Mobile Mini (MINI) Q4 2016 Results - Earnings Call Transcript

| About: Mobile Mini, (MINI)

Mobile Mini, Inc. (NASDAQ:MINI)

Q4 2016 Earnings Call

February 02, 2017 12:00 pm ET

Executives

Erik Olsson - Mobile Mini, Inc.

Mark W. Funk - Mobile Mini, Inc.

Analysts

Sean K. F. Hannan - Needham & Company, LLC

Scott Schneeberger - Oppenheimer & Co., Inc.

Marc Riddick - Sidoti & Co. LLC

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Operator

Good day, everyone. And welcome to the Mobile Mini 2016 Fourth 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 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.

Erik Olsson - Mobile Mini, Inc.

Good morning, everyone. And welcome to Mobile Mini's fourth quarter 2016 conference call. I am Erik Olsson, Mobile Mini's President and CEO; and with me is Mark Funk, our Executive VP and CFO. I'm 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.

I will start on slide number 3, financial highlights. We generated a solid fourth quarter and I'm pleased with the execution of and delivery on our strategic plan. We achieved the highest level of units on rent in the company's history, we continued to improve our year-over-year rental rate performance, and we had a record breaking seasonal business, which all contributed to delivering strong free cash flow for the quarter. Our end markets and the demand has remained solid and we are looking forward to growth throughout 2017.

But let me start out with some key stats and highlights of the most recent quarter. Total rental revenues were up slightly year-over-year, when adjusted for unfavorable exchange rates. And looking at portable storage first, rental revenues increased 3.3% year-over-year, adjusted for FX, and this increase was driven by increases in core activations, units on rent and rental rates. Q4 North American core activations increased 2.1% year-over-year, resulting in an all-time-high units on rent during the quarter. We also enjoyed the highest level of seasonal business in our company's history, thanks to strong execution with several major retailers.

Fourth quarter rental rates increased 2.9% year-over-year on total units on rent, which is up from our third quarter's year-over-year increase of 2.4%. This improvement was driven by rates on new units going out on rent increasing 2.1% year-over-year, as well as sequential rates increasing 1.6% over Q3 levels. This performance speaks to the strength of our business model and execution. On the specialty containment side, while rental revenues were down 7% year-over-year, our largest segment, which is downstream, remained steady year-over-year. The smaller upstream and diversified specialty containment segments were down year-over-year due to continued headwinds in oil and gas and mining end markets.

We achieved total adjusted EBITDA of $54.2 million with margins of 41.2% and we generated $27.7 million of free cash flow in Q4, marking our 36th consecutive quarter of positive free cash flow. And this has all resulted in a Q4 adjusted diluted earnings per share of $0.48. So, overall a quarter with many positive trends in the business, including all-time-high units on rent improving year-over-year portable storage rental rates and delivering a very strong free cash flow. We also stabilized the turnover in our sales team, by implementing the action plan we shared last quarter, which includes on-boarding, training and providing more resources, and coaching to our sales force. We expect this to continue to lead to higher level of activations and units on rent going forward.

Turning to slide number 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, where we saw solid year-over-year growth in the quarter. Our second largest segment is industrial and commercial, where demand from our downstream specialty containment business remains solid and we expect increased turnaround activity in this segment in 2017. And lastly, as for retail, we had a record-breaking seasonal business in Q4.

So, all-in-all, we maintain a broad, diverse customer base, 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 Q4 NPS score of 83.4% remains at record high levels, and is up 240 basis points year-over-year. These NPS scores validate that our highest value provider strategy to drive rate and volume is working.

We also have a diverse geographic footprint with 158 locations, of which 125 are portable storage locations, 19 are specialty containment locations and 14 are shared portable storage and specialty containment locations. We will continue to combine some overlapping locations for our two segments, but more importantly, leverage our larger portable storage footprint with the expanded specialty containment product line and apply a hub-and-spoke strategy as we expand.

