Earnings Call: Q3 2018

Oct 16, 2018

Good day, ladies and gentlemen. Welcome to the TomTom Third Quarter 2018 Earnings Conference Call. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. Please note that this conference is being recorded I will now turn the call over to your host for today's conference, Bruno Peruli, Investors Relations Officer. You may begin. Thank you, operator. Good afternoon, and welcome to our conference call during which time we will discuss our provisional highlights and financial results for the third quarter 2018. With me today are Harold Holdai, our CEO and Taco Titlar, TomTom, CFO. You can also listen to the call on our website, and a recording of the call will be available shortly afterwards. As usual, I would like to point out that Safe Harbor applies. We will start today's call with Heather. We will discuss the key operational developments followed by a more detailed look at the financial results from Taco. We will then take your questions. And with that, Harold, I would like to hand it over to you. Yes, thank you very much, Bruno. Good afternoon. Good morning. We continue to make headway in both enterprise applications sorry, I'll let me start again. We generated group revenue this quarter of $220,000,000, which is in line with the same quarter last year. Automotive operational revenue continues to grow strongly, totaling EUR72 million in the quarter, which is an increase of 36% compared to last year. Our gross margin strengthened further and have resulted in a year on year gross profit growth and strong cash generation. Taco will provide further information on the financial highlights and the financial outlook for 2018 later during this presentation. I will now discuss enterprise applications and in automotive. The automotive environment, especially is turbulent, was changing demographics, electrification, new forms of mobility and autonomous driving keeping the industry busy. You have seen a few weeks ago that Reno Nissan Mitsubishi Alliance and Google announced technology partnership to embed the Android operating system and Google applications in a limited number of cars. Today, we disclosed that we have reached an agreement to bring the contract for TomTom to provide location, navigation content and service to Volvo, as we communicated on the 8th June 2016 to an end. We have agreed with Volvo not to go into details of the termination agreement but we also announced that the order intake for 2016 has been adjusted downwards from more than 1000000 to more than 1000000. It's important to understand that we continue to collaborate with both the Alliance and with Volvo. For the Alliance, the opportunity to provide location navigation technology or the volume segment remains wide open and there are further opportunities for ADAS and for self driving services. We will also continue to work on the Volvo Drive Meek program, research program for autonomous driving, and we collaborate with Zenuity, which is a joint venture between Volvo Cars and Autoliv with whom we are developing car to cloud to car technology. We don't think that Google foam in the dashboard approach will satisfy the needs of all automotive customers and that there is a strong case for a multi display fit for purpose approach based on modern software practices that puts a premium on privacy and on safety. Many OEM customers have indicated that they want to stay in control to the dashboard and don't want to hand over the proverbial keys to a third party whose strategy may not be aligned or even conflict. We're pleased with the progress we are making in mapping. Our goal is to make better maps at lower costs faster and every month, we see significant efficiency gains. More and more data is now open sourced, creating further opportunities for efficiency improvements. Last month, we processed over 1,500,000,000 changes to our map, which is an all time high. And our investments in computer vision and AI have now material impact on our ability to process vast amounts of data with minimum human intervention. Our HD Map now covers over 400,000 kilometers of highway and interstates in the Europe, the U. S. And in Japan. Our first commercial product will start shipping early 2019 in a motor management application that is designed to reduce fuel consumption for trucks. TomTom traffic and routing services are now available in 77 countries, powered by 550,000,000 data sources and is now the market leader in the auto industry. We've recently announced new contracts with PSA and BMW, highlighting the quality in constant developing development of our connected navigation products. PSA extended its current agreement to beyond 2020, And that means that our content and services will go into the next generation infotainment systems for all brands in all regions. With BMW, we signed a multiyear agreement to deliver traffic, routing and EV services to all BMW's minis and Rolls Royce vehicles across more than 33 countries in Europe and around the world. Last month, we announced that we are exploring strategic alternatives for our Telematics business, we have brought a deep interest in the potential sales division and the process is moving according to plan, we will provide