Pure Cycle (PCYO) risk factors, FY2024 10-K

Risks Related to the Impacts the Economy and External Forces May Have on Our Operations

1. 01Our operations are concentrated in the Front Range area of Colorado; we are subject to general economic conditions in Colorado
2. 02We are dependent on the housing market and development in our targeted service areas for future revenue. The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic or other business conditions could adversely affect our business, results of operations, cash flows and financial condition
3. 03Significant competition from other development projects could adversely affect our results
4. 04Our operations could be adversely impacted by increases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, which could cause lower margins or lost sales and adversely impact our business, financial position, results of operations and cash flows, and component price volatility and availability, as well as supplier concentration
5. 05Our water business is subject to seasonal fluctuations and weather conditions that could affect demand for our water service and our revenue and that could become more extreme with climate change
6. 06The physical impacts of natural disasters and severe weather conditions could reduce consumer demand for housing, result in service disruptions, delay the closing of the sale of residential lots at Sky Ranch and increase our costs, any of which could harm our sales and results of operations
7. 07We may not generate sufficient cash flows from operations or other capital resources to pursue our business objectives
8. 08We may not be able to manage the increasing demands of our expanded operations
9. 09The rates that the Rangeview District is allowed to charge customers on the Lowry Ranch for water services are limited by the Lease with the Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation
10. 10Our water sales for the past several years have been highly concentrated among companies providing hydraulic fracturing services to the oil and gas industry, and such sales can fluctuate significantly
11. 11A significant portion of our water supplies come from non-renewable aquifers and inadequate water and wastewater supplies could have a material adverse effect on us
12. 12To utilize our water resources as intended, we may need to apply for a change of use with the water court from time to time. This may take several years to complete, and there is no assurance that we will be able to obtain a favorable ruling, which may adversely impact our business and financial condition
13. 13A failure of the water wells or distribution networks we own, or control could result in losses and damages that may affect our business and financial condition
14. 14Development on the Lowry Ranch is not within our control and is subject to obstacles
15. 15We have limited experience with the development of real property
16. 16The funds we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin on selling lots, and cash flows
17. 17Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay closings
18. 18We may purchase additional land parcels for development or other purposes, thereby exposing us to certain financial risks
19. 19Delays in property development may extend the time it takes us to recover our property development costs and delay our revenue from water and wastewater resource development services
20. 20Fluctuations in real property values may require us to write-down the book value of our land interests
21. 21Our land development segment may be subject to risks related to oil and gas operations in the vicinity of our Sky Ranch development, which could have an adverse impact on the marketability and/or value of our Sky Ranch property
22. 22Our single-family home development activities expose us to additional operational and real estate risks, which may adversely affect our financial condition and operating results
23. 23We will depend on our tenants for all of our rental home revenue. Poor tenant selection and defaults and nonrenewal by our tenants may adversely affect our reputation, and financial performance
24. 24Our planned lease terms could require us to re-lease our properties frequently, which we may be unable to do on attractive terms, on a timely basis or at all
25. 25Tenant relief laws, including laws restricting evictions and other regulations could limit our ability to evict bad tenants which may negatively impact our rental income and profitability
26. 26It would be difficult for us to quickly generate cash from sales of our properties
27. 27Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business
28. 28Government regulations and legal challenges may delay the closing of the sale of our residential lots, increase our expenses or limit other activities, which could have a negative impact on our results of operations
29. 29Laws and regulations related to climate change, greenhouse gases, and energy may adversely affect us by directly and indirectly increasing the cost of or restricting our planned future growth activities
30. 30Our construction of water and wastewater projects and improvements at Sky Ranch may expose us to certain completion, performance, and financial risks
31. 31The enactment and implementation of SB 19-181 increasing state and local regulatory oversight of oil and gas development could have an adverse effect on our water sales to the oil and gas industry for hydraulic fracturing (fracking) and demand for new homes at Sky Ranch
32. 32Regulations implemented by the Colorado Energy and Carbon Management Commission pursuant to SB 19-181 could adversely impact our land development activities by limiting the number of lots available for land development in Colorado and could adversely impact our water sales for fracking by limiting the land available for oil and gas production
33. 33Future Ballot Initiatives at the State or Local Level Could Restrict Oil and Gas and Land Development
34. 34We may be subject to significant potential liabilities because of warranty and liability claims made against us
35. 35A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage
36. 36Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB
37. 37Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater segments of our business
38. 38We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services
39. 39Contamination to our water supply may result in disruption in our services and litigation, which could adversely affect our business, operating results and financial condition
40. 40We may be adversely affected by any future decision by the Colorado Public Utilities Commission to regulate us as a public utility
41. 41The Rangeview District’s and our rights under the Lease have been challenged by third parties
42. 42Our Lowry Ranch surface water rights are “conditional decrees” and require findings of reasonable diligence
43. 43Our operations are affected by local politics and governmental procedures that are beyond our control
44. 44The number of connections we can serve are affected by local governmental policies that are beyond our control

3. General Risks

1. 45We are dependent on the services of a key employee
2. 46Our stock price has been volatile in the past and may decline in the future
3. 47Unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business, financial condition, and operating results
4. 48Failure to maintain effective internal controls over financial reporting could result in material misstatements in our financial statements and affect our ability to meet our reporting requirements
5. 49Conflicts, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 coronavirus and general instability could adversely affect our business