Archrock, Inc.

Chief Executive Officer of ARTRAC, and Doug Aaron, Chief Financial Officer of ARTRAC. Yesterday, ARTRAC released its financial and operating results for the first quarter of 2025. If you have not received a copy, you can find the information on the company's website at www.artrac.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 TRACS 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 Securities and Exchange Commission 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 net income, adjusted EBITDA, adjusted EPS, and cash available for dividends. 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 first quarter results and to provide an update of our business.

Thank you, Megan, and good morning, everyone. Our truck delivered outstanding and once again record-setting performance in the first quarter across key financial metrics, operating measures, and business segments. Despite macroeconomic factors that have created uncertainty in other sectors of the economy, in the natural gas compression business that we operate, the supportive market conditions we experienced in 2024 remain in place. And the operational transformation of our truck's business from its prior positioning, as well as ongoing investments in our high-quality asset base, innovative processes and technology are driving consistent and repeatable success. Compared to the first quarter of 2024, we increased our adjusted EPS by over 60% and adjusted EBITDA by more than 50%. Our fleet remained fully utilized at 96%, and on a sequential basis, we increased our contract compression operating fleet by more than 70,000 horsepower, excluding sales of non-strategic assets. This growth reflects high return organic investments in new-build horsepower. We maintained our sector-leading financial position, including a record low quarter-end leverage ratio of 3.2 times. We continue to increase shareholder returns. Our quarterly dividend per share was up 15 percent compared to a year ago, and our dividend coverage on this higher dividend level was robust 3.9 times. In addition, we've been repurchasing shares under our buyback utilization authorization in this time of increased financial market volatility. Year-to-date, through May 1, the company has repurchased approximately $23 million for 977,000 shares of our common stock at an average price of $23.22 per share. In addition, the Board has approved a $50 million increase to our existing share repurchase program. After accounting for the recent purchases that I just mentioned, Our remaining capacity is at $65 million. The increased authorization reflects our confidence in the company's strategy and underscores our commitment to returning capital to shareholders. Our excellent underlying business performance and financial strength have positioned us to participate in value-creating industry consolidation. The integration of Total Operations and Production Services, or TOPS, is progressing as planned. And during the first quarter, we also announced the acquisition of NGCS, which closed on May 1st. These accretive transactions are expected to increase our scale, expand our customer relationships, and deepen our operations in key regions. It has been great to welcome these highly talented teams, and I'm excited about what we get to accomplish together as Rtrak. Before turning to the market, I want to emphasize that we've worked diligently over the past decade to create the best compression company we possibly could. From our world-class safety and customer service, to our fleet standardization and modernization program, to our partnerships with Blue Chip customers and cutting-edge technology, we've solidified our position as the compression partner of choice for our customers. I could not be more proud of the stellar results that we're delivering and will continue to push to maximize our performance in the future. Turning to the market, fundamentals for compression remain strong during the first quarter, including historically high levels of utilization, pricing, and profitability. We have a substantial contracted backlog for 2025, and we are booking units for 2026 delivery to meet continued strong customer demand. Nevertheless, we are closely monitoring market developments. I want to share my perspective on short and long-term dynamics. Beginning with the short term, OPEC's actions to bring more production into the market more quickly and tariff announcements have driven uncertainty and volatility in WTI prices. We're only weeks into this evolving environment, but to date, our customers, both producers and midstreamers, have not communicated changes to their development plans for 2025 and have not meaningfully changed their capital programs that would impact beyond 2025. We are, of course, staying close to our customers and are focused on deploying our robust backlog of equipment starts, providing excellent customer service, and ensuring we stay closely informed on any changes in market dynamics. Several factors make me optimistic about how well we at ArchRock can manage our business in any market. First, we're a late cycle participant in the energy sector. As our business is tied primarily to existing production levels for natural gas and secondarily to new production missions, it is not as impacted by commodity price volatilities compared to businesses that are more closely tied to drilling and completion. This unique aspect of our business gives us improved visibility and ample time to adjust if necessary. and we're prepared to take decisive action