XPO - Q2 2015
August 6, 2015
Transcript
Operator (participant)
Welcome to the XPO Logistics second quarter 2015 earnings conference call and webcast. My name is Hilda, 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, uncertainties, and other factors that could cause actual results to differ materially from those predicted 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. 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 and 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 the non-GAAP financial measures, in the Investors section of the company's website at www.xpo.com. I will now turn the call over to Mr.
Brad Jacobs. Mr. Jacobs, you may begin.
Brad Jacobs (CEO)
Thank you, operator, and good morning, everybody. Thanks for joining our call. With me today are John Hardig, our CFO, Scott Malat, our Chief Strategy Officer, and Tavio Headley, our Director of Investor Relations. As you saw from the strong results we reported last night, we're continuing to grow the company at a fast clip. We more than doubled our gross revenue year-over-year. We grew net revenue by more than four times, and we increased EBITDA more than fivefold, so some very strong growth. Our acquisition of Norbert Dentressangle was the big news in the quarter. We bought a well-established company with long-term customer relationships. These are blue-chip companies that are a who's who of European business. The Norbert integration is exceeding expectations. Our teams in the U.S. and Europe have been working together closely, and the rebranding to XPO Logistics is moving along quickly.
Our team is doing a great job at taking a decades-old culture that was focused on stability and excellent customer service and adding an additional focus on growth. On the M&A front, we have an active two-pronged pipeline of attractive acquisition prospects on both sides of the Atlantic. We have over $1.7 billion in available capital, including about $1.2 billion in cash and an undrawn $415 million ABL facility. Last night, we shared our target for full year 2019 revenue of $23 billion and EBITDA of $1.5 billion. We expect to grow organically at a rate of about 9.5% annually. Our world view is the same today as it was in 2011.
The global transportation and logistics industry is the last large industry that's still not consolidated, but should be. Our plan is to continue to capitalize on this trend for the benefit of our shareholders and customers as the industry evolves. Our team has put together a highly integrated platform that has a lot of growth potential embedded in our lines of business. Now that we've achieved critical mass on a global scale, we have a huge opportunity to grow the business, not just organically, but also by acquiring complementary companies. Today, at $9 billion, we have a tiny piece of the transportation and logistics pie, and even when we're a $23 billion company 4 years from now, we'll still have a small share of the global spend. With that, I'll turn it over to John to review the quarter. John?
John Hardig (CFO)
Thanks, Brad. We increased gross revenue in the quarter by $635 million, or 109% year-over-year. Our results included 22 days of the Norbert acquisition and 1 month of Bridge Terminal Transport. $429 million of the $635 million increase came from the operations of Norbert and BTT. Adjusted EBITDA was $80 million in the quarter, up 465% from last year. The increase was due to acquisitions, organic growth, and margin improvement. The acquisitions of Norbert and BTT contributed $34 million of adjusted EBITDA. Organic revenue growth company-wide was 4%, or 10%, excluding the year-over-year decline in fuel revenue. Gross revenue for our transportation segment was up 48%.
The acquisition of Norbert added $186 million of transportation revenue in the quarter. Net revenue in our transportation segment increased on a year-over-year basis by 59%. Transportation net revenue margin was 22.5% versus 21% in the prior year quarter. The increase in margin was due to the improvements we made to our last mile operations, expansion of our North American truck brokerage margins, and the acquisition of Norbert. In our North American truck brokerage business, despite a tepid truckload market, we drove strong year-over-year volume growth and increased net revenue margins by 100 basis points. In last mile, the demand for home delivery of heavy goods continues to snowball, primarily driven by e-commerce sales. We won several large last mile awards this quarter, eight in June alone.
Revenues and margins have been on a nice upward trend in last mile since late last year. Our expedite business had another strong quarter. Some of the freight caught up in the West Coast port slowdowns. Production activity remained robust throughout the quarter. Our logistics segment continued to perform well in the quarter. In North America, we drove higher efficiency in our operations, while activity at our core customer sites continued at a strong pace. We won several new contracts during the quarter that will contribute to revenue later in the year. Many of these were the result of cross-selling efforts with our transportation team. The acquisition of Norbert added $35 million of North American revenue to our logistics segment in the quarter. In corporate, second quarter SG&A expense increased to $57.4 million from $15.1 million a year ago.
Corporate expense included $39.8 million of one-time transaction expenses related to acquisitions, and $2.5 million of rebranding expenses. Excluding transaction, integration, and rebranding costs in both years, SG&A increased only 4% year-over-year, reflecting strong cost control. Corporate expense this quarter also included $1.9 million of non-cash share-based compensation expense and $1.4 million of litigation costs. Capital expenditures for the quarter were $31 million. Our net CapEx estimate for the remainder of the year is $90 million-$100 million. Depreciation and amortization for the quarter was $56 million. We expect D&A for the third quarter to be in the range of $105 million-$110 million, including a full quarter contribution from Norbert. Net interest expense was $36 million for the quarter.
Interest expense included $9 million for debt commitment fees related to the Norbert acquisition. We expect interest expense to be in the range of $58 million-$62 million in the third quarter, given our current capital structure. Our effective tax rate was an 11% benefit in the quarter. At the end of the quarter, we had $205 million of federal tax NOLs, and we expect an effective tax rate of 18%-23% in the third quarter. I'll turn the call over to Scott, and then we'll go to Q&A.
Scott Malat (Chief Strategy Officer)
Thanks, John. I'll start with the macro picture. North America is continuing to grow at a moderate pace. Transportation capacity remains relatively loose, and as a result, we've been able to increase our margins with lower purchase transportation costs. We expect to see demand pick up as the retail season kicks off, starting with back to school. Within transportation, in North America, we're especially excited about the last mile opportunity. Our last mile volumes have been solid with existing customers, and we expect to accelerate our growth with some new wins in e-commerce that will be ramping up. We're also working on securing some very large, multi-year last mile contracts that we're uniquely qualified to handle. In Europe, we're continuing to see signs of economic improvement, especially in Spain and the UK.
Over the last few weeks, we met with a few dozen of our top European customers, and they say they're more optimistic about the macro environment now than they've been in years. These same customers gave us glowing descriptions of our customer service. Norbert was a company that, for 36 years, was focused on giving stellar customer service. We'll keep that strong focus on the customer while accelerating our sales efforts and driving growth. We see a lot of opportunity to scale up our European operations by adding more salespeople, adjusting incentive compensation, and giving our employees the benefit of a common CRM technology. We're excited about our e-fulfillment business that's taking off in Europe, and we'll install our proprietary Freight Optimizer technology to build on the more than EUR 1 billion of brokerage business that we currently serve.
Many of our European customers are interested in high-quality last-mile logistics. Europe hasn't developed its heavy goods home delivery as much as North America has, and there's a lot of room to improve customer satisfaction levels. It's a fragmented landscape with a lot of regional providers. There's a concrete opportunity for us to apply our technology and expertise and develop the last mile sector for heavy goods in Europe. Our European operations have adopted the XPO Logistics brand with enthusiasm, and the transition is going very smoothly. The XPO name is making its way across Europe. We had a high profile at the Tour de France, for example. Our social campaign has taken off. It's with the hashtag #WeAreXPO. It's being rolled out on our trucks and in print ads....
