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Mobile Mini Inc (MINI)
Q1Â 2019 Earnings Call
April 23, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone and welcome to the Mobile Mini 2019 First 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 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 this conference call may include forward-looking statements. As such, they are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Any forward-looking statements should be considered in conjunction with the cautionary statements in our press release and the risk factors included in our filings with the SEC, which Mobile Mini encourages you to read.
In addition, please refer to the Investors section of 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 First Quarter 2019 Conference Call. I am Eric Olsson, Mobile Mini's CEO and with me are, Kelly Williams, our President and COO and Van Welch, our Executive VP and CFO. We are off to a great start of the year, continuing to build on the momentum generated in 2018 and had a really strong first quarter, executing on our strategy. Our strategy is to profitably grow our business by offering customers the highest quality of products and services in two segments, containers and tanks. These steel-centric product lines have very similar asset characteristics such as long lives, low maintenance, high margins, short payback periods and strong cash flow generation.
Further, the two segments are also complementary and add diversification to market segments served. The similar characteristics allow us to leverage our expertise in asset management, maintenance and logistics, among other things, across the segments. In addition, there are synergies in cross-selling and co-location. We remain very confident in the value of having two segments bound together by back and front end synergies.
We are servicing our customers by having high quality products, high levels of customer service, large national footprint in the US and UK, a large sales force and increasingly, the use of technology. The MM Connect customer portal and EnviroTrack management system help drive additional business as well as brick walling existing relationships and we will continue to develop tools and apps to help our customers make their business more productive.
The technology platform also allows us to become more efficient internally. Several mobile and digital initiatives have started around yard operations that we expect will support further margin expansion in the years to come.
We've augmented our product offering by recently introducing the managed service concept where we assist customers in getting project sites quickly up and running by supplementing our products with other third-party rerented products as a one-stop shop. The key here is that this offering requires no CapEx on our part and has been very well received by our customers in its initial phase. Kelly will cover this in greater detail.
And this is all part of positioning ourselves as the leader in products, market coverage, technology and customer service in order to achieve our evergreen targets. Revenue growth of GDP plus 2% to 3%, margin expansion to over 40% EBITDA margin, return on capital employed exceeding cost of capital, dividend growth of 10% per year and a debt leverage below 4 times. This should be viewed as averages over a cycle. And the evergreen targets capture our strategic objectives and we reached or made significant progress toward all of them in the quarter.
For example, consolidated rental revenues grew 8% and adjusted EBITDA increased 17% (ph) with a margin of 37.6%, an expansion of 310 basis points as compared to Q1 last year. Tank and pump solutions really started to showing their potential with adjusted EBITDA growth of 35% year-over-year and a margin expansion of 520 basis points compared to Q1 last year to an adjusted EBITDA margin of 34.9%. In addition, we had a healthy improvement in return on capital employed, reaching 9%, which is above our cost of capital. We increased our dividends by 10% and we de-levered to 4.0 times as of March 31, 2019, down from 4.2 times at the end of 2018 and 5 times at the end of 2017.
The economic environment for our US end markets, which represents 86% of our business, continued to be positive in the first quarter and based on our assessment of current business trends and available forecast, we expect that the majority, if not all of our end markets, will continue to drive healthy demand for our products. The exception is the UK, where economic and political uncertainty relating to the outcome of the Brexit process continues to be a drag on business investments. However, our UK business still managed to grow revenues in local currency in the quarter. This is a testament to the resiliency and strength of our business model, regardless of where we are in the cycle.
I would like to remind investors of the great business model we have and that cash flows, while strong during all phases of the cycle, is counter cyclical and particularly strong in a downturn, during which we reduce or eliminate CapEx. Case in point, we have minimized CapEx in the UK over the last several quarters and increased free cash flow by close to 80% over the last 12 months compared to the prior year last 12 months. Of note, also, Mobile Mini has now had 45 consecutive quarters of positive free cash flow. So, as you can tell, I'm very pleased with the performance this quarter and the position and platform we've built to continue to grow and improve our business, executing on our strategy.
