Greetings, and welcome to Pure Cycle Corporation's Year-End 2023 Earnings Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions after the presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Mark Harding, President and CEO of Pure Cycle. Mark, over to you.

Thank you, Jenny. Good morning, and welcome. As we mentioned, this will be our fiscal year-end 2023 call. Excited to highlight some of our activities, the financial results for the last fiscal year, and give you an idea of how the company is doing with each of its business segments. For logistics, there is a slide deck for this presentation. If you go over to our website at purecyclewater.com, there'll be a tab on the landing page that says join the live presentation. You can click on that, and you'll see the slides for that. I've been asked to note for those that are going to be listening to this after the call or listening to the rebroadcast, we'll have the audio presentation put up on the website. You can click on the audio, and then you'll have the slide deck as well, so you can click through the slides and match the audio to the slides if you're listening to a rebroadcast of it. So with that, I'm going to start. The first thing we've got to do is talk about the forward-looking statements and the fact that statements are not necessarily historical facts or may be incorporated by reference in this presentation. I think most of you are familiar with the forward-looking statements, but we'll get the lawyers out of the room and get on with talking a little bit about the year. We're going to do this a little bit different this year. I know most of you are familiar with the company, and for those of you that are new to the company, you can run to our website. There's a ton of different resources on the website that are more in depth about the company, what each of our business segments are, and the portfolio we have. What we're going to do is talk a little bit about our strategies, a little bit about how we measure performance, how the asset trajectory looks, and then the objectives and the capital plan the company has. One of the things that we do describe often is our highly valuable assets. As many of you have heard me talk from time to time, our most valuable asset is really who we get to work with at our company, our people here. You've heard me talk about the growth of those assets, and our leadership team continues to grow. We continue to add human capital to the company to execute all of our business segments. We have a tremendous Board of Directors that is very strong, punch above our weight necessarily for a small company with the caliber of the Board of Directors we have. Each of our business segments is complementary; where we add value in one, we add value to all. You're going to get a little bit of flavor for how we invest in each of our business segments. I want to talk a little bit about our leadership team and welcome Marc Spezialy to the team. This makes three Marks in leadership positions in the company. I’m not sure if there's a correlation between the name and the smart factor; I'm just saying we’ve got a lot of smart folks here, many of whom are named Mark. But Marc joins us as our CFO. We continue to rely on the wisdom and experience of Scott Lehman to direct our Engineering and then Dirk Lashnits, who handles our Land Development segment. So we have a continued strong leadership team within the company. We operate, as most of you know, in three complementary business segments: the water and wastewater resource development segment, where we have a strong portfolio of water rights. We develop those water rights under a cradle-to-grave approach where we own the water, develop the infrastructure that diverts it, pulls it to the surface, treats it, and delivers it to our customers. We collect that back and process that water, reusing the water supply. We have excelled in land development in the last few years, developing one of the most highly respected master-planned communities in the Denver metropolitan area, and are succeeding not only in developing the land in a smart and efficient way, but also making sure that we're developing that land in an affordable entry-level market segment, which benefits us across various market segments in the housing business. Recently, we have also been adding single-family rentals, holding back some of those lots we are developing and delivering to our homebuilder customers and retaining those lots to create homes for single-family rentals. Each of these segments relates to the others, and as we invest in each of them, all benefit. This demonstrates a strong leverage effect on how these investments contribute to the total portfolio. Taking a look at the next slide, we have a strong asset portfolio. What’s important about our assets is not only their value in our business segments but how we continue to grow each of them, and we are still very early on in each of these segments. You hear me talk about our highly appreciated assets. Some of these we've had for a long time. Our water and wastewater assets have been held for over 30 years. In that segment alone, we continue to grow, with about $64 million in total assets. At our current rates and charges, we project over $2 billion in revenue potential. Our land development segment was acquired at the height of the Great Recession in 2010 for about $4.5 million, and this asset continues to generate very strong returns, with approximately $500 million of asset potential or revenue potential in its continued development. In our newest segment, which continues to grow, we currently have about $5.4 million in 14 single-family rental homes. We possess unique leverage opportunities regarding the equity value we have in the land and the water supply, with fair market value for renting these at about $7.2 million, continuing to grow. We expect this segment to expand to over $100 million with a few hundred units in our Sky Ranch community, which we’ll discuss further. Moving on to some financial results for the year and key performance indicators, we generated about $14.5 million in revenues and about $8 million in gross profit this year. Revenues are down somewhat, largely due to the timing of the start of Phase 2B. As interest rates fluctuated significantly this time last year, some of our homebuilder customers requested a 90-day breather to see how things stabilized, affecting the percent complete for lot revenue development. Additionally, there were timing gaps in some of our fracking last summer, which were due to