Q4 2023 Pure Cycle Corp Earnings Call
Greetings and welcome to pure cycle Corporation year end 2023 earnings call.
At this time, all participants have been placed in a listen only mode and the floor will be open for questions. After the presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your highest Mr. Mark Harding, President and CEO of P O cycle Mark over to you.
Thank you Jenny.
Good morning, and welcome.
As we mentioned this will be our fiscal year end 2023 call.
Added to be able to highlight some of our activities. The financial results for the last fiscal year and really kind of give you guys.
An idea of how the company's doing with each of its business segments.
For logistics.
There is a slide deck for this presentation. If you go over to our website, if you recycle water dot com.
Tab on the landing page that says joined the live presentation, you can click on that and you'll see the slides for that.
<unk> been asked to note for those that are going to be listening to this after the call or listening to the rebroadcast will have the audio presentation put up on the website. So you can click on the audio and then you'll have the.
The slide deck as well so you can click through the slides and kind of match the audio to the slides as well youre listening on a rebroadcast of it.
So with that I'm going to start in the first thing we got to do is talk about the forward looking statements and the fact that our statements are not necessarily historical facts and may be incorporated by reference in this presentation. I think most of you are familiar with the forward looking statements, but we will get the lawyers out of the room and kind of get on with it.
Talking a little bit about the year.
Do a little bit different this year I know.
Most of you are going to be familiar with the company and so for those of you that are going to be new to the company.
You can kind of see run through our website. There is a ton of different resources on the web site that will be a little bit more in depth about the company what are.
Each of our business segments are in sort of the portfolio that we have what we're going to do is talk a little bit about our strategies talk a little bit about how we measure performance a little bit about the asset trajectory and then kind of the objectives in the capital plan The company chart sooner.
Yes.
One of the things that we do describe a lot of it is kind of highly valuable assets and as many of you have heard me talk from time to time, what our most valuable asset really is.
Who we get to work with at our company are our people here.
You've heard me talk.
About the growth of those assets and our leadership team.
<unk> continues to grow so we continue to add human capital to the company to continue to execute all of our business segments. We have a just a tremendous board of directors very strong.
Punch above our weight necessarily for a small company with the caliber of the board of directors that we have in each of our business segments are really complementary where we add value and one we add value to all and so youll get a little bit of a flavor for how we invest in each of our business segments, and then a little bit about.
The investments and the assets are performing so with that.
Wanted to talk a little bit about our leadership team I want to welcome Marc is valley to the team. This makes our three marks in leadership positions in the company and I am not sure. If there's a correlation to the name and the smart factor I'm, just saying, we've got a lot of smart folks there, but a lot of them named Mark.
Uh huh.
Mark joins us as our CFO, we continue to rely on the wisdom and experience of Scott Lehman to direct our engineering and then Dirk Glassner, who handles our land development segments continued strong leadership team within the company.
Okay.
We operate.
We operate in three complementary business segments of water and wastewater resource development segment, where we have a strong portfolio of water rights, we develop those water rights under a cradle to grave approach, where we own the water we develop the infrastructure that diverts it that pulls the to the surface streets that delivers it to our customers we collect that back.
And we process that water and reuse the water supply.
We have in in the last few years really excel that land development and we're developing one of the more highly respected master planned communities in the Denver Metropolitan area, and really succeeding not only for developing the land you know in a smart and efficient way, but.
Also making sure that we're developing that land in an affordable entry level market segment, which is really benefiting us in kind of a diversity of market segments in the housing business and then more recently really adding single family rentals to that holding back some of those lots that we have.
That we're developing and delivering to our homebuilder customers and keeping those lots of ourselves to have homes for single family rental. So each of these segments really do relate to the other one and as we invest in each of them all of them are benefiting so you see a strong leverage effect on how these investments add to the entire portfolio.
Please go to the company.
Taking a look at the next slide our strong asset portfolio.
Important about our assets is not only how valuable they are in our business segments, but how we continue to grow each of them and that we're still very early on in each of these segments. You hear me talk a lot about you know are highly appreciated assets that we've had in some of these we've had for a very long time in our water and wastewater assets, we've had for more than 30.
Years, if you take a look at just that segment alone. We continue to grow that segment, we've got about $64 million in total assets.
That particular segment and at our current rates and charges and we will talk a little bit more about this later in the presentation, but it has the capacity to generate over $2 billion in revenue potential our land development segment. We bought those are bought that land right we bought that.
