Edited Transcript of MINI earnings conference call or presentation 1-May-20 1:00pm GMT

In addition to our sustainable business model and countercyclical free cash flow generation, our nearly $450 million of liquidity from cash on hand and revolver availability will help us weather the economic downturn and be ready for growth when the market turns around.

Now turning to our results for the first quarter. We had a great quarter. Another period of solid execution through increased efficiency, resulting in rate increases in both segments of storage solutions and continued growth in managed services. On a year-over-year consolidated basis, we increased both adjusted EBITDA and adjusted EBITDA margin for the ninth consecutive quarter. Following a historic 2019 free cash flow generation, Q1 2020 free cash flow was nearly 40% greater than prior year. And as of March 31, 2020, leverage of 3.5x was the lowest it has been since September 2014.

Our return on capital employed significantly exceeded our cost of capital and continued to be greater than 10%. Storage Solution’s adjusted EBITDA of $51.8 million for the first quarter was $6.4 million or 14% greater than prior year, with an adjusted EBITDA margin of 42.5%, a 420 basis point increase. Storage Solution’s rental revenue for Q1 2020 increased 1.8% year-over-year. We achieved rate increases in our Storage Solutions business in both North America and the U.K. For Storage Solutions, composite rates were up 3.3% year-over-year.

North America Storage Solutions also achieved another record quarter with adjusted EBITDA margin of 44.6%, an improvement of 430 basis points versus Q1 2019, driven by strong revenue growth as well as cost efficiencies and lower short-term variable incentive plan expense. North America Storage Solutions, rental revenue of $96.5 million for the quarter was up 3.2%, driven by 3.7% increase in year-over-year rental rates, favorable mix with ground level offices and an increase in managed services, partially offset by a decrease in units on rent.

Ground level losses continued to be favorably received by the North America market. The increased rates and units on rent for GLOs improved the product mix in North America. National Accounts revenue remained greater than 35% of North America Storage Solutions rental revenue for the trailing 12 months. Managed Services continued to expand with 2,400 plus items on rent in Q1 2020, generating $3.6 million in revenue, which was up 52% year-over-year. The U.K. business adjusted EBITDA increased 7.4% year-over-year due to general cost management and lower trucking expense. This operational efficiency translated into year-over-year margin expansion of 270 basis points to 31.7% for Q1 2020. U.K. rental revenue for the first quarter decreased 3.3% year-over-year. A healthy 1.9% increase in year-over-year rental rates was offset by a decrease in units on rent and unfavorable mix.

As we anticipated on the last earnings call, in Q1 2020, Tank & Pump Solutions faced challenging prior year comps and industry softening. Tank & Pump rental revenue decreased $3.5 million or 12% year-over-year, driven by a decline in average owned fleet on rent. This resulted in segment adjusted EBITDA of $8.1 million and adjusted EBITDA margin of 29.9% for Q1 2020. We managed costs to offset the impact of the current revenue trends and continue to proactively address variable expenses and overhead optimization where possible.

Now I want to take some time to discuss our current business conditions in light of COVID-19. The U.S. government deemed us an essential business. Mobile Mini ground level offices and containers are being used for office space to provide social distancing and also as testing centers. Managed Services has been bundling our office in Storage Solutions with furniture and hand washing stations to provide a one-stop solution. Prior to mid-March, North America Storage Solutions maintained a healthy pipeline of pending orders that was greater than prior year. However, the nonessential business closures and travel restrictions stemming from the fight against the pandemic led to current delays and cancellations of orders. And as a result, our pipeline is now lower compared to this point last year.

North America Storage Solutions units on rent as of March 31, 2020, was essentially flat to prior year. And as of April 29, units on rent was approximately 2.5% below prior year. Given fewer pickups and deliveries, our trucking revenue, which is over 20% of our rental revenue on average will be affected in Q2. Some of the decline is relative to postponement of retail construction remodels. Both national and localized contractors performed remodels for certain parts of our national account customers. Localized remodels that started pre COVID-19 are currently ongoing and related new orders will start on time in Q2 and onwards. Pending orders related to remodels conducted by some national contractors are temporarily postponed in some cases due to travel restrictions.

The U.K. segment has a similar story. After transitioning to a territory based sales model and utilizing similar sales tools as the North America segment, the U.K. business had a growing pipeline of pending orders that was greater than prior year until late March when the U.K. government ordered an immediate full nationwide shutdown of the economy.

