Q1 2025 Pure Cycle Corp Earnings Call
for this particular call through our Teams meeting. And what we wanted to do is...
Allow us to go ahead and
and have all of you participate. And then as we go through the presentation, there's a slide deck for this for those of you who have dialed in.
and are not on the call through.
our teams through the website, you
can see this presentation deck. If you log into purecyclewater.com and you go to the opening page there, there will be a link that will allow you to join this and see both the slide deck for this, and then we will have a camera that we'll turn on after the presentation, and then we'll handle that through a visual format through a Q&A session.
Speaker Change: Also with me is Marc Spezialy, who's our CFO, and then joining us will be also Dan Kozlowski, who is a director and one of our shareholders. And as we did with our annual...
Speaker Change: presentation for our year-end presentation. We had kind of more of an interactive format for that and we'd like to carry that forward. Got a lot of good feedback from shareholders about that format so we'd like to carry that forward and and be a little bit more interactive in presentation with that.
So with that, I'll go ahead and start the presentation.
Speaker Change: We do have our forward-looking statement that incorporates statements by reference that are forward-looking statements within the meaning of the Securities and Exchange Act. You're all familiar with forward-looking statements on that, so I'll move forward and get the lawyers out of the room.
Speaker Change: I want to continue to acknowledge our leadership team. It's my pleasure to get to work with an outstanding team of professionals that really are executing our business model with great success.
I also want to acknowledge our Board of Directors.
Speaker Change: We continue to punch above our weight on an outstanding board who provide
Speaker Change: just terrific leadership for the company and each of them have
industry experience, where they've spent their careers doing
Speaker Change: the key elements of what it is that we're doing, whether it's in land development, whether it's in water rights, whether it's in corporate governance and just that CCT experience. So, pleasure to work with a great team of professionals.
Speaker Change: and doing just a terrific execution of our business model. So we had record revenues, again, for our first quarter. So revenues about $5.7 million gross profit. Looking at an outstanding gross margin on these assets. We've got sort of these legacy assets.
Speaker Change: that we purchased and really have seen a tremendous increase in value on that. And they're really...
Speaker Change: driving revenue from a number of operating business segments. So we're really having a great execution on all this stuff and seeing these great gross margins. So maybe about $3.67 million to 64% gross margin.
Speaker Change: We have an outstanding quarter in terms of royalty income, and so what that is, I'll give a particular call out here on these numbers because we earned about $2.6 million.
Speaker Change: in oil and gas royalties. So we do have mineral interests that was associated with some of the land interests that we acquired, so our mineral interests for
Speaker Change: And so we had an additional six wells drilled in that formation that were pooled with some other mineral interests in that. So those are starting to produce revenue royalties there. And that really is
Speaker Change: aiding in in our gross margins and then also our quarterly income on that and then you know great net income for the quarter almost four million dollars or 16 cents per share.
Excuse me.
Speaker Change: Continuing on with kind of the revenue picture, really comparing this quarter over quarter, our revenues are up almost 7%, $5.7 million. Gross profits up almost 10% from quarter over quarter from 2024. Our momentum continues to carry that forward in all metrics. So, we're really pleased with how that's executing.
quarter over quarter and year over year. Drilling down into
Some of the other metrics here, taking a look at
Net income, sorry, quarter over quarter on net income, Q1.
Speaker Change: For $25,000 over $24,000, we almost doubled those performance numbers, taking a look at that, so a gangbuster increase in net income, as well as earnings per share, so we had about 78% increase.
Speaker Change: in earnings per share, when you take a look at that on a period-over-period basis. And then, you know, really taking a look at this on a 12-month rolling average basis, we're really...
Speaker Change: Again, hitting some key drivers here where we're putting up record revenue year over year, 12-month rolling average over 12-month rolling average.
Speaker Change: I'm taking a look at sort of how we gave guidance in this, rolling that forward.
Speaker Change: our 2024 results compared to our guidance for 2025. We are on.
Speaker Change: to continue to perform on that guidance. So what you're gonna see is our positive performance on that and really continue to roll that forward. We gave guidance right around 31 million in total revenue. So we got about 5.8 million in that for the first quarter.
Speaker Change: gross profit right around that $20 million or $23 million. So we'll continue to demonstrate that and keep you guys appraised on a quarterly basis as to how we want to meet those metrics for our fiscal year-end.
Speaker Change: Those performance metrics for net income and earnings per share. Again, we had a record year 48 cents a share last year. We forecast out 52 cents a share and 16 cents in the first quarter. Gets us off a great start on that for
Speaker Change: continuing to execute and deliver that for our fiscal year end. So it gives you a perspective of how that compares to previous year as well as how that compares to our guidance.
Speaker Change: monetizing cap fees, which are the continued growth of Sky Ranch, and
Speaker Change: and adding new connections to that. So as we've talked about, we've got three phases at Sky Ranch under development.
Speaker Change: And then the oil and gas revenues. And so when you take a look at the oil and gas revenues, we're a little bit weaker on that, which is what we anticipated. We did forecast that a little bit weaker this year. That's primarily.
Speaker Change: because our oil and gas operators are really expanding their coverage and they've been working on the next set of
Permit and they've got you know
Speaker Change: a tremendous number of permits. They got about 180 wells permitted on the Lowry Ranch which they're
Speaker Change: pad sites structured over there. And so you're going to see a little bit more of that activity in late 2025 and into 2026 through 2030. So that was kind of a forecasted area. We did see a significant uptick in the number of new connections and that's
Speaker Change: Skyratch. So our TAP fees are up about 150% in that area and then continuing growth in our recurring customer base with about a 12% increase in customer revenues on that.
