XPO - Q1 2017
May 4, 2017
Transcript
Operator (participant)
Welcome to the XPO Logistics Q1 2017 Earnings Conference Call and Webcast. My name is Michelle, and I will 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 and 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, except to the extent required by the 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 and related financial tables, or in the Investors section on the company's website at www.xpo.com. 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. I will now turn the call over to Brad Jacobs. Mr. Jacobs, you may begin.
Brad Jacobs (CEO)
Thank you, operator, and good morning, everybody. Thanks for joining our earnings call. With me in Greenwich this morning are John Hardig, our CFO, Scott Malat, our Chief Strategy Officer, and Tavio Headley, our Head of IR. I'm happy to report that we're off to a strong start in 2017. We had solid beats across the board on net income, operating income, and adjusted EBITDA. We swung from a net loss last year to net income of $19.5 million this year. Our adjusted EBITDA was up 16% from a year ago, going from $249 million to $290 million. Even more impressively, last year's numbers included truckload, and this year's didn't. We improved our adjusted EBITDA margin by 120 basis points to 8.2% from 7% a year ago.
This was a result of organic growth and reducing costs. We're very much on track with our plan to continue to increase our EBITDA margin to 10% in 2018. Once again, North American LTL was a standout. On a year-over-year basis, we grew LTL operating income by a noteworthy 49%. We improved our adjusted operating ratio in LTL by 390 basis points. Adjusted OR was 89%, compared to 92.9% a year ago. We're very proud of the disciplined execution of our LTL strategy. We signed up $716 million of new business in the Q1. This is up 67% from the $429 million we signed up in Q1 2016. We're on a roll.
In addition, we signed a record intermodal contract, which is also the largest contract we've won in any line of business in our entire company history. We also won a large new contract to manage reverse logistics in North America for a global consumer brand. These are just some of the highlights of the new business we've recently won. The wins were broad-based. A little over 60% of these wins were in transportation, with the rest in logistics, and by geography, about 60% of the wins were in the United States, with Europe generating the rest. Currently, we have active bids in our global sales pipeline of about $3 billion. That's comprised of approximately $1.9 billion in transportation and $1.1 billion in supply chain. Several things are driving our sales trajectory.
We've built a larger, more focused sales force, including 38 strategic account managers in North America. These are all highly respected industry veterans who have a lot of credibility with our largest customers, and we're in the process of building a similar senior sales organization in Europe. We're also pressing our e-commerce advantage in last mile and supply chain. Because XPO is established as the number one provider of outsourced e-fulfillment services in Europe, if a retailer there has plans to grow online sales, we're almost always asked to bid.
We're winning more e-commerce business in North American supply chain as we transfer best practices and customers from Europe. And in Europe, we're developing verticals such as technology, agriculture, and aerospace. These are verticals where we have a lot of experience in North America, and it's opening doors for us in Europe.
During the quarter, we generated revenue growth in last mile of 16%, and revenue growth, excluding foreign exchange in European supply chain, of 12%. The UK, Italy, and Netherlands, in particular, are on fire with e-commerce wins. We remain firmly on track to deliver Adjusted EBITDA this year of at least $1.35 billion, at least $1.575 billion EBITDA next year, and approximately $900 million of cumulative free cash flow between this year and next. With that, I'll ask John to review the Q1 numbers in more detail.
John Hardig (CFO)
Thanks, Brad. We delivered another strong quarter. Reported revenue was $3.54 billion versus $3.55 billion a year ago. Last year's revenue included $129 million contributed from our North American truckload business, which was divested last year. Net income attributable to common shareholders for the quarter was $19.5 million, compared to a loss of $23.2 million last year. Adjusted EBITDA, a non-GAAP measure, was $290 million compared to $249 million last year, which is an improvement of over 16%. Company-wide, we generated organic revenue growth, excluding truckload, of 4.4% in the quarter.
We expect organic revenue growth to accelerate through the year based on a combination of our strong sales pipeline and the large contracts we signed with customers in the last six months. Revenue in our Transportation segment was $2.28 billion versus $2.3 billion last year. Last year included the North American truckload business. Excluding truckload, revenue increased 5%. We increased adjusted EBITDA by 13.4% to $222 million. Adjusted EBITDA margin in our Transportation segment was 9.8%, an increase of 130 basis points versus last year. Excluding truckload, both EBITDA growth and margin expansion would have been even higher. Within this segment, less-than-truckload had another strong quarter.
On an adjusted basis, excluding amortization of intangibles and integration costs, we increased operating income by 63.8% from the prior year. We improved our adjusted operating ratio by 390 basis points to 89% from 92.9% a year ago. We increased tonnage by 4.8% year-over-year, due primarily to growth in local accounts. We increased weight per shipment by 3.8% to 1,393 pounds, which is consistent with our strategy to target heavier freight. The net result was an improvement in operating ratio as heavier weight shipments increase our revenue per shipment. In last mile, we continued to generate exceptional growth. We increased revenue by 15.7%, due primarily to market expansion with existing customers, especially e-commerce accounts.
Growth was especially strong in appliances and furniture, as well as in our non-dedicated national e-commerce network. In freight brokerage, we increased revenue by 6.9% year-over-year. Net revenue margin declined due to the weak spot freight market, which began last year. Within freight brokerage, we grew truck brokerage volumes by 9.6%. Net revenue margins in truck brokerage improved sequentially from the Q4, but were still below levels in the Q1 of 2016. Truck brokerage margins have been modestly improving sequentially since June of last year, although margin trends turned more negative again in April. In intermodal, we grew volumes 4.2% through new contract wins in a challenging market. Intermodal margins in the quarter remained under pressure due to excess truck capacity, low fuel prices, and increased competition.
We signed a significant amount of new business in truck brokerage and intermodal in the Q1 this year, which we expect will drive higher growth as these contracts ramp up through the year. In our European transportation operation, revenue was generally flat versus last year. Softness in our non-dedicated full truckload business and a headwind from the British pound was offset by strong growth in LTL, brokerage, and dedicated truckload. Trends have been consistent with prior quarters, with revenue growth strongest in our UK and France operations, while Spain and Eastern Europe remain more competitive. We continue to reduce costs through operating efficiencies and procurement initiatives. Our Logistics segment had a strong performance in the quarter, both in North America and in Europe. Revenue increased 3.1% to $1.3 billion.
