Q1 2025 LandBridge Co LLC Earnings Call
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Desiree: 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.
Speaker Change: All lines have been placed on mute to prevent any background noise. After this Pikachu remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Jake Robert Hall, Vice President of Finance. You may begin.
Speaker Change: Good morning, everyone, and thank you for joining LandBridge First Quarter 2025 Earning School. I'm joined today by our CEO , Jason Long, and our CFO , Scott McNeely.
Speaker Change: 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.
Speaker Change: and which are subject to a number of known and unknown risk and uncertainties.
Speaker Change: that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. Your caution not to place undue reliance on forward-looking statements.
Speaker Change: Please refer to the risk factors and other cautionary statements included in our filings with the SEC.
Speaker Change: I would also like to point out that in our investor presentation, in today's conference call, we'll contain discussions on non-GAF financial measures, which we believe are useful in evaluating our performance.
Speaker Change: The supplemental measures should not be considered an isolation or as a substitute for financial measures prepared in accordance with GAP. Reconciliation 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.
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%.
Jason Long: Since the 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 our ability to continue delivering strong revenue growth and profitability across economic cycles and market variability.
Jason Long: First, we benefit from diversified revenue streams, the majority of which are not directly tied to oil and gas prices.
Jason Long: In fact, non-oing gas royalty revenue streams, including surface-use royalties and revenues and resource sells and royalties accounted for approximately 92% of overall revenue during the first quarter, up from approximately 88% last quarter.
Jason Long: As we have highlighted before, our surface acre just strategically located for a broad range of critical land uses and this allows us to be somewhat agnostic to the quarter to quarter volatility that is common with crude and gas prices.
Jason Long: 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 op-ex and capex, we are a well positioned to continue generating strong EBITDA margins and robust cash flow.
Jason Long: 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.
Jason Long: In April , Waterbridge 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, poor space, and the Central Basin platform.
Jason Long: 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.
Jason Long: We're 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 and produce water royalty volumes. As a reminder, the Wolfbone Ranch is underpinned by a minimal manual revenue commitment of 25 million for each of the next five years.
Jason Long: 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 manager strategy.
Jason Long: I'll now hand things over to Scott to walk through the financials in greater detail. Scott?
Scott McNeely: Thank 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.
Scott McNeely: So, control revenue growth for the quarter was driven by resource sales and royalties which increased 118 percent, a turbid wall to increase brackish water sales and royalty volumes from our newly acquired acreage.
Scott McNeely: Revenue from surface use royalties and revenues increased 3% sequentially, driven by a 72% sequential increase in surface use royalty volumes across both legacy and newly acquired acreage.
Scott McNeely: As a reminder, in the fourth quarter of 2024, we received an $8 million payment related to the least development agreement for a data center on our land that drove a significant increase in our surface-use revenues.
Scott McNeely: Oil and gas wereelties 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.
Scott McNeely: 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.
Scott McNeely: We generated free cash flow of approximately 15.8 million and free cash flow margin of 36 percent.
Scott McNeely: The quarter of a quarter compression and free cast flow and free cast flow margin was the result of higher accounts receivable.
Scott McNeely: 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 2025 as compared to the fourth quarter 2024.
Scott McNeely: Timing a collection of those revenues resulted in a short-term impact to free cash flow and free cash flow margin.
Scott McNeely: Our capital allocation priority has remained 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.
Scott McNeely: Alongside our first quarter results, we are pleased to announce that our board is declared a dividend of 10 cents per 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.
Scott McNeely: and now we'd like to open up the line for questions. Operator?
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question please press
Speaker Change: If you would like to enjoy your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.
Speaker Change: In our first question comes from the line of Jackie Colitas with Goldman Sachs. Your line is open.
Jackie Colitas: Hi, good morning. Thank you so much for it. Good morning, Jackie.
Speaker Change: So are you touching on a little bit? But just wanted to talk, you know, we're starting to see perminectivity levels start to change, you know. How do you think about the broader macro and this more specifically how a slowdown in production, you know, could impact your produce water handling growth across your acreage?
Speaker Change: Yeah, yeah. Good morning, Jackie. Thanks for the question. You know, I mean, it's the start to reiterate what Jason said in the opening remarks. I mean, we're in a very fortunate position where
Speaker Change: You know, the vast amount of our business is insulated from any direct commodity price exposure and we we spoke to that you know having 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.
Speaker Change: You know when you look at 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 line so the Devon, the Conoco Phillips, the EOGs and so on.
Speaker Change: You know, the overarching narrative has been at least this immediate moment in time.
Speaker Change: You know, no change in production expectations or the minimum is change in production expectations with a real focus on navigating the current environment through capital and cost synergies. And so.
Speaker Change: You know, from our seat, at the moment, we have not heard of any changes to development plans of whatsoever. We continue to see, you know, a substantial amount of demand for services on Waterbridge side, which would obviously flow through to LandBridge.
Speaker Change: and that's true for the near term kind of through the medium term. So we haven't seen, you know, any changes in expectations this year on our footprint, again, you know, 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...
Speaker Change: You know, based on our strong producer kind of customer base based on the location and geographically we're in and kind of based on the business model we think we're in a really healthy spot to continue growing forward.
