Archrock, Inc.

Good morning. Welcome to the ArchRock fourth quarter and full year 2025 conference call. Your host for today's call is Megan Rapine, Vice President of Investor Relations at ArchRock. I will now turn the call over to Ms. Rapine. You may begin.

Thank you, Bella. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of ArchRock, and Doug Aaron, Chief Financial Officer of ArchRock. Yesterday, ARCHROC released its financial and operating results for the fourth quarter and full year 2025, as well as annual guidance for 2026. If you have not received a copy, you can find the information on the company's website at www.archroc.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 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 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 will now turn the call over to Brad to discuss our truck's fourth quarter and full year results and to provide an update of our business.

Thank you, Megan, and good morning, everyone. 2025. was an incredible year for our truck, one that leveraged a multi-year transformation of the business and demonstrated the strength, durability, and scalability of our strategy against what continues to be a robust outlook for our business. Before I review our fourth quarter and 2025 performance, I want to thank our employees across the organization for their tireless focus on safety, customer service, and execution. This was another extremely busy year and our team delivered. The results we're reporting today simply do not happen without the commitment and excellence of Artrock's amazing team. We achieved much across the business in 2025. Compared to 2024, we increased adjusted EPS by 68% and adjusted EBITDA by 51%. Importantly, With strong Q4 results, we delivered adjusted EBITDA above the midpoint of guidance after raising our outlook twice during the year. Building on the progress we've made in pricing, efficiency, and cost discipline, our contract operations and aftermarket services segments delivered outstanding adjusted gross margins. Contract operations achieved 70% plus adjusted gross margins for the fifth consecutive quarter underscoring excellent execution in a tight market we continue to enhance and standardize our fleet through disciplined portfolio actions completing our second accretive acquisition in 18 months while executing asset cells of 325 000 horsepower for 192 million dollars which we redeployed into high return new build investments taken together These actions drove 8% operating horsepower growth compared to 2024. Our high quality fleet has maintained full utilization of 95% or higher for the last 11 quarters, underscoring the strength of demand for our equipment, our services, and to the reliability of our operations. We translated this performance into meaningful value for shareholders. returning $212 million through dividends and share repurchases during 2025, up over 70% year-over-year. We also concurrently drove our year-end leverage ratio to 2.7 times, demonstrating our cash-generating capacity. Overall, 2025 was a year of exceptional earnings growth, balance sheet strengthening, and capital returns increased. providing a strong foundation as we enter 2026. As we look ahead to 2026, our strategy is grounded in the role natural gas continues to play as a critical component of the global energy mix. Our strategic focus for 2026 centers on three priorities. First, capturing opportunities to invest in our natural gas lever transformed energy infrastructure and compression platform by helping our customers move more gas to market more efficiently, safely, and with lower environmental impact. We continue to allocate capital toward large horsepower and electric motor drive compression, where we see durable demand, strong returns, and clear benefits for both our customers and our shareholders. Second, maximizing the reliability of our service for our customers. Reliability remains our central value proposition. We're continuing to standardize our field operating model and further enhance adoption of the technology we've implemented across the business. We're deploying advanced digital tools, analytics, and machine learning to improve service quality, streamline workflows for our customers, optimize maintenance execution and expand our remote monitoring capabilities. These initiatives are designed to increase equipment reliability and safety, reduce unplanned downtime and drive higher fleet utilization and operating efficiency. Third, maintaining disciplined returns-based capital allocation and prudent financial management. As we reach a higher level of sustained free cash flow generation, our priorities remain balanced and consistent. Investing in high return growth opportunities we see in this durable growth cycle and returning capital to shareholders, while also maintaining a strong balance sheet. This approach has strengthened our portfolio, improved our financial flexibility, and positioned us to continue delivering superior returns on capital. Importantly, while performance over the last few years, including 2025, has validated the strength of the strategy I just outlined, we believe there is meaningful earnings growth still to be captured as we grow our business and realize the benefits of fleet mix, utilization durability, a more automated platform, and disciplined capital allocation, which continue to compound over time. Natural gas production continues to increase steadily, and we expect production to reach record levels for the sixth consecutive year in 2026. In the near term, US natural gas volumes are expected to increase incrementally in 2026. Importantly for our truck, our exposure is weighted toward faster growing gas basins, particularly the Permian, where gas volumes are expected to grow at mid single digit rates. In the Permian, oil production is expected to remain relatively flat, while associated gas volumes continue to increase, supporting sustained demand for compression. This growth is being complemented by meaningful additions to takeaway capacity, totaling 4.6 billion cubic feet per day, particularly in the second half of the year, which should improve basin economics and support continued producer activity. At the same time, U.S. LNG exports are expected to continue to grow in 2026 with two BCF a day of additional FID project export capacity coming online. LNG remains a key driver of incremental natural gas demand and reinforces the need for investment across natural gas production, transportation, and compression infrastructure. LNG projects that have already reached final investment decision represent 14 BCF a day of additional export capacity