XPO - Q1 2016
May 4, 2016
Transcript
Operator (participant)
Welcome to the XPO Logistics First Quarter 2016 Earnings Conference Call and Webcast. My name is Manny, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you have a question, please dial star one on your telephone keypad. Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements.
A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, including its outlook, except to the extent required by law. During this call, the company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release on the related financial tables. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures, in the Investors section on the company's website at www.xpo.com. I will now turn the call over to Mr. Brad Jacobs. Thank you, Mr.
Jacobs. You may begin.
Brad Jacobs (CEO)
Thank you, operator, and welcome to the call, everybody. With me today are John Hardig, our CFO; our Chief Strategy Officer, Scott Malat; and the head of our Investor Relations, Tavio Headley. The year is off to a very strong start. We generated $249 million of adjusted EBITDA in our seasonally slowest quarter. That puts us solidly on track to deliver at least $1.25 billion in adjusted EBITDA this year. We generated organic revenue growth in the quarter ex-fuel of 12%. Europe, which is about a third of our business, is firing on all cylinders with accelerating top-line growth and margin expansion. Both transportation and logistics beat budget again this quarter. Europe generated 16% more adjusted EBITDA as part of XPO than it did a year ago pre-acquisition.
Our North American LTL business was one of the stars of the quarter. We improved the adjusted operating ratio by 270 basis points, coming in at 92.9%, compared to 95.6% a year ago. On a year-over-year basis, we grew adjusted operating income in LTL by 54%. As of May 1, we're now up to $90 million of profit improvement in LTL on a run rate basis, well on our way to $170 million-$210 million of annual profit improvement by the end of 2017. The three biggest components of that $90 million of profit improvement were taking costs out of the back office, improved procurement costs, and rebidding the outsourced line haul. We've instilled a culture of accountability in LTL with a laser focus on operational excellence.
In the first quarter, we increased our efficiency in fleet operations with higher utilization, lower maintenance expense, and more miles per gallon. We're also delivering on the results that matter most to our LTL customers. In the recent Mastio Shipper Survey, which covers 2015, our LTL operations ranked number one among national LTL carriers in the categories of trustworthiness, shipments picked up when promised, shipments delivered when promised, transit times, and several others. Since the acquisition, our team has improved on the most important customer service metrics from a year ago, with even better performance for on-time pickup and delivery and damage-free freight. That's LTL. Lots of good stuff there. In transportation in general, North American volumes remained soft in the quarter, while European trends were more favorable. Our fastest top-line growers continued to be last mile and truck brokerage.
Our truck brokerage business is gaining share with our existing brokerage customers as shippers consolidate their freight with fewer 3PLs. This trend plays right to our strength of scale, lane density, service range, and cutting-edge technology. In last mile, we're also taking share in a fast-growing industry that's being fueled by online sales. Last mile revenue is up 33% from a year ago, and margins are expanding. We've already closed on $30 million of new last-mile business this year, and we have another $225 million in the pipeline. It's a fast-growing revenue stream that's being fueled by cross-selling with our customers in other lines of business and by e-commerce. Stepping back and looking at XPO as a whole, our operations are meeting, or in many cases, beating plan despite a sluggish macro environment. There are a lot of reasons for this.
We have a strong franchise in each of our service offerings, and we're well diversified by geography, by verticals, and by type of service.... For example, contract logistics typically performs well in all parts of the cycle, whereas transportation is more cyclical. In Europe, the macro conditions are more favorable right now than in North America. E-commerce growth, which is on fire worldwide, helps our last mile business in the US and our e-fulfillment business in Europe. Low fuel prices are a positive for trucking, though a negative for intermodal. We're also benefiting from many opportunities that are unique to XPO. These include numerous synergies and cost savings from the two major acquisitions we did last year. We have internal initiatives underway around the world to serve our customers even better, continuously improve our performance, compensate and motivate our people, bring down our procurement costs, and expand our global cross-selling.
XPO is on the radar in every industry that requires transportation or logistics. Our significant investments in technology and our leading positions in so many parts of the supply chain are clearly resonating with customers. We're not just selling brokerage or contract logistics or expedite. We're working closely with customers to identify their supply chain goals and helping them become more efficient, taking out costs. Many times, this involves more than one of our services. So in summary, we are a high-energy, highly disciplined company with many of the industry's best operators leading all parts of the business. And this is why we've been able to grow Adjusted EBITDA by 8 times from a year ago, and with best-in-class organic growth on top of that. And now I'll turn it over to John to review the quarter. John?
John Hardig (CFO)
Thanks, Brad. We had a very strong performance in the quarter. We increased revenue 404% over last year and increased adjusted EBITDA 754% to $249 million, primarily through our acquisitions last year. We also drove solid organic growth on the top line and expanded our margins. Revenue in our transportation segment was $2.3 billion during the quarter, up 309% over last year. Transportation net revenue increased by 436%, and adjusted EBITDA was up 741% due to acquisitions and strong organic growth. In freight brokerage, we increased revenue by 33% in the quarter, led by organic growth in truck brokerage.
Freight brokerage net revenue margin declined to 17.9% from 20.1% last year due to decreases in expedite and intermodal margins, offset by margin improvement in truck brokerage. In intermodal, our service levels are better than we've seen in several years. However, the market remains competitive against the backdrop of loose truck capacity and low fuel prices. Expedite activity was weaker in the quarter due to the sluggish economy and mild winter weather that limited service disruptions. In our less than truckload business, yields remained strong. Revenue per hundredweight, excluding fuel surcharge, increased 4.2% over the prior year. Daily LTL tonnage decreased 5.4% in the quarter, as declines in national account revenue were partially offset by increases in revenue from local and 3PL accounts.
Our LTL operating ratio, excluding amortization of intangibles and integration costs, improved to 92.9, compared to 95.6 last year. This was 270 basis points better than a year ago. Looking at April, while LTL tonnage continued to trend down, yield, excluding fuel, has improved further from the first quarter. From a profitability perspective, the yield increase more than offset the tonnage decline and is in line with our profit improvement goals. In last-mile, we grew revenue by 33% year-over-year, driven by the start of new contracts won last year and a 2015 acquisition. We're seeing a higher volume of new business opportunities driven by growth of the e-commerce market and the continuing trend for retailers to outsource last-mile delivery. We closed 29 new contract wins in the quarter.
Last-mile net revenue margin increased 80 basis points in the quarter as we improved carrier utilization across the larger network footprint. In North American truckload, revenue in the quarter, excluding the impact of fuel, was 2% lower than a year ago, mainly due to fewer loaded miles as a result of the softer truckload market. Despite the challenging market, we increased margins over the prior year by reducing costs and improving empty mile percentage to 9.1% from 10.1% a year ago. In our European transportation business, we drove strong shipment volume growth broadly across most regions in the quarter, and that trend continued into April. France full truckload had particularly good growth year over year, and our LTL business performed consistently well throughout our European footprint. We expanded our margins by putting a strong focus on cost controls and eliminating money-losing sites.
