Good morning. Welcome to the Archrock Fourth Quarter and Full Year 2025 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. 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 Aron, Chief Financial Officer of Archrock. Yesterday, Archrock 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.archrock.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 Archrock's 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 dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form 8-K furnished to the SEC. I will now turn the call over to Brad to discuss Archrock'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 Archrock, one that leveraged a multiyear 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 Archrock'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 sales of 325,000 horsepower for $192 million, 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 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…

Thank you, Brad, and good morning, everyone. Let's look at a summary of our fourth quarter and full year results and then cover our financial outlook for 2026. As we review the quarter, it is important to note that results included a few discrete items, which I will walk through briefly. We've also provided supplemental slides on our website with additional details, which bridge the results we reported last night to both 2025 guidance as well as our 2026 expectations. Net income for the fourth quarter of 2025 was $117 million and adjusted EBITDA was $269 million, bringing net income for the full year 2025 to $322 million and adjusted EBITDA to $901 million. Underlying business performance exceeded expectations in the fourth quarter, and fourth quarter results further benefited from a $23 million cash net benefit to contract operations cost of sales related to prior period sales and use tax audit settlements and credits as well as a $32 million of net gains from the sale of compression and other assets, which occurred at the end of the year. These 2 items were not included in the 2025 annual guidance we provided on our third quarter call. And excluding them, we would have delivered full year 2025 adjusted EBITDA of $846 million, above the midpoint of our most recent guidance range of $835 million to $850 million. Turning to our business segments. Contract operations revenue came in at $327 million in the fourth quarter of 2025, consistent with the third quarter of 2025. Average operating horsepower was down slightly from the third quarter of '25, primarily due to asset sales and pricing ticked up incrementally. We expanded our adjusted gross margin percentage to approximately 78%. Underlying operating gross profitability was 71.5% in the quarter, up from 70% in the third…

[Operator Instructions] Your first question comes from the line of Doug Irwin with Citi.

Just wanted to start with the growth CapEx guidance here. Just wondering if you could talk about how much organic horsepower you see that translating to being added this year? And then maybe if you could just help fine-tune just the cadence of fleet additions throughout the year.

Yes. Doug, thanks for the question. We -- the CapEx should translate into about 170,000 horsepower that we expect to take delivery of in 2026. And as far as the impact through the year, while it's generally ratable over the 4 quarters throughout the year, we are somewhat front-end loaded and expect about 60% of that horsepower to start up in the first half of the year, which is beneficial and just shows the strength of continuing demand that we see in the market and that we are receiving from our customer base.

Got it. That's helpful. And as a follow-up, maybe just around lead times. We've heard some peers talk about lead times getting longer here to start the year. Could you maybe just talk about what you're seeing today and then how that maybe impacts the way you're thinking about both build costs moving forward and kind of the balance of your pricing power and where you might see gross margin trending in a tighter environment over the next few years?

Lead times have definitely extended. Right now, the long lead time item, the gating item for gas drive equipment is Caterpillar. And for the large horsepower equipment that is the bulk of what we are investing in, it's out to 110 to 120 weeks. For larger horsepower, it's not even further. So lead times have definitely extended as the market is in full pressure and demand for natural gas infrastructure, including compression, which we're very happy and excited to be a part of. As far as the impact on us, fortunately, looking at 2026, we are booked to meet our customers' needs for the year. We are -- that horsepower is 85% committed to go to work. So we have only a little bit left in the year that would be available for new bookings. And we've already started booking horsepower into 2027. And we expect that we will fully be able to meet our customers' needs for growth through that period of time. So while the supply chain is definitely extended right now, showing the high demand in the market, we believe we will have access to the equipment to meet our customers' needs in 2026, 2027. It's way too early to talk about any years beyond that. As far as the impact on pricing, it's an interesting market right now. There's a slight pause in some oil activity, and that's moderated, I think, some of the immediate pressures for the overall industry and for our segment. And so while we expect to see price increases on our installed base in 2026 at a more modest level, as I think I mentioned in my prepared remarks, we do see price increasing in the year. On the current market, it's at a more moderate level for sure, just because we've all caught up with inflation and the current demand in the market is basically well priced. And as you can see, we and we think the industry is operating at a high level of profitability.

Your next question comes from the line of Jim Rollyson with Raymond James.

Brad, following up on your comments on lead times. One would think as far out as they've stretched to for someone like Caterpillar that usually more material price increases on their front come down the road. I'm curious your thoughts there just because as you talk about more moderate price increases from your end in '26, if they obviously hike prices for future deliveries into '27 and beyond, presumably, that affords you the ability to catch up with that to maintain your returns. So I'm just curious your thoughts on that.

