Pure Cycle Corporation (NASDAQ: PCYO ) is an interesting case, a utility company that transformed into a land developer. In this analysis, I will explore the company’s evolution, its growth potential at Sky Ranch, and what this means for valuation andI like how a single event can ripple through markets and trigger a chain of reactions. That curiosity is what led me to study macroeconomics and eventually shape the way I invest. I have five years of experience in the investment field and an MBA in Macroeconom ...

Financial Data and Key Metrics Changes - The company reported approximately $4 million in revenue for Q2, with a gross margin of about 38%, primarily driven by royalty income from mineral royalties [8][9] - Year-to-date revenue reached approximately $10 million, with a gross profit margin exceeding 50% and continued growth in earnings per share [9][12] - The company is on track to meet its fiscal 2025 guidance of around $31 million in revenue, with Q2 typically being the softest quarter due to seasonal factors [12][15] Business Line Data and Key Metrics Changes - The water utility segment performed well, driven by the receipt of TAPIs as new phases of development opened, with strong demand from home builders [17][20] - The land development segment has seen significant activity, with three phases under construction and a robust market for entry-level homes [28][31] - The single-family rental segment maintained high occupancy rates, with 14 homes completed and strong demand anticipated as new units come online [32][53] Market Data and Key Metrics Changes - The company noted a weaker performance in oil and gas deliveries, which was anticipated due to operators focusing on a large block of well permits [19][22] - The Denver real estate market remains active, with builders expressing confidence in the price point and demand for homes in the I-70 corridor [100][101] Company Strategy and Development Direction - The company aims to continue investing in land and water assets, with a focus on land acquisition as a higher priority than additional water rights [91][140] - The development of the Sky Ranch community is a key focus, with plans for a full build-out over the next seven years [66][70] - The company is also exploring commercial development opportunities alongside infrastructure improvements, such as a new interchange [68][135] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the current interest rate environment and its impact on affordability, which is expected to benefit builders and the company [98][99] - The company anticipates strong demand for single-family rentals as new units are delivered, despite previous delays in permitting [103][106] - The management highlighted the importance of the local K-12 school as a valuable asset for the community and its role in attracting residents [150][152] Other Important Information - The company has over $20 million in liquidity, with cash and investments totaling approximately $17 million, positioning it well to navigate market challenges [60][64] - The company is actively looking for acquisition opportunities, particularly in land, to enhance its portfolio [91][92] Q&A Session Summary Question: Status of I-70 interchange and potential acquisitions - The CEO indicated that the permit for the I-70 interchange is expected to be submitted soon, with construction anticipated to start by early 2026. Acquisitions are being monitored, but sellers have varying personal requirements for selling [85][90] Question: Update on demand in the Denver real estate market - Management noted strong demand for homes in the I-70 corridor, with builders actively constructing homes and a favorable price point for buyers [96][100] Question: Importance of land acquisition versus water rights - The CEO confirmed that land acquisition is currently prioritized over water rights due to the existing water capacity for 60,000 units, while additional land is needed for development [139][140] Question: Status of the local school and its impact - The CEO provided an update on the K-12 school, highlighting its importance to the community and plans for expanding to include a high school by 2026 [150][152] Question: Opportunities for affordable housing - The CEO mentioned that while the company is not adjacent to federal land, there are opportunities to partner with the state of Colorado for affordable housing initiatives [158][161]

Financial Performance - Revenues for the three and six months ended February 28, 2025, were $4.0 million and $9.7 million, respectively, compared to $3.2 million and $8.6 million for the same periods in 2024, representing an increase of 25% and 12.8%[3][5][6] - Net income for the three and six months ended February 28, 2025, was $0.8 million and $4.7 million, respectively, compared to $0.118 million and $2.183 million in 2024, indicating a significant increase of 577% and 115%[3][4][6] - Royalty income for the three and six months ended February 28, 2025, was $1.9 million and $4.7 million, respectively, compared to $0.053 million and $0.087 million in 2024, showing a substantial increase of 3,487% and 5,400%[3][4][6] - EBITDA for the three and six months ended February 28, 2025, was $1.8 million and $7.6 million, respectively, compared to $0.778 million and $4.198 million in 2024, reflecting an increase of 131% and 81%[3][4][6] Assets and Liabilities - Total assets increased to $149,656,000 as of February 28, 2025, compared to $147,354,000 on August 31, 2024, reflecting a growth of 1.5%[17] - Current assets decreased from $37,862,000 to $26,991,000, a decline of 28.8%[17] - Total liabilities decreased from $17,652,000 to $15,244,000, a reduction of 13.6%[18] - Total shareholders' equity increased to $134,412,000 from $129,702,000, representing a growth of 3.5%[18] Business Operations - The company operates in three business segments: wholesale water and wastewater services, land development, and single-family home rentals, enhancing recurring revenues[19] - The rental of single-family homes at Sky Ranch contributes to long-term recurring revenues and supports land development operations[19] - The company continues to prioritize investment in ongoing development projects while maintaining a share repurchase program and reserving capital for strategic initiatives[2] Development Projects - The first development phase of Sky Ranch is complete with 509 lots, while the second phase is ongoing with 1,032 lots being developed across five subphases[8][10] - The company is focused on the development of master-planned communities, with ongoing projects at Sky Ranch expected to deliver finished lots in the near future[21] - The single-family rental business had 14 homes built and rented, with an additional 17 homes under contract to build in Phase 2B starting in spring 2025[9][14] Market Outlook - The company anticipates future water and wastewater tap sales and revenues to be strong, driven by market demand[21] - Forward-looking statements indicate potential risks including home mortgage interest rates and inflation impacting the housing market[21] Water Deliveries - Water deliveries decreased to 64 acre-feet for the three months ended February 28, 2025, compared to 404 acre-feet in 2024, and to 367 acre-feet for the six months ended February 28, 2025, compared to 1,028 acre-feet in 2024[12] - The company sold 52 water or wastewater taps for $2.1 million in the three months ended February 28, 2025, and 90 taps for $3.6 million in the six months ended, compared to 0 taps in 2024[7][12] Innovation and Strategy - The company has a commitment to innovation and vertical integration within its service offerings, positioning itself competitively in the market[19]

