Business Overview and History Pure Cycle Corporation has been accumulating a portfolio of valuable water rights and land interests along the Front Range of Colorado for over 30 years. The company has built an extensive network of wholesale water production, storage, treatment and distribution systems, as well as wastewater collection and treatment systems, which it operates and maintains to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region.
The company's primary land asset, known as Sky Ranch, is located in one of the most active development areas in the Denver metropolitan region along the rapidly developing I-70 corridor. Pure Cycle began developing lots at Sky Ranch for residential, commercial, retail, and light industrial uses in 2017. The first phase of the Sky Ranch development included 505 single-family, detached residential lots which the company sold to national homebuilders.
In fiscal year 2021, Pure Cycle launched a new line of business - a single-family rental business. The company began retaining ownership of certain residential lots at Sky Ranch to build and rent single-family homes. As of November 30, 2024, Pure Cycle had completed 14 single-family rental homes on these lots.
Over the years, Pure Cycle has faced challenges common to companies operating in the water and land development industries. The company has had to navigate complex regulatory environments, manage construction projects, and work with various governmental entities and homebuilder partners. However, Pure Cycle's strategic acquisition of valuable water rights and land interests decades ago has provided a strong foundation for the company's success.
Financial Performance and Ratios Pure Cycle's financial performance has been consistently strong, with the company reporting record revenues and net income in recent years. For the fiscal year ended August 31, 2024, the company reported total revenue of $28.75 million, a 97% increase from the prior year. Net income for the same period reached $11.61 million, up 147% year-over-year, translating to earnings per share of $0.48.
In the most recent quarter (Q1 2025), Pure Cycle reported revenue of $5.75 million, representing a 7% increase from $5.39 million in Q1 2024. Net income for the quarter was $3.94 million, a significant 91% increase from $2.06 million in the same period last year. This growth was primarily driven by higher lot sales and oil/gas royalties, partially offset by lower water sales to oil and gas customers.
The company's annual operating cash flow for fiscal year 2024 was $2.21 million, while annual free cash flow was negative $461,000. Quarterly operating and free cash flow figures for Q1 2025 were not provided.
Liquidity The company's balance sheet remains healthy, with $19.03 million in cash and cash equivalents as of November 30, 2024, and a current ratio of 3.56, indicating ample liquidity to fund its ongoing operations and capital investments. Pure Cycle's debt-to-equity ratio of 0.002 underscores its conservative financial management, providing the flexibility to capitalize on future growth opportunities. The company also has a $5 million operating line of credit, which was undrawn as of November 30, 2024, further enhancing its liquidity position.
Operational Highlights Pure Cycle's diversified business model has allowed the company to navigate the dynamic Denver real estate market effectively. In its water and wastewater segment, the company has continued to grow its customer base, with a 21% compound annual growth rate in utility customers over the past three years. This steady expansion has contributed to the segment's revenue, which exceeded $5.5 million in the most recent fiscal year.
During the three months ended November 30, 2024, the Water and Wastewater Resource Development segment generated $3.06 million in revenue, consistent with the prior year period. Municipal water usage revenue increased by 14% to $230,000, while commercial water usage revenue decreased by 52% to $1.01 million, primarily due to a decrease in water sales to oil and gas operators. Wastewater treatment fees increased slightly to $89,000, and water and wastewater tap fees increased significantly by 152% to $1.47 million, driven by the timing of finished lots at the company's Sky Ranch development.
The company's land development activities have also been a significant driver of growth. Pure Cycle has been actively developing its Sky Ranch community, with the first phase completed and the second phase well underway. The company has reported over $80 million in cumulative lot sales to date, with average lot prices in the latest phase rising by approximately 50% compared to the initial phase.
In the Land Development segment, Pure Cycle generated $2.57 million in revenue during Q1 2025, a 29% increase compared to the prior year period. This increase was driven by a 22% rise in lot sales revenue to $2.32 million, as the company continued construction and development activities in Phases 2A, 2B, and 2C of the Sky Ranch project. Project management revenue increased by 153% to $253,000.
In the single-family rental segment, Pure Cycle has constructed 14 homes and plans to expand this portfolio to over 200 units in the coming years. This recurring revenue stream has the potential to provide a stable and growing income source, complementing the company's other business lines. For Q1 2025, the Single-Family Rental segment generated $124,000 in revenue, a 14% increase compared to the prior year period.
Risks and Challenges While Pure Cycle's diversified business model provides a degree of resilience, the company is not without its risks. The Denver housing market, like many other metropolitan areas, has experienced volatility in recent years, with fluctuations in interest rates, housing prices, and consumer demand. Pure Cycle's land development and SFR activities could be impacted by broader market conditions, requiring the company to adapt its strategies accordingly.
Additionally, the company's reliance on water resources and the associated regulatory environment presents ongoing challenges. Pure Cycle must navigate complex water rights, permitting, and environmental regulations to ensure the continued viability and sustainability of its operations.
Outlook and Guidance Pure Cycle has provided guidance for its fiscal year 2025, projecting total revenue of approximately $31 million, gross profit of around $23 million, and net income of $0.52 per diluted share. The company noted that it delivered $0.16 per share in the first quarter of fiscal year 2025, getting off to a strong start in meeting its full-year net income guidance.
The company's ongoing development of the Sky Ranch community, combined with the expansion of its SFR segment and the steady growth in its water and wastewater business, suggest a continued trajectory of robust financial performance. Pure Cycle expects to reach 5,000 total connections (residential and commercial) at its Sky Ranch development and grow its single-family rental portfolio to between 200-300 homes over time.
Furthermore, Pure Cycle's strategic positioning in the Denver metropolitan area, coupled with its diversified business model and strong financial position, position the company well to capitalize on the region's long-term growth prospects. The company estimates that the total addressable market for its services within its service area could support over 60,000 connections, versus its current 5,000 connections, indicating substantial room for future growth.
Conclusion Pure Cycle Corporation's multifaceted business model, encompassing water resources, land development, and single-family home rentals, has enabled the company to navigate the dynamic Denver real estate market with impressive results. With a strong financial foundation, a track record of consistent growth, and a strategic foothold in one of the country's fastest-growing regions, Pure Cycle appears well-positioned to continue delivering value to its shareholders. The company's focus on entry-level pricing at Sky Ranch has helped it navigate changing market conditions better than some competitors, and its continued progress in developing additional phases at Sky Ranch suggests ongoing opportunities for growth and value creation.