James Rollyson - Raymond James:

Selman Akyol - Stifel:

Doug Irwin - Citi:

Gabriel Moreen - Mizuho Securities:

Steve Ferazani - Sidoti:

Blake McLean - Daniel Energy Partners:

Operator: Good morning. Welcome to the Archrock's Third Quarter 2024 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I'll now turn the call over to Ms. Repine. Please go ahead.

Megan Repine: Thank you, Julianne. 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 third quarter of 2024. 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 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 gross margin, and adjusted gross margin percentage. 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'll now turn the call over to Brad to discuss Archrock's third quarter results and to provide an update of our business.

Bradley Childers: Thank you, Megan, and good morning, everyone. Archrock drove tremendous performance during the third quarter, building on the strong results and momentum we've delivered all year. Archrock's excellent assets, customer service, and execution continue to drive consistency in our overall performance and enhanced earnings power. We're excited to have successfully completed the acquisition of TOPS at the end of August, which is net income and cash flow accretive, expands our business with blue-chip customers in Permian, and establishes Archrock as the leader in electric motor drive compression. The durability of our positive outlook is further supported by the strong market, including high levels of new bookings and forecasted increases in natural gas and oil production, which will serve as the foundation for an opportunity-rich market in 2025 and beyond. With that backdrop, let me start today's call with a summary of key highlights from the third quarter. We delivered adjusted net income of $47 million, which is a 53% increase compared to a year ago. Adjusted EBITDA of $151 million was up more than 25% versus the prior year period. Our contract compression operations and aftermarket services segments delivered record-setting adjusted gross margins due to continued pricing improvement, enhanced efficiency, and the resulting profitability gains. And we continue to increase shareholder returns. We raised our quarterly dividend per share by 13% compared to a year ago, all while maintaining robust dividend coverage of three times. In addition, we continued repurchasing shares under our share buyback authorization. The good news is twofold. The third quarter performance I just described reflects significant outperformance in Archrock's operations before taking into account the positive impact of the TOPS acquisition. I continue to be excited by the magnitude of the operational and financial improvements we've already achieved with our platform transformation. And with the third quarter including only one month of TOPS results, the best is yet to come as we continue to integrate this high-quality and high-margin operation, building an even more prosperous Archrock. As Doug will discuss in more detail, we raised our full year 2024 guidance to reflect this outperformance in our operation and the addition of TOPS. Next, I'd like to share our perspective on the market. As we've discussed for several quarters, this is a highly constructive market for compression. Like gathering systems, processing plants, and pipelines, compression is mission-critical infrastructure for natural gas transportation and for oil production. Given the structural increase in natural gas demand ahead, the midstream sector, compression industry, and Archrock are all on the cusp of an expanding opportunity set. A wave of global LNG projects that have already been approved and sanctioned are expected to result in a sustained call on U.S. natural gas production beginning in 2025. And more recently, additional electrical generation to support AI and data center build-outs in the U.S. is a developing trend that augments the opportunity set for natural gas. Our customers will need our equipment, our service, and our people to move gas to market to satisfy this additional demand, and about 70% of our operating fleet is deployed on midstream gathering applications to do just that. For the other 30% deployed in gas lift applications for oil production, we see an equally exciting outlook. As more oil is produced, the demand for compressors directed at gas lift also increases. Through the acquisition of TOPS, we have strategically grown our leverage to the Permian, which sits on the low end of the cost curve and is expected to lead the U.S. in oil and gas production growth well into the future. As you would expect in the opportunity rich market I just described, customer demand for contract compression horsepower to be placed into service in 2025 and even into 2026 is elevated, and we expect to be an integral participant in developing the compression infrastructure required to meet that demand. Moving to our contract operation segment, we've repositioned our compression operations to focus on the two most profitable segments of the market, large midstream compression units and electric motor drive compression units. The benefits of this strategy are paying off in our utilization, pricing, and profitability. Our fleet remained fully utilized during the quarter, with utilization exiting the quarter at 95%. At quarter end, we had 4.2 million operating horsepower, up from 3.6 billion last quarter. On the pre-acquisition fleet, we delivered approximately 37,000 in active horsepower growth, excluding non-core active asset sales of 3,000 