PCYO

Good morning, everyone, and welcome to Pure Cycle Corporation's second quarter 2026 earnings call. As in prior quarters, we'll start the call with a presentation from our CEO, Mark Harding, and then we'll provide time for questions and answers afterwards.

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Yeah, if I could ask everybody to mute their call. It looks like everybody's joining unmuted right now. Okay. All right. Sorry about that. We'll start the earnings call with a presentation from Mark Harding, and then we'll open up the lines for questions and answers afterwards. Without further ado, I'd like to introduce Mark Harding, our CEO.

Thank you. Good morning, everyone. My wingmen today are Marc Spezialy, our CFO, and our controller, Serena Finnegan. If you have any tough questions, we'll have a solid team to weigh in on all of the details here. For those of you that are looking at this, we do have a deck for this. It's on our website. I think it's on our landing page. You can click on that and then we'll be able to advance through the presentation and give you the details on it. With that, I'll start with our forward-looking statements. Statements that are not historical facts, contained or incorporated by reference in this presentation are forward-looking statements as that is the meaning of the Securities Exchange Act. Most of you are familiar with that. Next slide.

I want to continue to emphasize the team that we get to work with, an outstanding team of professionals that really bring their game every day. It helps us, it helps drive value for the corporation. A continued shout-out to our management team. Also, our board of directors. I do want to welcome our newest board member, Dan Roller, and look forward to working with him. He is actively engaged in really working with the directors and the team, so we look forward to working with him. Let's take a look at kind of the investment snapshot here. We continue to deliver shareholder returns and returns on our assets through consistent and profitable results. Continuing our streak with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues, and durable revenues through all three business segments.

We continue to grow our asset base by delivering lots to our national home builder customers as close to a just-in-time basis and really doing that to really match market demands, and we do see a lot of cyclical nature in the housing market. Water is a little bit more tempered in that, but we continue to really focus on our assets and monetizing our assets and build shareholder value really through our strong balance sheet and strong liquidity position. Let's dive right into the results. We really had a great quarter and this year has been a more tempered year, to be able to even out our revenues and our cash flows on this. That's really been a function of a very, very mild winter.

For my fellow skiers, we're mourning the loss of a ski season, but we're celebrating the opportunity for us to really do a lot of the work that we can't do seasonally in the winter by a lot of the concrete work and the asphalt work. What you see is kind of a more even paced development where we're able to, through our cost of completion on our project, be able to even out these cash flows on it. Quarter-over-quarter revenue, this first six months, about $5.1 million in revenue, about $2.8 million in gross profit. Really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as six months ahead of schedule on some of the lot deliveries on that.

A lot of our builders are equally thrilled with that because they were able to get out in the field and put up some model homes for this spring season. Taking a look at net income and earnings per share. Again, those are going to match, really exceeding our guidance typically on quarter-over-quarter, just because of the advancements on our projects on that. Net income, a little over $1 million, earnings per share, about $0.05 per share. Really this is up by about 36%, really driven by all segments. Mostly land, but water as well as single-family rentals. We're adding a few more of our rental segments in there, and we'll have a little bit more color on that later. Also seeing a bit of an uptick in our water through industrial water sales to oil and gas operators this year.

Taking a look at just the comparison to our guidance, our full year guidance. We're right at that 50% of our guidance through halfway through the year. That's a bit unusual for us just because the winter quarters usually are our weakest quarter of the year just because of the seasonality of weather out here. We're about $14.3 million in total revenue of our close to $30 million forecast or guidance, and then profit at about $9 million to our about $19 million guidance on that. Really terrific results year-over-year. Moving to net income and earnings per share also, we see those pacing more evenly through the year. Margin results are showing a bit more moderated because we have advancements in investments into the delivery of lots slightly ahead of our contract delivery.

Those will normalize through the rest of the year and really help us temper those flows. Specifically with the quarter end results, what I'd like to do is kind of drill down to each of these segments and talk a little bit about what it is that each of these are driving for us. One of the things I recently heard was an acronym called HALO, which is used to describe some companies in the context of this, it's heavy asset, low obsolescence, and I found that pretty descriptive over our company. You can't get a more low obsolescent asset than water utilities. We'll drill down on the water utilities and talk specifically about what we're seeing in that growth and margin opportunities. We really deliver water to customers kind of in three various segments.

We have our domestic deliveries, which is your potable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. We have continued customer growth, which is our connection fees, and those are one-time fees that are paid by our home builder customers, and then that just adds to the customer growth of the overall segments. Taking a look at revenues on a quarter, year-to-date basis, we continue to see some customer growth, corresponding revenues driven by the connection fees, which is really adding new customers to the system. Our oil and gas revenues are up this year, and I think we'll see a very strong performance in industrial water sales.

Just monthly water and wastewater sales continue to grow, and that's really a function of continued growth in the rates as well as the number of customers for that. Detailing out the industrial segments, our oil and gas sales are up significantly over last year's, primarily because last year was largely a permitting year for our operators, mostly our largest operator, who was working to secure as many as 200 permits in and around our service area. Really that's translated into increased drilling and increased fracking this year, which is really turning out quite well for them given the rise in oil prices. They couldn't have timed that better for bringing a lot of that new supply online. The outlook looks very good for this year. I think we'll exceed our guidance that we had taken a look at this year.

I think it's going to continue into the future, right? We have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that'll probably take them somewhere around three years to drill all those wells. Our revenue per well continues to strengthen. We do have a multi-year contract with our operators to deliver these water supplies, so it allows us to do some strength and planning and then also making sure that our infrastructure is capable of not only meeting our industrial, but the domestic demands on that. One of the things that we like to highlight in our water segment is the capacity that we have and the fact that we continue to grow in developing this capacity.

Yet we're still only using a small fraction of our portfolio while we generate significant revenues from these segments and really at very attractive margins when we're really looking at that variable demand for oil and gas. They do have a preferential pricing on that, where we do get a premium on that to make that water supplies available to them as they need that in the volumes that they need. Let me move into highlighting our land development segment. This is a nice aerial of our high school at Sky Ranch that's being constructed, so we're very excited about that. It'll really deliver not just. It's a full K-12 campus.

We've got the primary school, which is a K-8, as well as our high school there, and really, a lot of the relocation and customer feedback on buying in the community is a function of the school campus that we have here. We're delighted to continue to work with our charter school operator, National Heritage Academy. They're terrific partners in bringing educational excellence at Sky Ranch. Talking a little bit about how we're delivering lots. This fiscal year, really focusing on punching out phase II-C, which was about 228 lots, and we're about 95% complete with that. Then also phase II-D, which we're almost 80% complete on that. Really that's the big advancements for this quarter. Over the winter months, we were able to get a lot of that infrastructure in the ground.

Very proud of our portfolio of homebuilder customers, all of the major home builders, including Lennar, D.R. Horton, KB, Taylor Morrison, Challenger, Pulte, Oakwood, all bring entry-level homes to the Denver market. Phase II started out with about 780 homes, but through some product alignments and diversification, that's really grown to about a little over 1,000 lots in that area. We do see a significant uptick in our density out at Sky Ranch, and that's terrific for us. Not only does that allow us to deliver more lots, but it allows us to increase the assessed value, which really has an impact on generating additional capacity, bonding capacity within the district to repay our reimbursables on that, which you see us continue to grow. Let's drill down a little bit on that land development by phase. Period-over-period, the revenues really did crush it.

We really are generating significant Q2 revenues, more of a function of that mild winter and an opportunity for us to kind of turn up the volume and get that pavement down and finish those lots so that the home builders can get those building permits and really start getting their model homes up for the selling season. We do see an uptick in traffic out at Sky Ranch. All our builders are seeing an uptick on that and a little bit more of a conversion to that. There's lots of reasons that housing has variable demands, whether that's interest rate sensitivities, and we see a little bit of volatility in the interest rate segment. I think that still is the number one incentive that our home builders are offering, is a mortgage buydown.

I think they're hitting that sweet spot of trying to buy down those mortgages right below that 5% range, so that 4.99%. When you see a lot of that adjustment from the Federal Reserve on interest rates, that may not have as big an impact on this particular segmentation of it, just because that's the primary incentive that our home builders are offering our first-time buyers in converting those into sales. The pace of our land development will normalize through the rest of the year. We really do have a little bit to complete in that phase II-D, and then are really moving into grading the next phase, which is going to be phase II-E. We've got another good slide on the visual aspect of completing out each of these.

As you see, you can see that in the lower left cell there, where we've got a number of homes that are up and constructed for that phase II-C and then phase II-D, while it's a little bit out of the picture on this, we do have model home lots being developed in there. We have really two active phases that are complete where they're developing lots. We've got about maybe 430 lots available for home builders to really tap the market on a variety of products. We've got all phases of the products, whether they're a standard detached 45 foot front load, 45 foot rear load, 35 foot rear load, duplexes, townhomes. We really have a very strong portfolio of diversity of product type out there, which is really creating opportunities for almost every type of home buyer in that.

