Greetings, and welcome to Pure Cycle Corporation's Year-End 2023 Earnings Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions after the presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Mark Harding, President and CEO of Pure Cycle. Mark, over to you.

Thank you, Jenny. Good morning, and welcome. As we mentioned, this will be our fiscal year-end 2023 call. Excited to be able to highlight some of our activities, the financial results for the last fiscal year and really kind of give you guys an idea of how the company is doing with each of its business segments. For logistics, there is a slide deck for this presentation. If you go over to our website at purecyclewater.com, there'll be a tab on the landing page that says join the live presentation. You can click on that, and you'll see the slides for that. I've been asked to note for those that are going to be listening to this after the call or listening to the rebroadcast, we'll have the audio presentation put up on the website, so you can click on the audio, and then you'll have the slide deck as well, so you can click through the slides and kind of match the audio to the slides as well if you're listening on a rebroadcast of it. So with that, I'm going to start. And the first thing we've got to do is talk about the forward-looking statements and the fact that statements are not necessarily historical facts or may be incorporated by reference in this presentation. I think most of you are familiar with the forward-looking statements, but we'll get the lawyers out of the room and kind of get on with talking a little bit about the year. Do a little bit different this year. I know most of you are going to be familiar with the company. And so for those of you that are going to be new to the company, you can kind of see -- run to our website. There's a ton of different…

Thank you very much. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from John Rosenberg of Loughlin Water Partners. John, your line is live.

Thank you. Good morning, Mark.

Good morning, John.

Nice to speak with you. One comment and one question. First, I'll get to the question. And by the way, nice to see the progress that you guys are making. What you didn't update and I'm very curious about is how is the school going -- the charter school.

I hate it when I do that. Yeah, it's one of the true successes. One of the things that -- I think it was one of my very first meetings that we did when I -- when we sort of made the decision that we were going to do the land development ourselves was really to center this community on two key principles. One -- well, three key principles. One would be location. Being right off the interstate. We have just great transportation location. I mean, we are literally -- our residents are literally on the interstate within a minute and can go wherever they want to go. The second one was affordability, making sure that we -- affordability, I use that term loosely in the Denver market because nothing is affordable in the Denver market. But when you look at entry level, we wanted to make sure that our homebuilder customers would be competitive at that entry-level product. But the third one was education. And so -- we had our -- when I sat down with our land planners, what we wanted to do was really center the community around -- and do I have a -- I might have -- I guess I don't I was going to -- it is on our website. You'll see a lot of the pictures of the school site. But in terms of the land plan, the school was at the center point of the community, such that every child would have a local community. A local school within the community that they could walk to. And so we went out and kissed a lot of frogs on the charter school opportunity, ended up partnering with what was the true prince. The National Heritage Academy is a group of charter schools that…

That's great. And good to hear that you guys are making progress in that area. I'm sorry, one more question came to mind, something you've talked about in the past, just for an update. What about a big box store locating in proximity, you probably have some retail by now in Sky Ranch or you don't, but Kroger and…

Yeah. We have. We have big box Kroger big box retailers, whether that's a Lowe's or Home Depot or Walmart, any number of those. And surprisingly, they're looking. I'm trying to work on incentivizing some of those folks to come on and they're sort of saying, listen, there's really not much you can do to incentivize us. We're looking at rooftops, we're looking at pull within the region. We're looking at infrastructure and all those sorts of things. And so we do have a good land plan for that commercial. Our residents are dying to get grocery and a fuel station there, but we're probably still 18 months, two years out from getting some of that stuff into a groundbreaking form. But there is a lot of interest and a lot of folks. We -- it isn't that we're not talking to them. We are. They're putting pins in it. They really want to be here. but they need a little bit more rooftops to be able to get their flag in the ground on those.

In other words, everybody wants to be first to be second.

That’s exactly -- that's a great way to phrase it.

Okay. And just lastly, just a comment, Glad to see you guys started on the share repurchase, and I think that's a great validation of your model and cash flow capabilities.

Thank you.

I'll pass it on. Thanks. Good to hear from you.

Thank you very much. Your next question is coming from [Bill Cunningham] (ph), he’s a private investor. Bill, your line is live.

Hi, Mark. Thank you as usual for taking my call. I greatly appreciate it. And I had -- actually, my first question was going to be about commercial, which you just mostly answered -- but I do remember during your Investor Day, I think you made some general comments about the southern section of that commercial being possibly some sort of apartment development which I think was a fairly significant number possibly. I wondered if you might be able to say anything about that.

Yeah. We do have a placeholder for that and can go somewhere between 400 and 600 multifamily units there. And it's a good spot for it because not only does it add density -- and that helps us in terms of assess value and mill levies and taxes that help us with the reimbursables, but it's also a great spot for us on the transitioning between commercial and detached residential. So it will be right along that southern border of that. And you're right. I get lots of interest from folks on that. And really, we want to be a little bit more mature before we put that product up because we want to be we're looking at kind of that being another one of the affordability factors in there. We want to make sure that that's an opportunity for folks that can transition from. And as we look at it, transition from a multifamily to a single family, multifamily rental to a single-family rental to a single-family house and really doing that all within the same community and the same opportunity. And so good that you continue to highlight that, and I apologize for not being more specific about that in some of my commercial detail.

