Archrock, Inc.

.artrox.com. During this call, we will make forward-looking statements within the meeting 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 Artrox 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 net income, adjusted EBITDA, adjusted EPS, adjusted gross margin, and cash available for dividend. For reconciliations of these non-GAAP financial measures to the most directly comparable 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 Artrox second quarter results and to provide an update of our business.

Thank you, Megan, and good morning, everyone. Artrox second quarter performance was outstanding. While global macro uncertainty and stock market volatility continued during the second quarter, solid demand for natural gas and compression persisted. Our operational and financial execution continued to stand out and included several quarterly records for the company. This reflected strong underlying business performance and robust earnings power from two accretive acquisitions over the last four quarters. We recorded record adjusted EPS and adjusted EBITDA during the quarter. Compared to the second quarter of 2024, we increased our adjusted EPS by nearly 70% and adjusted EBITDA by more than 60%. Our fleet remained fully utilized at 96% and on a sequential basis, we increased our contract compression operating fleet by more than 368,000 horsepower. This growth was driven by the addition of the NGCS fleet that closed on May 1st, as well as high return organic investments in new built horsepower. Notwithstanding the funding of $297 million for the NGCS acquisition, we maintained our sector leading financial position, including a low quarter end leverage ratio of 3.3 times driven by the stability of our cash flows and prudent acquisition financing. And we raised our quarterly dividend per share by 11% compared to the prior quarter and 27% compared to a year ago, all while maintaining robust dividend coverage of 3.4 times. We also accelerated the repurchase of shares under our buyback authorization, given what we believe is a dislocation between our stock performance and the strength of our current business fundamentals and future expectations. Since the inception of our share repurchase program in April of 2023, we've repurchased 2.7 million shares of common stock at an average price of $18.84 per share for an aggregate of more than $51 million. I wanna be clear, based on what we are experiencing in the market today in both our overall activity and bookings, we expect to grow our business and our profits through the rest of 2025, in 2026 and beyond. In short, we have confidence in what we're seeing in the market, confidence in our strategy and confidence in our operations and execution. Let me unpack each of these a bit. Confidence in the market. We expect growing LNG exports and power generation needs to create a significant demand pull for US natural gas production and mid-stream infrastructure, including natural gas compression across all major oil and gas bases. More to come on that in a bit. Confidence in our strategy. We've solidified our position as the compression partner of choice with our customers. We've built a modern, scalable and geographically diverse fleet positioning us to meet this robust customer demand. Confidence in our operations and execution. Beyond our assets, we've invested in the right people, training and development and processes and technology to deliver sustainable and attractive growth in earnings, free cashflow and returns to our shareholders. Next, I wanna dive more into the market. Fundamentals for compression are strong and the outlook supports our expectation for continued high levels of utilization of our existing fleet and growth opportunities for new build equipment. We expect strength and durability of natural gas demand growth will provide a significant tailwind for our business well beyond 2025. LNG demand, exports to Mexico, power generation and the emerging opportunity presented by the on-shoring of AI data centers are expected to require a significant call on US natural gas production to the tune of an incremental 20 to 30 BCF a day by 2030, depending upon the forecast. Simply put, we need all the gas we can get and to support this production, the US will need to make substantial and broad based investments to expand the natural gas transportation infrastructure. I wanna expand a bit on the Permian, which is top of mind for many today. We operate more than 2.6 million horsepower in the Permian. Even in the most recent monthly forecast by Inveris, gas production volumes are anticipated to grow by more than 30% by 2030. This growth in excess of 30% compares to oil volume growth of 15% over the same time period. This dynamic of natural gas production outpacing oil production is one that is consistent with historical trends in other more mature associated gas plays like the Eagleford and the Bakken, where rising GORs have led to natural gas volume growth long after oil volume peaks. The magnitude of the demand pool on gas production and midstream infrastructure, including gathering systems, processing plants, pipelines and compression cannot be satisfied by the Permian alone and