Speaker Change: runway for continued drilling and continued tracking right within our service area where we're very efficient on delivering those water supplies for that well field enhancement.
Speaker Change: A little bit more on sector performances to carry forward from our year-end presentation, and one of the things we like to
Speaker Change: We wanted to do is kind of give you guys a perspective of how we are executing on each of these.
Speaker Change: This is models compared to our peers in this and so
Speaker Change: you know, what can be considered best-in-class performers on that. And we're very competitive to our much larger peers in each of these business segments. So, this shows you our deliveries of gross margins and return on assets in our water segment.
Speaker Change: And you can see, you know, we're really in that category of delivering good.
margins
Speaker Change: with the assets that we have. So we continue to do that.
Speaker Change: You know, the biggest call out in the water utility sector is really just the utilization. We're just still getting started. We're really only utilizing about 5% of our assets. So we've got...
Speaker Change: Tremendous opportunity to continue to grow this segment, not only serving land areas that we're developing, but other land areas in and around our area, as well as our service area. So we're really excited about that opportunity.
Speaker Change: Taking a look at our land development. If you want to take a look at callouts there, as we mentioned, we've got three phases currently under development. So we've got phase two, which is about a total of eight hundred and
Speaker Change: 90 units, and that really is in four sub-phases. The first phase, 2A,
Speaker Change: It's fully completed and we've got homes constructed and they're all sold and occupied. Phase 2B, we delivered last end of last summer. And so what you will be able to see is kind of vertical construction on that. And so we've probably got about thirty five.
Holmes Vertical in Phase 2b
Speaker Change: Phase 2C is what we're most active on, so we finished the grading on Phase 2C. We're about 70% complete on the utilities, and then we'll move from utilities to the pavement, curb and gutter on that.
Speaker Change: And then be able to deliver those homes for building permits on Phase 2C. That's another 200 lots, where we've got about 190 of those lots that are going to be for sale in about
Speaker Change: a real strengthening of our single-family rental segment in there, where we've got 40 units that we've reserved for us to go vertical on that phase. And then Phase 2D, which we are currently grading, so we're about halfway through the grading of that segment as well.
Speaker Change: You know, we're very efficient and pleased that we're delivering these lots at that entry-level price point, which is really our most...
Speaker Change: competitive advantage in the master plan community here in the Denver area, which
It is no different than most other major metropolitan areas.
Speaker Change: sub $500,000 and then in some cases on the duplexes and the paired product and townhomes, some of those products you can deliver sub $400,000. So very advantageous for us in this market segment.
Speaker Change: And then also taking a look at continued growth in our single-family rental segment. We continue to improve those. We've got rental incomes up about 14%. And so, you know, that's a combination of strengthening in the rents as well as bringing on new units.
Speaker Change: And then this segment is also very attractive for us because not only does it provide
Speaker Change: That recurring revenue for us. It also has asset growth from the portfolio. So we have a strong equity position in there because we're keeping the equity value of the land that we have as well as the horizontal development of the community. And so those are rolling forward.
Speaker Change: On the appreciation of each individual home as well as the ability to continue to rent those out. And so we've got.
Speaker Change: higher than a 90% renewal rate of our lessees on that, so we have a great customer experience for the single-family rental.
Speaker Change: And again, this is a carry forward from our year-end presentation, which compares us on this particular segment to kind of the larger operating groups that are in this space.
Speaker Change: And so, as you can see, we have very favorable comparisons to some of those that are best in class.
Speaker Change: So that kind of gives you a great summary of really how the quarter went, and again, another record quarter for us, a great experience for our delivery of these asset values.
Speaker Change: Maybe what I want to do is for those of you that are just learning about the company or just getting familiar with this, really take this up a few feet and give you kind of an overview of really
Speaker Change: The Water and Wastewater Utility Segment, which allows us to own water rights.
Speaker Change: in a water short area and really be able to participate not only in the appreciation value of water, but also what water does. You know, that water allows us to be able to bring service to land that could not otherwise.
Speaker Change: and be able to change the composition of that land. And so we look at participating on a vertical scale on all elements of that. And so that led to our entry into the land development segment. We've been in this segment for probably five years.
Speaker Change: I think we've done a very good job of really entering the marketplace.
Speaker Change: We're in the right sub-market of the segmentation of that as, you know, an affordable product out here where we're developing land, we're delivering that to our home builder partners.
And really, this partnership is really on delivering things just.
Speaker Change: in time, where we're not overburdening them on inventory of some of that horizontal infrastructure. We're able to carry forward the strategic acquisition costs.
Speaker Change: of our land opportunities and be able to carry that into the model where they can be competitive and have a lot of absorption and some velocity of sales. That's one of the key metrics for them.
Speaker Change: And then the most recent segment is our single-family rental segment, where we're holding back some of those lots.
Speaker Change: and we're partnering with our home builder partners to go vertical on those and be able to deliver those lots. And again, when we're doing that, we're seeing each individual home that we're bringing to market, we're carrying forward as much as $150,000 of equity value in each of those homes.
Speaker Change: And we're able to rent those out at fair market value.
Speaker Change: We see a very strong qualifying marketplace for those, the folks that are applying for rent on this or choosing to rent for various reasons. And so we've got a very strong portfolio of that and we're continuing to grow that.
Speaker Change: If you want to take a look at each of these in some of the real specifics, if you take a look at our water segment here, these are just some of the metrics on that. You know, we've got tremendous value in our water segment.
Speaker Change: You know, you take a look at the asset value here and what we're generating.
