Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• LandBridge Co LLC (NYSE:LB) achieved exceptional growth in Q4 2024, with revenue increasing by 109% and adjusted EBITDA by 108% year over year.
• The company expanded its landholdings significantly, tripling its surface acreage to approximately 273,000 acres, including strategic acquisitions in Texas and New Mexico.
• LandBridge secured a minimum annual revenue commitment of $25 million for the next five years from BTX and its affiliates, enhancing financial stability.
• The company executed notable agreements for solar energy project development and water infrastructure, indicating diversification and future growth potential.
• LandBridge's business model allows for high margins, with an adjusted EBITDA margin of 88% and a free cash flow margin of 61% for 2024.

Negative Points

• Resource sales and royalties declined by 28% sequentially, driven by a decrease in brackish water sales and royalty volumes.
• The company's free cash flow in 2024 was impacted by non-recurring IPO-related expenses and lease termination costs.
• There is a reliance on future growth from digital infrastructure and renewable energy, which may take time to materialize.
• The company has increased its debt to $385 million to fund recent acquisitions, which could impact financial flexibility.
• LandBridge's revenue mix is shifting towards non-oil and gas royalty-based arrangements, which may expose the company to different market risks.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with LB.

Q: Looking ahead, where do you think the surface use economic efficiency metric can go from here if you see growth across your footprint? A: We haven't defined a hard cap, but there's still room for growth. For example, a water handling facility can generate $1.5 million per year in royalty revenue, and additional opportunities like solar can add another $500,000. Achieving $2 million per section, or over $3,000 per acre, is very achievable, with potential for more from economically dense opportunities like sand mines and digital infrastructure. (Respondent: Unidentified_3)

Q: Can you provide more details on the agreement with Western Midstream Partners and potential third-party agreements? A: The agreement is bespoke, with expected economic impact in low single-digit millions for surface damages and rights over the next 12-18 months. Once operational, royalties could reach high single-digit to low teens millions, depending on volumes. We are in talks with other third parties, indicating more agreements beyond Water Bridge. (Respondent: Unidentified_3)

Q: Can you give us a sense of the roadmap and milestones for the data center project after the two-year site selection period? A: After the site selection period, we expect smaller lease components initially, with full $8 million annual lease payments once construction begins. Incremental revenue streams will come as different phases come online, including profits from power generation and potential water sales. We expect to see more revenues likely next year, with full operations a few years after the first phase. (Respondent: Unidentified_3)

Q: How are you seeing the picture unfold for more data centers in the Permian, and are you more bullish than 3 to 6 months ago? A: We are more bullish, as timing is crucial. Once the first domino falls, more will follow. Access to power, surface, grid, and gas are key. Data center hyperscalers are getting more comfortable with remote locations, and our position offers good opportunities. (Respondent: Unidentified_2)

Q: How are you thinking about projects from a cash flow perspective versus funding, given the market's premium on data centers? A: The market leans into the data center theme, but our core oil and gas story provides substantial near-term growth. We focus on all opportunities, mindful of opportunity costs. We can increase cash flow outside of data centers, which are additive. Our strategy is to execute on both fronts to maintain market position. (Respondent: Unidentified_3)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.