further information in the short term. We are creating a more focused location technology business as clear priorities and a simplify operating model. We also think With a renewed focus on the remaining business, Tantan will continue to do what it does best shaping the future of mobility. In the next slide, I want to update you on the market for autonomous driving. Driving automation will develop step by step. It will not be a big bang. And it will develop in line with the 5 levels of automation outlined by the society of Automotive Engineers. It will be an evolution from level 1 where the driver is in full control to level 5 where the driver is fully out of the driving task. The high level of automation, the more vital it is to have an accurate detailed and maintained map. But across all levels of automation, those systems can be improved or made possible by using a map often in combination with vehicle sensors like cameras, radar and lidar We are building a portfolio of purpose made highly accurate maps to suit all levels of automation starting with our SD map with ADAS attributes for level 12 to HD Maps for levels 2 to 5. This concludes my part of the presentation and I'm now handing over to Taco. Thank you, Harold Let me make a couple of comments on the financials and then we're going to jump on to Q And A. In the third quarter of 2018, we reported revenue of 1,000,000, in line with the same quarter last year. Automotive and Telematics showed year on year revenue increases of 25% and 6%, respectively, while enterprise revenue remained flat compared to the same quarter of last year. Let me go through the businesses 1 by 1. Automotive revenue was up to EUR 59,000,000, mainly due to higher take rates and a ramp up of existing contracts. Our expectations for the full year is a bit north of 1,000,000 a 20% growth year on year. Enterprise revenue was EUR 34,000,000, flat compared with the same quarter last year. For the year's role, we expect enterprise to decline with a mid single digit percentage. Telematics revenue was up with 6% to EUR 43,000,000, mainly due to the recurring subscription revenue. The subscriber installed base increased 10% year on year to 861,000. We expect Telematics to grow with a single digit percentage for a full year. Consumer revenue decreased by 14% in the quarter for the year as well. We expect the decline to reach close to 25%. Gross margin was again solid at 73% during the quarter, bringing year to date, the year to date number to 7.31% and we expect to maintain the gross margin 1,000,000, a decrease of 1,000,000 compared with the same quarter last year. The year on year comparison is influenced by the restructuring charge of $12,000,000 related to the reorganization in Consumer Sports booked in Q3 2017 and some one off items in our operational expenses in Q3. 3, 2018, with a net positive effect of $4,000,000. The underlying OpEx showed a year on year increase explained by higher amortization and higher investments in research and development. EBITDA increased by 76% year on year to 1,000,000 with an EBITDA margin of 28 percent. EBIT in the quarter was 1,000,000 with an operating margin of 11%. The adjusted earnings per share was $0.11 in the quarter and we now have $0.26 year to date, which makes comfortable with raising the guidance to The quarter increased our cash position with EUR 24,000,000 and we now have EUR 179,000,000 of cash and we do not have any debt. We expect our $5,000,000 Automotive and Consumer maintained their trends, meaning, Automotive was up 76 $1,000,000 to now $1,550,000,000 and consumer was down with $24,000,000 to now $97,000,000. On Slide 5, the Automotive operational revenue, we see that Automotive is now our 2nd largest revenue stream. Behind consumer. Automotive is growing strongly and expected to grow with close to 20% this year, And as you know, there's a difference between revenue we invoice and the revenue we report. The latter tends to be lower as we follow IFRS 15 accounting standards. As shown before, this slide highlights the operational revenue of Automotive. Operational revenue is a reported revenue plus the net change in deferred and unbilled revenue positions. The Automotive operational revenue increased by 36 percent year on year to 1,000,000. To conclude the outlook 2018, in Q3, we saw solid performance and a year on year growth in Automotive Telematics And Enterprise plus a beat in consumer. And in Q4, we expect both our consumer business as well as our auto business to form better than what we previously expected. As a result, we have raised our full year revenue guidance to 1,000,000. With a gross margin of at least 70% and an OpEx number of EUR 560,000,000. The adjusted earnings per share is expected to I would also like to reinforce Harold's message regarding the potential sale of telematics. There is strong interest. The process is on schedule and we will provide additional information in the near term though not later than next quarter. And operator, we would now like to start with the Q and A session. Thank you. You. We will now take our first question from Andrew Gardiner of Barclays. Good afternoon. Thanks for taking the question. Harold, I was interested in sort