PURE CYCLE CORP (PCYO)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered revenue of $5.75M, net income of $3.94M, and diluted EPS of $0.16, driven by a sharp increase in oil & gas royalty income and higher tap fee activity; gross profit was $3.67M with ~64% GM .
• Year-over-year, revenue rose 6.8% ($5.75M vs $5.39M), EPS increased 78% ($0.16 vs $0.09), and net income grew 91% ($3.94M vs $2.07M), aided by royalty income from six new wells completed in 2024 .
• Management reiterated FY2025 guidance around ~$31M revenue, ~$23.7M gross profit, and ~$0.52 EPS; Q1 represents 18.6% of revenue and 15.4% of gross profit targets, with timing effects in Land Development expected to normalize in subsequent quarters .
• Consensus estimates via S&P Global were unavailable at the time of analysis; no beat/miss determination vs Street can be made. Result and estimates comparison includes N/A placeholders (Wall Street consensus unavailable via S&P Global during this session).

What Went Well and What Went Wrong

What Went Well

• Strong profitability and margin quality: net income of $3.94M; EBITDA of $5.84M; gross profit of $3.67M with ~64% GM. “We had an outstanding quarter in terms of royalty income… earned about $2.6M in oil and gas royalties” .
• Tap fee momentum and customer growth: 38 taps sold for $1.5M vs 15 taps/$0.6M YoY; management highlights entry-level positioning and efficient delivery of finished lots to builders .
• Clear confidence in 2025 outlook: “Our Q1 results are in line with our expectations… we expect to see another record year for revenues and earnings” . CFO added Sky Ranch phases are progressing with 949 finished lots delivered and additional phases under development .

What Went Wrong

• Water deliveries fell to 301 acre-feet vs 623 YoY, reflecting lower sales to oil & gas operations; management emphasizes this is variable and not core residential revenue .
• Land Development revenues are timing-dependent; Q1 lot sale revenue increased YoY but management noted overall YTD revenue pacing below budget due to development timing, expected to catch up next quarter .
• Operating expenses rose: G&A $1.79M vs $1.44M YoY, reflecting growth investments and concurrent multi-phase development .

Financial Results

Segment revenue breakdown:

KPIs:

Guidance Changes

Management indicated Q1 represents ~18.6% of FY revenue and ~15.4% of FY gross profit targets, with timing in Land Development expected to normalize, supporting the maintenance of full-year guidance .

Earnings Call Themes & Trends

Management Commentary

• “We had an outstanding quarter in terms of royalty income… earned about $2.6 million in oil and gas royalties… aiding our gross margins and quarterly income” – Mark Harding, CEO .
• “Our Q1 results are in line with our expectations for fiscal 2025 and we expect to see another record year for revenues and earnings” – Mark Harding, CEO .
• “To date, we have delivered 949 finished lots… construction underway on 228 lots in Phase 2C… commenced development on 218 lots in Phase 2D” – Marc Spezialy, CFO .
• “Entry-level price point… buy downs at Sky Ranch are significantly less than in other price points (e.g., ~$15K vs ~$120K elsewhere)” – Mark Harding, CEO .

Q&A Highlights

• Royalties outlook: New wells produce strong early royalties with a decline curve thereafter; broader O&G development (hundreds of wells permitted) supports multi-year water sales and royalties growth in 2026–2030 .
• Mortgage incentives dynamics: Sky Ranch’s entry-level pricing significantly reduces builder incentives versus higher-priced communities, sustaining absorption despite rates .
• Dividend path: Board actively monitoring recurring revenue from water accounts and SFR; “likely sooner rather than later” as revenue base scales .
• Commercial timeline: Threshold of ~1,500 rooftops plus interchange upgrades point to initial commercial transactions in 2026 and monetization into 2027 .

Estimates Context

• Street consensus (EPS and revenue) for Q1 2025 via S&P Global was unavailable during this session; therefore, no beat/miss determination vs estimates can be made. Management reiterated guidance for FY2025 revenue ($31M), gross profit ($23.7M), EPS ($0.52), and net income ($12.55M ).

Key Takeaways for Investors

• Q1 profitability was driven by non-recurring but material royalty income and stronger tap fee activity; monitor sustainability of royalty tailwinds and continued tap conversion as phases progress .
• Land Development timing remains the key swing factor intra-year; multi-phase progress (2C/2D) positions revenues to accelerate later in FY2025, supporting maintained guidance .
• Entry-level positioning provides a relative advantage on mortgage buy-downs and supports absorption; builder partner momentum is intact .
• Recurring revenue base continues to expand (water accounts and SFR); dividend feasibility is increasingly discussed at the Board as these streams scale .
• Share repurchases remain a capital allocation lever; management views shares as undervalued and continues opportunistic buybacks .
• Watch catalysts: Phase 2C finished lot deliveries (FY2025), Phase 2D development (FY2026), potential commercial transactions starting 2026, and O&G activity ramp in 2026–2030 .
• Risk monitor: variability in O&G water sales and royalties, macro impacts on housing affordability and builder incentives, and development timing across subphases .

Notes: All numerical data and statements are sourced from the Q1 2025 8-K press release and exhibits, and the Q1 2025 earnings call transcript, with additional prior-quarter context from Q2/Q3 2025 and Q4 2024 filings and presentations .