NOTE 3 – REVENUES, FEES AND OTHER INCOME ITEMS

The Company’s revenue is primarily generated from three unique segments: (1) sales of water and wastewater taps, metered water and wastewater usage; (2) the sale of lots to homebuilders; and (3) rent collected from its single-family homes. Detailed descriptions of the policies related to revenue recognition are included in Note 2 to the financial statements included in the 2025 Annual Report.

The following describes significant components of revenue for the three and nine months ended May 31, 2026 and 2025.

Water and wastewater tap fees – During the three months ended May 31, 2026 and 2025, the Company sold a total of 66 and 40 water taps, respectively, generating $1.9 million and $1.4 million in tap fee revenues, respectively. During the three months ended May 31, 2026 and 2025, the Company sold a total of 48 and 40 wastewater taps, respectively, generating $0.4 million and $0.3 million in tap fee revenues, respectively. During the nine months ended May 31, 2026 and 2025, the Company sold a total of 161 and 130 water taps, respectively, generating $4.6 million and $4.3 million in tap fee revenues, respectively. During the nine months ended May 31, 2026 and 2025, the Company sold a total of 117 and 127 wastewater taps, respectively, generating $1.0 million and $1.0 million in tap fee revenues, respectively. The water taps were all sold at Sky Ranch and Wild Pointe, and the wastewater taps were all sold at Sky Ranch.

Water and wastewater activities – During the three months ended May 31, 2026 and 2025, the Company sold a total of 631 and 76 acre-feet of water, respectively, generating $2.4 million and $0.4 million in metered water and wastewater treatment fees revenue, respectively. During the nine months ended May 31, 2026 and 2025, the Company sold a total of 1,050 and 443 acre-feet of water, respectively, generating $4.5 million and $2.2 million in metered water and wastewater treatment fees revenue, respectively. The Company provides water and wastewater services to customers and charges 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 royalties as described in the 2025 Annual Report. Historically, the Company’s largest customers for water are industrial users, mainly oil and gas companies using water in drilling and hydraulic fracking processes.

Lot sales – For the three months ended May 31, 2026 and 2025, the Company recognized $3.0 million and $2.5 million of lot sales revenue, respectively, 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, 2026 and 2025, the Company recognized $10.7 million and $6.0 million of lot sales revenue, respectively, 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, 2026, the first development phase (509 lots) is complete and the second development phase (1,031 lots) is being developed in five subphases, referred to as Phase 2A (229 lots), Phase 2B (211 lots), Phase 2C (228 lots), Phase 2D (204 lots) and Phase 2E (159 lots). These numbers include lots reserved for the Company’s single-family home rental business. As of May 31, 2026, Phase 2A is 100% complete, Phase 2B is approximately 99% complete, Phase 2C is approximately 95% complete, Phase 2D is approximately 84% complete, and Phase 2E development has begun. The Company will begin recognizing revenue for Phase 2E under the percent-of-completion method once its first customer contract is executed. Phases 2B and 2C are substantially complete with some landscaping and warranty items remaining. Phase 2D is expected to be completed in fiscal 2026, and Phase 2E is expected to be completed in fiscal 2027.

Project management fees – During the three months ended May 31, 2026 and 2025, the Company recognized $0.1 million and $0.1 million of project management revenue. During the nine months ended May 31, 2026 and 2025, the Company recognized $0.6 million and $0.5 million, respectively, of project management revenue. Project management fees are recognized from the Sky Ranch CAB, a related party, for managing the Sky Ranch development project.  

Single-family rental revenue

As of May 31, 2026, the Company has 38 single-family homes, paired homes or townhomes rented and one additional home available for sale. Pure Cycle generally rents its single-family properties under non-cancelable one-year lease agreements. For the three months ended May 31, 2026 and 2025, the Company recognized $0.2 million and $0.1 million of rental property revenues, respectively. For the nine months ended May 31, 2026 and 2025, the Company recognized $0.5 million and $0.4 million of rental property revenues, respectively.  

Pure Cycle completed 20 additional single-family detached homes and 25 additional single-family detached homes or townhomes in the three and nine months ended May 31, 2026, respectively. As of May 31, 2026, the Company has contracts for the construction of 23 of the 33 additional rental homes planned in Phases 2C and 2D, the majority of which the Company believes will be available for rent in calendar 2026. When combined with the 38 units already built and rented, these 33 additional homes will bring the total number of single-family rental homes to 71. Following completion of the remaining rental homes planned in Phase 2C and 2D, the Company intends to evaluate the economics of the segment to determine the pace of future expansion of its rental portfolio.

Special facility projects and other revenue

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 May 31, 2026 and 2025, the Company recognized $0.2 million and $0.2 million, respectively, of special facility projects revenue. For the nine months ended May 31, 2026 and 2025, the Company recognized $0.6 million and $0.5 million, respectively, of revenue in this category. The Company recognizes special facility projects and other revenue 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:

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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 recognized as revenue in future periods.