WaterBridge Infrastructure LLC (WBI) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the WaterBridge's Third Quarter 2026 results. [Operator Instructions] I will now hand the conference over to Mae Herrington, Director of Investor Relations.

Good morning, and thank you for joining WaterBridge's Third Quarter 2026 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 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, 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 Lang.

Thanks and good morning, everyone. I'm pleased to report another great quarter. We delivered record order volumes of 2.8 million barrels per day, along with record revenue and adjusted EBITDA, outperforming on both volumes and margins. I'd like to spend a few minutes on why we expect this performance to continue. First, the Delaware Basin has some of the best upstream economics in North America and today's commodity price environment amplifies that advantage. Our customers are responding with higher activity and nowhere is that more visible than along the Stateline and in New Mexico, where water volumes are growing quickly. Second thing is growth is creating a larger water challenge. Produced water volumes in the basin far exceed what can be recycled and reused in completions and the gap widens as activity accelerates. At the same time, disposal capacity in the most active parts of the basin is constrained by elevated poor pressure. As a result, the barrels that can't be recycled need a reliable long-term solution. Third, that is exactly where WaterBridge is differentiated. Our large integrated network lets us move water out of 4 pressure constrained areas like the state line in New Mexico to areas of low core pressure where disposal capacity is wide. For our current and future customers, that means they can develop their assets with confidence knowing their water will move every day for years to come. That's why we have seen meaningful outperformance in Speedway Phase 1. And as we continue commercial discussions on Speedway is 2, we are confident in the long-term value proposition of our out-of-basin infrastructure at force-based stations. Fourth, water as a resource in West Texas, an opportunity that is becoming more valuable, not less. Communities across Texas are rightly asking our large industrial projects, particularly data centers will affect their water supply. In West Texas, we believe the answer can be they don't have to. The region holds vast volumes of brackets and produced water that can be treated and put to productive use. So industrial growth doesn't compete with the water that families, farms, municipalities. Few companies can source, treat and deliver that water scale. WaterBridge can, through our integrated network, our operating expertise and our access to surface and for space in the right locations. Our relationship with Landbridge is central to that advantage. Landbridge as more than 350,000 surface acres in the Delaware Basin provide the land to site treatment and delivery infrastructure. The for space to responsibly manage what remains and the ability to locate industrial development right next to the water resources needed to support. Together, we can offer industrial customers complete water solution that doesn't draw on community supplies. That opportunity is moving quickly. We've made significant commercial progress on water supply solution for a large-scale data center, and we look forward to sharing more when appropriate. In addition, Porridge recently broke ground on its alpha digital campus on Landbridge acreage in Reeves County, where it is committed to using no municipal or community water for industrial purposes. Faberge expects WaterBridge to source, treat and deliver the non-potable water for the campus cooling system and demand is produced in discharge order from the segment. We believe this is the model for responsible industrial growth in West Texas, and we're well positioned to lead it. These drivers give us confidence in the growth trajectory of the business, and I'm pleased to share that we are raising our full year volume and adjusted EBITDA guidance for the third quarter in a row. We're also lowering the midpoint of our capital expenditures guidance as the timing of certain project spend shift into 2027. Scott will provide further details in his remarks. WaterBridge's record quarter reflects the value of the organic and inorganic growth initiatives we have pursued in the year since our IPO. The results we're seeing today reinforce our view of the long-term growth potential of the platform and our ability to create compelling value for customers and shareholders. I'll now turn the call over to Chop Reitz.

