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Edited Transcript of MINI earnings conference call or presentation 27-Apr-17 4:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Mobile Mini Inc Earnings Call

Tempe May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Mobile Mini Inc earnings conference call or presentation Thursday, April 27, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Erik Olsson

Mobile Mini, Inc. - CEO, President and Employee Director

* Mark E. Funk

Mobile Mini, Inc. - CFO and EVP

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Conference Call Participants

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* Andrew John Wittmann

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Douglas Robert Mewhirter

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Joe Gregory Box

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

* Marc Frye Riddick

Sidoti & Company, LLC - Research Analyst

* Scott Andrew Schneeberger

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Sean-M Wondrack

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Mobile Mini 2017 First Quarter Conference Call. At this time, I would like to inform you that this conference is being recorded. (Operator Instructions) There is also a presentation that accompanies this conference call, which you can access at Mobile Mini's website at www.mobilemini.com. It is on the Investors page.

Before turning the call over to Erik Olsson, Mobile Mini's President and Chief Executive Officer, I will read the safe harbor statement. Before the presentation and the comments begin, Mobile Mini would like to remind you that some of the statements and responses to your questions in this conference call may include forward-looking statements. As such, they are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Any forward-looking statements should be considered in conjunction with the cautionary statements in our press release and the risk factors included in our filings with the SEC, which Mobile Mini encourages you to read. In addition, please refer to the Investors section of Mobile Mini's website to find additional disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.

Now I will turn the call over to Erik Olsson.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [2]

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Good morning, everyone, and welcome to Mobile Mini's First Quarter 2017 Conference Call. I am Erik Olsson, Mobile Mini's President and CEO, and with me is Mark Funk, our Executive Vice President and CFO. I am going to review the summary of the quarter and some operational highlights. Mark will review the financials, and then we will open up the call to questions.

And I will start on Slide #3, Financial Highlights. First, let me begin by saying the economic environment for our end markets were mixed in the quarter, but positive overall. Looking at the main drivers of our business, real GDP was fairly soft in the quarter, but it's expected to be pick up the pace in the coming quarters. Construction picked up nicely, and we saw a healthy level of demand, which we expect to continue. The oil and gas segment saw high levels of production in the downstream markets, resulting in a lower level of turnaround and actually delaying some maintenance activities. The end segment is doing well, and we expect these maintenance activity levels to pick up as we move through the year.

In the upstream segment, rig counts are increasing, and we saw a stabilizing environment during the course of the quarter. Lastly, the industrial segment appeared to reach an inflection point after several quarters of negative output and is expected to continue a positive trend going forward.

So with this as the backdrop, we generated a very solid first quarter, and I'm pleased with the execution of and delivery on our strategic plan. We achieved strong year-over-year activations, and we continue to improve our year-over-year rental rate performance.

But let me start out with some key stats and highlights of the most recent quarter. Total rental revenues, which include both Storage Solutions and Tank & Pump were up year-over-year when adjusted for unfavorable exchange rates. And looking at Storage Solutions first, rental revenues increased 3.1% year-over-year, adjusted for FX, and if you adjust for one less day this quarter, on a year-over-year basis and FX, our Storage Solution rental revenues were actually up 4.3% year-over-year. These increases were driven by increases in core activations, units on rent and rental rates. Q1 North American core activations increased 8.6% year-over-year, resulting in an all-time high first quarter units on rent. Now to be very clear, this means, we delivered 8.6% more units in Q1 than a year ago. And in fact, month to date in April, we are up over 12% in activations compared to April last year. Net of deactivations, the average total units on rent during the quarter were up a strong 3.2% year-over-year. First quarter rental rates increased 2.6% year-over-year on total units on rent. This improvement was driven by both rates on new units going out on rent, increasing 2.2% year-over-year, as well as rate increases negotiated on units that have been on rent for more than a year. This rate performance speaks to the strength of our business model and execution.

