Pure Cycle Corporation Aktie

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. [Operator Instructions] So we'll start the earnings call with a presentation [indiscernible] questions and answers. Without further ado, I'd like to introduce Mark Harding, our CEO.

Thank you. Good morning, everyone. My wingman today are Marc Spezialy, our CFO; and our Controller, Serena Fingan. So if you have any 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.

So with that, I'll start. And start with our forward-looking statements, statements that are not historical facts contained or incorporated it reference in this presentation are forward-looking statements as that is the meaning of the Securities and Exchange Act. Most of you are familiar with that. [indiscernible] 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. And so it helps drive value for the corporation. So continued shout out to our management team.

Also, our Board of Directors, I do want to welcome our newest Board of member, Dan Rohler and look forward to working with him. He is actively engaged and 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 street with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues and durable revenues through all 3 business segments.

We continue to grow our asset base by delivering lots to our national homebuilder 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, really had a great order and this year has been a more tempered year to be able to even out our revenues and our cash flows on this, and that's really been a function of a very, very mild winter for my fellow skiers the morning the loss of 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. So 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.

So quarter-over-quarter revenue this first 6 months, about $5.1 million in revenue, about $2.8 million in gross profit. And really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as 6 months ahead of schedule on some of the lot deliveries on that. And so 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 the quarter-over-quarter just because of the advancements on our projects on that. So net income, a little over $1 million earnings per share, about $0.05 per share. And 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, but 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. So we're right at that 50% our guidance through halfway through the year.

So that's a bit unusual for us just because the winter quarters usually our weakest year or weakest quarter of the year just because of the seasonality of weather out here. And so 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. So 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 and investments into the delivery of lots slightly ahead of our contract delivery. So those will normalize through the rest of the year and really kind of help us temper those [indiscernible].

So 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 a [ halo ], which is used to describe some companies that -- in the context of this, it's a heavy asset, low obsolescence, and I found that pretty descriptive over our company and you can't get a more low obsolescence asset than water utilities. And so 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 3 various segments. We have our domestic deliveries, which is your portable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. And then we have continued customer growth, which is our connection fees, and those are onetime fees that are paid by our homebuilder 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 and then 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 segment. 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 and 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, so 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. And I think it's going to continue into the future, right? We see rigs that we have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that will probably take them somewhere around the 3 years to drill all those wells. Our revenue per well continues to strengthen. We do have a multiyear contract with our operators to deliver these water supplies. So it allows us to do some strength in 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 and developing this capacity, but yet we're still only using a small fraction of our portfolio while we generate significant revenues from this segment 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 area of our high school at Sky Ranch that's being constructed. So we're very excited about that. It will really deliver not just -- it's a full K-12 campus. So we've got the primary school, which is a Ka 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 or Terrific Partners in bringing educational excellence at Sky Ranch.

Talking a little bit about how we're delivering a lot. So this fiscal year, really focusing on punching out Phase II, which was about 228 lots and we're about 95% complete with that and then also Phase IId, which we're almost 80% complete on that. And 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 homebuilders including the Lennar, D.R. Horton, KB Taylor Morrison, Challenger, Pulte, [indiscernible] 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. So we do see a significant uptick in our density out of Sky Ranch, and that's terrific for us.

Not only does that allow us to deliver more lots but 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 payment down and finished those lots so that the homebuilders 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 of 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 #1 incentive that our homebuilders 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%. So 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 homebuilders are offering or 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 and then are really moving into grading the next phase, which is going to be [ 2E]. That's about another -- we've got another good slide on kind of the visual aspect of completing out each of these. And so 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 IIC and then Phase IID, while it's a little bit out of the picture on this, we do have model home lots being developed in there. So we have really 2 active phases that are complete where they're developing lots. So we've got about maybe 430 lots available for homebuilders to really tap the market on a variety of products.

We've got all phases of the products, whether they are standard for task 45-foot front load, 45-foot rear-load, 35-foot rear-load, duplexes, townhomes. We really have a very strong portfolio diversity of product type out there is really creating opportunities for almost every type of home buyer in that.

Moving on to kind of the development time line here. This gives you kind of an overview of our phasing. And 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 homebuilder customers reimburse us and support the next phase of the development activity. And so we get payments at the Platt stage, which is when we finish the recorded flat and there's a real property interest that they acquire.

And then 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 and then finally, that third payment at finished lot pays. And so 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. So our grading contractors mobilizing on site will be hitting that this month. And 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 IIE 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 kind of gives you a -- that's our water -- our peak hour water storage tank and comp station. They're in the picture as well, but 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 million in recurring revenue from the number of comers that we have on that.

This was kind of a celebratory opportunity for us, together with National Heritage Academy, really on a groundbreaking for that and really partnering with our local school district, the [ bentoschool district ] as well as the National Heritage Academy to bring this K-12 campus to our development.

I wanted to show a continuing -- one of the most underappreciated assets I think we have in our portfolio is our service area. And as many of you have heard me talk through the years, the Denver Metro area continues to grow out on the Eastern planes, 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.

And there's a couple of parcels that 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 and then it's a very active development on that. That's about a half section 320 acres. And then also properties that you've seen the -- 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. And so 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.

And 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, but we really do want to kind of give you 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 [indiscernible].

Moving into our third segment, single-family rental. There's a bit of an update in what I 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. And so 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.

And as they settle in, as we've got them constructed as we've got them leased out. We really want to understand, well, what are these -- 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. And so what we've done is push back a number of those lots that we were having, our homebuilder customers build for us. And 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 will settle 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 reevaluated and we're able to resell back to each of the homebuilders that are building their product classes in there. And so what we've done is kind of pared that back from a growth strategy up to about 90 units and really scale that back to about 60 units. And so that will allow us to have a little stronger performance on the revenue from the Land Development segment because we're getting about $100,000 to $110,000 a lot on that.

So 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. So 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. So we do continue to see that as a strong performer in the segment. And then 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. So 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 a 100% occupancy on that.

[indiscernible] the growth trajectory. This is kind of how each of the phases of performance. And this is a bit of an update from our previous position on that where we were growing up to about 90 homes. And I think we really took a look at that and payer back almost all of the units in Phase II [indiscernible] on of the units in Phase IIC, really just as a reactionary element to some of the pressures that this segment was receiving on ownership, corporate ownership and then also opportunities to demonstrate to you all what the return of this segment is going to look like.

Talk a little bit about shareholder value, our assets and kind of 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 sheet. If you take a look at really all of the components of this, we maintained a strong balance sheet. I believe our assets are significantly more valuable than the recorded value. And that's mostly because they're legacy assets. They've been acquired many, many years ago, more than more several decades ago. And taking a look at each of these individual segments, if you take a look at our Water segment, we have about $74 million or, call it, $75 million in total assets, and that's about 44% of the total assets of the company.

But then when you take a look at kind of what's developed and what that contribution is, that's only about 4% developed. So you see how that kind of the pedal 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. And then taking a look at kind of 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. So while we continue to generate strong returns year-over-year on that, we still have a good amount of land that we have developed more homes and then the commercial value on that.

So really terrific opportunities to continue to grow the land development segment. And 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 kind of how we're going to really mark that performance of that segment. But really, the biggest opportunity for us here is our total liquidity here. And 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 assets 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 kind of how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the Phase 2 bonds and really capitalize on the opportunity we financed our first bonds on Phase 2 at about 780 units and growing that to the [ 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. So that will be a great opportunity for us moving forward.

The low obsolescence the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. And so you do have strong sticky revenue on those sides and really a lot of the growth revenue from selling lots to national homebuilders 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 and income statement quarter-over-quarter year after year. and really generate kind of leading -- 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.

And so we're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance. So 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. So 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 kind of how the Phase IIE is going to come along and tap fees and the oil and gas deliveries for fiscal '27 become a little clearer for us.

Taking a look at kind of that total gross revenue, our guidance is going to be in that $26 million to $30 million range. We're still supporting that earnings per share in that same range $0.43 to $0.52. And upside in some of that acceleration of that is really going to be probably the timing of the delivery of lots as well as, I think, oil and gas, and so we'll have a lot -- a much stronger year in selling industrial water sales just because of the permitting that was done last year and 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 in and around our service areas.

So we don't have just the 1 operator, we do have several operators that are looking at programs and multi-well pad sites this year. So we believe we'll have a strong performance on that industrial segment.

We continue to reinvest and repurchase shares. I believe our stock is undervalued, significantly undervalued. We are 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. And some of the ways of doing that are really going to be kind of 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 Rabo County ] who are regulatory agencies here, but it does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. So that's another thing to keep a look out in the next fiscal year.

And then also I did want to kind of give you a revised video. We're trying to kind of keep this video as part of our format to kind of share with you the progress that we make. So it's about a minute long, but I'll give you kind of an opportunity to see -- gives you a perspective. That should be an all white picture there in the background, and it's just not. So that gives you an illustration of kind of the dry year that we've had and [indiscernible] also gives you kind of a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think that we're going to have a challenged year for some of our water supplies and other providers.

I think we're strong in our position in our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that Phase IIC number, we probably got more than 1/3 of these homes permitted and started and then it also gives you kind of where we're taking a look at IID, where you've got homebuilders really starting construction activity on that project as well. And really, this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. But we were able to capitalize on that this year with the mild winter. And so that's a great opportunity for us and our homebuilders.

And then moving into kind of Phase IIb, we're nearly complete here. We 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 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. So that will open up in August for our toolkit for the next '26, '27 school year. So that's exciting for us. And then ultimately, kind of a shot at where we're going to be with that interchange in our commercial properties up there in that area.

So 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.

So with that, I guess I'll -- those are our prepared remarks. So 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 on Mike and just shout out a question and then we'll coordinate seeing how that technology works for everyone. So with that, I'll turn it over to you all.

Mark, 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 -- a detailed update?

Yes, drilling down in then. So the interchange, we have -- we've been working on that. It's -- government always has an acronym for it, and then Colorado, it's called the 1601 permit process. And so you do that in conjunction with the [indiscernible] 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 and environmental aspects of it.

And so we're now at about a 30% design of that interchange. So we really have a solid idea of how that's -- the cost estimates are going to be and then really how do you fund that. So it's a private permit, the Sky Ranch will be a permit for that. And then we work together with Arapaho County because they'll be the administration of that. It's in the jurisdiction of Arapaho County. We should be submitting that 1601 seat. We submitted every component of that as we go along for their review and their concurrence.

So 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 will probably take through the end of the year and then 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. So we have that as a component of the 1601 and then start construction in 2027 with a completion in 2028. So that would be the time line.

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

Yes. that probably has slipped just a little bit, but we continue to be able to deliver each individual phase. So I think we'll still -- we won't really miss any of our cadence on lot deliveries on that. I think what we've tried to do is work on currently with some of our commercial opportunities [indiscernible] 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 -- no mention of it today. Could you please update us anything you can tell us there?

Yes. We -- it's not that we are not continuing to pitch that. But Colorado is probably not as attractive as a state on some of these larger hyperscale or data center type opportunities, and it's really twofold. One, a lot of these -- the ones that we were very active [indiscernible] really are looking for tax incentives and so the state had the bill before the legislature, they have 2 competing bills. They have 1 bill that is seeking incentives and 1 bill that's seeking to disincentivize and Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy.

But they are heavy water users, which is something that we certainly have an opportunity to support, but 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. So 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. And so we'll compete with that and see where it lands.

But 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 and then just overall distribution centers and things like that for our commercial industrial opportunities.

Okay. 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. We do. You're set to heat tabs on that. We probably increased that portfolio about 10%. And so we're maybe closer to 300 or 3,000 acre feet of water. And correspondingly, we do have the ability to probably provide service to more than 60,000 connections, and those are very important metrics. Those are longer tail on it. But when you take a look at how we scope that opportunity, we talk about $40,000 a connection charge of $60,000, which is about $2.5 billion, and that number is probably [indiscernible] consider. It's probably closer to $3 billion worth.

But those are longer lead that kind of carries us out and continues to add to the real depth of that segment of the business and 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. And I think couple of areas for that, the Denver area growing out in and around Sky Ranch in and around [indiscernible] which is our service area, are really the key opportunities for us to continue to add to that portfolio -- that customer on that portfolio.

I see Jeff's got to stand up.

Quick question. The -- as I recall, you were going to wait for the commercial development until the [indiscernible] 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 time line. And as Elliot kind of highlighted, we were looking at getting that 1601 permit kind of this summer, and I think we'll look to get that towards the end of the year. but we 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 and planning.

And 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, it does have service capacities, and we do have opportunities where we can add maybe it would be a nontraffic sensitive type user to the site, someone like a distribution center that would have the appreciation. Okay, we can use the existing interchange to get our building permitted and started. And then as that gets completed, really would have that truck traffic.

So 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.

Mark, just quick. Do you have any expectation on the timing of the next receivables?

Great question. we'll take a look at what that capacity is from the 2022 bonds. And so those typically have a 5-year call provision, and so that's where they start to burn off in 2027. And taking a look at really the differential that we had in our first filing and our second filing, we think they're somewhere around $10 million to $12 million worth of additional reimbursables from refinancing just what we've already financed there.

And then as we move into Phase II, we'll take a look at because that will be that 2027 time frame as well as we complete that interchange and really start processing permits into Phase III, that could be as much as $20 million. So -- and I think we got about $10 million of refinancing of one bonds and then probably another in of fresh financing moving into Phase III.

Awesome. And then can you talk about the builders' appetite for lots right now, delivered the current phase ahead of schedule, we know new home demand spend kind of sluggish given interest rates. So 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? Like how does that impact the timing of starting the next phase?

That's a great question. And so really, what we saw as a result of kind of this pull back in the market. And I'd say consumer confidence is the #1 factor on decisions to buy houses. Interest rates always impact that, but that's -- that's not, I think, in our segment, where homebuilders 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 maybe a point at $450,000 home there's a lot less than if you're buying down that point at $800,000 home. And so that sensitivity for us isn't so much in interest rate but more consumer confidence.

And so what we were able to do is pull in new homebuilders to the portfolio. We had 4 homebuilders -- 4 national homebuilders that were part of the portfolio as we started Phase II. We now have a -- and those 3 new ones that are in the mix on this thing are really -- there is a filing 2D. And so they have 1 year inventory, and we're looking at 2027 in deliveries and sell. They may not be in IIC but they're in IID. And then the other 4 were in IIC and IID. And so they're a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. And so that gives us the opportunity to roll Phase IIE on because they're the ones that want those '27 deliveries working on the '26 deliveries that they already have.

And so that's an opportunity for us to bring in more builders. And we really like having that yearly deliveries for them and a number of builders in there. So they're bringing diversity of products. So it's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio builders.

[Operator Instructions].

[Operator Instructions].

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

Well if there aren't any other [indiscernible].

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 Lowery, I know you discussed Lowry, but nothing else except for just the fact that everything is built out already, and we need to -- that's the next logical spot. And 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 rands and other areas. And -- and there's a soft way of taking a look at that. Where we go out and we buy a land and hold that in inventory and -- is that the best use for our shareholder capital because some of those projects would be very long stemmed in being able to do that. And there's some we're trying to get -- I think our priority opportunities where we can either get those in a partnership, get those in away -- acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that.

And so there's still opportunities in there. Most of those guys really aren't that excited about that type of structure. And so what we want to do is time those out if we've got an opportunity that we can buy a cheap land, but that land doesn't look to turn over for 7 to 10 years. That may not be our highest priority. There are opportunities where that has gone 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 5 years and it doesn't matter where we may have to pay a little bit more in 5 years, but it's also 5 years closer to when that would be looking for development. So we're really being disciplined about that type of opportunity.

Did highlight, Lowry, and those are -- we continue to see great opportunities there. That is controlled by the state, and we'll work with them and whatever their time line is on something like that. So 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 want to be a little bit more flexible for that. And so we did modify our window of trading activity.

And then really, Craig, I think our continued focus is capital stack to be in a position to reinvest in the company. And this -- our balance sheet and 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. And so 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. And as that comes back and that liquidity continues to reimburse. There are opportunities for us to increase our share buyback, and that's something that we continue to evaluate, and we will take advantage of as appropriate. [indiscernible].

[Operator Instructions].

Yes. This is Greg Bennett. Could you go through the economics of the -- you're deemphasizing the rental program, but what are the -- what is the return unlevered rate of return in the rental program. I mean you're -- am I correct the loan that you have against these properties is a floating rate loan. And yes, I'm just curious, you've never mentioned what the places rent for or what the capital you have tied up in you go through the economics of that?