Operating income increased 48% to $47 million, and adjusted EBITDA increased by 12.5% to $99 million. In European logistics, revenue increased 4.9% compared to last year. Foreign exchange, mainly from the British pound, caused a 7% drag on top-line growth. We drove exceptional growth through new contract starts, notably with e-commerce and food and beverage customers. Revenue growth in local currency was led by our operations in the UK, Italy, and the Netherlands. In North American logistics, revenue increased 1.3% to $627 million. Although volumes in transportation management were down year-over-year, we had very good growth in our higher-margin contract logistics business, leading to overall excellent improvement in our EBITDA.
In contract logistics, strength in our e-commerce, food and beverage, and aerospace verticals drove net revenue growth of 8.8%. Contract logistics wins continue to gain momentum, which we expect will deliver increasingly strong revenue growth as we progress through the year. Corporate SG&A improved versus last year, primarily due to lower integration costs. Interest expense for the quarter decreased to $76 million from $93 million a year ago, as a result of the debt paydown from our sale of North American Truckload and the two opportunistic refinancings we completed in August and March. Net CapEx for the quarter increased to $102 million from $97 million last year. We made investments in technology, new contract wins in contract logistics, and replenishment of our fleet.
We reduced the average age of our North American LTL tractor fleet to 5.3 years versus 5.6 years this time last year. We recorded a tax benefit in the quarter of $9.8 million. This included $10.7 million associated with tax benefits resulting from share-based compensation awards that vested or settled in the quarter. Recognizing these benefits and income tax expense is part of a new accounting standard, which we adopted in 2016. Based on the share price and the vesting schedule, we'll likely see similar Q1 tax benefits in future years. Taxes also included $5.8 million in discrete tax benefits, primarily related to state tax planning initiatives. Free cash flow for the quarter was negative $87 million.
As a reminder, the Q1 typically has the weakest cash flow performance of the year due to business seasonality, annual prepayments, and the payment of annual bonuses. We're pleased that, consistent with our pay-for-performance culture, we increased the company-wide bonus pool paid to more than 25,000 of our employees. Our full-year free cash flow forecast remains at least $350 million. We ended the quarter with $342 million of cash and $900 million of liquidity, including our ABL facility. Now I'll turn it over to Scott.
Scott Malat (Chief Strategy Officer)
Thanks, John. Starting with the macro. In North America, in a lukewarm transportation market, industrial freight trends have been stronger than retail. That's been a plus for LTL volumes. In North American truckload, the market continues to be loose, with the exception of the Southeast. We're seeing some tightness there for the produce season. In Europe, we've seen modest improvement in March and April economic trends after a slow start to the year. In the logistics market, by contrast, activity is strong globally. Customers seem to be feeling more confident. They're more willing to commit to projects than we've seen in a while. We're opening a new site every two weeks in North America and at a similar cadence in Europe. We're creating major sales momentum in this environment.
Last quarter, we told you about the investments we're making in new salespeople, sales support, training, and our global CRM platform. I'm happy to report that it's paying off. We're cross-selling our services more to customers and growing our leadership positions in e-commerce. In less-than-truckload, we've turned the corner on sales, with 6% revenue growth in the quarter. Our local sales organization is fired up. We've hired 168 new local account executives in LTL since the beginning of 2016. We're putting feet on the street, with each rep meeting with, on average, around seven customers a day. We're also staying disciplined on price. Contract renewals had an average price increase in the quarter of 2.9%. We have new technology tools that instill a strong pricing methodology, and we're more focused on freight that complements our LTL network.
For example, we like heavy freight. It lowers our revenue per hundredweight metric, but it improves our profitability by reducing our cost per hundredweight. Our weight per shipment was up almost 4% in the quarter, and there's room to grow. In 2016, we were averaging around 1,350 pounds per shipment, while some of our peers were closer to 1,600 pounds. We've also continued to take significant costs out of our LTL network. We've now executed on $175 million of profit improvement in LTL. Our original target was for $170 million-$210 million by year-end, so we hit the mark nine months early. The latest savings include procurement and pickup and delivery optimization.
Overall, comparing the 2015 results, pre-acquisition, to trailing twelve months, we've grown our LTL adjusted EBITDA from $387 million to $585 million. That's an increase of over 50%. We still have a lot of runway in LTL. For instance, we've just gotten started in improving trailer utilization. It's one of our most important levers. A 1% improvement in load factor, which is a measure of trailer utilization, equates to annual profit of about $9.5 million. In the Q1, we focused on utilization in our service centers and increased our load factor by over 3%. We're rolling out technology upgrades to improve network planning, which will drive the next round of savings.
We estimate that we have a realistic opportunity to gain 10 percentage points of trailer utilization, or about $95 million. In European transportation, we're implementing many of the same initiatives as we are in North America. This cross-pollination is a major reason why our European transport business outperforms the market each quarter. Most of the growth in European transport is coming from LTL, truck brokerage, and dedicated truckload. Combined, these three service lines generate about three quarters of our European transport EBITDA.
When you break it out, there are solid reasons why we expect sustained growth in these operations. First, we're an LTL leader in Western Europe, with an excellent reputation and a strong brand. We're implementing improved yield management tools and engineered standards for dock operations and pickup and delivery. This is the same playbook we're successfully using in North America.
Second, in truck brokerage, our Freight Optimizer technology is providing greater visibility across our European network, which is helping the team source capacity. And the third component, dedicated truckload, is particularly strong in the UK and France. This is a business that generates strong returns tied to long-term contracts. Company-wide, we have global initiatives underway to improve our cost structure, operate more efficiently, and serve our customers more cohesively as one XPO. In procurement, our centralized procurement team achieved annual savings of $80 million. Next up, our global RFPs for the procurement of material handling equipment, insurance, uniforms, travel, and other categories that combined add up to around $1.7 billion of our current spend. And we're going to keep that ball rolling. We expect to double the run rate to about $160 million of procurement savings by late 2018.