Speaker Change: Now, that makes sense. And then pivoting, you know, you also touched on the open season and the Speedway pipeline with water bridge. I believe that recently closed. I mean, could you provide us with any details on specifically what the demand for that pipeline looks like and how you expect the, you know, the project to drive growth for LB, you know, than the timing, or specifically, again, like that produced water handling royalty growth, you could see from that up. Yeah, I mean, the contracts there are getting...
Speaker Change: are getting firmed up now. We would expect to be able to announce the formal outcome of that here in the coming weeks. Generally speaking, as you would expect a great outcome for LandBridge here, the pipeline itself stretching from Eddie to Lee County over to the speed ranch in the northeastern part of our footprint. Kevin.
Speaker Change: You know, call it approximately $30 plus million a year of cash flow once it's all up and running. Now that'll get sequenced in over time here. We could expect the first.
Speaker Change: called Faze of that to come online around year end, so in fourth quarter. So from LandBridge's perspective, we'd start to see, you know, some of those initial surface damage payments kind of get made the back half of this year with volume royalties coming on in fourth quarter and ratcheting up through the first half of next year.
Speaker Change: Read's really helpful. That's it for me. Thank you so much.
Yes, thanks, Jackie.
Speaker Change: Our next question comes from the line of Kevin MacCurdy with bigger energy partners. Your line is open.
Speaker Change: Hey guys, I want to give you a few company recently came out and said they thought oil production and 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 and the Northern Delaware?
Speaker Change: Yeah, it's a fair question. I mean, I think, you know, 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.
Speaker Change: You know, 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 fringe
Speaker Change: You know, I would say by design, we are in a fantastic spot to navigate this year going forward. I mean, so you know, from a produced water perspective, we can, 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 have a backed off of their development plans through kind of 27 and 28. Thank you very much.
Speaker Change: at this point in time, so we would expect to continue to see growth there. So, you know, some of the more fringe 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, you know, navigating, navigating that dynamic should have played out.
Speaker Change: Gotcha. And then second question is just any update on, you know, the data centers in the West Texas and maybe just can you talk about which are working on there. Thanks.
Speaker Change: Yeah, yeah, you know, 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. And I would say the sense that
Speaker Change: that there's 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...
Speaker Change: You know, they take a lot of time but we continue to see just kind of great momentum in that space continue to have a lot of discussions despite
Speaker Change: a lot of the discussions around in-base and 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. You know, we're all positioned to deliver both in a very sophisticated way. And again, you know,
Speaker Change: Despite how attractive and how enthusiastic we are about the digital infrastructure 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.
I appreciate the answers. Thanks, Desk
Bepper Skimps.
Speaker Change: Our next question comes from the line of Derek Whitfield with Texas Capital. Your line is open.
Hey, good morning, all.
Speaker Change: 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 seen an industry shift the deeper intervals, which are more water wet.
Speaker Change: It seems to me, there's quite a bit of momentum there with water growth.
Speaker Change: Pre activity adjustments.
Speaker Change: Yeah, no. It's a great 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 you know.
Speaker Change: Lee County, as well I mean, the dynamic we've seen over the last few years as an increase in Cal water oil ratios in that area over time, and that's largely due to flat or PDP declines.
Speaker Change: You know and if you look at the those wells kind of by vintage you'll 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 focused on deeper benches, which are inherently more volumetric on the water standpoint, youre going to see water growth meaningfully eclipse oil.
Speaker Change: Oil growth now you know I think we're we haven't resolved ourself to like the you know the growth percentages 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 them again kind of in that core development area water growth.
Speaker Change: Would eclipse oil growth here for the foreseeable future.
Speaker Change: Terrific and then as my follow up wanted to ask how you guys are thinking about the desalination opportunities. Your peers are pursuing but I'm really thinking about this more from the standpoint of a water bridge perspective and power opportunities you just referenced in an earlier question.
Speaker Change: Yeah. So you know.
Speaker Change: Water bridge would be the one that kind of really looks into that in partnership with with five point you know their their capital sponsor and so I mean, we have you know.
Speaker Change: 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 has a thought leader in a lot of this and so you know we kind of collectively land bridge Waterbirds. Five point, you know continued to really kind of pushed the envelope so to speak to look for solutions that.
Speaker Change: <unk> would work here now I know we've spoken about it previously as some of our peers out there you know the while the cost curve continues to improve there is a there's a bit more wood to chop I think before we get to the point, where that's really a feasible at scale.
Speaker Change:
Speaker Change: But yeah I mean at the end of the day I think from land Burgess perspective, you know the point the point I would obviously make is you know we are ultimately agnostic I think were were strong supporters. Obviously, if any of these efforts, but at the end of day all of those efforts are going to need land and we would get you know the royalty stream.
Speaker Change: From those efforts so.
Speaker Change: It's more of a water bridge thing, but I think land bridge, you know obviously happy to accommodate it would be economically beneficial for us and obviously I think it'd be good for the industry in the region as a whole.
Speaker Change: That's great color I'll turn it back to the operator thanks.
Speaker Change: Yeah. Thanks.
Speaker Change: That concludes the question and answer session I would like to turn the call back over to Scott Mcnealy for closing remarks.
Scott McNealy: Yes, Thanks again for everyone joining us this morning again, another great quarter.
Speaker Change: Despite the macro noise, we feel really solid heading into the second quarter here.
Speaker Change: Kind of through 2025, great momentum commercially great momentum on the M&A front, you know we look forward to sharing more news with you all here in a few months on second quarter earnings, but as always if any you know 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.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining and you may now disconnect.
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