Pure Cycle Corporation Q4 FY2025 earnings call

• Continued profitability: 25 straight quarters of profitability, with Q4 and fiscal year 2025 maintaining profitability.
• Revenue growth: Continued growth in revenue segments, especially recurring revenue from water, land development, and rentals.
• Business model flexibility: Ability to adjust volume in land development to match customer needs, demonstrating resiliency.
• Strong team: Work with an outstanding team of professionals, including a great Board of Directors emphasizing best-in-class performance.
• Capital and liquidity: Strong balance sheet, maintaining liquidity and reinvesting in the company, including share repurchase program.

Water Utility Segment

• Recurring revenue side: Has over 1,600 commercial connection points out of 60,000 potential water portfolio connections. Drives revenue from industrial water sales, water sales to oil and gas customers, and tap fees from land development. High margins as they invest in the water system using capital from one-time oil and gas sales.
• Portfolio: Believes it can serve 60,000 connections, with recurring revenue from commercial connections and annual revenues around $1,600 per connection per year.

Land Development Segment

• 2025: Sales were off from expectations due to housing headwinds. Delivered 228 lots of Phase 2C with $800,000 deferred revenue spilling into Q1 2026. Working on completing Phase 2D (43% complete) and Phase 2E.
• 2026: Focus on completing Phase 2D and推进 Phase 2E. Sales affected by housing market headwinds and balancing inventories with homebuilders.

Single-family Homes Rental Segment

• 2025: Had delay due to building code upgrades. 2026: 40 homes under contract, with 5 units delivered in Q1 2026. Steady rental income stream with asset-light appreciation model. Occupancy at 97% to-date and expected asset appreciation.

• 2026: Expected continued recurring revenue growth from water and single-family rentals. Recurring revenue from rentals to become a bigger component.
• 2028: Anticipated significant increase in Land Development revenue due to commercial lots coming online, with commercial lots valuing at 2x residential lots. Plan to start construction of interchange in 2027 and double Land Development revenues by 2028.
• Gross revenue range: 26% to 30% for 2026 based on lot deliveries and industrial water sales.

• Housing market headwinds: Affecting land development sales due to affordability challenges and homebuilder inventory concerns.
• Land acquisition uncertainty: Discipline in land acquisition pricing and timing, with cycles affecting decision-making.
• Regulatory and permitting: Challenges impacting revenue recognition and project timelines, such as deferred revenue from permitting issues.

Q: Has housing sales in your areas slowed down due to affordability?

A: Denver is a high-affordability market challenge, but the company's entry-level price point and business model resiliency help, with affordable market segment performance being a strength.

Q: On acquisitions and land acquisitions?

A: Disciplined in land acquisitions, looking for transactions that add value from water portfolio. Conversations strengthen with target acquisition areas, with commercial interest and timing considerations.

Q: Profitability trend slide for 2026?

A: 2025 had high profitability from oil and gas royalties (almost 100% margin), so 2026 earnings per share not expected to have same bump despite revenue growth in land development and water due to lack of similar oil and gas royalty profitability.