Pure Cycle Corporation (NASDAQ:PCYO) Q4 2022 Earnings Call Transcript

Pure Cycle Corporation (NASDAQ:PCYO) Q4 2022 Earnings Call Transcript November 15, 2022

Operator: Good morning, ladies and gentlemen, and welcome to the Pure Cycle Corporation Year ended 2022 Earnings Call. . It is now my pleasure to turn the floor over to your host, Mark Harding. Sir, the floor is yours.

Mark Harding: Thank you. Good morning, everyone. I’d like to welcome you to our year-end earnings call. Just a few housekeeping items. We do have a deck for this call, if you log in to our website at purecyclewater.com, there’ll be a link over to the Investor page, and then there’ll be a tab on that page that allows you to join. So click that join button and then I’ll be able to advance the slides through the presentation and you’ll have the deck on there, and then the deck will also be a PDF of the presentation will be on the website for reference on you want to get into reading it in a little bit more detail. With me today is both Kevin McNeill, who has been a little under the weather, so he’s going to take a listen only mode on that as well as Dirk Lashnits who handles all of our land development activities.

And so other than hearing from me, you’ll have a chance to hear from Dirk on some of the land activities and our successes in that area as well. So with that, I’d like to just start with the presentation. And the first thing we need to do is talk about our safe harbor statement, which is that historical fact not contained or incorporated by reference in this presentation are forward-looking statements. I think you all are familiar with the forward-looking statements and the safe harbor statement so we can get the lawyers out of the room. I’m going to really kind of brief through some of the overview question — overview of the company. Most of you are going to be familiar with the company. And if you’re not, certainly, you can go back and take a look at this portion of the presentation in a little bit more detail.

There’s a ton of information about the company on our website. So I encourage you to spend some time there and take a look at the resources that we have on the website to give you a little bit more specificity to what it is that we do. But really, we have 3 operating segments, and they’re all very complementary, really at the foundational level, we are Water and Wastewater resource company. We own a large portfolio of water in a valuable part of the country where you can own water. We develop that water cradle-to-grave water service to customers — we have land that’s in the right location in the Denver metropolitan area along the that we’re developing a master planned community on. And then we hold back some of those lots that we develop for our homebuilder customers and we keep them for an opportunity to build homes on them and enter into the single-family rental market, where we continue to have an ongoing cash flow from an appreciating asset that provides terrific margins for us because we’re able to carry forward the equity value that we have both in the land and the water utility segment.

So I’ll just briefly talk a little bit about each of the segments. As I mentioned, the water, the wastewater segment. We develop the wells, diversions, all the water supply. We treat that water supply. We distribute that to our customers. We get 2 fee instruments for this. We get a connection fee, which is referred to here in Colorado, the tap fee. And our water tap fees are right around $28,000. Our sewer tap fees are right around $5,000. We have the capacity to provide water and wastewater service to approximately 60,000 connections. And then as we have those connections signed up to the company, we get ongoing water and wastewater revenues each month. So we have monthly water, wastewater service sales to that. That generates about $1,500 per connection per year on that side.

We collect that wastewater back. We process that wastewater into usable water supply for our outdoor irrigation or our industrial water supply customers. And really, we have water, a very tight water balance system where we’re taking our water supplies, whether they’re ground water supplies, surface water supplies, bringing them into a treatment system sending that into the customer. We have some of that use that’s going to be outdoor irrigation, which results in a bit of a loss, but we do have mechanisms for recapturing that in terms of the water right systems. And then we also take and reuse that system and then are able to reuse that into our industrial customers. So really are investing into a sustainable water balance system for the company and for our customers.

We continue to grow our infrastructure asset base. So over the last 5 years, you see almost a doubling of our investments in our water investments and water infrastructure, really across the board with wells, transmission lines, storage, treatment facilities, all of the distribution facilities and then the wastewater treatment facilities that we claim that water supply. Water growth, so we have existing areas where we’re growing our customer base. One of those is new residential connections, whether that’s going to be in our Master Planned Community of Sky Ranch, whether that’s going to be commercial users, both in Sky Ranch as well as another service area that we have, a little bit south of the Sky Ranch area called the Wild Pointe service area, and then existing industrial customers.

