Welcome to Exterran Holdings and Exterran Partners Third Quarter 2015 Conference Call. At this time I would like to inform you this conference is being recorded and that all participants are in a listen-only mode. We will open the teleconference for questions after the presentation. Earlier today Exterran Holdings and Exterran Partners released their financial results for the third quarter 2015. If you have not received a copy, you can find the information on the Company's website at Exterran.com. During today's call, Exterran Holdings may be referred to as Exterran or EXH and Exterran Partners, as either Exterran Partners or EXLP. Because EXLP's financial results and positions are consolidated into Exterran, the discussion of Exterran will include Exterran Partners, unless otherwise noted. The term "international" will be used to refer to Exterran's operations outside of the U.S. and Canada and the combination of U.S. and Canada will be referred to as North America. I want to remind listeners that the news release issued this morning by Exterran Holdings and Exterran Partners, the Company's prepared remarks on this conference call and the related question-and-answer session include forward-looking statements. These forward-looking statements include projections and expectations of the Company's performance and represent the Company's current beliefs. In addition this conference call may include forward-looking statements regarding Exterran Corporation. The company is to be spun off from Exterran Holdings into a separate publicly traded company, that will consist of international contract operations, International aftermarket services and global fabrication businesses of Exterran Holdings. Various factors could cause results to differ from those projected in the forward-looking statements. Information concerning the risk factors, challenges and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in the Company's press release, as well as Exterran Holding's Annual Report on Form 10-K for the year-ended December 31st, 2014. Exterran Partners Annual Report on Form 10-K for the year-ended December 31st, 2014, Exterran Corporation's registration statement on Form 10 and those set forth from time to time in Exterran Holdings. Exterran Partners and Exterran Corporation's filings with the Securities and Exchange Commission which are currently available at Exterran.com. Except as required by law the Companies expressly disclaim any intention or obligation to revise or update any forward-looking statements. Your host for this morning's call is Brad Childers, President and CEO. I would now like to turn the call over to him. Mr. Childers, you may begin your conference.

Thank you, Operator. Good morning everyone. With the separation of our Company closing later today, the format of today's call will be different compared to prior calls. We will discuss our historical results for the third quarter as a combined company and discuss our outlook as two separate companies. Therefore today I'm joined by the future management team for Exterran Corporation andrew Way, who will be CEO of Exterran Corporation and Jon Biro, who will be the CFO of Exterran Corporation. Also joining me is David Miller, CFO of Exterran Partners, who will become CFO of Archrock and Archrock Partners. Let me start off by providing the agenda for today's call. I will begin with an update on the separation transaction, an overview of Exterran Holdings as a combined company and Exterran Partners' third quarter results, as well as comments regarding the current and future market conditions for the Archrock businesses, then Andrew will provide his market outlook for the Exterran Corporation businesses and finally, Jon and David will provide a more detailed commentary on Exterran Holdings and Exterran Partners third quarter results, as well as guidance for the fourth quarter for Archrock and Exterran Corporation. With that introduction, let's start with an update on the separation transaction. In November 2014, we announced our plan to separate Exterran Holdings into two industry-leading infrastructure companies. Exterran Corporation will be comprised of our international services and global fabrication businesses and Archrock will be comprised of our U.S. contract operations and aftermarket services businesses. I'm pleased to say that we expect to close the separation transaction later today. The closing of the transaction represents the successful culmination of more than a year of hard work by Exterran employees, as well as the Company's legal and financial advisors. I want to especially thank Exterran…

Thank you Brad. Good morning everyone. It is good to be on my first earnings call with Exterran. Over the past few months I have had the opportunity to travel to many of our global operations, meet with customers, investors and have gained an appreciation of the business and the great group of employees that we have. As many of you know, I spent almost 20 years with General Electric in various technology services businesses, most recently leading the drilling and production business within GE Oil and Gas. I was attracted to this role primarily based on my understanding of Exterran's position in the market place, its global presence, legacy and international contract operations and product depth. I believe we have a terrific future and I'm looking forward to leading the team. Let's look at the outlook for Exterran Corporation's business segments. First our international contract operations business. In the third quarter, this business which provides the stable foundation continued to perform extremely well. Revenues in the third quarter of 2015 were down just 1% compared to the second quarter of 2015, while profitability increased to 64% gross margin. The profitability increase was supported by continuing cost reduction and focused productivity initiatives. we expect additional cost reductions over the next few quarters. The stability demonstrated is a continuation of the dynamics that have characterized this business for quite some time. Projects come to the end of their initial term and are renewed and others roll off and new projects come on to replace them. In the third quarter, the Latin America team continues to execute well, making significant progress on various installations and start-ups due in the first half of 2016. The large land based Brazilian project receiving gas from the offshore Manatee Field with 28,000 horsepower and associated gas…

