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Mobile Mini Inc  (NASDAQ:MINI)
Q3 2018 Earnings Conference Call
Oct. 19, 2018, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to the Mobile Mini 2018 Third 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 that 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 Investor 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 -- President, Chief Executive Officer

Good morning, everyone and welcome to Mobile Mini's third quarter 2018 conference call. I am Erik Olsson, Mobile Mini's, President and CEO and with me is Van Welch, our Executive Vice President and CFO. I will review the operational highlights of the quarter and the current business environment and Van will discuss the Q3 financials, we will then open up the call for questions and we encourage you to review the full quarterly deck providing more detailed results for your reference, which has been posted to our website as usual.

Now, let me begin by saying that we are very happy with our current quarter results as well as the current operating environment and our outlook for this year and next. As expected, our sales force continue to drive strong top line growth while the efficiencies that we have gained and the infrastructure that we have built allowed us to grow adjusted EBITDA at an even higher rate than revenue. Consolidated rental revenues grew 10.4% while adjusted EBITDA grew an impressive 21.7%, thanks to a very healthy flow through.

In our Tank and Pump business, we marked to the third quarter of sequential rental revenue growth and recorded the highest quarterly rental revenue since the business was acquired in 2014 with year-over-year organic growth of 21.9%. We believe that the demand in this end segment and this level of activity will continue for the foreseeable future, demand is strong across all geographies and customer and segments. Rates for Tank and Pump Solutions appear to be firming up and we ended September with several consecutive months of year-over-year rate increases for new equipment placed on rent, averaging mid-single digits increases. As a result, composite rates are improving as well and we are virtually flat to last year at the end of the quarter.

We continue to drive business with spots contracts for smaller and mid-sized customers and that gives us the opportunity for further rate expansion. We're also beginning to see meaningful revenue related to the five new contracts we won in late 2017 and we expect this business to continue to ramp up further into fourth quarter and into the beginning of 2019.

Storage Solutions, rental revenues were up a solid 7.9% year-over-year with a 9.5% increase in North America. The growth was generated by both units on rent and healthy rate increases.

North American rental rates increased 2.8% year-over-year with rates on newly placed units up 2.9%. And based on orders thus far, we believe that our seasonal business will match the strong performance that we had last year. UK revenue was up slightly year-over-year in Q3, a small decrease in units on rent was offset by rate increases and a favorable mix. While Brexit continues to contribute to economic uncertainty in the UK, we've not seen a material negative effect on our business and our pipeline looks stable.

The economic environment for our US end markets was positive and solid for the quarter. Business in the US represents approximately 85% of our consolidated rental revenues. Overall, real US GDP remains very strong, forecasted 2018 growth in excess of 3%, construction and retail activity remain healthy and are expected to remain stable at a high level. The escalation of tariffs and trade restrictions could pose a potential headwind to the business environment, but we have yet to see any impact on our business.

The Industrial segment remains strong with positive trends in both production and capacity utilization. Oil prices are at a multi-year high while rig counts are at their highest levels since 2015 and are forecasted to exceed 1000 this year. So overall a very healthy US environment in the quarter, which is expected to continue throughout 2018 and 2019.

Outlook in the UK, which represents approximately 15% of our total rental revenues remains uncertain due to Brexit. However, our business has been stable and so is our outlook Units on rent in the UK as of September 30, 2018 was up year-over-year.

Lastly, I want to emphasize that Mobile Mini continues to drive technological innovation for our customers and employees on the MM Connect and EnviroTrack platforms. Lately, we've been focusing on maximizing our mobility capabilities, thereby eliminating the need for our drivers to return to the office for routine administrative tasks, providing real-time remote visibility of key actionable metrics and interacting directly with our customers, all of which promotes efficiency and saves time and resources. We have implemented several new applications and have received significant positive feedback. This focus on technology is a differentiator for Mobile Mini, especially with our large customers.

Overall, Mobile Mini had an excellent quarter with the continuation of many very positive trends in the business and great execution. I'd like to reiterate our outlook for the year, we see strong demand in both our business segments and we expect double-digit revenue growth for the year. Flow-through is increasing and should reach 60% for the year. Leverage should drop to low 4s and return on capital employed should increase to the mid-8s.

Looking forward to 2019, we expect continued good growth including rental revenue that outpaces our evergreen model.

