LandBridge Company LLC Class A Shares Representing Limited Liability Company Interests

to welcome everyone to the LandBridge Third Quarter 2024 results. All lines have been placed on mute to prevent any background noise. After the speaker's 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. If you would like to withdraw your question, again, press star one. I would now like to turn the conference over to Jason Long, our CEO.

You may begin.

Good morning everyone and thank you for joining our third quarter earnings call. Our results demonstrate the strength and momentum of our business as we continue to benefit from a sustained level of activity in the Delaware Basin. During the quarter, we delivered 60% year-over-year revenue growth, 62% year-over-year adjusted EBITDA growth, and 88% adjusted EBITDA margins. Notably, we continue to grow the percentage of revenues derived from fee-based arrangements versus oil and gas royalties to further mitigate our direct exposure to commodity price fluctuations. In the third quarter, non-oil and gas royalty revenue streams, which include surface use royalties and revenues and resource sales and royalties, accounted for 90% of overall revenues, up from 83% last quarter and 65% in the same quarter last year. And by actively managing our land and resources, we continue to position ourselves to capitalize on a broad array of commercial opportunities at the Texas-New Mexico state line. As mentioned last quarter, West Texas is an increasingly popular area for renewable energy and digital infrastructure development, and our acreage is ideally situated for data centers to support AI and cloud computing services, which require low-cost fuel, water for cooling, and fiber optic infrastructure. As a reminder, in July, we signed a non-binding letter of intent for a long-term ground lease for the development of a data center. This month in November, we executed a lease development agreement for the development of a data center and related facilities across approximately 2,000 acres of our land in Reeves County, Texas. The lease development agreement includes, among other things, a non-refundable $8 million deposit due in December 2024 for a two-year site selection period and construction of the data center within a subsequent four-year period. Upon initiation of construction of the data center, the counterparty will make escalating annual lease payments along with additional payments based on the net revenue received with respect to the power generation facilities to be located on the lease property. We also continue to expand our land holdings. In November we acquired an additional 1200 surface acres in Winkler County, Texas, and are under contract to acquire an additional 5800 acres in Lee County, New Mexico. The Wheeler County acquisition is adjacent to East Stateline Ranch and includes water infrastructure that generates revenue under a long-term contract with an active sand mine. The Lee County Opportunity is strategically located just north of our Stateline assets. We are looking forward to continuing to identify opportunities to build out our surface acreage as well as new prospects to develop additional revenue generating infrastructure projects. In short, we believe our performance to date reflects our unique and promising business model which is characterized by diversified revenue streams, industry-leading margins, and low capital intensity. We see no shortage of opportunities ahead to continue growing and creating substantial value for our shareholders. Now I'll turn it over to Scott to go through the numbers in more detail.