Turning to logistics, our logistics business continues to outperform our expectations. Revenue increased to $1.3 billion from only $141 million a year ago, and adjusted EBITDA increased 337% to $88 million.... Our European logistics business was again a highlight in the quarter, driven by an increase in volumes from existing customers and new contract starts, especially in our e-commerce and food and beverage verticals. Our North American logistics business also had a strong quarter, led by increased volumes from e-commerce, technology, and food and beverage customers. We are benefiting from a backlog of new contracts signed late last year that are coming online in 2016. Corporate SG&A expense increased to $45 million in the quarter from $15 million a year ago. Included in corporate expense was approximately $12 million of integration costs.
The remainder of the increase was from higher compensation, legal, and rebranding expense. The increase in compensation resulted from increased headcount and higher non-cash equity plan expense linked to the increase in our common share price during the quarter. For the full year, our expectation for corporate SG&A expense, excluding non-recurring integration costs, remains unchanged in the range of $95 million-$105 million. Net interest expense was $93 million for the quarter, in line with expectations. Net capital expenditures for the quarter was $97 million. Our expectation for net CapEx in 2016 remains $475 million-$500 million. Depreciation and amortization for the first quarter was $162 million. D&A was lower than expected, reflecting a reduction in the current estimate of Con-way asset values in purchase accounting.
Purchase accounting for the Con-way acquisition is not finalized. However, based on current analysis, we expect D&A to be in the range of $175 million-$180 million per quarter for the rest of the year. Typical for the first quarter, free cash flow was negative. From a seasonality perspective, cash flow is lowest in the first quarter, improves sequentially in the second quarter, and is more significant in the second half of the year. We ended the quarter with $279 million of cash and approximately $850 million of liquidity, when taking into account the $100 million we had drawn on our $1 billion credit facility at quarter end. Now I'll turn the call over to Scott.
Scott Malat (Chief Strategy Officer)
Thanks, John. I'll break down some of our strategy and initiatives by segment. Starting with logistics, we've steadily added vertical expertise in supply chain, and as a result, we've opened doors to a broader customer base. We added salespeople and increased incentive comp. The large deals we closed in 2015 and early this year will continue to drive revenue growth in 2016. We're now working on a larger pipeline that we expect to accelerate growth in 2017 and 2018. The new business pipeline for our logistics business in Europe is over EUR 500 million, which is up about 25% from the first quarter last year. A lot of the new business is coming from e-fulfillment, where we're the leader in Western Europe.
In North America, our logistics pipeline contains over $400 million of potential business. That's up significantly from about $150 million at the beginning of this year. These are active bids, largely in the areas of consumer packaged goods, chemicals, food and beverage, high tech, and healthcare. In transportation, starting with LTL in North America, industry volumes continue to be soft. The real story, though, is all the levers we have in LTL to create value within the business. We're maintaining price discipline, increasing our sales and service efforts, and rightsizing the cost structure. Our next big wave of savings in LTL is going to come from purchased services, technology, and back-office functions. We're also implementing several network optimization projects for LTL. We're reengineering our standards and developing new algorithms to improve the efficiency of our line haul and pickup and delivery routing.
Recently, we rolled out new handheld devices in North America and Europe that improve dock operations. Our European LTL team is engaged in similar initiatives for line haul optimization, pricing, and pickup and delivery routing. The intermodal industry in North America has been slow over the last year, given low fuel prices and loose truck capacity. Despite this, we've been able to increase our bidding activity, largely through cross-selling our set, and our sales trends have been improving. Over the past year, we've taken a lot of costs out of the intermodal network. We also launched our proprietary Rail Optimizer technology over the last year, which consolidated a lot of systems to give us better visibility across the entire organization. This created efficiencies while it improved customer satisfaction almost immediately, and our on-time intermodal performance is now at record high.
In North American truckload, we've put in a new management team, and we're instilling the same sense of urgency that we created at LTL. We're beginning to cross-sell some of these trucks through our brokerage network to get the best return on assets. In general, having trucks and trailers on the road has opened the door for our brokerage team. We've seen far more bids than ever before, and customers want to work with XPO. Cross-selling is a big deal for our company. 73% of our top 100 customers already use us for multiple services. Approximately 19% of our sales generated from these customers come from secondary service lines. So for example, our largest customer company-wide just started doing truck brokerage with us in late 2015. It's already one of our largest brokerage customers.
A major packaging customer from Europe was cross-sold to North America supply chain and intermodal. A top industrial LTL account was cross-sold to brokerage. That customer was the sixth largest brokerage customer in the first quarter. Our best salespeople across the organization, our strategic account managers, are intensely focused on cross-selling our services to our largest customers. Our plan calls for doubling the size of our strategic account managers this year. Our integration efforts are very far along and are proceeding ahead of plan. In both Europe and the US, we're fully integrated from a management perspective. We've streamlined the entire organization by integrating sales, technology, finance and accounting, HR, and legal teams to run more efficiently. The entire company has been migrated to one CRM system, which has increased visibility across the organization and enabled cross-selling. We're running global procurement processes to take advantage of our combined scale.
We're on track to rebrand all of the fleet and locations by the end of the year in record time. Worldwide, that's 19,000 tractors and 47,000 trailers. That's about 440 cross-dock facilities and 750 contract logistics facilities, all with the XPO brand. We've developed a clear mission and strategy for where we want to take the company. We've aligned and focused the organization with matching objectives, metrics, and incentives, and all the internal functions are working together. This enables us to go to market as one highly integrated organization with critical mass to serve our customers. So as you can see, we have a lot of initiatives underway to create value. We have world-class operators that continue to execute on our growth plan and outperform the market. We're right on track to meet our near-term and long-term targets.
With that, I'll turn it over for questions.
Operator (participant)
Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Rob Salmon of Deutsche Bank. Please go ahead.
Rob Salmon (VP in Equity Research)
Hey, good morning, guys.
John Hardig (CFO)
Morning.
Scott Malat (Chief Strategy Officer)
Morning, Rob.
Rob Salmon (VP in Equity Research)
You know, with the results at Con-way were really impressive in a tough marketplace. And one thing which caught my eye was the $90 million run rate. I'm curious if that savings that you've already achieved to date does that include the impact of the LTL line haul bid that you were doing for outsourced third-party truckload? And can you give us a sense of how that's going already?
Scott Malat (Chief Strategy Officer)
Yes, Rob, it does. The line haul bid was completed a few weeks ago, and it starts in full force actually this week. And it hadn't been rebid for a number of years, and the bids, we kept most of the same carriers, but obviously, the market's come down a lot over the last few years, and it's a good time to be bidding freight, and we end up saving $10s of millions now having market-based prices for that line haul. But that was part of it. That was only part of the $90 million, a little less than half of it.
We had a lot of back-office synergies, a lot of layoffs in the back office, and we also got some reductions from vendors, particularly in IT, which we appreciate, and that got us to $90 million in six months, which is a good start since we're looking for $170 million-$210 million over two years.
Rob Salmon (VP in Equity Research)
Yeah, for sure. I mean, does that give you confidence that there might be some upside relative to that number, given the execution to date?
Scott Malat (Chief Strategy Officer)
Really happy with the start, the $90 million, and we feel really good about the $170 million-$210 million, and we feel really good about the $1.25 billion this year and the $1.7 billion of EBITDA a couple of years from now. But for the time being, we're going to keep with the $170 million-$210 million. We'll revisit it as things progress. Off to a very good start, though.