of understanding a bit more about the changes you're seeing in the automotive space. As you said, we've now seen 2 customers make the decision to move over time from your platform to that of Google. And I know you, as you said, you can't talk or don't want to talk in specific about the contracts, but I'm just wondering if you can give us at a higher level, some of the motivations you're hearing from the customers for moving in that direction And I suppose also in particular, it's interesting to see on one hand, you've got the Renault Nissan Alliance in terms of significant scale making this decision and Volvo at quite the other end of the spectrum in terms of size. So if you could perhaps sort of compare and contrast sort of what the motivations of those different types of customers may be in making that transition? That would be helpful. Yes, difficult for me to comment, specifically on behalf of our customers. So I'm not going to go there. I want to there's a couple of comments I want to make, however. So in the, alliance case, It's not all car models. It's a limited number of car models that will equip this Google services. And there remains a great opportunity and a great market for, for the volume segment of the market. To be equipped with, with our technology, allocation technology and routing and traffic information. And on top of that, there is a wide open opportunity also for ADAS and self driving maps. So that remains. I said earlier, it's a busy time for carmakers and have to battle at multiple fronts. Some of them don't have the storm to invest in software capabilities, take their destiny in their not the ability or not the will to do that and go for a packaged solution. And I think that's what you're seeing here. And at the same time, I think it's up to the industry to look at our own practices and our own software development practices and see what what we can do better to bring end user experiences in the dashboards that that meet a higher level of expectation than what we have seen in the past. So there's clearly work to do But if there is a silver lining around the developments that we're seeing now, then that there is an increased awareness and willingness to engage and see what can be done and how we can offer the industry choice between solutions that are equally satisfying but following a different business model. And I think we are in a good position to play a role there, and that's obviously what we're trying to do. Okay. Thank you. I appreciate that additional detail. Just one sort of final point in terms of modeling, Taco. I think the prior statement on CapEx budget was around 1,000,000. Is that still the same? No. I think it's a bit too rich. I would guide towards, let's say 131135. Okay. Thank you very much. We will now take our next question from Francoise of UBS. Please go ahead. Hello, everybody. Thank you for taking my questions. The first one, it's a bit of follow-up of the previous one from Andrew, about the high level perception of the business and the strategy Arold, you always said that you are looking at the long term when you look at this business and you invest for that. And my question is very simple. Is when you look at the acceleration trend of the market of big customers of yours like Renault and Volvo, going towards Google. Is there any change of your strategy? I mean, does it make you change the way you see things or how you want to invest in the business? Well, I think we've long argued for better software practices in the automotive industry, modern practices deliver better user experience, somehow I think the willingness to discuss those models is, has improved following those discussions and that will create an opening for us to come up with better products that we can develop more efficiently and to there is no change on your strategy, after Renault and Volvo, you don't think there is any change needed for your strategy? No, that's all what I'm saying. I'm saying it is obviously a wake up call and not just for us. But it is a wake up call for tier 1s and for carmakers alike. I don't think it will be in anybody interest or the car industry's interest, if there would be one dominant, monopolist in, who does the software for the dashboard, that's simply not going to happen. But it's also raising the standards and the expectations. And that is where we need to change tack and that is a move that we've been advocating for some time, but now the urgency to keep pushing for that better software practices and development collaboration in the auto industry is now more urgent than ever. And I think that is a, that's a positive development. I hear you. And what about Tom, Tom, I mean, if it's a wake up call, I mean, it's obviously important for the industry to collaborate, as you say, But for sometimes specifically this wake up call, what can they do? What can you do to compete with this such strong player going after your biggest customers? Well, of course, Google is a big piece. But the threshold for doing something meaningful to dashboard is not that high. There's a lot of technology already available and we need to come up with products that people prefer to use over the smartphone. That is a threshold. And