Mobile Mini (MINI) Q4 2018 Earnings Conference Call Transcript

Mobile Mini (MINI)
Q4 2018 Earnings Conference Call
Feb. 1, 2019 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Mobile Mini 2018 fourth-quarter conference call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] There is also 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 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 the 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 the 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 -- Chief Executive Officer

Good morning, everyone, and welcome to Mobile Mini's fourth-quarter 2018 conference call. I am Erik Olsson, Mobile Mini's CEO; and with me are Kelly Williams, our president and COO; and Van Welch, our executive vice president and CFO. Let me begin by saying that 2018 was an exceptional year for Mobile Mini, a year in which we exceeded, achieved or made significant progress on each goal specified in our Evergreen model. As a result, our full-year consolidated rental revenues grew 12% and adjusted EBITDA for the year increased 18% to $217.2 million, with a margin of 36.6%, an expansion of 200 basis points as compared to full-year 2017.

In addition, our flow-through approached 60%. We had a healthy improvement in return on capital employed, we increased our dividends by 10% per share, and we delevered from -- to 4.2 times, down from 5.0 times at December 31, 2017. So overall, an impressive 2018 capped off by a very strong fourth quarter. Looking back, the fourth quarter of 2017 was an inflection point for our -- the Storage Solutions business, and even more so for our Tank & Pump Solutions segment.

Throughout 2018, we continued to build on that momentum and really separated ourselves from the pack as the premium provider for both segments of our business, especially for large national customers who value our nationwide presence and connectivity tools that we provide. As a result, Q4 '18 Tank & Pump rental revenues were up a strong 16.1% year over year, North American Storage Solutions were up a solid 10.3% year over year, and the U.K. actually grew 2% year over year in local currency in the quarter, despite of Brexit uncertainties. We made great strides with our margin expansion focus.

In the fourth quarter of 2018, Storage Solutions reached 40.4% adjusted EBITDA margin; and Tank & Pump reached 35% adjusted EBITDA margin, up 90 and 410 basis points, respectively, year over year. It should be noted that we performed at this high level, while at the same time finalizing the divestiture and disposal of more than 26,000 units under our Solstice program and exited 13 yards. We encourage you to review the full quarterly deck, providing more detailed results, which has been posted to our website as usual. For more information on our fourth quarter, I would now like to turn over the call to Kelly, to discuss our fourth-quarter operational results; and he will be followed by Van, who will discuss our financial results.

I will then conclude the prepared remarks with our current view of markets and provide some commentary on our 2019 expectations. After which, we will open up the call to questions.

Kelly Williams -- President and Chief Operating Officer

Thank you, Erik, and good morning, everyone. I'm Kelly Williams, Mobile Mini's president and chief operating officer. As Erik stated, all of our business segments performed well in the fourth quarter. On the Tank & Pump Solutions side, average OEC fleet on rent increased 17.1%.

Fleet on rent grew throughout the quarter, as new landed fleet was immediately placed on rent throughout the quarter. We expect average fleet on rent to continue to ramp up in the first quarter of 2019 to meet overall demand. Rates for Tank & Pump Solutions firmed up in the second half of the year. Beginning in April of 2018, we have achieved year-over-year rate increases for new equipment placed on rent, averaging mid-single-digit growth.

We continue to drive increased rate with spot contracts for smaller and midsized customers, where there is greater opportunity for rate expansion. Downstream revenues, which comprise the majority of our Tank & Pump Solutions business, increased 19% in the fourth quarter, compared to the prior-year quarter. We had meaningful revenue related to five new contracts we entered into in late 2017, and expect to achieve our run rate in the first half of 2019. We do believe there's potential to expand our share of business with this group of customers as we establish ourselves further and demonstrate the value we bring to their operations.

Increased demand in the upstream business drove healthy growth in both units on rent and rate, as we continue to optimize the business in the upstream with limited further investment. In North America Storage Solutions, our National Account sales force continues to progress, driving our competitive advantage of a dense U.S. footprint. As a result of the strong performance from the sales team, along with the excellent execution from our field employees, our seasonal business units on rent was up nearly 15% as compared to the fourth quarter of 2017, and 38% up compared to 2016.

