Q3 2019 Earnings Call
Good day, everyone and welcome to the mobile mini 2019 third quarter conference call.
At this time I would like to inform you that this conference is being recorded and then all participants are currently in listen only mode.
There's also a presentation of the company This conference call, which you can access the mobile minis website at Www Dot mobile mini dotcom is on the investors page.
Before turning the call over to Kelly, William Mobile Minis, Chief Executive Officer, I'll read the Safe Harbor statement.
Before the presentation and the comments begin mobile mini relates 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, uncertainties that could cause our actual results could differ materially from these statements.
Any forward looking statements should be considered in conjunction with the cautionary statements and our press release and the risk factors included in our filings with the SEC, which mobile mini encourages you to read.
In addition, please refer to the Investor section of mobile makes website to find additional disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.
Now I'll turn the call over to Kelly Williams.
Thank you operator, and good afternoon, everyone and welcome to mobile Minis third quarter, two Dell 2019 conference call.
I am Kelly Williams mobile Minis, President and CEO and with me today is van Welch, our executive VP and CFO .
We'll review operational highlights and the current business environment and van will discuss the Q3 financials.
We'll then open the call up the question this.
We encourage you to review the full quarterly debt, 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 solution, 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 raise storage solutions rental rates as we have shown our customers the value of partnering with mobile many.
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 stores solutions core rental.
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 walk 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 UK rental rates increased 2.8% year over year and 3.2% for rates on newly placed units on rent.
Also driving rental revenue growth as our highly effective approach to focusing our sales force on areas with the highest growth potential.
We transition our salesforce to a land base 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're seeing a healthy sales pipeline with core pending orders up year over year.
Our territory optimization sales tool a neighbor enable our salesforce to grow the business strategically from a three pronged approach of local regional and national accounts.
We are currently entered a introducing this territory based sales model in the UK and I'm encouraged by the early indicators that this transition will lead to greater Activations in this region.
National accounts has become a bigger focus for us over the years, our national account presence throughout the US has enabled national accounts 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 for our seasonal business our units on rent through September is inline with last years 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 two 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, and both business segments and storage solutions managed services.
Many of our larger customers value the efficiencies gained by working with one provider because the rental and other services. We are range our via re rent with other vendors no capital investment as needed to grow adjusted EBITDA and improve return on capital employed.
As of September Thirtyth 2019 over 2000 items were on rent.
As our third party rent 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 already ERP system, which provides much greater insight into many operational aspects of our business.
We have leverage 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 utilize our ERP system to begin.
To become more efficient with our use of working capital ultimately reducing accounts receivable DSL and required parts inventory on hand in fact, weve overhauled our supply chain, resulting in improved service and efficiency in all aspects of our logistics dispatch and fleet availability.
Q2, 2019 was the highest quarter free cash flow since 2008, while Q3 2019 with the second highest and mark the 47th consecutive quarter of positive free cash flow for mobile many.
We have driven highly effective very sustainable change throughout mobile many 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 in growth through multiple avenues.
Turning to our tank and pump solutions business quarterly rental revenue grew 1.5% year over year due to increased average fleet on rent and rerun activity as well as slight rate increases.
More importantly tank and pumps EBITDA margin has expanded for the last eight consecutive quarters on a year over year basis.
After average rental revenue year over year increases of 16% over the last seven quarters, we're seeing an overall softening in the industrial markets. Although we continue to perform very well.
Downstream revenues, which comprise the majority of our tank and 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.
Let's say signed at the end of 2017, the beginning of 2018 are now operating at full run rate.
For turnarounds in the near future, we anticipate norm more normalized activity demand under the Investor days is expected to continue at today's run rate as a result of the softening.
In the overall industrial market.
We see tank of pumps near term revenue to be flattish year over year.
Next I am pleased to report that customers continue to view mobile minis products and services is world class with overall NPS of 86% is up year over year and a customer effort score of 9.4, signifying we remain easy to do business with.
Ill now turn the call over to van who will discuss our financial results.
