Pure Cycle Corporation

Good morning, ladies and gentlemen, and welcome to the Pure Cycle Corporation year-ended 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, Mark Harding. Sir, the floor is yours.

Thank you. Good morning, everyone. I'd like to welcome you to our year-end earnings call. Just a few housekeeping items. We do have a deck for this call. If you log into our website at purecyclewater.com, there'll be a link over to the investor page, and then there'll be a tab on that page that allows you to join. So click that join button, and then I'll be able to advance the slides through the presentation and you'll have the deck on there and then the deck will also be a PDF of the presentation will be on the website for reference on You want to get into reading it in a little bit more detail? With me today is both Kevin McNeil who's feeling a little under the weather So he's going to take a listen only mode on that as well as Dirk Lashnitz who handles all of our land development activities and so Other than hearing from me, you'll have a chance to hear from Dirk on some of the land activities and our successes in that area as well. So with that, I'd like to just start with the presentation. And the first thing we need to do is talk about our safe harbor statement, which is that historical facts not contained or incorporated by reference in this presentation are forward-looking statements. I think you all are familiar with the forward-looking statements in the safe harbor statement, so we can get the lawyers out of the room. I'm going to really kind of breeze through some of the overview of the company. Most of you are going to be familiar with the company, and if you're not, certainly you can go back and take a look at this portion of the presentation in a little bit more detail. There's a ton of information about the company on our website, so I encourage you to spend some time there and take a look at the resources that we have on the website to give you a little bit more insight specificity to what it is that we do, but really we have three operating segments and they're all very complimentary really at the foundational level. We are water and wastewater resource company. We own a large portfolio of water in a valuable part of the country where you can own water. We develop that water cradle to grave to provide water service to customers. We have land that's in the right location in the Denver metropolitan area along the I-70 corridor that we're developing a master plan community on. And then we hold back some of those lots that we develop for our home builder customers and we keep them for an opportunity to build homes on them and enter into the single family rental market where we continue to have an ongoing cash flow from an appreciating asset that provides terrific margins for us because we're able to carry forward the equity value that we have both in the land and the water utility segment. So I'll just briefly talk a little bit about each of the segments. As I mentioned, the water, the wastewater segment, we develop the wells, diversions, all the water supply. We treat that water supply. We distribute that to our customers. We get two fee instruments for this. We get a connection fee, which is referred to here in Colorado as a tap fee. And our water tap fees are right around $28,000. Our sewer tap fees are right around $5,000. We have the capacity to provide water and wastewater service to approximately 60,000 connections. And then as we have those connections signed up to the company, we get ongoing water and wastewater revenues each month. So we have monthly water, wastewater service bills to that. That generates about $1,500 per connection per year on that side. We collect that wastewater back. We process that wastewater onto usable water supply for our outdoor irrigation or our industrial water supply customers. And really, we have a water, you know, a very tight water balance system where we're taking our water supplies, whether they're groundwater supplies, surface water supplies, bringing them into a treatment system. sending that into the customer. We have some of that use that's going to be outdoor irrigation, which results in a bit of a loss, but we do have mechanisms for recapturing that in terms of the water rights systems. And then we also take and reuse that system and then are able to reuse that into our industrial customers. So really are investing into a sustainable water balance system for the company and for our customers. We continue to grow our infrastructure asset base. So, over the last 5 years, you see almost a doubling of our investments in our water investments and water infrastructure. Really cross the board with wells, transmission lines, storage, treatment facilities, all of the distribution facilities, and then the wastewater treatment facilities that reclaim that water supply. Water growth, so we have existing areas where we're growing our customer base. One of those is new residential connections, whether that's going to be in our master plan community of sky ranch, whether that's going to be commercial users, both in sky ranch as well as another. Service area that we have a little bit south of the sky ranch area called the wild point service area. and then existing industrial customers. So we continue to grow our customers year over year. We're right around 1,000 connections to the systems today. Another important customer that we have is our industrial customers. We happen to be on a very prolific oil and gas field that sits right on top of where our water supplies are. We have multiple operators that are developing the field in this area. multiple formations, and so we distribute raw water and reclaimed water sources to our oil and gas customers and generate high volume of water supply as well as high volume for selling that water to our customers. And really had a record year this year in selling water to the oil and gas segment, and that's largely a function of the price of oil, the regulatory climate in Colorado kind of settling down, operators being more comfortable with how they're operating within the heightened regulatory climate that Colorado offers them. One of the things I'd like to highlight is kind of where we are geographically in the Denver metropolitan area. As most of you know, we're along the foothill areas, and we might as well be along an ocean because we really can't grow to our west, the mountains, and we have a geologic barrier there that prohibit really any substantive growth in the Denver area. And so really, we're constrained to really a 180-degree semicircle for growth activity in the Denver metropolitan area. If you looked at the map over on the right side of this, The difference between the orange and the green there, you see a really green line there. That's Interstate 70. That's the east-west transportation corridor in the Denver metropolitan area. And then we have belt loops. You can see the 470 belt loop. Right at the top of that is going to be the Denver International Airport. So our Sky Ranch project is four miles directly south of that. And then our Lowry Range service area, which is that large pink area, And this kind of gives you a feel for where development has grown in the Denver metropolitan area, not only to the Sky Ranch property, which is our master plan community, but also opportunities for the Lowry service area and being able to take a look at new development activities in that Lowry service area. So that's kind of give you a perspective on kind of where we are positioned in the residential area. I'm going to turn the call over to Dirk. He's going to give you a bit of an update on our land development segments and all of the exciting activities that we have in there. Dirk, why don't you go ahead and take it over. All right.

Thanks, Mark. Good morning, everyone. Land development, this is the SkyRange project, our master plan community. This information is probably a little old hat, but it will stay the same for the duration of the project. So see this slide is information for the next several years to come. So Sky Ranch is 930 acres. We can accommodate up to 3,200 residential lots, about 2 million square feet of commercial development.