Yes. Yes. I mean, so I'll give you kind of a high-level version of that. So typically, what we see is we're carrying forward some of that equity in the lot and the water. And so when we go out and we contract with our homebuilders to build those homes, they're coming in around $350,000 is really the cost that, that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. So we have about $180,000 margin in there. And 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.

So 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. So our first few were done in a very low credit facility, right around that 4.5% rate. So it was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. So 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.

And so when you take a look at all of those, we don't have a lot of holding costs on those. And so our rate of return on that somewhere in the 8% to 10% range, but we want to dial that in. We want to see, okay, is that -- how is that performing? What is the capital creation 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 out and making sure that, that meets our investment threshold.

So 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 of management and the board level as to is that adequate? And do we want to keep moving forward with it.

Okay. Second question on -- you mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Are these all -- is that firm take-or-pay or let's just say oil prices go down to $60 a barrel or $50 a barrel, are these -- 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?

Yes, great question. The oil and gas companies really will pay a premium for you to be at their back end call. And so when we 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. But the downside of that is that sometimes they help back on that call. And so 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. And so the premium that I think we charge them for that flexibility is really good for them and good for us.

And as you saw last year, we had relatively weak oil and gas deliveries compared to 2023 time frame or 2024 time frame. And so it is a variable demand. It is hard for us to forecast because they do -- it takes a significant amount of lead time for them to get their permits in line, get their rigs committed. And so 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 already what they drilled to date. And so I think we're pretty we're pretty confident about the next 2 years on that. But forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index.

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

That is correct.

Yes. So the stuff that's been permitted south of the Sky Ranch that actively being developed. What's the time -- I mean, how many units is that? What's the absorption? Is that thousands of units? Is that like a 5-year plan for -- these are other companies or it's Aurora. But what's the time frame to get all those years?

Yes. And so just that -- you're correct. And there's a lot of land in and around this area, right? The I-74 is probably be highest development corridor in the metro area. And it had reasons for that being the case. One, it has transportation. Secondly, it has available land. And so there are on a number of projects, which are thousands of residential units, and they're all around our area.

And the Denver area is adding around 15,000 to 17,000 units a year. And I would say this submarket is probably 1/3 to 40% of that domain, whether it's in Aurora, whether it's in IncorporApple County, it really is the strongest development segment in that area, and it will continue to be that way. It will add 6, 000 or 7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop. So we worry less about how we compete necessarily a Sky range to the next development. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas.

But at the end of the day, it's all going to absorb. And so 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 homebuilder customers. So we worry less about is that project can 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 are doing a 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 and whether we have 1 project at Sky Ranch.

But we have multiple projects where there are other Sky Ranch 2, Lowry, any of the other projects, we want to make sure that -- we continue to pay those deliveries and maintain what will be a very long tail of land development.

Yes. I guess my question was more when do other parties have to come to you for water -- if you don't own the [indiscernible]?

Yes. I misunderstood that. So 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 the corporate or Apple County, low rate, they will get their water from us. And so I would say it's maybe an even split of opportunities that are going to be competing with us that are going to get their water from Aurora and opportunities that we are competing for to be the developer or just the water utility provider because they're in unincorporated [indiscernible].

whether we develop it or another developer develop, is it.

Mark, I think I figured out my [indiscernible] here. Congratulations to you and the team on another solid quarter here. So following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. What -- can you just refresh us what the opportunity, 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 and 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. So that's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. We get about, I think, our full subscription in there is about 900-acre feet of water. That system is fully built. We have capacity within that system. So we have, in addition to the 900-acre feet, we have 3 MGD of pipeline capacity in there. And the -- WISE is a kind of a partnership among 12 different water providers in the Denver metro area. And 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 demand because their summer irrigation season hasn't quite kicked in. There are opportunities for us to get more water out of WISE.

And then sometimes when the heavy irrigation season is going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 5% of the total capacity that we deliver in any given year, we have opportunities to sell water to the otherwise participating. So we go both ways. WISE, where we're able to trade for more water or trade or 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 have been following the company for a long time now, we have some very valuable storage reservoirs. And so those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies had a higher treatment capacity where we can deliver more than our subscription that [indiscernible] into that. So that will grow over time for opportunities for us to expand and 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 [indiscernible] formation.

And then also opportunities for us to be spot and peak water deliveries to other WISE participants. So we look at all those opportunities and that interconnect of that system is a very important aspect of that.

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 built 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. So we couldn't be more excited about our runway and really the market penetration that we seen as a utility provider in the [indiscernible] as well as the land developer in the Denver area. And so I think that's going to continue to generate really handsome returns for us and returns to the shareholders.

So -- 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 in July. So -- do we have a date set on that? I think it's [indiscernible] third week of July. So be on the lookout for that. I think it's typical on a Wednesday. I know I did get 1 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. But again, thank you all for your continued investor confidence, and we look forward to the next steps. Thank you.

Good morning, everyone, and welcome to PureCycle 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 range.

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 the reference in this corporation are forward-looking statements. I'm sure most of you are familiar with are forward-looking statements, wild fire. I 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, then that they have any specific questions that they'd be able to weigh in on. 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 heavy weight [indiscernible] 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.

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 really striving to continue to develop and build our recurring revenue base.

And then our great balance sheet 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, a 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 ID, which is what we're working on. We punched out completion of Phase II at the end of our fiscal year last year and continuing through with Phase II, 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 curves 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 whether we'll be 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 II.

So you see a significant uptick in both of them. 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. [ During ] 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 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 III, continuing to produce those lots for [indiscernible] other 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 fracking wells that they're drilling. And then around [indiscernible] 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 the new [indiscernible] 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 waste 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 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 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 pick up for the rest of the year. taking a look at kind of that 1 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 through 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 quarter for us in fiscal 2026. What we do like to do is kind of give you a feel for capacity. How much 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 [indiscernible] to 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 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 litigated 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 I, which we did complete last fiscal year, we're midway, a little bit more than midway on Phase 2. And we have a percent completion methodology for how we recognize revenue on that. continued lot protection for Phase IID and then also moving into Phase III, which will be about another 160 lots, but we'll start grading on that sometime in the March time frame and really enjoying some of that good weather so that we can continue to [indiscernible] that pavement and curves 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 Ib. We're complete with Phase I really kind of highlighting some of this, if you want to take a look at the number of homes that are being good. And that's really kind of a tuning of 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.

I think that's largely indicative of our market segmentation as an entry-level product. Taking a look at the homes completed or under construction in Phase IIb, 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 IIb completely built out, taking a look at Phase II, which is what we just delivered we have on our newer homebuilders, going vertical with a strong portion of their portfolio. And then we even have a lot of our new builders into the portfolio already starting homes in Phase I, even though we haven't fully completed 2D.

We have completed enough of the -- much of that infrastructure where we've got all of the water, sewer storm, curves 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 buildings. 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 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 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 stock bases from Phase 2 here, some nice aerials, reset [indiscernible] 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 product, which is a townhome product -- I'm sorry, a duplex product and then also townhome product that really offer a variety of price points for the 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 own builder customers. And that's out of plate where you've got a severable title instrument to the individual lot and we typically get a third 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, curves 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 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 uses 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 2 is about 159 lots [indiscernible] 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 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 build to customers.

As I mentioned, the key milestone was the start of reduction at the high school. And so this gives us a full K-12 campus on site, which is very -- it's a high and it's most of our homebuilder customers really in the feedback that they're getting from their purchasers, the school and one of the key elements that are driving people to Sky ranks just because it's a local school [indiscernible] for everybody, a terrific asset for us. What we always like to highlight is kind of some of the key areas of where the vendor 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 1 direction, right? We can't grow West just because of the mountains. And and we find ourselves in really the most attractive submarket of the Denver met [indiscernible] 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 shows you where Sky Ranch is positioned on that. And then the pink area is really our service area, the lower branch, and what we're seeing is more and more development occurring around orders 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 segments. We've got 19 homes now completed and all rented. So that segment continues to recurring revenues. We've got another 40 units under contracts. And what we're trying to do is pace 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. 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 adding more units online as well as capital appreciation of those assets, very tax advantaged segment for us because retain the equity of the lots 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 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. We 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 on more single-family units and a diversified mix of revenue from tap fees to industrial water fees, we have oil and gas royalties, which were really -- 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 to Shareholder value just reiterates our fiscal year guidance as well as give you some interim and build-out forest revenues for our asset growth.

So when you take a look at kind of the segment of the revenues, the lot of recurring revenue as well as single ininal 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 in our fiscal year guidance and kind of the near-term outlook. So again, we want to stay on pace with that. We've got a great quarter on delivering ahead of schedule and had 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 of $0.43 to $0.52 per share and kind of the upside and 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 products.

What I also wanted to do a bit of a new slide this quarter and really kind of illustrating, 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 state sometime early half of this year and then really take a look at bonding opportunities with some mill levies that we reserve at the projects and start construction on that in 2027.

This is kind of what it looks like, and how we're going to orientate to the overall development. We're in the existing interchange will go away, we'll realign that along with section line, 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 III as well as bringing online the commercial opportunities for that. Taking a look at a little bit longer range outlook, the commercial [indiscernible] really provide a lot of the high-value land and a lot of the AB, that assess value is really where the public improvement renters get their strength on us not having to advance those funds, getting reimbursed.

I think our receivable on -- that's currently around $50 million. And so the combination of the assessed value, Colorado is what we define as a sales tax incentive state. So we get literally 4x the tax revenues from commercial assess value as we do residential assess value. And then in this particular case, we get public improvement fees on that, which is really 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 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 brokers that are very active in data centers.

And we have a very unique opportunity here at Sky Ranch. And together with Pure Cycle, 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, a 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 things are rolling along. [Operator Instructions] Mark?

Very interesting to see you put the estimates of earnings out there. There was 1 pretty obvious blank, and that was for fiscal '27. What should we be thinking about in terms of estimated earnings range for fiscal '27?

'27 is going to be a large component of Phase III 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. that'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'm going to say that, that would be a good clear guidance. But when we take a look at that commercial and bringing all 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 TAP 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 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 -- $40,000 apply 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 including.

Yes.

It is included.

Mark Tucker Anderson. First, I'd like to take a minute as long as you guys get ice provide it to shout out hello to my old friend early at night. 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 you 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 are constantly knocking on doors with projects. I think 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 in 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 I'd say we're more cautious about water acquisitions, then 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 when we buy that land, we have one that we can serve it. We have infrastructure that is there that we can serve it and then building into the land portfolio and the single-family rental portfolio, that really, that drives all 3 segments where a water acquisition would be nice. It will be valuable because we're not making 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 [indiscernible] portfolio there. So Tucker, I would say, they have to be the right water right in the right location.

Well, you've just segue into the next topic on my question list here, and that is what's happening in the area of land acquisitions given sort of tension between 1 building, 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 or 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 my baseline comparison is always going to be the effectiveness 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 hate to see the economy that leads us to what it would look -- what it looked like when I did acquire Sky Ranch.

Third, in terms of -- 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 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. What 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 is [indiscernible]. They end up having to commit [indiscernible] 700 homes worth of water, 1 user, and that user is not going to have the same tax base as that 700 homes worth but -- and so we have the ability of providing that water to them for long. It's a good allocation for us. The sizing 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 location 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 it or data centers.

So we're very opistic that, that might lead to a great opportunity for us.

And last, my question is, in your market, what's happening to price appreciation general in the Denver market on existing homes. And two, is your first phase and maybe your 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, terrific for the [indiscernible] owners. 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 30,000, that appreciation is going to -- there's still no homes for sale sub-500.

And so there's a lot of opportunity for appreciation of those homes sub-$500 million.

So that makes Sky Ranch -- that's one of the real traction for your existing builders [indiscernible], in fact.

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 around the metropolitan area, but we're getting new homebuilders in our existing project. Thanks, Mark. Keep up the good work.

This is [indiscernible] from Surplus 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. The guidance range that you provided [indiscernible]

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 [indiscernible] call, right? Pay us a lot of high rate for delivering raw water and they want a ton of water but they go from 0 to 100 in days, right? 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 constructed their pad sites, and so it's a matter of keeping that rig on site. So they drilled 10 wells on 1 pad site. They're currently drilling, I think, another dozen wells on another pad side.

So we see some -- 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 high-margin opportunity for us.

Okay. Great. 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 what assets right now? And what would be the kind of the worth of the water, if you mark it to market, so to say.

Yes. Great question. And there's 2 benchmarks for that. We continue to see strength in appreciation in the tapes. 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 arm that we bought in that location was about 4 years ago, 4 or 5 years ago.

We paid about $9,700 per put 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, 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 II. 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 to kind of stay within our capacity limits of the interchange. What we can [indiscernible] 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 we're expecting in the future. So I don't know if you want to comment on that or...

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 land board 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 stacks. So you're right. We continue to believe that's our most valuable asset, right? How you monetize water it's nice to buy water right, but it's very hard to kind of monetize water rights other than providing serve. 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 a 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 my good friend, Dick [indiscernible] on the call, who was 1 of our -- a back to 1990. And you were around in 1990. As Tucker was very closely after that. But it was so far away [indiscernible], right? You take a look at -- the migration of the Denver area over that period of time in surrounding Lawrie, and where the landlord was looking and 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 activities 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 -- some those are going to be for a multi-revenue use purpose. Some of those lands are going to be to develop. 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 I'm not going to eat this elephant. And it's one of my 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 increase our portfolio as we have the ability to help develop it.

Whereas in 30 years ago, we were just looking at the water utility side and now our portfolio looks at 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 -- we 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 over our [indiscernible] ahead of them on that high. So we want to be partners. We want to be colistin it, and we also want to make sure that we are a strong advocate for their wishes and their desires for the property.

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. that's kind of wanted to kind of give you 2 things because we talked about that interchange all the time. And to give you a relative perspective the importance of that relative to the overall project.

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

It is. Yes.

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

So I think we get that -- we've been working on that permit over the last 3 years with the county and CDOT. We're fairly close to getting the [indiscernible] and the submittal on, it's going to be like 2,000 pages of you name it, engineering sideways, designs, permitting traffic control everything associated with it. And then they -- each stage of that over the last 3 years, they reviewed, they commented, they've kind of set the parameters on it. 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 we look to go to bid for the interchange sometime end of the year and be under contract for construction in 2027.

Yes. And it will only take probably 6, 9 months -- probably 9 months to construct. It's not -- as you saw, it's not a hugely complex one, and we're able to take advantage of existing 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 look any mentioned 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 for that because it's just replacing an existing interchange. So if it were a new interchange, it might be a little bit different process because we're just -- it's an existing interchange replacement upgrade.

So I just wanted to ask on the dissenter 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 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 able to charge them a similar rate for that?

Good questions, both of them. On the first one, location, we're sort of tucking -- 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 no would be living next to them. Next to it being a relative term. What is next to it -- is next to it being a few hundred feet, is next to it being quarter. 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 offering opportunity for that. We're not just looking at that 1 site. We're looking at other sites that are going to be 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 assets that we have that site at that site 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 line looks like, that's a little bit -- there's a lot of nuances in that because they don't need full pot of 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 1 is TBD. We do want to capitalize on the value of our water supply. But we are cognizant of the fact that we're very long on lot supply. And maybe we have a supply agreement with them for a period of time that would be look 1 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, there's no other thoughts on the quarter. Don't hesitate if you listen to this on [indiscernible] or your technology didn't work or you got distracted and had run up something else, don't hesitate to give me a [indiscernible]. 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.

Thanks, Mark.

Thanks all.

Okay. Good morning, everyone, and welcome to Pure Cycle's Year End Investor Presentation. If you please mute your line as Mark Harding goes through the present and then at the end, we'll -- we have a video, and then we'll open it up to Q&A. So with that, I'll hand it off to Mark Harding.

Thank you. Thank you, Marc. Welcome, everyone. We're delighted to share with you our fiscal 2025 earnings presentation this morning. With me today is our CFO, Marc Spezialy; and our Controller, Cyrena Finnegan. So if you have any tough questions, we'll have them help weigh in on the answers for all that. But we really are excited to give you kind of some insights as to how we were working through the fiscal year, and it's been an exciting year in a couple of fronts that we'll detail.

First, I want to get the lawyers out of the room and remind everybody that this presentation includes forward-looking statements. I'm pretty sure you're all familiar with the forward-looking statement caveat in this. So with that, we'll get to highlighting the important thing. The most important thing is I get the privilege of working with just an outstanding team of professionals.

