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Mobile Mini Inc  (NASDAQ:MINI)
Q2 2019 Earnings Call
Jul. 25, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Mobile Mini 2019 Second Quarter Conference Call. [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 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 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 and Director

Good afternoon, everyone, and welcome to Mobile Mini's second quarter 2019 conference call. I am Erik Olsson, Mobile Mini's CEO. And with me today are Kelly Williams, our President and COO and Van Welch, our Executive VP and CFO. So thank you for joining us for what is going to be my last earnings call as CEO of Mobile Mini. As you know, we made an exciting announcement two months ago on October 1, Kelly will become CEO and President, and I will become the Chairman of Mobile Mini's Board of Directors. Kelly is an exceptional leader and has been instrumental in driving Mobile Mini's success. Kelly and I have navigated our strategy together for years, and I look forward to continued collaboration with him in our new roles.

So in the second quarter, we've continued to build on the momentum generated over the last several quarters, as can be seen in the strong results we just reported. 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. The similarities of these products drive synergies in both our top line growth and our operating costs, allowing us to leverage our sales efforts, our national footprint and our expertise in asset management. We command premium rates by servicing our customers with high-quality products, high levels of customer service, a large sales force and increasing the use of technology, including MMConnect and Envirotrack. We will continue to develop tools and apps to help our customers make their business more productive and profitable.

The technology platform also allows us to operate more efficiently internally. Several mobile and digital initiatives have started around yard operations and results are starting to emerge, as can be seen in our margins. And these initiatives will support further margin expansion in the years to come. We also think outside the box to provide value to our customers as demonstrated by our recently introduced managed service concept, where we assist customers in getting project sites quickly up and running by supplementing our products with other third-party reramp their products as a one-stop shop.

This ongoing commitment to innovation is how we maintain our competitive advantage and leadership in products, market coverage, technology and customer service. We do this in order to achieve our Evergreen targets, which are 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 the debt leverage below 4 times. These targets should be viewed as averages over a cycle and will be revised as and when we start to meet these numbers consistently. The Evergreen targets capture our strategic objectives, and we reached or made significant progress toward all of them in the quarter.

Through our solid fundamentals, we continue to drive shareholder value with strong cash flows and great returns, including healthy increase in return on capital employed, reaching 9.5% this quarter, which is above our cost of capital. The economic environment for our US end markets, which represents 87% of our business, continue to be positive during the second quarter. And based on our assessment of current 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 related to the outcome of the Brexit process continues to be a drag on business investments. However, our UK business still managed to generate rental revenues in local currencies only slightly below last year. And this is a testament to the resiliency and strength of our model, regardless of where we are in the cycle.

Of note, Mobile Mini has now had 46 consecutive quarters of positive free cash flow. One of the strengths of our business model is that cash flows, while healthy during all phase of the cycle, are countercyclical 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 following the Brexit vote. As a result, the free cash flow generated in the UK during the 12 months and the June 30, 2019 as well as the full year 2018 were both more than double the free cash flow for 2017. So, as you can tell, we are very pleased with the performance this quarter and the position and platform we've built to continue to grow and improve the business, executing on our strategy.

I will now turn the call over 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, Erik and good afternoon, everyone. I'm Kelly Williams, Mobile Mini's President and Chief Operating Officer. Before I begin, I want to take this opportunity on behalf of the Company to thank Erik for six years of tremendous leadership, as he transformed the organization with cultural values and beliefs that live within each of us at Mobile Mini today. Erik's commitment to our employees, our customers and our shareholders as well as his constant quest for continuous improvement has put the Company in a great position to continue to prosper. I would also like to personally thank Erik for his mentorship and guidance over the course of my career. Our roles are changing, Erik, but I'm excited to continue working together in this next chapter of Mobile Mini's success.

Now let's talk about the quarter. We continue to see solid operational and financial performance from all of our business segments in the second quarter of 2019. We'll get started with Tank & Pump solution, who continued its strong rental revenue growth, increasing 16.3% year-over-year for the quarter, due to volume, rate as well as higher trucking and service revenues. Rates for Tank & Pump continue to increase throughout the quarter, with year-over-year rate increases in mid-single digits. Average OEC fleet on rent went up 12.9% year-over-year, while average OEC utilization was 73.5%, which is at the top end of our optimal range for Tank & Pump. Downstream revenues, which comprise the majority of our Tank & Pump business, increased 15% year-over-year in the second quarter. MSA signed at the end of 2017 have reached full run rate. However, there remains the potential to increase our share of business with these large customers as we expand into their other facilities under the national MSAs.

