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With that, I'll turn the call over to Brad.

Bradley L. Soultz -- President and Chief Executive Officer

Thank you, Matt, and welcome everyone to WillScot's first quarter 2019 conference call. I'm extremely pleased with our first quarter results, as we continue to focus on growing our core leasing revenue through price optimization and continued expansion of our ready-to-work platform. Revenues of $255 million and adjusted EBITDA of $84.5 million were up 89.2% and 138% respectively over the prior year. Our adjusted EBITDA margin of 33.1% increased 680 basis points over the first quarter of 2018.

This extraordinary margin expansion highlights the value of scale and synergy realization in our business when combined with the commercial strategy to drive lease revenue growth organically through rate optimization and penetration of our ready-to-work solutions. These growth levers are largely in management's control and when coupled with these outstanding first quarter results, we remain confident in our 2019 guidance and our ability to achieve both an annualized adjusted EBITDA run rate of $400 million as we exit 2019 and to deleverage below 4x net debt-to-adjusted EBITDA by the second quarter of 2020.

Now turning to slide 3. Before we get into further Q1 highlights, I'll provide a brief overview of the company, given that we again have new investors and analysts joining us today. As a specialty rental service market leader, our mission is to provide innovative and modular space and portable storage solutions. We focus on providing these solutions ready to work, so that our customers can forget about the space and focus on what they do best, working the project, being productive and meeting their goals. We now provide these solutions to more than 50,000 customers with a fleet of over 150,000 units, representing over 75 million square foot of temporary space through an unparalleled branch network of over 120 locations, spanning the US, Canada, and Mexico.

When we deliver an immediately functional space solution, productivity is all our customer sees. This value proposition is unique in the industry. Our customers, including those new to us through recent acquisitions are embracing it and is driving our growth.

Now turning to slide 4. WillScot represents a compelling growth platform as a leader within the specialty rental service sector. I'd like to highlight five attributes underpinning our unique and fast-growing platform. First, as noted, we delivered $255 million of revenue in Q1, which is up 89% over the same period in 2018. And we have significant revenue visibility looking forward, given the trajectory at which we exited the first quarter of 2019, our 30-month average lease durations, and the embedded growth from pricing and VAPS. At a consolidated level, our first quarter 2019 average modular monthly rental rates were up 12.1% year-over-year on a pro forma basis, primarily driven by a 13.6% increase in our core US Modular segment, representing its sixth consecutive quarter of double-digit rate growth. In addition to price optimization, the rate growth is driven by continued expansion with ready-to-work value proposition and we expect this momentum to continuously look ahead.

The second attribute, we delivered $84.5 million of adjusted EBITDA and adjusted EBITDA margin of 33.1% in the first quarter, providing for a very strong start to the year. The adjusted EBITDA result is up 138% and the respective margins are up 680 basis points year-over-year. In addition to impressive flow through of the top line growth, ModSpace related cost synergy realization ramped throughout the quarter such that approximately 40% had been action and are included in our results as we exited the quarter. These cost synergies, along with those of prior acquisitions contributed $7.3 million of cost savings in the first quarter of 2019. Third, we have accelerating adjusted EBITDA growth and continued margin expansion. With a strong start to the year, we are confident in achieving an adjusted EBITDA run rate of approximately $400 million as we exit 2019. The recipe to achieve this improvement is straightforward and largely within our control.

Fourth, the free cash flow generation accelerates in the second half of 2019 headed into 2020. Given the cost and cash expenditures associated with achieving the cost synergies are biased to the first half of 2019, we expect our discretionary free cash flow generation to approach $200 million annualized rate as we head into 2020.

And fifth, the net income and free cash flow generation in the second half accelerates deleveraging into 2020. These accelerating earnings and inherent cash flow characteristics of our platform provide confidence that by the second quarter of 2020, we expect to be at or below 4x net debt-to-adjusted EBITDA, in line with our target net leverage range of 3x to 4x.

In summary, we're proud of our Q1 results and the entire WillScot team to deliver them. Our team is fully aligned toward our objective to safely and prudently achieve a run rate of $400 million adjusted EBITDA as we exit the year. We believe achieving this goal as well within our control, all while continuing to delever the business.

And turning to slide five, no other company in our sector has the scope, scale, turnkey capability and service commitment to deliver as we do. For the combined business on a pro forma basis, our 2018 revenues were just over $1 billion and our adjusted EBITDA was $285 million. This is inclusive of our three acquisitions, Acton, Tyson and ModSpace as if we had owned then for the entire period.

Approximately 90% of our revenues are generated in the US, serving a very diverse group of end markets. Beyond our substantial scale advantage, there are three attributes that differentiate WillScot. First, as I mentioned, a ready to work proposition. We've repositioned the business strategically with this unique value proposition through the expansion of our offering of value-added products and services, or VAPS. Our customers value it and is driving our growth with highly accretive returns.

Second is our differentiated and scalable operating platform. Over the past several years, we've invested in our people, our processes, our technology and have created a highly scalable and differentiated operating platform capable of asserting market leadership. The operating platform includes sophisticated price management and capital allocation characteristics. We have successfully leveraged this platform to swiftly and efficiently integrate acquired companies.

Third, we have attractive unit economics, which provide a high degree of visibility into our future performance. Over 90% of our adjusted gross profit is derived from our recurring leasing business, which is underpinned by long-lived assets, typically 20 years, coupled with average lease durations of 30 months.

Now, turning to slide 6. Over the last six quarters, we've doubled the size of the company by leveraging the unique WillScot operating platform in order to augment and further accelerate the already strong organic growth with highly accretive M&A. As depicted in the boxes above the arrow, our adjusted EBITDA has continued to accelerate since we recapitalized and returned the company to public markets in late 2017.

