LandBridge Co LLC (LB) 2025 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the LandBridge First Quarter 2025 results.

(Operator Instructions)

I would now like to turn the conference over to Jake, Vice President of Finance. You may begin.

Good morning, everyone and thank you for joining the Landbridge First Quarter 2025 earnings call. I'm joined today by our CEO Jason Long and our CFO Scott McNeely. Before we begin, I'd like to remind you that in this call and related presentation, we will make forward-looking statements regarding our current beliefs, plans, and expectations, which are not guarantees of future performance and which are subject to a number of known and unknown risk and uncertainties that could. Actual results to differ materially from results and events contemplated by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings with the SEC. I would also like to point out that in our investor presentation in today's conference call will contain discussions on non-gap financial measures which we believe are useful in evaluating our performance. These supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release in the appendix of today's accompanying presentation. I'll now turn over the call to our Chief Executive Officer, Jason Long.

Thank you, Jake. We had a strong start to the year, delivering triple digit revenue and adjusted EBITDA growth year over year of 131% and 129% respectively, while maintaining an adjusted EBITDA margin of 88%.

Since, we last reported results, the broader economy has experienced growing macroeconomic volatility. Against that backdrop, I want to begin today by reiterating the core elements of our business model that give us confidence in our ability to continue delivering strong revenue growth and profitability across economic cycles and market variability. First, we benefit from diversified revenue streams, the majority of which are not directly tied to oil and gas prices. We believe this dynamic greatly insulates our exposure to periodic market and macro volatility. In fact, non-oil and gas royalty revenue streams, including surface use royalties and revenues and resource sales and royalties, accounted for approximately 92% of overall revenue during the first quarter, up from approximately 88% last quarter.

As we have highlighted before, our surface acreage is strategically located for a broad range of critical land uses, and this allows us to be somewhat agnostic to the quarter to quarter of volatility that is common with crude and gas prices.

Second, a key attribute of our business model is entering into agreements under which our customers bear responsibility for substantially all operating and capital expenditures related to their operations and development projects on our land. With limited OpEx and CapEx, we are well positioned to continue generating strong, even on margins and robust cash flow.

Finally, the need for water handling infrastructure in the Delaware Basin continues to be an important driver of business for us through our affiliate company Water Bridge. And we have seen near to medium term demand for those services to continue to grow.

In April, Water Bridge announced an open season process for a new large diameter gathering and transportation pipeline, the Speedway pipeline, which will connect Eddie and Lee Counties in New Mexico to our out of basin port space in the Central Basin platform. Speedway will provide operators in the northern Delaware Basin access to our contiguous port space, a key resource for the sustainable handling of produced water in the northern Delaware Basin.

Based on these factors, we are confident in the resilience of our business model, and we will continue to advance our active land management strategy in 2025. We are already seeing strong growth driven by the acquisition of the Wolfbone ranch in late 2024. In fact, the Wolfbone ranch contributed to a greater than 70% quarter over quarter increase in produced water royalty volumes. As a reminder, the Wolfbone ranch is underpinned by a minimum annual revenue commitment of $25 million for each of the next 5 years.

In short, we are pleased with our momentum and we look forward to continuing to deliver strong results based on the success of our active land management strategy. I'll now hand things over to Scott to walk through the financials in greater detail. Scott.

Thanks, Jason, and welcome to everyone on the call this morning. As Jason mentioned, we had a great start to 2025. Our first quarter revenues increased to approximately $44 million, up 20% sequentially and 131% year over year.

So, revenue growth for the quarter was driven by resource sales and royalties, which increased 118% attributable to increased brackish water sales and royalty volumes from our newly acquired acreage.

Revenue from surplus use royalties and revenues increased 3% sequentially, driven by a 72% sequential increase in surface use royalty volumes across both the legacy and newly acquired acreage. As a reminder, in the fourth quarter of 2024, we received an $8 million payment related to the lease development agreement for a data centre on our land that drove a significant increase in our surfaces revenues. Oil and gas royalties declined 24% sequentially, which was driven by a decrease in net royalty production, with volumes falling from 1,199 BOE a day in Q4 2024 to 923 BOE a day in Q1 2025.

We delivered strong adjusted EBITDA with $38.8 million in Q1, representing a sequential increase of 22% and 129% year over year with an 88% adjusted EBITDA margin.

We generated free cash flow of approximately $15.8 million and free cash flow margin of 36%. The quarter over quarter compression and free cash flow and free cash flow margin was a result of higher accounts receivable. This was directly attributable to significantly increased surface use royalties, resource sales, and resource royalties that collectively increased $14.6 million, or approximately 85% in the first quarter of 2025 as compared to the fourth quarter of 2024.

