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REVENUES, FEES AND OTHER INCOME ITEMS | 6 Months Ended
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Feb. 28, 2023
REVENUES, FEES AND OTHER INCOME ITEMS |
REVENUES, FEES AND OTHER INCOME ITEMS | NOTE 4 – REVENUES, FEES AND OTHER INCOME ITEMS Water and wastewater tap fees, metered water usage and wastewater treatment fees, lot sales, and project management revenue The Company’s revenue is primarily generated from sales of water and wastewater taps, metered water and wastewater usage, and the sale of lots to homebuilders. Detailed descriptions of the policies related to revenue recognition are included in Note 2 to the 2022 Annual Report. The following describes significant components of revenue for the three and six months ended February 28, 2023 and 2022. Water and wastewater tap fees – During the three months ended February 28, 2023 and 2022, the Company sold a total of 35 and 27 water taps generating more than $0.8 million and less than $0.8 million in tap fee revenues. During the three months ended February 28, 2023 and 2022, the Company sold a total of 32 and 27 wastewater taps generating $0.2 million and $0.1 million in tap fee revenues. During the six months ended February 28, 2023 and 2022, the Company sold a total of 39 and 36 water taps generating $1.0 million and just under $1.0 million in tap fee revenues. During the six months ended February 28, 2023 and 2022, the Company sold a total of 36 and 36 wastewater taps generating $0.2 million and $0.2 million in tap fee revenues. The water taps were all sold at Sky Ranch and Wild Pointe, and the wastewater taps were all sold at Sky Ranch. Sale of finished lots – For the three months ended February 28, 2023 and 2022, the Company recognized $1.4 million and $1.6 million of lot sale revenue, which was recognized using the percent-of-completion method for the Company’s land development activities at the Sky Ranch master planned community. For the six months ended February 28, 2023 and 2022, the Company recognized $1.9 million and $4.6 million of lot sale revenue, which was recognized using the percent-of-completion method for the Company’s land development activities at the Sky Ranch master planned community. As of February 28, 2023, the first development phase (509 lots) is complete and the second development phase (850 lots) is being developed in four subphases, referred to as Phase 2A (229 lots), Phase 2B (211 lots), Phase 2C (204 lots) and Phase 2D (206 lots). As of February 28, 2023, Phase 2A is approximately 87% complete. After February 28, 2023, but before the filing of this Form 10Q, Pure Cycle began construction on Phase 2B, which is expected to take approximately one year to complete. Additionally, on March 8, 2023, and March 16, 2023, Pure Cycle and two of our homebuilding partners amended future lot sale agreements to increase the price of future Phase 2 lots and to reduce the number of lots being sold to those builders by a total of 19 lots which Pure Cycle will use in its single-family rental business. Project management services – During the three months ended February 28, 2023 and 2022, the Company recognized $0.1 million and $0.2 million of project management revenue from the Sky Ranch CAB, a related party, for managing the Sky Ranch development project. During the six months ended February 28, 2023 and 2022, the Company recognized $0.1 million and $0.4 million of project management revenue from the Sky Ranch CAB, a related party, for managing the Sky Ranch development project. Single-family rental revenue In November 2021, the Company began renting single-family homes from lots it retained and constructed homes on, and began recognizing lease income related to these rental units. The Company generally rents its single-family properties under non-cancelable lease agreements with a term of one year. As of February 28, 2023, Pure Cycle has four single-family detached homes being rented. For the three months ended February 28, 2023 and 2022, the Company reported less than $0.1 million and less than $0.1 million of rental property revenues. For the six months ended February 28, 2023 and 2022, the Company reported less than $0.1 million and $0.1 million of rental property revenues. The Company has begun construction on 10 additional rental homes in Phase 2A, which the Company believes will be available for rent at various dates throughout fiscal 2023. At February 28, 2023, the Company had reserved 36 lots in Phases 2B, 2C and 2D of Sky Ranch for future rental units. On March 8, 2023, and March 16, 2023, Pure