The height of the great recession in 2010, very low basis in that about $4 $5 million and as we'll highlight a little bit more.
That asset continues to generate very strong returns and is more than about $500 million of asset potential revenue potential and its continued development.
And then taking a look at our newest segment, where we continue to grow we have a gap of about four of about $5 $4 million and 14 single family rental homes currently to date.
We have a unique ability to carry forward some of the equity value that we have in the land and the water side of that and so what we have is a strong leverage opportunity in a tax advantaged way of renting those out and having that asset which has a fair market value of about $7 2 million continue to grow we're looking at growing that segment up to more than one one.
<unk> million dollars with a couple of hundred units.
In our Sky Ranch community, and we'll talk a little bit more about that.
What I wanted to do is jump straight into some of the financial results for the year and some of the key performance indicators, let you know a little bit about the key takeaways and kind of how we think about that.
This year, we generated about $14 $5 million and about $8 million and gross profit areas revenues are down just a bit and it's largely due to.
Timing of the starting of Phase II B, you know as interest rates started to get really wonky about this time last year somehow our homebuilder customers really wanted us to.
Give them a 90 day breather to see how this was going to stabilize out and so that on a percent complete basis on how we develop our lot revenues really was the reason for a lot of the shift in some of these revenues also they had some timing gaps are in some of our fracking last summer and it was really due to advanced.
<unk> technologies on now.
Now drilling and fracking even longer laterals. They started out of the mile. They were going to two miles and in some wells are now at three mile laterals and so there's a little bit of a learning curve on fracking those three mile.
Horizontal wells on that they haven't really lost any of these revenues were sort of just pushing and adjusting the timing variances of these into Q Q1 and into fiscal 'twenty four.
Our net income and earnings per share continued to generate strong net income and earnings.
Under great margins and return on our assets and I'll highlight a little bit of that in.
In some of the details here.
Taking a look at what we often talk about our highly appreciated assets and the healthy margins and one of the things I thought I'd do is really try and highlight them for you taking a look at each of the three segments. Our water segment, our land development segment and our <unk> segments gross margins in here are tremendous opportunities.
Lot of it is just because of the length of time and you know our disciplined approach to acquiring these assets and how we develop these assets in each of the segments you know our water assets. How we look at those we look at those on gross margins.
Excluding depreciation so it's kind of a gross margin EBITDA approach to it and you know we have both tap fee margins in there as well as the usage revenue margins.
In our land development segment.
Our gross margins there are extraordinary.
Those do include not only the opportunities that we generate when we sell lots to the builders, but also through the public improvement Reimbursable. So that we get and we've talked a lot about that through as we build the roads curbs and gutters, we turn those over to the governmental jurisdictions and then we get paid back for those investments through various.
Funding mechanisms and municipal bonds and those types of activities and then recently <unk>, which continued to generate high margins for us largely because of the equity roll that we have in carrying forward the land and the water opportunity. There. So it gives you a kind of a framework for not only how we're generating.
<unk>.
The revenues on that but what the margins are on each of those business segments.
Talk a little bit about where our revenues come from our in our water and wastewater segment is.
You can see through this illustration really three quarters of our revenues come from sales to oil and gas and then really taking a look at the water or the residential wastewater treatment and commercial water that are allocated from <unk> largely due to irrigation.
Copies are largely generated through our land development segment at Sky Ranch, Although we do have continued growth in some of our other businesses acquisitions and the wild Pointe sector, where that's an existing community and we're building out.
Most of the residential is completed there, but we continue to build out some of the commercial in there and some of those commercial water customers.
And then what this is continues to show US a tremendous continued growth in our customers year over year. So we've got a 20% customer growth and that's largely driven.
Driven by the Sky Ranch project, but great organic growth and our customers.
Okay.
Land development talk a little bit about we delayed the start of that phase II B, which we talked about there was about a 90 day delay at the request of our homebuilders and really it was just because they wanted to kind of see how the.
The market segmentation was going to shake out with the with the rising interest rates.
And then all of this really did was pushed a little bit of our percent completion in phase II b into fiscal 'twenty four market I'd say is it's fairly stabilized. When you took a look at interest rates. They are more attuned to kind of our historical average at that 7% rather than you know what was an anomaly at the low rates.
But what we are seeing is the strength of our market segmentation that entry level market segmentation is.
Really enhancing the.
The Sky Ranch project, it's really providing our homebuilder partners the opportunity to continue to build and be aggressive in the marketplace and so one of the things that we've seen is a demand for not only what we're doing and to be but to start to see an overlap.
