Good day, ladies and gentlemen. And welcome to the Pure Cycle Corporation Year Ended August 31, 2021 Earnings Call. At this time, all participants have been place on a listen-only mode. And the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mark Harding. Sir, the floor is yours.

Thank you very much. And welcome, good afternoon. I'd like to welcome you all to our 2021 year end earnings call, a bit of housekeeping upfront. For those of you that are listening in on the call, I have a slide deck for this if you can log into our website at purecyclewater.com. There'll be a banner across the homepage there that will be a click on that I'll direct you to the slide presentation itself. We've got this enabled so that I can actually advance the slides through the website itself. So you'll be able to keep up with us as we go along. If you're logged on to the website alone, without logging into the call, you can hear the audio, but you won't be able to press in for questions and answers. So if you do want to log into the audio presentation, you've got to have the dial-in number on that. So with that, let's get started. First thing, we always want to do is get the lawyers out of the room and note our safe harbor statement, which statements that are not historical facts contained or incorporated by reference in this presentation are forward-looking statements. I'm sure all of you are familiar with the safe harbor statement, forward-looking statements. So with that, I want to kind of highlight the various business aspects of the company. We have three lines of businesses. At a DNA level, the company is a water utility company. So we develop water and wastewater services in the Denver metropolitan area. We own a portfolio of water rights here in Denver in an area of - the country where you can own water as a real property, right? Taking a look at those, our water portfolio, we measure our level of service…

[Operator Instructions] Your first question for today is coming from Bill Miller. Bill, your line is live.

Mark, terrific quarter. Great year. Congratulations on all fronts.

Thank you, Bill.

The - in days of your work, you said, well, we have a lot of opportunities to acquire more land and acquire more metro districts or take over some of the utilities of the prime water, but don't have the water. And I wonder where that stands? Whether you're still very active in those endeavors. You've got a lot going on already. I don't know whether you want to be or it should be or anything else? But second and perhaps, more importantly, you've got all these cash receivables. You've got extraordinary liquidity. And yes, I don't understand why you're not buying back more stock. If you have acquisitions, a, you could always borrow to make the acquisition, if you wanted to do it for cash, which I assume you would. And secondly, you're always able to get financing because of the strength of your balance sheet. So you ought to be able to buyback a bunch of stock and have a fire powder to do any kind of acquisition activity that you want. So could you please respond?

I will, I'm going to break that apart into three segments there. And so in talking about what's on our wish list, certainly, channeling the Board and sort of saying, okay, now you've got Sky Ranch and you've got a great opportunity on building out Sky Ranch, let's continue to follow up on that. And that's true. I think our team is great, and the combination of water and land development have really proven dividends for us on that. And so we do have an appetite to continue to do that, and we are in the market for additional acquisitions on that. I would say that there's a number of potential acquisitions. And while the market is certainly strong because housing is strong, it doesn't frighten us at all because I think we know we can bring value to a particular acquisition by virtue of the fact that we have water that will combine with it. So our particular taste in that side of the equation would be to find land opportunities that don't have water, bring our water to them and be in a position to zone, entitle them and then build them out. And so we are aggressive about that. It does take a willing seller on that side and sometimes, it takes a little bit of handholding to get the sellers who are really long standing. In some cases, Centennial families that have held these land holdings for a very long time. So those - that's a key part of the equation. So Bill, we are very aggressive about that and hope to be able to talk a little bit more detail about that as we announce that to the market. We are out in evaluating other utility operations where we can combine and take over their…

Mark, now...

There was a third one you had that I meant...

Well, as you know, the - probably between last year and this year, the progress you've made is not reflected in your stock price. I mean you're undervalued before. You're still undervalued. If you look at the cash generation, if you look at the new endeavors you have, the recurring revenue from your rental sales, I mean, you're a much stronger company in every way than you were a year ago.

[indiscernible] Bill.

Okay. But if that's the case, and you know given your projections for next year that, in fact, are going to be even more undervalued in relation to next year right now. So I mean the authorization and the actual of your buying back stock seems to me to be a validation of everything you're saying.

