rental and comprehensive hospitality
services including catering and food services, maintenance, housekeeping,
grounds-keeping, security, health and recreation services, overall workforce
community management, concierge services and laundry service. As of
September 30, 2020, our network includes 26 locations to better serve our
customers across the US.



COVID – 19 and Economic Update


The global outbreak of the Coronavirus Disease 2019 ("COVID-19") and the
declaration of a pandemic by the World Health Organization on March 11, 2020
presented new risks to the Company's business. Further, in the first quarter of
2020, crude oil prices fell sharply, due to the spread of COVID-19 and actions
by Saudi Arabia and Russia.  The Company's ability to operate and supply chain
have not experienced material disruptions in the third quarter and the Company
continues to work with suppliers to ensure there is no service disruption or
shortage of critical products at our communities.  However, the situation
surrounding COVID-19 remains fluid and the potential for a material impact on
the Company increases the longer the virus impacts the level of economic
activity in the United States and globally. The financial results for the third
quarter of 2020 reflect the reduced customer activity experienced during the
quarter. However, the Company did experience increases in demand for its
hospitality and accommodation services, including demand for the Company's
Permian Basin accommodations as customer activity levels steadily increased
during the third quarter, from the lows experienced during the second quarter of
2020.  We took significant steps to reduce our costs in response to the reduced
demand, including reducing headcount, temporarily closing and consolidating
several of our communities, salary reductions, and streamlining our support
functions.  However, as customer activity levels began increasing during the
third quarter, we began re-opening several communities in July of 2020 as a
result of increased customer demand.  Additionally, the Company executed
contract modifications with several customers in the oil and natural gas
industry resulting in extended terms and reduced minimum contract commitments in
2020. These modifications utilize multi-year contract extensions to maintain
contract value and provide the Company with greater visibility on long-term
revenue and cash flow. This mutually beneficial approach balances average daily
rates with contract term and positions the Company to take advantage of a more
balanced market. As a result of the continued uncertainty surrounding COVID-19,
we cannot reasonably estimate with any degree of certainty the future impact
COVID-19 may have on the Company's results of operations, financial position,
and liquidity. Nevertheless, we will maintain our commitment to service quality
for our customers and continue to focus on generating returns and cash flow.

Refer to the section titled “Risk Factors” included elsewhere in this report
for additional discussion around COVID-19.

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For the three months ended September 30, 2020, other key drivers of financial
performance included:

Decreased revenue of $33.4 million, or 41% compared to the same period in 2019,

? driven by a decrease in services income revenue of approximately $39.9 million

due to reduced activity associated with the negative effects of oil price

volatility, compounded by the effects of COVID-19.

Decreased revenue in the Permian Basin segment, which represents 39% of

? revenues for the three months ended September 30, 2020 by $37.6 million, or 66%

as compared to the same period in 2019 as a result of declines in utilization

due to oil price volatility and impacts of COVID-19.

Generated a net loss of approximately $7.9 million for the three months ended

? September 30, 2020, as compared to net income of approximately $9.6 million for

the three months ended September 30, 2019, which is primarily attributable to

the decrease in revenue.

Generated consolidated Adjusted EBITDA of $17.0 million representing a decrease

? of $23.6 million, or 58% as compared to the same period in 2019, driven

primarily by the decrease in revenue.

In addition to the above, the Company renewed its government services contract

? and extended the term through September 2026 at substantially similar economics

   as the previous agreement.



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




Our proximity to customer activities influences occupancy and demand. We have
built, own and operate the two largest specialty rental and hospitality services
networks available to oil and gas customers operating in the Permian and Bakken
regions. 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 exploration, development, production and transportation of
oil and natural gas and government immigration housing programs.

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 elsewhere in this report. 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.

Public health threats or outbreaks of communicable diseases, including COVID-19,
could have a material adverse effect on the Company's operations and financial
results.

The Company may face risks related to public health threats or outbreaks of
communicable diseases, including COVID-19. A widespread healthcare crisis, such
as an outbreak of a communicable disease, like COVID-19, could adversely affect
the economy and the Company's ability to conduct business for an indefinite
period of time. This situation combined with the oil and gas price volatility
discussed below has had, and could continue to, have a material adverse effect
on the Company's results of operations.  Refer to section titled "Risk Factors"
included elsewhere in this report for further information on this situation.

Supply and Demand for Oil and Gas


As a provider of vertically integrated specialty rental and hospitality
services, we are not directly impacted by oil and gas price fluctuations.
However, these price fluctuations indirectly influence our activities and
results of operations because the exploration and production ("E&P") workforce
is directly affected by price fluctuations and the industry's expansion or
contraction as a result of these fluctuations. Our occupancy volume depends on
the size of the workforce within the oil

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and gas industry and the demand for labor. Oil and gas prices are volatile and
influenced by numerous factors beyond our control, including the domestic and
global supply of and demand for oil and gas. The commodities trading markets, as
well as other supply and demand factors, may also influence the selling prices
of oil and gas.  As a result of the recent oil and gas price volatility, the
Company temporarily closed and consolidated communities in the Permian and
Bakken basins.  However, these communities began re-opening in July of 2020 as
conditions started to improve.   Additionally, this recent disruption in the oil
and gas markets as well as the impact of COVID-19 has increased the risk of
delayed customer payments and payment defaults associated with customer
liquidity issues and bankruptcies leading to increased bad debt expense in the
current period.

Availability and Cost of Capital

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

Regulatory Compliance


We are subject to extensive federal, state, local, and foreign environmental,
health and safety laws and regulations concerning matters such as air emissions,
wastewater discharges, solid, and hazardous waste handling and disposal and the
investigation and remediation of contamination. 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 environmental
compliance or remediation liabilities and costs.

Natural Disasters or Other Significant Disruption

An operational disruption in any of our facilities could negatively impact our
financial results. The occurrence of a natural disaster, such as earthquake,
tornado, severe weather, including hail storms, flood, fire, or other
unanticipated problems such as labor difficulties, equipment failure, capacity
expansion difficulties or unscheduled maintenance could cause operational
disruptions of varied duration. These types of disruptions could materially
adversely affect our financial condition and results of operations to varying
degrees dependent upon the facility, the duration of the disruption, our ability
to shift business to another facility or find alternative solutions.