expected to come online through 2030, with further projects possible beyond that. These developments support sustained demand and a long runway for natural gas infrastructure investment and growth. In parallel, AI-driven power demand is moving from long-term forecasts into the early stages of infrastructure development, creating another source of incremental demand for natural gas-fired power generation over time. These dynamics support what we believe is a durable multi-year earnings growth opportunity for our truck. We have a substantial backlog for 2026, which is 85% contracted, and we've already booked units for 2027 delivery. And moving to our segments, contract operations delivered outstanding performance, supported by excellent execution and continued high demand for our compression fleet. Our fleet remained fully utilized during the quarter, exiting at 95.5%. Maintaining utilization above 95% for 11 consecutive quarters is unprecedented for our business and reflects continued growth in natural gas demand, the high quality of our fleet, and strong operational execution. Stop activity remains at historically low levels and our equipment is staying on location longer. Based on 2025 data, the average time that our truck compressor remains on location is now 73 months or more than six years. That's up 61% since 2021. When isolating large horsepower compression, time on location extends even further relative to the blended fleet average. Average time on location is 97 months or more than eight years for units with 1500 horsepower or more, reflecting their use in midstream applications. As we continue to invest in this highly profitable and sticky segment of the market, we expect time on location to extend further over time. At quarter end, we had 4.6 million operating horsepower. Sequentially, operating horsepower declined by approximately 80,000 as new build deliveries during the quarter were more than offset by the sell of approximately 123,000 horsepower, including 84,000 active horsepower, which we completed at year end. For the year, compression asset sales totaled 325,000 horsepower, including 175,000 active horsepower, generating $192 million in cash proceeds and net gains on asset sales of $47 million, while reducing estimated 2026 adjusted EBITDA by about $18 million. Monthly revenue per horsepower moved higher on a sequential and year over year basis. In 2026, we expect to benefit from a full year's impact of rate increases from 2025, and we also expect additional price increases in 2026, though at more modest levels. We achieved a quarterly adjusted gross margin percentage of 78%. Strong pricing and solid cost management drove underlying operating profitability to 71.5% in the quarter, up from 70% in the third quarter of 2025, excluding the impact of prior period cash tax settlements and credits in both periods. Results reflect lower make ready and lube oil costs and efforts to mitigate inflation in labor and parts through ongoing cost management. Fourth quarter 2025 adjusted gross margin further benefited from $23 million in prior period cash tax settlements and credits which is the driver of the gross margin percentage increase from the 71.5% level to the reported 78% level. Moving to our aftermarket services segment, performance remained solid despite the typical seasonal slowdown in the fourth quarter. Aftermarket services continued to deliver consistent margin performance with adjusted gross margin percentage remaining firmly above 20%, and well above historical levels despite normal fluctuations in activity. This reflects our continued focus on higher quality, higher margin work, disciplined cost management, and reliable execution. Turning to capital allocation, our framework remains disciplined and returns focused, with growth investments and shareholder returns as our top priorities supported by a strong and resilient balance sheet. First, on growth investment. We previously stated that we expected 2026 growth capex would be a minimum of $250 million, and last night we refined our guidance to between $250 and $375 million. $275 million. This level of CapEx reflects continued strong demand, as well as a deliberate and disciplined approach. It also represents a similar level compared to the previous two years, especially when factoring in that 2025 growth capital expenditures included acquired new horsepower investment backlog from both the TOPS and the NGCS transactions. At this level of growth capital, we expect to generate substantial free cash flows, both before and after dividends, supporting our strategy of increasing returns to shareholders over time. Most recently, our confidence in the outlook for the business and our financial position supported an increase in the fourth quarter dividend to 22 cents per share. This was up approximately 5% compared to the prior quarter and up 16% year over year as we focus on maintaining a well-covered dividend that grows along with the profitability increases in our underlying business. This dividend increase still provides flexibility for additional shareholder returns. This includes $117.7 million of remaining authorization under our share repurchase program as of year-end, which we expect to continue to use as a tool for value creation for our shareholders. Our strategy has been to buy back shares on a regular basis while being more active during periods of market dislocation from the strong fundamentals we see ahead. We've returned over $92 million to stockholders since program inception at an average price of $22.72, including $70 million during 2025 compared to $13 million in 2024. From a balance sheet perspective, we exited the year below our long-term leverage target range of three to 3.5 times, and we currently expect to operate below three times in the near term. We're comfortable operating at these levels, which reflect the strength and durability of our cash flows and provide significant flexibility to pursue future organic and inorganic growth opportunities while continuing to return capital to shareholders. In summary, our truck is delivering standout performance driven by consistent operational execution and the successful advancement of our strategic initiatives. As we look ahead, we believe we have additional opportunities to continue monetizing our transformed platform with earnings growth driven by disciplined execution and capital allocation and further supported by durable market tailwinds across the natural gas infrastructure. With that, I'll turn the call over to Doug to walk through our fourth quarter and full year financial performance and provide additional detail on our 2026 outlook.