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TomTom NV
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Good afternoon everyone and welcome to our conference call, during which we will discuss our operational and financial highlights for the fourth quarter of 2022. With me today are Harold Goddijn, our CEO; and Taco Titulaer, our CFO.
We will start today's call with Harold, who will discuss the key operational developments followed by a more detailed look at the financial results and outlook from Taco. We will then take your questions. As usual, I would like to point out that Safe Harbor applies.
And with that Harold, I would like to hand it over to you.
Thank you very much, Freek, and welcome ladies and gentlemen. Thank you for joining us today. I will discuss the operational highlights in the quarter and give an overview of our strategic priorities.
We recorded robust growth in revenue in the fourth quarter. Enterprise performance in line with expectation and automotive showed strong growth. The automotive business showed an outperformance versus the car production volumes in our core markets, as it has throughout the year.
Our automotive performance portfolio is gaining strength and has enabled us to win major contracts in 2022. Order intake was at a record high and resulted in an automotive backlog of €2.4 billion at the end of the year.
Our new Maps Platform is maturing and in line with expectations with first customer shipments expects to happen in Q2 this year. We announced a new Maps Platform during our capital markets day in November. That platform allows for standardization and integration of new data sources, and a new way of working, which will lead to richer and fresher Maps that are more efficient to produce. And to encourage the industry to standardize on our new Maps Platform, we have decided to open source, the base road network and the specifications of the Maps. This will over time allow for frictionless data exchange and wider availability of data for further integration in our proprietary Maps products and into our services.
We have joined forces with Amazon, Meta and Microsoft to advance these initiatives and market reception so far has been encouraging. We aspire to further grow our market share in automotive based on the superior Maps product, a strong portfolio of services and a large number of cars sending signals to our servers.
Electrification, new safety legislation and ongoing progress in others and automated driving will provide us a fair opportunity. We expect our new Maps to be an important driver of growth outside of automotive over the midterm. We will offer significant improvements in quality and richness, which will enable us to extend our success in the automotive market through the most broad variety of customers. Especially in the enterprise segment, we expect positive effects from standardization and our open source initiative.
We are confident that we have a solid foundation in place and aim for continuous top line growth and further optimization of our processes. Taco will elaborate further on this after going over the financial highlights of the quarter and the full year.
And this concludes my part of the presentation and I am handing over to Taco.
Thank you, Harold. I’ll provide some comments on the 2022 financials and also discuss the outlook. We will then proceed to the Q&A.
In the fourth quarter we reported group revenue of €139 million, that’s 21% higher than the same quarter last year. Location Technology revenue increased by 30% to €118 million.
Let me go through the revenue business-by-business. We reported automotive IFRS revenue of €77 million in the quarter, representing a 64% year-on-year. This increase was partly the result of the evolution of our automotive products. From a predominantly onboard offering, including updates to a combination of API based updates and services, and an initial onboard map. The evolution led to a change in the timing of IFRS revenue recognition, improving reported revenue this quarter.
Automobile operational revenue increased by 16% year-on-year to €82 million. This marks an outperformance compared with car production trends in our core markets being Europe and North America. In our core markets, car production growth was roughly 10%. Our outperformance resulted for market share gains and further increased in take rates.
Enterprise revenue decreased by 7% year-on-year to €40 million. The decline was anticipated and related to some contract renewals, reflecting decreased usage and those with lower contract values. Lastly, consumer revenue decreased by 13% year-on-year to €21 million.
Our gross margin was 87% in the fourth quarter compared with 82% in the same quarter last year. The improvement in our gross margin is the result of a higher proportional software and content revenue in our total revenue mix. Operating expenses were €125 million, a decrease of €4 million compared with the same quarter last year. This decrease resulted from lower personnel expenses in our Map units.
Before moving to the outlook, let me reflect on our full year results. We will report a Group revenue of €536 million for the year, a 6% increase compared to 2021. Location technology revenue increased by 11% to €436 million, while consumer business declined by 11%. In addition, automotive operational revenue grew 11% year-on-year, outperforming the growth of car production in our core markets of 7%.
Free cash flow was negatively impacted by the working capital movements at the end of the year. For the full year free cash flow was an outflow of €29 million. Lastly, our net cash position was €304 million at the end of the year. Having discussed the results for 2022, let me take a more forward looking perspective. I’ll start with our automotive backlog and then move on to our 2023 outlook and our 2025 ambition.