Thank you, Jason, and welcome to everyone joining us this morning. As Jason mentioned, we continue to deliver strong results, and we see this as evidence that our active land management strategy is working exactly as intended. Our third quarter revenues increased to $28.5 million, up 9.8% sequentially and 60% year over year. This was driven by surface use royalties and revenues, which grew 14% sequentially, and resources sales and royalties, which increased 29% sequentially. Revenue from oil and gas royalties declined 35% sequentially, which is attributable to a decrease in net royalty production, as well as a decrease in average realized pricing. Thanks to our highly efficient operating model, we delivered adjusted EBITDA of $25 million, which increased 6.8% sequentially and 62% year over year, and which represents an 88% adjusted EBITDA margin. We generated free cash flow of approximately $7.1 million and free cash flow margin of 25%. The sequential decrease in free cash flow is attributable to an $11.1 million impact from non-recurring IPO-related expenses and lease termination costs. Longer term, we continue to expect substantial free cash flow and free cash flow margins around 70%. We ended the quarter with total liquidity at $74.4 million, including cash and cash equivalents of $14.4 million and $60 million under our revolving credit facility. We continue to execute against our capital allocation priorities. As a reminder, these priorities are threefold. First, maintaining a strong balance sheet over time to maximize our financial flexibility. Deleveraging remains an accretive use of our cash flow. and during the quarter we paid down approximately $120 million in debt. We ended the quarter with $281.3 million of debt outstanding under our term loan and revolving credit facility, and a net leverage ratio of 2.8 times compared to 4.2 times at the end of the second quarter. In addition, subsequent to the end of the quarter, we amended our debt facilities, increasing the maximum available under our revolving credit facility by $25 million to $100 million. and increasing our term loan to $300 million with an additional $75 million uncommitted accordion term loan. Under the term loan amendment, we are no longer required to make amortization payments. Second, we are committed to returning capital to shareholders, and we've declared our inaugural quarterly dividend to shareholders of $0.10 per share. This quarterly dividend provides shareholders another important way to share in our successes. And finally, we continue to pursue value-enhancing land acquisitions with a focus on underutilized and undercommercialized land and Jason mentioned our most recent acquisitions in Texas adjacent to the East Stateline Ranch as well as in Lee County. Looking ahead, we will continue to prioritize growing our revenues through commercial efforts on our existing surface as well as strategic acquisitions of land as we identify new development opportunities and we expect our strong growth trajectory to continue. Before closing, as promised, we are also introducing annual guidance today now that we've completed a full quarter as a public company. For the full year 2024, we expect 95 to 100 million of EBITDA. In our earnings press release, we've detailed several assumptions underpending this guidance range, including higher than expected surface use royalties and the lease development agreement deposit payment related to the data center development mentioned earlier. For the full year 2025, we expect 140 to 160 million of EBITDA, driven primarily by the incremental contributions of our new acquisitions, initial contribution of the 250 megawatt solar facility to surface use revenues, and the growth of surface use royalties through higher produced water volumes. In conclusion, we delivered another strong quarter and are confident in our growth prospects as we continue to capitalize on the development opportunities in the basin to deliver value creation for our shareholders. At this point, we'd like to open up the line to questions. Operator?

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 star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Our first question comes from the line of Charles Mead with Johnson Rice. Your line is open.

I want to ask a question about these two acquisitions you did. And I note that it looks like both of them come with revenue streams. And I just wondered if you could maybe, I recognize some of this may be sensitive, but if you could just give us an idea of what kind of multiple you paid for them or If you don't want to talk about that, talk about perhaps the trajectory of those EBITDA streams. And Jason, I think you mentioned in your comments on the Lee County acquisition being right adjacent to Stateline. Talk about perhaps any synergies that you might be unlocking with these acquisitions that wouldn't be obvious to someone from the outside looking in.

Good morning, Charles Scott here. No, very good question. Yeah, just to give you all some quantitative information to work with, you know, the two acquisitions in aggregate were roughly $47 million. They're generating about $9 million of EBITDA today. And so, you know, tracking to just over a five times multiple, which is, you know, something that we find obviously very attractive financially and I think equally as important you know, the locations of the assets, you know, one being contiguous with the East Stateline Ranch, the second being in New Mexico, just presented a lot of opportunities for one, synergies with our existing operations on the East Stateline Ranch, as well as synergies with the WaterBridge platform in New Mexico as it looks to extend its reach from the Stateline into New Mexico. And so when you think through the ability for us to leverage that WaterBridge relationship, this is just a great example of that. You know, the fee surface in New Mexico is just less abundant than what you get in Texas. And so opportunities to find the right surface at the right price and the right location to be able to exercise on those synergies is rare. And so this was one that we were excited to tackle here. And I think one that's going to serve us very well from a growth prospect going forward. Got it.

Thank you for that detail, Scott. And then I also would like to ask about the – it looks like the strength of your 25 guide is really on the – really based on those two core pieces of your – the two largest pieces of your revenue and EBITDA, the surface use royalties and resource sales and royalties. When – in this kind of three key reporting season for EMP companies, there's been a lot of – a lot of people saying we're going to decrease activity levels or maybe keep the same footage drilled and do it with fewer assets. And there's just a lot of people kind of – there's been more people looking to turn the dial down on activity than turn up the activity. And so I'm wondering if you can comment on if you're seeing that as you kind of look at your operators who are active with your assets and what might explain that you guys are going counter-trend to that.

