Pure Cycle Corporation (NASDAQ:PCYO) Q3 2022 Earnings Conference Call July 12, 2022 8:30 AM ET Company Participants Mark Harding - President and CEO Kevin McNeill - Chief Financial Officer Dirk Lashnits - Vice President, Land Development Conference Call Participants Elliot Knight - Knight Advisors Operator Good morning, ladies and gentlemen, and welcome to the Pure Cycle Corporation Third Quarter Nine Months Ending May 31, 2022, Earnings Call. At this time, all participants have been placed on a listen-only ...

PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=9&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents Pure Cycle Corporation's unaudited consolidated financial statements, detailing financial position, operational results, and cash flows for the periods ended May 31, 2022 [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) As of May 31, 2022, total assets slightly decreased to $115.4 million, while total liabilities substantially decreased to $8.1 million, resulting in an increase in total shareholders' equity to $107.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2022 (unaudited) | August 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,422 | $20,117 | | Notes receivable - related party, reimbursable public improvements (non-current) | $19,320 | $8,794 | | Total assets | $115,386 | $117,177 | | Total current liabilities | $5,337 | $12,460 | | Total liabilities | $8,077 | $14,437 | | Total shareholders' equity | $107,309 | $102,740 | [Consolidated Statements of Operations](index=10&type=section&id=Consolidated%20Statements%20of%20Operations) For the nine months ended May 31, 2022, total revenues remained flat at $12.1 million, while net income significantly decreased to $4.0 million due to a non-recurring prior-year gain Key Operational Results (unaudited, in thousands, except EPS) | Metric | Three Months Ended May 31, 2022 | Three Months Ended May 31, 2021 | Nine Months Ended May 31, 2022 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $3,187 | $2,666 | $12,123 | $12,273 | | Operating income | $624 | $328 | $3,611 | $3,338 | | Net income | $837 | $624 | $4,044 | $18,276 | | Basic EPS | $0.03 | $0.03 | $0.17 | $0.77 | | Diluted EPS | $0.03 | $0.03 | $0.17 | $0.76 | - The significant decrease in net income for the nine-month period is primarily due to the recognition of **$17.3 million** in public improvement reimbursables from a related party in the prior year period, which did not recur in 2022[19](index=19&type=chunk) [Consolidated Statements of Shareholders' Equity](index=11&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) For the nine months ended May 31, 2022, total shareholders' equity increased to $107.3 million, primarily driven by net income and share-based compensation Changes in Shareholders' Equity (Nine Months Ended May 31, 2022, in thousands) | Description | Amount | | :--- | :--- | | Balance at August 31, 2021 | $102,740 | | Net income | $4,044 | | Share-based compensation | $332 | | Stock granted for services | $159 | | Stock option exercises | $34 | | **Balance at May 31, 2022** | **$107,309** | [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended May 31, 2022, the company experienced a significant net cash outflow of $14.7 million, primarily due to cash used in operating and investing activities Cash Flow Summary (Nine Months Ended, in thousands) | Activity | May 31, 2022 | May 31, 2021 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(11,933) | $193 | | Net cash used by investing activities | $(3,794) | $(2,253) | | Net cash provided by financing activities | $1,033 | $59 | | **Net change in cash, cash equivalents and restricted cash** | **$(14,694)** | **$(2,001)** | [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies, significant transactions, and financial statement components, including public improvement reimbursements, new business ventures, and subsequent events - The company determined in fiscal 2021 that reimbursement for public improvements, project management fees, and interest from the Sky Ranch Community Authority Board (CAB) was **probable of collection**, leading to the recognition of these items as a **note receivable** and **related income**[30](index=30&type=chunk)[35](index=35&type=chunk) Note Receivable from Sky Ranch CAB (in thousands) | Component | Balance at Aug 31, 2021 | Activity during 9-mos ended May 31, 2022 | Balance at May 31, 2022 | | :--- | :--- | :--- | :--- | | Reimbursable public improvements and other | $20,580 | $8,845 | $29,425 | | Accrued interest | $2,559 | $1,152 | $3,711 | | Project management services | $1,655 | $529 | $2,184 | | **Total reimbursable costs** | **$24,794** | **$10,526** | **$35,320** | - The company has begun a **single-family rental business**, completing **three homes** in November 2021 and planning to expand with an additional **46 lots** reserved in Sky Ranch Phase 2[44](index=44&type=chunk)[57](index=57&type=chunk)[61](index=61&type=chunk) - Subsequent to the quarter end, on June 27, 2022, the company acquired approximately **370 acre-feet of water rights** in the Lost Creek basin for **$3.6 