Timing of collection of those revenues resulted in a short-term impact of free cash flow and free cash flow margin.

We ended the quarter with total liquidity of $84.9 million, including cash and cash equivalents of $14.9 million. $70 million dollars available under our revolving credit facility.

Our capital allocation priorities remain the same for 2025, and we continue to execute on these priorities, which, as a reminder include maintaining a strong balance sheet to maximize financial flexibility over time and identifying and pursuing value enhancing land acquisitions.

Alongside our first quarter results, we are pleased to announce that our board has declared a dividend of $0.10 for Class A share payable on June 19th to shareholders of record as of June 5th.

To conclude, we're excited by the strong quarter and start to the year, and we remain confident in our growth as we continue to benefit from our diversified, highly resilient revenue streams.

And now we'd like to open up the line for questions, operator.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

And our first question comes from the line of Jackie Klitas with Goldman Sachs. Your line is open.

Hi, good morning.

Thank you so much for time.

So, you touched on it a little bit, but just wanted to talk, we're starting to see perming activity levels start to change, how do you think about the broader macro and more specifically how a slowdown in production, could impact your produced water handling growth across your average.

Yeah, good morning, Jackie. Thanks for the question.

I mean it's a start to reiterate what Jason said in the opening remarks. I mean, we're in a very fortunate position where, the vast amount of our business is insulated from any direct commodity price exposure, and we spoke to that, having 92% of our business now being those non-m mineral royalties, I think really puts us in a strong spot. I think the second point that we'd make.

When you look at the call it the inside look we have on producer activity through our co-management of Water Bridge and you couple that with a lot of the public statements that have been made from our major customers along the state lines, so the Devons, the ConocoPhillips, the EOGs, and so on, the overarching narrative has been, at least at this immediate moment in time. No change in production expectations or the minims change in production expectations with a real focus on navigating the current environment through capital and cost synergies. And so, from our seat at the moment we have not heard of any changes to development plans whatsoever. We continue to see, a substantial amount of demand for services on water bridge side which would obviously flow through the land bridge, and that's true for the near term, kind of through the medium term, and so we haven't seen. Any changes in expectations this year on our footprint again, the most lucrative area for upstream kind of in the lower 48 here.

So, we feel really confident in navigating the current environment and like everyone else, we're keeping an eye on things, but based on our strong producer kind of customer base, based on the location geographically we're in and kind of based on the business model, we think we're in a really healthy spot to continue to grow going forward.

No, got it. That makes sense. And then pivoting you also touched on the open season, and the Speedway pipeline with Water Bridge, I believe that recently closed, could you provide us with any details on what the demand for that pipeline looks like and How you expect the you know the project to drive growth for LB any timing or specifically again like that produced water handling loyalty growth you could.

See from the contracts there are getting firmed up now, we would expect to be able to kind of announce the formal outcome of that here, in the coming weeks. Generally speaking, I think this, I mean, as you would expect, a great outcome for Landbridge here. I mean, the pipeline itself kind of stretching from Eddie to Lee County over to the Speed Ranch in the northeastern part of our footprint, it could be up to roughly 500,000 barrels a day of incremental water handling capacity which would just generate. Call it approximately 30+ million dollars a year of cash flow once it's all up and running. Now that'll get that'll get sequenced in over time here. We could expect the first phase of that to come online around year end, so in 4th quarter. So, from Lambridge's perspective, we'd start to see, some of those initial surface damage payments kind of get made the back half of this year with volume royalties coming on and fourth quarter and ratcheting up through the first half of next year.

Great it's really helpful. That's it for me.

Thank you so much.

Yeah, thanks, Jackie.

Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners. Your line is open.

Hey guys, a GMP company recently came out and said they thought oil production in the Permian was rolling over. I guess my question is, if Permian oil production across the whole basin is rolling over, what do you think that means for both oil production and then water production, in your part of the world in the northern Delaware?

Yeah, it's a fair question. I mean, I think, again, I'd reiterate some of the answers. I just kind of relayed to Jackie. I mean, I think we're really fortunate where our surface really overlays some of the best rock in the lower 48 and even the chatter out there at the moment would suggest that a lot of the development is kind of being consolidated here in these more economic areas away from the fringier areas. And so, I would say by design, we are in a fantastic spot to navigate this year going forward. I mean, so, from a produced water perspective, we can, like I said, we continue to see very strong demand in that core area. For the near term to the medium term and so producers certainly haven't backed off of their development plans to kind of '27 and '28 at this point in time, so we would expect to continue to see growth there. So, you know some of the fringier areas may start to see the impact here, but I think fortunately again by design we're not in those areas, so we feel pretty comfortable, navigating that dynamic should it play out.

Gotcha.