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

Van Welch -- Chief Financial Officer, Executive Vice President

Thanks, Eric and good morning. Beginning with revenue, we had a solid 10.4% total rental revenue increase compared to Q3 2017. On the Tank and Pump Solution side, rental revenues were up 21.9% year-over-year and average OEC on rent increased 19.4%. Fleet on rent grew throughout the quarter as we purchased and placed additional fleet with customers. At September 30, 2018 fleet on rent was $127.3 million, an increase of nearly 4% from June 30, 2018. We expect fleet on rent to continue to gradually ramp up in the fourth quarter of 2018 and into 2019 as we grow revenue related to the MSA contracts acquired in late 2017 and early 2018.

In downstream activity, where we have focused much of our effort, we are growing in volume and believe we are gaining a greater portion of our customers' overall spend. Our turnaround business has been strong and our pipeline looks solid. As we have mentioned in previous quarters, while upstream and midstream have contributed positively to our year-over-year growth, we are primarily focused on growth in the more stable downstream business.

Storage Solution rental revenues were up 7.8% year-over-year, driven by increases in both units on rent, which was up 2.6% and rate increases up 2.4% as well as favorable mix and increased trucking revenues. Rental revenue for North America Storage Solutions, which represent about 80% of our Storage Solution business increased 9.5% with rate increases up 2.8%. National account revenues continue to drive these revenues and represent approximately 34% of our North American Storage Solution revenues for the third quarter.

In the UK, rental revenues were up 1.3% year-over-year in local currency, while the slower construction activity and uncertainty surrounding Brexit is dampening growth in the UK segment, our business has remained stable. Going forward, on a consolidated basis, we expect double-digit revenue growth for the year and a sequential revenue increase in Q4.

Turning to profitability, our adjusted EBITDA was $55.4 million for the quarter and our margin was 37% for Q3. With the leverage of our infrastructure and gained efficiencies, the increased revenues are resulting in expanded margins and increased flow through. For the third quarter and year-to-date, our flow-through is 76% and 55% respectively. Storage Solutions adjusted EBITDA of $46.2 million increased 18.2% from the prior year and the margin was up 340 basis points to 38.4%. The adjusted EBITDA growth and margin expansion was driven by our North American business.

Tank and Pump Solutions' adjusted EBITDA of $9.3 million was up 42.8% compared to prior year, with a 560 basis point increase in margin from 25.9% in Q3 '17 to 31.5% in Q3 '18. Rental selling and general expenses as a percentage of total revenues were down 340 basis points compared to the prior year. Overall, these costs were up approximately 3.7% with increases in transportation and rerent costs related to higher rental activity. As a percentage of revenue, rental, selling and general expenses were down to 60.6% from 64% in Q3 '17. As Eric mentioned, the efficiencies we have introduced and the infrastructure we have built resulted in this 340 basis point improvement.

We expect our adjusted EBITDA margin to continue to grow as we head into the seasonally stronger fourth quarter of the year and we expect adjusted EBITDA flow through for the full year to achieve our Evergreen model target of 60%. Our adjusted effective tax rate for Q3 was 28%. However, our year-to-date adjusted effective tax rate is 24.4%. The higher effective tax rate in Q3 was primarily due to changes in state tax rates enacted in the quarter as well as a reduction in excess tax benefits of stock option exercises compared to previous quarters. We continue to expect a full year adjusted effective tax rate of 25%.

Free cash flow was $17.5 million in Q3 2018, up $8.6 million from Q3 2017, a healthy year-over-year increase of $13.7 million in cash from operating activities was partially offset by a $5.1 million increase in net capital expenditures. The charts on slide 16 highlight our CapEx spend. In total, for the first 9 months of 2018, we had $68.2 million in net capital expenditures. During the third quarter, we had net fleet capital expenditures of $23.4 million of which $15.8 million was for North America Storage Solutions and $7.2 million related to Tank and Pump Solutions.

Due to the dampened economy in the UK, we made very limited capital expenditures in our UK Storage Solution business. CapEx purchases remained (inaudible) specific growth demand and opportunities and with the expectation that the fleet will be placed on rent in the very near term. In Tank and Pump Solutions, the third quarter expenditure included spend made in anticipation of increased demand for the fourth quarter related to our recently acquired large MSA customers. In addition, fleet was purchased in areas of high demand, where we can place fleet at a premium rate. We expect increased utilization in the fourth quarter as we place this fleet on rent. Within North American Storage Solutions purchases have occurred in geographic areas of high demand as well as to buy and modify our high demand GLO units.

