Good morning, welcome to Archrock Inc. and Archrock Partners LP Fourth Quarter 2015 Earnings Conference Call. Earlier today Archrock and Archrock Partners released their financial results for fourth quarter 2015. If you have not received a copy, you can find the information on the company's website at www.archrock.com. During today's call, Archrock Inc. may be referred to as Archrock or AROC and Archrock Partners as either Archrock Partners or APLP. Because APLP’s financial results and positions are consolidated into Archrock, the discussion of Archrock will include Archrock Partners, unless otherwise noted. I want to remind listeners that the news release issued this morning by Archrock and Archrock 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. Various factors could cause results to differ materially 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 in the Archrock formerly Exterran Holding's Annual Report on Form 10-K for the year ended December 31, 2014 and Archrock Partners’, formerly Exterran Partners, Annual Report on Form 10-K for the year ended December 31, 2014 and those set forth from time to time in Archrock and Archrock Partners’ filings with the Securities and Exchange Commission which are currently available at www.archrock.com. Except as required by law, the companies expressly disclaim any intention or obligation to revise or update any forward-looking statements. The results of Archrock’s former global fabrication and international services businesses which were spun-off in the fourth quarter of 2015 have been moved to discontinued operations in Archrock's SEC filings and press releases. And your host for this morning's call is Brad Childers, President and CEO of Archrock. And I would now like to turn the call over to Mr. Childers. You may begin.

Thank you, operator. Good morning, everyone, and welcome to the first Archrock earnings call. With me today is David Miller, CFO of both Archrock and Archrock Partners. This morning I'll review our 2015 highlights, provide more color on our full year and fourth quarter results and discuss our view of the market and outlook for our businesses. Following David’s discussion of our financial results and guidance, we will open up the call for questions. First, a review of our full year highlights. Archrock delivered solid operating performance and executed on key initiatives in 2015 in spite of difficult market conditions throughout the year. From an operational standpoint, Archrock grew EBITDA as adjusted by 13% over 2014. Archrock’s operations maintained solid gross margins of 59% throughout the year. Our AMS business also held up very well on both revenue and gross margin. While we prefer lower leverage at APLP, overall we had ample liquidity and a relatively strong leverage position. For the year ended December 31, our debt to EBITDA leverage at Archrock was 1.3 times and our leverage at Archrock Partners was 4.5 times. As of December 31, we had $174 million of liquidity available at Archrock and $320 million available at Archrock Partners. We continued to generate substantial cash flow from our operations. Archrock Partners’ distribution coverage remained solid throughout the year averaging 1.24 times in 2015 and 1.17 times in the fourth quarter. Based on our performance for the fourth quarter, Archrock paid a quarterly dividend of $0.1875 per share and Archrock Partners maintained its quarterly distribution of $0.5725 per limited partner unit. We structured our businesses to payout to our investors a substantial portion of our distributable cash flow. Unitholders and shareholders have invested in us with the expectation that we will return capital to them in…

Thanks, Brad. This quarter's financial results are fairly noisy as a result of the separation transaction and a couple of large non-cash impairments. First, let's look at a summary of the quarter and full year results for Archrock and Archrock Partners, including some of the charges in the quarter and finish with first quarter 2015 guidance for Archrock. Archrock delivered solid fourth quarter results. Archrock generated EBITDA as adjusted of $86 million for the quarter compared to $91 million in the third quarter. Revenues were $241 million for the fourth quarter compared to $249 million in the third quarter. We also reported net income from continuing operations attributed to Archrock common shareholders, excluding certain items of $0.08 per share in the fourth quarter compared with a loss of $0.15 per share in the third quarter. For full year 2015, Archrock generated EBITDA as adjusted of $373 million, up 13% from 2014 EBITDA of $330 million. The full year increase in EBITDA was driven primarily by the full year contribution of our 2014 MidCon acquisition and organic growth during the course of 2014. By operating segment, our results were generally in line with the guidance provided in the third quarter call. Contract operations revenue came in at a $189 million in the fourth quarter, down slightly from a $192 million in the third quarter, at the high-end of our guidance range. Gross margins remained strong at 59% due to aggressive cost management. The decrease in revenue was primarily due to the operating horsepower declines noted by Brad. For the full year 2015, contract operations revenues of $781 million grew 7% as compared to 2014. Gross margin in 2015 increased 200 basis points year-over-year due to strong cost management, lower lube oil and fuel costs and the full year impact of the…