Earnings Presentation PURE CYCLE CORPORATION For the Six Months Ended February 28th, 2025 Presented by Mark Harding www.purecyclewater.com ,-- Forward-Looking Statements Statements that are not historical facts contained or incorporated by reference in this presentation are "forward-looking statements" ("FLS") within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 as amended. FLS involve ris ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 000-08814 PURE CYCLE CORPORATION (Exact name of registrant as specified in its charter) Colorado 84- ...

Core Insights - Pure Cycle (NASDAQ: PCYO) has been a disappointing investment over the past few years, with the stock showing no significant movement since its peak in 2018 [1] Company Performance - The stock performance of Pure Cycle has stagnated since reaching its peak in 2018, indicating a lack of growth or recovery in its market value [1] Investment Sentiment - The overall sentiment towards Pure Cycle reflects disappointment among investors, as the company has not delivered expected returns over the years [1]

Financial Performance - Pure Cycle reported net income of $3.9 million for the three months ended November 30, 2024, a 91% increase compared to $2.1 million in 2023[2] - Earnings per fully diluted common share increased to $0.16, up 78% from $0.09 in 2023[2] - Total revenues for the three months ended November 30, 2024, were $5.8 million, a 7% increase from $5.4 million in 2023[2] - EBITDA for the three months ended November 30, 2024, was $5.8 million, reflecting a 71% increase from $3.4 million in 2023[2] Revenue Sources - Royalty income surged to $2.8 million in Q1 2025, compared to less than $0.1 million in the same period last year[2] - Water and wastewater tap sales increased to $1.5 million in Q1 2025, compared to $0.6 million in Q1 2024[11] - Lot sales revenue rose to $2.3 million for the three months ended November 30, 2024, compared to $1.9 million in 2023[12] Assets and Liabilities - As of November 30, 2024, cash and cash equivalents totaled $19.0 million, with working capital reported at $20.3 million[10] - As of November 30, 2024, total assets increased to $149,688,000 from $147,354,000 as of August 31, 2024, reflecting a growth of approximately 1.8%[18] - Current assets decreased to $28,202,000 from $37,862,000, a decline of about 25.5%[18] - Total liabilities decreased to $16,101,000 from $17,652,000, a reduction of about 8.8%[18] - Total shareholders' equity increased to $133,587,000 from $129,702,000, representing a growth of approximately 3.0%[18] Business Segments - The company operates in three business segments: wholesale water and wastewater services, land development, and single-family home rentals, enhancing recurring revenues[19] - The rental of single-family homes at Sky Ranch was launched in 2021, contributing to long-term recurring revenues and customer growth in the water resource segment[19] Development and Construction - The development of Sky Ranch continues, with 949 finished lots delivered to homebuilders and additional phases underway[9] - The single-family rental business remains stable with 14 homes built and rented, and 17 additional homes under contract for construction[8] Market Outlook - Forward-looking statements indicate expectations for future water and wastewater tap sales, home construction timing, and market demand for entry-level and rental homes[21] - The company emphasizes the potential impact of home mortgage interest rates and inflation on the housing market and sales[21] Additional Information - Additional information and updates can be accessed through the company's website and contact details provided[20]

