Mobile Mini Q4 2008 Earnings Call Transcript

Feb.26.09 | About: Mobile Mini, (MINI)

Mobile Mini, Inc. (NASDAQ:MINI)

Q4 2008 Earnings Call

February 26, 2009 11:00 AM ET

Executives

Steven G. Bunger - President and Chief Executive Officer

Mark E. Funk - Executive Vice President and Chief Financial Officer

Analysts

Adrienne Colby - Deutsche Bank Securities, Inc.

Theodor Kundtz - Needham & Company, Inc

David Gold - Sidoti & Company

Scott Schneeberger - Oppenheimer & Co

Operator

Good day, everyone, and welcome to Mobile Mini Incorporated Fourth Quarter 2008 Conference Call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I would now like to turn the call over to Mr. Steve Bunger, President and CEO.

Steven G. Bunger

Thank you and good morning. I want to welcome everyone to Mobile Mini's 2008 fourth quarter results conference call. And with me is Mark Trachtenberg (ph), our Executive Vice President and Chief Financial Officer.

To start with, Mark is going to read the disclaimer, outline the press release give you his comments. Following that I will give you my comments. And then we'll open the call up to questions and answers.

So with that said, I'll turn the call over to Mark.

Mark E. Funk

Hi, good morning all. Thank you, Steve. This is Mark Funk and I'd like to walk you through some prepared comments. We issued a press release this morning detailing our fourth quarter and fiscal year ended 2008 operating results. This release is available on our website and can also be accessed through various web-based news services. Form 8-K containing the press release has been filed and is also now available.

So before we get started, I'd like to read you our legal disclaimer. This call may include forward-looking statements, particularly regarding earnings estimates and anticipated cost savings resulting from our merger with Mobile Storage Group, which involve risks and uncertainties that could cause actual results to differ materially from those currently anticipated.

Risks and uncertainties that may affect future results include those that are described from time-to-time in the company's SEC filings. These forward-looking statements represent the judgment of the company as of this date and Mobile Mini disclaims any intent or obligation to update forward-looking statements.

So unless otherwise noted, all results discussed in this call will be our non-GAAP financial results. A discussion of debt extinguishment expense is excluded from our 2008 non-GAAP operating results, in addition to integration, merger, restructuring, and goodwill impairment related expenses are excluded from our 2008 non-GAAP operating results. These items are included in our press release which I discussed was issued this morning.

In this conference call, we will discuss non-GAAP financial measures such as EBITDA and free cash flow. Reconciliations of how we define and arrive at EBITDA and free cash flow are included in our Form 8-K.

Revenues during the fourth quarter increased 47% to $123 million from $83.6 million last year. Lease revenue increased as well 47.3% to $109.4 million from $74.2 million last year.

EBITDA increased 78.6% to 57.9 million from last year's EBITDA of $32.4 million. And net income for the quarter ended December 31, 2008 increased to $18.2 million or $0.42 per diluted share as compared to net income of $12.4 million or $0.36 per diluted share for the same quarter last year.

The company's fourth quarter operating margin increased to 47.1% from 38.8% during the fourth quarter of fiscal 2007.

Our improved results in margins are primarily from the 7.7 million of cost synergies achieved in connection with our merger with Mobile Storage Group in June of last year. This merger enabled us to combine branch operations across the country and to take advantage of the operating leverage inherent in our business. In addition, we're able to eliminate duplicate corporate overhead.

These cost reductions were offset in part by continued weakness in our rentals to non-residential construction segment. As you all are aware we're in the midst of a downturn in non-residential construction activity which can been seen in all our markets, and continues to be more severe in California, Arizona and Florida.

As a result of the downturn in non-res construction as well as the overall economy, leasing revenues in the fourth quarter declined approximately 8% from third quarter 2008 leasing levels. Our fleet utilization for the fourth quarter was 73.9% versus 74.8% for the third quarter. In addition, excluding several one-time pick-up adjustments relating to fuel and a decrease in our bonus accrual EBITDA would have been approximately $52 million for the fourth quarter of 2008.

Is also worth noting that the fourth quarter is typically our strongest quarter of the year due to our seasonal rental business in the U.S.