Even though the Norbert acquisition is just eight weeks old, we've already had our first big cross-selling win between North America and Europe. We'll be opening an important e-commerce facility in Pennsylvania to serve the U.S. footprint of an international fashion retailer. This is a company that's a top 10 customer of ours in Europe, where they have a big presence, and they've been growing quickly in the U.S. market. This is just one example of many opportunities where we can leverage the strong track records of both our European and our North American operations. Our other acquisition in June was the drayage provider, BTT, which came on board on June first. Since then, the operations have been performing very well. Drayage capacity is in demand, and our customers now have access to a larger network. We're consolidating our facilities and increasing our lane density while eliminating costs.
We're also sharing best practices across our drayage network, especially in recruiting and retaining the owner-operators in our system. Since we announced the BTT acquisition agreement just in May, those operations are up over 100 trucks. In sum, we've delivered a strong first half of the year and will continue to push the pace on our many initiatives for growth. Employee engagement globally is off the charts high. We have a clear line of sight to $625 million in EBITDA on a run rate basis by the end of this year, and we have a well-defined plan to grow to 2.5 times that amount over the next several years. With that, operator, we'll turn it over to questions.
Operator (participant)
Thank you. We will now begin the question-and-answer session. If you have a question, please press star and then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star and then one on your touchtone phone. We have a question from Rob Salmon from Deutsche Bank.
Rob Salmon (Analyst)
Hey, thanks, and appreciate you guys taking my question here. A little bit more clarification in terms of the longer-term guidance. Could you give us a sense in terms of what's embedded from a bottom line leverage perspective from organic growth and how, and what sort of acquisition assumptions regarding the price, you know, regarding the profitability of those companies and how that's kind of playing into revenue and EBITDA that are kind of growing at a very similar CAGR over the next several years?
Scott Malat (Chief Strategy Officer)
Thanks, Rob. It's Scott. The assumptions embedded in the targets are organic growth over the next several years of 9%-10% on the top line. It's important to note that we'll grow EBITDA at a faster rate than that. For instance, in these quarters, like, in this quarter and in 2015, we grew 10% organically ex-fuel this quarter, and our organic EBITDA is more in the 40%-50% range right now. So there's certain times we're getting a lot of leverage. But over the next several years, we should expect 9%-10% organic growth on average, some quarters above that, some quarters below that, but in general, 9%-10%, with EBITDA growing at a faster rate.
Then on top of that, we'll deploy $5 billion in capital towards acquisitions. That $5 billion in capital will come from the existing cash we have on the balance sheet of $1.2 billion, plus free cash flow over the next several years, and then debt as we keep our leverage in the 3.5-4 turns of net debt to EBITDA.
Rob Salmon (Analyst)
Thanks, Scott. That, that's really helpful. And then, you know, as we think about that 9%-10% organic growth rate, how much of a role do you feel kind of the freight markets are playing in, into hitting those targets? You know, like, for example, if the economic backdrop gets softer, would there be an opportunity to kind of use more leverage from the M&A standpoint to, to get to the top line targets you guys are hoping to achieve?
Scott Malat (Chief Strategy Officer)
The macro environment does matter. We factored in very relatively low growth of 2%-2.5% GDP growth in both North America and Europe. Right now, in the Eurozone, we're growing much faster than that in the areas that we are exposed to. The biggest areas we're exposed to are Spain. We do business in the UK and in France and Spain. We're growing 3.5% to GDP is growing 3.5%-4%. The UK is growing relatively in line with those levels. So on a blended basis, Europe, the Eurozone is growing at a faster rate than the US is. We factor into our estimates is 2%-2.5% GDP for both.
It will impact our revenue growth, what that economic growth is. In terms of leverage, we don't want to stay at, for any prolonged period of time, more than four turns of net debt. You know, we will, for certain acquisitions, on a temporary basis, and then figure out ways to delever quickly, either through growth or through, fundraising. But in general, we will look to keep that leverage at four turns and below on a more sustainable basis.
Rob Salmon (Analyst)
Perfect. Thanks so much for the time.
Scott Malat (Chief Strategy Officer)
Thank you, Rob.
Operator (participant)
We have a question from Kevin Sterling from BB&T Capital Markets.
Kevin Sterling (Analyst)
Thank you. Good morning, gentlemen.
Scott Malat (Chief Strategy Officer)
Good morning, Kevin. Good morning, Kevin.
Kevin Sterling (Analyst)
Yep. Hey, Brad, just help us, your 2019 targets of $23 billion and $1.5 billion in EBITDA, can you help us with the roadmap to get there? And then what I mean by that is, you know, as you think about XPO and the platform. What services, what services do you need to add? You know, what holes do you need to fill in? Maybe what are you missing? And you also mentioned a two-pronged M&A approach. I assume that means both global and North America. So maybe you could expand on that a little bit more, too.
Brad Jacobs (CEO)
Okay. Thanks for the question, Kevin. So let's back up for a second and start with who we are and then what we're evolving into. So who are we in respect to the questions you asked are, we're roughly 50% of our profit coming from North America when I say profit, I'm talking about EBITDA, coming from North America. We're roughly 50% of our EBITDA coming from Europe, plus or minus. We're roughly half of our EBITDA coming from contract logistics. We're roughly half of our EBITDA coming from transportation, and we break out transportation comprised of last mile, intermodal, truck, expedite. So we have a fairly balanced mix right now, both geographically and service line.
Now, long term, to answer your question, I think we will have a business mix that is more reflective as we get into the tens and tens of billions of dollars of the end market. So when you look at those different end markets, some are much larger than others. So contract logistics is a much, much bigger market than, say, expedite, for example. So you would expect us to be much bigger in contract logistics than expedite when we're at $20 billion and $30 billion and $40 billion. When you look at last mile, we're the leader in last mile by a long shot, and we've made a lot of investment in that in order to get that status. We're gonna grow that organically, very, very, very fast, both here and in Europe.
But you're not gonna have the opportunity there to grow by acquisition, because neither here nor in Europe do you have large last mile companies to buy. So that's an organic grower. Intermodal is kind of a question mark here in the United States, because there's only a very few number of sizable acquisition candidates, and they may or may not be very ripe to buy at the moment. So it's unsure what our path is going to be on intermodal, but in the United States. But surely in Europe, there's no big intermodal company to buy because there's no big intermodal industry. The rail infrastructure is not as advanced there as it is here. So that's kind of the lay of the land as we're seeing it. Does that get you where you need to go?
Kevin Sterling (Analyst)
It does. Thank you. That's very helpful. I really do appreciate the additional color. Let me touch on some of the recent acquisition activity in the space. You know, now we see UPS dipping their toe in the water. From a multiple perspective, are you seeing some multiples get stretched somewhat, maybe particularly domestically?
Brad Jacobs (CEO)
No. I mean, we obviously saw the UPS/Coyote transaction. It looks like a really exciting transaction. But in terms of the way it affects the rest of the world, I, I haven't seen an effect on multiples or on seller expectations or on anything in the M&A world.
