Pure Cycle Corporation

Good morning, ladies and gentlemen, and welcome to the PureCycle Corporation third quarter, nine months ending May 31, 2022 earnings call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. Mark Harding, President and CEO of PureCycle. Sir, the floor is yours.

Thank you very much, Jenny. I'd like to first of all say good morning and welcome to our nine-month 2022 earnings call. We do have a deck for this call. If you go to our website, purecyclewater.com, and in the investor section, you'll find the link on that that will allow you to follow along with the slides that we have here. With me today, I have our CFO, Kevin McNeil, who will overview some of the financial metrics for the nine months ending. I also have Dirk Lashnitz, who is our Vice President of Land Development, and I think he'll highlight a little bit of our progress on the phase two of our Sky Ranch development. After we'll do the deck, and after the deck, we'll have a brief Q&A for some of the color of the quarter and the year and maybe how we're going to close out our fiscal year. So, if you have any questions, please hold those to the end. With that, let's get started. I'll talk about our Safe Harbor Statement to say that the statements that are contained are not historical facts. Our corporate reference in this presentation are forward-looking statements. I'm sure most of you are familiar with the forward-looking statements in the Safe Harbor Statement. As we'll get the lawyers out of the room, we can start the presentation. I'm going to just give you, most of you are probably fairly familiar with the company, so I'm going to go by kind of the overview of the company relatively quickly. What we do is we operate in really multiple complementary business segments, and really the underpinning of that segment is our water, wastewater resource development segment, where we're providing water utilities. in an area where we own a portfolio of water rights, which is an accomplishment because it's an area that doesn't have a lot of water. And water's certainly getting a ton of press these days, particularly out west with the limited supplies and the ongoing drought that we have. Our portfolio has the capacity to provide about 60,000 SFEs. We got a little typo. in the slide there, so it's actually 60,000, not 600 or 60,000 with a missing decimal. 60,000 single-family equivalents, primarily in the Denver metropolitan area. We provide water and wastewater service to land development that we are developing, where we also have a land development segment, and then also provide water to other customers in the regional area. Our land development segment is focused on a particular piece of property in the I-70 corridor, which is probably the most attractive and sought after corridor in the Denver metropolitan area. It's directly south of Denver International Airport. It's about four miles south of Denver. DIA is right along the interstate where we have an interchange. that accesses our property. We have a property interest about a half a mile frontage along the interstate. So in addition to the residential opportunities where we have about 30 to 3,400 residential opportunities, when you take a look at the multifamily development and a couple million square feet of commercial, retail, industrial uses on that. And we're developing residential commercial lots for national home builders and we provide water and wastewater service to those lots. More recently, we're holding back a few of the lots that we're developing within our own community and we're actually moving into building homes on that. We'll contract for someone to build those homes for us and we'll keep those homes in our portfolio and rent those out to the marketplace as single family rental segment of the business. And that's a nice growing segment for us and certainly a profitable segment where we can capitalize on the equity value that we have on the water side as well as the land development side. So with that, we'll move to the next slide. I want to talk a little bit, this is new to our presentation, about our ESG efforts, environment, social, and governance. We have recently brought in a new ESG initiative specialist, and she will be working to bolster the company's actual written format of ESG. The company is a very environmentally sensitive company. And one of the things that we found is that y'all don't know that. And the rating agencies necessarily don't know how we go about doing that. But as we take water and we process that water, we bring that water back as wastewater and we process that water. We are taking and using and reusing every drop of that water. And what we want to do is really highlight that policy and that investment that we have so that the rating agencies understand how seriously we take the environment and social and governance aspects of that. And so what you'll see growing on our web page is that ESG tab out there. It's new to the web page, but you're going to start to see a significant amount of documentation that follows through on that. On the E, we'll update our environmental policies. We'll begin by assessing, tracking, and disclosing energy management usage, network efficiencies, water use, and wastewater management. So those are going to be the key aspects of the environmental tab. The social, update our human rights policy. We've improved a component of that S score by six points already. Continue to develop a labor health and safety policy. Track our employee satisfaction. water affordability, water conservation, and then diversity within the company. And then we continue to update our governance policies. We have a very robust governance policy, and we really want to kind of show the marketplace and NASDAQ and the rating agencies all of the components that we have as part of our policies and our charters. So look for more of that