First, we have not seen any significant change or received any significant change in Caterpillar's overall pricing strategy impacting us. Second, we have also not really seen a tremendous change in the pricing from our packagers for the total compression package that's been passed on to us. But the good news is that when we do see that, we will have the full flexibility to price that into our forward pricing with our customer base. One of the main impacts, most interesting impacts of this period we've gone through where over the last 5 years or so, we've had significant inflation impacting our fleet is it has certainly made the existing equipment we've invested in over the prior period -- over the prior years, a lot more valuable. And a lot of the returns that we can generate in our business are from the value we get from those prior investments the pricing power we receive in the current market because of the high demand for compression. And so that value creation that we come from the installed base way outweighs what's going to happen from an inflationary perspective coming through the system from Caterpillar or from the packagers in the near term, all of which we can price in and pass on.

That was exactly why I asked the question. Appreciate that answer. And then following up, I can't recall a time when you've been in quite this position from a leverage and free cash flow generation perspective even after dividends. And as you kind of look forward over the next 2, 3, 4, 5 years, obviously, the gas backdrop is such that you've got a nice runway of annual organic growth there, but your cash flow is going to be far exceeding your ability to spend it, it seems like in this. I'm just curious, as you think about this, you run out somewhat a run out of obvious M&A candidates in your main fairway. Do you return more to shareholders? Do you look at -- you've had a couple -- at least one of your peers enter into another business line as a means to deploy incremental capital. Just how do you think through that because you're in a very enviable position, and I'm just kind of curious how you guys think about that outlook?

I think you could have asked a bigger question, but I'm not sure how. There's a lot to unpack there. I'm going to try to pick a couple of points to make. The first is that we have had worse problems in the past than having to figure out what to do with a lot of free excess cash flow for the benefit of our investors. So we're excited about the position we're in. We think that it demonstrates the strength of this segment. It demonstrates the strength of the natural gas infrastructure sector overall, which is going to continue to grow, and it generates a lot of cash as we're seeing right now. And right now, it's generating on a sustained basis. A lot of this is the benefit of the capital discipline that we've had in the overall energy sector, we've had in the midstream sector, we've had in the compression space, particularly. And as long as that holds, that level of discipline is going to continue to be rewarded by generating great cash returns for our investors. So we're excited to maintain that. To the M&A question you posed, look, we've demonstrated both the desire and ability to grow organically as well as inorganically. And we've digested in just 18 months, 2 very nice acquisitions with great equipment and great teams and a great customer base to expand our business. And we were able to do that on an accretive basis and pass that accretion on very promptly to our investors through dividend increases. We will continue to be looking for those opportunities. And to the contrary to maybe what you were thinking, we think that there are more compression companies in the space today that will be available for us to look at and will want…

Your next question comes from the line of Nate Pendleton with Taxis Capital.

Congrats on the strong quarter. Can you provide some detail on the units sold and perhaps some insight into how your team decides what assets are noncore to the go-forward business?

Yes. A couple of thoughts. First, having a disciplined program that both invests in our fleet as well as dispose of assets that we no longer want to operate in the fleet is a core competency in our business. And so when you look at the level of asset sales that we've had over the prior 5 years, we've been averaging something like 270,000 horsepower per year over that 5 years. So the level of activity that we had in 2025 is not much larger than just the run rate we've had in the kind of nip and tuck of disciplined asset management practices for our fleet. The only -- the other thing I'd say is that we did have one sale that was totally nonstrategic around high-pressure gas lift units. And there was another business, the buyer was very much in that business. And so that just made great strategic sense for both companies. That made the number -- that was a contributor to the size of the number in 2025. And we had one customer that wanted to purchase some horsepower. They acquired operations in an acquisition. And as part of that acquisition, it came with horsepower from us. And that's a customer that likes to own their horsepower as opposed to outsource as much of the horsepower. And so they were aligned with -- they wanted to buy that horsepower for that reason. And for us, when we looked at that horsepower, it was an average age of 17 years and was in the perfect condition to maximize our overall cash generation of that horsepower by selling it. So when we look at the fleet overall, we're always looking to improve the standardization, the quality of our fleet. We are happy to engage with customers that want to buy horsepower and sell, especially when it's horsepower that has already earned a great return and served us well over time.

Got it. And then as my follow-up, Brad, in your prepared remarks, you mentioned continued opportunities that you see in electric motor drive compression. Can you provide more detail on how you see the adoption of the electric compression trending as you look at your 2026 and early '27 order book?