Moving on to slide number 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 portable storage utilization to 75.2% for the quarter. This increase in utilization was driven by our strong seasonal business as well as fourth quarter North American core activations being up 2.1% year-over-year, which is up from Q3's year-over-year core activation increase of 0.9%. This activation momentum has continued into January with our month-to-date or January core activations being up 7% versus prior year.

As far as ISR headcounts, we expanded our ISR team to 211 on average for the quarter, which is up 5% from our average ISR head count in Q3, and given our confidence in the business, 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 as well over time. These improvements in year-over-year activations as well as adding to our ISR head count is the result of stabilizing the turnover of our sales team through corrective actions we have implemented across a number of processes, including on-boarding, training, providing more resources, and coaching to our sales force as I already mentioned.

In our specialty containment business, utilization for the quarter was down 3.9 percentage points year-over-year to 61%. This was primarily driven by the well-known market headwinds in our upstream and oil and gas business. On a sequential basis, specialty containment unit utilization was flat month-over-month and down 190 basis points based on original equipment cost utilization. We believe OEC is a more meaningful utilization measure, given the wider range of products in our specialty containment business, and our downstream OEC utilization was 69% for the fourth quarter with units on rent up both year-over-year and sequentially in Q4.

Turning to slide number 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 Q4 rental rates were up a healthy 2.9% year-over-year and up sequentially 1.6% from Q3 level. For new units going out on rent in the quarter, the rate increase was 2.1% year-over-year, even as we anniversaried our 16th 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.

Our Q4 year-over-year yield for portable storage was down 2.2% due to currency fluctuations to $639 per unit. Adjusting for unfavorable exchange rates, our yield actually increased 1.6% year-over-year to $664 per unit, and this improvement was primarily driven by strong rental rate increase. And we're able to achieve this industry-leading or premium rental rates by focusing on our differentiated products and superior fleet and our strong sales and service culture. As we move forward, we will continue to balance rate increases with a strong focus on units on rent and believe 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.

Mark W. Funk - Mobile Mini, Inc.

Great. Thanks very much, Erik.

So, turning to slide 8, in revenue highlights, you'll find fourth quarter rental revenues increased 1.3% 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. Q4 portable storage rental revenues were up $3.4 million or 3.3% year-over-year when adjusted for FX. Our increase in portable storage rental revenues was driven by both increases in units on rent as well as rental rates. Specialty containment rental revenues were down 7% year-over-year driven primarily by continued upstream headwinds as well as less mining and other large infrastructure projects in our diversified pump and filtration business. Downstream revenues, which makes up the vast majority of our specialty containment, was down slightly or 0.7% year-over-year, and the fourth quarter marks our 24th consecutive quarter of year-over-year growth in rental revenues when adjusted for FX.

Turning to slide 9 in profitability, we achieved total adjusted EBITDA of $54.2 million and a margin of 41.2% for the quarter. For portable storage, we generated adjusted EBITDA of $48.1 million with a margin of 44%, which was up 270 basis points year-over-year, primarily as a result of lower incentive compensation, transportation, and insurance costs. For our specialty containment business, we achieved adjusted EBITDA of $6.1 million and a margin of 26%, which was down year-over-year primarily due to lower revenues in our upstream and diversified markets, as well as higher bad debt and repairs and maintenance expense.

Looking to 2017, we expect to generate incremental EBITDA margins of 60% from year-over-year increases in rental revenue. However, we expect approximately $10 million in year-over-year headwind from FX, increases in incentive compensation and payroll cost and one less business day. With that said, even with these EBITDA headwinds, we expect to see nice year-over-year free cash flow growth as a result of less CapEx spend in 2017, which I will detail later.

Continuing to slide 10, you can see the company's fourth quarter adjusted rental SG&A level was $73.7 million, which was down $4 million year-over-year, when FX-adjusted SG&A was down $1.7 million or 2% year-over-year, from decreases in payroll-related accounts, including stock comp and bonus. As far as rental SG&A, as a percentage of total revenue, it decreased 180 basis points to 56% for Q4 2016 and this is compared to the prior-year quarter.