Rob Salmon (VP in Equity Research)
Fair enough. Appreciate that color. John, in your prepared remarks, you had mentioned a little bit about the cadence of free cash flow. Could you walk us through kind of the bridge in Q1? I've been getting a lot of inbound questions related to kind of the cash from ops and free cash generation. I realize there's a lot of noise given some of the integration costs that were probably accrued toward the end of 2015, and we saw the cash outflows. So if you could kind of help us bridge, you know, what the free cash flow is in Q1 versus what a more normalized number would be, and, you know, which specific line items where that's impacting the accruals on the cash flow statement.
John Hardig (CFO)
Yeah, sure, Rob. I'd be happy to do that. So, you know, we had $7 million of cash flow from operations in the quarter, but we also had a lot of unusual, you know, non-recurring items related to our integration of our acquisitions. We had about $50 million of those one-time cash items, and they're made up of things like severance payments. We had some equity that we bought from the Con-way employees. It was a kind of a deferred purchase price as part of the transaction. We had management consulting fees. We had rebranding costs in there. And so those there were about $50 million of those one-time integration-related expenses, and some of that, as you mentioned, Rob, had carried over from the fourth quarter.
They were accrued there and then paid out in cash in the first quarter. As you know, and I mentioned a little bit in my remarks, you know, the first quarter is our weakest quarter from a cash flow perspective. We have the weakest EBITDA quarter in the first quarter. We also have a lot of, you know, things that are paid in the first quarter that are typically once a year, like, you know, for instance, the bonuses are paid generally in the first quarter in terms of incentive bonuses. We also have significant prepaid expenses that are paid out in the first quarter, things like insurance premiums.
Brad Jacobs (CEO)
... and also, software licenses, things like that, that are prepaid in the first quarter, but really are effective for us for the entire year.
Rob Salmon (VP in Equity Research)
That, that's helpful. And I'm assuming that the majority of those are showing up in the prepaid expense as well as the accounts payable lines on, on the cash flow statement?
Brad Jacobs (CEO)
That's right.
Rob Salmon (VP in Equity Research)
Okay. You know, Scott, you had talked a lot about some solid wins within Europe. Can you give us a sense of what the run rate revenue is, and kind of how you're thinking about that growth potential within Europe, both on the transportation side, as well as on the logistics side over the medium term, given some of the cross-selling opportunities you see?
Scott Malat (Chief Strategy Officer)
Our transportation and logistics revenue have been accelerating. In Europe, transportation is now growing towards the mid-single digits, 4%-5%. In supply chain, it's a little faster, more, more like 5%-6%, and it looks like the likelihood is it'll grow a little faster than that, given the pipeline that we've already executed on, and, and, in addition, the pipeline that's grown from there. Right now, we're working on mostly deals for next year and the year after. So this year is relatively locked in and does look like revenue growth will likely accelerate.
Rob Salmon (VP in Equity Research)
Okay. There were a lot of announcements that I saw kind of pop up during Q1, as well as late in Q4, about business wins. Were those all pretty much at the end of March, running at full steam, or is there still a scalability factor that I should be thinking about?
Scott Malat (Chief Strategy Officer)
No, there's still a scalability factor. For instance, Iceland is a contract that we've mentioned in the past, that gets rolled up through this year and actually on into 2017. In the beginning of 2017, it'll start to get towards the full run rate. Contracts for contract logistics for supply chain generally have long sales cycles, 12-18 months, and then when you get them started, it could take several quarters to get going. These are complicated, very high value add, long-term contracts.
Rob Salmon (VP in Equity Research)
All right, great. Appreciate the color, and I'll turn it over to someone else.
Scott Malat (Chief Strategy Officer)
Thank you, Rob.
Operator (participant)
Thank you. The next question is from Chris Wetherbee of Citi. Please go ahead.
Chris Wetherbee (Managing Director and Senior Analyst)
Hey, great. Thanks. Good morning, guys.
Brad Jacobs (CEO)
Morning, Chris.
Chris Wetherbee (Managing Director and Senior Analyst)
Wanted to touch on the organic revenue growth there for a minute. You know, Brad, I know you highlighted last mile, I think, up 33%. But could you sort of walk us through some of the other segments to get a sense, and in particular, intermodal? Just want to get a sense if that's sort of growing at this point, and like I said, just kind of run through some of the segments, so we get a sense of sort of how they stack up.
Brad Jacobs (CEO)
Intermodal is not growing. Intermodal is one of the businesses we're in that's been experiencing a number of headwinds. So you got lower priced, abundant truck capacity together with lower fuel pricing, and those are the things that were driving the conversion from truck to intermodal. So intermodal is down. That's okay. We do both truck and intermodal, and we're just there to make sure we give the customer the best solution to the supply chain needs. Sometimes it's going to be over the road, sometimes it's going to be intermodal. We have continued SG&A reductions in intermodal, so the bottom line numbers aren't bad. We've significantly reduced spend in IT, in labor, and facilities, and we've been leveraging our technology to mitigate the need for headcount increases to support the growth.
There is a good pipeline, but I wouldn't say that intermodal is our strongest business line at the moment. Fair amount of headwinds there.
Chris Wetherbee (Managing Director and Senior Analyst)
Okay, so still get the 12% X, any contribution from intermodal, I guess, was the point. That sounds right.
Brad Jacobs (CEO)
Well, 12% include, right, includes the intermodal.
Chris Wetherbee (Managing Director and Senior Analyst)
Yep. No, that makes sense. Wanted to ask also about sort of the technology platform. So as you have been putting together the companies and integrating, you know, I wanted to get a sense of sort of where we are in that process from a technology platform integration. How much of the business is sort of on the system, and how much more do you have to go? Any cost hiccups or any issues that we should be thinking about as you've gone through that? It seems like it's moved relatively seamlessly. I just want to get a sense of sort of where we stand in that process.
Scott Malat (Chief Strategy Officer)
It has gone extremely well. We've moved over most of our platforms onto our cloud-based technology. LTL is the one that we're working on right now. But I'm excited about a lot of things in technology. Most of them are about optimizing things. So in LTL, that's pricing optimization, as well as route optimization on the line haul and the pickup and delivery. In intermodal, we've talked a lot about the Rail Optimizer. That's led to higher service levels, the better visibility across the organization. We've driven some efficiencies, but we're now building more efficiency tools into the drayage piece of the equation. In last mile, we completely rebuilt the platform all on the cloud. We're updating the routing for the pickup and delivery right now.
We're also working on LTL integration to be able to move heavy goods through the system. In contract logistics, we have some great technology to manage labor in North America, some proprietary technology. We're launching that technology in Europe, and it's driving. It'll drive productivity in the labor, which is our biggest cost item. Then in freight brokerage, we've talked a lot about our Freight Optimizer, which continues to improve. There's a lot more automation going into the system, and also LTL integration.
Chris Wetherbee (Managing Director and Senior Analyst)
Okay, so you've made good progress. LTL is sort of the big one that's in front of you right now?
