Brad Childers - President and CEO David Miller - SVP and CFO.

Andrew Burd - JP Morgan Blake Hutchinson - Howard Weil TJ Schultz - RBC Capital Markets Daniel Burke - Johnson Rice & Company.

Good morning. Welcome to the Archrock Inc. and Archrock Partners LP First Quarter 2017 Conference Call. Today, Archrock and Archrock Partners released their results for the first quarter of 2017. 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-K for the year-ended December 31st, 2016 and Archrock Partners Annual Report on Form 10-K for the year-ended December 31st, 2016.

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. During the first quarter, we saw significant improvement in market conditions and after eight consecutive quarters of challenging industry conditions, we believe that we're seeing the bottom of the cycle in the industry upturn lies ahead.

Although prior horsepower and pricing declines, coupled with expenditures required to set up a company for future growth impacted contract operations gross margin percentage and EBITDA on the first quarter, we saw stabilization in our operations.

And I'm excited about the continued steady progress, particularly on new orders that we're making toward positioning Archrock for growth as we began to experience increasing demand for our services driven by both a move to the upcycle impacting the industry overall as well as a longer term secular growth in demand for natural gas being experienced by those company like ours that are exposed to natural gas production.

Highlights from the first quarter include our highest level of new orders since the fourth quarter of 2014 as well as improved horsepower and revenue stability. We generated EBITDA as adjusted of $65 million on a $190 million of revenue.

Operating horsepower declined by 36,000 horsepower or about 1% in the first quarter, which was primarily driven by agreements with two large customers to return units that were on standby rates. The revenue and gross margin impact of these returns was minimal and the units are now available for deployment.

Excluding this activity, our operating horsepower was up modestly from the fourth quarter of 2016. Our contract operations revenue continued to stabilize in order.

Sequentially, contract operations revenue declined by $2 million or about 1% in the first quarter, a significant improvement from the larger sequential declines we experienced throughout 2016. Contract operations cost of sales increased about $4 million in the quarter, resulting in a gross margin percentage of 57%.

About half the increase in cost was driven by higher make-ready and mobilization expenses and the other half was a combination of higher labor rates, freights, and lube oil expenses and a result of severe weather events in January.

And finally, we refinanced Archrock Partners' senior secured credit agreement with a new $1.1 billion asset-based revolving credit facility. Turning to our operations, new orders during the quarter were robust.

Our sales being capitalized on the higher level of customer activity in the quarter and delivered a strong book of orders that should enable us to drive topline growth in the second half of 2017 as we have previously discussed. From a play perspective, new orders were especially strong for the Permian, Eagle, Haynesville, and Niobrara.

The actions we took in 2016 have positioned Archrock to take advantage of market opportunities that we believe are now emerging. On the cost front, much of the higher costs we incurred were due to an increase in make-ready and mobilization expenses as well as an increase in labor expense each necessary as we prepare to meet higher demand.

As a later cycle participant, we believe 2017 will be a transition year as the current cycle turns from contraction to expansion. During this transition period, we will work to balance cyclical lows in pricing and utilization with the need to invest to meet the expected growth ahead.

As I discussed on our fourth quarter 2016 earnings call, we increase our newbuild capital budget for 2017 to $125 million to $145 million for the full year to meet expected demand from customers. In line with our budget, growth CapEx in the first quarter was $22 million, up from fourth quarter growth CapEx of $13 million.

Our strong capital position provides us with the ability to invest in new units to meet our customers' needs. In aftermarket services, revenues were down about $2 million or 4% from the fourth quarter 2016 as we continue to see stability in this business.

And the first quarter is seasonally a low quarter for AMS business and we expect the business to benefit from improving market conditions going forward. Gross margin percentage was flat at 15% sequentially.

Turning to the partnership, in the first quarter, stabilization of operating horsepower and revenue as well as higher new order activity levels carry through to Archrock Partners. In the quarter, Archrock Partners' revenue increased by $2 million sequentially as the partnership benefited from a full quarter of the November 2016 dropdown.

Operating horsepower decreased by $48,000 in the quarter, driven by the customer returns the referred to earlier. Gross margin percent was 59% due to higher make ready and mobilization expenses as well as higher labor as we prepare to meet increasing customer demand.

SG&A was $20 million of the partnership, up $2 million from the fourth quarter due in part to an increase in allocated SG&A as a result of the dropdown. Archrock Partners distributable cash flow coverage was strong at 1.8 times for the first quarter and has provided APLP with the financial flexibility to invest in its fleet for long-term growth.

