WaterBridge Infrastructure LLC ($WBI)

Hello, everyone. Thank you for joining us, and welcome to the WaterBridge Fourth Quarter 2025 Results Earnings Call. [Operator Instructions]. I will now hand the call over to Mae Herrington, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining WaterBridge's Fourth Quarter and Fiscal Year 2025 Earnings Call. I'm joined today by our Chief Executive Officer, Jason Long; our Chief Operating Officer, Michael Chop Reitz; 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 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, 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. Prior to the closing of WaterBridge's initial public offering on September 18, 2025, WaterBridge completed the successful combination of its legacy entities, WaterBridge Equity Finance, LLC, WaterBridge NDB Operating LLC and Desert Environmental LLC. Full year 2025 key operational metrics discussed today are presented on a combined basis and full year 2025 financial results discussed today are presented on a pro forma basis in accordance with Article 11 of Regulation S-X, assuming the combination and the IPO had occurred on January 1, 2024. I'll now turn the call over to our Chief Executive Officer, Jason Long.

Thank you, Mae, and good morning, everyone. 2025 was a transformative year for WaterBridge as we completed our upsized and highly successful IPO in September, bringing to market the largest pure-play water infrastructure network in the United States. To begin today, I'm proud to announce that our fourth quarter and full year 2025 results continue to demonstrate strong operations with fourth quarter produced water volumes up to 2.6 million barrels per day and full year combined volumes averaging 2.4 million barrels per day, representing 15% year-over-year growth compared to combined 2024 volumes. Our volume growth is combined with continued rate improvements to contribute to full year 2025 pro forma revenues of $790 million, a 19% annual increase compared to pro forma 2024 revenues. Shortly, Chop will walk us through how we plan to continue our operational and commercial momentum in 2026. And then Scott will translate that into details for our 2026 guidance. But first, I want to walk through some context of the business today. WaterBridge provides innovative and full-cycle produced water solutions to E&Ps and is well positioned to meet evolving industry needs via our produced water handling capacity of more than 5 million barrels per day of produced water handling capacity across over 2,600 miles of integrated pipeline and 212 produced water handling facilities. With this extensive produced water handling and supply network and deep operational and geological expertise in the Delaware Basin, the most prolific oil and natural gas basin in North America, we are well positioned to be a sought-after partner for years to come. Our value proposition of providing innovative, geologically focused and technologically advanced solutions for our E&P partners has translated into a strong track record of growth as demonstrated by our more than 22% CAGR in produced water handling volumes since 2022. Due to the significant remaining inventory of low breakeven locations, produced water volumes continue to grow alongside an even recently outpacing oil volume growth in the Delaware Basin where the water-to-oil ratios are among the highest in the U.S. Our permanent integrated water infrastructure network is strategically located to meet this need, and we anticipate continued revenue growth in the coming years. To meet that growth, we continue to dedicate significant capital to high-return organic growth projects and pipelines in the basin, focusing on long-haul and out-of-basin solutions for New Mexico customers as they continue to increase operational focus in the high-return, high inventory Northern Delaware Basin. The strong demand and positive response we received during the open season for the first phase of the Speedway Pipeline project led us to continue those discussions with customers via the recently announced Speedway Phase 2 pipeline. As a long-term flow assurance partner of choice in the basin, we expect to continue dialogues with the existing and new customers in the region to ensure that we can expand water infrastructure capacity in step with their development needs. With that, I'll turn it over to our COO, Chop Reitz, to talk about our operational momentum and priorities for 2026.