On the next slide, you'll see that Q4 North American portable storage rental revenues were up 3% year-over-year. North American portable storage Q4 adjusted EBITDA margins were also up 3.1 percentage points year-over-year, due to higher revenue and lower bonus, transportation and insurance costs. The UK's portable storage rental revenues decreased 15%, but this was due to FX. The UK's rental revenues were actually up 4% in local currency and the UK's Q4 adjusted EBITDA margin was 40.3%, which is an all-time quarterly high for our UK business. And finally, our specialty containment business had rental revenues of $22.5 million with an adjusted EBITDA margin of 26% for the quarter.

Turning to the free cash flow slide on page 12, our free cash flow was $28 million for Q4 and this was our 36th consecutive quarter of positive free cash flow. We returned $9.1 million in dividends and repurchased 4.2 million in shares in the quarter. As a growth company with strong free cash flow, we are again increasing our quarterly dividend, 10% per share and this is beginning in Q1 2017. The chart on the right hand side highlights our CapEx spend. Q4 net CapEx totaled $12.5 million. Of this, we invested $8 million in growth CapEx for our lease fleet, the vast majority in high-demand portable storage markets in the Eastern U.S. and the UK. For 2017, we are planning to spend approximately $50 million in total net CapEx including assets funded under capital leases. And as a result, we expect to nicely expand year-over-year free cash flow.

Turning to the next slide, we've a very flexible capital structure with a high level of liquidity. In the last year, we reset our entire debt structure by extending maturities, reducing interest costs, and increasing flexibility. As of December 31, we had over $350 million of excess availability on our revolver and we only have one financial covenant in our entire capital structure. This is only tested if we have below $100 million of excess availability on revolver. Thus with over $350 million, 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 4.9 times. And we expect to utilize free cash flow to delever in the next 12 months.

So to summarize, we had a solid quarter with many positive trends in the business including improving year-over-year activations, which contributed to an all-time high for portable storage units on rent during the quarter. We also drove higher portable storage rental rates, which were up 2.9% year-over-year. And we delivered strong free cash flow in the quarter. And finally, looking forward, we entered this new year in a position of strength to leverage the investments we've made in people, fleet, and infrastructure, which we expect to result in free cash flow growth in 2017.

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

Question-and-Answer Session

Operator

At this time, we will be conducting the question-and-answer session. Our first question comes from the line of Sean Hannan of Needham & Company. Please proceed with your question.

Sean K. F. Hannan - Needham & Company, LLC

Yeah. Thanks. Good morning, folks. Thanks for taking my question here. I have a few of them. First, as I look into the results that you had within retail, one thing I want to try and understand, as it appears, you've had a record quarter in terms of servicing that market. Just want to understand how that came through versus what we see as a mix percentage that actually moves down quarter-on-quarter, and just want to make sure to reconcile how to think about that and what's occurred given that – it hasn't necessarily been a very robust brick and mortar market.

Erik Olsson - Mobile Mini, Inc.

Well, our seasonal business was up almost 2,000 units on a year-over-year basis, which put it as we said as an all-time high for seasonal units. We executed very well, both with our largest or the largest retailer out there. But our growth was actually with a couple of other major retailers. So, I would put this performance as great execution of our team, and not so much the demand situation overall from retail.

Sean K. F. Hannan - Needham & Company, LLC

Okay. That's helpful. And then in terms of the sales productivity topic, it sounds like you feel you've got that to bed. Should we start to see some of those metrics truly working up as we progress through 2017 and I'm not sure if I had missed the stat, but I think at times, we've heard units leased per rep and didn't know if we might be able to get that? Thanks.

Erik Olsson - Mobile Mini, Inc.

So I think what we – obviously, this was and is a priority for us to curve the turnover, and I'm very pleased to say that we stabilized it and we had a lower turnover in Q4 than in Q3. Obviously, it takes a couple of quarters to have all these changes impact productivity, and there's still a lot of new reps on board that we need to get up to full speed. So you're right in saying that productivity will definitely pick up during the course of 2017 year.