I will now turn over the call to Kelly to discuss our operational results. He will be followed by Van, who will discuss our financial results.
Kelly Williams -- President and Chief Operating Officer
Thank you, Eric, and good morning, everyone. I'm Kelly Williams, Mobile Mini's President and Chief Operating Officer. As Eric mentioned, all of our business segments performed well in the first quarter of 2019. Tank and pump solutions achieved an all time high average OEC fleet on rent, which was a 15% increase year-over-year, while average OEC utilization of 74.1% was a 50 basis points increase year-over-year. We finished the quarter at 75.9% OEC utilization. Rates for tank and pump solutions continued to increase throughout Q1 '19 with year-over-year rate increases for new units in the mid-single digits. Tank and pump solutions rental revenue grew 15.6% year-over-year for Q1 '19. Downstream revenues, which comprise the majority of our tank and pump solutions business, increased 19.6% in the first quarter compared to the prior year quarter, largely driven by continued ramp up of the MSAs signed in late 2017 and early 2018. These MSAs were still in the early stages in Q1 '18 and while we have largely reached our run rate, we do believe there is potential to expand our share of business with these large customers as we also provide them our popular digital solutions like EnviroTrack and GPS Tracking.
We also generated downstream growth through increased rate on spot contracts for smaller and mid-sized customers. The upstream business grew 19.9% year-over-year as we continued to optimize our business opportunity with stable companies in this space without further CapEx investment. Our customer focus is on the major blue chip companies where we have been driving revenue growth largely through rental rate.
In storage solutions, we achieved strong average OEC utilization of 77.1% for Q1 2019, while positioning our CapEx for anticipated near term growth, given the strength of pending orders. This is up from 68.6% in Q1 2018. North America average OEC utilization improved year-over-year from 66.7% to 76.3% in Q1 2019. The UK average OEC utilization increased year-over-year from 78.1% to 80.9%. In North America, our average units on rent during the quarter was up 1.8% compared to the prior year. The national account's focus in North America storage solutions continues to be a large portion of our growth in Q1 '19. National account activations were up from Q1 '18 to Q1 '19 and 36% of our Q1 '19 rental revenue for North America storage solutions came from national accounts, which is slightly up from prior year.
Coming off a strong seasonal period, seasonal units converted to core units on rent in line with prior years. Currently, we have a strong pipeline of pending orders for national accounts, including large orders for remodels of various retailers. We continue to drive value with national accounts by leveraging our national footprint and responding to the customer feedback regarding their additional rental needs. We are complementing our portable storage business in North America with managed services where we act as a one-stop shop solutions provider, offering comprehensive rental products and services by partnering with local service providers without the need for additional CapEx on our part.
National account customers appreciate consolidating services with us and managed services products generally complement core container and ground level needs. We coordinate early on site needs such as generators, dumpsters, toilet services and temporary fencing, by being the middleman in this rerent transaction, earning a healthy margin for our efforts.
Mobile Mini benefits from managed services because it's flexible, low risk and requires no CapEx. We improve customer experience, increase our revenue and earn a healthy margin and return on capital. While still in the early stages of managed services, we are gaining momentum. We also continue to achieve healthy rate increases in our storage solutions business. Composite rates were up 2.6% year-over-year with rates on newly placed units, up 3.3%.
North America core rental rates were up 3.2% year-over-year with rates on newly placed units up 3.1%. In local currency, UK rental revenue was up 1% year-over-year in Q1. To note, fewer units on rent was more than offset by both UK rental rates, increasing 2% year-over-year and 4.4% for rates on new units placed on rent, as well as higher trucking and ancillary revenue. While Brexit continues to contribute to economic uncertainty in the UK, we have not seen a material negative effect on our business.
Our overall pipeline of pending orders in North America storage solutions remains up compared to this time last year and we have positioned CapEx for the anticipated near term broad-based demand from all our end markets. Customers continue to view Mobile Mini's products and services as world-class with overall NPS of 86.2%, which is up year-over-year and a customer effort score of 9.3, signifying we remain easy to do business with.