As we've already announced at our Capital Markets Day last November, our automotive backlog increased strongly in 2022, resulting from a record order intake during the year. At year end, our automotive backlog was approximately €2.4 billion, up from €1.9 billion at the end of 2021. Our automotive backlog is some of the expected IFRS revenue from all awarded deals. As such, the backlog decreases on revenues recognized and increases when the new views are awarded. It also increases or decreases when customers revised their forecast for car production volumes.
To provide additional transparency on automotive revenue expectations, we give an indication of how the backlog will materialize in revenues over time. Most of the reports automotive revenue for 2023 will read outcome the current backlog. Reported revenue for the late years will be based on a combination of new deals and our backlog. We’ll provide an update on our backlog annually with our full year results.
Our backlog supports our outlook and ambition for the coming years, presented on the next slides. For 2023 we expect top line growth to continue with Group revenue between €540 million and €580 million. A strong increase in automotive revenue is expected to offset the declines in both our consumer and enterprise business. In addition, we envision our enterprise businesses to show growth again from Q4, 2023 onwards.
The Location Technology revenue is expected to be between €455 million and €485 million in 2023. This includes a positive impact from the evolution of our automotive products and related change in revenue recognition of around €40 million.
In terms of free cash flow, we increased our cash flow guidance from breakeven to between zero and plus-5% of our group revenue for 2023. We should note here that our free cash flow guidance excludes the charges related to the restructuring we announced in June of 2022. Of the €26 million restructuring charge, we paid €12 million in 2022 and expect to pay the remainder fully this year.
This brings me to our ambition for 2025 as presented on the next slide. We reiterate our midterm location technology revenue ambition of €600 million in 2025. This ambition is based on our strong automotive backlog and significant opportunities in enterprise. The new Maps Platform that we introduced at the Capital Markets Day will bring significant improvements for our customers.
This change in automotive revenue recognition resulting from the evolution of our products will also have an impact on 2024 and 2025 revenues, though the impact in 2025 is expected to be minimal. Lastly, it is important to note that we want to realize our growth ambition in a profitable way and revenue growth, we will lead – as revenue growth will lead to operating leverage. The ambition is to generate free cash flow of 10% of group revenue by 2025.
Operator, we would now like to start the Q&A session.
Thank you. [Operator Instructions]. Thank you. We’ll now take our first question, please stand by. This is from the line of Marc Hesselink from ING. Please go ahead.
All right, thank you. First, on your comment that the first feedback is encouraging on the new Maps Platform, could you maybe tell a bit more like what are the clients saying, and maybe split it a bit between automotive and enterprise, and then link to that to the enterprise? I mean, that's probably the area where you can most quickly actually win business. Any expectations on that, on when such things can fall? Thanks.
Yeah. So Marc, yeah. So we had a good moment to test the temperature and take temperature off. Our direction of course was at CS, the Computer Show in Las Vega, and I've been working in Florida for four days. Massive interest in what we're trying to do. Trying to understand the implications for our customers' business and the industry with overall overwhelmingly positive reactions, varying from if that make sense to what can I – should I become a member with you, and how do I do that and that kind of thing.
And I think it's important also for clarity in the market that there is a standard emerging. I think that is what customers have been waiting for, maybe even if they didn't know it, because the adoption of the location service platform is costly and – costly, enterprising, you don't want to be locked in, if you can avoid it. And I think this initiative will fly, I think the expectations are high, and I do believe it will lead to multiple products and a more efficient way to get there. And the reactions I got for my customers as well will show in that line. So very encouraging indeed. People want to have sample, sample data and so on and so forth.
Not only from enterprise segment. I have to say also the interest from the automotive to more conservative part perhaps of our customer portfolio showed a keen interest to understand what the implications are and will be, can be for their own business, and their own data strategy, including data strategies for automated driving.
So, I was pleased with these facts. We will start shipping to limited number of customers in Q2, on your Map, that’s great. We will have some customer facing applications up and running in the first half of this year where we can show the whole stack, including the services, the Maps and how it all comes together.
So it feels like there is momentum, there's tail wind, we've dedicated to capture that as we're going on sales and marketing side as well, in order to capitalize on the momentum that we're seeing in the market place.
