Earnings Call: Q3 2017

Oct 20, 2017

Good day, ladies and gentlemen. Welcome to the TomTom 3rd Quarter 2017 Earnings Conference Call. We will be facilitating a question and answer If at any time during the call, you require audio assistance, please feel free to press star 0 and the conference coordinator will be happy to assist you. Please note that this conference is being recorded. The call over to your host for today's conference, Bruno Prouli, Investor Relations Officer. Please begin. Good day, ladies and gentlemen, and welcome to the TomTom Third Quarter 2017 Earnings Conference Call. Call. Today's prepared and a conference coordinator will be happy to assist you. Please note that this conference is being recorded. I will now turn the call over to your host for today's conference, Bruno Proley. Please go ahead. Thank you, operator. Good afternoon, and welcome to our conference call during which we will discuss our operational highlights and financial results for the third quarter 2017. With me today are Harold Holdain, our CEO and Taco Titour, TomTom's 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 Harold, who will discuss the key operational developments followed by a more detailed look at the financial results from Pablo. We will then take your questions. And with that, Harold, I'd like to hand over to Neil. That's great. Thank you, Bruno. Welcome, ladies and gentlemen. Thank you for joining us today. I will start with an update on our Consumer Sports business. We communicated earlier that we'll initiate a strategic review for our sports business. That review is ongoing, but in the meantime, we have reduced our costs and are now in maintenance mode. Our customers, both existing and new ones, will continue to be served We've just launched major updates to our mobile app and website and have been very well received, but our costs are now aligned. And given a short period of adjustment, we will return to black numbers by the end of Q4. The review for assessing our longer term options is in full swing, and we expect to give an update at our full year results or earlier if possible. The P and D business is cash generative, and we will continue to provide a valuable platform for consumer insights and location data. By theendofthisyear, Our consumer business will represent less than half of total revenue and less than 30% of our gross profit. Our strategy is to build our leading position in Maps Applications And Services where location is important. Year to date combined revenue of Automotive Licensing And Telematics grew by 17% year on year. As you can see, our business is shifting towards higher gross margins, better predictability, and more up front cash. I'll start with a more detailed view on telematics. So the telematics business reached 785,000 subscribers by the end of the quarter, and that is a 17% increase year on year. In the quarter, Telematics was recognized as Europe's largest provider of Fleet Management Solutions by Research Firmberg Insight. This is the 3rd year running that we have led the European market. Theramatic launched an open beta version the new Webfleet 2018 application suite, and that offers a fresh modern user interface in our main management solution. In the Connected Car Services segment, we announced a contract with lease plan. This is an important partnership. We can bring value to large corporate fleet owners with what we think are short times for return on investment. I'll now move on to Automotive. Automotive had a very strong Q3. Revenue growth was all 50% year on year. And year to date, we deferred a net amount of 1,000,000 of Automotive revenue. For the whole year, we are expecting a 40% revenue growth year on year. 2017 is an important year for automotive and this will continue in 2018. We're seeing a lot of RFQs coming in. And in most ARFQs, we are asked for Global Brand And Carmel Diagnostic offering. This means that we're seeing more requests for system sales, where we can provide a best in class port and services offering where we integrate traffic, online map of their services, and more We'll give an update on our order intake for 2017, early February when we publish our full year results. This concludes my part of the presentation. I'm now handing over to Taco. Thank you, Harold. Let me make a couple of brief comments on the financials. In Q3, revenue totaled EUR 218,000,000. Automotive Licensing telematics combined grew by 18% year on year. Automotive revenue was up by 51% to EUR 47000000, This increase was driven by a combination of higher take rates and more customers versus last year. Our expectations for the full year have gone up to 40% growth year over year for this business unit. Re licensing revenue was flat year on year with EUR 34,000,000 and telematics revenue was up 8% year on year to 1,000,000. The recurring subscription revenue for the year increased 7% to 1,000,000. Consumer revenue decreased 29% year on year to just south of 1,000,000. The majority of revenue roughly 80% is P and D related. Sports represents approximately 10% and so does automotive hardware, also 10% of consumer revenue. Gross margin was, was fairly strong in the quarter with 65%. This is an increase of 5% points year on year. As we see the continued growth of our recurrent data software and service businesses and a decrease of dependency on hardware ports. We expect gross margin to be north of 62% for the year as a whole. Total operating expenses for the quarter was EUR 147,000,000. That's