Good morning. Welcome to the Archrock Inc. and Archrock Partners LP Fourth Quarter 2016 Conference Call. Today, Archrock and Archrock Partners released their results for the fourth quarter of 2016. 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 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 today 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's Annual Report on Form 10-KA 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 disclaims 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 availability 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. Today's 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. With me today is David Miller, CFO of Archrock and Archrock Partners. Let me start by saying that I'm pleased with Archrock and Archrock Partners performance in 2016 and in the fourth quarter. Highlights from the fourth quarter include that we continue to see the improved bookings and horsepower stability that we experienced in the third quarter. We generated EBITDA as adjusted of $75 million which includes $4 million of other income and $194 million of revenue. SG&A was $27 million which on a run rate basis is a 23% reduction from Q1 2016. And from a balance sheet perspective, we reduced debt by $30 million in the fourth quarter which includes a $28 million reduction at Archrock Partners. For the year we completed several strategic and structural actions. First, we completed the operational separation from Exterran corporation. We reduced headcount by 25%. We executed the dropdown of $147,000 operating horsepower from Archrock to Archrock Partners which resulted in further deleveraging at Archrock Partners. And finally, we maintained disciplined capital spending in both growth and maintenance capital expenditures. For 2016, our total capital expenditures were $118 million, a 54% reduction compared to the $256 million that we spent in 2015. And significantly, we were able to accomplish all of these actions while providing superior service and safety performance to our customers and maintaining overall excellent maintenance standards. The actions we took during 2016 translated into solid results demonstrating both, the stability and cash generating capability of our business as well as effective cost management. For 2016, our consolidated revenue declined 19% from 2015 but due to our actions consolidated EBITDA declined only 15%. At Archrock Partners, 2016 revenue was down 14% from 2015 but EBITDA was down only 12% and distributable cash flow was…

Thanks Brad. Let's look at the summary of fourth quarter and full year 2016 results and then cover guidance for the first quarter. Archrock delivered solid fourth quarter results. We generated EBITDA as adjusted of $75 million including other income of $4 million compared to $80 million in the third quarter including other income of $1.2 million. Revenues were $194 million for the fourth quarter compared to $196 million in the third quarter. We also reported net loss from continuing operations attributed to Archrock common shareholders excluding items of $0.06 per share in the fourth quarter compared to income of $0.01 per share in the third quarter. For the full year 2016, Archrock generated EBITDA as adjusted of $319 million, down 14% from 2015 EBITDA as adjusted of $373 million which demonstrates the stability of our business model and strong operating performance in the face of a significant industry downturn. Starting with our segments; in contract operations revenue came in at $152 million in the fourth quarter, down from $157 million in the third quarter due to lower operating horsepower and a competitive pricing environment. Roughly three quarters of the decline in revenues related to declines in pricing and about one quarter related to declines in operating horsepower. Gross margin percentage decreased to 60% from 62% in the third quarter, primarily due to lower revenue and pressure from lube oil prices but continue to be solid as we maintained disciplined cost management. For the full year 2016, contract operations revenues were $648 million, a decline of 17% compared to 2015. However, gross margins in 2016 increased approximately 300 basis points year-over-year due to our cost reduction activities throughout the year. In aftermarket services, revenues of $42 million for the fourth quarter increased 6% compared to third quarter revenues of $39…

Thank you. [Operator Instructions] And our first question comes from Mike Urban from Deutsche Bank.

Thanks, good morning guys. So your outlook makes sense as given where you guys are positioned in the cycle in terms of seeing a bit of a lag. Would you expect that lag to be similar relative to history in terms of both the duration and the magnitude versus kind of drilling and completion activity or are there other factors out there like working down inventory, deferred maintenance, things like that just given the severity of what we went there?

Now what we think we're seeing is a fairly typical looking recovery. And as we turn that corner, we see on the positive side increase in rig count, production expectations certainly from natural gas and internally customer activity levels including our opportunity set in new bookings are all indicating very positive market changes ahead; that's all on the good side. But as we turn the corner, as you know, we have that lag time and I think that it's two to three quarters; we don't see a significant change to that. And during that turn as we turn this corner, we're going to see both the impact of revenue decreases from prior periods; you know, really push us to still stay in lean mode. And at the same time we're investing in the business and certainly that corner for that growth that we see ahead. But we really don't see a change to that typical two to three quarter lag time that we've experienced in the past.

Okay. And then as you do get into the recovery mode; again, looking kind of -- your progression relative to what you've seen historically, thinking about the margin recovery there; would that also be kind of in line with what we've seen or better or worse, I guess better it would be the senior restructuring cost reductions you've made but on the other hand we are seeing already some cost inflation in terms of -- you know, you've highlighted lube oil in the quarter and then just I think labor across the industry is already starting to tighten up a little bit. Those are historically your two biggest costs.

Yeah it's interesting. You know we look back at 2016 and we delivered the highest margins we have in a number of years and we know that now the market wants to see that sustaining continue to be improved. But what I would point out is that there is that the margins were at that 60% level for 2016; 62% for the full year, are really healthy margins compared to what we achieved in the past and that was done in definitely a cost environment and the challenge for us now is trying to maintain those despite increasing pressure on the labor side, increasing pressure on the lube oil side and as we dispatch and grow we’ll definitely incur more make ready and mobilization expense going forward. So with that said you've heard our guidance for at least Q1 which is in that 58% to 61% range and we believe that that's you know as far as we can give an outlook to the future but we're going to be fighting that, fighting that cost pressure for at least the short term as we turn this corner and incur costs ahead of seeing that revenue increase.