Thank you Andrew. Exterran Holdings EBITDA as adjusted of $155 million, on revenues of approximately $650 million for the third quarter. Sequentially compared to the second quarter of 2015 EBITDA as adjusted and revenues each decreased modestly by about 5%. As you saw in our release, we also reported diluted net loss from continuing operations attributed to Exterran common shareholders excluding items of $0.45 per share in the third quarter, compared to net income of $0.25 in the prior year period. The loss in the third quarter 2015 was primarily driven by a $26.7 million non-cash currency loss associated with the remeasurement of intercompany debt of our Brazilian subsidiary. The currency loss is included in other income on our income statement and had an adverse impact of $0.39 per share during the quarter. Now turning to our segment results. Importantly, even during this period of limited visibility, due to the overall market conditions the financial performance of each of our segments was generally in line with the guidance we gave in our second quarter earnings call. North America contract operations revenue came in at $192 million in the third quarter, down 3% compared to the second quarter, but flat over the prior year quarter. Gross margins were strong at 59%, despite the lower revenues due to lower operating costs due to the lower lube oil and fuel expenses. In our North America contract operations business growth capital expenditures were $29 million in the third quarter, down compared to $42 million in the second quarter. Maintenance capital expenditures were $21 million, compared to $21 million in the second quarter. In our international contract operations business revenues were $114 million in the third quarter, down 1% compared to the second quarter and down 8% compared to the third quarter last year. As…

Thanks, Jon. Exterran Partners had solid operating results in the third quarter. Exterran Partners EBITDA as further adjusted was $78 million in the third quarter of 2015, compared to $83 million in the second quarter of 2015. Our EBITDA as further adjusted decreased this quarter, due in part to a $2 million swing in other income from the second quarter to the third quarter, primarily related to gains on sales of assets. In addition lower average operating horsepower contributed to lower EBITDA. Distributable cash flow was $45.2 million in the third quarter of 2015, compared to $48.3 million in the second quarter of 2015. The decline to distributable cash flow was largely attributable to the lower EBITDA in the quarter. Maintenance capital expenditures in the third quarter were $15.7 million, as compared to $15.3 million in the second quarter of 2015. Our distributable cash flow coverage was 1.14 times in the third quarter, down from 1.24 times in the second quarter, primarily as a result of modestly lower distributable cash flow in the third quarter. Third quarter ending operating horsepower decreased sequentially by 23,000 horsepower, to approximately 3.11 million operating horsepower. Revenue for the third quarter was $163.3 million, as compared to $167.8 million in the second quarter. Gross margin was 61% in the third quarter, flat compared to 61% in the second quarter and up approximately 100 basis points from Q3 2014 levels. Our strong third quarter gross margin percentage is attributable to our continued focus on costs, as well as lower lube oil expenses. Cost of sales per average operating horsepower was $20.48 in the third quarter, down 2.9% compared to the second quarter of 2015 for the same reasons mentioned above. SG&A expenses were $20.7 million for the third quarter, relatively frat with second quarter levels. Net…