On the Tank & Pump side, rental revenues were down 11.4% year-over-year. Our largest segment, which is downstream, was down only 3.1% when adjusted for an extra day in the prior year, primarily due to deferred maintenance at one of our largest customers, which we expect to be temporary. The smaller diversified and upstream Tank & Pump segments were down year-over-year, diversified was down due to fewer large projects as well as less mining activity. Upstream was down year-over-year due to the oil and gas headwinds, but has stabilized compared to the prior quarters.

We achieved total adjusted EBITDA of $41.7 million with margins of 33.7%. We generated $23.7 million of free cash flow in the quarter, marking our 37th consecutive quarter of positive free cash flow. This has all resulted in Q1 adjusted diluted earnings per share of $0.25.

So overall, a quarter with many positive trends in the business, including all-time high first quarter units on rent, increasing units -- year-over-year Storage Solutions activations by almost 9%, increasing rental rates by almost 3% and a strong free cash flow. And at the same time, we believe end markets are improving further from this point.

Turning to Slide #4, and this slide highlights our diverse geographies and customer base. As you can see from the first pie chart on the right, we have a very balanced end market mix. Our largest segment is construction, at 45% of revenues, followed by industrial and commercial at 23%, which includes our downstream Tank & Pump business as well as the traditional industrial segment. And third is consumer services and retail at 20%, and this means that we maintain a broad diverse customer base in attractive segments with ample opportunities for continued growth.

The Net Promoter Score, which measures our customer loyalty, on the lower right graph, shows that we have high marks from our customer base. Our Q1 NPS of 85.1% is an all-time record high and is up 510 basis points year-over-year. This NPS score validates that our highest value provider strategy to drive rate and volume is working.

We also have a diverse geographic footprint with 156 locations, of which 123 are Storage Solution locations, 18 are Tank & Pump solution locations and 15 are shared with between the 2 business segments. We will continue to combine some overlapping locations for our segments, but more importantly, we will leverage our larger Storage Solutions footprint with the expanded Tank & Pump product line.

Moving on to Slide #5, and this slide shows our utilization by segment and the number of units we have in the rental fleet. As demonstrated on the upper left, we increased average Storage Solutions utilization to 69% for the quarter. This increase in utilization was driven by first quarter North American core activations being up 8.6% year-over-year, which is markedly up from Q4's year-over-year core activation increase of 2.1%. This activation momentum has continued into April with our month-to-date core activations up 12.2% versus the prior year.

Our ISR team averaged 201 for the quarter and is clearly starting to find its stride as evidenced by the activations result I just mentioned. Given our confidence in the business, and our model, we will continue to add ISRs to fill our near-term goal of 221 territories. And we plan to continue to expand the number of sales territories over time.

In our Tank & Pump business, OEC utilization for the quarter was down slightly to 62%, driven by less large diversified project as well as deferred maintenance at one of our largest downstream customers, which we expect to be temporary.

Turning to Slide #6, and this slide illustrates the power of our differentiated products and execution on our sales strategy as demonstrated in our year-over-year rate and yield increase. As mentioned, our Q1 rental rates were up a healthy 2.6% year-over-year and from new units going out on rent in the quarter, the rate increase was 2.2% year-over-year, even as we anniversaried our 17th quarter in a row driving higher rates on new units. So our strategy continues to work, albeit at a somewhat more moderate pace against more difficult comps.

Sequentially, our rates were down 0.4%, but this was driven by our higher rate seasonal units coming off rent in Q1. Excluding the seasonal units, sequential rates on our core units were actually up 0.4% quarter-over-quarter.

Our Q1 year-over-year yield for Storage Solutions was down 3% to $637 per unit, due to currency fluctuations and one less day in the current quarter. Adjusting for these unfavorable exchange rates and one less day, our yield actually increased 1% year-over-year to $663 per unit. This improvement was primarily driven by strong rental rate increase, and we are able to achieve this industry-leading or premium rental rate by focusing on our differentiated products and superior fleet and our strong sales and service culture, resulting in our being the highest value provider to our customers.