horsepower. In addition, the former TOPS electric motor drive operating fleet grew to 544,000 horsepower as of the end of September. On bookings activity, with robust market demand and excellent customer service, our sales team again secured strong contract operations bookings at pricing levels that were higher than in the previous quarter. We have a strong backlog of new build equipment starts for 2025 and have already begun signed contracts for 2026. Our team continues to realize additional price increases on our operating fleet and cost-efficiently deliver industry-leading safety performance and equipment runtimes to our customers. This resulted in record monthly revenue per horsepower and adjusted gross margin on both an Archrock's standalone basis and on a combined basis. Our adjusted gross margin percentage was an impressive 67%, up 300 basis points year over year. I remain ambitious about margin performance in 2025, given the sustained benefits I expect from investments in telemetry and communication technologies and the expansion of our electric motor drive capabilities. We closed on the acquisition of TOPS at the end of August, just one month after announcement. I'm excited with how well integration is going and pleased to share that everything we have seen through integration has confirmed the value of this acquisition for our shareholders, our customers, and our truck. Yesterday, we announced revised guidance for 2024, including outperformance in our pre-acquisition business and four months of TOPS and remain confident in our ability to deliver the transactions accretion targets for 2025. This includes a 10% increase to earnings per share and at least a 20% increase to cash available for dividend per share in 2025. Doug will cover our updated guidance in more detail. Turning to our aftermarket services segment, the team delivered another outstanding quarter. This level of performance and consistency in results is the best we have seen in a long time. Revenues remained elevated as great service is driving repeat business with customers. We delivered a record third quarter adjusted gross margin percentage of 26% as we continue to focus on high quality and high margin work. Next, let me turn to our financial and capital allocation strategy. Our strategy continues to be rooted in a returns-based approach that balances our leverage position, investment, and high quality opportunities presented by the market and returns to shareholders. First, we have an industry-leading balance sheet and leverage position and continue to target 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. The second objective is investing in profitable growth opportunities presented by the market. Given the pricing and profitability improvements that we continue to drive in our business, our corporate ROIC is forecasted to be well in excess of our cost of capital in 2024 and is expected to continue to move higher as we invest in large midstream and electric motor drive new build horsepower to support our exceptional and growing customer base. The IRRs at which we expect to invest new build capital are strong in the mid to high teens with paybacks between five and six years. This is an ideal time for investment as we are capturing significantly improved levels of profitability and beginning to reap the benefits of a multi-year strategic transformation to standardize our fleet and digitize our platform. We're delivering a higher level of service for our customers which commands a higher price and further supports long-term returns and shareholder value creation. During this period of market expansion, we're working to balance an abundant and attractive opportunity set with customers' demand for capital discipline and return of capital. We're focused on funding this growth CapEx with a combination of cash flow from operations and support from modest non-strategic asset sell proceeds as we continue to high-grade our fleet. And finally, we're committed to returning capital to investors. The Archrock Board of Directors approved the second increase in Archrock's quarterly cash dividend for 2024 and fourth increase in the last two years, reflecting our confidence in enduring demand growth for natural gas and our transformed platform which is delivering excellent and consistent results. And we have significant financial capacity to continue increasing cash returns to shareholders while maintaining a prudent dividend coverage ratio. It's been an exceptionally busy, productive, and rewarding time at Archrock. Our transformed platform is delivering meaningful and consistent growth in quarterly revenue, profitability, and cash flows. At the same time, the TOPS acquisition strengthens our financial profile and enhances our ability to execute on our strategic plans. It allows us to invest additional retained cash flow into the business to take advantage of the robust market we're currently seeing while further increasing cash returns to shareholders. As we talked about in prior earnings calls, Archrock is celebrating its 70th anniversary this year, a testament to the company's legacy of adaptability. While many compression companies have come and gone, Archrock's operation has endured and become the premier U.S. natural gas compression company. I want to extend gratitude to our employees for enabling us to deliver the best performance in the company's history and for continuing to shape our great story. With that, I'd like to turn the call over to Doug for review of our third quarter performance and updated 2024 guidance.