The increased seasonal business contributed to overall consolidated average unit on rent growth of 2.7% for the Storage business. We also continue to achieve healthy rate increases in our Storage Solutions business. North American rental rates, excluding our seasonal business, were up 3.4% year over year, with rates on newly placed units up 3.8%. In local currency, U.K.

rental revenue was up 2% year over year in Q4, reflecting a 1% increase in rate as well as a slight increase in units on rent. While Brexit continues to contribute to economic uncertainty in the U.K., we have not seen a material negative effect on our business and our pipeline looks stable. In the fourth quarter of 2018, we completed the asset divestiture that we first announced in our second quarter conference call. Our strengthened fleet management processes promote a more efficient use of our capital resources to improve our return on capital.

In addition, we are driving annualized operational cost savings of approximately $5 million to $7 million. Our unavailable fleet, calculated on an OEC basis at the end of the year, dropped to 10.8% for our Storage Solutions business compared to approximately 15% at the end of the year 2017. Unavailable fleet for our Tank & Pump business dropped to 12.3% at the end of the year 2018 compared to unavailable fleet of approximately 14% last year. The 2017 numbers have been adjusted to exclude the divested fleet.

Our Storage Solutions business average unit utilization increased to 85.2% from 75.7% in the prior year, and we achieved Tank & Pump average OEC utilization of 76% compared to 73% in the prior-year quarter. Our NPS and CES scores remained world-class in the fourth quarter at 85% and 9.3%, respectively. Earning customer loyalty is a critical part of our strategy as a company and we strive to separate ourselves from the competition by asking ourselves how we can be easy to do business with and how we can meet the needs of our customers. One way that Mobile Mini differentiates itself from other rental companies is our customer-facing technological solutions.

Our customer portal, MM Connect, provides our customers real-time access to track their units on rent, order new units, request services, review account history and make payments. By the end of 2018, more than 18,000 individual registered users had access to MM Connect. This compares to 5,600 customers in 2017. We now have over 70% of our National Accounts registered on MM Connect.

Further, our Tank & Pump sales force continues to utilize EnviroTrack, a GPS and smart device enabled solution, to gain an audience with potential new customers. EnviroTrack allows our Tank & Pump solutions customers to manage both their equipment on rent as well as their waste streams through the life cycle of the rental period. In addition, we believe that when customers utilize EnviroTrack, we become more embedded in the customers' processes, which promotes long-lasting relationships, and we are more likely to gain ancillary revenue. In 2018, the revenue captured through EnviroTrack more than doubled.

We will continue to roll out enhancements to these customer-facing technological tools in 2019, with a continued focus on mobility. Lastly, as we head into 2019, our Storage Solutions pending orders in North America are significantly up compared to this time in the prior year and our business is positioned to capitalize on the growing demand from all of its end markets. I will now hand the call over to Van, to discuss the financial results of the fourth quarter.

Van Welch -- Executive Vice President and Chief Financial Officer

Thank you, Kelly, and good morning, everyone. Beginning with revenue, we had a solid 9.8% total rental revenue increase compared to Q4 2017. In our Tank & Pump business, we marked the fourth quarter of sequential rental revenue growth and recorded the highest quarterly rental revenue since we acquired the business in late 2014, with year-over-year organic growth of 16.1%. Storage Solution rental revenues were up 8.3% year over year, driven by increases in both units owned rent and rates as well as favorable mix and increased trucking revenues.

Rental revenue grew 10.3% for North American Storage Solutions, with increases in units on rent in both our seasonal business and our underlying core business. National Account revenues continue to drive these revenues and represent approximately 43% of our North American Storage Solutions revenue for the fourth quarter, and 36% for the full year. In the U.K., rental revenues are up 2% year over year in local currency, with increases in both rate and units on rent. While the slower construction activity and uncertainty surrounding Brexit is dampening growth in our U.K.

segment, our business has remained stable. Turning to profitability. Our adjusted EBITDA was $63.3 million for the quarter and our margin was 39.3% for Q4. With the leverage of our infrastructure and gained operating efficiencies, the increased revenues are resulting in expanded margins.