Levers of the partnership increased slightly to 4.9 times debt to EBITDA from 4.7 times debt to EBITDA in the fourth quarter of 2016. APLP's leverage continues to be a primary focus for Archrock and we are committed to bringing it down over time. Now, I'd like to turn to the market and outlook for our businesses.

We are navigating the current turn in the cycle in a strong market position. The U.S. rig count currently stands at about 870 rigs, up 32% from year end 2016 and commodity prices were relatively stable during the first quarter.

Additionally, we know that analysts expect North America upstream capital spending to increase by 27% from 2016 with large cap E&Ps [ph] potentially up as much as 58%.

In our contract operations business, we saw solid demand from our customers and significantly higher new order activity in the first quarter and we expect to carry this momentum further into 2017. We expect this higher level of customer activity to translate into higher operating horsepower over the course of both 2017 and 2018.

We believe our business is in an excellent position to participate in and capitalize on the secular growth drivers that are expected to increase natural gas production by between 15% and 20% through 2020 and likely more beyond that.

In the coming years, we believe the significantly improved quantities, accessibility, and price stability of natural gas in U.S. will continue to drive higher levels of demand for LNG export, pipeline exports to Mexico, power generation, and use as a petrochemical feedstock.

We believe that growth in natural gas production to meet this demand growth will lead to an increase in demand for compression services that will absorb excess equipment in the market as well as require significant amount of new compression capacity.

As we discussed in our fourth quarter earnings call, for these reasons, we expect to increase our investment in our fleet in 2017 so that we will have equipment available in configurations desired by our customers to meet this expected demand.

Continued investment in our fleet coupled with a structural and operational improvements we've made to our company has enhanced our ability to leverage our strong operating presence, solid customer relationships, and our excellent service teams and capability to grow our business as the cycle now turns toward expansion.

Finally, let me turn to our financial strategy. As I've outlined in the past, we're focused on positioning our companies to be able to grow their respective dividend and distribution. In order to do so, we believe we need to see a path to achieving a debt to EBITDA ratio at Archrock Partners trending toward four times or lower.

We remain committed to growing our business, maximizing our cash flow, and solidifying our financial position. The actions we took during 2016 provided a foundation for us to take advantage of growth opportunities that we believe were just beginning to see. Now, I'd like to turn the call over to David for review of both companies' financial results..

Thanks Brad. I'll start with a summary of first quarter 2017 results and then cover guidance for the second quarter. Archrock generated EBITDA as adjusted of $65 million in the first quarter including other income of $1 million compared to $75 million in the fourth quarter, which included $4 million of other income.

Revenues were $190 million for the first quarter compared to $194 million in the fourth quarter. We also reported net loss from continuing operations attributable to Archrock's stockholders excluding certain items of $0.11 per share in the first quarter compared to a loss of $0.06 per share in the fourth quarter.

Turning to our segments, in contract operations, revenue came in at $150 million in the first quarter, down from $152 million in the prior quarter, due primarily to lower operating horsepower and a competitive pricing environment.

Roughly two-quarters of the decline in revenue is related to declines in operating horsepower and about one quarter related to declines in pricing. Gross margin percentage decreased to 57% from 60% in the fourth quarter as of -- in the fourth quarter as our cost of sales was up $3.9 million quarter-over-quarter.

About half of this was due to higher make ready and mobilization costs as we prepared to beat higher demand, a third was the result of higher labor to meet future demands and address severe weather events in January and the remainder was attributable to higher lube oil and freight cost in the quarter.

In aftermarket services, revenues of $40 million for the first quarter decreased modestly compared fourth quarter revenues of $42 million. Gross margin percentage was flat sequentially to 15%. SG&A expenses were $28 million in the first quarter, up about $1 million compared fourth quarter 2016 levels, due to modestly higher compensation expenses.

During the first quarter on a consolidated basis, we determine that approximately 80 idle compressor units totaling approximately 28,000 horsepower would be retired from the active fleet. As a result of the retirement of these units, we recorded an $8.2 million long-lived asset impairment charge.

65 or approximately 2,200 horsepower of these units were owned by the partnership and an impairment charge of $6.2 million was recorded at Archrock Partners.

In the first quarter, Archrock's growth capital expenditures were $22 million, up from $13 million in Q4 as we have increased our capital budget in 2017 from 2016 to meet demand for equipment from our customers. Maintenance CapEx for the quarter was $7 million flat with fourth quarter levels.