Great. Thanks David. I know this has been a longer discussion than usual, given the transaction that's pending and the amount of material we wanted to communicate today. Let me close with just a few thoughts. With the culmination of this separation transaction, also comes the reality of the end of current working relationships for many of us, as we move to Exterran Corporation and Archrock. This aspect of the transaction makes this a challenging moment for me personally. I have been with Exterran for 13 years and have had the privilege of being CEO for the last four. For the entire time my focus has been on how to grow and develop the best Company we possibly could. This separation transaction is the culmination of much of that work, as we will be splitting the Company we have been striving to build. It is a little sad to be leaving some of the friends, colleagues and stakeholders I have worked with over my tenure. So to all of the Exterran employees, customers, vendors, shareholders, bankers and analysts, thank you for the opportunity you have given me and thank you for your support and trust. But this is not really a true end. It is the beginning of a new journey for me and for both companies. I'm excited about the prospects for both Archrock and Exterran Corporation. It is because I completely believe this transaction is in the best interest of our Company, our customers, our employees and our shareholders, that I have supported getting it to this point and I could not be happier that we're finally here. My goal going forward is to make Archrock into the best company it can be and I'm sure Andrew feels the same way about Exterran. Good luck to those going with Exterran and please stay in touch. For those coming to Archrock, I look forward to continuing to work with you and building a great operation at Archrock. Thank you. Now at this point, I would like to turn the call back over to Jon for a clarification and then we will open it up for questions.

Yes, thanks, Brad. Just to clarify Exterran Corporation's pro forma liquidity as of September 30th would have been $299 million, excluding transaction expenses. So with that, we will turn it back over to the operator for questions.

[Operator Instructions]. And our first question comes from Mike Urban with Deutsche Bank. You may begin.

So obviously the culmination of a lot of work here, both in getting to this point from a restructuring standpoint and then the actual transaction. Don't know if you have had a chance to breathe, let alone think about going forward, but a question for both companies, now that a lot of these moving parts are hopefully settling in and behind you, what is the focus going forward? What are some of the things that the company together didn't do as well as they could have or could have better exploited from a market opportunity standpoint? And what are those opportunities and how do you plan to take advantage of them?

Sure, so look, thanks for the question, Mike. I will go first and speaking on behalf of Archrock and then I will let Andrew comment on Exterran Corporation. Thinking about Archrock going forward, this is probably not different for the whole company, but we do have a challenging environment that we have to navigate through. And our focus during this immediate phase given the market environment we're in, is going to be continual focus on great execution, cost management, capital preservation and positioning the companies well and positioning Archrock well for what will be an eventual upturn. On the fundamentals for the Archrock business however, we're also optimistic that we will continue to see natural gas production grow in our business and so our focus on horsepower growth, as we add some 17 billion cubic feet a day of natural gas production over the next five years, is going to be the lynch pin for our organic growth. We also look at a market that has some consolidation opportunities in it. With our customers and in the marketplace we will be looking for those to help deliver ultimately growth and distributable cash flow. It will be the mantra and the focus for Archrock going forward. We see those as great opportunities to capture some of the growth.

I think a lot of the cost comments are similar for Exterran. I think in the short-term as I mentioned, we got to continue to build out the projects that we're currently executed in various countries and really build upon the stability of the ICO business, the long term fee-based contracts that gives us an opportunity to move into those markets with our product business. And as Jon mentioned, really maintain our discipline in product sales and make sure that we continue to focus and capture the opportunities that we can. So we have some short-term challenges in that market, but clearly some longer term opportunities as we go forward.

And sticking with the Exterran Corporation piece, the ICO business is pretty consolidated while the product sales business I think of as more fragmented. What do you say is better opportunity? You have a high market share and Iko is it more just expanding the geographic footprint, moving into additional markets or do you see some consolidation opportunities on the product sales or both? I would just be interested on either of your views there?

So, Mike, I think on the product sales we have a terrific presence in North America. We have great product offerings where we put products together to provide solutions to our customers. And where those products come together in those applications, we're a critical part of our customer's needs. As we think of the global opportunities, the success we have had in certain markets, our focus is going to be continuing to put the sum of the parts together, continue to focus on solutions, selling and working through the current portfolio and making sure that we're designing and continuing to drive efficiencies for what's really important to our customers coming out of this cycle. We have a lot of focus today internally on availability and reliability of the equipment. So just continuing to drive more of that into the operations and then I certainly think that we have opportunities over time to grow in both countries we're operating in today, in international contract operations and explore new geographies.

And our next question comes from [indiscernible] with Credit Suisse. You may begin.

So just on EXLP's distribution growth and the current distribution coverage, I see the current yield of EXLP in excess of 11%, it is clear that the markets are not valuing the distribution growth which you guys are providing. So how do you think about the tradeoff between maintaining the distribution growth going ahead, versus possibly building excess coverage or bringing down leverage?