The first quarter of 2019 represents the eighth consecutive quarter of adjusted EBITDA growth. Now during 2018, we joined the Russell 2000, all while making and integrating three acquisitions. As evidenced in our Q1 2019 results, the execution of the ModSpace commercial, operational and systems integration has now enabled us to begin to realize the associated substantial embedded cost in commercial synergies. Tremendous effort has gone into safely and efficiently integrating these companies, and I'm extremely proud of our team and their accomplishments.

So we turn to slide 7, the contributions from the organic lease revenue growth combined with significant synergy realization are evident in our Q1 results. Starting at the left, you will note that our Q1 2018 adjusted EBITDA was $35.5 million. This would have included Acton acquisition prior to its subsequent integration. During the same period, ModSpace delivered $24.1 million of adjusted EBITDA prior to our subsequent acquisition, combined for a total pro forma Q1 2018 adjusted EBITDA of $59.6 million. As previously noted, we realized $7.3 million of cost synergies related to the acquisitions through corporate branch sales personnel consolidation, planned real estate consolidation and other SG&A savings in the period.

In addition to the $7.3 million of cost synergies, we realized $17.6 million increase as a result of organic growth, primarily driven by rate optimization, VAPS penetration as well as some deferred seasonal variable costs, all building to our first quarter adjusted EBITDA result of $84.5 million, which I will remind, use up 138% as reported, is also up 42% on a pro forma basis over the same period in 2018.

The bottom line contributions coupled with impressive flow through of the top line improvements resulted in a Q1 adjusted EBITDA margin of 33.1%, which represented an increase of 680 basis points versus the first quarter of 2018 and 870 basis points on a pro forma basis. This extraordinary margin expansion highlights the value of scale and synergy realization in our business, when combined with our commercial strategy, drive lease revenue growth organically through right optimization and VAPS.

Given the strong start to the year, we're well on track to achieve an adjusted EBITDA run rate of $400 million, EBITDA margin expansion of 35% and to be generating substantial discretionary free cash flow as we exit 2019. We've delivered on our commitments and we expect to continue to do the same.

I'm turning to slide 8. I'd like to provide a snapshot of the key US leasing KPIs realized in the first quarter of 2019, as they provide the primary foundation for the run rate in which we entered the current quarter. I'm presenting these results on a pro forma basis as this best reflects the underlying trajectory of the business.

In the top left chart, ModSpace average monthly rental rate of $577 was up 13.6% as previously noted, representing the sixth consecutive quarter of solid double-digit increases. This increase is driven by expanding vast penetration and the WillScot price optimization tools. In the left middle chart, US Modular space utilization was up 240 basis points year-over-year to 74.8%, given our continued focus on rate optimization, VAPS expansion and capital allocation as we continue to rebalance the acquired idle fleet. And in the lower left hand, US Modular space units on rent were down 2% in the first quarter, as the company executed major integration and fleet rebalancing activities across the branch network.

While quote activity has remained at or above our expectations throughout the quarter, our deliveries to new projects are ramping up a bit later in the season than normal given both the expected integration-related activities and generally more broad spread weather impacts, which have delayed some project starts.

Our primary focus throughout the integration and subsequent period of optimization remains the safety of our colleagues; second, rate harmonization and optimization; third, VAPS penetration and; fourth, asset utilization. Turning to slide 9, in addition to the $70 million of cost synergies, there is a $140 million of annualized revenue growth opportunity achievable over the next three years. I am delighted to confirm that our VAPS penetration levels continue to increase toward our long-term goals. In the first quarter, the average rate of VAPS value per month across all office units delivered the prior 12 months increased to $260. This rate was up 21% over LTM levels achieved the prior year. This is particularly pleasing given the past 12 months incorporated the integration of both Acton and ModSpace acquired portfolios. We've been successful in combining our sales team who themselves have been successful in introducing this unique value proposition to many new customers. Behind the scenes, our operations and logistics team have done an outstanding job equipping and expanding our supply chain to facilitate continued growth.

Increasing VAPS penetration will remain a key focus to this business. Aside from M&A, the expansion of the ready work value proposition represents the fastest growing aspect of our business with returns of greater than 40% unlevered IRR. We expect the demand for this value proposition will continue to increase over several years as we both expand our offering and increase our penetration to our legacy customers as well as those customers associated with the new acquired businesses.

And finally, before turning it over to Tim, Tim I would ask you to turn your attention to slide 10 in order to expand upon our diverse end markets and our demand outlook. First, for those of you new to the story. I'd like to direct you to the pie chart in the bottom left of the slide, which depicts our customer profile. Our customer base is highly fragmented with no customer representing more than 3% of our revenue and the top 50 customers representing less than 15% of the revenue.

A few highlights at the end market level are the construction and commercial and industrial end market groups represented by the darker green and black slices are comprised of 11 discrete end markets providing for an overall very diverse end market mix.

No end market segment represents more than 17% of our revenues. Non-residential general contractors, which is its largest group is actually quite diverse in itself as their projects are typically serving one of the other discrete end markets. And finally, energy and natural resource end markets represent 8% of our revenue and has remained stable over the last several quarters.

The majority of the revenues in this segment are from customers associated with mid and downstream energy, mining or other major utilities which continue to remain stable as they have now for several years. Our overall demand outlook remains positive, quite balanced and we continue to see strength across our diverse end markets and geographies.

Consistent with our prior calls. I'd like to highlight a few relevant external forecaster indicators. First, the American Rental Association is forecasting 5% annual revenue growth through 2020. Second, the AIA Consensus forecast is generally for 3% to 5% growth, above the same period as depicted in the charts at the top left of the page. The ABI, which has been a good leading indicator for non-res construction activity of 47.8 in March, has been above 50 are positive for 23 in the last 24 months. ABI reported inquiries and new projects and the value of new design contracts remain positive.

