Greetings. Welcome to the Pure Cycle Corporation Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Please note, this conference is being recorded. I will now turn the conference over to your host, Mark Harding, President and CEO of Pure Cycle. Thank you. You may begin.

Thank you, Hilary. I would like to welcome you all to our third quarter earnings call. For those of you that have access, you can jump onto our website. And on the landing page, you can join the conference through a live slide deck that I have that will accompany this presentation. So if you go to purecyclewater.com, and on the landing page, just click that join conference in progress, and then that will allow you to follow along with the presentation. As usual, the first slide will be our Safe Harbor statement, which states that statements that are not historical facts contained or referenced in this presentation are forward-looking statements. I'm sure you're all familiar with the forward-looking statements. What I'll do is I'll provide a brief overview. I'll try and be cursory about that, as I know many of you are familiar with the company, but for those of you who are new, I will give you an overview of what it is that we're doing and where we generate our revenues from. We have three unique business segments that are all underpinned by our utilities. At a DNA level, we're a water and wastewater resource development company. We own a portfolio of water rights here in the Denver metropolitan area of Colorado, where water is a unique asset. You can own water as severable property rights. If you take a look at our portfolio, we can serve about 60,000 connections, and we reference our connections based on a single-family equivalency connection. In addition to our water and wastewater activities, we also have land development where we are a master plan developer, with about 1,000 acres on the I-70 corridor, one of the most attractive development corridors in the Denver metropolitan area, and we are developing a full master plan of residential product as well as commercial and retail and light industrial spaces. I will talk a little bit more about that, and more recently, we've entered into the single-family rental segment where we're actually contracting with others to build the homes that we will maintain in inventory and be able to leverage some of the equity value that we've developed not only in the water arena but also in the land side. So, we'll talk a little bit more about that as well. I want to highlight our new website. It contains a tremendous amount of information. If you're new to the website, certainly come back and visit us to delve into all the different layers because it offers a wealth of information not only for those new to the company but also those familiar with it to get updates on a more real-time basis. So, we're thrilled to present that to you all. Let's talk a little bit about our Water Utility segment. As I mentioned, we have a portfolio of water and we really go cradle to grave with that. We own the water rights, develop the wells and surface water diversion facilities; we treat that water; it goes into our distribution system to deliver to our customers who use that, and then they return that water to us as wastewater; we collect that wastewater, run it through our water reclamation facility and we have complete reuse of that water supply. So, we're using and reusing that water supply through its extension for outdoor irrigation demands as well as our industrial customers. We have the opportunity to reuse this precious resource. We collect two fee instruments for this. One-time connection fees, referred to as our tap fees. Those have grown over the years. We're currently at about $32,000 per connection, which gives you a little math on it. If you take a look at the 60,000 connections, that's about $2 billion in top-line revenue, and really, it's about a 50% margin business. We use half of that money to build all the infrastructure that delivers water and wastewater to our customers on a monthly basis. So, that generates about $1,500 per connection per year. At full build-out of the 60,000 connections, that's about a $90 million year-over-year business for us, and that's another 50% margin business. We operate and maintain that, ensuring that we deliver high-quality water to our customers. Our metrics on utility assets, wells, and the water rights themselves reflect our customer growth; we're serving close to about 1,000 connections, which continues to grow each month organically from what we have at Sky Ranch as well as in other service areas down at Wild Pointe. This illustrates the growth in the Sky Ranch Community itself out of our 5,000 connections, and as previously stated, we have the capacity of up to 60,000 connections. In Q3, we showed about $55.1 million in net water assets, alongside revenue growth through the years from our Sky Ranch and Wild Pointe projects. In our land development segment, we can accommodate 3,400 residential lots spread across about 930 acres. This will include a full range of pricing categories for customers out of Sky Ranch and we're proud of that, as it’s quickly become one of the fastest growing affordable master plan communities in the Denver market. We also have an ideal location along the interstate, which allows for commercial development of approximately 2 million square feet of retail and industrial space, translating to about another 1,600 connections. We've delivered 446 connection fees, and typically those are provided at the building permit phase. We're almost sold out, with only about another 40 lots remaining. It has exceeded expectations from both the company standpoint and our home builders. We're two years ahead of schedule on delivering finished lots. We received about $36.7 million from our lot fee revenues and have additional reimbursements from local municipalities due to improvements made in the area. We broke ground on Phase 2 in February, and will deliver an additional 900 lots. All are estimated to generate around $72.6 million and an additional $48 million in reimbursements and about $21.5 million in water tap fees. Let’s drill down a bit more into the gross numbers for Sky Ranch. Investing about $35.8 million, we’re showing $47.4 million which includes the tap fee revenue and $10.5 million in reimbursements. The timing of reimbursements depends on the financing metrics of the local municipality but holds tremendous opportunities along with the delivery of finished lots for our home builders. The single-family rental segment is where we are looking to hold inventory of certain lots. Housing market appreciation has seen nearly a 26% increase in average single-family home prices, moving from about $350,000 for homes to around $480,000, $500,000 per home. It remains a very competitive market with significantly lower supply than demand visible in the sharp decrease from 9 weeks of inventory to 2 weeks year-over-year. The metrics suggest that we have positioned ourselves ideally to provide a single-family rental market where families can find a community to rent in until they are ready to buy. We're forecasting rental income of approximately $2,800 a month per unit with access to inexpensive mortgage-type money at about 3.75%. This not only covers debt service but also generates margins, benefiting our balance sheet and income statement and accelerating our recurring income. Instead of simply generating $1,500 per connection, this additional revenue could mean an extra $15,000 in free cash flow and $30,000 to $33,000 in total cash flow. Each year we're estimating 4% to 6% appreciation on our homes, financing about $317,000 at that 3.75% rate. This allows for a natural arbitrage on market appreciation combined with the cost of development. We have three units under construction and expect the first phase to be completed by September. We have lots reserved for incorporating more rental units alongside our homebuilder partners. On the oil and gas front, a price of $70 oil is preferable to $40. Operators we work with continue to drill and utilize our water services. We project an increase in the number of wells being drilled per pad site due to advancements in fracking technology. Our projections indicate a revenue generation of about $250,000 per well. Summarily for our nine months ended, we've had about $12 million in revenue with gross margins around $7 million and net income up to $18 million, primarily due to the revenue recognition from Phase 1. Look out for later details on our results at the end of this week. Our strong Board of Directors provide relevant expertise that continues to guide our company. We consistently see improvements in our stock metrics, and I appreciate everyone’s continued support.