For the fiscal year ending December 31, 2008 revenues reached 415.4 million and EBITDA totaled approximately 175 million. The good news is we achieved our EBITDA guidance and we are at the high end of EPS guidance with earnings per share at a $1.49 for the full year. And this is despite lower revenues due to the current business environment.

During the year ended December 31, 2008 we significantly cut back on our fleet capital expenditures and generated free cash flow for the first time in our history. We generated $33.9 million of free cash flow versus a cash requirement of 37.6, during the same period last year.

Total net CapEx for 2008 was $65.1 million. To break that down our lease fleet CapEx net of proceeds from sale of lease fleet was approximately 46.8 million of this amount and PP&E CapEx was approximately $17 million.

We generated 97.9 million of cash flow from operation.

Our ratio of funded debt to EBITDA stood at 39... I am sorry 3.9:1 at December 31, 2008 as calculated in accordance with our credit agreement. We have consistently maintained the strongest balance sheet in the industry. As far as our capital structure, we have two issues of publicly held notes outstanding as well as a $900 million asset base line of credit.

The earliest of these issues to mature is our line of credit, which doesn't mature until June of 2013 and we see there is no need to refinance any of debt before then. In addition, we have no financial maintenance covenants into our senior notes and the financial maintenance covenants in our credit facility do not apply unless we have less than a $100 million of excess availability. Now please note, at December 31, 2008, we actually had 332 million of excess availability.

As highlighted in our press release we incurred a non-cash goodwill impairment charge estimated at 13.7 million for our U.K. and Netherlands businesses. Similar to the experiences of many companies, our market capitalization declined in the fourth quarter as a result of the overall business environment and the volatility in the equity market.

And thus, we had an estimated non-cash goodwill impairment charge. The fair values of our three reporting units in the aggregate exceeded the aggregated book value of the company as of December 31st, to an aggregate we did exceeded. However, for two of our reporting units the fair values were less than the book values, and as a result we had an estimated non-cash goodwill impairment charge totaling 13.7 million which relates to our U.K. and Netherlands operations.

Given the weakness in the non-residential construction and consumer sectors we have far less visibility in our business than in prior years. And as a result we are suspending practice of providing guidance. For 2009, we will continue to focus on sales and marketing but we are also focused on taking our cost out of our business. We are looking at preserving capital, reducing capital expenditures and paying down debt.

Given that the bulk of our CapEx is discretionary, we plan on reducing net capital expenditures to 15 to $25 million for 2009, which as I mentioned earlier compares to $65 million for last year.

In addition, our interest expense currently on a cash basis is approximately $16 million. In addition, to providing an outlook on CapEx for 2009 we are managing our business and cost structure, assuming revenues will decline 10 to 15% from fourth quarter levels.

With that I would like to hand the call back to Steve for his remarks.

Steven G. Bunger

Thank you, Mark. The fourth quarter was another very busy quarter for the entire Mobile Mini team as a result of the Mobile Storage merger that closed at the very end of June. I'm very happy to report that except for rebranding Mobile Storage units we are officially out of the integration stages in the U.S. and in the U.K.

For the quarter our rental revenue, sales revenue, operating income, EBITDA and earnings have all significantly increased as a result of the merger.

Our rental fleet utilization was lower compared to prior periods due to the merger as well as the overall economy. Our rental yield, a little bit of breakdown on our rental yield, our rental yield was down 5.9% lower as a result of really three major categories, which are the Mobile Storage rental fleet mix prior to the merger, the foreign exchange rates and the post merger rental fleet mix.

3.3% of that 5.9%, 3.3% in total of the decline related to the Mobile Storage units that were purchased as part of the merger and still on rent during the fourth quarter. Mobile Storage's overall rental yield was much lower than Mobile Mini's, because Mobile Storage did not have mobile offices and a lower percentage of security offices, compared to Mobile Mini's mix.

Both of these products rent at higher rates compared to storage units. In addition, Mobile Storage had lower rental than trailers in their fleet. These units comprised 1% of our fleet prior to the merger and now comprise 6% of our fleet after the merger.

1.6% of the rental yield decline related to the foreign exchange rates. A year ago, the exchange rates for the British pound to the U.S. dollar was about 2 to 1. Last quarter the exchange rates went down by 33% to about 1.5 to 1.