Sure. It is a tough balance. Number one, I'm not sure that on a short-term basis we can evaluate the current yield in this market environment and read into that communication from our investors as being so direct that they are not valuing the growth. I noticed that a lot of MLP's yields are up in this environment, including ours and so it is hard to single point that and conclude that investors are going to under value the growth and yield. That said I think over a longer term we do have to pay attention to where the yield settles and evaluate whether or not our capital is best deployed for that continued growth of the distribution at EXLP or whether it would be better valued elsewhere, including investment or debt repayment. It is a very fair question in looking at the balance and not anxious to conclude too much in this market environment, given the overall position of yields throughout the MLP business.

Sure and as I look at the asset utilization levels in 3Q 2015, how should I think about that number going ahead into next year?

To be clear it is the utilization percentage that we have at 91% at EXLP and 84% at Archrock that you are asking about?

Yes, specifically at EXLP?

Yes, so the challenge in this environment, as I tried to highlight earlier and Jon reiterated too, is the visibility going forward is definitely impaired right now. It is impaired for us. It is impaired for others in the industry. So as we think about utilization, right now we're happy with how resilient the operation has been to both hold up utilization and our revenue numbers, but in this current market environment, we could continue to see basically the type of erosion that we have had for the last two quarters, until we see a bottoming out of the market and/or a change in the dynamic.

Okay. And the final one from me, the 15% growth which you guys mentioned about ARock, how much of that is predicated by the underlying growth of the distributions from EXLP?

So some of it is predicated, obviously it is a long term guidance of two years on our 15% growth. So we have assumed some growth in the EXLP distribution in that. We also have other businesses up at Archrock that we can use to help supplement that distribution growth if necessary. But was we've said before, we would like to keep the distribution tethered pretty well to the distributions, the dividend tethered pretty well to the distributions that we receive up from EXLP to Archrock. From Archrock Partners to Archrock. So we don't give guidance on our planned distribution growth at Exterran Partners, so I can't answer that question fully. But I can say that there is some backed in there.

And our next question comes from Blake Hutchinson with Howard Weil. You may begin.

First I guess for Andy and Jon, on the international guide, the $113 million to $118 million and top line, is that range fairly, pretty much highly dependent upon when you actually start recording on the Brazilian project in 4Q? That is part one. And can you just remind us what you have coming on in the first half of 2016 qualitatively, if not quantitatively out of backlog?

Yes, it is dependent upon the Brazilian project as you mentioned coming online, but we're confident it will be online and then the backlog, we have one more project in Brazil coming online, that will be helpful from a revenue standpoint. Excuse me, that project is in Bolivia, I misspoke.

Okay. One the product sales business, the mention of askew and negative mix for 3Q, I take that where we stand in terms of margin differentials, that is a comment on the fact that you ran through more North American compression equipment in terms of output in 3Q, is that the way to think of that?

No, I wouldn't say that, it is just the mix of the various product lines comes together. So it is not compression specific.

I guess just some commentary around the look from the ending backlog figures that production and processing is the real strength, in terms of order flow and at the same time you mentioned that North American International's split was 50/50, I guess I would have thought that especially North America, that production and processing might be a little bit more completion sensitive, is there something else at work there that we should be attentive to, in terms of the resiliency of that business line? Specifically North America?

I think a couple of things, first of all, as Brad mentioned in terms is visibility we're also seeing some very difficult visibility in the product sales. I would say bid activity and just general activity in the company has been okay, it has been holding up. There have been pockets of growth and whether that is in the international market or also in North America, we kind of highlighted last week when we had a discussion in the equity story, that we have seen a steady level of bookings, albeit certainly lower than last year, but predominately in the SCOOP, parts of the Permian, Marcellus. We have seen some nice steady opportunities in that area, so certainly are processing and treating business isn't generating the projects that we saw last year, but we're going to continue to focus on the opportunity that we have in front of us.