Kevin Sterling (Analyst)
Okay. Thank you. One last question here: It sounds like some of your European customers, now with the Norbert acquisition, are asking for your help with growth opportunities in the U.S. One, is that a right read? And, and two, maybe this cross-selling opportunity, is it a little bit better than what you initially thought when you first bought Norbert?
Brad Jacobs (CEO)
So that is an absolutely correct read. That's the right read, that there are. So we just came back from two trips to Europe in the last month, and we met with dozens and dozens of customers, and there's a big buzz about XPO in Europe because it kind of came out of nowhere, and no one had heard of us, and suddenly we're all over the place. We did a big ad campaign, and we met lots of customers, and just a lot of activity around the name XPO in Europe right now. There is absolutely a big receptivity and willingness and desire with the top European customers that we inherited through the Norbert acquisition to also do business with us in the United States. There's a clear, unequivocal, black-and-white [view of] what's happening.
We already have, even though we've only owned Norbert less than two months, we already had our first big win in contract logistics, where a big Spanish retailer, a Spanish-based retailer, it's a global retailer, very large company, that has a growing, small but growing presence in the United States. They only have about 50 stores now, but they'll have more, and they have a growing internet presence. We've already signed a contract with them to open up a facility in Pennsylvania to do their e-fulfillment. So that's a customer that is a top 20 customer for us in Europe, and I expect that's gonna be a top 20 customer for us eventually here in the United States. That's just one example. Lots and lots of discussions going on. The other way, very interesting trend.
So in the customer meetings we've had, the big topic seems to be last mile in Europe, because there is no very advanced last mile industry like there is in the United States there. There's a lot of regional players, different players in different parts of the continent and in the UK. And, the level of customer satisfaction with last mile heavy goods delivery is lower in Europe than it is here. So we have a big, big, demand from customers in Europe to take our last mile expertise and technology that we have here and cross-fertilize it, bring it over to Europe, and we have many customers who want to give us a trial, test and see how it works. So it's something very exciting.
Kevin Sterling (Analyst)
Well, thank you, Brett. It's very helpful. Congratulations and best of luck, and you've come a really long way since I first met you a few years ago in Buchanan, Michigan.
Brad Jacobs (CEO)
I remember that meeting.
Kevin Sterling (Analyst)
Best of luck to you.
Brad Jacobs (CEO)
I remember. Thank you, Kevin.
Kevin Sterling (Analyst)
Thank you.
Operator (participant)
We have a question from Chris Wetherbee, from Citi.
Scott Malat (Chief Strategy Officer)
Hey, thanks. Good morning, guys.... Morning.
Chris Wetherbee (Analyst)
A question on the long-term guidance. I guess, you know, when you think about the 2019 outlook for $1.5 billion in EBITDA and $2.3 billion on the top line, you know, the margin there, I think the implied margin is roughly the same as what the margins are today. I guess when I sort of think about the long-term opportunity of the business, I also sort of thought about some margin accretion sort of built into the core business over the course of time as you guys mature and really generate, you know, leverage on the operating base that you've put down. How should we think about that? And maybe is there something in the acquisition market or how you think about that growth profile that might change that thought around margins? Just any help around that would be great.
Scott Malat (Chief Strategy Officer)
Yeah, Chris, it's Scott, and we do expect organic EBITDA margin expansion. Again, EBITDA growing faster than revenue. You're right that the guidance implies 6.5% EBITDA margins. Some of that is mechanical. The way we've been running our models for the last several years that has worked well is we build in acquisitions coming on board at a 6% EBITDA margin. So when we deploy that $5 billion in capital, just from a mechanical basis, we're bringing on 6% EBITDA margin business, and it's diluting from that growth organically that you're seeing. It's very likely we buy companies that are above that margin, and then we buy contract logistics companies, for instance, where the blended margin will be much higher than that.
We could buy other businesses that have lower margins, where the revenue would be higher, but the margins would be lower. Generally, what's happening is from a mechanical standpoint, the blended average comes out to 6.5.
Chris Wetherbee (Analyst)
So it's fair to say that you freeze acquisitions, the margins get better 'cause there's that organic pace underneath it. So it's the fact that you're adding the $5 billion of acquisitions over the period of time, right?
Scott Malat (Chief Strategy Officer)
Absolutely, Chris.
Chris Wetherbee (Analyst)
Okay.
Scott Malat (Chief Strategy Officer)
It depends, it depends on the mix of the acquisitions.
Chris Wetherbee (Analyst)
Okay. No, that's helpful. I just wanted to make sure I sort of understood how you're thinking about it. And then if you could give us a little bit of sort of color on sort of the margin differentials within the Europe business now, the truckload and the truckload business relative to maybe the logistics business. Seems like there's a margin profile difference there. Just want to get a rough sense of maybe how we think about this as the first sort of stub quarter, but going forward, maybe how that looks.
John Hardig (CFO)
Sure, Chris. Hey, it's John Hardig. So, obviously, the transportation business in Europe has slightly lower margins than our logistics business does. And it's, you know, mainly because of its non-asset-based nature. You know, the EBITDA margins are running, you know, kind of, you know, they're a little bit higher this 22 days that we own them, but it's going to run, you know, 6% or so. The logistics business is going to be a little bit higher. And again, I think the transportation is a little bit lower, mainly driven by the non-asset-based nature of the business versus the logistics side.
Chris Wetherbee (Analyst)
Okay. Okay, that's helpful. If you'll indulge me in one more, just one more here. Wanted to get a quick sort of thought on the current market within brokerage. Scott, I think you mentioned sort of maybe an opportunity for the retail market to pick up a little bit here, back to school. I guess, how do you think, how do you see the market sort of today sitting here in early 3Q, and maybe how that retail component looks would be great. Thank you.
Scott Malat (Chief Strategy Officer)
So far in 3Q, I would characterize it as relatively loose capacity. You can find a truck. So we track inbound and outbound calls to carriers, and our ratio of inbound calls from carriers has gone up, way up. So carriers are calling us and saying, "Hey, what loads do you have for us? Do you have any freight for us?" And in turn, that is taking down, generally taking down purchase transportation across the board. So our net revenue dollars accelerated into July. Most of that has to do with increasing net revenue dollars per load. As you look into the retail landscape, it's too early to tell. You'll see a ramp-up through August with back to school. It'll continue to ramp up, and we'll be strong all the way till Thanksgiving.
So it's too early to tell how that shapes up, but for right now, it's relatively easy to find a truck.
Chris Wetherbee (Analyst)
Okay. That's a helpful call. Thanks for the time, guys. I really appreciate it.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
We have a question from Alex Vecchio from Morgan Stanley.
Alex Vecchio (Analyst)
Hey there. So, on Norbert, it's historically grown at kind of a mid-single-digit organic growth rate, and it sounds like the cross-selling opportunities are coming to fruition, which should help that accelerate. But can you, Brad, maybe comment a little bit on early reception or feedback from employees to the new incentive-based compensation program you're rolling out at Norbert? And sort of what gives you the confidence that that organic growth rate will actually accelerate and help you get, you know, the total company to that 9%-10%?