Marc, together with Cyrena and then those folks that kind of grind out day in and day out to make sure that our -- we stay on track and really have a good customer experience in all three of our business segments. So great to work with them. And then just to remind everybody that we punch above our weight with our advisers and our Board of Directors.

We've got a great team, highly experienced and specialized Boards of Directors that continue to really emphasize how best-in-class performance is for each of our business segments. So we're privileged to work with a great team. And you, from a shareholder standpoint, should get a lot of comfort as to the continuity and really the caliber of the company's Management and Directors.

Let me start out with kind of some of the themes for this presentation. And I'd say continued profitability where you've got 25 straight quarters of profitability and this quarter and this year is no different.

Really continued growth in each of the revenue segments, especially in the recurring revenue segments, and that's really one of the most important components of what it is that we're doing, building a stable earnings from both water and wastewater, our land development side, our rental income from our single-family homes.

So terrific continued growth in that. Also, in our land development, resiliency, our business model. And when you see changing market dynamics as we've seen this year, you stress test your business model. And one of the things that we're going to highlight is kind of the flexibility of our business model to be able to risk on, risk off, turn the volume up, turn the volume down to really match our customers' needs in that segment.

And that's the most -- that's the highest delivery segment for that. So that flexibility continues to demonstrate its use and its resiliency in our business model. And then our capital position and liquidity, continued strong stewardship of shareholder capital. So we'll continue to emphasize those positions and make sure that we have a solid foundation for delivering results year-over-year.

Okay. With that, let's dive right into the Q4 results. And as all of you know, our Q4 is typically our strongest quarter, and that has a lot to do with seasonality and really how we deliver because of the -- our weather conditions here in Colorado, concrete and asphalt paving really do cycle themselves into making sure that you get that down before our winter season.

Our perfect cycling would be kind of Q1, end of November, but our year-end happens to be end of August. So sometimes that works to our advantage. Sometimes things spill over from year-over-year. So revenue for Q4, again, it was our highest quarter, slightly down, mostly due to the housing headwinds and pushing some of that revenue recognition from our percent completion into Q1 2026.

So both revenue and gross profit up, but slightly off from what we saw in 2024. Taking a look at net income and earnings per share, again, profit margins are still remaining. And really, that is some of the diversity to the company's revenue streams, and we'll talk a little bit more about that. But Q-over-Q in Q4, again, our highest quarter and solid performance on both our net income and earnings for the quarter.

So let's take a look at kind of how that normalizes itself for the overall year-end performance. Year-end, slightly below expectations. And again, that was mostly due to the headwinds of housing pushing some of the percent complete. And so as most of you know, we operate on a percent complete because we develop lots over about a year's delivery schedule.

Sometimes that works within our fiscal year, sometimes that carries over. And last summer, I think what we look to do is really dial up some of those deliveries. So we had as many as three different phases of our land development going on at the same time, delivering what we were looking for in 2024 and then having two phases in 2025 and spilling over into 2026, delivering at the same time.

So strong results again, but slightly below expectations on revenue and gross profit. But then moving into kind of the thing that matters the most is our net income and earnings per share, which actually exceeded our expectations. So again, the most important metric is earnings per share, slightly above what our forecast was. And that's largely due to oil and gas royalty income coming in much stronger than projected. And the reason for that was we had the completion of an additional 7 -- 6 or 7 wells into the largest portion of our royalty estate and those wells came online and started producing in 2025.

And that really did exceed that expectation. We knew that those were there, but you never have clear visibility as to the price of oil and then how that's going to result in. And so one of the things that we continue to show is that diversity of revenues to the company where we have multiple shots on goal here and are able to drive revenue and earnings from our assets in a number of different ways.

Let me go over kind of the earnings bridge of where that -- where the headwinds and tailwinds came in from each of the revenue sources. So our forecasted net income was right around $12.5 million, slightly lower revenue from our land development segment, and that wasn't that we lost that revenue. It was really more that it was pushing into 2026. Some of that was Q1 2026, but some of that's going to be in the first half of 2026.

Slightly higher costs of revenue, and that's really driven by a little bit by tariffs, a little bit by inflation. So we saw a little bit of slightly higher costs on that, but then lower G&A expenses. So those things that we can control, particularly when we have a headwind type environment, we pay a lot of attention to SG&A. And then we're given a little bit of tailwind from royalties on the oil and gas to allow us to bring that net income -- even not only above -- slightly above that forecast but continuing to drive earnings to the company.

I want to move into kind of taking the view up a few feet and really highlight each of the business segments so that you get a flavor for not only where our investments are going, but how each of these segments are performing. So in our Water Utility segment, really the main drivers there are where we get our revenue from. And so the recurring revenue side of it, we have a little over 1,600 commercial connection points on there out of a total of 60,000 potential given our water portfolio.

So we're just getting started on that. Industrial water sales, water sales to oil and gas customers and then connections, and that's largely driven by our land development business, and we get tap fee revenue that's attributable to that and delivering high margins there as we continue to invest year-over-year into our water system and really deploy that capital that we're receiving from maybe some of the one-time sales to oil and gas to make sure that we get high margins and continued profitability into our tap fee connections.

If you look at kind of how that portfolio -- our water portfolio performs. We've talked about this a number of times. We believe we can serve 60,000 connections, probably can be a little bit stronger than that given the trending in the amount in water consumption per single-family equivalent, but we continue to really pace our guidance on this at 60,000 connections. And as most of you know who are familiar with the company, we get two fee incomes from that. We get a large [ whomp ] upfront capital fee component and our tap fees now, our combined water and wastewater tap fees are right around that $40,000 mark.

So those continue to grow and appreciate based on the scarcity value of water and the cost of incrementally delivering those supplies, which are farther and farther out and harder and harder to bring on board. And then annual revenues. And our annual revenues are pretty consistent. We're probably growing that a bit. That's about $1,600 per connection per year.

And so when you take a look at that, the connection of 60,000, that's about $2.5 billion worth of top line revenue, cost us about $1 billion to build that full system over time and then our connections year-over-year revenue. So overall, we're still a very small fraction of our total capacity, close -- a little over 2.5% of what we're really deploying depending -- compared to our capital and our capacity.

And then the production year-over-year. We continue to invest in that system. We had a pretty light year, which we knew that was a forecastable gap in oil and gas deliveries. So we still have plenty of pedal on what we've developed in our production capacity to deliver that water as that water increases. And we look to see a bit of increase in that in 2026. As that applies to kind of fiscal year-end year-over-year, really, the interesting thing about the water side is some of the diversity in the mix of customers.

When you take a look at that, we're sort of looking at the domestic customers, which is that dark blue, and that will be what we're delivering to that 1,600 connections year-over-year, some of the oil and gas deliveries and then the tap fee deliveries, which are attributable to our land development segment. And so while our overall revenues stay in line, the mix of that, as you can see, between year-over-year is variable.

And so you're going to see a diversity there that allows us to kind of continue to grow that asset base, not only from the recurring standpoint, but also in capitalizing on other business segments and being able to put some of that idle capacity to use either through oil and gas or in the development side. And then good customer growth. Again, we've got about a 22% CAGR on our customer growth.

So we continue to really leverage out building that recurring and perpetual customer growth in the recurring revenue side. Just a small snapshot of the oil and gas side. We did have a forecastable decline for oil and gas deliveries in 2025, and that was largely due to a strong push of permitting oil and gas wells on the Lowry Ranch in our service area. And oil and gas operators have close to 200 permits now that they're actually drilling.

So we have a drill rig that is, for the time being, committed to drilling nothing but pad sites on the Lowry Ranch. And so we do see for 2026, a significant increase in oil and gas deliveries for that segment. So you'll look forward to seeing some of that action in 2026. Let me move over to the Land Development segment. Taking a look at each of the phases of that, one of the carryovers on Phase 2C.

So we did deliver the 228 lots of Phase 2C that we had forecasted for 2025. And we had a small about $800,000 of deferred revenues that spilled over into Q1, and that was a function of sort of the regulatory climate in permitting and getting some lot templates on some of the lots that we had for one of our builders, but that did come in, in Q1.

Overall, sales in Land Development were off then from our expectations, and that was largely attributable to some of the headwinds that we're seeing in housing and really trying to provide that customer service to our homebuilders and making sure that we're pairing inventories at appropriate levels where we're not overinvesting in roads, curbs and gutters, and they're not inventorying finished lots beyond sort of those annual increments that we like to deliver them to and they like to receive in.

Taking a look at 2026, we're working on completing Phase 2D. And so we'll see -- we're about 43% on that. So that was some of the rev rec in 2025, but you'll see the completion of that rolling into 2026 and then visibility from there, taking a look at not only 2D, but 2E, which is going to be the next phase. On the land development side, this is kind of a breakout of which phase is contributing to the revenue streams.

As we had this Phase 2, we subphased that out. We initially had that sub phased into four sub phases, but we were able to add a fifth one with that with this 2E. But it really does show you that bulk of '25 deliveries was from Phase 2C and some of those forecastable revenues that we had that we were able to dial down just a bit because of the housing headwinds will push into the first half of Phase 2D on that.

And so it gives you kind of the total land development revenues and how those occurring for the trailing three fiscal years. So it kind of gives you a profile of some of the developments and really how that's maturing, and you're seeing this slide where we're carrying it forward on not only the land development side, but then kind of how that vertically integrates ourselves into the water side from the tap fees.

We haven't fully received all the tap fees from Phase 2b. So we still have some contribution on those -- from those deliveries, which were in 2024, that will come in, in '26 and then taking a look at 2C and 2D on the tap fees for that and then also single-family rentals. And last year was a bit of a struggle for us on single-family rentals. Again, another regulatory issue for us as the county, which is our jurisdiction, updated their building codes and really had difficult time processing homebuilder permits on that.

And so we're through that phase. Most of our homebuilders have got what we call Masters approved. So each housing plan will be approved and then they can build that same house, different elevations so that they change the look of that, but the building department's approval of that Master allows them to build that on any number of different lots. And so each of our builders have got their Masters approved, which still accelerate into our single-family rentals.

So you'll see a substantial increase in the number of single-family rentals in 2026 and into 2027. I'll highlight a little bit more of that later. What I wanted to do is this will help illustrate kind of how our percent completion works. And most of our builder contracts are structured in a [ Flow ] Funding Agreement where we get paid in three installments. We get paid once we do the Plat, which is a recordable property interest to an individual lot.

It's a paper lot, but it is that they own that address lot. And then we use those funds to be able to really do the land development side. So we're really working in a partnership with our homebuilder partners to be able to deliver these on a real-time basis. As we complete the wet utilities, which includes the overlot grading and the overexavation for the soils, then we make that second payment.

And then as we deliver the roads, curbs and gutters, we get that finished lot payment. And so this kind of shows you some of the timing of how those payments go and really that work product over the POC. And sometimes those will span quarters, sometimes those spans year-end. And when you take a look at delivering each of these individual increments of lots, it's not always clean enough to deliver in one fiscal year, but it does deliver in a year, and that year may be 12-month period as opposed to matching with our fiscal year.

But that kind of gives you an illustration of how some of that -- how we can dial up and dial down to the market depending on how the strength of that market goes. This is kind of the location of where our next phase is going to be. So it's going to be directly across that Phase 2E, and that's about another 150 lots that will be directly across from the high school.

The important component of this is we're really almost complete with most of the major infrastructure on that. The roadways were complete pursuant to some of the other phases. So this should be a high-margin area because most of the off-sites and arterials are all completed and the roadways are completed, the water, sewer, all that system expansions are already to this property.

So that will be a nice phase for us. One of the key milestones for 2025 was really groundbreaking for high school. And as you can see from that aerial drone shot, it's right adjacent to our primary school. So it's a full campus. It's a full K-12 campus and really excited to continue to work with National Heritage Academy.

There, our charter partner and really -- that's one of the high-value commodities for our development here is that we've got a full walkable K-12 campus right on site for the development and outstanding delivery of education here at Sky Ranch. So we're very grateful for that. We're very grateful for our charter, which is the Bennett School District and our partnership with Bennet School District on bringing this education system to Sky Ranch.

I continue to want to kind of illustrate our service area and kind of where Sky Ranch is in the metropolitan area. And so the map on the right here, the black line at the top of that really is the I-70 corridor. And Sky Ranch is the development in the blue there, and that kind of illustrates really where we are. We talked often about the fact that Denver really situates itself on kind of an ocean-like framework because we can't grow West.

And so all the growth is concentrated to the Eastern Plains area. And really, our assets, whether it's our land development assets or our service area are located in the most ideal section of the Denver metropolitan area. And the aerial to the right really kind of shows the encroachment of development on our service area.

This is owned by the State of Colorado and its development and its revenue opportunities really benefit the education system here in Colorado, the K through 12 education system, but you can continue to see all of the development that surrounds the surface area for that. So our assets are ideally positioned in the right location, and we continue to really look forward to how these will grow and monetize over time, both for the State Land Board as well as to expand our systems.

As I mentioned, we want to talk a little bit about single-family rentals. And so this kind of illustrates where that portfolio of single-family rentals are. A, that 2 Phase -- sorry, Phase 2a really was where we had the 14 units. We have about 4 units in filing 1, but then 10 units in A and really the acceleration of how B, C, D and E are going to add to the portfolio. And so with that bit of a delay because of the building code upgrade, we have about 40 homes under contract now that are delivering from several of our homebuilders.

And what we've tried to do is pace that out so that they can deliver those on 5 units a month. We had 5 units delivered in Q1 of 2026. And of the deliveries, those delivered in late October, I think we've got three of those leased. Two of them are on the market, but we're continuing to show strength in the rental market on single-family rentals. And then those will pace out and deliver those units through fiscal 2026.

Steady rental income stream from that. We really like that asset-light appreciation model where we can lever up the vertical cost of that and continue to keep our balance sheet clean and strong. So this is what you're going to see in 2026 and the real story for performance on 2026 is continued pacing with our land -- our homebuilder partners and our land segment and then acceleration of growth in the single-family rental segment.

It's a bit of the fiscal year performance year-over-year. So we're seeing a slight increase in growth on the rents. But for the most part, our occupancy is very, very low. I think we've got a 97% occupancy for the portfolio to-date and then continued asset appreciation.

The nice thing about this segment is -- we carry forward the equity of the lots as well as the water utility side and then are leveraging up the vertical cost of that and really have a nice relationship on that because we have a high loan-to-value ratio there and then that asset continues to appreciate together with the market.

We're seeing continued growth in that, not only just because of housing growth, but also because of the continued investment that we have in the community. This will kind of show you the growth of each of the phases and how we do that. And so that Phase 2b, where we were looking for a stronger growth in 2025, really pushed over into 2026. So we'll have a bit more than the 31 homes.

We'll probably have 40 homes accelerate in that area. And then how it continues to grow from Phase 2b and C. So those are where we're looking for, for '26. And then continuing on through the second phase. And if you take a look at this whole portfolio as it relates to the overall development, we're looking at being in that 8% to 10% of the total homes.

And so if we have about 3,000 single-family equivalent units out there, somewhere in that 250 to 300 homes would be our target for this portfolio. Talk a little bit about stewardship of shareholder capital and our balance sheet. We continue to invest into these assets. So you'll see continued asset growth and strength to the company. Water segment is around $68 million, land development segment.

That continues to mature. So as we're bringing assets into the portfolio, we're also taking them off our balance sheet because we're selling them. But we continue to make sure that we maintain liquidity.

And as our capital stack goes, we want to make sure that we're investing into monetizing these legacy assets that we acquired over the years and really generate the high-margin incomes from each of the segments and then continuing to build into our single-family rental and continuing to maintain a strong liquidity portfolio, really balanced out between our cash, which is inclusive of restricted and unrestricted.

And the restricted cash is really just letters of credit that we have for performance to the local municipality on the roads, curbs and gutters. It's how we warranty out those during our 1-year warranty period. And then the note receivable that we get as that comes in periodically in sort of increments as we build assessed value within the community, more homes, more assessed value, more tax revenue that's available for us to issue bonds through the local municipality and reimburse us for all of those receivables.

And then a small amount of debt, our debt is really attributable to most of the single-family home rental side of the business. So continued strong balance sheet. Capital allocation, if you take a look at how that composite makes itself up, cash and investments and the note receivable and then just growth in the infrastructure, making sure that our water systems continue to grow so that we can continue to add those recurring customers.