No, that's fine. I just thought I know you're still working out details. So that's why I would kind of ask the question the way I did because I know sometimes your plans constantly -- you have to shift things as markets change and what your current thought is and what kind of feedback you're getting. So that's why I kind of asked the open-ended question than I did. So this was very helpful. And also the school -- I mean the apartment location would be directly adjacent to the school site also, right?

It would. It's not going to -- maybe some of the units may be directly across the street, but some of them are going to be on kind of the eastern portion of that area, really south part of the commercial north part of the residential.

Okay, which is what like a five-minute walk to school from there?

Yeah. Yeah, exactly.

Yeah. So I think -- I guess my point is just it's a very good close location for a dense population to where the school is. So that looks interesting. You’d also -- go ahead.

I was just going to highlight the location of the school is a five-minute walk for everybody. But it's got to be -- it's a five-minute walk uphill for everybody.

Okay. But going home, it's not though, right?

No, no, it is. It’s uphill both ways.

I'm going to walk in both directions, uphill in both directions?

It’s echelon.

Okay. So the other item that you had pointed out right next to your offices at the Investor Day was that large pad site that you thought, I think work would start there in November was your estimate in July? And I think it was something like maybe 16 wells or something would be drilled there. I'm wondering what things might look like with that at the moment.

It is currently fracking.

Good. Great.

And we are delivering water to that one. And then we've got -- I mean, we've had literally our water system on for the entire since really fiscal year-end, all of September. We had a bit of a just because of the technology on that three-mile lateral. They were on a pad site that was in the city of Aurora that we don't provide because that's a city of Aurora issue. But then they had another -- and then they were rolling off that one to one that was in our service area, and that was the gap because they were having some technical difficulties on it. But you're going to see some healthy revenues on the Q1 call in January on the frac.

Good. That's great. Okay. Which is always your slow period on the home sales and things that -- so good. And then let's see, there was -- I think that's it, Mark. So thank you very much.

Thanks, Bill.

Okay. Bye.

Thank you. Your next question is coming from [Bill Miller of Will Mill Design] (ph). Bill, your line is live.

Mark, another great quarter, another great year. Congratulations. .

Thanks, Bill.

And also on your repurchase of stock, my goodness gracious, that is dramatic. I love it. My question…

He can be taught.

You can be taught? I really can't hear that.

He can be taught. Well, you might get a different opinion from my wife.

Well, we didn't ask her this question. You almost always made reference to the acquisition pipeline. And here with interest rates higher, homebuilding seemingly, except in Denver, a [indiscernible] item on anybody's agenda. What about some of the neighboring land at this point?

So that's a great question, and I do -- it's odd that I keep referencing it nothing happening. But what I can tell you is they also haven't sold anybody else. And so it hasn't hurt us not to have acquired those. And in fact, I think that overall raw land prices have weakened just because interest rates have gone up, and it makes it more difficult for as -- for a typical master plan developer. And in our particular case, it's really not that interest rate sensitive because of how we design our product and the price point that we try and compete in. So I would say all of the opportunities that we have been and are continuing to pursue, our continued -- they're still all on the table.

Okay. Great. What do you have to pay for your mortgage now? On your homes rent?

I think we're right -- some of ours, we locked in, I think, four of the units we locked in at that nice attractive interest rate, like 3.5%, something like that. And then the additional 10, I think we're right around 7.5%. So we don't have a builder that wants to buy down our mortgage.

No, that's great. Okay. Well, just keep going, sounds terrific. How are you going to get people to recognize your stock in your company and what you're doing?

Well, we're going to -- as you saw with this presentation, we're trying to highlight some of the -- what you all know and have done the work to find out, but really try and highlight the disconnect between legacy asset balance sheet value and earnings and gross margins and return on assets. So we'll continue to do that. I'm out in the circuit doing presentations at some of the conferences and we'll continue to put up good results and shout as loud as we can into the marketplace.

Great. Well, I wonder if you’re well done, and let's talk soon I hope.

Thanks.

Thank you very much. Your next question is coming from Greg Malachowski from Benchmark. Greg, your line is live.

Hey, Mark. How is it going?

Great. How are you Greg.

Good, good. I just have one quick question in relation to partially the commercial and then also the apartments that were previously discussed. By nature, these are assets that, I guess, in terms of development are difficult for a lot of people right now just because of rates and how expensive it is for you guys, particularly going out of the loan would obviously be very capital intensive. So where do you guys stand there? Have you given any thought to potentially just partnering with people who maybe want to do some of the development or specialize in building apartments and then kind of sharing the overall intensity of the nature of those projects. Obviously, if you partner the potential profit share is less, but if you can say, hey, we've got the land, which for a lot of developers is a pretty big issue right now because land is expensive and rates are high. And they can say, okay, well, if you contribute the land, we can do something on our end and then together, you guys bring some of these products to market. Have you given that any thought versus what you've kind of been doing now where it's mainly you guys carry the brunt of the work and then either get reimbursed through the community developed in the district or through payback from finished lots for builders. Is partnering anything you guys have given any thoughts?

