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LandBridge Co LLC - 10-Q Summary (Q2 2024)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024. LandBridge Company LLC (the "Company") is a Delaware limited liability company formed in September 2023 to serve as the issuer for an Initial Public Offering (IPO) that closed on July 1, 2024. The Company is a holding company whose sole material asset is membership interests in DBR Land Holdings LLC ("OpCo"). OpCo owns approximately 220,000 surface acres in the Delaware Basin (Texas and New Mexico) and generates revenue from surface use royalties, resource sales (brackish water, sand), easements, and oil and gas mineral royalties. The financial statements presented reflect the historical results of OpCo prior to the corporate reorganization.

Key Financial Metrics

Note: Debt figures reflect the balance sheet date of June 30, 2024. The Company had a working capital deficit of $8.8 million as of June 30, 2024.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 20% year-over-year for both the quarter and the six-month period. This was driven by a 126% increase in surface use royalties and a 44% increase in easement revenues, partially offset by a 44% decline in resource sales (brackish water) due to lower volumes and pricing.
• Net Loss: The Company reported a net loss of $57.7 million for Q2 2024 compared to net income of $44.7 million in Q2 2023. This reversal is primarily due to a $71.8 million non-cash share-based compensation expense related to the remeasurement of liability-classified Incentive Units. Excluding this item, Adjusted EBITDA increased 24%.
• Acquisitions: The Company acquired approximately 150,000 surface acres in the first half of 2024 (Lea County, East Stateline, and Speed Ranches) for a total consideration of approximately $430.5 million, significantly increasing the asset base.
• Debt Expansion: Total debt increased from $130.5 million to $400.3 million following a credit facility amendment in May 2024 to fund acquisitions. Interest expense increased 950% year-over-year for the quarter.

Guidance, Outlook, and Risks

• Outlook: Management expects continued growth in the Permian Basin, with oil production projected to average 6.3 million bpd in 2024. The Company is pursuing diversification into solar, power storage, and data centers to maximize land utilization.
• Share-Based Compensation Transition: Beginning July 1, 2024, Incentive Units will transition from liability to equity accounting, eliminating the volatile non-cash remeasurement charges that impacted Q2 net income.
• Capital Structure: Following the July 1, 2024 IPO, the Company received net proceeds of approximately $270.9 million. Approximately $100 million was used to repay debt, and $170.9 million was distributed to existing owners.
• Risks: Key risks include commodity price volatility (oil and gas), reliance on a limited number of customers (including affiliates like WaterBridge), regulatory changes regarding water and environmental matters, and the ability to service increased debt levels.

Investor Verification Checklist

• Non-GAAP Reconciliation: Verify the reconciliation of Net Loss to Adjusted EBITDA, specifically the $71.8 million share-based compensation charge, to understand core operating performance.
• Debt Covenants: Review the leverage ratio covenants (max 4.00:1.00 post-IPO) and interest coverage ratios to ensure compliance given the increased debt load.
• Related Party Transactions: Assess the volume and pricing of revenues derived from affiliates (WaterBridge, Desert Environmental), which constitute a significant portion of surface use royalties.
• Acquisition Integration: Monitor the revenue contribution from the newly acquired 150,000 acres (East Stateline, Speed, Lea County) to ensure projected synergies are realized.
• Dividend Policy: Confirm the Board's intent and ability to pay dividends, as the Company is now a taxable corporation and the credit facility permits dividends subject to leverage and liquidity tests.