Yeah. Well - and so the one thing I would layer on to that is that it is helpful for us to have some powder to pursue these acquisitions with. And so depends on the size of the acquisition, some sizes are bigger than others. And we want to continue to maintain some liquidity, so demonstrating some strength in how we're making these proposals for acquisitions. So I'll leave it there because I can't give you too much more color beyond that, but that certainly is something that continues to be on our agenda.

Your next question is coming from Elliot Knight. Elliot, your line is live.

Thank you. Hi, Mark.

Elliot, nice to talk to you.

Thank you. Could we talk a little bit about the oil and gas and the - what the fracking is going on? Because logically, given what's going on in the oil industry worldwide and in the US, this should be an ideal time for companies to be fracking, getting the flush production, getting their money back and moving on. What's going on in Pure Cycle's water - frac water supply? What's going on particularly in permitting? My understanding is that there was a hiatus in permitting, but they're preceding that in anticipation of a hiatus. The industry that sought extra were very aggressive in seeking permits. What's going on in that?

So that's a good question and one that I can give you kind of a bit of an update on. And certainly, you as a recovering oil and gas analyst will appreciate. Colorado had kind of a bit of a, I'll call it, an environmentally sensitive way of approaching oil and gas. And so we have experimented and taken a look at changing and updating our regulations at a state wide level over the last, say, 3 or 4 years. And I think most of that has settled down, and the industry has a fairly stronger appreciation of how they can move forward. So that had constrained a lot of activity together with a $45 oil price. And so a lot of that activity occurred when oil was low. Now that oil is not low, you're right, companies are much more aggressive about developing the supplies. And while it is an opportunity to develop supplies while oil is at $80 a barrel, I think this slide probably tells you a better story of what it is that we're doing. What the industry has to do is stay ahead of growth, right? And so what we're seeing is, this whole metropolitan area is growing from the west to the east, right? We only have -- we do live on a notion here in Denver, right? We have the Rocky Mountains, which prevent us from growing West. So all that growth has to go East. And as it grows East, it competes with oil and gas. And so all of the regulations, the setbacks, the controls that these oil and gas companies have had to work through while we updated those regulations really concentrate on being ahead of urban development. And so while oil price is important to them, now that they've…

So Civitas is on board with this, obviously. You must be reflecting what their plans are. Is that fair?

Yeah, that's fair. I mean they are really concentrating on drilling to stay ahead of that encroachment. And so if you look at where their well pads are going to be located, they're going to be located where they're drilling. Actually, their horizontal legs are going to be going under communities. They're going to be offset from their pad site, but their laterals are going to be under those areas that they already have homes on, and then they'll continue to march their way east.

Okay. Thank you.

Yeah.

[Operator Instructions] We do have a follow-up question coming from Elliot Knight. Elliot, your line is live.

Thank you. Well, if nobody else is going to ask the question, Mark, would you talk and update us on the timetable for commercial - development of your commercial properties?

Yeah, great question. So the commercial, we've got a very, very nice detailed master plan of our commercial site and kind of laying it out as to all the mix of uses in there. Where the logical retail uses are, retail use is going to be grocery, maybe big box store availability for like a Home Depot or Walmart, Sam's Club, that type of stuff, as well as some of the lower commercial like fast casual dining and things like that. And then still leaving aside some of that for a mixed type development where one of the high demand areas in this economy now is starting to be distribution centers. And I think that's being borne out of the supply chain crisis and the fact that we migrated to a just in time model and then the world did, frankly, is where you ordered something and then we started to make it and we were able to get it to you in a relatively quick order. And people are a little punchy about that because that thing is broken. And so there's a stronger need, and we're seeing a very high demand for distribution centers where they can stack to inventory things whether that's going to be the actual distributor like an Amazon or a Walmart or somebody like that or some in between entities. So we've got a little bit of stay set aside for that. We probably - we'll be starting to look at some of those transactions next year and then following into '23, I would say, some of that retail is probably '23, '24 timeframe just because they need a certain number of rooftops. If you look at a large grocery store, their metrics are they need $1 million a day volume in that and then they translate that into the number of rooftops. And so we've been very good about reaching out to all these folks and getting on their map, making sure that they put pins in our project. And so they - whether it's grocery, whether it's the big box, whether it's the distribution centers, we have been very active on marketing those out to all of those. And so a lot of those folks are going to be in our queue and as we continue to build that out, get more rooftops and the surrounding properties getting more rooftops. We're the logical. We're really the only site because of the interchange in that area that they'll be able to do that type of development activity. So while it - we've had a ton of marketing on it, we've had a ton of planning on it, we've had a ton of conversations with the right folks on it. It's still a little bit off, but we wanted to make sure that we didn't wait for them to call us that we were in front of them and making sure that we set those plans so that they make their plans accordingly.

