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MOBILE Mini (NASDAQ:MINI)

Q1 2014 Earnings Conference Call

April 30, 2014 12:00 p.m. ET

Executives

Mark Funk – CFO

Erik Olsson – CEO

Analysts

Scott Schneeberger – Oppenheimer & Company

Andy Wittmann – Robert W. Baird

Sean Hannan – Needham & Company

David Gold – Sidoti & Company

Philip Volpicelli – Deutsche Bank

Doug Mewhirter – SunTrust

Shawn Egan – KeyBanc

Jamie Sullivan – RBC Capital Markets

Operator

Good day everyone and welcome to the Mobile Mini 2014 First Quarter 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. There is also a presentation that accompanies this conference call which you can access in 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 those 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 and 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 reconciliation of non-GAAP financial measures that will be used on today’s call.

Now I will turn the call over to Erik Olsson.

Erik Olsson

Thank you operator and good morning everyone and welcome to Mobile Mini’s first quarter 2014 conference call. I am Erik Olsson, Mobile Mini’s President and CEO and with me is Mark Funk, our Executive Vice President and CFO.

For this presentation, I am going to review the operational slides and Mark will review the financial slides and then we will open up the call for questions.

And I will start on Slide number 3, Financial Highlights. We have put another solid quarter behind us continuing to execute very well and delivering on the strategic plan that we established last year. Overall, I am very pleased with our performance in the quarter and particularly our top-line growth. This quarter is the 13th straight quarter of year-over-year growth in both total and leasing revenues. Leasing revenue increased double digits for 10.8% year-over-year and this growth came from increases in rental rates, utilization and trucking activity.

First quarter rental rates increased 3.7% sequentially from fourth quarter and a very strong 6.7% year-over-year. The 6.7% year-over-year rates increased in the quarter is over our total units on rent. For new units going out on rent in the quarter, the rate increase was an impressive 13.5% year-over-year. So we were continuing to get rate traction on our rate’s focus. And each rate increases are across all regions and geographies across all product types and all customers segments including national accounts due to the great customers, due to quality of our products and services that we provide.

We achieved adjusted EBITDA of $32.7 million and a margin of 32% for the quarter after investing almost $6 million or 6% of revenues on increasing available fleet through incremental repairs and the repositioning of fleets from our holding yards to support growth in high demand markets. It is clearly the right business decision versus pending CapEx dollars to acquire new assets to meet the demand.

We’re also making strategic investments in a number of other areas particularly sales and marketing to drive long-term accelerated growth and I will discuss that further in a moment. This has all resulted in the first quarter adjusted diluted earnings per share of $0.17.

Q1 was our 25th consecutive quarter of positive free cash flow which we used to acquire two tuck-in acquisitions, pay out first dividend and also pay down all our debts. As we stated on our fourth quarter call, in addition to paying dividends, we are and we continue to be a growth company. Our unique market position and superior business model allow us to combine an aggressive growth strategy with significant returns for our shareholders.

Now turning to Slide number 4, and this slide is a summary of the strategic investments we have in and changes to operations, faith and people to support accelerated long-term growth. Talking with the operation and as I had already mentioned we continue to invest in repairing and repositioning our fleet to high-demand markets which minimizes CapEx and maximizes utilization of cash flow. We are upgrading our entire infrastructure in order to become more efficient and productive. We are either in the process of implementing or in the final stages of selecting testing plans, infrastructure including telephony and ERP system or scalability and more importantly to optimise business decisions for our people.

After we communicated last year we decided to exit manufacturing completely in the UK and reduce it significantly in the US to enhance flexibility and capital efficiency but creating some temporary year-over-year headwinds of under-absorbed overhead in the process.

When it comes to sales and marketing organization, over the last six months in order to capture and accelerate our long-term growth, we have invested in marketing expertise and expand it to sales management team in the field in order to increase sales rate productivity. Overall, we’re talking about an addition of PAM test. Furthermore, we recently realigned our [sales team] into geographic territories and put added focus on certain non-construction end segments. We’ve also rolled out a sales compensation plan to drive this type of behavior and focus more on hunting instead of farming.

On the people client, we made significant changes to our process including improving our recruiting and onboarding efforts as well as introducing a company-wise bonus program that aligns employee compensation with company strategy and results. We reduced the number of from regions from 11 to 8 in order to top-grade our field leadership and be more efficient. And as part of the top grading over the last year we have raised the bar and increased the level of accountability and expectations which had temporarily driven turnover and open proficiency.