Thank you, Jason. Operations were strong across the platform in the third quarter. We handled a record 2.8 million barrels of produced water per day. That's up 6% from last quarter. The growth came from both new customers and existing ones and our expanding network is meeting that demand. Just as important margins held up, produced water handling revenue was $0.77 per barrel, excluding Skin oil. That's up 7% from $0.72 a year ago, and it's growing faster than our operating costs. Two things are driving that improvement. First, contract rates continue to improve. Long-haul pipelines like Speedway carry higher long-term rates and in pressure stressed areas like the state line, demand is lifting our short-term interruptible rates. Second, we're keeping a tight grip on operating costs as we scale. We're switching to more cost-effective fuel at our busiest facilities. And although our large diameter Speedway pipeline generally carries higher OpEx, we're leveraging the Speedway Pipeline's footprint to lower costs on our existing New Mexico infrastructure where possible. Now Speedway Phase 1. We started moving volumes in July and the ramp is continuing. Demand for capacity is strong. Utilization is beating our expectations. On the western portion of the system, throughput is performing well above what we expected. We've also signed several new agreements with E&P customers onto the Speedway pipeline. These volumes need very little additional capital so they bring attractive returns. They'll lift returns on Phase 1, and they support our growth outlook into 2027 and beyond. On Phase II demand for long-haul out-of-basin capacity keep towing, we expect to commercialize the project in the near term. Phase 1 strong performance lets us set the timing for Phase II in our terms. We'll line it up with firm customer commitments. Phase 1 utilization. So we're maximizing returns across the system as a whole. Meanwhile, engineering and planning continues, so we can move quickly once those commercial milestones are met. With that, I'll hand it over to Scott to walk through the financial.

Thank you, shopping -- good morning to everyone joining today. We reported strong third quarter results with record produced water handling volumes, revenue and adjusted EBITDA. Based on the volume and margin outperformance that Jason and Chop described, we are raising the midpoint of our full year 2026, reclear handling volume and adjusted EBITDA guidance by 2% and 4%, respectively. We now expect full year volumes of 2.65 million to 2.75 million barrels per day compared to our prior range of 2.55 million to 2.75 million barrels per day and adjusted EBITDA in the range of $465 million to $485 million compared to our prior range of $435 million to $475 million. We are also narrowing our capital expenditures guidance to a range of $530 million to $560 million from $530 million to $590 million previously, which lowers the midpoint by 3%. This reflects the shift of capital outlay for certain projects from 2026 into 2027. Turning to the quarter, we delivered record revenue of $240.2 million, a 10% sequential increase. Revenue growth was primarily driven by higher produced water handling volumes, including the continued ramp of Speedway Phase 1 and higher rates on contracts that became operational during the quarter. Adjusted EBITDA was $124.2 million, a 7% sequential increase. Adjusted EBITDA margin was approximately 52% within the range of 50% to 53% that we have delivered over the last 4 quarters. Capital expenditures were $123.9 million during the quarter. Spending was primarily driven by the construction costs from the first phase of Speedway and continued investments across our Delaware Basin infrastructure footprint. We ended the quarter with total liquidity of $539.7 million including $34.7 million of cash and approximately $505 million of available borrowing capacity under our revolving credit facility. Total debt was $1.8 billion and our covenant net leverage ratio was 3.5x. We remain committed to our long-term leverage target of some 3x. During the quarter, we also strengthened our liquidity and extended our financial flexibility. In August, we amended our revolving credit facility, increasing commitments from $500 million to $750 million and reducing applicable margins by 25 basis points across the pricing grid. Also in August, we issued an additional $150 million of our 6.5% senior unsecured notes due 2033, under the existing indenture bringing the total outstanding principal amount of those notes to $750 million. We used the proceeds to repay borrowings under our revolving credit facility with no significant maturities before 2030, we are well positioned to continue funding high-return capital projects. We remain disciplined in how we allocate capital, guided by 3 priorities: first, driving organic growth across our infrastructure network, alongside accretive acquisitions such as Ranger and NDB landfill. Every project we pursue is held to the same criteria, which include long-term contracts, creditworthy counterparties, fixed fees with CPI escalators, billed multiples below 5x and the ability to fund them while maintaining the strength of our balance sheet. Second, maintaining a conservative balance sheet and prudent capital structure that maximizes financial flexibility and contributes to our long-term leverage target. And third, opportunistically returning capital to our shareholders. Today, we announced a dividend of $0.05 per share payable on December 10 to shareholders of record as of November 25. To close, our results this quarter reflect a growing business with strong operations, a disciplined approach to capital and a balance sheet built to support growth record volumes, a third consecutive raise to our volume and adjusted EBITDA guidance and upsized revolver and our dividend, all point to the same thing, durable, high return growth. We're carrying that momentum into 2027. Our outlook for the next year is meaningfully stronger than when we went public, driven primarily by organic growth on infrastructure that we already have in the ground today as well as new infrastructure underpinned by recent commercial wins. We are in a position of strength. Let us be judicious in deploying capital for M&A and large commercial projects given the attractive growth that's already underway. We look forward to sharing our 2027 guidance with our fourth quarter results. We're confident in the path ahead in our ability to keep creating value for our shareholders. Thank you for joining us today. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of John Mackay with Goldman Sachs. Please go ahead.