Mark W. Funk - Mobile Mini, Inc.

Yeah.

Erik Olsson - Mobile Mini, Inc.

And more important, though, I think is to look at the activations. If we look at core activations, now set seasonal aside, we were up 0.9% in Q3. We were up 2.1% in Q4, and actually, in the month of January, as I mentioned, we're up 7% year-over-year. That I think is a testament to the stabilization of – an improvement of the sales force more so than any other metric.

Sean K. F. Hannan - Needham & Company, LLC

Okay. And did we have that units leased per rep stat or maybe that's something I can grab offline?

Erik Olsson - Mobile Mini, Inc.

Yeah, we think it's wrong to focus on that number, because at the end of the day...

Sean K. F. Hannan - Needham & Company, LLC

Okay.

Erik Olsson - Mobile Mini, Inc.

...it's more important for us to grow our activations and grow our top line, so...

Sean K. F. Hannan - Needham & Company, LLC

Yeah.

Mark W. Funk - Mobile Mini, Inc.

Yeah. What I'd like to share is, productivity, as far as the change, got better in Q4 over Q4 last year versus Q3. So it's showing a stability of the sales force as well stability on the turnover side. And then what Erik says is correct: what's most important is our activations that start the delivery. So those in aggregate are going up sequentially from Q3 up to Q4 and then year-to-date/January, it's up nicely above those levels. So that's why it really actually matters to us at the end of the day.

Sean K. F. Hannan - Needham & Company, LLC

Okay. And then last question here for me. So it did seem like you folks executed well in the quarter, and I think you were pretty much spot on with my revenue estimate. The earnings beat was pretty strong, obviously, owing to some of that lower OpEx as well as taxes. So, Mark, I think that we've heard commentary that we should expect in 2017 a $10 million headwind relative – I'm sorry, for 2017 relative to 2016. Just want to make sure we heard that accurately. And then, separately, from here, how do we think about taxes particularly as it relates to what we just printed? Thanks.

Mark W. Funk - Mobile Mini, Inc.

Yeah, exactly. So if you look at, all things equal, we had about a $10 million EBITDA headwind from FX, higher incentive comp, which we expect was tied to performance obviously, and to growing the business, but that will be part of the $10 million as well as one less business day, which translates to about $1 million of EBITDA. So that would be a year-over-year headwind.

As far as tax rates, we had some tax adjustments in the fourth quarter that brought the effective rate around 27.5%. On a go-forward basis, we expect that to be closer to 34%. If you look at the full-year 2016, it was closer to that number, that 34%. So that's the number I would recommend using going forward.

Sean K. F. Hannan - Needham & Company, LLC

Very good. Thanks for taking my questions.

Mark W. Funk - Mobile Mini, Inc.

Sure.

Erik Olsson - Mobile Mini, Inc.

Thank you.

Operator

Our next question comes from the line of Scott Schneeberger, an analyst from Oppenheimer.

Scott Schneeberger - Oppenheimer & Co., Inc.

Thanks. Hi, guys.

Erik Olsson - Mobile Mini, Inc.

Hi, Scott.

Scott Schneeberger - Oppenheimer & Co., Inc.

Hey. First off on portable and then I wanted to discuss a little bit on specialty. But what do you think is a reasonable rental revenue growth and thoughts on volume and price breakout or mix to the extent you care to share and forex impact as we look out over 2017, portable specific?

Erik Olsson - Mobile Mini, Inc.

Well, we haven't given specific revenue growth guidance, but as I mentioned on the call, I think we're still optimistic about the pricing environment and that we can continue to drive rates in the 2% to 3% level. We also expect to grow the business this year. The markets are stable or even growing. So we expect that we should be at or above the GDP level for growth in 2017.

Scott Schneeberger - Oppenheimer & Co., Inc.

Thanks. And, Mark, any thoughts from you on forex as we look out over the coming year?