Scott Malat (Chief Strategy Officer)
Yeah, we launched new handhelds for LTL. In June and July, we're going to improve that software that goes on the handhelds. That'll improve the dock operations, improve accessorial collection. We have new pricing models coming out in three phases, which will launch starting in September. The P&D optimization engines are in beta, and they're rolling out in phases starting at the end of this year. So there's a lot coming up, a lot going on.
Brad Jacobs (CEO)
... and a lot of opportunity in LTL.
Chris Wetherbee (Managing Director and Senior Analyst)
Okay, that's helpful. And then my last question would just be on the LTL performance. Obviously, a really, really strong performance in the first quarter, particularly relative to the peers. So when I think about the business, if I look at the peer group, most folks were struggling to kind of get to flat EBIT in the quarter. You guys were up, you know, in the neighborhood of $20 million or so. If I think about the typical seasonality of that business, it would seem that you're maybe at a run rate a bit higher than kind of that $70-$80 that you've talked about, of sort of realized benefits in the, in, in the full year and the $90 million run rate.
Just want to get a sense if there are any other seasonal factors I should be thinking about that might sort of decelerate that, or maybe there could be potentially some upside to what you guys are talking about in LTL this year?
Brad Jacobs (CEO)
Well, operating income is up 54% year-over-year in LTL. That's, you know, that's great. 54% operating income improvement on a year-over-year basis in any business is a, is a very, very big achievement. That was mainly due to price, where we've been rock solid focused on maintaining price discipline and on cost takeout. And I mentioned the cost takeout earlier in the call. And the OR improved 270 basis points year-over-year. I'm. I think we have the second-best OR now of all the carriers in LTL, and I'm pretty sure we. I'm very sure we have the most improvement in OR this quarter versus the quarter in last year.
So LTL is off to a very, very good start, and it shows what focus can do when you restructure an organization to be leaner and to have every single service center have a PNL. They didn't have PNLs in the service centers. And reinforce PNL accountability at every single level, and focus the organization on the levers to drive the profitability and maintain the strong pricing discipline. Of all the different things to be proud about what Tony and the team have done in LTL, the thing I'm most proud of them about is customer service during the integration has gone up, which is unusual. In a complex business like LTL, we had a lot of naysayers saying: What's going to happen to our service during integration?
I'm extraordinarily proud that our on-time pickup, which was already at industry-leading levels, Mastio Award last year for number one in that, is still up over the last six months. On-time delivery is up. It was already at, at a, industry-leading level. Damages, coming down. Claims have improved. Line haul productivity has improved. So it's a lot of good things to, be very proud about. We're trying to stay humble about it, but there's a lot of things to be proud about in LTL.
Chris Wetherbee (Managing Director and Senior Analyst)
Okay. So it seems like there's a lot of opportunity there still also, though, to come, is my guess.
Brad Jacobs (CEO)
Absolutely.
Chris Wetherbee (Managing Director and Senior Analyst)
Okay.
Brad Jacobs (CEO)
Lots of initiatives, and it's continuous improvements. Continuous improvements.
Chris Wetherbee (Managing Director and Senior Analyst)
That's great. Well, thanks very much for the time. I appreciate it.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Ravi Shanker of Morgan Stanley. Please go ahead.
Ravi Shanker (Managing Director)
Thanks. Good morning, everyone. Brad, you mentioned e-commerce as a big driver of growth in last mile. We are hearing something similar from the big parcel carriers as well. So I'm just wondering, you know, as more people buy really large and complex things online, are you seeing UPS and FedEx becoming more prominent as part of the last mile business?
Brad Jacobs (CEO)
Well, FedEx is bigger than we are in LTL. We inherited, when we acquired Con-way, the second biggest LTL platform in North America. Of course, we're number one in Western Europe, in LTL, but here we're only number two, and FedEx is bigger than us. We are bigger than the other competitors. I can't speak to the growth plans or the numbers or the dynamics of those two competitors or any of the competitors, for that matter, because we're very internally focused on doing everything we can as a team, as an LTL team, that involves a large number of people all across the country, to improve our service to customers, take costs out of our system, and just increase the productivity of the business on every level. I really can't speak to what the competitors are doing. I'm not knowledgeable enough to answer that.
Ravi Shanker (Managing Director)
Brad, I was actually asking you about the last mile business.
Brad Jacobs (CEO)
Oh!
Ravi Shanker (Managing Director)
Because that's something that those guys are starting to talk about now as well.
Brad Jacobs (CEO)
Okay. So last mile is a whole different story. So last mile, we're clearly number one. By a large measure, there's only three other competitors that are over $100 million in last mile. In last mile, big difference between what FedEx and UPS are doing in last mile and what we do in last mile. So FedEx and UPS are the kings of partial package last mile, where you drop it off at the post box, or you drop it off at someone's door. We're the king of last mile, going over the transom, into someone's house, and installing heavy goods, assembling and installing heavy goods.
So we are focusing on products that are 150 pounds or more, and we are the clear leader in that in many different levels, in terms of size and frankly, in terms of customer satisfaction, quite a bit as well, and technology and a lot of different things. But we are not even in the market that UPS and FedEx dominate, which is parcel. We're a big customer for both of those companies. We have 750 warehouses around the world that generate a lot of parcels, and we use FedEx and UPS and DHL in Europe as well. But we're not in that business, we don't compete. We do not see FedEx or UPS active in the last mile for heavy goods.
Scott Malat (Chief Strategy Officer)
... we don't see them doing refrigerators or stoves or washing machines or a television set. That's really our neighborhood, and that's what we're experts in.
Ravi Shanker (Managing Director)
Right. And that's what I'm asking about because they, they seem to be saying they're doing a lot more of that, and they're pushing through price increases and, and so on, so forth. So I just wanted to know if, if you're seeing them there, but it doesn't seem like,
Scott Malat (Chief Strategy Officer)
Not at all.
Ravi Shanker (Managing Director)
... they're coming, crossing over to your world.
Scott Malat (Chief Strategy Officer)
Not at all.
Ravi Shanker (Managing Director)
Got it. Just shifting gears here. I'm sorry if I missed this, but did you give us your organic EBITDA growth sequentially?
Scott Malat (Chief Strategy Officer)
Yeah, it was around 16% organic EBITDA growth in the quarter.
Ravi Shanker (Managing Director)
Got it. So, I believe your organic revenue growth accelerated sequentially, I think from 8 to 12, but I think your organic EBITDA growth then probably decelerated to 16. Can you just remind us of what puts and takes there are, you know, with that number and how we think about that going forward?
Scott Malat (Chief Strategy Officer)
Yeah, in general, we're looking for mid-teens type organic growth rate over the next several years on an EBITDA basis. In this quarter, we did have some more corporate expenses in the quarter that John talked about in terms of some higher legal expenses than are typical in a quarter, just some more activity going on. But it wasn't that out of the ordinary, and mid-teens EBITDA organic growth rate is great.
Ravi Shanker (Managing Director)
Great. Thanks so much.
Scott Malat (Chief Strategy Officer)
Thank you, Ravi.
Operator (participant)
Thank you. The next question is from Brandon Oglenski of Barclays. Please go ahead.