Really good question. You know, I would say as we thought through guidance for 2025, we took what you just outlined certainly in mind. You know, what we're seeing right now from producers along the state line is a continued focus or maybe more of a focus on drilling efficiencies. And we're seeing that evidenced by, you know, the duck inventory right now along the state line being the highest it's been as folks think through completion efficiencies and making sure they're getting, you know, the most return for their buck. And so, you know, You know, that's something that we, you know, are in close communications with producers with both in the land bridge and the water bridge side. So we're tracking it pretty meaningfully. You know, I think what's really driving our growth outside of, you know, the broader oil and gas industry, I would say still having the tailwinds that you just mentioned, particularly in the Delaware, are just a lot of these opportunities we have to also expand beyond that. And, you know, we mentioned in our earnings release, for example, that The solar project that we've been working through is going out for development. Now that we've got this lease development agreement with the data center executed, it just makes that project that much more valuable given its adjacent to the data center site. And so we're really chasing a lot of these opportunities that are quite valuable and diversify away from the traditional oil and gas space. So I think it's an important element to remember as you think through our growth trajectory is You know, while oil and gas is a big piece of the story today, there's certainly more than that at the moment, and that's going to continue to be a piece of our business that's growing meaningfully here over the near term. Great detail. Thank you, Scott.

Yeah, thank you, Charles. Thanks, Charles.

Our next question comes from the line of John McKay with Goldman Sachs.

Your line is open.

Hey, good morning, John.

John, maybe your microphone is on mute.

Operator, maybe we move to the next question, yeah, and let John dial back in here.

Absolutely. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

Hey, morning. Good morning down there. I'm guessing you guys are happy with the pending changes in energy policy following Tuesday. So two questions here. The first one is good to see the data center deal signed. and appreciate the outline of the terms, the two-year pre-development phase and four-year construction as part of the agreement as far as hurdles that need to be achieved. But in thinking about the timeline that the data center takes and other commercial projects, you bought acquisition land in the quarter at five times EBITDA, and I think your stock is trading somewhere around 30 times on my math or our math. So just trying to get a sense for what the trajectory of the growth is now that you've been public for a few quarters and it seems like more commercial ventures are starting to form. Just trying to understand, you know, what, you know, obviously the stock's pricing in a tremendous amount of growth. Just trying to see what's on your what's on your plate and what types of projects we could see announced in the next few quarters, because clearly it takes time for these projects to come to fruition. but curious what you guys are seeing because the stock is certainly pricing in a lot of good stuff. And I'm just trying to get a better sense of how that's looking from your perspective.

Yeah. Great, great question. Yeah. I mentioned on the last earnings call that commercial traction out of the gate was even stronger than we had hoped for. And that certainly holds true. And I think what your question alludes to is a lot of these projects that utilize our surface are not short-term, call it quick win kind of projects. These are long term, oftentimes capital intensive from the operator and the developer standpoint type of projects, but ones that just generate meaningful long term value for LandBridge. And so all of those discussions I kind of referenced on the last call are still very much ongoing and are making progress. And I think there are a lot of wins that we expect to have and share with you all over the coming quarters. It's tough to quantify exactly, you know, this is the growth trajectory we're going to see, but I'll say, you know, with the amount of surface that we have, our ability to grow our position accretively as we can, and the commercial landscape that's out there, our ability to generate, you know, meaningful double digit, you know, kind of growth profile over the near to medium term seems very, very likely. It's tough to say that the answer is X, but I think ultimately the ability to grow returns here, grow our cash flow base and be able to return that growth as value to investors, I think is going to be very, very achievable given what we see in the pipeline at the moment.

But just given the timeline to roll out, sign the deals, do the pre-development and build, I mean, not everything is as complex as a data center. It still seems like it's probably... three to four years at least before we start seeing commercial and ally start to really, uh, you know, expand and grow. Is that, is that a reasonable timeline or do you think it could be sooner than let's say four years before we really start with the meaningful contribution?