Okay. And last, but not least, I'd be remiss if I didn't mention you've talked about stock buybacks. There are such things as cash dividends and even a modest dividend and annual dividend would make Pure Cycle a dividend paying stock. And I truly continue to believe that would really be a help. So I hope you'll consider cash dividends.

I do appreciate that, and you are right. And it opens up a whole new segment of funds and buyers and holders and that sort of stuff. And really, we took a look at that strategically and dividends, you like to do through your annual revenues, right? You don't want to necessarily do your land sales or your tap sales through a dividend model. But that was one of the driving factors - not driving, but that's certainly one of the factors on the BTR segment. And that supercharges our recurring revenue to allow us to take a look at those dividends ahead of where the dividends would have otherwise justified themselves from our utility segment. So foremost on our minds, you're right. It is also one of those conversations that come up at each Board meeting.

That is music to my ears. Thank you, Mark.

And I'm sure others listening, yes.

Indeed.

You do have another follow-up question coming from Bill Miller. Bill, your line is live.

Mark, the idea of recurring revenues is so attractive to investors because then you can model into the future. And given the limited recurring revenues from the water sales to our single family houses, why not just expand dramatically or significantly whatever you want to use your own rental business without being able to study the financial for very long before the call, it seems to me you're getting $15,000 a year in cash flow and under the best of circumstances, you're getting like $1,500 a year per house, which...

Utility segment, sure. Sure. Good question, Bill. You walk that fine line from competing with your customers and actually being a customer, developing your whole product for us. And we are looking at accelerating that. So given how we performed on the first three, while it's only three, at the end of the day, that was significant demand at the high end of our rental range, right? We were forecasting this out to be $2,400 a month, and I think those rented out at $2,800 a month. And we probably could have had a little bit of strength there as well. But we were more interested in making sure that we got occupants there so that we are understanding how that whole process works. Moving into the second phase, while we reserve 46 of those, there's a portion of that second phase that we're looking at that can be between 100 and 160 units. So you could see as much as 200 units coming to market on that second phase. And that is all in, right? If you're looking at $500,000 and 200 units on that, it's a big number. And so we're going to pursue that. We're going to do it smart. We're going to do it incrementally. We're going to do it while we don't get too far over our skis, but still being aggressive to deliver that and bolster that recurring revenue and then start to talk a little bit about that B word on the previous call.

Well, cash dividends interest me, but anyway...

I can't - I'm paddling.

Okay. Well, the point basically is, I would really emphasize the rental units, and maybe you are competing to some degree, but that should be second to the fact that you're returns for your rental units are so dramatically better than your house…

And just the depreciation of the asset, too.

Well, that's not an important because that's going to give you more leverage for higher end.

Good word.

There are no more questions in queue.

Great. Well, so wrapping this up, certainly if you listen to this on a replay and something came up that piqued your interest, don't hesitate or if you have any technology challenges to call in for a question, don't hesitate to give me a call and happy to drill down on any of the specifics of what it is that we're doing. We're very excited. I think it's been a terrific year. It's been a better year in terms of performance of the stock. Certainly, the volume is up. So we're trading on average about $1 million worth of equity a day. So the liquidity is certainly enhanced on all that. And so I think we'll continue to do more outreach on investor relations, conferences. I'm looking at an opportunity to get to New York, maybe even yet this year. Maybe get to New York sometime in December, and if we do that, we'll certainly send out a note and see if we can huddle up for a lunch or something like that and get to be face-to-face again for a change. So again, we want to thank you all for your continued support and your continued interest in the company. And with that, I would say stay tuned for some more great results in 2022. So thank you all.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.