So we continue to grow our customers year-over-year. We’re right around 1,000 connections to the systems today. Another important customer that we have is our industrial customers. So we happen to be on a very prolific oil and gas field. It sits right on top of where our water supplies are. We have multiple operators that are developing the field in this area, multiple formations, and so we distribute raw water and reclaim water sources to our oil and gas customers and generate high volume of water supply as well as high volume for selling that water to our customers, and really had a record year this year in selling water to the oil and gas segment, and that’s largely a function of the price of oil, the regulatory climate in Colorado kind of settling down, operators being more comfortable with how they’re operating within the heightened regulatory climate that Colorado offers them.

One of the things I’d like to highlight is kind of where we are geographically in Denver metropolitan area. As most of you know, we are along the foothill areas, and we might as well be along an ocean because we really can’t grow to our west, the mountains, and we have a geologic barrier there that prohibit really any substantive growth in the Denver area. And so really, we’re constrained to really a 180-degree semi-circle for growth activity in the Denver metropolitan area. If you look at the map over on the right side of this, the difference between the orange and the green there, it’s really green line there. That’s Interstate-70 that’s the East-West transportation corridor in the Denver metropolitan area and then we have belt loop. You can see the 470 belt loop.

Right at the top of that is going to be the Denver International Airport. So our Sky Ranch project is 4 miles directly south of that. And then our Lowry Range service area, which is that large pink area, and this kind of gives you a feel for where development has grown in the Denver metropolitan area, not only to the Sky Ranch property, which is our Master Planned Community, but also opportunities for the Lowry service area and being able to take a look at new development activities in that Lowry service area. So that’s kind of give you a perspective on kind of where we are positioned in the residential area. I’m going to turn the call over to Dirk. He’s going to give you a bit of an update on our land development segment and all of the exciting activities that we have in there, Dirk want to and take it over.

See also 15 Countries That Produce the Most Corn and 14 Best ARK Stocks To Invest In.

Dirk Lashnits: Right. Thanks, Mark. Good morning, everyone. Land development is the Sky Ranch project, our Master Planned Community. This information is probably a little old hat, but it’s will stay the same for the duration of the project. So we see that the slide of the iteration curve for the next several years to come. So Sky Ranch is 930 acres. We can accommodate up to 3,200 residential lots, about 2 million square feet of commercial development. Go to the next slide here. All right. So again, a little old had our first phase. This phase of the project kicked off in earnest in 2018. I think it gives a pretty good frame of reference for the overall project and sort of a basis. So this phase encompasses 509 lots. This is wrapping up as we speak.

If you look at the top right-hand corner of the graphic on the page, you can see the last little bit of homes under construction right now. So we’re finishing this project off. Based on the project off, we’ve sold all our taps. All the homes have been started. Last few residents are moving in. We’ve turned over all the infrastructure to the respective jurisdictions. We’ve collected all our lot revenue that’s the $36.7 million. That’s for our lot sales, $14 million for our tap. We also did a bond on these — on this phase in 2019. That was about $30 million, something like that. And then we have some reimbursable costs accruing out here on these for future. All right. So then we move over to our second phase. This is the most current phase right across the street to the East.

What you’re looking at on the graphic, the lots are down in the right-hand corner and then the upper right-hand corner are school. So the biggest thing difference on going into this phase is we really took a new look at our land plan out here. You can kind of see the layout of the Phase 1 versus the Phase 2 changes pretty significantly. We introduced some new product lines, our first phase has basically 2 product types. In this next phase, we went up at 6, and we really — our first phase, we inherited with the project and in the second phase, we really took a deliberate look at how we wanted to plan this out. Our motivation was largely a density. Our first phase, we’re looking at about 3 houses per acre, and if you carry that through our whole project, we really would fall short of what the whole project — the capacity for the whole project would not get us up to that 3,500 or 3,200 lots.

So trying to incorporate more density into the project going forward, we got that up to about 5 or 6 houses per acre. And that density really helps us from a bonding standpoint and helps us on our water usage standpoint as well. So we have, like I said, new product lines in this neighborhood. We added a fourth builder. So trying to find the right balance of number of builders, whether it going to be either 3 like our first phase or whether it going to 6, so we ended up with 4 builders in this phase. We felt like that was a pretty good sweet spot. And in our analysis, that was where we felt the best yield was. So 4 builders in this phase, it’s important. They got the purple lots, challenger homes. They are in the light green. Lennar is the blue lots in KV is the time lots.

