Greetings and welcome to the Pure Cycle Corporation First Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded.

Thank you. I'd like to welcome you all to our first quarter call for fiscal year 2021. For those of you that have been following the company, we typically do fewer calls. We've typically been on a platform where we do a couple of calls a year. But I think what we'd like to do is, given the level of interest in the new folks that have been expressing interest in the company, and really just the quarter-over-quarter improvements and execution of our business plan, we want to be a little more descriptive and timely in these calls. So we're going to get to that traditional four calls a year format for you all. So welcome, and this will be our first call. We did this, I think, last year as well, so we're going to continue that context. What I want to do is for those that are on the call itself that haven't already done this. If you can go to our website, on the front page of our website there will be a link that you can click. We're on a new platform here. We're very excited about it. It will allow me to be able to control the deck for our call ourselves so that we can walk through it and then allow me to be descriptive about what our results are. So, if you haven't done it, go ahead and jump on that purecyclewater.com. On the homepage, you'll see that link. So with that, I'm going to go ahead and get started. Our first slide, as always, is our safe harbor statement. These statements are not historical facts and they're forward-looking statements. I think you're all familiar with forward-looking statements on that. But diving into... ...A little bit about Pure Cycle. For those who are new to the company, we own a portfolio of valuable water rights in the water-short Denver, Colorado area. Some of you may have seen a recent article in The New York Times about the value of water and the value of Colorado water. It's an opportunity to create value, and we're delighted that more recognition is being given to this resource and the value that this resource has. We have been long on water for more than 30 years and also long on how to monetize that water. We're looking not just at the utility segment, but also at what water can do for land development, for properties, for industrial customers. While there's a very compelling case to be made for the value of water in water-short areas, it's also an elegant way of being able to monetize that value through vertical integration. We do have not only a utility segment but also a land development segment that we'll talk a little bit about as well. Moving to our next slide... ...our water's in the Southeast Denver metropolitan area. Towards the top of that, you see the Sky Ranch project; that's our land interest, right up along the interstate. Interstate 70, is right at the top of that graph there. There's a little bit of depiction about some of the transmission infrastructure, wells, and some of the storage assets that we have. What's interesting is The New York Times really did have a great discussion about the value of water but didn't really have much about how to monetize that. There are several ways that if you look at the broad scheme of how you can monetize water, there certainly are those folks that buy low and sell high. I mean that's just an arbitrage where you're going in, buying the value of an asset, waiting for the value of that asset to increase, and then selling it. That's certainly one way to monetize it. You can buy the asset, add some infrastructure to it, and then sell it as a monetization. That's another way to monetize it. Certainly, you can buy the asset, add value and then provide service, which is a monetization way... ...You can also buy an asset, add value, provide that service model, and then leverage it. By that leverage, what we look to do is find opportunities where water increases the value of another asset. In our particular market segment where we happen to own water in a water-short region, that opportunity is created through land development. That's where the company has focused its energies in recent years. We like that model, and we have been executing that for the last three years. As we move through the description as a cue, our land development segment, we picked up a parcel of property, probably at the right time. We bought it right in the depth of the real estate recession back in 2010. It's a 930-acre parcel of property that was zoned as a fully entitled master plan community. It’s a mixed-use master plan community that has a wide range of residential product types, commercial, retail, and industrial zoning. It can accommodate about 3,200 to 3,400 residential lots, and about 2 million square feet of commercial because we do have an interchange right off the interstate... ...It equates to about another 1,600 equivalent connections. We typically look at the world as it relates to a lot and what it relates to as a service connection, both in terms of a lot for our land development segment and an SFE service connection for our utility segment. It's in the right location, just east of downtown, 4 miles south of DIA. So it’s a good location with access along the interstate. There’s simply not enough water to serve the land in the west, particularly in the Denver area. While water without land continues to hold value, land without water does not. We like this combination of the land and the water utility segment. With more land and water, we've been bringing our water supplies to land that adds value to the land and also adds value to our utility segment. So we'll add customers and connections through the land development segment... ...Our first phase included 506 lots. If you look at that first phase, we had 506 lots, three national homebuilders put those lots under contract sort of mid-year 2018, and we have sold and delivered all those lots. So all 506 lots have been completed and delivered to our homebuilders. The pace of absorption for development out there has exceeded all expectations, both our expectations as well as the builder forecast. We have about 232 residents out there and about 115 homes under construction. We're adding about 27 homes, roughly 8 to 9 homes per builder per month. The absorption is stellar. We’re very proud of the successes we've had under the first phase and looking to move to our second phase... ...Our second phase is about twice the size of our first filing; we'll have about 900 total platted lots. We have contracted for about 790 of those lots, keeping a few in reserve this time because we were looking for some options. We want to ensure that we're looking at all our options on how we're adding value to the community and giving us the ability to add to the curb appeal of the community. The second phase will be more diversified in its product class. In our first phase, we had just two options. In the next phase, we will have six different product classifications providing a higher assessed value, which gives us higher opportunities for monetizing the reimbursables we have from the bond proceeds. We'll talk a little more about that as we progress. We’re breaking ground this month on the second phase, with big equipment on-site later