As we move forward, we will continue to balance rate increases with a strong focus on units on rent and believe that as we sell value, we can achieve average annual rate increases of approximately 2% to 3% over the cycle.

I will now hand over the call to Mark, who will cover the financials.

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [3]

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Thanks very much, Erik. So turning to Slide 8 and Revenue Highlights, you'll find first quarter rental revenues increased 0.2% year-over-year when adjusted for FX. This FX difference is due to the pound sterling weakening versus the U.S. dollar on a year-over-year basis. When adjusted for FX and one more calendar day in 2016, rental revenues increased 1.3% year-over-year.

Q1 Storage Solutions rental revenues were up 3% when adjusted for FX, and 4% when adjusted for FX and an additional day in 2016. Our increase in Storage Solutions rental revenues was driven by increases in both rental rate and units on rent. This unit on rent growth was achieved by an 8.6% year-over-year increase in Q1 North American core activations, which was up from a 2.1% year-over-year activation increase in Q4. Tank & Pump rental revenues decreased 11% from the prior year quarter. Downstream, which makes up 75% of our Tank & Pump business, was down only 3.1% when adjusted for the extra day in the prior year and is primarily due to deferred maintenance at one of our largest customers, which we expect to be temporary.

As Erik mentioned, our smaller diversified and upstream Tank & Pump segments were down year-over-year. Diversified was down due to fewer large projects as well as less mining activity and upstream was down year-over-year due to oil and gas headwinds but has stabilized from Q4 levels. The first quarter marks our 25th consecutive quarter of year-over-year growth in rental revenues when adjusted for FX.

Turning to Slide 9 and Profitability, we achieved total adjusted EBITDA of $41.7 million and a margin of 33.7% for the quarter. For Storage Solutions, we generated adjusted EBITDA of $36.1 million with a margin of 35.6%, which was down 220 basis points year-over-year, primarily as a result of lower incentive compensation in 2016 and one less calendar day in 2017. For our Tank & Pump business, we achieved adjusted EBITDA of $5.6 million and a margin of 25.2%, which was down year-over-year, primarily due to lower rental revenues as well as higher repairs and maintenance expense.

Continuing to Slide 10, you can see the company's first quarter adjusted rental SG&A level was $78 million, which was up $1.7 million year-over-year from increases in incentive compensation, transportation costs and repairs and maintenance. As far as rental SG&A as a percent of total revenue, it increased 190 basis points to 63% for Q1 2017, driven by higher incentive compensation as previously referenced in our Q4 earnings call.

On the next slide, you'll see Q1 North American storage solutions rental revenues were up 2% year-over-year. North American storage solutions Q1 adjusted EBITDA margins were down 1.7 percentage points year-over-year, due to lower incentive compensation in Q1 2016. The U.K. storage solutions rental revenues decreased 7.5%, but this was due to FX. The U.K.'s rental revenues were actually up 7% in local currency. And the U.K.'s Q1 adjusted EBITDA margin was 32.8%. And finally, our Tank & Pump business had a -- had rental revenues at $21 million with an adjusted EBITDA margin at 25% for the quarter.

Turning to the free cash flow slide on Page 12. Our free cash flow was $23.7 million for Q1, and this was our 37th consecutive quarter of positive free cash flow. We returned $10.1 million in dividends and repurchased $7.6 million in shares in the quarter. As a growth company with strong free cash flow, we increased our quarterly dividend 10% per share in Q1 '17.

The chart on the right highlights our CapEx spend. Q1 net CapEx totaled $9.1 million. Of this, we invested $5.4 million in growth Capex for our lease fleet, the vast majority in high demand storage markets in the Eastern U.S. and the U.K. For the full year 2017, we are planning to spend approximately $50 million in net CapEx, including assets funded under capital leases, and we expect to nicely expand year-over-year free cash flow.