Lastly, as a whole company, we are operationally more efficient now than we have ever been. In Q1 '19, we experienced improved trucking margins and realized cost savings of approximately $1.5 million, allowing us to achieve solid flow through in Q1 '19. We have de-levered and are quickly reaching our evergreen target leverage of less than 4 times. This provides us the operational flexibility to invest in our business. We can consider strategic M&A opportunities in both business segments and return value to shareholders.
I will now hand over the call to Van to discuss the financial results of the first quarter.
Van Welch -- Executive Vice President and Chief Financial Officer
Thank you, Kelly and good morning to everyone. Beginning with revenue, we had a solid 8.4% total rental revenue increase compared to Q1 2018. In tank and pump solutions, we marked the sixth quarter of year-over-year rental revenue increases with organic growth of 15.6%, driven by a combination of growth in both rates and average OEC fleet on rent. Storage solution rental revenues were up 6.7% year-over-year in constant currency. Rental revenue grew 8% for North American storage solutions with increases in both units on rent and rates.
In the UK, rental revenues were up 1.3% year-over-year in local currency, with increased rate as well as trucking and ancillary activity offsetting the small decrease in units on rent. The slower construction activity and uncertainties surrounding Brexit are dampening growth in our UK segment. However, our rental revenue grew in local currency.
Turning to profitability, our adjusted EBITDA was $56.2 million for the quarter and our margin was 37.6% for Q1. Storage solutions adjusted EBITDA of $45.4 million increased 11.9% from the prior year, 13% in constant currency and the margin was up 260 basis points to 38.3%. The adjusted EBITDA growth and margin expansion were driven by our North American business. Adjusted EBITDA for storage solutions in North America increased 16.7% and the margin expanded 350 basis points.
Tank and pump solutions adjusted EBITDA of $10.8 million was up 35.3% compared to prior year, with a 520 basis point increase in margin from 29.7% in Q1 '18 to 34.9% in Q1 '19. The growth is due to increased business across both our downstream and upstream markets. Rental selling and general expenses increased $3.2 million or $4.2 million in constant currency compared to Q1 last year. Decreased short term variable compensation expense of $2.9 million was offset by increased payroll and other costs related to higher rental activity and a $1.2 million increase in long-term performance based stock compensation expense.
Performance based stock compensation expense is recognized based on anticipated ROCE attainment at the end of the year. We expect Q2 '19 expense to be similar to Q1, followed by a decrease in the back half of the year. Rental selling and general costs, as a percentage of total revenues, were down 170 basis points compared to the prior year quarter. Our adjusted effective tax rate for Q1 '19 was 26.5% and the prior-year tax rate is 25%. We expect an effective tax rate of 25% to 27% for 2019.
We do not expect to pay meaningful US federal cash taxes until at least 2022 due to our NOLs. Net cash provided by operating activities of $38.8 million increased a robust $3.9 million in the quarter as compared to the prior year quarter. Free cash flow was $16.2 million in Q1 2019, compared to $18.8 million in Q1 '18. The decrease in free cash flow reflects an incremental $8.1 million investment in rental fleet relative to last year in order to meet recent and anticipated growth in demand for both our businesses in North America.
During the first quarter, we had net fleet capital expenditures of $19.7 million, of which $9.7 million was for North American storage solutions and also $9.7 million related to tank and pump solutions. As we've discussed in the past, fleet purchases are made with the expectation that the fleet will be placed on rent in the near term at optimize rates. The tank and pump solutions fleet was purchased to meet customer demand, largely related to the new MSA ramp.
For our North American storage solution business, we are being strategic and have secured advantageous terms about purchasing approximately 3,000 units through China in bulk and customizing them there in China. As such, we received some units in the first quarter that we expect to place on rent in Q2 '19. We're also spending CapEx to buy and modify our high demand ground level office units. Total net capital expenditures for the full year 2019 will be approximately $75 million to $80 million, a decrease compared to full year 2018 with expenditures in the first half of the year exceeding the back half of the year.