Moving on to kind of the development timeline here. This gives you kind of an overview of our phasing. As most of you know, most of our contracts are geared towards a system of developing a portion of the infrastructure in phases and then having, once that's complete, having our home builder customers reimburse us and support the next phase of the development activity. We get payments at the plat stage, which is when we finish the recorded plat, and there's a real property interest that they acquire. A second payment, which is at the completion of wet utilities, once we're done with the water, sewer, and storm facilities on the phase. Finally, that third payment at finished lot phase.

That's where you saw some of those lots being pulled forward on being able to finish a number of those lots on Q2. As I started to allude to, we are starting phase II-E, so our grading contractor is mobilizing on site. We'll be hitting that this month. Really those are about 160 lots that we're looking for delivery and continuing pacing that so that each of our builders can have a year's worth of inventory. Those will be 2027 lots, so we expect those to deliver sometime in the summer of 2027. That phase II-E here is to give you kind of an orientation of where that's at. It's directly across the street from our school, and this is really more of an infill site. We have most of the infrastructure done on that. A lot of the road network is done.

Most of the main lines on the water and the sewer system are already in place. That's our peak hour water storage tank and pump station there in the picture as well. That's a very streamlined process for us to be able to bring this online. It's about another $14 million in lot revenues, correspondingly, $4.3 million in tap fees and about $240,000 in recurring revenue from the number of customers that we have on that. This was kind of a celebratory opportunity for us, together with National Heritage Academies, really on a groundbreaking for that, and really partnering with our local school district, the Bennett School District, as well as the National Heritage Academies to bring this K-12 campus to our development. I wanted to show continuing one of the most underappreciated assets I think we have in our portfolio is our service area.

As many of you have heard me talk through the years, the Denver metro area continues to grow out on the Eastern Plains. We really live on an ocean. We can't grow west as a metropolitan area, so really moving to the east side of it. This really kind of gives you an illustration of the level of activity that's occurring around our service area on the Lowry Ranch. As you all know, the state of Colorado owns the Lowry property. It is owned in the school trust, and they develop their assets to generate revenue for the public education system here in the state of Colorado. There's a couple of parcels that are really just highlighted here, one on the south side of the property, and that kind of gives you. That bottom picture is an orientation looking north.

That is a very active development on that. That's about a half section, 320 acres. Also properties that you've seen what's occurring on the west side with all the development from the City of Aurora that's on the west side, but then also projects starting on the north side of the property as well. There's substantial opportunities all around the property and it's well-positioned for whenever the state looks to find opportunities for the Lowry Range. We are the exclusive water and wastewater provider for this particular property. Having been able to develop Sky Ranch, I think we can demonstrate that we would love to partner with them on opportunities for land development, should that occur.

We really do want to kind of give you a perspective of kind of the growth of the metropolitan area and how that grows in relationship to where some of our assets are, whether that's Sky Ranch or whether that's our service area at Lowry. Moving into our third segment, single-family rental. There's a bit of an update, and what I'd probably call a realignment, for a couple of reasons in the single-family rental segment. As many of you know, the current administration has had some strong comments about corporate ownership of homes. I probably would push back a little bit on that, on kind of the justification for that, but they were sort of concerned about corporate ownership and what that is doing to housing affordability.

We took a strong look at how we were positioning the growth trajectory of this particular segment and really decided to slow our growth of this segment and take a look at these assets in a couple of ways. We wanted to really get a strong look at what the return on the investment is for these segment assets. As they settle in, as we've got them constructed, as we've got them leased out, we really want to understand, well, what is the return for this particular asset and is that going to meet an acceptable level of threshold here for the company and making sure that that delivers the returns that the shareholders are looking for in that. What we've done is pushed back a number of those lots that we were having our home builder customers build for us.

As an illustration here, this kind of shows you the lots that were identified in blue are the ones that are either constructed or under construction, and so that'll total up to be about 60 units. The lots that we have that are kind of highlighted in this light yellow, light green color, those are the lots that we kind of re-evaluated and were able to resell back to each of the home builders that are building their product classes in there. What we've done is kind of pare that back from a growth strategy up to about 90 units and really scale that back to about 60 units. That'll allow us to have a little stronger performance on the revenue from the land development segment because we're getting about $100,000-$110,000 a lot on that.

We'll see that come back to the company and then really take a look at really what the performance is on this segment, be able to get our returns on that and really report that to you and make a decision as to how this segment continues in the future. That's been really the key realignment here is to take a more measured growth approach to our single-family rentals on that. We've got 19 homes completed to date and they are all completely rented. We are seeing extremely strong demand for rentals in this unit, so I'm very optimistic about the continued performance of it. Each of the homes as we bring them on market are already rented. I think we've got homes rented for home deliveries that we're seeing up through August right now.

We do continue to see that as a strong performer in the segment. This will instruct us on how the appreciation of the homes are going as we continue to add value to the community, not only from the schools, but then all the commercial development and open space and trails and the recreational opportunities that we deliver. We are seeing continued strong growth of these home values and that's an opportunity for us to really measure that within the overall segment. One of the most attractive features of the single-family rentals is our recurring revenues and the asset appreciation. Period-over-period revenues are up 20%, mostly as a result of additional units.

We continue to see growth in the monthly rentals on this, and what we really like to do is make sure that we get all these units fully leased and have 100% occupancy in that. Showing the growth trajectory, this is kind of how each of the phases are performing and this is a bit of an update from our previous position on that, where we were growing up to about 90 homes. I think we really took a look at that and pared back almost all of the units in phase II-D, a portion of the units in phase II-C. Really just as a reactive element to some of the pressures that this segment was receiving on corporate ownership and then also opportunities to demonstrate to you all what the return on this segment is going to look like.

Talk a little bit about shareholder value, our assets, and what we have in use, and really a little bit about where we're headed. As most of you know, we are extremely hawkish about our equity, with our last issuance being more than 15 years ago, and so we really do fund our operations through our balance sheets. If you take a look at really all of the components of this, we maintain a strong balance sheet, believe our assets are significantly more valuable than their recorded value. That's mostly because they're legacy assets. They've been acquired many years ago, several decades ago. Taking a look at each of these individual segments, if you take a look at our water segment, we have about $74 million, call it $75 million in total assets, and that's about 44% of the total assets of the company.

When you take a look at what's developed and what that contribution is, that's only about 4% developed. You see how the potential that we have left in the water segment and really the opportunity that we have to continue to grow that segment in our business. Land segments. We acquired Sky Ranch in 2010. It's about a $5 million acquisition of the land. We did get some water beneath that as well. Taking a look at the developed land for sale, how we do the percent completion on that. That represents about 6% of our total assets, and it's about 20% developed. While we continue to generate strong returns year-over-year on that, we still have a good amount of land that we are developing more homes and then the commercial value on that.

Really terrific opportunities to continue to grow the land development segment. As many of you know, we continue to look for other opportunities in the land development segment. Taking a look at our single-family home segment. That's a relatively small segment, about a total of 5% of the total assets and had a little detailed discussion about that on how we're going to really mark that performance of that segment. Really the biggest opportunity for us here is our total liquidity here. Taking a look at the cash and receivables, it's about a 44% asset and largely held in that note receivable from the municipality where we continue to develop the infrastructure. Those public improvements are reimbursable to us, and we take a look at building the assessed value through adding additional homes there.

Our next opportunity for monetizing some of that asset is likely to be in 2027, where we're taking a look at financing and refinancing. We'll have a financing on the interchange. As many of you know, we talked about how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the phase II bonds and really capitalize on the opportunity. We financed our first bonds on phase II at about 780 units, and growing that to the 1,000, 1,030 units gives us an opportunity to have a significant reimbursement for refinancing those bonds now that they'll be mature and more assessed value than we originally planned in the first financing. That'll be a great opportunity for us moving forward.

The low obsolescence in the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. You do have strong, sticky revenue on those sides. Really a lot of the growth revenue from selling lots to national home builders as well as the connection charges to add our customer growth into our water utility segment. Talk a little bit about shareholder value. We consistently grow our balance sheet, income statement quarter-over-quarter, year-after-year, and really generate industry-leading margins from all segments, whether that's going to be the water segment, the land development segment, and the single family rental segments. We're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance.

We're taking a look at our guidance for 2026 at about $2.7 million in recurring revenue and asset growth, bringing that a little over $160 million. Those still look strong. Profitability trends, we continue to build shareholder value on really each of these segments and really on pace for delivering our fiscal year-end results. We will share some guidance on 2027 at our Q3, as we get a little bit clearer picture of how the phase II-E is going to come along and the tap fees and the oil and gas deliveries for fiscal 2027 become a little clearer for us. Taking a look at that total gross revenue. Our guidance is going to be in that $26 million-$30 million range. We're still supporting that earnings per share in that same range, $0.43-$0.52.