Douglas Aron: Thanks, Brad, and good morning. Archrock delivered another quarter of strong financial results. Net income for the third quarter of 2024 was $38 million. Excluding the $9 million of transaction-related costs and a $3 million debt extinguishment loss and adjusting for the tax impact, we delivered adjusted net income of over $47 million. We reported adjusted EBITDA of $151 million for the third quarter 2024. We delivered an increase in adjusted gross margin of $22 million on a sequential basis due to significant outperformance in our pre-acquisition business as well as one-month contribution from the TOPS acquisition, which closed at the end of August. Our third quarter results further benefited from net gain on the sale of non-strategic assets of $2.2 million. For the third quarter, growth capital expenditures totaled $42 million. Through the end of the third quarter, we've deployed $182 million of growth CapEx and high return projects to meet the strong customer demand we're seeing, primarily in associated gas basins such as the Permian. Included in the third quarter number is $12 million in Archrock funded new build CapEx that was previously ordered by TOPS. Maintenance and other CapEx for the third quarter of 2024 was $28 million. Maintenance CapEx was down sequentially due primarily to fewer overhauls during the third quarter. Turning to the balance sheet, during the quarter we funded the cash portion of the total consideration for the TOPS transaction with a combination of equity and debt to keep us on track to achieve our financial targets, including our objective of maintaining a consistent leverage ratio of 3 to 3.5 times. We raised net proceeds of $256 million through a common stock offering in July. In August, we issued $700 million aggregate principal amount of six and five-eighths senior notes due 2032. We also tendered for $200 million aggregate principal amount of six and seven-eighths senior notes due 2027, with $300 million of principal amount remaining on that bond. This brought our period in total long-term debt to $2.2 billion. Our leverage ratio at quarter end was 3.57 times. As it relates to our leverage ratio, note that our leverage ratio is calculated as total debt divided by our trailing 12 months adjusted EBITDA for Archrock and for the TOPS acquisition. Given our expectation for continued strong performance in our underlying business, as well as strong future earnings power from the TOPS assets, we expect to be back inside of our stated leverage range of 3 to 3.5 times by the end of this year, which is impressive given the earnings power on the horizon for the acquired electric motor drive business. Turning to shareholder returns, we recently declared a third quarter dividend of $0.175 per share, or $0.70 cents on an annualized basis. This reflected an increase of 6% over the Archrock's second quarter 2024 dividend level, and an increase of 13% over the Archrock third quarter 2023 dividend level. Cash available for dividend for the third quarter of 2024 totaled $93 million, leading to impressive quarterly coverage on the increased dividend amount of three times. Importantly, we believe the increase in discretionary cash flow from the addition of TOPS will further enhance our financial flexibility and capacity to increase dividends to our shareholders over time. In addition to increasing the dividend this quarter, we repurchased approximately 650,000 shares for $12.1 million at an average price of $18.63 per share. This leaves $38 million in remaining capacity for additional share repurchases. As you saw in our earnings release issued yesterday, Archrock increased its 2024 annual guidance to reflect year-to-date outperformance in the company's pre-acquisition business and to include the TOPS acquisition. Our revised guidance reflects four months of results from the transaction. We are raising our 2024 adjusted EBITDA range to $575 million to $585 million. In contract operations, we expect full year revenue to be in the range of $970 million to $980 million with adjusted gross margin percentages of between 66% and 67% for the year as we continue to realize high levels of utilizations, benefit from price increases, and add TOPS's high-quality fleet. In our AMS business, we now expect a full year revenue range full year revenue to range from $180 million to $185 million with adjusted gross margin percentages of 22% to 23%. We are focused on defending the profitability gains we've worked hard to achieve. Turning to growth capital, on a full year basis, our updated expectation is approximately $260 million. As we continue to anticipate $190 million in growth CapEx for our pre-acquisition business, the $70 million increase is exclusively related to the addition of the TOPS backlog and the remaining payments to packagers at delivery. This backlog is substantially committed to customers, and the horsepower is expected to be placed in the field during the fourth quarter with a small portion extending into 2025. Of note, we've raised approximately $24 million so far this year through non-strategic equipment sales to support our new build investment program. Maintenance CapEx is forecasted to be approximately $85 million. Although our electric motor drive business will require less maintenance on a per-horsepower basis, the gross amount will be towards the high end of our prior guidance to account for our larger fleet. Other CapEx, which consists of capital for vehicles, technology, and real estate, is expected to be around $25 million. In summary, the significant outperformance in our pre-acquisition business, the continued deployment of innovative technology, and expanded electric motor drive fleet result in an increase to our 2024 adjusted EBITDA guidance expectation and set a strong foundation for even higher levels of customer service, operational execution, and profitability in 2025. We have an opportunities rich market and expect to invest in higher return opportunities to profitably grow our business while prioritizing and growing shareholder returns and maintaining an industry-leading balance sheet. Julianne, we are now ready to open the line for questions.

