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Mobile Mini Inc (NASDAQ:MINI)
Q3 2019 Earnings Call
Oct 31, 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 Third Quarter Conference Call. [Operator Instructions] There's 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 Kelly Williams Mobile Mini's Chief Executive Officer I'll read the safe harbor statement. Before the presentation and 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 Kelly Williams.

Kelly Williams -- Chief Executive Officer

Thank you operator and good afternoon everyone and welcome to Mobile Mini's Third Quarter 2019 Conference Call. I'm Kelly Williams Mobile Mini's President and CEO. And with me today is Van Welch our Executive VP and CFO. I will review operational highlights and the current business environment and Van will discuss the Q3 financials. We'll then open the call up to questions. We encourage you to review the full quarterly deck providing more detailed results for your reference which has been posted to our website as usual. Let me start by saying I'm very pleased with our strong third quarter performance. This quarter demonstrates that the changes we have introduced into the DNA of the company over the last several years are producing results. Our healthy North America Storage Solutions' 6.3% rental revenue growth coupled with our focus on operational efficiencies drove a 370 basis point EBITDA margin improvement to prior year. Beginning with rental revenue we have consistently raised Storage Solutions rental rates as we have shown our customers the value of partnering with Mobile Mini. North American Storage Solutions core rental rates which excludes seasonal have increased at a CAGR of 4% since the first quarter of 2013. Rate increases contribute directly to the revenue growth and margin expansion and Q3 2019 marks the 27th consecutive quarter of year-over-year increased rental rates for North American Storage Solutions core rentals.

Our value proposition has gained and is continuing to gain traction. Our pricing process identifies areas of high demand such as for ground-level offices for which the market will bear meaningful rate increases. Notably while composite core rates increased a very healthy 4.2% during the third quarter rental rates on our core North American Storage Solutions contracts increased 5.4% for newly placed units during the quarter. Further testament to the traction the value proposition has gained is that despite a challenging economic environment U.K. rental rates increased 2.8% year-over-year and 3.2% for rates on newly placed units on rent. Also driving rental revenue growth is our highly effective approach to focusing our sales force on areas with the highest growth potential. We transition our sales force to a land-based territory model and further we develop new territory optimization technology that identifies the opportunities in various end markets by prioritizing sales leads with the most potential for activations. In North America Storage Solutions we are seeing a healthy sales pipeline with core pending orders up year-over-year. Our territory optimization sales will enable our sales force to grow the business strategically from a 3-pronged approach of local regional and national accounts. We are currently introducing this territory-based sales model in the U.K. And I'm encouraged by the early indicators that this transition will lead to greater activations in this region. National Account has become a bigger focus for us over the years. Our National Account presence throughout the U.S. has enabled National Account's revenue for North America Storage Solutions to increase from 12% of 2015 rental revenue to greater than 35% of rental revenue for the trailing 12 months.

As far as our seasonal business our unit on rent through September is in line with last year's third quarter though we don't expect to see the late volume orders this year that we received in 2018. 2018 seasonal business was an all-time high for Mobile Mini due to a onetime event with a contracted customer. 2017 was our second best year and we expect our 2019 seasonal revenue will fall between the prior 2 years. Lastly regarding revenue we have listened to our customer feedback and developed tools and offerings that further differentiate us from our competitors including customer-facing technology in both business segments and Storage Solutions managed services. Many of our larger customers value the efficiencies gained by working with 1 provider. Because the rental and other services we arrange are via rerent with other vendors no capital investment is needed to grow adjusted EBITDA and improve return on capital employed. As of September 30 2019 over 2000 items were on rent. As our third-party rerent vendor network expands we will have more opportunities to increase value and customer loyalty and we expect to continue developing this business. Moving to cost savings. Our margin expansion in both business segments is also the result of increased organizational effectiveness. In 2016 we implemented a new state-of-the-art ERP system which provides much greater insight into many operational aspects of our business. We have leveraged this ERP system to drive standardization and best practices across our branches. We use these new insights to develop our disciplined fleet management strategy. We repair first relocate our existing fleet second optimize rental rates next and then spend growth capex on a discretionary basis. This allows us to meet customer demand while optimizing the use of our fleet thereby improving return on capital employed. We also utilized our ERP system to begin -- to become more efficient with our use of working capital ultimately reducing accounts receivable DSO and required parts inventory on hand. In fact we have overhauled our supply chain resulting in improved service and efficiency in all aspects of logistics dispatch and fleet availability. Q2 2019 was the highest quarter of free cash flow since 2008 while Q3 2019 was the second highest and marked the 47th consecutive quarter of positive free cash flow for Mobile Mini. We have driven highly effective very sustainable change throughout Mobile Mini which has resulted in profitable growth along with robust free cash flow which has positioned us to where we are today ready to leverage our infrastructure and growth through multiple avenues. Turning to our Tank & Pump Solutions business.