And each one of those builders have a unique — at least one unique product segment, and then there’s a little bit overlap to get to this mix. So they’re competing on one product site. I think in the future, we’ll carry this same concept through at least through the build-out of our second phase. So what you’re seeing here on the first stage is the first quadrant of this is 1 of 4. So this concept repeats itself 3 more times in the first — in the second phase. And then we have our future phases, and we’ll analyze whether that’s a good concept and whether we carry this through, and then there are some opportunities for some other product segments as we go forward in the overall community. Those would be like a multifamily attached product and then possibly some active adults.

So we’ve got a lot of revenue in here, $70 million. I think that’s up from our first phase on per lot basis by about 15% through in reimbursables in here and then we did another bond in 2022 on this Phase 2. This is the 850 lots. And that was a $29 million bond on that. And that, again, was up from our first phase. We saw some good appreciation going from Phase 1 to Phase 2. So the next slide just kind of shows a breakout of the 4 different quads that I mentioned, so if you look at that center pie chart there, those are the — those different colors represent the 6 different product types that we’re building. The next pie chart over to the right, that’s our builder segmentation. So I think we got a good parity craft there, good distribution of product types and a good distribution of builder lots.

And you can see the numbers of each phase. So 2A I was on the previous slide, that represents that first supply that we’re building there. And so these will roll out roughly year-over-year, so 2A underway right now. And actually, that’s nearing completion. We have received all our lot revenue less a few little outstanding items here and there. And then we’ll move into our next phases as we move through that. Mentioned the school. So this is a view looking towards the west. So more towards the left hand of the screen, you see the street stage of completion for the Phase 2A. There’s 1 little model house in there. That’s a challenger house there. This was a few months old. We got a significantly more amount of vertical construction going on in there.

But — the — on the right-hand side of the screen, you see the graphic layered in there for the academy, the charter school for Sky Ranch. And we are sort of the center of the screen, there’s the gray H-shaped object. That’s going to be the elementary school that is — that has started construction. They built that foundation, and they’re going to go vertical on that here in just the next couple of weeks. So that’s pretty exciting. That will open next fall as a K7 and then they start to add years and a year later, we go over to the high school phase, which is the E-shaped gray structure that will come online subsequent years. All right, real quick talk about some market conditions that we’re seeing, a very pretty set this right now. Slide is a little bumpy here, so we’re in a contracting market.

Some experts are called it a housing recession. So some quick indicators. You see these all over the Internet. I pulled out a couple of key metrics here. Our new home sales across the country are down 17% year-over-year. New home — I’m sorry, mortgage applications are down 40% year-over-year. And our — build our confidence levels are down for 10 months in a row. So watching those sort of sentiments. We talk about interest rates. We had a pretty abrupt uptake in 2022. It went from basically 3% to 7%. And looking at those interest rates kind of across historically, we’re not — not crazy out of line. If you go back through the decades, from the ’70s, we had about an average interest rate of 7.76% since 1970. So in the 80s, so let us remember, we hit that 18% mark in — but they’ve been right around that 7% for the last half century or so.

And then our material and labor costs, we’re seeing — so typically, we would see probably a couple of percentage point increase year-over-year. That’s something that we build into our contracts and anticipate. So that’s pretty typical, but just the last year, our material labor costs have been up 20% over last year and up 40% since the start of the pandemic. So those are affecting our builder partners and how they can sell a house. And kind of the net of that is our — our product costs are up and our customers’ buying powers are down. So that’s kind of on the bad side. On the good side, we still are seeing a strong demand for new home sales just as a comparison. We peaked in the 2005, 2006 time period, we were — we were producing about 1.4 million units a year new houses per year.

And in 2021, this last little run-up, we were only hitting about 600,000. So there would appear to still be some pretty good capacity in the market there. A couple of other positive indicators are average days on the market for a home. Typically, we see like a 60/90 days on the market. So that’s seasonal. So days in the high-selling season, which is summer and then 90 days is lot longer in the winter. And just to note, we are in a on the downward trend on that right now going into the winter. So our current sales cycle is on the way down and then it starts ticking back up late winter, early spring. So that’s typical, but we’re currently seeing like a 30/60 base on the market. So that’s going in the positive direction. We are still seeing positive home appreciation, it’s less than what it was, but I think a lot of us were seeing inclined to think that, that appreciation was probably pretty unsustainable.