Operator: [Operator Instructions] Our first question comes from Jim Rollyson from Raymond James. Please go ahead. Your line is open.

James Rollyson : Good morning, everyone, and nice job on the quarter again. Brad, you talked about the margin performance, which was obviously really strong, and I'm curious just to maybe understand the moving parts a little bit. We can calculate, obviously, what kind of revenue per horsepower per month did. Cost obviously came down here, and I'm just trying to understand what the moving parts are between the legacy performance and then maybe what one month of TOPS actually introduced and how repeatable this kind of 67-plus percent gross margin is?

Bradley Childers: Yes. So, when we look at the standalone business, Jim that was the vast bulk of the contribution to the outperformance in the quarter coming in at 66.8% before including the performance from TOPS. So, it's a really strong quarter for the underlying business, and the drivers of that have been really important work that we've been executing on now for several quarters and, in fact, years. It really reflects the strong utilization and pricing environment we have, plus the investments we've made in technology that's both in the form of telemetry and communications to help us drive a much more responsive business model for the benefit of our customers and, candidly, for the benefit of cost. We've also reaped some rewards for reduced pricing in lube oil in the business, so that's a part of it, too. But you're seeing outperformance driven by both revenue and cost on the underlying business as being the biggest driver for that outperformance in the quarter.

James Rollyson : I imagine with TOPS kind of adding on to that that this probably should be a pretty sustainable type of number. Maybe switching gears for the follow-up. Go ahead. Sorry.

Bradley Childers: It's not just sustainable. The addition of TOPS is going to continue to expand our margins. We're very ambitious about what we get to do with margins going forward, both with the acquisition and the integration fully of the TOPS operation, plus the future benefits of the transformation we've been investing in for the last few years.

James Rollyson : Yes, that's exciting. And, maybe one, I don't know if for Brad or Doug, but you referenced the $70 million of CapEx that's in the updated growth CapEx budget. I think you said $12 million came out of the third quarter, so it's like $58 million in the fourth quarter. As you roll into '25, and just thinking about this generally going forward, how do you think about allocating growth CapEx between the traditional legacy business and the electric motor drive tops business?

Bradley Childers: Overall, we expect our investment in electric motor drive as a percent of our capital allocation for new build equipment to continue to expand. The legacy business was running at about between 20% and 30% of our new build CapEx being allocated to electric motor drive, both new unit acquisition as well as conversions of gas drives into electric motor drives. Going forward, we expect that percentage to increase to more like 40% to 40% and 50%. It's too early. We haven't finished our allocation of what we think we're going to be doing in 2025, but I know that percentage is going up as the market is looking to increasingly electrify in the oil field.

James Rollyson : That's helpful. Thanks, guys.

Operator: Our next question comes from Selman Akyol from Stifel. Please go ahead. Your line is open.

Selman Akyol : Thank you. Good morning. Congratulations on a nice quarter. Maybe in your opening comments, you talked about the period of market expansion. I'm just curious, as you sit today and you see the electric coming, where are we in this period? Is it going to the baseball analogy, what inning, but just how much longer does this have to run?