Quarterly rental revenue grew 1.5% year-over-year due to increased average fleet on rent and rerent activity as well as slight rate increases. More importantly Tank & Pump EBITDA margin has expanded for the last 8 consecutive quarters on a year-over-year basis. After average rental revenue year-over-year increases of 16% over the last 7 quarters we are seeing an overall softening in the industrial markets although we continue to perform very well. Downstream revenues which comprise the majority of our Tank & Pump business increased 3% year-over-year in the third quarter. As expected turnarounds were more normalized in Q3 versus the major turnarounds last year. MSAs signed at the end of 2017 and the beginning of 2018 are now operating at full run rate. For turnarounds in the near future we anticipate more normalized activity. Demand under the MSAs is expected to continue at today's run rate. As a result of the softening in the overall industrial market we see Tank & Pump near-term revenue to be flattish year-over-year. Next I'm pleased to report that customers continue to view Mobile Mini's products and services as world-class with overall NPS of 86% which is up year-over-year and a Customer Effort Score of 9.4% signifying we remain easy to do business with.

I will now turn the call over to Van who will discuss our financial results.

Van Welch -- Executive Vice President and Chief Financial Officer

Thank you Kelly. Good afternoon everyone. As Kelly mentioned North American business performed very well in the third quarter. Storage Solutions rental revenues were up 6.3% year-over-year in North America while Tank & Pump Solutions were up 1.5% year-over-year against very challenging comps. In the U.K. rental revenues were down 2.7% in local currency. While Brexit has created uncertainty in the U.K. resulting in decreased unit's on rent we were pleased that our premium product continued to command year-over-year rate increases of 2.1%. The combination of increased revenue and our ongoing efficiency improvement drove an 11.3% increase in consolidated adjusted EBITDA. In North America Storage Solutions adjusted EBITDA $44.5 million increased 15.4% and the margin expanded 370 basis points to 43.3%. Tank & Pump adjusted EBITDA $10.5 million increased 13.3% and the margin increased to 34.7% an expansion of 320 basis points. Importantly the adjusted EBITDA margin for this segment has been consistently in the mid-30s for several quarters largely due to volume and mix as well as implemented efficiencies and price. In the U.K. adjusted EBITDA was $6.7 million with a margin of 32.7% a slight decrease from 33.1% in Q3 '18. On a consolidated basis our focus on efficiencies and tight control over expenses has contributed to the expanded margin. As a percentage of total revenues adjusted rental selling and general expenses decreased 230 basis points to 58.3% compared to 60.6% in Q3 2018. Our adjusted effective tax rate for Q3 '19 was 23.3%. During the current quarter we had a $700000 benefit related to a return to provision associated with the tax return from previous year. We expect an adjusted effective tax rate of approximately 27% for Q4 2019 and 26% from the full year of 2019. Due to our NOL positions we do not expect to pay meaningful U.S. federal cash taxes until at least 2022.

Moving on to cash flow. Increased cash from operations including strong working capital management and a reduction in net capital expenditures resulted in free cash flow of $37.1 million a $19.6 million increase compared to the prior year. Year-to-date free cash flow was $92 million nearly double the free cash flow of $48 million in the prior year-to-date period. Total net capital expenditures which includes both fleet and PP&E were $14.3 million in the current quarter compared to $28.8 million in the prior year quarter. Most of these expenditures were in North America Storage Solutions to meet demand for specific product and in areas of high demand. As Kelly noted we are seeing increased demand for ground-level offices. As a result the conversion of ground-level offices comprises a large portion of our Q3 '19 fleet expenditures and we expect this to continue in Q4. As we've discussed in the past we will continue to invest capex in both business segments as demand warrants to support organic growth. Due to the long-lived nature of our fleet assets replacement capex requirements are very minimal. Total net capital expenditures for the full year of 2019 are now anticipated to be approximately $70 million a decrease of $17 million compared to full year 2018. Rolling stock such as forklift trucks and service vehicles is cheaply obtained through finance leases. Through September 30 2019 we have acquired $12.5 million of rolling stock via finance leases and we expect to acquire approximately $20 million of equipment for the full year mainly to refresh existing rolling stock assets. We anticipate Q4 '19 depreciation expense to be consistent with the Q3 depreciation expense of $17.5 million. During Q3 we purchased $18 million in treasury shares under our repurchase program bringing the year-to-date total to $28.4 million at an average price of $31.53 per share. We also paid dividends of $36.9 million during the year which includes a 10% increase in the dividend per share compared to prior year. In addition during the third quarter we invested $4.9 million in a tuck-in acquisition.

As of September 30 our leverage ratio was 3.8x down from 4.2x at December 31 2018 and from 5x at December 31 2017. We anticipate that our leverage ratio will continue to improve and be in a range of 3.5 to 3.6x by the end of 2019. Interest expense of $10.4 million for Q3 '19 was slightly lower than the prior year period. Our higher effective interest rate on our ABL was offset by an overall decrease in average debt outstanding. The average cash interest rate applicable to our ABL during the quarter was 3.8%. In addition to investing in the capex required to support organic growth in both business segments I would like to take a moment to discuss the considerable flexibility our ongoing free cash flow provides for the deployment of capital for profitable growth and shareholder return. First of all we will consider various size acquisitions in North America Storage Solutions. As mentioned we did complete 1 tuck-in acquisition in the third quarter and have identified additional opportunities. Another opportunity for growth is through the greenfield expansion of our services by establishing new yards in processing geographic areas. We are considering this method of expansion for both North America Storage Solutions and Tank & Pump Solutions. Additionally our healthy cash flow is available for further debt reduction which when combined with expected growth in adjusted EBITDA results in anticipated delevering throughout the remainder of 2019 and in 2020. Lastly we will continue to pay dividends as well as opportunistically repurchase treasury stock under our program which currently has $42.4 million remaining for authorized purchases. So in summary a very good quarter with increased revenues and profitability driving very strong levels of free cash flow.