if you then look at the car environment, the car environment is distinctly different from mobile phone applications. And it remains to be seen whether the mobile phone paradigm works in a dash board. We think that, that it takes a different UI in a different way of developing software for that environment that can be very, efficient and competitive. We don't have to replicate a Google business We just the frustration for the automotive industry is that they spend vast amount of money on developing software for infotainment system and customers say, well, actually, I don't use it that much. Prefer to use my phone for all sorts of reasons, and that is something we need to fix. And I think we can. And you say like collaboration with your customers going to have a product out. If you if you think about that, I mean, Google is getting more and more traction. How do you protect the relationship with your customers to be able to be able to develop the products? I mean, do you need to bring the collaboration to another level or still the same? Yes, I think so first of all, we need to develop products that people like to use that are charming, that are small, provide a great user interface. And then we need to provide also to the industry the business model that suits the car industry. I don't underestimate that the, that we are much more flexible in the business model. We can tend to the requirements of OEs much better than with the standard solution that is the same for everyone. There's a big thing about privacy what's going to happen with that data, there are all sorts of questions, that will we don't have all the answers, but we feel that we can at a product level compete, provided we find a better operating model in the industry, and that on the business level, we have a strong case against a more a big company who has its own strategy for making money. And that's where we need to differentiate the safety, privacy, business model. And if we can get the user experience where end user is expected to be, then that would open the market completely. And this wake up call for you and the industry, Did you experience any, I mean, collaboration even more intense than in the past? Since Google is pushing more, with your customers and other players? Yes. I think that's a fair comment. I think a lot of companies and players are scratching their head and say, what does this mean for us? And and where does this leave us and what are our options. So you see an intensified level of discussion openness to and the willingness to, to engage and decide what the right operating and model is going forward. Okay. And just another one on telematics. Against more on the strategic side and more long term. But I mean, the question I had is why now? Because you said that you have a lot of interest, but, you know, I think, and correct me if I'm wrong, but it has always been an interesting asset So I would be surprised that you are much more interested in the past. And the second part of the question is if you do something with it and potential sale, which is a part of the options, I guess, what would you with the money? Because you have you will have more than 1,000,000 net cash on your balance sheet at the end of the year. Assuming a procedure of these telematics, I guess it will be a lot of money. So just what's the plan? Yes. So we've always been aware that, of course, that telematics was a valuable asset. And we have had, as you say, inbound calls, over for a number of years. We've always looked at it carefully. We looked at it again at the beginning of this year. We had some strategic review. We look at further opportunities for synergy, and we came to the view that this was probably the right time, to have another look. It's a larger business now than a couple of years ago. We reaching $200,000,000 in revenue, at some point, it's growing. We completely renewed. It's in tip top shape. We renewed the whole, software suite. It's ready for further growth. And I think by separating that business, it becomes Ton becomes also a clearer story and a more focused business that is easier to operate and perhaps also easier to explain what it is redoing. So I think it's the right thing to do it now. It's called now to scale. The market leading position in all the most European countries where we're operating, and I think it's the right moment to make it move. What we will do with the procedures I don't want to discuss this at this stage. We first need to do the transaction and also things can happen. But if we have clarity about deal, a deal and deal certainty and the proceeds, we will engage with our shareholders to, to discuss the, what's going to happen with those proceeds. Do you have a precise idea already of what you would like to do with it? Or I mean, I guess you have a plan. Yes, we do. There's all sorts of ideas, of course. And, but I don't want to discuss them at this stage. But it would be in your core business. Presumably if you want to like mapping and traffic, right? I don't want to share. I understand. And just a final word, just to clarify, the fact that you put premises in the review given what you say, it has nothing to do with the move of the market of Renault and