Yeah, we would, we would start seeing the cashflow impact ahead of that. I mean, I think this data center opportunity is a good, is a good reference point. Um, you know, the, the $8 million deposit payment that we're receiving, You know, we will also be generating revenue throughout the construction phase, so we will be receiving rent through the construction phase of the project. You know, from LandBridge's perspective, we're able to start realizing that uplift well in advance of, you know, some of these projects, which can be multi-year, the data center being the obvious example, before those become operational. And so, you know, we would certainly see, you know, the most uplift once these sites are operational, once we start seeing the benefits of not just the full lease payment, but also a part of the economics being, you know, a profits interest on the power generation. But that said, it's not a hair trigger where we go from zero to call it full uplift. There's going to be a phasing in of cash flow for us, you know, as these projects come online. And I think that's going to be a part of the growth story here over the next couple of years.

Okay. And then just second question is on windmills. The VP elect was recently on a podcast and was talking about He's not a real big fan of the tax incentives for windmills. Just curious, on your alternative energy rollout, what percentage are windmills? I know you guys do a lot of solar, but just curious on the windmills, if that's a big contributor or if that's sort of a smaller part and more of the alternative energy is on the solar front?

Great question. No revenue from windmills today. I mean, we have some of those commercial opportunities in the pipeline, so obviously there could be some discussion points there, but no impact to the business as of today. And then, you know, I think more generally speaking, we would see this administration's stance to being called status quo to very constructive relative to the bulk of our business here. And so, yeah, I appreciate there are little nuanced things like wind worth talking about, but I think generally speaking, from Lambridge's perspective, more tailwinds coming out of this recent election cycle.

Thank you.

Thanks, Alex.

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

Hey, good morning. We appreciate the color on 2025. It looks like produced water is really the driver of higher EBITDA next year than we expected. I wonder if you could talk about the outperformance of that business a little bit and what is driving the higher volumes there.

So, you know, I would say there's a few things just out of the gate that have really worked in our favor. I mean, first, we spoke to the relationship Waterbridge has with Devon. You know, that's been a fantastic partnership on the Waterbridge side, and Devon is very focused on ensuring that their water volumes are handled responsibly. And a big piece of that solution is sending water to water bridge assets on land bridge surface. And so there's been a focus from their side to really move as much of their water as possible onto our surface, given the water bridge operating methodology of ensuring proper spacing between sites, as an example, really provide the longevity to operations that they're looking for. You know, I think second, you know, on the, on the Waterbridge side as well, just the commercial traction that we've seen on that front has been incredibly positive. You know, we've got a number of blue chip operators looking for solutions at scale. And a lot of those projects are starting to come online next year. And so, you know, we, we on the Waterbridge side continue to see good commercial traction. I think that's largely because of, you know, you know, because of the land and the pore space access that we have via LandBridge. And I think conversely, you know, to LandBridge's benefit here, we're seeing the synergies of that WaterBridge relationship, given the fact that all of this commercial wins or these commercial wins WaterBridge is achieving are just working in the benefit of LandBridge in the form of those royalties. And so, you know, part of the thesis from the get-go out of the gate was the water company and the land company you know, really serve each other well. And I think it's just that kind of proving itself out here in the eyes of a lot of these, these larger producers.

Yeah. The only thing I would add to that is, um, you know, we, we obviously strategically located, um, all of these acquisitions from a, from a surface standpoint, but also from a geological standpoint. Um, and to Scott's point on the, on the poor space, um, we've been very successful, um, thinking through, you know, we're not, not only in basin solutions for operators, but also out of basin solutions. And, um, We've been, from a Waterbridge standpoint and from other third parties, have been very successful in bringing that stuff to fruition.

Got it. I appreciate that answer. And as a follow-up, you know, it seems that all the Delaware operators are talking up efficiency gains and raising their production forecasts. And I know your team, you know, keeps a pretty detailed macro outlook on the basin. And just curious if anything, if you're seeing any changes to your outlook based on these efficiency gains or anything changing in terms of water cuts.

