DENVER, CO / ACCESSWIRE / January 9, 2023 / Pure Cycle Corporation (NASDAQ Capital Market:PCYO) announced for the three months ended November 30, 2022, it posted positive net income for the fifteenth consecutive fiscal quarter. The housing market downturn and quick turn in weather proved to be a challenge for our first quarter of fiscal 2023, but we received several surface use payments and other cash payments from oil and gas operators which are a positive sign to what we believe will be a strong year for oil and gas water sales. Highlights for the first quarter of fiscal 2023 are presented below.
Highlights
- Revenues of $1.3 million which drove pre-tax income of $0.3 million
- EBITDA of $0.8 million
- Reconciliation of net income to EBITDA is as follows: net income of $0.2M plus interest expense of $0.05M plus tax expense of $0.1M plus depreciation and depletion of $0.5M equals EBITDA of $0.8 million
- Cash and investments totaled $32.0 million at November 30, 2022
- 67.5 million gallons of water delivered
"While the downward pressures on the housing industry created by rising interest rates and increasing prices took a toll on new home sales which in turn slowed our development activities, we were able to collect a number of surface use payments from oil and gas operators which we believe indicates a strong drilling forecast for the coming year," commented Mr. Harding, CEO of Pure Cycle. "The winter months are always a cyclically slow season for home sales, but each of our builders continue to construct homes at Sky Ranch with over 60 starts in our second phase under construction and over 124 of the 219 tap sales, which correlate to building permits from our homebuilders. We believe our entry level priced homes will remain attractive in this market and believe the future growth at Sky Ranch will remain strong," concluded Mr. Harding.
Financial Summary
Revenue
For the three months ended November 30, 2022 and 2021, we reported total revenues of $1.3 million and $4.3 million. This was generated by our water and wastewater resource development segment ($0.8 million and $1.1 million), our land development segment ($0.5 million and $3.2 million), and our single-family rental business (less than $.01 million in both periods). The decline in revenue was predominately due to the slowing of the housing industry, which resulted in our construction activities being scaled back to align our timing of lot deliveries with the projected construction needs of our homebuilding partners.
For the three months ended November 30, 2022 and 2021, we sold four and nine water and wastewater taps for $0.2 million and $0.3 million. These taps were sold predominately at our Sky Ranch community where we have sold a total of 766 water and wastewater taps since we began developing Sky Ranch in 2017.
As of November 30, 2022, the single-family rental business has three homes built and rented, a fourth house was completed and rented in mid-December 2022, with ten additional units under construction with expected delivery dates throughout fiscal 2023.
Profitability
We continue to be profitable with net income of $0.2 million and $1.5 million for the three months ended November 30, 2022 and 2021. This produced $0.01 and $0.06 of earnings per fully diluted share for the periods presented.
Working Capital
We reported working capital (current assets less current liabilities) of $23.8 million as of November 30, 2022, with $32.0 million of cash, cash equivalents and short-term investments.
"Although the housing market softened near the end of our fiscal 2022, which continued into Q1-2023, our strong balance sheet remains our differentiator. We have positioned ourselves with three very strong and long-term producing assets that have in the past proven to weather the inevitable up and down-market cycles. We continue to invest in our core asset, water, which we believe is the most valuable long-term, appreciable asset we can own," commented Kevin McNeill, CFO of Pure Cycle. "Fiscal 2023 didn't start as strong as fiscal 2022, but with the projected oil and gas operations and continued focus on providing a reasonably priced lot in a market that is desperate for reasonably priced homes, we believe fiscal 2023 will pick up quickly," concluded Mr. McNeill.
Operational Summary
Water and Wastewater Resource Development
For the three months ended November 30, 2022 and 2021, we delivered 67.5 million gallons and 77.3 million gallons to customers, a 13% decrease. This decrease in water sales was primarily due to the reduced construction water needs at Sky Ranch from slowed construction activities because of the downturn in the housing market overall, and declines in water sales as less new landscaping was installed in Q1-2023, which requires significantly more water to help it establish. Water and wastewater tap sales declined as well for the three months ended November 30, 2022 compared to 2021 due to the timing of closings at Sky Ranch. Tap sales are driven by building permit applications and are not contractually established with the builders. As evidenced by the $1.2 million of surface use payments we received, we believe we will see strong water sales to oil and gas operators the remainder of fiscal 2023.