The remaining 1.6% rental yield decline related primarily to fewer offices on rent, compared to the prior year, which rents for higher rental rates compared to Storage units.

From a current pricing perspective in the U.S. and in the UK, we are experiencing lower rental rates for the commodity like mobile offices, but not for our differentiated security offices and storage products. The rental rate for storage units and security offices remain quite strong.

From a current mix perspective, only 4.4% of our units on rent in the U.S. are mobile offices, and in the UK 10.3% of the units on rent are modular type offices.

The lower utilization was a result of the Mobile Storage fleet, which had a lower utilization rate than our prior utilization rate. Pure seasonal units on rent and the general economic slowdown. As expected, our seasonal rentals peaked out at about 12,000 units, which are down from above 13,000 units last year if we combine both Mobile Mini and Mobile Storage seasonal rentals.

As with prior years, seasonal rentals will be currently smaller and smaller portion of our revenues. Instead, we are concentrating on our core storage customers, which are much more profitable, longer term usages and a much better use of our capital.

In the press release, we announced that we have taken significant steps to right size the business for the current economic condition. Between the U.S. and the UK, we have reduced our headcount by 430 employees. Today, we employ about 1,650 employees in the U.S. and 450 in Europe for a total of 2,100 employees. Of those, 450 are dedicated sales people that received the vast majority of compensation from commissions.

The reduction employees will relate to eliminating variable cost positions and our strategic decision to eliminate manufacturing at the vast majority of our branches. Going forward, our capital expansion needs will be very low for sometime because of the excess inventory we obtained as a result of the Mobile Storage merger, which will also be somewhat offset by sales of containers roughly.

In addition, our maintenance CapEx requirements are very, very low. Other cost reduction initiatives included converting some branches from standard branches to an operational branch. Standard branches would be staffed with a branch manager, office personnel, sales people, drivers, and yard people, plus have local inventory.

An operational branch would only be staffed with drivers, and maybe a dispatcher and also its local inventory. The sales people will be located at a nearby branch, but an operational branch will eliminate the need for a branch manger in many of the office positions. The advantage of this type of branch as we leverage the cost of a nearby branch for sales, marketing and management. But, still offer customers local delivered pricing and service out of the operational branch.

Since the merger, we have converted 24 branches into low cost, high customer service operational branches. The merger with Mobile Storage has transformed Mobile Mini into a free cash flow business, which should produce significant cash flow as a result of the excess rental fleet and additional profitability of the combined business.

We will use that free cash flow to pay down our line of credit, or we could buyback a portion of our high yield bond. Our strategy going forward is to continue to focus on sales and marketing and customer service, but to also continue taking operating costs at the business as needed, and significantly reduce our capital expenditures to maximize cash flow.

We continue to be encouraged by the fact that our Storage business seems to be holding up very well, compared to the general shorter term equipment rental industry, which are experiencing significant revenue decline.

Fortunately, a lot of our construction customers, which represents 36% of our units on rent at the end of 2008 are related to maintenance and remodel type projects as typically continue even during an economic slow down. At the end of 2007 as an example, construction customers represented 42% of units on rent.

In addition, approximately 53% of our customers typically built one container with an average run rate of $100 per month, and an average term of about 32 months. These type of customers have historically kept their units on rent during past economic slowdown.

With that being said, we are still managing our business with the anticipation that things will get worse before they get better in the U.S. and in UK. This is not the first time we have been faced with the difficult economy. In fact, we are much better positioned today than in prior slowdowns because, we have a better market diversification, better product diversification, customer diversification, a strong balance sheet and now a free cash flow business, which will allow us to deleverage our balance sheet.

That concluded our prepared comments. I'd like to turn the call back over to the operator for the Q&A session. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Adrienne Colby of Deutsche Bank.

Adrienne Colby - Deutsche Bank Securities, Inc.

Thanks for taking my question. Excluding some of the restructuring expenses in the goodwill impairment, your SG&A came down considerably as a percent of revenue. I understand that you aren't giving specific guidance going-forward. But if you could give us some indication that you think that the current run rate is something that's sustainable.