And then we continue to reinvest in ourselves, probably a little more conservative in 2025, mostly because of the housing headwinds and wanting to make sure that we're pacing. We had a lot of chips on the table last summer, really dialing up the absorption of our lots. And we wanted to make sure that we weren't pushing our homebuilder customers into a risk profile that really shifted most of that from our risk to their risk.

So we wanted to balance that out. So we were a little bit more conservative than I think we would have otherwise been, but we continue to reinvest in the share repurchase program. Give you kind of a profile of how we were performing quarter-over-quarter in that.

And then the diversity, I think one of the things that we want to continue to emphasize is the number of ways that we generate revenue from these assets, whether that's on the Utility segment, where we have a number of segments, subsegments in there, whether that's the domestic side of the business or the industrial side of the business, rental income revenue from our single-family homes, and you're going to see a strong acceleration of that, land development and the synergies that we get on doing just a fantastic job of the Master Planned Community and adding value to the community and really partnering with our homebuilder customers and then making sure that we are good stewards of your capital.

Taking a look at kind of how we see things rolling out not only this year, but then how it's going to roll out through a midyear forecast as well as a builder forecast. I think we tried to foreshadow some of this last year, but 2026, if you take a look at the recurring, we do have an expectation of continued recurring revenue growth, not only from our water customers, but also some of our single-family rental.

And that's going to become a better -- a bigger component of our recurring revenue. You're going to see that continue to accelerate where we're going up to 100 units in Phase 2 and then maybe up as many as 250 to 300 units through build-out. And so that will continue to add to the asset growth. So when you take a look at how that translates, that asset growth is a tremendous opportunity for the company and particularly compared to the percent of each of these assets that we're currently developing.

And so as we can accelerate that development, we do that, and we try and pace that with making sure that our inventories are appropriate. This is a little bit more highlight on kind of how the profitability trends from each of our business segments, the Water, the Land Development and then also kind of continued emphasis on recurring revenues. So you'll see that continued growth.

We're looking at 2026, depending on sort of these housing headwinds, that might be slightly down from 2025. We do believe we have some pedal in the oil and gas deliveries this year. So we'll see how that goes. We didn't want to be overly optimistic just because of the visibility of the price of oil, but we're really optimistic about continued monetization and continued growth in this segment.

And really, the transition going up to this -- what would be a tantamount change to the monetization of these assets are we continue to pace our growth on the residential side. But moving into 2028 with the delivery of our interchange, which we're working through in the permit process, but we're fairly close to getting that finalized. And we'll work through the financing of that through the Metro District.

So we reserved some bonding capacity in that to make sure that we have the funds that are available to bond that out in 2026, start construction of that in 2027 and then really layer in and almost double the deliveries of our Land Development revenues maintaining the same pace with our residential development, but then also delivering a like amount of equivalent lots for our commercial development.

And then the valuation on those commercial lots, we're forecasting that to be about 2x the valuation of our residential lots. So that's the real delta in how we look to change the composition of the land development and how we're almost doubling that land development -- a little more than doubling that land development revenue is because of the bringing online that commercial lots.

And that's a function of two things. One is going to be rooftops. Most of the commercial players are going to want a certain number of rooftops to be able to generate revenues from what their investments are going to be, but then also access and making sure that we have a large volume of transportation access and really capitalizing on our location being right on the Interstate with an interchange, an exit ramp right where our project is.

So that's kind of how we gain some leverageability and some scalability to the Land Development and the Water Development side of the businesses. Valuation sensitivity. So 2026, our gross revenue, we're going to show a range there of 26% to 30%, and that's going to be a function of some of that sensitivities on lot deliveries as well as some of the industrial water sales activities.

So a range of earnings per share that corresponds to that. Upside and the timing of the acceleration is really going to be how we look to deliver and maintain those inventories of lots so that we're not investing into that -- the capital cost of delivering those in advance of having those deliveries for our homebuilder customers.

And really, we started out with delivering this project with -- started out with 3 builders, 4 builders, and now our portfolio is closer to 7 builders. And so each of the builders would like to maintain a year's worth of inventory, which allow us to have a bit more of an acceleration to our Land Development side that serves more diversity of product mix.

And so as the community continues to mature, we look forward to continuing to serve the whole portfolio of our builders. Short-term outlook, I won't spend a lot of time. I think we've covered a lot of what this is. But our Water segment growth, we're going to take a look at the 3- to 5-year period where we're going to get up to about half of our total water recurring customers. Sky Ranch in total will be about 5,000 total connections. So we look to see that come into about that 2,500 units.

Land Development side, we should get to -- we're right around that 18% of complete. So we'll probably get closer to 30%. So we're looking at doubling of that. And then once we've got that commercial in play, you'll see that accelerate through the longer term. So build-out of Sky Ranch is in that 7- to 10-year window. But in the short-term, we look at kind of getting up to about that 30% and then having a faster acceleration once we're layering into the commercial component.

And then single-family rental, we see up to about 100 units in this short-term outlook. Longer term, this kind of gives you a perspective of the total build-out. And then when you take a look at our build-out potential, really monetizing our net revenues from land development get close to $700 million.

And the recurring revenue is going to be around that $15 million, $16 million. And that's really a function of kind of the -- you take a look at a $250 million market cap and really what we've got in production of our assets it really is the story for us. We've got a tremendous asset here. We're very aggressive about making sure that we're building this thing out and monetizing it and making sure we can do that as quickly and as profitably as we can.

So one of the things we're going to do is give you kind of a video tour here. And really, this will kind of give you a view. I'll probably try and stop and kind of highlight a couple of the areas on there. So if we want to get that started, this will be an aerial representation. As you can see, this is our first phase. And so this was the more mature side of the community. It really kind of gives you -- stop it right here.

It gives you kind of a profile of where we're at relative to the metropolitan area and the growth of the metropolitan area. You see the mountains there in the background, and that's what we get to wake up to every day, which is wonderful. But the other key aspect here is if you see kind of at the top of the development there, hard to illustrate, I don't know if you can see the cursor where our wastewater treatment plant is right there.

And really, that's a unique asset in and of itself because 100% of the water that comes from our community is treated and reused. And so you don't see any stream that's discharged to that. We bring that back. We reuse 100% of that water supply either through irrigating our open space, which you can see our beautiful open space here for our community or taking that back and selling that to our individual customers.

So if you continue on, on that, you'll see panoramic view of kind of the continued growth. We'll stop it right here. And this kind of gives you a perspective of really the deliveries of the phases of the land development segment. Right to the left there, where the cursor is, that was Phase 2A, and that delivered in 2023. And then to that, the next slide, that's 2B. And then what we delivered in 2026 was 2C. You can see the roads, finished lots. You can see some vertical homes just starting in that from one of our new builders. I think those are Taylor Morrison lots in there.

And then you can kind of see 2D under construction where we're really starting -- we're finishing up the wet utilities there, and we'll be moving into roads, curbs and gutters on that. Continuing on, we'll see kind of that -- all the land you can see that's farmed there, that continues to be our portfolio. So that's the continued growth of the project. And so that will be our build-out, plenty of inventory of land that we have on the residential side.

So that will continue to grow on the residential side. And then you can kind of get a perspective of how our infrastructure is there. We've got most of the main roadways developed. That's the Boulevard area. Stop where the cursor is, that's kind of the oil and gas and that we bring all our water, our treated water back to that reservoir there at the top, and that maintains the flow for our irrigation system.

And those are kind of some of our oil and gas wells that we have in the site. So Colorado has a rich history of coexisting with oil and gas and residential and commercial development. We can see kind of rolling into Phase 2E there right next to 2E rolling right there, roll right into there. That's our water tank, but that Phase 2E will be between our water tank and the school.

That gives you kind of a sense of -- there's our primary school and then the construction of the high school. And it kind of shows you we've got most of the road network developed for that. We'll have a little bit of extension on the road up through the high school and continuation of one of the Boulevards. And so this kind of gives you a good feel for that campus is right in the middle of where we're looking to go, right in the middle of all of Sky Ranch.

There you go. So really accessible for all the students to be able to walk there. This is kind of a view of the commercial area, right? So we're really flying into that 150 acres, which is adjacent to the Interstate. It gives you a strong profile of what the transportation access is and the value of that transportation access. Up in the top of that is the airport. So it kind of gives you a feel for how close we are to the airport. We're 4 miles directly south of the airport.

And then kind of where that Interchange is going to go, it's going to go straight along the alignment of the Boulevard there, where the -- yeah, so where the existing Interchange is, we'll keep that up and operating. We'll build the other Interchange and then we'll ultimately remove the existing Interchange, but it gives you kind of a flavor for really all of the physical features of the Sky Ranch development.

So with that, what I'm going to do is kind of turn it over and see if there's any questions. We'll open up everybody's mic. And I guess if you have a question, just shout it out. We can't mute them. Yeah, you have to unmute. So the technology here is just unmute your mic and then shout it out and we'll drill down on some of the details or raise a hand and you can type it in the comment section.

[Operator Instructions] But yeah, this concludes obviously, our slides. So we'd like to provide this opportunity to anybody who has questions. [Operator Instructions] I see that you're on mute. Are you able to talk just so we know everything is working.

Greg, can you unmute and see if your mic works [indiscernible].

I'm testing this out. Does it work?

There you go. Okay. At least I know we're working.

Yeah. Anyway, this is Greg Vennett. I'm one of your long-time shareholders. I just wanted to test it to see if people are having problems with the technology. I came in late in the call, so I'll have to relisten to the replay in order to call you back and ask questions.

One quick question. Has -- and maybe you said this in the beginning, but with -- has housing sales in your areas slowed down due to affordability or -- I guess my sense is the builders are still building. So if you could answer that, that would be great.

That's a good question because really, you have two variables in the housing industry. And I think Denver is probably on the high side of unaffordability. When you take a look at most housing markets and Denver is in probably the top 10 cities of housing markets, people generally take a look at Denver is pretty high in affordability.

And that has been a challenge for us. I would say that's also one of our strengths because we have that entry-level price point and of all of the markets that the builders are looking to serve, when you have an interest rate-sensitive market and when you're looking to buy down interest rates on higher mortgages, the incentive packages that they can offer really have more impact on an entry-level house than they do at kind of a move-up house.

And so I would say the resiliency of our builders and our project is strengthened by the fact that we are in that affordable market segment. And that's not saying much when you have to say affordability is anything less than $500,000. That's still a high, high number for an entry-level house, but we are one of -- probably in that 4% of homes that are delivered on an annual basis are in that affordable price segment.

So that's why I think we're performing slightly better than maybe some of the other master planned communities and then also our business model being able to time that out. So yes, housing has some headwinds. We've probably managed that a little bit better just because of how we can deliver lots on an incremental basis.

I also want to point out sorry, Greg.

No, sorry, go ahead and point it out.

[Operator Instructions]

On acquisitions and land acquisitions and where you are on those? And any progress throughout the quarter? I know it's hard to time when you're going to have the ability to acquire land and at what price you're willing to pay for it. And then additionally, on the commercial side, I know you have a big hockey stick in '28, but is there anything that's materialized with any commercial players throughout the last couple of quarters?

[ Craig Weinert, ringing an E ]. Good questions. As you take a look at these acquisitions, as we have commented, we really do have our nets out, and we're saving a bit of liquidity just for that. And I'd love to be very detailed about that, but I would say our conversations continue to strengthen with our target areas of acquisitions. It's an interesting profile. If you had the nation as potential acquisitions, your sandbox is much, much bigger.

Our sandbox is very small and very targeted. And that's on purpose because we think that that's where we can provide the best leverage on that. And yes, we would like to be as aggressive. We do have the ability to probably pay more for land than any other developer just because of our ability to bring value to that land from our water portfolio, but we also like to make sure that we're paying for that on land acquisitions that we find to be appropriate for the timing of development.

And so we're balancing that out to give you that flavor for it. And I'd say I'm more optimistic this year than I was last year, but I say that every year. So we hope that we can see some movement in that area. To your second question in terms of the commercial, we are in the market. We do have listings with the commercial folks that really represent 70%, 80% of the transactions that are in the Denver area.

We are seeing interest from a lot of those. Our interest in the commercial is to go directly to the end user. There are a lot of folks that like to get between us and the end user. And really, those aren't as interesting to us as really going strictly to the end user on that just because of value propositions. And our balance sheet is strong, but we want to make sure that we maintain some flexibility to participate in some of that on the commercial side.

So whether we sell the land, whether we partner and participate in some of those horizontal improvements are the types of structures that we're looking at for some of those commercial transactions. Understanding, Craig, that those are going to take some lead times. And so there may be transactions that we're pursuing that would be in 2026, 2027 that would really start to monetize and show that scale of revenue growth in 2028.

I would just add to that, though, the growth you're seeing that we're projecting in 2028 is mostly a factor of being able to open up Phase 3 with the interchange and less to do necessarily with some of the timing. So we still have a strong portfolio of commercial lots that aren't really showing up in the projections yet.

It's interesting because the near-term weakness that you're seeing from some of the homebuilders may be a long-term benefit for you guys in that the land may not be as expensive as it was when things were so hot.

I think that's true. And as much as I'd like to say, we're very disciplined in what we pay. And it's also a function of having people -- all of the folks that we talk to usually come back with -- and it's an appropriate retort to a land acquisition is, look, it's going to be worth more tomorrow than it is today. And when you get cycles and a lot of these folks have seen cycles in the past and some of these cycles are short-lived in months.

Some of these can be long-lived in terms of several years. And so if they're close to looking at selling and they see a cycle, regardless of price, I think that that's a psychological determination for is to say, listen, it's time, we need to move on. And that's really, I think, what we're seeing more than a function of, oh, we can capitalize on a weak market and benefit there. I want to be disciplined, but I also want to make sure that this is a transaction that works for both them and us. And sometimes that's more timing than it is [ amount ].

Mark, let me ask you a question. This is Greg Vennett again. For land acquisitions, you're basically -- it's dirt. And are you looking at acquisitions where they don't have any access to water and you're the value creator or would you guys consider buying dirt that already has access to water?

I would say we would probably wait those acquisitions where we can bring added value for water. I feel very confident about our land development segment and really building that value in the land development.

So if we were, for example, buying a piece of property that we're in an incorporated area where we were getting water service -- water and wastewater service from another provider, we would still do well in that scenario, but it wouldn't give us the vertical integration of leverage on accelerating not only that segment and monetizing investments in land, but also monetizing investments in water.

Not to say that we wouldn't consider that, but I think that there's plenty of opportunity for us to be more aggressive on acquisitions where we can bring water to the table.

So the person who owns that dirt now, are you the only logical provider of water or can they get water from somebody else? Is there competition? Are you the only provider? Is that your moat?

I would say we're the best provider, but we're not the only, right? I mean they come out -- they can go out and find water themselves and do the heavy lift of building a water utility. That's probably not any of the land interest that we're seeing. It isn't a picnic. And it's -- as you've seen through what we've done over the last 30 years, it's a difficult and expensive proposition to build your own utility.

But there's competition from the neighboring city, City of Aurora. That's probably our only competition. So if they don't look to value our providing water service to them, they would have to consider an annexation. And that carries with it its own risks and its own costs, which then weigh into kind of the cost of land. And so we can deliver lots much cheaper in unincorporated Arapahoe County than any developer could deliver in the City of Aurora just because of our structure.

And I think that continues to emphasize the price of a home and the affordability of that home. So when other people look at it, they have to look at it through the full development cycle and sort of say, am I competing for developing $800,000 homes or am I competing for developing $400,000 homes, which is what we're looking at. And so we have a competitive advantage to doing that, which then translates into being the best choice.

So a new home in the Aurora area is $300,000 or $200,000 more than Sky Ranch. Is that the way?

It will vary. But I would -- some of the newer projects that are getting started in Aurora are getting started at that much, much higher price point. Some of the homes that are directly adjacent to us might only be $60,000 or $70,000 more.

So you'll run that -- you'll run a gamut on that. But we certainly have the better location. We have better cost basis. We have better utility rates. Overall structure is much cheaper and much more efficient in unincorporated than it is in the incorporated area.

The future for commercial development, along I-70 where you're going to build the interchange, is there other commercial development that you see in the future that could be competition for you or are you the bull's eye? Do you have the bull's eye -- commercial property?