Storage Solutions adjusted EBITDA of $52.3 million increased 10.7% from the prior year, and the margin was up 90 basis points to 40.4%. The adjusted EBITDA growth and margin expansion was primarily driven by our North American business. Adjusted EBITDA for our Storage Solutions in North America increased 12.7%, and the margin expanded 110 basis points. Tank & Pump Solutions adjusted EBITDA of $11 million was up 30.7% compared to prior year, with a 410 basis point increase in margin from 30.9% in Q4 '17 to 35% in Q4 '18.

The growth is due to increased business across both our downstream and upstream markets. Rental, selling and general expenses, as a percentage of total revenues, were down 50 basis points compared to the prior-year quarter. Overall, these costs were up approximately 8.7%, primarily due to costs related to higher rental activity, including salary and transportation costs. Additionally, variable compensation and share-based compensation expense increased due to improved year-over-year performance.

As a percentage of revenue, rental, selling and general expenses were down to 59.1% from 59.6% in Q4 '17. We expect our adjusted EBITDA margin to continue to expand in 2019, 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 Q4 was 28%, while our full-year adjusted effective rate is 25.5%. The higher effective tax rate in the back half of the year was primarily due to the impact of a new minimum tax in the United States related to our U.K.

operations, and partially offset by other discrete items. We expect an effective tax rate of 25% to 27% for 2019. We had approximately $150 million in Federal NOLs at December 31, 2018, and are not a U.S. federal cash tax payer as a result.

We do not expect to pay meaningful U.S. federal cash taxes until at least 2022. Free cash flow was $24.9 million in Q4 2018, up $6.7 million from Q4 2017. The increase was comprised of a healthy year-over-year increase of $4.1 million in cash from operating activities and a $2.6 million decrease in net capital expenditures.

The charts on Slide 16 highlight our CAPEX spend. In total, for the full-year 2018, we had $87.2 million in net capital expenditures. During the fourth quarter, we had net fleet capital expenditures of $16.8 million, of which $10.8 million was for North American Storage Solutions and $5.4 million related to Tank & Pump Solutions. Due to the dampened economy in the U.K., we made very limited capital expenditures in our U.K.

Storage Solutions business. CAPEX purchases are made to fill specific growth demand and opportunities and with the expectation that the fleet will be placed on rent in the very near term at optimized rates. Within North America Storage Solutions, purchases have occurred in geographic areas of high demand as well as to buy and modify our high-demand GLO units. The Tank & Pump Solutions fleet was purchased to meet customer demand largely related to the new MSA ramp.

We anticipate that total net capital expenditures for the full-year 2019 will be approximately $75 million to $80 million, a decrease compared to full-year 2018. Our expenditures will be focused on North American Storage Solutions and downstream Tank & Pump Solutions to meet anticipated growth. Most of our capital expenditure is entirely within management discretion. Should demand differ from what we anticipate, we will increase or decrease our capital expenditures accordingly.

As you can see on Slide 17, our leverage ratio decreased to 4.2 times in the quarter, down meaningfully from five times at December 31, 2017. This decrease in our leverage ratio is largely due to increased adjusted EBITDA as well as decreased debt. During 2018, we paid down nearly $41 million on our line of credit and increased ABL availability to more than $400 million. We continue to balance our long-term leverage goals with the current demand environment and anticipate that our leverage ratio will be around 3.5 times to 3.7 times by the end of 2019.

So overall, the very good fourth quarter results reflect the execution of our strategies in both segments and our positioning of the company to benefit from the continuation and expansion of the positive trends in our customer end segments. With that, I will return the call to Erik. Thank you very much.

Erik Olsson -- Chief Executive Officer

Thank you, Van. I'd like to now discuss our economic outlook. The economic environment for our U.S. end markets, which represents 86% of our business, continued to be positive for the fourth quarter.

Based on available forecasts and our assessment based on current business trends, we expect that the majority, if not all of our end markets, will continue to drive healthy demand for our products. Construction, which represents approximately 36% of our consolidated rental revenue, is forecasted to continue to grow. Economic indicators related to our industrial and commercial customers, which comprise approximately 25% of rental revenue, are also favorable, with positive trends in both production and capacity utilization. We believe the oil and gas cycle will remain favorable to us, with high level of activity downstream and upstream, where rig count now stands at 1,075.