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, well taken pump solutions were up 1.5% year over year against very challenging Carlo.
In the UK rental revenues were down 2.7% in local currency.
While Brexit has created uncertainty in the UK, resulting in decreased units on rent. We were pleased that our premium product continued to come and year over year rate increases of 2.1%.
The combination of increase revenue and our ongoing efficiency improvements drove an 11.3% increase in consolidated adjusted EBITDA.
In North America storage solutions, adjusted EBITDA of 44.5 million increased 15.4% and the margin expanded 370 basis points to 43.3%.
Taken pulp adjusted EBITDA at $10.5 million increased 13.3% in the margin increased to 34.7% that expansion of 320 basis points.
Importantly.
The adjusted EBITDA margin for this segment has been consistently in the mid Thirtys for several quarters, largely due to volume and mix as well as implemented efficiencies in price.
In the UK adjusted EBITDA was $6.7 billion with a margin of 32.7% a slight decrease from 33.1% in Q3 80.
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.
43.3%.
During the current quarter, we had a 700000 benefit related to a return to provision associated with a tax return from or.
From a previous year.
We expect an adjusted effective tax rate of approximately 27% for Q4, 2019, and 26% for the full year 2019.
Due to our inner well positions, we do not expect to pay meaningful us 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 billion, 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 PPD 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 losses as a result, the conversion of ground level offices comprises a large portion of our Q3 19 fleet expenditures and we expect.
Just 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.
Through the due to the long live nature of our fleet assets replacement Capex requirements are very minimal.
Total net capital expenditures for the full year 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 as service vehicles is cheaply obtained through finance leases.
Through September Thirtyth 2019, we have acquired $12.5 million eroded stock the finance leases and we expect to acquire approximately $20 million equipment for the full year.
Mainly to refer to refresh existing rolling stock assets.
We anticipate Q4 19 depreciation expense to be consistent with the Q3 depreciation expense a $17.5 million.
During Q3, we purchased $18 million and treasury shares under our repurchase program.
Bringing the year to date total to 28.4 million at an average price of $31 of 53 cents per share.
We also pay 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 as of September Thirtyth, our leverage ratio was 3.8 to 3.8 times down from 4.2 times at December 31st 2018, and from five times at December 30, Onest 2017.
We anticipate that our leverage ratio will continue to improve the in the range of 3.5 to 3.6 times by the end of 2019.
Interest expense of $2.4 billion for Q3, 19 was slightly lower than the prior year period.
Higher effective interest rate on our IPO 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 store solution.
As mentioned, we did complete one 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 and processing geographic areas.
We are considering this method that expansion for both North America storage solutions and tank and box solutions.
Additionally, our healthy cash flow is available for further debt reduction, which when combined with expected growth in adjusted EBITDA results and anticipated delevering throughout the remainder of 2019 and in 2020.
Lastly, we will continue to pay dividends as well as opportunistically repurchased 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'll return the call the Kelly Thank you very much.
Thank you van the economic environment for our us end markets, which represent 87% of our business remained positive during the third quarter.
Based on our assessment, we expect demand for the majority of our end markets will continue.
Although we recognize 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 and 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 cycles trough since we do not divest fleet in the downturn.
We spent $20 million annually on repair and maintenance expense in storage solutions to ensure the longer life of our containers.
Yes, 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 counter cyclical 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 and 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 anyway. Thank you very much.
At this time will be conducting a question and answer session. If you would like to ask questions. Please press star one on your telephone keypad a confirmation till indicate your line is in the question Q you May Prestart too if you will like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star key.
Our first question comes on line of Andrew Wittmann with Robert W. Baird. Please proceed with your question.
Hi, guys and good afternoon.
I guess I've got a few questions here I might disposing later, so as I don't do too many here, but Kelly the the rate increases here are kind of accelerating higher.
Im just wondering I mean, you kind of address some of this in your prepared comments, but any push back here.
That you're seeing I guess I noticed in many of your businesses your utilization rates were actually kind of down a little bit obviously profits dollars are up.
And I was just wondering how you're balancing all of that.