The next 211 lots with the 200 that we delivered.
Or is that with the 211 in phase two C with about the 215.
<unk> 15 lots that we're doing in phase II b, so youll see a little bit of that overlap in <unk>.
Coming quarters in fiscal 'twenty four.
Single family rentals are one of the things that we're able to do with this delay in the start of the <unk> project was expand our portfolio of single family rentals in phase two and we went from what we originally had reserved as 40 lots of 65 lots in <unk>.
Was an opportunity for us to become the first customers in phase II B for our homebuilders and Thats great for us because we've got an efficient way of delivering those homes to the market.
And then also our homebuilder customers are really adding to their portfolio and how they are building. These units and getting started with the rental homes that we actually hold in our portfolio. So we're very excited about this segment how it continues to grow and the opportunities for us in renting these out in China.
Seeing continued strong demand.
As I've spoke from time to time the thing that we were able to do is really rent. These out as if they were a fair market value all met that $500000 level. When in fact, we've got incremental investment that we can finance with very affordable capital its mortgage base capital.
<unk>.
And be able to leverage the continued expansion not only to the balance sheet, but the income statement here. So we really like this segment and we will continue to grow it.
We've talked a lot about where our revenues come from and that we earn great margins, but that isn't the whole story it might be helpful for us to illustrate where we are in the cycle of development of these assets I E. How much pedal we have left in each of these business segments with whats currently baked into the company with what.
We are with what we control and so highlighting some of that is going to be really giving you a flavor for how we look at it in the news he hasnt been excitement that we own not only for each of the business segment, but for how we grow this company.
If you take a look at our water and our wastewater segments. You've heard me talk about this in the many many times, where you know our water portfolio can provide service up to 60000 connections. We're currently a little over 1300 connections out of 60000 connections. So gives you a kind of an understanding of where we're extremely early on in the <unk>.
Development of that utility segment and our.
Our rates and charges the tap fees, the cost of developing new water supplies and bringing them from farther and farther distance.
Distances really are the reflection of the cost of those staff. These continue to rise we continue to mark and set our rates at a competitive rate to the market, but they continue to grow and so we're very excited about that continued growth and the continued value of that asset.
In the land development asset side and Sky Ranch as we highlighted in some of the previous slides.
We're at about 700 out of 5000 units. So we're still very early on and that we're about 14% 14, 5% of the total number of lots developing in that and we continue to grow if you take a look at our balance sheet. We have is very very strong balance sheet with a strong cash position and an even.
<unk> liquidity position when you add in the receivable that we have for the municipalities that we build that infrastructure for them and then in our single family rental segment.
As we've talked we've got 14 completed units and really looking for 200, maybe even more 200 to 300 units in that segment. So we will continue to grow that segment, which really again illustrates how we're really early on in each of these segments.
Water and wastewater customers in capacities continued customer growth in utilities really what this is going to illustrate we have 1300 and 26 to be exact and it really shows you where those are coming from we got a wild Pointe Sky Ranch, and our Lowry Ranch service area and really one of them.
Sure hidden assets of the company is.
Our services are exclusive service area to over 24000 acres of property that's in the right location in the Denver Metropolitan areas.
As you take a look at some of the graphics on our website is that large.
Pink area that really represents continued growth and really just kind of illustrates both the existing and new residential as well as existing and new commercial growth in these segments.
Our largest customer in the water segment comes from oil and gas and the outlook in oil and gas continues to look positive looking at it you know.
The the field ownership has consolidated changed hands several times over the last few years, but now is consolidated into kind of a couple of large local operators. The field is mostly derisked, where youre seeing.
A large pads.
Pad site development, where theyre now on each individual pad site, they've got all of the takeaway infrastructure installed the gas takeaway systems. So they don't.
Have to flare or any of that gas they take it away into the large distribution systems.
And really.
Developing it based on the backbone infrastructure they've got so it's in that field development stage in the oil industry and we have something along the lines of one and a half rigs working this field are on a continuous basis a lot of that is going to be drilled in and around our service area and in <unk>.
In and around those Arapahoe County area. So we're very optimistic about how this continues to add revenues to the company and really for the foreseeable future. So look for continued growth and continued high performance in the oil and gas sector.
Let me talk a little bit about some of our delivery capacities. We continue to when we take a look at our capital allocation, we continue to invest in wells and pipelines and storage, which add to the total availability of us to supply water and so when you take a look at that this is really an illustration.
