LandBridge Company LLC Q1 FY2025 earnings call

• The company had a strong start to 2025 with triple-digit revenue and adjusted EBITDA growth of 131% and 129% respectively, maintaining an adjusted EBITDA margin of 88%.
• Benefits from diversified revenue streams, with non-oil and gas royalty revenue streams making up ~92% of Q1 revenue, insulating from oil and gas price volatility.
• Customers bear most operating and capital expenditures, allowing strong EBITDA margins and cash flow.
• WaterBridge announced an open season for the Speedway Pipeline in April, which will connect areas for produced water handling with expected near- to medium-term growth in demand for those services.
• Board declared a dividend of $0.10 per Class A share payable on June 19.

In the first quarter, LandBridge had revenues of approximately $44 million, up 20% sequentially and 131% year-over-year. 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, up from 88% last quarter. Resource sales and royalties increased 118% sequentially due to increased frac head water sales and royalty volumes from newly acquired acreage. Surface use royalties and revenues increased 3% sequentially with a 72% sequential increase in surface use royalty volumes. Oil and gas royalties declined 24% sequentially due to lower net royalty production. Adjusted EBITDA was $38.8 million, a sequential increase of 22% and 129% year-over-year with an 88% adjusted EBITDA margin. Free cash flow was approximately $15.8 million with a free cash flow margin of 36%.

• Capital allocation priorities remain maintaining a strong balance sheet and pursuing value-enhancing land acquisitions.
• Confident in continuing strong revenue growth and profitability across economic cycles due to diversified revenue streams and business model.
• Speedway Pipeline phase one expected to come online year-end, with surface damage payments in the back half of the year and volume royalties starting in Q4 and ramping up into next year.

• Broader economy experiencing growing macroeconomic volatility, though the business model is diversified to insulate from oil and gas price volatility.

Q: So you touched on it a little bit, but just wanted to talk, we're starting to see Permian 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 acreage?

A: Yes. Jackie, thanks for the question. I mean just to 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-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 WaterBridge and you couple that with a lot of the public statements that have been made from our major customers along the state line, 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, no de minimis 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 WaterBridge side, which would obviously flow through to LandBridge. 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.

Q: A large E&P 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?

A: Yes, 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'd say, by design, we are in a fantastic spot to navigate this year going forward. I mean, so from a produced water perspective, we -- like I said, we continue to see very strong demand in that core area here for the near term through the medium term. And so producers certainly haven't backed off of their development plans through kind of '27 and '28 at this point in time. So we would expect to continue to see growth there. So some of the more 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.

Q: Perhaps I 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 in 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.

A: Yes. No, it's a great, great flag and a good observation, Derek. I think that dynamic really holds true, especially if you look at like the core area of the Stateline, so Northern Loving County, kind of Southwestern through Central Western Lea County as well. I mean the dynamic we've seen over the last few years is an increase in kind of 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 which 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.

Q: And then as my follow-up, I 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 a WaterBridge perspective and the power opportunities you just referenced in an earlier question.

A: Yes. So WaterBridge would be the one that kind of really looks into that in partnership with Five Point, their capital sponsor. And so I mean we've got a number of pilot projects that we coordinate with Five Point on. Five 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 LandBridge, WaterBridge, Five 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. The -- while the cost curve continues to improve, there's a bit more wood to chop, I think, before we get to the point where that's really feasible at scale. But yes, 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 we 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 WaterBridge thing, but I think LandBridge, obviously, happy to accommodate it. It would be economically beneficial for us. And obviously, I think it would be good for the industry and the region as a whole.