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. Rolling stock, such as forklift, trucks and service vehicles is chiefly obtained through finance leases. While we acquired minimal rolling stock in Q1 of 2019, we do plan on acquiring approximately $17 million to $20 million of equipment for the full year, which is mainly to refresh existing assets.
Given the spend on our rolling stock and rental fleet, we expect depreciation and amortization expense to slightly increase each sequential quarter for the remainder of 2019. In the first quarter of 2019, we successfully refinanced our $1 billion line of credit. The refinanced ABL, which is secured by substantially all our fleet and certain other assets will mature in March 2024. Our leverage ratio decreased to 4 times in the quarter, down from 4.2 times at December 31, 2018 and from 5 times at December 31, 2017. This strengthening of our leverage ratio since 2017 is due to debt reduction and increased adjusted EBITDA.
We continue to balance our long-term leverage goals with the current demand environment and anticipate that our leverage ratio will be in the range of 3.5 to 3.7 times by the end of 2019. As Kelly mentioned, this level of leverage provides us with considerable flexibility in our cash allocation approach, including investing in CapEx to grow the business, strategic M&A and return of value to shareholders through dividends and treasury share repurchases. Interest expense of $10.8 million for Q1 '19 increased $1.2 million from the prior period -- from the prior year period. This increase is due to a higher effective interest rate on our ABL, partially offset by an overall decrease in debt outstanding.
The average interest rate applicable to our ABL during the quarter was 4.1%. For the remainder of 2019, we expect to continue to reduce our total debt balance, as we pay down on the ABL, especially in the back half of the year. We expect this decrease in the ABL will be somewhat offset by new finance leases. These very good first 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 markets. In addition, our capital structure provides flexibility for strategic use of the strong free cash flow that we have generated for the past 45 quarters.
With that, I will return the call to Eric. Thank you very much.
Erik Olsson -- Chief Executive Officer
Thank you, Van. The 2019 expectations for Mobile Mini that I outlined in our fourth quarter 2018 call remain in effect. Specifically, we expect our rental revenue growth to exceed our evergreen targets, increases will be generated by focusing on our national sales, augmented by growth at local and regional level. This anticipated growth encompasses all core businesses, except the UK. As a result of the increase in revenues and consequent margin expansion, we expect to generate healthy levels of free cash flow, which we expect to use to delever potential M&A activity and shareholder returns. We also expect to increase our return on capital employed, which has meaningfully improved over the last year.
I will now turn the call over to the operator for instructions on the Q&A. Thank you very much.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. (Operator Instructions) Our first question comes from the line of Scott Schneeberger from Oppenheimer & Company. You're now live.
Scott Schneeberger -- Oppenheimer & Company -- Analyst
I guess starting off, the -- obviously, a very strong quarter and there is some discussion in the press release of pending orders up year-over-year. So as we move into the second quarter, it sounds like business conditions are strong. And Eric, I'm speaking specifically to storage solutions. We saw a weak ABI in March, it may or may not have been associated with some weather. Could you just give us a little bit more discussion of what you're hearing from customers about storage demand for the upcoming year? Thanks.
Erik Olsson -- Chief Executive Officer
So yes, we -- I think that the ABI number is in all likelihood just a blip or a one-off. We see very strong end markets, as evidenced by both our order intake as well as the pending orders that we track on the storage side and the pipeline is also very good on the tank and pump side, I should add. So, we are going into the second quarter here in a very strong fashion.
Kelly Williams -- President and Chief Operating Officer
Yes. Scott, this is Kelly. I would just add that in terms of how we view the opportunity dodge, construction starts (ph) to really our measurement there and we show Q1 to be about 2% up over prior year. And that's a big marker for us there and I think if you look at not only our units on rent for Q1, but obviously the positive pricing and new units going on rent pricing there, you can see that we've got some significant tailwind heading into Q2, along with those pending orders.