Non-residential construction starts on a square foot basis continue to remain stable with current levels, in line with long-term averages. And finally, US and Canadian 2019 GDP forecasts for growth above 2%. Now largely not included in our outlook, we would expect that any substantial US infrastructure spending bills now rumor to be up to $2 trillion once approved and implemented with further underpin and strengthened most of our diverse end markets.

We expect to our end markets remain supportive as we look ahead. At the same time, we will remain diligent and maintaining our flexible capital strategy investing to support growth as our markets are currently affording and balancing growth and long-term returns. As a reminder, one of the key strengths of our business model is to the discretion, which we have over our capital spending in the short term, coupled with our over 30-month average lease terms and our long-lived assets. Together allow us to reduce capital spending and drive free cash flow to the extent markets do not support growth. We have a disciplined quarterly process through which we continually reassess demand and control our capital allocation.

With that, I'll hand it over to Tim, who will provide additional context.

Timothy D. Boswell -- Chief Financial Officer

Thanks, Brad. Please turn to slide 12. Q1 was an exciting quarter for WillScot as we began to see significant synergy value from both the Acton and ModSpace acquisitions contributing to our financial results, and we expect this synergy contribution to build each quarter in 2019 consistent with our original expectations. The top chart show our year-over-year revenue and adjusted EBITDA growth, as they are reported in our financial statements. Revenues were up 89.2% and adjusted EBITDA was up 138% versus prior year. As Brad mentioned, about half of the adjusted EBITDA growth is coming from the prior year contribution of ModSpace and the other half is coming from both synergy realization and flow-through from organic growth in the combined leasing operations.

The net result was $84.5 million of adjusted EBITDA, which is also up 15% sequentially, relative to Q4 of 2018 and marks our 8th consecutive quarter of sequential EBITDA growth. The bottom chart show revenue and adjusted EBITDA growth year-over-year on a pro forma basis, which is a better indication of how the combined portfolio performed organically. Total revenue was up 4.5% on a pro forma basis, with 8.9% year-over-year growth in modular leasing revenue, partly offset by a decline in sales revenue. This revenue mix shift favoring our leasing operations is healthy and intentional and we expect we'll continue through the course of 2019 and consistent with what we've articulated previously. The takeaway from the pro forma charts is that we saw tremendous operating leverage in the platform and flow through to adjusted EBITDA in Q1. Of the roughly $25 million increase in pro forma adjusted EBITDA, approximately $7.3 million came from cost synergies that we had specifically identified into action. This $7.3 million represents $29.2 million of annualized cost savings or 42% of the original $70 million annualized cost synergy opportunity. We are thrilled to see it dropping to the bottom line as planned. Of the remaining $17.6 million increase in pro forma adjusted EBITDA, variable costs such as direct labor, materials and commissions were approximately $5 million lower than we expected due to delivery volumes, which appear to have shifted into Q2 based on the slower seasonal start to our year that Brad referenced.

I'll come back to that somewhat peculiar dynamic in a minute. But that leaves just over $12 million of adjusted EBITDA growth that resulted from the $14 million increase in leasing revenue and was partly offset by a $3 million decline in sale revenue. That suggests flow through to adjusted EBITDA from lease revenue growth in excess of 90%, which makes sense given our emphasis on pricing and value-added products and this was enhanced by improved margins on delivery in installation services, which is quite encouraging.

Our gross margin on D&I was 13.8% and up 410 basis points year-over-year on a pro forma basis, primarily due to pricing initiatives. These three items cost synergies in deferred seasonal variable cost in organic flow through drove 870 basis points of margin expansion on a pro forma basis, which puts us well on our way to the 35% margin target that we've communicated for Q4 this year.

That said, the $5 million of deferred variable costs added approximately 200 basis points of margin in Q1 and I expect that 200 basis points will reverse in Q2 as delivery volumes appear to be ramping later in the season. Again overall, this result supports the full-year outlook, as well as the 35% adjusted EBITDA margins and $400 million adjusted EBITDA run rate by Q4 of this year. However, the margins should dip a bit now in Q2 before continuing the expansion to our target due to this atypical seasonal dynamic.

Turning to slide 13. This is our usual reconciliation of net loss to adjusted EBITDA. While we believe adjusted EBITDA as the best indicator of our operating performance, we remain bottom line focused and expect to improve that bottom line steadily throughout 2019. In Q1, total restructuring integration and related impairment costs totaled $18.4 million and are down 40% sequentially after peaking in Q4 last year. The tapering off of these charges, combined with the continued synergy realization and contribution from organic lease revenue growth give us confidence in our transition to consistent net income generation in the second half of this year.

One minor clarification on this page, we incurred a $2.3 million non-cash impairment charge related to real estate that we intend to sell, which sounds like a bad thing. In our 10-Q, you will also see that we wrote off the fair value of certain ModSpace property plant and equipment by nearly $5 million on the opening balance sheet. So we're actually seeing some net favorability and are encouraged by the valuations we are seeing in our initial property transactions. Remember, our goal with the surplus and real estate is simply to maximize proceeds and redeploy unproductive capital.

Slide 14 gives a summary status update as to where we stand overall and synergy realization integration and restructuring costs as well as real estate proceeds. We've already discussed the impact of cost synergy realization in the quarter. Approximately 42% of the total $70 million annualized opportunity was reflected in our Q1 results and we continue to expect that 80% of the full-annualized opportunity will be reflected in our Q4 results this year.

As a reminder, these synergy totals do not include any potential Phase 2 opportunities which we may quantify in the future as we optimize operations. In the middle chart, at this point, we do believe it is prudent to assume some contingency for integration and restructuring costs approximately half of which could result from the planned shutdowns of the three former ModSpace manufacturing facilities and the remainder reflects some risks and uncertainty related to the other potential lease terminations.