So that coming down a little bit pretty positive thing. Short-term mortgage options. We’re starting to see some creativity on the lending side to help compensate for the other increased costs. So do these Q1 buydowns now. So figuring out other creative ways to help our buying customer, and then still seeing the low unemployment, especially here in Colorado. So our takeaway is that we’re — a correction is necessary and hoping it’s not going to be a collapse. So market is kind of recalibrating on all fronts for that correction and out of Sky Ranch. What we’re looking at doing is reevaluating the timing on the next set of lots that we deliver to our builders. So as those builders see a slowdown in their sales and when they’ll need to take the lots on from that next phase, that be our Phase 2B.

Next slide, just a little bit more graphic representations of some of the market stats. First ones are housing supply, lending standards, hopefully significantly different from like the 2008 recession, some of those lease lending standards there and then not seeing any foreclosures really at this point. So set a good sign and that unemployment back is function of that. I think that’s a related and I’ll turn it back over to Mark.

Mark Harding: Great. Appreciate that. Thanks Dirk. So I want to talk a little about our last business segment, single-family rentals. More recently, we’ve added this new business really through retaining lots in our Master Planned Community. And so we want to develop these lots into single-family rentals mostly for the appreciation that we’re getting and seeing in the Master Planned Community, we’re actually causing that appreciation as we do what we do well on the development side, creating a nice place of home on that. We see a significant increase in value for those. And then it’s a great opportunity for us to continue to invest in the company and provides ongoing cash flow. So we really like that complement to our water and land development activities.

And so we’re going to continue to see some more activity there. Some of the specifics on this are the trends in the consumer preferences, home versus apartments. We have a significant recalibration of consumers seeking more space rather than location. Affordability is a key driver in this area. And as Dirk mentioned, we’ve really concentrated on a broader product class. We’ve got more — we’ve got paired homes. We’ve got townhomes, so they’re all going to be delivering at an entry-level price point that’s going to be more flexible for the consumer as well as for the renter. And so we have a number of different product offerings so that when somebody comes to us, with an interest to rent on a single-family home level, we have everything from a large 4-bedroom home with a dent to maybe a 2-bedroom home that would be in a townhome type product.

So those price points will be flexible for all sorts of customers in there and really a continuing strengthening of the market for home rentals. So we like that on both a local and national trend for the single-family rental market. This is just some of the statistics on our single-family rentals and how those cash flows come to us. And so if you take a look at it on an average home, we’re generating about $33,000 in annual revenue income. This is a little bit of our operating costs, which are going to be our taxes and our dues and then interest cost, depreciation expense, and then when you’re adding back those cash flows, we end up getting very high margins in this thing. So we are able to carry forward the equity value of the land and water in the rental segment to provide those free cash flows to us.

So we really like this segment. We’re going to continue to invest in that. We have currently 4 rentals up and available. We had 3 last year. We just added on this week, actually, and we have another 10 under construction. So to give you a bit of metrics on what we’re looking for on carrying forward that into this next phase. Again, the diversity of the product mix. This is Phase 2A. So if you look at what we’re getting in terms of our products on the what we’ve sold to our builder customers, we’re also retaining some of those for our own purposes. So we have few flex homes. We have small 35-foot alley load product and then we also have more of the same product that we had in the first phase. And our rents are going to range anywhere from slightly less than $2,400 a month to $3,000 a month.

So great opportunities for us on the single-family rental market. I want to drill down on some of the specific financial highlights. We’ve had a fantastic year. As you saw from some of our press releases, continued execution, continued growth in the Water and the Wastewater segment. We continue to invest in that. So we have around $67 million in water asset capitalized cost. Again, this — we continue to grow that segment. We had a little opportunistic acquisitions in that area. So we purchased a little more water that was regionally in an area that was located for some other water rights that we had. Water has never been more relevant. I know that many of you, I’m sure, have seen all of the press about Western Water and the supplies on the Colorado River.

Most of our supplies are not on the Colorado River. They’re more on the Flat River. We’ve had a relatively normal water year, but water continues to be one of those high-value investments in those highly sought-after opportunities. So we continue to look at that. And then water deliveries, we had a record year in water deliveries, over 400 million gallons of water deliveries, generating record revenue for us in that segment. So continuing with our land development activities. As Dirk was highlighting, we’ve delivered 100% of the Phase 1, both in terms of the water and the land development revenues on Phase 2A, we’re about 76% complete on that, maybe a wee bit more than that and really have delivered all of those lots to our homebuilder customers.