should industry activity moderate and production growth decelerate. Even under this scenario, we believe our business model should continue to benefit from our comparatively more stable production-related and midstream infrastructure position. Second, across the energy sector, a capital discipline mandate by investors has resulted in more stable activity levels through both positive and negative commodity price fluctuations. Today, we believe there is little, if any, excess or spare compression equipment in the market. Third, more specific to R-TRAC, our seasoned management team has demonstrated success in driving profitability and cash flow improvements through fleet standardization, technology implementation, and innovative process improvements. In addition, we've prioritized balance sheet strength and flexibility through prudent capital allocation. Today, we have the lowest leverage ratio among our peers and in our company's history since becoming ArchRock. Finally, on this topic of short-term perspective, I want to reiterate that as I opened on the call, we continue to see constructive market conditions for our compression business. Specifically, stop activity year-to-date has been at historically low levels. Second, activity in starts remains on schedule with our 2025 business plan, and we have not seen our customers delay compression additions. And third, booking activity remains robust as we continue to book primarily large horsepower units into 2026 at a pace consistent with our last four quarters. Shifting to the long term, we believe the growth in global natural gas demand continues to support infrastructure investment in the U.S. for decades to come. We expect LNG demand, exports to Mexico, power generation, and the emerging opportunity presented by the onshoring of AI data centers to require a significant call on U.S. natural gas production. To support this, the U.S. will need to make substantial investments to expand the natural gas transportation infrastructure. This includes gathering systems, processing plants, pipelines, and compression. Moving on to our segments, contract operations fundamentals and execution remained excellent during the quarter. Our fleet was fully utilized with utilization exiting the quarter at a rate of 96%. Based on what we see in the market today, we expect to be able to maintain utilization in the mid-90s this year. Looking at period-end operating horsepower in the first quarter of 2025 compared to the fourth quarter of 2024, we delivered over 70,000 in active horsepower growth, excluding approximately 15,000 horsepower in non-core asset sales. As already mentioned, stop activity during the quarter was at record lows. As organic horsepower growth continues, we closed our acquisition of NGCS on May 1st. Acquiring this portfolio of high-quality, large horsepower and electric compression assets builds on our efforts and drives durable, profitable growth for our truck shareholders. Monthly revenue per horsepower also moved higher to $23.54 during the first quarter of 2025, a company record. And we achieved a quarterly adjusted gross margin percentage of 70% for the second quarter in a row. The aftermarket services segment had a solid quarter during what is typically a seasonally slower period. Revenues were up 3% year-over-year due to consistent service work with repeat customers and higher pricing. First quarter profitability exceeded our guidance expectation as we continue to focus on higher quality and higher margin work. Shifting to our capital allocation framework for 2025, we are committed to our prudence and returns-based approach. Yesterday, we reaffirmed our 2025 growth capital plan, which includes between 330 and $370 million of investment in our fleet. These investments are underpinned by multi-year contracts with Blue Chip customers. The IRRs at which we expect to invest New Build capital are strong, and we will continue to meet the needs of our customer base through New Build investments that support the sustainable growth in U.S. oil and gas production that we see ahead. As we invest in these compelling opportunities, we're committed to maintaining an industry-leading balance sheet. We plan to maintain a leverage ratio of between 3 to 3.5 times. This underpins our ability to execute on our plans and opportunistically adapt to market conditions. Finally, as we invest, we are also increasing capital returns to shareholders. We expect to continue to grow our dividends over time along with growth in our profits. And should our stock remain undervalued relative to the strength of our business, we will continue to use buybacks as a tool for value creation. We entered the year with excitement about what we are positioned to deliver in 2025 and beyond. Our performance is exceeding expectations with one quarter in the books, and we look forward to integrating MGCS' high quality operations into our truck. I'm proud of the performance that our team continues to deliver We are focused on what we can control, starting our backlog of committed new compression unit additions, providing exceptional customer service to our customers, maintaining a solid balance sheet, maximizing our profitability and prudent capital allocation. With our production-oriented business and best-in-class operation, I am confident that ArchRock will do very well in the short term and thrive in the long term. With that, I'd like to turn the call over to Doug for review of our first quarter performance and provide additional color on our updated 2025 guidance.