Speaker Change: in revenues, and there seems to be a disconnect, right? You can imagine, you say, how does a company...
that has, you know, $65 million of...
Speaker Change: total water assets start to generate $10, $12, $15 million a year, year-over-year revenue from this water segment. And it's really because of the low basis that we have in that. We've acquired these assets some 30 years ago.
Speaker Change: These assets have appreciated significantly in the market. You know, we can serve about 60,000 connections here.
Speaker Change: And we get two revenues from that. We get a TAP fee from that, which is a system development charge, and that's about $40,000 combined water sewer, and so when you connect that over to 60,000 connections, that's a very large top-line revenue.
Speaker Change: That's almost $2.5 billion worth of revenue, and that's about a 50% margin business for us.
Speaker Change: And then we have the continuing water revenues on that, right? We have a perpetual customer there where we're delivering monthly water and wastewater service fees. Those fees are around $1,500 per connections. And, you know, that's about a 50% margin business on the water utilities.
Speaker Change: So, very attractive business segment for us, and it's really driven by, you know, the early recognition of the value of water a number of years ago.
Speaker Change: A particular note in this particular segment is also percent utilization. So we're still very early on in that. As you can see, you know, our capacity that we're delivering, we have about
Speaker Change: I'd say another 50% capacity. This shows that, you know, the acre foot of production for the year end and this shows a very
Speaker Change: you know, their utilization of water does not come at the expense of our other customer base.
and then when they're done using that water, we have...
Existing capacity to reallocate
Speaker Change: Really highlighting our land development segment. So historically, this is really an opportunity where the company saw a strategic opportunity back in the real
the depths of the recession, we were able to act.
and strategically purchased a particular piece of property which
We could deliver water service too.
you know, our basis in the land.
Speaker Change: is very, very low. We have a land basis that is
Speaker Change: less than $1,000 a lot, and then we're able to carry that forward with bringing utilities to it and then getting into
Speaker Change: executing on the land development, the horizontal infrastructure, where we're delivering a finished lot. And that's very rare. What you're seeing in the marketplace is that it's because of the complexity of land development.
Speaker Change: and the investment in both water utilities here locally in the Denver area, as well as just all the other phases of that.
Speaker Change: that it's very difficult to manage all of those investments. Who carries that inventory? And so, the relationship that we have with our home builder partners is outstanding, mostly because we're one of the few that actually do do that work in this market segment. So.
Speaker Change: You know, we've seen almost $80 million in lot sales to date, we've got great gross margins in there.
We're executing on all aspects of how we're delivering that.
both on a real-time basis.
Speaker Change: So that homebuilders don't carry too much inventory, and then we don't have to carry that inventory as well. So both of those are working very well for us.
Speaker Change: This is a little bit of how we're executing. So we typically are looking at
Speaker Change: you know, about 250 lots per phase, and so this will really show you that annual delivery capacity. And what we've seen is, you know, a strengthening of the entry-level market.
and the opportunity on the entry-level market.
Speaker Change: It's really because of our land basis and because we're controlling the investment in the utilities on a real-time basis, so we're able to do that together with
Speaker Change: Our home builder partners and so this will give you a progress of that, you know, we've got that phase 2a which we talked about it's fully fully built out and occupied phase 2b some of the vertical going on there and
Speaker Change: We've had a fairly mild winter so far, so the builders are out there continuing to pour foundations and go vertical on phase 2B.
Speaker Change: know finishing up the utility side of that Phase 2C and then the grading of Phase 2D. So it really does give a good inventory of both existing opportunities as well as continuing to sell through all of those phases for our home builders.
Speaker Change: And this will kind of give you a little bit of sort of the capacity of that, you know, when you take a look at Sky Ranch, a fairly big project, it was started out as a thousand acres originally and
Speaker Change: a total of about 5,000 single-family units. It'll be about 3,200 residential units and then some commercial. We're very
Speaker Change: We're privileged to be able to have the land located in really the most active
Speaker Change: Submarket of the Denver metropolitan area, which is along the I-70 corridor. We have an interchange right at our property We're improving that interchange
And so we'll have about 1,800 to 2,000.
Speaker Change: really lots and water utility connections attributable to that commercial, which is yet to start. We're about 22% done with the residential side. And when you add that over to the total, 18% done with the project as a whole. And so
Speaker Change: Lastly, if we really drill down a little bit on the single-family rentals.
Speaker Change: You know, this really is an opportunity for us to maximize our land development opportunities, where we're carrying forward all the hard work to build a great community, bring good schools out there. We've got a great school partner with National Heritage Academy on a charter school out at Sky Ranch and
Speaker Change: Carrying forward the parks, the open space, and then ultimately the commercial so that, you know, we're, we're bringing that retail commercial opportunity to not only the residents that live at Sky Ranch, but also in the regional area.
Speaker Change: And it really allows us to leverage some of that market demand on those. So, good return on investment through single-family rental segments. If you take a look at the numbers on that, you know, we've got about...
Speaker Change: of look at the equity value on that, we really have about another 50% margin in there in the equity.
Speaker Change: That fair market value, we're seeing that $7.6 million continue to rise just because of the value that we're creating within the community itself.
Speaker Change: and then, you know, what it's generating to us and monthly recurring revenues on that. So, a very good segment for us and continued execution on that.
Speaker Change: This will kind of give you a foreshadow of really how we look at phasing this thing out. You know, we started out with phase one on a proof of concept with just four units.
Speaker Change: And then when Phase 2 rolls in, we're going to add nearly another, you know, 95 units to that. So, that model's proven out very well, and we've been able to partner with our home builder partners.