Volvo didn't trigger this action? No, this is something has been in the making, obviously, for quite some time. So those those developments are not related. We will now take our next question from Mark Hesslhink of ING. Please go ahead. Yes, thank you for taking the question. And the first question is, with all these moving parts with, losing the rental contract and Volvo contract, but also we're still winning contracts in the line that we that are not announced and the extension you announced on the PSA. What's your broad feel on what you're doing on market shares? We lose a lot of market share in the long run because of this move towards Google? Or is it you're winning still from here? And therefore, the balance is more mix Just a little bit of a feel on how that market is developing? And then second question is Mark, so market share, there's no reliable numbers. And I don't think it's very difficult to see where Google will end. What I would say is that we're doing vis a vis traditional competition we're doing, we're doing well. We are increasing our market share. I'm also pleased to see that the overall market is expanding. So the attachment rates on new vehicles is increasing. But it's, but I can't give you detailed numbers on exactly what our market share is and how it is developed unfortunately. Okay. Then maybe just a follow-up on that one, the WOCET, the Reno opportunity remains wide open. For our volume part of the market? Yes, that's right. That's right. So that's the majority of the revenue patient home from Redo? Volume, absolutely. So this is the, it's only a small number of cars that will be equipped as far as we understand, as far as Renault has communicated in their press release, a limited number of cars and the volume segment will remain open. Okay. Daniel, you said the wake up call for the industry. So what are we hearing back from other OEMs in the market in general? Are they surprised with this move towards Google are they afraid, what kind of conversations do you have with your, with the market? Well, there is concern. There is, of course, concern. And I think it's, I think it's, generally speaking, and some have slightly of a few scenarios, but I think the majority of the players want to stay in control over their own destiny, giving away the software and dashboard one way or another is, you know, that can be problematic over time. And that's not someone somewhere car makers, most car makers want to go. But at the same time, they also see that they're investing a significant amount of money in software systems that failed to meet end user expectations. And that is the that's where the problem is coming from. Okay. And then the final question is on, if looking at the building blocks of Talk to them today as I have to decline in consumer business, which actually went a bit better than initially thought. They have the Telematics, which will be up for a strategic review. You have the actually the short term automotive business where the visibility is actually quite high given all the order intake in recent years. And then you have the 4th pillar of autonomous driving when will that scale or when do you expect that that will be a part that can take over some of the business of the rest of the, of the pillars? Yes, that is that question is a little bit harder to answer the RFQs that we are engaged in are envisaging the the we can start to see some volume, in 2021. And that will then be for so 2019, we'll introduce our first product as based on HD Maps, and that is a mode management application for trucks. And the goal is to reduce, fuel consumption can do that, if you know, exactly the road and the curvature and the elevation, you can make smarter decisions about mapping the engine and shifting the gears. And that can result, especially in heated terrain in significant reduction in fuel consumption. And we're providing data for that. That's a nice one, but niche Another nice one that we see coming is a database, ADAS databases with the speed limits. For, and that and if you can do that correctly, carmakers end up with a higher end cap. Rating, and that's a good thing for sales and value. And a map can deliver that. And then 2021, you will start seeing adaptive cruise control that is smarter than the cruise control that you and I today have in our vehicles. I don't know if you have it, sorry, but if you have cruise control now, that boost control. It doesn't use a map. So it can't take into account maximum speed. It can't reduce speed if you are entering a, an exit ramp, and with the map, you can do that. And you're also creating the total infrastructure for automated overtaking of vehicles if you have that map and you have a camera available. And then from there, So those are the type of applications that are inside for which we are quoting. I think it's also fair to say that fully automated driving level 5 where the driver is no longer in control. The vehicle is fully in control. I think that is further out than most carmakers wanted us to believe a couple of years ago. I think the problem is harder to crack, but we will see good progress on closed access roads, highways, in States, and so on and so forth. And maybe the budget