Retail and consumer service customers comprise approximately 25% of our rental revenue, and setting the short-term impact of the government shutdown aside, consumer confidence remains at historic highs. We do the vast majority of our retail business with stand-alone retailers as opposed to mall retailers, where most of the retail pain have been felt. Overall, real U.S. GDP remains strong, with forecasted growth in 2019 of approximately 2.5%.

Additionally, unemployment is forecasted to continue to decline in 2019. Now global trade tariffs and additional Federal Reserve tightening could pose potential headwinds to the business environment, but we have yet to see any impact of that. The U.K. market overall is impacted by the continued Brexit uncertainty, but our U.K.

storage units on rent as of December 31, 2018 was actually up slightly year over year. So against this economic backdrop, Mobile Mini enters 2019 a financially stronger and more efficient company than ever before. So in 2019, we expect our rental revenue increase to exceed our Evergreen model. We will accomplish this growth by continued focus on our national sales, augmented by growth at the local and regional level.

We're poised to deliver additional enhancements to the technological tools valued by our national customers, especially in the area of mobility. Specific to the Tank & Pump side of our business, we will continue to grow revenues by leveraging EnviroTrack, which our customers use to manage both their equipment on rent as well as their waste streams through the life cycle of the rental period. Technology is a real market differentiator, enabling us to develop strong long-term relationships with customers, helping them to be more productive and thus, drive market share. We will also continue to explore partnering with other rental companies to provide supplementary product offerings, mainly to construction sites.

In the early phase of a project, customers have a need for some basic products at the site in addition to the storage containers, like sensing, generators, toilets, etc. And arranging these comprehensive additional rental services for our customers through rerents from other suppliers as a one-stop shop provider increases customer loyalty, while generating additional rental revenue for us with no additional CAPEX. We also expect to increase our return on capital employed as we leverage our existing infrastructure and fleet management to expand our flow-through and grow our adjusted EBITDA margin. As a result of the increase in revenues and expanded flow-through, in 2019, we expect to generate healthy levels of free cash flow, which we will deploy to best bring value to our shareholders.

We've announced that in the first quarter of 2019, we will increase our dividends to shareholders by 10%. This marks the fifth year that we have increased dividends since we began paying them in 2014. In addition, we expect to use cash to meaningfully delever, and as always, we're open to potential acquisitions of varying sizes as a method to create value, gain market share and to expand to new or underserved markets. In conclusion, I would like to congratulate and thank all the Mobile Mini employees, who execute their jobs with dedication and excellence on a daily basis.

Job well done. 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 Scott Schneeberger from Oppenheimer & Co. Please proceed with your question.

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

Thanks very much. Good afternoon. Good morning. I guess, first question.

Could you speak to the, I guess it would be, cost drivers of what prevented you from achieving the 60% flow-through guidance for 2018? And then, what gives you the confidence that you'll be able to do it now in 2019? Thanks.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes, Scott, this is Van. I think from a cost standpoint in Q4, we had a bit higher variable compensation cost in Q4, primarily driven by the strong performance in Tank & Pump Solutions, not just for the Q4, but for the whole year. We had increased cost around -- some of which were volume-driven around trucking, salaries related to that. We also had increased stock-based comp, although that's not going to be a matter of EBITDA -- or adjusted EBITDA, again, associated with strong performance.

So looking forward, and we've looked at it quite hard, I think from an operational standpoint, we can get back to that 60% flow-through, with continuing to increase price. We've talked about the optimization associated with the yards and how we're going to reduce the yard cost going forward to the tune of about five to seven in 2019. That's certainly going to add to our ability to increase flow-through as well.

Erik Olsson -- Chief Executive Officer

Yes. So Scott, to be fair, I think we got pretty close, in the mid to high-50s here for the year. And in addition to the costs Van mentioned there, I'd also like to point out two operational items that impacted the quarter as well. One, was the Solstice project, which -- disposing of 26,000 units, basically affecting all our yards.

And so it's obviously a distraction or a cost driver in itself. And secondly, I think you may recall that, on the third quarter, we talked about our seasonal business being a little bit later than usual, that there were a lot of customers still hadn't placed their complete orders. So we had a huge flood of both orders and deliveries, obviously, in Q4, of seasonal units to -- which, in the end, ended up being a record year, again, for us. So I'd say those things were also impacting our performance.

