Pure Cycle Corporation Q3 FY2026 earnings call

### Board Updates - Two board members resigned, representing an SPV vehicle that holds ~13% of the company's outstanding stock. Management stated there is no conflict or drama related to the resignations, and thanked the departing members for their service.

### Liquidity and Capital Allocation - Liquidity was refreshed after accelerating Phase 2D development, with balance sheet and liquidity position continuing to strengthen. The company prioritizes reinvestment in core business segments, but growing liquidity will support increased share repurchase activity to return value to shareholders. - The company has low cost-basis legacy water and land assets, which generate high margins and strong long-term shareholder value appreciation. - Management emphasizes that diversified revenue across three non-overlapping segments creates stability and resiliency across varying market conditions.

### Key Operational Updates - The company's core service area is positioned along the primary eastward growth corridor of the Denver metropolitan area, with an exclusive 24,000-acre service area around the Lowry property (owned by the State of Colorado, with significant surrounding development activity). - The K-12 National Heritage Academy campus on the Sky Ranch development is completing its high school for opening in August 2027, which is a major community draw that drives demand for homes in the development. - The company is working with Arapahoe County and CDOT on permitting for a new interchange serving Sky Ranch. Permit submission is expected by late summer 2026, with permit issuance targeted for early 2027 and construction starting in late 2027. The interchange will enable commercial development that could roughly double the company's annual revenue long-term. - Single-family rental expansion was paused: the company originally planned to grow the segment to 100 homes, but is moderating expansion to wait for clarity on potential new federal regulation of institutional single-family home ownership, and to confirm projected return on investment before further scaling. The company may monetize a small portion of the current portfolio to market-test returns before moving forward.

### Long-Term Water Asset Potential - The company holds legacy water rights with a very low $30 million balance sheet carrying value. It has enough water supply to serve up to 60,000 connections, representing ~$2.5 billion in potential gross tap revenue and ~$100 million in annual recurring revenue from connection fees. After full build-out of Sky Ranch, the company will still hold ~30,000 acre feet of undeveloped water reserves for future expansion.

PeerCycle Corporation reported total Q3 2026 revenue of $8.2 million and gross profit of $4.3 million, representing a 52% gross margin. The three core operating segments have the following performance: 1. **Water segment**: Total water revenues were stronger than year-ago levels, driven by better-than-expected industrial water sales to oil and gas operators. Industrial water sales benefited from completed permit approvals for new wells and sustained high oil prices, which have increased drilling activity in the company's service area. Tap fees (one-time connection fees) were also strong in Q3, on track for a solid full year (below the record 2024 level). This is a high-margin business that generates recurring annual revenue plus one-time tap fees. 2. **Land development segment**: The segment has delivered ~430 finished lots over the past 18 months. Q3 2026 lot lock deliveries were nearly 70% higher than Q3 2025, driven by an unusually mild winter that allowed accelerated activity. Phase 2D was delivered ahead of schedule to new builder customers (Pulte and Oakwood Homes), while Phase 2E (160 lots, smaller than the 230-250 lot average phase) is on track for summer 2027 delivery. Approximately 33% of Phase 2C lots are under vertical construction, and 25% of the finished builder inventory in Phase 2C is already sold and occupied, with strong demand for the entry-level housing product offered. 3. **Single-family rental segment**: The company has completed ~40 homes, with another ~30 homes under contract for delivery through the end of 2026, bringing the total portfolio to ~70 homes. Demand is extremely strong, with nearly all completed homes leased upon delivery, and some homes pre-leased months before completion. The segment offers attractive tax advantages from asset appreciation relative to book value.

- Full year 2026 guidance is maintained with gross revenue targeted between $20 million and $32 million, and earnings per share targeted near 50 cents (plus/minus a small margin). - Management expects full year 2026 results to meet or modestly exceed guidance, as the company is currently ahead of schedule due to earlier-than-planned deliveries driven by the mild winter. - The company reaffirmed that the long-term estimate of ~$675 million in total asset value at full Sky Ranch build-out remains reasonable. - Phase 2E lot delivery is on track for summer 2027, with interchange construction targeted to start in late 2027, and Phase 3 land development bond issuance expected in 2027-2028.

- Weak consumer confidence in the current housing market may slow absorption of new entry-level lots, even though underlying demand for the product remains strong. - Uncertainty around potential new federal regulation of institutional single-family home ownership has led the company to pause further expansion of the single-family rental segment, creating near-term execution risk for that business line. - Oil and gas drilling activity is dependent on sustained commodity prices, which can be volatile, impacting demand for the company's high-margin industrial water sales. - The interchange permitting and construction timeline is dependent on CDOT and county regulatory approval, which could experience delays. - The company's stock has been flat for five years despite growing underlying asset value, creating a disconnect between market price and the company's estimated intrinsic value.

Q: The prior long-term estimate for total Sky Ranch asset value at full build-out was ~$675 million, is this estimate still reasonable? / A: Yes, this estimate aligns with the company's underlying math for Sky Ranch's projected value. Sky Ranch will have 5,000 total connections at full build-out, generating ~$200 million in tap revenue and ~$500 million in lot development revenue, leading to the $650-$675 million total estimate. The low balance sheet carrying value of the company's legacy assets means the vast majority of this value flows to shareholders as earnings.

Q: After full build-out of Sky Ranch, will the company still hold ~30,000 acre feet of undeveloped water reserves? / A: Yes, that is a reasonable and conservative estimate. The company has added new water supplies via farm acquisitions and finalized water court decrees for the Lowry service area, and now has enough water to serve 60,000 total connections. Additional development can occur at Lowry or neighboring properties around Sky Ranch, which is located on Denver's primary growth corridor, creating substantial long-term upside.

Q: Are the costs for the new Sky Ranch interchange reimbursable to the company? / A: Yes, nearly all interchange costs will be covered by bonding capacity from existing county mill levies and impact fees, with minimal potential obligation for the company. The total estimated interchange cost is ~$40 million, and the current bonding capacity is expected to match this amount. The company will not need to advance significant funds for the project.

Q: When will the $59 million in accrued project advance receivables start to be repaid, and what is the timeline for bond market activity? / A: Bond refinancing in 2027 will repay $8-$10 million of the receivable balance, and new Phase 3 bonds to be issued in 2027-2028 will repay an additional $25-$28 million. The balance will drop significantly over the next two years as proceeds are returned to the company, and growing liquidity will support more aggressive share repurchases. Increased density on the original Phase 2 zoning (from 850 to 1,100 homes) will boost assessed value and bond proceeds for the refinancing.