And as we also highlighted, we had another bond reimbursables to recover some of those public improvements that we continue to invest in, not only carrying forward some of those from Phase 1, but also some of those in Phase 2. And then we continue to generate very nice gross margins on our lot sales. When you take a look at both the lot sales as well as the reimbursables that come back to us on that. So very high opportunity on the land development side that has generated record liquidity for us. We’ve had some outstanding execution and really very low exposure. Our business model here is allowing us to be able to develop this infrastructure and deliver that in real time. So neither we nor our homebuilder customers are exposed to anything other than what we’ve delivered.

And the opportunity for us is really to continue to partner with them on market demand forces on that. And then the single-family rentals, again, continued growth in the home rental market. So we like very much delivering more homes in that area. Take some highlighting some financial metrics. Again, revenue. We have about $23 million in revenue, $8 million of that came from Water and Wastewater and then $15 million of that came from primarily our Land Development segment. Great growth in our net income, as you can see, from very modest means as we started this endeavor in 2018. The big highlight in 2021 was kind of an accounting recognition issue of being able to be comfortable with recurring or recapturing those public improvement investments.

So those are more real-time recognized revenues as opposed to accrue those and then recognize some of those in previous years into that 2021 area. And then our margins continue to improve. So we’re very proud of our team and the ability to continue to execute on both the water utility, the land development segment, and we look forward to continuing to highlight as it becomes more material to single-family rental segment. Again, more asset growth. We continue to invest in our assets, water, wastewater, water rights and then ultimately showing you record liquidity right around that $35 million of cash and cash equivalents for year-end. So an outstanding year for us, and we’re really proud of kind of how this is timed out for us. So we’re in a very good position as we’re taking a look at being opportunistic on some of the investment side.

Do you want to talk a little bit about our ESG initiatives. So we’ve hired an ESG initiative specialist who continues to really develop our documentation for ESG activities. We want to be — we want you to be on the lookout for that. So we’ll have our first annual ESG report coming up later this month. We’ll post that to our website. So be on the look for that. We want to be on the forefront on some of this disclosure and this documentation, both from an SEC guidance standpoint as well as what the NASDAQ Exchange are going to be looking for. So you will see significant documentation and really how the company perceives that. It’s a high initiative for us. Things to look for specifically are assessing, tracking and disclosing energy management uses, network efficiency, water usage, water recycling, wastewater collection data, those sorts of things.

We can track — we are going to track and assess employee satisfaction water affordability and access, staff diversity, all those sorts of highlighting issues and then continue the board diversity matrix as required by NASDAQ. So you’ll continue to see more on that. A little bit on some of the highlights here. Balance sheet, terrific balance sheet, $35 million in cash, very low debt position, low debt position at some favorable interest rates. So we locked in a lot of that financing at the 4.5% interest rate. So those have worked well for us. Total revenues, if you take a look at the income statement, again, $23 million for 2022. And then almost $10 million in net income, $0.40 per share on a diluted basis. I also want to talk a little bit about some other tools.

So we are adding a new tool to our box through a Board authorization for a share repurchase program. And really looking at this as being kind of the anti-dilutive nature of it, we are very — as many of you know, we’re very hawkish on our denominator and our capital currency. We have not raised capital through the sale of stock since we acquired Sky Ranch back in 2010. And we’re very modest on our stock option plans. We do want to incentivize our employees to be owners of the company. And so this is an important component of that. But we’re also being opportunistic to invest in ourselves. And so this is an authorization that the Board took as an opportunity for us to take a look at some of our liquidity and take a look at some of the market valuations and the disconnects that maybe we believe that the market may perceive compared to what our intrinsic value is.

So you’ll see a little bit of that. And you’ll see that disclosure as we take advantage of that through the next several quarters. A couple of upcoming important dates, proxy statements and proxy cards will be mailed out on December 2. We’ll have an annual shareholder meeting in January. So this year’s meeting will be on January 11. And then again, the ESG report initiatives will be later this month. Take a look at kind of our leadership. We continue to have very solid leadership both at the staff level as well as the Board level. We have we’re highly complemented by just an outstanding intellectual capital within our Board of Directors. And so they provide great governance and great direction for us on an ongoing basis. So I couldn’t be more thrilled to have their continued leadership in scope.