Van Welch -- Executive Vice President and Chief Financial Officer

And Scott, this is Van again. As Erik mentioned, that push into Q4, that created driver overtime as well. It also created, across our expense, that we had to do in Q4. Also with that increased seasonal, getting on the revenue side, but with that increased seasonal, we saw increased revenues around trucking.

And our margins in trucking were better, actually, year over year, but from a total company standpoint, those margins are dilutive to the rental space. So all of that, when you take that combined, that contributed to the slightness that we had in the flow-through.

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

All right. Thanks, guys. Yes, I mean, it's -- 55% is not bad, it's just it was short of the guidance by 10%. So that's meaningful.

And then, and so obviously, there is some concern for that in the coming year. And Van, you highlighted a kind of -- price increases and optimization, be it -- the $5 million to $7 million, I presume is on track. Those are some other things. I guess, maybe the strategy on seasonal rentals, I mean, yes, you have a lot more trucking, which is lower -- revenues, which is lower-margin, and then you had all this overtime.

How will you be able to manage seasonal next year so you don't have that negative -- or that lesser-margin contribution? And then, just because also the seasonal rental itself, clearly, from the numbers, total rental rate growth was 1.8% in fourth quarter, 3.4% excluding seasonal, so it obviously came through this year at a lower price point. Could you talk to price in seasonal as well? And just strategic view of what you're going to do with seasonal next year? Thanks.

Kelly Williams -- President and Chief Operating Officer

Yes, sure, Scott, this is Kelly. I'll kind of jump in here and give you a little bit of an overview of both seasonal and pricing associated. So we had a really big mix shift with a couple of our largest contract price customers increasing their seasonal volume, and as Erik mentioned, it actually came a little bit later than normal in terms of the calendar year. So we saw volume up substantially to prior year.

And even though the pricing is discounted slightly to those typical retail customers without -- on the seasonal business, without contract pricing, the volume was significant, and really short period or window for us to respond in, so we ended up cross-hiring or outsourcing a lot of those rentals, not only through a partnership agreement that we touched on in terms of managed services, but also in transportation. So though it's overall, it's dilutive to our margins, it drives tremendous EBITDA and there's no required capital spend. And so it's a strategic decision that we made in a couple of our largest customers. We certainly continue to create loyalty with them.

And we continue to look down this path of cross-hiring and partnering up, where we can continue to drive and optimize the business without increasing capital, and I think you see that in the improvement in the return on capital employed.

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

OK. Thanks, Kelly. I'll switch it up. Just one more to sneak in.

I've taken some time. Over in Tank & Pump, pricing trends, what were you seeing in the fourth quarter? And what's the visibility? How far out into '19 can you see? And what are you seeing? Thanks.

Kelly Williams -- President and Chief Operating Officer

Yes, Scott, this is Kelly again. It's certainly significantly better, as I stated in the opening. Since April, we've seen year-over-year rate increases on new equipment on a sequential basis, and I believe we got into the mid-single digits on new, maybe 5% or 6% year over year on new equipment going out, and we're positive on the composite. And I would tell you that on the small and midsized non-contract customers, we continue to see very strong improvement in pricing, and we've even been able to go in on some of these blue chip contract customers and drive some incremental improvements in pricing and trucking, but it's really in that spot market where we've been able to take advantage of that.

And again, even though the upstream is better, and we've seen some improvements there, it's really around this downstream, where we've continued to drive improvements in price, and it's really been across the board. So I think we feel very confident in 2019 on the Tank & Pump side regarding pricing.

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

Yes. Thanks a lot. I'll turn it over.

Operator

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

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

Great. Thank you and good morning. I guess, I wanted to start with the commentary that you had about, in storage, that the pending units were up significantly? I'd like to understand a little bit more about that, maybe what the drivers of that are, maybe by end markets? And the rates that you believe that you'll be having associated with that as those go into service here, presumably in the first quarter?