Thanks, David. Overall, our best assessment is that in 2016, we will continue to see the trends that we have seen in recent months. That said, our company remains financially sound and our business well-equipped to navigate this market. We have an experienced management team fully capable of leading Archrock through the industry’s cyclicality. We know the best course of action at this time is to focus aggressively on reducing and managing our costs, while maintaining the fundamentals of operating safely, staying close to our customers and providing excellent service. We will emerge from this downturn lean, focused and ready to meaningfully participate in what appears to be a bright future for US natural gas production. With that, I would like to turn the call back over to the operator and open it up for questions.

[Operator Instructions] And our first question is from Andrew Burd from JPMorgan.

Hi, good morning. Congratulations on the solid coverage in the fourth quarter. I didn’t catch the maintenance CapEx number at APLP, can you - what was that again?

About $55 million.

Okay. And that’s roughly flattish or maybe slightly down year-over-year if you normalize for the acquisition drop-down, how should we think about that?

I think that it should be on the lower end of the $55 million range.

Okay. And on the growth, the newbuild CapEx of $30 million to $50 million, how much of that is committed at this point versus kind of more discretionary?

Yes, so as we dialed down growth CapEx aggressively over the quarters, the tale [ph] that was committed that came into Q1 was in the $25 million range.

Okay, that’s helpful. And then this is a big picture question, but at APLP specifically, realized that it must be difficult from your perspective to make transformative company decisions when leverage and coverage still shows solid breathing room. But with the market not crediting the solid business and with a lot of uncertainty still ahead, what type of triggers would prompt you to revisit APLP distribution policy or pursue some other type of corporate restructuring with AROC, whether it would be a combination or cost caps like you've done in the past or any clarity on just kind of how you think about that and what would prompt the decision like that to be made?

Sure. What I can tell you is what our overall strategy is and how that plays out in to answer the question, Andrew. There is not exact clarity on what circumstances would cause the type of action you described, but what we look at in the market right now, number one, I don't know how long this lasts and how well our business holds up in the phase of this downturn, I'm going to point out that we're a later cycle participant in the downturn, but to date, our operation has held up extremely well and that's through what was a transformative transaction in Q4, which is not that far behind us and we're still just moving off of the impact to that. So what we look at in 2016 is to stay really close to the market, understand what we can get this new streamlined operation to do, work aggressively on taking out our costs and assess the impact on that and how well it bolsters our performance and cash flow. But we're going to focus on those things that we can control which is cost, the stable business that we have, living within our cash flow and protecting our balance sheet. Those will be the factors that go in to that assessment as we go through the year. But it's too early to step back and think about major mitigation when we believe we have several levers ahead of us, including as you pointed out some support coming from AROC to APLP, which is definitely in the cards and on the table. So we have a lot of cost management, operations management and levers to look at to bolster the strength and the performance of APLP.

And our next question is from TJ Schultz from RBC Capital.

Hi. This is [indiscernible] just stepping in for TJ Schultz. I just had a - I guess you kind of addressed the whole distribution outlook at APLP in the last - with the last question, but I guess with - do you guys have any update on the Venezuela receivable and your ability to lower debt at AROC level? And second, I guess, you guys guide to 70 million maintenance CapEx, so I guess that implies the 55 million APLP, about 15 million at AROC, so is that right and that's it for me?

Let me address the Venezuela question first and then maybe you can repeat the second part of the question. We're aware that Venezuela has been struggling for, it's having difficulty right now, but to date, they have continued to make payments for us to us and as we mentioned on the call, they paid $5.2 million in January on the receivable. The remaining amount of receivable due is about $89 million and we are hopeful that they will continue to prioritize payments due from settlements in International Court of Arbitration about some of their other payables. So that's Venezuela and then could you repeat the second question, I'm sorry I didn't hear it.

Yeah. And I was just wondering for maintenance CapEx, for full year ‘16, are you expecting 15 million or so at AROC alone?