Okay. Then the second question is actually on automotive. So you've been outperforming the automotive production in your markets in, I think the full year 2022 and especially in the fourth quarter. But if I look to the guidance for next year, it seems more that you're guiding towards being somewhere in line if I look to operational revenue, in line with those forecast. But I do assume that stake rates will continue to go up and you're also probably still going to take some share, so what's behind that?
Taco, can you…
You mean the current year or 2024?
Sorry, 2023. To be clear, ’23. If I do the calculations a bit and operational revenue, it seems that you're guiding something like mid to a little bit higher growth, automotive, and that seems a bit close to the car production expectations. Well, actually last year you clear – instead of ‘22 you clearly outperform that. So what's – is it just being a bit conservative this early in the year or are there reasons why you should not outperform in ’23.
No, I think we will do better. It's always a bit of a discussion, which view we have for EU and North America. But on the data we rely on, we see a 7% increase in combined markets and we ourselves think that operational revenue can grow between 10% to 15%, so we continue to see that growth. So the data that we're looking at for a like-for-like shows 7% increase in car production volumes, and that it will depend on which countries you include and don't include.
Okay, thanks. Then final question is actually on the competitive dynamics. You also mentioned CS. I think your competitor here also launched a new platform over there. It seems like, a bit like yeah, your previous platform and the transactional Map building platform. But what's your view on that? Did they make a step change in the quality of their product and is that is that changing the dynamics of it for you?
We find it really hard to read that announcement to be honest. I don't have as you think. We’ll only know by the second half of next year, before those products that are built on the platform will come to market. And so it's really hard for me to comment on what was going on there and what the expected results of the investments were going to be, I can't say.
Hey, fair. Thanks.
Thank you. We’ll now take our next question. Please stand by. From the line of Emmanuel Carlier from Van Lanschot Kempen. Please go ahead.
Yes hi! Good afternoon all. Thanks for taking my questions. I missed the first five minutes of the call, so I hope my questions have not been answered yet in that part. But the first question I have is on consumer. So, if I look at the guidance, then the midpoint of the guidance used to be € 75 million revenues in 2023 and now with the upgraded guidance it is €90 million. So what has made you more positive?
Well yes, it's quite simple is that we were quite conservative going into Q4. Q4 was solid, and that also gave us the basis to be more optimistic for the current year.
Do you now expect that this product line going forward will drop rather at the 10% level per annum instead of the 10% to 15% or is it just 2023, which is a kind of one-off?
I think 10% is a good way to look at it, yes.
Yes, okay. And then the second question is also on the guidance. So within location revenues you have a €40 million tailwind from the accounting change and you have a €20 million headwind from FX. But could you give a bit more disclosure on the assumptions on FX? Is it based on the FX rate of yesterday at the close, and do you have any hedging?
So, it is basis on lines for 30 [ph]. 30 is also a situation where we were at during Q3. Then enterprise is roughly 75% and automotive is 35 I would say. That is dual denominated. We don't do very – we don't do a little hedging, no.
What is the reason for that, if I may ask?
Well, that is - that has evolved over time. In the past we performed a lot of hedging. The reality is that those contracts tend to be very expensive as well and so the benefit over the longer term are not that large.
Okay. Okay. And then finally a question on free cash flow. So, the free cash flow was softer than expected in Q4, although I guess you had pretty good visibility. So, it looks a little bit like nothing has really changed in terms of free cash flow, but that you have a little bit of a shift from lower free cash flow in 2022 related to working cash flow. So a lower inflow and that inflow will not come in 2023.
So all-in-all it looks like the consumer is just a little bit better, offsetting the negative impact of FX, and on free cash flow. If you combine 2022 and 2023, the outlook is actually really unchanged. Is that a correct summary?
Well, I would say there are three factors playing a role here. One is indeed that as you can see in our balance sheet, in our press release, the level of prepayments have gone up to a level that we haven't seen normally at the end of the year. So normally it's €25 million, it's now roughly €36 million. That is just we see some opportunities for vendors that give us discount if we pay all at once and we pursue those opportunities.
The same with payments. Our commitments to vendors that is historically low. So indeed, those two trends will benefit the cash flow generation in 2023.