Okay. Before I finish with my closing remarks, let me just give you a bit of a recap here. We had a terrific year delivering lots that really were on schedule and in budget. We were able to generate significant liquidity through the sale of the CAB bonds. And really, that was a direct result of our excellent credit quality, how we develop, how we do land development, the opportunity for us to invest and then be reimbursed. Those — that business model really paid dividends for us, not only delivering these next set a lot in a real-time fashion, but also being able to recapture some of that liquidity through a bond offering. And really, how do we know our business model is working because when you see markets shift like this, neither we nor our builders are overly exposed.

Our builders have tightened their budgets for 2023, but we’re one of the few developers that actually are providing finished lots in this market and providing them at the entry level where everybody wants to be. Prior to — and I’ll give you kind of a dynamic here prior to in 2007 — prior to the recession of 2007, the Denver market here, home starts and entry-level home starts represented about 50% of the overall market. So you really had a concentration of builders and developers really pursuing that first-time buyer market. And that number has fallen to closer to 5%. So we have an affordability problem in Colorado, and that’s primarily because of a number of reasons. And really, Sky Ranch is one of the few projects out there that’s delivering lots for homebuilders in that starter home market.

The demand for housing in Denver remains strong. So we’re well positioned at that entry-level market. We’re selling homes, our homebuilders are selling homes to new buyers versus a trade-up buyer. New buyers that we’ll have to get comfortable with what is going to be this recalibrated mortgage. The anomaly isn’t 7%, the anomaly was 4%, 3% mortgage, I think that 7% number, as Dirk highlighted, is really more of a traditional average on that. And then we’re not really selling to buyers with an existing rig, right? They’re not a trade-up buyer. These are new buyers in the market. We have a lot of optionality in this company and terrific balance sheet, great liquidity to make disciplined acquisitions, both in land and water and now with our new tool in the box, we can invest in ourselves.

So we’re very delighted to have the liquidity that we have right now, and we’ll continue to look at opportunities to continue to grow the company. So with that, I think I’ll turn it back over to Ali and see if you all have some questions that we can drill down to and answer some specifics.

Q&A Session

Operator: . Our first question is coming from Bill Miller, who is an Investor.

Bill Miller: I congratulate you on a great quarter, and I’m just curious about a couple of things. One is your acquisitions that you alluded to, and where are you on any big further land acquisitions along I-70 or anywhere else? And secondly, the home rental market is obviously a home loan for you. Are you going to expand beyond the 100 a year or whatever number you have because that’s certainly your highest return investment opportunity you have. So will you reallocate resources there? And finally, are you going to stop at 200,000? Or are you going to go beyond that? and how aggressively do you plan to pursue that at this price?

Mark Harding: Yes. So let me take them in the order presented if I can remember that. So on the land acquisitions, we certainly do have a high degree of interest for that. And as we’ve talked in the past, I think we’re very well known in the market segment. We have water, which most of these surrounding land, the interest do not have water. So the intrinsic value of us being able to acquire a piece of land at our water to it does add value in the equation. And while we have not broken any of those free yet, we are seeing a lot of movement in this area, so we’re very interested to continue to pursue that. We’re very active in pursuing that, and we have a high degree of liquidity to pursue that with. So we very much like that optionality and being able to do that.

As you see, we continue to try and do some tuck-in acquisitions on the water side. I’d say our preference would be more land and water. But when water is available that we have that’s going to be located near where our existing supplies are that make sense for us to add. We’ll continue to do that. In taking a look at the single-family rental market, that’s also a great opportunity for us. And what we’re looking at with our builder partners, they’ve all done very well. We’re concentrated in the right market segment of that at the entry-level home. Each of the builders did very well in Phase 1, we’re continuing to roll that forward. And really, what we want to try to do is if somebody finds themselves to be overweighted in that segment, that may be an opportunity for us to take some of those lots back and continue to invest in that single-family market.

So Yes, we are interested in doing that. Currently, all of our lots are under contract, but this is one of those opportunities. So you may see us continuing to invest a little bit more in that area in Phase 2B, C and D. So those are opportunities for us. As it relates to share buyback, 1 of the things that the Board is very cautious of is we want to make sure that we have that optionality in investing in all elements of the company, water, land and our own currency. To the extent that the market continues to have a disconnect there, Can I attest to 200,000 shares — 200,000 shares was picked because it was an anti-dilutive number, but it’s — we’ll wait and see. As you’ve seen, and Bill, you’ve been with us a tremendous amount of time the stewardship and the governance that we have are very disciplined.