We continue to invest in our differentiated digital solution Envirotrack, which incorporates gauging fluid levels as well as GPS tracking to create better visibility for our customers to manage costs and meet regulatory requirements. We believe there's still opportunity to optimize our upstream business, having aligned ourselves with the more stable blue-chip customers, though it remains a very small portion of our business. We have not made further capex investment in this space. The remainder of our Tank & Pump revenue comprise mainly of midstream and other end markets, like infrastructure, municipalities and environmental, had a noticeable year-over-year increase in the second quarter, mainly from solid sales execution in this market.

In Storage Solutions, we achieved strong utilization of 76.4% for Q2 2019. This is up from 69.3% prior year Q2. North America utilization improved year-over-year from 67.4% to 75.7% in Q2 2019. And the UK utilization increased from 78.3% to 80.4%. We also achieved healthy rate increases in our storage business. Composite rates were up 3.4% year-over-year, with rates on newly placed units up 4.4%. North America storage continue to perform, driven by solid execution and sustained broad-based demand. Rental revenue increased 7.1% year-over-year for the second quarter, driven by rate as well as trucking and other rental revenues. North America core rental rates were up 3.6% year-over-year, with rates on newly placed units up 4.7%.

Activity was healthy for the majority of our North American end market customers, most notably construction, industrial and commercial. Each segment was up in Q2 2019 versus last year, and our construction source, Dodge, shows that project starts are up to prior year as well. This is in alignment with our pending orders pipeline, which continues to trend up on a year-over-year basis. National accounts in North America storage continues to be the focus for the business, as national account activations were up on a year-over-year basis. More than 30% of Q2 '19 revenue for North America storage came from national accounts, as we continue to have a very strong pipeline of orders in national accounts. Managed services continue to gain traction. Customers are recognizing our value proposition as a one-stop shop solutions provider for their additional rental products that complement core container and ground-level needs. Our efforts to build out this business continue. Activations are growing and since these are [Indecipherable] transactions, increased managed services contributes to further improvements in our return on capital.

As for the UK storage business, in local currency, rental revenue in the second quarter was resilient, down only 1.8% on a year-over-year basis despite a very tough period for the end market. To note, fewer units on rent was partially offset by strong rate growth and an increase in ancillary revenue. UK rental rates increased 2.3% year-over-year and 3.4% for rates on new units placed on rent.

Next, I want talk about our capex strategy that we've been executing this year. Leveraging our expertise in asset management and logistics, we changed our fleet purchasing strategy this year to lower costs and improve yard efficiency. Traditionally, we refer secondhand containers purchased at US ports, transported them to our regional locations for customization of premium doors and patented locks and further transported them to branches. This year, we had new units custom made in China before these finished boxes were shipped to specific various US ports and then transported to our branches to meet near-term demand. 95% of these China boxes have landed for 2019 as of June 30.

This capex strategy saved us more 5% on our overall acquisition costs in 2019 versus 2018 due to volume discount as well as lower transportation and labor costs. We redeployed our labor away from customizing boxes toward focusing on unit repairs. In the process, we reduced our parts inventory by approximately $2 million or more than 20% on a year-to-date basis and improved working capital. This is just one of the initiatives we're executing this year to further improve our financial performance.

As for Tank & Pump, we continue to purchase units in areas that experience higher demand. We target purchases of units that we will place on rented optimal prices to maximize our returns. Additionally, very pleased to report that customers continue to be view Mobile Mini's products and services as world-class with overall Net Promoter Score of 86.7%, which is up year-over-year and a Customer Effort Score of 9.4, signifying we remain easy to do business with.

Mobile Mini's operations are stable and profitable. This allows us to be disciplined with our free cash flow to focus on both returning value to shareholders via dividends and deleveraging at the same time. We're now below our Evergreen target leverage of 4 times, which provides us more operational flexibility to invest in our business. We are in the growth stage now, so we are considering strategic M&A opportunities in both business segments to ultimately create value for shareholders.

I will now hand over the call to Van to discuss the financial results of the second quarter.

