Pure Cycle Corporation Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Quarterly Results: Record Q1 revenue, net income and earnings per share significantly increased due to Phase 2D progress. Ahead of fiscal year guidance, having achieved about 1/3 of the fiscal year forecast in the first quarter.
• Segment Details:
  • Water Utilities: Two revenue streams (recurring monthly and capital connections). 22% customer CAGR in recurring revenue. Industrial oil and gas revenues had variability but expected to increase later in the year.
  • Land Development: Progress on Phase 2D and 2E, with high school construction underway. Homebuilder portfolio expanded to 7 national builders, with new builders starting homes in Phase 2D before full completion.
  • Single-Family Rentals: 19 homes rented, 40 units under contract, phasing units to come online starting in May.
• Capital Allocation: Investing in all segments to build balance sheet and shareholder value, with vertical integration across segments driving value.

Segment Performance

• Land Development: Had a record-setting Q1 revenue. Progressed on Phase 2D with about 80% of roads completed ahead of schedule, and moving into Phase 2E with grading starting in March. Homebuilder portfolio expanded to 7 national builders. Absolute revenue from land development was strong due to Phase 2D progress.
• Water Utilities: Two revenue sources: domestic (residential water/wastewater) and industrial (oil and gas). Recurring monthly revenues growing with 22% customer CAGR. Industrial revenues had variability due to permit timing, but expected to tick up later in the year. Absolute revenue from water utilities had a softer quarter than normal, but with expected growth in oil and gas deliveries.
• Single-Family Rentals: 19 homes completed and rented, 40 units under contract. Phasing units to come online starting in May, with around 4-5 units per month. Absolute revenue from single-family rentals is driven by recurring rental income and asset appreciation.

Guidance

• Fiscal year guidance in the range of $26 million to $30 million revenue, and earnings per share $0.43 to $0.52 per share.
• 2027 expected to be driven by Phase 2E and interchange construction, not a breakout year, but breakout year expected in 2028 when interchange and commercial come online.
• Oil and gas revenues have variability based on rig availability and permit timing, affecting guidance range.

Risks

• Variability in oil and gas revenues due to permit timing and rig availability, impacting revenue projections.
• Potential public comments or delays in the interchange construction permit process, which could affect development timelines.

Q: Elliot Knight asks about estimated earnings range for fiscal '27.

A: Mark Harding states 2027 will be driven by Phase 2E and interchange construction, not a breakout year, with breakout expected in 2028 when interchange and commercial come online.

Q: Tucker Andersen asks about water acquisitions and land acquisitions.

A: Mark Harding says water acquisitions need to be strategic with right water rights and location, while more optimistic about land acquisitions with active conversations with landowners.

Q: Joakim By asks about guidance range and water asset pricing.

A: Mark Harding discusses oil and gas variability affecting guidance range and water asset pricing with benchmarks like tap fees increasing 6-7% annually and acre foot purchases up to $20,000+.