With the exception of the fleet repairs and redeployment and the infrastructure implementation, the rest of these changes and initiatives were rolled out in the first quarter in earning [indiscernible] and any short-term distraction this may have caused will abate as we move forward. These initiatives are all part of our strategic plan to take the company to a new level of accelerated growth. I’m very pleased that we’ve been able to move bit fast in making all these changes but again it’s the testament to the quality of the people we have. I’m also very pleased to get from our customers that are new phase alignments and single point of contact makes it significant this year to do business with us and fulfil their portable storage needs.

Moving onto Slide number 5, this slide represents our customer breakdown as on March 31st, as well as our growing customer base and world class net promoter score. We continue to do growth in the construction segment of our business even with the challenging weather conditions in many of our markets during our seasonally slowest quarter. The non-construction part of the business is also growing and this is an area of great opportunity for us as we continue to enhance our marketing and increased productivity of our sales force with the recent addition of sales and marketing expertise and realigning them. And as you can note from the pie chart, we have the very balanced end market mix.

From a customer compensation perspective, we are fortunate that we have only one customer with more than 1% of our revenue and our top 20 largest customers only represent 9% of our leasing revenues. Looking to the upper right, you can see that we continue to grow our active customer year-over-year with a combination of our superior products and service.

So, all in all we maintained a broad, diverse customer base with ample opportunities for a continued growth.

As you can see from our net promoter score which measures our customer loyalty on the lower right, we also have higher marks from our customer base. Our 2013 net promoter score of over 78% is the highest in the company’s history and truly best in class as we continue to get higher marks in 2014 with our first quarter net promotor score of 78.7%. Those of you familiar with the net promoter score know this score ranks us among the very top of the list with well known companies known for their loyal customer base. We continue to leverage this best in class net promoter score to drive rate growth.

Moving onto Slide number 6, this slide shows our utilization and the number of units we have in our rental fleet. You can see in this chart that the average utilization for the quarter increased 670 basis points to 67% from the first quarter in 2013.

Our strategy to best utilize our rental fleet and grow our business is same store growth with more units on rent in existing location and take advantage of the high incremental margins our business produces. So in order to meet the increase in demand for our product, we have moved to rent ready business model across all geographies. This means that we’re doing any necessary maintenance when the unit comes to our fleet so that we can quickly redeploy it to the next customer. The increased utilization, we’re entering new markets. In the first quarter, we opened a location in midland Odessa in Texas and we closed two small tuck-in acquisitions, one in North Dakota and one in North Carolina. We plan to add or acquire another 5 different locations this year and we’ve added the Senior VP of Business Development to find and drive new market and acquisition opportunities in North America to further accelerate our growth.

Turning to Slide number 7 and this slide illustrates the power of our differentiated products and execution on our sales strategy as demonstrated in our year-over-year increase in both volume and yield. Our fourth quarter year-over-year yield was up by 8.8% to $658 per unit which is our all-time quarter high. Our yield improvement was primarily due to stronger rental rates as well as the increased leasing activity in the quarter. And as mentioned, our first quarter rental rates were up 6.7% year-over-year and up 3.7% sequentially from the fourth quarter level. We were able to achieve industry leading or premium rental rates by focusing on our differentiated products and our strong sales and service culture. With that said, we believe we can continue to increase rates at a steady pace as we sell our superior value proposition to our customers.

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

Mark Funk

Great. Thanks, Erik. Turning to Slide 9 in the financials you will see on the first quarter total revenues were up $5 million to $102 million compared to Q1 2013. This increase is driven by a double digit or 10.8% improvement in leasing revenue. So this strong posting was from a 6.7% increase in rental rates as well as increased utilization. This increase in leasing revenue was quietly offset by lower unit sales due to a large one off sale to the UK military which totalled $4.3 million in Q1 of 2013. And this quarter is our 13th consecutive quarter of year-over-year growth in leasing revenue.