In April 2017, pursuant to the separation agreement entered into in connection with the spinoff of Exterran Corporation, an Exterran subsidiary transferred to a subsidiary of Archrock $25 million, an amount equal to the contingent financing payment as defined in the separation agreement as a result of Exterran's successful qualified capital raise in the first quarter of 2017.

Also pursuant to the separation agreement, Exterran intends to contribute to us an amount equal to the remaining proceeds it receives from PDVSA relating to its previously nationalized Venezuelan assets. In January 2017, Exterran Corporation received payments of $19.7 million from PDVSA and transferred cash to us equal to that amount.

As of March 31, 2017, PDVSA owes the remaining principal amount of $20.9 million. We cannot predict when PDVSA will pay the remaining amount. First quarter ending debt on a consolidated basis was $1.44 billion, down approximately $5 million from fourth quarter level.

On a deconsolidated basis, Archrock's first quarter 2017 debt balance was $89 million, down $10 million versus fourth quarter levels. Pro forma for the contingent financing payment Archrock received from Exterran Corporation in April 2017, Archrock's debt on a deconsolidated basis would have been approximately $64 million at March 31st, 2017.

Archrock's deconsolidated leverage ratio which is the debt-to-adjusted EBITDA was 1.6 times at March 31st, 2017, an available, but undrawn capacity on Archrock's revolving credit facility was approximately $142 million.

Cash distributions to be received by Archrock based on its limited partner and general partner interest in Archrock Partners were approximately $87 million for the first quarter 2017 and for the prior quarter. Archrock's first quarter dividend was $0.12 per share unchanged from the fourth quarter.

The first quarter dividend amount of $8.5 million will be paid on May 16th. Archrock's cash available for dividend coverage was a solid 1.35 for the first quarter. Turning to the financial results for the partnership.

Archrock Partners first quarter EBITDA as adjusted was $61 million, down 11% as compared to $69 million in the fourth quarter of 2016, primarily driven by higher labor and make ready expense as we prepare to meet future demand as well as a decrease in other income of $3 million.

Net loss was $4.3 million in the first quarter compared to a net loss of $14 million in the fourth quarter. Revenue for the first quarter was $137 million up approximately $2 million from the fourth quarter as Archrock Partners receive the full quarter benefit from the November 2016 dropdown.

Revenue per average operating horsepower was $47.99 in the first quarter, down modestly from to 48 from 48.08 in the fourth quarter. Cost of sales per average operating horsepower is $19.67 in the first quarter, up 8% compared to $18.25 in the fourth quarter 2016.

Gross margins were 59% in the first quarter down approximately 300 basis points compared to the fourth quarter 2016. Again this was due to higher make ready and mobilization costs and an increase in labor expenses cold-weather in January and higher lube oil and freight expenses.

SG&A expenses for the first quarter were $20 million, up approximately $2 million in the fourth quarter of 2016, primarily due to an increase in the allocation of SG&A to APLP due to the November 2016 dropdown.

Distributable cash flow was $34 million in the first quarter of 2017, down from $41 million in the fourth quarter of 2016, primarily goes due to lower EBITDA. Our distributable cash flow coverage remains strong at 1.8 times.

APLP's capital expenditures for the quarter were approximately $14 million consisting of $7 million for fleet growth capital and $7 million for maintenance activities. On the balance sheet, Archrock Partners' total debt increased $5 million sequentially and stood at $1.35 billion as of March 31st, 2017.

Archrock Partners cash increase $8 million sequentially as we froze debt repayment at the end of the first quarter closed the new credit facility. On March 30th, Archrock Partners refinance its existing $975 million credit facility with a new $1.1 million five-year asset base revolving facility.

The facility will mature on March 30th, 2022 unless any portion of APLP's existing senior notes to 2021 are outstanding on December 2nd, 2020, then the facility will mature on December 2nd, 2020.

The covenant ratios of the new facility include a requirement to maintain total debt-to-EBITDA of less than 5.95 times through the fourth quarter of 2017, 5.7 times from the first quarter 2018 through the fourth quarter of 2018, 5.5 times in the first and second quarters of 2019 and 5.25 times thereafter.

The facility also contains a requirement to maintain senior secured debt EBITDA of less than 3.5 times and EBITDA-to- interest expense of greater than 2.5 times. We are very pleased to execute this deal on attractive terms for Archrock Partners in a challenging bank market.