I'll mention one final lever for cost savings because it's a big one, workforce productivity. Our new operations performance team is collaborating between North America and Europe to optimize our warehouse. The team's helping every site understand the gaps between average and great performance and deliver improvements. Last month, XPO was ranked as the largest logistics company in North America by Transport Topics. Without question, we have our amazing employees and strong customer relationships to thank for this achievement. We still have a long runway of opportunity ahead of us. We've aligned our entire organization with matching objectives, metrics, and incentives. We're laser focused on continuously improving service for our customers and increasing value for our shareholders. It's shaping up to be a landmark year of growth for XPO. With that, I'll turn it over to questions. Operator?
Operator (participant)
Thank you. We will 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'd 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. One moment please, while we poll for questions. Our first question comes from Chris Wetherbee with Citibank. Please proceed with your question.
Chris Wetherbee (Senior Equity Research Analyst)
Hi, thanks, and good morning.
Scott Malat (Chief Strategy Officer)
Morning.
Chris Wetherbee (Senior Equity Research Analyst)
Wanted to touch base, Scott, on some of the comments you had on the LTL side. So you talked about the load factors there and the opportunity for maybe 10 percentage points of improvement. Can you give us a sense of sort of how you think about that from a timing perspective, and, you know, I guess, what type of backdrop from a tonnage growth standpoint you need to be able to achieve those goals?
Scott Malat (Chief Strategy Officer)
Sure. So if you take a step back, our utilization of our trucks are roughly 65%. That means when you're moving down the road, our trucks are only filled 65% of the way. We have an opportunity to take it up 10 percentage points, 75%, even to get it up to 85% over a long period of time. We expect the load factor improvement to be somewhere in the mid-single digits this year, and then, and then the same type of improvement next year.
Chris Wetherbee (Senior Equity Research Analyst)
Okay, that's helpful. And then, I guess, talk a little bit... If you could talk a little bit about the tonnage environment that you're seeing right now, you know, how things have trended post the end of the Q1 and sort of what your outlooks are for the year. Talking to your customers, you mentioned industrial end market strength, and so I'm just kind of curious how that's playing out Q2 so far.
Scott Malat (Chief Strategy Officer)
In general, April was a strong month on volume. So in LTL, our volumes improved from March to April. Our volumes improved every month of the Q1, January to February, February to March, and then March to April, volumes improved again.
Chris Wetherbee (Senior Equity Research Analyst)
Okay, so run rate, maybe, you know, growth rate on a year-over-year basis, roughly the same as what you were able to post in the Q1. Is that a fair assumption?
Scott Malat (Chief Strategy Officer)
We expect the growth to improve in the Q2 from the first.
Chris Wetherbee (Senior Equity Research Analyst)
Okay. And then, you know, just want to get one last question just on sort of the, the, the pipeline of business. So obviously, a lot of, you know, business wins in the Q1, intermodal side and some of the other, you know, end markets. I, I guess, you know, maybe, Brad, it, it seems like there's, you guys are gaining momentum. Can you give a sense of maybe how much is company specific with sort of the sales force organization that you talked about, but also sort of the backdrop from an economic standpoint?
Scott Malat (Chief Strategy Officer)
Sure. Well, on supply chain, I think that's more us than the market. We happen to be positioned in some of the fastest-growing parts of supply chain, so e-commerce, food and beverage over in Europe, and those customers are growing really fast. And since we're the largest in Europe in there, and we're one of the largest here in that, that business gravitates towards us. On transportation, it's definitely us, because the market's sluggish.
We're taking share, which is we have to struggle more to show the kind of growth that we've been showing and the numbers we've been showing in transportation than we do in supply chain. So supply chain is coming more to us. In transport, we have to work more for it. But you're absolutely right that there's huge momentum in sales. It's almost every day now that we're winning some big contracts. Just a few years ago, thinking of winning a $500 million contract was almost unthinkable, and then topping that a year later, as we did this month, just didn't think about that. We got a $50 million contract, we got a $95 million contract, a nice steady stream of wins.
Chris Wetherbee (Senior Equity Research Analyst)
Okay, that's helpful. Thanks for the time this morning, guys. I appreciate it.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
Thank you. Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please proceed with your question.
Todd Fowler (Equity Research Analyst)
Great, thanks. Good morning. Brad, maybe just good morning. Maybe just to start with the guidance. I know that it's open-ended when you have the at least, you know, in front of the guidance, but it sounds like a lot of momentum here on the new business wins. It sounds like a lot of cost opportunity. So, you know, how do we think about your thought process around guidance for this year? What it would take for you to maybe move it up and incorporate some of the revenue wins and those sorts of things into the outlook?
Brad Jacobs (CEO)
I forget what S&P and Moody's call it. It was a positive watch? A positive watch! Guidance. But so it's a little early in the year to be raising guidance, but there's an upward bias to possibilities going forward. So let's just see how the next few months play out, and then we'll revisit the estimates. Right now, we're very, very comfortable with the estimates that we have out there, with the guidance we've given, and there's some upward bias to it.
Todd Fowler (Equity Research Analyst)
Let me ask it this way: Is there anything in the Q1 that you view as being unsustainable, anything that kind of helped you, if it was, you know, fuel trends in the LTL business or, you know, something that, you know, you're watching that may not repeat in the Q1 as you think about the progression through the year?
Brad Jacobs (CEO)
I don't, Todd. I think the Q1 was a quarter where we had to work hard, and we had some headwinds, we had some tailwinds, but internally, as an organization, it's really gelling. And people are very focused on the right levers in order to improve both the profitability of the company and customer service at the same time. And it's broad-based by our different business lines and by our geography. So I'm optimistic about the year. Starting off on a very good foot.
Todd Fowler (Equity Research Analyst)
Okay, good. That helps. And then just for my follow-up, maybe for John on the cash flow. I know that you walked through some of the timing issues here in the Q1. But can you give a little bit more color on the working capital? It sounds like that there are some prepayments and some incentive comp, but is there anything on, you know, day sales outstanding or anything like that, that helped you last year that isn't recurring this year? And then do you have an updated CapEx number for the year? Thanks.