Scott Schneeberger -- Oppenheimer & Company -- Analyst
Thanks. And obviously that gives you a bit of a -- with this demand environment, gives you a little bit of leeway on pricing. So keeping it still specific to the storage solutions segment, it was a nice quarter in pricing. Are you looking to balance volume and pricing still, maybe a little bit more pricing. We saw good EBITDA flow-through margins in the quarter and just curious a, on pricing, how you're managing that strategy and then b, with such a strong flow through in the first quarter and we know what your target is an evergreen model, how should we think about incremental margins over the remaining three? Thanks.
Erik Olsson -- Chief Executive Officer
So we always try to balance rate versus volume. Obviously, we want to have both. And I think we do a good job of that, but we like to stay, we've said for a long time now, that 2% to 3% rate increase is something we want to have at all times. And then, excuse me, and then we will take the volume that comes with that.
Kelly Williams -- President and Chief Operating Officer
Yes. And again, this is Kelly, I would just add that as you look at the business mix on the portable storage side, we've gone and we've talked about this the last several quarters, but our national account business is up to about 36%. We actually saw rate increases of nearly 2% on national account business as well. So as that mix shifts, we continue to look at increasing rates there as well. We know it's the largest opportunity to force to improve flow-through. So it's -- as Eric mentioned, it's really always a balance for us and I think we've done that fairly well.
Erik Olsson -- Chief Executive Officer
And to answer your last question, we expect a healthy flow through also in Q2.
Scott Schneeberger -- Oppenheimer & Company -- Analyst
Excellent, thanks. One more if I may and then I'll turn it over. Could we just address the pricing discussion in the tank and pump segment? Obviously, I think I heard Kelly, you say that you're pretty well ramped up on the MSA contracts at this juncture, there's still some incremental sales to those customers you could make, but pretty well ramped. How should we think about that segment overall in the pricing contribution over 2019? Thanks.
Kelly Williams -- President and Chief Operating Officer
Yes, so it's obviously on the contract customers. It's difficult to get rate increases until we get an expiration of a current contract and I think that's where we certainly look to leverage EnviroTrack and our technology today to be able to add value there and get rate increases. But, I think more importantly is outside of that in the spot market, those smaller and mid-sized customers, we're certainly looking to increase rates and I think, though we play very little in the upstream, I made note of this in my earlier comments, but most of that growth in the upstream is from a pricing standpoint.
So, I think we are continuing to optimize specifically on the tank and pump side, some of those areas where we have extremely high demand and anything outside of those contract customers, we're certainly doing that I think to the mid to high single-digits is where we've discussed and I think that's something you should -- we can continue on as we progress throughout the year.
Scott Schneeberger -- Oppenheimer & Company -- Analyst
That's great. I'll turn it over. Thanks.
Operator
Thank you. Our next question comes from the line of Marc Riddick from Sidoti. You're now live.
Marc Riddick -- Sidoti -- Analyst
Hey, good morning.
Erik Olsson -- Chief Executive Officer
Good morning.
Marc Riddick -- Sidoti -- Analyst
I wanted to touch a little bit on the commentary around the orders -- the remodel orders from national retailers. I was wondering, if you could give a little bit more color around that? And then, what that might do for the company relative to what you would normally be seeing from the standpoint of preparation or visibility and how that can sort of shape how you'd plan for the next few months?
Kelly Williams -- President and Chief Operating Officer
Yes, sure. Marc, this is Kelly. So first of all, I think we talked last year for the first time a lot about these big-box retailers and the remodels they were going through, and we really, I would tell you that that's the Amazon effect. I mean, really what they're looking to do is enhance the in-store experience to get people out from behind the computer and in to the store and some of the largest remodelers have -- or retailers have done a really great job with that. So we saw huge and actually historic orders last year in the early half of 2018 in terms of remodels. That pending order pipeline we talked to you about is our visibility into those opportunities and even though we were down Q1 year-over-year in terms of activations, it's still a very strong opportunity for us and we've isolated those opportunities with those largest retailers. We continue to see these remodels go with these national retailers on a fairly consistent basis.