Financial Data and Key Metrics Changes - The company reported record revenues of approximately $5.7 million for Q1 2025, representing a nearly 7% increase compared to the previous year [10][14] - Gross profits increased by almost 10% quarter-over-quarter, reaching approximately $3.67 million with a gross margin of 64% [12][15] - Net income for the quarter was nearly $4 million, translating to earnings per share of $0.16, which is a 78% increase in earnings per share compared to the previous year [16][19] Business Line Data and Key Metrics Changes - The water utility segment showed a slight decline, primarily due to a trade-off between monetizing tap fees and adding new connections [21] - Oil and gas revenues were anticipated to be weaker this year, but the company expects significant growth in the coming years due to numerous permits for new wells [22][24] - Tap fees increased by about 150%, and customer revenues grew by approximately 12% due to the expansion at Sky Ranch [23][35] Market Data and Key Metrics Changes - The company operates in a competitive market, with a focus on affordable housing in the Denver metropolitan area, where entry-level homes are priced under $500,000 [33][34] - The single-family rental segment saw a 14% increase in rental income, driven by both strengthening rents and the addition of new units [35][36] Company Strategy and Development Direction - The company is focused on three main business segments: water and wastewater utilities, land development, and single-family rentals, with a strategic emphasis on affordable housing [39][41] - The company aims to leverage its water rights and land development capabilities to enhance community value and generate recurring revenue [44][46] - Future growth is anticipated from the continued development of Sky Ranch, with projections of significant revenue potential from both residential and commercial developments [68][70] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's performance, highlighting a strong liquidity position that allows for continued growth and strategic acquisitions [64][65] - The outlook for oil and gas royalties remains positive, with expectations of continued high performance in the near term followed by a gradual decline [110] - The company is well-positioned to navigate the current interest rate environment, with homebuilders at Sky Ranch facing lower buy-down incentives compared to the broader market [114][116] Other Important Information - The company has a strong balance sheet and is actively repurchasing shares to enhance shareholder value [65][73] - The strategic acquisition of water assets over the past 30 years has positioned the company favorably in a water-scarce region, allowing for significant revenue generation [45][128] Q&A Session Summary Question: Can you provide more detail on the projected asset value? - Management explained that the projected asset value is derived from the number of lots remaining in inventory and the growth of reimbursables on the balance sheet [81][85] Question: What is the outlook for oil and gas royalties? - Management indicated that while there may be a decline in royalties from existing wells, new wells are expected to come online, maintaining a favorable outlook for the next five years [110][111] Question: How are homebuilders in the Denver area managing sales amid high interest rates? - Management noted that homebuilders at Sky Ranch are offering significantly lower incentives compared to the broader market, making the area attractive for entry-level buyers [114][116] Question: How does the company balance value creation versus reported earnings? - Management acknowledged the challenge of aligning reported earnings with long-term value creation, emphasizing the importance of demonstrating equity value through gross margins and asset appreciation [119][121]

PURE CYCLE CORPORATION Earnings Presentation For the Three Months Ended November 30th, 2024 Presented by Mark Harding www.purecyclewater.com Forward-Looking Statements Statements that are not historical facts contained or incorporated by reference in this presentation are "forward-looking statements" ("FLS") within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 as amended. FLS involve risks ...

Housing Market - The housing market stabilized in 2024 with consistent interest rates, but 30-year fixed mortgage rates remain at their highest level in over 15 years [99]. - The ongoing impact of the Federal Reserve's monetary policy is expected to create headwinds for the housing market in 2025 and beyond [101]. Sky Ranch Development - Sky Ranch is zoned for up to 3,200 single-family and multifamily homes, with a total of approximately 5,000 residential and equivalent units planned at build-out [107]. - The average lot prices in Phase 2 of Sky Ranch increased by approximately 38%, with the price for a 45-foot lot rising from $75,000 to $103,200 [110]. - As of November 30, 2024, Phase 2A of Sky Ranch is nearly 100% complete, with $18.4 million received from the sale of 219 lots [111]. - Phase 2B of Sky Ranch is approximately 97% complete, with $17.3 million received from the sale of 211 lots [112]. - The company has received $25.0 million in water and wastewater tap fees from homebuilders since the start of development at Sky Ranch [117]. - The company expects to recognize the majority of the remaining $13.7 million of revenue from Phase 2C before the end of fiscal 2025 [115]. - The company plans to expand its single-family rental business, with a goal of more than 200 rental homes at Sky Ranch over the next several years [102]. - The company has contracted to construct 17 rental units in Phase 2B, with estimated construction costs of approximately $6 million [134]. Financial Performance - For the three months ended November 30, 2024, net income increased to $3.9 million from $2.1 million, a 91% increase, primarily due to higher oil and gas royalty income [120]. - Total revenue for the same period rose to $5.75 million, a 7% increase from $5.39 million, driven by a 22% increase in lot sales revenue [122]. - Lot sales revenue reached $2.32 million, up from $1.90 million, reflecting ongoing development in Phase 2A, 2B, and 2C [129]. - Water and wastewater resource revenue decreased by 7% to $3.06 million, primarily due to a 52% drop in commercial water usage [127]. - The total costs of revenue increased to $2.09 million, a 2% rise compared to the previous year, aligning with revenue growth [122]. - Operating income for the three months ended November 30, 2024, was $1.72 million, slightly down by 2% from $1.76 million [122]. - As of November 30, 2024, working capital was $20.3 million, including $19.0 million in cash and cash equivalents, indicating sufficient liquidity for operations [132]. Accounting Policies - The accounting policies and estimates used for the interim consolidated financial statements for the three months ended November 30, 2024, remain consistent with those described in the 2024 Annual Report [137]. - There have been no changes to the critical accounting policies during the three months ended November 30, 2024 [137]. - Certain disclosures typically included in annual financial statements have been condensed or omitted in the interim financial statements as per SEC regulations [137].