One of our supply and diversified sources of supply, where we generate our infrastructure and our surface water system, which is in the box Elder Creek system, our groundwater system out of the Lowry ranch some of our groundwater assets out at Sky Ranch, and our and on our existing.
<unk> customers on Lowry at DHS.
Facility, and then also our wise infrastructure and water supply, which you'll hear me talk a little bit about and you'll hear discussions in the 10-K about which is our regional water supply.
When you take a look at the total capacity and what we're how we're using that water, we're really only using a collective 15% of our capacity. So we still have lots of opportunity for adding.
More supply and that's largely going to come from oil and gas as that continues to grow but as we continue to add more connections on sky ranch in more residential customers really youll see that capacity ratio between our residential and our commercial customers kind of readjust. So.
It gives you a framework, where we still have lots of ability to generate additional revenues as we continue to see that demand for water grow in our service area and in amongst our areas that we serve in unincorporated wrap up and then there's also kind of.
How we generate tap fee revenue from that so we have the ability at current rates actually I think that $88 million really illustrates what we were looking to develop that.
The tap fee revenue of the same source of supply that we've got developed and with the fee increases that we had I think that exceed more than 90 million now so great capacity in our developed water system is just why we continue to.
Pay attention and make good investments there because there's great capacity for us to grow.
Yes.
This illustrates kind of where we're at in our water portfolio in so as you've heard me talk about we've got about 30000 acre feet of water.
And.
That can serve about 60000 connections and when you really look at what we're using on that and we're developing that largely through sky ranch. The existing number of connections at Sky Ranch. The total allocated supplies about 1100 units, which is roughly only 2% of that supply when you take a look at what we've got.
Developed capacities for we can supply another 2500 taps of that water supply from what we had on the previous slide. So that's another 90 $95 million worth of tap fee revenue and so we're really.
Just starting out on the water allocation in our portfolio. We have one of the largest unallocated portfolios in the metropolitan area and really because of the growth of the Denver area out to our service area. This continues to be one where we have growth opportunities not only in the water.
Happy connection charges, but also in the usage charges.
And then a little bit about the land side. So when you take a look at the land capacity.
We have been developing that over the most recent four years and taking a look at delivering.
Lots to our homebuilder customers.
Currently we've got about a little over 720 lots that have been.
Either delivered homes on our homes under construction on and so thats about 14% of the total capacity at Sky Ranch. When you take a look at adding everything into phase two which is going to be how we deliver phase two a b as 100% complete you saw that illustration earlier.
<unk> is about 30% C is just getting started at around 9% and then D. So you look at that with all of phase two.
That was roughly at about 25, 27% so about a quarter of the total capacity at Sky Ranch and when you translate what we're making there to the balance of the residential and the commercial portfolios, that's where you get that roughly looking at about 500 and.
$80 million at current rates today, so a lot of pedal left on Sky Ranch and we continue to be aggressive on continuing to deliver those on adjusting time basis. So our homebuilder partners really continue to enhance their margins on that without taking these large inventories.
Gives you a bit of a feel for how our land side is and then.
Where we look to be and where we're going on our single family rentals. If you take a look at that and we will.
Peg a market at 200 units and right now we've got just 14 units. So we're about seven into those and that 200 units is.
It's still less than 10% of the overall capacity of the residential units at Sky Ranch and so we think thats a very conservative.
The number to add to the portfolio. There is there is room.
And for us to be expanding beyond the 200 units, but this gives you a kind of an illustration of where that looks to be.
With phase phases, one and two and then really the all of two B C and D with that other 55 units. So that would again carry us up to about 27% of the overall portfolio and then still have a plenty of pedal left on that to generate annual revenues.
In excess of six somewhere close to $7 million and then it's going to be about $100 million portfolio. When you take a look at.
A couple of hundred units on an average sale price at that half a million dollars in it and it continues to grow.
And appreciate it for five 5% a year and these housing market. So a very good.
Opportunity for us to continue to grow within that segment.
This is some of the highlights of just the single family rental you see me illustrate this before but it shows our existing units the average home per year.
The projection into phase two and then on through the balance of the project. So gives you a bit more metrics on that.
So some of the key takeaways here, we're looking at some very attractive gross margins.
Not only gross margins, but return on assets and making sure that we continue to invest in those assets that are part of our capital allocation plan continued asset growth.
And really gives you kind of the strength of our ability to take advantage of the investment opportunities here and really a clear path to continue to maximize returns with this large asset portfolio.