Sure. We still see demand for electric motor drive. It's definitely competing. Our customers are now facing more competition for power, and that is a gating item for electric motor drive. So in the past, we've had electric motor drive, I think, in 2025 was as much as 30% of the equipment that we had on order. We are seeing that moderate to more in the 20% to 30% range, but it's lumpy and it's inconsistent. It really varies not just with power being a gating item, but also with the prioritization of the customer and how well they can get equipment and how well that fits into their overall long-term strategic focus. But on the good news front, we still see nice demand for electric motor drives. We're very proud to be the leader in the industry in that segment, and we expect to see good growth for electric motor drives ahead still.

Your next question comes from the line of Eli Jossen with JPMorgan.

You talked a bit about extended supply chain lead times and tightness there. But maybe just thinking about the growth CapEx figure, if you guys are able to make opportunistic procurement of horsepower or you see kind of swelling demand from your customers, could we see upside to the growth CapEx figure? And what kind of visibility do you have there given strong customer demand?

In a word, yes, but it's going to be tough because shop space is pretty full for 2026. So getting more through the system is going to be a challenge. That said, there are avenues to do so. And if we see the opportunity and the need with our customer base, we will be ambitious in capturing that.

Great. And then maybe just thinking about basin focus. I know the business has increasingly shifted to being liquids-rich Permian basin Eagle Ford. Are you guys kind of still pressing ahead there? Have you looked at expanding within other basins? Or what's the overall geographic strategy?

Yes, we have looked at -- fortunately, we have what is the most diversified footprint in the industry. We operate in every natural gas producing basin, every producing basin in the U.S., and we have an excellent footprint throughout all of them. But everything compels with the CapEx vacuum cleaner that is the Permian Basin today for the industry. And so like with others, our focus is on ensuring that we grow where our customers want us to grow, where they're putting their CapEx and their growth and that -- the Permian Basin remains in the lead. With that, though, looking back on 2025, we had net horsepower growth in a total of 6 basins, one of which was the Permian. So we've seen net growth in other plays, including in dry gas plays, which are seeing a little bit more energy and reactivation right now given the gas price trade-off with the oil price. So it's been a focus of ours to remain prudently diversified as well as we can and at the same time, not miss the incredible opportunity for the most efficient oil production in the country, which is coming in the Permian.

Your next question comes from the line of Selman Akyol with Stifel.

Nice quarter, nice outlook. Two quick ones for me. So in your opening comments, you talked about 11.25 of running at higher utilization, 95%. And then you went on to talk about how your equipment is staying on location longer, especially as you skew towards the higher horsepower. So the question directly is this, '26 probably is another lock for the 95% sounds like '27 is as well. So how far, how long do you see that extending at that high utilization rate?

Selman, we appreciate that you think we could possibly answer that question. That's nice for you to suggest. -- number one, no one knows, and we don't either. But what we see right now with the level of demand for natural gas to feed the LNG beast ahead, which I described in our comments, and we include our best market take in our deck all the time. What we see for power demand in the U.S. for data centers, what we see for pipeline exports to Mexico is that this is a very durable cycle. And it's hard to see what is going to change that within the next 5-plus years. So we expect that our business has just a tremendous growth opportunity. to expand our infrastructure footprint with our customers for an extended period of time. But we're not smart enough to call when the cycle turns, sorry.

Okay. Appreciate all that. And then just kind of going back to the consolidation, when you talked about it, you sort of referenced other companies, but is there anything out there from potentially buying packages from your customers?

Reflecting on the acquisitions we've done, we've actually had success doing that. Going back pretty far back. There was a time when we acquired what was primarily the compression operations of Chesapeake, which we completed in 2 separate transactions. When we acquired the Elite assets back in 2018, that was primarily the asset packages that we were supporting and organized by affiliates of Hillcorp, but it was run in a separate company and the primary customers in that were both Hillcorp and Marathon as we discussed at the time. So we've seen success in acquiring packages that were organized for sale in that way. That said, in other instances, we've seen this to be a very hard area to get a lot of traction between the operating teams and the financial teams within our customer base. And so while we've had success in the past and we have those discussions ongoing with our customers, -- it hasn't fit the mold of a high volume of steady transactions that would be a purchase leaseback machine. So while there are opportunities out there, we think they're going to be structured more like traditional M&A.

Your next question comes from the line of Steve Ferazani with Sidoti.