Mark Funk

Well, thanks for the question, Adrienne; this is Mark. I would say it's sustainable... but a lot depends as a percentage based on kind of the top line as far as revenue if you are looking at SG&A as a percentage.

Adrienne Colby - Deutsche Bank Securities, Inc.

Yeah.

Steven Bunger

Our goal is to try to maintain the margin as best as possible. If the revenues come down, we've identified the variable cost items that we'll take out, so that we could maintain margins.

Adrienne Colby - Deutsche Bank Securities, Inc.

Okay. It really looks like it's trending as a sort of percent of revenue, 5% below what your average has been for quite some time, so really a significant change.

Steven Bunger

That's really the power of the merger. Because when we combine the two businesses, we basically took out a lot of fixed costs that were duplicate between the two businesses and just added the revenue on top of our existing cost structure. So, that's really the operating leverage of the business when we combine the two business.

Adrienne Colby - Deutsche Bank Securities, Inc.

Okay, great. And if I could just ask one more, could you give us the breakdown of your offices at year end of the 94 geographically?

Mark Funk

I am sorry geographically, yes it's 74 in the U.S., 2 in Canada, 17 in UK and 1 in the Netherlands.

Adrienne Colby - Deutsche Bank Securities, Inc.

Great, thank you very much.

Mark Funk

And in addition obviously we have operationally... you've talked about.

Adrienne Colby - Deutsche Bank Securities, Inc.

Sure.

Mark Funk

Those are 24.

Adrienne Colby - Deutsche Bank Securities, Inc.

Thank you.

Mark Funk

Yup.

Operator

Your next question comes from the line of Ted Kundtz of Needham Company.

Theodor Kundtz - Needham & Company, Inc

Yes. Hello Steve and Mark.

Steven Bunger

Hi.

Theodor Kundtz - Needham & Company, Inc

Couple of questions for you; one: could you talk about the current trend in yields? Can you give us sense of what you're seeing currently out there in the marketplace?

Steven Bunger

Yeah, I can try to address that. I cannot break the business into a couple of different categories. The two major categories are storage and offices. From a storage perspective, which is 80% of our fleet we are actually seeing our yield continue to be very strong and really not seeing any deterioration in pricing effect. In some cases, we are actually raising rates from the combined company's average rates for storage units.

And then when you look at our offices, we have two different kinds of offices in the U.S. and really two different kind of offices in the UK too. Offices are either the modular office, the mobile offices like Scotsman has or the former GE Capital used to have in GE modular, modular space. That's about 5% of our fleet and we are seeing some pricing deterioration in that area, because of Scotsman and some of the other companies have access inventory and they are lowering price. So, we have been lowering price to match that business.

Again it's not a big focus. We are still going to focus on getting a decent return on that business. And we also have the security offices, which are basically ground added (ph) offices that are more unique to our business. We are seeing the pricing on those continue to be strong.

And then when you look at UK, it's kind of the similar type patterns. The storage containers are holding up pretty well, are very well, and the marginal type offices are seeing some price declines, and then the more of the security type offices were holding our pricing pretty well there just well. So overall, I'd have to say I am very encouraged even with the slowdown that our core business, the storage business, pricing is holding up very well.

Theodor Kundtz - Needham & Company, Inc

Okay. Because it looks like yields declined quarter-over-quarter from Q3 to Q4.

Steven Bunger

Yeah, if you see any method, it's really a mix issue.

Theodor Kundtz - Needham & Company, Inc

Well, I was wondering what the mix change was from Q3 to Q4?

Mark Funk

Q3 to Q4, as far as you can call it unit by rent. It dropped, in the offices it dropped from 15% to 14%. And obviously, offices are at higher price rental rates. So that's why yield has gone down, between that in the quarter.

Theodor Kundtz - Needham & Company, Inc

Okay.

Mark Funk

And then, there was also some noise in there with our backs dropping considerably from call it 2 times to 1.6 by the end of the year.

Theodor Kundtz - Needham & Company, Inc

Okay. That could explain the reason for this sort of significant drop.

Mark Funk

Right, exactly. And I think, another thing as Steve highlighted is the lease lead our source in it, are 79% of our fleet and that's the differentiated product, and that's where the pricing environment is holding up stronger.