As of March 31st, 2017 available but undrawn credit capacity under Archrock Partners debt facility was $293 million and Archrock Partners total leverage ratio which is covenant debt-to-EBITDA as adjusted of 4.9 times as compared to 4.7 times at the end of the fourth quarter.

Archrock Partners senior secured leverage ratio which is senior secured debt-to-EBITDA as adjusted was 2.4 times at March 31st, 2017 as compared to 2.3 times at the end of the fourth quarter. The leverage of the partnership continues to be a primary focus for Archrock Partners.

Now let’s discuss Archrock guidance for the second quarter 2017 which includes the consolidation of Archrock Partners results.

In contract operations, we expect revenue of the $148 million to $152 million with gross margins in the 57% to 60% range as we continue to incur higher make ready and labor costs related to ramping-up our operations for growth. For AMS, we expect revenue of $42 mi to $48 million with gross margins between 15% and 17%.

We do expect a seasonal uptick from first quarter levels. On SG&A expenses, we’re targeting $28million to $29 million for the second quarter. Depreciation and amortization expenses expected to be in the low $50 million range with interest expense below $20 million.

For full year 2017, total CapEx is unchanged and expected to be in the range of the $185 million to $205 million. Maintenance capital spending for the year is expected to be $40 million to $45 million. New billed expenditures are expected to be in the $125 million to $145 million range for the full year 2017.

At Archrock, we do expect to spend $7 million to $11 million of other capital in the second quarter as a result of a large expenditure on trucks in the quarter. At Archrock Partners, we expect new billed capital expenditures to be in the $115 million to $135 range and maintenance capital expenditures to range between $35 million and $40 million.

I'll now turn the call back to the operator and open it up for questions..

[Operator Instructions] And our first question comes from Andrew Burd from JP. Morgan..

Hi, good morning. Two questions..

Good morning..

The first on the unconsolidated gross margin it looks like you missed the guidance that was provided on the last call and you did give some commentary about make ready costs that might be kind non-recurring in nature.

Was that the only thing that drive the gross margin or anything else might be helpful there?.

So, no, you're right. We are 1% off of we were on the bottom level of the guidance for the quarter, it was really driven by the factors that we mentioned. We are investing more and make ready then we expected and it's not because the expenses for horsepower are up it's that we're making ready more horsepower.

So, the horsepower make ready in quarter were -- a work was higher than we expected.

The other factors that went into we did have a spiky January severe weather event across the country that really did cause us to spend a lot more time during this week's and it did intact labored over time a lot that’s more definitely more one time at least from the seasonality not reoccurring perspective.

And then the other costs that were up, we had some carryover costs that were a little bit spiky but some of the other costs that we see. But in lube oil and labor our costs that are going to be in the numbers going forward and really requires we’re setting up for growth. We are going to keep our labor and capability ahead of our horsepower growth.

So we consider these that the make ready and mobilization expense to be good investments from expenditure perspective going forward notwithstanding the appearance of the hit it brought us for gross margin in this quarter..

No, that’s great color. And you’re going to spend money to make money. Final question, I appreciate very consistent messengering you had around the distribution growth for the last year pretty much unchanged and very consistent.

Would you consider self-help levers like the dropdown or something else that would accelerate the deleveraging or is this really is the deleveraging plan really an exercise in increasing the denominator of the leverage equation?.

So, I think, we'll -- I think all options are on table. Of course, the best way as you mentioned the best way to decrease leverage is to grow EBITDA, but we are evaluating all forms of supporting the leverage at the partnership because that’s priority for us..

Great. Thanks very much for taking my question.

You bet. Thank you..

Our next question comes from Blake Hutchinson from Howard Weil..

Good morning, guys..

Hi, Blake..

Good morning, Blake..

Just I guess first of all pretty optimistic preamble there and you cited in the release as well as your introduction, the new order levels exceeding those of 4Q 2014 and I guess this isn't really a metric per se that that you've given out, but what does that mean to us and how does that compare to maybe some of the tougher periods that we experienced in last couple of years? Is this indications from customers for commitments to new equipment, idle equipment, both and I guess -- so what does it mean and how does it compare to what we see recently?.

The easy answer is these are bookings for our services on the -- on new locations for both existing equipment as well as new equipment. It's really just the order book to commit our services for the future period with the customers.