EUR 3,000,000 higher compared with a year ago. But if we exclude a 1 off restructuring charge of EUR 12,000,000, the expenses the OpEx declined with $9,000,000 year over year. We expect this trend of lower marketing expenses to continue during the last quarter of the year. Our OpEx in the fourth quarter is expected to be down with roughly 10% year over year. EBITDA decreased by 6% year on year to EUR 31,000,000 and EBIT was a loss of EUR 6,000,000, in the quarter. The net results adjusted for acquisition related expenses Restructuring charges and gains on a post tax basis was EUR 90,000,000, which translates in an adjusted earnings per share of 80% on a fully diluted basis. This compares to EUR 12,000,000 and an adjusted earnings per share of EUR 5.00 in Q3 last year. At the end of the quarter, we reported a net cash position of 1,000,000. Then I continue on Slide 4, and to have a look on the automotive numbers. As shown in the last couple of quarters, this slide highlights the operational revenue of automotive. Operational revenue is to reported revenue plus the net change in the deferred revenue position, as well as we see sorry, as we sell products to Automotive that include multiyear updates and our subscriptions, some of the revenue is deferred. Automotive operational revenue in the quarter amounted to EUR 55,000,000 an increase of 54% compared to last year. The total deferred revenue on our balance sheet is tunes and EUR 40,000,000. The main contributors are, consumer and automotive. Consumer represents half of it, $120,000,000, but is declining and automotive represents 94,000,000, and that represents doubling since last year. In the year, so year to date, consumer released, it's deferred revenue position with 30,000,000 but on the other hand, Automotive increased the deferred position year to date with over 35,000,000. Consumer deferred revenue will continue to decrease while Automotive will continue to grow and that growth will even expected to be stronger in the quarters to come. This effect will not be visible in our short term, in the short term in the P and L. They'll best reflect it in the balance sheet and the cash flow statements. The consequence of this change in nature of our businesses is that we're becoming more and more software business in Q3 2017, almost 65% revenue was derived from data software and services, which results in a more predictable income stream and provide higher gross margins. Let me conclude my comments on Slide 5. We're updating the guidance for the full year. So due to the continued headwinds in Consumer Sports, we now expect to deliver full year revenue of around 900,000,000, the adjusted earnings per share of around EUR0.25 remains unchanged. We now expect the levels of investment, CapEx and OpEx combined show only a marginal increase compared with 2016, and that is, excluding acquisitions and restructuring charges. Operator, we would now like to start with Q And A session. Thank We can now take our first question from Frank Van Slab from UBS. Please go ahead. Hi, everyone. Thank you for taking my questions. The first one I had, it was on the consumer business. And the sports revenue, sports division review. What can you now, what will be the list of option you have after the third quarter, is the sales still possible? Anything more around the work you've done in where you are now and what should could we expect at the end of Q4 when you when your date The second one is the, I mean, kind of a housekeeping question, but on the automotive bookings, can you give a bit of sense of how the market is evolved being still, you know, higher than last year for the markets, and your market share there, how is it going and also your HD map offering, any update on when, we should see it in the in the bookings And the final one is on the telematics. Just maybe look at Q3, you had a bit of a a one off, if I, read correctly your release, positive So the underlying is still, you know, below what you reported in the last few years. Is it possible to update on the road map on this on this markets? And should we expect an acceleration into next year or continuing low single digit growth going forward? Thank you. So let's have a look at the sports business. So we, announced the strategic review, what we do What we have done in the meantime is bring the calls down, and we're in maintenance mode now. And that means that we are serving our customers and retailers, but we're not investing in new products and we've cut our marketing expense write down. In the meantime, we continue to look at the options that are available to us. A lot of good assets in the business as well. And we've been approached by a number of parties who've asked to have a look at that business. The review is in full swing. I hope that I that by the full year, results we can give you further insight and further information and perhaps earlier, but we're not fully in control of that process. Your second question was about bookings. So, it's a potentially big year in automotive. There's a lot of business coming to the market. As I referred 2 in my opening remarks and we'll give you an update how successful we've been, when we do our full year numbers as we said earlier. So last question. Follow-up on the automotive. On your market share position, do you feel that you are taking share or and the HD maps as well. I was just wondering if you could give us if you saw any progress in the quarter, when you should see it coming through in your