LandBridge Company LLC (LB) Q3 2026 Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for joining us. Welcome to the LandBridge Third Quarter 26 Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Mae Herrington, Director of Investor Relations. Mae, Please go ahead.

Mae Herrington: Good morning, and thank you for joining LandBridge's third quarter 26 earnings call. I am joined today by our Chief Executive Officer, Jason Long and our chief financial officer, Scott McNeely. Before we begin, I would like to remind you that in this call and the related presentation, we will make forward-looking statements regarding our current beliefs, plans, and expectations, which are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties that could cause 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 our investor presentation and today's conference call will contain discussions of non GAAP financial measures 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 and the appendix of today's accompanying presentation. I will now turn the call over to our CEO, Jason Long.

Jason Long: Thank you, Mae, and good morning, everyone. We delivered another record-setting quarter, reflecting strong performance across each of our core revenue streams and the continued scalability of our business model. Momentum, together with the expected contribution from recent acquisitions, gives us the confidence to raise our full year 2026 adjusted EBITDA guidance. Our strategy has not changed. Actively manage our land to maximize what happens on it. We collect long term fee based revenue from the companies that build and operate there. This quarter showed that model working in 3 ways. First, we continue to grow our acreage position through acquisitions. During the quarter, we added significant new acreage to our land position totaling approximately 25 thousand service acres across our position. This brings our total acreage to more than 350 thousand service acres. The new acreage includes fee surface and mineral classified surface interest, which enables the surface owner to participate in the upside of the mineral's production. More importantly, these acquisitions add attractive undeveloped pore space positioned outside the overpressured injection zones close to the state line. That is exactly what the E&P operators need as a responsible long term alternative to produce water disposal and we are already in active discussions with operators about it. Our approach to acquisitions is consistent. We buy strategic acreage at accretive multiples. And then we work to blend that multiple down through commercial development. The land we have acquired this year was purchased at approximately 10x EBITDA. We have line of sight to bring that below 6x through near-term pore space modernization alone. With expectations to bring investment multiples at or below 3x over the long term through further commercial efforts, including digital infrastructure, alternative energy, and general industrial development. Second, the pore space opportunity is getting larger. Disposal capacity along the state line is shrinking. And our contiguous low pressure pore space is positioned to help meet that need. That demand for pore space is showing up in our results. Service use royalties and revenues increased again this quarter, driven by higher produced water handling volumes across our acreage. Including volumes from WaterBridge's ramping Speedway Phase 1 pipeline. Third, our digital infrastructure strategy has moved from discussion to construction. In September, PowerBridge exercised its option on an initial 825-acre portion of the approximately 3.4 thousand-acres under option for the Alpha Digital Campus in Breeztown. We entered into a long term ground lease and a power royalty agreement for power generated on the site. PowerBridge has received initial permits and has commenced construction on the Alpha Phase 1. Which is expected to include more than 300 MW of the planned 2 GW campus with first power delivery anticipated in the fourth quarter of 27. We encourage you to follow PowerBridge for more details on Alpha and their other ongoing efforts. Alpha is an important proof point of our digital infrastructure strategy. And it shows why we believe the model we offer is built to last. Power for Phase 1 is generated on-site. Behind the meter from local natural gas. It is fully off grid, so it does not draw from ERCOT or add cost for residential ratepayers. Cooling water is supplied from non-potable brackish sources so it does not compete with communities or agriculture for fresh water. And we have worked closely with local leaders and residents in Reeves County throughout this process. Developments like Alpha bring jobs and meaningful new tax base to the region. Put simply, LandBridge offers the full suite of what a data center needs. Large contiguous sites, behind the meter power, non potable water, fiber connectivity, a community that supports our projects. Each 1 answers a concern that has led to pushback against data center development elsewhere. Projects near major metro areas, which compete for grid capacity, drinking water, and resident acceptance, face growing headwinds. We believe sites like ours, which take on those issues directly, will be where this next phase of digital infrastructure gets built. That view is reinforced by our ongoing discussions with counterparties and by the commercial progress we have already made. Starting with Alpha, and we are well positioned to keep capitalizing on this demand as the market evolves. Our financial results and commercial progress this quarter demonstrate the strength of the LandBridge model. With the growing core business, disciplined expansion of our land portfolio, and increasing opportunities to generate additional value through active land management, we are excited about the business and the opportunities ahead of us. I will now turn it over to Scott McNeely.