I would say, you know, there's certainly a focus on the efficiency side. I mean, honestly, that plays out more for Waterbridge as it thinks through its capital planning and infrastructure build out. I mean, from LandBridge's perspective, you know, we continue to be, I would say, the beneficiaries of increasing development in the Permian. And that's That's kind of the takeaway there. You know, I think the fortunate thing about our business is, you know, there's no capital required to kind of keep up with those, you know, called the evolving methodologies that upstream producers are seeing at the moment. So, you know, we are just ultimately, again, the beneficiaries of the free cash flow that's coming out of these new production cycles. But yeah, I mean, from a general macro outlook on average, I mean, we continue to see growth in the Delaware next year. You know, meaningful growth, I think that comes as no surprise. I mean, I guess the only thing I would flag that we haven't spoken to is as, you know, producers are looking to develop out, you know, one section of surface or acreage rather, you know, in a more concentrated period of time that typically lends itself to developing out deeper benches. And there's inherently higher water cuts that we see in those deeper benches. And so, you know, these more concentrated development approaches kind of coupled with the transition from shallower development to deeper development is just going to lend itself to, on average, a higher water to oil ratio across all production along the state line and in New Mexico. And so, you know, WaterBridge will be obviously the beneficiary of those water cuts, and in turn, so will LandBridge, given it'll be receiving a higher royalty on average, you know, per barrel of oil than it has historically.

I appreciate the answers. Thank you.

Our next question comes from the line of Lauren Goldstein with Investor. Your line is open.

Thank you. Good morning. A couple of questions. Good morning, Lauren. Thank you. Fine. When you talk data centers and others talk data centers, I have now seen 300,000 square foot centers. I've seen years ago ten thousand five thousand and i've recently seen over seven million square foot data centers what what do you mean by data centers what what are you um negotiating what the first one or ones we will see what's the size of them great great question so this initial lease is for 2 000 acres for a one gigawatt data center um

The infrastructure itself will clearly not take up that full 2,000 acres. It is going to be a mix of the buildings themselves that house the data centers, the power infrastructure needed to power the data centers, and then just the associated infrastructure that's needed to support the data centers.

Yeah, Lawrence, the one thing I'd add to that is once the infrastructure is in place, it's a lot easier to grow these campuses, as we say, in scale, right? Yeah.

um the infrastructure being in place we could see these you know one gigawatt data center growing to you know five or six gigawatts over time okay so you're not you're not willing to respond in terms of square feet of the uh complex of the of that of the quote data center unquote yeah it's it

In terms of the actual square footage of the buildings themselves, I can't speak to that offhand. You know, what's been given to us or voiced over to us by the developers are, you know, rather this 2,000 square foot lease initially is going to be for a one gigawatt data center initially. But to Jason's point, that site is not limited to one gigawatt. They've got the ability to scale up. up to you know five to six gigawatts on that that 2 000 acre plot so um you know there's there's ample runway and benefits of scale to having those co-located but but no i don't know the exact square footage of the buildings themselves okay thank you yeah thank you lars thank you lorx our next question comes from the line of chinese roton with land bridge your line is open

Hi, my question is real short. Where are you posting your earnings reports? Because I've been online and I can't find them.

Yeah, we should have them posted in the IR portal on our website, on the landbridgeco.com website.

Okay, but where on the website? IR?

Yeah, there should be an investor's portal on the website.

Okay. Go ahead and take another question. I'll see if I can, for some reason, I missed that. I'll see if I can do it. Go ahead and take another question.

Yeah, there's an investor relations link up top. Yeah, no problem. And if you've got issues hunting it down, feel free to shoot me a note at scott.mcneely at landbridgeco.com, and I can happily hop on the phone with you afterwards and walk through.

But I didn't get an answer. Okay. I'll look for it. Okay.

Okay.

Go ahead and take another call, and I'll see if I can find it. Okay. Bye.

There are no further questions at this time. Mr. Scott McNeely, I turn the call back over to you.

Thanks again for everyone joining today. Please feel free to reach out to us if we can be helpful, but again, we appreciate your support. We hope everyone enjoys the rest of the week.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.