John Hardig (CFO)
Yeah, sure, Todd. I'll do the last one first. On the CapEx, we're not changing our guidance for the year, and so we're still looking at, in the midpoint of the range, something that's around $443 million in net CapEx for the year. On working capital, you know, the Q1 is always the weakest quarter seasonally, as you know. EBITDA is the lowest. We also have a lot of things that hit in the Q1 that don't hit in other quarters, such as we do a lot of prepaids for things like our insurance programs. Then we have the annual cash bonus. And in my comments, I mentioned that, you know, we have 25,000 employees that got bonuses this year.
We had some drivers that got bonus increases as much as 65% year-over-year. And so that's, you know, that's a pretty significant drag on, on, on cash flow in the Q1. And then, if you look at our revenue activity, it ramped up through the quarter and really stepped up in March. So we had a outsized, you know, kind of beyond our expectations, uptick in revenue in March, and then that's obviously a drag on working capital because you have to fund that business. So those are really the key drivers.
Todd Fowler (Equity Research Analyst)
Okay, understood. Thanks a lot for the time this morning.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed with your question.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Thanks. Morning, everyone. Brad, so it looks like you guys are clearly on your path to 2018, and while I wouldn't take anything for granted at this point, can we get a view into your insight on kind of what targets look like beyond that, in terms of longer term organic growth and maybe a longer-term EBITDA margin target?
Brad Jacobs (CEO)
Well, we haven't issued long-term guidance past 2018. I guess most companies haven't even put out 2018 guidance, so we feel good about the visibility we've given for this year and next year. But big picture, we are going to continuously improve the company. We're going to drive sales, we are going to figure out all kinds of ways to continue to take out costs through our global procurement initiatives, through best practices. We are very focused on growing our margins and generating, as a result of that, increasing amounts of EBITDA, increasing amounts of cash flow.
That's the plan, and that's what we get paid to do. So as a management team, that's our job, to not stop at 2017, not stop at 2018, but every year and every year going forward, continually improve. Grow sales, take out costs, grow margins, generate more profit, and at the same time, delighting our customers more and more. That's the mission, and that's what we intend to do.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Got it. Got it, understood. And as a follow-up, we heard Walmart announce last month that they're offering 3%-5% discounts to customers to come pick up online orders in stores instead of having delivered to their homes. Do you think this only applies to, to, like, small boxes? Or, or does this, as a trend, not specific to Walmart, but if, if this grows as a trend among brick-and-mortar retailers, do you think this could also apply to, heavier goods that, that you have in your last mile business?
Brad Jacobs (CEO)
Probably not, because going to Walmart to pick up a package is a lot easier than going to Walmart to pick up a refrigerator, or a stove, or a washing machine, or exercise equipment. You need a different vehicle, you need a couple people. It's, you know, it's a much more tricky thing to do. Furthermore, on the heavy goods, on a lot of them, you need some expertise to actually install them. You can't just pick them up and plug and play, put it in your house. You need people who are technicians who can install them. So I don't think in the near term, that's really on anyone's agenda to be incentivizing people to go pick the heavy stuff up themselves.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Great, thank you.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Scott Schneeberger with Oppenheimer & Co. Please proceed with your question.
Scott Schneeberger (Managing Director and Senior Analyst)
Thanks, Brad. Good morning. I'm going to focus on one of the smaller pieces of your business, the one that's not been performing well, but a big contract win, and that'd be intermodal. Could you elaborate what the contract or contracts that you just won will do for forward growth, and comment on just the business environment in general? Thanks.
Scott Malat (Chief Strategy Officer)
Hey, Scott. Thanks. Our intermodal growth will accelerate. The big contract we won is a three-year deal that starts ramping up in April of this year, but that wasn't the only one. Another very large contract with a retail-based company that's ramping up as we speak right now. So in intermodal, we put in a new platform, a new Rail Optimizer platform, that took out a lot of costs, improved the visibility for customers. It's really a best-in-class system. That's one of the reasons we're winning more business.
Scott Schneeberger (Managing Director and Senior Analyst)
Great, thanks for that. And then, obviously, last-mile logistics continues to be quite strong. Could you just elaborate on, on what you have going on there, and perhaps a little bit of commentary with regard to, U.S. and Europe? Thank you.
Scott Malat (Chief Strategy Officer)
In last mile, we're winning more business that have more complex installation parts to the service. We upgraded our technology to handle those increasingly complex, and then we're growing a lot with our e-commerce customers. About 20% of our freight in last mile is through our e-commerce network, the commingled freight network, that's growing very fast. In Europe, we're ramping up projects in the UK, in Ireland, and then we have some other projects in France as well.
Scott Schneeberger (Managing Director and Senior Analyst)
Great. Thank you.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
Thank you. Our next question comes from Brandon Oglenski with Barclays. Please proceed with your question.
Brandon Oglenski (Director and Senior Equity Analyst)
Hey, good morning, everyone, and thanks for taking my question.
Scott Malat (Chief Strategy Officer)
Good morning.
Brandon Oglenski (Director and Senior Equity Analyst)
So can we just come back to the, the discussion around LTL pricing? Because I think there's a little bit of confusion out there. You know, your unit revenues were a little bit lower, but I think, you know, I, I didn't hear all the prepared remarks, but I think you mentioned, closer to 3% on a consistent pricing basis. So can you help us out on the, you know, more industrial side and the LTL business, what's going on there with competition?
Scott Malat (Chief Strategy Officer)
Sure. It's a rational market. We increased the like-for-like contracts, like you were saying, like 2.9%, and then our operating income increased 49%. We are pricing still very rationally, but the new business coming on, like agricultural-type stuff, fertilizers, heavy-type goods, have better utilization factor. They're putting more weight on the trucks. That takes down our cost to service on an average hundredweight basis, but it also does have a lower revenue per hundredweight. So it's a new freight coming on the system that's very profitable for us, making us a lot of money, but it has a lower revenue per hundredweight.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay, so incrementally, LTL pricing sounds like it might have even been a little bit stronger in the market then?