If such a significant move in the quarter that even though it's not a metric that we're going to the introduce or report on, and I'll come back to why for a minute, the magnitude of it, it felt very much like an indication of what we expected and have been saying in past calls and releases that we saw coming which is a wave of activity to start to see the industry catch up to the amount of underinvestment that we saw during this downturn.

And so to catch-up, we see customers seriously getting back to work now and requesting and committing to our services at a level that such a significantly higher level than in the past that it's -- it is definitely noteworthy and we are optimistic about what it means for business.

One comment or thought on the metric that the -- a challenge with new order activity however is that -- these new orders that stretch all the way through 2017 and even into 2018. So, we see is a good long tell on this book of business, which is good.

But the timing of the starts will, of course, be offset by the timing of stop activity and we think that it's the net growth in horsepower that really drives our business.

So, while we love to see this new order book because it stretches out over a longer period of time and because it definitely is one half of the factors against the normal churn in turnover of the business. We don't really think it's a metric to be followed, but a magnitude of order activity in the marketplace that we absolutely found noteworthy..

Got you, got you. And I guess maybe just a couple follow-ups in terms of your observations on that metric.

Is there a point as we make ready and we have this -- the give-and-take friction within the business that kind of all things being equal on the commodity front, you think you start to get a more definitive trend towards net horsepower additions?.

Yes, I do, I do. But it starts with the cycle indicating new order activity where we see both existing operation staying in place longer as well as customers needing more services on location as they grow their production.

And since we see production growth for 2017 and ahead and we see production growth going strong for the next at least five years, we believe that is going to lead us into that position. We've always -- we've tried to consistently indicate. We saw the back half of 2017 is really the start of when we should see that.

That really hasn't changed and what we're reporting out this period is very consistent with that..

Great. And then just as another follow-up to that.

I guess that the last conference call which wasn't really all that long ago, I think there is a little bit more of a tone of concern that while demand was improving, the pricing competition was fairly heated and so there was an issue regarding how seamlessly added horsepower might enter the fleet from a kind of pricing and margin perspective.

Any insight you can help us out with on that? Do you think at this point that we might have a fairly seamless entry? Or do we need to be considerate of the fact that new horsepower may dilute others metrics around the edges?.

We still see a very competitive pricing environment in the marketplace and you saw that our revenue per horsepower stepped down just a bit.

And it's a nature of the competition and the amount of idle capacity in the marketplace today in certain horsepower ranges that will continue to derive, I think, relatively flat pricing as well turnover horsepower [Indiscernible] more competitive pricing level this year than it was in the prior year.

That said where we see -- we knew horsepower coming in and we expect to see more stabilities as utilization within those categories and at that equivalent level is a starting to tighten which is why we're all buying some more.

So is the balance and I would expect that until we see industry utilization moving back into the mid-80% range -- mid-80s that we're going to continue to see a pretty competitive pricing environment.

But the good news is step one is putting new horsepower to work, putting the existing horsepower to work and as we see this order activity pick up, we see that path -- we see a path to getting there that's ahead of us now..

That's great. Thanks for time guys..

Yes, thank you..

Thank you..

Our next question comes from TJ Schultz from RBC..

Great. Thanks.

Just on that last point, how -- so how suitable is the current idle capacity in your asset base right now for redeployment or is there a sizable spend required to get those idle assets working?.

Well, the sizable spend or the spend that we have to get the equipment ready is in our numbers. You can see that in our performance for the quarter, it's one of the things that impacted our gross margin percentage.

And the equivalent that we have in our fleet is good to go to work with a modest level of make ready expenditure like [technical difficulty] although this period we made ready a lot more horsepower than expected which was a good thing.

So, we think the equipment in our fleet is good; we've been pulling equipment that we did not want to reinvest in out on a quarterly basis and so we think its equipment that will go back to work.

Another indication of this is that when we look at our overall start activity, approximately 20% to 30% of our starts come from new equipment and the remainder from our existing fleet. And so that's of a validating metric as to the usefulness of what we're caring in our existing idle fleet..

So, the expenses are more in that make ready nature in mobilization and so forth, not so much as far as having to change the specs on the equipment or so forth, is that right?.

That's correct. When we have to change the configuration of the unit to meet a different specification, we typically -- that typically would show up in CapEx more than OpEx..

Right, okay. That's what I was thinking.

I guess as moving on probably your view on the contract compression market from an M&A perspective, are there opportunities for you all or do you want to consolidate in the space?.