With that I return the call to Kelly. Thank you very much.

Kelly Williams -- Chief Executive Officer

Thank you Van. The economic environment for U.S. end markets which represent 87% of our business remained positive during the third quarter. Based on our assessment we expect demand from the majority of our end markets will continue. Although we recognized some macroeconomic indicators are pointing to slower growth and uncertainty our pipeline of core pending orders which is our leading indicator of near-term outlook is up year-over-year. As a result of the transformation in our business model we are positioned to outperform the market in any economic environment. Additionally I want to emphasize that Mobile Mini is a unique rental company. We not only generate positive free cash flow in a downturn but greater free cash flow immediately coming out of the cycle's trough since we do not divest fleet in the downturn. We spend $20 million annually on repair and maintenance expense in Storage Solutions to ensure the longer life of our containers. Thus when emerging from a downturn our units are immediately available to be placed on rent. Notable capex is required only when demand exceeds the prior peak.

The full year 2019 expectations for Mobile Mini outlined at the beginning of this year will still remain in effect. Specifically we expect our rental revenue growth to exceed our evergreen targets which coupled with continued margin expansion will generate robust levels of free cash flow significantly surpassing the $73 million we generated in 2018. As I previously indicated Mobile Mini has had 47 consecutive quarters of positive free cash flow. We set ourselves apart from the general rental equipment industry because our free cash flow generation is countercyclical strong in the downturn and stronger when the economy rebounds due to our rent-ready units and lack of immediate new unit capex needs. To wrap up our free cash flow generation gives us more flexibility to invest in our business today. We are in the growth stage now so we are considering strategic M&A opportunities in Storage Solutions as well as organic expansion in both business segments to ultimately create value for shareholders.

I will now 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 Andrew Wittmann with Robert W. Baird. Please proceed with your question.

Andrew Wittmann -- Robert W Baird -- Analyst

hi guys and good afternoon.I just -- I've got a few questions here. I might just buzz in later as I don't do too many here but Kelly the rate increases here are kind of accelerating higher. I'm just wondering I mean you kind of addressed some of this in your prepared comments but any pushback here that you're seeing? I guess I noticed in many of your businesses your utilization rates are actually kind of down a little bit obviously profit dollars are up. And I was just wondering how you're balancing all of that and trying to optimize profit dollars to Mobile Mini?

Kelly Williams -- Chief Executive Officer

Sure. I -- yes I think as I made mention in the past balancing volume and rate is something that we constantly look at. We've got our units on rent up to prior year. We've got a very healthy pending order pipeline but what you're seeing right now is our National Account rates in Q3 are actually up 4% on composite and 5% on units going out new as well. So the right -- really right in line with the entire Storage Solutions business there. So that's a local decision. I think we constantly look to balance that but it's -- the utilization what you're seeing is as we made mention of earlier we acquired about 3000 units out of China. It was the right thing for us to do. There were rent ready when they landed and there are being put to use right now in terms of the peak period for us and seasonal. But you see a margin expansion because we're able to -- when we got a little bit more flexibility from a utilization standpoint from the availability standpoint we're able to reduce transportation cost obviously branch to branch. We get much more sales rep confidence. And so you see the pricing going up because they know they have availability of rent-ready quality product. So it's always a balance but I will tell you we have -- at the end of October we have more core units on rent than what we did even in Q3. So that's kind of a back and forth. I'd also take 2018 was a historic year for us. So the comps are a little bit more challenging but the business is solid.

Andrew Wittmann -- Robert W Baird -- Analyst

Great. That's helpful. Couple more here. Just Van in the last couple of years we've had bigger swings in the variable compensation. You guys are having a good year. I have to imagine you accruing above the 100% target this year. Does that mean that we're going to get or could get a bit of a tailwind as we head into 2020 on the expense line assuming that you start accruing to that 100% target for next year? And how much could that potentially be?

Van Welch -- Executive Vice President and Chief Financial Officer

Yes. I think if you look at variable comp and let me address it for 20191 first variable comp is down. I mean there is a tailwind in 2019 as compared to 2018 because we set the target levels much higher in 2019. So we're achieving greater results but the bonus payouts are less. So there is a bit of a tailwind in 2019. We're seeing that. We're seeing that in every quarter of '19 but even excluding the variable compensation for Q3 we are well above the evergreen target of 60% flow-through.

Kelly Williams -- Chief Executive Officer

I would just add Andrew there could be a slight tailwind but it wouldn't be as much as what you might think. We continue to stretch the targets on an annual basis based on performance.