Just one last one for Brad, I just want to make sure that we're characterizing what visibility we do have correctly, when you refer to recent levels of stop activity and how that melds into your guidance for NACO, are you simply saying that, when you say recent levels, are you referring to the last couple of quarters experience, I think you said in a previous answer or is it more what we saw exiting 3Q that we should be thinking of perhaps accelerating or just kind of continue to discount what we have seen the last couple of quarters?

Sure. Blake, I think that you have got to look at the performance in the year overall, it is too tough, we're looking at 30,000 to 40,000 horsepower changes net in a quarter, on a 3.6 million horsepower base. So it is stability that we're very happy with overall, but it is really hard to get to scientific and too close to call on the numbers that as such a small numerator over the denominator. So I would look at the year overall.

And our next question comes from Andrew Burd with JPMorgan, you may begin.

Post separation how do you view M&A, do you view it any differently and what is the potential to use general partner currency in support of growth at the underlying partnership? And I'm sorry, I wasn't clear and focused on EXH and EXLP?

Yes Andrew, I did pick that up. I think that the nice thing that we have about this structure now with Archrock and Archrock Partners, is that it does give us potentially multiple equity currencies to use going forward. That said, we will be highly selective in how we do that, just to make sure that we're buying and accumulating accretion and not dilution and how we do going forward. But if and when it was useful and cost effective, we would not hesitate to use equity at either side or at either level.

And in terms of drop downs in the current environment, is assuming that leverage stays constant and cost of equity were to stay constant, what types of things have you thought about for Arock to do, to enable a drop-down to happen, whether it be lower multiples or to take equity or cost caps or something like that?

We have face this situation before and so rather than talking about what we do going forward, I can just refer back to what we have done in the past and we have done kind of all of the things that you mentioned, I think that the one that we really would like to keep off of the table is cost caps. However if you talk about doing a drop-down that takes a longer term, in terms of valuation takes a longer term perspective on what the units should be worth, versus where they are currently, we have done that. We have done, our last drop-down was for all equity, so there are ways that we can manage completing a drop-down in the current environment, if that is the direction that we would go.

And clearly the underutilization is largely upstairs and the utilization at the partnership remains pretty robust. How do you think about in the effort for EXH to become a pure play or a more pure play GP holdco, how do you think about eventually sending some of those utilized units down to the partnership, how would a drop-down of those units be structured or would those ever be moved to the partnership if they weren't currently under contract?

Sure. Look first two thoughts, one is that even though idle capacity is not at Archrock, it is larger than at Partners. In the past we have done drop-downs predominately by customers, so that included operating horsepower and little idle. Although we have added idle to a few of the more recent drop-downs. Which means that it is the natural consequence that more horsepower would reside at the parent level. And the parties, that is both Archrock Partners and Archrock are totally agnostic as to how they source compression. So that compression provides access for the overall fleet, so I really think it is still more viable to consider that both utilization and then idle capacity of the two entities on a consolidated basis, because we operate the pool as one fleet. And then second, when we think about the future, we will proceed with the sale of assets or the transferred assets and drop-downs from Archrock to Archrock Partners, but we think about it in a way that has to take into account the market environment we're in, what our particular capitalization objectives are at Partners, as well as at Archrock and also the intent to ensure that we preserve the tax free nature of the spin transaction which also poses restrictions on asset transfers.

Then last question from me on operations, per unit revenues and per unit costs I think came in moreso than they have sequentially over the last few quarters, is that a mix shift thing or is that part of a trend and an acceleration of declines that we can expect going forward?

It is interesting, we did have a small mix change, where we have on average slightly larger horsepower as we closed the third quarter, than we had at the end of Q2 and we have seen that trend continue as we started more large horsepower and as we have seen stop activity and well head. So it is true, we have seen a bit of a mix shift, but I will tell you that it is really not coming through in the revenue per horsepower or cost per horsepower numbers, as strongly as the quarter might suggest. What we really saw on the top line is a combination of freight expense being a major driver and a little bit of moderation on revenue per horsepower through mix and price, but the main driver was less freight. And on a sequential basis, that is the main one on a quarter over quarter basis. And on cost, it really has been just the effect of great cost management and good pricing on commodity fuel stocks, lube oil and fuel. So those are the main drivers on the revenue per horsepower and cost per horsepower.

