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REVENUES, FEES AND OTHER INCOME ITEMS | 9 Months Ended
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May 31, 2023
REVENUES, FEES AND OTHER INCOME ITEMS |
REVENUES, FEES AND OTHER INCOME ITEMS | NOTE 3 – 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 nine months ended May 31, 2023 and 2022. Water and wastewater tap fees – During the three months ended May 31, 2023 and 2022, the Company sold a total of 44 and 45 water taps generating $1.1 million and $1.1 million in tap fee revenues. During the three months ended May 31, 2023 and 2022, the Company sold a total of 43 and 45 wastewater taps generating $0.2 million and $0.2 million in tap fee revenues. During the nine months ended May 31, 2023 and 2022, the Company sold a total of 85 and 81 water taps generating $2.0 million and $2.0 million in tap fee revenues. During the nine months ended May 31, 2023 and 2022, the Company sold a total of 79 and 81 wastewater taps generating $0.4 million and $0.4 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. ​ Metered water and wastewater usage fees – The Company provides water and wastewater services to customers, for which the customers are charged monthly usage fees. Water usage fees are assessed to customers based on actual metered usage each month plus a base monthly service fee assessed per single family equivalent (SFE) unit served. One SFE is a customer, whether residential, commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot. Water usage pricing is based on a tiered pricing structure, and certain usage revenues are subject to roayalties as described in the 2022 Annual Report. The Company also sells raw water for industrial uses, mainly to oil and gas companies for use in the drilling processes. Sale of finished lots – For the three months ended May 31, 2023 and 2022, the Company recognized $3.2 million and $1.0 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 nine months ended May 31, 2023 and 2022, the Company recognized $5.1 million and $5.6 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 May 31, 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 May 31, 2023, Phase 2A is approximately 90% complete and Phase 2B is approximately 21% complete. Phase 2A should be substantially complete by the end of Pure Cycle’s fiscal 2023, and Phase 2B is expected to be complete by the end of Pure Cycle’s fiscal 2024. Project management services – During each of the three-month periods ended May 31, 2023 and 2022, the Company recognized less than $0.1 million of project management revenue from the Sky Ranch CAB, a related party, for managing the Sky Ranch development project. During the nine months ended May 31, 2023 and 2022, the Company recognized $0.2 million and $0.5 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, Pure Cycle began renting single-family homes on lots it retained at Sky Ranch. Pure Cycle began recognizing lease income related to these rental units in November 2021. Pure Cycle generally rents its single-family properties under non-cancelable lease agreements with a term of one year. As of May 31, 2023, Pure Cycle has four single-family detached homes rented under separate lease agreements. For all periods presented in this Form 10-Q, the Company reported less than $0.1 million of rental property revenues. Pure Cycle has begun construction on 10 additional rental homes in Phase 2A, five of which were rented after May 31, 2023, but before the issuance of this Form 10-Q, and the remainder of which the Company believes will be available for rent before August 31, 2023. As of May 31, 2023, the Company had reserved 55 lots in Phases 2B, 2C and 2D of Sky Ranch for future rental units. When combined with the four units already built and rented and the 10 currently under construction, these additions 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 each of the three-month periods ended May 31, 2023 and 2022, the Company recognized less than $0.1 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 each of the nine-month periods ended May 31, 2023 and 2022, the Company recognized $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. Undeveloped land sale and cash-in-lieu to school district During the nine months ended May 31, 2022, Pure Cycle entered various agreements to sell 32 acres of undeveloped land in Sky Ranch for $1.6 million to a charter school operator for the purpose of constructing and operating a charter school. Pursuant to Arapahoe County land development regulations (the county where Sky Ranch is located), all land developments must dedicate land or make a cash-in-lieu payment to the school district in which the development is located. The amount to be paid is calculated pursuant to the County’s standards. Simultaneously with the sale of land to the charter school operator, the Company paid the Bennett School District $1.6 million as a cash-in-lieu payment, which is the calculated amount of the Sky Ranch cash-in-lieu requirement to the school district. The land sale agreements include requirements for the Company to construct, or have constructed, certain improvements leading to the school site such as roads, sidewalks, and landscaping, all of which were already planned to be constructed as part of the overall master development of Sky Ranch. The Company determined the transaction was consummated in February 2022, when all pre-closing conditions were satisfied and proceeds were received by all parties. The cash-in-lieu payment and land sale were accounted for in other income, net. Deferred revenue Changes and balances of the Company’s deferred revenue accounts by segment are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended May 31, 2023
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at February 28, 2023 | ​ | $ | 533 | ​ | $ | 3,473 | ​ | $ | 4,006
Revenue recognized | ​ | ​ | (520) | ​ | ​ | (3,160) | ​ | ​ | (3,680)
Revenue deferred | ​ | ​ | - | ​ | ​ | 3,162 | ​ | ​ | 3,162
Balance at May 31, 2023 | ​ | $ | 13 | ​ | $ | 3,475 | ​ | $ | 3,488
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended May 31, 2022
​ | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at February 28, 2022 | ​ | $ | 439 | ​ | $ | 1,203 | ​ | $ | 1,642
Revenue recognized | ​ | ​ | (49) | ​ | ​ | (314) | ​ | ​ | (363)
Revenue deferred | ​ | ​ | 2 | ​ | ​ | - | ​ | ​ | 2
Balance at May 31, 2022 | ​ | $ | 392 | ​ | $ | 889 | ​ | $ | 1,281
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended May 31, 2023
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at August 31, 2022 | ​ | $ | 570 | ​ | $ | 4,275 | ​ | $ | 4,845
Revenue recognized | ​ | ​ | (557) | ​ | ​ | (5,057) | ​ | ​ | (5,614)
Revenue deferred | ​ | ​ | - | ​ | ​ | 4,257 | ​ | ​ | 4,257
Balance at May 31, 2023 | ​ | $ | 13 | ​ | $ | 3,475 | ​ | $ | 3,488
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended May 31, 2022
(In thousands) | ​ | Water and Wastewater Resource Development | ​ | Land Development | ​ | Total
Balance at August 31, 2021 | ​ | $ | 410 | ​ | $ | 1,995 | ​ | $ | 2,405
Revenue recognized | ​ | ​ | (390) | ​ | ​ | (4,889) | ​ | ​ | (5,279)
Revenue deferred | ​ | ​ | 372 | ​ | ​ | 3,783 | ​ | ​ | 4,155
Balance at May 31, 2022 | ​ | $ | 392 | ​ | $ | 889 | ​ | $ | 1,281
​ 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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