Andrew Wittmann -- Robert W Baird -- Analyst

Okay. That's helpful. So -- I mean it sounds like you guys are seeing a lot of momentum in your business right now. I have to imagine the Board is probably seeing it that way Kelly I'd be curious as to your thoughts on that. What inning -- I mean you've done so much over the last five years in terms of operations IT a host of things. I mean it sounds like you're pretty enthusiastic about taking over the company at this point of the game but what inning are we in here as you see it? I mean are we half way through seeing some of the good stuff coming through? Are you really early on in this? And does the Board agree with your assessment?

Kelly Williams -- Chief Executive Officer

Well I think that we're certainly excited about the execution and you're very well aware of the story. I mean it's really been a big transformation within the organization. So in terms of what inning it might be in I -- from an economic standpoint I still think -- as I made mention of we still feel very solid with our end markets. We look at the pipeline it's good. In terms of referencing the organization in terms of where we're looking at from a growth standpoint we're focused on acquisitions in the Storage Solutions business. I think that's something that's very important to us. As you know our -- generally every single one of these acquisitions is very accretive to the business. So I think that's something that's very exciting to us and I see that as an opportunity for growth. The Board continue to focus on maximizing long-term shareholder value and we're obviously exploring a lot of different avenues. But we're very confident in our long-term plan and our ability to drive profitable growth. You see the free cash flow and increasing shareholder value. And that's our priority right now is to pursue that plan. But yes in terms of as you look at the organization we constantly take a look at options and right now we're looking to grow the organization for sure.

Andrew Wittmann -- Robert W Baird -- Analyst

Last question for now. And just -- I mean you guys were back in the market buying nearly $20 million of stock in the quarter and that was interesting and good. Van is there anything that could -- would prevent you from getting back into the market any blackout dates associated with this earnings release or clearing? Are you buying these shares out of a 10b5-1 or are you making a cost for open market purchases?

Van Welch -- Executive Vice President and Chief Financial Officer

The 10b5-1. They're opportunistic in nature Andrew. We don't have a program set in place in terms of acquiring stock on a frequent basis. We look at the stock price where it is today and make a determination whether we believe we're undervalued or not and then repurchase as we did. We did that in Q2 as well as in Q3. If I recall I did about a $10 million repurchase in Q2 as well. Our capital allocation as we talked about in the prepared remarks we're looking at acquisition in Storage Solutions business. We're looking at greenfield expansion both in Storage Solution Tank & Pump in terms of organic greenfield expansion. We're going to focus on that as well as delevering the company going forward and that's not only through 2019 but also into 2020. And look stock repurchase is more opportunistic in nature. Also we're going to continue to pay the dividends as we have done for the last many years.

Andrew Wittmann -- Robert W Baird -- Analyst

I'll leave it there for now. Thanks, guys. All right, Andrew. Thank you.

Kelly Williams -- Chief Executive Officer

All right, Andrew. Thank you.

Operator

Our next question comes from the line of Kevin McVeigh with Credit Suisse. Please proceed with your question.

Kevin McVeigh -- Credit Suisse -- Analyst

Question. Great, thanks, Kelly congratulations again. As you're settling in to the seat anything that -- I know you're under the good stewardship of Erik but anything that really jumped out at you one way or the other as you're thinking about moving the business forward? And especially within the context of -- there's been some news flow around Donerail and Elliott how are you kind of balancing the strategic optionality on the one hand of the activism with the core business day-to-day and how are you thinking about that going forward?

Kelly Williams -- Chief Executive Officer

So what I'd tell you is as a matter of policy we don't comment on market rumors or individual shareholder positions. But we're looking at growing the organization. There is no doubt about that. I think -- as I made mention of earlier it's been a true transformation of the company. We're operating more efficiently than ever. I've been a part of that over the last three or four years. Erik has been a turnaround agent. He's done it multiple times. He's been exceptional in that way. I think we're today in a position my focus is on growing the organization. I think we know we can do that. Through greenfields geographically we can grow Tank & Pump. We're going to look at acquisitions on the storage side. And I think that's really where our focus is. And I think that we're very confident right now in our go-forward strategy. I think as I made mention to Andrew free cash flow is impressive. The cycle -- in terms of the concerns around the cycle we don't see it but as I made mention of I really do view us as a countercyclical free cash flow generating company. And that is very unique. A lot of times we're compared to our -- from a peer standpoint to companies that have assets that are very different from ours that aren't as long-lived lives. And Kevin I think if you look at specifically the point of the $20 million the company puts today expensed in repair and maintenance it really ensures that quality product long-lived life and I think positions us very very well regardless of economic conditions. But yes I want to grow the organization for sure and I think we're ready to do so.

Kevin McVeigh -- Credit Suisse -- Analyst

Understand. And then just I guess the strategic rationale behind the MODS deal I guess and then just along the same lines I know there was some kind of margin impact from the seasonal spike last year. It seems like that won't be the case this year. Is that the right way to think about it I guess from -- I guess just MODS to begin with and then just a seasonal impact to the margin it sounds like it would be a little bit of a tailwind as opposed to last year is that right?