Bradley Childers: A couple of thoughts, Selman. Number one, unlike a nine inning game or even with overtime, this doesn't end. There's never a ninth inning. It means that the analogy can be difficult to implement, but when we look at the market ahead, the market is robust. That's both for demand for natural gas as well as for oil production. What we are seeing in the marketplace from our customers, what we're seeing in forecasts across the board is that we are at a very early stage of expanding the infrastructure to support the amount of natural gas production required to help power the world. Both through the export of LNG now with increasing demand for AI and data centers that the energy consumption that will be fueled by natural gas is going to continue to expand for a while. On oil production, we're highly leveraged to the Permian Basin. We have 30% of our fleet now on gas lift to support oil production. As the lowest cost basin out there, we think that the demand on the Permian oil production is poised to grow. The position we have leveraging against natural gas production, which is going to grow, and oil production out of the Permian, which we believe is going to grow and is forecasted to grow, puts us in a strong position. I would say it's early innings overall in the market, but also in a game that doesn't actually have a ninth inning.

Selman Akyol: All right fair. But then you also talked about reconfiguring some compression with electric motors. Should we just continue to expect margins in duration to continue to head higher?

Bradley Childers: I mentioned in the prior set of comments that we are very ambitious about where margin gets to continue to go based on our investment in our platform, the use of telemetry communications technologies to help drive efficiencies in the field, certainly the size and the increasing size of our overall horsepower in our fleet on gathering, and the addition of electric motor drive. We believe these factors are very constructive to support margin expansion going forward.

Selman Akyol: Okay, thank you.

Operator: Our next question comes from Gabe Moreen from Mizuho. Please go ahead. Your line is open. Gabe Moreen from Mizuho, your line is open.

Bradley Childers: Gabe, you might be on mute.

Douglas Aron: Julianne, maybe let's put him back in the queue and go to our next question.

Operator: Certainly. Our next question will come from Doug Irwin from Citi. Please go ahead. Your line is open.

Doug Irwin: Hey, thanks for the question. Maybe just to start with a follow-up on CapEx, you called out the increase this year being tied to TOPS, and I realize you're still working through the '25 budget, but I'm just curious how we should think about the right run rate for the business here moving forward, if you could maybe talk about some directional gateposts around '25?

Bradley Childers: Yes, it's too early for us to really give guidance for 2025. We will give guidance early next year. What I would share is that when you look at our overall CapEx for the last couple of years, those levels, as well as our overall capital allocation approach, we've been very disciplined in investing in high-quality and high-return assets and driving profitability. With the TOPS acquisition, we know we're going to continue to benefit from that momentum and look to invest in this durable, profitable business going forward. So we'll be in a position to share more with you at the beginning of the year.

Doug Irwin: Understood. We'll hold tight for next year. Then maybe just to follow up on capital returns, obviously, test the buyback program this quarter again. Just wondering how you're thinking about the right mix, the dividend growth versus buybacks moving forward, if we can maybe see an acceleration in buyback activity here now that TOPS is closed?

Bradley Childers: When I outlined the capital allocation framework in the prepared part of the call, I was trying to emphasize that in the balance between all of these priorities, that what we see right now is an expansionary market ahead. So we do see an increasing call for CapEx to be devoted to investing in growth. And secondly, when it comes to measuring that against share buybacks, we are definitely not price insensitive. And so it's a function also of what we think is the internal value generation versus the price of the stock. So in measuring that, we look at our own internal investment opportunity to balance buybacks on the one side versus investing in the business on the other. And then finally, I got to point out that we have an incredible set of blue chip customers. They want our services, they want our equipment, and they want our people to support their growth. And we need to be there for them when they're calling on us to expand with them in their production.

Doug Irwin: Understood. Appreciate that detail. Thanks.

Operator: Our next question comes from Gabriel Moreen from Mizuho Securities. Please go ahead. Your line is open.

Gabriel Moreen : Okay. Sorry about that earlier, guys. Okay. So quick questions. I think the last call you mentioned about dry gas areas seeing some horsepower shifts. Just wondering, kind what the latest that you're seeing there? And I think some of your competitors and probably you as well have mentioned in the past about power provision in the Permian, not to use too much alliteration, being a challenge for deploying incremental electric units. I'm just wondering what your current read is of that situation.