For maintenance CapEx at AROC alone, that's about right.

Okay. All right. And are there any other levers you guys can pull it to lower debt at AROC level or are you just kind of going on to lay on Venezuela receivables kind of come in and just funded or distribute cash from operations?

Yeah. So cash flow from operations, the Venezuela payment, there is an agreement with Exterran Corporation that if they refinance their $245 million term loan, they would pay us $25 million there. So those are the main drivers of reducing debt at AROC.

Our next question is from Mike Urban from Deutsche Bank.

So just recognizing that, I know you never comment on kind of the timing of dropdowns, but more just the broader market environment right now, obviously, a couple of times for the energy space broadly speaking and the MLP based specifically and under a lot of pressure. So is the dropdown even something that' feasible at this point, given the market and given valuations. And I guess if so, you've got a kind of situation, where I mean you've said in the past that you like evaluation in terms of you getting APLP units, but again is that something that’s feasible today?

It's definitely more difficult with equity valuations where they are today since the dropdowns would likely need to have a significant component of equity as part of the consideration in order to help the leverage situation at Archrock Partners. However, in the past, we have executed dropdowns and valuations that are reflective of the current market environment and taking a longer term view of the value of the unit price. So it is possible, any transaction would be subject to the approval of the Conflicts Committee and the AROC and APLP boards. But as you said, we don't really comment on timing of dropdown.

Okay, so it's not something that you would preclude even, give order valuations today?

Mike, it's Brad. It's definitely not off the table, as David said, it's just more challenging in this environment, but what I do want to emphasize is that for AROC, we clearly understand the picture and the value, the cash generator that exists in APLP and we will be constructed in thinking about the leaders that we can pull to support APLP, earning what we do in APLP, it's in a long-term interest to make sure - it's in the long-term interest of AROC to make sure that the entity remains strong from a balance sheet perspective and able to generate the cash flows that we’ve seen historically.

Thank you. And on the cost side, you have done a good job in bringing down those costs, and now that you have completed the separation, you can presently focus on that a little more, you’ve alluded to that in your comments, any kind of targets there in terms of what we should expect, what the magnitude of that might be, and is it - what’s the allocation, is it primarily G&A at this point or are there additional operating savings and synergies you can generate?

Yeah. Without going into quantification of targets, let me talk about categorically. We know, and we believe that we have to continue to rightsize the business for our business activity levels, which we've seen decline, so of course we are going to be aggressively rightsizing and we have to do that. Beyond that, however, with this simplified structure, pretty ambitious about the amount of streamlining, we can do to our overall system and that will come through in both OpEx as well as in overhead and SG&A. And then finally in the field, we have some very specific projects around maintenance and management of our field activities that we will implement that will give us some - yet more response in cost savings in our operations that we're pretty ambitious about what that can deliver. The challenge with that in the current environment, however, is that we also have the pricing pressure of the marketplace. We have customers that are in serious distress and a need and we will participate with them through this downturn. So the ambition I have right now is to maintain our level of profitability by taking casts out of the system, as well as we can, to stay ahead of the market, both from a sizing perspective and also from a pricing perspective.

Okay, just to make sure I understand the comments, the goal at least is to be able to maintain margins even though you have said that completely reasonably so, you expect volumes and pricing to continue to come down? Do you think you can hopefully held margins relatively flat?

Mike, that is the ambition.

Okay, good to be ambitious. That's all from me. Thank you.

Next question is from Blake Hutchinson from Howard Weil.

Good morning, guys. I just wanted to get a little more insight to the first quarter contract compression guide. I guess, I mean, I look at the two major moving parts on the revenue side, I guess this would assume a bit of an acceleration in the put backs that we saw in 1Q, as well as pricing element and just you don't have to give exact as you can, you can give us a flavor if you like, kind of ongoing pricing impact, but also the nature of pricing conversations, typically we've had them annually and apply them to some portion of the fleet. Is it just more a fluid situation we have to consider as we go throughout the year now, rather than an annual adjustment or does 1Q represent about a little acceleration and put backs and kind of more of a one-off pricing adjustment to start the year?