Turning to the next slide. We have a very flexible capital structure with a high level of liquidity. In the last 1.5 years, we reset our entire debt structure by extending maturities, reducing interest costs and increasing our financial flexibility. As of March 31, we had over $350 million of excess availability on our revolver, and we only have one financial covenant in our entire capital structure. And that's only tested if we have below $100 million of excess availability on our revolver. Thus, with $350 million of excess availability, we have a lot of room above this testing level. Looking to the right chart and our debt levels, we ended the quarter with total net debt to adjusted EBITDA at 5x, and we expect to utilize free cash flow to delever in the next 12 months.

So to summarize, we had a very solid quarter with many positive trends in business, including: improving year-over-year activations, which increased our Storage Solutions average unit on rent up 3.2% in the quarter; we also drove higher storage rental rates, which were up 2.6% year-over-year; and we delivered strong free cash flow of almost $24 million in Q1.

And finally, looking forward, we are well-positioned to leverage the investments we made in people, fleet and infrastructure, which we expect to result in continued free cash flow growth in 2017.

So with that, I will turn the call over to the operator for questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Joe Box with KeyBanc.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [2]

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So how should we think about the 8.6% increase in activations in the quarter? I guess, relative to the 3.2% increase in units on rent, I mean it seems like there is a little bit of a disconnect there. Is that a function of accelerating unit returns? Or just any way you can bridge the gap on that?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [3]

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Right. Our change in units on rent is, obviously, the net result of activations that we're putting out on rent and deactivations of customers who are returning fleet and -- or returning units. So while activations were up 8.6%, deactivations were up something less than that, but it resulted in a net change in the units on rent of the 3.6%. So that's -- we haven't seen any change in the length of rental or anything, this is just a -- something we don't really control and it's an effect of the number of units we put out 9, 12 months ago and so on.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [4]

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I definitely get that, Erik. I mean, I guess, is it -- have you seen any change in the number of deactivations recently? I mean, has it stepped up? Or is it basically in line with where it's been?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [5]

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I would say it's stepped up year-over-year, but that's because we delivered more in Q1 of '16 than Q1 of '15, but the length of rental has actually extended a bit. And I think, we're having that activation growth and what you'll see is, we talked about the averaging of some rents, but what's nice is it's been growing every month, obviously, of the quarter. We talked about the quarter being 3.2%, but it started -- January was 3%, in March it was 3.6%. So we're nicely building on that activation even net of those if you want to call it a higher level of pickups, just because we delivered more product in the prior year, if that makes sense.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [6]

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Got it. Got it. Okay, I guess in line with the prior question, can we just talk a little bit about the retail business? Clearly, we're starting to see an acceleration in retail bankruptcies, and just overall kind of disruption from e-commerce. I'm curious how it's playing out through your business? And if that could actually be a factor of why we're seeing limited unit on rent growth?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [7]

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I wouldn't say limited unit on rent growth. I think we're 3.2% or 3.6% is pretty solid. We haven't experienced any bankruptcy in our numbers. I think the -- most of the trouble in the retail sector is mall-related, and we do fairly little business with mall-operated stores. We do more with stand-alone big box retailers as you know. So we have not seen any impact of that.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [8]

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So if I look at the end market breakdown that you have, I think retail as of right now is about 20%, and if I just multiply that by the total revenue number you have, I mean it looks like the retail component on a dollar basis is down 10% year-over-year and down 18% from 1Q '15. Is there some sort of mix factor in there? Or is that actually a fair number to look at?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [9]

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I would say, it's a mix factor. I mean, if you look at our large retail customers, we're actually up, I would say on a year-over-year basis and so it could just be a silo thing, but our retail business is steady and actually, I think, we've done a good job with our national account team actually taking market share. So if there's any headwinds as far as online retailing or whatever, we've actually taken a larger percentage of our customers market share.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [10]

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Right. And to be clear, the retail segment there is pure retail; a remodeling in the retail operation would end up in the construction segment. We're trying to look at the use when we do that chart.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [11]

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Got it. Okay. That's helpful. I didn't realize that was the case. Last question for you. Can you talk about the used container market? Have you seen a benefit of higher prices either in terms of asset sales, which actually popped in 1Q? Or are you getting any sense that competitors might not yet be able to grow their fleets? Any change in the way that you're running your business or it's kind of filtering through into the industry?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [12]

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No, I would say really, kind of, no change. We're not seeing change in our competitive environment. We're not operating our business any differently, I think. We're executing better both on a rental and sales -- on both of those areas, but I wouldn't say it has anything to do with underlying container prices.