Overview of Our Revenue and Operations

We derive the majority of our revenue from specialty rental accommodations and
vertically integrated hospitality services. Approximately 60% of our revenue was
earned from specialty rental with vertically integrated hospitality services,
specifically lodging and related ancillary services, whereas the remaining 40%
of revenues were earned through leasing of lodging facilities (24%) and
Construction fee income (16%) for the nine months ended September 30, 2020. Our
services include temporary living accommodations, catering food services,
maintenance, housekeeping, grounds-keeping, on-site security, workforce
community management, and laundry services. 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.

The Company also originated a contract in 2013 with TransCanada Pipelines
("TCPL" or "TC Energy") to construct, deliver, cater and manage all
accommodations and hospitality services in conjunction with the planned
construction of the Keystone XL pipeline project.  During the construction phase
of the contract, the Company recognizes revenue as costs are incurred in
connection with the project under the percentage of completion method of
accounting as more fully discussed in Note 1 of the notes to our unaudited
consolidated financial statements included elsewhere in this Form 10-Q.  One of
these communities was completed and opened during the three months ended
September 30, 2020.  The revenue

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recognized on the community post construction for the three months ended
September 30, 2020, is recognized in services income along with our other
revenue from specialty rental with vertically integrated hospitality services.

The Company also originated a contract on March 1, 2019 with a customer to
construct, deliver, cater and manage all accommodations and hospitality services
in conjunction with the construction of an accommodation facility in the Permian
Basin.  During the construction phase of the contract, the Company recognizes
revenue as costs are incurred in connection with the project under the
percentage of completion method of accounting.  The construction phase of this
contract was substantially completed in August 2019 with additional expansions
through March 31, 2020.

Key Indicators of Financial Performance

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

Revenue


We analyze our revenues by comparing actual revenues to our internal budgets and
projections for a given period and to prior periods to assess our performance.
We believe that revenues are a meaningful indicator of the demand and pricing
for our services. Key drivers to change in revenues may include average
utilization of existing beds, levels of drilling activity in the Permian and
Bakken basins, and the consumer price index impacting government contracts.

Adjusted Gross Profit


We analyze our adjusted gross profit, which is a Non-GAAP measure that we define
as revenues less cost of sales, excluding impairment and depreciation of
specialty rental assets to measure our financial performance. Please see
"Non-GAAP Financial Measures" for a definition and reconciliation to the most
comparable GAAP measure. We believe adjusted gross profit is a meaningful metric
because it provides insight on financial performance of our revenue streams
without consideration of our overhead. Additionally, using adjusted gross profit
gives us insight on factors impacting cost of sales, such as efficiencies of our
direct labor and material costs. When analyzing adjusted gross profit, we
compare actual adjusted gross profit to our internal projections and to prior
period results for a given period in order to assess our performance.

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

Segments

We have identified three reportable business segments: Permian Basin, Bakken
Basin
, and Government:


Permian Basin

The Permian Basin segment reflects our facilities and operations in the Permian
Basin
region and includes our 19 communities located across Texas and New
Mexico
.

Bakken Basin

The Bakken Basin segment reflects our facilities and operations in the Bakken
Basin
region and includes our 4 communities in North Dakota.

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Government

The government segment ("Government") 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 CoreCivic ("CoreCivic").

All Other

Our other facilities and operations which do not meet the criteria to be a
separate reportable segment are consolidated and reported as "All Other" which
represents the facilities and operations of one community in the Anadarko basin
of Oklahoma, the catering and other services provided to communities and other
workforce accommodation facilities for the oil, gas and mining industries not
owned by us and initial work and future plans for facilities and services to be
provided in connection with the TCPL project.

Key Factors Impacting the Comparability of Results

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

COVID-19 and Oil and Gas Price Volatility


The COVID-19 pandemic and the disruption in the oil and gas industry has had,
and continues to have, a material adverse effect on our business and results of
operations. The financial results for the three and nine months ended September
30, 2020 reflect the reduced activity in the Permian and Bakken basins resulting
from the negative effects of the oil and gas price volatility compounded by the
effects of COVID-19 as these disruptions have created significant challenges for
our energy end-market customers.  This has driven a significant reduction in our
utilization in these segments during the three and nine months ended September
30, 2020 and has also impacted our energy end-market customer's liquidity,
resulting in increased bad debt expense during 2020.

Acquisitions

On June 19, 2019, TLM entered into the Superior Purchase Agreement with the
Superior Sellers, and certain other parties named therein, pursuant to which TLM
acquired substantially all of the assets in connection with the seller
communities. This acquisition further expanded our presence in the Texas Permian
Basin, adding 575 rooms.  Prior to the acquisition, TLM was providing management
and catering services to the Superior Sellers, which was terminated upon the
closing of the acquisition.

On July 1, 2019, TLM purchased a 168-room community from ProPetro Services, Inc.

 On July 1, 2019, in connection with the purchase of this community, TLM and
ProPetro entered into an amendment to its existing Network Lease and Services
Agreement resulting in ProPetro leasing from the Company an additional 166 rooms
per night for one year subject to three one-year extension options. The
extension options were not exercised and resulted in the Company earning a
termination fee of approximately $0.5 million for the nine months ended
September 30, 2020.  The ProPetro acquisition further expanded the Company's
presence in the Permian Basin.

Business Combination Costs

We incurred approximately $38.1 million in incremental costs related to the
Business Combination that have been recognized as selling, general, and
administrative expenses in the unaudited consolidated statement of comprehensive
income (loss) for the nine months ended September 30, 2019. These costs include
$8.0 million in transaction expenses relating to the consummation of the
Business Combination. Additionally, certain members of the Company's management
and employees received bonus payments as a result of the Business Combination
being consummated in the aggregate amount of $28.5 million. Finally, as part of
the Business Combination being consummated, we recorded $1.6 million of
compensation expense for the full loan forgiveness of certain executive members
of management which has been recognized as a non-cash expense within the
consolidated financial statements.

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Public Company Costs
As part of becoming a public company in March 2019, we also expect to incur
additional significant and recurring expenses as a publicly traded company,
including costs associated with the employment of additional personnel,
compliance under the Exchange Act, annual and quarterly reports to common
shareholders, registrar and transfer agent fees, national stock exchange fees,
legal fees, audit fees, incremental director and officer liability insurance
costs and director and officer compensation.