Mark W. Funk - Mobile Mini, Inc.

It's, obviously, going to tie into what just Erik shared as far as growth rates. Obviously, in Q4 we had about a $4 million headwind year-over-year on rental revenue from where the sterling sits, and I guess it's going to depend obviously where it is. It's been bumping along at the $1.00 and $1.24, but that's what the headwind was for Q4 of this year and translated somewhere around $1.7 million of EBITDA.

So I guess it's just hard to predict the FX into this new year, but maybe the number is somewhere around $3 million-plus in EBITDA, and somewhere high single – say, $6 million to $7 million on rental revenue, but that would be just a guesstimate.

Scott Schneeberger - Oppenheimer & Co., Inc.

Okay. All right, thanks. Swinging to specialty containment, just curious what were really the pressures in the quarter. Was it commodity prices? Was it co-locating the item that put pressure on it? And if you could just go a level deeper across the main categories. Thank you.

Erik Olsson - Mobile Mini, Inc.

So I think if we look at the downstream segment, we saw stable business in the quarter. I think again there were not as much turnover activity as we would have liked, but that's purely timing issues, and I think for 2017 we expect a lot more turnaround activity for that segment. The pipeline looks good at this point.

In the upstream markets, we did see some more rigs coming online, some more activity towards the end of the quarter, but it really didn't translate into some big shift in our numbers yet. If this continues, we should see a pickup in that segment, but it hasn't really translated into more business for us just yet.

Mark W. Funk - Mobile Mini, Inc.

Yeah. And just on the cost side, maybe we had a little migration of fleet to higher R&M and some just higher bad debt on some accounts. So I would say it's somewhere close to $1 million of incremental or above normalized cost in the quarter for specialty containment, which we don't expect to continue.

Scott Schneeberger - Oppenheimer & Co., Inc.

Just a couple follow-ons. Mark, was the bad debt concentrated in just one or two accounts and commodity driven I imagine or something else to that?

Mark W. Funk - Mobile Mini, Inc.

Yeah. It was concentrated, and I would say, in a handful accounts, not a concern from a ongoing revenue perspective. At the end of the day, even when you look at this increase in bad debt, we're still running only somewhere around 2% of revenue for a full year. So we feel good about the customer base and any type of bad debt exposure going forward. It was just a few account true-ups basically.

Scott Schneeberger - Oppenheimer & Co., Inc.

Thanks. And then a two-part final question. Just, Erik, I think you were alluding to earlier in 2016 around for second quarter relative to your guidance. You guys had mentioned that there were couple large contracts you had expected in 2016 that looked like they were going to be pushed out. And what I just took away from what you said a minute ago was that you would expect those showing up in 2017. Just curious if you could comment on the risk of that pushing farther or the probability of 2017. And then the second part of the question and separate is, if you could just address pricing in the specialty containment, how you're approaching it, what you're seeing? Thanks very much.

Erik Olsson - Mobile Mini, Inc.

Sure. So, again, these things are obviously driven by the customer and when they choose to do their turnaround activities or not. But the fact is that over the last couple of years, there has been some major delays or postponement of turnaround. So we feel very good about them actually happening here in 2017. I will not pinpoint the quarter because I can't really do that, but like I said, we feel confident that they will happen. Pricing has been remarkably stable in the specialty containment segment. There are pressures obviously and negotiations taking place, but we have been able to keep our rates fairly flat actually on a year-over-year basis, which we're obviously very, very happy about.

Scott Schneeberger - Oppenheimer & Co., Inc.

Great. Thanks and nice job in the quarter.

Erik Olsson - Mobile Mini, Inc.

Thank you.

Mark W. Funk - Mobile Mini, Inc.

Thank you.

Operator

Our next question comes from the line of Marc Riddick of Sidoti & Co. Please proceed with your question.

Marc Riddick - Sidoti & Co. LLC

Hey, good morning.

Erik Olsson - Mobile Mini, Inc.

Good morning.