Van Welch -- Executive Vice President and Chief Financial Officer

Thank you, Kelly, and good afternoon, everyone. Beginning with revenue, in constant currency, we had a solid 7.6% total rental revenue increase compared to Q2 2018. In Tank & Pump Solutions, we marked the seventh consecutive quarter of year-over-year rental revenue increases, posting organic growth of 16.3%, including growth in both rates and average OEC fleet on rent. So our solution rental revenues were up 5.4% year-over-year in constant currency. Rental revenue grew 7.1% for North American Storage Solutions, driven by increases in rates, trucking and other rental revenues such as managed services.

In the UK, rental revenues were down 1.8% year-over-year in local currency. A decrease in average units on rent during the current quarter was partially offset by strong rate increases as well as growth in ancillary activity. Turning to profitability, our adjusted EBITDA was $56.9 million for the quarter, and our margin was 37.9% for Q2. Storage Solutions' adjusted EBITDA of $45.3 million increased 10.3% from the prior year, 11.2% in constant currency, and the margin was up 240 basis points to 38.6%. The adjusted EBITDA growth and margin expansion were driven by our North American business. Adjusted EBIDTA for Storage Solutions in North America increased 14.8%, and the margin expanded 310 basis points to 40.4%.

Tank & Pump Solutions' adjusted EBITDA of $11.6 million was up 30.1% compared to prior year, with a 410 basis points increase in margin from 31.2% in Q2 '18 to 35.3% in Q2 '19. Notably, the adjusted EBIDTA margin for this segment has been steadily increasing since the fourth quarter of 2017. Rental, selling and general expenses increased $2.1 million or $2.9 million in constant currency compared to Q2 last year. Decreased short-term variable compensation expense of $2.2 million was offset by increased payroll and cross-hire costs related to higher rental and trucking activity.

Adjusted rental, selling and general cost as a percentage of total revenues were down 200 basis points compared to the prior year quarter. Stock compensation expense in Q2 was up slightly compared to the prior year quarter. We expect this expense to decrease slightly in the back half of the year. Our adjusted effective tax rate for Q2 '19 was 26.7% compared to the prior year tax rate of 19.1%. The prior year reflects reductions in state tax rates in response to the federal tax reform and other discrete items. We expect an adjusted effective tax rate of approximately 27% for 2019. We do not expect to pay meaningful US federal cash taxes until at least 2022, due to our NOL positions.

Net cash provided by operating activities in Q2 was a company record of $61.8 million, an increase of $26.7 million year-over-year. The increase was driven by decreased working capital along with increased revenues and profitability. The decrease in working capital related largely to reduce accounts receivable resulting from lower DSO. Free cash flow was $38.7 million in Q2 2019 compared to $11.7 million in Q2 '18. Total net capital expenditures, which includes both fleet and PP&E were similar in both quarters.

During the second quarter, we had net fleet capital expenditures of $19.7 million, of which $13.7 million was for North American Storage Solutions and $5.4 million related to Tank & Pump Solutions. As we've discussed in the past, fleet purchases are demand driven, with the expectation that the fleet will be placed on rent in the near term at optimized rates. Due to the nature of our business, replacement capex requirements are minimal, and our fleet additions are to meet anticipated growth. As noted in our Q1 conference call, 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. Should demand differ from what we anticipate, we will increase or decrease our capital expenditures accordingly.

Rolling stock such as forklifts, trucks and service vehicles is chiefly obtained through finance leases. Through June 30, 2019, we have acquired approximately $6 million of rolling stock via finance leases, and we expect to acquire approximately $19 million to $22 million of equipment for the full year, mainly to refresh existing rolling stock assets. We expect the majority of this refresh to happen in Q3 to support the seasonal uptick. We anticipate Q3 and Q4 depreciation expense to be flat or slightly down compared to Q2. Changes in overall asset mix are expected to more than offset the additional depreciation on the newly acquired rolling stock and rental fleet.

Due to debt reduction and increased adjusted EBIDTA, during the second quarter of 2019, we delevered to 3.8 times, down from 4.2 times at December 21, 2018, and from 5 times at December 31, 2017. Also there in Q2, we opportunistically purchased $10 million in treasury shares. We continue to balance our long-term leverage goals with the current environment and anticipate that our leverage ratio will be in the range of 3.4 times to 3.6 times by the end of 2019. This anticipated level of leverage provides us with considerable flexibility in our capital allocation approach, including investing in capex to grow the business organically, strategic M&A and return of value to shareholders through dividends and treasury share repurchases.