Similar to North America, the majority of the U.K. units at customer sites remain on rent, so year-to-date April deactivations are much lower than prior year. I wanted to provide an update to our merger. As previously announced on March 2, 2020, Mobile Mini entered into an all-stock merger of equals with WillScot. The merger is subject to customary closing conditions, including shareholder vote, approval and regulatory approval. We have submitted our HSR antitrust filings. There’s a new revolver credit facility committed for the combined company to ensure access to ample liquidity at close. Both Mobile Mini and WillScot are working diligently on the integration plans. We continue to anticipate the deal will close in the third quarter of the year and are very excited about the opportunity to partner in the newco with WillScot. I will now turn the call over to Van.

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Van A. Welch, Mobile Mini, Inc. – Executive VP & CFO [3]

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Thank you, Kelly, and good morning. I hope everyone is faring well under these very unusual circumstances. In Q1 2020, we we generated $22.5 million of free cash flow, up $6.3 million year-over-year. This marked the 49th consecutive quarter of positive free cash flow. To put that statistic into perspective, that means we generated positive free cash flow during the Great Recession of 2008 to 2010 as well as the industrial recession of 2015 to 2016. We expect strong free cash flow to continue in Q2.

CapEx spend decreased nearly $12 million year-over-year for Q1 2020. The majority of fleet CapEx spend was related to conversions of ground level offices or GLOs, as these products remain in high demand. To adjust the current market demand, our targeted full year CapEx spend is now $25 million to $30 million with a focus on GLOs.

In Q1 2020, we acquired $4 million of rolling stock via finance leases. Similar levels are anticipated in Q2 2020. Our adjusted effective tax rate for the quarter was 25% compared to 26.5% for the same quarter in 2019, and we now expect an effective tax rate of 25% to 27% for 2020.

During the quarter, dividend payout totaled $13.6 million. In addition, we invested $4.8 million for a tuck-in acquisition in February to further strengthen our storage container business in Dallas, Texas. As Kelly stated, this quarter’s leverage ratio of 3.5x was Mobile Mini’s lowest leverage since Q3 2014. We continue to manage cost and working capital to reduce debt in 2020 and maintain our strong balance sheet.

We have a flexible capital structure with no near-term debt maturities. At March 31, 2020, we had $438 million of revolver availability and over $10 million of cash on hand. We have ample liquidity to meet foreseeable needs. In response to the economic downturn, we are suspending both tuck-in acquisitions and share repurchases. For the near term, our capital deployment is focused on dividend payout and debt paydown to reduce leverage.

Our countercyclical free cash flow generation, coupled with nearly $450 million of current liquidity, strengthens our financial flexibility and positions us to manage through these uncertain times and be ready for growth when the economy rebounds. And with that, I’ll hand the call back to Kelly.

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [4]

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Thanks, Dan. We have a unique operating model and storage solutions that differentiates us, so that the business segment can outperform GDP on a rental revenue basis in Q2. We will also maintain strong adjusted EBITDA and adjusted EBITDA margins for storage solutions in Q2. Whatever the market conditions are, we will manage our business proactively to outperform the market.

Importantly, we expect to achieve consolidated adjusted EBITDA margin greater than 40% in Q2. Return on capital employed will continue to exceed weighted cost of capital in Q2, and dividends per share will grow 10% year-over-year for the quarter.

To conclude, we have taken significant specific steps to further improve our financial resilience and liquidity position. We will generate positive countercyclical free cash flow for the 50th consecutive month in Q2 2020. Our demand-driven model allows us to proactively respond to this current economic situation. And when the market turns around, we will equally be ready for growth.

I would like to finish where I started, by giving my heartfelt thank you to our teams who are going above and beyond to serve our company and our loyal customer base during this critical moment. I also wish all of you listening today continued safety and good health. I will now turn the call over to the operator for instructions on the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Scott Schneeberger from Oppenheimer & Company.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [2]

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I guess I’d like to start out, Kelly, could you address just what you’ve seen since, let’s say, starting in mid-March, the progression of customer activity. Just your conversations, any anecdotes you can share just as how things have progressed over the last 5 or 6 weeks? And where you think that leaves us as we approach the next 2 months of the quarter?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [3]