Marc Riddick - Sidoti & Co. LLC

So I wanted to follow up a little bit more on some of the other areas and get some thoughts as to what you're seeing there, particularly within maybe starting with construction and then maybe if you could share some thoughts of what you're seeing with the commercial and industrial?

Erik Olsson - Mobile Mini, Inc.

So on construction, I think we see a solid, steady demand. We are actually fairly optimistic about 2017 in that segment. Like we said, the year has started off fairly well for us. The industrial and commercial segment is largely the downstream segment that I mentioned before, and again, we feel good about the year and good about the pipeline we see at the moment and the prospects that we have to go after during the course of the year.

Marc Riddick - Sidoti & Co. LLC

And then as far as the strong start to the year, is that necessarily attributable primarily more on the construction side or should we view that as sort of an across-the-board contribution?

Erik Olsson - Mobile Mini, Inc.

It's largely construction activity or a reflection of the customer mix that we have. It's not a typical turnaround month for customers in the downstream segment, if you like and so on. So I'd say the general mix of business that we have, have all responded fairly well to our activities, so we're taking a lot of business.

Mark W. Funk - Mobile Mini, Inc.

We feel confident about those three large – all our end segments with the construction, industrial, as well as the retail consumer services.

Marc Riddick - Sidoti & Co. LLC

And you did touch on this already as far as what you were able to generate on the retail side. I was wondering as far as the commentary in the press release about the strength of the seasonal units on rent. I want to get a sense of is that primarily the strength that you had from retail or does that extend to other areas as well?

Mark W. Funk - Mobile Mini, Inc.

I think in general, retail was very solid, but the seasonal obviously was up a couple thousands units as Erik highlighted and it's somewhere, probably about $1 million in rental revenue Q4 over Q4, that's what it would translate. So, in general, I would say the environment is solid for us, and we've invested in some great talent on our international sales side, so that's actually driving some nice retail business on a more national basis.

Marc Riddick - Sidoti & Co. LLC

And in that vein, I was wondering are you seeing differences in performance as far as areas of the country? There are some that might say on the retail side the things are doing better on the West Coast than what we're seeing in the Northeast and in the Mid-Atlantic states and what have you. I was wondering if you're seeing any differential in performance regionally.

Erik Olsson - Mobile Mini, Inc.

No, no, we did not. This was across the country, and like Mark just said or I said earlier, it had a lot to do with the way we executed against these large retailers. So I think we did a much better job than we have in the past, and as a result, we grew that business very nicely.

Mark W. Funk - Mobile Mini, Inc.

Yeah. And just geography-wise, I would say we're doing a good job in the Southeast, the Mid-Atlantic, California is doing pretty well. And that's just broad-brush across all end segments, but we're not really seeing any weakness from a geographic standpoint, and that includes the UK, who obviously is – there is uncertainly with Brexit and all of that, but we had a record quarter there.

Marc Riddick - Sidoti & Co. LLC

Yeah. Great, great. And I was wondering if you could spend a little time touching on the changes and the benefits as far as the development of the – and the training of the sales force and sort of maybe the fruits of those efforts, and what you may see going forward. Are you comfortable sort of where you are now as far as training, development, management levels and sort of the changes that had taken place there recently, and then now the more recent turnover. Are you sort of comfortable, I guess maybe from a strategic managerial level of things that you kind of doing what you want to do and you're kind of set there, or should we expect any particular changes as far as how reps are managed from an operating standpoint?

Erik Olsson - Mobile Mini, Inc.

Right. No, I think, we have implemented all the actions that we talked about in our Q3 call. So we have put in place a much better on-boarding process. We have expanded our inside sales managers from 8 to 14, and they are all on board. We have put in place a much more structured coaching environment, et cetera, et cetera. So all the pieces of the puzzle that we believe are necessary are in place. And it's just a matter of letting these things now work through and take hold and so on, so. I believe we've done what's necessary and we should see the impact here over the coming quarters.