Scott Malat (Chief Strategy Officer)
I have a lot of confidence that the growth rate in Europe is going to be higher than it was historically for a few reasons. Number one, they were operating in... so we forget what 2007 and 2008 were like. It's like, seems like so long, long, long ago. They have a different cycle. I mean, they've been operating up until recently in a prolonged malaise. So they've had a poor external environment that even if you're doing a good job, it's hard to grow when your customers aren't growing. So that's point number one. Point number two, as you mentioned, we're changing the compensation plan. We have not done that yet. So compensation plan... Some things we do very, very fast. Some things we're very careful not to do very fast.
Changing compensation plans have to be done methodically and communicated and get the buy-in and input and participation with lots of different stakeholders, and have to be well thought out, because once you change a compensation plan, you don't want to be changing it again anytime soon. And you want to make sure that you're motivating people's behaviors to the exact things you want to be and not having unintended consequences. But we have a lot of resources and a lot of effort getting that new compensation plan designed first, and then we'll roll it out later this year.
Brad Jacobs (CEO)
... even apart from the compensation plan, it's very, very evident from the many, many employee meetings that we've had all across the UK and the continent, that the organization there is ready for growth. They're embracing growth. They want to do it. Their head's in the game. It's something they want to do. They want to win, they want to become bigger, they want to expand, they want more market share, they want to serve their customers more, they want to offer more things. It's, it's absolutely receptive in the environment there. Now, there's several different levers we are put- we're going to push, and we are pushing for growth. One is cross-selling, as you mentioned. We talked about that earlier in the call. Another is cross-fertilization of best practices, and by the way, that's not a one-way street. That's a two-way street between Europe and the United States.
Another thing is technology and automation. So one thing that we're very excited about, and our Europeans are very excited about, is taking our proprietary XPO Freight Optimizer technology, that we spend so much money and so much time and so much resources into getting this fantastic truck brokerage technology, transferred over to Europe to take that more than EUR 1 billion of brokerage business that we have and optimize it. And I'm very, very confident we can optimize that business and improve that business. We're putting that whole network on a network, which means you need to have that whole geography on one network, which takes a little time, takes technology rollout, takes investment, and we're absolutely committed to doing that.
The other things that we're pushing in terms of levers to grow the business there is expanding the size of the sales force. So we look at the organizational chart, and we're just together, collaboratively saying, "Where do we wanna expand it?" And clearly, where we want to expand it is the size of the sales force and how the sales force is structured. You're getting increased sales force effectiveness and empowering them with a common CRM technology, which is kind of a basic concept over here, but it really isn't over there. So getting everyone on Salesforce.com is a very, very important thing. And then another thing I would mention that gives me confidence in the growth that we're, we're planning on having in Europe is we have a leading e-fulfillment position in Europe, and it is growing very, very, very, very fast.
I mean, it's grown 30% year-over-year, organically. The facilities that we visited that are doing e-fulfillment are very, very impressive. The customers that we visited, who are e-commerce customers, have very high expectations for their own growth. So that's something we're gonna be putting more resources into. We're number one in e-commerce logistics in Europe, we're number one in UK, we're number one in Spain, so a lot of opportunity there. So I could go on and on and on about growth in Europe, but I think you get the flavor of it, that we're very confident that we're going to be able to grow and stimulate Europe, and there's a lot of receptivity for that.
Alex Vecchio (Analyst)
Yeah, no, great. That was a very thorough and helpful answer there. Okay, that's helpful. And then on the acquisitions, the financing of the acquisitions, Scott, I think you mentioned the financing coming from the cash on the balance sheet, free cash flow and incremental debt. How are you thinking about incremental equity raises? Is it something you'd entertain, or is it something at this point that you just don't plan on doing? How should we sort of think about the equity component of financing transactions coming forward?
Scott Malat (Chief Strategy Officer)
Well, the $1.5 billion in equity in EBITDA that we plan over the next several years does not depend on equity. But that said, the same way we've done it over the last several years, if we somehow come across a large opportunity or something that will increase our free cash flow per share in outer years, something that will be very accretive to what we're doing, we would take a look at it. That would be cherry on the top. That would be something that we can earn in excess of 1.5 billion of EBITDA in 2019. So it's something that would be on the table. It just, it depends on the opportunities.
Alex Vecchio (Analyst)
Okay, that's helpful. And just one, one last one, here. You, you highlighted $80 million of, of transaction and integration costs in the, in the quarter. That, that seems a bit high, but maybe I'm, I'm kind of sort of missing something there. Can you talk a little bit about, you know, how much of that might be transaction versus integration? And do you expect kind of the integration cost to be, elevated, going forward?
John Hardig (CFO)
Yeah. Hi, it's John Hardig. I'll cover that. So the vast majority of the $80 million that we incurred in transaction and integration costs were related to the transaction. And so that breaks down, about $40 million of that was, you know, bank commitment fees, you know, hedging fees for hedging the currency that we had to pay in euros for the purchase. And then we had about $24 million of fees to advisors, and then we had some additional kind of purchase price type items that flowed through the P&L. Of that total, really, it was $92 million, if you include the restructuring and the rebranding, you had about $8 million of restructuring and rebranding expenses.
So the vast, vast majority, all but $4 million, is related to either rebranding or the cost to close the deal.
Alex Vecchio (Analyst)
Okay, so very, very little on the actual integration expense itself.
John Hardig (CFO)
Right. On a go-forward basis, we will continue to have some restructuring charges related to Norbert. So we're kind of in the early innings of determining exactly what the detailed plans will be. We have some very good ideas of what we're gonna do on a go-forward basis, but you will see some restructuring charges in the next couple of quarters.
Alex Vecchio (Analyst)
Okay, great. Thanks very much for the time.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
We have a question from John Mims from FBR Capital Markets.
John Mims (Analyst)
Thank you. Good morning, everybody.
Brad Jacobs (CEO)
Good morning, John.
John Mims (Analyst)
Hey, so on this Pennsylvania deal, which I could assume is for Zara. What's the lead time for these type of build-outs in the U.S.? I mean, I would think, and you highlighted there's a pretty deep pipeline of the European customers that you can cross-sell into the U.S. But kinda, what's the cadence of the startup costs versus the real, you know, revenue opportunity of putting these new distribution centers in for these big European retailers?
Brad Jacobs (CEO)
So normally, a lead time for a project like that is a long lead time. It could be a year. In this case, one of the reasons that that customer, and we're not gonna say the name of the customer, picked us and worked with us, is 'cause we can move fast. We can mobilize very fast. And Louis's group put together a plan to have that up and running in eight weeks from signing, and we signed it, and we're well along the way to get that up and running.
John Mims (Analyst)
Is that specific to this deal, or is part of your sales pitch to, you know, XYZ European guy is, you know, we can move a year-long, you know, typical lead time to, you know, 8-12 weeks?
Brad Jacobs (CEO)
We can't always do that. In this case, due to the specifications and due to collaboration, we're able to figure out a way to do that. But I think one hallmark of XPO Logistics is speed, is agility, is moving, thinking clearly and moving fast, and that's this is just one example of that.