Speaker Change: to execute on that so that we're not competing with them and we're actually giving them a sold product before they even start. So as they go into each of these phases.
Speaker Change: They are able to demonstrate to the market that they've got sold units contracted with us to be able to deliver these rental units.
Speaker Change: Lastly, what I want to do is continue to highlight the stewardship of the company. We've got a great balance sheet, very strong liquidity that allows us
Speaker Change: to really execute on some of these business models and what we're really doing with some of that liquidity.
Speaker Change: really on a two-phase, all-phase front. We're continuing to grow the business through acquisitions.
Speaker Change: We're continuing to accelerate the development of Sky Ranch and have the ability to do what others cannot, which is
Speaker Change: We can deliver the finished lot to our homebuilders, and then we're able to, you know, continue to transfer shareholder value by repurchasing shares and using some of that liquidity to help
Speaker Change: really optimize what the market may not be fully appreciating yet. So we continue to add to that balance sheet and be good stewards of that invested capital that you've allowed us to have.
Speaker Change: A little bit on some of the outlook. Again, this will be a little bit of the carry forward, how we look at
Speaker Change: kind of the business model over the short term and then really where does this look like through Sky Ranch Buildout, you know, we have customer growth.
Speaker Change: about 2,500 counts into that short-term period where we'll continue to add accounts at Sky Ranch, Wild Point, and in other areas.
Speaker Change: Our taffy increases are very modest, you know, we have those built in on a yearly basis, so those are increasing at 3%.
Speaker Change: And then you take a look at the long-term build-out of that Sky Ranch, you know, there's 5,000 total connections between the residential and the commercial and we're seeing continued growth in the value of that, not only on the residential lots but also the continuing value of what we look to see and monetize through commercial opportunities.
Speaker Change: Taking a look at the land development, you know, we'll see steady lot sales over the next five years with completion.
Speaker Change: of Sky Ranch. You know, we don't expect build-out. Build-out might be in that 5-7 year range, but it's certainly within a foreseeable future. So, when you look at what's already baked into the balance sheet, we've got Sky Ranch.
Generating tremendous revenue for us. There's more than
Speaker Change: probably twice of what our market cap is. There's looking at maybe $600 million worth of revenue potential at Sky Ranch alone through build out. So continue, we want to really keep our focus on.
Speaker Change: that opportunity and continue to deliver shareholder value there. And then the single-family rentals, we look to get to somewhere between 200 and 300 homes for that. And again, that's going to be somewhere around $100 to $125 million of asset value.
Speaker Change: And then again, that recurring revenue on that, we're generating somewhere close to $30,000 a year in excess of that per unit. And so that's, again, a tremendous driver for recurring revenue for the company.
Speaker Change: A more tangible picture of how that growth looks like, not only on what we're doing for our fiscal 2025 compared to 2024. So this shows kind of a, it'll give you a three year comparison from.
Speaker Change: the growth potential in 2023-2025 and then also that short-term projection growing that up into where we think we're going to be in 2028 time frame. So that'll give you a continued acceleration of that moving from
Speaker Change: You know, very modest revenues in 23 up to strong performance of over $60 million in the short term.
Speaker Change: So, looking at that asset growth, you know, we're looking at, you know, almost two-and-a-half times our current market cap, just from what the company's currently got in its portfolio.
Speaker Change: Again, we continue to be in the market, continuing to purchase shares, so you're going to see us continue to be in there on the disconnect between what we believe the company's value is.
Speaker Change: And then also, you know, the opportunity to continue to deliver shareholder value by reducing the denominator in our share count.
Speaker Change: Okay, so with that what we'd like to do is kind of open it up into a Q&A and then really kind of show that more collaborative format with with maybe
Speaker Change: some observations from our director and a shareholder to give you a perspective. You know, he's got a great career as an equity analyst with a number of institutions, most recently Janus, where he retired from Janus and is really managing an independent portfolio.
you know, we'll open it up for...
Speaker Change: questions and let me stop sharing this and see if we can get it converted over to our team's presentation where you can see our smiling faces.
in the conference room.
Great, that worked out.
So with that,
Speaker Change: begin the Q&A of our presentation. So, as you know, we're using Teams this quarter to kind of have a more interactive experience with the investor base.
Speaker Change: So, if you do have a question, we've opened up our camera and our mic, and if you want to raise your hand by selecting the raise hand button icon at the top of your screen, we can call on you and open up your line.
PJ: I think your mic might be muted, PJ. There you go.
Hi, can you hear me? Yeah.
Great. Good morning.
Speaker Change: Morning, welcome. Question on one of those, the latter slides, I think it was slide 27 where you showed the projected asset value. I guess I was curious a little more detail on how do you arrive and sort of what are the, what does that represent?
Uhm...so...
Speaker Change: yeah we'll say 26 and we show that or actually you know it might have been 30 it might have been 37 okay yeah I was gonna say that might have been just the land development but yeah when you take a look at 37 and that's an asset growth you know what that shows is
Speaker Change: From each of the segments, whether that was going to be the land development opportunities on selling lots and the number of lots that we have still remaining in inventory and we're making
Speaker Change: You know, between what we make from our home builders, which is fairly modest.
Speaker Change: you know, on actually the sale of the lot to the homebuilders, and then the reimbursables. As you see in our balance sheet, we have a continued growth of the reimbursables on the balance sheet, and that's really, we get paid back for
Speaker Change: for all the public improvements that we do with that and we get paid back.
from the tax.
Speaker Change: receipts on that. And so periodically we'll go forward and we'll bond the continued growth of homes. And so each phase gets a new set of homes and then that adds to the assessed value, which is the value of the home times the tax base on that. And then that's how we get that money back.