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Operator [13]

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Our next question comes from the line of Andrew Wittmann with Baird.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14]

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So I wanted to kind of build on Joe's question a little bit and dig into some of the end markets. Let's start with upstream -- I'm sorry, downstream business, which you kind of mentioned was down, I think 3-ish percent, if you adjust for things. Do the comps -- now this business has obviously been challenged for a while, as I recall. When do those comps start getting easier? Is that next quarter? Or is that -- do we have to wait till closer to the end of the year on that? When can we find some -- when should we expect to maybe see that flatten out and actually grow?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [15]

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Yes, I would say the next 1 to 2 quarters.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [16]

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Right.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Okay. And then, just on the industrial side, I mean, there's -- I guess, if we do the same kind of math that Joe is alluding to, that business is starting to flatten out. Based on your comments, do you expect that your overall revenue growth will be inflecting and improving as the year goes on, given some of these markets are bottoming?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [18]

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Yes. Yes, we do, definitely.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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And is that -- presumably that's more on volume than on price, but the price has been fairly steady recently. I'm just trying to get the components of how you see that acceleration happening?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [20]

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Yes, there would be more -- more volume than price.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Great. And then I guess, maybe if you don't mind Mark, can you just remind us, how the days stack up for the rest of the year? I know there was obviously this issue in 1Q for modeling purposes, but what should we be thinking about as the year progresses?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [22]

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It would be really the same number of days. The one thing that threw us off, if you want to call it -- or everyone off in Q1 is the fact that there was a leap year last year. So there was an extra day of rental that everybody got the benefit from in Q1 of '16, but obviously, if we're -- it's a business day or nonbusiness day, we're generating revenue, right, on our rental fleet. So they would stack up on a similar basis as far as and -- obviously calendar days and directionally obviously rental revenue.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [23]

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Got it. You didn't talk a lot about the margin impact as much from the extra day. How does that work out? What was the margin impact from that extra day last year that you didn't have this year?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [24]

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It would have been somewhere, I would say, probably couple of million bucks.

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Operator [25]

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Our next question comes from the line of Scott Schneeberger with Oppenheimer.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [26]

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With regard to -- in diversified, the deferred maintenance projects and you cited a big one that's delaying now and that had occurred a bit last year. What do see as the time frame? Is it just -- it's just when the customer informs you? Or do they give you much lead time? And if so, are you hearing? Are you going to get that back on?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [27]

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Well, obviously, we are trying to get as much information as we can from the customers, but they don't always tell us exactly what their plans are and so forth. I think the -- we expect Q3 to be -- to have a large component of turnarounds, but we also see that there will be some improvement here in Q2 as well.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [28]

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And in diversified, there was talk of fewer large projects. Was there -- were there large ones last year that didn't recur? Could you just elaborate a little bit more on that, please?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [29]

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Yes, yes, there were some really big ones. If you take the top 2 projects we had last year made up over 20% of the revenues. There was flooding in St. Louis, and we had a big pump project here in Phoenix. And those 2 alone made up over 20% of revenues last year and did not repeat. Mining, it was another big factor that dropped off in Q2 last year, but we still had a lot of revenue coming from mining activities as well.