Kelly Williams -- Chief Executive Officer

That is right. I'll address the MODS acquisition first. That's a very strategic opportunity for us as I made mention of. These -- we usually get these acquisitions in the 5 to 7x range which is obviously accretive and that's pre-synergies. Real estate in Long Island is very expensive as you could imagine so there are some synergies that come from that. In terms of the seasonal business what we have is -- I made mention of this in the prepared remarks. We have about 4000 units that are kind of a onetime event from last year from a customer that doesn't exist today but I do believe you're going to see much better margins. Yes the volume there will be down to prior year. The margins will be up. And like I said I think the emphasis there was we continue to gain share. That was really a onetime event. The core business remains strong as well Kevin.

Kevin McVeigh -- Credit Suisse -- Analyst

Super. And then I'll jump back in the queue but 1 moment Kelly. This is the first deal of size you've done in the Northeast is that right?

Kelly Williams -- Chief Executive Officer

Yes. So we hadn't made an acquisition since 2015. So this is the first acquisition in the Northeast yes in about four years.

Kevin McVeigh -- Credit Suisse -- Analyst

Okay, great.

Kelly Williams -- Chief Executive Officer

Thank you.

Operator

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

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Thanks very much. Good afternoon. Could we just -- I'll start out in portable storage. Thoughts on -- I mean it sounds like volume is very strong. Could you just address visibility -- this is going to be a 3 parter Kelly the kind of visibility on volume given that we are seeing a bit of a tougher industrial environment? Sounds like you're not seeing any evidence yet but I want to know how far you can see? Part 2 is the core pricing expansion -- is expanding. I guess that was addressed earlier. Let me just focus on seasonal pricing. You just discussed on Kevin's how margin will be higher but you've lost some volume year-over-year. What was going on with pricing? Is that a -- was that a volume discount customer that you lost last year and that's why it's affecting the margin? Just curious with a little bit of price included in the seasonal.

Kelly Williams -- Chief Executive Officer

Sure. I would say the pricing on the seasonal is probably a little flattish. Where will get the margin expansion? It comes from the -- so when we got this really large order Scott it require -- it put a lot of stress on transportation. We saw decreased transportation margins cost went up we outsourced a lot of those because they came at the very last minute late October early November. And so we're managing through our transportation at a much much higher margin this year. And that -- although we'll lose the volume we'll actually pick up trucking margin. And like -- I'd say the rates are a little flattish to prior year. It's just that we're much more efficient really in every other aspect of the business and trucking is a big part of that. So that's where you'll see the continued margin expansion. I think just in general with the core rates being as strong as they are we anticipate continuing to see the strong margin expansion from flow-through through Q4.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

And just back on the first part and sorry I did put those 2 together but the book for the core business portable storage visibility going out how far do you feel comfortable?

Kelly Williams -- Chief Executive Officer

Yes. I would say about 90 days is typically what we would tell you. The -- there is some industrial softness I called that out that does affect Storage Solutions. I think it certainly got more impact on the tank business obviously down there in the Gulf which again I want to clarify here. It's a more normalized period for us especially on the maintenance side there. But yes on the storage side in terms of the outlook we've got visibility to about 90 days typically but I do know that when I look at the remodel business into 2020 we anticipate similar remodel opportunities into at least the early half of 2020 as what we saw in '19. And our challenge here is to go gain more market share from that. And as I made mention of we're gaining some nice traction with our National Account pricing. And so we've got to go execute and gain some of that business here as we close out the quarter and into 2020 and I'm confident we can do that.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Appreciate that. And then very very high incremental margin in the quarter. I was curious I guess you bring Van in here. There is an adjustment of $1.9 million on the rental selling in general expenses line and it was related to actual and potential acquisitions. I'm just -- I'm curious what that is? And even not exing that out a still very good incremental flow-through but Van could you comment on that please?

Kelly Williams -- Chief Executive Officer

Actually Scott let me take that one. So I think we've stated really since Q4 2018 earnings call that we're in a growth phase and we're actively pursuing actual and potential strategic M&A and tuck-ins for the storage business. And we incur professional fees as we pursue deals and. As we have stated we have a robust pipeline of identified opportunities. So that's really what you're seeing there. And yes the margins themselves are very solid. I think we're much more efficient there but that's the color around the cost adjustment adjusted EBITDA related to it.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

It's OK. I mean it sounds like you still have an active pipeline and you will be active so will we see something like that every quarter now?

Kelly Williams -- Chief Executive Officer

I think the focus in growth on the Storage Solutions side the acquisition is something that will be -- yes the pipeline is out there. I anticipate -- I'm not going to give you a number on how many I think will close within a given quarter but we're certainly looking at those acquisitions that make sense and I do believe that's going to be a part of our strategy here going forward.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Okay. And is that -- and I just -- I think you mentioned -- someone mentioned that maybe $4 million $5 million was spent on acquisitions in the quarter. Yes this was $2 million in this pullout cost. So I'm guessing this is a high quarter and...

Kelly Williams -- Chief Executive Officer

Yes. I would say that that's a fair assessment right? As we look at different size opportunities within the pipeline that we've created that would be fair that would be absolutely fair.