Results of Operations


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



Consolidated Results of Operations for the three months ended September 30, 2020
and 2019.




                                              For the Three Months Ended        Amount of     Percentage Change
                                                    September 30,               Increase          Favorable
                                                2020               2019        (Decrease)       (Unfavorable)
Revenue:
Services income                            $        24,331$     64,189$  (39,858)                 -62%
Specialty rental income                             12,827           14,230        (1,403)                 -10%
Construction fee income                             11,105            3,224          7,881                 244%
Total revenue                                       48,263           81,643       (33,380)                 -41%
Costs:
Services                                            21,990           29,470        (7,480)                 -25%
Specialty rental                                     2,560            2,395            165                   7%
Depreciation of specialty rental assets             11,995           11,222            773                   7%
Gross Profit                                        11,718           38,556       (26,838)                 -70%
Selling, general and administrative                  8,508           11,141        (2,633)                 -24%
Other depreciation and amortization                  4,341            4,021
           320                   8%
Currency gains, net                                      -             (77)             77                -100%
Other expense (income), net                          (183)              440          (623)                -142%
Operating income (loss)                              (948)           23,031       (23,979)                -104%
Interest expense, net                                9,913           10,172          (259)                  -3%
Income (loss) before income tax                   (10,861)           12,859
      (23,720)                -184%
Income tax expense (benefit)                       (2,991)            3,290        (6,281)                -191%
Net income (loss)                          $       (7,870)$      9,569$  (17,439)                -182%





For the three months ended September 30, 2020, compared to the three months
ended September 30, 2019


Total Revenue. Total revenue was $48.3 million for the three months ended
September 30, 2020 and consisted of $24.3 million of services income, $12.8
million of specialty rental income, and $11.1 million of construction fee
income. Total revenues for the three months ended September 30, 2019 was $81.6
million which consisted of $64.2 million of services income, $14.2 million of
specialty rental income and $3.2 million of construction fee income.

Services income consists primarily of specialty rental accommodations with
vertically integrated hospitality services, and comprehensive hospitality
services including catering and food services, maintenance, housekeeping,
grounds-keeping, on-site security, overall workforce community management,
health and recreation facilities, concierge services, and laundry service.

The

main driver of the decline in services income revenue year over year was the
reduction of customer activity in the Permian Basin and the temporary closure of
communities in the Bakken Basin in May 2020, due to the effects of oil price
volatility and COVID-19.  However, as customer activity levels began increasing
during the third quarter, we began re-opening several communities in July of
2020 as a result of increased customer demand.

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Specialty rental income decreased mainly as a result of a contract modification
for one of our energy end-market customers, which resulted in the contract no
longer being treated as a lease for accounting purposes and as such, the revenue
associated is now being reported within services income.  Termination of the
ProPetro lease as previously mentioned also contributed to this decrease.  Such
decreases were partially offset by community expansions that came online later
in 2019.

The decrease in services income and specialty rental income was offset by an
increase in construction fee income, which was due to an increase in activity
related to the construction of TC Energy Corporation's Keystone XL Pipeline
project compared to the same period in 2019.

Cost of services. Cost of services was $22.0 million for the three months ended
September 30, 2020 as compared to $29.5 million for the three months ended
September 30, 2019.

The decrease in services costs is primarily due to the decrease in costs in the
Permian and Bakken basins driven by cost containment measures implemented in
response to the decrease in utilization for the three months ended September
30, 2020 as compared to the same period in 2019.  This decrease was partially
offset with an increase of approximately $8.4 million in costs associated with
the increase in activity on TC Energy Corporation's Keystone XL Pipeline
project.

Specialty rental costs. Specialty rental costs were $2.6 million for the three
months ended September 30, 2020 as compared to $2.4 million for the three months
ended September 30, 2019.  This increase in specialty rental costs is primarily
driven by community expansions that came online later in 2019.  This increase in
specialty rental costs was partially offset by the termination of the ProPetro
lease and a modification of a contract for one of our energy end-market
customers, which resulted in all such costs and related revenue now being
recognized in services income and costs, as it no longer meets the definition of
a lease.

Depreciation of specialty rental assets. Depreciation of specialty rental assets
was $12.0 million for the three months ended September 30, 2020 as compared to
$11.2 million for the three months ended September 30, 2019.

The increase in depreciation expense is mainly due to an increase in assets
placed into service as part of the capital expenditure program in 2019 as well
as 2019 acquisitions of Pro Petro and Superior.


Selling, general and administrative. Selling, general and administrative was
$8.5 million for the three months ended September 30, 2020 as compared to $11.1
million for the three months ended September 30, 2019.  The decrease in selling,
general and administrative expense of $2.6 million was primarily driven by
decreased travel and entertainment expenses, public company costs, including
legal and professional fees, severance, sales commissions (driven by a decrease
in utilization), and labor. These decreases were partially offset increases in
bad debt expense, insurance, new system implementation cost non-cash
amortization expense, and non-cash stock compensation expense driven by the
granting of stock compensation in September of 2019, as well as March, April and
May of 2020.

Other depreciation and amortization. Other depreciation and amortization expense
was $4.3 million for the three months ended September 30, 2020 as compared to
$4.0 million for the three months ended September 30, 2019.

The increase in other depreciation and amortization expense is due primarily to
an increase in depreciation expense associated with an increase in depreciable
capital expenditures.

Other expense (income), net. Other expense (income), net was $(0.2) million for
the three months ended September 30, 2020 as compared to $0.4 million for the
three months ended September 30, 2019.

The change in other expense (income), net is primarily attributable to prior
period non-cash charges and loss on involuntary conversion, which did not recur
in 2020.

Interest expense, net. Interest expense, net was $9.9 million for the three
months ended September 30, 2020 as compared to $10.2 million for the three
months ended September 30, 2019.

The change in interest expense is driven by a reduction of the interest rate on
the New ABL facility.


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Income tax expense (benefit).  Income tax benefit was $3.0 million for the three
months ended September 30, 2020 as compared to an expense of $3.3 million for
the three months ended September 30, 2019. The decrease in income tax expense is
primarily attributable to the decrease in income before taxes, resulting from a
loss for the three months ended September 30, 2020.

Consolidated Results of Operations for the nine months ended September 30, 2020
and 2019.