Sure. Well, your overall thesis is right. So, first on the spread between, if you think about sequential revenue, we think about two-thirds of it is driven by our expectation on horsepower levels and about one third of it is driven on pricing. What we see in the current environment is not an acceleration in Q1, but the Q1 may look a bit like Q4 from a horsepower decline perspective. And on pricing, it is definitely more fluid. This is a market where our customers are going through serial pricing work and repeated efforts to take costs out of their system and so we went through a lot of that in ‘15. Given the sharp market downturn in response to the oil price decline in Q4, we saw a virtual shockwave of re-engagement by customers on managing their costs. And that's what really drove the assessment of how we think Q1 shapes out. So it's not that it gets worse, but that it's a continuation and without an answer to the question of how long that lasts.

Now, I understood, and I guess if that is our kind of sequential supposition for maybe the next few quarters, under that environment, I realize you don't want to get too granular with what you think in terms of cost savings, streamlining in the buckets you have, would it be reasonable to attempt to defend the current gross margin guidance?

Looking for the quarter and the guidance we’ve given, we’re good with it for the guidance we just gave for Q1. How well we can do to defend that going out is going to be a battle, but candidly, I’ve been ambitious about what we can do on margins and profitability in the past. I think we've been able to deliver. The operations team is seriously focused on being able to do that and more of that. So that is the work that is ahead of us. Repeating early, this is what we can accomplish there.

No, I agree. I think the part of the issue there is you have done so much over the last several years, you wonder what's really left to pull, so. And then just finally, what was - if you have available the overall D&A guidance for the first quarter, I'm sorry I missed it?

In the mid-50s.

[Operator Instructions] We do have a question from Roger Campeau [ph]. Please go ahead.

My question is the status of the quarterly dividend and is there any word on it as to stay the same, increasing, decreasing and then when the announcement - formal announcement will be for the amount ex-dividend and payment dates?

So let me talk about it, while I get the date for you. Overall approach to the dividend and distribution of business declared quarterly and it's determined by the Board of each of the entities on the quarterly basis. That's not going to change when we make those assessments and set that dividend for the quarter which we’re not going to be doing today, based on the assessment of what we see going on in the marketplace and the expectation from our operations. How effective we would have been in managing through that part of this downturn including our cost reduction efforts, maintaining our leveraged position at an acceptable level and what we think is going to happen in the operations on a go forward basis. So that is how we go through the process of assessing this. And I think the expectation for the next dividend payment is, it is roughly 90 days from the last one, so we are looking out some 70 days from here roughly, I don't have the date in front of me but that's the overall expectation Roger.

And the announcement date of the dividend?

Roger, why don't you give this to David Miller, why don't give me a call offline and we can straighten out the date. My number is on the press release.

Our next question is from Phyllis Camara from Pax World Fund.

Just briefly you mentioned that one of the reasons the SG&A increase was due to bad debt expense. Are we expecting that to grow during the rest of the year or what’s thoughts - what are your thoughts about bad debt expense going forward?

Well, we don't really expect it to grow much. Even though that was the cause of the increase, note that that’s on a $35 million SG&A number. So that was variable on which we started the increase. And it literally was driven primarily by - we saw an uptick in greater than 90 days on our receivables and in this environment we want to be protective and took an accrual to reflect that potential future expectation. So it's not been a huge issue, it’s not large number nominally, it was the driver however that took us up off the bottom of our guidance range for SG&A up into the middle and so that's why we drive attention to it. It's a rough environment though; we do have customers that will be struggling. The good news is, is that, in our operation, in our business because we are one of the last lines to cash flow through production, we've had really good success, I think David highlighted in his comments in both collecting on a pre-position basis as well as being in a good position for collecting our receivables for customers that move into distress situations. So we expect to see a minor uptick in the year like we have right now. We also expect to fair very well on the collection of our receivables.

What about trying to get your equipment back, if you need to go in and do something like that, you have much success with that or is that a more difficult process?

No, typically that's not been a difficult process, in fact, I can think of only a handful of cases that are totally immaterial from the financial perspective where that was ever an issue. Typically, if the unit is producing and helping our customers produce gas, we wanted there and they wanted there, we can collect on it. And when the production is down and services are no longer needed, it has not been a problem to get our equipment back.

