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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

MetricQ1 2024Q4 2024Q1 2025Consensus (Q1 2025)
Revenue ($USD Millions)$5.386 $12.560 $5.752 N/A
Net Income ($USD Millions)$2.065 $6.605 $3.937 N/A
Diluted EPS ($USD)$0.09 $0.27 $0.16 N/A
EBITDA ($USD Millions)$3.420 $9.451 $5.843 N/A
Gross Profit ($USD Millions)$3.342 $9.774 $3.666 N/A

Segment revenue breakdown:

Segment Revenue ($USD Millions)Q1 2024Q1 2025
Water & Wastewater Resource Development$3.3 $3.1
Land Development$2.0 $2.6
Single-Family Rentals$0.109 $0.124

KPIs:

KPIQ1 2024Q1 2025
Taps Sold (#)15 38
Tap Fee Revenue ($USD Millions)$0.581 $1.466
Water Deliveries (acre-feet)623 301
Oil & Gas Royalty Income ($USD Millions)$0.034 $2.807
Working Capital ($USD Millions)N/A$20.3
Cash & Equivalents ($USD Millions)N/A$19.0
Finished Lots Delivered (cumulative) (#)N/A949
SFR Homes Rented (#)N/A14

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025~$30.85M ~$30.98M Maintained (minor update)
Gross ProfitFY 2025~$23.74M ~$23.74M Maintained
Net IncomeFY 2025~$12.54M ~$12.55M Maintained
EPSFY 2025~$0.52 ~$0.52 Maintained
Tap Fee Increase AssumptionMulti-year~3% annual ~3% annual Maintained
Share Repurchase ProgramOngoingRemaining 130,074 shares (as of Q1 2025) Remaining 118,074 shares (as of Q1/Q2 2025) Continued execution

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

TopicQ1 2025 (current)Q2 2025Q3 2025Trend
Oil & gas royalties$2.6M royalties from six new wells; strong near-term, normal decline curve later; additional permitted wells underpin multi-year outlook Royalties bolstered quarterly earnings; O&G deliveries weaker but expected to pick up in late 2025–2026 ~$1.14M quarterly; ~$5.86M YTD royalties; continued diversification Improving diversification; near-term tailwind
Entry-level housing & mortgage incentivesEntry-level price point reduces buy-down incentives vs higher-priced communities Seasonally slow quarter; maintaining positive NI; entry-level demand supportive Timing of lot deliveries caused softer revenue vs prior year; entry-level positioning remains a differentiator Resilient demand; timing-driven variability
Lot deliveries & phase progress949 finished lots delivered; Phase 2C and 2D under active development 2C utilities/roadwork; 2D grading finalized; 2E platting; multi-phase build 2C final paving underway; 2D utilities begun; 2E started; multi-phase concurrency Multi-phase execution; accelerating into year-end
Water deliveries301 AF vs 623 AF YoY due to lower O&G water sales 64 AF in Q2; O&G water sales seasonally/permit-driven 76 AF in Q3; YTD 443 AF vs 1,422 AF prior year Variable; non-core to residential recurring revenue
Dividend policyBoard monitoring; “likely to be sooner rather than later” contingent on recurring revenue scaling Not discussed as formal targetNot discussed as formal targetBuilding preconditions; potential medium-term catalyst
Share repurchasesOngoing program; view shares as undervalued; continued buybacks Program continued; updated remaining authorization Noted as part of capital allocation Supportive capital return

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 .