for the other side of the equation, the cost that you have to make in this pillar. Yes. So this was completely clear. We have, but I say that we know what to do to map the world. And we've done that. So the major roads in, North America, Europe, Japan are all in our database and are used for, for testing and sample data and we'll have you by a number of car makers and sensor makers. And we know how to do that. It's a highly automated process. So you need to scan the roads with vehicles and then you need to analyze data, but analyzing the data is happening we can achieve high levels of automation there. And I mentioned in my introduction that we're using computer vision and AI, and it's those technologies that will help us to build those maps, cost effectively into a high level of accuracy. And we're making good progress there as always work to be done, but I'm satisfied that we could produce them commercially, and we've done that. Getting fixing the maintenance, issues different cattle of fish in an ideal world you don't want to re drive the road network every year or whatever it is, the frequency you want, you want to have a fully automated system that uses, sensors in the vehicle that send information to the cloud is in process and changes are then sent to the vehicle. That's the car to cloud car cycle. We're working very hard to fix that from a technical perspective, and we are engaged with a number of sensor makers to do that. And fix all that. And that looks very promising. And I think we that is a kind of well defined problem, and I think we can fix that. And the boys and girls are working hard. It's exciting stuff. So there's a lot of energy and a lot of a lot going on there. But it also needs to be implemented on the commercial scale. And there, we don't have the solution yet. Because that needs implementation in the vehicle. There are costs associated to that like data communication and so on and so forth. And that needs further work, but it's our aim of course to be able to maintain those maps fully in a fully automated side. Technically, that's possible we think we will get there, but we don't have any view in place. It gives us volume access yet. To, to card data, but we think that will come. We will now take our next question from Martin Dindrever of NIBC. Please go ahead. Yes, good afternoon, gentlemen. Thank you for taking my questions. A lot of them have already been asked, but I wanted to just go back to the automotive space again. Can you tell us a little bit about what you know of the pricing of the Google suite of solutions and if you are more aware of what of that pricing is, have you already seen reactions from your competitors or maybe even from your own account managers with regards to pricing. That would be question number 1. Yes, I don't want to go there, Martin. I'm sorry. We have, we have some mentality. We have some ideas but it's not I can't discuss that here. Why is that if I may ask? Because it is a rather critical element of how the market may move part of market shares? It's a it's a sensitive topic and it's also, not a 100% clear. We don't have 100% visibility for the license costs and also not for data communication costs. Data communication costs we expect them to be very high. And that's also the noise we get from the market, but we don't have exact information around that. Okay. Great. And then a rather technical question or it can be a technical question. If Renault goes to, or when Renault goes to Google at least for a significant portion of its models, there's a Nissan Mitsubishi, Will you still have access to the data and that all of the installed base that still has TomTom equipment is generating? Or will you lose the data feed from that installed base as well? No, that's not what we're planning for now. Okay. But it's the wording gives me the sense that that's still an open question. No, that's not the way we see it. No, we continue to have access to vehicle data. And vehicle data is we are we have so much. We see nearly 1 in 6 cars, driving around the globe. So that's not a, depending on the hour and what have you, but we have a lot of data to make accurate services and do map and change detection and so on and so forth. So probably if you were to lose the data, it will have an effect, but it won't have a material effect in the quality. Don't think we're going to use it, lose the data, and it will more have an effect, a noticeable effect or a measurable effect on what it is we're doing in terms of traffic information and incident reporting. Okay. Then on to something completely different, enterprise, obviously, if you decide to sell telematics, then the relative importance of enterprise increases The performance of the division hasn't been brilliant lately. There's all kinds of new competitors in the in that particular space, apples for 1. What are your intentions? What are you going to do in the near term? Possibly even linking that with the usage proceeds. What are you going to do with the enterprise now that's become, it's becoming more important? Well, we we continue to develop it. It's important to realize that the technology and approach we are licensing increasingly as APIs are generic products