Okay, great thank you. And another question on your Capex spent and you said $25 million of it is spend that you have to do because you’re contracted to it. I'm thinking mainly of the partners - the partnership section instead of the parent company, but I mean is there any look forward to on to be able to reduce that maintenance anymore versus $100 million I think you said it was going to be for the partnership? I mean is that - are you able to reduce that anymore then because I assume a lot of that maintenance Capex is just buying new equipment or to replace older horsepower?

So we have a couple of categories and the way we categorize our Capex is basically new fleet additions which we call growth and maintenance. The maintenance Capex number really involves the maintenance activities in the field and on our fleet that change the character of the equipment such as they qualify for capital treatment but it's more around our operating and maintenance activities in the field on existing operating horsepower that is been the driver of the maintenance Capex number. The $25 million that was referenced earlier was the new fleet ad number which was committed Q3, Q4 that came into Q1. And so that's the way we think about maintenance, maintenance does not cover capital that is investment in the equipment, I mean maintenance capital does not cover investment in the equipment.

And then I guess the last thing that I would have a question about, I know a lot of people have talked about the dividend and whether or not you would cut back on the dividend payout but when you look at where you are with maintenance Capex and then growth Capex and interest expense, then you basically are not really free cash flow positive. So, how do you think about that, do you want to take all of your cash expenditures into consideration and become cash flow neutral at some point or do you think that you’ll continue to outspend cash flow?

So, right now we don't believe we’re outspending cash flow. We do park with new fleet additions which I know is a component of free cash flow but that precedes our determination of what is distributable cash flow because the structure we set out so that when the market is a rational market that you would fund that new fleet addition and growth CapEx separately from capital raising efforts whether debt or equity. So the structures are set up both at AROC as well as APLP to distribute cash flow to our investors. But that does not take into account the capital that we typically characterize or the industry characterizes as growth or new fleet additions.

And we have Randy Masel from Granite Springs. Please go ahead.

Thank you very much, I’m just going to follow-up on that discussion. So you can look at a different way right and that you’re generating probably my guess is somewhere in the - more at the Partners level $300 million in EBITDA and of that EBITDA $154 million when to distributions last year, $75 million went to interest and I understand that you’re cutting the CapEx somewhere in the low $100 million to $125 million but it still - when you add those three numbers up, the big use of the cash distribution CapEx and interest its greater than EBITDA. So, that implies debt is going to be going up next year, while EBITDA most likely is going to be going down absent some kind of action on your part and leveraging is going to go up, tick up from the pretty high level at 4.5 times, so I'm just curious how you think about those dynamics?

Well again we separate growth capital out from our overall, when we’re looking at our distributable cash flow as Brad mentioned that in more rational markets we try to fund - we fund growth capital in the capital market [Technical Difficulty] and so our coverage in the fourth quarter it was roughly 1.2 times and we’ll continue to monitor what our distributable cash flow coverage is going forward.

So are you implying that potentially if there is a shortfall wouldn’t necessarily be debt-financed that you would be done out of equity or some other way because it looks like you're not going to albeit a cash shortfall?

So the issue with distributions, I don't mind distribution coverage goes below 1 for a period of time as long as we see what the change for the future would look like based upon our forecast of the market, our internal ability to manage cash flow including pickup costs. It does and will be driven primarily by our leverage - assessment of where we are on leverage when we look that going forward as to whether that would be the [indiscernible]. So thanks for the question.

So does that mean 4.5 times, is there a cap on where you want leverage to be or is there not a cap or --?

We have a covenant on our leverage that’s at 5.25 and we are not going to exceed that we're going to work and do all we can to ensure we are managing the operation so that, yes there is a covenant out there that's very public that we are not going to get and our job is to work aggressively to ensure that's the case in managing the cash flow that this operation generates.

And I will now turn it back over to Brad for closing remarks.

Thank you, operator. Well thank you everybody for your interest and time and attention today in Archrock and Archrock Partners. I look forward to talking to you and sharing an update following our first quarter in a couple of months. Thank you very much.

Thank you ladies and gentlemen, this concludes today's conference. Thank you for your participating and you may now disconnect.