Continuing to Slide 10, the first quarter of SG&A was $58.4 million or $3.6 million higher than Q4 2013. As they’re previously mentioned, we are making strategic investments in several areas of the business. The sequential SG&A increase consists of one time vacation accrual adjustment of $1 million and incentive compensation change of $800,000 which relates to a company-wide bonus program that aligned employee compensation with company strategy and results, new corporate heirs in sales and marketing, HR and business development in stock compensation. This increases total of 800,000 and 700,000 from overhead absorption as a result of streamlining our North America manufacturing. Q1 2014, SG&A was $50 million higher than last year first quarter primarily as a result of the upper mentioned strategic investment as well as the $5.7 million increase in investments in repair and repositioning assets to high utilization markets to support our growth. We anticipate that higher level of repairing and repositioning to continue through 2014. This is a right long-term decision on the fleet as it minimizes CapEx as well as maximizes utilization and cash flow.

On next page we’ll see we achieved adjusted EBITDA of $33 million at the margin of 32% for the quarter. As previously mentioned, investments in fleet repairs and repositioning to high utilization market resulted in incremental expenses $5.7 million or 6% of revenue compared to the first quarter of 2013. Thus our underlying adjusted EBITDA margin and adjusted EPS for the first quarter excluding these investments would have been approximately 38% on the margin and $0.25 per share respectively. Our LTM adjusted EBITDA was $152.4 million with a margin of 37%. We anticipate the higher level of repair and repositioning and decision to reduce our manufacturing will have a temporary impact to the year-over-year comparable adjusted EBITDA margin for Q2 2014.

On the next slide you will see North America Q1 leasing revenues increased over 80% from Q1 2013 level. And North America represented 80% of our leasing revenues for the quarter. Like North America, Q1 UK revenues also increased but leasing revenue is increasing over to 20% year-over-year. The UK’s Q1 EBITDA margins were up 220 basis points year-over-year even after existing manufacturing which impacted that division’s earnings approximately 400,000 for the quarter. In North America, Q1 adjusted EBITDA margins of 33% were down year-over-year as a result in fleet repairs and repositioning and the other expenses I outlined on Slide 10.

Next page demonstrates how we can significantly cut back on fleet CapEx. The higher levels in prior years were driven by our rental fleet expansion. Our 2013 net CapEx were $10 million and related to delivery equipments in both North America and the UK. We also added another $9 million in delivery equipment that funded under capital leases in 2013. And given our focus on repositioning existing fleet, we actually avoided approximately $10 million of rental fleet CapEx in 2013 which enhanced our LTM cash flow. Looking forward, we do not expect this much in the way of fleet CapEx until utilization reaches the high 70% range. CapEx for Q1 at this year was $200,000 and we’re adding about $2 million of delivery output under capital issues [ph]. We report casting total net CapEx including assets funded under capital issues in the $25 million to $30 million range for 2014, which will be primarily driven by investments and rolling stock and infrastructure projects.

Turning to the free cash flow and debt slide on page 14; we generated $27 million for free cash flow for the first quarter and our LTM free cash flow was over $110 million. This was the highest level of free cash flow in the company’s history. This was also a 25th consecutive quarter of positive free cash flow which we used to acquire two tuck-in acquisitions, pay our first dividend in the company for fee as well as pay down debt. Debt pay down for the quarter was $50 million bringing our full year pay down to approximately $100 million. And that you can see we continue to make nice reductions in our leverage ratio as our debt to adjusted EBITDA as of March 31st at 3.4 times.

Turning to the next slide, we have a very flexible capital structure with a high level liquidity. As of March 31st we had $600 million of excess availability on our ABL revolver and our interest cost for Q1 were 500,000 or 7% lower than the prior year as a result of our debt pay down over the last 12 months. Based on the strong free cash flow and debt pay down, we were recently upgraded by SP to double D with the positive outlook and we need to affirm our inventory outlook for neutral deposits.

I’ll now turn the call back to Erik to wrap up.

Erik Olsson

Thank you, Mark. So in summary, we were executing on the strategic plans focused on a accelerated growth with a greater emphasis on sales and marketing which is already demonstrated by our strong rental rate increases. We achieved double-digit pleasing revenue growth and are well positioned to deal upon the momentum of the past year. We entered Midland-Odessa and closed two tuck-in acquisitions in the first quarter and we’re rapidly filling the pipeline with greenfield openings and other M&A targets.

