Pure Cycle Corp (PCYO) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen, and thank you for your patience. You've joined the Pure Cycle midyear fiscal 2010 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Mr. Mark Harding. Sir, you may begin.

Thank you very much. Good afternoon. I'd like to welcome you all to our midyear 2010 earnings call. What I'd like to do this afternoon is walk you all through a brief overview of the corporation and some of our activities and what our efforts have entailed through midyear this year. Following that I'll give you a brief overview of the financial performance through our midyear term.

We have a detailed corporate overview presentation on our website at PureCycleWater.com, which you can review in detail at your convenience to give you a more in-depth overview of the company, its operations and our financial performance for the first six months.

Rather than walking through each of the individual slides, what I'd like to do is just give you that corporate overview for those who are listening who are new to the company, and then follow that by a recap of our first six months of our financial performance, and then take a few questions from our audience.

Just to give you a brief overview of the company, we are a water utility service provider operating primarily in the State of Colorado, along the Colorado Front Range. Our business plan revolves around the notion that water supplies have and will continue to grow in value, thus increasing the value of our portfolio and the services that we provide.

We operate through a vertically integrated platform whereby in addition to developing systems and facilities to divert, treat, store and distribute water and collect and treat wastewater, we also own the water supplies that we deliver. And ownership of water here in Colorado is a unique nature, not only in Colorado but throughout the West. Our primary emphasis really pivots on that vertical integration of owning those water supplies.

Our primary emphasis is to provide water in the southeast portion of the Denver Metropolitan Area, primarily in Arapahoe County.

We have three primary portfolios of water that we've accumulated. We have accumulated a portfolio of water in the Platte River basin located in the Denver Metropolitan Area, and we have both surface water and groundwater supplies, surface water storage in conjunction with our partner, the State of Colorado and the Colorado State Land Board. We have water holdings in the Arkansas River basin, about 120 miles from the Denver area. South of Denver we have both land and water holdings. In 2006 we acquired approximately 17,500 acres of irrigated farmland and the water rights associated with that farmland. And then we also have water in the Colorado River basin on the Colorado Western Slope.

We generate revenue from two primary sources. First is a one-time tap fee, which typically amortizes our water rights, as well as certain wholesale facilities that we develop to treat and store those supplies. And then the second revenue element is what your traditional water utility revenue sources would be, metered water deliveries based on monthly meter water delivered to our customers and monthly wastewater collection fees.

Our one-time tap fees for water are currently at $22,500. So we have a very high capital charge, which really gives the market the best metric for keeping an assessment of the increasing value of water as a commodity, the scarcity of that commodity out West and particularly here in the State of Colorado. And our wastewater fees, our capital tap fee for wastewater is around $4900. So combined water and wastewater tap fees are right around $27,000.

Annual water deliveries generate roughly $700 per year per connection, and wastewater deliveries generate approximately $500 per year per connection.

Some recent activities that we have seen in fiscal year 2010 are -- probably the most notable is in December of this year we, through a joint agreement with the Rangeview Metropolitan District, which is a quasi-municipal political subdivision -- that's a mouthful -- district here in the State of Colorado, which we are operating as Boards of Directors on -- through a joint agreement with the Rangeview Metropolitan District, we joined a regional water provider authority known as the South Metropolitan Water Supply Authority.

The South Metropolitan Water Supply Authority is a authority of 14 members. They are water providers dedicated to developing innovative water supplies cooperatively. These 14 providers primarily serve customers in the south and eastern portion of the Denver Metropolitan Area, in the areas of Douglas County and Arapahoe County, very similar to the service areas that we operate in, and actually we are adjacent to two of these districts in southeast Arapahoe County.

We are working cooperatively with the South Metro group to develop additional storage and wild water supplies that can utilize existing infrastructure more efficiently and move water among its members.

Denver is a little bit unique because within the Denver Metropolitan Area we have as many as 55 different municipal subdivisions. Each of those subdivisions carry their own water and wastewater entities. So this is probably the most coordinated effort of regional providers to be able to collectively work together to be able to develop new water supplies as well as use existing infrastructure and existing supplies of other member agencies to better manage and more efficiently develop water supplies.

Let me talk a little bit about the local economy. The local economy remains fair. Our employment situation in Denver is probably a little better than the national average. Residential development activity continues to remain weak, although it's moving off its lows from 2009.

Our primary emphasis continues to work to monetize our water assets, working cooperatively with the Colorado State Land Board, as I mentioned earlier, as well as working with the neighboring water provider, the City of Aurora. We have ongoing discussions with the City of Aurora on mutual opportunities, storage opportunities, as well as additional water supply opportunities, and we'll see how those discussions continue to mature, as well as working with the South Metropolitan Water Supply Authority, as we discussed earlier.