bookings? Yes. So I don't want to comment on market share before we give you an overview of the order intake. But we feel we feel good. We feel in a good position. It doesn't mean we're gonna win everything. But the, the teams are confident. You know, but those are binary decisions, so it's very difficult to say anything, before it's been awarded or not been awarded. So you need to forgive me that I can't elaborate more than what we've said so far. On HD Maps, we see increased activities in terms of RFQs. There are now a number of RFQs coming to the market where we start seeing some meaningful volume. And that is for level 3, automation. There's various there's five levels of automation and this is we start looking at level 3, so that is kind of an uptick of where we were. And what we see from those are fuse is that carmakers are planning to start shipping those cars in 2020, 2021. And the sourcing procedures, technological specifications, commercial conditions, the discussions we have with potential customers for those products and technologies are intensified. And on the pricing on this HD maps, as you see the volume coming through, how should we think versus traditional don't expect you to give me the price hike price, of course, but can you give us a sense of the increase you have versus your traditional maps with HD Maps at the moment with your contract? Yes. So again, this is early days. I think the interesting thing that we are seeing is that the, the quotes are asked for a, you know, on a yearly basis. So there's a per year per car subscription fee for the HD Map Service. That is increasingly the way that the market is going and where we are asked to respond for. In other words, give me a monthly or yearly fee per car for providing the up to date HD Map. And that is different from what we're doing now, now everything is wrapped up in the price, in a total price that we charge when a car coming from the line. Since a one off fee, And you can understand what's happening is because of, procurement systems, financial systems, and so on and so forth, but for connected cars and HD maps, we see a trend towards a yearly subscription. And the amount per super the amount that we're looking at now is significantly higher than what we are charging for standard definition maps, but the volumes are significantly lower. And that's the way to look at it at the moment. Does that answer your question? Yes, yes. That's great. And the telematics 1, just maybe, it would be nice to have an update because it's true that the growth has been, you know, slowing down a bit, you know, where the underlying and with just wondering if we, is it fundamental basically or should we expect a recovery at some point? Well, it's a bit early to say. I think underlying growth in volume is still good. 70% is what we have seen so far this year. Top line growth is behind that. There are a number of reasons for that. It's too early to say whether, so a number of one offs, let's say, why ARPUs have come down slightly. Whether they will repeat themselves in 2018 and beyond is not clear yet. So if we need to wait until we when we make predictions for 2018. I think the interesting thing is that next to our Telematics business, we're starting to see income coming through from the connected car services. And the announcement we made today was leased from, there is a significant bump in that respect. So we see a desire from, car service providers, like lease companies, to have data available from the vehicle so they can own their business better and can offer new services and new products to their customers and other potential stakeholders like insurance companies. It's a interesting development. We've been preparing ground for that from a product perspective and a technical perspective. Been preparing the ground from a commercial perspective as well. And this is the first significant announcement we can make in that and I expect more to follow. And that will provide a new type of income in the years to come for different customer and a different application. And the way to look at the financial implications it's hard to model that now, but you're typically talking about much higher volumes for these type of deals. At lower ARPUs. And the fact that it's you see more connected cars, do you see a risk of disintermediation where that the barriers to entry are a bit lower. So you given your high market share, you could see some dilution of market share given the easy access to the data? Well, no, that's not what we're seeing. And the reason for that is that the car service provider like these companies and and insurance companies are by definition multi brand multimodal. And there is no way you can get a data set out of vehicles that you can compare and that you can aggregate and guide in slides. So the for the moment, and that will, and then when I say for the moment for the next 5 years, and maybe beyond that, I think it's very difficult to get, you know, you will still need to do an awful lot of work get the actual data out of the, out of the vehicle and out of the platform. And we don't see at this moment a trend towards disintermediation. The, but it is an important question. So you have two kinds, two sides to the possible. How do you get the data? That's one thing. And then the next question is how do you unify the data and how do you make products and services and information out of that data. That second bit, of course, is we'll never go away. There will always