Archrock, Inc.

and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Artrock, and Doug Aaron, Chief Financial Officer of Artrock. Yesterday, Artrock released its financial and operating results for the second quarter of 2024. If you have not received a copy, you can find the information on the company's website at www.artrock.com. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, based on our current beliefs and expectations, as well as assumptions made by and information currently available to our trucks management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, adjusted gross margin, adjusted gross margin percentage, free cash flow, free cash flow after dividend, and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form 8K furnished to the SEC. I'll now turn the call over to Brad to discuss our truck's second quarter results and to provide an update of our business.

Thank you, Megan, and good morning, everyone. Our truck's second quarter performance reflects the earnings power we've built through our investment in high-quality assets, exceptional customer service, and efficient execution. The long-term and year-over-year strength and durability we see in our overall performance and as reflected in our second quarter results is also supported by the affordability and abundance of U.S. natural gas, which will continue to fuel growth in its demand, use, and production. And this strong performance, as well as its strength and durability, are both further bolstered structurally by the continued capital discipline being employed across the energy sector. Now that backdrop, let me start today's call with a summary of key highlights from the second quarter. Our net income of $34 million was up from $25 million in the second quarter of 2023. Adjusted EBITDA of $130 million was up 15% versus the prior year period. The increase was driven primarily by higher pricing, combined with a sharp focus on cost management, leading to strong profitability. We maintained our sector-leading financial position, including a leverage ratio of 3.2 times. We continued to deliver meaningful returns to our shareholders. Our quarterly dividend per share was up 6% compared to a year ago, all while maintaining robust dividend coverage of 2.6 times for the quarter. This was a great quarter for ArchRock, thanks to a fantastic team of dedicated employees who work hard every day to deliver safe and excellent service to our customers and attractive returns to our shareholders. And now, with the acquisition of TOPS that we announced last week, we will further enhance our position as the premier contract compression services company in the US, and I'll expand on that in a bit. Turning to ArchRock operations, Market conditions for compression remain highly constructive, predominantly in oil plays with associated gas production like the Permanent Basin. The robust market is reflected in our Q2 contract operations operating and financial results. Our fleet remained fully utilized with utilization exiting the quarter at a rate of 95%. Booking activity increased sequentially as we continue to build and order book into 2025. We expect to see sustained compression booking demand well into the future as our customers plan for the call on natural gas production to support LNG export capacity growth and incremental electric generation demand from AI and data centers. On pricing, with utilization at historic highs and continued strong booking activity, we're maintaining the pricing prerogative and capturing additional rate increments. The second quarter marks our 11th consecutive quarter of sequential increases in our monthly revenue per horsepower, which increased to $20.85. Continued price increases and strong cost control drove adjusted gross margin percentage to 65% of 300 basis points year over year and consistent with the prior quarter. The aftermarket service segment had another solid Revenues totaling $45 million remained elevated as great service is driving repeat business with customers. Second quarter adjusted gross margin of 22% exceeded our full year guidance expectation as we continue to focus on high quality and high margin of work. From our first rate customer base to our highly standardized fleet and excellent customer service we're known for in the field, to our most recent digitization and emission reduction efforts, the actions we've taken to enhance our business should benefit our performance for years to come. The acquisition of TOPS aligns with this strategic focus and is an exceptional opportunity to expand our contract compression operations, earnings, and cash available for dividend. With TOPS, we're adding 580,000 horsepower of young assets including approximately 500,000 operating horsepower and a substantial and contracted backlog of new equipment. As we previously discussed, this strategic and immediately accretive acquisition carries four main benefits. First, the acquisition of high-quality assets with contracted cash flows adds meaningful low-risk growth. The TOPS fleet has an average age of three years is 95% utilized and backed by fee-based contracts with Blue Chip customers. Second, the acquisition enhances our scale and complements our existing Permian Basin compression capacity. The addition of TOPS is expected to increase our truck's Permian Basin compression capacity by 30% to approximately 2.2 million operating horsepower. Third, This acquisition accelerates the growth of our electric motor drive fleet and augments our internal electrical expertise. TOPS is the leading provider of electric motor drive compression. With this acquisition, we expect our electric compression fleet to increase to 648,000 horsepower or 15% of our pro forma fleet. And fourth, this transaction is consistent with our financial and capital allocation priorities. And we expect it will facilitate the accelerated return of capital to shareholders. We're buying a rapidly growing business with a substantial and contracted backlog. And we expect the acquisition to be more than 10% accretive to earnings per share and at least 20% accretive to cash available for dividend per share in 2025. Topps has both high caliber equipment and a talented team that we're excited to welcome to our trial. The transaction is expected to close by the end of 2024, and we're confident in our ability to effectively integrate the acquired assets into our existing business. In summary, with today's robust market of growing natural gas production and compression demand, one of our top priorities has been investing in high quality and high return compression assets. And equally as important, We've been funding these investments within our cash flow so that we've been able to deliver on our commitments to increasing cash returns to investors while maintaining a strong balance sheet. The acquisition of Topps aligns with this strategic focus and is an exciting milestone for our truck that builds on the meaningful progress we've made orienting our business for the future and for long-term success. With that, I'd like to turn the call over to Doug for review of our second quarter performance, 2024 standalone guidance and financing strategy for the TOPS acquisition.