as we continue to grow, and you'll start to see a bit more of that within ISS and the rating agencies attributable to that. So I'll start out by just giving you a quick overview of our water segment. We have, as I mentioned, a portfolio of water rights. We have about 29,000 acre feet of water rights. It's a mix of groundwater and surface water. with a capacity to serve about 60,000 connections, and we rate the connections by an average of single-family, how much water a single-family house uses. We have some very valuable surface rights, and we develop sort of our system cradle to grave, where we own the water, all of the infrastructure that is used to divert that water supply, treat that water supply, put it into a distribution system. We collect two fees for that. We collect connection fees, which are one-time fees typically paid by the home builder, which gets you access to the water and wastewater systems. Our current tap fees are listed here. They're about a little more than $32,000 now. And then the house, the homeowners will use that water supply. That's your metered monthly water bill that typically generates about a thousand dollars per connection on the water side and about $500 per connection on the sewer side. So you have water and wastewater, monthly usage fees, we collect that wastewater, we bring that through our water reclamation facility, and we treat that back to its full reuse capability. And then we have a separate distribution system that takes that out for reuse, either to outdoor irrigation uses through the parks and open space areas that we have in our master plan community, or we take that to some of our irrigation or industrial customers. So we're reusing, using and reusing every drop of water that we divert from our system. A little bit on the water infrastructure. We continue to invest in our water utility segment, so it continues to grow. We're a little over $60 million of assets in that side and a broad portfolio of assets We have two wastewater reclamation facilities, transmission lines, storage facilities, wells, just the broad portfolio of that. And the mapping kind of shows you a relatively large footprint where we're providing water over about a 15-mile width of the county that we are in. And we're providing it all the way from north to south in the county boundaries on that. We continue to grow our customer base, so we've got a little over 700 customers. That metric may not include the conversions of our commercial customers, so we'll continue to refine. When you get a commercial customer, it's not just one single SFE. That can be multiple SFEs, and that's how we do that conversion of single-family connections, but we continue to add to that, not only from what we serve directly in the service area that we have at Sky Ranch, but also in our Lowry service area, as well as in the Wild Point service areas that we have. Talk a little bit about oil and gas. As we've all painfully aware of the price of gas at the pump, oil is much more robust than it has been in recent years, and that activity is translating into increased activity in all areas that have oil and gas. And in our particular area, we get a lot of this activity from shale oil, and Colorado has a very active shale oil play in the Wattenberg field in the Niobrara formations. You know, there's a number of different formations, so there's a potential as you take a look at 40-acre spacings, which is the downhole spacing that operators are typically liking for their field development side. there's a significant capacity for developing oil and gas in this region. This particular area has been de-risked by a number of operators, so they are fairly comfortable with what the yields of these wells are looking like. And we supply a lot of water. These wells, when they do their well stimulation and frack these wells, use a lot of water and they use it all at once. On average, we make about $250,000 of water deliveries per well. Operators are now really working field development-type pads, as opposed to hold-by-production lease drilling. So, each of these pads are seeing anywhere between 8 and 12 wells per pad site on it. The regulatory climate has been shifting here in Colorado. It's been relatively predictable for the last several years. And with the price of oil, you're seeing a lot more activity in this area. You'll see good revenues for us for 2022. And we look to see 2023 and 24 continue to add to that portfolio. So that's a big customer for us. It does allow us to continue to invest into our water and wastewater assets so that we continue to expand those systems. Just briefly next, you know, one of the things that we have highlighted is kind of where the metropolitan area is and where the company's assets are in proximity to growth of the metropolitan area. And in the big aerial map, you can see kind of the pink areas, which will be our Lowry service area, and then also towards the Top of that will be that pink area, which will be our Sky Ranch area. So those are the areas that, certainly Sky Ranch, that we have our active master plan community going on. But you see by the drone shot here how quickly the metropolitan area has grown out to our service area. And so we're very excited about that. That continues to provide a strong pipeline for us for future growth opportunities. And as this property continues to urbanize, And the landowners in this area continue to look for how they're going to meet the growing demand for development here in the metropolitan area. This I-70 corridor, this Arapahoe County area is probably among the most attractive in the Denver metropolitan area. So with that, what I'm going to do is I'm going to turn the mic over to Dirk Lashnitz, who handles our land development activities and kind of give you an update of how we're coming along with our land development. So Dirk, I'll let you take it.