We anticipate that net capital expenditures for the full year 2018 will be approximately $85 to $90 million, a $15 million to $20 million increase compared to the full year 2017. Higher downstream demand, large additional customer wins in turnaround projects and our Tank and Pump business is largely driving this year-over-year increase. As you can see on slide 17, our leverage ratio tick down to 4.4 times in the quarter, largely due to increased adjusted EBITDA. We continue to balance our long-term leverage goals with the current demand environment and anticipate our leverage ratio to decline to the low 4s by year-end.

Before we head into the Q&A, I would like to take a few moments to update you on our planned asset disposition initiated in the third quarter. As we discussed in the last quarter call, Mobile Mini used our new systems to the facilitate a companywide project to assess the economic and operational status of our fleet and also to examine our asset management process for opportunities to be more cost efficient. As a result of this project, we identified approximately 25,000 units that were deemed not economical to repair and keep or that were non-core to our operations. We also identified PP&E and inventory that were not being used efficiently. In July, these assets were placed as held for sale and we recognized a non-cash loss of approximately $98.3 million in the third quarter of 2018. As of today, the asset divestiture is approximately 50% complete, we expect to be a 100% complete by the end of the year.

We also expect $5 million to $7 million of operating cost savings upon completion. The cost savings will be largely achieved through reduction of repair and maintenance headcount and by exiting approximately 13 yards. We will be exiting primarily holding and offshores and combining locations in cities where we have both Storage Solutions and Tank and Pump Solutions. Our customer service footprint will not be affected.

So overall, a very good third quarter results reflect the continuation and expansion of many positive trends in the business, which we expect to continue in the fourth quarter of the year.

With that I will turn the call over to the operator for instructions on the Q&A. Thank you very much.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Kevin McEvoy from Credit Suisse. Please proceed with your question.

Kevin McEvoy -- Credit Suisse -- Analyst

Could you help us kind of frame what the impact was from the Wind in the Tank and Pump Solution, these contract wins from late 2017 the kind of the impact in the quarter and then how we're thinking about that through the back half of the year.

Van Welch -- Chief Financial Officer, Executive Vice President

Yes, thank you. Kevin, this is Van. I mean, we did about we did about $1 million associated with those contracts in Q3, we're expecting that to ramp up significantly in the Q4 and then even more significantly, as we get into 2019.

Kevin McEvoy -- Credit Suisse -- Analyst

And then just any thoughts on the U.K. overall looks like, you continue to have real nice pricing there, utilizations to come in in a little bit, any thoughts around that how we're thinking about that just relative to the Brexit because I've been hearing more and more about that from some of the other companies out there.

Van Welch -- Chief Financial Officer, Executive Vice President

Certainly the Brexit -- the Brexit has had an impact on us, but we've been able to sustain pricing, I think that speaks a lot to -- with the product and the quality of service that we're putting in place over there. We're not -- as we look forward into 2019, hopefully Brexit gets done in the first quarter of next year, but there could be a bit of an overhang as we go forward, but we still -- we're still expecting to have some better growth, some small growth and not impacting our business greatly going forward.

Kevin McEvoy -- Credit Suisse -- Analyst

Great. And then just my last one and I'll get back in the queue. It seems like you've done a nice job kind of managing the energy uptake in terms fuel cost and candidate shortages, things like that. Any thoughts around surcharges or just how you've been able to manage through that because a lot of companies have been calling that out and it seems like you've been able to power through that.

Erik Olsson -- President, Chief Executive Officer

Yes, we have. We've put a lot of emphasis and resources on our trucking rates and pleased to say that we have actually outpaced the cost increases in that field and our trucking margin was up in the quarter on a year-over-year-over-year basis. So, it's all about the details, it's all about the discipline, it's all about just staying on top of it and we've managed to, as you said, to do that So, very pleased with that and we are going to continue to do that.

Kevin McEvoy -- Credit Suisse -- Analyst

Awesome. Nice job. Thank you.

Erik Olsson -- President, Chief Executive Officer

Thanks.