We're not 100% certain that these contingencies will be necessary, but we did want to flag the potential risk to our original integration cost estimate. And while we are managing that risk aggressively, we do believe that any risk there would be offset entirely from a cash perspective by the incremental real estate proceeds that we have identified in the right-hand chart. Our exit of owned real estate positions is progressing very nicely. We will begin to realize cash proceeds from property sales in Q2. And while the overall timing of these transactions is hard to predict, there is a potential to realize up to $30 million of cash proceeds from real estate in 2019, which would be significantly faster than our original expectations.

As a reminder, our updated expectation of $40 million of estimated total proceeds excludes the 43 owned properties that we discussed last quarter that we expect to retain with carrying value of approximately $58 million. On slide 15, Brad already highlighted the fundamental leasing KPIs in the US segment. In the top left chart, utilization was up 240 basis points on the modular fleet year-over-year, primarily due to reductions in the ModSpace fleet size last year. In average, units on rent were up (ph) 2% year-over-year on a pro forma basis due to the integration and seasonal disruptions discussed already. While volumes on rent create a headwind in the remainder of the year, that risk is entirely offset by the continued strong performance of core rates and value-added products. So our guidance range and expected Q4 run rate are unchanged.

Slide 16, goes into a bit more detail on the US segment revenue and adjusted EBITDA performance, which is driving the trends that I already discussed at the consolidated level. And on slide 17, I will add very brief comments regarding our North America segment -- our other North America segment rather which includes operations in Canada, Alaska and Mexico. No significant change in this segment in Q1, we continue to view it as stable with strength in both Eastern Canada and Mexico and opportunity in Western Canada and Alaska, but more so as we look beyond 2019.

Overall revenue was flat sequentially from Q4, with equipment sales and the sequential increase in pricing, offsetting a sequential decline in average units on rent. And the margin expansion in Q1 looks impressive but it was largely driven by equipment sales that provided $1.5 million of contribution. So it is not a result that we are extrapolating.

I will spend some time on Slide 18, because it illustrates how the business is changing through the course of this year from a cash flow perspective. You will recall when we issued our 2019 guidance in early January that we provided a bridge from adjusted EBITDA to free cash flow. They indicated approximately $55 million of free cash flow for the year at the midpoint of our ranges. On that call, we also discussed how we expect the business to transition from net losses and cash consumption in the first half of the year to consistent net income and cash generation in the second half of the year.

That transition is being driven by synergy realization, the tapering of our integration and restructuring costs as well as continued lease revenue growth. And these dynamics would result in accelerating free cash generation quarter-to-quarter throughout 2019. That is still what we see in the top left chart we present our adjusted EBITDA, free cash flow bridge for Q1 in that same format we used in January and the bottom left chart shows the implied adjusted EBITDA to free cash flow bridge for the remaining quarters using our original guidance ranges. This begins to illustrate how we expect the remaining quarters of the year to be significantly more cash generative than Q1, ultimately culminating with the $400 million adjusted EBITDA and $200 million discretionary free cash flow run rate as we head into 2020. Focusing on the bottom left chart and starting on the left, the remaining $260 million to $280 million of adjusted EBITDA that we expect to generate will be driven by business fundamentals, such as our recent KPIs, delivery and installation margins, fluctuations in sales as well as the pace of synergy realization.

The $80 million of remaining cash interest this year assumes no change in our debt structure or weighted average cost of debt. The $90 million to $120 million of remaining capital expenditures will be reassessed quarterly and driven primarily by demand for refurbished equipment and value-added products. And you can see that the remaining cash headwind from integration costs is largely behind us given the offsetting real estate proceeds that we are beginning to realize. Altogether, this suggests a profound transition in our cash flow profile, which was a fundamental expectation underlying our original consolidation thesis as well as our organic operating strategy.

Moving to slide 19, there have been no material changes to our debt structure other than the planned $30 million ABL draw to fund the upfront integration costs and capital expenditures. We remain very comfortable with the flexibility we have to manage the debt structure in light of the change in cash flow dynamics I just discussed, as well as the overall outstanding Q1 results, which illustrate that any perceived execution risk associated with our consolidation activity or leverage is dramatically reduced with each passing quarter. Approximately 70% of the debt structure is fixed rate, inclusive of our interest rate swap. So we see limited interest rate exposure with some clear opportunities to reduce our weighted average cost of debt which is currently approximately 6.5%. We have no debt maturities prior to 2022. We do have flexibility to repay that at every level in the debt structure. So we have good optionality around how we delever when we transition to cash generation.

In the meantime, we will monitor market conditions as always and be opportunistic to the extent we can improve the capital structure. We maintain our four times leverage target by Q2 of 2020, as measured on a trailing basis, and expect we will be there sooner on a run rate basis assuming current market conditions and a full capital expenditure plan.

In the combination of 30-month average lease durations underpinning our lease revenue and a 90-day capital planning cycle give us both visibility to this target as well as tremendous flexibility in managing our discretionary free cash flow, two of the many reasons why this was a great business.

With that, I'll hand it to Brad on slide 20 for closing comments and then Q&A.

Bradley L. Soultz -- President and Chief Executive Officer

Thanks Tim. In closing, our strategy is working and we continue to deliver on our commitments. We're extremely proud of all that we accomplished in the first quarter of 2019 which provides the foundation for a great future. We're very confident in our 2019 outlook and in our ability to achieve an adjusted EBITDA run rate of $400 million with discretionary free cash flow generation approaching $200 million annualized rate as we head into 2020.

These accelerated earnings, inherent cash flow characteristics of our platform provide confidence that by the second quarter of 2020, we expect to be at or below 4x net debt-to-adjusted EBITDA as Tim articulated.

We appreciate that you have taken the time to join us today and for your interest in our company. We look forward to speaking with many of you very soon. That concludes our prepared remarks. Now, we'd be happy to take your questions. Operator, please open the line.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Manav Patnaik from Barclays. Your line is now open.