Bradley Childers: So, Gabe, I think I got two questions in there. One, what's going on in dry gas plays? And number two, with the installation of electrical being limited potentially or gated by the expansion of power availability, what do we think about that? What are our commentary on that? Did I get the two questions correct?

Gabriel Moreen: Yes. Thanks, Brad.

Bradley Childers: Yes, thanks. So number one, dry gas plays, the market's actually pretty good. We actually saw an increment of growth in the Haynesville in the quarter. Nothing like what we see in the Permian, but definitely measurable, and we're happy to see that as gas production coming out of the Haynesville stepped up a bit. In other dry gas plays, candidly, I described the market as flat and otherwise showing evidence of long-term slow harvesting on which we're participating and still driving a nice operation and good profitability throughout our operations. 80% of the growth that we see in horsepower right now is in the Permian. So I just wanted to put the dry gas context in response to your question, but there's still money to be made for a very long time in several of these plays. That's one. And then on power being a gating item for the Permian electrification, we're absolutely seeing signs of that with several of our customers, and yet our order book for electric motor drive is substantial. And I'm going to point out that typically our customers only commit to contracting with us for units when they have their infrastructure plan in place. So for the most part, what we're seeing is still a strong order book for electric motor drive. Power is a gating item. Our customers are responsible for that. And for the most part, most of our customers are able to get their power in place ahead of our compression arriving on site.

Gabriel Moreen: Thanks, Brad. Maybe if I could just squeeze one follow-up on that last answer. It's a little bit of a roundabout way trying to ask about '25 legacy TOPS catbacks, but when you made the acquisition, was it really important to you to kind of preserve the slots that TOPS may have had with different fabricators to manufacture new units? And if you don't, for example, use those orders or keep that level of order book, do you end up losing that going forward and getting placed in the back of the queue? Sorry, long-winded question there.

Bradley Childers: I think I got it. Short answer, no. We were not, no part of the transaction was really driven by any supply chain concerns or need to expand our ability to acquire electric motor drive units. We don't have any doubt or any perceived limits on our ability to acquire the equipment that we need. On the other hand, the only caveat to that I would point out is that what we did acquire with TOPS is an excellent set of assets, great management team, superior field staff that understand how to drive electric motor drive, as well as a supply chain that has worked effectively and efficiently for that operation. And so while we are not limited, we don't believe we're limited on the availability of electric motor drive for us to acquire, we were happy to step in to the quality supply chain they also have.

Gabriel Moreen: Got it. Thanks very much.

Operator: Our next question comes from Steve Ferazani from Sidoti. Please go ahead. Your line is open.

Steve Ferazani : Morning, Brad, Doug. Appreciate all the detail on the call. I wanted to flip to the smaller side of the business, but really impressive margin as well in the third quarter, the aftermarket business, 26% plus gross margin. Anything one time or in nature or anything to do with mix or is there anything sustainable in terms of that type of margin, which I don't think we've ever seen in aftermarket before?

Bradley Childers: Appreciate the question and I appreciate that comment. There's nothing one time about the performance that we're seeing right now. So it's not noisy at all. It's a very clean set of results driven by the operations. On the mix, the improving margins do reflect an increasing mix of more service, which is higher margin compared to parts, which is comparatively lower margin. And third, what's really being reflected in this margin, I believe, is the quality of the team that we feel for our customers. Just like in contract operations right now, the value of a great set of field technicians, well managed to execute on projects, is reaping some reward from the marketplace because labor is very valuable. And so we're able to both do higher margin and higher quality work for our customers and pull through those results.

Steve Ferazani: That's helpful. Thank you. My follow-up, I just want to ask about when you made the TOPS acquisition, you talked about it being more cash flow accretive than even EBITDA accretive. And we're certainly seeing that. Your maintenance CapEx guidance, you really just went to the higher end of the range, even though you've significantly expanded the portfolio. When we think about the high grading of the fleet in the last three years, now you've added this younger electric motor drive fleet. Does that put a cap on your maintenance capex and provide you the opportunity to generate a lot more cash flow on that revenue?