                                  For the Nine Months Ended         Amount of     Percentage Change
                                        September 30,               Increase          Favorable
                                    2020              2019         (Decrease)       (Unfavorable)
Revenue:
Services income                $      103,526$     185,094$  (81,568)                 -44%
Specialty rental income                42,379            43,103          (724)                  -2%
Construction fee income                27,634            16,786         10,848                  65%
Total revenue                         173,539           244,983       (71,444)                 -29%
Costs:
Services                               82,456            91,215        (8,759)                 -10%
Specialty rental                        6,864             7,203          (339)                  -5%
Depreciation of specialty
rental assets                          37,158            31,083          6,075                  20%
Gross Profit                           47,061           115,482       (68,421)                 -59%
Selling, general and
administrative                         28,599            66,817       (38,218)                 -57%
Other depreciation and
amortization                           12,555            11,600            955                   8%
Restructuring costs                         -               168          (168)                -100%
Currency gains, net                         -              (77)             77                -100%
Other expense (income), net             (752)               279        (1,031)                -370%
Operating income (loss)                 6,659            36,695       (30,036)                 -82%
Loss on extinguishment of
debt                                        -               907          (907)                -100%
Interest expense, net                  30,113            24,056          6,057                  25%
Income (loss) before income
tax                                  (23,454)            11,732       (35,186)                -300%
Income tax expense
(benefit)                             (5,187)             5,562       (10,749)                -193%
Net Income (loss)              $     (18,267)$       6,170$  (24,437)                -396%



For the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019


Total Revenue. Total revenue was $173.5 million for the nine months ended
September 30, 2020 and consisted of $103.5 million of services income, $42.4
million of specialty rental income, and $27.6 million of construction fee
income. Total revenues for the nine months ended September 30, 2019 was $245.0
million which consisted of $185.1 million of services income, $43.1 million of
specialty rental income and $16.8 million of construction fee income.

Services income consists primarily of specialty rental accommodations with
vertically integrated hospitality services, and comprehensive hospitality
services including catering and food services, maintenance, housekeeping,
grounds-keeping, on-site security, overall workforce community management,
health and recreation facilities, concierge services, and laundry service.  The
main driver of the decline in services income revenue year over year was the
reduction of customer activity in the Permian Basin and the temporary closure of
communities in the Bakken Basin in May 2020, due to the effects of oil price
volatility and COVID-19.  However, as customer activity levels began increasing
during the third quarter, we began re-opening several communities in July of
2020 as a result of increased customer demand.

Specialty rental income decreased mainly as a result of a contract modification
for one of our energy end-market customers, which resulted in the contract no
longer being treated as a lease for accounting purposes and as such, the revenue
associated is now being reported within services income.  Such decreases were
partially offset by community expansions that came online later in 2019.

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The decrease in services income and specialty rental income was offset by an
increase in construction fee income, due to an increase in activity related to
the construction of TC Energy Corporation's Keystone XL Pipeline project,
compared to the same period in 2019.

Cost of services. Cost of services was $82.5 million for the nine months ended
September 30, 2020 as compared to $91.2 million to the nine months ended
September 30, 2019.

The decrease in services costs is primarily due to the decrease in costs
incurred driven by cost containment measures implemented in response to the
decrease in utilization in the Permian and Bakken basins for the nine months
ended September 30, 2020 as compared to the same period in 2019. These
decreases were partially offset by an increase of costs approximately $12.1
million
associated with the increase in activity on TC Energy Corporation’s
Keystone XL Pipeline project.


Specialty rental costs. Specialty rental costs were $6.8 million for the nine
months ended September 30, 2020 as compared to $7.2 million for the nine months
ended September 30, 2019. The decrease in specialty rental costs is driven by
the reduction in utility and other variable costs as a result of decreased
occupancy within the Government segment combined with a modification of a
contract for one of our energy end-market customers, which resulted in all such
costs and related revenue now being recognized in services income and costs as
it no longer meets the definition of a lease.  These decreases were offset by
increases driven by expansion and acquisition activity subsequent to March
31, 2019.

Depreciation of specialty rental assets. Depreciation of specialty rental assets
was $37.2 million for the nine months ended September 30, 2020 as compared to
$31.1 million for the nine months ended September 30, 2019.

The increase in depreciation expense is mainly due to an increase in assets
placed into service as part of the capital expenditure program in 2019 as well
as 2019 acquisitions of Pro Petro and Superior.


Selling, general and administrative. Selling, general and administrative was
$28.6 million for the nine months ended September 30, 2020 as compared to $66.8
million for the nine months ended September 30, 2019.

The decrease in selling, general and administrative expense of $38.2 million is
primarily due to the $39.5 million of costs associated with the Business
Combination and other transactions recognized for the nine months ended
September 30, 2019 that did not recur for the nine months ended
September 30, 2020. Additionally, sales commission expenses declined from 2019
to 2020 driven by a decrease in utilization.  Public company costs, including
legal and professional fees, as well as travel and entertainment costs, and
marketing and advertising costs also decreased from 2019 to 2020.  These
decreases were slightly offset by increases in non-cash stock compensation
expense driven by the granting of stock compensation in May of 2019, September
of 2019, as well as March, April and May of 2020.  Additional increases are
attributable to an increase in bad debt expense, new system implementation cost
non-cash amortization expense, and insurance expense driven by growth of the
business and public company related insurance.

Other depreciation and amortization. Other depreciation and amortization expense
was $12.6 million for the nine months ended September 30, 2020 as compared to
$11.6 million for the nine months ended September 30, 2019.

The increase in other depreciation and amortization expense is due primarily to
the amortization of customer relationship intangible assets from the Superior
acquisition and an increase in depreciation expense associated with an increase
in depreciable capital expenditures.

Restructuring costs. Restructuring costs associated with a restructuring that
originated in 2017 were $0 for the nine months ended September 30, 2020 as
compared to $0.2 million, for the nine months ended September 30, 2019 which is
primarily related to employee severance payments resulting from the closure of
our Baltimore, MD corporate office.

The decrease in Restructuring costs is due to the final payments to the
employees that have left or taken other positions related to the restructuring
described above and no additional expense related to this restructuring event is
expected.

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Other expense (income), net. Other expense (income), net was $(0.8) million for
the nine months ended September 30, 2020 as compared to $ 0.3 million for the
nine months ended September 30, 2019.