Upside in some of that acceleration of that's really going to be probably the timing of the delivery of lots as well as, I think, oil and gas. Really, I think the strength and the price of oil will really reinforce the fact that our operators are going to really try and capitalize on that, keep those rigs in active service on our service area and in and around our service area. We don't have just the one operator. We do have several operators that are looking at programs in multi-well pad sites this year, so we believe we'll have a very strong performance on that industrial segment. We continue to reinvest and repurchase shares. We believe our stock is undervalued, significantly undervalued.

We're encouraged by some of the recent strength in the stock and really do believe that the assets do have continued support and really focused on continuing to deliver that shareholder value. Some of the ways of doing that are really going to be the development of our commercial opportunities, getting this interchange completed. We're really at the final stages of that permitting process, and getting that into CDOT and Arapahoe County, who are our regulatory agencies here. It does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. That's another thing to keep a lookout in the next fiscal year. I did want to give you a revised view. We're trying to keep this view as part of our format to kind of share with you the progress that we make.

It's about a minute long, but it'll give you an opportunity to see. Gives you a perspective. That should be an all white picture there in the background, and it's just not. That gives you an illustration of the dry year that we've had, and it also gives you a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think we're going to have a challenging year for some of our water supplies and other providers. I think we're strong in our position and our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that phase II-C number. We've probably got more than a third of these homes permitted and started.

Then also gives you where we're taking a look at phase II-D, where you've got home builders really starting construction activity on that project as well. Really this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. We were able to capitalize on that this year with the mild winter, and so that's a great opportunity for us and our home builders. Moving into phase II-B, we're nearly complete here. We've probably only got maybe half a dozen home lots that are yet to be constructed in that phase, and then this kind of rolls up into a good view of the high school and the construction progress on that. We've enjoyed that opportunity as well. They are ahead of schedule with the mild winter that we've had as well.

That will open up in August for our school kids for the next 2026-2027 school year. That's exciting for us. Ultimately kind of a shot at where we're going to be with that interchange and our commercial properties up there in that area. We are actively marketing our commercial properties. We've got both retail and industrial brokers engaged and are seeing some exciting opportunities. We're out there pitching a lot of the retail and some industrial opportunities for distribution centers. A number of different types of uses, whether that's going to be a heavy water user or just access to that interstate is a terrific asset for us. With that, I guess all those are our prepared remarks. What I'd like to do is open it up for Q&A.

I think the easiest way to do the Q&A is if you want to unmic and just shout out a question, and then we'll coordinate seeing how that technology works for everyone. With that, I'll turn it over to you all.

Mark, it's Elliott.

Hi, Elliott.

Hi there. I've got several questions for you. Most important, on your last call, you made it clear that completion of the new interchange is very important. You sound encouraged. Could you give us a real detailed update?

Yeah. Drilling down in that. The interchange, we've been working on that. The government always has an acronym for it, and in Colorado it's called a 1601 permit process. You do that in conjunction with the Colorado Department of Transportation, and it's a comprehensive effort, right? You go through every component of your interchange design, what the load capacities are going to be, what the traffic movements are going to be, what the distance setbacks are for signals to the interchange, the environmental aspects of it. We're now at about a 30% design of that interchange. We really have a solid idea of how the cost estimates are going to be and then really how do you fund that. It's a private permittee. The Sky Ranch CAB will be the permittee for that.

We work together with Arapahoe County because they'll be the administration of that. It's in the jurisdiction of Arapahoe County. We should be submitting that 1601 to CDOT. We've submitted every component of that as we go along for their review and their concurrence. What we hope to do is have that ready sometime this June, and then really be in a position of going to final design on that. That'll probably take through the end of the year. Take a look at funding that bonding of that. We've got specific mills that have been set aside within the community to be able to bond that. We have that as a component of the 1601, and then start construction in 2027, with a completion in 2028. That would be the timeline.

Okay. That slipped a little bit from completion in 2028, because on the last call, I think you were thinking in late 2027.

Yeah. Yes.

Okay.

That probably has slipped just a little bit, but we continue to be able to deliver each individual phase. I think we won't really miss any of our cadence on lot deliveries on that.

Sure.

I think what we've tried to do is work concurrently with some of our commercial opportunities, because those have a lead time as well, and we want to make sure that we can bring those online as we're constructing the interchange.

Okay. On your last call, you mentioned data center.

Mm-hmm.

No mention of it today. Could you please update us? Anything you can tell us there?

Yes. It's not that we're not continuing to pitch that, but Colorado's probably not as attractive as a state on some of these larger hyperscaler data center type opportunities, and it's really twofold. One, the ones that we were very active pitching, really are looking for tax incentives, and so the state has a bill before the legislature. They have two competing bills. They have one bill that is seeking incentives and one bill that's seeking to disincentivize. Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy. They are heavy water users, which is something that we certainly have an opportunity to support. They're also heavy power users, and Colorado probably is a little more challenged than other areas on bringing on additional power, particularly gas turbine-based power in the area.

Those are the risk elements that some of the data centers that we have been marketing to are sharing with us. We still like the opportunity. There still are data centers that are being built in this area. We'll compete with that and see where it lands. It's not just the data centers. We have water and bottling opportunities. Those are going to be heavy water customers that we're pitching to. Just the overall distribution centers and things like that for our commercial industrial opportunities.

Okay. Thank you. Last question. I was delighted to see that you've added another 1,600-plus acre-feet of water. You acquired little bits and pieces of water, I think, in the last few years.

The company continues to say it has 30,000 acre-feet of water. It must have more than that, doesn't it? How much does it have?

We do. You're astute to keep tabs on that. We've probably increased that portfolio about 10%, and so we're maybe closer to 3,300 or 33,000 acre feet of water. Correspondingly, we do have the ability to probably provide service to more than 60,000 connections. Those are very important metrics. Those are longer tails on it, but when you take a look at how we scope that opportunity, we talk about $40,000 of connection charge at 60,000, which is about $2.5 billion. That number's probably gone up considerably. It's probably closer to $3 billion worth. But those are longer lead. That carries us out and continues to add to the real depth of that segment of the business. As we get closer to that 25,000 connections within the company, we can really detail out really how much more of that we have to serve.

I think a couple of areas for that, the Denver area growing out in and around Sky Ranch, in and around Lowry, which is our service area, are really the key opportunities for us to continue to add to that portfolio, add customers in that portfolio.

Thanks very much.

You bet. I see Jeff's got his hand up.

Good morning. How are you?

I'm great, thanks. Nice to see you.

Quick question. As I recall, you were going to wait for the commercial development until the interchange was actually finished. Did I understand that you're currently actively marketing the commercial opportunities?

We are, yes.

Is that an acceleration of what you had wanted to do?

Well, I think we had that timeline, and as Elliot highlighted, we were looking at getting that 1601 permit this summer, and I think we'll look to get that towards the end of the year. We had already set that up in motion, right? We want to be in front of these users. It's not something that you can just directly turn on and say, "Okay, get out there and start building your building," or your retail use or whatever it is. We really want to make sure that it is a highly attractive site, and we want to be regionally specific. We want all of those folks that are looking at sites and interchanges to be appreciating what it is that we're putting into this opportunity and put it into their scope in planning. We do have some capacity to get started on it.

It's not 100% conditioned on the interchange being developed. We have an existing interchange that does have service capacities, and we do have opportunities where we can add maybe it would be a non-traffic sensitive type user to the site, someone like a distribution center, that would have the appreciation, "Okay, we could use the existing interchange, to get our building permitted and started," and then as that gets completed, really would have that truck traffic. That's what we were trying to do, is parallel that process and make sure that this doesn't have that long lead time and really deliver just in time.

Okay. Thank you.

You bet. Jacob.

Hey, Mark. Just quick, do you have any expectation on the timing of the next receivable?

Great question. We'll take a look at what that capacity is from the 2022 bonds. Those typically have a five-year call provision, and that's where they start to burn off in 2027. Taking a look at really the differential that we had in our first filing and our second filing, we think there's somewhere around $10 million-$12 million worth of additional reimbursables from refinancing just what we've already financed there. As we move into phase III, we'll take a look at because that will be that 2027 timeframe as well, as we complete that interchange and really start processing permits into phase III, that could be as much as $20 million. I think we get about $10 million of refinancing of one bonds, and then probably another $20 million of fresh financing moving into phase III.

Awesome. Can you talk about the builders' appetite for lots right now? We delivered the current phase ahead of schedule. We know new home demand's been kind of sluggish given interest rates. I guess I'm just wondering, is there any risk of an air pocket between this phase and then starting the next phase if it takes a while for the builders to deliver the lots that you delivered ahead of schedule? How does that impact the timing of starting the next phase?