Marc Riddick - Sidoti & Co. LLC

Okay. And was there anything we should look forward to, as far as, increase. I think, we had touched on technology spending or equipment and that type of thing to sort of empower your team, I guess as best as possible, is that something that we should view as being you are pretty much set for where you think you need to be for 2017 and beyond as far as technology spending or that type of thing?

Erik Olsson - Mobile Mini, Inc.

Yeah, absolutely. I think we have state-of-the-art technology for our sales team, I would say. We made significant investments in 2015 and 2016. We used salesforce.com, and we built proprietary territory management system to support them, et cetera. So all those pieces are also in place and there's nothing further to come at this point.

Marc Riddick - Sidoti & Co. LLC

Okay. Okay, great. I appreciate. Thank you very much.

Erik Olsson - Mobile Mini, Inc.

Yeah. Thank you.

Mark W. Funk - Mobile Mini, Inc.

Thanks, Marc.

Operator

Our next question comes from the line of Andrew Wittmann, an analyst from Robert W. Baird. Please proceed with your question.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Thank you. I have two questions. I think the first one is going to be for Mark. And Mark, I mean you guys commented on the portable storage rental segment SG&A and why it was lower. I guess you pointed to payroll related things and bonuses – maybe you said it and I missed it, but can you just quantify that, because the level what was reported here in the quarter at least on a quarterly basis wasn't last seen since 2013, and it looks – was there like a bonus reversal that gave you an added benefit to take that number down farther than it normally would be or maybe just some color as to what that could have been if you would have had a bonus year, give us some context on that line?

Mark W. Funk - Mobile Mini, Inc.

Yeah. Fair enough. So for the quarter, it was basically down about $3 million and what I would call incentive comp of $1 million in bonus and about $2 million in stock comp. So it's basically where we hit our internal targets, we actually shoot up in Q4. And so that is obviously if we adjusted for that we'd probably be down 200-ish basis points or so from an EBITDA margin perspective.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Got it. Okay. That's helpful. And then I guess my second question is related to specialty containment business and specifically as it related to the yields there, if I just look at the average utilization, the units on rent and then kind of divided by the rental revenue that was there, actually suggests that the average yield was down somewhere around 8%, so are we seeing a mix change here where, I know, in that business in particular all units are not the same, are we seeing that the average unit that's going out is generating relatively less revenue, in other words a less expensive piece of equipment, is that what accounts for the decline in yields with the steady pricing?

Mark W. Funk - Mobile Mini, Inc.

I would say there is a mix component. Obviously, it's more – the decline is on some of the higher priced units on the upstream side, which went for higher price than our average units, so I would say a mix is a part of that. If you look at our just OEC utilization on the downstream side, that was, I would say very solid, so it really has to do more with the decline on the upstream side at higher pricing basically per unit.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Okay. That makes sense. Can I ask a third one? I said I was only going to ask two. I have another one. I guess you guys said for the second quarter in a row that your plan for the free cash flow was to pay off debt for the forthcoming year or so. Yet in the quarter it looks like you did a little bit of buyback, about $4 million worth, when you say that you're planning to take the free cash and pay off debt, does that mean exclusively pay off debt, mostly pay off debt, how should we be thinking about that comment maybe little bit more specifically?

Mark W. Funk - Mobile Mini, Inc.

Yeah. I would just say we continue to be focused on that, but at the same time, we'll repurchase shares on an opportunistic basis, obviously we bought about $4 million worth of shares at less than $25 a share in Q4. So I would say the focus is to continue to bring the debt down from a 4.9 times to slightly below 4 times. But still repurchase from time-to-time. So it's going to be a balancing act, but our eye is on reducing debt and bring down our debt multiple.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Okay, that's helpful. Thank you very much.

Mark W. Funk - Mobile Mini, Inc.

Sure. Thank you.

Operator

At this time, there are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Erik Olsson - Mobile Mini, Inc.

All right. Thank you very much for participating on this call and we look forward to speaking with you again with our Q1 results. Thank you.

Operator

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.

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