The change in other expense (income), net is primarily attributable to the
receipt of insurance proceeds in 2020 associated with an involuntary asset
conversion that occurred in 2019. Additionally, amounts for the nine months
ended September 30, 2020 include various costs related to the effects of
COVID-19, which did not occur in the prior period.   Conversely, prior period
included non-cash charges and a loss on involuntary conversion, which did not
recur in 2020.

Loss on extinguishment of debt.  Loss on extinguishment of debt of $0.9 million
for the nine months ended September 30, 2019 related to the write-off of
deferred financing costs pertaining to non-continuing lenders associated with
the modification of our ABL facility on March 15, 2019.

Interest expense, net. Interest expense, net was $30.1 million for the nine
months ended September 30, 2020 as compared to $24.1 million for the nine months
ended September 30, 2019.


The change in interest expense is driven by increased interest expense driven by
the New ABL Facility and the 2024 Senior Secured Notes, which were originated on
March 15, 2019, as compared to the affiliate debt that was outstanding for the
period prior to March 15, 2019. Both the New ABL Facility and the 2024 Senior
Secured Notes were outstanding for all nine months of 2020 driving more interest
expense in 2020.

Income tax expense (benefit).  Income tax benefit was $5.2 million for the nine
months ended September 30, 2020 as compared to an expense of $5.6 million for
the nine months ended September 30, 2019. The decrease in income tax expense is
primarily attributable to the decrease in income before taxes, resulting from a
loss for the nine months ended September 30, 2020.

Segment Results


The following table sets forth our selected results of operations for each of
our reportable segments for the three months ended September 30, 2020 and 2019.




                                                                                                Percentage
                                                 For the Three Months Ended      Amount of        Change
                                                       September 30,             Increase        Favorable
                                                   2020              2019       (Decrease)     (Unfavorable)
Revenue:
Government                                      $   16,264$   16,830$     (566)              -3%
Permian Basin                                       18,968            56,524       (37,556)             -66%
Bakken Basin                                         1,154             6,019        (4,865)             -81%
All Other                                           11,877             2,270          9,607             423%
Total Revenues                                  $   48,263$   81,643$  (33,380)             -41%

Adjusted Gross Profit
Government                                      $   13,213$   12,817$       396               3%
Permian Basin                                        8,606            33,285       (24,679)             -74%
Bakken Basin                                            87             2,895        (2,808)             -97%
All Other                                            1,807               781          1,026             131%
Total Adjusted Gross Profit                     $   23,713$   49,778$  (26,065)             -52%

Average Daily Rate
Government                                      $    72.27$    74.50$    (2.23)
Permian Basin                                   $    89.56$    84.20$      5.36
Bakken Basin                                    $    98.11$    77.40$     20.71
Total Average Daily Rate                        $    81.28$    80.80$      0.48




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



Government

Revenue for the Government segment was $16.3 million the three months ended
September 30, 2020, as compared to $16.8 million for the three months ended
September 30, 2019.

Adjusted gross profit for the Government segment was $13.2 million for the three
months ended September 30, 2020, as compared to $12.8 million for the three
months ended September 30, 2019.


Revenue decreased as a result of lower non-cash deferred revenue amortization in
September 2020 driven by a contract extension modification, which extended the
term through September 2026 compared to the previous term through September
2021.  This extended the period over which the unamortized deferred revenue is
spread, which reduced September 2020 amortization by $0.5 million. As a result
of extending the amortization period for the deferred revenue associated with
the amended agreement over the extended term of the agreement, we expect
non-cash revenue associated to decrease by approximately $3 million per quarter,
from $3.4 million to $0.4 million, effective beginning in the fourth quarter of
2020.  The increase in adjusted gross profit of $0.4 million is due to declines
in occupancy for the three months ended September 30, 2020, as compared to the
same period in 2019, which helped reduce costs with no decline in revenue, other
than the decrease previously mentioned, as revenue is based on a fixed price
regardless of utilization or occupancy.



Permian Basin

Revenue for the Permian Basin segment was $19.0 million for the three months
ended September 30, 2020, as compared to $56.5 million for the three months
ended September 30, 2019.

Adjusted gross profit for the Permian Basin segment was $8.6 million for the
three months ended September 30, 2020, as compared to $33.3 million for the
three months ended September 30, 2019.


The decrease in revenue of $33.1 million and decrease in adjusted gross profit
of $24.7 million is primarily attributable to the decline in utilization in the
Permian Basin due to oil price volatility and impacts of COVID-19.



Bakken Basin

Revenue for the Bakken Basin segment was $1.2 million for the three months ended
September 30, 2020, as compared to $6.0 million for the three months ended
September 30, 2019.

Adjusted gross profit for the Bakken Basin segment was $0.1 million for the
three months ended September 30, 2020, as compared to $2.9 million for the three
months ended September 30, 2019.




The decrease in revenue of $4.9 million and decrease in adjusted gross profit of
$2.8 million was primarily driven by the temporary closure of communities in the
Bakken Basin in early May due to oil price volatility and impacts of COVID-19.
 However, as customer activity levels began increasing during the third quarter,
we began re-opening several communities in July of 2020 as a result of increased
customer demand.



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Segment Results

The following table sets forth our selected results of operations for each of
our reportable segments for the nine months ended September 30, 2020 and 2019.





                                       For the Nine months ended          Amount of      Percentage Change
                                             September 30,                Increase           Favorable
                                        2020                2019         (Decrease)        (Unfavorable)
Revenue:
Government                          $      49,527$     50,115$     (588)                   -1%
Permian Basin                              89,163            161,270        (72,107)                  -45%
Bakken Basin                                5,705             16,530        (10,825)                  -65%
All Other                                  29,144             17,068          12,076                   71%
Total Revenues                      $     173,539$    244,983$  (71,444)                  -29%

Adjusted Gross Profit
Government                          $      37,701$     36,985$       716                    2%
Permian Basin                              42,257             98,529        (56,272)                  -57%
Bakken Basin                                  323              7,228         (6,905)                  -96%
All Other                                   3,938              3,823             115                    3%
Total Adjusted Gross Profit         $      84,219$    146,565$  (62,346)                  -43%

Average Daily Rate
Government                          $       73.87$      74.60$    (0.73)
Permian Basin                       $       83.36$      85.00$    (1.64)
Bakken Basin                        $       80.60$      77.40$      3.20
Total Average Daily Rate            $       79.62$      81.30$    (1.68)




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



Government

Revenue for the Government segment was $49.5 million for the nine months ended
September 30, 2020 as compared to $50.1 million for the nine months ended
September 30, 2019.