Scott McNeely: Thank you, Jason, and good morning, everyone. Our results this quarter underscore the continued strength and scalability of our high margin asset light business model, and the expected contribution from recent acquisitions beginning in the fourth quarter supports our decision to raise our full-year 2026 guidance. We now expect adjusted EBITDA between $220 million and $235 million for the full fiscal year, compared with our prior range of $210 million to $230 million which raises the midpoint to $227.5 million. Revenue in the third quarter was a record $70.9 million. Representing growth of 39% year-over-year over year, and 6% sequentially. Given the acquisitions discussed by Jason closed at the end of the third quarter, our outperformance was driven by organic growth across all of our key revenue streams. Surface use royalties and revenues were $54.3 million an increase of $2.1 million sequentially driven by higher produced water handling volumes across our acreage including increased volumes from the ramping Speedway Phase 1 pipeline as well as an increase in pipeline easement revenue. Resource sales and royalties were $12.5 million. an increase of $1.4 million sequentially primarily driven by higher caliche and water sales as well as an increase in sand royalties. Oil and gas royalties were $4.1 million, an increase of $500 thousand sequentially as net royalty production rose from 773 barrels of oil equivalent per day the second quarter to 917 in the third. Our direct commodity exposure remains limited, with oil and gas royalties representing approximately 6% of our third quarter revenue. Adjusted EBITDA for the quarter was $63.7 million an increase of 42% year-over-year and 7% sequentially. With a margin of 90%. Free cash flow was $49 million, an increase of 45% year-over-year and 22% sequentially with a free cash flow margin of 69%. Our capital requirements remain modest with capital expenditures of $600 thousand. Net cash used in investing activities was $267.4 million including approximately $266.8 million for the acquisitions Jason described. Our strong free cash flow reflects the fundamental strength of the LandBridge model. As activity on our acreage continues to build, we participate through royalties, leases, and other long term contracted revenues, as our customers fund the underlying infrastructure. This high margin asset light business model allows us to grow cash flow while maintaining very modest capital requirements. Turning to our capital allocation strategy. We continue to operate with discipline across 3 priorities. First, we continue to pursue accretive acquisitions that expand our fee surface position with a focus on pore space, produced water infrastructure growth, and scaled power and digital infrastructure projects. Our proven active land management strategy is anticipated to create value above underwriting targets over time. Second, we remain focused on maintaining a strong balance sheet and an efficient capital structure. With a long term net leverage target of 2 to 2.5x. At quarter end, total liquidity was $126.8 million including $16.8 million in cash and approximately $110 million of available borrowing capacity under our revolving credit facility. Total borrowings outstanding were $765 million compared with $545.2 million at the end of the second quarter reflecting the funding of the third quarter acquisitions. Our covenant net leverage was 3.0x at the end of the third quarter compared to 2.5x last quarter. During the quarter, we amended our revolving credit facility. Increasing commitments from $275 million to $375 million, with the ability to increase by another $100 million. And we reduced our borrowing cost by 25 bps across the pricing group. On October 1, we also issued an additional $125 million of our 6 and a quarter percent senior unsecured notes due 2030 under the existing indenture bringing total principal amount of these notes to $625 million. And we used the net proceeds to repay a portion of our revolver borrowings. Pro forma for those October transactions, our liquidity was approximately $252 million and we continue to have no debt maturities until 2030. Finally, we maintain our ability to return capital to shareholders. The Board declared a dividend of $0.12 per share payable on December 10, to shareholders of record as of November 25. The $50 million share repurchase program authorized earlier this year also remains available through December 2027. We can deploy it opportunistically. 1 final milestone of note. We recently completed our previously announced conversion and redomestication of LandBridge from a Delaware limited liability company to a Texas corporation. The conversion of redomestication was approved by our board earlier this year, following approval by a special committee of independent directors. As discussed last quarter, we believe this conversion and redomestication has the potential to further expand our investor base through broader index eligibility and support long-term shareholder value creation. To close, this quarter demonstrates what the LandBridge model is designed to do. Grow revenue across diversified recurring revenue streams, convert that growth into outsized free cash flow at a 90% adjusted EBITDA margin and a 69% free cash flow margin and reinvest that cash flow to expand our acreage position. Compounding value for shareholders over time. With strong organic growth, attractive margins, and free cash flow, we are confident in our outlook and well positioned to continue executing on the opportunities ahead of us. Thank you. Operator, you may now open the line for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Thurow of Pickering Energy Partners. Your line is open. Please go ahead.

Michael Furrow: Hi, good morning, and thanks for taking our questions. Look, maybe we could just start with the recent election results particularly in Texas. I want to offer you guys an opportunity to kind of voice your opinions on how you see this impacting West Texas data centers and potentially the Alpha Digital Campus. I think the conventional wisdom is that it might benefit behind the meter, but it could also just delay projects altogether. So any thoughts there would be helpful.