Maybe we'll start on the commercial side. You mentioned success on kind of winning new agreements for Speedway Phase I -- it looks like you're being a little more capital efficient around the timing for Speedway Phase 2. Maybe just catch us up on kind of what commercial momentum has looked like, what you're hearing from your producer customers in terms of the specific willingness to sign incremental blocks of water?

Very topical question. I mean, I think I kind of [indiscernible] down into 3 main considerations here. I mean, first, because we have so much existing infrastructure in place, we can really kind of capture the growth cap for these commercial wins and just a very capital-efficient way. Sperasis a great example of that. It's meaningfully outperforming our expectations today, and it still has open capacity. That we can utilize over the next several years. And you kind of alluded to the fact that we've signed several new agreements that really require very little incremental capital because we could capitalize on that existing infrastructure. And those barrels carry a very high kind of attractive returns. And so being thoughtful about when to put new capital in the ground, I think this is always top of mind because we want to be capital efficient as we work through these projects. The second consideration I'd point to is really just on timing on the customer side. I mean, we've seen a really fantastic year as it relates to E&P consolidation, just given the macro backdrop, and so as the dust has settled from that E&P consolidation and folks are working through their new budgeting cycles. Many of the operators we're talking to. I just wanted to see those efforts get across the finish line before stepping into any long-term commitments at the scale we're talking about with Speedway Phase 2. We do think that comes here in the coming months, and those can very well support an FID on Phase 2. But in this interim period, again, we've been able to capitalize that infrastructure on the round. I mean the third point, and I think this is a really important 1 to communicate is there have been a number of just other smaller commercial projects and wins and opportunities just across our system. that oftentimes come at fantastic returns. And they may be smaller and not quite as easy to talk to as a large project like Speedway Phase II. But in aggregate, they can easily add up to the same type of cash flow contribution, oftentimes at much better returns, but just without the fancy name like Speedway Phase II. And so we're in a great spot where we can be patient. And ultimately, I think we're going to get Phase II FID here in the near term. As some of those things come to fruition, but really focused on aligning that with when firm commitments are in place, when we think Phase 1 has been kind of properly utilized. And in the interim here, we'll just continue to push the engineering and planning efforts forward so we can pull the sugar and move quickly when the time is right.

That's great. And just second 1 for me. You guys talked a lot about the off digital opportunity on the Landbridge call as well, but maybe more high level, when you're thinking about some of these water opportunities with data center customers, I guess, are you still having kind of technical or, let's say, operational conversations with them? Or -- is that pretty buttoned up now in terms of their comfort in using this kind of water source? And now really, it's mostly just around, let's call it, the commercial side.

Yes. No, thanks. I think there's an enormous amount of comfort at this point with using non-potable brackish water. The treatment efforts there aren't by any means new. So the confidence around the operational and the commercial viability, I don't think is really a question at this one. I think it's really just buttoning up some of the finer points and getting these to a point where we can announce it here in the near term. Now when you think through treated free water, there's obviously a little longer runway there, more involved in terms of the treatment that's required and a bit more complexity on the side of the regulators. But again, I would say there's a very high conviction ultimately on the operational and commercial viability of that. And I think there's a lot of excitement to transition to using produced water for cooling here in call the medium term.

Your next question comes from the line of Eli Jolson with JPMorgan Securities LLC.