that are also used for automotive products. So there's a big overlap in, in product development and product design, it reinforces 1, reinforces the other. So on the product design and development side, we don't see much changing. And I think on the commercial side, we keep gaining traction, the contract we signed with, with Microsoft is an important one. And we think we can grow the enterprise business on the back of those type of deals. There's more, but that's another, that's an important indication that we are developing that enterprise business over and beyond the business of uncompiled map data. The majority of our enterprise business is uncompiled data. And the API applications are on top of that. And now you've mentioned Azure yourself, but can you update us a little bit about how progress is in terms of developers applications built by those developers and maybe a little bit of a roadmap on what to expect. But TomTom and investors can expect from that particular contract? It's a bit early. We see good indications. It's been more people testing it, taking it up. But the lead times there are pretty long. You need to wait until you are and you've been tested and validated end up in an application and that application needs to successful. So it's quite a long trajectory, but we see we see traction coming through, but it's from a small base, obviously, But we are we it's the indications are positive. Okay. I'll leave it at that. Thank you, gentlemen. Thank you. We will now take our next question from Wim Gile of ABN Amrose. Please go ahead. Yes, good afternoon, Vimpfila. First question will be on kind of the telematics deal. How would you look at TomTom in terms of P and L, cash flow, profitability, etcetera? After telematics, or to be a bit more precise, is it possible that there's going to be a scenario where you will have a significant amount of money coming in that you will need in order to fund losses in your current automotive enterprise business. So that would be my first first question. The second question is more on kind of the contracts the business model, as you referred to yourself, that you are competing against in Android. So if you lose, why do you lose? Is it on price? Is it that they have a better product offering? Is it they have a more interesting business model for the OEM? So what are the reasons that your clients right now are giving, why they are switching to Android? That would be my second question. [SPEAKER STEPHEN ROBERT BINNIE:] Martin, sorry, VIN, I'll take the first question and I'll leave the second question help you answer. Coming on the telematics, proceeds, topic If you look at 2018 and the cash that we aim to generate, we think that we can generate as much as 1,000,000 or free cash and probably a little bit more than that. My estimate is that more than half of that is is, is contributed by the business outside of telematics. So also for next year, if we would exclude telematics, the premise is that the business needs to stand on its own feet. That said, we constantly look at opportunities. And if it's the right business case and the right opportunity, we won't pursue those, but that's not really correlated to the telematics transaction. We would decline these opportunities or we would proceed to to these, not related to the outcome of telematics still. So can you confirm that also for next year, you would expect kind of the cash inflow that you're seeing outside of telematics, that that is a sustainable number for next year, and possibly beyond? It's too early for the 2019 outlook. I just want to say where we are now. I also want to say our principle that we aim to, to generate cash, whatever we do. Unless there's a convincing business case for us, and if there's a case, we will communicate that with the investors. Issue. We will now take our question from shyam Kumar of Kuvaraj. Please go ahead. Hi, Al. So just so that I'm clear, the contract losses are to do with more standard navigation type maps and functionality, but not related to the ADAS and automated driving potential, question 1. Question 2 is can you comment on the second part in terms of what that competitive landscape might look like vis a vis Google, please? Yes. So renon it's important I want to say that Renon Nissan is not a contract loss. It's just business we didn't win. But, but also in, the business that we did not win, there is an opportunity to sell ADAS data into the vehicle. Yes. So the what I said earlier, so technology and data for self driving and safety related applications are not part of the, of the of the of those contracts and they are opened up for RFQs and RFIs. It's actually the HD map. That's the HD map or variant of that, depending on the level of accuracy that customers are looking for. Okay. So are you just contract, well, whatever these new things is more on standard definition navigation type functionality? Yes, it's the that's exactly what it is. It's the, it's a variant of the applications that you will also find on the mobile phone. Okay. And how competitive is the HD Map and their related data and functions at the moment, please. Is that is Google running in that area or is it yes? Not that we know. They have an