Scott McNeely: Yeah. Hey. Good morning, Michael. Appreciate the question. You are right. If anything, this creates more of a tailwind for projects, you know, like ours. You know, if you recall, governor Abbott had his audit several months ago, and then now governor elects campaign it is all coming from the same place. I mean, Texans are concerned about the grid. their power bills, their water supply, and the impact on the communities. But this bar for data center development in Texas has already been going up. But as Jason alluded to in the prepared remarks, you know, we have designed our offering to easily clear that. And just to recap, first on the grid, our projects are structured behind the meter, you know, colocated or is ultimately a net exporters So we do not have that kind of negative impact on ERCOT. Rather, would add to it. Second, on the water side, you know, we are supplying nonpotable brackish and ultimately treated produced water, not the municipal or freshwater supplies that these concerns and these policies are really meant to protect. And the scenario that the Governor-elect has highlighted, that data centers are going to be competing with households for water, It just simply is not part of our model here. And lastly, on community impact, again, our sites sit on these large contiguous tracts of our own acreage well away from municipalities. And just as important, you know, is how we have approached it. From the start, we prioritized transparency. We have engaged directly with local elected officials, from community leaders, with key stakeholders. And that is why the local support for our projects is just very real. And that is not true in many other markets even within Texas. So ultimately, we strongly believe data centers, if developed the right way, with real thought given to power, to water, to community impact, you know, and in close coordination with those local leaders, they should be a huge positive. I mean, they bring jobs. They bring tax revenue. They diversify the local economy. They provide long term investments. I mean, these should not be viewed as a compromise, but they should be celebrated locally because it is a massive win both locally for the state of Texas. So, ultimately, to the extent there is a new policy that continues to raise the bar, only strengthens our competitive position because very few sites out there can really address all of these, you know, very valid concerns the way ours do.

Michael Furrow: I appreciate the detailed response. Just following up on the Alpha Digital Campus. Specifically on the revenue timing. Now that the ground lease and power royalty agreements are signed, when should LandBridge begin recognizing revenue? And what are the kind of key milestones that would ramp up royalty payments on the path to a 2 GW campus.

Jason Long: Good question. We are obviously excited to see them exercise that option and convert the first 825 acres, to a lease. You know, real material cash flow will start impacting first half of next year. We are not disclosing any of the details on economics just yet, but I would say that they fall within that framework that we previously provided you know, as it relates to that $10 million to $20 million per gigawatt. You know, more details to come there. As it relates to both the counterparty as well as the timing ramp to the full 2 GW, but we are obviously very excited. This is a great validation of the thesis and I think there is a lot of good news around the corner.

Michael Furrow: Great. Thanks for your time.

Operator: Thank you. Your next question comes from the line of John Mackay of Goldman Sachs. Your line is open. Please go ahead.

John Mackay: Hey, team. Thank you for the time. Maybe we will start on the recent M&A. Appreciate the color on kind of the multiples and where you can get that kind of multiple down to over time. Just curious if you can talk about kind of the broader opportunity set here when you are looking at all the, you know, incremental potential M&A you can do, on the acreage side, you know, how do we think about what can get you to a $3 thousand revenue per acre in terms of, like, how much acreage is out there that could be of that quality, versus, you know, maybe something a little lower. Said differently, if you are guiding to buying. You know, if you did 10 times on the acquisition price, put your points to 3x eventually, How deep is that opportunity set? Thank you.

Jason Long: Yeah. Hey. Good morning, John. So, I mean, obviously, very excited about acquisitions. You know, we have a very active ground game. We continue to see that M&A pipeline just very robust ahead of us here. When you think through the economics, you know, still able to get deals done at a blended average around this 10 times. When you think through what does it take to get that down to 3x, you know, just monetization of the pore space alone could achieve those numbers, both the multiple number as well as the SUI figure that you just referenced. You know, being intentionally conservative as we think through the timing of monetizing that, But the obvious kind of takeaway is when we look at all of these ancillary revenue opportunities that exist on the surface, that would just further drive that acquisition multiple down sub-3x. In addition to the opportunity set delivered by just the pore space alone. We think there is still just a very deep market in terms of actionable M&A. You know, there is obviously a variety of strategies we are pursuing from the pore space piece to more traditional enablement of oil and gas to even broader power and digital infrastructure. Just the broader industrial ecosystem that is needed to support that. And so it is it is truly a sprint for us right now. You know, but we remain incredibly thoughtful about commercial opportunities that exist on each 1 of these targets that we are looking at to ensure they meet our underwriting criteria. But we think, again, the opportunity set's robust, and we plan to continue working through that.