Absolutely. In fact, I will tell you that that's likely to be the way we go about it, not only just on the multifamily but a lot of the commercial. We have so much equity in this project. And with a land basis as low as our land basis is and the fact that we can not only leverage less than $1,000 a lot land basis in it, but also leverage the utility side where we've already been able to bring all the utilities there. We have high margin in utilities. And so we bring a wet finish lot to the equation with very, very efficient means on it, right? Because we buy all the wholesale backbone infrastructure already invested. We've already gotten paid back some of those reimbursables from those historic investments. So carrying that through, yeah, you're right. We can bring that to developer, not only on the multifamily but commercial where they come in, and it doesn't matter. I mean we've got a lot of interest on industrial, where we can get a distribution center out there. And the thinking in on that is we probably need and are going to invest in upgrading the interchange. And so we're in the middle of that right now with CDOT on expanding, and it has a government acronym. But we've got a 1601 study underway which will give us a permit for developing interchange. And we want to be early on that. We have mill levies specifically set aside for that, so that doesn't have to come off our balance sheet. But distribution center there, where we've got higher capacity and more flexibility on truck access, they go vertical on that. We bring the pad side together with the utilities. They take the vertical investment on the infrastructure they get it fully leased out on major long-term leases, and then we exit together with them on something like that. So we've had some of those conversations. That's kind of the detail of it. That's kind of our thinking on it, where it's not that heavy of a lift from our standpoint because of what we've already done on the site. And to your point, we do benefit from the increased value. So again, it's another way for us to vertically integrate without having significant investment in there and investing in ourselves through partnerships with that. We don't know that business. It may not be something we want to take the hits and bruises on learning that business, but there are those that do understand that business and are very good at it.

Okay, awesome. That's great to hear. Thanks.

Thank you very much. [Operator Instructions] We have our next question coming from Elliot Knight of Knight Advisors. Elliot, your line is live.

Thank you. Hi, Mark.

Elliot, good to hear your voice.

Well, 88 years old and still going. That's encouraging.

Would we all be so lucky?

Yeah, true. I'd like to make an observation. You've done an excellent job on this call of illustrating how early in the development stage, the various segments of the business are. And you have built a company, this company is extraordinarily well managed. You've built a company that has great financial strength. I really think it's time to get into the early stage of paying a dividend. You and I have talked about this before. It could be an annual dividend. But I think it would substantially broaden your potential stockholder base if you didn't have to -- PCYO didn't have to have a star after it saying non-dividend paying company. I wish you'd share that thought with the Board and have them do something about it. Great that you're buying back...

You bring up a good point. And again, another -- that's another way that we continue to invest in ourselves and our ownership interest of those that own with us. And we do look at that very seriously every year. And as you've seen, our capital allocation strategy is pretty conservative, but we are continuing to build a very liquid balance sheet. When you take a look at the cash and the receivables, having a $50 million liquidity position is pretty healthy. We have a disciplined approach and one of those metrics are to make sure that your recurring revenue exceeds your G&A, and we're very close to that, Elliot. And so it's easy for us to waiver beyond established and historic metrics like you can declare a dividend once you're recurring revenue exceeds your G&A. And when that visual is there, maybe that becomes something of heightened consideration. But I do agree with you that we will be declaring dividends, and we will be paying them. And we'll have a new access to people who invest in companies that are dividend pay company. So it will broaden our shareholder group. And it may help resolve some of the things that Greg and Bill and others were talking about on getting the market to appreciate and understand the awareness of the company. And so those are all key ways to do that.

Well, that's what we all want -- and my comments included the comment of the financial strength to which you are now alluding. And that's the reason why I think the company is in a position to pay a small dividend. That's all. I love income.

Well, at 60, I do too.

Good. You're just a young whippersnapper.

That's right. I'm just getting started.

Okay. Thanks.

Thank you very much. Well, that appears to be all the questions that we have in the queue at the moment. I'm going to hand back over to Mark for any closing comments.

Thank you, Jenny. So again, a terrific quarter, as you guys can see from the presentation, really -- we do have a lot of pedal in our assets, and we're starting to use that. We're starting to press a little of those. We'll have some overlapping segments of the land development side. We continue to press on expanding our portfolio of the SFRs. So we're continuing to invest in that on that side of it. And then continuing to invest on delivering more water to our industrial customers to make sure that we can continue to capitalize on that demand for oil and gas as they continue to build out that field. So all 3 of those areas, we are expanding and continuing to invest in and really continuing to appreciate and respect the health of the liquidity and the strength of the balance sheet. So with that, we'll look to leverage that in some acquisitions and really continue to add to the pipeline of opportunities for the company. For those that are missing our early morning presentation and picking up on this and have a question as a result of the call or the slides, don't hesitate to give me a holler. And we will look forward to several major market visits. I'll be back in New York probably after the first of the year and see if we can do another kind of Q&A session at the NASDAQ for some of that for our New York family and the other major metropolitan markets across the country. So with that, I wish you all and your families a terrific holidays, and we look forward to continued success in '24. Thanks very much.

Thank you very much, everyone. That 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.