John Mims (Analyst)
Sure. Let me ask, sticking with the, the logistics side, kind of a 1% operating margin this quarter, what's the right way of looking at that as, as, you know, you get the full, full quarter's benefit of, of Norbert, plus you get, you know, a few more of these things up and running? Kind of what's the cadence of where that operating margin should be over the next couple years?
Brad Jacobs (CEO)
John, what number are you referring to?
John Mims (Analyst)
Just the logistics piece you did off of gross. Let me pull it up. Now I can't find it, of course.
Scott Malat (Chief Strategy Officer)
So, John, it
John Mims (Analyst)
Hold on one second, and I'll get it.
Scott Malat (Chief Strategy Officer)
Yeah, this is Scott. So there were some integration charges included-
John Mims (Analyst)
Yeah
Scott Malat (Chief Strategy Officer)
... in the logistics side-
John Mims (Analyst)
Mm-hmm
Scott Malat (Chief Strategy Officer)
-If you take that out. From an EBITDA perspective, contract logistics will be in the 8%-8.5% range on an EBITDA basis. And then we can go through D&A with you separately to break out-
John Mims (Analyst)
Yeah, sure.
Scott Malat (Chief Strategy Officer)
It's about 8%-8.5% EBITDA margin on logistics.
John Mims (Analyst)
Right. Yeah, it was that 4.3 number I was looking at, so... But still, just from a pure operating basis, you know, if that's when you-- that's full, is, is that kind of a-- can that be a 5% margin business, or?
Scott Malat (Chief Strategy Officer)
Yeah. Well, on EBITDA, it's 8-8.5.
John Mims (Analyst)
Yeah.
Scott Malat (Chief Strategy Officer)
I'll have to go through the D&A schedule and just grab it with you. I'd be happy to do it offline, and we'll break it out for you and give a piece. But on an EBITDA, like I said, 8-8.5.
Brad Jacobs (CEO)
But John, to be fair, that EBITDA margin level that we're at on logistics, we're comfortable with that. Our customers are comfortable with that. Our plan is not to try to, you know, raise that up. Our plan is to try to grow organically, get more business, satisfy our customers more, get repeat business, get additional customers in the door, and just keep margins stable.
John Mims (Analyst)
Right. Okay. And then just one last one on the margins. I, and I know it's been touched on before, but I'm still just trying to figure out how we should think about incremental margins over, you know, this big, long build-out timeframe. As you layer people onto this common system, as you have kind of the, the synergies and your, your comments that EBITDA will grow faster than, than revenue, but then, you know, the long-term target is kind of in line with where we are now. Like, what's the right sort of incremental margin, for broader XPO as you, you know, continue to build this out?
Scott Malat (Chief Strategy Officer)
Hey, John, it's Scott. So it'll be. It's a blended average. Right now, you're talking much different levels of organic growth on EBITDA than top line. So like I said, we were at about $150 million EBITDA run rate on average by the end of last year. To give you an example, we were at a $150 million EBITDA run rate on average by the end of last year. Organically, we'll take that base and bring it to about $225 million. So it's about 50% EBITDA organic rate because we're leveraging that $60 million in corporate expense, because our truck brokerage operations are the increasing tenure of our sales reps and becoming productive. But all those different reasons, we're leveraging, and our incremental margins are a lot higher.
Over the longer period of time, you can expect our EBITDA to grow at a few percentage points higher than revenue.
John Mims (Analyst)
Sure. But the end game is still... I guess, that's where I'm not quite understanding that. The end game is still kind of... If you're talking about layering on more contract logistics, which is an 8%-8.5% margin business, you know, and, and the brokerage side is, you know, kind of running at 6% where you are now. So I guess, your—how does that all equal 6.5%? Am I missing something, or?
Scott Malat (Chief Strategy Officer)
Yeah, I mean, you have, like I said, like 8%-8.5% of the contract. You said, yeah, 5.5%-6% EBITDA margins on transportation. Then you have about $60 million of corporate expense-
John Mims (Analyst)
Sure
Scott Malat (Chief Strategy Officer)
On top of that. So over the next several years, it will likely, on an organic basis, given the mix of business we have today, rise above 6.5%. But the 6.5% in the long-term guidance is based on us, just an assumption of buying companies that are in the 6% EBITDA range. That could be wrong or right, and it'll depend on the mix of businesses that we buy, but the organic basis will be above 6.5%.
John Mims (Analyst)
Sure. No, that makes sense. So okay. All right, thanks for the time.
Scott Malat (Chief Strategy Officer)
Thank you.
Operator (participant)
We have a question from Scott Schneeberger from Oppenheimer.
Scott Schneeberger (Analyst)
Thank you. Good morning.
Brad Jacobs (CEO)
Good morning.
Scott Schneeberger (Analyst)
Hey, Brad. I'd like to start off just talking at the 9%-10% organic growth rate for the total company. I'd be curious if you could elaborate a little bit, starting with contract logistics, of what you're assuming by segments, contract logistics, and then maybe some of the components of the transportation segment. Thanks.
Brad Jacobs (CEO)
Well, I don't want to go detail by detail, every little segment and break out organic growth. But generally speaking, you're going to see some higher, some lower, both by U.S. segments, by U.S., not segments, U.S. business lines, and you're going to see different parts of the cycle in Europe and in North America. The main point is, when we do our analysis and we do a high, low, base case scenario for each one of the service lines, each one of the geographies, we feel comfortable that the likely scenario is 9%-10% blended throughout the cycle. There'll be times more than that. There'll be times below that. There'll be some parts of it that are exceeding, some parts that are missing. But on average, that's the level that we feel comfortable with.
Scott Schneeberger (Analyst)
Okay, thanks. Scott or John, what's implicit in free cash flow generation in this new long-term guidance? I know you're probably not going to give exact numbers, but where are you now? How do you think that builds? Any bit of help there would help us kind of building out on the components of what goes into the capital structure and the acquisition build over the coming years. Thanks.
John Hardig (CFO)
Yeah, sure, Scott. So basically, you know, you know what our EBITDA expectations are and what those margins are. You know, we're going to have about 3.5x leverage on the model in terms of what the long-term targets imply, and so you can use that to kind of figure out what the interest expense will be. Working capital needs will run at around 5%-6% of revenue as we, that's on growth revenue, as we grow the top line organically. And then CapEx runs about 2.5% of revenue a year, and that's very consistent between both our legacy XPO business and the European business of Norbert. So that'll give you a sense of kind of how to think about the cash flow overall.
Scott Schneeberger (Analyst)
Okay, thanks. Appreciate that. For one more in here, kind of biting on the commentary with regard to the last mile opportunity in Europe, and obviously, you guys are a leader in North America in that business service offering. Just curious, what kind of any elaboration you care to provide on go-to-market and how you would capitalize on that seemingly large opportunity overseas? Thanks.