Adjusted gross profit for the Government segment was $37.7 million for the nine
months ended September 30, 2020 as compared to $37.0 million for the nine months
ended September 30, 2019.

Revenue decreased as a result of lower non-cash deferred revenue amortization in
September 2020 driven by a contract extension modification, which extended the
term through September 2026 compared to the previous term through September
2021. This extended the period over which the unamortized deferred revenue is
spread, which reduced September 2020 amortization by $0.5 million. The increase
in adjusted gross profit of $0.7 million is due to declines in occupancy for the
nine months ended September 30, 2020, as compared to the same period in 2019,
which helped reduce costs with no decline in revenue, other than the decrease
previously mentioned, as revenue is based on a fixed price regardless of
utilization or occupancy.

Permian Basin

Revenue for the Permian Basin segment was $89.2 million for the nine months
ended September 30, 2020, as compared to $161.3 million for the nine months
ended September 30, 2019.

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Adjusted gross profit for the Permian Basin segment was $42.3 million for the
nine months ended September 30, 2020, as compared to $98.5 million for the nine
months ended September 30, 2019.

The decrease in revenue of $72.1 million and decrease in adjusted gross profit
of $56.3 million is primarily attributable to the decline in utilization due to
the effects of oil price volatility and COVID-19.



Bakken Basin

Revenue for the Bakken Basin segment was $5.7 million for the nine months ended
September 30, 2020 as compared to $16.5 million for the nine months ended
September 30, 2019.

Adjusted gross profit for the Bakken Basin segment was $0.3 million for the nine
months ended September 30, 2020, as compared to $7.2 million for the nine months
ended September 30, 2019.



The decrease in revenue of $10.8 million and decrease in adjusted gross profit
of $6.9 million was primarily driven by the temporary closure of communities in
the Bakken Basin in early May due to oil price volatility and impacts of
COVID-19.  However, as customer activity levels began increasing during the
third quarter, we began re-opening several communities in July of 2020 as a
result of increased customer demand.



Liquidity and Capital Resources


Historically, our primary sources of liquidity have been capital contributions
from our owners and cash flow from operations. We depend on cash flow from
operations, cash on hand and borrowings under our revolving credit facility to
finance our acquisition strategy, working capital needs, and capital
expenditures. 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 strategy, lease obligations, contingent
liabilities and working capital investments for at least the next 12 months.
However, we cannot assure you that we will be able to obtain future debt or
equity financings adequate for our future cash requirements on commercially
reasonable terms or at all.

If our cash flows and capital resources are insufficient, we may be forced to
reduce or delay additional 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.

For additional discussion of risks related to our liquidity and capital
resources, including the impact of COVID-19 as well as the impact of declining
oil and gas prices, refer to the section titled “Risk Factors” included
elsewhere in this report.

Capital Requirements


During for the nine months ended September 30, 2020 we incurred $7.7 million in
capital expenditures. Our total annual 2020 capital budget included growth
projects to increase community capacity. However, in response to anticipated
lower utilization levels resulting from the impact of oil price volatility and
COVID-19 as previously discussed, the Company has reduced its anticipated 2020
capital expenditures by 50% to $8 - $12 million (excluding acquisitions).  As we
pursue growth in the future, 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 additional reductions 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 further
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.



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




                                                                 For the Nine Months Ended
                                                                      September 30,
                                                                   2020             2019

Net cash provided by operating activities                      $      28,592$    44,077
Net cash used in investing activities                               (10,288)       (103,132)
Net cash provided by (used in) financing activities                 

(16,027) 50,327
Effect of exchange rate changes on cash, cash equivalents
and restricted cash

                                                     (14)            (17)
Net increase (decrease) in cash, cash equivalents and
restricted cash                                                $       2,263$   (8,745)

For the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019

Cash flows provided by operating activities. Net cash provided by operating
activities was $28.6 million for the nine months ended September 30, 2020
compared to net cash provided by operating activities of $44.1 million for the
nine months ended September 30, 2019.

Prior period cash from operating activities included a transaction bonus of
$28.5 million paid in March 2019 in connection with the closing of the Business
Combination, which was fully funded by a capital contribution included in cash
flows from financing activities.  The current period also included an increase
in cash outflow for interest of approximately $11.3 million driven by an
increase in debt obligations originated with the closing of the Business
Combination. After factoring out the effects of these items, the current period
is down by approximately $32.7 million when compared to 2019 driven primarily by
a decline in revenue resulting from the negative impacts of the oil and gas
price volatility and COVID-19.

Cash flows used in investing activities. Net cash used in investing activities
was $10.3 million for the nine months ended September 30, 2020 compared to
$103.1 million for the nine months ended September 30, 2019. This decrease was
primarily related to the decrease in discretionary capital expenditures and
acquisition activity.

Cash flows provided by financing activities. Net cash flows provided by
financing activities was $16.0 million for the nine months ended
September 30, 2020 compared to $50.3 million for the nine months ended
September 30, 2019. The decrease in cash from financing activities primarily
reflects the decrease in cash received from the Business Combination and
issuance of the 2024 Senior Secured Notes that occurred in March 2019.

Indebtedness

Capital lease and other financing obligations


The Company's capital lease and other financing obligations as of
September 30, 2020 consisted of $1.1 million of capital leases and $0.4 of other
financing arrangements.  In December 2019, the Company entered into a lease for
certain equipment with a lease term expiring November 2022 and an effective
interest rate of 4.3%. The Company's lease relates to commercial-use vehicles.

New ABL Facility


On the Closing Date, in connection with the closing of the Business Combination,
Topaz, Bidco, Target, Signor and each of their domestic subsidiaries entered
into an ABL credit agreement that provides for a senior secured asset-based
revolving credit facility in the aggregate principal amount of up to $125
million (the "New ABL Facility"). Approximately $40 million of proceeds from the
New ABL Facility were used to finance a portion of the consideration payable and
fees and expenses incurred in connection with the Business Combination.
 Additionally, $30 million was drawn on the New ABL Facility during June 2019 to
fund the Superior acquisition.  During the three months ended September 30,
2020, $15 million of the amounts drawn previously was repaid. The maturity date
of the New ABL Facility is September 15, 2023.