Kelly Williams -- President and Chief Operating Officer

Yes, Andrew, how are you doing? This is Kelly. So I think if you look at the pending orders and really, how we are able to articulate our pipeline, our pending orders are significantly up, and I think we were able to better forecast 2018 based on kind of understanding what the run rate or pipeline looks like over a four or five-month period. And I will tell you, it's still, in the remodel side from a retail standpoint, we certainly see that rolling into 2019, and a lot of that is driven through our National Account business, which we've really taken advantage of the footprint that we've got in centralizing that decision-making. And we do, from a pricing standpoint, I know that question was asked, our National Account pricing is a couple of points lower than our overall pricing, but we continue to move and make sure that we manage both volume and price.

And I think as you saw in the report, we had new units on rent going up 3.8% outside of seasonal. So I think we're doing a really good job of managing that, and we're certainly conscious of the mix between the National Account business and the spot or the retail business. But I think overall, we've done a really nice job with that, and I would just tell you that a lot of that is driving that -- those pending orders in 2019, which looks strong, again, on what was a record year for us in 2018. So very confident here in the first half of 2019, for sure.

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

OK. Well, that's interesting, and seems consistent with kind of what you've been saying as a key driver. I guess, maybe just because of its relative importance, a little bit more detail on the construction as an end market? The last couple of quarters, at least if we just use your pie chart against the revenues, the construction end market has been kind of flat to down-ish. Your commentary was pretty positive, maybe a little bit more detail on that end market, too, Kelly, would be helpful for everyone.

Kelly Williams -- President and Chief Operating Officer

Yes. So I would tell you that if you just go by Dodge, and what's important to us is project starts. Because we've got an opportunity to go out in the early phase, and that's where we would win. We have the opportunity there to build a relationship.

And I would even tell you that allows us to walk into the managed services concept as well, where we've been able to create loyalty with our customers, with that mid-80s Net Promoter Score, and we can leverage driving other sources of revenue. But when you look at Dodge in terms of project starts and overall valuation, it's still in the 1.5% to 2% up to prior year, and that was very similar to '17 to '18. So I would say, if you -- when we look at that GDP plus three, I think you're still, from a construction standpoint, we would feel confident that if construction starts are up one to two, that we could grab 3%, 4%, 5%. And that's what we're seeing and slightly better than that on the pending orders.

Erik Olsson -- Chief Executive Officer

Yes. Andrew, just to add to that, that even though the percentage in the pie chart is flat to maybe down on construction, we're still growing the construction segment, it's just that the other segment is growing -- growing even faster.

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

Got it, OK. I guess my next question is just a little bit more detailed on the disposition and yard closure plan. It sounds like, the -- all of that has been instituted now, and I guess, the question specifically would be, can you quantify for us the benefit that, that was for 4Q, if any, as well as -- or maybe the exit run rate would also be helpful, so that we can gauge how much of a benefit that will be on a year-over-year basis as we put our models together for '19.

Van Welch -- Executive Vice President and Chief Financial Officer

Andrew, this is Van. I mean, we're done. I mean, Project Solstice, we met the deadline or the schedule for the end of the year, and we're complete. We did about 26,000 units, as Erik mentioned, I think, in his prepared remarks, that we were able to dispose of.

We did generate -- we have generated some savings in the latter half of the year around closures of yards as well as reduced R&M and headcount. It's to the tune of about $2 million, if you looked at it for the last half of the year, most of that coming in Q4.

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

Got it. And just given that five to seven range, do you have any more visibility, now that it's all been implemented, at what you think that will be on an annualized basis, at the low end or the top end?

Van Welch -- Executive Vice President and Chief Financial Officer

I think it's going to be -- I mean, I think I would say it's probably more on the top end, and we'll certainly update you on that as we go forward.

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

That would be helpful. And then my last question, at least for now, is regarding overall labor inflation. It sounds like there's some driver overtime and maybe some agency where you had to outsource a little bit, from your prior comments. Was there any fundamental, just -- I mean, it's a tight labor market, it's like the worst-kept secret, everybody knows that.

I guess, my question is, what levels of wage inflation are you seeing on the ground in your business? And maybe even for context, could you talk about how much of -- what percentage of revenue that labor represents, that we can kind of get our arms around that?