I was pleasantly surprised by the SG&A guide given the growth in the fleet, given the growth in cash flow, you certainly could be looser on spending, but it looks like you're even getting tighter. And obviously, we're seeing that in your margin guidance on the contract operations where it looks like you're more than offsetting any kind of inflationary pressures. Can you talk a little bit about your actions there and what you're trying to do in a growth market containing those costs?

On the SG&A front, first and then on OpEx -- the nice thing about this business and our platform is our SG&A is very scalable. We can add quite a bit to our operational activities without expanding our SG&A proportionately. So what you're really seeing is the benefit of the full year acquisition benefits coming from the NGCS transaction and the expansion of our organic horsepower, and we just -- we have a great SG&A platform that can grow our activity without growing our SG&A investments. So it's just a very scalable position to be in. We expect to benefit from that in the future. And that's why you're seeing -- when you think about SG&A as a percent of revenue, you're seeing that continue to come down nicely. On the OpEx side, I'm going to point out a few things that are really long-term focused from a strategic perspective, and we're seeing the benefits now and so are our customers. Over the last several years, we focused hard on our fleet mix, expanding into large horsepower, expanding into electric motor drive. These are the 2 most profitable segments of the market. And by shifting that mix, if you look over a long period of time, you're going to see that our OpEx per horsepower costs have remained super flat for a long time, notwithstanding inflation because we've been fighting off inflation and some of these pressures by engaging in these strategies of adopting a different fleet mix focused on large engines and motor drive. Second, we've been adding technology to our platform. And so we've invested hard into digitization, automation and just great telemetry into our system, and that's driving a lot of savings in activity, a lot of efficiency and optimization into our activities in the field. So those are the big threads that we're reaping the benefits from. And candidly, so are our customers because we've been able to actually manage the concurrent improvement of customer service, maximizing uptime for our customers and at the same time, managing our costs, which we get to pass some of that on to them in the form of very competitive rates. So those are the biggest drivers that I can think of on how we're attacking costs even in this market.

Yes. I would maybe just make one more point on SG&A, which is that, look, '25 levels were elevated just a little bit, candidly, in recognition of the incredible performance delivered by both the management team and also all of the operating team. And so you saw our short-term incentive and longer-term incentives flow through a bit into that, something that we're glad to share up and down throughout the entire company. But with stronger performance comes stronger expectations in '26. So that level for guidance was reset to more of a target level. I think Brad otherwise summed that up well.

That's really helpful. I always try to get a question in about aftermarket, Brad, the guidance there, look, I know '25, you benefited from equipment sales and you pointed out how that can affect margins. I'm just curious about the growth opportunities given that U.S. compression third parties is growing as well. At any point, do you become waiver constrained to meet third-party service demand? Or can you continue to grow that business?

I actually really appreciate getting a question on AMS because it has been a standout performer for us for a couple of years now. And that team has just done an excellent job in improving the profitability of the business. But one of the strategies to improve the profitability of the business is to be more selective on the jobs that we take and the customers that we work with. So I do think that the growth in that business has -- we've demonstrated that it's constrained. And I also think that access to labor is going to further be a constraint in that business as it is in contract operations. But what we're really seeking is to have the right business. We're trying to make sure that it's as profitable as it can be as value adding to our customers as it can be, and we will grow it prudently. But given the nature of it, I do not expect it to grow in leaps and bounds. I expect we're still going to see sharper levels of growth in the infrastructure side of the business in contract operations.

Question comes from the line of Elvira Scotto with RBC Capital Markets.

So just a couple of follow-up questions for me. The first one, you talked about your investments in technology over the years, telemetry, big data, et cetera. Can you talk about how much more margin improvement or uptime or what you can drive over time? What inning are we in, if you will? And are there other AI initiatives you can undertake to drive incremental margin improvement or uptime for your customers? Any additional color there?