Look there are number of players in the market today and we believe that there's both - maybe too much equipment and too much cost in the form of too many companies chasing these opportunities. We think consolidation would be a good thing in the industry whether we lead it or a part of it or whether others are.

We think consolidation would be a good thing. We have been a participant on the M&A front in consolidations in the past. But that's the only observational I'll really throw out is that, yes, we think that there's a consolidation in the industry..

Okay, fair enough. Just one last one specific on how to think about distribution policy when you get the balance sheet where you want.

Do you reset -- pay a higher at some level at the right coverage and what is that coverage ideally for you long-term? Or do you just think you grow the distribution kind of more steady to work coverage down over time?.

We haven’t said what the distribution policy is going to look like when we get back to the point where we're comfortable raising it up. So, it's too early to comment on where we're going to set it and how it will move. But we do know that we're carrying pretty good leverage.

Right now that is our first concern; we want to see that move in the direction we've indicated. And the path to doing that includes the growth in our business which we're seeing very strong indications of -- and positive indications of. And as for the coverage, we're also carrying robust coverage to address that leverage.

So, we believe the good news is from a capital perspective, we have adequate -- a great capital position right now to participate in growth to drive that EBITDA going forward mobilization and growth in horsepower which is going to allow us to take those steps in the future.

So, we feel like we're in a really good position, but it's premature to talk about the description policy at this stage..

Okay. Understood. Thank you..

Yes..

Our next question comes from Daniel Burke from Johnson Rice..

Hey guys. Thanks for bringing me on board..

Yes, no, welcome aboard Daniel..

Okay. In any case, just a couple of left here.

I was curious -- this one is a bit specific, but in terms of the growth CapEx, it looks like the full year budget continues to contemplate, the vast bulk of that will be sponsored at the APLP level and yet in Q1, if I did my subtraction correctly, it look like more of the growth CapEx remained at Archrock level.

What -- can you talk about the reasons of the rationale for that?.

Yes, going forward, the guidance we gave is how to be reflected. We had a large -- a decent amount of equipment that we ordered in 2016 for Archrock that we paid for this in this quarter. And so going forward, we expect a much higher portion of the growth CapEx to be spend at the partnership than in Archrock..

Got it. Thanks David.

And then a broader question, I mean can you characterize maybe the magnitude of stop activity you're seeing in the market in Q1 or into Q2 versus the environment last year, I mean what's the net negative you have to overcome to move back into net horsepower gain?.

I'll characterize it qualitatively.

It is the case that is our customers have turned their attention away from the drastic cost-cutting activities that were prevalent during the downturn part of the cycle and they're looking more at that growth, but they are also performing in a way that maximizes or at least maintains much more existing production as a base of they trying to looking at adding growth.

So, we have seen a moderation in the overall stop activities over the course of the last few quarters. That's the other side that we do see often running concurrently with the growth activity that we're seeing in the front end of now..

Got it. And then maybe just a last one.

I appreciate that this will essentially be a gross oversimplification, but when we look at Q2 make [ph] or revenue guide that essentially brackets where Q1 shook out, I mean is that is the right conclusion then that sort of average horsepower in the field and average pricing or essentially tilting for flat quarter-over-quarter?.

Yes, that's a good assumption that we'd likely said we're seeing stabilization in revenues and in horsepower continue in our favor, so that's what we expect for Q2..

Okay. And then shifting to net growth over the course of 2017 and 2018, not necessarily promised for Q2, okay -- in terms of net horsepower growth. Okay, guys. Thank you. Thank you very much for the time..

Thanks Daniel..

Thanks Daniel..

We have no further questions at this time. I'd like to turn the call back over to Mr. Childers for final remarks..

Great. Thank you, operator. Thank you everyone for participating in our first quarter review call. As we noted, we drove strong new orders in the first quarter and our position to take advantage of growth opportunities in 2017 and beyond.

We'll balance our need to invest in our fleet to meet expected growth with cyclical lows in pricing utilization as we discussed. As we do so, we remain focused on providing exceptional coverage and service to our customers.

And on this point, let me take a moment and pause and thank our tremendous talented [ph] employees in the field, in our shops, and throughout our organization for their incredibly diligent and hard work.

Your commitment to work safely and deliver excellent service to our customers continues to drive our company, our performance, and our future growth. Thank you, employees throughout Archrock for your hard, safe, and excellent work. With that, we look forward to talking everyone and updating you following our second quarter later this year. Thank you..

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