Van Welch -- Executive Vice President and Chief Financial Officer

And Scott just to add a little bit the $4.9 million in the quarter that we spent for the acquisition that was for the acquisition that we announced last quarter that was made in Tulsa Oklahoma. The announcement we made just this morning obviously is not reflected in any of these amounts. The $2.6 million or whatever that we spent today and the amount that we spent in the quarter associated with fees and consultants and looking at the potential increase through various forms of growing our business I would expect that not to be at the same level going forward.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Yes it seems like a lofty amount for the size of acquisition done in the third quarter and the fourth quarter. So yes that's more of a onetime onetime and if there is a pullout from where it'll be probably a good bit less? Is that -- I guess I've asked it but that's fair.

Kelly Williams -- Chief Executive Officer

Yes I would look at it that way it's fair.

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Okay, good. Thanks. I took a lot of time. I'll turn it over. Thanks very much.

Kelly Williams -- Chief Executive Officer

Thanks, Scott.

Operator

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

Sam England -- Berenberg -- Analyst

Hey, guys, just covered for me at first one Just couple from me. The first one could you expand a bit more on the areas of softness from Tank & Pump business? And just you guys seem to do a bit better than McGrath's Adler Tank business in the same area this quarter. So do you think there is anything benefiting you guys that wasn't benefiting them?

Kelly Williams -- Chief Executive Officer

Yes. It's -- thanks Sam. The downstream -- when I made mention of the softening I think the downstream in segment is stable. The overall industrial softening is more in the upstream. It does carry over a bit to the other parts of the business but the waste stream work kind of the run and maintain work at our refinery and chemical customer plants are stable and the plants are still producing at a very high level. This is really our bread and butter and that's probably were we vary ourselves to other competitors. And that's the fact that we are so focused in on the downstream so entrenched in the downstream. And so in the waste stream of our customers we feel less of an impact in slower growth times. And really quite frankly as long as the plants keep running we continue to see our work remain stable. And I think that's probably where the -- I'm guessing if you're referencing other competitors there might be more upstream exposure. So again I'd also make mention here although the business is flattened with the tank side it's a significant growth over the last two years and the margin expansion remains very very strong.

Sam England -- Berenberg -- Analyst

Okay. Great. And the next one was just around capex. It looks like you've dropped the capex guide a little bit since Q2. Do we assume that's a tightening in Tank & Pump capex? Or is there still another reason why you dropped I think $5 million or $10 million?

Van Welch -- Executive Vice President and Chief Financial Officer

Yes I think -- this is Van Sam. And yes we did drop it a bit from the previous guidance. As we've talked about we're a demand-driven model across every one of our segments whether it be Storage Solutions and/or Tank & Pump. I think Kelly mentioned in his prepared remarks we always repair first. We look at items to move second. We always pay attention to rate pricing and utilization. The comment around the ground-level offices it really fits into that scenario. It is demand driven it's a high demand unit. Utilization on those ground-level offices are very high. They're actually accretive to our utilization associated around our container fleet and we get very good pricing on those ground-level office. So the comments around the majority of our capital spend in Q3 and Q4 will be on the ground-level offices. So I think also we're being much more efficient in terms of capital expenditure. I think we're seeing the benefit of that as well going forward and it's included in the reduction of capex guidance that I gave from last quarter. We couldn't be more pleased with our efforts to do things when they need to be done and do them more efficiently and at less cost.

Sam England -- Berenberg -- Analyst

Great. And then last one from me. Could just talk a bit more about the geographies where you see most opportunity for expansion? And when you talk about bolt-on M&A are you looking more acquisitions that build density in existing areas that you are operating in or ones that expand you into completely sort of other open areas? Can you just give a little bit more around the strategy there?

Kelly Williams -- Chief Executive Officer

Yes sure. I think that although the footprint is very solid on the Storage Solutions side that scale is a huge differentiator for us that national scale. There are still real opportunities for us to grow organically add -- with some -- I think the acquisition -- to put the growth in context from an acquisition standpoint is that we believe if the acquisition opportunity comes with quality product if it comes with typically the competitors kind of have rate integrity and good market reputation and those are areas where we draw them in. We look at specific markets that we might be struggling from a share standpoint as an opportunity to get us started but it also helps from a transportation cost standpoint as we start to open up new warm start opportunities. And that is where we might struggle or lose business in a more rural area or just outside of a major metropolitan area would be because of transportation.

So if we can identify an opportunity on let's say a different side of a city or in between a couple of other major cities that we can drop a yard or acquire a company then we can also expand our National Account business. On the Tank side that business that we have as we've made mention of is mainly in the Gulf Coast Sam that's where majority of our business is. However when you look outside of the Gulf Coast we actually perform financially very very well similarly in terms of margin to the Gulf Coast. And so our most recent geographic expansion up in Philadelphia and South Plainfield has been actually accretive to the overall business. So we're looking to really take on the hub-and-spoke approach which is allow ourself to reposition fleet at a less costly manner and that would be for example to potentially look at a city like Baltimore where we can utilize or share fleet between Philadelphia and Baltimore and we would continue to stretch from there but I expect that to be outside of acquisition and more centered around geographic expansion or via organic growth.