Scott Malat (Chief Strategy Officer)
It's been relatively consistent at about 3%. All through last year, we had same like-for-like pricing increases of around 3%, and then we had accessorials on top of that.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay, appreciate that. And then on the European transportation side, you said, you know, FX is impacting the optics of top-line growth. I think you provided the logistics impact on FX, but would you be willing to do that on the transportation side?
Scott Malat (Chief Strategy Officer)
Yeah. The European transport FX impact was a 5.5 percentage point impact, and on European supply chain, it was 7 points.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay. So can you talk a little bit more then about the European strategy and, you know, how that business has been transforming in the last year?
Scott Malat (Chief Strategy Officer)
We're growing very fast in European supply chain. That is very much a combination of e-fulfillment and cold chain distribution. We'll continue to win in those contracts and to win in that business that's growing among our customers itself. In XPO Europe transport, there's really three things that make up about 75% of our EBITDA in Europe. It's LTL, it's brokerage, and it's dedicated truckload. All three of them have very good returns and are growing. LTL, we have an advantage. We're using the same things we're doing in North America and Europe. We're the largest player in Western Europe. We have a lot of density. We have great customers. We have a great network.
In brokerage, that's something that was run very—it was run country by country in the past, and it was run very segmented and didn't have visibility across the entire network. We weren't pricing—before we put in the Freight Optimizer system, we weren't pricing very methodically or analytically. We were doing it more in the seat of our pants. And now we've brought more rigor around pricing and ability to procure capacity across Europe. And then in dedicated truckload, that's mainly a focus around the UK and France. More customers are asking us to do more dedicated type contracts, move trucks from our non-dedicated network to dedicated contracts. For us, that's a better return, that's a better use of capital for trucks and dedicated rather than non-dedicated truckload.
Brandon Oglenski (Director and Senior Equity Analyst)
Appreciate it.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
Thank you. Our next question comes from Kevin Sterling with Seaport Global Securities. Please proceed with your question.
Kevin Sterling (Managing Director and Senior Equity Research Analyst)
Thanks. Good morning, gentlemen.
Brad Jacobs (CEO)
Good morning, Kevin.
Kevin Sterling (Managing Director and Senior Equity Research Analyst)
Brad, so your sales pipeline, are these new customers to XPO, or are you cross-selling products with existing customers? Or maybe it's a combination of both.
Brad Jacobs (CEO)
Yes and yes. There is a lot of cross-selling going on. If you look at our top 100 customers, 87 of them use more than one service in the quarter, and 24% of the sales that we generate from these top 100 customers come from the secondary service lines, and you compare that to a year ago, that was only 19%. So there's, there is a lot of cross-selling going on. But we're also growing greater share of wallet with our existing customers in the lines of business we already are in with them on. So this is a multi-year process that we've started years ago, and you start off, you got to earn your stripes. Maybe you get $5 million of business, maybe you get $10 million of business.
You don't walk in and get $50 million or $100 million of business in the first year, normally. That's, that's snowballing. That whole penetration of the existing customer base is snowballing.
Kevin Sterling (Managing Director and Senior Equity Research Analyst)
Okay, thanks. And, you guys briefly touched on the intermodal contract or, or contracts you won. Is that highway conversion, or did you take market share?
Brad Jacobs (CEO)
That was in one customer, actually was highway conversion, but that was an anomaly. We do not see a lot of highway conversion going on in intermodal. The intermodal market is weak. There's not a lot of conversion from truck to rail because truck capacity is ample, it's inexpensive. But business has picked up for us recently because we got some good wins and big wins, but that should not be confused with how the overall market is in intermodal. It's not high.
Kevin Sterling (Managing Director and Senior Equity Research Analyst)
Gotcha. Okay. And Brad, last question here, and, I'd love to get your thoughts. You know, we're seeing some truckload consolidation, a couple major players getting together. You know, who knows? We may see more. What are your thoughts on TL consolidation and may- and, and in particular, any impact, good or bad, you might see to your truck brokerage business?
Brad Jacobs (CEO)
I don't see a lot of impact to the truck brokerage business because there's 200,000 trucking companies out there. So there'd have to be a lot, lot, lot more consolidation before that would change the dynamics there. It's still an intensely competitive business on the trucking side. With respect to what my personal views on truckload consolidation, we're not in North American truckload business anymore. We sold that last year. But in general, I, I think consolidation in fragmented industries is a good thing. I think it brings more economies of scale, and it brings best practices, and you're allowed to attract better talent. It's just a lot of good things come from properly executed consolidation, including in truckload.
Kevin Sterling (Managing Director and Senior Equity Research Analyst)
Gotcha. Okay. Well, thanks for your time this morning. Congratulations on a nice quarter.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Brian Ossenbeck with J.P. Morgan. Please proceed with your question.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Hey, good morning. Thanks for taking my question.
Brad Jacobs (CEO)
Good morning.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
So obviously, fuel has been pretty distorted for all the transport companies this quarter. I was wondering if you could give us a sense of what organic revenue was in the quarter. I think you said it was about 4.4 headline, but what was that excluding fuel? And now that we see the net revenue margins here, it's not surprising to see freight brokerage going down year-over-year, given the trends in that market. But you know, was there also an impact on that they would call out as significant on some of the net revenue margins for the various business lines as well?
Brad Jacobs (CEO)
I didn't understand the last, so let me start with the organic growth. We had 4.4% organic growth, which does exclude fuel and FX. In transportation, if you look overall at transportation, it was 3.4% organic growth, and supply chain was 7.1%. What was the question on net revenue margin with fuel?
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Oh, yeah, I was just asking if, you know, fuel going up tends to distort, and when it goes up, it'll pressure the net revenue margin as a percentage. So, you know, clearly the truckload brokerage had some pressure from a cyclical industry perspective. I was just wondering if that masked any of improvement in the underlying other segments, because, you know, we pretty much saw margins that were, you know, pretty consistent year over year.