Scott Malat (Chief Strategy Officer)
Yeah, Scott. Thanks. It's Scott. We're starting with a landmark tenant, so we're working with a current customer, where we're their largest last mile provider in North America, and working on a contract in London. And getting going, getting started with that landmark customer. Now we have LTL networks or palletized networks set up throughout Europe. We are one of the largest providers of LTL in... We are the largest in France, we are the largest in Spain, we're one of the largest in the UK, the one or two. So using that network, we can then stage the goods, and we can use that network to deliver the goods in last mile. And what we do is deploy the same technology we have in North America.
We can use an owner-operator base, very similar to what we're doing in North America. Like I said, we'll start with one landmark tenant that we're just getting started with now, and then we'll try to grow it from there.
Scott Schneeberger (Analyst)
Great. Thanks.
Operator (participant)
We have a question from Brandon Oglenski, from Barclays.
Brandon Oglenski (Analyst)
Hey, good morning, everyone.
Brad Jacobs (CEO)
Good morning.
Brandon Oglenski (Analyst)
John, I wanted to follow up on the cash flow question real quick. Given the integration costs that you went through and some of the fees that you had this quarter, should we start seeing positive cash from operations going forward now?
John Hardig (CFO)
Yeah, I mean, we, we definitely will see some positive cash flow in future quarters. I mean, the big drag this quarter, obviously, was the transaction-related expenses. So when you think about that $80 million of restructuring and transaction, you know, the all but about 20 or 25 million of that was cash. So that was, that was the big drag, really, on cash flow this quarter. We also a big uptick this quarter in terms of revenue activity, so we, we had a lot of AR that went onto the balance sheet, accounts receivable, to support the growth of the business. But on a, on a go-forward business, you-- on a go-forward basis, you will see positive free cash flows.
Brandon Oglenski (Analyst)
Okay, I didn't mean to get into such the near term on the call here, but I think that is important. Brad, you know, I think what investors and Wall Street analysts have a really hard time getting their arms around is just how powerful culture change can be. And have you really had an impact on the Norbert organization? It really sounds like there's been some reinvigoration over in Europe. And is that what's driving a lot of this confidence that you're going to see that higher single digit growth rate coming out of that organization?
Scott Malat (Chief Strategy Officer)
Well, I think it's fair to say that, you know, we have a certain positive energy about us that we've brought over there. But I think what's more important is the receptivity. I mean, it's a fantastic company that we bought. I mean, it's just a really solid company with solid people, with solid customer relations, who know what they're doing, who's... It's just a really good organization.
So if you come into an organization that's been focused on stability and customer service and maintaining the margin, which has mainly been their strategic focuses, which is all fine, particularly given the share ownership that it had, it's not that difficult, frankly, for someone like us to come in and say, "Okay, let's keep doing all that, but let's also focus now on growth, growth, growth." So I think the receptivity of the organization to grow is high.
Brad Jacobs (CEO)
... and the platform is very well developed. So it's kind of like a giant that we're getting up on its shoulders and taking it to a new higher level.
Brandon Oglenski (Analyst)
Okay. And can you talk a little bit about the customer side? Have you seen customers now cross-utilizing more and more of your services? I mean, is there any sort of statistics you can provide us where you're seeing cross-pollination across all these lines of operations that you have now at XPO?
Scott Malat (Chief Strategy Officer)
Absolutely, Brandon. It's Scott. We're seeing a lot of cross-selling across the organization. I have some stats around cross-selling. It's about-
Brad Jacobs (CEO)
While you're looking for your stats, Scott, so when you look at our customers, it's very rarely do you find, it's almost never that you find a customer who only uses one mode in their supply chain. So when you meet the fellow who's a chief supply chain officer or senior transportation person in a shipper, whether it's a manufacturer, whether it's a retailer, whether it's food and beverage, they're not thinking just by mode. They're thinking, "I got customers, I got ops, I got product.
I got to move it from where it starts to get it to the customer." And they have ops people saying, "You need to do this in the most efficient way." So whether that ends up being rail, or whether that ends up being truck, or whether that means a tighter supply chain, then doing more expedites, it's, it's-- that's, that's the puzzle that has to be solved. So our customers, by their nature, are multimodal.
Scott Malat (Chief Strategy Officer)
Then just overall, to give you the numbers and to level set, and we can track over the next several years, but our customers are already using us for a number of services, so 30 including Europe. So now we've combined Europe and said, "Well, what services are they using of us?" 32 of our top 50 customers, or two-thirds, basically, are using us for multiple services. 15 of the top 50 are using us for 3 or more of our services. So we are. We have a big opportunity to continue to grow that, to cross-sell more of those accounts on more of our services. The areas we've been strongest in, if you just look at the numbers and the dollars, we've been very strong in cross-selling retail. Retail has been sold in intermodal, in truckload, in last mile.
We've also—we're doing a lot in the auto category. Auto is using expedite, also intermodal, also truckload.
Brandon Oglenski (Analyst)
Okay, appreciate that. I guess, you know, I do want to ask one more of you, Brad. Who do you view as your biggest competition right now?
Brad Jacobs (CEO)
Well, our biggest competitor is different in every line of business that we have, and it's also different when you go to Europe versus here. So I mean, in Europe, we're running into DHL and DB Schenker and CEVA Logistics and Geodis and Dachser and companies like that, that don't have a big presence, if any presence here in the United States. Here in the United States, we run into different competitors in intermodal, where we're competing against J.B. Hunt and competing against Hub and other fine intermodal providers. But we're not running into them on expedite, for example. That's a different world. So there's different competitors in different places. And as we get bigger, that's gonna be even more accentuated, where we're doing a larger geographic footprint, and we're doing more comprehensive services, so we'll be competing against different competitors in different spaces.
Brandon Oglenski (Analyst)
Appreciate it. Thank you.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
We have a question from Tyler Brown, from Raymond James.
Tyler Brown (Analyst)
Hey, good morning, guys.
Brad Jacobs (CEO)
Good morning.
Tyler Brown (Analyst)
Hey, so Brad, you know, things are progressing very nicely here, but I am curious, and I want to kind of go back to Brandon's question about culture. I mean, how are you kind of putting in, let's just call it cultural guardrails, just to make sure that you've got 50,000 employees, it sounds like that's going to be a lot more in the future, but that the XPO service culture is really assimilated across all the business lines, and that one segment doesn't do it one way and another segment doesn't do it another?
Brad Jacobs (CEO)
We are big believers in standardization in most things, not all things, and getting process standardized and getting quality accounted for. But let me make something very, very clear. In the Norbert operate—the former Norbert operations in Europe, there's no issue about trying to get them more customer service oriented. That is a very customer service-oriented organization. The customer, customer, customer is all over the culture. Metrics to please the customer, metrics for quarterly. I mean, it's all over the culture. It's very, very deeply ingrained, and that's the only reason why you can keep a customer for decades, is if you give good customer service. So the focus on customer service that we have here is no greater or no less than it is in Europe. It's completely equivalent.
Tyler Brown (Analyst)
Okay, perfect. Now, that's, that's very helpful. And then I, I know you guys kind of touched on this, and you have an extraordinarily talented team on the technology side, but can you kind of, again, go over the long-term strategy on technology? So specifically, do you plan to run a number of discrete platforms, or are you going to migrate to, call it, one big global technology platform? I don't know if you want to call it shared services or whatnot, but, but what is the, what is the technology model over the longer term?