And trying to optimize profit dollars.
Mobile mini.
Sure and.
Hi, Andrew or how are you.
Yes, I think as I've made mentioned in the past balancing volume and rate is is something that we constantly look at we've got.
We've got our units on rent up to prior year, we've got a very healthy pending order pipeline.
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 right really right in line with the entire storage solutions.
Business there. So that's 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 mentioned earlier, we acquired about 3000 units out of China was of the right thing for us to do they were rent ready when they landed and they're being put to use right now in terms of the peak period for us and seasonal but but you see margin expansion because we're able to when we've got a little.
A bit more flexibility from a utilization standpoint from the availability standpoint, we're able to reduced transportation costs, obviously branch the branch.
We get much more sales rep confidence and so you see those the pricing going up because they know they have availability of rent ready quality products. So it's always a balanced but I will tell you. We have at the end of October we have more unit 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, with it was a historic year for us to the comps are little bit more challenging, but but the business is solid.
Great. That's a that's helpful.
No more here just van.
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're accruing above the 100% target.
This year does that mean that we're going to get.
It could get a bit of a tailwind as we head into 2020 on the expense line, assuming that you start accruing to the 100% target for next year.
And how much could that potentially be.
If you look at variable comp and let me address it for 2019 farmers.
Variable comp is down I mean, theres a tailwind in 2019 as compared to 2018, because we set the targets 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've seen that every quarter.
18, but even excluding.
The other the variable compensation for Q3, where we are well above.
The.
Evergreen target of 60% flow through.
Yes, I would just add Andrew it's 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.
That's helpful. So I mean, it sounds like you guys.
Our 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 of that what inning you you've done so much over the last five years in terms of.
Operations IP, 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, we halfway through seeing some of the good stuff coming through are you really early on in this.
The board agree with that with your assessment.
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.
From an economic standpoint, I still think as as I mentioned that 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 are.
We are focused on acquisitions and the storage solutions business I think thats something thats, that's very important to with as you know our.
Generally every single one of these.
Look acquisitions.
Very accretive to the business. So I think thats something thats, it's very exciting to us and the I see that as an opportunity for growth.
The board continues 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 our ability to drive profitable go 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 the organs.
In addition, we constantly look take a look at.
Adoptions and right now we're looking to grow the organization for sure.
Last question for now thank you on that Kelly and just you guys were back in the market fine.
The $20 million stock in the quarter and that was interested in good.
Then is there anything that could would prevent you from getting back into the market any blackout dates associated with this earnings release are clearing are you buying these shares under a tenbfive one or are you, making it calls for open market purchases.
Yes, they're tenbfive one.
Opportunistic in nature, Andrew we don't have a program set in place in terms of acquiring stock going on a frequent.
We look at that we look at the stock price awareness today and make a determination whether we believe were under value denied and in repurchase as as we did we did that in Q2 as well as Q3, you may recall, we did about $10 billion.
Repurchase in Q2 as well.
Our capital allocation as we've talked about the in the prepared remarks, we're lucky that we're looking at acquisitions in the storage solution business.
We're looking at that Greenfield expansion, both in storage solution taken Paul.
Organic greenfield expansion.
Going to focus on we're going to focus on that as well as de levering the company.
Going forward and Thats not only through 2019, but also into 2020.
Look at stock repurchases more opportunistic in nature also we're going to continue to pay the dividends as we've done for the last many years.
Cool I'll leave it there for now thanks guys.
All right Andrew Thank you.
Our next question comes the line of Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Great. Thanks, Kelly Havent.
Kelly congratulate congratulations again, just take as your settle and then to the see anything that I know you're under the cuts to chip Eric but.
Anything that really jumped out of here, one way or any other Asia is you're thinking about moving.
You know the business forward then.
Actually within the context of there's been some news flow around down Orellana Elliot.
How are you kind of balancing.
The strategic Optionality on one hand, the activism with the core business day to day in and how are you thinking about that going forward.
So what I'd tell you is as a matter policy, we don't comment on market rumors or individual shareholder positions.