Theodor Kundtz - Needham & Company, Inc

Well, so you are not seeing any decline in yields in that area?

Mark Funk

No.

Theodor Kundtz - Needham & Company, Inc

Okay. Perfect, even currently, even in this environment as we move forward here.

Mark Funk

Actually I pull the report, I get this revenue report that shows average rental rates for containers and this is the U.S. that, that's the lion share of our business. And if anything, our rental rates there are higher than a year ago, on our sure sell products.

Theodor Kundtz - Needham & Company, Inc

Okay, terrific. Could you kind of clarify a little bit on the employee reduction? You talked about a savings of 6.6 million in '09 but a 15.2 million annual run-rate. But, you only see 6.6 in '09. It sounds like those employees were already eliminated. So why wouldn't you realize the entire savings, I was all confused by that.

Mark Funk

Well, the entire 430 was, this $15 million that we disclosed. 6.6 is what we would say if the P&L, because the balance are on the manufacturing side that we are producing units. And which goes into our unit costs. So as far as the P&L portion of the 6.6, a lot of those employees were lay-off, late in the year. So you are not really seeing, and we are seeing is that full annual impact should be 6.6 in 2009.

Theodor Kundtz - Needham & Company, Inc

Okay. I just confused between the payroll savings of 15.2 and--

Mark Funk

Well, 15.2 is basically head count reduction. 6.6 is P&L, and the balance would be against units that we would be manufacturing in I'll call it a stronger environment.

Theodor Kundtz - Needham & Company, Inc

I see. Okay.

Mark Funk

Yeah they are on the... I call it on the manufacturing side.

Theodor Kundtz - Needham & Company, Inc

Okay.

Mark Funk

Hopefully you followed that.

Theodor Kundtz - Needham & Company, Inc

Yeah, a little confusing. Okay. Is the fleet size you feel is properly size at the moment?

Mark Funk

It's actually we'll have excess fleet today. Because the merger, we had a certain reservations going into the merger, and so did Mobile Storage combine with excess fleet. So we do have some excess fleet. But the good news is these are assets that we don't depreciate, don't have a lot of carrying cost. So as we put these on rent, we can be really significantly throughout, significant cash flow, because they're basically just sitting there.

Theodor Kundtz - Needham & Company, Inc

Right.

Mark Funk

And then highlight for our CapEx number has come down considerably obviously for '09 outlook?

Theodor Kundtz - Needham & Company, Inc

Right.

Mark Funk

I mean, I don't see a whole of CapEx for the next two or more years, because of the excess fleet we have.

Theodor Kundtz - Needham & Company, Inc

Perfect, that's great. And one final question, do you have the revenue number for the quarter axe the acquisition, and what the acquisition contributed?

Mark Funk

No. I don't have that.

Theodor Kundtz - Needham & Company, Inc

Okay. It's great. Thanks a lot.

Operator

Your next question comes from the line of David Gold of Sidoti.

David Gold - Sidoti & Company

Hi, good morning.

Steven Bunger

Hi, David how are you?

David Gold - Sidoti & Company

All right. I just want to follow-up on a couple of things. One your comment about least about revenue coming down say 10% from the fourth quarter levels, was that specific to leasing?

Steven Bunger

Yeah, that's the bulk of it, yes.

David Gold - Sidoti & Company

Okay. And basically, can you speak a little bit about what you think what the components of that are two fronts, one, rates versus say utilization. And then two, are we basically looking at construction falling of a cliff, and everything else sort of holding, or there are issues sort of across the board in demand?

Steven Bunger

Rate versus utilization, it's almost all utilization.

David Gold - Sidoti & Company

Okay.

Steven Bunger

Variable on rate if any, because there is really we have got two new ones, we have got mobile office going down in rate possibly and storage is maintaining when they maintained the actual increases from a year-over-year basis. And sort of what's going on the current business. We are looking at the entire... what we've looked at our business by segments, and starting about August is when we started seeing the big return in the non-residential construction part of our business.