So I guess your comment just more broadly looking out further about kind of the earnings stabilizing in the first half of the year suggests that you can, you think you can at least offset that more or less for now and should we think about that as more of a top line driven recovery in the second half or is a little both. Do you do you get some margin levers despite the head winds in these costs you are going to have to incur?

What we see ahead on the earnings comment is ability that is going to translate in a form of more gross margin dollars and EBITDA dollars and the pressure that we're going to experience the gross margin percentage line is going to look a little sloppy as we get started through this recovery and see how the recovery unfolds. But I certainly see expect as we said to see that recovery produce stability in the first part of the year and then the recovery in the back part of the year meaning that it's going to be dollars on a gross margin basis that we hope to see growth and recovery kicks in.

Okay. Got you. That’s all for me thank you.

Thanks.

Thank you. Our next question comes from Andrew Burd from JP Morgan.

Hi good morning. I know you don't provide specific guidance around lockdown timing but just curious to hear the thought process about whether or not AROC is going to position dropdowns going forward with 200,000 HP range comparing to 150,000 HP last quarter. So any type of thoughts around the outlook for drop downs would be great.

Well you started, you started out with the general answer Andy which is we don't provide guidance on dropdown timing. So you know, we think that this year the focus is going to be on organic growth and focus on cost and continuing to improve the efficiency of operating our business. So you know we can't really give you any clear direction in terms of when and if there will be another drop down.

Okay. Tough question but thanks for the answer. Final question is if the new, just kind of hypothetical, so I apologize, but if the new customer walk in the door, how does Archrock decide which of the two entities is going to serve that new demand? AROC or APLC or is there figure to that. I'm just trying to figure out whose utilization is set to rise first one or the other or will it be both at the same general rising types will sell both types of grade?

So we move customers down from Archrock to Archrock Partners by customer or start down by customer and so if they are existing customer of Archrock Partners and then if it’s an Archrock customer that unit goes to Archrock. If a new customer comes in, Archrock Partners is entitled to that business.

Perfect. Thanks very much for taking my question.

Thanks.

Thank you and next we have Blake Hutchinson from Howard Weil.

Morning. I guess you know notwithstanding the commentary around you know 2017 being a transitional year, pretty ambitious stock growth CapEx figures out there and I was wondering I mean would it be correct to assume given the parameters you laid out that you know kind of the new opportunity horsepower set and maybe a way to gauge for him in 2018 is in, to say conservatively you know additions of 100,000 to 150,000 horsepower and you know if that's the case would you expect most of the incremental opportunity set to be from incremental adds or just kind of natural adds from the fleet in general as we look out into 2018?

Yeah. So it's going to sound, I am going to be as straightforward as I can. It may sound like a complicated answer but typically when we look at our start activity our new build capital really accounts for 25% to 30% of our actual start activity. And from our existing fleet is where we definitely get the book our start activity I don't think that's going to change towards 2017. So that's one way of capturing that thought process as far as translating it into a net, that's the hard part because when we look at the fleet over all, our drive for improvement and our need to continue to spend capital to improve the condition and the competitiveness of our fleet. You know that portion of our new growth, new bill CapEx will go toward that. And a portion of it should translate into certainly growth in certain basins, in the high growth plays where we're very active right now which include the place that we're all familiar with right now, which is the Permian mid-continent area. The Eagle Ford, [indiscernible] and even up in the Marcellus and Utica. While we're putting that horsepower to work, we do expect growth in those growth place but the headwind of the Klein's in the conventional is less predictable even in the recovery environment that we see ahead. The mix that Matthew did all around the net, something that is too hard to answer directly but those are the factors that go into the answer.

Yes that’s great. I think that's fair to you know there's no reason to think of a net but it seems like it's the size right now is a good, it's a helpful ratio for us. And then just within that CapEx guidance you did mention that you have to absorb some make ready within through the income statement, is there another capital figure that associated with make ready that is substantial as we think about adding capacity back?

There's a portion of that growth CapEx number that is attributable to changing the configuration or improving the operating condition of the units that’s included in that number but we don't typically break that up separately.

Okay and then just around your kind of pricing commentary and bucketing it, is the pressure you see mainly with regard to the friction of capacity or as reentering the fleet or you're trying to reenter the fleet? Or is it are we still as we have our accounting annual discussions about pricing renewals facing pressure as well on that front or has not abated somewhat?

So no commentary on forward pricing but what I can describe is what we've experienced kind of to date and what we saw in 2016 and with the industry at an average utilization of less than 80% by our estimation, this is a market where there's still a lot of pricing aggressiveness of the hyper competitive market. We have you know able competitors in every play and that keeps us all honest on pricing and that includes the ability of our customers to purchase if that wasn't the case. So it's a very competitive pricing environment what we experienced in 2016 and what we also want to drive was keeping horsepower working at a good level and keeping our fleet as highly utilized as we could so that translated into the pricing aggressiveness in that market that we had. What we're still experiencing what you see both in our guidance as well as what we saw in the fourth quarter was the effect of those pricing declines from prior periods and continued pricing aggressiveness through the fourth quarter and until we see utilization change somewhat more meaningfully in a future period I think that this pricing environment is you know is going to remain.

Great, thanks for the insight and all round, all clearly answered. Thank you.

Thank you. We have no further questions and I'll turn the call back to Mr. Childers for closing comments.

Thank you everyone for participating in our fourth quarter call as, we noted we sustain strong operating performance in a position to take advantage of the growth opportunities we see in the coming year. We believe that our trucks and our partners are well positioned operationally and financially to capitalize on these opportunities. So we look forward to talking to you and updating you on our first quarter call later this year. Thanks very much.

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