Pure Cycle Corporation

Good morning, everyone, and welcome to PureCycle Corporation's first quarter 2026 earnings call. We hit that a great start to the year, and we're excited to share with you guys our results for the first quarter. A couple 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. Also, we ask that you stay muted until our Q&A session. 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 quarters. 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 at 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. Containing the reference in this corporation are forward-looking statements. I'm sure most of you are familiar with our forward-looking statements qualifier. You know, always want to give a shout-out to our management team, and here with me is Mark Feazali, as well as Serena 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, a very heavyweight board for a company 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. um as most of you know uh this is just a quick investment snapshot you know we've got a continuing streak of profitable quarters so we're very thrilled that we continue to deliver profitability and shareholder value you know we operate in all three 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 really striving to continue to develop and build our recurring revenue base. And then, you know, 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, you know, 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 two new home builders 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, you know, we were able to get a lot of the curbs and even asphalt down in the November-December timeframe, which is really unheard of here. So we're about 80% done with the roads in 2D, and that's about five or six months ahead of schedule. So really capitalizing on the weather, and we really kept our contractors engaged on the site so that as we continued 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 activities. uh revenues throughout the year and this would be you know a more typical even flow of those of those earnings and those revenue streams but uh you know with the seasonality we kind of have those variability factors through the first quarter we achieved about a third of our fiscal year forecast so we're ahead of schedule on um what our guidance was uh take a look at you know 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 on net income, earnings per share. Similarly, we're ahead of our guidance. You know, we've got about 37% of our full-year guidance on that, so terrific results. 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 own builder 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 three 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 two revenue sources, two classes of customers. We have our domestic customers, which is where we deliver water and wastewater to residential units. So those are our 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 Arapahoe County. wells in other counties, but the bulk of our activity really centers around Arapahoe 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 two different forms of revenues. We have the recurring monthly revenues where we're doing that on a meter 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 cap fees. And they're high capital costs, which are usually incorporated into a mortgage or, you know, the development of that business. And so those are the two 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 KGAR, 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 um you know 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, you know, 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, you know, 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, you know, 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 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 you know if you took a look at it just for the quarterly area uh you know really didn't use all that much of it just because of that oil and gas variability so we're really only using about three percent of our overall water portfolio and then taking a look at you know the capacity that we have for annual production we can produce about 2800 acre feet and we really only use 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. This aerial shot is illustrative of the high school that is under construction. So we're very pleased to see that 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... 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 timeframe. 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 strength of the housing market and how interest rates are impacting that but we're seeing you know substantial continued uh support for what it is that we're doing 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, you know, which is really going to balance out the inventory for each of our home builders 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, you know, we have one of our newer home builders, 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 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, you know, we typically had annual lot deliveries for what was a portfolio of four 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 of production. And 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 seven national home builders 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, 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 two here. Some nice aerials with segment activities, each of our entry-level segmentations on these, and a lot of product diversity where we have, you know, a 35-foot lot, 40-foot lot, 45-foot lot on the standard detached, 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 timeline, this is kind of an illustration of how we do the accounting for that, right? There's three basic phases that we deliver lots to our home builder customers, and that's at a plat where you've got a separable title instrument to the individual lot, and we typically get a third. of our revenue for the lock 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. That shows you a phasing of that, and it really shows you how we layer in the phasing by quarters. 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 sub-phases for 2, which started out as about 850 lots, and i think we're we have the flexibility to get about another 180 lots in there and so this space 2e is about 159 lots it's the area 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 uh this spring and you're going to start to see a bit more overlap in that uh in that and that chart we had before on how we deliver those lots to our umbrella customers As I mentioned, a key milestone was the start of the high school. And so this gives us a full K-12 campus on site, which is very, you know, it's a high advantage. Most of our home builder customers really in the And 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, you know, 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 sub-market 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 we're seeing is more and more developments occurring around the borders of the Lowry Ranch. And so we're excited about continuing to expand our operations out at 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 segments. 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 four or five units coming online each month and that'll 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 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 their continued growth in the rentals, that's because adding more units online, as well as capital appreciation of those assets is a very tax advantaged segment for us because we retain the equity of the lot and the water service connections in there and, 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, you know, the first phase one, which we completed several years ago up to 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, all three of these segments, and then really take a look at, you know, protecting and preserving the balance sheet so that we can have that liquidity for continuing to invest in each business segment and deliver recurring revenues for our customers. How that looks, you know, we drive shareholder returns through those recurring revenues in water, single-family units, and a diversified mix of revenue from tap fees to inductor 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 values re-arrates 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 segments 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 nearing term outlook. So, again, we want to stay on pace with that. We've got a great quarter on delivering, you know, ahead of schedule and ahead of results on fiscal 2026. And then this kind of shows you, as we get that interchange constructed, you know, how we look to open up and unlock the balance of the portfolio value. Evaluation and sensitivities, our fiscal year guidance was in that 26 to $30 million range. Earnings per share, 43 to 52 cents 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 this year. 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. um and and how it's going to orientate to the to the overall development the existing interchange will go away we'll realign that along the section line and give it kind of a diamond uh diamond interchange uh capacity here and so this uh is obviously an important component for us to continue to build into phase three as well as bringing online uh the commercial opportunities for that Taking a look at a little bit longer-range outlook, the commercial partials really provide a lot of the high-value land and a lot of the AEB. That assessed value is really where the public improvement reimbursables get their strength on, you know, 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 four times 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 two 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 flexibility 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 real estate, commercial, industrial real estate directors that are very active in data centers. And, you know, 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 we can really extinguish ourselves for these high water use and high water intensive uh type users so uh we'll see how that develops over the next uh few months a year or so so with that uh 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 um If you're on mute or if you're not on mute and you've been quiet, thank you. And, you know, just go ahead and shout out. And if you've got a question, we'll try and give you some feedback.

Mark? Yes, Elliot. Good morning. 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?