Yes. Thank you. the overall strategy around our technology investments really had 3 goals as our top line priorities. Number one, we've got to continue to drive improvement to the uptime, our customers' experience to service quality, and that's all of the above from a communication perspective, speed of response perspective as well as run time. We want those priorities to come through to our customers. Number two, the market has labor challenges. And so ensuring our labor, our mechanics have the access to the best tools, the best information, best communication to make their lives better and to make their work more easier to perform is the second priority around that initiative. And third would be that if we succeed in both of those, we knew we would drive improvements to profitability. So with that lens on how we think about technology, we do believe there is still more to come, especially in driving improvement to the service quality that our customers get to experience, just enhancing the customer experience. We are deploying AI in a couple of ways throughout our business, both to make sure our mechanics have the best information at their fingertips and candidly at their laptop and on their iPhone as they can. So the speed of how they can ask questions and receive information is something we're working on quite a bit. Second, we can also make our machines smarter and tell us more. And so getting great the data machine to have great analytics capability and using AI to sort through the noise to identify the most actionable items coming from the alarm system within all of the telemetry and all the sensors we have on the equipment is something we're absolutely working on. And last, there's more ahead of that. We believe that there's also additional sensor technologies, vibration technologies and acoustic technologies that can utilize AI on the equipment, and we're working hard to figure out how to bring those to market. So that's what we are working on. We are really pleased with the progress we've made to date, the improvement it's had to our operations. But I can't even call the inning in this because I think technology is a continuous improvement exercise, and we are going to focus on driving continuous improvement in the operations that we have at the company.

Great. That's very helpful. And then just my quick follow-up. Are you seeing any change in your customers' desire to in-source compression more or outsource compression more? Any change to that dynamic?

We have not seen a change or shift in the dynamic of in-sourcing and outsourcing. We believe that the customers' primary decision-making around what they're going to do with their compression is driven by their own capital availability, capital allocation and a buy-lease analysis of how long they think they can earn a return on that asset. And all of those factors still favor significant outsourcing, we believe, in the market today. When you think about where we're at, where our large horsepower stays on location on average about 8 years, -- if that is a unit that the customer was considering to purchase and they only had 8 years of use for it, it doesn't make a lot of sense for them to make a 30-year investment for 8 years. So we still think that the overall buy lease analysis is informed by how long the customer expects to be able to utilize that equipment. And what we see in the outsourced industry is that we can amortize our 30-year investment over a broader geography over a broader customer base. And so we have -- that's the driver of our value proposition, and we haven't seen a change in that.

Your last question comes from the line of Nick Ami, I'm sorry, with Evercore...

Just one quick one from me and actually a follow-up and just a clarification on another one. But just given kind of the significant kind of sentiment shift that we've seen from the hyperscalers and just in the AI complex to more of a behind-the-meter solution, just specifically in West Texas, I mean, we had a couple of companies yesterday kind of call out the Permian as kind of an area of ripe for opportunity just given the lack of regulatory constraint. Just wanted to see like has that kind of come to fruition? Have you guys been seeing that level of demand on your end? Have you seen that kind of true inflection of demand yet? Or is there kind of inevitably more to come on that?

If I'm understanding the question fully, what we're seeing is that -- let me just ask for a clarification. that a question for the demand for power, provision for power or translating into compression? Could you clarify for us, please?

Translating into compression, just given that the vast majority of all of these -- all of this demand, right, is going to be powered by -- through natural gas through natural gas generation. So just kind of reading the tea leaves, it would kind of imply that we'd have some significant demand in that area.

Yes. Thank you. That's really helpful. What we are seeing just overall is the demand for in-basin gas supply is something we're seeing an increase in. And I think a lot of it is driven by more in-basin use of natural gas rather than needing to find a long-haul pipeline to get it out to support other markets. So yes, we are seeing that translate in demand. But it's translating into more -- to be direct, more future demand than it is immediate current demand.

Got it. Perfect. And then just kind of touching quickly on the aftermarket, the AMS segment again. So I understand that it's probably -- you guys are taking more of a prudent approach. But just given that we are seeing kind of the units, the assets run harder for longer and kind of the constraints within the supply chain, is there a meaningful kind of price opportunity that could be there, especially given that you guys are taking more of a prudent and deliberate approach like unit economics? Just trying to figure that out from a margin perspective.

We're really happy actually with the returns we're achieving right now and the 24% gross margin for the prior quarter is something that we're pretty excited about. That said, we do see opportunities that we're not going to go into detail on for other reasons, you can imagine, to continue to improve both the stability, quality and earnings in that business. But what I'd say is that if you think about a business that has very low barriers to entry and a ton of competition, that would -- the aftermarket services might be in the dictionary under that heading. And so finding the right strategy to execute both with excellence with the right customer base and on the right jobs becomes -- remains a priority for us in operating that business.

There are no more questions. And now I'd like to turn the call back over to Mr. Childers for final remarks.

Great. Thank you all for joining us today and for your continued interest in Archrock. By nearly every measure, 2025 was a standout year for the company, and we're encouraged by how 2026 is shaping up as we benefit from strong U.S. gas production trends and the result -- and the returns from our continued investment in a first-class compression platform. We appreciate your support and look forward to updating you on our progress next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.