Thanks, Jason. At the operational level, we continue to prioritize delivering critical flow assurance for our customers through unparalleled pore space access as well as our advanced technology and measurement systems. Our continued execution is reflected in our produced water handling volume growth. And in the fourth quarter, we achieved a single-day record of 2.9 million barrels per day of water handling. In 2025, we achieved 99.7% operational uptime with measurement variance of less than 1% across our system, driven by our proprietary forecasting capabilities and real-time measurement and monitoring technologies. Commercial efforts continue to advance meaningfully. In 2025, we brought high-value new infrastructure online and expanded existing facilities across our network, enabling 15% year-over-year combined volume growth. In particular, we brought the Kraken project online, representing an initial capacity of approximately 450,000 barrels per day. This project will continue to drive volume growth in 2026 with a midyear minimum volume commitment or MVC increase. As previously announced, this project includes a 10-year MVC from bpx to support its long-term development plans in the region. We also meaningfully advanced the development of our Speedway project, which will provide produced water transport and handling in the Northern Delaware Basin, connecting oil and gas development to out-of-basin pore space owned by LandBridge in the Central Basin Platform. Phase 1 was oversubscribed, and we anticipate the project to be put into service in the middle of this year with the bulk of key contracts and MVCs going into effect in the third quarter. The first phase of Speedway is expected to drive volume growth in 2026 and beyond as it continues to ramp through 2028. Speedway's Phase 2 open season was launched in February of 2026, and demand is already outperforming expectations. We also anticipate being able to accelerate some early Phase 2 projects into the back half of 2026, which represents an opportunity to leverage recently constructed Phase 1 assets, unlocking operational synergies and subsequently providing an incremental EBITDA contribution in 2027. The success of the Speedway project emphasizes the continued benefits from our synergistic relationship with LandBridge, which not only provides critical access to underutilized high-quality pore space, but also continues to expand its surface and subsurface portfolio, subsequently derisking future needs. Access to pore space through LandBridge and other large strategic landowner relationships is a key differentiator for WaterBridge and a critical component of the reliable, redundant flow assurance solution that we provide our customers. Finally, we expect to begin construction on the previously announced New Devon project in the fourth quarter of 2026, and we'll continue to execute incremental high-return capital projects to meet the existing customer demand throughout our infrastructure footprint. With that, I'll turn things over to our CFO, Scott McNeely, for an update on our financial results and formal 2026 guidance.

Thank you, Chop, and good morning to everyone on the call today. We entered 2026 with significant commercial momentum, having realized major successes in 2025 with our IPO, the launch of Kraken and the success of the Speedway Phase 1 project, all while executing on record water handling volumes for the full year, as Jason and Chop mentioned. In the fourth quarter, our first full quarter as a publicly traded company, we achieved record revenue of $208.9 million, up 2% compared to the pro forma third quarter revenue. Fourth quarter net loss was $13.6 million and adjusted EBITDA for the quarter came in at $103.8 million with a 50% adjusted EBITDA margin. For the year, we delivered pro forma revenue of $790 million, representing 19% year-over-year pro forma revenue growth. Full year pro forma net loss was $58.1 million. Full year adjusted EBITDA was $402.8 million, a 16% year-over-year increase. In Q4, we further optimized our balance sheet by closing on an inaugural $1.425 billion senior unsecured notes offering, which will help WaterBridge capitalize on the many compelling opportunities before us. We ended the year with total liquidity of $527 million, including $52 million of cash and cash equivalents and $475 million undrawn under our new $500 million secured revolving credit facility. Our covenant net leverage ratio was 3.3x at the end of the year, and we remain committed to our long-term goal to be under 3x levered. Capital expenditures in the fourth quarter were $89.2 million, mainly driven by spending on the development of Speedway Phase 1 and continued expansion projects on our Stateline systems as we continue to grow our footprint with high-quality assets. Our disciplined capital allocation framework allows us to effectively deploy free cash flow and manage our top priorities, which includes, first, prioritizing high-return capital projects, building out our water infrastructure network and maintaining our commercial relationships. This also includes selective strategic acquisitions. Second, maintaining a conservative balance sheet and prudent capital structure to ensure maximum financial flexibility over time. And finally, returning capital to shareholders through opportunistic share repurchases and dividends. This quarter, we declared an inaugural quarterly dividend of $0.05 per share. As anticipated, we are initiating annual guidance this quarter. For full year 2026, we expect produced water handling volumes of 2.5 million to 2.7 million barrels per day, driven by the midyear bpx Kraken MVC increase and Speedway Phase 1. We also expect CapEx to be between $430 million and $490 million. Importantly, our expectations for Speedway Phase 1 CapEx have not materially changed, and this guide contemplates approximately $100 million of newly sanctioned CapEx attributable to the incremental Speedway Phase 2 projects Chop discussed as well as other commercial projects throughout our acreage. Finally, we expect 2026 adjusted EBITDA between $420 million and $460 million, representing 9% annual adjusted EBITDA growth. This is expected to be weighted towards the back half of 2026, following the Kraken MVC increase and initiation of Speedway Phase 1. With our ongoing commercial success and in anticipation of Speedway Phase 2, expectations for 2027 are meaningfully higher than previously contemplated. To conclude, we're proud to have delivered a strong year of growth and look forward to continuing to deliver for our customers in 2026 and beyond as we meet the increasing demand for produced water handling across the Delaware Basin and innovate for the future. We would now like to open the line for your questions. Operator?