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [30]

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Yes. I mean, it's down $1.4 million year-over-year on the large projects, and that's $1.2 million right there of that -- those 3 things Erik just mentioned.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [31]

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That's right.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [32]

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Okay. And then you cited Mark, you said higher repair and maintenance the first quarter in specialty. Is that tied to combined locations, maybe some movements and change? Or am I off the mark there? Is it just typical repairs and maintenance?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [33]

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I would just say it was driven by a little bit more activity. I mean, we did actually grow utilization as the quarter went on. So it was just tied to, I would say, more activity. So as far as specialty containment, it was about $200,000 up year-over-year on -- as far as repairs and maintenance.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [34]

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And then lastly for me, SAP. Could give us a progress report and thoughts on when we might actually see some benefits of P&L profitability there? Or is that less of a folk just getting the utility of the system?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [35]

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Well, first of all, the SAP is no longer a project, or an implementation project. We reconsider that over and done with. The system is working very well, and we're very busy now in running a lot of different projects leveraging the system. And it will be -- it'll help us both in making us -- easier to do business with for our customers, lot of customer-oriented projects that we obviously expect that it will help us generate revenue and growth, as well as some efficiency projects that should translate into margin expansion or lower cost. So those will be implemented here gradually throughout the year, and then we're going to add new projects through it and this will be part of the day-to-day work and ready to leverage the investment we've done.

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Operator [36]

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Our next question comes from the line of Doug Mewhirter with SunTrust.

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Douglas Robert Mewhirter, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [37]

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You talked about the -- that you would deleverage with some of your free cash flow. Any idea of the pace or the magnitude of that deleveraging? Do have a goal of by year-end 2017? I want a certain ratio or a certain level of debt or are you just going to sort of allocate x percentage of your free cash flow every quarter to paying down debt?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [38]

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I mean, we've stated our goal before and it hasn't changed is to get just slightly below 4x. To me, that's still our goal. I don’t want to really give a time line to it, but our focus is to generate more free cash flow this year than last year, continue obviously, to pay our dividend, invest in the business, but our CapEx number including cap leases this year is $50 million versus over $90 million last year, so that provides a lot of more free cash flow to obviously pay down debt, so that will be our focus. Obviously, we took advantage of the shares pulling back as far as price this last quarter and [didn't] also; we still have that lever to pull as well. So we will be focused on paying down debt, but that's not to say we won't repurchase shares from time to time.

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Douglas Robert Mewhirter, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [39]

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And then just a small numbers question. And then unless I'm -- I got the numbers down wrong, it looks like sequentially from the fourth to the first quarter in the Tank segment, your depreciation fell off quite a bit, even though there really wasn't much of a change in the value of the fleet. In fact, I think it may have picked up sequentially a little bit. Is it -- you -- is it because you have more longer lived assets with the slower pace? Or is there any particular reason behind that?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [40]

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No, I think you hit it. We have been investing in kind of the larger assets that have the 25-year life to them, which are the stainless steel tankers and things like that. So that's kind of really what's going on there.

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Operator [41]

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Our next question comes from the line of Marc Riddick with Sidoti.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [42]

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So I wanted to touch on the -- maybe it's bit of a follow-up on the SAP benefits and just wanted to get a sense of it seems as though the time frames in some of the projects that you have lined up, you are looking at the benefits of that being probably more of a -- is it fair to call that more of a benefit really kind of beginning more visible in 2018 and beyond? And I wanted to get a sense of whether or not you had a general level of magnitude of the benefit in mind when you're looking at some of the projects that you have in mind there?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [43]

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Yes, I think, as I said, these projects will be or some of these initiatives will be implemented during the course of the year here. We are, for example, we right now have a customer portal out with some 40 customers, I believe testing it, and we expect in the next month or so that, that will be rolled out to a much wider audience and it will dramatically change the way these customers can do business with us, a lot of self-service activity. We expect that, for example, to reduce the number of calls that we get for helping out our customers or providing information, billing information or et cetera, for our customers. So that should be both a savings as well as a -- hopefully, a benefit that will help us generate more revenue. To put numbers on these things, it's too soon. But like I said, we expect both growth as well as cost efficiencies coming out of this, but I would think of it more as a 2018 activity than 2017.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [44]