million**, funded partially by a new **$3.0 million loan**[102](index=102&type=chunk)[103](index=103&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's diversified business model, operational results, liquidity, and capital resources, highlighting segment performance and future commitments for the periods ended May 31, 2022 [Business Strategy and Overview](index=34&type=section&id=Business%20Strategy%20and%20Overview) The company's strategy leverages its water rights and land, integrating wholesale water/wastewater services, Sky Ranch land development, and a new single-family rental business to create a cohesive ecosystem - The business model integrates three segments: **Water and Wastewater Resource Development**, **Land Development** (primarily Sky Ranch), and a new **Single-Family Rental business**[105](index=105&type=chunk)[108](index=108&type=chunk) - The second development phase at Sky Ranch includes contracts to sell **804 residential lots** to four homebuilders, with an approximate **40% increase** in average lot prices compared to Phase 1[116](index=116&type=chunk) - The company is expanding its **single-family rental business**, with **three homes completed**, a fourth under construction, and **46 lots reserved** in Sky Ranch Phase 2 for future rental units[107](index=107&type=chunk)[123](index=123&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) For the nine months ended May 31, 2022, operating income increased 8% to $3.6 million, while net income significantly decreased 78% to $4.0 million due to a non-recurring prior-year gain, with varied performance across segments Consolidated Results Summary (Nine Months Ended May 31) | (In thousands) | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $12,123 | $12,273 | $(150) | (1)% | | Operating income | $3,611 | $3,338 | $273 | 8% | | Net income | $4,044 | $18,276 | $(14,232) | (78)% | Water and Wastewater Segment Operating Income (Nine Months Ended May 31, in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total segment revenue | $5,891 | $7,386 | $(1,495) | (20)% | | Segment operating income | $2,782 | $4,524 | $(1,742) | (39)% | Land Development Segment Operating Income (Nine Months Ended May 31, in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $6,173 | $4,887 | $1,286 | 26% | | Segment operating income | $5,013 | $2,800 | $2,213 | 79% | [Liquidity, Capital Resources and Financial Position](index=52&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Financial%20Position) As of May 31, 2022, the company maintained $18.6 million in working capital, with significant future capital commitments for Sky Ranch infrastructure and the WISE water partnership, expected to be funded by homebuilder payments and bond offerings - Working capital was **$18.6 million** as of May 31, 2022, including **$5.4 million** in cash and cash equivalents[160](index=160&type=chunk) - The company anticipates spending **$18.8 million** on Sky Ranch infrastructure in the next twelve months, expecting to receive an equivalent amount in payments from homebuilders[161](index=161&type=chunk) - The company anticipates receiving at least **$16.0 million** from a Sky Ranch CAB bond offering expected to be completed before August 31, 2022[115](index=115&type=chunk) - Future capital commitments include funding the Rangeview District's participation in the WISE water project, with an anticipated investment of **$1.0 million** in 2022 and **$5.8 million** in total for fiscal years 2023-2025[163](index=163&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has indicated that this item is not applicable - Not applicable[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) As of May 31, 2022, disclosure controls and procedures were deemed ineffective due to a material weakness in internal controls related to tracking public improvement reimbursables, with remediation efforts underway - Disclosure controls and procedures were deemed **not effective** as of May 31, 2022[173](index=173&type=chunk) - A **material weakness** was identified in internal controls related to **ineffective management review** of spreadsheets used to track public improvement reimbursables and interest income[173](index=173&type=chunk) - **Remediation efforts** include adding more review steps for complex schedules and considering the implementation of an automated software system[173](index=173&type=chunk) PART II. OTHER INFORMATION [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended August 31, 2021 - There have been **no material changes** during the three and nine months ended May 31, 2022, to the risk factors discussed in the 2021 Annual Report[177](index=177&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files - The exhibits include **certifications** from the principal executive officer and principal financial officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act[178](index=178&type=chunk) SIGNATURES - The report was **duly signed** on July 11, 2022, by **Kevin B. McNeill**, Vice President and Chief Financial Officer of Pure Cycle Corporation[181](index=181&type=chunk)[182](index=182&type=chunk)

