Good morning, everyone, and welcome to Pure Cycle 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 Ranch. So with that, let me go ahead and start the presentation. Our first slide is always our forward-looking statement, which includes the fact that statements are not historical facts contained in reference in this corporation are forward-looking statements. I'm sure most of you are familiar with our forward-looking statements qualifier. 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, in the event that they have any specific questions that they might be able to weigh in on. But a great team of professionals that continue to really provide leadership to the company and really all segments of what it is that we're doing as well as our Board of Directors. We have a terrific Board, very heavyweight Board for a company of 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…

Mark?

Yes, Elliot.

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

Good question. '27 is going to be a large component of Phase 2E 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. It'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 wouldn't say that, that would be a good clear guidance. But when we take a look at that commercial and bringing on 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 taps 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've 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 applied 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 included.

Yes.

Okay.

It is included.

Mark, Tucker Andersen, can you hear me?

I can, Tucker. Nice to hear from you.

First, I'd like to take a minute as long as you guys were nice enough to provide it to shout out hello to my old friend, Elliot Knight. Anyway, 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 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 constantly knocking on doors with projects, I think are -- 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 and 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 it -- I'd say we're more cautious about water acquisitions than 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 where we buy that land, we have water that we can serve it. We have infrastructure that's there that we can serve it and then building into the land portfolio and then single-family rental portfolio, that really -- that drives all 3 segments where a water acquisition would be nice. It will be valuable because we not make it 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 deep portfolio there. So Tucker, I would say they have to be the right water right in the right location.

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

Third, in terms of the -- 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 a 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. Where 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 as fast. They may end up having to commit 700 homes worth of water to one user, and that user is not going to have the same tax base as that 700 homes worth would. And so we have the ability of providing that water to them. We're long. It's a good allocation for us. The siting 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's location, it 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 sites for data centers. So we're very optimistic that, that might lead to a great opportunity for us.

And last, my question is, in your market, what's happening to price appreciation in general in the Denver market on existing homes? And two, is your first phase or maybe your first 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. It's terrific for those homeowners. 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 $430,000, that appreciation is going to -- there's still no homes for sale sub-$500,000. And so there's a lot of opportunity for appreciation of those homes sub-$500,000.

So that makes Sky Ranch then -- that's one of the real attractions for your existing builders in effect?

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 and around the metropolitan area, but we're getting new homebuilders in our existing project.

Thanks Mark. Keep up the good work.

This is Joakim from Circulus 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...

Say that again...

The guidance range that you provided here...

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 back and call, right? They pay us a lot of -- a high rate for delivering raw water, and they want a ton of water, but they go from 0 to 100 in days, right? And 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've constructed their pad sites, and so it's a matter of keeping that rig on site. So I know they drilled 10 wells on one pad site. They're currently drilling, I think, another dozen wells on another pad site. So 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-margin opportunity for us.

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

Yes. Great question. And there's 2 benchmarks for that. We continue to see strength and appreciation in the tap fees. 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 farm that we bought in that location was about 4 years ago -- 4 or 5 years ago. We paid about $9,700 per acre foot 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 and 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 3. 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 2 to kind of stay within our capacity limits of the interchange. What we kind of see in 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 expecting in the future. So I don't know if you want to comment on that.

Yes, 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 landlord 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 stats. So you're right. We continue to believe that's our most valuable asset, right? How do you monetize water? It's nice to buy water right, but it's very hard to kind of monetize water rights other than providing service. 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 the 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 good friend, Dick Guido on the call, who is one of our -- it dates back to 1990. And Elliot, you were around in 1990 as likely Tucker was very closely after that. But it was so far away from Denver area, right? You take a look at the migration of the Denver area over that period of time and surrounding Lowry and where the landlord was looking at 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 activity 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 conserved. Some of those lands are going to be for a multi-revenue use purpose. Some of those lands are going to be developed.…

Mark, can you hear me?

I can.

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. I just kind of wanted to kind of give you 2 things because we talk about that interchange all the time and to give you a relative perspective of the importance of that relative to the overall project.

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

It is, yes.

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

So I think we get that -- we've been working on that permit for the last 3 years with the county and CDOT. We're fairly close to getting that submittal. And, you know, it -- the submittal on it is going to be like 2,000 pages of -- you name it, engineering, rights of ways, designs, permitting, traffic control, everything associated with it. And then they -- each stage of that over the last 3 years, they've reviewed, they've commented, they've kind of set the parameters on that. 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 then we look to go to bid for the interchange sometime end of the year and be under contract for construction in 2027. And it will only take probably 6, 9 months -- probably 9 months to construct. It's not a -- as you saw, it's not a hugely complex one, and we're able to take advantage of existing on, 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 talk any -- mention 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 to that because it's just replacing an existing interchange. So if it were a new interchange, it might be a little bit different process, but because we're just -- it's an existing interchange replacement upgrade.

Mark, yes, so I just wanted to ask on the data center 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 it 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 be able to charge them a similar rate for that?

Good questions, both of them. On the first one, location, we're sort of talking -- 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 nobody would be living next to it. Next to it being a relative term, what is next to it, is -- next to it is being a few hundred feet, is next to it being 0.25 of a mile. 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 buffering opportunity for that. We're not just looking at that one site. We're looking at other sites that are going to be more 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 access. That we have that site, that site is 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 might look like, that's a little bit -- there's a lot of nuances in that because they don't need full potable water, right? They don't need that same level of service that -- they're not going to be drinking that water…

Thank you, Mark.

Thanks all.