Sam England -- Berenberg -- Analyst

Right, thanks very much, guys.

Operator

Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.

Stanley Elliott -- Stifel. -- Analyst

Kelly Hey, man, thank you guys for fitting Just out of curiosity you have gyrations around consumer confidence and the trade uncertainties. Has that changed any of the conversations you're having with any of your seasonal customers right now?

Van Welch -- Executive Vice President and Chief Financial Officer

I wouldn't say this in the seasonal business specifically the retail side of the business that it's changed any conversations necessarily. I do believe that some of these largest retailers are looking to become -- are becoming more efficient and certainly that includes how they utilize storage. I think we've continued to gain share in what might be considered a shrinking market Stanley. So I think that's one thing I think we're certainly very proud of. And I think that's something that we're very cognizant of. That's where that National Account program focuses certainly allowed us to maintain market share in what might be a shrinking market but I also think there is other opportunities that we continue to grow and become creative with some of those retailers in terms of how they might be able to better utilize portable storage as opposed to warehouse space. So it's kind of a twofold viewpoint there. Yes they are more aware of probably economic conditions but we're also working to continue to expand our offering as well.

Stanley Elliott -- Stifel. -- Analyst

And along these lines on the M&A front dynamics as a backdrop is that helping or hurting from a valuation perspective in terms of some of the deals out there or has that really changed noticeably one way or the other?

Kelly Williams -- Chief Executive Officer

I don't think there's a whole lot of change to be honest. We still find ourselves somewhere between that 5 6 7x pre-synergy in terms of our value how we look at that.

Stanley Elliott -- Stifel. -- Analyst

Perfect. And then lastly from me. Can you remind us how quickly you all can get these integrated into your systems. My guess is fairly quick but with the deal announced earlier today plus some of the other sounds like this is going to be a growing part. I'm just curious to kind of how quickly you guys can get these things up and running?

Kelly Williams -- Chief Executive Officer

Yes it's fairly quick. I think that the reason -- another reason why we stopped or slowed down in terms of our growth back in 2013 2014 was our ability to successfully integrate. The company was going through so much change that we struggled with a few of those acquisitions. And I think today thanks to the ERP thanks to the stability of the organization you go back I guess a month or 2 to our Oklahoma acquisition it's been very successful. As a matter of fact we've seen growth out of the customer base there via the acquisition shortly thereafter. And I think we're in a much more confident position to be able to integrate an acquisition. For example we don't move pricing today when we acquire a company and make sure that we've delivered on the differentiators we believe we have in our value proposition but we've got to go prove that out. And I think by doing so we can continue to win over customers and the integration certainly goes much more smoothly. But to put a time it's typically a couple of weeks for us to get the full integration. But in terms of touching the customer it's immediate. In terms of explaining to them we're a 24/7 service that we've got online capabilities most of the time the acquiring company does not have those differentiators so it can be done fairly quickly.

Stanley Elliott -- Stifel. -- Analyst

Great, guys, thank you very much appreciate the time.

Kelly Williams -- Chief Executive Officer

Yeah, thank you.

Operator

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

Marc Riddick -- Sidoti -- Analyst

I wanted to follow up and I think you made mention on European slowdown maybe what you're seeing there as far as -- that you're still able to gain some rate growth even though there was the slowdown. I was wondering if you could sort of put a little more hair on that as far as the -- maybe the -- are you seeing a fewer boxes or utilization what we're seeing there and the pace of that I don't know what the visibility might look like but I was wondering if you could just put a little more color around how you're dealing with the slowing situation?

Kelly Williams -- Chief Executive Officer

I think there is 2 things Marc I would tell you. One is it is certainly an uncertain economy. We've talked about it now for several years ever really since Brexit was started and I think that we've always -- I think we've managed the business fairly well there. The one thing to point to is we certainly don't want to see any sort of a downturn but we oftentimes joke around here that we could prove out the business model. The U.K. in fact is one of those scenarios where our ability to shut off capex the fact that they're long-lived assets we have greater free cash flow today than we've had in any period over the last five or six years. That's a testament to the business model. I think the other piece to that is the rental rate growth where I made mention of in the prepared remarks somewhere in the 2.6% or 2.8% on the composite the new are 3.2%. So I think that that is -- utilization is about 80%. I think that really tells you what this business would look like if we were to see a serious downturn much greater free cash flow stable rates and a much more efficient business. I do want to point out however and I made mention of this in the prepared remarks as well that we about three months ago transitioned the U.K. to our North America land-based model which is a territory-based model that has visibility to opportunity by territory or zip code.

And we have seen quite the turnaround quite frankly in the U.K. Now it's a little bit too early to tell you that we've seen a swing in units on rent but we -- late October numbers would have our new orders up high single digits over there and that's the first time we've seen that in quite some time. And I would attribute that to the focus on kind of that 3-pronged approach. We're touching customers on a local level. We also understand over there in the U.K. it's a really nice footprint. There is opportunity to grow regionally as well as at more of a national level where you can influence all 15 branches in a majority of those cities over there. So I'm optimistic with the changes that have been over there. We implemented that in 2015 here and it really was the turning point on the Storage Solutions core business because we were touching the customer at multiple levels and that's the approach we're taking over there. It's early stages but we've got really strong signs on the new orders and our pending deficit has shrunk considerably as well.

