Good morning and welcome to the Archrock, Inc. and Archrock Partners, L.P. Second Quarter 2016 Conference Call. Today, Archrock and Archrock Partners released their results for the second quarter of 2016. If you have not received a copy, you can find the information on the Company's Web-site 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 position are consolidated into Archrock, any discussion of Archrock's financial results will include Archrock Partners unless otherwise noted. I want to remind listeners that the news releases 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 releases as well as in the Archrock Annual Report on Form 10-K for the year ended December 31, 2015 and Archrock Partners Annual Report on Form 10-K for the year ended December 31, 2015 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. In addition, our discussion today will include non-GAAP financial measures, including EBITDA as adjusted, gross margin, gross margin percentage, cash available for dividend and distributable cash flow. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see today's press releases and our Form 8-K furnished to the SEC. [Operator Instructions] 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.

Great. Thank you, operator. Good morning, everyone. With me today is David Miller, the CFO of Archrock and Archrock Partners. During our call today, I will review our second quarter operating results and share our market outlook. David will review our second quarter financial results and provide third quarter guidance. This quarter's results were driven by excellent execution in the field and on our cost and capital reduction program, which produced strong operating performance despite continued low customer activity levels and pricing pressure. We generated EBITDA as adjusted of $83 million on $204 million of revenue in the second quarter, compared to EBITDA as adjusted of $80 million on $213 million of revenue in the first quarter. We improved contract operations gross margin percentage by approximately 250 basis points sequentially from 61% in Q1 to 64% in Q2, and we reduced SG&A expense by 19% from $35 million in Q1 to $28 million in Q2. The cost and capital reduction program that drove these results prioritizes maximizing our cash flow, maintaining liquidity and strengthening our financial position in order to navigate the current cyclical trough with success and set up Archrock to capitalize on the strong secular growth in U.S. natural gas production that we believe lies ahead. We initiated this cost and capital reduction effort immediately upon completion of our Spin-off transaction in November of 2015. Year-to-date, we've taken several significant actions. We've reduced our headcount by 23%. Now combining this with the reductions that we made in 2015, our headcount is down by about a third. For the second year in a row, in order to better align with the current market environment, we've continued to hold salaries and pay rates flat and have reduced incentive compensation throughout the Company. In addition, the executive team and the Board…

Thanks Brad. I'll start with a review of second quarter results and then cover guidance for the third quarter. Archrock generated EBITDA as adjusted of $83 million on revenues of $204 million in the second quarter, compared to $80 million of EBITDA as adjusted on revenues of $213 million in the first quarter of 2016. Net loss attributable to Archrock stockholders was $4.5 million in the second quarter of 2016, compared to $1.8 million in the first quarter. Turning to our segments, in contract operations, revenue came in at $163 million in the second quarter, down from $176 million in the first quarter, due to lower operating horsepower and continued pricing pressure. In the second quarter, much like the first quarter, roughly two-thirds of the declines in revenues related to the declines in operating horsepower and about one-third related to declines in pricing. Gross margin improved to 64% in the second quarter, up from 61% in the first quarter, due mostly to the solid cost management that Brad discussed earlier. In aftermarket services, revenues of $41 million in the second quarter were up 11% compared to first quarter revenues of $37 million. Activity levels picked up in the second quarter due to the seasonality of the business and customers releasing their budgets for the year. Gross margins declined 100 basis points sequentially to 17%, but remained at a reasonable level in the current market due to our efforts to tightly manage the labor and other costs. SG&A expenses were $28 million in the second quarter, down 19% from approximately $35 million in the first quarter, as we are seeing the benefits of right-sizing activities and savings initiatives implemented during the first quarter. However, I will note that we did receive a one-time benefit to SG&A of approximately $1.4 million in…

[Operator Instructions] Our first question comes from Bhavesh Lodaya with Credit Suisse. You may begin.

Congrats on another impressive quarter. So first of all, gross margins at 65%, I believe that's one of the highest we have ever seen. So I appreciate the color on the cost savings efforts and I believe my question is, how sustainable are the margins in the mid-60s, especially keeping in mind the activity levels will likely increase going ahead?

Sure. It is really a standout performance at the gross margin level, but we believe that the systematic approach we've taken to improve our business will drive sustained improvement to our gross margin percentage. That said, when we return to more of a growth cycle, there are incremental investments to make units ready and to start them up in the field and to transport them that will provide another headwind for the maintenance of gross margin. So on a consolidated basis, we've guided to 61% to 63%, and I know that's not APLP alone pressure, but that's the perspective at Archrock. So what we believe, a lot of what we've done is sustainable and we are moving into guidance that is above 60%, in the 61% to 63%, on a consolidated basis. There will be some incremental headwinds when the growth cycle resumes, but we're more than competent for that with growth in our cash flow. So you're right about some headwinds that will hit us.