[Operator Instructions] Your first question comes from Derrick Whitfield of Texas Capital.

Congrats on a strong 4Q. I wanted to start with your 2026 produced water handling volumes guidance of 2.5 million to 2.7 million barrels per day. In our view, it seems that you have baked some degree of conservatism in your plan relative to where you exited the year. Could you speak to when this activity projection was assessed and what price forecast is assumed? And finally, highlight any timing considerations that could place you on the upper side of your forecast?

Thanks for the question, Derrick. Yes. I would -- I guess I'd answer it in 2 different ways. First, we had a very strong fourth quarter. Volumes came in and kind of exited the year in that position of strength, which is what we wanted to see. And so feel really good stepping into '26. I would say the second piece, when we work through budgeting for this year, like many others did so at the end of 2025, we were just in a very different, call it, macro environment than we're in today. The bulk of the guidance of the volumes that are baked into the guidance are informed by producer feedback that was provided when oil was in the mid- to high 50s. Where we're sitting today, it's just a drastically different environment. And as such, we think that there's a lot of upside, particularly in the back half of the year if the current macro backdrop holds. And so I think we feel really good about the conservatism baked into the guidance. Again, did that by design. But the world we're living in today is very different than the one we were living in when we received that producer input. And I think as a result, has a lot more upside now than we would have expected to see back in late December.

Great. And then for my follow-up, I wanted to shift over to the Devon and Coterra merger and kind of think through that for a bit. With the understanding that clearly, the merger is not final, it would seem logical to us that the consummation of that merger could present incremental growth opportunities for WaterBridge. Based on past discussions with both counterparties, do you see or expect to see greater opportunity from the Coterra side of the house based on your working relationship with Devon? I know that Coterra's Franklin Mountain asset literally sits on top of Project Speedway.

A great observation. I mean I think we're obviously excited for the Devon team and the Coterra team. They're going to be stepping out of the merger in a very strong position. We've got a great relationship with the Devon team with a lot of the folks that we work with day-to-day as part of that new management team. And so I think we're excited to kind of step into conversations with them about what is next for their plans. We have had great relationships with Coterra in the past as well. And so I think a lot of those, we hope will obviously continue to accrue to our benefit. So I think stepping out of this, we're excited. I think the combined company is going to be obviously a great one in the Delaware Basin. I think we're excited to work for them. We're excited to deliver our part in enabling what's next for their company.

Your next question comes from the line of Elias Jossen of JPMorgan.

I wanted to start on the acceleration of growth project opportunities you alluded to. I think you talked about some opportunities to accelerate in the back half of '26, leveraging some of the ongoing construction. Can you just speak more specifically to the magnitude of that? Help us understand what the kind of 4Q exit rate might look like and the overall framing you see for 2027?

Yes. Elias, I appreciate the question. Yes, so I mean, we're in a really great spot right now where we've received a number of inbounds working through a number of different commercial discussions, which is ultimately what sparked the announcement around Speedway Phase 2. And I think -- in addition to that, we also have just several commercial projects that are fairly firmed up at this point that will serve somewhat as a foundation for Speedway Phase 2 as well. And so we added another $100 million to capital expectations for this year. Now that is still somewhat front weighted for the year. But the bulk of that extra $100 million is going to be tied to these new commercial projects that will serve as the foundation for Speedway 2. There is a smaller amount. So I'm not going to quantify it, but we'll say a smaller amount, which is going to be related to the Devon projects. Now if you recall, Devon has an MVC with us that comes online in second quarter of 2027. We're just accelerating the construction of that infrastructure just by a few months, and it's really just to derisk effectively that construction phase. And as a result of that, we expect just a little more cash to go out the door at the end of this year versus '27. So no real change in the scope of that project, but just, call it, recognizing the fact that cash may leave the system a little bit earlier than we were thinking. But again, by design, just to derisk the development there.

And then shifting to the capital allocation philosophy subsequent to the growth project spend. It seems like there might be a bit of a free cash flow inflection as you get Speedway 2 in service and I guess the Devon project as well as that spend kind of comes to a conclusion at the end of '27, maybe '28 looks more like an inflection on free cash flow. So how do you guys kind of think about what the capital allocation framework looks like at that point?