We also continued our acquisition of water rights with the acquisition of three deep water wells in the Lost Creek Basin for $0.3 million, which will be added to our other Lost Creek Water and eventually transferred to the Denver market for use in our Denver service area.
Land Development
Lot sales revenue decreased for the three months ended November 30, 2022 compared to 2021 due to the reduction of construction activities to align our deliverables with the timing of home construction by the homebuilders. Because lot sale revenue is recognized predominately as construction progresses, revenue will fluctuate due to timing of construction activities.
Single Family Rentals
During fiscal 2022, we contracted for the construction of eleven more rental homes, which all began construction in fiscal 2022, and one home was delivered in December 2022. We expect the next ten units to be delivered at various dates throughout fiscal 2023.
Share Repurchase Authorization
On November 2, 2022, our Board of Directors approved a stock repurchase program. The program is open-ended and authorizes repurchases of up to an aggregate of 200,000 shares of common stock in the open market. As of the date of this release, no shares have been repurchased under the repurchase program.
The following table presents our unaudited results of operations for the three months ended November 30, 2022 and 2021:
| Three Months Ended | ||||||||
(In thousands, except share information) | November 30, 2022 | November 30, 2021 | ||||||
Revenues: | ||||||||
Metered water usage from: | ||||||||
Municipal customers | $ | 121 | $ | 147 | ||||
Commercial customers | 392 | 560 | ||||||
Wastewater treatment fees | 63 | 55 | ||||||
Water and wastewater tap fees | 150 | 261 | ||||||
Lot sales | 513 | 2,945 | ||||||
Project management fees | 8 | 248 | ||||||
Single-family rentals | 25 | 8 | ||||||
Special facility projects and other | 68 | 49 | ||||||
Total revenues | 1,340 | 4,273 | ||||||
Expenses: | ||||||||
Water service operations | 479 | 289 | ||||||
Wastewater service operations | 138 | 129 | ||||||
Land development construction costs | 143 | 531 | ||||||
Project management costs | 72 | - | ||||||
Single-family rental costs | 10 | 3 | ||||||
Depletion and depreciation | 378 | 354 | ||||||
Other | 106 | 77 | ||||||
Total cost of revenues | 1,326 | 1,383 | ||||||
General and administrative expenses | 1,388 | 1,325 | ||||||
Depreciation | 115 | 85 | ||||||
Operating (loss) income | (1,489 | ) | 1,480 | |||||
Other income (expense): | ||||||||
Interest income - related party | 247 | 361 | ||||||
Interest income - Investments | 228 | 1 | ||||||
Oil and gas royalty income, net | 116 | 97 | ||||||
Oil and gas lease income, net | 19 | 48 | ||||||
Other, net | 1,218 | 11 | ||||||
Interest expense, net | (50 | ) | (7 | ) | ||||
Income from operations before income taxes | 289 | 1,991 | ||||||
Income tax expense | 130 | 477 | ||||||
Net income | $ | 159 | $ | 1,514 | ||||
Earnings per common share - basic and diluted | ||||||||
Basic | $ | 0.01 | $ | 0.06 | ||||
Diluted | $ | 0.01 | $ | 0.06 | ||||
Weighted average common shares outstanding: | ||||||||
Basic | 23,985,788 | 23,917,908 | ||||||
Diluted | 24,087,893 | 24,219,236 | ||||||
The following table presents our consolidated financial position as of November 30, 2022 (unaudited) and August 31, 2022 (audited):
(In thousands, except shares) | November 30, 2022 | August 31, 2022 | ||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 16,843 | $ | 34,894 | ||||
Investments | 15,000 | - | ||||||
Trade accounts receivable, net | 1,240 | 2,425 | ||||||
Prepaid expenses and other assets | 427 | 467 | ||||||
Total current assets | 33,510 | 37,786 | ||||||
Restricted cash | 2,328 | 2,328 | ||||||
Investments in water and water systems, net | 58,711 | 58,763 | ||||||
Construction in progress | 2,484 | 1,224 | ||||||
Single-family rental units | 963 | 975 | ||||||
Land and mineral rights: | ||||||||
Held for development | 7,287 | 6,773 | ||||||
Held for investment purposes | 451 | 451 | ||||||
Other assets | 2,454 | 2,463 | ||||||
Notes receivable - related parties, including accrued interest: | ||||||||
Reimbursable public improvements | 18,487 | 17,208 | ||||||
Other | 1,242 | 1,120 | ||||||
Operating leases - right of use assets, less current portion | 120 | 138 | ||||||
Total assets | $ | 128,037 | $ | 129,229 | ||||
LIABILITIES: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,039 | $ | 849 | ||||
Accrued liabilities | 920 | 2,029 | ||||||