We will continue to invest in the incremental repairs and repositioning of units to high demand areas in order to minimize CapEx as well as maximize cash flow and utilization. And even with these strategic decisions causing temporary headwinds, we expect year-over-year top line growth and profitability in 2014 to exceed that of 2013 which will drive accelerating free cash flow for the year. Given our strong growth coupled with our consistent free cash flow generation, we paid our first ever quarterly dividend and have authorization for share repurchase program. This reflects our confidence in our business model and does not diminish our ability to aggressively deploy capital for organic growth or pursue potential acquisitions.

And that concludes the prepared comments. I would now like to turn the conference call over to the operator for instructions on the Q&A.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Scott Schneeberger with Oppenheimer & Company. Please proceed with your question.

Scott Schneeberger – Oppenheimer & Company

Thanks. Good afternoon. I guess first question, it was very impressive on your rental rate and could you just give us a feel -- it looks like it's going to -- these type of numbers on percentage growth sequentially and year over year look like they're going to persist. When will we anticipate an anniversary and will it be a full impact or do you think this will persist beyond that point?

Erik Olsson

I think it will continue for quite some time. We think we have a lot of room to continue to drive rates and still if you can appreciate the big difference between the 13.5% of the new ones that we put out and the 6.7% that we gave over, thus the total treat [ph]. So, the old units [ph] if you like that is still out there has quite a big price differential to the new units going out so that this churn over the next coming year we should see price appreciation continue. Yeah.

Mark Funk

As far as the timing, the momentum, I would say really started towards the end of Q3 beginning of Q4 and just supreme at year-over-year. The portfolio was up about 3% for Q3 and about 4.6% for Q4, so that’s where we have been starting to put the padlock on the rate. So, we’ll start anniversarying some of that towards the end of this year.

Scott Schneeberger – Oppenheimer & Company

Thanks, great. But I appreciate that and as Erik was saying, is it your still average rental rates in roughly three years?

Mark Funk

Correct. That’s correct. With three digits relates in there, okay.

Scott Schneeberger – Oppenheimer & Company

Great. Thank you. I know as construction mix was about 39% up from 36% in the fourth quarter, I’m just curious is there seasonality? Are you seeing a big whip in non-raised thought on where that mix is going to go moving forward and what’s going to drive the component? Thank you.

Erik Olsson

Right. The shift you see between your end and Q1 is the seasonal dividend on being returned by the end of the first quarter that half of them go back at 12/31, the other half go back between January and 1st February. So, that’s really what you’re seeing then. Obviously, we’re showing improvement on a regular basis in construction and non-construction, I would say probably the mix. We’re putting effort on both side of the [indiscernible]. So, I don’t expect much in the way of mix change between construction and non-construction in your term.

Scott Schneeberger – Oppenheimer & Company

Thanks. And then lastly even then I fully understand the adjustments when you speak about EBITDA margin being 38% and what’s in and out and you did have a good slide in presentation mentioning some other SG&A increases. I was curious with the new and I’m sure you have been able to get more into some of how you’re working this inventive comp program. But we’re now at a new absolute level because you were down year-over-year even on this adjusted basis with a lot more revenue this year. So, assuming this inventive comp program, can you speak the margin impact on some? Thank you.

Erik Olsson

Well. We try to say there is such an absolute in terms of one-time cost here that we can identify and repair and maintenance and so forth. On a more permanent basis, we have recently added 10 peoples to the sales and marketing effort to drive growth and we changed the – there is a bonus program, but both those last to changes here. We’ll pay for themselves and they will not be increased as our revenue increases. And then of course with all these changes that we put in place in the first quarter, this obviously lower rate and some tractions and so on. So, maybe the organization as a whole is equipped now to handle or capture a much greater volume than what we saw in the first quarter.

Scott Schneeberger – Oppenheimer & Company

Right.

Mark Funk

You know one another thing that was a one off is our vacation of [indiscernible] that impacted margins four percentage point as well that we changed the beginning of this year and that’s it’s – put some color on that is the legacy is employees had to be here year-over before they started to go on vacation off market. So, we’re basically being able to onboard the right people into the right compensation plan in place with the growth on top of it.

Scott Schneeberger – Oppenheimer & Company

Great thanks. Just one more big picture following up on all that. Any thoughts as to what a long-term EBITDA margin potential could be both you spoke in the past about exceeding past peak. I’m just curious any updated task or the [indiscernible]

Erik Olsson

No. We definitely haven’t changed our view on that. We definitely think that we can hit and achieve prior highs and as I think as we deal this company, the way we are doing, certainly margins in the high 40s is very achievable.