And our historically low cost basis, each segment allows us to generate above market returns and substantial organic growth within those things that we can control.
Next slide what's important is not only for us to understand how you all measure our success, but also probably a little bit helpful. For you to understand how we measure our success in these objectives that we go through as you've seen in this presentation are very.
<unk> discrete measurable objectives.
They have.
Synergistic effects with these complementary business segments.
Look to allocate capital through expansion of these assets and continued to realize these great margin returns and also look for acquisition opportunities, which will complement our existing segments. You've heard me talk about the fact that we've got our nets out and these asset values have been very very high historically.
And then with <unk>.
Kind of a softening of the housing market.
Mostly end market segments other than the entry level I think the entry level is still highly sought after just because of a lack of inventory we've talked from time to time about the just the anemic level of affordability in the Denver market and I know that other major metropolitan markets struggle from that affordability.
<unk> factor as well, but it continues to give us opportunities to be in front of land owners that may have an interest in selling continues to be in the front of water owners as we can continue to expand our water portfolio and then invest in our own assets. So that we can continue to generate margins.
In each of our segments.
You want to highlight also that we are investing in ourselves as you all know that we did authorize the share buyback program.
Typical to the company's profile.
Doing that in a measured and consistent allocation continuing to invest in buying back shares.
Over cooler so you'll continue to see us do that.
We're not we're not in it to support.
A particular share price, but by the same token to illustrate to you regardless of the share price that we continue to think that.
We're extremely undervalued for what the company is doing what our company opportunities are and if the market doesn't continue to understand that and we will continue to make that investment in ourselves.
Finally.
Kind of a listing of.
Our board and our management, we continue to benefit from the terrific expertise and guidance an experience of a very diversified very significant board of directors and so with that I'm going to turn it back to Jenny we can see if we can open it up to some Q&A and really highlight any specifics that you all want to focus on.
Thank you very much at.
At this time, we will be conducting a question and answer session.
Would like to ask a question. Please press star one on your find keypad.
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Thank you. Your first question is coming from John raising bag of Laughlin to water partners. John Your line is life.
Thank you good morning, Mark nice to good morning, John.
One comment and one question first and I'll get to the question.
And by the way nice to see the progress that you guys are making.
What you didn't update and I'm very curious about is how is the school going.
The charters are here when we enter them.
Yeah.
Yeah.
One of the two successes.
One of the things that I think it was one of my very first meetings that we did when I. When we sort of made the decision that we were going to do the land development ourselves was really to center. This community on two key principles, one well three key principles one would be location.
Right off the Interstate we have just great transportation location I mean, we are literally our residents are literally on the interstate within a minute.
And can go wherever they want to go.
The second one was affordability, making sure that we.
Affordability.
Use that term loosely in the Denver market, because nothing is affordable in the Denver market, but when you look at entry level, we wanted to make sure that our our homebuilder customers would be competitive at that entry level product, but the third one was education and so we had our when I sat down with our land planners, what we wanted to do.
<unk>.
Really centered the community around and do I have that.
Mike.
Yes.
Well I guess I don't.
It was going to is on our website youll see a lot of the pictures of the school side, but in terms of the land plan. The school was that the center point of the community such that every child would have a local community a local school within the community that they could work too and so we went out and kissed a lot of frogs.
The charter school opportunity.
We ended up partnering.
With what was a true prints.
The National Heritage Catamenia is.
The group of.
Charter schools that are headquartered out of Michigan and they have over 100 schools in nine states 60000 students and we set a fairly ambitious goal of making sure that we could open and open early and make sure that that was a selling point for all of our homebuilders and we were able to achieve that this year. So we did open up those grades.
I was privileged to be able to cut the ribbon on that and open upgrades K through seven.
Something like 400 students there with.
With a weighted percentage of those students walking to school from our community, but we're drawing from all over and so we get we're getting students coming in from all aspect of the Denver area.
And really liking the model that we have with that school so.
Continuing with that what are what our objectives. Here is we have a full K 12 campus and where the first K 12 campus for NHI and this in their national platform, they're very excited about it they've got.
Other K 12 campuses that they've got planned and are working towards but we were their first K 12 campus and we'll start we're not not to rest on our laurels on opening the first.
So that school, but really will start working on a high school portion of that with the planned opening of the high school in August of 2025, such that our seventh graders, we will be able to go to eighth grade at the existing school and then transition directly into high school for nine through 12 grades, but we're very excited.
About that opening of the high School Army.
<unk>.