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Okay. And you did a -- you did go over the retail side of things and some of the concerns there in a prior question. I was wondering if you could give us a similar update as far as the trends and some of the things that you're seeing on the construction side. Certainly, now we're up to about 45% of revenue there. I was wondering if you maybe you could sort of give us an update of what benefits you're seeing so far, as far as increased construction, and then maybe some of the things that you think might come about that we haven't seen yet so far in that area?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [45]

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So I think we see a healthy level of demand, both in Q1 as well as going forward. I mentioned in fact here in April month-to-date, our activations are up over 12%, a lot of it driven by construction activity. So we expect construction to be the main driver of growth for us here in 2017, and this obviously, talked about the infrastructure builds and such things coming, and we should be a major benefactor if that or beneficiary, if that happens. So we feel we're very, very good position here for the construction cycle.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [46]

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Okay. I was wondering if -- you talked about the increase in the pricing side that we saw during the first quarter. I was wondering if you could give us some thoughts as to what we're seeing so far in the second quarter on pricing relative to what we've seen -- what we saw in the first quarter?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [47]

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No, it's early on in the quarter, and we're just in April here, but we've actually seen a further improvement month-to-date here.

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [48]

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I mean, I think, in summary, I think, we're seeing momentum on the volume side and the storage business we just talked about the pricing, and then moving that over to the Tank & Pump, I mean, if you kind of even just go back to the Q1 as far as our OEC utilization, it was 60% in January, 63% in March and we're at 65% today. So we see really nice momentum on the volume side of Tank & Pump in addition that we were just talking about the Storage Solution side, both the volume and the price.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [49]

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Okay, great. I appreciate the color there. And then I guess maybe one last one for me. I was wondering if you had any sense of any changes or updates as to competitive environment, maybe on a more local level or maybe what you're seeing as far as -- maybe sort of your local competitors, whether or not, there's much in the way of change in that regard?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [50]

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No, I can't say that we've seen any change. I think on the Tank & Pump side, I think we're -- when we compare ourselves to the competition that we performed stronger in that segment. And on the container side, the same thing, I think we are performing very well against competition and can't say that we've seen any change or...

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [51]

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Yes. No change really in buying patterns, which we talked about with Joe. Pricing, I think, people are extremely rational. It's not really a change in the environment on the storage side at all.

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Marc Frye Riddick, Sidoti & Company, LLC - Research Analyst [52]

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Okay. And then one last one actually, just -- I just forgot to mention. The increase in headcounts that you're looking at to sort of take advantages of opportunities that you see, I was wondering, if there -- if we should expect that to be relatively concentrated in the next couple of quarters? Or is that something that you're looking to add somewhat on a smoother way? I guess maybe how should we sort of think about the timing of additional heads?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [53]

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Yes, I think we expect to build up that category in -- I'd say the next 2 quarters is probably reasonable.

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Operator [54]

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(Operator Instructions) Our next question comes from the line of Sean Wondrack with Deutsche Bank.

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Sean-M Wondrack, Deutsche Bank AG, Research Division - Research Analyst [55]

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Just a couple quick questions. Oil and gas basins not all are created equal, you guys are spread out a bit. I was curious if you could talk about some of the different dynamics between each, which one is doing better? That's the Permian, I would imagine. And maybe where your exposure is a little more formidable?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [56]

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Yes. So really our focus is really just 2 areas, which is the Permian as you said, as well as Marcellus. And if you looked quarter-over-quarter, year-over-year, the Permian has added quite a bit in their former rig count, which is good. So I think net-net when we look at our number where we've seen overall stability or increases I should say, it's been on the Permian side. And we actually have invested in some human capital there that is really doing a great job and executing well. So it's a small part of our business, but the good news is that the upstream side is flat sequentially and we expect it to grow from here.