But we're looking at growing the organization, there's no doubt about that I think.
As I mentioned earlier, it's been a true transformation in the company, we're operating more efficiently than ever.
I've been to a part of that over the last three or four years, Eric as has been a.
Turnaround agent has done a multiple times fees. He is he has been exceptional the in that way I think we are today in a physician my focus is on growing the organization I think we know we can do that.
Through through greet Greenfields geographically, we can grow tank and pump.
We're going to look at acquisitions on the storage side and I think Thats, that's really where our focus is and.
No I think that.
We're very confident right now in our go forward strategy I think as I made mentioned Andrew free cash flows 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 counter cyclical free cash flow generating company and that is very unique.
A lot of times were compared to our.
From a pure standpoint too.
To companies that have assets that are very different from Mars 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 and repair and maintenance it really insurers that quality product long live life and.
I think.
Positions us very very well regardless of of economic conditions, but yes, I want to grow the organization for sure and I think we're ready to do so.
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 is that the right way to think about it I guess from I guess, the just mods it to begin with and then just seasonal impact to the margins. It sounds like it will be a little bit of a tailwind as opposed to last year is that right.
That is right ill 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 five to seven times range, which is obviously accretive and that's pre synergies.
Real estate in long island, it's a very expensive as you can imagine so there's some synergies that come from that in terms of the seasonal business. What we have is.
I made mentioned this in their prepared remarks, we have about 4000 units that are.
Kind of a onetime event from 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 it 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 in the core business remains strong as welcome.
Super and then jump back in acute Romanenko. This is the first deal size you've done in the northeast is that right.
This is so we haven't made an acquisition since since 2015. So this is the first acquisition in the northeast, yes in about four years.
Okay, great. Thank you.
Okay. Thank you.
Our next question comes the line of Scott Schneeberger with Oppenheimer. Please proceed with the question.
Thanks, very much good afternoon.
Hey, good we just started out.
In portable storage.
Dots on I mean sounds like volumes very strong could you just addressing visibility it is going to be a three parter Kelly kind of visibility on volume given that we are seeing a bit of it tougher industrial environment sounds like youre not seeing any evidence yet, but I want to know how far out you can see.
Part two is.
The core pricing expansion.
Is it is expanding.
I guess that was addressed earlier, let me just focus on seasonal pricing you just discussed on Kevin's how margins will be higher but you lost some volume year over year.
What was going on with pricing is that a was that a volume discount customer that 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 sure I would say the pricing on the seasonal is probably a little flattish, where we'll get the margin expansion.
It comes from the.
So when we got this really large order Scott it required to put a lot of stress on transportation. We saw decreased transportation margins costs went up we outsource a lot of those because they came at the very last minute late October early November and so we're managing through Archrock our transportation.
A much much higher margin this year and that although we'll lose the volume will 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 in trucking is a big part of that so that's where you'll see that continued margin expansion I think just in general with the core rates being as strong as they are we anticipate continuing to see the.
The strong margin expansion from flow through through through Q4.
Thanks, and just just step back on the first part and sorry Ed.
Those two together, but does the.
Look for the core business portable storage visibility going on out how far do you feel comfortable.
Yes, I would say about 90 days is typically what we would would tell you.
The there is some industrial softness I called that out that does affect storage solutions I think it's certainly got more impact on 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 but beyond 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 a 19 and our challenge here is to go gain more market share from that and and as I mentioned, we're gaining some 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.
Thanks appreciate that and then.
Very very high incremental margin in the quarter.
Just curious I guess, you bring van and here there was an adjustment of 1.9 million on the rental selling and general expenses line and it was related to actual and potential acquisitions.
I'm just I'm curious what that is and out even even not acting that out is still very good incremental flow through but but.
And could you comment on that please.
Actually Scott let me, 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 for the storage business and.
We incur professional fees as we pursue deals and as we've stated we have a robust pipeline of identified opportunities. So so thats really what you're seeing there and.
Yes, the margins that themselves are very solid I think we're much more efficient there but I.