Manav Patnaik -- Barclays -- Analyst

Thank you. Good morning gentlemen. The first question I had was if you could just provide some more color on the new order activity that you said was picking up at the end of the quarter and how you anticipate that to track, I guess going forward?

Bradley L. Soultz -- President and Chief Executive Officer

Yes. As I mentioned in my prepared comments, the quote activity throughout the first quarter remained at or above our targets, if you consider kind of historic pro forma levels, so we're quite pleased with the quote activity. Order rates, so the conversions are close to order, ramped nicely throughout the quarter, and then obviously the delivery of those orders ramped a bit lower for both the reasons mentioned, the integration related friction, I would say and certainly more broad spread weather impacts than we've seen at least in the last four or five years I've been involved in the industry.

Manav Patnaik -- Barclays -- Analyst

Got it. And then just in terms of the synergies, overall, I think you have talked about, there are other synergies that you haven't quantified yet. Are we getting close to coming up with some of those. Just wanted to see where you guys were there?

Timothy D. Boswell -- Chief Financial Officer

Yeah. Manav, this is Tim. And I expect as we get little deeper into the year next quarter or two, we're able to talk a little bit more specifically about that. For now, we're just very, very encouraged that the original expectations are starting to show up in the results/ That will continue to build throughout the course of the year and we will turn our attention to future opportunities thereafter.

Manav Patnaik -- Barclays -- Analyst

All right, got it. Thanks guys.

Operator

Thank you. And our next question comes from Kevin McVeigh from Credit Suisse. Your line is now open.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks. Hey, I wonder, I'm actually I'm surprised the volumes aren't down more. Just given the integration you went through, just really what's driving I think the outperformance on that, number one? And then number two, if you think about it relative from the sales force relative to kind of key clients, is the waiting one toward more toward the other or just any thoughts around that, Tim or Brad?

Bradley L. Soultz -- President and Chief Executive Officer

I think where we've seen the biggest disruption is in some of the smaller transactional business. We remain extremely well positioned with our larger clients and the larger complex activity, but some of that transactional business can get disrupted through either, what's going on in the branch network or in the back office as well. As you know, the unit on rent portfolio moves very slowly given that the 30-month average lease duration in the portfolio. So whether it's going up or down, it's going to do it very gradually and that's what we see to date and as order activity picks up, we see a gradual recovery. But with pricing and value-added products offsetting any weakness we've seen from about volume perspective.

Timothy D. Boswell -- Chief Financial Officer

Kevin, one thing I would add is, I appreciate your context, I mean it's a significant task to go from what was about 200 operating branches to 120. If you recall that occurred November 1, shortly after we closed the ModSpace transaction. So at that point, we had made really substantial structural expansions at any of those locations. But the team's mandate was focused on the customer, take care of the customer first, not to drop the balls. So, as you articulated, I'm quite pleased with how we navigated the initial consolidation. And now as we've continued to progress, you've got rebalancing of all the idol acquired fleet as well as some more structural expansions at the various remaining 120 branches, which will continue to improve our effectively and efficiency as we go forward.

Kevin McVeigh -- Credit Suisse -- Analyst

That makes sense. And then just, any sense -- obviously the pricing has been great, how long do you think you can sustain that double-digit pricing?

Timothy D. Boswell -- Chief Financial Officer

That's always a tough one to say, Kevin. Original expectation is we push that through the course of this year, and we'll reassess as we get deeper into the year. But certainly the results in Q1 were very encouraging, and suggest continued traction. Brad mentioned, you saw that delivered rates on value-added products pick up by another $10 for the LTM period ended March, which is great. We love to see that number continuing to go up and the overall $140 million value-added product opportunity did not change, but as time goes by and that number doesn't change, that's a great thing because we grew the business in Q1 and we still have the same size opportunity we had three months ago. So that's all good.

Kevin McVeigh -- Credit Suisse -- Analyst

Awesome. Thank you.

Operator

Thank you. And our next question comes from Phil Ng from Jefferies. Your line is now open.

Philip Ng -- Jefferies -- Analyst

Hey guys. Can you flush out the seasonality on margins from Q1 to Q2 a little bit more? You call that's in the timing for a variable expense kind of helped margins by I think give or take 20 basis points in 1Q. So you're expecting that to dip declines. So does that kind of normalize out in 2Q, and anything we need to be mindful for the rest of year as your synergies kind of flow through more fully?

Timothy D. Boswell -- Chief Financial Officer

Yeah. Phil, this is Tim. So, in a normal year. I would simply tell you that Q1 margins tend to be a little bit lower than say a Q4 because you're starting to incur more of that variable cost in the branch network as you ramp up for the busier delivery seasons in Q2 and Q3. Okay. So what we saw this year was basically a deferral of some of that ramp up, whether it's integration-related or due to the other seasonal disruptions that we've heard a lot about. So as that activity then shifts into Q2, you get that margin pressure that would otherwise have occurred in Q1, but that you're going to get in Q2. That's all fine. That means orders are picking up, and that's great. In no way changes our view of the overall direction of the business as we think about Q4 and the run rate going into 2020 and it really has nothing to do with the cost synergy realization that we are generating in the business.

This is truly just a normal variable cost that's associated with our delivery activity. So as we've said before, I think of the cost synergies as building and relatively linear fashion through the course of the year and we clearly saw a big chunk of that drop to the bottom line in Q1.

Philip Ng -- Jefferies -- Analyst

That's a good segue, I guess, my next question is, the ModSpace synergies seem to drive fair amount of the upside in quarter, are you realizing that a bit more faster than you would have thought and is the opportunity set shaping a little larger as well? Were there any pockets that kind of surprised due to upside?

