Pure Cycle(PCYO) - 2025 Q2 - Quarterly Report

PART I Consolidated Financial Statements The consolidated financial statements reflect improved financial position, increased net income, and positive operating cash flow for the period Consolidated Balance Sheets The balance sheets reflect an increase in total assets to $149.7 million, a decrease in liabilities, and a rise in shareholders' equity Balance Sheet Comparison (in thousands) | Account | Feb 28, 2025 | Aug 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $26,991 | $37,862 | | Total Assets | $149,656 | $147,354 | | Total Current Liabilities | $7,180 | $9,349 | | Total Liabilities | $15,244 | $17,652 | | Total Shareholders' Equity | $134,412 | $129,702 | Consolidated Statements of Income Total revenues increased to $9.7 million, driven by tap fees and royalty income, resulting in a more than doubled net income of $4.7 million Six Months Ended Income Statement Highlights (in thousands) | Metric | Feb 28, 2025 | Feb 29, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $9,747 | $8,583 | +13.6% | | Water and wastewater tap fees | $3,592 | $581 | +518% | | Commercial water usage | $1,175 | $3,613 | -67.5% | | Oil and gas royalty income, net | $4,717 | $87 | +5322% | | Operating Income | $392 | $1,388 | -71.8% | | Net Income | $4,746 | $2,183 | +117.4% | | Diluted EPS | $0.20 | $0.09 | +122.2% | Three Months Ended Income Statement Highlights (in thousands) | Metric | Feb 28, 2025 | Feb 29, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $3,995 | $3,197 | +25.0% | | Water and wastewater tap fees | $2,126 | $0 | N/A | | Oil and gas royalty income, net | $1,910 | $53 | +3504% | | Operating Income (Loss) | ($1,327) | ($368) | -260.6% | | Net Income | $809 | $118 | +585.6% | | Diluted EPS | $0.03 | $0.00 | N/A | Consolidated Statements of Cash Flows Net cash from operations turned positive at $4.2 million, while investing activities used $7.1 million, leading to a $3.2 million decrease in total cash Cash Flow Summary for Six Months Ended (in thousands) | Activity | Feb 28, 2025 | Feb 29, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,227 | ($1,685) | | Net cash used in investing activities | ($7,128) | ($3,192) | | Net cash used in financing activities | ($318) | ($313) | | Net change in cash | ($3,219) | ($5,190) | Notes to Consolidated Financial Statements The notes detail revenue recognition, Sky Ranch CAB receivables, segment performance, water rights acquisitions, and information on debt and employee stock plans - For the six months ended Feb 28, 2025, the company sold 90 water taps and 87 wastewater taps, generating $3.6 million in revenue, a substantial increase from 15 taps and $0.6 million in the prior year period[32] - Water sales volume to commercial customers (mainly oil & gas) dropped significantly to 367 acre-feet for the six months ended Feb 28, 2025, from 1,028 acre-feet in the prior year period[33] - The company acquired 378 acre-feet of ditch water and 300 acre-feet of groundwater rights during the six months ended Feb 28, 2025, increasing its Lost Creek water supply investment by $3.5 million[47] - In February 2025, a Water Court denied the company's application for a new 1,635 acre-feet water right from the Box Elder Creek Alluvial aquifer. The ruling did not impact existing water rights[48] Management's Discussion and Analysis (MD&A) Management discusses performance, strategy, and financial condition, highlighting increased net income, ongoing Sky Ranch development, and sufficient liquidity despite market challenges Business Strategy and Market Conditions The company integrates water/wastewater services, Sky Ranch land development, and single-family rentals, leveraging water assets in the Denver market despite high mortgage rates - The company's primary land asset, Sky Ranch, is zoned for up to 3,200 homes and over two million square feet of commercial space, which will be serviced by its water and wastewater segment[92] - The company is expanding its single-family rental business, with 14 homes currently rented and plans to grow the portfolio to 98 units at Sky Ranch over the next three years[37][50][108] - Development of Sky Ranch Phase 2 is underway across five sub-phases (2A-2E). As of Feb 28, 2025, Phase 2A is 100% complete, 2B is 95% complete, 2C is 48% complete, and 2D is 18% complete[101][102][103][104] Results of Operations Net income increased 117% to $4.7 million, driven by higher oil and gas royalty income and tap fees, despite a decline in water deliveries and increased operating expenses Six Months Ended Performance Highlights (in thousands) | Metric | Feb 28, 2025 | Feb 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $9,747 | $8,583 | 14% | | Total Cost of Revenue | $4,554 | $3,464 | 31% | | Operating Income | $392 | $1,388 | (72)% | | Other Income, net | $5,892 | $1,573 | 275% | | Net Income | $4,746 | $2,183 | 117% | Key Operational Metrics (Six Months Ended) | Metric | Feb 28, 2025 | Feb 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Water Delivered (acre-feet) | 367 | 1,028 | (64)% | | Water Taps Sold | 90 | 15 | 500% | | Wastewater Taps Sold | 87 | 15 | 480% | Liquidity and Capital Resources The company has $19.8 million in working capital, including $16.8 million cash, deemed sufficient for the next 12 months, with planned Sky Ranch investments and expected homebuilder payments - The company has working capital of $19.8 million, including $16.8 million in cash and cash equivalents as of February 28, 2025[123] - Cash from operating activities was $4.2 million for the six-month period, a $5.9 million positive swing from the prior year, mainly due to reimbursements from the Sky Ranch CAB[127] - Future capital commitments include up to $24.2 million for Sky Ranch development and approximately $6 million for 17 new rental homes over the next 12 months[124][125] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of February 28, 2025, with no material changes to internal control over financial reporting - The President and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[130] - No material changes were made to internal controls over financial reporting during the quarter[131] PART II Legal Proceedings A Water Court denied the company's application for a new 1,635 acre-feet water right and reservoir enlargement, but the ruling did not impact existing water rights - A Water Court denied the company's application for a new 1,635 acre-feet water right and for the enlargement of certain reservoirs on the Lowry Ranch[133] - The court's ruling does not impact the company's existing water rights or storage sites[133] Share Repurchases The company continued its stock repurchase program, repurchasing 16,000 shares during the quarter ended February 28, 2025 Common Stock Repurchases (Q2 FY2025) | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | December 2024 | 6,000 | $12.62 | | January 2025 | 10,000 | $11.99 | | Total | 16,000 | ~$12.24 | - As of April 7, 2025, 112,074 shares remain available for repurchase under the authorized program[135]