Thats the color around the cost adjustment adjusted EBITDA related.
Well, it's okay. 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.
I think the focus in growth on the storage solution side. The acquisition is something that will be yes. The pipeline is out there I anticipate im not going to give you a number on on how many I think we'll close within a given quarter, but we're certainly looking at at those acquisitions that makes sense and I do believe that's a that's going to be a part of our strategy here going forward.
Okay and is that is that I was just I think you mentioned someone mentioned that maybe was four or 5 million would spend on acquisitions in the quarter. Yet. This was was 2 million in this pull out cost. So is that I'm getting this is a high quarter and.
Yes, I would say that that's that's a fair assessment right as we look at different size opportunities.
Yeah within the pipeline that we've created that would that would be fair that would be absolutely fair.
Okay. Thanks.
And Scott just 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 you made in Tulsa, Oklahoma.
The announcement, we made just this morning, obviously is not.
Reflected in any of these amounts the the 2.6 million or whatever that we spent today than the amount that we spent in the quarter.
Associated with.
With fees and consultants and and looking at.
Looking at the potential increase through a through various forms of growing our business I would expect that not to be at the same level going forward.
Yes, it seems like a lock the amount for the size acquisition done in the third quarter in the fourth quarter. So yes. So that's that's more of a onetime onetime and if there is a pull out forward, it's probably a good bit last is that.
The vast it but thats fair.
I would look at that was fair. Okay, guys. Thanks, I took a lot of time I'll turn it over thanks very much.
Thanks Scott.
Our next question comes from the line of Sam England.
Jim Burke. Please proceed with your question.
Hi, guys. Just couple from me first one could you expand a bit more on the areas of softness.
Thanks, Tom business, and just you guys seem to do that better than Mcgrath Adler tank business in the same area. This quarter's cheating as anything benefiting you guys the wasn't benefiting them.
Yes.
Thanks Sam.
The downstream when I make mentioned the softening I think the downstream and segment is 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 or are stable in the plants are still producing at a very high level. This is really our bread and butter and that's probably where we very ourselves too.
There are 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 a less of an impact and slower growth times and I'm really quite frankly as long as the plants keep running we continue to see see our work.
Remained stable and I think thats, probably where the I'm guessing if you're referencing other competitors there might be more upstream exposure. So again I would also make mentioned here, although the the business has flattened with the tank side its.
Significant growth over the last two years in the margin expansion remains very very strong.
Thanks, Greg on the next homes just around Capex it looks like the Capex guide a little bit since Q2, we assume that the tightening in tank.
Capex. So is that still another reason why you will follow with Dominion.
Yes, I think if you disadvantage Sam yes, we did drop it a bit from the previous guidance.
As we've talked about we're demand driven model.
Across every one of our one of our segments, where that'd be storage solutions.
And our tank and Paul I think Kelly mentioned in his prepared remarks, you know, we always group, we always repair first.
We look at.
We look at items to to move second we always pay attention to rate pricing and utilization.
The comment around the ground level offices, it really fits into that the into that scenario. It is demand driven we have to high demand unit utilization on those ground level offices are are very high.
There are actually accretive to our utilization associated around our container fleet and we get very good pricing.
On those ground level losses, so the comments around the majority of our capital spend in Q3 in Q4 will be on the 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 this included than the.
In the in the in the reduction of Capex guidance that I gave the from last quarter, we couldn't be more pleased.
With our efforts to do things when they need to be done in do them more efficiently and at less cost.
Great. Thanks, and then last from me can you just talk a bit more about the joke fees why you see nice opportunity for expansion and when you talk about bolt on M&A, you looking more acquisitions that build density and existing areas that you all pricing in the or ones that got expand you into completely.
You can areas given open will run the strategy that.
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.
Some areas I think the acquisition.
To put the the growth in context from an acquisition standpoint is that we believe if the acquisition opportunity comes with quality product if it comes with.
So typically the competitors got rate integrity, and and good market reputation reputation than those are those are areas, where we can can draw them and we look at specific markets that we might be struggling from a share standpoint.