And just a follow-up on the costs, the lubricants, is that something that if commodity price stays constant, is that something that you expect to wring out some more cost savings with or have we pretty much hit the 9th inning with that?

Yes, I think that without a further reduction which I'm not really hoping for, we're slightly hedged on our exposure to commodities, though we would like to see good industry activity. Yes, I think that it is not going to go lower on a cost per horsepower basis, that one could be there. But the benefit that we get is the recurring benefit of the current price environment going forward.

And our next questions comes from James West with Evercore ISI.

This is [indiscernible] filling in for James. I have a question, I hate to go back on the pricing for drop-downs and what not, but we have seen a pretty wide range, in terms of the pricing that you guys have done in drop-downs over the last five years. And I was just wondering if you could really break down what the drivers were for that, is it where we're in the market, the contract coverage, how it is financed? It would be really great to have like a view of high level what you guys look at? And then how you look at the premiums possibly that you pay on a third party type of transaction? The price that you pay for MidCon's obviously a lot more than what you did last, this past year? So just would like to hear what you are thinking about when you evaluate these options?

This is David Miller. To start I'm a little surprised to hear that you said there is a lot of variability in the valuations over the last five years, we did do one drop-down that was at a slightly lower multiple which was reflective of the current environment, where we were seeing a lot of horsepower attrition during that period, so we priced it one, because the market conditions were unfavorable at the time, so we priced it a little bit more attractive, taking into consideration what the DCF valuation was looking forward, in an environment where you are losing horsepower. Beyond that, our drop-downs have been in a pretty tight multiple range I would say, we don't give actual multiple ranges, but when we do the math and we do it on an EBITDA multiple basis, so that is pricing the operating horsepower that we move down, it is reasonable consistent. And the variations that we have shown is reflective really of market conditions and when I talk to market conditions, I'm talking about what the prospects for the compression business are at the time we're doing the drop-down looking ahead. And frankly, when Exterran and now Archrock is taking back units, where the units are trading, because that has an implication for what the valuation of the businesses are or where the business is at the time of the drop-down. And the moving onto third party acquisitions, those are usually at a slightly higher multiple than what we're paying on our drop-downs, but not always and the rationale for that is because when we consolidate a business, we get some synergies that we don't get when we do a drop-down. And so we looked at the mid-Con, if you look at the mid-Con acquisitions. I think what you referenced, we paid perhaps from the math that you guys did, we paid a slightly higher multiple than we paid on our drop-downs, but when we look at our math, it comes out pretty good acquisitions for us and pretty comparable, because of the synergies that we get when we combine them with our operation and bring them onto our platform.

And actually my last question is for Andrew. I was really interested in terms of what sort of customer demand you are seeing in terms of larger fabrication type projects, where has there been any sort of shift in terms of needing higher spec equipment or more technology, where your background at GE really can fulfill a need there that we didn't really consider before?

I think in this environment, Samantha, customers are clearly wanting to make sure that whatever capital equipment they purchase or OpEx, that it is put to the right use and so words like availability and reliability is quite common and the team has done a real nice job in our ICO business and in the aftermarket services business focusing our customers on programs that we have developed, whether it is pushing maintenance cycles in between events or whether it is just productivity in our customers operations. So as that comes into our product family, I certainly see that as an area to focus on over the next six months, 12 months, as we come through this cycle and make sure that we're listening to our customers and making sure that we're applying the right internal dollars on application engineering and focusing our teams to meet our customer's needs. So I think that there is more that we can do there and as I said at the beginning, I'm excited about the opportunities that I see in that space to provide that level of service going forward.

And our next question comes from Blake Hutchinson with Howard Weil.

I just wanted to check in on a couple of numbers, to make sure that we come away with the product sales guidance for 4Q was inclusive or non-inclusive of potential sales to Arock?

It includes, it includes sales of Archrock.

And I think there was a paper shuffle on one end, the margin guidance was 10% to 12% Jon?

Correct.

And we have no further questions at this time. I would like to turn the call over to Brad Childers for your final remarks.

Great. Thank you everyone. Thank you for your interest in Exterran Holdings, now Exterran Corporation and Archrock and the two companies look forward to talking to most of you again in our separate forums when we close our fourth quarter. Thank you.