And then, second question is just, any update on, the data centers in West Texas and maybe just, can you talk about what you're working on there?

Thanks.

Yeah, like I mentioned, in November when we signed that initial deal, it'll be about 12 to 18 months from that point in time before we come back with an update. That hasn't changed. I would say traction, remains as strong as it has been. I would say the sense that there is an arms race out there continues to be very real.

As you would expect, given the scope of these projects, there's just a lot of scrutiny going into the underwriting of these locations. I mean, we're talking 10 plus billion-dollar capital projects and so. They take a little time, but we continue to see this kind of great momentum in that space, continue to have a lot of discussions despite, some of the macro chatter in the background. But I think taking a step back and what's probably, just as attractive to us is a lot of the discussions around in basin power at the moment. I mean there is this huge demand in West Texas right now for power generation. There's been a lot of talk about that and how it relates to data centers, but the need really transcends digital. Infrastructure and touches everywhere and so we're having a lot of discussions just more generally on the power side as you would imagine those folks need land, those folks need water, we're well positioned to deliver both in a very sophisticated way.

And again, despite how attractive and how enthusiastic we are about the digital infra play, we continue to see, more and more momentum more broadly on power and would expect to see some more, positive updates on that here in the near term.

Appreciate the answers. Thanks, guys.

Yeah.

Our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open.

Hey, good morning, all.

Good morning.

Perhaps just wanted to reframe an earlier macro question just to kind of properly think about where how water is going in the basin.

Do you have a sense on the underlying growth and produced water volumes across the basin before any activity adjustments? And where I'm going is if you kind of set aside water oil ratio, the increase in water oil ratio within a well over time, we are broadly seeing an industry shift to deeper intervals which are more water wet. So, it seems to me there's quite a bit of momentum there with water growth. Pre-activity adjustments.

Yeah, no, it's a great flag and a good observation, Derrick. I think that that dynamic really holds true, especially if you look at like the core area of the state lines in northern Loving County, kind of south, southwestern through central western, Lee County as well. I mean, the dynamic we've seen over the last few years is an increase in water oil ratios in that area over time and that's largely due to flatter PDP declines.

And if you look at those wells' kind of by vintage, you can observe that dynamic. And so, when you think of kind of those shallower PDP declines in that core area and you couple that with what you just pointed out, which is focus on deeper benches which are inherently more volumetric on the water standpoint, you're going to see water growth meaningfully eclipse oil growth. Now, I think we're, we haven't resolved ourselves to like the growth percentage is X, because I think a lot of that does depend on ultimately how producers develop out these deeper benches and at what pace and at what mix, but I think we are comfortable saying that we would expect to see again kind of in that core development area water growth that would eclipse oil growth here for the foreseeable future.

Terrific. And then, as my follow up, wanted to ask how you guys are thinking about the desalination opportunities your peers are pursuing. I'm really thinking about this more from the standpoint of the water bridge perspective and the power opportunities you just referenced in an earlier question.

Yeah, so you know Water Bridge would be the one that kind of really looks into that in partnership with Five Point, they're their capital sponsor, and so I mean we have, we've got a number of pilot projects that we coordinate with 5 Point On. 5 Point has a strong relationship with Bechtel, which is obviously a big engineering firm that is a thought leader in a lot of this and so. We kind of collectively land bridge, Water bridge, 5 Point, continue to really kind of push the envelope, so to speak, to look for solutions that would work here. Now I know we've spoken about it previously as some of our peers out there, while the cost curve continues to improve, there is, there's a bit more wood to chop, I think before we get to the point where that's really feasible at scale.

But yeah, I mean at the end of the day I think from Landbridge's perspective, the point I'd obviously make is, we are ultimately agnostic. I think we're strong supporters obviously if you need these efforts, but at the end of the day all of those efforts are going to need land and we would get, the royalty stream, from those efforts. So, it's more of a water bridge thing, but I think land bridge, obviously happy to accommodate it, would be economically beneficial for us and obviously I think it would be good for the industry in the region as a whole.

It's a great color. I'll turn it back to the operator. Thanks.

Yeah, Thank you.

That concludes the question-and-answer session. I would like to turn the call back over to Scott McNeely for closing remarks.

Yeah, thanks again for everyone joining us this morning again. Another great quarter, despite the macron noise, we feel really solid heading into the second quarter here and kind of through 2025. Great momentum commercially, great momentum on the M&A front, we look forward to sharing more news with you all here in a few months on second quarter earnings. But as always, if any, incremental follow up would be helpful, please feel free to reach out. We are happy to hop on the phone. But otherwise, thanks again and have a good weekend.

Ladies and gentlemen, this concludes today's conference call.

Thank you all for joining and you may now disconnect.