Bradley L. Soultz -- President and Chief Executive Officer

No, I'd say the cost synergies coming out are very much in line with expectations. And to Manav's question a minute ago, we are beginning ago, we are beginning to turn our attention to other areas of the business. And whether you call that cost synergy or just operational improvements that are available to us in the business, we do believe there is opportunity there looking forward. Looking at the quarter, one pleasant surprise was the delivery and installation margin that I highlighted, pushing 14%. That's an area where we knew we had opportunity historically from a legacy WillScot perspective and have been dedicating some time and attention.

Philip Ng -- Jefferies -- Analyst

Got it. Thanks a lot.

Operator

Thank you. And our next question comes from Ashish Sabadra from Deutsche Bank. Your line is now open.

Ashish Sabadra -- Deutsche Bank -- Analyst

Hi, congrats. Congrats on the set of solid results. I just wanted to follow up on the earlier comment around delivery and installation margins. Can you just -- you talked about the pricing improvement there as well, but importantly can you talk about opportunity for optimizing logistics, how much is outsourced and what can you do to improve the margins there going forward?

Timothy D. Boswell -- Chief Financial Officer

Ashish, I'll really say on that is that the margin performance in Q1 was largely pricing driven. There is a bit of a dynamic where if you have more of that revenue coming from returns, rather than deliveries that all else equal can help your margins as well. So there was certainly some of that going on given that there was a unit on rent declined sequentially. As it relates to improvements from an efficiency or cost standpoint, it's premature to get into that. And I do expect we will revisit that later in the year.

Ashish Sabadra -- Deutsche Bank -- Analyst

That sounds good. And maybe just a question on the VAPS. Again, you highlighted how the VAPS LTM rates have continued to move up every quarter. What's the current penetration, the $260 monthly VAPS rate, what is the penetration there and where do you think the penetration can go going forward or in a steady state, maybe in the mid term? Thanks.

Bradley L. Soultz -- President and Chief Executive Officer

Yes, this is Brad. What we've kind of stated as our long-term objective is to increase that $260 to $400. We believe that $400 of value per month, we would have penetrated about 80% of our units with furniture. As I have mentioned on prior calls, back to a little capital penetration because almost all the units have steps and ramps, right. So we're primarily talking about is furniture as the driver. So if we're $260 now, we're in that 40% to 50% range progressing toward our long-term goal of $400, which would be about 80%.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's great. And congrats once again on set of solid results.

Bradley L. Soultz -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Scott Schneeberger from Oppenheimer. Your line is now open.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks very much. Good morning. Yes, very nice looking quarter guys. I want to follow up on the first quarter to second quarter margin trend discussion. Tim, I know you don't want to give any quarterly guidance and that's wise, but just because that was such a huge swing quarter-to-quarter, 4Q to 1Q, could you give us a feel any quantification for first quarter to second quarter, just so everyone has a good feel for what that should be? Obviously it's not going to be 450 basis points.

Timothy D. Boswell -- Chief Financial Officer

Yeah, and actually what I intended to convey in my remarks is that, that margin should dip in Q2, Scott. And it's because if you take that $5 million of variable costs, that represents about 200 basis points and we're pushing that I expect into Q2. So that will put us relative to our original expectations, margins came in a bit higher in Q1 due to this dynamic, relative to original expectations, Q2 will come in slightly lower than our original expectations and then normalize consistent with our original plan in Q3 and Q4, culminating in that 35% margin by Q4. So if you take the 33% margin in Q1, take out 200 basis points to 31%, that would be a starting point for thinking about Q2.

The other big variable in there is the delivery and installation margin which was a positive surprise in Q1. Any moderation there could pull down Q2 a bit, especially as you get into that delivery -- very active delivery season. So that's not a cause for any alarm from our perspective, it's just a bit of a unique start to the year in terms of variable cost timing. With everything related to our cost takeout initiatives, well on track.

Scott Schneeberger -- Oppenheimer -- Analyst

Great, thanks. I think that's helpful. I'll use that as a segue to look at the full-year guidance. I think on this end of the phone, things look pretty good, both ends of the phone as far as how you're tracking, but could you rank order kind of the top two or three things you think are opportunities that could push above the high end of the guidance this year and then two or three things that keep you a little bit concerned that could push toward the low end? Thanks.

Timothy D. Boswell -- Chief Financial Officer

Yeah, I'll start with my perspective and then Brad, you give yours. And I touched on this when I was referring to the free cash expectations in Q2, Q3, Q4 based on that original guidance. Obviously, the remaining EBITDA contribution was one of the biggest variables. If you think about the leasing KPIs, what we're seeing right now is a bit of a volume headwind offset by opportunity and price and value-added products. And we -- this is a balancing act we play every year, but any significant change in either of those KPIs one way or the other can drive the lease revenue result. Delivery and installation margins, there is some opportunity there, maybe some margin risk relative to where the percentage came in in Q1, but certainly something we're working on. And I think our sales expectation for the remainder of the year is balanced. So I don't have a meaningful expectation there one way or the other. And the cost synergy realization appears to be tracking very nicely. So I think this is all about the fundamentals of the leasing permits.

Bradley L. Soultz -- President and Chief Executive Officer

Yeah, I think that's right. The only bit I would add is -- Tim touched on volume -- markets could surprise us further to the upside with more acceleration than we're seeing or expecting that would require us to invest more capital and given the same, depending on what happened in the year, right. It could be very helpful for next year's run rate. But you would have some incremental variable costs in the period. So, I consider volume to be probably neutral if it were to surprise us to the upside within the period helpful for next year. And then the only other one that we touched on before is, Tim said cost synergies. If we were able to realize more than the 80% which we targeted and we're confident in or if we were able to start to realize any of these additional Phase II kind of cost synergies. But as Tim said, it's too early to call for now. We're quite proud of where we are leaving Q1 and will focus on all of the above as we move forward.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks. Just one more if I could sneak it in. Brad, on your commentary on volume there, it's interesting. Obviously there's a lot of puts and takes with the integration right now and it's been covered well on the call. But looking out multiple quarters, I think everyone appreciates this focus on rate and the incremental margin flow through and the potential that drives. What is the optimal balance of rate in volume at steady state once you get through the integration process? How do you think about that conceptually a little longer term? Thanks.