Scott Malat (Chief Strategy Officer)
Yeah. Hey, Scott, we, we do integrate technology. We integrate technology across the organization. So everything, we're doing in North America is moved towards our .NET platform. Now, there's different tools that come off of that .NET platform that are all on the, on the same, on the same, technology and all on the same platform and all integrated. One is Rail Optimizer, one is the, the, the Freight Optimizer in, in Truckload. We also have a desktop management system, so our Last Mile technology that handles customer experience management. So each of the different areas-
Brad Jacobs (CEO)
... have their own screens, but it all integrates together onto a dot net platform. In Europe, we will roll out our Freight Optimizer technology across the truckload universe. We're right now underway—planning is underway to roll that out and see the differences in what their needs are and what we can provide. That's a process to roll out across Europe that will take a year to a year and a half or so.
Todd Fowler (Analyst)
Okay. Yeah, no, very interesting. Thanks.
Brad Jacobs (CEO)
Thank you.
Operator (participant)
We have a question-
Scott Malat (Chief Strategy Officer)
Any more questions?
Operator (participant)
I apologize. We do have a question from Donald Broughton from Avondale Partners.
Brad Jacobs (CEO)
Donald, good morning.
Donald Broughton (Analyst)
Look, good morning, Brad. Good morning, everybody. Since we're playing when we first met, I can remember when we first met back in Dallas in 2010, and how things have changed in the last five years.
Brad Jacobs (CEO)
They have. They've grown.
Donald Broughton (Analyst)
They have. You guys have been very, what I would call, strategically opportunistic, and over that time, I've watched you do things that I thought were marketplace opportunity-driven, currency-driven, lackluster company that needed a fix, extraordinary company that happened to be available at a fair price, something you needed to, that was an addition to your service offering for your customers. When you sit there, help me think, help me understand how you think about it. When you sit there today, given what you've amassed, given what you've built, what do you need next? Is it a service offering? Is it a geographical concentration? What is the next great big thing that XPO needs in its portfolio?
Brad Jacobs (CEO)
Well, the great thing about the next great next thing is, I don't know what'll be next. I know what will be long term, but we're going to be opportunistic, we're going to be agile, we're going to be nimble to react to opportunities that make sense, that have a compelling logic to do them in, in that sequence. But long term, to answer your question, we want to go deeper in contract logistics. That's the field that is the most stable, it's the most recurring revenue, that you can add the most value to the customer, long five-year-plus contracts. It's just that's a business we wanna absolutely go much, much, much, much deeper in. Last mile is a business that we wanna continue to capitalize on the industry-leading position we've got in North America and transplant that over to Europe.
I really do feel, based on my customer visits, that the customers are yearning for this in Europe. The customers are wanting a real strong, high-quality last mile solution that is all across the continent and England, not just a regional and variable in terms of customer satisfaction solution. So we'll build that one. Intermodal, we'll grow that business. We'll absolutely grow that business, and that'll grow depending on how fast the conversion from over the road to rail is, and that'll depend on a number of factors that are completely outside of our control. Truck brokerage is a big industry, tens of billions of dollars of size inside a trucking industry that's hundreds of billions of dollars.
So because that's a big market that we'll continue to grow in, that's something that our customers use and value and need all the time, so we'll absolutely keep growing on that. Expedite, we got the number one position on that. We just renewed a contract with an important customer, and we have high, high levels of customer satisfaction, near 100% on time pickup and delivery in Expedite. It's really, really a great franchise we have there. That's something we also want to be transplanting over to Europe. And then in Europe, look at it as two sections. Of course, freight forwarding overlaps all of this. In freight forwarding, we're not a big player yet. We're a few hundred million EUR in size on that globally, but we're continuing to grow it.
In Europe, on the transportation side, we have a big trucking company. I mean, we have a big trucking company here, too, but it's not asset. We have more than 6,400 owner-operators in our fleet. It's a big calling card to many customers. In Europe, we've got 7,000 some odd trucks that we own. We got another few thousand trucks that are owner-operators. We're going to keep developing that fleet and keep using that to be tied in with the customer. So business line, all of them are going to grow. Geographically, ultimately, but that's what comes back to my first comment about what's next is, eventually, but probably not right away, eventually, we have to be in Asia. Our customers are global. They're in Asia also. We'll have to be in Asia in due course.
Donald Broughton (Analyst)
Fantastic. Thank you.
Brad Jacobs (CEO)
Thank you, Donald.
Operator (participant)
We have a question from Todd Fowler from KeyBank Capital Markets.
Brad Jacobs (CEO)
Morning, Todd.
Todd Fowler (Analyst)
Great. Hey, Brad, good morning. Thank you for taking the questions. So on the 2019 targets, you know, my rough math is coming up with about, you know, implies about $10 billion of acquired revenue, kind of give or take. Can you just kind of give some comments on your visibility into, you know, the acquisition pipeline? And I know that, you know, obviously, you know, two Norberts can get you to $10 billion pretty quickly, but, you know, your visibility, what you're thinking about and, you know, some thoughts on timing, which I know can obviously be tricky as well.
Brad Jacobs (CEO)
Well, your math is absolutely right. We're at about $9 billion now. To get to the $23 billion we'll be at in 2019, we're going to add $14 billion. $10 billion of that will come from acquired revenue, $4 billion of that will come from organic. These are all ± numbers, but you're absolutely-
Todd Fowler (Analyst)
Right.
Brad Jacobs (CEO)
in the right neighborhood, neighborhood there. In terms of acquisitions, we have a very active pipeline. We have a lot of discussions going on, both here and in Europe, with interesting possibilities. We're not going to be able to do all of them, obviously, but I'm, I'm confident and optimistic that we will complete one or two of them between now and the end of the year.
Todd Fowler (Analyst)
... Okay, and so, you know, thinking about the $10 billion, though, just to follow up on that, I mean, is your view, Brad, that that comes in, you know, a couple of big chunks, or is that, you know, split out between, you know, several smaller acquisitions? I mean, how do you just think about the, the size of the acquisitions that you're looking at? Or how should we think about that, I should say?
Brad Jacobs (CEO)
The answer is, I don't know. The answer is we are talking to large acquisitions, we are talking to small acquisitions, and we are talking to medium-sized acquisitions. So any, any company that is a good company, that's got services that customers, that our customers want, that our customers need, that our customers would value, that our customers, when they would read the press release, they would say, "Yeah, that's great. That helps me," we're interested in that, provided we can get them at an affordable price. So having a wide geographic dispersion of acquisition opportunities helps with that, helps with that a lot. Because at any one point in time in the, in the M&A world, there's, there's a bell curve, and there's some acquisitions that are to the right and to the left and some in the middle.
We're trying to stay more toward the middle on valuation.
Todd Fowler (Analyst)
Okay, fair enough. And then, you know, it really seems like that, I mean, there are several bright spots, but North American last mile, you know, seems like it was a very good quarter here. A lot of positive commentary about that business going forward. You know, can you give us a sense of what you think the organic growth rate for that business should be trending at? And also talk a little bit about the availability of additional acquisitions for that business line.
