Tim Boswell: Very much the latter, Seth. Absolutely, margins can inflect, frankly, even quicker without the activation growth. And it is the activation growth in our business when we incur maintenance expenses. As we’re performing maintenance activities, those units then go on rent and build our lease revenue run rate. So we’re actually incurring more of those upfront maintenance expenses in the business right now in Q1 to support the activations in the modular business that Brad was talking about. That creates a short-term pressure, especially when you look at it on a year-over-year basis. And your comparison last year was pretty light in terms of the activation and the maintenance volumes. So this is actually is a good thing and a positive indicator because you’re getting stronger activation activity, you’re supporting that activity with more maintenance investment.
The short-term implication is that you’ll get a quarter or so of margin compression, but then that compression kind of reverse itself as you progress through the year. If, for whatever reason, activation volumes were to slow, margins would bounce back even faster. So it’s a positive sign that we’re seeing in the business. That said, it’s early, it’s year-to-date, middle of February. And the true seasonal build in the business typically starts to take place in the second half of March going into April. A similar phenomenon, if you went back to our sequential progression from Q4 2021 into Q1 of 2022, we had the same exact dynamic where the business was rebounding pretty significantly coming out of the pandemic. Year-over-year activations in the first half of 2022 exceeded prior year levels.
And we incurred more maintenance as a result, tighter margins as a result. But I think at the time, I described that as being kind of like a coiled spring. The margin then just pops back as lease revenues kind of stabilize through the rest of the year.
Seth Weber: Yes. Super helpful. Thank you. And then I think I heard discussion around consolidating sales force and stuff like that. Is there any — are you making any changes to comp structure or anything from an incentive perspective with respect to cross-selling or selling adjacencies? Or anything that we should be aware of, just how you’re addressing this more consolidated sales force?
Brad Soultz: Yes, Seth, it’s Brad. That’s something we’re really excited about, and I would characterize it as a little more evolutionary than revolutionary. We effectively operated the Mini sales team focused on storage and ground-level offices and the WillScot side by side, very complementary, very collaborative. But if you’ll recall, they were running two separate CRMs up until early last year. So, the combination of the CRMs has afforded us the ability to make this shift, if you will. So every geographical end market has one P&L, covers all products, which is particularly important as we add climate control, clearspan and other products. So, we’ve aligned, similar as to the past, every territory, if you will. Think of it as a band of ZIP codes.
We would have had two sales reps covering it, one more storage focus, one more modular. That’s now one person accountable for the whole territory. Think about the territories probably got a bit smaller with a massive team behind to support inside sales activity. And then as I mentioned in my prepared comments, a pretty significant investment this year in demand acceleration creation tools as well as the whole digital platform to further accelerate that. So we’re super excited. The change went very, very well in the field. Again, think of it as more evolutionary. But it does put us in a great spot to accelerate cross-sell modular and storage and add all these new great products.
Seth Weber: Got it. Appreciate the color, guys. Thank you.
Operator: Our next question comes from the line of Andy Wittmann with Baird. Your line is open.
Andrew Wittmann: Yes. Great. Thanks for taking my question. I thought I would — it looks like — judging from your slides here, it looks like you reclassified the way you guys are talking about spot VAPS in the modular segment. Before it was just modular, in modular, now it’s modular and modular. So Tim, I was just hoping you could shed some light on this just for comparison purposes as to how that spot VAPS metric has been trending. If you could kind of give us that number on the old basis to modular-modular basis, if you will. I see the comment here that AMR, I guess, is down 7% on the old basis. But I think that’s the total AMR, not just the spot VAPS, so I thought I would ask for a clarification on that.
Tim Boswell: Yes. Through February, if you look at the VAPS delivered rate as reported, as we would have historically, you’re north of $480. So as I said in my prepared remarks, we’re back to kind of all-time high levels, if you were to go back and look at that delivered metric relative to how we used to report this. As I mentioned in my remarks, Andy, we are very likely moving to a single segment. So this dynamic where you’ve got modular product in the modular segment and modular product in storage kind of goes away. And we’ll look at the modular fleet, and we’ll operate the modular fleet more importantly, as a single combined asset class, and that’s how we’re going to market. When you include the ground-level offices, obviously, penetration has been growing very rapidly across that asset class for some time now, quite consistently.
And based on some of the changes we made systematically and in the quoting process through the course of the second half of last year, we’re seeing very good VAPS attachment rates, if you were to look at it through the lens of the prior reporting methodology.
Andrew Wittmann: Got it. Okay. That’s helpful. And then I guess just a follow-up, a question that’s been asked plenty of times before but I think worth asking again given that the demand environment is still dynamic and even changing a little bit per your earlier comments. I thought I’d ask just on your rate sensitivity, if you could talk about that. Has the changed demand at all affected your ability for what I’d call raw price?