Thanks, Brad. And good morning, everyone. ArchRock delivered another strong quarter of financial results. Net income for the second quarter of 2024 was $34 million. This included a non-cash $4.4 million long live and other asset impairment as well as transaction related expenses of approximately $1.8 million. We reported adjusted EBITDA of $130 million for the second quarter 2024. Underlying business performance was strong in the second quarter as we delivered higher total adjusted gross margin on a sequential basis. For the second quarter, growth capital expenditures totaled $62 million bringing year-to-date growth CapEx to $140 million. We expect our 2024 growth capital will be first half weighted. Maintenance and other CapEx for the second quarter of 2024 was $29 million, bringing the total for the first half of 2024 to $51 million. Turning to the balance sheet, we exited the quarter with long-term debt of $1.6 billion. Our leverage ratio at the end of the quarter was 3.2 times calculated as total debt divided by our trailing 12-month adjusted EBITDA. As Brad mentioned earlier, we are acquiring TOPS for total consideration of $983 million, which will be funded with a combination of $826 million in cash and 6.87 million newly issued common ArchRock shares to the seller. ARCHROC intends to fund the $826 million cash portion of the total consideration with a combination of equity and debt. On the equity portion, last week we announced the pricing of a common stock offering, raising net proceeds of $256 million at an offering price of $21 per share. The funding structure keeps us on track to achieve our financial targets, including maintaining a consistent leverage ratio of between three and three and a half times. Post-transaction announcement and equity raise, all three rating agencies reaffirmed their ARCHROC credit ratings and outlook. The strong financial flexibility I just described continued to support increased capital returns to our shareholders. We recently declared a second quarter dividend of 16 and a half cents per share or 66 cents on an annualized basis. This is consistent with the first quarter of 2024 dividend level and up 6% versus the year-ago period. Cash available for dividend for the second quarter of 2024 totaled $72 million, leading to an impressive quarterly dividend coverage of 2.6 times. Importantly, we believe the increase in pro forma discretionary cash flow from the addition of TOPS will further enhance our financial flexibility and capacity to increase dividends to our shareholders over time. As you saw in our earnings release issued yesterday, ArchRock reaffirmed its full year 2024 annual EBITDA and capital expenditure guidance. Our guidance excludes the pending acquisition of TOPS. We plan to announce our expectations for the combined company once the transaction closes by the end of 2024. Excluding TOPS, Our 2024 adjusted EBIT dollars is expected to range from $510 to $540 million, which represents an increase of 17% compared to $450 million in 2023. 2024 growth capex is expected to total approximately $190 million. This is flat compared to the growth capex of $190 million in 2023. Our full year 24 maintenance capex forecast of $80 to $85 million and other capex forecast of $20 to $25 million both remain unchanged. In closing, the market remains as strong as we've ever seen it, and ArchRock is in the strongest position in the company's 70-year history. We have an opportunities-rich market and expect to invest in high return opportunities Profitably grow our business while prioritizing and growing shareholder returns and maintaining an industry-leading balance sheet. We are excited to welcome the TOPS team, and we look forward to building an even stronger ArchRock together for the benefit of our employees, our customers, and our investors. JL, with that, we are now ready to open the line for questions.