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Yes, sure. Scott, I’d tell you that it was probably March 20 or so, where we started to see an impact in the business. We measure our new orders very intensely, I think, as everybody is aware here. So we’ve had a run rate here of 3 or 4 years of very solid progress in terms of our our new orders and the ability to recognize the improvement to prior year. It started to slow there, I would say. Just looking back to try to get a little bit more color today. Our new orders were down in April, about 25%, and that’s stabilized considerably. So that was pretty much the trend, Scott, I would tell you. It happened fairly early, and that tends to be a number that we’ve stabilized too. We gave a little more color on the fact that our units on rent, as of yesterday, were down 2.5% to allow everybody to understand that mid-March, we had a really strong volume pickup in the first quarter. So mid-March, we were slightly ahead of prior year. End of March, we were flat. And at the end — close to the end of April here, we’re 2.5% down or so. So you can see that the activation is slow, but we’ve also had a significant amount of stickiness with our units on rent at job sites and other end market segments. So it’s a slow leak, as we say, it’s a slow deflate, which is the beauty of the business model. But it has stabilized, and our pending order pipeline is still fairly good here. So it’s really just about whether — when this opens up, and it’s certainly difficult to predict.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [4]

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I appreciate that color. Could you address a little bit, and this is specifically in Storage, what you’re seeing across the primary end markets?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [5]

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Well, the construction is open in many states. And so the activity has still been relatively strong. We — on a local level, we continue to do a significant amount of business. I think where we have made a pretty big shift is in our — on the Storage side is in the national account mix. So that’s been a little bit challenged in terms of the — some of the larger retailer remodels because they’ve been paused. And I think it’s important to note, obviously, that some of these big-box retailers are doing extremely well right now. So they’ve paused some of that activity because their volume is significant. And so I think that’s a postponement. We actually have started to see some of that pick back up or at least have stronger line of vision to the commitment towards the back end of Q2. But in some places, everything is still fairly normal. I would say that the retail end market is — which is very good, has slowed on the construction side.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [6]

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And then moving over to Tank & Pump. Just curious, your thoughts on on the verticals you serve there? And maybe a little bit of elaboration on — in this oil price environment. What might be expected for turnarounds over the course of — or the balance of this year?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [7]

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Yes. So I think the — obviously, in Q1, we saw some industry softening. I think the business is further impacted by the lack of demand for energy and an obvious oversupply of oil, which we partially offset by a stronger level of activity in the petro-chem manufacturing area. But yes, it’s certainly soft. It’s, again, a little bit more difficult to predict. I think the maintenance side of the business, I would anticipate would — we’d start to see a little bit more activity in May and June, taking advantage of the fact that they can take these plants down, as the need for oil has slowed. I think it will be an environment, though, that’s still a wait and see. I think what’s important here is that we’re taking advantage of taking costs out of the business. The teams have been very focused on aggressively managing costs. And I made the comment here earlier that on a consolidated basis, I’m very confident that the company will run over 40% margins. I’ll also tell you, I believe that the Tank & Pump business can maintain their current margins from Q1 even in a declining environment with the proactive steps we take to manage costs.

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Scott Andrew Schneeberger, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [8]

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Great. I appreciate that. And then last one for me, and this is across both segments. Just any anecdotes with regard to pricing, what do you anticipate to occur there just from what you’ve seen over the last few weeks?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [9]

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The Storage business, I mean, this is the beauty of the model. I still anticipate — we showed our new rates Q1 to be up nearly 2%, and that was really strictly because we had an increase in national account activity, which we’ve explained when we see higher peaks of volume. The rates on national account business is discounted slightly there. So I anticipate that to remain positive. I don’t see there’s anything there. We’ll, at times, become a little bit more aggressive, but I still think we have true differentiation in the quality of product and our service levels. So we’ll maintain positive pricing there. On the Tank side, it’s certainly a little bit more challenging environment there. Again, we’re locked in contractually. So it’s hard to move the pricing one way or another. There are circumstances here where we are working with our customers to help them through some tougher times. We might get extensions when we do that. But I do anticipate a bit of a softening on the pricing on the Tank side, but I would tell you that the Storage side is very resilient, and we’ll remain positive in pricing there. And I would say it’s probably in that neighborhood of, as I mentioned earlier, maybe closer to 2%.

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Operator [10]

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Our next question today is coming from Kevin McVeigh from Crédit Suisse. Great.

