• Revenue: $5.7 million for the first quarter, up almost 7% quarter-over-quarter.
• Gross Profit: $3.67 million, with a 64% gross margin.
• Net Income: Almost $4 million, or $0.16 per share, representing a 78% increase in earnings per share period-over-period.
• Oil and Gas Royalties: $2.6 million earned in the quarter.
• Tap Fees: Up about 150% due to new connections at Sky Ranch.
• Rental Income: Increased by about 14%.
• Single-Family Rental Segment: Homes constructed valued at $5 million, with a fair market value of $7.6 million.

• Warning! GuruFocus has detected 4 Warning Signs with PCYO.

Release Date: January 09, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Pure Cycle Corp (NASDAQ:PCYO) reported record revenues of $5.7 million for the first quarter, with a gross margin of 64%.
• The company experienced a significant increase in oil and gas royalties, earning about $2.6 million, which contributed positively to their gross margins.
• Net income for the quarter was nearly $4 million, translating to $0.16 per share, marking a strong start for the fiscal year.
• The company is on track to meet its 2025 guidance, with projected total revenue of $31 million and gross profit around $23 million.
• Pure Cycle Corp (NASDAQ:PCYO) continues to see growth in its single-family rental segment, with rental incomes up by 14% and a high renewal rate of over 90%.

Negative Points

• The water utility segment showed some weakness, attributed to a trade-off between monetizing tap fees and oil and gas revenues.
• Oil and gas revenues were anticipated to be weaker this year due to operators expanding their coverage and working on new permits.
• The company faces challenges in the commercial development segment, with initial development expected to start around 2026 or 2027.
• There is a potential risk of competitive or political pushback as tap and water fees have increased significantly over time.
• The development of Lowry Ranch requires coordination of multiple moving parts, with a timeline that remains uncertain and potentially extending over several years.

Q & A Highlights

Q: Can you provide more details on the projected asset value shown on slide 37? A: The asset value projection includes land development opportunities, the number of lots remaining in inventory, and the revenue from homebuilders and reimbursables. This projection is based solely on Sky Ranch and does not account for the 60,000 connections available for other developments. - Mark Harding, President, CEO

Q: What is the outlook for oil and gas royalties and fracking revenue? A: We have six new wells at Sky Ranch, which will provide high returns initially, with a decline over time. However, we expect continued high performance through this fiscal year. The fracking revenue looks favorable for the next five years, with hundreds of wells being developed in our service area. - Mark Harding, President, CEO

Q: How are homebuilders managing sales with current interest rates, and what incentives are they offering? A: At Sky Ranch, the buy-down incentives are significantly less than in other areas, with average incentives around $15,000 compared to $120,000 elsewhere. This is due to our competitive entry-level price point, which remains attractive despite high interest rates. - Mark Harding, President, CEO

Q: Are you experiencing any pushback on the increased tap and water fees? A: We have not faced pushback as our fees are competitive with the market, slightly less than the City of Aurora's fees. We aim to stay within the market range to support our investments and future developments. - Mark Harding, President, CEO

Q: What is the timeline for commercial development at Sky Ranch? A: We expect to start commercial transactions around 2026, with significant monetization by 2027. This aligns with infrastructure upgrades and reaching the threshold of 1,500 homes needed to attract commercial users. - Mark Harding, President, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.