Marc Riddick -- Sidoti -- Analyst

Great. And then the last thing for me. I just wanted to follow up on thoughts as far as labor market priorities maybe if there are any areas that you'd like to be working on or maybe what you're seeing out there be it drivers or anything along those lines that you could identify for us that would be great.

Kelly Williams -- Chief Executive Officer

Yes I think the drivers -- that workgroup is always a challenge for us I think. We're one of the few companies that every non-commission full-time employee is on a bonus plan. So we've got some stickiness there. Our turnover is far better than others that we know that are in that space. It is still a challenge. But I will tell you this. I think we've seen not only our retention has improved but as we go to outside haulers that that cost has gone down and that is in fact some of our improvement there. I think we've done a better job of procuring our outside freight working better deals and I think that there is a little less pressure than there was probably a year ago there. Fuel prices are fairly flat from what we've seen in terms of diesel. So that hasn't been much of a challenge but outside of the driver workgroup I'd say that's about the only 1 market we've seen that's kind of in that constant visibility to us that's a concern and I think we've done a pretty good job with that.

Marc Riddick -- Sidoti -- Analyst

Okay, great. Thank you very much. All right.

Kelly Williams -- Chief Executive Officer

Thank you.

Andrew Wittmann -- Robert W Baird -- Analyst

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

Okay, thanks for taking my follow up guys. The store remodels of the larger retailers that has contributed to your growth overall. And specifically I think a pretty decent percentage of that National Account business has been ongoing now for a few years. I was wondering how much that's contributing to your results this year maybe number of units that are out on rent presently for that? And Kelly how far along the remodels do you sense that they are of the stores that they're going to be doing as a proxy for how much visibility and how much more you have left to do there?

Kelly Williams -- Chief Executive Officer

Well to give a little bit more color on the seasonal I guess Andrew I had shared this. There was a large retailer last year that went -- filed bankruptcy. And one of our contracted customers ordered about 4000 additional units late in the year. So that's really where that comp is going to be challenging for us in Q4. Now as you're aware it will carry a little bit into Q1 with the transportation the pickup revenue that type of thing. But the relationships on the seasonal side is really where we've picked up over the last three or four years. And I think if you exclude that headwind from that onetime event that our seasonal business would be very much in line with last year. And again if you're including it it will fall between '17 and -- it will be just ahead of '17 or slightly behind '18.

Andrew Wittmann -- Robert W Baird -- Analyst

I guess I wasn't talking about the seasonal business. I was talking about the store remodels that you're doing for the nation's second largest retailer. I think that's been a pretty consistent box not a seasonal box it's been in your base for a while. And I'm just wondering how important that retailer's store remodels are and how much more visibility you have into that continuing as we move into 2020? Is there another year of this you think to go or to be done 1/2 of the stores 3/4 of the stores you think you're going to do what kind of visibility do you have in that one? Because I think it's a fairly material part of your business. Maybe you can tell me if I'm wrong but I thought that was a decent driver for boxes there.

Van Welch -- Executive Vice President and Chief Financial Officer

Yes I would say it has been over the last couple of years but my belief here Andrew is that it's truly a strategy now right with the remodels because what you -- it's really that it's the e-commerce that's driving all the change it's Amazon that's driving the challenge for these retailers to improve the in-store experience. So I anticipate remodels to be very similar in 2020 to what they were in 2019. I think 2019 was probably slightly down to 2018 but if you're talking about to top 2 retailers or so in particular I think you'll see very steady remodel activity compared to prior year. What they would do more I think it's a little overwhelming for them based on the volume of stores that they're attempting to upgrade. That's really what their challenge is. So I don't look at this like a 1-year project to 2-year project. I anticipate that -- and their results are fairly good. I anticipate this through 2020 and I really believe that they're constantly looking to stay above or out in front of the curve and so I don't necessarily look at this as a onetime event or a 2-year event I would anticipate this running certainly through -- our visibility would tell us probably even to late 2020 2021 potentially and at that point you might even be looking at changes at that point in time to stay ahead of the curve again.

Andrew Wittmann -- Robert W Baird -- Analyst

Alright, cool. So that was the color I was looking for. Thank you very much. Have a good evening. Yeah, you to appreciate it.

Operator

We have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Kelly Williams for any closing remarks.

Kelly Williams -- Chief Executive Officer

All right Devon thank you very much. I appreciate everybody joining the call and we look forward to sharing our Q4 results in the early part of 2020. Happy Halloween and thank you everybody.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Kelly Williams -- Chief Executive Officer

Van Welch -- Executive Vice President and Chief Financial Officer

Andrew Wittmann -- Robert W Baird -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Scott Schneeberger -- Oppenheimer & Company -- Analyst

Sam England -- Berenberg -- Analyst

Stanley Elliott -- Stifel. -- Analyst

Marc Riddick -- Sidoti -- Analyst

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