PURE CYCLE CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Leadership: Introduced key leadership team members and Board of Directors, including new member Susan Heitman.
• Financials: Record year in 2024 with $28.7M revenue, ~$20M gross profit, $11.6M net income, $0.48 EPS.
• Segment Details: Water utility has 30,000 acre feet of water, 60,000 connection capacity, tap fees increasing from ~$30k to ~$40k. Land development has 3,200 single-family equivalents and 1,800 commercial equivalents, 18% complete. Single-family rentals leverage land development and utility investments.
• Acquisitions: Refinanced 2019 bonds for $10M proceeds, acquired 400 acres near existing water and land acquisitions.

Segment Performance

• Water Utility Segment: Generated ~$12.5M in Q4 2024. Annual revenue reached $28.7M, gross profit ~$20M (69%+ gross margin). Oil and gas operations were strong, with a 21% CAGR in utility customers and tap fees averaging ~$1,500 per connection per year. Only 5% of utility assets in production but competitive margins compared to peers.
• Land Development Segment: Delivered Phase 2D with 197 lots (194 for sale, 17 for BTR). Total lots developed ~1200, 700 residents, 700 lots under production. Gross margins attractive due to low land basis.
• Single-Family Rentals Segment: Annual revenue ~$0.5M, 14 units, aiming for 200 units, with ~$33,000 recurring revenue per unit per year.

Guidance

• Expect revenues to increase modestly, improved margins from water and land segments, continued growth in single-family rentals.
• Short-term: Customer growth to ~2,500 accounts, tap fees increasing, 5,000 single-family connections at Sky Ranch, operational efficiencies.
• Long-term: Aim for 8%-10% return, expand system in Lowry Ranch and Arapahoe County, unlock commercial development with interchange upgrade.

Risks

• Uncertainty in datacenter and other industrial customer adoption.
• Interest rate impacts on land holding costs and potential financing challenges.
• Seasonality in land development due to weather affecting construction.

Question and Answer

Q: Interest in datacenters and non-potable water use A: Pure Cycle has capacity for datacenters but not actively pursuing yet, focusing on industrial customers like oil and gas.

Q: Share repurchase and share count A: Balancing share repurchase with acquisition flexibility and capital needs for development.

Q: Commercial development and retailer interest A: Commercial value enhanced by residents, needing ~1,500 more residents for significant retailer interest