It peaked, it kind of peaked and it started coming out of rent in November. And hasn't like completely leveled off but its much at a much lower level. And now our pick-ups are a lot higher than prior years for the first part of this year at least. The other part of our business is slowing down a little bit, it's a hard to see right now because we're still in the middle of our seasonal pick-up business, so it's a little bit, a little bit cloudy but we are anticipating a portion of that business to slowdown as well but not as significant as what happened with the non-res construction part of our business.

Mark Funk

Like the retail consumer services side.

David Gold - Sidoti & Company

Got you.

Mark Funk

And then I think another just kind of step to highlight at the end this is when you standalone at the end of '07, 42% of our call attire with two construction as Steve highlighted as of the end of this year was 36. So I think what you are seeing is a lot of the fall off in the construction happening in that... after August through the end of the year.

David Gold - Sidoti & Company

Got you, okay. And then if we can chip for a second just to speak a little bit about cash flow presumably with 15 to 25 million in CapEx even on sort of lower numbers you should generate it seems like a bulk lot of free cash. So two things one presumably we use that reduce, what's out there on the credit line I would guess?

Steven Bunger

Correct.

David Gold - Sidoti & Company

And then question two, can you remind us about the interest rate there, basically any interest expense expectations you might have for this year?

Mark Funk

Yes, fair enough. I think I highlighted the cash interest expense right now is around $60 million. A portion of that is obviously our revolver, our revolver is at LIBOR plus 250, so we do have some swaps against that about $200 million of the call it ... 550 of revolver drawing is in the form of swaps at call it little over 6%. The balance is on a variable rate basis and right now one moth LIBOR is below 50 basis points and that's about 3% on that. And then we obviously have our notes, two sets of notes, 200 million at 9.75 and we have the Mini notes of 150 million of six to seven ace (ph) and you start doing the math you get to approximately $60 million run-rate.

David Gold - Sidoti & Company

Okay. And so I presume we wish I think I do not know particularly speaking of you pick a $100 million at both the credit line let's say 3% these days a $3 million interest savings on an annual basis.

Steven Bunger

Yes, yes.

David Gold - Sidoti & Company

Right, perfect much appreciated.

Mark Funk

Okay, thanks.

Operator

Your next question comes from the line of Dave Manthey of Robert W. Baird.

Unidentified Analyst

Hi this is Kylo Marren (ph) for Dave Manthey. Question on SG&A just think about your operating cost how much of SG&A would you turn say is fixed versus variable, variable being actually yield with the revenue?

Steven Bunger

I'll try to answer just a little bit and look for Mark. The fixed portion of our business is primarily the properties, utility associated to that properties. Our branch manager and office manager and some marketing. And then the variable cost is primarily drivers, yard people and sales people and some corporate people. So we feel based on modeling we've also done lots of stress stuffs to our business plan, so that we can maintain really strong margins if the business does contract so that we can deliver the cash flows that we expect based on revenue margins, based on your EBITDA margins or for revenue.

So I can't tell you specifically what that number is, but in general we feel that our operating margins today and EBITDA margins are margins we can maintain or its something very close to it even if the business does slowdown.

Unidentified Analyst

All right.

Mark Funk

The only thing I would add is we cover whatever our cost semi-variable meaning depending on the number of units on that market is a direct cost to that.

As to say units would go up or down yield basically adjust certain costs associated with that volume change. And I think we've shared with you kind of historically incremental leasing margins once we cover these fixed costs as Steve was talking about our advertising and management structure that you know its powerful. On the alternative incremental EBITDA margins is about 70% and then obviously when you need to pull off at a certain level you go the opposite direction.

Unidentified Analyst

Okay. And then clearly, couple of little bit low in the first, how that fuel impact to revenue and SG&A?

Steven Bunger

I think you're aware where we had this fuel surcharge that we put in towards the middle of last year. Currently, we're running at $300,000 a month. We are seeing obviously, that's come down and some customers have pushed back, given the decline in oil prices. But in general, it's fuel flash trucking, it's an area where we are looking just to recover our costs. And that's something that we are more and more focused on all the time from a revenue and cost perspectives.

Unidentified Analyst

And maybe you'd would answer this just again, lease fleet actually increase sequentially despite selling off the non-core assets that you're talking about.

Steven Bunger

I am sorry, could you repeat that a little louder?