Accrued liabilities - related parties | 653 | 560 | ||||||
Income taxes payable | 2,645 | 2,530 | ||||||
Deferred lot sale revenues | 3,889 | 4,275 | ||||||
Deferred water sales revenues | 552 | 570 | ||||||
Debt, current portion | 10 | 10 | ||||||
Total current liabilities | 9,708 | 10,823 | ||||||
Participating interests in export water supply | - | 323 | ||||||
Debt, less current portion | 3,947 | 3,950 | ||||||
Deferred tax liability, net | 1,090 | 1,075 | ||||||
Lease obligations - operating leases, less current portion | 44 | 62 | ||||||
Total liabilities | 14,789 | 16,233 | ||||||
Commitments and contingencies | ||||||||
SHAREHOLDERS' EQUITY: | ||||||||
Series B preferred shares: par value $0.001 per share, 25 million authorized; 432,513 issued and outstanding (liquidation preference of $432,513) | - | - | ||||||
Common shares: par value 1/3 of $.01 per share, 40.0 million authorized; 23,986,645 and 23,980,645 outstanding, respectively | 80 | 80 | ||||||
Additional paid-in capital | 174,243 | 174,150 | ||||||
Accumulated deficit | (61,075 | ) | (61,234 | ) | ||||
Total shareholders' equity | 113,248 | 112,996 | ||||||
Total liabilities and shareholders' equity | $ | 128,037 | $ | 129,229 | ||||
Q1-2023 EARNINGS CALL
Pure Cycle will host a conference call on Tuesday, January 10, 2023, at 8:30AM Eastern (6:30AM Mountain) to discuss the financial results and answer questions. Call details are presented below. We will post a detailed slide presentation, which provides an overview of Pure Cycle and presents summary financial results on our website which can be accessed at www.purecyclewater.com.
When: 8:30AM Eastern (6:30AM Mountain) on January 10, 2023
Call in number: 888-506-0062 (access code: 832069)
International call-in number: 973-528-0011 (access code: 832069)
Replay number: 877-481-4010 | 919-882-2331 (passcode: 47370)
Replay available until: January 24, 2023 at 8:30AM ET
Event link: https://www.webcaster4.com/Webcast/Page/2247/47370
Company Information
Pure Cycle continues to diversify its operations, grow its balance sheet, and drive recurring revenues. We operate in three distinct business segments, each of which complement the other. At our core, we are an innovative and vertically integrated wholesale water and wastewater service provider. In 2017, we launched our land development segment which develops master planned communities on land we own and to which we provide water and wastewater services. In 2021, we launched our newest line of business, the rental of single-family homes located at Sky Ranch, which provides long-term recurring revenues, furthers our land development operations, and adds more customers to our water resource segment.
Additional information, including our recent press releases and SEC filings, is available at www.purecyclewater.com, or you may contact our President, Mark W. Harding, or our CFO, Kevin B. McNeill, at 303-292-3456 or [email protected]. Be sure to follow Pure Cycle on Twitter @purecyclecorp.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are all statements, other than statements of historical facts, included in this press release that address activities, events or developments that we expect or anticipate will or may occur in the future, such as statements about the following: our positioning to continue to grow through this market cycle, the completion and delivery of our rental units, timing of development at Sky Ranch, tap sales, and home sales by our home builder customers. The words "anticipate," "likely," "may," "should," "could," "will," "believe," "estimate," "expect," "plan," "intend" and similar expressions are intended to identify forward-looking statements. Investors are cautioned that forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause actual results to differ materially. Factors that could cause actual results to differ from projected results include, without limitation: home mortgage interest rates, inflation, and other factors impacting the housing market and home sales; the risk factors discussed in Part I, Item 1A of our most recent Annual Report on Form 10-K for the fiscal year ended August 31, 2022; and those factors discussed from time to time in our press releases, public statement and documents filed or furnished with the U.S. Securities and Exchange Commission. Except as required by law, we disclaim any obligation to update publicly any forward-looking statements, whether because of new information, future events or otherwise.
SOURCE: Pure Cycle Corporation