Interest expense of $10.6 million from Q2 '19 increased approximately $500,000 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 average debt outstanding. The average cash interest rate applicable to our ABL during the quarter was 4%. Driven by a very healthy free cash flow, we expect to continue to reduce our total debt balance for the remainder of 2019, as we pay down the ABL. We expect this decrease of ABL will be somewhat offset by new finance leases for rolling stock.

Before I return the call, I want to echo what Kelly said. Erik, it's been a great pleasure working with you and being part of your management team. As an employee and an investor, I appreciate everything you have done to transform Mobile Mini into the company it is today.

With that, I will return the call to Erik. Thank you very much.

Erik Olsson -- Chief Executive Officer and Director

Thank you, Van. The 2019 expectations for Mobile Mini that I outlined in our fourth quarter 2018 call and reiterated in our Q1 2019 call remain in effect. Specifically, we expect our rental revenue growth to exceed our Evergreen targets. And as a result of the revenue growth and consequent margin expansion, we expect to generate robust levels of free cash flow, significantly over the $73 million of free cash flow we generated in 2018. We will use this cash flow to delever potential M&A activities and for shareholder returns via dividends and/or treasury share repurchases.

Consequently, we expect to further grow our return on capital employed, which has already meaningfully increased over the last year. So Mobile Mini is today a very different company than when I first joined in 2013. Since then, we've changed almost every facet of the company in a comprehensive turnaround from the strategy, leadership at all levels, technology, asset management, logistics, processes, and so on. It's been a lot of hard work by many, but I'm proud to say that we never lost track of Mobile Mini being a growth company, and I'm very pleased that during this period of major change, we have posted a 9% revenue CAGR.

Mobile Mini now possesses a focused business model and a culture of continuous innovation that creates value for our customers and differentiates us from our competitors. Our fundamentals today are strong, including a solid infrastructure and more efficient processes than ever before, driving a return on capital above our cost of capital and thus creating economic value.

I'm looking forward to be transitioning into my role as Chairman of the Board, following a record year 2018, with another strong year well under way. I would like to personally thank the dedicated employees of Mobile Mini. The executive team had vision for this company and Mobile Mini employees have delivered. And on a personal note, I want to say thank you to the investment community for your interest in and support of Mobile Mini during the years I've served as CEO.

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, sir. [Operator Instructions] Our first question comes from Scott Schneeberger with Oppenheimer and Company. Please state your question.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Thanks very much. Good afternoon, everyone. Erik and Kelly, congratulations to you both and obviously our best wishes in the new role where we won't get to hear you as much on this call. The quarter certainly looked pretty good. I wanted to start out by talking about the pricing environment, which looked good across both segments. I want to know what to expect going forward in each, if you could address that a little bit, please?

Kelly Williams -- President and Chief Operating Officer

Yes. Sure. Scott, this is Kelly, and thank you very much. So I think as we've talked about, pricing is at the very top of our list in terms of our approach operationally, the discipline that we have and wanting to expand margins, this was a really solid quarter really on both sides. So I think what you've seen over the last several quarters on the Tank & Pump business is mid-to-high single-digit rate increases. I mean that's been several quarters in a row, and I'd expect something very similar. I think that discipline with both volume and price is certainly there in the business today, and I would also tell you that as you look at the portable storage business, what you've got is a little bit of a mix of volume and price, and we always look at the balance there in terms to rental rates.

So I don't think that 3% has always been a number that we've had internally as kind of a guide, an expectation. I think we -- oftentimes, we'll take bigger chunks of national account deals that might increase volume and lower rental rates a little bit. But at the same time, the expectation is right around 3%, and I'd say that's a pretty good number to look forward to.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Thanks, I appreciate that, Kelly. The utilization in the storage segment was a little bit lower than I expected. I suspect that has something to do with the taking on of the Chinese assets in the quarter, but could you or Van elaborate a little bit more on what occurred there, because clearly the P&L metrics look good regardless.