And onto the new orders you mentioned you saw in 2Q, can you maybe add some color to the size of the horsepower, the regions you are seeing this incremental demand from and how long did it take to actually come online and add to the operating HP?

So the order activity that we're seeing is weighted more toward large horsepower than small horsepower in this current market. We see more demand in gathering applications than we see in wellhead currently. I think that's an expression of some of the buildouts that are being completed in a few of the plays. So that's where we're seeing the growth, is more on the large horsepower. As far as the time it takes, from the time we book until the time we start, the range is pretty wide, candidly from a couple of days to several months. So it's really a wide range depending upon the customer needs. Fortunately, with the fleet capacity that we have, we're able to meet demand on a short-term basis very promptly within just a couple of weeks, one of the advantages of the otherwise having such a large idle fleet. And from a significant infrastructure perspective, we are in a capital position also where we need to in growth plays with large customers that need equipment that's in tight supply in the market and in our fleet, we are able to deploy that capital, and that timeframe is usually a couple of months.

Right. And I apologize if I missed this, did you update the growth CapEx guidance for 2016 or is it still $25 million to $40 million, $25 million to $45 million?

We updated the growth CapEx guidance at the MLP to $30 million to $50 million.

Okay, thanks for the update. And then finally, like just given some of the updates in the broader energy space, have you seen any compression assets come to market for potential acquisition?

We continue to look at the marketplace and we want to and we'll take actions to look at high quality assets that are in growth plays that will fit well with our operations. What's exciting about those opportunities is that we believe we can bring those assets on without expanding our infrastructure incurring incremental SG&A. So we think that is a very cost-effective way to grow the business, and we will keep looking. We have seen asset packages over the last 12 and 24 months but none where we saw the right alignment on the factors that we think are critical to success to pull the trigger on.

Great. Thank you for your time.

Our next question comes from Mike Urban with Deutsche Bank. You may begin.

So recognizing that you guys just spent a lot of time and effort going through the Spin and kind of cleaning up the structure, you have seen some companies in kind of the broader MLP and related space look to buy back in their MLPs just given some of the challenges in that market, is that something that you've looked at or an analysis you've looked at or do you still think you are ultimately in mid or long run getting a lower cost of capital from the current structure?

It's definitely a structural change that we have evaluated, and candidly, as we look forward into the market, we will continue to evaluate all options that we should to think about continuing to strengthen APLP and the cash flow and the ability for APLP to both grow as well as to increase distributions. So, it is something we've looked at, it's something that we will continue to look at. I would point out that some of the factors that drove more recent consolidations are not really present in our scenario. Where they've done it to address leverage, their leverage issues have been more acute. In some instances, they've done it to address the fact that the GP being in the high splits rendered accretive growth very hard to achieve. Neither factor of which is acute or present in our scenario. And we haven't given up and we don't think the market has, that the GP/MLP hold-co structure ultimately offers value in the upside in the form of the yield valuation that can be applied as well as in the opportunity to have multiple currencies to facilitate for example acquisitions. And then finally, our main focus during this market is to stay really aggressive in managing our liquidity position in both entities ultimately to both preserve our operations through this cycle, which we're going to do with success, and be positioned at the back-end of this cycle to be able to grow our business. And that drive to preserve liquidity is what's really the focus of our structural decision-making and the way we're thinking about managing our actions through this period.

Very helpful, thanks. And then I guess operationally, extremely severe downturn in some major structural changes across just the broader energy spectrum. Specific to your business though, have you seen any notable share shifts or have you seen any opportunities to move into or grow in markets where maybe you were underexposed or maybe vice versa where someone is continued to be perhaps irrationally aggressive, I guess just any changes that you've noticed over the course of the down-cycle in terms of market position and share and things like that?

Interesting question, I think I have kind of two points to make on that, and just make a quick note. The first is that what we noticed is that when utilization industry-wide tips down below something in the mid to low 80s, and it certainly did that last quarter, when it tips down below, the pricing aggressiveness really does increase structurally in the market for equipment that is at that level of utilization. And so we have seen a lot of aggressiveness on pricing in order to just protect positions in the marketplace. And we too, by the way, have been aggressive in helping our customers with their OpEx in order to protect market position during the cycle. So, one of the main drivers that we've all experienced is that pricing aggressiveness and that utilization percentage appears to be kind of a pivot point for how aggressive the market is. The second, we do see some shifting in plays where the growth in the future is going to come from, in the near-term out of the Texas and Louisiana area and in the long-term including in the Marcellus and Utica, and so we see more market share positioning, and candidly, some opportunities for us to attack those markets aggressively. And we're definitely trying to make sure that we're positioning ourselves to do so, so that we are in the right position and with the right relationships when and as natural gas growth occurs, which as you can hear, we're pretty bullish on. At the tail-end of this cycle, we see significant demand growth for natural gas ahead and we want to be well-positioned, we believe we will be well-positioned, to participate in that.