Brandon Oglenski (Director and Senior Equity Analyst)
Hey, good morning, everyone, and thanks for getting me on the call here. So I wanted to come back to the first question here on cash flow, because I know your, your cash flow is, you know, below $10 million for the quarter from operations. But I think in the past, we had talked about, you know, normalized for transaction costs, you, you probably have free cash flow of let's call it $300 million. How do we think about that relative to the, you know, roughly $8 million or $9 million you put up this quarter? And, and what is... You know, I think the initial question, I'm not sure if we addressed it, but how do we think about cash flow in 2Q in the next quarters as we progress through 2016?
John Hardig (CFO)
Yeah, sure. As I said in my prepared remarks, we have, you know, we have typically the lowest cash flow quarter in the first quarter, and again, that's because our EBITDA and our cash generated from operations is the lowest, just because that's the way the business runs seasonally. And then we had a lot of integration-related cash flows out that happened in the first quarter. I mentioned about $50 million of those things. That would be, you know, again, severance. We had some equity that we paid out to the former Con-way shareholders. We had management consulting fees. We had IT and finance advisor fees. And then again, in the first quarter, we have heavy use of cash for things like prepaids. The bonus is paid in that quarter.
And then we had a little bit of tick up in working capital because you start to see the business pick up again, after a slowdown over the winter, you know, start to pick up in the last very end part of the quarter. So, you know, we're, and if you look at the rest of the year, the most of the cash in this business is generated in the last two quarters of the year, and so we'll see a sequential improvement in the second over what we saw in the first. We're not going to generate, you know, a ton of cash. It'll be, you know, certainly a lot better than what we had on a free cash flow basis in the second quarter.
And then the bulk of the cash we generate for the year, which we think will be $250 million-$300 million, will be in those last two quarters.
Brandon Oglenski (Director and Senior Equity Analyst)
Oh, so we should see cash from ops of $250-$300 this year, even with the integration costs?
Scott Malat (Chief Strategy Officer)
No, and then the integration costs will be generally $75 million-$100 million for this year, off of that $250 million-$300 million. And then, it'll be on a cash basis. That's integration expense on the income statement. On a cash basis, it could be a little higher than that $75 million-$100 million to account for some of the costs that were booked in 4Q that dragged into this year.
Brandon Oglenski (Director and Senior Equity Analyst)
Right. So, all right, so I'm sorry, I just want to clarify. What should your cash from ops look like at the end of the year if things go to plan?
Scott Malat (Chief Strategy Officer)
Well, cash from ops minus net CapEx will be in the range of $100 million, $150 million, those type of ranges. When you include the integration cost, that could be $125 million-$150 million in cash.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay, appreciate that. Now, I don't know if this is actually a right topic for this call, but I've been having this conversation with, you know, some of your, your shareholders, and maybe it's just that I'm not that bright. But, you know, when we look at the way you guys report your financials now, and you've put the Con-way asset-based business, you know, into a financial structure that you had previously, that I think was more geared for an asset-light business, it's just hard for us to ascertain what's going on on the operating cost structure side at the previous Con-way business, because a lot of those expenses get loaded into your purchase accounting or your direct operating expense.
Is there any way that you guys can think about breaking out your operating ratios similar to other asset-based carriers that, you know, we can do easier comparisons on the cost side?
Scott Malat (Chief Strategy Officer)
Yeah, we're always happy. We'll talk about all different ways we can change things. We do give out our operating ratio for LTL along with all the summary data table of all the different operating statistics, but I'd definitely be happy to talk to you about other ways we can, we could change and add more disclosure.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay. I just want to bring it up on the public call because I know that, you know, some of your shareholders are talking about this too, and it is a little difficult to, you know, decipher precisely what's going on.
Scott Malat (Chief Strategy Officer)
Yeah, I, we break it out and pull out purchased transportation, bring out the net revenues, gross margin, which are a little different than others, where we think we're adding disclosure in how we look at a gross margin or the cost to move a piece of freight. Then we give all the operating statistics again and the operating ratio, but let's talk about if there's additional information that'd be helpful.
John Hardig (CFO)
Tell us what you want, happy to give it to you.
Brandon Oglenski (Director and Senior Equity Analyst)
All right. Thanks, guys.
Operator (participant)
Thank you.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
The next question is from Scott Schneeberger of Oppenheimer. Please go ahead.
Scott Schneeberger (Managing Director and Senior Analyst)
Oh, thanks very much. Good morning.
Brad Jacobs (CEO)
Morning.
Scott Schneeberger (Managing Director and Senior Analyst)
In the LTL business, a pretty impressive yield in the quarter, excluding fuel, over 4%, and that's an acceleration from last quarter. I believe you said earlier that April was trending a little bit better than what you saw in the first quarter. If you could speak to that and then take us a level deeper with regard to national accounts and local and 3PL, just kind of what you're seeing on the pricing front and maybe some XPO-specific behavior. Thank you.
Brad Jacobs (CEO)
So I'll take the first part. Scott can take the second part. So in the first quarter, tonnage was down about 5.4%, and price was up 4.2%. So tonnage down 5.4, price up 4.2. In April, that trend continued, where we're shedding tonnage from the money-losing accounts, and there's still a handful of significantly losing, money-losing accounts, the large accounts. But we're building business in 3PLs, which has been up in the first quarter, which is up in April. We've got some good partnerships with a handful of 3PLs that are really promising. And we're also building the business with the small and medium-sized accounts. So April, you see the same kind of trend accelerating. You're seeing pricing being firm. You're seeing tonnage coming down.
Scott Malat (Chief Strategy Officer)
And then if you take a look at the breakups of the different business segments, our small customers' revenue increased in the quarter. Our 3PL revenue increased in the quarter and increased in March, both of those. When you look at the large customers, which there's a lot of large customers we're growing our business with that are profitable and doing a good job. But if you look at some of the more challenged margin customers, we have taken up price, and our revenue in our national accounts, largest customers, is down, and that's what's driving the decrease.
Brad Jacobs (CEO)
You know, as Scott said, there's hundreds and hundreds of large national accounts that are just fine. We'd have a fair price and a decent operating ratio. We're actually making a little bit of profit on them. There's a handful, a small handful of large accounts that we're losing, like $5 million, $10 million, in some cases, $15 million a year. You know, we need to work through that. It's. We're having conversations of how we can get that to at least break even. And if we can't, then we're shedding it.
Scott Schneeberger (Managing Director and Senior Analyst)
Great. Thanks very much, guys. Just switching gear a little bit, following up on something said earlier. In corporate expense, you mentioned some elevated legal spend in the quarter. Could you speak to how that trend's going forward? And there's noted a litigation settlement yesterday. If you could speak to that and just again, back to the line item, what we should expect to see on composition of corporate going forward? Thanks.
Brad Jacobs (CEO)
I'll let John handle the part about the trend going forward on the legal SG&A. In terms of the legal settlement that we announced yesterday, when we acquired Con-way last October, there was a pending DOJ investigation of Menlo and the subcontractor that was handling that account, and we were very aware of that, and we took that into account in our assessment of the transaction. Yesterday, we announced that we reached a settlement that we chipped in $10 million, and SD chipped in $3 million, and all claims are dismissed, gone, finished, that case is completely resolved. Very importantly, we fervently believe that Menlo did nothing wrong, and it's noteworthy that the government did not require any admission of wrongdoing, and in fact, we strenuously disputed that any wrongdoing took place.