John Mackay: that is great. Thank you. Second 1 for me is just maybe a clarification on Alpha Digital. I understand, you know, it is not a ton of detail you guys can share right now. Would it be fair to assume that you know, if they are executing this lease with you and are comfortable moving forward, they are at least, you know, close to the finish line on kind of signing their anchor customer and maybe that is something we could hear about relatively soon?

Jason Long: Yeah. I would expect that to be a more near term announcement. You know, my expectation there would be not converting this to a lease unless there was a healthy amount of confidence that they are closed.

John Mackay: Understood. You for the time.

Operator: Thanks, John. Next question comes from the line of Derrick Whitfield of Texas Capital. Your line is open. Please go ahead.

Derrick Whitfield: Good morning, guys, and congrats on a very strong quarter and update. Hey. Good morning. Good morning. Wanted to start on the water disposal side of your business. Given the changes we have seen at the Texas Railroad Commission, do you anticipate any changes in the regulatory environment on water disposal And then just another comment, want you to speak to as well. But as I recall, you guys have largely led regular tightening within that body. So, effectively, a new administration could strengthen your competitive position in the market. Is that a fair assessment?

Scott McNeely: Yeah. Hey. Hey. Morning again, Derek. You know, a great kind of joint LandBridge, WaterBridge question there. You know, we do not expect any abrupt change in how produced water is regulated. But to your point, if anything, this is going to kind of further strengthen our position here, and that is largely due to our historically conservative approach to permitting. And then on the Waterford side, constructing infrastructure. I mean, if you just go through just a real quick handful of very relevant points, I mean, first, you look at how these Texas regulatory bodies are actually structured, I mean, they are built for continuity They are built for stability. And so even an election like we just saw is really not going to lead to some kind of drastic change in policy at all within the near term. Whether that is within the Railroad Commission, the TCEQ, or any other state. Regulatory bodies. It takes time for change to happen. And we are still a long ways away from even knowing if there is change coming. But second, and I think just as important as, you know, we at both LandBridge and Waterbridge have built an outside outstanding relationship with all of these regulators and all of these regulatory bodies. And we do not see that changing as a result of an election. You know, we will continue to stay transparent We will continue to work with them and coordinate with them, and that has typically led to great results for us. You know, but third and most importantly, we have always been very conservative about how we thought pore space should be managed and how ultimately operators should permit sites and build their infrastructures. And I think to your point, you know, spreading-- rather, forcing operators to spread their footprint across a wide geographic footprint is just a responsible way to go about business. You avoid introducing risks such as pore pressure and other risks, and ultimately, we see just much more responsibility and longevity that comes with that approach. And, you know, when the Railroad Commission last year even tightened its permitting guidelines, we put out very public support endorsing that change. Because it already really reflects how we at both WaterBridge and LandBridge operate. I mean, so, you know, to summarize, still too early to know whether there is any change coming, but to the extent it does come, I think we are incredibly well positioned relative to others who have just been toeing the line have much more exposure to even small changes in policy. Given that we operate so well inside those limits, it should ultimately drive, I think, more success to LandBridge. You know, as it is just delivering candidly a much more responsible platform for water disposal relative to other options.

Derrick Whitfield: Great. And then on my follow-up, I wanted to focus on the recent surface acquisitions. While I realize you are holding back the exact location for competitive reasons, Maybe if you could just speak to when you might be in a position to discuss the growth initiatives you have from that surface and, further, the market opportunity you see for additional surface acquisitions in the Delaware?

Jason Long: Yeah. I will start with the second. I mean, as I mentioned to John's question, you know, we still see just a very robust M&A opportunity set ahead of us and are continuing to move down that as quickly and prudently as we can. Which is what is leading us to being somewhat sensitive in terms of the success that we have had so far. Now when will we, you know, divulge or more information? I think that is something we are just gonna have to evaluate on a quarter by quarter basis. I think we are very eager to share our success and be transparent with the market about everything related to our business with you know, the caveat that we need to remain mindful of just commercials and stuff. And the last thing we wanna do is hinder the success of our business by over disclosing unnecessarily. And so it is a bit of a balancing act, but we understand the market's desire to learn more. We are excited to share that with them.

Derrick Whitfield: Appreciate that. Thanks for your time.

Operator: Thanks, Derek. Your next question comes from the line of Alexander Goldfarb of Piper Sandler. Your line is open. Please go ahead.