Bradley L. Soultz -- President and Chief Executive Officer

Yes, we'd say, and I'll reference our results prior to the integrations like 2015 to 2017. So we were significantly improving rate in VAPS without compromising volume. Now, I will point out that there was a year or two in that period where we were constrained from a liquidity perspective and we couldn't always invest in the growth. So, our focus isn't to sacrifice volume if you will or compromise volume for the other two. We believe we have a good track record of getting it all.

Now having said that, we're also kind of not in the game to go out and buy market share, if you will, and pursue. We would then become a capital-intensive volume based growth strategy. That's not good for us or any of our investors. So I think we're balanced on volume. We are very selective. As we deploy the capital among our 120 branches, the underlying territories. If the rates in the VAPS are interesting in those or advantageous relative to another, we will redeploy the fleet in the capital accordingly. So that's a little bit of the art and science in our price optimization and capital allocation gain. So we think we can do all three we don't have a strategy to compromise volume, if you will. But number one and two are rate optimization and VAPS.

Scott Schneeberger -- Oppenheimer -- Analyst

Great, thanks. Thanks for taking questions.

Operator

Thank you. And our next question comes from Courtney Yakavonis from Morgan Stanley. Your line is now open.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Thanks for the question guys. Just wanted to go back to the comments on some of the delayed deliveries from the first quarter. I think you had commented there was $5 million cost associated with them, but did you clarify the actual revenue amount and how has that all been delivered at this point in the second quarter, or is there still some left to be delivered?

Bradley L. Soultz -- President and Chief Executive Officer

Hi Courtney. I think the short answer is no. The way to think about deliveries is obviously there are a leading indicator of what unit on rent is going to do eventually. Rents were down 2% year-over-year in the quarter and that's a slight increase from the Q4 volume results, which you see is kind of a troughing of that metric. And relative to original expectations a little lower than we would have originally planned, but with some exciting traction on the other side of the equation, which is pricing and value-added products and services. So like I said earlier, it's a balancing act. Order volumes are picking up as we go through Q2, but we're still just a third of the way through Q2.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay. Got it . And then just on some of the restructuring impairment cost contingencies that you're baking in now, I just want to make sure, all of the branch consolidation has occurred at this point, it's really, are these contingencies related to the back office or maybe if you can just explain a little further what they are for, appreciating that they're offset by the additional real estate proceeds (ph) ?

Bradley L. Soultz -- President and Chief Executive Officer

Right. And the distinction here is we have consolidated our operating locations. Meaning, all of the maintenance work and the personnel et cetera are being done in a single location to the extent this is a market where we have consolidated locations. You may have an idle real estate position on a lease property that still needs to be exited. So that could be a lease breakage, it could be a write out that lease depending on the economics of the specific situation and that's what we're managing through. And that's always been part of the plan. This is just a distinction of operating in locations were consolidated in Q4 last year. The physical exit of some of the remaining surplus properties is taking place through the course of this year. And the biggest contributor there are several of them, the ModSpace legacy manufacturing locations that I mentioned. Does that answer your question, Courtney?

Courtney Yakavonis -- Morgan Stanley -- Analyst

Yes, that's very helpful. Thank you. And then just lastly, forgive if I missed it, but I think you used to provide us how much of the rental rate growth was from core versus VAPS did you get that this quarter?

Bradley L. Soultz -- President and Chief Executive Officer

We did not. I think last quarter in Q4, we had referenced a 60/40 split in favor of just core rental rates.

Timothy D. Boswell -- Chief Financial Officer

Yeah, we've characterized 60/40, 50/50. We continue to see that range and we would expect that going forward through the period through 2020 (ph) .

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay. So, no, dramatic change this quarter ?

Bradley L. Soultz -- President and Chief Executive Officer

No, no change in the trends.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay, got it. Thanks.

Operator

Thank you. And our next question comes from Sean Wondrack from Deutsche Bank. Your line is now open.

Sean Wondrack -- Deutsche Bank -- Analyst

Hey guys. Great job setting expectations and meeting them in the backdrop of a pretty complex integration going on.

Bradley L. Soultz -- President and Chief Executive Officer

Thanks Sean.

Sean Wondrack -- Deutsche Bank -- Analyst

First question more of housekeeping. I think last quarter you said pro forma adjusted EBITDA as of 4Q18 was about $284.5 million. With the growth this quarter, I am getting to $309 million to $310 million range. Does that sound right to you?

Timothy D. Boswell -- Chief Financial Officer

That sounds about right. And obviously that does not include the additional cost synergy realization that will build through the course of this year. So for example, when we're reporting that pro forma adjusted EBITDA metric to our banker, for example, you get a significantly higher number.

Sean Wondrack -- Deutsche Bank -- Analyst

Right, that makes sense. Second one, just more on the business. You highlighted in the past, there's been some discrete opportunities within Immigration and Customs Enforcement. I don't know if there's been any change there, sort of to you outlook or the opportunities for your business. But is that something that you could provide sort of a full housing solution for people or is that something to think about?

Bradley L. Soultz -- President and Chief Executive Officer

No, just a couple of points. Most of our assets are not coded to be inhabited by people. There were some former sister divisions of the parent holding company that were more focused on that. We do watch activity with ICE and FEMA and the others and I would characterize that as generally they all present opportunities, they kind of move around with the event or challenge of the day. So given our vast portfolio now, there are always some activity somewhere. But it's typically not a situation where an event in one region really moves the needle at the top level. So we stay close to it. We typically benefit locally from these interactions but it's kind of just a small piece of a large portfolio if you will right now

Sean Wondrack -- Deutsche Bank -- Analyst

Great. Okay, thank you. That's helpful. And then just a couple of more quick ones. When you talk about the four turns leverage target by 2Q of 2020, in that target, are you assuming any debt paydown or is that all basically going to be done through ratio deleveraging?