I'll let John answer the part about legal fees in general going forward.
John Hardig (CFO)
Yes, Scott, we -- in the first quarter, we did have an additional accrual for litigation liabilities that we put on the balance sheet, and that hit the corporate PNL. That's not going to continue through the rest of the year, so those legal expenses are going to come down versus what we saw in the first quarter. And again, we maintain that we're going to continue our guidance for corporate expense in the $95 million-$105 million range for the full year.
Scott Schneeberger (Managing Director and Senior Analyst)
Great. Thanks very much.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Allison Landry of Credit Suisse. Please go ahead.
Allison Landry (Senior Transportation Research Analyst)
Thanks. Good morning. In LTL, are you seeing any aggressive competitor pricing behavior on the margin? You know, one of your peers recently talked about that. And then, could you remind us where you are in the process of culling unprofitable freight?
Brad Jacobs (CEO)
Yes. Good morning, Allison. So, you know, it's so hard to tell what competitors are doing. I mean, just think about all the effort and work and analysis and data extraction that we do internally just to get our arms around about exactly how we want to price each customer, each lane, each contract. It's, it's anecdotal when we hear about other customers and the amount of information we... Excuse me, other competitors. And when you think about the amount of information we have about competitors, it's, it's a small percentage of the information we have about ourselves. So I don't want to draw any conclusions based on, you know, a scant amount of data.
What we do know is, the market has been soft for about a year now, a little more than a year, in, in all freight, LTL and truckload, but pricing has been solid. Pricing has been solid in LTL because you have a handful of carriers that are, controlling a lot of the capacity and got hurt really badly in the last downturn and just generally are being more rational about pricing. I think people are more informed about the, the trade-off when you trade off price for volume, and that price is much more important than volume. So... I don't, I don't really want to speak about competitors. And, and frankly, we don't want to worry about competitors. You always hear about competitors taking a piece of business from a salesperson, and they're being, you know, aggressive on price.
You'll always hear that, actually, in all parts of the cycle. Our focus is on our own business, what we can control, our own utilization, our own pricing discipline, and we're happy with that.
Allison Landry (Senior Transportation Research Analyst)
Got it.
Brad Jacobs (CEO)
Now, there's a second part of your question. There was a second part of your question, too, and I forgot what it was, Allison.
Allison Landry (Senior Transportation Research Analyst)
Sure. I was just asking where you guys are in terms of culling unprofitable freight?
Brad Jacobs (CEO)
Oh, yeah. So we don't have a whole lot of unprofitable freight in two of our three categories of customers in LTL. So the small, medium-sized customers, that's generally okay business, and we're growing that business and going to continue to grow it. On the 3PL business, it's not as profitable as the small and medium-sized customers, but it's profitable, and we have a number of partners that we're just clicking with and who really want to do business with us, and we really want to do business with them. And we've decided we're going to increase the amount of business we do together by a significant amount, and I believe that's going to happen.
On the large national accounts, which accounts for the majority of the business, a good chunk of that business is okay, and it gives us volume, but there's a small chunk of it that's problematic, and we have not worked through it all. We've worked through some of it, but we still have more wood to chop on that. You know, those are, those are important conversations with important customers and customers that we're doing business with in other verticals, generally, as well. So it's a relationship, and some of those customers are going through hard times themselves, so we don't want to be overly difficult with them. At the same time, we want them to at least break even. We think that's a reasonable request. So that's a process that's going to take the balance of this year to go through.
Allison Landry (Senior Transportation Research Analyst)
Okay, that's really helpful. Maybe turning to the leverage for a second. In terms of the sequential increase in the short-term debt, presumably, this was to fund the seasonal working capital needs you talked about earlier. But are you still confident you can chip away at the leverage ratio by the end of the year now that you, you know, drew about $100 million on the revolver?
Brad Jacobs (CEO)
Yeah, Allison, we do think we'll chip away the rest of the year. As I mentioned earlier, the bulk of our cash is generated in the second half of the year, and you know, we are going to be increasing our EBITDA as we go through the course of the year, and then we're looking at leveraging the low fours by the end of this year.
Allison Landry (Senior Transportation Research Analyst)
Got it. Okay. Thank you.
Brad Jacobs (CEO)
Thank you, Allison.
Operator (participant)
Thank you. The next question is from Kevin Sterling of BB&T Capital Markets. Please go ahead.
Kevin Sterling (Managing Director)
Thank you. Good morning, gentlemen.
Brad Jacobs (CEO)
Good morning.
Kevin Sterling (Managing Director)
Brad, it sounds like you're getting some real traction there at the old legacy Con-way truckload business. I think you said you changed management. So is your plans now to continue moving forward that business? And I know you thought about possibly selling it, but it seems like you made some positive changes, and do you see it as a value-added part of your of the XPO structure?
Brad Jacobs (CEO)
So in truckload, the market's weak, and, you know, freight is soft. There's less freight out there in general, and there's quite a bit of capacity. So it's a competitive market at this point in time in the cycle, but this is a very cyclical business. These things can change, and they do change. I would point out that loads in April actually were up 2.3%, so with freight in Joplin. And on the other hand, revenue expo was slightly down because rates per mile were down 2%. So you're seeing a kind of the opposite in truckload of what we're seeing in LTL. LTL, you're seeing volumes down and pricing up. And in truckload, we're seeing volumes up, but pricing down.
So we really just got out of the woods in truckload, literally in the last few weeks. There is a new management team in place. There's a sense of urgency. We are seeing high bid activity. We do have a plan to take that $105-$110 million of EBITDA up to $140-ish million of EBITDA by basically blocking and tackling. We benefit from the fact that 35% of our truckload business is with Mexico, which is generally a higher margin, longer length of haul, and leverage to a different cycle. So we are reducing empty miles. I'm happy to see empty miles are down, but miles per day per tractor are also down. So it's a difficult market.
We have 200,000 competitors in truckload, but all things considered, I think we did a pretty good job.
Kevin Sterling (Managing Director)
Great. No, thank you.
Brad Jacobs (CEO)
Thank you.
Kevin Sterling (Managing Director)
And, Brad, and you guys, it touched on some nice business wins in Europe. And are those legacy Norbert renewals, or is that brand new business wins? And if it's brand new, what's driving your success there in Europe?
Brad Jacobs (CEO)
It's both. Most of it is customers that Norbert was already doing business with, and we're either renewing or increasing the amount of business or finding business to do with them in countries that we weren't doing business with already. And it's the same management in place. I mean, we had tens of thousands of employees there, and we have very, very slow turnover there. We had one, the head of the division there, we separated with, but the two guys who were right under him, Luis Gomez, who runs transport, Malcolm Wilson, who runs logistics, are right there running the same businesses they were. Of course, I sent Troy Cooper over there.