Cycle amended two homebuilder agreements to reserve an additional 19 lots in Phases 2B-D for use in its single-family rental segment. These additional units bring the total lots reserved for future rental use to 55, which when combined with the units already built and rented and the ten currently under construction will bring the total single-family rentals to 69 . The Company expects to take three to five years to build and rent all these units. Based on these projections the Company believes this could become a reportable operating segment in the future once its operations become material. Special facility projects and other revenue Pure Cycle receives fees from customers including municipalities and area water providers for contract operations services. These fees are recognized as earned, typically monthly, plus charges for additional work performed. Additionally, the Company performs certain construction activities at Sky Ranch. The activities performed include construction and maintenance services. The revenue for both types of services are invoiced and recognized as special facility projects revenue. For the three months ended February 28, 2023 and 2022, the Company recognized $0.2 million and $0.2 million of special facility projects and other revenue, an immaterial amount of which is from work performed for the Sky Ranch CAB, a related party. For the six months ended February 28, 2023 and 2022, the Company recognized $0.3 million and $0.3 million of special facility projects and other revenue, an immaterial amount of which is from work performed for the Sky Ranch CAB, a related party. ​ Deferred revenue Changes and balances of the Company’s deferred revenue accounts by segment are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended February 28, 2023
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at November 30, 2022 | ​ | $ | 552 | ​ | $ | 3,889 | ​ | $ | 4,441
Revenue recognized | ​ | ​ | (19) | ​ | ​ | (1,492) | ​ | ​ | (1,511)
Revenue deferred | ​ | ​ | - | ​ | ​ | 1,076 | ​ | ​ | 1,076
Balance at February 28, 2023 | ​ | $ | 533 | ​ | $ | 3,473 | ​ | $ | 4,006
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended February 28, 2022
​ | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at November 30, 2021 | ​ | $ | 271 | ​ | $ | 2,831 | ​ | $ | 3,102
Revenue recognized | ​ | ​ | (202) | ​ | ​ | (1,628) | ​ | ​ | (1,830)
Revenue deferred | ​ | ​ | 370 | ​ | ​ | - | ​ | ​ | 370
Balance at February 28, 2022 | ​ | $ | 439 | ​ | $ | 1,203 | ​ | $ | 1,642
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six Months Ended February 28, 2023
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at August 31, 2022 | ​ | $ | 570 | ​ | $ | 4,275 | ​ | $ | 4,845
Revenue recognized | ​ | ​ | (37) | ​ | ​ | (2,029) | ​ | ​ | (2,066)
Revenue deferred | ​ | ​ | - | ​ | ​ | 1,227 | ​ | ​ | 1,227
Balance at February 28, 2023 | ​ | $ | 533 | ​ | $ | 3,473 | ​ | $ | 4,006
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six Months Ended February 28, 2022
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at August 31, 2021 | ​ | $ | 410 | ​ | $ | 1,995 | ​ | $ | 2,405
Revenue recognized | ​ | ​ | (341) | ​ | ​ | (4,575) | ​ | ​ | (4,916)
Revenue deferred | ​ | ​ | 370 | ​ | ​ | 3,783 | ​ | ​ | 4,153
Balance at February 28, 2022 | ​ | $ | 439 | ​ | $ | 1,203 | ​ | $ | 1,642
​ The Company receives deposits or pre-payments from oil and gas operators to reserve water for use in future well drilling operations. When the operators use the water, the Company recognizes the revenue for these payments in the metered water usage from the commercial customers line on the statement of operations. The Company recognizes lot sales over time as construction activities progress and not necessarily when payment is received. For example, the Company may receive milestone payments before revenue can be recognized (i.e., prior to the Company completing cumulative progress which faithfully represents the transfer of goods and services to the customer) which results in the Company recording deferred revenue. The Company recognizes this revenue into income as construction activities progress, measured based on costs incurred compared to total estimated costs of the project, which management believes is a faithful representation of the transfer of goods and services to the customer. Revenue allocated to remaining performance obligations such as described above represents contracted revenue that has not yet been recognized, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods.

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