That's a great question. Really, what we saw as a result of kind of this pull back in the market, I'd say consumer confidence is the number one factor on decisions to buy houses. Interest rates always impact that, but that's not, I think, at our segment, where home builders are able to buy down mortgages, and at an entry-level point, that's a little less costly for them. When you're buying down a mortgage at four, maybe a point at a $450,000 home is a lot less than if you're buying down that point at a $800,000 home. That sensitivity for us isn't so much in interest rate, but more consumer confidence. What we were able to do is pull in new home builders to the portfolio.

We had four home builders, four national home builders that were part of the portfolio as we started phase II. We now have seven, and those three new ones that are in the mix on this thing are really into filing 2D, and so they have one year of inventory, and we're looking at 2027 deliveries, they may not be in 2C but they're in 2D and then the other four were in 2C and 2D, and so they are a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. That gives us the opportunity to roll phase II-E in because they're the ones that want those 2027 deliveries working on the 2026 deliveries that they already have. That's an opportunity for us to bring in more builders.

We really like having that yearly deliveries for them and a number of builders in there. They're bringing diversity of product. It's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio of builders.

Awesome. Thanks, Mark.

You bet.

If we had to mute everybody at the beginning of the call. If you have dialed in on a phone and you're trying to ask a question, you would enter star six on your keypad. We'll unmute you.

You can just unmute your mic and shout out if you've got a question.

There was a question in the chat related to a slight decline in some recurring revenue from 2025 to 2026. I looked into that, and it looks like we have some commercial customers, non-oil and gas, that are off-site of Sky Ranch that are governmental buildings that can fluctuate from year-to-year, and that looks like what's causing that slight decline. Obviously, we're not seeing a decline on the average house per residential house in Sky Ranch, nor we forecasting any kind of decline there, even with water restrictions that are coming forward. It happens to be just a slight anomaly between some off-site customers that are showing that slight decline.

Okay. Well, if there aren't any other.

Craig.

Oh, Craig.

Mark, how are you?

Hello.

Great.

Fine, thanks. Go ahead.

A couple of quick questions for you. One on the land acquisition. Any updates from any of the potential spots you're looking at and/or from Lowry? I know you discussed Lowry, but nothing else except for just the fact that everything's built out already, and that's the next logical spot. Then secondly, when it comes to stock buyback, I know you guys have been buying back stock, but really just to maybe offset the, not to reduce share count. Any thoughts to stepping that up at a quicker pace with the stock still sitting here?

A couple of good questions. We are taking a look at new acquisitions. Really, there are a number of land areas in and around Sky Ranch and other areas. There's a sort of way of taking a look at that where we go out and we buy the land and hold that in inventory. Is that the best use for our shareholder capital? Because some of those projects would be very long-term in being able to do that. There's some we're trying to get opportunities. I think a priority of opportunities where we can either get those in a partnership, get those in a way, acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that. There's still opportunities in there. Most of those guys really aren't that excited about that type of structure.

What we want to do is time those out. If we've got an opportunity that we can buy cheap land, but that land doesn't look to turn over for 7-10 years, that may not be our highest priority. There are opportunities where that has come up, and we sort of said, "Well, we like that land interest, and we might not be the buyer today, but we might be the buyer in five years." It doesn't matter where we may have to pay a little bit more in five years, but it's also five years closer to when that would be looking for development. We're really being disciplined about that type of opportunity. We did highlight Lowry and we continue to see great opportunities there. That is controlled by the states and we'll work with them and whatever their timeline is on something like that.

We'll be reactionary to that. On the share buyback, we took a look at what our trading windows are, and we wanted to open up some flexibility on that to be able to be more aggressive on particular areas. There's certainly a lot of restrictions on the windows that we can repurchase those shares, and we wanted to be a little bit more flexible for that. We did modify our window of trading activity. Really, Greg, I think our continued focus is capital stack to be in a position to reinvest in the company. Our balance sheet and our liquidity and our flexibility here has been really demonstrated by being able to do that this winter and having the capital to be able to do that.

You did see a real change in the liquidity, where we were dropping that liquidity down substantially because we did deliver in advance of those. As that comes back and that liquidity continues to reimburse, there are opportunities for us to increase our share buyback. That's something that we continue to evaluate and we will take advantage of as appropriate. Daniel Aronson. How's the world in Minneapolis? Can't quite hear you, Dan.

I think we also had a question from the caller. It's the caller ending in 6191. I think you tried to ask a question.

Yeah, I did. This is Greg Bennett. Could you go through the economics? You're de-emphasizing the rental program, but what is the unlevered rate of return in the rental program? Am I correct? The loan that you have against these properties is a floating rate loan. Yeah, I'm just curious. You've never mentioned what the places rent for or what capital you have tied up in them.

Yeah.

Can you go through the economics of that?

Yes. Yeah. I'll give you kind of a high level version of that. Typically what we see is we're carrying forward some of that equity in the lot and the water. When we go out and we contract with our home builders to build us those homes, they're coming in around $350,000, is really the cost that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. We have about a $180,000 margin in there. A lot of that's just kind of the equity value of that. We do have a credit instrument for that. It's a fixed rate credit instrument, not a variable rate one.

We do have a facility that we're using that credit facility and not our cash to be able to do that. It's about a 6.5% credit facility. Our first few were done at a very low credit facility, right around that 4.5% rate. It was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. Typically, these homes are renting around $3,000. I'll just use that as a kind of a round number. Some are a little lower, some are a little higher, depending on the number of bedrooms and the square feet of that. When you take a look at all of those, we don't have a lot of holding costs on those.

Our rate of return on that, somewhere in the 8%-10% range. We want to dial that in. We want to see, okay, how is that performing? What is the capital appreciation of those homes? If those homes are appreciating at 4% or 5% together with the rental incomes, we want to see what those segments are performing at and making sure that that meets our investment threshold. That's really the pause of continued growth of that segment, is to get a good handle on how that segment is performing and report that out and make a determination at management and the board level as to is that adequate and do we want to keep moving forward with it.

Okay. Second question. You mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Is that firm take or pay? Or let's just say oil prices go down to $60 a barrel or $50 a barrel. Is the contract a take or pay, or can they say, "No, we're not going to take the water. We've decided to slow down our drilling operation"?

Yeah. Great question. The oil and gas companies really will pay a premium for you to be at their beck and call. When we price our spot oil and gas or industrial deliveries, that's about 3x, 3x, what we price it out at our residential customers. The downside of that is, sometimes they don't bet on that call. No, we don't have a very fixed amount of take or pays, and we're one of the very few providers that can dial up and dial down on their systems, and that makes us very attractive to them. The premium that I think we charge them for that flexibility is really good for them and good for us. As you saw last year, we had relatively weak oil and gas deliveries compared to 2023 timeframe or 2024 timeframe.

It is a variable demand. It is hard for us to forecast because it takes a significant amount of lead time for them to get their permits in line, get their rigs committed in. What we will see is, we will see some pretty robust demand through 2026, and we will see a pretty healthy opportunity in 2027 given what they've drilled to date. I think we're pretty confident about the next two years on that. Forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index.

Okay, final question. I'm in a car, but I didn't see your slide. In the very beginning of your presentation, you gave an aerial view, I guess, of Aurora or some of the properties, I guess, that are south of Sky Ranch that were undergoing development of home sites. My impression was they were undergoing development of home sites. Is that correct?

That is correct.

Yeah. The stuff that's been permitted south of the Sky Ranch that's actively being developed, what's the time for. How many units is that? What's the absorption? Is that thousands of units? And is that like a five-year plan for. These are other companies, or it's Aurora. But what's the timeframe.

That's right.

To get all those units? Yeah.

Yeah. You're correct. There's a lot of land in and around this area, right? The I-70 corridor is probably the highest development corridor in the metro area. It has a reason for that being the case. One, it has transportation, secondly, it has available land. There are a number of projects which are thousands of residential units, and they're all around our area. The Denver area is adding around 15,000-17,000 units a year. I would say, this sub-market's probably a third to 40% of that demand, whether it's in Aurora, whether it's in Arapahoe County. It really is the strongest development segment in that area, and it will continue to be that way. It will add 6,000-7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop.

We worry less about how do we compete necessarily at Sky Ranch to the next developments. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas. At the end of the day, it's all going to absorb. This happens to be, we're targeted in the right segments of the Denver Metro area. We're offering the right product, we're offering the right model for delivery of lots to our home builder customers. We worry less about, is that project going to absorb in conjunction with our project absorbing, and are we going to see any competition in that area? I would say that's not the biggest metric for us.

What we really want to do is be the right developer, being that we're doing the horizontal work, we're doing it exactly the way our customer wants it with annual lot deliveries. We're adding to the builder portfolio so that we have all of the builders in our projects. Whether we have one project at Sky Ranch, or we have multiple projects where there are other, Sky Ranch Two, Lowry, any of the other projects, we want to make sure that we continue to pace those deliveries and maintain what will be a very long tail of land development.

Yeah, I guess my question was more, when do other parties have to come to you for water?

Okay.

If you don't own that land, right?