Operator

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

Sean Hannan -- Needham & Company -- Analyst

Yes, good afternoon. Thanks so much for taking the questions here. Really trying to see if I can make some connection around how your stock's performing here with these results because they look pretty strong. First question I try to see if I can get addressed here is, if I look at the markets that you're serving and where you are generating your revenues on the portable storage side, back of envelope, looks like construction, the dollars were down a little bit year-on-year while retail may have been up a good amount. I might have some of the math wrong, but could you maybe talk to that and help us to understand a little bit more around puts and takes of what you're seeing in some of your end markets? Thanks.

Erik Olsson -- President, Chief Executive Officer

Yes. You know, I think the -- what we've done is after the SAP implementation, et cetera, we really -- when we classify the industries where our revenues go to, we just look at the end user. So within the retail segment, for example, you have a lot of remodeling which previously we considered construction, but now it's getting in the retail segment. So having said that, we see a very healthy construction environment, we see a very healthy retail environment even outside -- excuse me, the seasonal business that we expect now to -- that will actually meet or even exceed last year's record levels, but like I said, outside the seasonal of business, there's a lot of remodeling going on, we are filling our pipeline with activities or orders into the Q1 next year already so, we feel very good about that, the industrial side and the downstream business is very, very strong as Van talked about earlier.

So, we think this is a great environment, we think we are still -- with the exception of U.K, but still were in the expansion phase of the cycle, we think everything we look at says that this is still an expanding economy we have increasing utilization, we have increasing rates in all our businesses, even the UK despite the little softer market there, I'm very pleased to see the rate development on the Tank and Pump side, which as I said, have had several months now of rate improvement on new pieces going out on rent and we are rapidly closing the gap, so impact in September, we were virtually flat on a year-over-year basis there, which is a great improvement. We see cost leverage now, the the flow-through was 76% in the quarter and mind you, none of that came from variable comp, which we all know has been a noise previously, we actually had the same dollar amount the variable comp in Q2 this year as Q3 last year. So, all of it is truly operational leverage and we see margin expansion. So all these factors point to, this is a great market, this is still the expansion phase obviously proven by 22% growth in Tank and Pump and double-digit growth in storage. So we think we are in the whatever -- top of the sixth or bottom of the sixth inning. This economy has a long runway ahead of it and we're in a great spot and we're going to take advantage of it.

Sean Hannan -- Needham & Company -- Analyst

That's helpful, Eric. And then just a follow-up on some of the activity you are seeing within Tank and Pump. Recently you've been at least for myself, and as I look at some the other companies that I'm covering here, there is a lot of increasing discussion around a maritime regulation out there, IMO 2020 and there will be an expectation that you're going to get an incremental level, the industry that is, within the oil industry, you're going to get some incremental levels of turnaround activity on top of what's already an improving environment and part of that coming from some of -- trying to address some higher sulfur tanks and other factors in the background but I suppose as I address all that and bring that up, has that topic come across your sales group, your team within specialty tank, it seems like that could be another lever here as we as we enter '19, just wanted to see if we can get some perspective around that because it seems like it would be another positive?

Erik Olsson -- President, Chief Executive Officer

Yes, we are going through our 2019 plans in more detail now as we speak and without going into too much detail, the Tank and Pump sales folks and the leadership there is very optimistic for 2019 and I think there is a lot of factors contributing to that and the (inaudible) it will certainly add to with us, we have these customer relationships already. So like I said, we're looking for a continuation of good growth in an expanding market segments there.

Van Welch -- Chief Financial Officer, Executive Vice President

Hey, Sean, it's hard to pinpoint the IMO 2022 to the level of turnaround activity that we're seeing. But certainly what we're now beginning to see is an increase in turnaround activity, especially when we look at Q4 and into Q1 and the -- where we were a year ago, where those turnarounds were being pushed out, now they're getting back into a rhythm of normalcy, so to speak and those turnarounds are happening without delay. So we're very optimistic going forward in the downstream piece in our Tank and Pump business.

Sean Hannan -- Needham & Company -- Analyst

That's great. Seems like everything is in a great position here. Thanks so much for addressing the question folks and best wishes.

Erik Olsson -- President, Chief Executive Officer

Thanks.

Van Welch -- Chief Financial Officer, Executive Vice President

Thanks, Sean.