Brad Jacobs (CEO)
There is some smaller degradation of margin percentage just by fuel, but it is a pass-through, so it is just a percentage basis. We look at truck brokerage, we've seen a steady improvement starting in June; it really hit a bottom in June of 2016. We've seen a steady improvement up until April, then it came down. In intermodal, Q1 was a tough margin quarter. This year-over-year was a difficult margin quarter. We've seen an improvement in April, but it really wasn't as much driven by the fuel percentage. It was more driven by contract prices in truckload are flat or in many cases, down. And cost to run on the rail still moves up, so you'll get pressure on the margin line.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Right. Right. Okay, thanks for clearing that up. So one of the other smaller businesses, managed transportation, you mentioned that, you know, some declines in that area. It's been an area of focus for some of the other logistics companies. So I was just wondering, you know, if there's anything changing in that business dynamic, if there's more competition, or, you know, is this just as you expand the broader book of services, is this just not something that you're expecting to grow as much?
Brad Jacobs (CEO)
So in managed transportation, we took our eye off the ball on that this quarter, and frankly, last year. We were very focused on other lines of business. We didn't put enough management time into it. As a result, we got out-competed, and we lost a few customers. We did get some great contract renewals, but we have to turn the corner on that. All of our other businesses are up and to the right; managed transportation isn't. Having said that, to answer the other part of your question, it is a priority for us. Managed transportation is an important service that we provide to our customers, and we want to grow it. It's another way to touch our customers, and we want to do that.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Okay. And a quick follow-up on that. Are you seeing that in the pipeline yet? Or, you know, those things tend to be pretty sticky sorts of arrangements with customers. So just wondering if you're actually seeing any, any sort of inflection in the activity now that you're devoting a bit more focus on it.
Brad Jacobs (CEO)
Little bit, but not imminent, because that's a long sell.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Right.
Brad Jacobs (CEO)
But it is something we're absolutely more focused on now than we were last year.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Okay. And just one quick housekeeping, just cash taxes in the quarter, and where do you expect them to be in 2017 and 2018, based on your Free Cash Flow guidance? Thank you.
John Hardig (CFO)
Sure. I'll answer that question. The cash taxes for the quarter were $19 million, and our cash tax forecast for this year remains $80 million-$90 million for 2017.
Brad Jacobs (CEO)
And then it'll go up, 2018 will go up to more, mid-30% tax rate range, in that year, but we've not given a dollar estimate for that year yet.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Okay. All right. Thanks, John. Thanks, thanks for your time.
John Hardig (CFO)
Sure. Sure.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Allison Landry with Credit Suisse. Please proceed with your question.
Allison Landry (Senior Transportation Research Analyst)
Good morning. Thanks.
Brad Jacobs (CEO)
Good morning.
Allison Landry (Senior Transportation Research Analyst)
In the last mile business, you know, you obviously have a really good toehold in that market. But, you know, we've been increasingly hearing from truckers, brokers, you know, intermodal companies that, you know, they're all trying to capture some share of this business and pursue growth. So I was just wondering, first, you know, could you give us a sense of how fast the last mile market is growing, if the pace has actually accelerated in the last year or two?
And then longer term, how you think about the size of the market relative to the $13 billion, I believe you've talked about historically. And then second, just given what I assume to be rapid growth, have you seen increased competition, in, you know, like broadly and, in particular, in sort of the white glove niche that you operate in?
Brad Jacobs (CEO)
I think it was Shakespeare who said, "Imitation is the sincerest form of flattery." So we're flattered that people want to get into that business or grow that business. But to put it in perspective, in Q1, our revenue growth in last mile was 16%. So we're clearly taking share. We're clearly growing that business very, very, very well. And in the quarter, it accelerated throughout the quarter. In March, our organic growth was 17.1%.
So this is reflective that we do a really good job. We got a great team of operators in that business, and our scale. We're 7x the size of the next biggest last mile player. If you take the next three and put them together, we're 3x the size of them combined. We have proprietary technology that's unique in the industry that we have patents on.
We just do that very well. So I don't see any... Look, competition is great. It's, it's what makes the world go round, but we're, we're doing very well in that, in that business. We expect to continue to do very well in, for many, many years.
Allison Landry (Senior Transportation Research Analyst)
Okay. And any comments on the sort of $13 billion that you've referenced and how big you think that it could grow to long term?
Brad Jacobs (CEO)
Well, the $13 billion is the total addressable heavy goods market, which is growing along with GDP, but what's growing much, much faster is the only one third of that $13 billion that's outsourced. That's done to outsourced providers like ourselves, where we have done the business. That is increasing very, very fast, and that's growing it up at 5-6 times GDP in general.
Allison Landry (Senior Transportation Research Analyst)
Okay, got it. And then just more of a modeling housekeeping question. When should we expect the integration and rebranding cost to sunset? You know, it's been, I think, about six quarters since you did an acquisition, and this quarter, we saw, I think, $21 million excluded from EBITDA or 7%. So just wanted to get a little bit of clarity, you know, on how we should be modeling that going forward.
Brad Jacobs (CEO)
The rebranding is finishing up right now. It's finished up in the Q2, so you'll see that reduced. And integration costs, we'll do about $40 million-$50 million of integration costs in this year in 2017, so it will trail off through the year.
Allison Landry (Senior Transportation Research Analyst)
Okay. And could you give us a sense of the split of the $21 million that was integration versus rebranding?
John Hardig (CFO)
Sure. Yeah. The... I'll take that one. The rebranding was about $11 million, and the rest was integration costs.
Allison Landry (Senior Transportation Research Analyst)
Okay, great. Thank you for the time.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Amit Mehrotra with Deutsche Bank. Please proceed with your question.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Okay, thanks. Hi, guys. Thanks for taking my questions.
John Hardig (CFO)
Good morning.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Good morning. So first, a quick one for John. Organic growth number of 3.4% in transportation, I'm assuming I think correctly, that it's not adjusted for the business that you're walking away from or culling in the LTL business. So if that's the case, can you just give us some color on, you know, how much revenue that kind of amounts to on a quarterly basis, so we can maybe just get a sense, even a better sense of the true underlying growth in the transportation business? Thanks.
John Hardig (CFO)
Sure. So the organic growth rate in transportation that we gave of 3.4% is only adjusted for fuel and foreign exchange, and that's it. So there's no adjustment for LTL revenue culling, or anything else. So there's no number to give you. So the 3.4 is fuel and FX only.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Right, I know. But the question was, is, is that, can you give us some sense of the amount of revenue that you did cull in LTL kind of proactively, so we can get a sense of, you know, what the actual underlying beyond just FX and, and fuel, you know, business that you effectively walked away from?