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Kevin Damien McVeigh, Crédit Suisse AG, Research Division – MD [11]

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Thank you all. Hopefully, you folks are all safe and congrats on all the color. Kelly, can you maybe just frame out directionally for us. It sounds like there’s some puts and takes. I mean, things overall came in better than expected, but it sounds like you’ve seen some demand pick up as a result of COVID. Is there any way to think about just broad stroke, how much of an uptick you saw around kind of some incremental demand versus the offsets on — it sounds like slower transportation, things like that, just puts and takes as you think about the quarter heading in versus ultimately where you settled?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [12]

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Well, we’ve certainly seen a pickup in our ground level office business, which has incrementally better rates or accretive rate to the overall portfolio. And that mix certainly helps there. But to be clear, it’s not — certainly not been able to overcome the overall decline in the business, Kevin. It’d be hard to put a number on it in terms of units per day that we’ve had that relate directly to COVID-19. I will tell you, again, the one thing that’s given us a little bit more color is around the national account business. So we do get some of this business through — some of these big-box retailers that are being utilized as testing sites or that type of thing. But I think you still obviously see the decline across the rest of the end markets. So it’s hard to put real color on the COVID-19 numbers. I’d say, if I were to throw some numbers out there, you might have seen a — relative to the current units we’re doing, maybe 10% of the current volume might be COVID-19 related, but it’s not significant.

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Kevin Damien McVeigh, Crédit Suisse AG, Research Division – MD [13]

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Got it. That’s helpful. And then just any thoughts around kind of — you’ve seen any pickup in bad debt on the energy or on the container side? Just any thoughts around kind of client behavior as it relates to bad debt. And then obviously, the cash flow is still there, but just how you’re thinking about that?

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Van A. Welch, Mobile Mini, Inc. – Executive VP & CFO [14]

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Yes, Kevin, this is Van. We’re keeping a really — yes, we’re keeping a close eye on it. But to date, we really haven’t seen any bad debts that have come in or DSO increases as of yet, but we’re watching it very, very close. I think in this environment, my anticipation is we’ll see a little bit of creep in that going forward. But we’re certainly looking at it real close.

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Operator [15]

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Our next question is coming from Justin Hauke from Robert W. Baird.

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Justin P. Hauke, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Associate [16]

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I guess I was going to ask a question about — you mentioned that the trucking being impacted and that’s 20% of your revenue. I have to assume that the margins on that are lower. Could you maybe give some context on that, just so you can think about how that might flow through to margins, just the mix impact?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [17]

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Yes, that’s a good call out. That’s, in fact — is certainly a benefit, right, because it is dilutive to the overall margin really on both sides of the business. So our rental margins are about twice what the trucking margins are. And we’ve done a great job of accelerating that — those trucking margins. The efficiencies that have come out of the technology advancements we’ve made through mobility and some of those other things have benefited us, third-party management from a logistics standpoint. But absolutely, it will be a tailwind from the standpoint that, that volume decreases, and it is dilutive to the overall portfolio.

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Justin P. Hauke, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Associate [18]

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Okay. That’s helpful. I guess my second question is just on the 35% or so that’s national accounts, I mean, how many units are tied to kind of these remodels specifically? Just so that I can kind of understand the context of what the delay or pushouts are doing.

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [19]

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Yes. Well, I mean, I think it’s — if you go back about 3 years, 4 years, we’ve talked about the Amazon effect. This retail remodel is a real strategy for us. We don’t — we haven’t seen any slowdown with it whatsoever. I don’t know that I have numbers tied to it. We do have end market segments that we look at from a retail standpoint that would be tied to some of that. And I believe it’s maybe around 30%, 35% or so. But that’s not all in these retail remodels. We’ve got tremendous national account relationships with some of these big box retailers and others as well. So — but I think it is a big part of our business, and it’s some of the decline that you’re seeing. But it’s — that’s certainly relevant to the fact that the travel has been shut down in so many cases here. And we do anticipate to see that business turn. And I think if in the news, you can see some of these folks talking about the postponements into either the latter half of Q2, Q3 or even 2021, but we’ll be prepared to pick up where we left off on that business, and those relationships are stronger than ever. And again, I think the beauty of this business model is we have not seen a lot of units come off rent. That’s why we really tried to point to the decline in units on rent being — deflating at such a slow pace because even as activations slow, we’ve obviously seen a lot fewer units come off rent as well. So we sustain it. The beauty of this model is the fact that we’ve got a significant amount of recurring revenue with all those units out on rent. So it’s really the trucking where the bigger impact is on the storage side.