I just wanted to start on the broader permitting landscape. Obviously, some changes across the RRC and want to just think about how you guys are strategically advantaged on permitting and whether you can expect any changes at the state level? And yes, a broader color there would be great.

I appreciate the question. Yes. I mean, ultimately, we don't expect the election to drive any rough change on how produced water is regulated. I think it's more important to recognize as kind of you alluded to that our conservative approach actually positions us very well shoring to change horizon. I mean just a few kind of key points to Ken. I mean first, if you're not familiar, the structure of Texas regulatory bodies is actually both for continuity and stability. And so when you look at the ROC, if you look at the TCE, there is a staggering and sequencing of kind of key personnel there really designed to ensure on 1 single day, there isn't a hard pit in terms of policy. And when you add in the time it takes to actually legislate and work the rulemaking, the framework just can't change overnight. But I think the second, third point, more important. I mean the second point, we have worked over time to develop incredibly strong lasting relationships with the ROC, the TCQ, as well as the other state agencies, we remain incredibly transparent in kind of constructive, constant dialogue with them, and we don't see that changing as a result of the election in any way with so. And third and kind of most importantly here is really kind of how we operate we've always been incredibly conservative on how we permit and how we sit and how we build our infrastructure. I mean, by design, we spud our facilities out over a broad geographic footprint and maintain minimum spacing really designed to avoid concentrate any kind of concentrated pressure or other risks. Further, we have in-house expertise as it relates to seismology, and we certainly -- we outside experts before we develop anything. We've chosen not to operate any kind of deep disposal wells in Texas just further to get to risks. And so when you think through any potential for the RSC tightening whatsoever, I would say we're in an incredibly strong spot. To the point where if you look at even last year when they did step out, they think the RC and tightened its permitting guidelines, we WaterBridge spoke out publicly endorsing the change has already largely reflects how we're operating. So I mean, there may be some other operators who may be to the line a bit as you think through -- stand close to the regulatory limits. And they're going to be more exposed to even small changes in policies. But given we have so much kind of cushion there and given our engagement with the regulatory bodies, I think we're well positioned to ultimately navigate what's around the corner. And if anything, any tightening of standards to drive more volume towards more responsible, well-capitalized system up our own.

That's great. And then maybe just shifting back to the digital infrastructure landscape. I know it's early and you're still commercializing. But if we just think about returns compared to the super accretive returns on organic stuff that you do, how do they kind of seem compare initially and then would it make sense to kind of do something in the bolt-on world to advance your footprint in the digital infrastructure landscape.

Yes. No, good follow-up. On -- yes, I mean, on the water side as it relates to digital infrastructure, I would say the return profile we're seeing in these projects are absolutely competitive with how we look at returns across the rest of our investment opportunities. Ultimately, we're ensuring here that what we do on a risk-adjusted return basis remains competitive as we work through capital allocation. I think we've been able to hold to that. Now in terms of like do we see expanding to further bolster the opportunity set here. We're constantly looking at what makes sense, we do think this kind of utility style water model is going to be a growing part of our business going forward. Alpha Digital is a great first step and validation of that, like we mentioned in our prepared remarks, there is more exciting things around the corner but as we've said from the get-go, we've always viewed water in West Texas, whether it's not in political brackish water or produced water as a resource. And we knew the time was going to come when that that was proven to the market, and I think we're in a great position to really show that now. And so yes, whether it's M&A, whether it's greenfield development, I think we'll continue to grow that piece of our business just given the financial upside we see there as well as just the runway we have in that particular industry.

Your next question comes from the line of Derrick Whitfield with Texas Capital.

Thanks. Good morning, all, and thanks for your time. I'll start bigger picture in Sperry, you guys at 2027 specific question. There's been a lot of focus from the industry on several deeper intervals across the Delaware, and we're seeing that manifesting 15 Bcf per day of new gas long-haul pipes over the balance of the decade. While no 1 is drilling for gas at the moment, the longer-term implication is that as the industry gets more comfortable with underwriting gas and the wells get gas here, the water oil ratio tends to creep higher as well. Are you seeing evidence from an industry that they're marrying this gas growth outlook within water dissolvement.