Speaker Change: together with the water tapis and then the single-family homes. So that's really just a core
Speaker Change: mathematic computation of Sky Ranch and only Sky Ranch. It does not take into account
Speaker Change: in inventory available to serve other land interests or serve development within our service area at the Lowry Ranch or any other those opportunities. This is just what's on the balance sheet on things that we own.
Got it. Okay. Thank you. Yep.
All right, we'll take our next question
So your line is open.
Speaker Change: Yeah, if you were, if you had it at your hand up, ending in 7586, you're muted, but you're allowed to talk if you still have a question.
And if there's anybody else who has a question.
Speaker Change: Okay, while we're still sort of queuing up some of the questions on that, maybe what we can do is turn it over and, you know,
Open it up to Dan and...
have you give maybe a little bit of perspective.
Speaker Change: both in terms of a board perspective, as well as kind of...
Speaker Change: Thanks, Marc. Good to be on the call again today. We got pretty good feedback from the call last...
Uh
the year-end call. So we decided to do it again.
Speaker Change: That's something a lot of people have seen, but I, both Marc and I, and Marc
Speaker Change: You know, we've been, you know, pretty active and so I want to say that was a pretty good quarter again. You followed up with.
Speaker Change: You know, more earnings power in a typical sleepy Q1, but the resource-based allowed us to stack some more EPS.
on the books.
Speaker Change: So, as I look at it, you know, I think coming into today, you know, based on year-end numbers, we had done $0.48.
Speaker Change: Now the rolling 12-month or rolling past four quarters is a 55 cent earnings
Speaker Change: run rate. So that's an all-time record if we look back historically accurately.
Speaker Change: I think a couple of years ago, there was a one-time accounting true-up for the reimbursables.
Speaker Change: I think spiked an EPS number in one particular quarter, but that was kind of a catch-up. So really, if you look at it on a sort of like-for-like, apples-to-apples comparison, we continue to progress.
Speaker Change: to new, at least for now, record earnings rolling forward. And the future, as Marc has sort of softly guided, has given direction for next year, you know, continues to…
Speaker Change: The proof in the pudding here is that we're able to get all of these segments producing at the same time. You know, we made strategic investments in each of them individually, and so, you know, the water assets that we've acquired, we've grown these water assets, we've made investments in that. And you see that, how we not only make the investments year-over-year basis.
Speaker Change: but then, you know, where we're getting that money to invest from. We're taking some of that oil and gas, fracking revenue money, and investing that into the system. That's excess capacity within our system. And then you see that being able to transfer over into the land development segment because as we add new connections to the accounts,
That investment is already amortized.
Speaker Change: and so it improves the margins in the land development segment and then we continue and invest in the land development segment, parks, schools, the open space.
Speaker Change: which we get that revenue back right we get that's an investment in that public infrastructure which adds to the community value and it increases the land value but we're seeing that monetize itself into the single-family rental segments where that equity is continuing to appreciate.
Speaker Change: We get that recurring revenue from the rentals coming in from the individual homes that we've gotten so and then finally You know what one of the biggest surprises this quarter was you know we knew that we had new wells that were coming online And and that that royalty income is another key surprise
Speaker Change: You know, we were strategic in acquiring Sky Ranch when we did.
Speaker Change: and have remade that back just on oil revenues, just the royalty revenue from the oils, let alone what we're doing on monetizing it from the water utilities, the land utilities, the single family revenue. So all these assets really are driving into the company all at once. And it's thrilling. It's great that we're able to do that. It's great that we're able to do that.
Speaker Change: on, you know, an experiential basis so that we're partnering with, you know,
Speaker Change: national homebuilders who want us to expand beyond Sky Ranch, right? They're like, look, do this, you know, in this market, in that market, you know, and we love that enthusiasm. We're looking at expanding that net to continue to reinvest in them.
Speaker Change: That's right, a couple questions. Let me pause you for a second and get the, get this interaction with. Tucker Anderson.
Speaker Change: Your line is open if you want to unmute your computer.
I can hear you and I can see you. Welcome.
Speaker Change: Fantastic. Once I learn how to do this and get up to speed. Well, you know I've been with you for a long time, Marc, so I told you I was a long-term investor.
First, on the oil and gas.
Speaker Change: What is the outlook going forward? Are there potential for more wells and more fracking to be done? Are we now on a gradual decline curve on the wells? Obviously, royalties are partially dependent on the price of oil and gas, but excluding that, how do we look for continuing royalties?
Speaker Change: That's a good question, and really kind of two different avenues there. Let me speak to the royalty first. So, we have six new wells that were drilled in Sky Ranch.
Speaker Change: And typically, you get those royalties coming in up front, right? The shale oil play delivers very, very...
Speaker Change: high returns very early on, and they have pretty steep decline curves. So what I would say is you're likely to see a
Speaker Change: continued high performance through this fiscal year and then a little bit of a decline. We still get about $50,000 a month
Speaker Change: And have been getting that for years, for four or five years, as the initial development of wells went in, and now, you know, we're looking, and that was a really an initial two wells.
Speaker Change: If you take a look at the FRAC revenue and the opportunity for us to continue to support our oil and gas partners in new wells that they're bringing online that we don't have the mineral interest in, that trend looks very favorable for the next five years. They've got
hundreds
Speaker Change: We had a record year last year at somewhere around close to $6 million of revenue from oil and gas, water sales, and I think that can even grow from there in that period of time. And for a period of time, five to
Speaker Change: 10 years in that segment. So those outlooks look very favorable.