Erik Olsson -- Chief Executive Officer

Yes, percent of labor, I don't know that we have that right here, but we'll help you with that. I mean, we don't see anything dramatic in terms of salary inflation. Obviously, on our driver side, we obviously try to be market-based. We are adjusting to local markets all the time.

But at the end of the day, I don't think we've seen anything truly dramatic there. I think here is one reason where our variable comp is helping us. Our drivers also included in that program, and I think that provides a certain -- or it does provide stickiness and loyalty, and I'm pleased to say that we have, today, we have more drivers than we've ever had in the company's history, even though we would like to have some more, but we're up significantly during the course of 2018.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes, I think, just to add on to what Erik said, Andrew. In terms of the increase year over year, it's mostly due to numbers of drivers rather than wage, although the numbers have gone up slightly. We also -- we paid a little bit more overtime associated around those drivers than what we did year over year, based on that concentration of the seasonal activity that happened in Q4.

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

All right. Great. Thanks, guys, for your comments. Have a good day.

Van Welch -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

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

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Hey, good morning, gentlemen. A quick question, I wanted to go back to the commentary around the services -- the service offerings that you're looking at, and being more of a partner and being that one-stop provider. I was wondering if you could touch a little bit on, maybe, some areas that might make sense in bringing in-house as far as maybe potential acquisitions, if there are some sort of natural types of services that would be maybe an easier fit to execute on? And then, I have a follow-up after that.

Erik Olsson -- Chief Executive Officer

I mean, we are very, very disciplined and stringent in the types of product that we actually spend CAPEX dollars on. We're steel-centric, long-lived assets, low-technology component, low R&M needs and high margins. And if we look at that, there are very few other product lines that fit into that -- those characteristics. So we think this is a great little business for us to have and use rerents for as being a service provider.

We are able to mark up the rerents significantly, and we don't have to touch these products. They go from the third-party vendor directly to the customers and we just intercept the invoice in between the two.

Kelly Williams -- President and Chief Operating Officer

Marc, I would just add -- this is Kelly -- that, it's -- Erik made mention of it being a one-stop shop, I think that we really found there was an opportunity to increase the current customer wallet share and expand revenues. It was revenue for the customer, it was a new market segment. We think it's a differentiation advantage for us, but it still drives us toward renting more containers when it's all said and done. And so a lot of that is, again, back to the Net Promoter Score, the loyalty that we've got, seeing that we're early on in the job site from the customer, they just feel it's easier for us to go ahead and manage some of these smaller-dollar, ancillary-type streams for them that are a little bit more challenging, especially as they enter a new city.

So it's really a testament to our ability with the -- at the National Account level and at the local level to build these relationships, where they would just as soon us take over and manage that process. So it's a service offering more than it is us considering another product.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

OK, and that's great. And that leads into kind of where I was going with this. And it seems as though that this is something that is targeted or perhaps be most receptive from National Accounts, and I was wondering if you can maybe talk a little bit, even if it's anecdotal, as to sort of how you came to see these opportunities and general target market? Is this something that you're looking at National Accounts being the vast majority of what you're going after here? Or if you could share a little bit more on that?

Kelly Williams -- President and Chief Operating Officer

It is -- yes, sure. It is, today, I think that's where it originated. And I think it's mainly centered around the construction customer, where, again, we started to -- we have relationships, obviously, with other suppliers, and not just in our own space, but also in -- when you start to talk a little bit about fencing and portable toilets, that type of thing, where we have these relationships that we were asked to do early on. And I think we found that it was a real opportunity, and we partnered with a couple of customers.

We test pilot it. We put a really solid marketing plan out there, and I think we certainly see the opportunity, and going back to the general rental days with Erik and I, this was something that was very coveted in the industrial market, where it was just -- it's very tedious, they are low-cost items, and they would prefer, if you have that relationship with the customer, for you to manage that entire process. And I think we just carried some of those thoughts around managed services to the construction site here, and again, based on the fact we've got such tremendous loyalty scores with our customers, it's kind of been a seamless transition.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

OK, great. Then one last thing for me. I just want to circle back a little bit, just sort of follow up on sort of what we might see going forward as far as how these things kind of play out. When you're looking at the seasonal business, given what you learned from this past seasonal, I know you kind of start this process with your retail consumer customers, it seems like, over the summer.