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Refer to Note 10 of the notes to our unaudited consolidated financial statements
included elsewhere within this Form 10-Q for additional discussion of the New
ABL Facility.



Senior Secured Notes

In connection with the closing of the Business Combination, Bidco issued
$340 million in aggregate principal amount of 9.50% senior secured notes due
March 15, 2024 (the "2024 Senior Secured Notes" or "Notes") under an indenture
dated March 15, 2019 (the "Indenture"). The Indenture was entered into by and
among Bidco, the guarantors named therein (the "Note Guarantors"), and Deutsche
Bank Trust Company Americas, as trustee and as collateral agent. Interest is
payable semi-annually on September 15 and March 15 beginning September 15, 2019.

Refer to Note 10 of the notes to our unaudited consolidated financial
statements included elsewhere within this Form 10-Q for additional discussion of
the 2024 Senior Secured Notes.

Concentration of Risks


In the normal course of business, we grant credit to customers based on credit
evaluations of their financial condition and generally require no collateral or
other security. Major customers are defined as those individually comprising
more than 10% of our revenues or accounts receivable. Our largest customers for
the nine months ended September 30, 2020, were CoreCivic of Tennessee, LLC and
TransCanada Keystone Pipeline, LP, who accounted for 29% and 16% of revenues.
The largest customers accounted for 27% and 23% of accounts receivable,
respectively, while no other customer accounted for more than 10% of the
accounts receivable balance as of September 30, 2020.

Our largest customers for the nine months ended September 30, 2019, were
CoreCivic of Tennessee LLC and Halliburton Energy Services who accounted for
20.6% and 12.6% of revenues. The largest customers accounted for 9.4% and 13.9%
of accounts receivable, respectively, while no other customer accounted for more
than 10% of the accounts receivable balance as of September 30, 2019.



Major suppliers are defined as those individually comprising more than 10% of
the annual goods purchased. for the nine months ended September 30, 2020, our
major suppliers were JR Civil LLC and Sysco representing 15.0% and 13.0%, of
goods purchased, respectively.  For the nine months ended September 30, 2019,
our major supplier was Palomar Modular Buildings representing 12.9%, of goods
purchased, respectively



We provide services almost entirely to customers in the governmental and oil and
gas industries and as such, we are almost entirely dependent upon the continued
activity of such customers.



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Contractual Obligations

In the ordinary course of business, we enter into various contractual
obligations for varying terms and amounts. The table below presents our
significant contractual obligations as of September 30, 2020:




Contractual Obligations                  Total       2020       2021 and 2022      2023 and 2024      2025 and beyond
Capital lease and other financing
obligations                            $   1,481$ 1,094    $           387    $             -    $               -
Asset retirement obligations               3,683          -               
746                  -                2,937
Interest payments(1)                     113,050          -             64,600             48,450                    -
New ABL Facility                          70,000          -                  -             70,000                    -
2024 Senior Secured Notes                340,000          -                  -            340,000                    -
Total                                  $ 528,214$ 1,094$        65,733$       458,450    $           2,937



Pursuant to our 2024 Senior Secured Notes, we will incur and pay interest

(1) expense at 9.50% of the face value of $340.0 million annually, or $32.3

million. Over the remaining term of the Notes, interest payments total $113.1

     million.



Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.

Commitments and Contingencies


We lease certain land, community units, and real estate under non-cancelable
operating leases, the terms of which vary and generally contain renewal options.
Total rent expense under these leases is recognized ratably over the initial
term of the lease. Any difference between the rent payment and the straight-line
expense is recorded as a liability.

Rent expense included in services costs in the unaudited consolidated statements
of comprehensive income (loss) for cancelable and non-cancelable leases was $4.2
million and $11.1 million for the nine months ended September 30, 2020 and 2019,
respectively. Rent expense included in services costs in the unaudited
consolidated statements of comprehensive income (loss) for cancelable and
non-cancelable leases was $1.3 million and $0.2 million for the three months
ended September 30, 2020 and 2019, 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 $0.4 million and $0.4 million for the nine months ended
September 30, 2020 and 2019, 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 $0.2 million for the three months ended September
30, 2020 and 2019, respectively.

Future minimum lease payments at September 30, 2020 by year and in the
aggregate, under non-cancelable operating leases are as follows:


Rest of 2020    $   860
2021              1,887
2022                960
2023                459
2024                295
Total           $ 4,461




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Critical Accounting Policies and Estimates


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



For a discussion of the critical accounting policies and estimates that we use
in the preparation of our audited consolidated financial statements, refer to
Note 1 of the notes to our audited consolidated financial statements included in
Part II, Item 8 within our Annual Report on Form 10-K filed on March 13, 2020.
Additionally, refer to Note 1 of our notes to our unaudited consolidated
financial statements included in this Form 10-Q for additional discussion of our
summary of significant accounting policies and use of estimates. These estimates
require significant judgments and assumptions. There have been no material
changes during the three and nine months ended September 30, 2020 to the
judgments, assumptions and estimates upon which our critical accounting
estimates are based.



Principles of Consolidation


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

Recently Issued Accounting Standards


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

Non-GAAP Financial Measures

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

Target Hospitality defines Adjusted gross profit, as gross profit plus
depreciation of specialty rental assets and loss on impairment.


Target Hospitality defines EBITDA as net income (loss) before interest expense
and loss on extinguishment of debt, income tax expense (benefit), depreciation
of specialty rental assets, and other depreciation and amortization.

Adjusted EBITDA reflects the following further adjustments to EBITDA to exclude
certain non-cash items and the effect of what management considers transactions
or events not related to its core business operations:

Other expense (income), net: Other expense (income), net includes consulting

expenses related to certain projects, financing costs not classified as

? interest expense, gains and losses on disposals of property, plant, and

equipment, involuntary asset conversions, COVID-19 related expenses, and other

immaterial non-cash charges.

? Currency (gains) losses, net: Foreign currency transaction gains and losses.

? Restructuring costs: Target Parent incurred certain costs associated with

restructuring plans designed to streamline operations and reduce costs.