Speaker Change: Thanks. The second question is most homebuilders that I listen to their calls because I'm invested in several of them
Speaker Change: at this level of interest rates to continue to get the sales or having to do mortgage buy downs. Could you talk specifically about the Denver area and what's happening there and what sort of incentives your builders may have be having to give to continue to get the sales level?
they really like.
Sky Ranch because the buy-downs at Sky Ranch
Speaker Change: are significantly less than they have to do in other price points. So, if you compare it, our entry-level price point here is the high 400s, right? So, anything less than $500,000 is what they'll consider a starter home market in Colorado, which is extraordinary. I mean, it just boggles the mind that
Speaker Change: that that that's considered entry level here in this market, but we do.
have as many major metropolitan markets are seeing
Speaker Change: you know, an affordability problem, and they're saying, you know, what we like about your price point and what it is that you're doing is they may be having an average incentive in the marketplace of $120,000 of
Speaker Change: Buy Down Incentives and and they may have $15,000 at Sky Ranch and so when you compare it on a relative basis
you know, if your price point is
That incentive is.
is gone, right? They've liquefied.
Speaker Change: their margins in that price point where they can hold their margins at that entry-level price point.
Speaker Change: You know, they're sort of looking at that opportunity of Sky Ranch saying that's where the bulk of the buyer demand is. You know, it's very difficult for a move-up buyer right now because it's hard to walk away from.
Speaker Change: 2.8% mortgage rate that that they locked in two years ago and so you're going to you're going to see really the strength continue to be at that entry level and and the
Incentives for the homebuilders.
Speaker Change: Being the smallest at that entry level. So that's how I would that's how that that that conversation led us to, you know, understand the importance of continuing to deliver this These lots in that
in that price point in this interest rate market.
Speaker Change: Thanks, that's very helpful. The last question is sort of a philosophical question that you and your other team members may want to comment on.
Speaker Change: and as you, first I'd like to congratulate you on the attempt to really lay out more of how your value creation works in the last few quarters and give us the extra charge and stuff like that, but as you think about balancing
Speaker Change: what I would call value creation versus reported earnings, which may not always coincide, as you pointed out, the appreciation you're getting on your rental homes and things like that. How does the team think about that? And how important that just the ability to show continued...
Speaker Change: Progress in Reported Earnings, which may not equate to value creation.
Speaker Change: That's a great question and one we struggle with, you know, because we see that, you're right, we see that not only in the rental segments and carrying forward the equity value there, we see that in what we've done on the land development segment, and we see that in the water assets, right? So each of these assets have this tremendous
Speaker Change: equity value in it that's just not on the balance sheet.
Speaker Change: And what we're hoping that we can continue to demonstrate to the market is how that translates into
Speaker Change: you know, earnings per share, you know, the margins, the gross margins that we're gonna be delivering year over year, such that we can then take that gross margin and equate that out to the balance of the inventory. And that's really what PJ's question was earlier, is how do you get to that $700 million asset value when your asset right now is only $100 million?
Speaker Change: And it's really that equity value. And you're going to see that, and you're going to see us start to just crush these year-over-year returns through that equity value. I don't know, Dan.
Speaker Change: You've seen that a lot in your career. You've seen how companies kind of express that and then really how they demonstrate that. And that's one we talk about a lot at the board level.
Speaker Change: Yeah, I mean, these assets were put on, you know, we talked about this last call a little bit. Marc, what year was the water, was the bulk of the water rights purchased?
Speaker Change: You can go back almost 30, I've been, this is my 35th year, so I think I bought it.
32 years in, so more than 30 years.
to more than 30 years and
Many stories.
Speaker Change: And so, you know, buying market water and trying to do something cute with it and flipping it, you know, is not an easy thing. This is a very different situation. This is 30 years of embedded appreciation, effectively, of the water rights that were purchased.
Speaker Change: and so you know one way I think about it and you're just trying to triangulate valuation you know we never know exactly what something's worth but and what was the price paid for the bulk of the water to recall mark
Speaker Change: and, you know, pick your discount rate and if you use something smaller, you know, 7, 8, 9 percent, I mean, think about the compounding of that, using the rule of 72 or breaking out your spreadsheet.
Speaker Change: So that you know, it's not to say that that's exactly what it's worth today, but that'd be a reasonable starting point to talk about it and
Speaker Change: you know, the state land board sold that effectively to, you know, at the end of the day, to Pure Cycle. And, you know, so in some ways, you know, they got a really good deal, all right. And continuing, you know, with the time value of money. So it kind of worked out, but Pure Cycle didn't monetize that for 30 years. So here we are, and Marc points out, it's on the balance sheet of these.
historical levels.
Speaker Change: You know, that's why the returns, you know, in today's dollars should be pretty good and increasing into the future.
Speaker Change: It could be quite an asset. Again, we're not going to say that's what it's worth today, but that would be a reasonable assumption that water in the West has compounded or has grown in value, appreciated, probably better than inflation over 30 years. And it was starting point was
Speaker Change: Mark Harding, M.D.: Over $13 million 30 years ago. So that number is big, you know, kind of a bigger number than you take. So that's one way. You know, I've thought about this and there's, you know, five or six different ways to think about it. But that's one Mark Harding, M.D.: In terms of the you know I part of the question, Tucker. I think you asked was
You know, the...
Speaker Change: The tug of war sometimes between posting earnings and creating value long term.
Speaker Change: And, you know, I think that Marc, you know, did a great job creating value of Pure Cycle, you know, over the last five years. And you can see, looking back, you know, the last three, three years ago, two years ago, we had quarters where, you know, we didn't.