So interchanges benefit all land in the area, and we have kind of a strong footprint in there, but there are other lands that are adjacent to us that we don't own that are looking to develop, and they will have to pay their pro rata share of the cost of that interchange, too. We might be advancing that.

But ultimately, as they come online, they'll have to reimburse us for our covering that cost upfront. And so that was our structure is that we wanted to make sure our timing was our timing and that we would be advantaged in there and then somebody else coming in there would have that cost component as well.

That would -- they would have that off-site investment, which would accelerate some of the reimbursable repayments to us as that competition came online. So we wanted to equalize that to say we weren't carrying them. But at the end of the day, as they come online, I think we have the competitive advantage.

Mark, can you hear me? [ It's Matt Reiner at Aranda ]. A question on Slide 34, the profitability trend slide. When I look at 2026, I mean, it seems like every category, the revenue is up a little bit, but yet the earnings forecast is down a little bit.

And I'm just trying to -- is it the margin differences between the different segments? Is it -- I mean, it seems like you're buying back some shares. So I don't think it's a share count thing. So just curious as to what I'm kind of missing there.

Yeah. And so the -- you're right. What we're sort of looking at is the 2025 had a high profitability because of kind of the oil and gas, and that's almost 100% margin. And even though we're increasing the revenues in both land development and water, it's not -- we're not likely to see the same earnings per share bump that we saw in 2025 because of that profitability of the oil and gas royalties. That's the real differentiator.

I think the comparison -- yeah, the comparison from '24 to '26 will be pretty analogous in it. '25, we were delighted that we exceeded our forecast because you never want to put a forecast out there and not meet it on the earnings per share. And so we were excited to do that. And that really came through the diversity of the revenue streams of the company.

[Operator Instructions] Okay. Well, if we have no other questions here, I know we'll post the presentation for those of you that are going to hear this on a rebroadcast or listen to it again and inspire a question. Certainly don't hesitate to give me a call and we can drill down on any of the questions. Again, really want to emphasize the value of our leadership team, our management team and really all the employees in the company.

We have a great group of professionals that bring their A game each and every day and allow us to really fine-tune the delivery of this. The businesses that we're in, all three of these businesses are about as capital intensive as you can be in a business segment. And you're investing into hard assets, you're investing into inflation-resistant assets that really continue to monetize.

And sometimes you have a little bit of excess capacity in a water or sewer system that then you can help monetize that through delivery to your industrial customers. Some of those investments that we have in big infrastructure, whether that's going to be Boulevards or whether it's going to be land horizontal developments of grading or even an Interchange, those do come back to us.

And so we're very cautious about how we make sure that we can finance those and carry those forward so that we can really deliver these lots on an on-demand basis. And while that development cycle can take a year from the time you break ground to the time you get a building permit, that's pretty quick in this world of land development, and we're pleased to be able to kind of match those inventory deliveries with our homebuilder customers.

So the resiliencies and really the timing have really tested and really shined in kind of what -- when you get these markets that have headwinds, can you not only deliver -- continue to deliver your product, but also match those deliveries to what your customers are looking for. So we see a lot of that performance this year, and we're thrilled to continue to advance on monetizing each of these segments. So with that, I'm going to close out and wish you all happy holidays as we close out the year.

Okay. For all of those that are online, welcome. We did spend the last couple of hours just going through and touring each aspect of what we're doing out here. And I will say, and it's kind of some of the things -- so for those of you that are on the tour, I'm going to be a little bit repetitive to dial some of that back. But one of the interesting things that we have at this particular time is that you can see kind of each phase of how we do, what we do underproduction, right? So we've got raw land, which you all know what raw land looks like. But then we've got Phase 2D, which is just, I'd say, 40% done. So we've done the earthwork, and what you can see now is how we develop the water, the sewer, the storm systems. And so we're in the wet utility side.

So we're in that -- we carve these lot deliveries into three particular subcategories, excavation work, utility work and then the roads, curbs and gutters. So you can see the utility work going on for 230, 240 houses worth of it. It looks like a mess, right? It's a hot mess of a bunch of excavators and a bunch of piles of dirt and a bunch of bees and ants work on that side of it. And then you can see kind of where we're at on finishing a particular phase. So we've got 2C that is delivering 230 lots this month. So we're in the -- we're on freshly paved streets, and we've got the last two streets that are going to get paved next week, and we'll punch that out, and that's a delivery of 2C.

And you can kind of get a feel for some of the seasonality of the business because of, we can't do that type of work in the winter because it's very temperature sensitive. What we can do in the winter is what we are doing, which is the utility work, right? We can dig ground. They -- our contractors have hardy folks that they'll work. I think there is a temperature threshold, but it's below where we want to be out, but we got that work going on.

And then you can see new homes going on, so the Phase 2b, which we delivered last August of '24, and our homebuilders are vertical there. I'd say we probably got about 120 homes up. And most of the homes up, I'd say, of the homes that are vertical, 80% to 90% are sold. We've got some that are sold even before they go vertical.

So it depends on the style of home and then the price points in there. We did some tour of the water facilities. One of the things that we did tour was kind of where Lowry was and the development on Lowry, which is fast encroaching. And it doesn't show as well when we show an image of it, how much the Denver area has grown to it. But we've got development, there's a 5-mile line of development that's our western edge, and what is the eastern edge of Denver. Aurora goes right up to that, and when you see it -- when you see, oh, my god, there's the house and there's is Lowry, which is our service area.

And a new project going on, which is a half section, which was the last privately owned piece of property that abutted Lowry on the southern edge, big project there that's beautiful people stop. They're going to be $2 million, $2.5 million homes on that property. So you kind of get a feel for the market dynamic of kind of what we're doing there.

And I open it up to the folks that were on the tour. Any questions, the observations, what struck you about what you saw that you didn't know about, anything in any of your observations?

Not to put you on the spot. We have mouthfuls, so we're also having lunch here, so -- I couldn't have timed it worse.

What struck me is how much control vertical integration Mark actually have to his head. I mean this is not a company that's waiting for bureaucracy and local government and other companies to do something. It's a company that has an incredibly powerful undervalued asset with an enormous amount of power to develop it at the right pace, right, with other people's money, most.

Well, and to that point, one of the things, and I think this will really shine, and what you see in variable markets, right? So we do our own stuff. Like, I don't rely on -- none of us rely on a ton of consultants whether that's our operator team, whether that's our engineering team, whether that's our IT team, all of that stuff we have in-house. And so when we go for the next phase of the project, it's us directly. It's us directly to the planning commission. It's us directly to the county commissioners.

They know us. We've made commitments to them. We have come through with all of our promises and validated everything that we're doing with them. And so from time-to-time, things get tacky, right? Housing is cyclical, land development is cyclical, water supply is cyclical. You go through dry periods, you go through wet periods. And you kind of need to make sure that you understand each component of that and evaluate the risks in each of those components. One of the risks that we came across this year that was unanticipated was county updated its building regulations, right?

That should be a normal process, and it wasn't, right? I mean it was [ laboratory ] for the homebuilders who are building these homes, the exact same home in Aurora, which is right next to us. But our jurisdiction being the county, the county adopted an energy efficiency regulation that was passed by the state legislature last year. They were an early adopter. I think they regret it, but all the homebuilders had tweaked their electrical and their building plans just a little bit to conform with that, and it took them what should have taken them 3 weeks, took them 6 months, and they got -- the county got feedback.

They wanted to know, well Mark, how's it going out there? And I'm like, I am glad you asked. Here's the e-mails I get. And so sharing the e-mails with them, they're like, okay, fine, let's tweak this process, let's tweak that process. Let's make this more efficient here. Let's parallel track these things, but it was painful. And it was painful for our builders. Our builders were able to lean on us. We were able to lean on our jurisdiction.

It kind of delayed a little bit of the building permits for filing 5. I don't think it delayed any of the building permits for filing 6 because we're just finishing those lots, and their delay in 5 allows them to roll all those permits over in 6. And so they'll roll them over in filing 2C, they'll roll them over into 2D. So those will be pretty efficient in that.

I know I highlighted this in our earnings call, but we have some -- this particular phase, and I will say it's only this particular phase is weighted to the fourth quarter. And the reason it's weighted to the fourth quarter, I tried to describe this, but I don't think I was able to get a good picture of that to all the people on an earnings call. But let me do it by virtue, I think you have this but for illustration purposes, if you look at, this is -- this shows you 2 A, B, C and D, and the coloring is the coloring of the builders.

And as you can see in this particular 2C, which is what we're developing right now, we have that construction in progress, and we recognize revenue on a -- as we build the infrastructure for 3 of our 4 builders. I got a lot delivery agreements with it before, our one finished lot delivery builder is D.R. Horton. They're the big dog. They pay us a premium on the lot to buy it at the end. And in this particular filing, they have weighted number of lots.

They typically have about 40, 45 lots in each phase. In this particular phase, they have 70 lots. So we have more in -- construction in progress in this fiscal year than we do normally just because of the -- that one builder in this one phase. So you'll see a lot of that catch-up in fourth quarter that when we show our guidance out there at -- what we had at that $30 million and show about half of that now. We really are anticipating to get half of that catch up at that Q4 just because of the weighted delivery of D.R. Horton.

We have a question online. Shout up.

Geoff? You're on mute.

Am I good now?

Yes.

Mark, how are you?

I'm great. We've got you in your car.

Yes, I'm in Price, Utah. I had another meeting that took priority over your tour. Sorry about that.

I take no offense.

No offense. I have a couple of questions, and I'm going to be referring to the presentation. So I hope you remember it. On Page 23, Phase 2b, there were 211 homes, in the phase 115 have been sold. So 96 have been unsold. What was the selling rate during April, May, June? How many houses per month?

So builders are on average about a home a week. So we have four builders in there, you're probably looking at about 16 to 18 a month.

So 96 unsold would be approximately 6 months...

Yes, of inventory.

Okay. So it may slow down the progress on 2C a bit, but probably not too much. Is that fair?

Not too much. We've got one new builder in six, and I've got two new builders in seven. And so whatever that slowdown is, what you're going to see is you're going to see homes being built in three phases all at once. So we'll see -- I mean it's by builder. It's not necessarily -- that's the market absorption. That's the market absorption for a builder and that they do their price adjustments and their incentives based on their velocity. So when you have four builders versus seven builders, then you still might make that up.

Okay. Next question, Page 25. I think the very first time you put -- tried to put a dollar value on the commercial development $423 million. I don't remember ever having seen a number attached to that. And my question really is, how did you get to $423 million?

I did 2x the residential. [indiscernible].

So this is very much back of the inflow, whatever.

Yes. I think it's pretty conservative. And really, we did that metric based on a number of single-family equivalents in the commercial compared to the residential. And then just said, we think we'll get somewhere between 2 and 3.5x our value of the commercial lot as compared to the residential lot.

Okay. The only thing you and I can guarantee is it's not going to be exactly $423 million. What kind of range would you put on it? What kind of -- kind of ceiling?

Yes, I put it at the low end, Geoff. So I think we have pedal in that commercial. And maybe we give away some of it to incentivize some of the starting of the commercial, if I can get Kroger or somebody out there early, I'd certainly try to do. I've tried to incentivize that. They laughed at me when I did that. And so I'm not so sure that there's any real way of doing that other than executing on your residential. They're not interested in the cost of the land. They're interested in their customers. What kind of sales volume they want based on the number of rooftops.

Right. Any new guess as to when -- the timing of when that might start?

We talked a little bit about that on the tour and it's a function of two things occurring, and I think they're both kind of going to converge. One is going to be redevelopment of the interchange because it needs a bigger interchange for that commercial traffic, all the big trucks and that sort of stuff. And then getting past that threshold of about 1,500 single-family lots, and so we're right about at 1,000. And so over the next 2 years, I think both those things converge. So we're looking at having at least what they're telling us today to be the finish line in that 2027 time frame.

Okay. Is 1 acre foot really still point -- well, 2.5 SFEs.

We're getting closer to 4 with it now. And we talked about that a little bit. So what the metrics are and these are a function of a couple of things, but one is our lot sizes are smaller, and therefore, our outside irrigation is much, much smaller. And we're xeriscaping a lot of that. And so the rule of thumb 30 years ago was 0.75 an acre foot per SFE, then it worked its way down to 0.5 an acre foot, then it worked its way down to 0.4, which was the 2.5. And we've actually done our numbers on the, call it, 700, 800 customers that we have, and it's closer to 0.27 now. And so that's continuing to do two things: one, conserve water, make sure that we reuse our water supplies and then give us more connections per acre foot.

Yes. Okay. I'm trying to connect it back to what you said on Page 18 of the presentation. You said that the water rights had a book value of $31.7 million. And what would you estimate the current market value of those water rights to be?

At 60,000 connections, at the 40,000, that's $2.5 billion, and it costs me $1 billion to build that system and build-out. So I've got a $1.5 billion margin over some period of time.

You can get it done by next week?

Well, we're working on it, we will tell.

That's the tap fees.

Tap fees, that's right. And then when you take a look at, we're generating -- we're seeing a bit of growth in that $1,500 per connection. I'd say that's probably closer to between $1,600 and $1,700. 60,000 connections, that's over $100 million a year, year-over-year revenue.

And that revenue has a market value of about 6x. Would that be right?

At a 50% margin, we're probably a little stronger than that. I'd say it's probably 12.

I mean American Water sells at like 6x revenue, something like that.

Okay. I think York or some of the other ones are a little bit stronger than that, but American Water is a good comp.

Okay. I mean the tap fees is a onetime. The revenue is recurring and has a free cash flow yield on it. So that's why I was going there. Those are the three questions I had. I'm just going to make a comment. And this is, you can take it for what it's worth. I hate your share repurchases because you're competing with me, and I am desperately trying to buy and accumulate and hold. And I don't like the competition.

Yes. I absolutely cannot argue with you on that. I can also say there always seems to be shares available. And I'm never leading the market. I'm usually below the market. So I'm sweeping up. And so I must be just $0.01 more than you.

You are, in fact, about $0.01 more than me, and I wish you'd get out of the way, right? I've been around for a long time, and you should like having me as a shareholder, and you're doing everything you can to prevent me buying more.

You know what? I can tell you, I'm as long-term shareholder as you are buying those shares.

I know you are, but you're not actively buying for your own account in the market.

True.

No, I respect that, and that's a good argument against share buybacks. I can -- the other side of it is if we're not deploying that capital, and that's sitting on my balance sheet at 4.5% on government treasuries, and I'm not putting that to use through buying land and other things that it's not an awful thing to reduce that denominator. So we try and balance that out.

Yes, if you were to dividend it out, you wouldn't be competing with me.

I got it. I got it.

If you're out there deploying it by buying shares, you're competing with me. And as I said, take it for what it's worth, but I hate the competition.

Got it.

Thanks, Mark. Thank you.

Thank you, because I've got three Board members here that would love that feedback -- the exact opposite position.

I just gave my opinion.

You got it. Thank you.

Geoff, Dan Kozlowski here. Granted the share count hasn't decreased in an absolute sense in a huge way, but I don't understand your logic. I hear what you're saying, it's cute and everything. But if someone is buying back stock, someone buys 10% of the company back, you own 10% more of the company. You're getting the value over time, in theory, you're getting the value of -- you own more of the company by not buying shares. So it doesn't have any effect on your net worth. I mean it actually improves your ownership of peer. If tomorrow, Mark bought 50% of the company back, you're holding your total percentage of Pure Cycle doubles. So I don't get what you're talking about. Yes, I think you're one of the smart guys, I know, but I say that I don't see what you're talking about.

Okay. So I own 10% of the company, and you buy back 10%. My 10% has just gone to 10.9%, so 11.1%, right?

Exactly.

If I had bought that 10%, I'd now be at 20%, not 11.1%.

Well, then, yes. Right, but you're not buying it. I mean, clearly, there's no massive whale in the market buying the stock every day, and we wouldn't be at $10.

But you've prevented me from buying that...

It doesn't fit reality. I mean if you want to buy...

You have prevented me from buying that 10%.

If you want to buy whole company at $0.50 because it trades there, well, yes, sure. I mean I'm going to buy it before you do, so it's like it's just the market. And I don't really understand the logic of the company, not looking out for all of its shareholders because one shareholder wants to buy it lower. I don't -- it doesn't make sense to me. But again, we can agree to disagree. I just -- it doesn't -- I've never heard this discussion in any -- in my 25 years of investing at other companies.