this month to move grading on that. Before that, we need to set up some BMPs for stormwater detention; that stuff is currently underway... ...We are underway on that second phase with contracts with four homebuilders. As we finish out the first filing, we will wrap up the final components of the 506 lots while ramping up with the other 900 lots, which means that for a little while, we'll have six builders out there. Looking at the scorecard for each of these: Filing one, we invested about $35.8 million and received to date the $47.2 million in lot revenues as well as about $10.5 million in reimbursables. We did have monetization of the reimbursables. What we do is install public improvements, ranging from roads, curbs, and gutters to drainage facilities and parks. The communities, Colorado, like many states, sees growth paying its own way. Each new project will have its own municipality that has mill levies to finance public improvements. As the community matures, you get that assessed value, which aggregates the total value of homes and businesses in the community... ...We have a relatively high amount of that upfront. If you look at those two reimbursable amounts, we're at about $31.6 million of the reimbursables from that first phase. We still have $21 million of reimbursables that we will get from that first phase, and we're working on how we account for that. You can see that in our financial statements' notes because we do have a note with the municipality that carries a time value money component continuing to grow on interest, allowing us to maintain current value while making those investments. As the community matures, future bond offerings will help us recover that $21 million. We’re already in the black on that first phase with recovery of about $30 million on almost $48 million, plus another $21 million to come. Another component of that, and this coupling of land and water development is the water utility component, where we get the connection fees. To date, we've received about $10 million of approximately $15 million in connection fees. ...So there's about another $5 million from the remaining lots still yet to be built in filing one. If you take a look at that and contrast it with the other 900 lots, we might see about a 3% to 3.5% increase in lot cost. We estimate $48.1 million for revenues on those. The tap fees will vary because not all of the taps will be a whole tap since there will be higher density multifamily products available, amounting to about $65 million in costs. We had about a 30% increase in lot revenues too. Because of the success of our first filing, we maintained margin on reimbursables and the tap fees. That’s about how the second phase will roll forward. ...If you take a look, filing one represented about 10% of the aggregate opportunity of the project, about 506 lots out of a total of 5,000 lots. We have plenty of potential remaining in Sky Ranch, which cumulatively amounts to over a $500 million project for the company. So we are excited about continuing to grow this opportunity, continue to improve value through infrastructure and translate that into water connections and lot revenue. Turning our attention to our water utility segment, what makes this whole thing work is water. Our utility segment continues to grow by adding assets, which we then capitalize and depreciate off our balance sheet. These are high-value assets for the company, providing customer service on an ongoing basis. Customers here are probably the stickiest of customers, as you have to have water for any value... ...Looking at how that asset growth has occurred, we've had a 60% growth in our asset value, comprising the system we continue to build and capitalize. We have most of the infrastructure for filing two already in place. While we might add a modest amount of water capacities, we’ll probably spend about $3 million to ensure we have backup systems. The interesting thing about our second phase will be the margins and how quickly our tap fee revenues accelerate and show growth in our net income, given our established assets from the first phase. Looking to add another $5 million in tap fees from filing one, balancing with the water and wastewater tap fees from filing one will be our focus. Moving into 2021 and 2022, tap fees will start for the second phase... ...This shows our growth for our customer base. We're up to about 650 connections today, with expectations it will grow to about 3,500. Sky Ranch alone will account for about 5,000 connections. Depending on a 10-year cycle, that could range from 650 to 5,000 connections at full build-out. If we maintain this pace, we’ll continue to see ongoing revenue cycles for the company. For Q1 accomplishments, we continue to build our balance sheet and add total assets. We maintain a clean balance sheet with no debt and a strong cash position entering our second filing. I know there were questions about what we would do with cash positions and at what point we will look for growth via acquisitions. We want to keep options open for potential acquisitions, along with generating the next phase of community development. We plan to leverage our relationships with homebuilders to manage risk and inventory... ...Taking a look at our balance sheet, you can see the results of what we’re doing on both those fronts; tremendous progress year-over-year, quarter-over-quarter. We continue to post strong numbers. We’ve added key talent in the company over the past few years. We recently added Kevin McNeill, who is the Vice President and CFO. We’re welcoming him back and appreciate the contributions he’s making to help us grow the business. We’ve also had two retiring board members, Harry Augur and Dick Guido, after more than 25 years of service. We are bringing in other key positions to strengthen our board, including Jeff Sheets with significant commercial real estate experience in Denver, Rick Fendel, a retired water attorney, and Dan Kozlowski, an institutional investor. We’re excited about the transitions and growth in our leadership. ...A couple of metrics: these are charts you are all accustomed to seeing—both revenue, gross margin, net income, and EBITDA. These represent terrific growth from 2016 up to 2020. We’re excited about our continued monetization of both our land and water interests. Our final slide shows stock price performance improving. We did see some weakness in the stock through 2020, and we’re all glad that 2020 is behind us. Looking at 2021 as a fresh start, the last few days have been a great start for us. We hope to keep that momentum and really demonstrate to both our long-standing shareholders and new entrants the value of these assets, how they've grown, and how the company is built around monetizing these assets. We want to continue to communicate that narrative. To the extent you have referrals or someone interested in a company that is asset-rich, inflation-protected, high-margin, debt-free, and undervalued, send them our way. I think we can impress them with the story we've put together and how we might want to monetize this. ...With that, I’d like to turn it back over to the moderator and see if you have any questions that I might be able to provide additional color on.