Financial Data and Key Metrics Changes - The company reported a slight decline in revenue compared to the previous year, primarily due to the recognition of $1.5 million in project management revenues last year that were not expected to be collectible at that time [44][46] - Operating income remained consistent around $3 million, with net income showing slight growth when excluding last year's significant public improvement reimbursements [45][46] - Water and wastewater assets have seen a 65% increase in investment, with 137 million gallons delivered in the second quarter, largely for oil and gas operations [47][48] Business Line Data and Key Metrics Changes - The land development segment is progressing with the second phase, which includes 850 lots, and gross margins have remained consistent [49] - The single-family rental segment has three homes rented out, generating approximately $34,000 in annual revenue, with a fourth home under construction [50][38] Market Data and Key Metrics Changes - The company has approximately 970 customer connections, with growth expected to continue in both residential and industrial water usage [13] - The demand for water from oil and gas operators has reached record levels, benefiting from high oil prices [14] Company Strategy and Development Direction - The company is focused on executing its three business segments: land development, water and wastewater, and single-family rentals, aiming for cohesive growth across all areas [52] - There is an emphasis on seeking new land and water deals to enhance growth opportunities [53] - The company is also prioritizing shareholder returns through recurring revenue from single-family rentals and is enhancing its ESG reporting efforts [53] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of legacy assets in generating income and the company's strong position in inflationary times due to hard assets like land and water [61][62] - The company anticipates continued growth in revenue as it ramps up deliveries in the second phase of development [80] Other Important Information - The company has two significant reservoir assets that are being explored for regional water supply opportunities [75] - The company is positioned to increase tap fees by approximately 2.5% to keep pace with surrounding water providers [76] Q&A Session Summary Question: Discussion on inflation and tap fees - Management explained that tap fees are set based on agreements with the State of Colorado and are influenced by surrounding water providers, with a focus on remaining competitive [67][68] Question: Update on reservoir sites - Management provided an update on two reservoirs, emphasizing their value and ongoing exploration for development opportunities with regional partners [73][75] Question: Earnings and asset monetization - Management acknowledged the current phase as a trough but emphasized the potential for revenue growth as Phase 2 ramps up [78][80] Question: Status of models being built in Phase 2 - Management indicated that construction is progressing and that the company is on track to deliver all lots as planned [80][89]

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, 2022 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 | ...

Pure Cycle Corporation (NASDAQ:PCYO) Q1 2022 Earnings Conference Call January 11, 2022 8:30 AM ET Company Participants Mark Harding - President and CEO Conference Call Participants Robert Howard - Boiling Point Resources Elliot Knight - Knight Advisors Geoff Scott - Scott Asset Management Operator Good morning, ladies and gentlemen and welcome to the Pure Cycle Corporation Quarter Ended November 30th, 2021 Earnings Call. At this time, all participants have been place on a listen-only mode and the floor will ...

PURE CYCLE CORPORATION Earnings presentation for the three months ended November 30, 2021 COMPANY WATER & WASTEWATER SINGLE FAMILY RENTALS FINANCIAL LAND DEVELOPMENT OVERVIEW RESULTS www.purecyclewater.com Presented by Mark Harding, CEO 1. | --- | --- | --- | --- | --- | |-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

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 November 30, 2021 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- ...

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Pure Cycle Corporation (NASDAQ:PCYO) Q4 2021 Results Earnings Conference Call November 9, 2021 4:00 PM ET Company Participants Mark Harding - President and CEO Conference Call Participants Operator Good day, ladies and gentlemen. And welcome to the Pure Cycle Corporation Year Ended August 31, 2021 Earnings Call. At this time, all participants have been place on a listen-only mode. And the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to yo ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-8814 PURE CYCLE CORPORATION (Exact name of registrant as specified in its charter) Colorado 84-0705083 (State or other jurisdiction of incorporation or organization) ( ...