Yeah. Misunderstood that. If they're in the city of Aurora, which as you can see, most of the land directly south of Sky Ranch is in the city of Aurora. They will not come to us, right? They will get their water from the city of Aurora. Those land areas that are not incorporated into the city and unincorporated Arapahoe County, Lowry, they will get their water from us. I would say it's maybe an even split of opportunities that are gonna be competing with us, that are gonna get their water from Aurora, and then opportunities that we are competing for to be the developer or just the water utility provider, because they're in unincorporated Arapahoe County, whether we develop it or another developer develops it.

Okay. Thank you, Mark. Appreciate the good work.

You bet. Yeah.

Hey, Mark. I think I figured out my-

There you go.

... microphone settings here.

Perfect.

Congratulations to you and the team on another solid quarter here. Sort of following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. Can you just refresh us, what your obligations are to WISE and what the opportunity there is? Especially if, I think you alluded to earlier in your comments, that this might be a challenging year when it comes to water supplies in other areas. Do you have the ability to sell through the WISE program or draw from the WISE program?

We do have the ability to draw from the WISE program. That's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. I think our full subscription in there is about 900 acre feet of water. That system's fully built. We have capacity within that system. We have, in addition to the 900 acre feet, we have three MGD of pipeline capacity in there. The WISE is a kind of a partnership among 12 different water providers in the Denver metro area. What we've done over the last several years is, there are opportunities where we want more water, like if we have very heavy oil and gas demands in the winter, and other of the WISE participants do not have real high water demands because their summer irrigation season hasn't quite kicked in.

There are opportunities for us to get more water out of WISE. Then sometimes, when the heavy irrigation season's going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 25% of the total capacity that we deliver in any given year. We have opportunities to sell water to the other WISE participants. We go both ways in WISE, where we're able to trade for more water or trade for less water in that opportunity within WISE. Is there opportunities for that to expand? Yes. We're looking at partnerships and regional partnerships for storage. As many of you who've been following the company for a long time know, we have some very valuable storage reservoirs.

Those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies, have a higher treatment capacity where we can deliver more than our subscription of WISE into that. That will grow over time for opportunities for us to expand. It would be a spot water type market, but opportunities for as oil and gas over the next 10 years starts to mature out, and if they recycle in and refrac those wells, that will continue to build in the next cycle of the development of this Niobrara formation. Then also opportunities for us to be spot and peak water deliveries to other WISE participants. We look at all those opportunities, and that interconnect of that system is a very important aspect of that.

Okay. That's great. Thank you. Appreciate it.

You bet. Well, terrific questions, and I want to thank you all for your continued engagement. We continue to really pace the development of our assets and really are looking forward to build out at Sky Ranch. We're looking forward to continuing to expand in the land development and really monetizing our service area and more water opportunities and really building this in. We couldn't be more excited about our runway and really the market penetration that we've seen as a utility provider in the Denver area, as well as a land developer in the Denver area. I think that's gonna continue to generate really handsome returns for us and returns for the shareholders. If you didn't get on the call, if you're listening to this on a rebroadcast and a question arises, certainly don't hesitate to give us a call.

We will have our annual investor day this coming July. Do we have a date set on that? I think it's like.

I believe so. Third week.

Third week of July. Be on the lookout for that. I think it's typically on a Wednesday. I know I did get one shareholder that was looking for combining that with a Friday activity, but we'll send some information out as it gets a little bit closer to that. Again, thank you all for your continued investor confidence, and we look forward to the next steps.

Good morning, everyone, and welcome to Pure Cycle Corporation's First Quarter 2026 Earnings Call. We have had a great start to the year, and we're excited to share with you guys our results for the first quarter. A couple of housekeeping notes. The earnings presentation is on our website. So if you're listening on a phone or on replay, you can download the slides from our website. [Operator Instructions] And with that, I will turn over the call to our President and CEO, Mark Harding.