And if what you learned this past season might have some impact on either the timing or the depth to which the planning for upcoming seasons going forward might be altered? Or do you think that the late orders were kind of maybe one-time in nature and you don't foresee a change in sort of how you go into the season with those customers? Thank you.

Kelly Williams -- President and Chief Operating Officer

Well, yes. We certainly prepare, believe it or not, with seasonal, as early as April and May, even though we know that, that doesn't really get launched into August or September. But what ended up happening here is that as you think about how we view the retail business with the big-box retailers, those particular customers have been stable, continuing to grow, and really, have taken advantage of the market share from the -- some of the other strip-mall type retailers that have struggled. And I think everybody's familiar with who those are.

We, fortunately, had some great relationships with these customers, and they saw a really nice boost in Q4. But even for them, it came late. And so I'd like to think that we could get out in front of it, but I think this was more a one-time scenario. But we certainly always look to prepare and plan as early as possible.

And I think we've done a better job, like I've made mention in the prepared remarks, we're up almost 40% in our seasonal volume from 2016. So this, again, is a real testament to the National Account managers and our ability to establish relationships and drive purchasing decision on a centralized level.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

OK, great. Thank you very much.

Kelly Williams -- President and Chief Operating Officer

Thanks.

Operator

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

Sam England -- Berenberg Capital Markets -- Analyst

Hi, guys. Just a quick couple for me. Just looking over the last couple of years, you've seen the DSO sort of ticking up a bit. I just wondered if there's anything behind that, or whether that's predominantly down to sort of shift toward national customers.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes, Sam, I think as we've grown the National Accounts, we're still working those invoice administrative procedures with that National Account business. That's been a bit of a drag on DSO. I'm still looking at that taking care of itself in the -- in early ish 2019. It's a bit higher than where we want it to be, and I think once we get those resolved, that would be -- that will help.

Now if you go back several years, to before we acquired Tank & Pump, the Tank & Pump payment terms are a bit higher than the -- than what we would expect in the Storage Solutions side. So with that growth, the DSO has gone up a bit more. But we've got -- we certainly have a -- have a path for improvement on that DSO calculation.

Sam England -- Berenberg Capital Markets -- Analyst

Great. Thanks. And then the next one, just looking at the Evergreen model, I noticed you're really getting within sort of touching distance of some of the metrics within that. Do you think if you sort of go past any of the targets that you've got, you would look to revise that model? Or do you expect it will just stay sort of where it is as a sort of three-cycle target in the longer term?

Erik Olsson -- Chief Executive Officer

I mean, I think, we -- some of those targets, I think, is truly Evergreen, like leverage, or return on capital, or above cost of capital, etc. But I think as we approach our 40% EBITDA margin, and we're getting close, I think once we hit that, we would reevaluate and possibly set the higher target there.

Sam England -- Berenberg Capital Markets -- Analyst

OK, great. And then, last one, just around these agreements with other equipment rental businesses. Do they work in sort of a reciprocal way? If they're renting equipment to someone, and the customer is looking for your type of units, will they put you in touch with the end customer? i.e., is there a sort of potential revenue benefit for you in the longer term of sort of your partners referring business to you?

Kelly Williams -- President and Chief Operating Officer

They do. When they're outside of the competitive landscape of portable storage, absolutely. Those are relationships and partnerships that work both ways for us. We certainly look to take advantage of that.

Sam England -- Berenberg Capital Markets -- Analyst

OK. That's all for me. Thanks very much.

Kelly Williams -- President and Chief Operating Officer

Thank you.

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 Olsson for closing remarks.

Erik Olsson -- Chief Executive Officer

Thank you very much, operator, and thank you very much, everyone, for participating on this call. We had a great fourth quarter, and we are very optimistic about 2019 here. And we look forward to reporting on our Q1 results in -- at the end of April. Thank you very much.

Operator

[Operator signoff]

Duration: 49 minutes

Call Participants:

Erik Olsson -- Chief Executive Officer

Kelly Williams -- President and Chief Operating Officer

Van Welch -- Executive Vice President and Chief Financial Officer

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

Andrew Wittmann -- Robert W. Baird & Co. -- Analyst

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Sam England -- Berenberg Capital Markets -- Analyst

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