But when we talk about the pipeline of orders in the future, that's exactly what we're talking about, a significant amount of that is in those remodels opportunities and a lot of that, where we've been able to leverage is our national account program where we've been able to really get that focus at a higher level in the organization, centralize the decision making process and take advantage of that. So, I would tell you that it's -- it may not be quite as robust as last year, but we're still certainly focusing on that and taking advantage of it and that's what you see in the pending orders.
Marc Riddick -- Sidoti -- Analyst
Okay, great. And then I was wondering if we could also follow up a little bit on some of the commentary around opportunities on the yard operations that were mentioned and sort of how some of the technology can benefit there and maybe some of the things that you're looking at accomplishing in the next few months to improve those efficiencies? Thanks.
Kelly Williams -- President and Chief Operating Officer
Yes, sure. So, several different things. I think one is, if you look at how we exited the impairment, we were able to exit significant amount of real estate. We have made significant headcount reduction in terms of our yard employees and that's with higher volume levels. So I think you can see the efficiency there being driven post-impairment in terms of how we look at that.
And in terms of technology, I think we've talked a lot about mobility. I think that's our biggest opportunity there in terms of not only enhancing the customer's experience, but also improving efficiency in the yard. Our drivers for instance now have the ability through a handheld device to activate the unit, which in the past, it would have taken an office administrator nearly an hour at the end of the day to upload or to activate all these contracts and our drivers are able to do it with a mobile device. So there is significant savings there as much as an hour to administratively on a daily basis. So technology continues to play a huge part in our company evolving to the next level and I think you see a lot of the optimization and efficiency driven through the flow through and -- that you see in Q1.
Marc Riddick -- Sidoti -- Analyst
And then one last one from me, I know we've talked about in the past, some of the areas that you would like to add. I was wondering what your views on sort of where you are with driver count availability, do you guys need more or what are we looking at there from a labor standpoint? Thank you.
Kelly Williams -- President and Chief Operating Officer
Yes. So we have more drivers actually than we have in the history of the company and some of that's through the growth, but I also think that we've got a tremendous culture here and a bonus program that has every full-time employee that's aligned to the branch's performance. And so I think we bring in that cultural piece where the driver feels like they're part of the branch and we've been able to retain them at a higher level. It's clearly a challenge out there. I think everybody knows that. But we continue to assess the -- where the appropriate wage should be. And I think with this bonus program, that certainly helps us but we've actually had -- today have more drivers than we've had in the history of the company and that's been some -- a trend that we've had probably for the last 8 or 10 quarters. Some of that through growth, but some of that just through, I think, the ability to retain them based on the progress the company is making.
Marc Riddick -- Sidoti -- Analyst
Okay, great, thank you very much.
Kelly Williams -- President and Chief Operating Officer
Thank you.
Operator
Thank you. Our next question comes from the line of Sam England from Berenberg. You're now live.
Sam England -- Berenberg -- Analyst
Hi guys. Just a couple for me. Firstly, I was wondering if you're seeing any regional variations in demand at the moment linked to that way you think capital investment is likely to be focused over the rest of the year?
Erik Olsson -- Chief Executive Officer
So, on a regional basis, we don't really see any difference. We see good markets across the board, UK being an exception of course. So, the answer to that is, no. And well, what's your your second question? I couldn't really hear.
Sam England -- Berenberg -- Analyst
It was just where, I suppose, capital investment is likely to be focused over the rest of the year, so from a regional perspective?
Erik Olsson -- Chief Executive Officer
So, I think it's fairly well spread out here in the US, there would be very limited CapEx going to the UK again for obvious reasons. There will be some CapEx going to the tank and pump segment, of course, also to continue to support their growth, they're highly utilized at the moment. So, some of it will go there as well and then some rolling stock as Van mentioned.