be a requirement for data aggregation, standardization, and turning that into meaningful information. And that's that is the core of what telematics is doing. That's great. Thank you very much. You're welcome. We can now take our next question. From Andrew Gardiner from Barclays. Please go ahead. Hi, good afternoon, Harold. Good afternoon, Tycho. I had a question about some of the incremental detail you've given us in the press release regarding CapEx. Clearly, you've been guiding for the full year, but now you've actually you sort of broken down some of the the different buckets there to help us understand where you're spending. Can you sort of help us think forward into 2018 perhaps not quantify specifically. I know you're not giving 2018 guidance today, but just in terms of the moving parts in CapEx, where you see increased need for investment where we might be able to see sort of greater leverage from the investment levels that you've had over the last couple of years that that would be helpful. Thank you. If I may, I'll take that question that what you will see is that the, that the especially in the mapmaking platform, that will be the the driver of future automation. So the aim for our transactional platform is to, reduce improved cycle time and the time to market of changes. And the more you can alternate the better that is. So I expect that the Met Making platform investors will continue to be the highest of this list, and I don't expect that to come down in the short term. NAP content can also be a factor of investment, but that is related to we see our the mix of customers is improving, is changing. We get new customers in mix, but it can also be that, therefore, print is different than the existing footprint that we serve. And that can lead to additional one off investment in certain areas or certain layers of the maps. And that is reflected in the map content. Over a longer term, I'm not specifically pointing to 2018, but then longer term, I expect the bulk of the CapEx to be seen in the mapmaking platforms. Okay. Thank you, Taco. Just another one, if I could, I was in trusted in some of the comments you were making Harold regarding the RFQs for level 3 systems. I'm just wondering if you can provide your perspective on how well prepared do you think the industry at large is for that sort of shifts towards increased autonomy? Necessarily full autonomy, of course, but sort of the step up towards level 3, how ready do you think the OEMs or the Tier 1s are for these systems? No question, it's a very hot topic, but I'd be interested in sort of your perspective as to how to put it crudely sort of the nuts and bolts all come together and sort of the readiness of the industry? Thank you. Yes, this is a hard question to answer, and you can look and you understand that also if you talk about the timeline, so 2020, 2021. And we're trying to solve collectively very hard engineering challenges. And Experience tells you that you cannot exactly predict by which time you have cracked it. The consensus is that by 2021, if I look at the roadmaps of different OEs, that by 2021, significant steps are going to be made towards higher levels of automation than what we're seeing today. And it's there that the full spec RAG map comes to its full fruition. There are already derived functionalities, that we are licensing today at small scale, arguably, but we see that happening. But the full spec and the full product potential will come to life in that timeframe that I just mentioned 2021. Whether the industry will get there or not is a guess. You will see some delays You will see maybe some companies who are formed running that date, but the overall ambition most carmakers is to make that stamp and solve their cars in 2021. Okay. Thank you very much. We can now take our next question from Martin Denjurer from NIBC. Please go ahead. Yes, good afternoon, gentlemen. Just a couple of follow-up questions on the automotive. When we talk about lane level traffic information, can you provide a bit more granularity on the markup in terms of pricing relative to normal traffic solutions? Not talking euros, but maybe some indication in terms of percentages. And the second one is relating to the Mercedes contract. Two questions actually. Was that order in before the acquisition by BMW or or the Daimler or not? And the second one is, does it include also the more higher end SUV types vehicles like the GLA, the GLC, the CLE. So I'm not really sure about that. Then the second question relates to the restructuring charge. In sports. Is that all cash or is there also some noncash element to that? And the third question also relates to sports, hypothetically speaking, if you find no buyer for these activities and you still have to look for a different type of solution. And we'll look at it from today. How many months of revenue do you still have in the retail channel? And, realistically, how long would it take for you to to end supplier contracts that are necessary specifically for this category. Just to give us a sense on of how long this activity could still possibly remain within TomTom. Thank you. Sir, well, we're going to split the, thank you for the questions. I hope we wrote it down correctly, and I'll ask you. I can repeat them. Exactly, if you take on some of the other ones. So late level traffic, was your first question, don't expect a revenue uptake from that it is part of our port offering to stay competitive health again. It's one of the ways how