Operator

Our next question comes from the line of Andy Wittmann with Robert W. Baird.

Andy Wittmann – Robert W. Baird

So I guess maybe just building on that last question first, Mark, you pulled out the vacation accrual for $1 million, 100 basis points, but cost of reducing North American manufacturing is that one-time, incentive compensation I trust that's got -- that sounds like something that's going to have to anniversary through the year and be part of the cost structure. What are these other charges here would you view as one-time, just so we get a clearer picture here.

Mark Funk

I would say the vacation accrual and as far as the manufacturing I think we will make that cost out, I will provide the more efficient in outsourcing, that type of work. So I would say that’s something that probably won’t be a headwind on a permanent basis. So those two, as far as the headcount addition and the other comp, I think what we are looking for is the accelerated growth and high margins, high 60 to 70% margins that will offset those investments. I think we do have a higher, when you call it, SG&A level right now but it will support accelerated growth.

Andy Wittmann – Robert W. Baird

And can you just talk about those incentive compensations, trying to get everybody with a company-wide goal, can you talk about kind of the then and the now, just so we might have a better sense about how this could move the sales force in the right direction.

Erik Olsson

Absolutely, what we have done is that we switch previously – there were almost 250 people in the company that received equity grants, and while I think equity grants make a lot of sense for the senior people, it does not make sense to grant equity in the organization is what the history here. So we changed that from 250 people to I think now 35 or so receive some form of equity incentive. And in return instead we put everybody on – we talk about the sales for everyone in the field on quarterly short term incentive plan, basically based on EBIT margins and that’s they have to reach, and once they reach that EBIT margin results of growth accelerator, and that kicks in, so they can earn more if they also grow the business by – it kicks in more than 12% on a year over year but they have to keep the EBIT margin, so sort of assuring ourselves of profitable growth. So we think that’s a great – it’s a great model and I have used it in the past and it’s been very, very successful. On the corporate level, we have everybody but that’s on an annual program and based on EBITDA and return on capital program.

Mark Funk

The only thing I would add to that is because of that change on the stock comp, I mean that’s the best thing ever for your timeframe, so we are not getting the savings from the prior grants. So this, incremental bonus amount is a headwind that starts to come again over time as we are not granting new stock to that larger population.

Erik Olsson

So overall it’s a straight up value of grants given in the year, we are handing out less value now. But accounting wise as Mark said, it won’t really show up over the next 3 years or so –

Andy Wittmann – Robert W. Baird

So when you are expensing both the equity component from prior years as well as cash components –

Erik Olsson

Correct.

Andy Wittmann – Robert W. Baird

I wanted to also dig into just the price increase, are you seeing the industry following you guys with the price? I guess one of the things -- it's all well and great that you guys are getting really nice pricing. Is it inviting competition to undercut you? Is the competition being rational with you? Any color there I think would be helpful.

Erik Olsson

I think we see little of both, there are some of the areas where competitors try to undercut us and compete on price and there are areas where I think we can competition start to follow and I think this is [inaudible].

Andy Wittmann – Robert W. Baird

Maybe the last question here. The fleet was remarkably stable in numbers sequentially here. Erik, are we seeing you dialing that back because you want to get them on rent instead of on sales?

Erik Olsson

Yes, absolutely. Our focus is to rent as much as we can and not sell fleet that’s good condition and rampable and obviously as we said several times we are really holding back on any purchases of the fleet. So absolutely the goal is to increase depreciation significantly from these levels.

Operator

Our next question comes from the line of Sean Hannan with Needham & Company.

Sean Hannan – Needham & Company

So first question this is getting back at the topics for updated rates. How much of your fleet today would you say is receiving or has at least some of these more updated rates that you've been trying to implement? Should we assume that if you started in Q3 you have that average three-year rental period, is it right to conclude that you're about 25% through the increases you can implement or how should we think about that?

Erik Olsson

No, it’s much less, if you think that – it’s 3 year average rental period and that means we could start for year and in two quarters it has all that. So I am thinking maybe the 16% or something in that neighbourhood.

Mark Funk

Yeah, in national accounts are about 20% of our business, the price increases are trending here but number of those are in the one, two or three year contract. So that will kind – that’s the opportunity, it’s not really reflected in the numbers that we are showing as well. So we are pushing that front as well, but it will really be kind of ties over those timeframe which lot had not had since we started pushing pricing Q3 last year.