Brad Jacobs (CEO)
Not really, because our growth in LTL is positive. We're adding more customers and adding more. The mix has been moving more towards local accounts. As the national accounts and large accounts are still down year-over-year from where we were a year ago. But that process is almost complete, and we're moving forward and growing the entire business.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Okay. Okay, the second question is just to follow on the LTL pricing environment. I mean, you know, LTL yields in the quarter were down a bit, excluding fuel. I think some of that may be just the way how pricing works as weight per shipment moves up. I think you mentioned that earlier. Just would have imagined that, you know, as you do, you know, cull some business and walk away from some unprofitable business, that would be a counterforce to some pressure on the yield per hundredweight. You know, can you just talk about that, you know, the net effect of those two things, and maybe how we should think about yields going forward in a, you know, improving weight per shipment environment, just given some of the offsetting factors there? Thanks.
Brad Jacobs (CEO)
So the yield on existing business is going up, it's not going down, and the contract renewals are just shy of 3% yield improvement. The heavier weight, more dense freight that we're targeting to get the trailer utilization up does dilute the yield. But in terms of operating income, it's very additive. So operating income was up 49% year-over-year in this quarter. So it's a major success story in LTL. The OR was improved by 390 basis points. It's the fifth quarter in a row that LTL beat budget, and we've dramatically improved the profitability of LTL since we bought it in October 2015. When we bought it, LTL had trailing twelve-month EBITDA of $387 million, I think.
If you look at end of March and look at TTM EBITDA, it's up 50%. It's about $585 million. So it's increased to almost $200 million of EBITDA in 5 quarters. The OR was in the mid-90s. We've improved it by more than 500 basis points. How did we improve that? How did we do that? A bunch of different things. First of all, we put P&Ls into the business. So every instead of having this one P&L for the whole company, we put P&Ls, hundreds of P&Ls for every different location. We tied compensation to the P&Ls. We put in new performance metrics, new KPIs. Tony instilled a culture of a high level of accountability. The whole organization chart was revamped. We put into the culture the concept of being thoughtfully frugal, so very good cost controls.
We rebid the line haul, which hadn't been rebid for years. We've been managing the yield. On balance, we've been raising yields to take out these, these dense accounts. We are almost done, but not completely done, culling the money-losing customers that you were talking about. We don't want to leave customers high and dry. We have a lot of other business with most of these customers, so it's a deep relationship.
We want to work with them. We rolled out lots of new technology, the handhelds, on the dock, all kinds of technology to improve productivity, to improve efficiency. We achieved $175 million of cost savings three quarters earlier than when we first announced the transaction. We rebid tractors and trailers and tires and all kinds of other procurement. We improved P&D productivity by 5.5%. We insourced the IT. So, I mean, I could go on and on of all the many, many things we've been doing-
Amit Mehrotra (Managing Director and Equity Research Analyst)
That's a lot of stuff.
Brad Jacobs (CEO)
to improve LTL, but it's been quite a lot of things.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Okay, well, let me get, let me get one more in here. Okay, so, so it just seems like with yields, you know, your yields per, you know, revenue per hundredweight coming down in LTL, I agree, is kind of a positive, and maybe revenue per shipment going up is kind of a positive profitability indicator. You guys talked about 100-200 basis points of year-on-year margin expansion in LTL.
I would imagine, just based on your Q1 performance and all the stuff you're talking about, you know, it seems like it could be that the higher end of that this year in terms of margin expansion at LTL. Is that maybe too bullish this early in the year, or are you kind of thinking that it could be more towards the higher end versus the 100-200 basis points prior guidance?
Brad Jacobs (CEO)
Well, for the moment, we want to stick with our guidance. We're not raising guidance. We'll revisit that as the year goes on. But you got to go back to what Scott was saying before. If you look at our trucks, and hopefully you're seeing more and more XPO-branded trucks on the road. Your typical truck is only, is less than two-thirds full. They're only 65% utilized. This is wasted money. This is wasted efficiency. Every 1% of increased utilization is another $9.5 million of profit. To get from where we are, just to bridge the gap halfway to best in class, it's almost a $100 million profit improvement opportunity. Now, to do that, the best rate to take, by our analysis, is that heavier freight.
Right now, our average weight per shipment is about 1,350 lbs. If you look at best in class, they're 1,600 lbs. So we definitely are targeting that denser freight to improve the profitability in the network. Wait, we're looking out. Let's not comment on this show. Let's look out five years. In five years, LTL should be a billion-dollar EBITDA business. It should be a $1 billion EBITDA generator in five years. That's our goal.
Amit Mehrotra (Managing Director and Equity Research Analyst)
Mm-hmm. Okay, that's great. Thanks for taking my questions. Appreciate it.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Our next question comes from Donald Broughton with Broughton Capital. Please proceed with your question.
Brad Jacobs (CEO)
Donald, I love the name Broughton Capital. Very good.
Donald Broughton (Principal and Managing Partner)
Has a nice ring to it, doesn't it?
Brad Jacobs (CEO)
Yes, it does.
Donald Broughton (Principal and Managing Partner)
Thank you. Thank you. It is actually Charles Caleb Colton that said, "Imitation is the most sincere form of flattery." But nevertheless-
Brad Jacobs (CEO)
Thank you. Thank you for the correction.
Donald Broughton (Principal and Managing Partner)
But it is always nice to be flattered, especially when it's fair. You've obviously had some real success in cutting costs, and you've had some success in cross-selling to your customers. I wondered how much success you've begun to have in cutting costs by what I would say, cross-selling your operating divisions. I mean, I know, for example, when you acquired XPO LTL, it used Intermodal less for line haul than any of the other major LTLs. And remember, when you first closed that transaction, I asked you about it, and you said that was really more of a second chapter, third chapter, part of the story. So I wonder, are you beginning to cross-sell your operating divisions? And if so, could you give us some examples, or is that still another chapter or two later in the story?