Yes. No, it's a great question. I mean, like we said during the IPO process, I think we will continue to prioritize these higher-return organic growth projects. You look at Kraken, you look at Speedway, we would expect for Speedway Phase 2 to be incredibly attractive from a return standpoint. That will continue to be the most accretive use of the cash flow that we're generating as a business. And so I don't expect that changes. And I think we aim here just to continue finding creative ways to continue to generate those same kinds of returns. Now beyond that, we will continue to explore M&A. It does need to compete with the organic growth projects that we're working through as we think through our capital allocation framework. But to the extent there is an opportunity that checks all of those boxes on a risk-adjusted basis, I think we would absolutely be opening to pursuing M&A as another way to continue to feed growth to the company. And then lastly, we think through just kind of balance sheet management and return of capital. I think making sure that we work through this growth while keeping the balance sheet healthy is a top priority. Staying kind of at mid-3s at max during growth is something I think we're comfortable with, but getting sub-3x is certainly a longer-term goal, I would call medium-term goal for us. And then beyond that, obviously, initiating this first dividend, not looking to overly lean into dividends here, particularly through this growth phase, but potential for those to grow going forward, depending on other competing uses of capital. And likewise, potentially exploring buybacks in the future when it makes sense in the context of other capital allocation options we have as well as the float and the float dynamics at the time.

Your next question comes from the line of John Mackay of Goldman Sachs & Company.

Maybe I'll go back to the first one around the '26 guide. I appreciate the comments, but I guess I wanted to follow up. When you're talking about it potentially being conservative, I mean, how much is that based on maybe comments that the higher oil deck will incentivize new activity versus just say, hey, we're kind of baking a little bit of wiggle room into these numbers. I guess I'm asking, are you guys expecting activity to pick up at this higher deck because we're generally not seeing it elsewhere?

Yes. John, good question. So yes, the conservatism was really in the context of what was a high $50 oil environment when we worked through that budget. So I mean, when I think through the conservatism today, I would make the argument that it is -- it is that much more conservative given the context of where WTI is at and expectations through year-end. We have certainly heard some initial chatter on thoughts from producers, although most of that was really around the thought process of is this a short-term blip or do we expect to see a more enduring elevation of WTI through year-end? I think over the last couple of weeks, the market certainly seems to think that WTI is going to stay escalated at least to a certain extent through year-end at this point as we've seen the backwardation start to fall off slightly. And so too early to say or really to aggregate feedback from producer and producer reaction just yet. But what was a conservative, call it, outlook in a high $50 oil environment, I think, is, again, very conservative now, particularly in the context of the strip through year-end. And to the extent producers are able to capitalize on that, I would expect some of them will. Although as we all know, there are different idiosyncrasies with different producers out there. But all of that to say, I'd say we have much stronger tailwinds now than we had in late 2025 as it relates to the macro backdrop.

Maybe just a quick follow-up on Speedway 2. I know the open season closes next month. Can you just walk us through kind of expectations for reaching FID? And then on the CapEx for this year, how much kind of total project CapEx or maybe if you're just able to compare it to what the build for Phase 1 looked like?

We've gotten, obviously, a few of the commercial deals we expect to be part of Phase 2 buttoned up at this point. That is why the CapEx is incorporated in the budget now. I mean those are projects that we'll pursue regardless of the outcome of the broader Phase 2 process. And so I want to make that perfectly clear that this isn't speculative CapEx that's built into the budget. These are discrete projects that we expect great returns from even on a stand-alone basis, although they could serve certainly as, call it, the commercial foundation for broader Phase 2. Too early to say exactly what the aggregate capital spend or returns will look like on the broader Phase 2, but I would expect those to be fairly in line with what we saw for Phase 1, if not slightly more attractive, just depending on how the dust settles.

[Operator Instructions] Your next question comes from the line of Theresa Chen of Barclays.

On the topic of Speedway and the commercial development momentum that you've seen to date, is there a possibility or likelihood at this point for Phase 3? Is there a likelihood that you will loop the 30-inch system given the demand for the egress?