Kelly Williams -- President and Chief Operating Officer

Yeah I'll take that again, Scott. I think what you have is exactly that. We talked about the cost savings that came with the new units custom made in China, and I think that acquisition cost is a true benefit to the organization. That's about 3,000 units that landed, and a majority of all of them have landed right now as well. So we'll utilize those. The peak time, as you're aware of, is late Q3 and early into Q4. That's still a demand-driven purchase. Our capital decisions are certainly based off demand. But we got a great opportunity here to get those assets a little bit earlier, and I think you're going to -- that utilization will certainly continue to creep in Q3.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Thanks. One more for me, and then I will turn it over. It was a -- that first quarter was incredibly strong with regard to incremental EBIDTA flow through margin, and we saw second quarter now match that. You could literally put up just 35% in the back half of the year and meet your target, and you do have tougher comps in the back half of the year, but it looks like business conditions are very good. So I mean, clearly, we're -- we're in gravy now here. Should we look for a particularly strong deceleration against these tough comps? Or do you think that you can still put up some pretty nice incremental margins in the back half? Thanks.

Erik Olsson -- Chief Executive Officer and Director

Hi, Scott. This is Erik. Let me jump in and say, I think we're going to see continued strong flow through in the back half to this year. And part of that reason is that we have -- we're sort of rebalanced finally on the -- on our bonus accruals that haunted us last year. So that's a benefit to us this year. So while we will post very, very strong flow through in 2019, it will go back and normalize little bit more next year.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Erik, on that just as a follow up, what would normalize be? I don't want to force you to put a guidance out there on an out year that you don't want to do, but just could you elaborate a little bit more on that? Thanks.

Erik Olsson -- Chief Executive Officer and Director

Yes. Well, so the normalized level, what we have in our Evergreen model is 60% flow through. We are reviewing that now as we continue to grow strongly in some businesses that have slightly lower flow through. So -- but for now, the 60% is what it is.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Excellent. Sounds good. Thanks guys.

Erik Olsson -- Chief Executive Officer and Director

Thanks, Scott.

Operator

Our next question comes from Kevin McVeigh with Credit Suisse. Please state your question.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Thank you and let me extend my congratulations to both of you as well. Hey, so looks like you're doing a nice job with the utilization in the UK despite kind to the uneven fundamentals. Is that just taking capacity down or what's kind of driving that utilization?

Erik Olsson -- Chief Executive Officer and Director

I think the main reason is that we were very quick to turn off the capex spigots over there. As soon as we had the results of the vote, we started to pull back capex. And as a result, we've been able to maintain a very high utilization over there. So it's really our doing, I should say. And as you may have noted or heard here on the call, we have actually managed to drive up rates this year in the UK as well, so which has not really impacted the utilization despite the tough end markets.

Kevin McVeigh -- Credit Suisse -- Analyst

I see that. And then just in terms of the ancillary services, any sense of how much as a percentage of revenue that can be today? And as you think about the traditional Evergreen model, would that be additive to that from a revenue perspective or would that be an offset to something else and potentially where can that go to?

Erik Olsson -- Chief Executive Officer and Director

It's still in its embryo here, so it doesn't really impact the revenue target or growth target. Like I said on the earlier question here, it may have as it gets -- if it grows stronger or bigger here, then it may have an impact on flow through as the margins aren't 60% on that business. But the flip side is that there's no capital invested on our side, so the returns are astronomical.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes. To give you an idea, Kevin, on the managed services front, it's in the queue, but I know you haven't seen it yet, but the Q2 revenue is about $1.7 million for managed services and for the year, it's about $4.1 million and that compares to about $1.3 million in the year-to-date 2018. So there is some growth there.

Kevin McVeigh -- Credit Suisse -- Analyst

Super, thank you.

Operator

Thank you. Our next question comes from Justin Hauke with Robert W. Baird and Company. Please state your question.

Justin Hauke -- Robert W. Baird and Company -- Analyst

Good evening everyone, I guess this one will be for Van, but one of the other strong points this quarter was the free cash flow. And I know you called out the DSOs coming down. I guess kind of a two part question on that. One, do you have an explicit free cash flow target for the year, or is there anything we should think about in the second half that would be reversal on the working capital? And then two, the leverage target that you have, you took it down a little bit to 3.4 to 3.6, is there any assumption of any incremental buybacks in there or is that -- would that be on top of that?