School, that's great and good to hear that you guys are making progress in that area I'm sorry, one more question came to mind something you've talked about in the past just for an update.
What about a big box store locating in proximity.
You probably have some retail by now in.
Sky Ranch surprise, you, Don, but yes, <unk> Kroger and yes.
We have we have big box, Kroger, and and big box retailers, whether thats, a lowe's or home depot or Walmart any number of those in.
Surprisingly.
They.
Theyre looking I'm trying to work on incentivizing some of those folks to come in there are sort of saying listen.
There's really not much you can do to incentivize us we're looking at rooftops, where looking at pull within the region. We're looking at infrastructure and all those sorts of things and so.
We do have a good land plan for that commercial.
Our residents are dying to get.
A grocery and a fuel station there but.
We're probably still <unk>.
18 months two years out from getting some of that stuff.
Into a groundbreaking for them, but there is there is a lot of interest and a lot of folks we it isn't that we're not talking to them. We are they are putting pins in it they they really want to be here, but they need a little bit more rooftops to be able to get there.
Get the flag in the ground on those and in other words, everybody wants to be first to be second.
That's exactly that's a great way to phrase it.
Okay, and just lastly, just to comment glad to see you guys started on the share repurchase and I think that's a great validation of your model and cash flow.
Abilities.
I'll pass it on thanks, good to hear from you.
Gary.
Thank you very much.
Question is coming from Bill Cunningham, who is a private investor Your line is live.
Hi, Marc Thank you as usual for taking my calls I greatly appreciate it.
And I had actually my first question was going to be up about commercial which you've just mostly answered but I do remember during your Investor Day I think he made some general comments about the the southern section of that commercial being possibly some sort of apartment development.
Which I think was a fairly significant number possibly and wondered if you might be able to say anything about that yet.
Yes.
We do have we do have a placeholder for that and can go somewhere between 400 600 multifamily units there and it's a good spot for it because not only does it add density.
And that helps us in terms of assessed value and mill levies and taxes that helped us with the reimbursable, but it's also a great spot for us on the transitioning between commercial and detached residential so it'll be right along the southern border of that and you're right.
I get lots of interest from folks on that and really we want to be a little bit more mature before we put that product up.
Because we want to be.
We're looking at kind of that.
Being another one of the affordability factors in there.
We wanted to make sure that that's an opportunity for folks that can transition from and as we look at it transition from our multifamily to single family multifamily rental to a single family rental to a single family House and really doing that all within the same.
Community in the same opportunity and so.
Good that's good that you continue to highlight that in and I apologize for not being more specific about that and some of my commercial detail.
No that's fine I, just thought I know, you're still working out details and so that's why I was kind of asked the question. The way I did because I know, sometimes you plant constantly you have to shift things as markets change and what your current thought is and what kind of feedback you're getting so that's why I kind of ask for open ended question that I did so this was very helpful.
And also the school I mean, the the apartment location would be directly adjacent to the school site also right.
It would it's not going to it may be some of the units maybe directly across the street, but some of them are going to be on kind of the eastern portion of that area.
Really south part of the commercial north part of the residential.
Okay, which is why it like a five minute walk to school from there.
Yeah, Yeah, Yeah. So I think I mean, I guess my point is just it's a very good close location for dense population to where the school ways. So that looks interesting.
And really if you look.
Go ahead I was just going to highlight the location of the school is a five minute walk for everybody.
But it's got to be it's a five minute walk uphill for everybody.
Oh, okay.
Oh.
I'm going home, it's not though right.
No. It is it's uphill both ways I'm going to walk in both directions upheld in both direct.
It's excellent.
Okay.
So the other item that you pointed out right next to your offices at the Investor Day was that large pad site that you thought I think work with <unk>.
Start there in November was your estimate in July and I think it was something like maybe 16 wells or something would be drew drilled there I'm wondering what things might look like with that at the moment.
It is currently fracking.
Good great.
Great.
We are we are we are delivering water to that one and then we've got I mean, we've had literally our water system on for <unk>.
The entire since since really fiscal year end of September we had a bit of a just because of the technology on that three mile lateral that they were on a pad site that was in the city of Aurora that we don't provide because that's a city of Aurora issue, but then they had another and then they were rolled.
Off that one to one that was in our service area and that was the gap because they were having some technical difficulties on it but.
Youre going to see some pretty.
Pretty healthy pretty healthy revenues on the <unk>.
Q1 call in January.
On the Frac side, that's great, Okay, which is always your slow period on them you know.