Great, thank you.

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

I was interested, Brad, on your thoughts regarding how we should think about pricing here. I know in the first half of the year, typically seasonally you go through some major reconfiguration fleets and it can act on a bit of a lag. Should we think of pricing here as kind of proportional to your commentary on horsepower declines, meaning it eases a bit and maybe we stay in that two-thirds/one-third type of realm or do we still have some catching up to do here for the broader fleet to get on to kind of what we would call a mark-to-market price?

Blake, as you know, I'm most comfortable talking about pricing for legal reasons in the rear-view mirror and not so comfortable thinking about pricing guidance forward. So that's a real tough question for me to really answer, as you can imagine. What I would repeat a bit is the discussion I had just on the last question, and that is that I think pricing remains fairly aggressive as long as utilization is below 80% range. But it can't go low or lower forever. So I think that we're still going to be in a very aggressive pricing market with utilization in the ranges that it is in the industry overall.

Okay, fair enough. I apologize for putting you in a bad spot on that one. And then just helping us understand functionally how the business is working and how you achieved such high margins, just refresh us, in terms of frictional mobilization expenses, when you're subject to these returns, that's the customer is paying those, so that's something that we don't necessarily see that gets reintroduced, I think you kind of hit on this earlier but just wanted to be sure, so when you start thinking about actually getting into an add-back scenario, that that's reintroduced?

Yes, I think I got it. When you think about the two sides of going and putting a service on location, the mobilization expense is generally borne by the service provider, that is us, to mobilize, put the service on location and get it started. There is incremental expense associated with that even before revenue begins. So that's part of the expense we see on the mobilization side. On the de-mob side, typically the customer bears the expense, and that's not going to change.

Okay, got you. Appreciate that. And then just to give us a little insight perhaps on appetite for new equipment, I take it that everything you spent in the first portion of this year, back half of last year, is in the field and is there some potential benefit from that entering that gives you a little more confidence in kind of net attrition levels or is it already out and active?

The bulk of it is out and active to the extent it was delivered in Q1. We still have some deliveries Q2 and then obviously Q3 and Q4 that have yet to be activated. But what we see with it, it's at a lower level overall in the marketplace but stability in our expected start activity based on the investments we've made.

Great.

Just to say it more specifically, the equipment goes to work very promptly.

Got you. And then just finally, any reason to believe differently that any ensuing payments from Venezuela would be applied directly to debt reduction?

Fair question but we just were very pleased to have received the payments to date that we've received. It's fair to say we had a healthy dose of skepticism as to when we would receive payments out of Venezuela, given the extreme circumstances and economic conditions in that country right now. So while we have a commitment from Exterran to past on future payments received from Venezuela, and these most recent payments are indication they want to make good on their debt, it's still maybe a stretch given the risk of regime change and the extreme conditions that they are suffering in Venezuela. So I'm not going to venture to handicap the odds of receiving the next payments.

I understood, but could it possibly be for debt reduction if they do come in?

That's right.

Okay. Thank you very much. I'll turn it back.

Our next question comes from TJ Schultz with RBC Capital Markets. You may begin.

I guess just one thing on the distribution, and I do appreciate all the context on how you will evaluate restarting growth in MLP distributions, my question is a little more I guess just technical in nature on the distribution when you do get to that point, assuming market conditions go as expected. So you're obviously carrying a lot of excess coverage at the MLP now. Would you look at that point on increasing distributions gradually in order to be able to provide line of sight on a longer path of distribution growth as you bring coverage down or would you be more inclined to reset the distributional level that gets you to a certain coverage point that you think is sustainable long-term, and I'm just trying to think about capturing the IDR cash flow sooner rather than later as part of that decision process?

Sure. Very challenging question to answer from the position we're in today, because the balance of factors that will go into it are several. But I would say that when we make the recommendation on when it's time to and we're in a position and those factors are satisfied to increase, we'll look at the ability to fund CapEx again with both equity as well as with debt, we'll look at the strength of our cash flow generation and the other capital demands we have on the business including internal and potentially external to figure out how to deploy that capital, but we would be inclined to want to distribute the cash that is best used by returning it to our stockholders. And so I wouldn't say that we have yet any game-plan that says we're going to do it only incrementally or that we don't have a plan to do it only incrementally, but that we would try to make sure we understand the highest value that that capital can be used for which would compete capital distribution with debt reduction, growth opportunities internal and external and setting it out. And that's about the most guidance I think I can venture.

Okay, great. I understand. Thanks very much.

And that concludes the question-and-answer session. I will now turn the call over to Brad Childers for closing remarks.