Alexander Goldfarb: Hey, morning down there, and I guess maybe I will say welcome to living in New York given how the election went there. So sorry. Just a little New York. So 2 questions here. The first 1 just goes to the election. Appreciate your responses on the data centers and core space. But if we think about, like, potential for a windfall tax or you know, tougher regulations on oil companies, etcetera, Are you concerned at all that, like the activity in the Permian dials back and therefore, there is less demand for water for your for what you guys provide? I am just sort of curious on that Obviously, I am taking sort of an extreme, but the way the market is reacting, I think that is the way the market is thinking. So just trying to understand sort of what a worst case could be and maybe if you frame it on what you have seen historically, under prior, you know, heavy, Democrat administrations whether it is locally or, out of Washington?

Scott McNeely: Yeah. Hey. Good morning, Alexander. You know, obviously, it is been a bit here, since we have had a different you know, political party at the helm. But can point to some analogs, I think, in Washington. I mean, at the end of the day, you know, I think Texas is an oil and gas company through and through. I do not think that is a partisan issue, necessarily. You know, we are obviously keeping a close eye on how all of the various impacts of this recent election could ultimately flow through. But we do not see any kind of reaction from any of our customers at this point. We appreciate in early discussions to suggest any concerns about things slowing down. And so we will, you know, we will continue to watch. You know, obviously, there, you know? But historically speaking, I mean, these E&P operators which obviously, you know, we are ultimately exposed to their activity volumetrically, are gonna be driven by economics. And so as long as the commodity price environment is constructive and, you know, that is gonna be a byproduct of demand and other factors, I think we will continue to see activity in the Delaware in particular continue to improve And I think there is a reason we are in the Delaware. Right? I mean, it is the best economics in the US as it relates to oil and gas production. And so I think you know, unlike some other basins, which may be a little bit more exposed to you know, changes in the commodity price environment or deterioration of the macro. In the Delaware, you know, even when commodity prices were soft and softening, last year, we still had fantastic success at LandBridge. So, I mean, that is what I would wrap up with, is ultimately look at the success we have had at our company through varying commodity price cycles even over the last few years. And I think of the 10 or so quarters we have been public, we have had quarter over quarter growth, 9 of those 10. That includes the first 6 or so quarters after being public when commodity prices declined following our IPO. So, I mean, I think we still feel incredibly optimistic kind of stepping into next year You know, again, keeping a close eye on what could or could not change, But as of today, I mean, I think we are still in a fantastic position to execute across all aspects of our business.

Alexander Goldfarb: Okay. So just to follow-up there, if I understand you correctly, it does not sound like this year because of where oil went in the Iran war that suddenly there was a flood of activity that you are worried about unwinding. Is that the case? that is what you are saying?

Scott McNeely: I think that is a very big piece of it. I mean, we have not seen. I would say, an irrational ramp in activity and a reaction to near term commodity prices this year. For a number of reasons. And so any kind of unwind as you put it next year, I think, is I think is just not an accurate way to look at it. Because just there is nothing massive to unwind. It has been largely a status quo year for us here. Okay.

Alexander Goldfarb: And then the second question is, I understand you do not wanna provide actual the actual details on the alpha economics. So just sort of big picture, you said it falls within, I think you said, a 10 million to 20 million per gigawatt framework. That would sound like if it is a 2-gig project, there is a potential for $20 million or $40 million. Just trying to understand, 1, if that is the correct interpretation. And then 2, is there some initial ground rent that is paid or is that really immaterial and it is not until the facility is fully up and running that we will see this I guess, what would be an aggregate $20 million to $40 million in total. I. I am assuming that is an annual payment. Just trying to understand sort of big picture.

Scott McNeely: Yeah. We expect to see ground rents starting to come in next year. As you think through the ability to scale this site to 2 gigawatts, those numbers that you put out, I think, are the right way to think about it. Okay. Okay. So my $20 million to $40 million per year is that sort of a correct range. Right? that is right. But I do not wanna give you the impression that is going to be next year. You know, as we have spoken to kind of the timing. Initial timing of the ramp. But yeah, as we think through the facility, you know, in aggregate kind of scaling up over the next several years, that is that is the target. That is the expectation on our side.

Alexander Goldfarb: Okay. Thank you.

Operator: Thank you. There are no further questions at this time. I will now turn the call back to Scott McNeely for closing remarks.

Scott McNeely: Again, we appreciate everyone's time today. it is an exciting time for our business. We have got a lot of really great things going on. We look forward to sharing more details with you all. But in the interim, please feel free to reach out. if we can be helpful. Thank you.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.