On the other hand, the fact that the dollar is weaker than already it is assumed will not benefit our cash generation, because we are long in the dollar. So a weaker dollar net-net does not have a positive effect on our cash flow. But if you compare the October situation with the January situation, we are tighter with spend and cost control, and that's also resulting in more cash generation for this year.
What is making you more confident on the cost structure? Is that because you could negotiate with your workers' lower salary increases or is it more because it… [Cross Talk].
I wouldn't qualify it that way. I think the salary increases that we are seeing this year are higher than what we ever seen before. So no, it is more third-party spend and overall headcount. It's not salary related for sure.
And with respect to the salaries, what I have often read in the Netherlands is that in order to have a more smooth impact on the earnings, you kind of – if you have 10% inflation through the kind of mechanism where maybe the salaries of the employees go up by 5% for example this year and the other 5% will be realized next year. Is that something that is having, that is taking place at TomTom as well?
I'm not at a liberty to comment on the structures that we have agreed or want to give our employees at this point.
Yeah, okay. I will go back to the queue. Thanks.
Okay then, thank you.
Thank you. We'll now take our next question, please standby. This is from the line of Tim Versteeg from ABN AMRO. Please go ahead.
Thank you. Do you hear me?
Yes, we can.
Yeah, loud and clear.
Okay, okay, thank you. I have a question more according to the statements about the automotive segment. Can you say something about the competitive landscape and the development in market share there?
Yes. So yes, it's not so easy. This is not a fast moving business market share. You know the drill about long lead times and long times, and what we see is that, let's say in the traditional competitive landscape, it looks like we are coming out as the winner, specifically the number of companies that are active and the full stack is shrinking. And we have a strong portfolio. We have a lot of customers so we can spend. Also we continue to improve the quality of our products.
There's investments of course to keep up to date. Also the new generation of electrical vehicles. That's a demanding exercise to get drivers of electric vehicles, all the information they need and we get a little signal back from our clients.
So from the cars that we are equipping with software, we also get location. It's all normalized of course and we get other data. We get sensor observation, sensor data, which in turn help us to improve our products. So this is kind of a flywheel that we have seen turning, that helped us to gain important position in traffic information that seems to happen now also in the navigation stack, so I think that's good.
We will see positive impacts from a better Maps product that will hit the market this year. Customers are excited about that. I think we are – you know our brand reputation has also improved as a result of the announcements that we've made and the wins we've been able to lock in. So that's a good situation, but also in a market that is kind of trying to figure out how exactly to be successful in software.
So there’s still moving parts, but the partnerships we are forging now gives us good insights in what customer requirements are, how they will develop. So we feel that we're well informed, close to where the action is taking place; solid foundation in terms of current products and more to come. So it's really ours to mess it up I think.
Yes, I think it helps – that gives you a bit of color on how we see our position developing.
Thank you.
Thank you. [Operator Instructions]. We'll now take our next question, please stand by. This is from the line of Harry Blakelock [ph] from UBS. Please go ahead.
Hi there! Good afternoon. Thanks for taking the questions. So the first is just on the backlog growth that you saw last year. Are you able to provide some detail on whether that's market growth or kind of share gains as well? Just any color that you can give there would be great?
Shall I take that one?
Yeah, absolutely.
It is both. So, we have seen new logos in this list that we haven't been supplying before. So I would qualify that as a potential market or potential future market share gains, but there are also some extensions, so the most notable one is Stellantis. It is a combination of both, and to add to that, there is also an increase of take rate. So the assumptions that underline this order intake run with way higher take rates than what we've seen before.
Got it. Thank you. And then the second one is just on enterprise revenue. And you mentioned you expect growth in Q4 of this year. I wonder whether you could elaborate a bit on what's driving that timing? How much visibility you have? Is it contract renewals or new revenues from the Maps Platform starting to come through? Any color would be great.
Well, that is just smart accounting, but there is a major contract that reduced their spend as of Q4 last year that will affect the P&L for four quarters in a row. And that effect will wear out as of Q4 this year. The underlying revenue enterprise excluding this contract is increasing. So if you take out the effect, then enterprise is growing, and that will happen as of Q4, 2023.
Got it. Thank you.
Since there are no further questions, I'd like to thank you all for joining us this afternoon. Operator, you may now close the call.