Speaker Change: you know, put a lot of EPS on the board, but we were adding a lot of value to.
Speaker Change: The portfolio or to the asset base, and it didn't actually show up. I think what we've gotten to now is the point where we're continuing to do all those things for the future, but the earnings power, you know, it can no longer really, it's not, it was never, you know, it's no longer suppressed.
Speaker Change: by those investments, and we're looking at opportunities to build a water portfolio, we're looking for opportunities to build a land portfolio, you know, the single-family rentals. We're doing all those things, but the reality is
at the same time, those prior investments.
is here today.
You're welcome.
Speaker Change: As Marc knows, I don't go back quite as far as he does, but I go back a long ways.
Speaker Change: way before Sky Ratchet, those sort of things. And I would just...
may make the comment that as a long-term shareholder
Speaker Change: I am much happier for you to continue to build value and do things that make economic sense, including buying stock back, which clearly you're getting an excellent return on and sort of let the earnings fall where they may within a reasonable
Speaker Change: area and sort of that way your stockholder base will be aligned with people who are interested in making very long-term commitments to this company. And I say that even though I'm a lot older than I used to be when I was involved. So just keep up the good work, Marc.
Thank you. Thank you.
Speaker Change: If your phone number ends in 1214, your line is open.
Marc, can you hear me? I can.
Marc, this is Jeff Scott. How are you?
Speaker Change: No, I'm in telluride right now. But, uh, that's what I meant.
Speaker Change: I drove through about 10 days ago and I continue to be amazed at the progress out there.
Speaker Change: First question, when we started this, the combined TAP and waste fees were kind of in the low 20s.
Speaker Change: and I think you said on the call that they're now 40.
Speaker Change: Are you starting to get any competitive or political pushback, and if you're not yet,
at what level would you expect to get some pushback?
Speaker Change: Great question and and I didn't have that slide in this deck but I do have it in the year-end deck and and what we try to do is
Speaker Change: keep consistent with where the market is for these taffies and so when you look at that you know we're right in the meat of the market you know if we take a look at you know our most
Speaker Change: regionally, you know, competitor, which is going to be the neighbor, which is City of Aurora and our taffies are
Speaker Change: It really is a play between what it costs you to develop that system.
Speaker Change: you know, what's your cost of capital and carrying those assets forward.
Speaker Change: together with the market appreciation and the cost of the next incremental amount of water that needs to get developed.
in the system. And so I would say
Speaker Change: We've been very good about keeping up with the bulk of the market and having that opportunity to continue to drive the investments that we're doing in oil and gas to be able to monetize that going forward.
Speaker Change: So what I'm hearing is you're not, you're not seeing any pushback yet. No, no, I think, and intentionally, right? We, we want to stay in the meat of that, Marc.
Marc Spezialy: Okay. On the commercial side, what are we looking at in terms of timing for kind of initial development?
Marc Spezialy: Great question. You know, we continue to have those conversations with some of those.
Marc Spezialy: and users, right? We've got a lot of demand for our commercial for
sort of the people that develop commercials.
And then they want to...
Marc Spezialy: They want to either flip it to the end user or they want to participate in some of that development with the end user.
Marc Spezialy: And I think our philosophy there is much like we've done with our residential is to vertically integrate ourselves. And we're really looking not for a commercial developer, but for commercial users, right? I'm looking for the Kroger. I'm looking for a Walmart, a Home Depot. I'm looking for the folks that we can actually facilitate that role on delivering a pad site and then have them, you know, carry that forward. And what they're looking for is.
Marc Spezialy: Probably around 1500 homes. We have about 800 now and we have 700 under construction. And so as we carry forward through 25, we're going to deliver, you know, another
Marc Spezialy: say 200 to 300 homes at our fiscal year end and then probably another 400 homes by our calendar year and that really puts us very close to that threshold of their number of rooftops where they like to see that
That economic opportunity and then.
Marc Spezialy: You know, the upgrades to the interstate that the interchange that we're working on. We have been working with the county with C dot for the last three years on that.
Marc Spezialy: you know, that looks to be a project where we'll start that construction in 2026, you know, using some of the mill levies that we've reserved for that to be able to bond that particular project. So, all those things are coming together here in, say, the next 18 to 24 months, and then you'll start to see a lot of that commercial activity.
Marc Spezialy: So, we're looking end of calendar 26 or 27, something like that.
Marc Spezialy: I think that's a good time frame. We'll really start to get some transactions codified in that 26 time frame and then a lot of that real monetization in the 27 time frame.
Marc Spezialy: which is what you see a little bit in our forecast when I show a little bit of that forecast in that 2028 time frame is really just the entrance just the start of the commercial in that.
Speaker Change: Okay, completely different question. Of your home builders, do you track the metric of how many days on the market each house is?
I don't, but I know they do.
I know they do. Has it gone up at all?
Speaker Change: That's a good question. What we've seen at Sky Ranch is they pretty much
Speaker Change: They don't quite, they're not like it was when interest rates were at 2%, right? They were taking pre-orders. And they didn't start a house until they sold it. And so what they like to do is they like to have
Speaker Change: They have a model home, and they usually have three or four homes.
Speaker Change: built so that they can be in a real-time basis. If somebody walks in and says, I want a home today, here's your home today. And then they have them at various stages of completion where they say, I don't need a home today, I need a home in three weeks, or I need a home in three months. And they have various
Speaker Change: phases of development. So they say, okay, three months, that'll be this address, or you can pick from these three addresses.
Speaker Change: at this particular unit. If it's, oh, I need it in six months, okay, great. Here's it, here's these addresses that'll be delivering in the six months. So they're managing that inventory as close to real time as the people that are walking in.