Van Welch -- Executive Vice President and Chief Financial Officer
Yes. And Sam, this is Van. One of the things on the China units that we were talking about, one of the advantages there is that we're able to manufacture those obviously in China and ship them to various ports of entry that are closest to the demand that we're seeing for those particular units. So we don't -- we're saving money basically on freight costs associated with those units.
Sam England -- Berenberg -- Analyst
Okay, great. And then just on the leverage side, and with your leverage guidance, I just wondered if there is any change to how you're thinking about a longer-term leverage target and capital allocation, now you're pretty much approaching the evergreen target?
Erik Olsson -- Chief Executive Officer
So I think the -- as the evergreen target says, means that it is sort of a long-term objective and our objective is to be under 4 times, and we are basically there. So, we don't change. We're not going to change what we're doing. We will continue to invest in organic growth. We look opportunistically at M&A and then of course we'll also look now to find if there are ways we can also return more money to our shareholders.
Sam England -- Berenberg -- Analyst
Okay, great. Thanks very much.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Kevin McVeigh from Credit Suisse. You are now live.
Kevin McVeigh -- Credit Suisse -- Analyst
Great, thanks. Hey, I wondered if you could just give us a sense how we should think about kind of the utilization rates across storage solutions and then tank and pump kind of given where they are, where they could potentially go to particularly given, Van, some of the investments you're making in some incremental capacity coming online.
Van Welch -- Executive Vice President and Chief Financial Officer
Yeah. I think on the utilization side, we certainly finished the quarter with a higher utilization than the average utilization that we achieved. So, there is still some room obviously in moving that utilization up. That's certainly one thing that we look at when we make capital additions is where utilization is, one, also where radius, two. So we're pushing rate up along with that utilization.
Erik Olsson -- Chief Executive Officer
I think, Kevin, when you look at our utilization, it's obviously an average across all the branches and regions and the two business lines. Tank and pump is, they're above 75% utilized right now, and they are fairly concentrated to the Gulf area, which means that they are at max. The characteristics of that business means that the 75 plus percent is max. On the storage side, we are 78% or so I think in the quarter.
That, like I said, it's an average. It means that we have branches and regions in the high-80s and some even in the 90s and that's well beyond max capacity and that's where our CapEx goes. We like to think that mid-80s is max utilization for the storage side, so, I hope that helps.
Kevin McVeigh -- Credit Suisse -- Analyst
It's very helpful. And then just, obviously real nice incremental margins, particularly in the storage. Is that primarily the pricing and the utilization or is there anything else at work here. I mean it sounds like you alluded a little bit about some of your operations' optimization, is that -- some of that at work as well? And what can that mean to the margin longer-term from optimization of kind of footprint within the order if you would?
Erik Olsson -- Chief Executive Officer
So, I think the main efficiencies we saw in Q1 on the yard operations comes from the Solstice project, the impairment and the write-offs of assets we did in the second half of last year and we said that as a result, we'll be able to exit both yards as well as be more efficient on our yards. So, we saw about 1.5 million of savings from that in the quarter and we expect that to continue through the year.
The other initiatives that we're talking about on the mobile apps and et cetera that we're working on, we haven't really seen the full effect of that yet, because those changes do take time to implement over -- across 150 branches and identify the cost that we can take out. So that I think will support margin expansion over the next coming years really and it's not a short-term thing that we will see immediately, but we will see steady efficiency improvement as we move forward.
Sam England -- Berenberg -- Analyst
Fantastic, thank you.
Operator
Thank you. Ladies and gentlemen, there are no further questions in queue at this time. I'd like to turn the floor back over to management for closing.
Erik Olsson -- Chief Executive Officer
Yes, thank you very much everyone for listening in on the first quarter call. We look forward to reporting back to you on our second quarter. Thank you very much.
Operator
Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation and have a wonderful day.
Duration: 41 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 & Company -- Analyst
Marc Riddick -- Sidoti -- Analyst
Sam England -- Berenberg -- Analyst
Kevin McVeigh -- Credit Suisse -- Analyst
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