will require investment across other major oil and gas shell bases. Against this backdrop, I believe Archerox scale, broad geographic footprint and modern fleet are best positioned to meet this customer demand. This diverse and formidable foothold has taken decades to establish and build. A few highlights worth noting include that Archerox is the largest contract compression provider in the Eagleford. Archerox provides compression for some of the largest midstream companies in the Hainesville. And Archerox has a meaningful presence in the Marcellus and the Rockies. And moving to our segments, our contract operations fleet was fully utilized during the quarter 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 a high utilization for the foreseeable future. Stop activity year to date has been at historically low levels and our compressors are staying on location longer. Based on our latest data from 2024, the average time in Archerox compressor stays on location is more than six years, representing a 52% improvement since 2021. This we believe is driven by a couple of factors. First, like the oil and gas business overall, the compression market is more stable and continues to be reinforced by capital discipline by our customers, by Archerox and by others. Second, and more importantly, we standardized and high graded our fleet. This includes the investiture of horsepower that is non-strategic or in non-growth plays and our investments in large midstream horsepower and electric motor drive compression. As part of our ongoing asset management practices, on August 1st, we completed the sale of approximately 155 compressors, comprising about 47,000 horsepower to FlowCo for $71 million. This transaction is a win for both companies. The horsepower is deployed primarily in high pressure gas lift applications, a type of artificial lift used in the early stage of a Wells life cycle and an area of expertise for FlowCo. For Archerox, we acquired these assets as part of the TOPS transaction. Proceeds from the sale will help fund our new build equipment investments and reduce our net capex for the year. At quarter end, we had 4.7 million operating horsepower up from 4.3 million last quarter or up by 368,000 horsepower. Excluding active asset sales and the NGCS horsepower addition, we grew horsepower organically by approximately 47,000 horsepower in the quarter. As we look ahead, we have a substantial contracted backlog for the second half of 2025, and we are booking units for 2026 delivery to meet continued strong customer demand, including the permeate. For the 15th straight quarter, monthly revenue for horsepower moved higher to $23.75 during the second quarter of 2025, a new company record. And we achieved a quarterly adjusted gross margin percentage of 70% for the third quarter in a row. In the aftermarket services segment, we reported quarterly revenue of more than $60 million, a level we haven't achieved since 2018. This reflected high demand for service work and an increase in contract maintenance work as exceptional customer service is driving repeat business. In addition, we had a large engine sell order in our parts business. Second quarter AMS gross margin percentage remained at impressive levels, but was down sequentially given this higher mix of parts sells during the quarter. Shifting to our capital allocation framework for 2025, we are committed to our prudent and returns-based approach. Yesterday, we narrowed our guidance for 2025 growth capital to between $340 million to $360 million of investment in our fleet from previously $330 million to $370 million. As a reminder, these investments are underpinned by multi-year contracts with blue chip customers. Beyond 2025, we see a continuation of attractive growth and the IRRs at which we expect to invest in new build capital remain robust. Based on the continuation of the consistent and strong customer demand we see today, we expect 2026 growth capex to be not less than $250 million and within the range of investment levels that we have made annually since 2023 to support the infrastructure build out we're experiencing in the US in order to satisfy the growing demand for natural gas described earlier. 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 three to 3.5 times. This underpins our ability to execute on our plans and opportunistically adapt to market conditions. At this level of capital expenditures, we anticipate continued growth in our earnings and free cash flow both before and after dividends. We expect to continue to grow our dividends over time along with this growth in our profits and we will continue to use share buybacks as an additional tool for value creation for our shareholders. In summary, another quarter in the books reinforces our confidence in the near and long-term outlook for Archrock. High confidence in our outlook underscored the decision to raise our 2025 adjusted EBITDA guidance, increase our quarterly cash dividend per share and accelerate share repurchases. And we believe the best is still ahead of us. With that, I'd like to turn the call over to Doug for review of our second quarter performance and provide additional color on our updated 2025 guidance.