Troy Cooper is our COO, and he spends the majority of his time in Europe, and they've done a great job at instilling better discipline in the organization, better visibility to the metrics, understanding the financials, doing some of the same things that we're doing over here in terms of identifying the money-losing accounts and having conversations with those customers to get them to at least break even. And on the sales side, we had over here in Greenwich a few dozen of the European supply chain salespeople led by Jean-Luc Decloedt. And we also had Oshkosh salespeople from supply chain here in North America. We had them all together for a few days. It was a great, great meeting.
We had a lot of cross-selling activity going on, a lot of transfers of best practices, and a lot of travel plans to go cross-border.
Kevin Sterling (Managing Director)
Oh, great. Last question here. You talked about some of the weakness you're seeing in intermodal, and that's not surprising with fuel down and the softness in the truckload market and what we've heard from some of the IMCs. So are you seeing more intermodal to truck conversion from the rail back to the highway? And if so, you know, have you lost any business, or are you agnostic, given your full suite of service offerings?
Brad Jacobs (CEO)
We're completely agnostic on that. We offer the customer intermodal and over the road, and give options to the customer, whatever the customer wants to do, that's fine by us. We're just trying to serve the customer in the context of a long-term relationship. With respect to your question, are we seeing a lot of conversions going from intermodal back to truck? We're not seeing a lot of that. We're seeing some of that, but we're not seeing a lot of that. We play mostly in the contractual business, not the spot business on intermodal. I think you see a lot more of the spot intermodal conversion going back to truck. It's more opportunistic.
But on the contract, most of our customers are big customers, and they're managing very large supply chains, and they have a small percent on intermodal for the long haul, particularly with cross-border Mexico. And they're mainly going with intermodal, not just to save cost, but to have long-term access to capacity, which we provide them.
Kevin Sterling (Managing Director)
Okay. And lastly, Brad, if I recall correctly, a lot of the legacy Pacer business was tied to the auto industry, and that seems to be doing pretty well. Is that, is that helping you offset some of the other general intermodal weakness?
Brad Jacobs (CEO)
It is helping us, but in general, you know, the rail is taking pricing up, and trucking capacity being ample and truck rates low, it's not, it's not enough to offset that whatsoever.
Kevin Sterling (Managing Director)
Okay. Well, thanks so much for your time this morning. Take care.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Todd Fowler of KeyBanc Capital Markets. Please go ahead.
Todd Fowler (Director)
Great. Thanks. Good morning, everyone.
Brad Jacobs (CEO)
Morning.
Todd Fowler (Director)
Good morning, Brad. With the first quarter results, it sounds like they trended a little bit ahead of plan. You know, was there anything that was unusual in the first quarter that may not be recurring into the second quarter? And then how should we think about the progression of EBITDA into the second quarter, either sequentially or as we think about it as kind of a % of the full year?
Brad Jacobs (CEO)
Yeah, legal was just some higher activity in the quarter. It was nothing of note, little things, all different pieces. I just don't—I think that the SG&A for corporate will stay the same as we outlined in the beginning of the year, at $95-$105. On the, I think you asked on the seasonality of EBITDA. Is that what you asked?
Todd Fowler (Director)
Yeah, on the strength in 1Q, I was actually thinking about more things that went in your favor. I know that you talked about the legal earlier in the call. I was just trying to get a sense. It seems like from the commentary that 1Q was stronger than what was anticipated, so I was trying to get a sense of anything that impacted 1Q results on the favorable side that may not be recurring. And then, yes, for 2Q, I'm trying to think about how do we think about either a sequential progression off of 1Q or how do we think about 2Q relative to the full year?
Brad Jacobs (CEO)
Q1, there's nothing really of note, it really isn't. It's a low seasonal quarter, as typical. Might be a little higher percentage of the year than what is typical. Might be more like 20%. It's usually 19%-20%. Maybe it's like 20%. Second quarter could be around 26% of the year. Our third quarter will be our strongest quarter, more like 28% of the year. And then, you know, fourth quarter will make up the rest.
Todd Fowler (Director)
Okay. That helps. And then I guess just back to the conversation on, you know, the cadence of improvement within LTL. So you've got the $90 million here year to date, and you picked up another $40 million from the last time that you gave an update on LTL. Does that slow down a little bit now that you're through? I don't want to say some of the low-hanging fruit, because maybe that's not the right way to term it, but how do we think about, you know, the continued improvement within LTL as you move towards the expected cost savings?
Brad Jacobs (CEO)
It's just what you said, continuous improvement. Continuous means we don't stop at it. We look at every single. By the way, that's not just in LTL. We have a transformation project globally, and soon we'll be announcing a Chief Transformation Officer that we've hired, that we're not able to announce it publicly yet, but we will shortly, and is going to be in charge of that project. Very, very strong operator. And that's the whole plan, is to look at these $14 billion of expenses we've got all around the planet and making sure that we're paying the right fair price for the quantity of those services that we're procuring. And procurement, we're at very early stage on that.
It's amazing when you drill down into the global organization and you look at just a specific event like packaging or trailers or material handling equipment. We spend $112 million a year on packaging. We spend $71 million on material handling equipment. We spend $60 million a year on tires. I mean, when you go down the whole list of trucks, of tractors, of trailers, of fuel, of office supplies, of temporary labor, of travel management, we have many ways of large spends, where we're spending tens or hundreds of millions of dollars a year. And centralizing that, doing that on a global sourcing basis, enormous opportunity. And that's going to take a couple of years to really execute on a complete basis.
It's very early stages there.
Todd Fowler (Director)
No, I, I guess I understand that, Brad. Maybe I didn't ask the question the right way. When I think about achieving the $90 million of cost savings right now on the LTL side relative to the $190 million-$210 million that you've laid out, I, I understand that it's a process, and you're going to be continuing to improve. I'm trying to think about the magnitude of savings that you'll be realizing, you know, in the calendar second quarter, the calendar third quarter. I'm trying to think about, does the $90 million, the-- that run rate, you know, kind of slow down a little bit based on what you've achieved to date?
Scott Malat (Chief Strategy Officer)
... No, that should continue to improve. The overall reported for 2016 should continue to be somewhere in that $70 million-$80 million of reported savings in the year. And we'll obviously be at a run rate much higher than that at the end of the year. But on the average, because the, the, $90 million that we just, we just, got onto is actually this week. The truckload bid went into effect as of mid Monday of this week.
Todd Fowler (Director)
Okay. Okay, that helps. And then maybe just one last small one for clarification, you know, it and I think it is very helpful that you've continued to give the operating statistics for LTL, and I know that there's—obviously, we don't see all the line items, but it is helpful to have the statistics from a comparison standpoint. But when I think about the OR, the 95.6, you know, previously reported for 1Q of 2015 versus the 92.9, are there differences in allocation of corporate expenses? I would just think that given the differences in the company structure, how comparable are those two numbers between the predecessor company and the way they're currently being reported?
Brad Jacobs (CEO)
They're completely comparable, apples to apples, clean comparisons between the last and this.
Todd Fowler (Director)
Perfect. Well, good job on that. Thank you very much for the time this morning.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. The next question is from Jason Seidel of Cowen and Company. Please go ahead.
Jason Seidl (Managing Director)
Now, thanks a lot, guys. Morning. I want to go back again to LTL. I guess it's beating a strong horse here. You gave some numbers for the yields ex fuel. Is that apples to apples? Because there seems to be a lot of movement around. It looks like you guys are getting rid of some of the national account business. Is that an apples-to-apples number, or is that an all-in number?