Thank you, Mark, and I'll add my welcome. As Mark sort of foreshadowed, we've had a very good first quarter. Typically, our first quarter is usually a little more challenging just because of weather issues. And for those of you that are watching for ski reservations, we've had a pretty dry year and a good weather year. So it's allowed us to really advance a lot of our construction projects out of Sky Ranch. So with that, let me go ahead and start the presentation. Our first slide is always our forward-looking statement, which includes the fact that statements are not historical facts contained in reference in this corporation are forward-looking statements. I'm sure most of you are familiar with our forward-looking statements qualifier. Always want to give a shout out to our management team. And here with me is Marc Spezialy as well as Cyrena Finnegan, our Controller, in the event that they have any specific questions that they might be able to weigh in on. But a great team of professionals that continue to really provide leadership to the company and really all segments of what it is that we're doing as well as our Board of Directors. We have a terrific Board, very heavyweight Board for a company of our size and all are really engaged and provide significant contributions to the company. But I want to give a shout out to our team and let you know their continued support and engagement. As most of you know, this is just a quick investment snapshot. We've got a continuing streak of profitable quarters. So we're very thrilled that we continue to deliver profitability and shareholder value. We operate in all 3 business segments: land development, water utilities and single-family rentals, and they're all doing great. We have good visibility with our land development. We're really striving to continue to develop and build our recurring revenue base. And then our great balance sheet, we continue to build, fortify our strong balance sheet and continue to invest in our business lines as well as grow the business and create shareholder value. So really a solid diversification of the company's activities. Let me jump into the quarter results. And as you see from a revenue side, great quarter on the revenue. Q1, really, I think it was a record-setting Q1 for us just because of the seasonality issues. And what we really see on the highlights are we brought in 2 new homebuilders to our portfolio that are really engaged in Phase 2D, which is what we're working on. We punched out completion of Phase 2C at the end of our fiscal year last year and continuing through with Phase 2D, and we'll talk a little bit more about 2E coming up. But due to the weather, we were able to get a lot of the curbs and even asphalt down in the November, December time frame, which is really unheard of here. So we're about 80% done with the roads in 2D, and that's about 5 or 6 months ahead of schedule. So really capitalizing on the weather, and we really kept our contractors engaged on the site so that as we continue to have that weather, we were able to capitalize on that. Moving over to the profitability side, net income and earnings per share, significant increases in net income and earnings per share, and that's a result of the progress on Phase 2D. So you see a significant uptick in both of those. So we're very pleased to be able to continue to deliver those results and streamline our revenues throughout the year. And this would be a more typical even flow of those earnings and those revenue streams. But with the seasonality, we kind of have those variability factors. Through the first quarter, we achieved about 1/3 of our fiscal year forecast. So we're ahead of schedule on what our guidance was. Take a look at that great start, bringing in a little over $9 million in revenue and then about $6.2 million in gross profit. So terrific results from our management team and our operators and folks in the field. Year-to-date results, net income, earnings per share, similarly, we're ahead of our guidance. We've got about 37% of our full year guidance on that. So terrific opportunity to continue to deliver that. And then really moving forward from how we're looking at developing the land side of it, really being able to be in a position to deliver more results on Phase 2E continuing to produce those lots for our homebuilder customers. So I really want to take those results and parse those out a little bit for everyone, so we can separate that out into the 3 segments and show you kind of what the contributions are for each of those segments, breaking them down into the water utility segment. As most of you are familiar with, we really have 2 revenue sources -- 2 classes of customers. We have our domestic customers, which is where we deliver water and wastewater to residential units. So those are customers that are at Sky Ranch. They're at other projects that we provide water service to in other areas. And then we have our industrial customers where we provide water to the oil and gas industry, primarily for fracking wells that they're drilling in and around mostly Roble County. We have done wells in other counties, but the bulk of our activity really centers around Roble County and the Lowry Ranch, which is our service area. And then in those revenues in the water and the wastewater side, we kind of have 2 different forms of revenues. We have the recurring monthly revenues where we're doing that on a metered basis. And then we also have the capital component of that, which are connections, which are really connecting to our water system from our homebuilder customers, our homes, businesses to each individual system connection and those are through the form of tap fees, and they're high capital costs, which are usually incorporated into a mortgage or the development of that business. And so those are the 2 revenue streams attributable to that. When you parse out that data, we continue to see strong customer growth of the recurring revenue. So we get a 22% customer CAGR. So we're very pleased about continuing to grow that recurring revenue. And while we had a record quarter overall, the water segment, a little bit softer than normal, and that was primarily attributable to just the timing of getting building permits, getting some of those tap fees and then also taking a gap in the oil and gas deliveries. We had our oil and gas operators concentrating on building a portfolio of well permits. And we'll see that sort of tick up the rest of the year. We've got a number of wells that have been drilled and completed, and then they're just starting fracking later this month, and they'll be fracking most of the year. So you're going to see a substantial uptick in that. You take a look at that in comparative quarters through the last couple of years, that shows you really kind of the variability of the oil and gas side, but we do expect that to tick up for the rest of the year. Taking a look at kind of that one specific industry on the oil and gas side, they fluctuate. And that, as I said, it really is a function of kind of permits and getting the sites constructed. They're building these large multi-well pad sites that will have somewhere between 10 and 20 wells on each of these pad sites. So they're really concentrating their activity to a pad site and they have the directional drilling on these pad sites. But as you see some of the trending in that, this is kind of an annual snapshot of how we look for oil and gas revenues. And as an illustration in 2024, they were pretty evenly distributed throughout the quarters. I think you're going to start to see a little bit of that similar activity of the quarterly distribution for the rest of the quarters for us in fiscal 2026. What we do like to do is kind of give you a feel for capacity, how much water is available for our high-volume customers like the oil and gas customers as well as where we're at on continuing to invest into the company's assets. So what we like to try to do is make sure that we have a steady pace of investment in water and wastewater infrastructure for our customers. and balance that out with sort of the need for that portfolio. And this kind of shows you we do have a substantial amount of capacity that we've invested in. And if you took a look at it just for the quarterly area, really didn't use all that much of it just because of that oil and gas variability. So we're really only using about 3% of our overall water portfolio and then taking a look at the capacity that we have for annual production, we can produce about 2,800 acre feet, and we really only used about 150 acre feet of that. So it does give you a sense of kind of what the pedal strength is on our water portfolio and our water system. Let's take a look at our land development segment. We're -- this aerial shot is illustrative of high school that is under construction. So we're very pleased to see that being coming out of the ground, and that will be completed in time for our kids for the fall of 2026. In our land development segment, you've heard us talk a lot about the various phases. Phase 2C, which we did complete last fiscal year, we're midway, a little bit more than midway on Phase 2D, and we have a percent completion methodology for how we recognize revenue on that. Continued lot protection for Phase 2D and then also moving into Phase 2E, which will be about another 160 lots, but we'll start grading on that sometime in this March time frame. And really enjoying some of that good weather so that we can continue to do some of that pavement and curbs and gutters for delivering those lots. If you take a look at the lot development revenue, this is really where the strength of the quarter came from is really building into that Phase 2D. We're complete with Phase 2C, really kind of highlighting some of this, if you want to take a look at the number of homes that are being built. And that's really kind of a function of the housing market. And I know there's a lot of press out there about the housing market and the strength of the housing market and how interest rates are impacting that. But we're seeing substantial continued support for what it is that we're doing. And I think that's largely indicative of our market segmentation as an entry-level product. Taking a look at the homes complete or under construction in Phase 2B, which is really going to balance out the inventory for each of our homebuilders out at the project, we've got about 85% of Phase 2B completely built out. Taking a look at Phase 2C, which is what we just delivered. There's -- we have one of our newer homebuilders going vertical with a strong portion of their portfolio. And then we even have one of our new builders into the portfolio already starting homes in Phase 2D, even though we haven't fully completed 2D, we have completed enough of the -- much of that infrastructure where we've got all the water, sewer, storm, curbs and gutters and access for that for them to start in 2D before we deliver all of those finished lots. And so what you're seeing is we typically had annual lot deliveries for what was a portfolio of 4 builders. And they try and manage out that inventory so that they don't take any more inventory than what they foresee is for an annual year production. And as we -- as the market sort of slowed, what we saw was that there was availability for other builders in there. So we moved our portfolio up to 7 national homebuilders working on that. So that gives us a strong portfolio of builders that each of them are continuing to maintain their desired level of inventories, and we can continue to pace our development of the project so that we're continuing to accelerate the monetization of the land side. This is kind of an illustration of sort of the snapshot -- the visual snapshot of each of the phases from the sub phases from Phase 2 here, some nice aerials with certain activities, each of our entry-level segmentations on these and a lot of product diversity where we have a 35-foot lot, 40-foot lot, 45-foot lot on the standard [indiscernible] but then we have segmentation into paired product, which is a townhome product -- I'm sorry, a duplex product and then also townhome products that really offer a variety of price points for this entry-level market. The land development time line, this is kind of an illustration of how we do the accounting for that, right? There's 3 basic phases that we deliver lots to our homebuilder customers. And that's at a plaque where you've got a severable title instrument to the individual lot, and we typically get 1/3 of our revenue for the lot payment on that. Then we do the grading and wet utilities with that money to deliver that progress payment. And then finally, moving into the roads, curbs and gutters to get the finished lot payment. So that kind of shows you a phasing of that, and it really shows you how we layer in the phasing by quarters. And really, I think the key area for us this year was being able to really substantially do a bunch of finished lots in this Q2, which typically doesn't happen for us just because of the seasonality. I want to really talk a little bit. We were able to expand and amend our interchange access permit with CDOT and really got us another phase. We've been talking about a lot of these subphases for 2, which started out as about 850 lots. And I think we have the flexibility to get about another 180 lots in there. And so this Phase 2E is about 159 lots. This is an aerial of where that's going to look. It's right across the street from the school there. And so we'll start grading on this spring, and you're going to start to see a bit more overlap in that chart we had before on how we deliver those lots to our homebuilder customers. As I mentioned, the key milestone was the start of production of the high school. And so this gives us a full K-12 campus on site, which is very -- it's a high advantage. Most of our homebuilder customers really in the feedback that they're getting from their purchasers, the school is one of the key elements that are driving people to Sky Ranch just because it's a local school, it's walkable for everybody. It's a terrific asset for us. What we always like to highlight is kind of some of the key areas of where the Denver metropolitan area is growing and kind of gives you a perspective. I think this is a graphic that many of you have seen before, but it kind of gives you the fact that we really grow one direction, right? We can't grow west just because of the mountains, and we find ourselves in really the most attractive submarket of the Denver metropolitan area along the I-70 corridor. If you're looking at the mapping on the right of this illustration, that black line at the top is the interstate I-70 shows you where Sky Ranch is positioned on that. And then the pink area is really our service area, the Lowry Ranch. And what you're seeing is more and more development occurring around the borders of the Lowry Ranch. And so we're excited about continuing to expand our operations out of the Lowry property as the State of Colorado determines what it is that they're looking for and how they'd like to monetize that asset for the school trust. I want to give you an update on single-family rental segment. We've got 19 homes now completed and all rented. So that segment continues to drive recurring revenues. We've got another 40 units under contract. And what we're trying to do is phase how those really hit the market. We're trying to phase those as around 4 or 5 units coming online each month, and that will start beginning in May and then bringing those units online so that we make sure that we can get them leased and continue to really offer an opportunity for those who are looking for a house but are running into the affordability challenges. And that continues to be one of the key issues in the housing market is the affordability. Taking a look at some of the individual performance on there, continued growth in the rentals. That's because adding more units online as well as capital appreciation of those assets. It's a very tax-advantaged segment for us because we retain the equity of the lot and the water service connections in there, and those houses continue to grow in value as we continue to add value to the overall community. Little bit about kind of the phasing of how we're looking at bringing these units online for each of these different phases from the first Phase 1, which we completed several years ago up through what we're looking for in 2E. So bringing online about 100 units for that. I'll talk a little bit about our capital allocation and kind of how we're building that continued shareholder value. Really want to emphasize each of these segments, the water segment, where we're growing assets in each of these segments through investing in them, whether we're investing into the brick-and-mortar of the land segment, whether we're investing into pumps and pipes and diversion structures for our water segment and then building our home inventory for single-family liquidity. We continue to grow the balance sheet in all 3 of these segments. and then really take a look at protecting and preserving the balance sheet so that we can have that liquidity for continuing to invest in our each business segment and deliver recurring revenues for our customers. How that looks? We drive shareholder returns through those recurring revenues in water, single-family units and a diversified mix of revenue from tap fees to industrial water fees. We have oil and gas royalties, which were substantially -- they were very strong last year. We continue to build our earnings. And really, each of these segments kind of build value from each other. So there's a vertical integration in some of those segments that give us where we get value to one, we're adding value to all. Shareholder value reiterates our fiscal year guidance as well as gives you some interim and build-out forecast revenues for our asset growth. So when you take a look at kind of the segment of the revenues, the water recurring revenues as well as single-family rental revenues, gives you a snapshot of how we're building that through the portfolio as well as what that asset growth is. We've talked substantially about kind of bringing on that asset value from Sky Ranch, building out the rest of the residential projects as well as the commercial projects. So great opportunities, and we continue to execute on that. Trending. This illustrates the profitability trend and our fiscal year guidance and kind of the near-term outlook. So again, we want to stay on pace with that. We've had a great quarter on delivering ahead of schedule and ahead of results on fiscal 2026. And then this kind of shows you as we get that interchange constructed, how we look to open up and unlock the balance of the portfolio value. Valuation and sensitivities. Our fiscal year guidance was in that $26 million to $30 million range. Earnings per share, $0.43 to $0.52 per share and kind of the upside in the timing acceleration for delivering some of those lots and how we might continue that trend. Continuing to reinvest in ourselves with our share buyback program and balance the liquidity needs of the company and how we're investing into each of our land assets against what we continue to believe is an undervaluation of the company's current trading price. What I also wanted to do, a bit of a new slide this quarter and really kind of illustrate, you've heard us talk about the interchange, its importance and kind of how it's phasing, and what we're looking to do is get that permit finalized with the county and CDOT sometime early half of this year and then really take a look at the bonding opportunities with some mill levies that we've reserved at the project and start construction on that in 2027. But this is kind of what it looks like, and how it's going to orientate to the overall development. We're -- the existing interchange will go away. We'll realign that along the section line and give it kind of a diamond interchange capacity here. And so this is obviously an important component for us to continue to build into Phase 3 as well as bringing online the commercial opportunities for that. Taking a look at a little bit longer-range outlook. The commercial parcels really provide a lot of the high-value land and a lot of the AV. That assessed value is really where the public improvement reimbursables get their strength on us not having to advance those funds, getting reimbursed. I think our receivable on that is currently around $50 million. And so the combination of the assessed value, Colorado's what we define as a sales tax incentive state. So we get literally 4x the tax revenues from commercial assessed value as we do residential assessed value. And then in this particular case, we get public improvement fees on that, which is really a sales tax receipt on that. So those 2 are significant revenue drivers. And so this kind of gives you a feel for some of the land planning that we're doing there with some grocery anchors and then taking a look at a flex building structure like this, where what we're looking at is maybe offering opportunities for us to partner with others that might be high water users. Some of the current activity, we've engaged local realtor -- real estate -- commercial industrial real estate brokers that are very active in data centers, and we have a very unique opportunity here at Sky Ranch and together with PureCycle, given the fact that we have a high availability of water, so we can really distinguish ourselves for these high water use and high water-intensive type users. So we'll see how that develops over the next few months, year or so. So with that, those are our prepared remarks. And maybe what we can do is open it up to some questions and get a little bit of color if you'd like on kind of how things are rolling along. So if you're on mute or if you're not on mute and you've been quiet, thank you. And just go ahead and shout out. And if you've got a question, we'll try and give you some detail.