Thank you. Our first question comes from John Rosenberg with Loughlin Water Partners.

Anyway, Mark, I asked you this before. I'm just trying to better understand. You're obviously expensing a lot of the build-out of your system. You mentioned a greater contribution margin coming through as you go into Phase 2. Could you provide some more color on that regarding what we might expect in terms of actual gross profits from the water utility and wastewater utility operations?

Sure. So when we look at the first segment, 506 lots, if you take a look at the tap fees, one single-family equivalent tap translates roughly to about 0.4 acre-feet of water a year. The current tap fees are around $27,000. For 506 lots, that was forecasted to generate about $15 million in total water and wastewater tap fee revenue. Our facilities were about $13 million; $10 million for our water reclamation and another $3 million for water system improvements. What that means for the second phase is we expect to receive about $23 million in water and wastewater tap fee revenues with a $3 million additional investment.

Okay. I see. I'm just not quite understanding. I can see improvement. But for example, the operating income of a typical water utility is somewhere around 30%. Is that kind of what you guys are aiming for on an operating basis?

Yes, I would say that's true. We estimate our operating revenue margin will be around that range, maybe a bit better. We have a pretty efficient shop, continuing to run most of our systems in an automated fashion. Technology leverages our operational efficiencies here. We have very clean water, which minimizes treatment needs. We’ll likely have higher margins on the water side and lower margins on the wastewater side, but overall operating margins will be closer to 40%.

Great. But toward that end, you don’t expect to see a huge step-up in SG&A or anything like that?

No.

You are just costing your revenue base right now...

We are.

In terms of putting in the equipment.

Correct. I did get a question texted about oil and gas. I neglected to mention that we do sell water to the oil and gas industry. That’s been a minimal component over the last year due to demand for oil and gas. In Q1 of this year, we facilitated a frac for our largest operator in the field, which was a 4-well frac. We did about $1.1 million to $1.2 million in water sales for that frac in Q1. We provide no guidance for that oil and gas industry, as we look at it as optionality for the company. We like it when demand is there because it serves as a high-margin business. We’re prepared to adjust our systems based on demand.

All right. It appears we have no further questions by phone. If you have any closing remarks, Mr. Harding.

We will continue to enhance our investor outreach. You'll see updates to our website and social media to ensure timely dissemination of our information. We want to facilitate clarity about our execution on these phases and share important metrics to evaluate our growth potential. If you have anyone interested, please pass along those contacts; we'll reach out. Our website has a wealth of information. We will keep enhancing those resources to provide updates on our development activity. If there were any technical issues, feel free to reach out to me directly with any questions...

Perfect. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.