Good morning. I'm Dirk Lashnitz. I oversee our land development and I'll give you a quick overview of our Sky Ranch project. And repeat some of what Mark has already mentioned. Sky Ranch is our 930 acre master plan community on the east side of the metro area. This project will probably develop in about six phases over the next seven to ten years. We're complete with our first phase and underway with our second phase right now, so we'll get into that in later slides a little bit. At build out, we're looking at somewhere between 3,000 and 3,500 residential lots. We have about 150 acres of that 930 acres is a commercial parcel that fronts the I-70 corridor Mark mentioned. And then as the rooftops grow out towards this area, that commercial will start coming online. So we hope to see some activity along those lines in the next year or two. And then our proximity to town Like we said, the I-70 corridor is the main east-west thoroughfare through the metro area, and we have an interchange right off of that and just a few miles from our E-470 toll beltway that kind of connects the whole metro area and real close to the airport as a business corridor. Next slide here. So our first phase, we started this in about four or five years ago, 2018. It's wrapping up right now. This is an aerial image. And if you look at the top of that image, you can see some brown lots up there. Those are the last remaining lots that are getting built out on. So 509 lots out here. We have probably about 475 occupied houses now. So, and all of our, all of our caps have been paid. So all the houses have been. All the lots have been sold and to the builders and they're, they're building the, the rest of the houses out there. I think that'll that'll wrap up. This year, quick highlights on the. The financials out there. So we cost us probably about 35, $36 million to build all these. We had that recognized the revenue from what we sold to our builders. That's 36.7 million that we received for our lot payments. We did an initial bond offering out there. That's the $11 million of revenue through our bond, through our district that we've received and then there's another 20 million sitting out there for future collection on taxes and other future bonds. So revenue of we've got about equivalent revenue on our lot sales to our costs and then we have the reimbursables are our margins there. And then the water side, the $14 million on our tap fees, and that translates into our regular monthly water customers. Second phase of Sky Ranch underway right now. So this is 850 lots, so about one and a half times the size of our first phase. We're in the midst of turning over our first lots to our builders right now. started building houses out there. This will roll out in about four intervals, roughly 220 lots divided into four phases. So our first phase of 220 or so is what we're building right now. This phase also includes a new charter school. That'll serve the community and. Has some some land set aside for a new rec center. We should start seeing the 1st residents out here 1st customers on our water system towards the end of this year. So. Up here 1st, maybe 1st quarter earliest or 2nd quarter of our of our fiscal year. We got a handful of lots set aside in this phase for our single-family rental lots that we'll be developing. So, the estimated lot revenues out here are $70 million. You know, as compared to our first phase, that was around $35 million. So, we've, you know, it's about twice as much revenue for this phase and not quite the same amount of lots. So, there's a little bit of appreciation there. New tap fee number there, 20 million. This next number, the 61 million of reimbursables is an aggregate that includes the first phase one, and that 11 million was our first bond. We'll be looking to do another bond on this phase here in the near future to help recover some of those reimbursables. And then our development cost on this phase, our costs are up a little bit from our first phase and just tracking through the different phases of the project. That's it for construction, and I'm going to hand it over to either Backmark or maybe some finance.