So with that as a brief introduction -- and again, you will be able to pick up a significantly more detailed overview of not only the company but the company's positioning in water and ownership of water throughout the West, particularly in the State of Colorado, through the presentation on our website. So please feel free to take a look at that. If something arises that sparks your interest, please feel free to give us a call.

If we move to the financials, moving to our midyear financial review, the company continues to be mindful of its operating expenses in this weak market and continues its cost efficiency measures to be good stewards of our invested capital.

Taking a look at general and administrative expenses for the midyear performance, G&A expenses have decreased approximately 14% from 2009, which again was down from 2008. Currently we are on-budget to have cash burn of approximately $1.4 million, so we are very mindful of the weak economy and currently very studious over our invested capital.

The decreases were primarily attributable to a decrease in share-based compensation expenses as well as a decrease in professional and consulting expenses related to marketing and development of water resources for the State Land Board's property.

Revenues have declined modestly, a decline of about 6% in 2009 levels, and that's primarily a result of the weak economy, which is impacting our largest customer's occupancy rates. They have decreased occupancy, and that's translating into a reduced water consumption on that particular customer.

Metered delivery has increased approximately 13%, which was partially offset by higher rates, which we assess annually. And our rates and charges are a market-based function where we pull old average of the three surrounding communities, we assess those rates annually, and rate adjustments go into effect each July.

The net operating losses decreased approximately 10%, primarily due to a reduction in G&A.

And some of our important metrics, one that I think we watch very studiously and I think our shareholders also are very concerned about is to make sure of our cash position. Our current assets are slightly over $3.2 million, and we have and continue to see a cash burn of about $1.3 million, $1.4 million annually.

Total assets and total equity remain constant as prior year levels, with no increases or decreases in those levels.

From a financial perspective we've had a relatively quiet year. That's not to say that there hasn't been a tremendous amount going on with the company. While there has been little that we have been able to announce detailing much of our activities, we continue to work with our partner, the State Land Board. We are working with neighboring water providers, the City of Aurora, as well as members of the South Metropolitan Water Supply Authority to actively engage in discussions, each of these entities, and we will report to you when we have something definitive to talk about.

As many of you know, we have been in ongoing discussions both with the State Land Board, with the City of Aurora, and then also with the collective group of South Metro as well as individual entities within South Metro. So all of those are continuing.

We've had significant progress on a number of those fronts. We are very encouraged by the progress we've made on those fronts and very optimistic about the company's future.

So with that as kind of a brief overview, not only of the corporate operations and the financial performances, what I'd like to do is see if I can't open this up to some questions and see if we might be able to answer any questions you all might have.

(Operator Instructions). There appear to be no questions in queue at this time.

Okay. If anybody -- I think if anybody is being bashful about a question, please feel free. If you think of a question that you wanted to ask, that didn't get a chance to ask that, don't hesitate to give us a call here at the company.

What I do want to really close in saying is that the company continues really to take a look at how we can monetize our assets, not only in the development of new service areas where we'll have new connections come into this system -- the Denver market continues to perform better than most major -- other major metropolitan markets, and we are very optimistic about how that continues to go, but also in forming strategic opportunities with other water providers and being able to participate in the regional context where we have a number of water providers who are either looking at replacing their water supplies, augmenting those water supplies, or creating new water supplies.

So I think this year has brought a new dialogue amongst all the water providers in there. It's primarily been an offshoot of the weak economy and the weak housing market. Being able to work cooperatively has proven itself to be much more advantageous for cities and municipalities, rather than to go it alone in their strategies.

As many of you know, this is a very capital-intensive business. It requires a large upfront capital investment by a number of these municipalities, which thrusts them into the business of trying to forecast housing. And that's a very difficult parameter, even for the best of economic advisers. And so what they are looking for is opportunities where there may be cost advantages of working together, cost advantages of utilizing excess inventories for those that have them, excess supplies for those that have them, excess storage opportunities for those that have them.

So those dialogs continue. We have a very heightened sense of optimism for those dialogs, and what we will do is keep you posted as those mature.

So if nobody has thought of any questions while I've tried to kind of give you a bit more perspective on that, certainly feel free to give us a call if you have any questions or think of anything at a later date.

(Operator Instructions). And still no questions, sir.

Well with that I guess I'd like to sign off. Again, I'd like to thank you for your continued support for the corporation. If you have any questions, please feel free to give me a call.

Thank you sir, and thank you ladies and gentlemen for your participation. This does conclude your call. You may disconnect your lines at this time.