Pure Cycle Q3 2025 slides: three-segment strategy drives 57% YTD gross margins

Introduction & Market Context

Pure Cycle Corporation (NASDAQ:PCYO) reported its third-quarter fiscal 2025 results on July 10, highlighting the company’s progress across its three business segments: water utilities, land development, and single-family rentals. The stock saw premarket gains of 4.32%, trading at $11.10 after closing the previous day at $10.64.

The company’s vertically integrated business model continues to generate strong margins despite headwinds in the housing market, including weakening consumer confidence and elevated mortgage rates. Pure Cycle’s strategic positioning in the Denver market, particularly in the affordable housing segment, has helped maintain momentum toward its annual financial targets.

Quarterly Performance Highlights

For Q3 2025, Pure Cycle reported revenue of $5.1 million, gross profit of $3.3 million (63% margin), and net income of $2.3 million, translating to earnings per share of $0.09. While these figures represent a decrease compared to Q3 2024 due to lower lot sales revenue, the company’s year-to-date performance remains strong.

As shown in the following chart detailing quarterly financial performance:

Year-to-date, Pure Cycle has generated $14.9 million in revenue and $8.5 million in gross profit (57% margin), representing 48% of its full-year 2025 revenue guidance and 36% of gross profit guidance. Net income for the first nine months reached $7 million ($0.29 EPS), achieving 56% of the company’s full-year target.

The following chart illustrates Pure Cycle’s progress toward its annual financial goals:

Detailed Financial Analysis

Pure Cycle’s financial performance varies across its three business segments. The water utilities segment generated $1.7 million in water/wastewater revenue, $149,000 in oil and gas revenue, and $250,000 in tap fees during Q3 2025. This segment benefits from the company’s substantial water rights portfolio valued at $31.7 million, with total water assets (net) of $65 million.

The land development segment continues to progress through multiple phases at Sky Ranch. Revenue contribution by phase in 2025 shows Phase 2C as the largest contributor at $4.1 million. The company has delivered 1,297 lots to date across all phases, with varying completion percentages: Phase 1 and 2A at 100%, Phase 2B at 96%, Phase 2C at 68%, and Phase 2D at 29%.

The single-family rental segment generated quarterly rent revenue of $131,000 from 14 completed homes, achieving a gross margin of 69%. This represents growth from $34,000 in Q3 2023 and $123,000 in Q3 2024, demonstrating the increasing contribution of this recurring revenue stream.

Pure Cycle’s single-family rental portfolio metrics are illustrated in the following visualization:

The company maintains a strong liquidity position with $20.5 million in cash, investments, and restricted cash, plus a $40.6 million receivable from CAB bearing 6% annual interest, for total liquidity of $61.1 million.

Strategic Initiatives

Pure Cycle’s Sky Ranch development represents a significant long-term growth driver, with projected capacity for over 5,000 single-family equivalent units (SFEs) and potential development revenue exceeding $600 million. The company has completed or substantially completed earlier phases and is making progress on Phases 2C and 2D.

The following chart shows Sky Ranch’s capacity projections and completion status:

In the water segment, Pure Cycle owns over 30,000 acre-feet of water rights, with current system capacity of approximately 3,000 acre-feet per year. The company’s water portfolio can potentially serve around 60,000 connections, which at current rates would generate approximately $2.3 billion in revenue.

The company’s strategic water position is illustrated in this development encroachment map:

Pure Cycle is also expanding its single-family rental portfolio, which provides recurring revenue, asset appreciation, and higher returns on investment compared to simply selling lots. The company plans to grow this segment to over 100 homes in the next five years and potentially over 200 homes at Sky Ranch buildout.

Forward-Looking Statements

Pure Cycle’s profitability is projected to grow significantly through 2028, with increases across all revenue segments. The company forecasts EPS growth from $0.52 in 2025 to $1.63 in 2028, with ROE improving from 9.26% to 19% during the same period.

The following chart illustrates Pure Cycle’s projected profitability trends through 2028:

Management has outlined specific short-term (3-5 years) and long-term outlooks for each business segment. For water utilities, the company expects customer growth to 2,500 accounts in the short term and expansion to 5,000 total connections at Sky Ranch buildout. In land development, Pure Cycle anticipates steady lot sales with increasing margins over the next five years, followed by completion of Sky Ranch and expansion to Lowry Ranch. The rental segment is projected to grow to over 100 homes in the next five years and potentially over 200 homes long-term.

The company continues its stock repurchase program, having bought back 87,926 shares at an average price of $10.27 through Q3 2025.

Market Challenges and Opportunities

Pure Cycle acknowledges several market headwinds, including weakening consumer confidence and elevated mortgage rates. However, the company also sees opportunities in market segmentation and the low inventory of entry-level housing in the Denver market.

The company’s diversified business model provides some insulation from housing market fluctuations, with recurring revenue from water utilities and rental properties complementing the more cyclical land development segment. Pure Cycle’s unique water rights position in a growing metropolitan area represents a significant competitive advantage, as highlighted by board member Dan Kozlowski’s statement that "Our water is in the right place."

As Pure Cycle progresses through its fiscal year 2025, the company appears well-positioned to meet its annual guidance targets while continuing to execute on its long-term growth strategy across all three business segments.

Full presentation:

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