Bradley Childers: Let me speak to the CapEx side of the question. And that is that because the TOPS fleet is both electric motor drive and younger, that will be basically accretive to our ability to save on a per horsepower basis on maintenance CapEx going forward. So the benefit of that cash flow that you're citing will accrue to us over time for sure. The only caution I throw out and balance that off is that we just went through a significant inflationary period over the last two and a half years, three years. And the impact of that inflation is something that we're absolutely seeing come through in our overall parts spent. And so now we have maintenance activity ahead that's going to have to account for that inflationary pressure that is going to come through in maintenance CapEx. Needless to say, we are aggressively looking to mitigate that with price increases as well as great execution on those projects. I'm just giving the heads up that it's hard not to see that inflationary pressure come through in the cost of maintenance CapEx, which doesn't have a direct revenue offset on the income statement. So absolutely, we expect the TOPS acquisition to be beneficial to cash flow for CapEx, as you pointed out. And we also see, however, inflationary pressure coming through on CapEx differently than we've seen in prior periods.

Steve Ferazani: Very helpful. Thanks, Brad. Thanks, Doug.

Bradley Childers: Thank you.

Operator: Our last question today will come from Blake McLean from Daniel Energy Partners. Please go ahead. Your line is open.

Blake McLean : Thank you very much. Good morning. A lot of good information already shared, but I thought maybe I'd ask one kind of bigger picture question. And it's around the opportunities you're seeing in power demand growth. We agree with you guys that it's very early innings here. Midstream operators continue to talk a bunch about the growing opportunity set. And I was wondering, could you just talk a little bit about how you work with those teams to explore those opportunities and kind of how much visibility that gives you guys as you look out over the business over the next X number of years?

Bradley Childers: Well, as you know, we don't directly provide the power. And in fact, the customers typically procure the power. So we're one step removed first just on the procurement side. And then second, to address your direct question, in looking at the increased power demand coming out of data centers and AI, what we do on that market is much like what we do for the LNG market. And that is try to follow the market demand by project, try to understand which customers' gases are likely to be sourced to support that project, and then ensure that we're partnering as well as we can with the customers that are going to participate in that production. The same thing is true on the power side. We're watching the projects as they develop as best we can, trying to understand which customers are positioning to supply the gas, and ensuring that we have great relationships, partnerships, and effective customer service with those customers. So we're one step removed from directly being able to give you more commentary on that, just given our position in the marketplace.

Blake McLean: Got it. Thanks. And then the other one I had for you guys was really more specific on the TOPS acquisition and ongoing integration there. Anything you would share with respect to more details on lessons being learned along the way, synergy capture relative to expectations, anything like that? I know it's early, but...

Bradley Childers: Sure. I shared in my commentary, the prepared commentary that the integration is going well. There are no negative surprises, and in fact, the more we partner with the TOPS team and integrate with their operation to the Archrock platform, the more optimistic I am about the long-term benefits of this acquisition to our shareholders, our customers in Archrock. I'm going to add that when we approach the acquisition from day one, we add a compatible culture, operating philosophy, a very similar approach on investing in technology that is telemetry, communications, and automation to drive our businesses. And we're finding a lot of opportunities in how we get to exploit that kind of attribute that we both shared to drive better service. And I'll also point out that we've done a few acquisitions over the years, Elite in 2019 and Mid-Con back in 2014, and now TOPS in 2024. And we have had a track record of very successful integration of these operations into the Archrock platform. I believe this one will be no different and maybe better than any of the prior acquisitions.

Blake McLean: Thanks for that. And one just more specific one there, can you talk just a little bit about the unique market drivers in the gas lift market? Have you guys seen changes in operator behavior as it relates to gas lift versus other artificial lift options? Anything you would share there?

Bradley Childers: No, we've not seen any change in that dynamic. We still see strong demand for compression for use as gas lift, and we think that it is the dominant approach, especially in the Permian market today.

Blake McLean: Good. Thank you all very much for the time.

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

Bradley Childers: Thank you everyone for participating in our call today. Archrock's underlying business performance remains outstanding, and we're excited about the TOPS transaction, its integration, which we believe will create substantial value for our shareholders. I look forward to updating you next quarter on our progress. Thank you everyone.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.