Van Welch -- Executive Vice President and Chief Financial Officer

Yeah, first, Justin, on the DSO, as you know, we've talked about work that's under way to improve our processes around DSO and decrease our delinquent accounts. We really saw that bear fruit in Q2. The DSO was about 67 days in Q2. That's down about nine days from the same period, if you look to Q2 '18 and down about five days from the end of the year. So we're certainly making progress on that. I don't think we're done yet in terms of improvements, but we certainly made some headway this quarter.

On the free cash flow front, as I mentioned, the capex is going to be lower in the second half of the year than the first half to the year. That's obviously going to be a benefit in terms of free cash flow. We're going to have the benefit of the seasonal activity obviously in Q4. So we're looking at continued very strong free cash flow performance for the year, which is what's driving the leverage ratio that we talked about on 3.4 to 3.6. As Kelly mentioned and I mentioned, it does give us a lot to flexibility in terms of that low of leverage to do many things in terms of capital allocation. One of those is share repurchase, which is something that we're going to continue to look at going forward.

Justin Hauke -- Robert W. Baird and Company -- Analyst

Okay. Thank you, and then I guess the next question will just be a little bit more on the pricing. Just was there anything that was one time about it in terms of maybe a big roll-out or something like that? Or was this a broad-based initiative where you were able to get the pricing to take this sequential uptick here?

Kelly Williams -- President and Chief Operating Officer

Yes. I -- Justin, this is Kelly. I would tell you, that's pretty much an expectation. I think I go back to the fact, as we've increased the National Account business on really on both side of the business, that volume increase at times can come with a slightly lower rate -- discounted rate there, and I think that's what you see when we -- we always look to balance that volume and price conversation. We look at rental rates as a local decisioning factor, and I think that the field does an outstanding job. When you start to drive more national account business, it becomes a little bit more volatile, but I think even on our low end, you would see it in the low to mid-2s. And as you see a little bit less volatility around national accounts, which again has been a big boost for us, you some increased pricing. So I think that's what you're seeing, it is just the kind of a mix and it shifts periodically between lower-2s and mid-3s and I think our new in North America on the storage side was 4.7, the highest we've had in several years, but that's not uncommon. I think the rate discipline around the organization today is far better than where it's been. But I would tell you that it's always going to be somewhere between the 2, 2.5 to 4 range.

Justin Hauke -- Robert W. Baird and Company -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from Sam England with Berenberg. Please state your question.

Sam England -- Berenberg -- Analyst

Hi guys, just a quick couple for me. The first one, you commented on the strength in pipeline heading into the second half of this year. I was just wondering, which end market is looking most promising for the rest of this year?

Kelly Williams -- President and Chief Operating Officer

Sam, this is Kelly. I actually -- I made note in my earlier remarks that all end markets are fairly strong. I mean when you look at construction, maybe mentioned this earlier, the Dodge is our construction lead generation source. We see project starts continue to be ahead to prior year, the trends are very good there. I think certainly on the retail side, it's a more challenging environment. But again, because of our presence with national accounts and some to that involvement over the last couple of years that we still see that as a very solid end market on the storage side.

And oil and gas, the upstream is certainly a little bit more volatile, but to keep in mind on the tank side that, that is a very, very small piece of our business, less than 2% overall in terms of revenue in the company and somewhere around 10% on the tank side. The downstream remains very, very strong. So I don't think we have any indication of a slowdown. I think we're optimistic on really on all end markets right now. I would tell you, retail might be that one piece that's a little iffy or a little slower, but we've done such a nice job at the national account group that we continue to gain share there.

Erik Olsson -- Chief Executive Officer and Director

Yes. And our -- speaking of retail, just to add to what Kelly said, our seasonal business is shaping up to be another good year, so certainly from that point of view, we -- retail is doing the same as they did last year.

Sam England -- Berenberg -- Analyst

All right. Thanks. Then the second one was on Tank & Pumps. You saw a bit of a decrease in utilization year-over-year. I just wondered whether there was any change in mix toward some of the higher value equipment that meant you were able to deliver such good rental revenue growth.

Kelly Williams -- President and Chief Operating Officer

So what that is, Sam, is -- quite frankly, the optimal utilization for that business is more along the lines of what we just ran in Q2, which is about 73.5%. When we run the utilization we ran last year of 75%, 76%, it's a huge challenge operationally. You start to see a little bit to margin depression and that's -- we were able to pick up by not having to reposition units, you see that really solid margin expansion. And in trucking, you see it in the flow through with that business. We saw incremental gains in just about every segment of that business. And a lot to that has to do with the fact that a more optimal utilization is more like the utilization we just ran, which is about 73%. So I would look more toward that balance of that utilization and our rental rates being in the mid-single digit number there to be in really solid and optimal numbers for us on the Tank side.