Mark?

Yes, Elliot.

Very interesting to see you put the estimates of earnings out there. There was one pretty obvious blank, and that was for fiscal '27. What should we be thinking about in terms of estimated earnings range for fiscal '27?

Good question. '27 is going to be a large component of Phase 2E and then taking a look at how we roll into some of the interstate construction and some of the other segments. So I think it's going to look a lot like the last couple of years. It's not going to be a real breakout year in 2027, but we really think that breakout year is going to be more once we get the interchange complete and get that commercial online and into development. There are opportunities to do non-high-traffic commercial users out there that we're marketing to. But as we continue to grow traffic, we have that obligation to kind of continue to build that infrastructure.

Okay. So probably $0.75 a share is too high for fiscal '27 is what I think you're saying.

Yes. I wouldn't say that, that would be a good clear guidance. But when we take a look at that commercial and bringing on that in that 2028 time frame, you really do supercharge because what we're really going to see, we're going to see delivery of lots on the residential side, and then we think we double up on that revenue stream on the delivery lots on the commercial side.

Okay. Refresh my mind. I can't remember whether on taps sold, the pretax margin is 50% or 60%, which is it?

That's a great question. When we look at it on the aggregate, if you look at the build-out of what will be 60,000 units of it, we believe that margin is around 50% because we have to continue to build that system. In a more short-term basis, I think we're seeing a lot more margin on those because we've kept ahead on developing capacity on that. And so when we're looking at year-over-year in the last couple of years and the next couple of years, those margins might be a little bit higher on that. But when we look at it on an average build-out, if you take $40,000 applied to 60,000 taps at $2.4 billion revenue potential on that, that's usually about -- it's going to cost us about $1.2 billion to build that system out. But I think near term because we have that excess capacity, those actual realized margins are going to be higher than that 50%.

Okay. So when you in the past have talked about we're going to have to spend $1 billion, that $1 billion, is it amortized in the cost when -- is the 50% pretax margin after including amortization of that $1 billion that you talk about?

That's included.

Yes.

Okay.

It is included.

Mark, Tucker Andersen, can you hear me?

I can, Tucker. Nice to hear from you.

First, I'd like to take a minute as long as you guys were nice enough to provide it to shout out hello to my old friend, Elliot Knight. Anyway, a couple of questions. First, what do you see as the opportunities for water acquisition at this point? As you've talked about in the past, you're always on the lookout for adding to your water acquisition and opportunities for utilizing that water. Could you talk about that broadly?

You bet. I'd say we've got a very strong water portfolio right now. And when we take a look at water acquisitions because we always do and one of the ones that folks are constantly knocking on doors with projects, I think are -- we're content with where our portfolio is today. And our acquisitions are really going to be strategic where they are adjacent to our existing portfolio, right? They provide the most economies of adding to it and the synergies around where we've got our investments today. So I would say our appetite for water acquisitions is probably it has to be the right water right. It has to be in the right location. And so it -- I'd say we're more cautious about water acquisitions than I think we would otherwise be in maybe some of the other areas like land. We'd be more aggressive on land acquisitions than water acquisitions right now just because we want more portfolio on vertically integrating that value because where we buy that land, we have water that we can serve it. We have infrastructure that's there that we can serve it and then building into the land portfolio and then single-family rental portfolio, that really -- that drives all 3 segments where a water acquisition would be nice. It will be valuable because we not make it anymore. And in fact, it's getting dryer and dryer. So the existing water rights continue to illustrate value. But it's a bit -- we already have a deep portfolio there. So Tucker, I would say they have to be the right water right in the right location.

Well, you've just segued into the next topic on my question list here, and that is what's happening in the area of land acquisitions given the sort of tension between homebuilding having slowed down substantially, but you still being in a fairly rapidly growing area where, as you pointed out, you can only grow in so many directions. And are you seeing -- are you more optimistic, less optimistic or sort of the same in terms of your potential for land acquisitions?

I'm more optimistic. I'd say conversations that we've had with the landowners through the years and where they were previously and where they are today are much more interesting and much more active. So I would say I'm more optimistic about where that sits for us to expand our portfolio and really show a stronger runway of beyond the $600 million, $700 million that we think we're going to monetize out of Sky Ranch.

I look forward to that, although you know my baseline comparison is always going to be the attractiveness of Sky Ranch, and I'm not expecting you to buy anything quite that attractive at this point.

Well, you're right about that. And I'd hate to see the economy that leads us to what it would look -- what it looked like when I did acquire Sky Ranch, but...

Third, in terms of the -- I found the data center comment interesting. Where in your area are there potential locations of data center and -- data centers? And how does that sort of fit in with your service area?

Great question. And we spent a bit of a time working on this data center opportunities. There's a lot, a lot of money sitting, waiting for ready-to-go sites. And there's really -- there's 3 metrics for data center. Where are the property location, availability of power, and availability of water. And I'd say we have -- the advantage that we have is we have the water side. And a lot of these cities and municipalities really don't want that type of user just because it doesn't grow their AV as fast. They may end up having to commit 700 homes worth of water to one user, and that user is not going to have the same tax base as that 700 homes worth would. And so we have the ability of providing that water to them. We're long. It's a good allocation for us. The siting of it is less important. They can move around, but they do need to be close to water. They do need to be close to power. And because of Sky Ranch's location, it really does check all those boxes. And so we have had conversations with specific users. We've had engagement with Cushman and they're one of the largest brokers that are managing sites for data centers. So we're very optimistic that, that might lead to a great opportunity for us.

And last, my question is, in your market, what's happening to price appreciation in general in the Denver market on existing homes? And two, is your first phase or maybe your first 2 phases been in existence long enough so that you're starting to see resales and how those resales compare to the owner's original cost?

Yes. We are seeing great appreciation on the resales in Sky Ranch. And I think that's attributable to when we broke into the market, we had a very attractive lot value, which allowed our homebuilders to have a very attractive home price. And so some of the Phase 1 home prices are up as much as 30%, 40% since they were built, which is terrific for the community. It's terrific for those homeowners. On average, home appreciation is in that 4% to 5% on a national average. I'd say we're seeing a little bit stronger performance on that at Sky Ranch because you're getting more amenities, you're getting schools, you're getting a more mature community on that, and there's less inventory at this price point. And so if you bought a house for $430,000, that appreciation is going to -- there's still no homes for sale sub-$500,000. And so there's a lot of opportunity for appreciation of those homes sub-$500,000.

So that makes Sky Ranch then -- that's one of the real attractions for your existing builders in effect?

It is. It is. I'd say that's why in a relatively weak market, and you can see in some of the local press where a lot of homebuilders are dropping a lot of projects in and around the metropolitan area, but we're getting new homebuilders in our existing project.

Thanks Mark. Keep up the good work.

This is Joakim from Circulus Asset Management in Stockholm, Sweden. So I have 2 questions. And the first one was on the guidance range. It would be interesting to hear you elaborate a little bit around the 2 different -- it was quite broad outcomes...

