LandBridge Company LLC 2026 Q2 Earnings Call

Mae, please go ahead. Good morning, and thank you for joining LandBridge's second quarter 2026 earnings call.

I'm joined today by our Chief Executive Officer, Jason Long, and our Chief Financial Officer, Scott McNeely. Before we begin, I'd 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're 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, 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 and the appendix of today's accompanying presentation. I'll now turn the call over to our CEO, Jason Long.

Thanks, Mae, and good morning, everyone. We are pleased to have delivered another strong quarter of operational and fiscal performance, featuring record-setting revenues and growth across key business categories. Our results reinforce the durability of our business model and the commercial execution we bring to bear across over 325,000 surface acres, strategically located in the heart of the Delaware Basin. Our differentiated strategy remains centered on maximizing the economic output of our surface position through active land management with a diversified revenue stream that drives long-term value and substantial free cash flow. We actively seek and capitalize on opportunities to collaborate with companies across oil and gas development, produced water handling and disposal, and a host of other critical industrial uses, including the long-term digital infrastructure opportunity, where momentum is building quickly.

Since well before our initial public offering in 2024, we've been focused on West Texas as a future hub of digital infrastructure in the U.S. LandBridge uniquely aggregates the critical elements of data center development that hyperscalers need. Namely, large contiguous sites with favorable permitting, proximity to power, including high-voltage transmission infrastructure, and reliable low-cost natural gas, access to current and planned fiber connectivity, and reliable long duration and diversified water supply scale. To put an even finer point on the importance of water, LandBridge has unparalleled access to both brackish and treated produced water, as well as ample pore space for responsible disposal, which provides economic upside for data center projects both on and off our footprint.

Due to our vast surface portfolio, we have access to approximately 13.4 million acre feet of brackish groundwater today, which is more than sufficient to meet long-term water needs for multi-gigawatt data center projects. Our forward-looking approach to digital infrastructure is gaining significant commercial traction, reflecting the quality of our offering and breadth of opportunity in West Texas. Since our last public update, we have continued to bring more high-quality counterparties into the diligence phase as data center momentum continues to build in the Delaware Basin specifically. While we have shared that we generally do not intend to make detailed announcements regarding non-binding agreements, we do think it's important to share with the market that LandBridge is currently under LOI, option, or in late-stage negotiations with seven power and digital infrastructure counterparties, representing more than 10 gigawatts of power generation and data center potential across our footprint.

As we continue to work through diligence on these and other opportunities, we expect to share milestones with the market that represent firm and binding agreements as they materialize. While we look forward to capitalizing on these compelling opportunities and others, we expect to continue strategically scaling the LandBridge platform underpinned by our core business segments, which have collectively delivered significant shareholder value since our IPO. This quarter, we celebrate our second full year as a publicly traded company, and since that time, LandBridge has grown revenue, free cash flow, and Adjusted EBITDA by over 150%, all while delivering a total shareholder return of approximately 360%. While that track record speaks for itself, we are more excited about the opportunities ahead of us. Digital infrastructure, expanding pore space demand, and power generation represent some of the very promising tailwinds we see in the compounding industrial ecosystem of West Texas.

One final item before turning things over to Scott. Our board has announced unanimous approval for the conversion and re-domicile of LandBridge from a Delaware limited liability company to a Texas corporation, based on the positive recommendation of the previously announced special committee of independent directors. Scott will discuss the rationale in greater detail, as we believe the conversion has the potential to further expand our investor base and support long-term shareholder value creation. Now I'll turn the call over to Scott.

Thank you, Jason, and good morning. Our second quarter results demonstrate the continued strength and scalability of the LandBridge model. We are delivering on the growth we anticipated and expect to continue this momentum in the second half of the year. We are reaffirming our full year 2026 guidance, which we raised last quarter, with expected Adjusted EBITDA between $210 million and $230 million for the full fiscal year. Revenue in the second quarter was a record $66.8 million, representing growth of 41% year-over-year and 31% sequentially. This quarter's performance was underpinned by strong contributions across each of our core business segments. Surface use royalties and revenue increased 41% sequentially, driven by an increase in produced water handling volumes, as well as an increase in commercial activity across our acreage. Resource sales and royalties rose 1%, supported by an increase in water sales on our legacy acreage.

Oil and gas royalties posted a 20% sequential increase, primarily driven by higher oil prices during the quarter. It's important to note that our direct exposure to commodity prices remains limited, with oil and gas royalties representing only approximately 5% of our Q2 revenues. Adjusted EBITDA for the quarter was $59.8 million, an increase of 33% sequentially and 41% year-over-year, with a margin of 89%. Cash flow from operations totaled $41.4 million, and free cash flow was $40.2 million, an increase of 11% year-over-year with a free cash flow margin of 60%. Our reliably strong cash flow, high margins, and capital-light structure reflect the fundamental strength of our business model. The vast majority of LandBridge revenues are generated through fee-based royalties, leases, and surface-related revenues that require minimal capital investment from us.

As commercial activity on our acreage intensifies, we participate in that growth through long-duration revenue streams without the need to fund underlying development. To that end, our capital requirements remain modest, with capital expenditures totaling $1.1 million and net cash used in investing activities was $11.3 million, including $10.2 million for a number of bolt-on acquisitions executed in the quarter. We continue to operate with a very disciplined capital allocation strategy underpinned by the following three elements. First, we continue pursuing accretive acquisitions that strengthen and expand our fee surface position. We continue to leverage our asset scale, identifying opportunities to acquire positions that expand our strategic pore space footprint, enable produced water infrastructure growth, and facilitate scaled power and digital infrastructure projects. Our proven active land management strategy is anticipated to create value above underwriting targets over time.

Second, we maintain a strong balance sheet with an optimal capital structure, targeting a net leverage ratio of 2 to 2.5 times. At quarter end, total liquidity was $269.8 million, including $39.8 million in cash and $230 million of available borrowing capacity under our revolving credit facility. Total borrowings outstanding were $545.2 million, nearly flat from the $545.5 million at the end of Q1, with no debt maturities until 2030. Our net leverage ratio was 2.5 times at the end of the second quarter, compared to 2.7 times last quarter. Subsequent to quarter end, we further strengthened our liquidity position by increasing our revolving credit facility from $275 million to $375 million, with the ability to expand to $475 million, and we reduced our borrowing cost by 25 basis points across the pricing group.

That additional capacity, combined with no near-term maturities, gives us ample flexibility to fund growth while maintaining our target leverage range. Finally, we maintain our ability to return capital to shareholders sustainably. This quarter, we declared a $0.12 per share dividend. The board has also previously approved a $50 million share repurchase program, which we are able to deploy opportunistically through December 2027. As Jason mentioned, our board recently unanimously approved the conversion of LandBridge from a Delaware Limited Liability Company to a Texas Corporation. A key factor in this decision is potential for broader index eligibility over time, as many benchmarks, including certain S&P, Russell, and CRSP indexes, are limited to corporations. We believe inclusion in these indexes will expand our eligible investor base, improve trading liquidity, and increase visibility among investors.