Brad Jacobs (CEO)
Well, we're definitely cross-selling our business lines, no question about that. We haven't done it enough. We need to do it more, and we have to make sure that our divisions cooperate with each other, and we have the right compensation and incentives to do that. Between some of our business lines, we've done better jobs than others, but the momentum is definitely in a positive direction. If you look at Europe, Europe, when Norbert was before we bought it, the two business units were really run separately. Even the sales forces hadn't met before, and they literally were run completely, completely separately. Now, there's a lot more cross-selling. Just last month, we signed a new $20 million customer between supply chain and transportation in Europe. But that didn't happen in the past.
So there is momentum there, but I can't say we should get a gold star for our progress for cross-selling within our business lines yet. We're still using lots of other competitors for services that we provide ourselves, because sometimes their network, the freight is just better in their network, and they can provide a cheaper price. So in order to be competitive with our customer, we use another party. We're not, not proud to take the business for our own business line and then not help the customer, and maybe even lose the business.
Donald Broughton (Principal and Managing Partner)
Fantastic. So still early in that story?
Brad Jacobs (CEO)
Yes.
Donald Broughton (Principal and Managing Partner)
Fantastic. Thank you, gentlemen.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Brian Konigsberg, with Vertical Research Partners. Please proceed with your question.
Brian Konigsberg (Equity Research Analyst)
Thank you. Good morning.
Brad Jacobs (CEO)
Good morning.
Brian Konigsberg (Equity Research Analyst)
Just wanted to touch a little bit more on the organic growth profile. So, good performance in Q1. You're expecting a bit of acceleration as we progress through the year. I'm just curious, how much of that outlook is based on the work that you actually have booked to date, versus how much you expect to win going forward? And then maybe can you just follow on, you know, how is your win rate developed in Q1? I know that was fairly strong in the pipeline. I think that was last quarter's comment was specific to supply chain, but how did the win rate develop in the Q1, and what do you expect for the rest of the year as well?
Scott Malat (Chief Strategy Officer)
Well, it is those two factors, the business we've already signed up, which we project, which was much higher in the Q1 this year than last year, as well as a pipeline that's very large. We're winning about 23% of the business in our supply chain pipeline today, which is toward the high end. It ranges from 20%-23% over time.
Brian Konigsberg (Equity Research Analyst)
Yeah. And if I could ask one more on the pipeline. I think you said supply chain logistics came down to $1.1 billion. Correct me if I'm wrong. I think that was $1.3 billion in Q4. Is that just a function of the strong wins that you reported in the quarter and just weren't able to fill it as quickly in Q1?
Scott Malat (Chief Strategy Officer)
It is a function of the wins we had in the quarter. We did win some very large pieces of business, and now the pipeline is being replenished.
Brian Konigsberg (Equity Research Analyst)
Got it. All right. Thank you very much.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
Thank you. And our final question comes from Tyler Brown with Raymond James. Please proceed with your question.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Hey, good morning, guys.
Brad Jacobs (CEO)
Good morning.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Hey, Scott, quick question on Intermodal. Do the 2 new contracts require an investment in containers, and can you kind of update us on where your container fleet is today?
John Hardig (CFO)
It's John Hardig. Yeah, I'll handle that question. The new business that we won does not require any incremental investment in containers or chassis or anything else. Our container fleet right now is right around 9,500 containers, and we are investing in that fleet. We're buying new containers this year. We bought some last year, so we're trying to keep that fleet fresh.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Okay. Okay, good. And then I'm just curious, are those contracts more transcon, maybe locally, it's cross-border, or maybe all of the above?
John Hardig (CFO)
It's more intra-U.S. business. It's not necessarily cross-border. And some of it is transcon, and some of it is shorter haul.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
... Okay, and then maybe my last one here, but and then maybe Scott or John, but it sounds like the fleet age is coming down, which I guess indicates to me that you are spending CapEx at, call it, a greater rate than maintenance. I'm just curious if you could break down what % you think your CapEx budget is for growth and maintenance, and then how should we think about that CapEx profile over the next couple years, either as a % of revenue or in total dollars?
John Hardig (CFO)
Our total CapEx budget for this year is $400 million-$455 million. Of that, our maintenance CapEx runs around two and a quarter, $225 million. And really, the growth is going into not so much the fleet. We're maintaining the fleet at its current age. That's the plan, but more going into investment and new business opportunities, especially in supply chain, and very heavy investment in IT. So a lot of that investment, the growth capital is going into the IT systems that we're building. And we don't expect that profile between growth and maintenance to change a lot over time, because the fleet's gonna stay about the same as where it is today. As we grow on the transportation side, we'll look more to using the non-asset-based service delivery models.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Okay, so as a percentage of revenue, though, we should think about it staying relatively static or dollars staying static over the next few years?
John Hardig (CFO)
No, no. CapEx will come down as a percentage of revenue over time because it's not gonna-
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Okay.
John Hardig (CFO)
It's gonna grow much, much slower than revenue.
Tyler Brown (Managing Director and Senior Equity Research Analyst)
Perfect. Okay. Thanks, guys.
Operator (participant)
Thank you there. No further questions at this time. I would like to turn the call back over to Mr. Jacobs for any closing remarks.
Brad Jacobs (CEO)
Thank you, operator. It was a very positive quarter. There were nice beats on a slew of metrics. On the top line, we had excellent progress in sales, lots of wins. You saw in last mile, we delivered 16% revenue growth. You saw in Europe supply chain, we had 12% revenue growth. The sales organization, the SAM team, the strategic account manager team, are really gelling. All the business units are being run very tightly, delivering the numbers. You saw a nice 120 basis point of margin improvement company-wide. We're right on track to get to the 10% margin that we've telegraphed for next year. LTL was a standout, with operating income up 1.5 times on a year-over-year basis. Why are we having all this success? It's not luck. It's by design.
We've got very strong positions in the fastest-growing parts of the industry, especially e-commerce. I'd like to pivot from investors to our employees. Thank you to the 89,000 employees worldwide. There are a lot of people in a lot of places working very hard and have been working very wisely over the last five or six years. Thank you very much. All of this snowballing is to your credit. Thank you very much. Have a good day.
Operator (participant)
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.