Transaction bonus amounts: Target Parent paid certain transaction bonuses to

certain executives and employees related to the closing of the Business

? Combination. As discussed in Note 3 of our notes to our unaudited consolidated

financial statements included in this Form 10-Q, these bonuses were fully

   funded by a cash contribution from Algeco Seller in March of 2019.


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Transaction expenses: Target Hospitality incurred certain transaction costs,

including legal and professional fees, associated with the Business

? Combination. Such amounts were funded by proceeds from the Business

Combination. The current period primarily included residual tax advisory filing

related expenses associated with the Business Combination.

? Acquisition-related expenses: Target Hospitality incurred certain transaction

costs associated with the acquisition of Superior.

Officer loan expense: Non-cash charge associated with loans to certain

? executive officers of the Company that were forgiven and recognized as selling,

   general, and administrative expense upon consummation of the Business
   Combination. Such amounts are not expected to recur in the future.

Target Parent selling, general and administrative costs: Target Parent incurred

? certain costs in the form of legal and professional fees as well as transaction

bonus amounts, primarily associated with a restructuring transaction that

originated in 2017.

Stock-based compensation: Non-cash charges associated with stock-based

? compensation expense, which has been, and will continue to be for the

foreseeable future, a significant recurring expense in our business and an

important part of our compensation strategy.

Other adjustments: System implementation costs, including primarily non-cash

? amortization of capitalized system implementation costs, claim settlement,

business development, accounting standard implementation costs and certain

severance costs.

We define Discretionary cash flows as cash flows from operations less
maintenance capital expenditures for specialty rental assets.

EBITDA reflects net income (loss) excluding the impact of interest expense and
loss on extinguishment of debt, provision for income taxes, depreciation, and
amortization. We believe that EBITDA is a meaningful indicator of operating
performance because we use it to measure our ability to service debt, fund
capital expenditures, and expand our business. We also use EBITDA, as do
analysts, lenders, investors, and others, to evaluate companies because it
excludes certain items that can vary widely across different industries or among
companies within the same industry. For example, interest expense can be
dependent on a company's capital structure, debt levels, and credit ratings.
Accordingly, the impact of interest expense on earnings can vary significantly
among companies. The tax positions of companies can also vary because of their
differing abilities to take advantage of tax benefits and because of the tax
policies of the jurisdictions in which they operate. As a result, effective tax
rates and provision for income taxes can vary considerably among companies.
EBITDA also excludes depreciation and amortization expense, because companies
utilize productive assets of different ages and use different methods of both
acquiring and depreciating productive assets. These differences can result in
considerable variability in the relative costs of productive assets and the
depreciation and amortization expense among companies.

Target Hospitality also believes that Adjusted EBITDA is a meaningful indicator
of operating performance. Our Adjusted EBITDA reflects adjustments to exclude
the effects of additional items, including certain items, that are not
reflective of the ongoing operating results of Target Hospitality.  In addition,
to derive Adjusted EBITDA, we exclude gains or losses on the sale of depreciable
assets and impairment losses because including them in EBITDA is inconsistent
with reporting the ongoing performance of our remaining assets. Additionally,
the gain or loss on sale of depreciable assets and impairment losses represents
either accelerated depreciation or excess depreciation in previous periods, and
depreciation is excluded from EBITDA.

Target Hospitality also presents Discretionary cash flows because we believe it
provides useful information regarding our business as more fully described
below. Discretionary cash flows indicate the amount of cash available after
maintenance capital expenditures for specialty rental assets for, among other
things, investments in our existing business.

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Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows are
not measurements of Target Hospitality's financial performance under GAAP and
should not be considered as alternatives to gross profit, net income or other
performance measures derived in accordance with GAAP, or as alternatives to cash
flow from operating activities as measures of Target Hospitality's liquidity.
Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows
should not be considered as discretionary cash available to Target Hospitality
to reinvest in the growth of our business or as measures of cash that is
available to it to meet our obligations. In addition, the measurement of
Adjusted gross profit, EBITDA, Adjusted EBITDA, and Discretionary cash flows may
not be comparable to similarly titled measures of other companies. Target
Hospitality's management believes that Adjusted gross profit, EBITDA, Adjusted
EBITDA, and Discretionary cash flow provide useful information to investors
about Target Hospitality and its financial condition and results of operations
for the following reasons: (i) they are among the measures used by Target
Hospitality's management team to evaluate its operating performance; (ii) they
are among the measures used by Target Hospitality's management team to make
day-to-day operating decisions, (iii) they are frequently used by securities
analysts, investors and other interested parties as a common performance measure
to compare results across companies in Target Hospitality's industry.

The following table presents a reconciliation of Target Hospitality’s
consolidated gross profit to Adjusted gross profit:




                                              For the Three Months Ended             For the Nine Months Ended
                                                    September 30,                         September 30,
                                               2020               2019                2020              2019
Gross Profit                               $      11,718$      38,556$     47,061$      115,482
Depreciation of specialty rental assets           11,995             11,222
            37,158             31,083
Adjusted gross profit                      $      23,713$      49,778$     84,219$      146,565

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




                                         For the Three Months Ended          For the Nine Months Ended
                                               September 30,                      September 30,
                                           2020               2019              2020             2019
Net income (loss)                     $      (7,870)$       9,569$     (18,267)$    6,170
Income tax expense (benefit)                 (2,991)              3,290           (5,187)          5,562
Interest expense, net                          9,913             10,172            30,113         24,056
Loss on extinguishment of debt                     -                  -                 -            907
Other depreciation and
amortization                                   4,341              4,021            12,555         11,600
Depreciation of specialty rental
assets                                        11,995             11,222            37,158         31,083
EBITDA                                        15,388             38,274            56,372         79,378

Adjustments
Other expense (income), net                       99                723                94          1,141
Restructuring costs                                -                  -                 -            168
Currency gains, net                                -               (77)                 -           (77)
Transaction bonus amounts                          -                  -                 -         28,519
Transaction expenses                              26                 35               382          9,509
Acquisition-related expenses                       -                 67                 -            370
Officer loan expense                               -                  -                 -          1,583
Target Parent selling, general,
and administrative costs                           -                  -                 -            246
Stock-based compensation                         886                433    
        2,808            643
Other adjustments                                611              1,155             3,071          1,664
Adjusted EBITDA                       $       17,010$      40,610$       62,727$  123,144








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  Table of Contents

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

© Edgar Online, source Glimpses



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