So I'm just -- that's just my little pushback from -- that being a reason for us not to buy or buy for competition from a very smart long-term shareholder who wants to buy more. Yes, sure, if it gets down, then you get an opportunity to buy a little more. But that's true of everybody in the market, too. And the market sets the price and the market is at $10.25 today and that kind of thing. So to Mark's point, I don't think we're pushing the stock at all. I mean he will opportunistically pick some stuff off and provide some stabilization, and we think we almost all of us in this room agree that the shares are potentially materially undervalued, so whether you buy it or we buy it or some new person buys it, I mean, I think they're getting that hell of a deal here at $10.12 and we keep it from going to $10.05 and I don't think that should get Mark's consideration lesson.

We agree to disagree.

Okay. Fair enough, fair enough. Love you, though.

Well, this is -- Mark, this was not going to be my main point, but to address the issue, and I've told this to Mark before. I think the dividend for the company would be a good idea, not because it's -- you want to pay a big dividend, but because plenty of institutions can't even buy stock, they don't pay a dividend. So simply the fact...

That's the reason to pay a dividend. And reason to pay a $0.01 dividend, not that we'll do it, but I think immediately [indiscernible] but we've talked...

No, we're going to do it.

We talked -- it will probably be in August, but I just don't know when August. So we've talked about it. Well, yes, I mean, if you just got on the Board as a dividend payer, it does open up the investable universe of dividend paying, ETFs, dividend paying.

Well, it takes the gloves off people, just didn't buy it -- because they don't buy a dividend only stock, but my observation through today was, I'm not hearing Mark throwing out a number of $500 million corporate. I did a little bit of math in my head when asking about the cost of lots earlier versus what they're selling for. And I start coming up with hundreds of millions and billions of dollars on it, a $220 million market cap stock, and it's like something -- there's a disconnect somewhere, and I'm trying to figure out, do you actually -- and I don't know if you can say it or not, but is it -- do you actually have what you believe the real book value is not -- and book value is the wrong word but the actual market value of what -- versus book value in terms of just the assets of the company alone.

Absolutely. I mean -- and you have 10 different ways to verify that in the market. If you take a look at it from the lot price, I know what that lot price is because I sell it every day. To Geoff's question about how do you value the commercial as compared to the residential, we were very conservative to say, maybe, we only get twice that value, but I think we get 3, 3.5x that value on that.

But maybe we only get -- even if we get the same value that we get out of our residential lots for our commercial, we're still looking at hundreds of millions of dollars in our commercial portfolio. And then when you look at us selling taps, that's the market value of the taps and we show that tap how our taps are priced compared to surrounding jurisdictions.

And when you take a look at it, our taps are 40,000. You get down to Park or Castle Rock they're 60,000. So we got pedal in that. And so it becomes a time element. So the gap there is how does the market present value that future opportunity? What's the absorption on it? And one of the things that we tried to do for all of you who've been following us for so long and know this, but we tried to just impute that value through the build-out of what is in with our control, build-out of Sky Ranch alone, and that's $600 million of net cash to the company.

Is that -- that's not a 20-year horizon, that's not a 15-year horizon. That's probably a 7- to 10-year horizon. And so that's a much easier way to present value. That -- and the market is still young. Market does what the market does. I mean my analysis are you guys are dying breeds. We're nobody. This is the 30 money managers left in the U.S. and everything else trades on a program trade, some sort of metric trade or something else, but they are very -- when I used to go do non-deal road shows, I'd have 100 meetings lined up. Now you do a non-deal road show, you get 15. So the amount of money that's either managed index-wise, I mean, I think one of our largest shareholders doesn't even know they own the shares. They're index. They're a Russell Index.

To your point, Mark, the industry, the market is changing today. The dynamics of capital being allocated in the public markets is changing. More and more money every day is being passively grown. I think we all agree in this room that the stock price of Pure Cycle today does not represent the intrinsic value of the company. I think a large portion of that has to do with the fact that the company does not index well. So what is potentially in the control for management to get BlackRock to own 12%, to have Vanguard, to have others come in as indexers to own a majority of the shares to drive it closer to that fair value because today, and it's not just unique to Pure Cycle, any company, especially small cap, that does not index well, there is going to be a huge gap between the intrinsic value.

And we've been -- I've been here to several investor conferences through the years and seen the development here. And you can see in the financials, the value being produced in return, at least on the balance sheet year in and year out. Yet, the stock price doesn't move. It's not getting reflected. And at some point, maybe your company is not appropriate to be in the public market.

I don't disagree. I mean when you take a look at it and I argue this all the time. When you take a look at the balance sheet and having what's legacy assets that were acquired 30 years ago at cost at one one-hundredth of their market value and then having a very liquid, strong no-debt balance sheet where we have a cash position of $20 million and a note receivable of $40 million. If we had a $60 million cash position, might look different to somebody. Somebody that would screen this, would screen this a little bit differently.

But in fact, that's what we have. We have $60 million of cash on the balance sheet, $40 million of it is invested at a 6.5% interest rate. And it's like a government bond because that's what it is. It's a government receivable. But we don't get -- people don't see that, or they don't process that the same way as if you had cash in on T bills that might give you 4%. And so there's a little bit of that timing element on how we receive some of those monies, and the timing of some of this stuff is going to be back-ended in terms of that value as we get some of those commercial lot values.

Those are all going to start to monetize. And so the point is, us 5 years ago -- where we are today compared to where we were 5 years ago, we were making $3 million a year 5 years ago. We're making $30 million a year, 10x, what's our share price? Exactly the same. Either, I'm a great salesman, 5 years ago and I suck at it today or the market just doesn't get it.

I think key -- the key are those half a dozen slides about projections to 2028. And if you've done those slides 5 years ago, then made it -- made the numbers, then everybody would be starting in line to believe you when you come up with the next 5 years' projections. But having done those projections and Sky will make those numbers and beat them by 2028. Then this credibility for the next round of slides and they're going to be humongous numbers with a track record, so we know how to do this.

I think that will help. I mean smart folks just say, keep your head down, do what you're doing, you're doing it right, you're seeing -- the playing field is before you, you're executing correctly, don't make any mistakes. And it will solve itself. I'm still waiting for it to show me a little better. I'm doing what I'm supposed to be doing. I want you all and the market to do what they're supposed to be doing. And it will, but it's not lost on us that it's maddening that is where we find ourselves.

Yes. I mean, part of it is just absolute market cap. And that's been chicken and egg, right? We're at where we are, just being $250 million. Some of this indexing starts at $500 million. Again, that's the estimate. So you're sort of dead in the water, not dead in the water, but you sort of we are until you get to $500 million. So stock would double.

It had momentum into '28 or whatever. Then suddenly the passive comes in, all this loose supply gets soaked up. A lot of the auto buyers are in there buying it, and then it could go hard the other way. But you just -- some of -- a lot of these ETFs have minimum market caps of $500 million. So it starts there, and we're still a little bit of distance from that. So yes, how do you get it. How do you double the stock, so it doubles three more times for you. Hard question, chicken and egg. So I have a follow-up question on one of Geoff's interesting questions about, it was the water per SFE math. So when you say we've gone from 0.4 to 0.27, you and I've talked about this, but I was -- maybe I'll put it out here. The old math was, okay, we've got x amount of water. We can do 60,000 homes at 0.4. So if you go to 0.27, and I know margin safety is important and whatnot, but how outlandish is it to say, well, we just going to 0.2 down the road, does that mean you could do 120,000 future taps, or is it not that simple?

No, it is that simple.

Okay. So yes, so the math and -- Mark has kept it pretty conservative, I think, in the slide decks over the years, saying 60,000. Well, if that number was accurate, then now it's at 0.4, you go to 0.3, that bumped that number into the 75,000, 78,000, 80,000 homes and then you do a 40,000 per tap, and it could be higher than that as inflation down the road. It just becomes a time value of money thing. But the fact -- in that, let's call it story, but in that projection of possibility, then the value is going up a lot just because we can tap more homes or does the tap fee come down proportionately as somewhat as...

No, because really the tap fee is a scarcity value commodity. And so that's a market-based principle because somebody can either choose to get water service from us or not. Once you're connected to our system, that's not market-based, right? That's a little more -- that $1,500 per connection per year does not have an infinite opportunity there. We have costs, and we have sort of -- it's not regulated, but there is oversight in there to make sure that our costs and our cost of selling water are in line with others in the metropolitan area.

And so we're going to -- you're not going to see the revenue per customer variance like you see that in the tap fee. You can see tap fees for $20,000, and you could see tap fees for $60,000, and that just depends on somebody's portfolio, how much water they have, how much land they have and what they want to do with that portfolio. But that monthly rate is a little bit more in line, it will continue to grow because that's still the best bargain that you're ever going to have to get thousands of gallons on demand of safe, reliable, clean water.

That system is still underpriced, and we'll let that environment continue to grow. It probably grows at inflation. But there's likely things that do change that metric to force conservation. And that force conservation, what's that do for you, it makes your portfolio go farther. So maybe we're not serving 60,000 connections, we're serving 100,000 connections. We've got this perpetual loop because what we're doing is we're taking water out, we're using it, and if I sell -- we know that because of wintertime demands that there's no outdoor irrigation.

If you have that year round, that customer is going to use about 0.2, 0.22 acre feet of water a year. That's our full reuse model. And so our water supplies come in, they go in, we treat it. We don't discharge it. We bring it back. We store it back into our system and then we reuse it. And so you sort of look at that model as they've been doing it on the space station for a while. Get off my soapbox on that and get down to some color and not complaining.

What about -- it is always -- you talked about here and there, but data center opportunities on the commercial side, I was just back in the west, and I went through a community and there was a debate whether to have data centers or not, it's in the upper midwest where there's an infinite amount of water. And I mean, the amount of -- I mean, the offers on the table by whomever was behind this particular project, I don't know if it's Amazon, Microsoft or somebody else. I mean there is build-out. We do have excess water, had -- has anyone approached you, but if you -- have you been able to study that? And is there an opportunity to do that anywhere around us?

I'd would say it's big money.

It's actually shockingly big money if you can get roll at it.

Right. That's not my sandbox.

Yes. No, I know. Well water is. Water is crazy thing, is -- water is such a huge component of the equation even more than electricity, I know electricity is big. I don't know if anyone has any insight here...

And honestly, the waters...

But the truth is that water is the scarce. And it's the rarer, and that's what we have [indiscernible] and I would extend a little chat with Mark about [indiscernible] on the way here. It's the opposite psychology of the way the company is currently growing. In other words, the way the company is growing, which is really smart and really efficient, is you've got in the center and prime area of your enormous monetizable land. You're developing that land contiguously, I mean inside out. And that is the best business model.

It's the best way to make money. It's the most efficient way to make money. Data centers by contrast would be outside it. In other words, you're not going to put a data center next to Sky Ranch Academy. Okay, because that wouldn't be very popular. But you've got an enormous amount of land where a data center could be tucked away, right, access to unlimited water and unlimited power that would also be doing some synergistically good things. Mark...

That looked to be in fact a landlord area or that was just Lowry Ranch. Again, we have the water. So we have -- we'd be the one, the straw that would stir that drink.

Yes. Yes. And the point being that data center isn't just a very good tenant paying you as you have noticed. I mean I would say Mark that this week $52 million a year rental for one of our data center in the [indiscernible] they would not only be a good tenant, so they'd be bringing jobs to the Sky Range community and to Denver, which Denver would be very appreciative about. And you're good partners with Denver already. I mean It's a good synergistic.

Yes. And I do think that we set up well for that with particularly the Lowry property because it's a big contiguous parcel of property. The state landlord can cut a land deal where they could be part of that action, and they can -- we can develop the water, and they don't have much on the sewer side, but they have heavy power at the ranch. You've got major transmission lines that flow through there. They've upgraded the power because Arapahoe County wanted them to use electric rigs on Lowry rather than gas rigs.

So they've upgraded the power through that to make sure that they have enough power for that. They have plenty of space, and then they have a variable land deal with them on that. So all of those components should lend itself well for something like a data center, but I don't know what that key is that unlocks that door for it. Does the state need to give them an incentive, a tax incentive on top of the land, on top of retailing or otherwise.

Because [indiscernible] jobs and a bigger tax base, yes to this.

No. And I'd love to engage, right? My answer is, you had me at that, right, so...

May be worth your time to go and see the conferences or something on the data center.

Yes, yes, yes...

Have the investments done?

Not yet.

Yes, I will tell you it will, yes..

The other thing that I will highlight that I think is didn't roll out exactly as planned, was our SFRs for the state filing 5, and that was a function of what we were articulating about the building permit problem. So we have 17 that were coming online in 5. And we set that up to be sequential, right? 4, 5 or 2A -- oh God, we got to standardize that, driving that to 2 A, B, C and D, which is our 4, 5, 6 and 7, right?

And so we standardize that, that they roll out every year, right? And so that didn't happen. And now we're going to end up having a bit more of a roll out where we're going to have -- we got houses that are going to get built in 6 before houses that are going to get built in 5. And so you're going to see a bunch of activity on that. It's going to come out a little bit faster a little bit more lumpy than we would otherwise like it, keeps [indiscernible] at night, but we're going to figure out a way that we're going to do that and make sure that we continue to roll those out.

So maybe we structured those leases as -- what you don't want is 60 leases that mature in the same month. So maybe some of them are going to be 12-month leases. Some of them are going to be 13, 14, 15, 16, so that we rotate those out. to smooth out that maturity. And we've had an enormous renewal rate. We like that. We want to continue that. But you can't plan on that, right? You got to make sure that you structure this thing correctly so that I don't have 20 units coming on -- well, if I had 200 units, 20 units are going to come up every month. Until we get to 200 units, let's wait until we get a certain percent. I want to have 60% of my inventory maturing on the same month.

We have a question from Elliot Knight.

Elliot?

You are on mute, Elliot?

Elliot, you are going to take it off of mute.

We can go to Greg.

Hi, guys...

Question from both now.

Okay. Go ahead, Eli.

You and I have known each other since 1993. Once...

Almost as long as my wife.

It was before you were married because I remember when you and Sharon were married. Anyway, and certainly, before you had your three children. Since Sky Ranch came into picture, and we've been increasingly to visualize the hidden values in the company. We've had discussions such as you had with the group earlier about values and when people are going to recognize that value. I've begun to think that a critical piece of the puzzle is for you to be able to acquire land and let's say, be able to demonstrate that there's another Sky Ranch [Audio Gap] visible in hand.

Now you're not going to make the margins, I don't think that you are on Sky Ranch. But think of what that does to allow you to monetize these, I'll call them growing water reserves as the consumption per acre lot, you get more units out of it. I think that might cause the market to wake up. We had that discussion at the luncheon meeting in New York on February 13, which is available on the website. And much of that discussion, thanks to Geoff, was focused on what the company is worth without a second Sky Ranch. And it's a big number. I just -- where do you stand? How close do you think you are to the second Sky Range?

Okay. Three comments on that. One is I agree with you, it may facilitate a catalyst. Secondly, I will tell you that everyone I want to buy land for listens to our calls. So I try not to be too descriptive about what it is that we're doing on our calls on a public media. Third is we already have that for Christ sakes. I've got Lowry. And whether I buy the land, I've still got billions of dollars worth of land value out there, that people don't give us the credit for. That's Geoff's point. Don't screw it up, don't get too far over your skis on that, and we don't, right?

So we're in a position where we do have some of those, and I recognize that, yes, if were -- and I'm not looking to kill it, what I did with Sky Ranch. And I didn't kill it with Sky Ranch. It took a lot of courage to do Sky Ranch because at the time, the world was on fire. And what I'm doing is I'm offering people what I think is even above the market for their land, but then they look at us and say, "Yes, but, yes but."

What you can do with that land is much different than what somebody else can. We're having the water, we are having the transportation, we are having the infrastructure. And all those things are valuable and all those things are appropriate for a seller to take under consideration. And I'd love to know, I probably have a fair understanding of half a dozen people that are the sellers that we're looking for as to what they tell me, and what they believe on their value of the land and the transaction. So we're fully engaged and I am going to leave it there.

Greg?

Mark. I recently came across the company that did a water rights transaction in Southeast Colorado. It's a public company in the oil and gas industry. And it basically was the Arkansas River Valley under the Fort Lyon canal. Are you familiar with it, this transaction?

I'm very familiar with the Fort Lyon canal, but -- what's the name of the company?