Thanks, Greg and good morning. Let's look at a summary of our second quarter results and then cover our updated financial outlook for 2025. Net income for the second quarter of 2025 was $63.4 million. Excluding transaction related and restructuring costs and adjusting for the associated tax impact, we delivered adjusted net income of $68.4 million or 39 cents per share. The 39 cents per share also included the negative 4 cent impact from an impairment on the high pressure gas lift business we sold to FlowCo. We reported adjusted EBITDA of $213 million for the second quarter 2025. Underlying business performance was strong in the second quarter as we delivered higher total adjusted gross margin dollars for the contract operations and aftermarket services on a sequential basis. Results further benefited from a $4 million net gain on the sale of assets as well as $3 million in other income primarily comprised of proceeds from insurance and other settlements. Turning to our business segments, contract operations revenue came in at $318 million in the second quarter of 2025, up 6% compared to the first quarter of 2025 and 41% compared to the prior year period. The increase reflects horsepower growth, organic and acquired as well as higher pricing. Compared to the first quarter, we grew our adjusted gross margin dollars by more than $11.5 million. We delivered a record adjusted gross margin percentage of approximately 70% for the third straight quarter. In our aftermarket services segment, we reported second quarter 2025 revenue of $65 million compared to the first quarter 2025 of $47 million. Second quarter 2025 AMS adjusted gross margin percentage was 23% compared to 25% in the first quarter of 25 and consistent with guidance. On May 1st of 2025, we closed the NGCS transaction. We funded the cash portion of the total consideration for NGCS with a combination of equity and debt to keep us on track to achieve our financial targets, including our objective on maintaining a consistent leverage ratio of three to three and a half times. Archeroq issued 2.25 million new common shares to the sellers and funded the $297 million cash portion of total consideration with available capacity under our ABL credit facility. Shortly after completion of the transaction, we closed on the upsize of our ABL facility from 1.1 to $1.5 billion with strong support from our existing lender group. This brought our period in total debt to $2.6 billion and available liquidity to $675 million. Our leverage ratio at quarter end was 3.3 times calculated as a quarter end total debt divided by our trailing 12 month EBITDA. This was up slightly from 3.2 times in the first quarter of 2025 reflecting the acquisition. With our prudent financing strategy across two transactions in the last year and our expectation for continued strong performance in our business, we expect to continue deleveraging as the year progresses. The increase in discretionary cash flow from the addition of TOPS and NGCS further enhances our financial flexibility and capacity to increase dividends to our shareholders over time. We recently declared a second quarter dividend of 21 cents per share or 84 cents on an annualized basis, our second increase in 2025 and third since our acquisition of TOPS last year. Our second quarter dividend reflected an increase of 11% over the first quarter 2025 dividend level and an increase of 27% over the second quarter 2024 dividend level. Cash available for dividend for the second quarter of 2025 totaled $125 million, leading to an impressive quarterly dividend coverage of 3.4 times. In addition to increasing the dividend, during the quarter, we repurchased approximately 1.2 million shares for approximately $29 million at an average price of $23.49 per share. This left approximately $59 million in remaining capacity for additional share repurchases as of the end of the second quarter of 2025. Turning to our updated outlook, Archeroct increased its 2025 annual guidance to reflect continued outperformance during the second quarter in growth in the second half of the year. Our guidance reflects eight months of contribution from the NGCS transaction and outperformance in our business, partially offset by the removal of five months of contribution of the high pressure gas libs business we sold to FlowCo. We are raising our 2025 adjusted EBITDA range to 810 million to $850 million from the prior range of 790 to $830 million. Segment level revenue and adjusted gross margin detail can be found in our earnings release issued last night. Turning to capital, including NGCS, we are narrowing our growth capex guidance range to between 340 and $360 million to support investment in new built horsepower and repackaged capex to meet continued customer demand. Our growth capex is underpinned by multi-year contracts and was first half weighted. Maintenance capex is still forecasted to be approximately 110 to $120 million. We now anticipate approximately 35 to $40 million in other capex primarily for new vehicles. Total capital expenditures are expected to be funded by operations and further supported by non-strategic asset sale proceeds, which total more than $102 million in 2025 year to date, including the sale we announced last night. In summary, the supportive market conditions remain in place and the operational transformation of ArchRox 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. We believe our production oriented business, high graded operation and outstanding financial position provide us with differentiated earnings and cashflow growth ahead. With that, Regina, we are now ready to open the line for questions.