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Justin P. Hauke, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Associate [20]

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Okay. And then I’ve got one last one here is just on the SG&A coming down pretty dramatically here. I think you mentioned lower variable comp, which I guess makes sense because the activations are down. But do you expect the — kind of the dollar basis of what you’re spending on that to kind of stay at this level? Or is there anything else in 1Q that would be unusual that it would end up so much lower?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [21]

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Yes — no. I mean, I think some of this is the new, new. There is the variable comp tailwind that’s associated with it there. And we’re doing some other things to address comp. I think the point that I want to make out is that the operating model has huge benefits. The way we run this business, the branch manager is the local CEO, right? They’ve got very strong local customer vendor relationships that benefit them in challenging times. Their comp is set up to maximize profitability at the branch level. Our business, a portion of our business flexes with volume. So when you’re talking about third-party trucking, overtime, discretionary spending, even some of the fixed costs as it relates to overhead, we’re very, very proactive and quick to react. And that’s why we’re pointing to these margin enhancements. So I’d tell you, a lot of this is sticky, Justin, and this is also, as you guys are aware, a part of the big transformation. Van was talking about it earlier. We really — we’re never there. We’re always focused on continuous improvement, but we’ve certainly reached a level of sustainability around this efficiency being driven in the organization now for quite some time. So this is — we’re very confident in that ability to drive those margins going forward.

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Operator [22]

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Our next question is coming from Stanley Elliott from Stifel.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division – VP & Analyst [23]

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Keeping on the cost-save piece, can you talk about kind of what you all are doing, especially in the context of the merger still on track to be completed by third quarter? What sort of dialogues are you all having both parties to make sure that everybody is on the same page in terms of kind of what sort of cuts would be expected and make sure you’re not — well, let’s leave it with that. First off, I guess.

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [24]

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Sure. Yes, let me start by saying we’re very excited about what we’ve seen culturally in the early integration meetings. I think that’s — they’ve got some great leadership over there. They’ve been extremely collaborative. We’re really excited about the partnership there. We’ve obviously called out a significant amount of the benefits. I think scale is certainly one of those. And I could go into things like cross-sell expansion, those types of things. But we did talk about cost synergies. And we’re kind of taking those integration steps kind of in a slower fashion here, but there’s certainly some possibilities these synergies could be recognized a bit earlier. But I still believe that — the key here is the technology. And as we’ve had conversations with their leadership over there, I think we’re going to make sure that we do this right. So it’s hard at this point, Stanley, to point to anything that I could call out in terms of synergies this early. But I’m sure that as we go forward into an anticipated close date into Q3, we’ll be able to share a lot more.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division – VP & Analyst [25]

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And kind of on the technology piece, I mean, can you talk a little bit more about some of the things you’ve done in the past? I would assume this is going to allow you to — look, even though it’s a tough environment to be able to manage it through better than some of your smaller peers. But maybe some of the experiences that you’re seeing on the ground to kind of support that claim.

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [26]

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Sure. Well, I mean, I think I called out trucking a little bit earlier. I think mobility is a really big key to us, handheld devices. We’ve eliminated paper. We’ve saved time administratively, significant time at the branches. Through our ability — through mobility in that part of the technology piece. I think another couple of pieces here. When you think about capital efficiency, capital management, all of those things, I specifically can tell you with our portal, our ability to drive customers to our portal has enabled us to decrease DSO. We’ve got a lot of folks on auto pay. We’re not chasing anybody down in terms of their type of money or collection of money. There are so many benefits from a technology standpoint. I talked about logistics. We’re managing third parties better through a portal there. So there are a lot of benefits. On the Tank side, we’ve got a software program that obviously reduces consumption. That’s a big benefit, something we’re taking advantage of today. The stickiness around once we gain a customer on the tank side. When it goes back out to RFP, that technology is a big deal for us to be able to solidify the value in terms of what we bring to them. So technology is a big part of this, and you’re seeing that in our ability to decrease DSO. You’re seeing that in our margin expansion. A lot of these things are a benefit to the organization financially.