It's Select Water, the ticker is WTTR. They spent $62 million to get a 35% stake in a water joint venture. So that kind of values what they bought at over $150 million. And they plan to kind of resell the water industrial uses and so forth. It just -- it struck me as like a huge number. And then I start thinking, well, why don't you peel off some of your water right portfolio and sell some just to kind of get a mark and to kind of show the public what the value of these rights are?

So I'm -- no, I'm not familiar with that transaction to the extent that you -- I will look it up, but if you have any information about it, I'd love to see it. I will tell you, we sell 95% of our industrial water for oil and gas to Select, who transfers it. Yes, reason I'm inspired by you on that comment is, we own 10,000 acres of mineral interest in the Fort Lyon system. And if Select knows something that we don't know about oil and gas in the Arkansas and in the Fort Lyon system, that's inspiring to me.

And it will be inspiring to all of us because we own a ship ton of minerals down there. We owned about 60,000 acre feet of water in the Fort Lyon system for about 10 years. And we sold that primarily to start Sky Ranch, but also because it's impossible to take water out of the Arkansas and bring it into the plant and Select would know that. And so if they bought a position of water in the Arkansas in the Fort Lyon, it's not to serve the Denver Niobrara formation. That's just incredible.

Got it. There's more details in their investor deck, and yes, I look forward to kind of circling back and...

Yes, I'm going to be talking to my guys at Select.

Thanks.

Yes, that's very interesting. No, I mean, I hadn't heard that. I mean I know a lot of people think there's water plays in the Arkansas and people have speculated on it, and we included. And it took a lot of -- I lost a lot of brown hairs to owning that water down in the Arkansas for the decade that we owned it. But it's a big system, different than the plant.

There's probably 8 ditch systems in the plant that control 0.5 million acre feet of water, where it would take 300 ditch systems in the plant to get to that same number. So they're very, very big systems. We went after the Fort Lyon because it's the largest ditch system in the State of Colorado. And that's -- it's an interesting play, Greg? I'm going to look into that.

Yes, Mark, also, I was kind of probing with them as to his ability to move that Water across state boundaries if -- is there the legality and he was somewhat cryptic on that. I was just curious as to -- I know that New Mexico has been restrictive on freshwater, and that there's a part of that Permian Basin that is in need of some water but...

Yes. I mean if he told you he was going to buy that water and ship it out to New Mexico or Texas, I would short Select.

Yes. Okay...

That's just not going to happen.

Not going -- I have -- that's what I figured.

Alright. Well, we're coming up on what we had is kind of our reserve time slot here. Thank you all for your continued confidence in your invested capital. We really do believe we have a value proposition and then even more importantly, I think we try to be good stewards of your invested capital. So while I know, it can go faster, it can go more aggressive and it can go 100 different ways, we try and balance that all out to make sure that what we do is make good decisions.

And I've got strength of a terrific team behind me, not only at the management level, but all the way down to the guys that run the excavators and the loaders and big ditches and fix our cars, they're a great group to work with. My talent at the Board level -- our talent, our collective talent at the Board level is unparalleled for a company of our size. I'd say it's unparalleled for any company, but they are tremendous support and resource to me, and they are not lip service. Let me tell you. I end up having to [ beg for mine. No, I don't. ]

But I mean, I take it that seriously to make sure that they're well informed so that their guidance and their advice is leaning on their expertise and their experiences through their careers, and it's a great relationship for how the company does do what it is that we do. So thank you for our Board. Thank you for our management. Thank you for all of the investors, and we look forward to catching you up with our year-end results and moving forward with build-out. So I'm going to close with that, and thank you all.

Thanks, Mark.

Thank all.

Thank you.

Good morning, everybody, and welcome to Pure Cycle Corporation's third quarter earnings call. We'll start with a presentation from our CEO, Mark Harding. Before moving into the Q&A session. We'll have everybody -- sorry about that. We went ahead and muted everybody. [Operator Instructions]. And with that, I'll turn the presentation over to our CEO, Mark Harding.

Thank you. Good morning. Welcome to our third quarter earnings call. With me today, you just heard Marc Spezialy, as our CFO, as well as our controller, Cyrena Finnegan. So if you have any hard questions, they'll help chime in on that.

We do have a deck for this. So for those of you that are on this live, you can see the deck by going to our website. on the landing page, there'll be a tab that you can click on to. I'll advance through the slides as I go through the presentation, and then for those that are listening to this on the replay, I'll try and note the slide transition so you can kind of match the audio together with the slide deck.

So with that, we'll get started. Our first slide, as always, to get the lawyers out of the room. So you all are familiar with forward-looking statements, statements that are contained or [ corporate ] by reference in this are forward-looking statements that, meaning by the Securities and Exchange Commission.

I want to jump on really kind of highlight our leadership team. So this is your leadership team there. We have a tremendous amount of experience in all of the business segments that we have, very consistent, constant team that I have the pleasure of working with day in and day out, but they are really responsible for delivering the results for the company. And so it's a delight to continue to work with our team as well as our Board. As many of you know that have been following the company, we really do punch above our weight on some outstanding leadership and expertise on our Board from all disciplines of what it is that the company does.

So I do want to give them credit for their continued stewardship of the company, the company's capital and kind of delivering the results that we experienced.

So let me jump right into the financials. Third quarter, taking a look at it, both in terms of the quarter and then year-to-date. Quarterly revenues, $5 million, continued to deliver terrific results on gross profits, about a 63% margin there, so $0.2 million in gross profits.

I do want to note a couple of the highlights, one of the key things that we're seeing this year is -- one of the diversifications that the company has is that we do have some mineral estate. We've seen some tremendous results from our mineral estate this year, and that was a result of drilling additional wells in 2024 that came online.

So quarterly results a little over $1 million there. If you take a look at it from year-to-date close to $6 million on that. So that's a nice bump to the financial performance on that. A little over $2 million in net income on a quarterly basis, about $0.09 per share. And then you take a look at that on a year-over-year basis. On a year-to-date basis, that's about $7 million. So $0.29 earnings per share on the fiscal year 2025.

Taking a look at the trend in revenues. They're slightly down from previous quarters. And the principal reason for that is just the weighted deliveries that we have for lots in [ filing 6], our largest homebuilder, D.R. Horton had a weighted inventory of lots that they have. They are on a finished lot structure for us. And so taking a look at how those deliver, we're on schedule and on pace. So we'll bring those lots will deliver those lots by our fiscal year-end, and that will catch up, but there's a little bit of a weighted delivery on that.

This particular filing, they have about 70 lots where traditionally, they have about 45. So it's almost twice the number of lots that they have on that structure. So that skews the results a little bit. It's not necessarily indicative of any of the year-to-date performance. It's just that particular filing had a weighted average on that. So when you take a look at it at a quarter-over-quarter basis, that's going to be weighing in a little bit on that side. So this will give you that look about $5 million in this quarter. And then when you take a look at gross profit, about [ 3.2%. ] Those are kind of carrying forward.

Taking a look at it from a net income and an earnings per share quarter-over-quarter. Again, those are going to be the same results in there, just showing that inventory of that. And a lot of that work that the company does on that's in WIP. It's in the work in progress in the financial statements. It will just roll into realizing that revenue as we get into this fourth quarter here.

Take a look at the fiscal year-to-date performance. We're showing again some seasonality in that. We do finish all of our phases in that fourth quarter, mostly just because it's a seasonality for us in Colorado, where it's difficult to do concrete and asphalt in the winters. But we are on pace. This kind of shows you a little bit of where we're at in terms of our fiscal year 2024 cumulative for 2025 and then our guidance on that.

So our guidance on '25 was around $30.1 million or $31 million on that and then gross profit right around that $23.7 million. And so we will still finish all that work and then as our builders close on that stuff, we'll be able to recognize that revenue rolling through on our fourth quarter.

Again, carrying that forward to net income and earnings per share. Cumulatively to date, $7 million on net income, $0.29 a share on earnings per share. And then that will have a catch-up just due to the delivery of all those finished lots. We have about 120 lots coming to completion. We've got a bunch of those finished already, and then we'll punch out the remaining lots probably late this month and the first part of August with an 8/31 year end.

Let's drill down a little bit. I talk about each of our segments individually. Taking a look at the water utility segment. Really, this is driven by 3 different revenue sources. One is the annual customer growth. So we continue to add customers to our sense, and those are recurring customers. These are monthly billings to our water and wastewater billing sides.

And then we have a segment that we have, it's not a defined segment but a group of water customers that are our industrial customers. And this year is a little bit light comparatively to the previous years, and that was forecasted. We did know that, that was going to be a permitting year for most of our operators in this area, where our largest operator has been permitting the significant number of wells, close to 200 wells on the Lowry Ranch that they're looking to develop. And that's just a lot of permitting pad sites, infrastructure, takeaway facilities, those sorts of things.

So they've been prepping into a lot of that over this fiscal year, and we'll see that more normalized coming in fiscal 2026. And then [ tapes]. And [ tapes ] are very strong this year really because of the delivery of filing 5, which is our Phase IIb in that. We had about 230 lots that we delivered last year. Builders are vertical on those. I think we've got probably about 120 homes up in that of the 230 that they had delivered.

So when they need a building permit, they're actually pulling those [ tapes ] that are showing and really have that kind of lag effect of the delivery of the lot to [ take ] revenue on that side.

Just a little bit on the oil and gas side. As I mentioned, '25 was forecast to be weaker due to the concentration of permitting at the Lowry Ranch and should return to those normal levels in '26 and continuing, right? So when you're taking a look at that number of wells, we generate about $280,000, $300,000 per well, and you're looking at close to -- somewhere 180 to 200 wells on the Lowry property.

So it will take them a while to fully drill that out, but that will be a nice segment for us continuing forward, and it continues to be a really favorable relationship, both for us because we have and continue to invest in our water facilities out there and it allows oil and gas opportunity, the oil and gas operators to be able to handle their programs, which are really very large water customers without it being at the expense of anybody else's customers. So we don't have to -- we don't have to have our other customers can serve that so that we can make sure that we provide water floor, the oil and gas segment. So it's a very partnership relationship.

Take a look [ at ] it on our land development segment. So we do have all the lots for [ Phase 2C ] being delivered in fourth quarter. So you'll see a bit of that on the catch-up side but really punching out on all of what is about 900 lots on Phase 2 for us. We finished IIa in 2023, IB in 2024, 2C in 2025. And 2D, we have [ 2 ] and [ 2 ] going on at the same time. And so we're not -- we've done a number of the activities in 2D. You might have a slide that might update this a little bit. Is that -- no, I guess, I don't. I'm going to go back on that.

So on 2D, we've got the earthwork done, all the grading work done, we're midway, maybe 3/4 of the way through on delivering the wet utilities and then we'll move over to the road [ curbing gutter ] package sometime this fall and then continue to deliver those. And really, what I want to highlight here is kind of this -- particularly in markets like this, and I'll highlight the market a little bit later in the presentation.

But in times where you have real-time deliveries, without having strong inventories on one side or the other, it really highlights the company's business model for builders and the public builders in particular because their pro formas are really scrutinized on their ability to have turns on their lots and the investments in their lots. And what we try to do is keep pace with that, such that neither they nor us are maintaining too long of an inventory on that, and we can be just as real time as possible deliver those homes. So you're going to see a little bit of that and are phasing on that, and I'll talk a little bit more about that later in the presentation.

Single-family rentals. Again, we talk a lot about this segment. A little bit slower growth on bringing online some of these new units. And the reason for that has been that the -- our local jurisdiction in [ Repo County ] updated their building code regulations last summer, and it had a lot of new electrical standards that it took a bit longer to get through the permitting process.

We're seeing that necessarily on the build for rent on our builder partners that are building the units that we reserve for ourselves as well as some of our builders in general. So some of that phasing on Phase IIb on getting more of those lots into homes and more home sales on that are a function of kind of that delayed process. A process that typically takes 2 weeks has been taking up to 6 months.

I think the most of them are through that process now. The process that they do is they get their masters approved, which are -- this is the type of home that we're going to put out there without that home being identified on any specific lot. Once the masters are approved, then each individual building permit goes very smoothly.

But -- so we'll see a lot more traction on our single-family rentals in first quarter next year and then continuing through 2026. But we're still on pace for the same number of units that we're looking for on our single-family unit to get up to about that 100 units after Phase 2.

I'll take a little bit more. For those of you who are going to be a little bit newer, I'm going to elevate this up a little bit now that we've gone through kind of the quarter and then we'll highlight some of the specifics about what we think about the market and things like that.

But we operate in 3 business segments. We have water, wastewater, where we own a valuable portfolio of water rights here in Colorado. Our portfolio can serve up to about 60,000 single-family equivalents. And as you'll see in inventory levels, we're really just getting started on some of that. We're starting that through the development of Sky Ranch, but also some exciting things are happening in and around our service areas.

So we have a lot of potential for providing services to the Lowry Ranch on the service area if and when that develops. We have a land development segment. That's really where a lot of the activity is focused where we are [ cradle to grave], where we do the utilities on that, we go horizontal with all of the infrastructure, the roads, curbs and gutters.

And then in some cases, our third segment is the single-family rentals. We go vertical with those houses. And we maintain those houses in our portfolio to rent out for single-family homes. And really the changing dynamics, and this is really shifting between is it more favorable to buy a home? Or is it more favorable to rent a home? We really try to vertically integrate ourselves in both those segments so that we can really service both sides of that.

Let me highlight a little bit more color on the water segment. Our [ Water Systems], we have about $65 million in total water assets and really, that's split between the water rigs portfolio. We continue to grow that portfolio by tuck-in acquisitions where appropriate. So we have about $32 million in the water rights portfolio. $24 million in water and wastewater systems, those are brick-and-mortar, those are pumps wells, water treatment facilities, tanks, distribution facilities, that sort of stuff. And then that $9 million in wastewater, we have 2 wastewater systems that we really reused 100% of our water.

So every drop of water that comes to our wastewater system, leaning it up. We bring that back to a regulation quality where we can reuse that water supply. We have a dual distribution system throughout Sky Ranch, where we can deliver that highly treated effluent water to our parks and open spaces to irrigate our outdoor parks and open spaces. So we really capitalize on good stewardship of our water resources in a water-short area.

This is a little bit about the water utility segment and kind of the capacities that we have, acre feet of production, we have about the ability to produce about 3,000 acre feet a year. And depending on our largest customer being the industrial segment, this year, you see a little bit weaker deliveries of water just because of the known and forecasted gap in industrial water sales but we do have plenty of panel that we can continue to provide industrial water for our oil and gas customers.

And then taking a look again to highlight the amount of water that the company has the unallocated amount of water on that. We do get 2 revenue sources from that. So if you look at these 2 systems, the production capacity allows us to get that year-over-year revenue and then the portfolio of our water translates into how many units we can serve up that 60,000, and we get a strong connection fee for that.

That connection fee continues to rise, really translating to the scarcity value of water and the cost of delivering that water to customers. But that is about $40,000 per connection fee now and taking a look at how that translates into the full capacity of that, that's about $2.3 billion, $2.4 billion were through connections, we add -- we'll have about $1 billion of investment as we build that system out, but we're really using a very, very small capacity of that portfolio. So that kind of gives you a flavor for those of you that are new to the company of really where the outlook for the company is.

Do want to highlight one new development. I know some of you have seen a number of these things, but -- if you take a look at the mapping to the right of this, that pink shaded area, we call it light red, but it looks more pink. That's really our service area. That's the Lowry Ranch. Above that in the blue is the Sky Ranch property, a dark line is I-70. And about 4 miles north of that is the Denver International Airport. So it gives you kind of a proximity of where we're at in the Denver metropolitan area.

And we've shown a number of times, kind of this graphic where development has encroached this Lowry Range property. And there was that [ 1 alpha ] or an out parcel on the Lowry Range, down in that Southeast corner it was a half section of ground that was privately owned. And that property is now under development. And so what you're really seeing is just kind of a surrounding of our service area and it just highlights the location that the company's assets are in, in the Denver metropolitan area.

As those of you who've been to Denver know, we effectively live on [ an ocean]. We can only grow in one direction. We can only grow to the east. We have a natural barrier of the Front Range, the mountains on our west side and so we find ourselves in the right part of town not only with the land interest that we own, but also our water assets and our service areas.

So that's been a new development for those of you that are joining us on our investor tour next week, you'll get a chance to see some of this firsthand, but it's an exciting development where we continue to see the Denver metropolitan area grow out and beyond our service areas.