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Sean-M Wondrack, Deutsche Bank AG, Research Division - Research Analyst [57]

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Great. And then on the Marcellus piece, and -- because that's a little bit higher cost, is that a little bit slower to rebound at these levels of oil prices?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [58]

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Yes, I mean it has been. I mean, if you look -- I mean, it's been fairly level as far as if you look at rig count over the last several quarters, I mean it kind of dipped down in the middle of '16 and then it's kind of rebound the last several quarters, but it hasn't had, if you want to call it, the improved activity that we're seeing in the Permian.

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Sean-M Wondrack, Deutsche Bank AG, Research Division - Research Analyst [59]

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Great. So then if you think going forward, are you basically strategizing around being closer to the Permian and closer to some of these lower-cost basins as opposed to some of these higher-cost basins, given the backdrop that oil may stay around this level for a long time?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [60]

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We really never -- I mean, the reason we acquired ETS is really for the downstream business. It really hasn't -- wasn't a focus of being invested in the shale plays, it's down to 2% of our revenues. We were already there when we made the acquisition, so we're just trying to optimize that. Our focus is outside of, if you want to call it, the upstream area.

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Operator [61]

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Our next lesson is a follow-up question of Joe Box with KeyBanc.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [62]

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So I apologize if I missed this, but did you guys give an updated ISR number?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [63]

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We averaged 201 ISRs in the quarter.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [64]

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201. And I believe it was what, 211 in 4Q?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [65]

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I think -- the average was 209 for the quarter.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [66]

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But we've added or we've changed certain sales roles, so we have vertical sales people now, for example, that concentrate on specific nonconstruction segments, and we have senior accounts reps now -- a bunch of them and we have digital salespeople, so those would previously have been in the ISR account, and now they are outside of it. So it's not really apples-to-apples comparison.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [67]

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Okay. So the number of salespeople that you have actually selling or putting containers on rent, can you give me an idea of what that growth rate is, year-over-year versus sequentially? I mean, it sounds like you have more.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [68]

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Yes, so year-over-year...

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [69]

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Yes, if we look at the buckets that Erik was -- which includes our national account managers which we've invested as well and they call on the Targets and the Walmarts. So our overall sales headcount is up 5% year-over-year, Q1-over-Q1.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [70]

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Okay. Perfect. And what was that up in 4Q, do you have that number, Mark?

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [71]

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Yes, let's see. That was at -- 4Q, it's about the same, 5.5%, Q4-over-Q4. But as Erik said, we've added these new roles, but we're still looking to add up to the 221 ISRs, so that's just incremental activity on top of the very solid activations we're having.

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Joe Gregory Box, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [72]

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{

So maybe just to take a step back, and I want to preface it by saying, I understand that there's going to be a learning curve associated with all the sales guys that are coming on, but I guess, you guys have made a big investment in the sales force early and it's up meaningfully since 2Q '15. How are you guys measuring the efficacy of the sales force? What metrics are you specifically looking at? What should we be looking at, really to kind of understand what the return on this investment might be?

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [73]

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Well, ultimately, the return on the investment is of course revenue and activations. We look at -- I think we've talked about in the past, that we have a quite sophisticated territory management system where we now can value each territory that is assigned to our sales reps based on Dodge information on construction activity and based on the D&B data or SIC Code data, a number of retail operations et cetera, et cetera. So we can put a value on a territory, and we can compare that then to what we're actually doing in that territory. We can see if we need more or less sales reps in a certain area, and then we can hold them accountable against this number. So all territories are not created equal, right? Some are better than others and therefore, we need to take this individual look. At the end of the day, we look at the number of orders they take and the number of activations we get out of each sales rep, but it's on an individual basis.

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Mark E. Funk, Mobile Mini, Inc. - CFO and EVP [74]

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So if we added 5% headcount, but we had 8% more deliveries, obviously, we're doing better on a per-head basis in delivering more -- providing more revenue to the business.

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Operator [75]

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We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

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Erik Olsson, Mobile Mini, Inc. - CEO, President and Employee Director [76]

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Once again, thank you very much, everyone, for participating in this call today, and we look forward to reporting on our second quarter call when it goes around.

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Operator [77]

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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.