Brad Jacobs (CEO)
So, you're getting a second bite at the apple that I didn't give to Scott Schneeberger when he asked that question. So we don't want to start breaking out organic growth for every little part of our business, and then every quarter have to be called to task on that. Because we just don't want to run the business like that. We want to run the business what makes most sense for our customers and for our business, and not for me, not reacting to analysts' reactions to all that. So we want to give it in aggregate, in growth.
In last mile, though, what I can share with you is that because retailers are outsourcing more of their last mile logistics, and because e-commerce is one of the fastest growing parts of the economy, that will be towards the higher end of the organic growth scale. Last mile is a fast grower.
Todd Fowler (Analyst)
I thought maybe-
Brad Jacobs (CEO)
But to answer the other part of your question, Todd, we are the largest, so by definition, we're not going to be buying anybody big or bigger than us. There's not... And so there's not a lot of large acquisitions in last mile. That's not a mature industry. It's very fragmented.
Todd Fowler (Analyst)
Got it. Okay. That's what I thought. I thought by being later down in the queue, maybe I could kind of sneak one, you know, past you, but I guess that wasn't the case.
Brad Jacobs (CEO)
Sorry.
Todd Fowler (Analyst)
So just the last one. That's right. Just the last one I had. You know, John, in the CapEx guidance that you gave about 2.5% of revenue per year, does that include IT spending, or how do you... What would you ballpark the spending on IT investment on an annual basis be at going forward?
John Hardig (CFO)
Yeah. The vast majority, the largest component of that CapEx is IT, so it runs about 2.5% of the business overall for total CapEx. And, you know, IT is going to be, you know, at least 40% of that in terms of the IT investment.
Todd Fowler (Analyst)
Okay, perfect. That's what I had this morning. Thanks for the time.
John Hardig (CFO)
Thank you, sir.
Operator (participant)
We have a question from Jason Seidl from Cowen and Company.
Jason Seidl (Analyst)
Hey, gentlemen, good morning. Brad, you kinda almost answered my question about Asia, but you know, since you did bring it up, where would you think you would look to land first with Asia? What capabilities do you think XPO needs to start getting a footprint in Asia?
Brad Jacobs (CEO)
Well, we want to do contract logistics in Asia. We want to do last mile in Asia. There's not a big intermodal business in Asia. There's not a very developed truck brokerage business in Asia. Well, there is an asset-based trucking business, but it's very segmented, it's very fragmented, and there is an expedite business. And of course, there's a big freight forwarding business. So that's the lay of the land over there, and those are the services that our customers utilize over there. So those are what we'll end up doing.
Jason Seidl (Analyst)
I imagine some of your existing customer base is already asking about potential capabilities in Asia?
Brad Jacobs (CEO)
Oh, yeah, all the time. But unfortunately, that conversation doesn't last very long because our capabilities are very minimal, other than freight forwarding.
Jason Seidl (Analyst)
Well, knowing you guys, that conversation could change within six months. All right, that's all I had, and thanks for the time, guys.
Brad Jacobs (CEO)
Thank you, sir.
John Hardig (CFO)
Thanks.
Operator (participant)
We have a question from Jack Atkins from Stephens.
Jack Atkins (Analyst)
Great. Thanks, for the time, guys. Thanks for squeezing me in here.
Brad Jacobs (CEO)
No problem.
Jack Atkins (Analyst)
So I just—I guess just to go back to freight forwarding for a moment, Brad. I mean, that really is the area of the portfolio where you guys are undersized. And, you know, if I think about you guys being a global logistics provider, which you are, I would think you'd want to bulk that up. So how do you address that over time? And you know, is this something that's really top of mind for you guys as you look for potential M&A targets?
Brad Jacobs (CEO)
It's not top of mind. It's in our mind. We haven't found the fit yet. We haven't found a freight forwarding target that the stars all lined up for in terms of desirability on both sides and valuation, and everyone wanting to do a deal, and terms that work for everyone. So there hasn't been a concrete opportunity that made sense, where it all lined up.
Jack Atkins (Analyst)
Okay. Okay, that makes sense. One more bigger picture, then one quick housekeeping item. Could Brad, could you talk a little bit about the differences and similarities between the brokerage market in the U.S. and Europe? I'm just sort of curious how those two markets, you know, look compared to one another.
Brad Jacobs (CEO)
Well, they're, they're very different in one respect. In the United States, it's one market with some sub-markets in geography, but it's basically when you come into the office, whether you're in Phoenix or whether you're in Charlotte or whether you're in Chicago, you're seeing the same screen. You're seeing all the loads come on, you're seeing all the, all the trucks coming on, you're seeing them getting crossed, you're seeing the same hot charts, you're seeing the demand rates and load-to-truck ratios. It's all one, one network. Everyone is plugged in. It doesn't matter where you are. You can be at home, and you're still in the same information flow.
In Europe, even though it's a big truck brokerage operation, it's well over EUR 1 billion of truck brokerage, and they have very satisfied customers, and we're one of the best truck brokers in Europe, it's still very fragmented. So when you go onto your system in Spain, you're seeing what's going, well, actually, you're seeing what's going on in Iberia. You're seeing what Spain, Portugal, Morocco, but you're really not seeing in live, in real time, what's going on in the rest of the continent. When you go to our office in Italy and look at what's going on in truck brokerage, you're looking really what's going on in Italy, period. So there's a lot of information that's siloed, that's fragmented, that's trapped in different places.
We think there's a huge value to approaching truck brokerage in Europe as all of Europe, and that's the path that we're on. And Scott was mentioning before how we're rolling out the Freight Optimizer, first in the English-speaking countries, because we have the code all written in English. Second, in the French, because we have French code for that we did for our business up in Montreal a couple of years ago, when we bought Kelron. And then in due course, but it's going to take us a year or two to get all the code written in the other languages. But we want everyone on all one system, and that's the big difference.
Jack Atkins (Analyst)
Okay, that makes sense. And then one last housekeeping item. John, could you maybe help us think about the non-controlling interest line and how that should flow in the third quarter, assuming that there's no resolution to this issue with the remaining interest in Norbert?
John Hardig (CFO)
Yeah, I mean, if in terms of modeling perspective, Jack, I mean-
Jack Atkins (Analyst)
Yeah.
John Hardig (CFO)
I would just think about it as the, as the same, you know, percentage of, of total net income as we had in, in this quarter. So just-
Jack Atkins (Analyst)
Okay.
John Hardig (CFO)
You know, with the full quarter effect-
Jack Atkins (Analyst)
Okay.
John Hardig (CFO)
-versus just the 22 days. So I, I would think about it that way.
Jack Atkins (Analyst)
Okay, that helps. Thanks so much.
Brad Jacobs (CEO)
Thanks for your questions, Jack. Operator, is there any other, any other questions?
Operator (participant)
Thank you. We have reached the end of the question and answer session. I would like to turn the call back over to Mr. Jacobs for any final remarks.
Brad Jacobs (CEO)
Thank you, everyone, for participating in the call. I'm sorry it went nine months into the trading morning, and we'll put a period right there. Thanks again. Bye.
Operator (participant)
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.