Sean Hannan – Needham & Company

And then on the cost front, realizing you have roughly that $6 million in incremental spend. You've got these temporary bumps, repositioning, R&M, et cetera. And we compare this to first quarter of 2013. If I recall correctly, I think there were also abnormally low costs during that period. So just trying to get an understanding of maybe when we get to ‘15, what kind of percentage should we be able to get to in context as these temporary bumps go away? Should the cost of leasing be able to get into, say, the 55% level range for the year when you exclude stock comp or is that getting too aggressive?

Mark Funk

A sense of, by way of directionally just going back to what we think about the largest driver of the increase, repairs and maintenance is per tonnage of these revenues running somewhere around 7-ish percent. If you go act, we think that will start dropping in 2015 on more steady pace probably somewhere between 4-ish percent. So kind of the savings between the 4 and the high levels of 7% now, that will be on the SG&A side.

Sean Hannan – Needham & Company

And then last question here for a moment. Erik, I think you'd commented that you're seeing pretty good demand as well as being able to pass through better pricing across all regions and products. Is there a way if you can provide whether there are some regions that perhaps are seeing a little bit better trends and being able to put that through in a stronger manner or is there any differentials that you can talk about as you look across your business?

Erik Olsson

No, I think we’re like I said pleased to see that our pricing is really speaking, we were -- geographies, products and all type of accounts, so we are pleased with that and there’s no region to call out there.

Sean Hannan – Needham & Company

So all regions effectively at the same levels?

Erik Olsson

Within the range obviously but yes.

Operator

Our next question comes from the line of David Gold with Sidoti & Company.

David Gold – Sidoti & Company

Just a couple of quick ones. First, on the acquisition or new location plans, still sitting on 5 to 10 for this year?

Erik Olsson

And of course, the two acquisitions we made during the first quarter are really great and because we acquired lot of units, lot of units on rent but no locations. So we’re just basically rolling these efficiencies into our existing structure. So it’s two additional businesses we acquired but no locations.

Mark Funk

Anyhow the pipeline is very good, we are very focused on reaching to the market and obviously people are aware of that and coming at [ph] as well. So I would say we try to gear towards the higher end of that range.

David Gold – Sidoti & Company

And then compensation changes or alignment, when did you finish implementing that, so when do you think we'd see the full benefit of the changes?

Erik Olsson

So two changes, so the short term incentive changes was effective first of January, so we’re just coming out of our first quarter under that plan. Our sales compensation plan in effect – we could go – Monday, right, obviously we have been training and educating and paralleling, it’s during the first quarter but it’s really in effect like I said only a couple of days, but we expect that to really drive the right and accounting behaviour.

Mark Funk

And as far as the dollar comp perspective, it’s really about the same dollars to the employees, but the productivity is much higher.

Operator

Our next question comes from the line of Philip Volpicelli with Deutsche Bank.

Philip Volpicelli – Deutsche Bank

My question is regarding the leasing, in general. Sorry to go back to this. But I believe you started the increased repositioning and maintenance expense in the third quarter of last year. So if that's correct then you probably have another 15% increase year over year in the second quarter but by the time you get to the third and the fourth quarter the year-over-year change in SG&A should be a little bit less. Can you walk through those numbers or is there a target as a percent of revenue that you think you'll get to by the end of the year?

Mark Funk

Just going back to that, it’s a great question, so we did start it in Q3 of last year and then obviously it showed that we spent the higher levels of 5 million to 6 million on a year over year basis each quarter of 2014. So if you – like the position, you’ve got maybe a million and be flat for few quarters.

Philip Volpicelli – Deutsche Bank

And so when we get to the end of the year, somewhere around 57%, 58% of total revenue is where the leasing, selling and general will get to, is that a good number?

Mark Funk

We don’t opine on overall SG&A, I mean what we try to do is highlight the year, this is our new comp structure, nice but no change to that. And as far as repairs and maintenance which is the biggest delta here, I kind of walked through, directionally through that, so don’t want to opine as percentage for Q4.

Philip Volpicelli – Deutsche Bank

And can you just tell us what did you pay for the two acquisitions and if there's any kind of multiple –

Mark Funk

Yes, the purchase price was approximately $4.4 million and looking at an EBITDA multiple, it would be somewhere around 5.5 times. But it was very highly utilized, it was 95% utilized.