On the home sales and things like that so.
Good and then let's see there was a I think that trademark. So thank you very much. Thanks.
Thanks Bill.
Hey, Mike.
Your next question is coming from Bill Miller of well mill design.
Your line is life.
Mark another great quarter and that would be great year congratulations. Thanks.
Thanks Bill.
Sure.
<unk> stock my goodness gracious that is dramatic I love it.
My question, so it can be tough.
You can be taught I I really can be done with that.
Well you might get a different opinion from my wife.
[laughter] well you didn't ask about that squares.
The.
You almost always made reference to the acquisition.
Pipeline and here with interest rates higher homebuilding seemingly.
Except in Denver.
Scott.
All right I'm on anybody's agenda.
What about some of the neighboring land.
At this point.
So that's a great question and I do I do you know, it's odd that I keep referencing it nothing happening, but what I can tell you is they also havent sold to anybody else.
And so it hasn't it hasn't hurt us not to have acquired those and in fact I think that.
Overall raw land prices have weakened just because interest rates have gone up and it makes it more difficult for mask for typical master plan developer and in our particular case.
Really not that interest rate sensitive because of how we design our product in the the price point that we try and compete in so I would say.
All of the opportunities that we have been and are continuing to pursue our continue theyre still on the table.
Okay, Great what do you have to pay for your mortgage.
No.
Your homes right and I think were wider some of ours, we locked in I think four of the units we locked in at that nice attractive interest rate.
Three 5% something like that and then the.
The additional 10 I think we're right around.
Seven five.
So.
We don't have a builder that wants to buy down our mortgage.
No that's great okay well.
Just keep telling sounds terrific. How long are you going to get people to recognize your stock and your.
Our company and what Youre doing.
Well, we're going to do.
As you saw with this presentation, we're trying to highlight some of the what you all know.
And have done the work to find out, but really try and highlight the disconnect between legacy asset balance sheet value and earning and gross margins and return on assets. So we'll continue to do that you know I'm out in the in the circuit doing presentations at some of the conferences.
We will continue to put up good results in.
Shout as loud as we can into the marketplace.
Great.
Well, one of them say, well done and what Clark Sandler.
Thanks.
Thank you very much. Your next question is coming from Greg Koski from benchmark, Greg Your line is life.
Hey, Mark how is going great.
Great area Greg.
Good good I just have one quick question.
In relation to partially the commercial and then also the apartments that were previously discussed.
By nature. These are all steps that I guess in terms of development are difficult for a lot of people right now just because of rates and how expensive. It is for you guys, particularly going out of the loan.
It would obviously be very capital intensive.
So where do you guys stand there have you given any thought to potentially just partnering with people who maybe want to do some of these developments are specialized in building apartments.
And then kind of sharing the overall intensity of the nature of those projects. Obviously you partner the potential profit share is less but if you can say hey, we've got the land, which for a lot of developers is a pretty big issue right now because the land is expensive and rates are high and they can say, okay, well if you can.
Contribute the lab, we can you know do something on our end and together you guys bring some of these products to market have you given that any thought versus what you've kind of been doing now where it's mainly you guys carry the brunt of the work and then either get reimbursed through the community development district or through payback from finished lots to builders.
As partnering anything you guys have given any thoughts.
Oh, absolutely in fact, I will tell you that thats likely to be the way. We go about it not only just on the multifamily, but a lot of the commercial.
We have so much equity in this project and with a land basis is low as our land basis is in the fact that we can not only leverage.
Less than a $1000 a lot land basis in it but also leverage the utility side, where we've already been able to bring all the utilities. There we have high margin in utilities and so we bring a wet finish a lot to the equation with very very efficient means on it.
Right, because we bought all of the wholesale backbone infrastructure already invested we've already gotten paid back some of those reimbursable from those historic investments so carrying that through.
Yes, Youre right, we can bring that to <unk>.
<unk> are not only on the multifamily, but commercial where they come in and it doesn't matter I mean, we've got a lot of interest on light industrial where we can get a distribution center out there in the thinking in on that is we probably need and are going to invest invest in upgrading the interchange and so we're.
We're in the middle of that right now with SEDAR.
On expanding it in it.
It has a government acronym, but we've got a <unk> study underway, which will give us a permit for developing interchange and we want to be early on that we have we have mill levies, specifically set aside for that so that doesn't have to come off our balance sheet, but distribution center, there, where we've got higher capacity and more.