As as an opportunity to get started.
But it also helps from a transportation cost standpoint, as we start to to open up new operators, 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.
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 accompany than 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 a majority that businesses. However, when you look outside of the Gulf Coast, we actually perform financially very very similarly in terms of margin to the Gulf Coast and so our most recent geographic expansion up and.
Philadelphian, 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 ourselves 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 our share fleet between Philadelphia, Baltimore, and we would continue to stretch from there.
I expect that to be.
Outside of acquisition and more centered around the geographic expansion or or via organic growth.
Great. Thanks, Ron.
Okay.
Our next question comes on line of Stanley Elliott with Stifel. Please proceed with your question.
Kelly Havent. Thank you guys for fit man.
Just a curiosity.
Had the gyrations around consumer confidence of the trade uncertainty thats changed any the conversations you're having with any of your seasonal customers right now.
I wouldn't say.
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 larger largest retailers are looking to become are becoming more efficient and certainly that includes how they utilize a storage.
We've continued to gain share and what might be considered a shrinking market Stanley. So I think thats. That's one thing I think we're certainly very proud of.
And I think thats.
Thats something that.
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, but also think there's other opportunities that we've continued to.
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 of of probably economic conditions, but we're also working to continue to expand our our offering as well.
And along those lines on the M&A front has the dynamics of the backdrop is that helping or hurting from a valuation perspective in terms of some of the deals out there or has that really change noticeably one way or the other.
I don't think Theres, a whole lot of change to be honest itself.
We still find ourselves somewhere between that that's 567 times pre synergy.
Most of our our value how we look at that.
Perfect and then lastly from me can you remind us how quickly you all can get.
These integrated into their systems of my guess is fairly quick but.
With the deal announced.
Earlier today, plus some of the other sounds like because it kind of via growing part I'm. Just curious kind of how quickly guys can get these things up and running.
Yes, it's fairly fairly quick I think that with 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 of I guess, a month or two to our Oklahoma acquisition Thats been very very successful as matter of fact, we've seen growth out of the the customer base their 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 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 to win over customers and the integration is certainly goes much more smoothly, but.
To put a time to its typically.
A couple of weeks forced to get the full integration, but its terms of touching the customer its immediate in terms of explaining to them or a 24 seven service that we've got online capabilities. Most of the time The act the acquiring company does not have those differentiators. So it can be done fairly quickly.
Great guys. Thank you very much appreciate it.
Yes, Thank you Stanley.
Our next question comes a lot of Marc Riddick with Sidoti. Please proceed with your question.
Hi, good evening gentlemen.
Hey, Mark.
I wanted to follow up I think you've made mention on.
European slowdown, maybe what you're seeing there as far as you know that you're still able to gain some rate growth, even though those slowdown there was wonder if you could sort of put a little more hair on that as far as the.
Ill, maybe the are you seeing fewer boxes or utilization, what we're seeing there and the pace of it I don't know what what the visibility might look like but does wonder if it's just put a little more color around how your how you're dealing with the with the slowing situation.
I think there's two things Mark I would tell you one is it is certainly a.
An uncertain economy, we've talked about it now for several years ever really Greg since Brexit was.
Was we started and I think that we've always I think we've managed the business fairly well there. They are the one thing to point to is we certainly don't want to see any sort of a downturn, but we often times a joke around here that we could prove out the business model. The UK. In fact is one of those scenarios, where our ability to shut off capex. The fact that they're long live.
Thats, we have greater free cash flow today than we've had in any period over the last five or six years.
Thats, a testament to the business model.
I think the other piece to that is the rental rate growth were made mention of in the prepared remarks somewhere in the two six or two eight on the composite in the newer three too. So I think that that is utilizations 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 mentioned this in the prepared remarks as well that we about three months ago transitions. The UK to our North America land based model, which is a territory based model that has visibility to opportunity bye bye.
Territory or ZIP code and we have seen quite the turnaround quite frankly in the UK notes a little bit too early to tell you that this 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 night I would attribute that to the focus on kind of that three pronged approach.