Operator

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

Doug Mewhirter – SunTrust

All my questions have been answered. Thank you.

Operator

Our next question comes from the line of Shawn Egan with KeyBanc.

Shawn Egan – KeyBanc

First off, I just wanted to touch on great job on the quarter and new units on rent with the pricing gains. Can you please talk about your strategy for raising rates on existing customers, maybe how you go about that conversation and the success you've had with that and then any kind of plans going forward?

Mark Funk

Quite a year, at the end of March, and in September we view existing customer to that hit on 12 month cycle of being on rent. And we look at where they are currently priced in their markets versus what the current [indiscernible] rate or current environment is and we do that comparison and then as a result, given them a price increase and really the dialogue is we are putting on their invoice effective next month the rate going to act. We continue to do that, even with – since we have been moving price on an enquiry basis, as a result of this, the rack price is moving up, those rates if you want to call through existing customers are going up as well. And we’ve had very little pushbacks, we are tracking the attrition rate on those customers but we are moving existing customers up with the balance of the portfolio of carton units going out. 3% to 5%, probably, obviously above 5% price increase on an annual basis, between 5 and 10 depending on the customer.

Shawn Egan – KeyBanc

And then secondly, with the kind of percolating recovery in non-res construction that we've seen across the country, can you please talk about the impact that this might have on your office unit inventory as well as the split between maybe an increase with your repair and maintenance plans and repositioning maybe looking to increase the penetration of office units within that mix?

Erik Olsson

Obviously when we talk about increasing our office rentals, it’s – we are only talking about the existing fleet and increased utilization there, and if there are more job sites and so on, we have the opportunity to put more of those – out some rents. So clearly we are trying to get a high utilization on everything that’s in our fleet. I think we see lot about the percolating recovery non-construction although the first quarter was certainly a slow in the construction market in general given the weather and so forth that’s been widely reported. So we are optimistic, we think it’s great for us, it’s one of our key end markets, we will start to hit growth rates that has been for the last six, seven years. So it’s just another positive backdrop to our business.

Shawn Egan – KeyBanc

And lastly, is there any way you might be able to quantify the mix impact on yield in the quarter?

Mark Funk

Mix was slightly down, I mean it was fairly flat but slightly down – it’s on the yield page. So it’s broken out there, so we weren’t being helped by yield and I think part of it is except re-deploying containers across all our markets.

Operator

Our next question comes from the line of Jamie Sullivan with RBC Capital Markets.

Jamie Sullivan – RBC Capital Markets

It’s good color on the repair and maintenance expenses throughout the year. Maybe just to hit on the other G&A items that you broke out on Slide 10 there. I guess there's from a year-over-year perspective there's almost $10 million remaining excluding the repair and maintenance. Should we just think about that as those are essentially run rate additions for the remainder of ‘14 and then in ‘15 they level out?

Mark Funk

There is a couple of that, I think that – immediately go is I talked about the litigation of [indiscernible] and that’s a onetime thing. So that’s not going to continue. I think we are more effective on our manufacturing, so that’s probably going to call go away but with time as well, some of these others as far as compensation is more what I would call permanent as far the new company to drive it higher growth. Those will self fund themselves. We’re just incurring the cost in the short term.

Jamie Sullivan – RBC Capital Markets

And then on the acquisition that you mentioned, is that included in the fleet size metrics that you give in the slides and in the press release for the average and the ending unit count?

Mark Funk

Yes, it is, but it’s accounted for one day, so it’s really not reflected in the average – it was two, little over a 1000 units that closed right at March 31.

Jamie Sullivan – RBC Capital Markets

But it is in the 212,000 ending number?

Mark Funk

Yes, that’s correct.

Jamie Sullivan – RBC Capital Markets

And I think you mentioned that those are 95% utilized. We could just think about that for the 1200 units, and then is there any major difference in yield for these units versus what Mini's getting?

Mark Funk

I would say yes and that’s the opportunity to move – as these units go in that, we’ve widened our geographic coverage in both North Carolina and North Dakota from our existing branch. So we were able to – go wider, with its established customer base. But the new units will go out at the higher price, we will move existing customers of these acquisitions to a higher level over time.

Operator

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

Erik Olsson

All right. Well, I want to thank everyone for participating in today’s call and we look forward to reporting on our second quarter activities when the time comes. Thank you very much everyone and that concludes the call.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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