Brad Jacobs (CEO)
Is what apples to apples? I'm sorry, Jason.
Jason Seidl (Managing Director)
Your yields ex fuel, is that like business to like business, or is that just total?
Brad Jacobs (CEO)
It's total. It's total. It's a pure, clear, transparent comparison between last year's quarter and this year's quarter. I don't know how to say it any more clearly than that.
Jason Seidl (Managing Director)
Okay. What are you signing new contracts for today, right now in the marketplace?
Brad Jacobs (CEO)
Up about 3.5%.
Jason Seidl (Managing Director)
Up about 3.5%?
Brad Jacobs (CEO)
Yeah.
Jason Seidl (Managing Director)
Okay. And you talked a little bit about Con-way's line haul and that you put it out to bid. What was your average rate increase or decrease, if you will, on that line haul business?
Brad Jacobs (CEO)
All in all, it was a $550 million spend, and it's now a little over a $500 million spend.
Jason Seidl (Managing Director)
Oh, so you guys did better?
Brad Jacobs (CEO)
Well, we did okay. We basically, we basically got it to market. We got it to today's market prices. It was, it was over the market. Now it's at the market.
Jason Seidl (Managing Director)
Okay. No, that's good color. And looking at the trends in 2Q here, you know, you had a strong 1Q. I mean, are you guys projecting profitability for 2Q, given such a strong 1Q?
Brad Jacobs (CEO)
Yes, we are.
Jason Seidl (Managing Director)
Okay.
Brad Jacobs (CEO)
So we'll be net income positive in the quarter.
Jason Seidl (Managing Director)
Perfect. Those are all my questions, guys. Thank you.
Brad Jacobs (CEO)
Thank you, sir.
Operator (participant)
Thank you. The next question is from Donald Broughton of Avondale Partners. Please go ahead.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Good morning, gentlemen.
Brad Jacobs (CEO)
Good morning.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Real quick, couple things. If memory serves, you said that when you first acquired XPO LTL, they were spending about $225 million on IT outsourcing. Is that right?
Brad Jacobs (CEO)
Yes, but now we're spending less than that because we got some reductions.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Right.
Brad Jacobs (CEO)
And we're-
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
That's why, that's where I was going to ask is, is you'd said you'd intended to both bring some in-house as well as rebid to achieve some cost savings, and I think I heard you say just a minute ago, the rebid had yielded some cost savings. Can you give us kind of a run rate on where you are, and do you have a goal for what IT outsourcing is going to be for XPO LTL by the end of 2016? Yes. So overall, the 225 has gone down. We took out, we looked at first the headcount. We did do a reduction at the end of last year and early this year. We are right now addressing the contracts. But then at the same time, we're investing in technology.
Scott Malat (Chief Strategy Officer)
We're investing in resources for pricing and for optimization of line haul and the pickup and delivery. So it's still a little over $200 million, but we think we can get it below that.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
But you don't have a goal, Scott?
Scott Malat (Chief Strategy Officer)
Oh, we said we laid it out somewhere around $30-$40 million of cost takeout and technology will be included in the $170-$210.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Okay. And then on, on another topic, if it's possible, just so we can kind of get an, an apples-to-apples comparison, we're certainly seeing it throughout the rest of the industry. On truck brokerage, is it possible to give us, on some kind of a same-store sales basis, what net revenue margins are doing, both on a year-over-year basis and sequentially?
Brad Jacobs (CEO)
Net revenue margins are around an all-time high in the very high teens, but we don't have our hopes up that's going to be sustained long term. Why? Because the majority of our business, the vast majority of our business, is now on contract. There's a huge, as I'm not telling you anything you don't know, but there's a huge difference between the contract market and the spot market, and a lot of our customers are understandably rebidding their freight to take advantage of the lower prices. So we believe that that differential between spot and contract is going to tighten up, and that'll come at the expense of margin. Having said that, I'm not going to apologize for the truck brokerage guys. They're doing a great job where they got a very high win rate. It's about 60% right now.
They're doing a lot of cross-selling. Having assets as part of the mix is opening up the door. They're doing drop trailer business, which we were unable to do before. The number of bids that we're processing is literally more than doubled on a year-over-year basis. So it's a lot of good stuff going on in truck brokerage, but I would say the margins will have to come down over the next few quarters.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
But, you don't have any specific numbers?
Brad Jacobs (CEO)
Yeah, it was up around 200 basis points year-over-year.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Sequentially, you saw improvement as well?
Brad Jacobs (CEO)
Sequentially, it was about the same as fourth quarter.
Donald Broughton (Chief Market Strategist and Senior Transportation Analyst)
Great. Fantastic. Thank you.
Brad Jacobs (CEO)
Thank you. Operator, we have time for one more question.
Operator (participant)
Certainly. The final question comes from Nate Brochmann of William Blair. Please go ahead.
Nate Brochmann (Equity Research Analyst)
Thanks, for squeezing me in at the end. I appreciate it.
Brad Jacobs (CEO)
No problem.
Nate Brochmann (Equity Research Analyst)
Hey, so wanted to—2, 2 quick things. One, obviously, we talked about, you know, being there for the customer in whatever mode, and I've always been a big believer in the multimodal, you know, solution. Can you talk about, like, just in terms of the customer acceptance of that, in terms of what any, you know, whether that feels like it's gaining momentum, or that theory is still just for a few selected large customers who really need it and appreciate the value within that supply chain help?
Brad Jacobs (CEO)
It's the former, not the latter. It's accepted by the large customers in particular, and it's gaining momentum. And of course, you've been writing for that for a couple of years now. We completely agree with that thesis, and we see it in our business. So last week, I was in Orlando. I was on a panel at NASSTRAC, and part of the discussion, I talked about how our conversation with customers is not about selling one specific service offering. It's about understanding their supply chain on a global basis, and particularly the larger customers that have transportation logistics spends of hundreds of millions of dollars or several billion dollars, and then understanding every part of it, from air, ocean, rail, truck, from Shanghai into someone's apartment building in Manhattan, and figuring out where are the pain points?
Where is it not working well? Where can we take out $ tens of millions of annual costs from our customers' supply chain spend? That value proposition is definitely resonating. I had 22 customer meetings after that panel discussion, and it came up in almost every single one of those customer meetings. And we have lots of top-to-top discussions going on with many customers in Europe and here, and in Asia, for that matter as well, about just this subject. It's definitely growing. Operator, we're going to have to call it quits here. We once again answered as much as possible and went over the 9:30 A.M. opening bell, but we appreciate everyone's attention. This was a great quarter.
We had $3.5 billion of revenue and $249 million of adjusted EBITDA. We had 11.9% organic revenue growth. We had 28.3% net revenue margin, compared to 21.6% year ago. So you got revenue going up, you got margins going up, higher than expected logistics results. You had volume growth in e-commerce and high tech, strong performance in Europe, very strong performance in LTL. Almost across the board, we had great performance. So thank you to our employees, and we look forward to speaking with the shareholders in another three months. Have a good day.
Operator (participant)
Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.