Operator

Our next question comes from the line of Scott Schneeberger from Oppenheimer & Co. Please proceed with your question.

Scott Andrew Schneeberger -- Oppenheimer & Co. -- Analyst

Thanks. Good morning -- good afternoon. First off, good looking quarter. Good job. I guess, I'd like to start guys with the seasonal retail this year. Any differences of -- just comparing and contrasting it to last year, timing in the third quarter versus fourth quarter, I think we've heard you speak in the past about how some things that were out at rent with the retailers didn't come back and just stayed out for the seasonal rent that may have benefited. So, Van, just curious if there was any sort of quantified benefit year-over-year from more efficient operations on the seasonal rents impacting 3Q versus 4Q? And then to follow that up, just thoughts on timing of returns, it sounds like you expect to see a typical, a comparable seasonal year-over-year comparison, but on the back-end on returns anything interesting there?

Erik Olsson -- President, Chief Executive Officer

Okay, Scott, this is Eric. So let me start and then Van will follow-on here, but what happened, what we saw here in Q3 and we'll see as a result of that in Q4 was, it was a little bit slower ramp up this year than last year, we had actually more seasonal business already out on rent in Q3. So that obviously had a little bit of a year-over-year impact negatively. But from an order point of view, we have now caught up and we're actually at this moment we are ahead of last year where we were at the time. So we expect, like I said on the call, that the seasonal business will hit or even exceed last year's level. Second thing is what we did a good job of last year and we expect to do the same this year is try to negotiate that seasonal units stay out and moving into remodeling projects with these retailers and I mentioned on the previous question here, that we see the pipeline already building for Q1 with these retailers and that is a result of that activity.

Van Welch -- Chief Financial Officer, Executive Vice President

Yes, thank you, Scott. Just to add on to your comment. Yes, Q3 was was a bit softer than last year but, as Eric mentioned, that is currently and certainly ramping up as we go into Q4. From a timing perspective, as you mentioned, we have minimums on these seasonal units, so we could see even a lift or -- perhaps even a greater lift in Q1 than what we had last year. In terms of the seasonal (inaudible) that would include just the units being out on rent as well as the trucking pickups as well.

Scott Andrew Schneeberger -- Oppenheimer & Co. -- Analyst

All right, thanks. I appreciate the answer. That was actually better than what I had hoped for. Let's shift it now please, if we could to CapEx, that was elevated as you guys had foreshadowed in the second quarter and foreshadowing for the third quarter and it looks like we were under the impression that it will be about $90 million for the year. I think I saw was on slide 17, you're looking for $85 million to $90 million, just an update on CapEx needs here at the end of the year, anything changed from last call, I presume it's predominantly for Tank and Pump. And then thoughts on CapEx as we enter next year needs that you may have for each of the segment that we should consider? Thank you.

Erik Olsson -- President, Chief Executive Officer

Thanks, Scott. In terms of the need in the fourth quarter is going to be predominantly, as we talked about in the last call, for Tank and Pump. The increased activity that we mentioned in the prepared remarks along with the robust environment -- growth environment we're seeing in the turnaround downstream environment. That's going to fuel -- that CapEx is going to fuel that growth that we're about to see. If you look at it from a year-over-year basis, we did about $70 million CapEx spend last year, predominantly that whole increase that we're talking about for the year is associated with the Tank and Pump growth. So as you look forward to 2019, we're going to be -- the thought is today that we will be decreasing CapEx a bit. We do expect to see growth across both of our divisions as we look into 2019 and we will certainly service that growth with additional CapEx as required. But we're looking right now of that amount being kind of getting back into probably into the 70% range that we typically did in 2016 and 2017.

Van Welch -- Chief Financial Officer, Executive Vice President

Just to add onto that, both our divisions have higher utilization than last year setting our write-offs, et cetera aside, if you look at it on a pro forma basis, everything we CapExed this year has gone up and ramped and is generating revenue.

Scott Andrew Schneeberger -- Oppenheimer & Co. -- Analyst

Excellent. Sounds good. I'll turn it over, guys again nice work in the quarter.

Erik Olsson -- President, Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Andrew Wittman from Robert W. Baird. Please proceed with your question.