Timothy D. Boswell -- Chief Financial Officer

No, we are absolutely assuming gross debt pay down. On the free cash flow slide, I explained how the business transitions through the course of 2019 to fairly substantial cash generation, as we get to Q4. And that trend should continue into the first half of 2020, all else equal. So yes, absent any other capital allocation plan, that free cash would go to repay debt.

Sean Wondrack -- Deutsche Bank -- Analyst

Gotcha. And then as you think about capital allocation, I don't know if it's too early to comment on this, but given that you're going to begin start generating cash, when you kind of rank your top three sort of priorities for capital allocation, where would sort of debt reduction versus dividends or share buybacks versus acquisitions sort of rank there?

Bradley L. Soultz -- President and Chief Executive Officer

Yeah, I'll start and then Tim jump in. I think between now and the second quarter is clear, we're going to get ourselves back into the 3x to 4x range. I am personally quite comfortable with the 4x range. I think once we're back to that level, I mean, everything is and will be discussed with the Board. We think this platform that we created and have grown here has pretty interesting and significant further investment opportunities as we expand our VAPS offering. Maybe we expand into other adjacence. And of course, we are compelled to, we always keep our eye out for further accretive M&A.

Sean Wondrack -- Deutsche Bank -- Analyst

All right. That's it for me. Thank you very much and good luck.

Operator

Thank you. (Operator Instructions) And our next question comes from Ross Gilardi from Bank of America. Your line is now open.

Ross Gilardi -- Bank of America -- Analyst

Thanks for squeezing me in guys.

Bradley L. Soultz -- President and Chief Executive Officer

Hi Ross.

Ross Gilardi -- Bank of America -- Analyst

I think I get the interplay between Q1 and Q2, which have gone through a number of times, but I'm just really wondering at the end of the day, I mean, you did a 33% EBITDA margin in the first quarter. Okay. It's going to down a little bit in the second quarter. I think you're still aiming for 35% by Q4, and your guidance implies like 32% at the midpoint. And you got all these synergies that are still going to roll through. So I get the Q2 is going to give back some of the gain in Q1, but why aren't you raising the guide today? Like what's -- I don't really hear anything from you that seems like all that big of a concern on the demand environment.

Bradley L. Soultz -- President and Chief Executive Officer

I think that's a fair observation. First quarter is a very strong start. It's one quarter or four . Right. We are maintaining our guidance of $345 million to $365 million. Maybe if I had to call today, we're tracking a bit to the higher side of that. We'll watch this as we progress through the year and keep you posted.

Ross Gilardi -- Bank of America -- Analyst

Got it. It's not a (inaudible). It's great quarter for sure. I was just trying to understand a little bit more. And then on the rate, I'm not sure if I'm comparing apples and oranges or though, but you just did 13.6% pro forma rate in Mod US? What is in your guide like 10% for the year or is that for the overall module leasing business?

Bradley L. Soultz -- President and Chief Executive Officer

We were referring to the Mod US business when we talked about 10% for the year. So I think that's apples to apples. And to your comment earlier, we had a volume headwind relative to original expectations and a very good pricing in VAPS result in Q1. So that's the balancing act we will play every year.

Ross Gilardi -- Bank of America -- Analyst

Okay. Got it. But I mean, it seem like you have a fair amount of cushion there at least out of the gate to doing 10%. I mean I imagine your guidance is baking in 10% of rate growth in Mod US at the mid-point?

Timothy D. Boswell -- Chief Financial Officer

Yes, that's a fair observation. We did not give quarterly guidance in terms of how that trends through the course of the year. I think you can model the value-added products component of that, but it's not necessarily a static assumption in terms of our original outlook. So that's probably coming into play as well.

Ross Gilardi -- Bank of America -- Analyst

And then, I just want to ask you two -- what's happening in portable storage? I mean obviously the focus is really on the mobile office business and this has been less of a focus, but is it core to you that the demand just clearly is softer there and it's a smaller business? What are the real synergies with that part of the business with the rest of WillScot and could any of those assets be divestiture candidates over time?

Bradley L. Soultz -- President and Chief Executive Officer

I would say, this is Brad. It's quite an interesting aspect of our portfolio, it's just currently less than 5% of our net book value. And our focus, I think appropriately over the last year has been to leverage the Office platform and achieve the results we're achieving. I mean, looking forward, I would characterize we treat the storage a little more like a VAPS right now. It's, something we like to move along with offices. It's a large addressable market, it has very similar unit economics to our office is loaded with VAPS, very similar lease duration. So we really like the characteristics of the portable storage business. And I think as we look ahead over the years, it's a part of the business I'd be interested to continue to expand.

Ross Gilardi -- Bank of America -- Analyst

Okay, got it. Thanks guys.

Operator

Thank you. I am not showing any further questions at this time. I would like to turn the call back to Brad Soultz for any further remarks.

Bradley L. Soultz -- President and Chief Executive Officer

No, I think we've touched on everything and we are running short on time. So proud of our results and look forward to speaking with everyone at the end of Q2. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

Duration: 65 minutes

Call participants:

Matthew Jacobsen -- Vice President of Finance

Bradley L. Soultz -- President and Chief Executive Officer

Timothy D. Boswell -- Chief Financial Officer

Manav Patnaik -- Barclays -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Philip Ng -- Jefferies -- Analyst

Ashish Sabadra -- Deutsche Bank -- Analyst

Scott Schneeberger -- Oppenheimer -- Analyst

Courtney Yakavonis -- Morgan Stanley -- Analyst

Sean Wondrack -- Deutsche Bank -- Analyst

Ross Gilardi -- Bank of America -- Analyst

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