Theresa, I appreciate the question. The short answer is yes. I think we see a lot of demand throughout New Mexico, Eddy and Lea County. And I would say expectations certainly have not dropped. They are growing rapidly as developers look for water solutions out of what is a very challenged environment, and we are obviously positioned to deliver that. Timing of that will ultimately be driven by the outcome of commercial discussions for Phase 2 and when initial operating capacity or capability is going to be needed for Phase 3. But we're having all of those discussions now. And I think what's exciting, if you look at Kraken, you look at Speedway Phase 1, you look at Devon coming online, we've already set the stage for what is great growth exiting '26 into 2027, 2028. These new commercial projects plus Speedway Phase 2 is only going to further bolster the back half of '27 stepping into '28. And as you allude to, there is a need for Speedway Phase 3. There's a need for more water takeaway. And so we see just fantastic growth kind of over the next several years, and we're just working very diligently to ensure that we're being thoughtful around the underwriting. We're derisking those projects with MVCs, and we're setting ourselves up for just long-term derisked growth.

Got it. And on that note of just persistent tightness in supply and demand for water takeaway, what are you seeing in the evolution of rates at this point? What is the going rate at this juncture as you try to commercialize the second phase of Speedway in addition to future organic endeavors versus your legacy $0.60 per barrel-ish rate?

Thanks, Theresa. This is Chop. Rates are increasing over time, as you could expect, as capital needs for these projects increase over time. And so we are seeing more demand and rates increasing along with that demand.

But relative to the mid-$0.60 kind of average that we've had through the middle of last year, these new rates, Kraken, Speedway, some of these others that we're working through and talking through meaningfully higher. I think to Chop's point, some of that is to underwrite the capital coming out of New Mexico and some of that is just a reaction by the market to just the supply-demand economics for Water takeaway.

Your final question comes from the line of Kevin MacCurdy of Pickering Energy Partners.

Maybe to follow up on the question about rates. Your '26 EBITDA guidance was in line with expectations, but maybe on slightly lower volumes than anticipated. So are we right to think that margins will be a little bit higher in 2026 compared to what we saw in the back half of 2025? And if so, any comments you can provide on the near-term driver of that?

Yes. Kevin, good question. Yes is the answer is we see Kraken step up, we see Speedway come online. We see some of these other new commercial projects come online. We would expect the higher unit level revenue from those contracts to continue to drive margin expansion across the system. So we would expect that trend to continue going forward for all the reasons I just kind of walked through with Theresa. Obviously, some of that is going to be used to underwrite the capital that's needed for some of these larger projects. And like I mentioned, some of that also is just a reaction to the supply-demand economics for water takeaway today.

And then I appreciate your comments on what you're seeing on the ground in terms of activity pickups or not seeing so far yet. But just kind of curious what your capacity is to handle more produced water volumes in both the short and the near term. I mean you did 2.9 million barrels in the fourth quarter. Is that kind of a near-term cap? Or could you go even higher?

We could go even higher than that. There is some regional dynamics that are involved. And so the system obviously isn't wholly accessible from any other point of the system. So there is just the operational realities that come into the mix. But the point I would make as you look through our average of roughly 2.6 million barrels a day against our peak of 2.9 million barrels, it's a real reflection of the criticality of having infrastructure of scale in place today. These producers are working through these much larger multi-well pads that bring on much higher peaks. And you've got to have the operational expertise and the infrastructure already in place that can accommodate those peaks and do so with the certainty that's needed by these E&P operators. And so there's a real kind of competitive moat that's introduced as a result of that. So when you look forward to 2026 and you think through our ability to capture the upside potential, I mean, I would make the argument we already have those assets in hand to do quite a bit of that today. And that's before we bring Speedway online midyear, which only gives us an additional asset to continue to capture what we would expect to see is some upside coming out of New Mexico in today's commodity price environment. So we feel very good about being well positioned here kind of through the year, hopefully, to continue to enable some of the E&P development, particularly in the back half of this year that's really resulting from the macro evolution we've seen here over the last couple of months.

Congratulations on the quarter.

Yes. Thanks, Kevin.

There are no further questions at this time. I will now turn the call to Scott McNeely, Chief Financial Officer, for closing remarks.

Yes. Thank you, operator, and thanks to everyone for joining us today. Again, very happy with how we exited the year and how we're stepping into 2026. We feel like there's a lot of upside for us in '26, stepping into 2027. And like I mentioned, a lot of commercial opportunities out there for us to continue to pursue and drive growth. As always, please feel free to reach out to our team here if there are any questions. Otherwise, we hope everyone has a great week and look forward to staying in sync up. Thank you.

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