Coach we're touching customers on a local level. We also understand over there in the UK. It's a really nice footprint there is opportunity to grow it regionally as well as as.
More of a national level, where we can influence.
All 15 branches in a majority of those cities over there so I'm I'm optimistic with the changes that have been over there. We've we implemented that in 2015 here and it really was the turning point on the on the storage solutions core business, because we were touching the customer at multiple levels and that's that's the approach we're taking over there. It's early stages, but we've got really strong.
On signs on the on the new orders and and our pending deficit has shrunk considerably as well.
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 any.
Areas that you'd like to be working out or maybe what you're seeing out there be it in our drivers or anything along those lines that.
So you could identify flow for us that would be great. Thanks.
Yes, I think that the drivers.
That that work group is always a challenge for US I think we're one of the few companies that.
Every noncommissioned full time employees on a bonus plan. So we've got some stickiness there our turnover is is far better than others that we 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.
Of our improvement there I think we've done a better job of securing.
Our outside freight.
Working better deals and I think that Theres, a little less pressure than there was probably a year ago there.
You'll prices are are fairly flat took from what we've seen in terms of diesel so that hasn't been much of a challenge but.
Outside of the driver driver work group.
I'd say, that's about the only one mark that we've seen.
That's the kind of in that that constant.
Visibility to us that that's a concern I think we've done a pretty good job with that.
Okay, great. Thank you very much.
Hey, Mark Thank you.
Our next question comes on line of Andrew Wittmann with Robert W. Baird. Please proceed with your question.
Okay. Thanks for taking my follow up guys.
The.
The store Remodels of large retailer that has contributed to your growth.
Overall, and specifically I think is a pretty decent percentage of the 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 such that are out on rent presently for that.
And Kelly, how far along the Remodels.
Sunset 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.
Well to give a little bit more color on the seasonal I guess indirect I've shared this but there was a large retailer that last year that went.
File bankruptcy and one of our contracted customers ordered about 4000 additional units late in the year. So that that's really where that comp is is going to be challenging for us and in Q4, not as you're aware it'll carry a little bit into Q1 with the transportation the pickup revenue that type of thing.
But the relationships on the seasonal side is where it really where we picked up over the last three or four years and and I think if you exclude that that headwind from that onetime event that are seasonal business will be very much in line.
With last year, and I again, if you, including it it will fall between 17, and and and yes. It will be just ahead of 17, a slightly behind 18.
Yes, I guess I wasn't talking about the seasonal business I was talking about the store remodels that you're doing for the nation. The second largest throughout Taylor.
I think thats been a pretty consistent box not not a seasonal box that's been in your base for awhile and I'm just wondering how important that retailer store remodels are and how much more visit visibility you have into that continuing as we move into 2020 is there. Another year of this you think to to go or have you done half the stores three quarters of the stores do you think you're going to do.
What kind of visibility do you have in that one I think it's a fairly material part of your business. Maybe you can tell me if im wrong, but I thought that was a decent driver for boxes there.
I would say it has been over the last couple of years, but my belief here Andrew is that it's.
It's truly a strategy now right with the Remodels because what you it's really that.
It's the ecommerce that's driving all the change its 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 was probably slightly down to 2018, but if you're talking about the top two retailers are so in particular I think you'll see very 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 challenges. So I don't look at this is like a one year project or a two year project I anticipate that.
And their results are fairly good Ike anticipate this through 2020, and and I really believe that they're constantly looking to stay above our out in front of the curve and so I don't necessarily look at this is a onetime event or a two year event I would anticipate this running certainly through our visibility would tell is probably even to late 2020 2021 potentially and at that point you might even.
Looking at.
Changes at that point in time to stay ahead of the curve again.
All right that was the color I was looking for thank you very much have a good evening.
You to appreciate it.
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.
All right Devon. Thank you very much I appreciate everybody joining the call and we look forward to sharing or Q4 results and the early part of 2020 happy Halloween and thank you everybody.
Concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.