Andrew Wittman -- Robert W. Baird -- Analyst

Great, thank you. I wanted to dig in a little bit more to the flow-through that you guys were talking about. Just in the quarter, I guess, last year in 3Q '17 you guys had -- you had to take a big charge -- or not charge, or you had to have like a $6 million incremental accrual on your incentive compensation, super interesting data points from the conference call to mention that, no that number was unchanged this year, so there was a another fairly heavy incentive compensation burden. I guess, I would say (inaudible) to the quarter, yet you guys delivered good flow-through, presumably then given that you're recruiting at a fairly high rate again this year fourth quarter is going to have another fairly high incentive compensation burden charge. It brings me to a question which is, in the fourth quarter, the implied incremental flow-through is similar to this level of the 75% to 80% range. What gives you the confidence in that? And then given that backdrop and the strong flow-through that you're seeing, do you expect that you'll continue to see well north of 60% flow-through as we get into the front half of fiscal '19?

Erik Olsson -- President, Chief Executive Officer

Yes, let me address the first question first on the variable comp. If you looked at -- if you look at -- if you looked at 2017 results, I'll point out the Tank and Pump performance obviously did not generate a great deal of variable compensation in '17, they are now. If you look at the results that they're achieving, that is warranting a greater variable compensation. So what you're seeing in Q3 in terms of year-over-year, you're basically seeing a decline in -- because of what you were talking about, the adjustment that we had to make in Q3 '17, you're seeing a decline in the Storage Solutions and then in the service center, being offset by an increase in the Tank and Pump. Going forward, if you look at Q4, I would expect that it will be flattish in Q4 as well from -- on a year-over-year basis for variable comp.

Van Welch -- Chief Financial Officer, Executive Vice President

In terms of flow-through, and Eric pointed out, I mean from an operational standpoint, we are -- there was no -- there was certainly no tailwind associated with variable comp. We're not expecting that tailwind to occur in Q4. But we're expecting the same degree of good operational performance. We do believe that we're going to continue to get price. We do think, obviously the revenues will go up in the seasonal businesses that we're going to have. And we're going to keep our cost levels down like we've done much of this year in terms of overall cost. So I'm very bullish and confident that we'll be able to achieve that 60% flow through.

Unidentified Participant -- -- Analyst

So then, as it relates to '19, then, I mean, it was really the second half of the year that you saw these outsized flow through, incremental margins, whatever you want to call it, the front half of the year didn't have them. Should we expect, as we move into the front half of '19 that they could stay elevated to these types of levels?

Van Welch -- Chief Financial Officer, Executive Vice President

No, I would expect that they would return to more of a 2017 level or so. So that variable comp could be, or should be a tailwind in the first half of 2019 thus allowing us to hit these elevated flow through levels again.

Unidentified Participant -- -- Analyst

Okay. Then I just wanted to talk a little bit on cash flow, specifically related to the DSOs. Van, I guess as we calculated 72 days was flat sequentially, you guys have kind of talked to us in the past you think you've got an opportunity here. Just really an update from your perspective, you kind of said before, that's going to take you some time. So we weren't expecting at this quarter, I don't think investor base was, but what's your latest thought about -- what's your target ultimately will be on DSO? And when you think you can hit that, recognizing that you're working on your internal processes and systems, particularly related to those on national accounts, which have been so much more important you recently?

Van Welch -- Chief Financial Officer, Executive Vice President

Yes, I think that the flat DSO were driven -- in terms of the DSO and the AR, in particular, we saw increased AR that occurred in the third quarter. We did also see decrease in terms of what we consider to be delinquent AR offset by a current AR, so that's actually a positive sign for me. And looking forward that -- what that means, I think we're going to start seeing decreasing DSO as we get into 2019. So my target is still the same. I think it's an aggressive target, but it's still the same, getting to that 60-day DSO and there is a path that I believe to get there. In terms of timing, I think it's going to take some time, but I would expect that we're going to see improvement quarter-to-quarter when we get into 2019.

Unidentified Participant -- -- Analyst

Do you think that you can get there, are you looking at doing things like selling DSO or are you going to do this the old fashion way?

Van Welch -- Chief Financial Officer, Executive Vice President

No. There will be no -- we're not in that business. We are not contemplating that at all.

Unidentified Participant -- -- Analyst

Okay. Just wanted to check. Okay. I think, I'm going to leave it there. Thank you for your time.