Talking a little bit about our land development segment. We do inventory land interest, and we'll take land interest from raw land, add our water resources to it and then be able to get the zoning and go horizontal with that zoning so that we develop finished lots for our homebuilders. And in that segment, the interesting thing is, and we're becoming more of a unicorn in that segment because there are fewer and fewer developers that are actually doing the horizontal work. I mean, they're doing the hard work of actually contracting for the grading -- contracting for building the wet utilities, ultimately, street curves, gutters, all that to a finished lot and really makes us not only an entity that does that, but also an entity that's doing that in concert with how the public homebuilders are looking for that metric to be done.

And so what we're seeing is a very strong partnership and a strong relationship with our home builder partners in markets that tend to be cyclical. And so they're appreciative of us handling that portion of this work element, us being able to deliver those lots on a as a real-time basis as the market continues, the market demands that stuff. And so what we see is we can dial up and dial down on those as the market continues to flex in that space.

So that's been very, I guess, satisfying to see how our business model really is capitalizing on that partnership and not really imposing hard decisions on builders where they may or may not be able to move forward given the level of sales or given the level of inventory that they might be running with.

If you want to highlight Phase 2, so there's a little bit of an update on that Phase 1, as we've talked about fully complete Phase 2. We've delivered all those lots and we've got about 115 homes up and sold Phase 3, Phase 2C there, about 228 lots and you can see most of the roads, curves and gutters are finished. So we're just punching out some of those items on Phase 2C for delivery by the end of the month. And then Phase [ 2D], we're making continued progress on that and we're able to dial that up and dial that down, depending on how sales and inventory continue to go, but we have that product that's available, and we don't have a tremendous amount of infrastructure that is new to that side just because we're continuing to expand.

And so most of that major arterial roads and water and wastewater and stone water systems are already developed. So we do have that ability to continue to add those. We've got new builders in Phase [ IIb ] that do want those lots as quickly as we can deliver them, and then we got returning builders in Phase [ II ] that would like to eat through a little bit of their inventory and we have the ability to do both of those. So very, very real time in terms of our ability to deliver land development and finished lots.

Another exciting announcement for this is groundbreaking on our high school. As many of you know, one of the most important things when we started this project was to really have a full K-12 campus on site such that all the kids in the community have access to that. It's centrally located, so families can walk to the school, and we've had our K8 open partnership with National Heritage Academy [ and ] Michigan, and they've been terrific partners. And so this was a groundbreaking on getting the high school under construction. They will be going vertical on that over the next 12 months and looking for bringing those classrooms online for school year of '26, '27.

But that's very exciting. Getting -- continuing with the development model and very exciting for our homebuilders. This is a highly attractive model for new families that are coming out that the local schools are here. There's a full K-12 campus for them.

Taking a little bit on some of the things that we've been talking about for those. This is an illustration on how the one project that we have, our main development project, Sky Ranch builds out. And so when you take a look at the inventory for residential lots as well as commercial lots. And we do have quite a bit of commercial on this as well. We've got about 3,200 single-family equivalent owned for the property, but we also have about 2 million square feet of commercial. We do have an interchange that's at the site. We're in the final stages of finishing a permit for moving that interchange and making it larger and so we've got -- and we have not started any of the commercial development yet.

Some of that's going to be predicated on having a little bit more of the residential development. Some of that's going to be predicated on finishing the interchange. But taking a look at kind of the revenues on that when you take a look at what we've done to date on the residential, we're about 22% done, so still plenty of pedal left on the residential side. Really nothing started on the commercial.

And when you combine those 2 and how we try to illustrate the commercial is an equivalency to the single-family rental -- or not single family to single-family equivalents. So it's about an 1,800. So we have about 5,000 overall lots that we have out at Sky Ranch. And so we're still very early on, on that. And when you take a look at kind of the sold in that category, that generates something close to about $620 million of income for the company.

So still very early on and continuing to really put up some very good margins on that because of how we're delivering that, that we really don't have a large financing cost occurred with that. We have good relationship with our building partners to continue to develop that. So that gives you kind of the full scoping of kind of that whole project.

Taking a look at the single-family rental market, why we like that segment, very high margin opportunity for us. We maintain the equity in both the water systems as well as the land development costs on that. So when we've got all those horizontal improvements, we're really holding that value, which can be as much as $150,000 per lot and then we're partnering with our homebuilder partners who are building their products on each individual phase and they're building that product for us.

And it's a good partnership for them because they have already sold the home. They have those margins built in. And they also and sometimes can rent back that facility to use that home as a model home for folks. So it's been a very good model for us and a good model for our homebuilder partners and so we'll continue to add to that portfolio, taking a look at kind of how we want to build those numbers.

We really have only 14 units started. We've got 5 under construction, with another 14 that are close to final permits on that in Phase 2b, and then we have probably 35, 38 more units coming on in 2C. So you're going to see a strong acceleration in that segment over the next 18 months.

If you take a look at kind of how that growth is going to go. So from really a modest start on Phase 1 with 4 homes continuing to add those numbers in each of those phases, up to what we're going to have is 98 homes from Phase II. So you're going to see a lot more traction and a lot more velocity in that single-family rental portfolio over the next 18 months or so.

Liquidity kind of continue. I want to highlight stewardship of the invested capital. So we have a terrific balance sheet, high degree of liquidity. Very important in volatile markets, right? So we have the ability not only to continue to invest in our own systems and make sure that we've got the proper inventory of finished lots for our homebuilders, but then also opportunities where you have weakening market segments present opportunities for growth where we take a look at how can we deploy that capital.

And I've talked -- you've heard me talk a bit really about where our priorities are on our capital stack, and we really look at using that liquidity to invest into our business segments to deliver finished lots, to deliver water and wastewater systems so that we can continue to meet the demands of [indiscernible] heavy users oil and gas customers, take a look at opportunities to invest into additional water rights but more importantly, opportunities to invest in additional land acquisition opportunities.

And I know there's a lot of you continue to monitor that well and a bit cautious on what kind of discussions I lead to in a public call, but we're very active on casting our nets out with opportunities, with landowners in and around our area that we might be able to provide water service to and for those opportunities, but really maintaining that liquidity so that we continue to grow the business.

And so we were very, I guess, seeing some of the benefits of that cautious capital strategy to make sure that we're able to execute our results of our business model, and that's really the fundamental premise of what it is that we're doing.

You move over to outlook. So this is probably what the most interesting slide for all of you is to say, well, how is the housing market. Things in the housing market are -- I'd say the biggest one is just the consumer confidence. Is the home buyer confident enough to pull the trigger on that? Our -- when you take a look at consumer confidence, the companion opportunity for us in that area is a market segmentation where we are one of the few entry-level master [ planned ] communities available, not only an entry-level master plan community, but one where we're actually the partner with our homebuilders where we're doing the horizontal.

And that, again, I don't know how other markets are positioning on this, but homebuilders, all the national homebuilders that we work with have said, how appreciative they are of us as our model because there are very few folks that are in a position to deliver both the horizontal infrastructure and that horizontal infrastructure to segment that entry-level buyer.

Mortgage rates, I think mortgage rates are always of interest to the homebuyer, but I wouldn't say that they have been as a bit of a headwind as it has been in the last couple of years. I think the transition from a low interest rate market to a more normalized interest rate market has really occurred. And so that homebuyer isn't trying to time the market on seeing if mortgage rates are going to move 0.5 point or not 0.5 point.

I think that, that's -- it does have an incentive for those that are on the sidelines that are trying to jump in, but it's really less of a headwind than it has been historically. Affordability is always a headwind and it really doesn't matter whether it's Colorado or anywhere else. I mean just the affordability of homeownership these days. And really, again, that companion metric for us on an opportunity side is our market segmentation.

And then we do have a bit more of a rising inventory, mostly just because of the slowing of the market. We have a low market segmentation is good for us. We have a low inventory in the Denver area of entry level almost anemic. We're probably one of the only ones that have that.

And then I will highlight our phased delivery so that neither us nor our homebuilders are being forced with high levels of inventory. How that translates, I put these metrics up in Phase 2, A, B, C and D. And then we do have another Phase 2E that will come online as well.

But when you take a look at this particular highlight, what we were seeing is really real-time delivery when we would deliver the lots within that year, nearly all of those loss would be vertical. If you take a look at that metric from 2A. And 2B, we're seeing a little bit of a slowdown on that. So about half as many lots vertical and sold in 2B that we've seen. I think that's 2 reasons. One, you have a weakening market. But then secondly, we had that new building permit process.

So I think it was the homebuilders got caught off guard on that and it took a little bit longer for them to get their masters approved on Phase 2B. 2C, those delivery of lots are going to be at the end of this fiscal year, so August of this year. And then 2D, as we highlight here, we have some new builders in there that we're going to be delivering some lots this year as well. And then we can phase the balance of those deliveries and then again, phasing into 2E.

And it really -- it kind of depends. We've seen some of our homebuilders who got in early, and they had all their building permits. So they took their entire inventory and built that out on spec and their selling goes out. We've got some builders that because of their market segmentation and the price points, they sold their entire inventory even before they went vertical, which is almost a hurdle.

We had our paired product out there, the duplexes out there are homebuilder that has that product was able to sell all of their lots even before they broke ground on them. So that was a price sensitive. So we continue to see strength in those deliveries of that entry-level market. And we're also seeing -- we have several segments in that entry level, where it's a paired product or a townhome product and then smaller single-family homes that may be 1,800 square feet to larger single-family homes. So even in that entry sub-500 market, you still got some micro segmentations in there. And we're seeing very attractive results, mostly just because there is no inventory of product at this price point.

So the next few slides are kind of carryover slides from our year-end presentation. And really, what we were trying to do is give investors a look at how we look at the company and how we're managing our capital structure, both for the current year, for the short-term outlook being the 3 to 5 years, where we're really strong in investing in our inventory of [ laps ] and then the longer term, where how does Sky Ranch build out and how are we going to look at additional service areas, whether that's going to be the Lowry Ranch service area or other acquisition opportunities.

And so just kind of highlights that in terms of those areas. On the water utility side, and then taking a look at the land development side, some of the key drivers in that, I won't highlight those as I know we've highlighted that in our last 3 calls. And then also taking a look at it from single-family rentals, we look to get to that close to 100 homes over that period of time.

And then translating that into really what we think that outlook does for the company. And so this showed a little bit of trending analysis of how we were building that from 2023 to 2024 results and then 2025 results and kind of shows how we're positioning ourselves on that. We are looking to deliver pretty close, I'd say, within a short [ cut ] of what that 2025 guidance was looking like, that will depend on kind of the homebuilders [ coming ] and particularly closing on the last balance of those lots on the end of August and then what it looks like in that kind of short-term area where we can continue to build out some of that residential.

We're going to complete that interchange and then take a look at some of the entry of some of the commercial in there. So that kind of gives you a little bit of a projection of how that translates into the balance sheet in terms of revenues as well as earnings per share. And then how that drives shareholder value. So continuing to kind of highlight those in terms of the water revenue, this is the recurring revenue side of it and then the single-family rental revenues and then asset growth through that showing that build out of Sky Ranch.

So one of the secrets to the company continues to be the hidden value, the stored value in these highly appreciated assets that the company has been able to acquire over the years, both in terms of the water assets as well as the land assets that we have. And whether we're serving land interest, where we're the developer or whether we're serving land interest where others are the developer in our service area on the Lowry property. It continues to build value and really deliver results for housing in the Denver market.

Reallocation of capital for -- we continue to repurchase shares. We probably a little bit lighter in Q3, mostly just conserving that cash for making sure that we're delivering that for our business model, but we continue to really be in the market to repurchase shares on a programmatic basis.

So with that, what I'm going to do is remind everybody, if you're registered, we have both a fiscal tour, where we'll actually drive around and show you some of the phases that we're doing, kind of where the market is at in Colorado, some of the water assets that we have. So there will be that. And then right around 12, I think we'll have kind of a virtual Q&A, and I know a number of folks register for that.

So that's an opportunity just to have a more fireside chat with kind of how the company's inventories are going and how the market looks. So that will be on July 16. If you haven't registered for that, please do so that we can make sure that we have the proper links for everybody. But what I'll do is I'll open it up for some Q&A and see if we can provide a little additional color.

[Operator Instructions]. If there's any questions, we'll take them now.

Hello Mark, I've got a couple of questions. Pure Cycle has a couple of reservoir sites. And is anything going on with them? Has any development started on them?

No, not really. They certainly were a component of what we continue to do in our water utility. And so we had -- we've acquired some water rights up in Weld County, that we're looking to develop in concert with our surface reservoirs. There's some regional opportunities with the surface reservoirs. I would say those are mostly confined to kind of partnership opportunities that we may or may not have with partners that we have with the South Metro Water Supply Authority.

So as many of you who really drill down into the company's assets, we have -- we have a water supply called the WISE water supply, and that's in concert with about different providers in the South Metropolitan area. And there's groups and subgroups of that look at kind of shared infrastructure, where we're looking at shared infrastructure on delivering water rights that we've acquired over the last 5 to 7 years to bring that down into the reservoirs and perhaps make capacity available for other opportunities in that.

But those are going to be long-range assets. So I'd say those are going to be more build out assets that really will be consistent with developing up to that 60,000 residential unit capacity.

Okay. And then on Slide 20, where you said it was at least looking at the math as I saw it [ below or left ] than quarter. And you said this is a new parcel that is now being developed. Where will the water be gotten obtained for that? Where is the owner paying water?

Great question, and I failed to mention that. That particular property was annex to the city of Aurora as long as 20 years ago. So it's been in that utility service area. So they'll get their water from the city of Aurora.

But as you can see, it really does surround the Lowry property. And that's a beautiful people project that those are going to be -- those are not entry-level homes, I guess, let me put it that way. But terrific [ Vista ] is out there. They sit high. They're going to look out over the Aurora Reservoir, which is owned by the city of Aurora as well as one of the reservoirs that we have that will ultimately build. So it's a really exciting project to see get started, but it is in the city of Aurora.

All right. And actually, one other question. In the 10-K that was filed, I noticed the footnote that there's something over 1,000 acre feet of water that I guess is you're trying to have permitted and it was turned down but your negotiating with people. What [indiscernible] there, how much water is involved? And when do you think that might be resolved?

So that -- we were applying for a new water right there. And so water, it just -- it continues to get more and more challenging to develop water resources. We were doing a new water right that was allowing us to take some more water out of the [ box Elder Group], which poses to the Lowry Range and augment that further up north with some of the supplies that we've acquired up in the Weld County area, and it was a very complicated exchange. And so we did not prevail on that.

But we had other -- we had 3 other claims that were in there. And so that was held in suspension, and we've been working with the groups that were opposing, what we were doing on [ Boxer ] to try and find a resolution to that. I think there's a path forward for both us and them so that they get some interesting things that are helpful for their systems. We get the things that we were looking for, but we'll wait until see how that plays out.

Just a reminder, if you have a question, go ahead and hit the mic button to unmute yourself.

If we have no other folks that want to weigh in on any of the specific color. I do know we do have a number of folks that have registered for the Investor Day, and then we'll have another opportunity as all of you digest our earnings call here in our presentation that, that may trigger some more questions next week. So we do have a number of opportunities to weigh in and don't hesitate to give me a call directly.

We want to make sure that everybody gets an opportunity to understand the company. We are well positioned for some significantly valuable assets and really investing to monetize those assets. And as I keep mentioning, I think our business model really shines. It shines not only with how we are delivering what is a truly difficult product, right?

You have to -- we're spending $80,000, $90,000 to deliver these lots and you want to make sure that, that cycle matches demand and how that works. And so when a lot of that infrastructure is in place, the water system, the wastewater system, making sure that we have the ability to dial that up, dial that down for customers like oil and gas customers that can be cyclical and there can be a lot of activity going on in 1 given year. There can be years where you have a little less activity.

And so our ability to float with those big, big accounts like that is truly unique, and we're well served and being able to add capacity. We don't overextend ourselves on those areas and then we really look for opportunities to continue to deploy that capital to continue to grow the company. So I think we're -- this is a terrific illustration of the flexibility of how we manage these highly valuable assets and long-term assets.

So if anything comes up, don't hesitate just to give me a holler or weigh in on our follow -- on our chat -- fireside chat next week. But I'll give you all the last call for ringing in on today's call.

Okay. Well, with that, I will bid you all continue healthy and prosperous summer, get out and have some fun and look forward to seeing all of those of you that registered next week. So with that, take care, and we will be speaking soon.