Unidentified Analyst

Sorry. These leased fleet actually increased sequentially despite selling off from non-core assets. Kind of help me reconcile that, and how we should be thinking about the fleet levels and that as opposed to 2009?

Steven Bunger

Well, I would say probably fairly status quo as far as units probably declined. And in part of what we are doing in the New Year is re-branding some of the MSG units, and putting on our premium doors and locks, and migrating some of the units into the Mobile Mini model. But a lot of that will be paid for from kind a sale of used to fleet. So in unit dollars, that's are probably going to be going down. I'm sorry, in units, it will be going down.

Unidentified Analyst

Great. Thanks.

Operator

(Operator Instructions). Your next question comes from the line of Scott Schneeberger of Oppenheimer & Co.

Scott Schneeberger - Oppenheimer & Co

Thanks. Good morning. Could you guys refresh us and update us on, I believe, you were trying to pass pricing on units that had been out on rent as they anniversaried. There have been some pricing discussion here, but hadn't heard an update on that. Could you take us in there?

Steven Bunger

Yeah. We did a price increase back in August, if I recall. And that actually has worked out as we expected, and been very successful. And we are actually doing some other selective price increases to customers that one in our first subset. So, we feel confident that we have the ability to for selective customers to do some price increases anywhere from 3 to 5% price increases for customers that keep it for more than a year.

Scott Schneeberger - Oppenheimer & Co

Should we think of that as 25% of your revenue base comes up every quarter or is that too ambitious?

Steven Bunger

That's too ambitious.

Scott Schneeberger - Oppenheimer & Co

Anymore cut, half of that maybe?

Steven Bunger

Currently, where we are looking at is that's also helping in our overall price mix. And so, I think if you look at our run rate yield, I think that's a better way of looking at it. But, the incremental pick up is probably what was it one the first one maybe, it's...

Scott Schneeberger - Oppenheimer & Co

In dollars you're saying?

Steven Bunger

Yeah.

Scott Schneeberger - Oppenheimer & Co

Incremental dollars were somewhere around, call it, about $1 million annually?

Steven Bunger

On the first price increase?

Scott Schneeberger - Oppenheimer & Co

Just on August.

Steven Bunger

Yeah, just to give you relative, and it's only on the U.S. portion obviously too.

Scott Schneeberger - Oppenheimer & Co

And then $1 million is annualized.

Steven Bunger

Yes.

Scott Schneeberger - Oppenheimer & Co

Okay, thanks. Just kind of shifting gears, the you've been alluding to, I believe with the number, the most recent number was 30 million of synergies from the merger. And now we have this incremental headcount reduction. Could you just kind of update, putting everything together as the cost savings merged there?

Mark Funk

Well, the synergies for the fourth quarter were just what I outlined is the 7.7. So, we're thinking obviously, we've realized most of those, if you annualize that, we are going to get unit to a $30 million number. And we didn't have 100% of those starting October 1. And then we have this incremental as far as P&L savings of $6 million to help offset any, call it, decline in revenue.

Scott Schneeberger - Oppenheimer & Co

Just finally, speaking of the strong cash flow position that we anticipate going forward and a debt reduction focus, what is the consideration now for acquisitions as we move deeper into the economic downturn and you being a leader in the industry just your updated thoughts there.

Steven Bunger

We do have a strong balance sheet. Our thinking is we'll still look at deals, but they really have to fit into a very specific set of criteria, which is that's the price rate and strategic. What we don't want to do is stretch our balance sheet to grab falling knife. So it's something presents themselves with strategic move it up and look at it, but we are definitely not looking anything really big. It would be more smaller stuff. But to be honest with you, unless it's absolutely perfect right now, we would prefer really to pay down debt and manage for the cash flows. And the likelihood of doing acquisitions is probably very unlikely right now. But like I said, if the new market opened up and it wasn't a big acquisition very strategic, we might look at it.

Scott Schneeberger - Oppenheimer & Co

Sure, yeah. Thanks very much.

Operator

There are no further questions. I'll now turn the conference back to management.

Steven Bunger

I want to thank everyone for participating in the conference call, and wish everyone a great day. Thank you.

Mark Funk

Thank you.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.

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