Erik Olsson -- President, Chief Executive Officer

Thanks.

Van Welch -- Chief Financial Officer, Executive Vice President

Thanks.

Operator

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

Marc Riddick -- Sidoti -- Analyst

Hey, good afternoon.

Van Welch -- Chief Financial Officer, Executive Vice President

Good afternoon.

Marc Riddick -- Sidoti -- Analyst

So it's covered quite a bit already, I was wondering if you could circle back and talk a little bit about the national account progress that's taking place, and sort of what we're looking at, as far as maybe you've talked before about the percentage of revenue, maybe you could give an update on those trends for the segments and kind of maybe where we might see that as, if not a target, but the type of trends we might see going forward as far as percentage of revenue for national accounts?

Van Welch -- Chief Financial Officer, Executive Vice President

Yes. So I think we're going to continue to see a growth in these segments, both of them. So for Storage Solutions in Q3, national accounts was 34% of revenues. And that's up, I think 150 basis points over last year. On the Tank and Pump side, it was 56% of revenues and that's up 330 basis points on previous year. So in total almost 40% of our revenues are coming from national accounts and or national agreements. We will continue to focus on this. This is a great way for for us to partner with customers and to brick wall our competition and streamline and have an effect -- efficient sales process as well. So I would expect this to continue to bail slowly but shortly.

Marc Riddick -- Sidoti -- Analyst

Okay, great. And then if we could switch over, you were talking a little bit about the seasonal -- the retail seasonal ramp up, and I was wondering, are we looking at about a similar amount of boxes that were set aside this year specifically for that effort? Or how should we think about that as far as the number of boxes year-over-year, that's side or directed that way?

Van Welch -- Chief Financial Officer, Executive Vice President

Yes, I would -- like we said, we will have very similar, possibly even a few more boxes than we had last year. We are sort of into that space now where we have to really make sure that we have the availability and the possibility to deliver to our customers, but certainly the demand is as high or greater than last year.

Marc Riddick -- Sidoti -- Analyst

Okay. And I was wondering if you could put some numbers around the concept that you talked about as far as how many of those boxes after the holiday season is over to sort of stay out there for construction or remodeling jobs? Is there kind of ways we could think about from a magnitude standpoint to maybe how many boxes were out there last year, and how many you might be targeting to be in that situation this year?

Van Welch -- Chief Financial Officer, Executive Vice President

Yes, I mean it's early days to start to speculate in the -- in 2019 numbers, but it's certainly last year, we had -- I'm trying to remember the right number about 3,000 units or so that stayed out.

Marc Riddick -- Sidoti -- Analyst

Okay, so that's helpful.

Van Welch -- Chief Financial Officer, Executive Vice President

Yes.

Marc Riddick -- Sidoti -- Analyst

Okay, great. And then one last thing from me is, I was wondering if you could give an update on what you might be thinking about as far as headcount and hiring trends that may be -- that we may be looking at for the next few quarters and maybe if there is a regional bias or anything like that, that would be helpful too. Thank you.

Van Welch -- Chief Financial Officer, Executive Vice President

I think headcount wise, we are -- I would expect it to be fairly flat. I think we're really leveraging the organization now, as we said, it's one of the reasons we have the high flow through is that we can leverage the existing resources that we have. I think if we could, we would hire more drivers. Having said that, we have more drivers employed today than we've ever had in in the Company's history. So I think we're doing a good job in that, but we're always looking for more, but that's within -- that won't be a big change. So I wouldn't expect a big headcount change anyway. In fact, we may see some reduction in some places as we go through what we call ourselves this project or the divestment of these underperforming assets and exiting 14 yards or so.

Marc Riddick -- Sidoti -- Analyst

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

Erik Olsson -- President, Chief Executive Officer

Thanks, Marc.

Operator

Our next question comes from the line of Sam England from Berenberg. Please proceed with your question.

Sam England -- Berenberg -- Analyst

Hi guys, just wondering if market over supply is still an issue in Tank and Pump in any areas or whether you think the market is now tightened given where rates are going?

Van Welch -- Chief Financial Officer, Executive Vice President

You know it's -- and there are pockets of the market or the big Tank and Pump markets that we're not in where I think there's still excess supply, but it doesn't affect us. I think when we look at pricing, we've seen very strong pricing trends on most product categories and we're actually ahead, in many cases where we were before the oil and gas recession in 2015. I think where the lagging product category at this point is steel tanks. That is still quite ways below where it was prior to that recession, but in fact in all other product categories, we see -- we've been able to drive rates up and above where they were at the previous peak.