Thanks, Brad. Let's look at a summary of our first quarter results and then cover our updated financial outlook for 2025. Net income for the first quarter of 2025 was $71 million. Excluding transaction-related and restructuring costs and adjusting for the associated tax impact, We delivered adjusted net income of $74 million or 42 cents per share. We reported adjusted EBITDA of $198 million for the first quarter 2025. Underlying business performance was strong in the first quarter as we delivered higher total adjusted gross margin dollars for contract operations and aftermarket services on a sequential basis. Results further benefited from $7 million in net asset sale gains related to non-strategic horsepower sales. Turning to our business segments, contract operations revenue came in at $300 million in the first quarter, up 5% compared to the fourth quarter of 2024 and 35% compared to the prior year period. The increase reflects organic horsepower growth and higher pricing. Compared to the fourth quarter, we grew our adjusted gross margin dollars by more than $10 million. We delivered a record adjusted gross margin percentage of 70% for the second straight quarter. In our aftermarket services segment, we reported first quarter 2025 revenue of $47 million, up compared to the fourth quarter of 2024 of $40 million. First quarter 2025 AMS adjusted gross margin percentage was 25% compared to the fourth quarter of last year and prior year period of 23%. We exited the quarter with total debt of $2.3 billion and strong available liquidity of $590 million. Our leverage ratio at quarter end was 3.2 times. calculated as quarter-end total debt divided by our trailing 12-month EBITDA. This was down from 3.3 times in the fourth quarter of 24 and was consistent with prior year period, reflecting our strong operating performance and prudent acquisition financing. On May 1st, we closed the NGCS transaction. ArchRock issued 2.25 million new ArchRock common shares to the sellers and funded the cash portion of the total consideration with available capacity under our ABL credit facility. This financing strategy keeps us on track to achieve our financial targets, including our objective of maintaining a consistent leverage ratio of three to three and a half times. The strong financial flexibility I just described continue to support increased capital returns to shareholders. We recently declared a first quarter dividend of 19 cents per share or 76 cents on an annualized basis. This is consistent with the fourth quarter dividend level and up approximately 15% year over year. Cash available for dividend for the first quarter of 2025 totaled $132 million, leading to quarterly dividend coverage of 3.9 times. In addition to increasing the dividend year-to-date through May 1st, we repurchased approximately 977,000 shares for approximately $23 million and an average price of $23.22 per share. This leaves $65 million in remaining capacity for additional share repurchases on the replenished authorization. Turning to our updated outlook, ARCHROC increased its 2025 annual guidance to reflect first quarter outperformance and to include the NGCS acquisition. Our revised guidance reflects eight months of contribution from the transaction. We are raising our 2025 adjusted EBITDA range to $790 to $830 million from the prior range of $750 to $790 million. Segment-level revenue and adjusted gross margin detail can be found in our earnings release issued yesterday afternoon. Turning to capital, including NGCS, we still expect growth capex to total between $330 and $370 million to support investment in our new-build horsepower and repackage capex to meet continued customer demand. Our growth capex is underpinned by multi-year contracts, and is expected to be first half weighted, and we expect we will be able to tighten our guidance range as the year progresses. Maintenance CapEx is now forecasted to be approximately $110 to $120 million, up slightly compared to our prior range to reflect planned overhaul activity for the newly acquired fleet. We also continue to anticipate approximately $35 to $50 million in other CapEx, primarily for new vehicles. Total capital expenditures are expected to be funded by operations and with the potential for additional support from non-strategic asset sale proceeds as we continue to high-grade our fleet. Before we open the line for questions, I want to conclude by emphasizing that we believe our production-oriented business, high-graded operation, and outstanding financial position provide us with differentiated cash flow stability. These factors, combined with our robust and committed backlog, give us good visibility into our outlook this coming year. Even in the face of macroeconomic uncertainty, our strategy hasn't changed. We will drive value and positive impact for our partners by providing excellent customer service and will maximize value for our shareholders. With that, Van, can you please open the line for questions?