And I don't know what that number phase is.
Speaker Change: Okay, but there hasn't been any appreciable change over the last...
Speaker Change: 12 months or so. No, no, I think that that's their model. At least that's how they tried to phase it for us. Now, that depends on builders too. Some builders, you know, the bigger builders are just going to say look, we just want, we want full inventory. We're going to start our 40 homes and we'll be under construction with all 40 at once and some of them are saying, okay, I'm going to start, you know, each week I'm going to start three, four homes so that they're phasing that completion over a sales cycle.
Speaker Change: That's a good question. You know, certainly the metropolitan area has grown out to it and the state is evaluating
Speaker Change: A number of different options on it. So they're looking at, you know, what, what, what partners, can they bring in it for development. What partners, can they bring in it from A less or land use standpoint. What partners, can they bring in it from a conservation standpoint and and sometimes when
Speaker Change: You look at all the options that you have, there's too many options that you have, and it makes it complicated in making some of those things come to fruition.
Speaker Change: Certainly, the road ahead is a lot shorter than what we've seen over the last 30 years since we've been involved, just because of the growth and the maturation of the metropolitan area.
Speaker Change: as many times as I've tried to give guidance as to what I think a third party is going to do.
Speaker Change: I have an absolute perfect record of being wrong every time.
Speaker Change: Well, we all have that are we are we talking about are we talking about a decade or More or less or no, I put that in the two to five year time frame pretty close to the commercial
Speaker Change: So you're actually seeing some momentum in terms of willingness to make decisions?
Speaker Change: That's a different question. I would say I would say the market would love for them to be in the two-year time frame and the land board might be in the five-year time frame.
Speaker Change: They still have a mandate for the school system, don't they? Yeah, yeah. No, they are, and they're very cognizant of that, right? You know, this is their single most valuable asset.
Speaker Change: and, you know, the number of opportunities that they have to do great things with it.
for generating revenue to the school trust for
Speaker Change: you know, generating education opportunities on the ranch or generating recurring revenue from lessees on the ranch, you know, all of those are opportunities for them and it really is all for the benefit of K-12 public education.
Speaker Change: Okay Marc, that's all I have. Good luck to you. Great, good to hear from you.
Speaker Change: Thank you. All right. We'll go back to the first caller. Area code 201, engine 7586. If you're able to unmute, your line is open.
Speaker Change: It's a common question every quarter. That's a good, that's a good, you know, we continue to monitor that.
Speaker Change: You know, both at the at the corporate level as well at the board level.
You know, we want our...
Speaker Change: We want our recurring revenue, so that's growth in terms of the rental units as well as growth in our
Water Accounts
Speaker Change: to really meet that nut of our annual overhead. And I see that happening sort of in this 20, 25.
Speaker Change: time frame where we're delivering another say 20 single-family rental homes
Speaker Change: and then adding another 300 connections to that. So, that window continues to close. You know, that conversation is more active at the board level at each board meeting. And we continue to put up, you know, our metrics for the board to understand that. And so, it's very, it is at the forefront. I know some of you that are, you know, really pressing that pedal are a bit, you know,
Speaker Change: I'd like to see it sooner rather than later, and it's likely to be sooner rather than later.
Great. There's a number of questions right now, so.
Speaker Change: Okay, well, you know, if any of you that were, you know, listening to this that didn't quite want to weigh in on the Q&A session or if you listen to this on a rebroadcast and something comes up, you know, don't hesitate to give us a call. We're
Speaker Change: Very accessible and happy to give you color on how this thing goes. Dan, do you have any closing remarks?
Speaker Change: You know, the shares reacted well after the year-end results, and we've continued to follow through here in Q1. I think Marc took a big step in sort of, again, providing direction
Speaker Change: for the, you know, rest of the year and into next year. And, you know, so we think we continue to take the steps to really, what we're trying to do is coordinate the
Speaker Change: You know put up the numbers and then hopefully that that's somewhat tied to
the share price progress as well.
Speaker Change: So we know a lot of shareholders have been in equity, some for 20 years, and you deserve to be rewarded.
Speaker Change: and should be rewarded with these operating earnings that the team, the management team has generated and has signaled that the future is very, very bright. So everything's highly functional and nice job, Marc and Mark.
Speaker Change: Really great quarter and it should be a great year. So thank you and also, you know what I will kind of foreshadow is we're going to try and
Speaker Change: do a little a little more IR on this campaign and get out to various markets.
Speaker Change: Get out to the New York market, much like we did.
Speaker Change: in the last year where we were able to coordinate a lunch at NASDAQ and then maybe do
Speaker Change: some one-on-one meetings, either in office or traveling through various markets. So we'll be reaching out, we'll be sending out some notifications of some time periods that we're going to be in New York, in Chicago, in the West Coast as well. And so that'll be an opportunity for you all to kind of see us in
Speaker Change: in your various hometown areas, as well as opportunities for you to say hey.
Speaker Change: If you haven't heard of these guys, they're going to be in Dodge, and you might want to...
Speaker Change: carve out an hour and get to know what they're doing, because it's pretty exciting. So, be on the lookout for that. And with that, I guess I'll wish you all
Speaker Change: A great Happy New Year. I did want to, I meant to leave with this, but
Speaker Change: You know, I do want to acknowledge our day of recognition for President Carter and his contributions, not only to the country, but to.
Speaker Change: Humanity as a whole. So we did want, you have to structure these earnings calls over a period of time. It was scheduled for that. We didn't want to, our sequencing went as such, but we do want to acknowledge and respect his contribution.
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