Say that again...

The guidance range that you provided here...

You know what that's going to be is really a flex into how much oil and gas we get in there. We -- they pay us to be at their back and call, right? They pay us a lot of -- a high rate for delivering raw water, and they want a ton of water, but they go from 0 to 100 in days, right? And so sometimes it depends on how the rig availability is, how -- what I do know is they have all their permits lined up and then they've constructed their pad sites, and so it's a matter of keeping that rig on site. So I know they drilled 10 wells on one pad site. They're currently drilling, I think, another dozen wells on another pad site. So we see some -- there's some foreseeability into 20 -- between 20 and 35 wells on that. And so that's kind of the -- that's the range on that because it is a high-margin opportunity for us.

The other question was around water assets. If you have seen water prices starting to creep up, and I think that's the general trend. And what's the pricing on water assets right now? And what would be the kind of the worth of the water if you marked it to market, so to say?

Yes. Great question. And there's 2 benchmarks for that. We continue to see strength and appreciation in the tap fees. So our tap fees over the last, say, 3 or 4 years have increased around 6%, 7% per year. So we're up north of around $42,000 a year in our water and wastewater connections. And then when taking a look at just the straight cost per acre foot, we bought some water in a strategic location. Our first farm that we bought in that location was about 4 years ago -- 4 or 5 years ago. We paid about $9,700 per acre foot for that. And most recent transactions are north of $20,000 an acre foot. So that gives you kind of 2 different benchmarks, actual acre foot purchases as well as the strength of the service model that we have and providing service on those 60,000 connections.

Maybe I'll just take a second, too. I know you got -- I don't know if you were asking specifically about our guidance in fiscal 2028 and kind of where that's coming from. But a lot of what we're projecting after the interchange in 2027 is the ability to sell some of that commercial along with Phase 3. So when we add the capacity to Sky Ranch, our lot revenue will really be able to scale as long as the market holds it with some commercial lots as additional to some home lots. So in 2025, 2026, we're just selling residential lots in subphases and 2 to kind of stay within our capacity limits of the interchange. What we kind of see in 2028 and beyond is the ability to do residential as well as commercial. I don't know if that was kind of specifically what your question was related to. But that's really the big change that you see in some of the guidance that we're expecting in the future. So I don't know if you want to comment on that.

Yes, that's a good clarification.

[Operator Instructions]

In the meantime, if nobody has a question, would you talk a little bit, Mark, about what's going on at the Lowry Ranch. Your comments suggested again that building is right up to it. I know you don't speak for the landlord nor do you want to. But do you have any sense at all as to whether they are giving thought to starting to develop that land commercially because we have an exclusive there, and it's 20x the size of Sky Ranch.

Those are the correct stats. So you're right. We continue to believe that's our most valuable asset, right? How do you monetize water? It's nice to buy water right, but it's very hard to kind of monetize water rights other than providing service. And our model of providing service, we are investing in infrastructure. We have a franchise service area at the Lowry Ranch. It is one of the most unique properties in the country, right? There's no property like having 27,000 acres of continuous land right next to a metropolitan area. And when we got into this 30 years ago, and I see my good friend, Dick Guido on the call, who is one of our -- it dates back to 1990. And Elliot, you were around in 1990 as likely Tucker was very closely after that. But it was so far away from Denver area, right? You take a look at the migration of the Denver area over that period of time and surrounding Lowry and where the landlord was looking at kind of monetizing and generating revenue for those assets back in 1990 and where that opportunity is 30 years later, it just has tremendous value. And it's really an asset for the public education, the K-12 public education system here. It's -- I can't help but be excited about all of the activity surrounding it and really the significant opportunities that the state has with it. But it is their asset. It is an asset that they look at holistically and saying we want to do everything we can and everything possible with that, that some of those lands are going to be conserved. Some of those lands are going to be for a multi-revenue use purpose. Some of those lands are going to be developed. And so the magnitude of the challenge for them on that is really just to figure out what the best way to use it. And it's hard when you're taking a look at how am I going to eat this elephant. And it's one bite at a time. You can't look at it holistically. It's 27,000 acres, you've got to scale it back and look at what am I going to -- what are the opportunities with some of the most in-demand parcels and how do we look at that and how do we want to continue to participate with that. One of the things that we've done and increased our portfolio is we have the ability to help them develop it. Whereas in 30 years ago, we were just looking at the water utility side. And now our portfolio looks that we can help develop the land, we can develop the infrastructure, we can develop the open space, we can develop recreational uses. We can develop a whole bunch of things that would check all the boxes that they're looking for on that. And so how do we match those up with their needs, their wishes and their time line. And we're very active on that. but we're not trying to get over our skis ahead of them on that either. So we want to be partners. We want to be a catalyst in it, and we also want to make sure that we are a strong advocate for their wishes and their desires for the property.

Mark, can you hear me?

I can.

I was interested in that -- the slide that had commercial development on it, I think it was the first time, wasn't it?

Yes. Yes. I just kind of wanted to kind of give you 2 things because we talk about that interchange all the time and to give you a relative perspective of the importance of that relative to the overall project.

From a practical perspective, is the commercial development dependent on the new interchange?

It is, yes.

And what's the timing on the interchange, realistic timing?

So I think we get that -- we've been working on that permit for the last 3 years with the county and CDOT. We're fairly close to getting that submittal. And, you know, it -- the submittal on it is going to be like 2,000 pages of -- you name it, engineering, rights of ways, designs, permitting, traffic control, everything associated with it. And then they -- each stage of that over the last 3 years, they've reviewed, they've commented, they've kind of set the parameters on that. And then -- so we'll get that into them sort of this spring. They'll review it in its completeness. Then we move forward to final design concurrently with that and the bonding of that later in the year. And then we look to go to bid for the interchange sometime end of the year and be under contract for construction in 2027. And it will only take probably 6, 9 months -- probably 9 months to construct. It's not a -- as you saw, it's not a hugely complex one, and we're able to take advantage of existing on, off-ramps. So we're just really constructing a new bridge -- wider bridge, longer ramps to the new one.

So if things went according to that plan, it would be completed construction beginning of 2028 calendar?

Yes, yes.

Okay. You didn't talk any -- mention public comments and opportunities for the public to delay or stop. Is that going to be an issue?

That's a good question. I'm not sure that there is a comment period to that because it's just replacing an existing interchange. So if it were a new interchange, it might be a little bit different process, but because we're just -- it's an existing interchange replacement upgrade.

Mark, yes, so I just wanted to ask on the data center potential. A lot of people don't like living near data centers. And so how are you thinking about where this location would be within Sky Ranch? And then also, obviously, a good way to unlock some of that water capacity, but would you be able to monetize it at the same rate as like a single-family home. So if there's -- if the data center is 500 single-family homes, would you be able to charge them a similar rate for that?

Good questions, both of them. On the first one, location, we're sort of talking -- if we look at the site that we're currently evaluating, it would be tucked up into kind of that top corner of the commercial parcel. So nobody would be living next to it. Next to it being a relative term, what is next to it, is -- next to it is being a few hundred feet, is next to it being 0.25 of a mile. So that's kind of the separation that we would see between that land use and our residential land use. So I do think we've got a good spacing and a good buffering opportunity for that. We're not just looking at that one site. We're looking at other sites that are going to be more remote where we could get water to them on a more remote basis and maybe it's where power is more accessible in a more remote location. These data centers are not site-specific. And quite frankly, being next to the interstate isn't what they would otherwise need. They don't need that kind of access. That we have that site, that site is zoned, permitted, ready to go with all of the water out there is super attractive, right? So a lot of these are -- what's the availability? What's your time line? Can we jump into a site sooner rather than later? And so all those things are attractive for Sky Ranch because it's already ready to go. As it relates to what that water supply might look like, that's a little bit -- there's a lot of nuances in that because they don't need full potable water, right? They don't need that same level of service that -- they're not going to be drinking that water supply. So we've had conversations with them about water quality, raw water service that might have a little bit of a price incentive for them where we don't have the same level of cost. We don't have the same level of water quality monitoring, those sorts of things. So that one is TBD. We do want to capitalize on the value of our water supply, but we also are cognizant of the fact that we're very long on water supply and maybe we have a supply agreement with them for a period of time that would be look one way and maybe get that water back in another way to give them some incentives so that we're not losing 60,000 units worth of capacity, but then we're also using that water in the interim. So there's all of those opportunities with that type of customer. Well, if there's no other thoughts on the quarter, don't hesitate if you listen to this on rebroadcast or your technology didn't work or you had a -- you get distracted and to run up something else, don't hesitate to give me a hello. We're continuing to really accelerate the company, and we're very excited about where we're at. We're excited about execution, and we're excited about how things are going to look for the coming quarters and coming years. So thank you all for your continued support, and we wish you very best in the new year.

Thank you, Mark.

Thanks all.