Thank you, Mark. Our first question is from Bill Miller, Shareholder. Please state your question.

Mark, hi.

Hi, Bill.

I'd like to hear all the good news, but I'm wondering about the 3-year view, and where you're going to get your next land for your apartment rentals or house rentals, since that seems to be by far the most profitable business you have. How big a percentage are you trying to make it and where will you get the land for your next stage?

That's a great question. We do have, as I've mentioned previously, our nets out for additional land acquisitions, and we have a tremendous amount of land surrounding us that is available. It's ideally positioned, because I think it’s consolidated. We're not dealing with 10-acre assemblages here; we have land around us that would be half a section, a section, or larger assemblages. This is where we’re looking for our opportunities. We are cognizant that it's a red-hot market with high expectations, and we want to ensure that it works for us as well as them. We think we can pay a little more than others because we bring water to the table. However, many property owners are aware that we provide water and wish for a greater share of that benefit. So, we are being patient with those negotiations and have specific targets in mind. Regarding the BTRs and the leverage we create on some equity value, the true value for the company comes from combining land and utilities. Many large companies are pursuing the single-family rental market segment, acquiring properties in the market without the margin metrics that we have on the land and water value. This gives us a significant edge. I'm not sure we'd be pursuing this segment if we were only focused on one aspect of the business.

Will that be the biggest part of your business in 5 years, that recurring revenue?

We will have some of that for sure because it’s a significant part of our residual recurring revenue. However, the water utility and land segments also offer significant projects with decades worth of growth potential. I believe you'll be pleased with how the BTR model generates cash flows that can be utilized for dividends and reinvestment in value creation when the market doesn’t understand our stock's value.

Great. I look forward to it.

Thank you. Thanks for your continued support.

Thank you, Mark. It appears we have no more questions at this time. So, I will now turn the call back over to you for closing remarks.

You bet. To the extent that you were unable to queue in to ask a question due to technology issues, I apologize for the brevity of the financial presentation. We have metrics that provide you with quarter-over-quarter results. I will refresh the presentation, and if you have questions related to those details, don't hesitate to reach out. We have an Investor Day coming up, and I welcome all of you joining us next week to get a real-time opportunity to observe our Phase 1 as well as the synergies of our utilities with the development. I’d also be pleased to provide tours of our water reclamation facility that we are extremely proud of. So, I welcome those of you attending and feel free to reach out anytime for a tour outside of Investor Day. With that, I will close and look forward to speaking with you all soon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.