advancements in drilling technologies allowing for longer laterals; a learning curve was involved. We have not lost any of these revenues; we are just adjusting the timing variances into Q1 of fiscal '24. Net income and earnings per share continue to show strong figures under great margins and a solid return on our assets. We often talk about our highly appreciated assets and healthy margins. I want to highlight them for you. Our gross margins in the three segments - water, land development, and SFRs - present tremendous opportunities. This is largely due to the depth of time we’ve invested and our disciplined approach to acquiring and developing these assets. In our water segment, we look at gross margins, excluding depreciation which is akin to a gross margin EBITDA approach. Our land development gross margins include not only the opportunities generated by selling lots to builders but also through public improvement reimbursements received when we build roads, curbs, and gutters. Then recently, our SFRs generate high margins due to the equity roll associated with our land and water opportunities. This provides a framework for understanding not just revenue generation but the margins across each business segment. Moving forward, let’s detail our revenue sources. Three-quarters of our revenues in the water and wastewater segment stem from sales to oil and gas companies, illustrating continued growth in our customer base year-over-year, led primarily by the Sky Ranch project. Land development discussions include a delay in the start of Phase 2B at the request of homebuilders due to the market conditions from rising interest rates. The market is stabilizing; current rates now align more with historical averages at around 7%. The strength of our entry-level market segment is enhancing the Sky Ranch project’s performance, prompting builders to remain aggressive. Over the next quarters in fiscal '24, there will be overlapping deliveries, which will show promising developments. The initial delay in the 2B project allowed us to expand our single-family rental portfolio, increasing reserved lots from 40 to 65. This capability of efficiently delivering homes to market benefits us greatly. It allows our homebuilder customers to add rentals to their portfolios. We’re optimistic about the segment’s continued growth and demand, offering rental units that can achieve fair market prices even when our incremental financing is quite low. This segment is something we genuinely look forward to developing further. As we address where our revenues arise, it would help illustrate where we are in the asset development cycle across business segments and how much more capacity we have to leverage what we already own. At the water and wastewater segment level, my previous remarks about being able to service up to 60,000 connections shows that we are currently only at 1,300 connections, demonstrating where we’re still in early development. Also, it’s important to note rates and charges reflect utility development costs tied to our connection rates—while those rates continue to grow and rise, our strategy will remain competitive. Our land development segment shows we’ve completed about 14% of the total number of units in the Sky Ranch development, but there's substantial room for continued growth. We have solid balance sheet health, a strong cash position, and robust liquidity when accounting for municipal receivables. We're optimistic about water utility demographics. We now show a customer total of 1,326, primarily concentrated in areas like Wild Point and Sky Ranch, supported by our exclusive service area covering over 24,000 acres in Denver. Our largest customer in the water segment continues to be oil and gas, and the outlook remains positive. Field ownership has consolidated to a few comprehensive local operators following prior shifts, leading to reduced risk. Activity is ongoing, with 1.5 rigs currently operating around our service area and production escalating, producing higher revenues for us. Furthermore, we're focusing on all aspects of our delivery capacities; investing in wells, pipelines, and storage enhances our total ability to supply water. This coverage reveals the diverse sources of supply we have, like our surface water supplies in Box-Elder Creek, groundwater from Lowry Ranch, and services at DHS. Collectively, we’re currently only utilizing 15% of our total capacity, indicating significant future opportunities for water supply inflow as demand rises across our service area. We're currently projecting to generate over $90 million through the tapping fee revenue generated from the sources we have. When we gauge our water portfolio, we're equipped with about 30,000 acre-feet of water to serve around 60,000 connections; interestingly, only 2% is presently allocated. We anticipate another $90 to $95 million worth of tapping revenue based on current capacities. Our land development remains strong; we’re currently delivering lots to homebuilder customers, with roughly 14% of capacity seen in Sky Ranch. Essentially, we have significant potential revenue generation with about $580 million expected through current development rates. In terms of our single-family rental initiative, we’ve secured 14 completed units with a target capacity of about 200 units. There’s further opportunity for expansion, impacting annual revenue targets significantly as housing prices appreciate annually. Highlighting some key takeaways: attractive gross margins, solid returns, and effective management of our assets will guide our continued capital allocation and investment decisions. We’re observing synergistic outcomes within our business segments as we allocate capital intelligently across them and pursue acquisition opportunities aligned with our focused strategy. Importantly, the metrics measuring our success align with those you all use and are discrete and quantifiable. Our objectives leverage complementary effects across segments, and we’re further dedicated to capital investments that yield margin returns while maintaining acquisition targets. We remain proactive about seizing opportunities for land and water assets, continuing to invest in ourselves, as shown with our ongoing share buyback program. We’re not aiming to inflate share prices artificially, but emphasize individual investment in value once it becomes clear that stock remains undervalued based on opportunities ahead. Lastly, our Board remains integral in supporting our direction moving forward. Now, I’ll open the floor to questions.