initiative for that is different. It is for railroad taxis. It's a different technical problem, different business. And that is not the type of data that they're using is not used for more long distance closed access road automation for vehicles. We will now take our next question from Mark Swartzenberg of Yes, good afternoon. It's Mark here. A couple of questions left. First on Volvo, the contract, could you confirm that contracts in the length of 4 years? Is that typically what the contract was about? We're not going to go into any specifics of this contract, but the automotive contracts tend to be 3 years. And it's a cancellation fee because it's only 2 months before I think the contract will go live. Is there any because you also made some cost linked to the contract, I presume, in terms of R&D. It's also some clawback of of course in the contract? Well, we, standard that you're building cancellation fees in your complex, but we made a comment in our press release, on page 4 in the operating expenses that Q3 2018, we saw some positive and negative things in our OpEx line with the net effects of $4,000,000 gain. Okay. That is all I can say about it. Okay. So there's not more that's already in there. And when were you formed on the cancellation of the contract? We can't comment on that. It wasn't then maybe to become more Civic before or after your press release on telematics. Well, we are not comment on that, but apart from that, they are not correlated. Okay. And then on telematics, how much of your general cost or whatever you overhead costs are allocated to telematics that will stay with TomTom after it's been potentially in divest. We, we have always, operated telematics of very, separate, business, independent business with their own finance HR, IT, and even offices. So it's only a very limited amount. Okay. Can you specify and limit it? Is it $10,000,000? Is it more than that? No, well, 5 more. It's more than 5. Yes, but not 10. How much CapEx was in the business of telematics? Telematics tends to be a CapEx Life. So that's a single digit, a low single digit minor number. And is there because you lost the contract of Fulpho that will have an impact of, obviously, in your near term revenues there. Say to be free cash flow positive next year, but still, is Automotive currently sizable enough? As a listed company with consumer, running down that you can Or should you are you now forced to go into more an alliance team up with large OEMs or COVID companies is there any strategy on that part? Did you have taken a decision on that? So I don't really answer the, is that related to telematics, you mean? Well, telematics is more is out. Consumers running down. And in automotive, you lost 4 of us or in the near term, put a bit of pressure maybe on the earnings growth, revenue growth of Automotive, and you're becoming small with a huge cash buy on your balance sheet. Is it then any reason maybe to search more active, a team up with larger players in the sector like OEMs or what have you? To become a more dominant versus a Google? Well, we're not missing or we're not being naive on the trends that we're seeing, but I would say the contrary that automotive is maturing and is getting stronger. What you also see in our segment reporting that is, the fundamentals are improving. And on a cash basis, it's generating cash. So on the operational point of view, not the reported point of view. All right. That was my question. Thank you very much. We will now take another question from vungjila of ABN AMRO. Please go ahead. Yes, sorry. My second question hasn't been answered yet. So going back to the contracts and the contracts you didn't win/ you lost. What are you losing against? Which business model are they offering? And what are the reasons for clients to say we're going to go for Android rather than TomTom. So is that on price, is it the business model? Is it the consumer experience? So gives a bit of feeling on what your clients are telling us there? Well, I don't think it's on price. I think it's on user experience. That's the key driver for making the switch. And in terms of business model, you referred to it yourself, during the intro? They have a distinctly different business model that they can offer? Well, we look previously to those discussions. So we don't know the detail, but we know from, from what the business models and mobile phones are. And there are elements of a kickback for advertising income. Those are typically quite small. And the and we don't think that the advertising will shorter for advertising on the dashboard will allow for big revenue streams. So we don't think it's a, we don't think it's a cost thing our impression is that it's an end user experience decision that's made. Okay. Thank you very much. There are no further questions in the queue at this time. I'd like to turn the conference back to you for any additional or closing remarks. So since there are no further questions, I would like to thank you all for joining us this afternoon. If you have any follow-up questions, please don't hesitate to give us a call. Operator, can close the call. This concludes today's presentation. Thank you for participating. You may now disconnect.