Sam England -- Berenberg -- Analyst

Great. Thanks very much. And I'll just echo the other guys and say, congratulations to both of you on your new roles. Thank you.

Kelly Williams -- President and Chief Operating Officer

Thank you.

Operator

Our next question comes from Marc Riddick with Sidoti. Please state you question.

Marc Riddick -- Sidoti -- Analyst

Hi good afternoon. Certainly, adding my congratulations for both of you as well on moving forward. I'm looking for a nice, smooth transition into the back half of the year for both of you. I was wondering if we could touch a little bit about having mentioned the debt reduction and freeing up some opportunities, we certainly saw an increase in share repurchase. I wonder if you could touch a little bit on the acquisition commentary, I wanted to see if there was any general current thoughts on what the acquisition pipeline might look like and maybe some potential targeted areas of focus that we might see going forward there. And then I have a couple of quick follow ups.

Erik Olsson -- Chief Executive Officer and Director

Yes. Mark, we can't really comment in any detail on what the acquisition pipeline is. So I mean we can say, our pipeline is quite -- looks quite good actually, and we are evaluating whether certain things make sense or not. We're not adding any third leg to the company. Any acquisition we would do would be straight down the core businesses and that's how we think about it.

Marc Riddick -- Sidoti -- Analyst

Okay. Great. And then another follow up for me is that, it's interesting because with the strength that we're seeing with the pricing now, in a way it started -- I wanted to get some thoughts, sort of tying back to when made the decisions on technology and some of the investments that were made there. So, I was wondering if you could sort to maybe give a summary as to how that's kind of evolved and where you're seeing that now, and where it could go in maybe some of the client feedback that you're getting there and how that's evolving into sort of where Mobile Mini is going. Thank you.

Kelly Williams -- President and Chief Operating Officer

Sure, yes. It's a great question. I mean technology we certainly believe is a differentiator. I could go a couple of different routes here, Marc, but I'd share with you on the Tank & Pump side, we talk a lot about Envirotrack. It's a real differentiator for us and allows us either at the midst of an RFP or an expiring RFP to leverage rental rates, because of a lot to the cost savings that we have from the system itself and I think that's a -- I do think that plays a big role. Obviously, with SAP, our reporting is better. We certainly have much better data. We're a very data-driven organization, and we do spend a lot to time looking at trends and things that can impact the business in terms of run rates in trends, and I think we also have some very strong operational discipline out there as well. We've got -- our management team is stronger than it's ever been. And so I think all of these factors add up to us being able to really drive what we put our focus in on, and rental rates is one that's really been a foundation since Erik got here. That's something that follows right behind safety in terms of how we look at sales. And it's -- that's going to be who we are, a premium price provider that offers a premium service and it comes at a premium price. And we -- I think we continue to leverage that.

Now there are a lot of other technologies, including Mini Moves I think we talked about recently and the customer portal, which gives the customer much more visibility to pay online. And all of these things are value adds, which allow us to continue to get a premium rate.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes. If you look at -- Marc, it's Van, I'll add on. In terms of the working capital management, the systems that we've put in and the processes that we've put in, not only just DSO where we're really looking at inventory, we have the means to be able to look at inventory. We've reduced that, which has helped our working capital as well and has improved our operating cash flow and free cash flow. So that's part of it as well.

Marc Riddick -- Sidoti -- Analyst

Okay, great. Thank you very much.

Kelly Williams -- President and Chief Operating Officer

Thanks, Marc.

Operator

Thank you. There are no further questions at this time, I'll turn it back to management for closing remarks.

Erik Olsson -- Chief Executive Officer and Director

All right. Thank you, everyone, for listening on this call. And again, thank you for your interest and support over all these years. Thanks.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Erik Olsson -- Chief Executive Officer and Director

Kelly Williams -- President and Chief Operating Officer

Van Welch -- Executive Vice President and Chief Financial Officer

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Justin Hauke -- Robert W. Baird and Company -- Analyst

Sam England -- Berenberg -- Analyst

Marc Riddick -- Sidoti -- Analyst

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