Thank you very much. At this time, we will be conducting a question-and-answer session. Your first question is coming from John Rosenberg of Loughlin Water Partners. John, your line is live.

Thank you. Good morning, Mark. Nice to speak with you. First, I'd like to compliment you on the progress your team is making. My question is regarding the charter school. How is that progressing?

I hate it when I do that. Yes, it's a significant success for us. One of the key aspects of our development strategy was to ensure our community centers around three principles: location, affordability, and education. We strategically positioned the school in the community center, allowing easy access for families. Partnering with National Heritage Academy, we achieved our goal to open early and got grades K through 7 operational this year, with around 400 students, including many walking to school from our community while attracting students from across the Denver area. We plan to develop a K-12 campus with high school opening in August 2025. We're incredibly excited about this achievement.

That sounds great. One last question: what’s the status on the potential for a big box store locating in Sky Ranch and the surrounding retail development?

We do have interest; we’re actively seeking big box retailers like Kroger, Lowe's, or Walmart. They're considering the area's growth, but they typically look for rooftops and developed infrastructure. Currently, we anticipate being about 18 months to two years from breaking ground. While interest is strong, they're waiting for more residential development to proceed.

Everyone wants to lead but not be first. Thank you, Mark.

Thank you very much. Your next question is coming from Bill Cunningham, a private investor. Bill, your line is live.

Hi, Mark. Thank you for taking my call. I appreciate your time. I wanted to ask about the southern commercial section of the land, and any plans for potential multi-family development there? I recall at your Investor Day there were some comments about that.

Yes, we have plans in place between 400 and 600 units for multifamily. This location is strategically beneficial, adding density to our project. It serves not only affordable needs but provides transitional opportunities for living arrangements. We're careful about timing and development initiatives here.

That’s good to hear. Will the apartments be adjacent to the school?

Yes, access to the school site will be convenient, although it may be a mix of various locations within that segment.

It sounds like it’s an ideal location for family-oriented living. Thank you.

Thank you very much. Your next question is coming from Greg Malachowski from Benchmark. Greg, your line is live.

Hey, Mark. Great to connect. I have a question related to commercial and multi-family. Given the challenges in development posed by current rates and financing, have you considered partnering with specialized developers for apartment projects to mitigate the load?

Absolutely, that's definitely a pathway we are considering. We have considerable equity in this project, with low land basis and established utility infrastructure. By leveraging that to partner with developers, we can focus on our strengths without overextending ourselves, particularly in sectors like industrial as well. We have ongoing discussions regarding the feasibility and potential partnership structures to achieve this.

Your next question comes from Elliot Knight from Knight Advisors. Elliot, your line is live.

Thanks, Mark. You've done well illustrating the stages of development across your segments—the company’s financial strength is commendable. I think it’s time for the Board to consider starting to pay dividends, which could broaden your shareholder base.

That's a valid point, and we’ve discussed dividends previously. Our capital allocation efforts focus on maintaining a disciplined approach while ensuring liquidity. As we grow, we'll certainly consider the feasibility of declaring dividends to attract a broader shareholder base. To summarize, we had a terrific quarter, demonstrating robust asset leverage and ongoing investments in multiple areas. We look forward to igniting more growth in our water deliveries and sustaining the high performance observed in each of our segments and financial positions. Please feel free to reach out with further questions, and happy holidays to everyone. Thanks.

Thank you very much, everyone. That concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.