Sam England -- Berenberg -- Analyst

Right, thanks. And then just on market consolidation and M&A, has there been any change in the competitive positioning of (inaudible) given some of the M&A transactions that have happened in Tank and Pump and indeed in so (inaudible)?

Van Welch -- Chief Financial Officer, Executive Vice President

Right. No, I don't -- I wouldn't say that we've seen any change in competitive behavior. I think it's obviously early days, in that but I wouldn't expect any dramatic difference in that sense going forward, either we've competed with these guys in the past and we will continue to compete with them going forward.

Sam England -- Berenberg -- Analyst

Okay, great, thanks very much.

Erik Olsson -- President, Chief Executive Officer

Thank you.

Operator

Our question is a follow-up question from Kevin McCarthy from Credit Suisse. Please proceed with your question.

Kevin McCarthy -- Credit Suisse -- Analyst

Great. Just one quick follow-up, just on the retail side, Sears hitting some tougher orders toward ToysRUs, is there a position for you folks depending upon on how the client mix, does that benefit you, no impact, how should we think about that just within the context of the retail environment overall?

Erik Olsson -- President, Chief Executive Officer

So big picture is that we do very little, if any business with mall-based operators for zoning reasons, etc. So Sears, we did not do any business with them at all. We did business with ToysRUs and obviously, we don't do anymore, but it's hard to see that there would be any impact, we deal with the stand-alone big box retailers primarily and suddenly if they pick up some of that business, we will benefit, but it's nothing that we expect relative to impact current trends.

Kevin McCarthy -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question is a follow-up question from Sean Hannan from Needham & Company. Please proceed with your question.

Sean Hannan -- Needham & Company -- Analyst

Yes, thanks for taking the follow-up here. Just wanted to come back to a topic you would hit on very, very early on in terms of tariffs, I believe if I heard correctly, hey look, there could be an impact. We're not seeing anything right now and it's -- even if there is an impact, it's a question mark. So if I heard that correctly, I want to see if I could get or if we could get some better color around where and how would that impact materialize? I mean, what should we be looking for here and at what point would you feel that at least internally you're able to make that assessment more confidently to state, hey look we either are or aren't seeing impacts from that? Thanks.

Van Welch -- Chief Financial Officer, Executive Vice President

Thanks. Yes, so let me clarify that comment I made was in regards to the overall US economy not to Mobile Mini specifically. You know, and it was in the context of, we see a very healthy US economy. We see a very, very healthy outlook, everything we look at is if it's our internal pipelines or external forecast, etc. It's a healthy environment. Now at some point the tariffs or so on could weigh on the overall economy but hey, who knows. To us, we are pleased to say that storage containers was exempted from tariffs. So we will see no impact there. So if I wouldn't read anything other into it than it just was a commentary on the overall US economy and the strengths that we're seeing there.

Sean Hannan -- Needham & Company -- Analyst

Perfect. That clears it up. Thanks so much. That's what I would expect, thanks folks.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Erik Olson for closing remarks.

Erik Olsson -- President, Chief Executive Officer

Great. Thank you very much for listening in and participating on this call. As I said, we put a very strong third quarter behind us, we are looking forward to a very strong fourth quarter as well as a strong 2019, we're operating in a very healthy environment. The Company is doing very, very well in response to that. So we are looking forward to report our Q4 results to you early on in the New Year. Thank you very much.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 60 minutes

Call participants:

Erik Olsson -- President, Chief Executive Officer

Van Welch -- Chief Financial Officer, Executive Vice President

Kevin McEvoy -- Credit Suisse -- Analyst

Sean Hannan -- Needham & Company -- Analyst

Scott Andrew Schneeberger -- Oppenheimer & Co. -- Analyst

Andrew Wittman -- Robert W. Baird -- Analyst

Unidentified Participant -- -- Analyst

Marc Riddick -- Sidoti -- Analyst

Sam England -- Berenberg -- Analyst

Kevin McCarthy -- Credit Suisse -- Analyst

Sean Hannan -- Needham & Company -- Analyst

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