Flexibility on truck access they go vertical on that we bring the pad side together with the utilities they big take the vertical investment on the the infrastructure they get a fully leased out on major long term leases and then we exit together with them on something like that so we've had some of those conversations that's kind of the detail of it that's kind of our <unk>.
Thinking on it were.
It's not that heavy of a lift from our standpoint because of what we've already done on the site and to your point, we do benefit from the increased value. So it again, it's another way for us to vertically integrate without having significant investment in there and investing in ourselves through.
Partnerships with that we don't know that business may.
It may not be something we want to.
Take the hits and bruises on learning that business, but there are those that do understand that business and are very good at it.
Okay Awesome, that's great to hear thanks.
Thank you very much just as a reminder, if anyone has any remaining questions. Please press star one on your phone keypad now.
Okay. We have our next question coming from Elliott right, sorry, apologies Elliot Knight of Knight Advisors your.
Your line is life.
Thank you Hi, Mark.
Elliot good to hear your voice.
Well.
[laughter] 88 years old and still going in.
Courage.
Would we all be so lucky.
Yeah sure.
I'd like to make an observation.
You've done it.
Excellent job on this call.
Illustrating how early in the development stage the various segments of the business are.
And.
You have built the company. This company is extraordinarily well managed.
You've built a company that.
It has.
Great financial strength.
I really think.
It's time to get into the early stage of.
On a dividend.
You and I have talked about this before.
It could be an annual dividend.
But.
I think it would substantially broad.
Your potential stockholder base.
Yes.
You didn't have to Pee Cyo didn't have this to have a star after it saying non dividend paying company.
You know I wish you share that with the board.
Uh huh.
Something about it.
Great pleasure to welcome back.
You bring up a good point and again that's another that's another way that we continue to invest in ourselves and our ownership interests of those at home with us and we do look at that very.
Very seriously every year.
And as you've seen our capital allocation strategy is pretty conservative but.
We are continuing to build a very liquid balance sheet and when you take a look at the cash and the receivables having a $50 million.
Our liquidity position is pretty healthy.
We have a disciplined approach and you know one of those metrics are to make sure that your recurring revenue exceed your G&A and we're very close to that Elliott and so.
It's easy for us to waiver beyond established an historic metrics like you can declare a dividend once your recurring revenue exceeds your G&A and when that visual is there maybe that maybe that becomes.
Something of heightened consideration, but I do I do agree with you that we will be declaring dividends and we will be paying them and we will have a new access to people who invest in companies that are dividend paying company. So it will broaden our shareholder group and it may help resolve some of the things that you know.
Greg and Bill and others were talking about on getting the market to appreciate and understand.
The awareness of the company and so those are those are all key ways to do that.
Well, that's what we all want.
And.
My comments included the comment of the financial strength to which you are now alluding.
Yes.
That's the reason why.
The company is in a position to pay a small dividend.
<unk>.
That's all.
Yes, nothing now.
Oh I love income.
Yeah.
Alright.
I do too.
Good you're just a young whippersnapper that's right I'm just wanted to just get started.
Okay. Thanks.
Thank you very much well that appears to be all the questions that we have and the key at the moment I'm going to hand back over to Mark for any closing comments.
Thank you Jenny.
So again <unk>.
Terrific quarter as you guys can see from the presentation really we do have a lot of pedal in.
Our assets in and we're starting to we're starting to use that we're starting to press a little of those.
We will have some overlapping.
<unk> of the land development side, we continue to press on.
Expanding our portfolio of the <unk>. So we're continuing to invest in that on that side of it and then continuing to invest on delivering more water to our industrial customers to make sure that we can continue to capitalize on that demand for oil and gas on the <unk>.
As they continue to build out that field. So all three of those areas.
Our expanding and continuing to invest in and really continuing to appreciate and respect the health of the liquidity and the strength of the balance sheet. So with that we will look to leverage that in some acquisitions and really continue to add to the pipeline of opportunities for the company.
For those that are missing our early morning presentation and picking up on this and have a question as a result of the call.
Or the slides don't hesitate to give me a holler.
And we will look forward to.
Several major market visits.
B back in New York, probably after the first of the year and see if we can do another kind of Q&A session at the NASDAQ for some of that for our New York.
Family and then other major metropolitan markets.
Most of the country, so with that I will wish you all and your families are terrific holidays and.
We look forward to continued success in 'twenty four.
Thanks very much.
Thank you very much everyone that does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Thank you Jenny.
Thank you everyone take care.
Take care.
That's.