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Van A. Welch, Mobile Mini, Inc. – Executive VP & CFO [27]

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Yes. Stanley, this is Van. You can look at the reporting that we have in place. That reporting is down to the branch level. As Kelly mentioned, each of these branch managers are the CEO basically of their operation. They’re able to look at new orders, they are able to look at the activations, deactivations. And they’re able to pivot then in terms of looking at variable costs, looking at third-party trucking, looking at everything across their cost associated with that particular branch and make real-time decisions associated around it. And that’s a big benefit for us.

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Operator [28]

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(Operator Instructions) Our next question is coming from Sam England from Berenberg.

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Samuel England, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [29]

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Just a couple for me. The first one, on the CapEx plans that you talked about, I just wondered if you’re planning to stay above replacement levels for the time being or whether you’re thinking about de-fleeting at all across the next couple of quarters?

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Van A. Welch, Mobile Mini, Inc. – Executive VP & CFO [30]

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Yes. I think as we talked, we decreased our CapEx today in terms of where we were. We’re a demand-driven model, Sam, as you know. And we’re able to look at the utilization, look at the pricing we’re getting across all of this — all of our different units, whether that’s ground level offices, Containers or in the Tank & Pump side as well, stainless steel tankers and whatnot. So we’re making decisions based on what we’re seeing associated around that particular demand. From a replacement standpoint, obviously, from depreciation and amortization is around $17 million a quarter. So we’re looking at only spending new additions into that $30 million range for the quarter — or for the year. We spent at a gross level of about $10 million in the first quarter at a net level of about $6 million. So that’s going to tell you what kind of run rate we’re going to look at going forward. As we talked about in the prepared remarks, we’re also focused primarily going forward on ground level offices. Again, where that demand is, where that pricing power is, that’s where we’re going to focus and ground level offices is certainly 1 that meets that criteria.

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Samuel England, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [31]

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Okay. Great. That’s helpful. And then the next one, just wondered if you could give us a bit more color on the impact you’re seeing in the U.K. business. The lockdown has obviously been more probably extreme there and potentially is going to go on longer than it is in some regions in the U.S. So has that business been more heavily impacted? And do you just expect it will continue to be more heavily impacted going forward?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [32]

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Yes. The answer is yes. And I do think, though, that this is another example. I called this out in the prepared remarks that we — I would say probably 70% of the nation is shut down right now. And I think specifically, that’s about what we see in volume declines. But it’s also relevant to the amount of returns that we get, the customer is offering those units. So net-net, in the U.K., we’ve actually sustained our units on rent. And so that recurring revenue is a huge benefit to us. Where the headwinds come will be in trucking there, Sam. So I do point to the real positive, and it’s obviously a little bit disappointing. We have — we really had made huge strides there even — in spite of Brexit. We have gotten positive with our pending orders. And as we’ve gone through this land-based sales model transformation and picked up significant momentum. When we’re able to get through this situation with COVID-19. And there’s a little bit of that Brexit scenario, obviously, but we feel extremely strong about our position over there in the U.K. and I also want to reinforce the fact that our margins continue to get better. And I’m also — the color around Q2 and going forward in the U.K. is that we will continue to increase our margins to prior year regardless of the macroeconomic environment.

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Samuel England, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [33]

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Great. And then just one more. You talked a bit about the pipeline. I just wonder how you’re thinking about the proportion of the pipeline that’s getting postponed versus canceled at the moment in your mind?

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [34]

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Yes. I would say a majority — a vast majority of those are postponed. Where your cancellations are, at least in the front end were more around event-driven activities, entertainment, that type of thing, where there might have been a — some sort of a concert series or that type of thing that was scheduled for February, that one may be completely canceled. Although some of those got postponed into the latter half of the year. But there are certainly some that were annual events that occurred in February or March or April that are completely cancellations, but those are mostly event-driven, onetime-type events. So I would say a vast majority of those are postponed.

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Operator [35]

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We reached end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

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Kelly Williams, Mobile Mini, Inc. – President, CEO & Director [36]

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All right, thank you very much. And just to reemphasize, I wanted to take a minute again to thank our employees in such an unchartered territory for everybody across the country, across the world. I couldn’t be any more proud of our people stepping up and just wanted to thank everybody on the call today. Stay safe and healthy. And thank you very much for attending the Q1 Mobile Mini conference call.

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Operator [37]

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Thank you. That does conclude today’s teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.