we capture lies and the enormous amount of projects that we have, it will give us a competitive advantage. But but don't think about it. Think about it in terms of our overall position and we've cost connected territories and market share that you can cover. Molt in price per unit. I don't think that will be right. Okay. Got it. But it will strengthen our position. It's a bit of a future. It's not something that is really important, but we're working on it. It will happen over the next couple of years, especially when we have position with the vehicles. And now it's, in many cases, very hard to decide on what lane a car is in. We don't have that information, but obviously that will change with self driving cars, that we know exactly where those cars are. There's already use cases for instance in America. You have high HOV lanes. They drive at a different speak, then other lanes there, it makes sense to have that traffic information available. And that's where we make it available. First, And it is, you know, an overall indication that we're progressing the course of the United States for further than where we are. I think the other exciting bit about traffic is the broader geographical footprint that we have now that is often for OEs who understand that as a long traffic provider, the absolute amount of coverage you can offer is an important factor in a decision whether to grant that contract to us or to someone else. On Daimler, I don't want to, elaborate on that. We have it's a North American deal. It will go to, ACB and E class vehicles for North America. But there's a big difference between those modules and volumes and those the models that I mentioned. The SUV types are much higher volume than the standard model. So it makes a big difference if you have them or you don't have them. Yes. For the commercial, the way we talk about the size of those deals is in the aggregate number. I don't want to talk about this specific contracts, but we give you the aggregate number for order intake and the aggregate number for, of course, for revenue. And that is and I can also possibly go any deeper than that. But it's a significant contract and it is important as well because it has our footprint in North America. And we've seen ODA's consistent improvements of our North American database. Both in Canada, USA, Mexico, and we're very happy with that. We come out talks in many independent tests for navigation. A lot has happened in addressing in POIs, It's a very competitive product. We're shipping it now also with all of our leading North American car vendors, so that, that is, that's an important development also. So we're happy that we could map it. Yes. And if I may take the last questions, so, on the restructuring and also consumer Consumer Sports Pacific as I already mentioned, is that the revenue coming Sports in the quarter was roughly 10% of the overall consumer contribution. That's one. The other thing that we have said is that if you would make an, sports specific P and L, then you will have something that is not profitable currently. But we, we, we aim and we have conviction that we can, go back to black numbers before the year end. Any prediction on how much revenue or how much products are still in the channel or on our books, etcetera. I don't want to go into that those details. But I can say about the $15,000,000 restructuring or $15,400,000 restructuring, roughly 3.6 is, in the coastal sales. And those are inventory provisions. And then the remaining is in the OpEx line, of which of EUR 8,000,000 is severance accruals, but we also have some fixed assets, right, of $1,500,000 to mention to mention one more cash element. Thanks for the additional color. We can now take our next question from Mark Hedling from ABN AMRO. Please go ahead. Yes, thank you. Firstly, could you talk about the automotive growth path going into the next year? I think your visibility for next year is really pretty good also for the year after. We've seen the growth number being pushed higher than you initially thought. What are you seeing for the next 2 or 3 years? I mean, is it going to accelerate further? Second question is on your OpEx going also into the next years. Do you have to feel now that you take your cost measures in sports and also also looking consequently at the cost in Consumer in general? That your OpEx in the next few years that it will change, significantly either on the upside or on the on the downside? And then the final one, you mentioned on the lease plan contract that you expect more to follow. Would it be in the same category, so also lease companies, or can it also be strictly talking broader than that? Harold, if you can take the last question, I'll do the first question. Yes, so the last one is easy, Mark. So yes, we expect more leasing companies to come in to come through. But also there's potential for other type of businesses to come in on that platform. So we see it as very promising activity that we're doing. As of the first time that we hear, we start flooring and developing, I think, 2 years ago. And I think the market, the market sees data is important. An important tool for driving business, developing products and services. The car industry doesn't want to be left behind. There's a big issue in summarizing the data, getting the data in the first place, do something meaningful with it. Leasing companies very well positioned to do that because they can bring real scale into those programs. They can really industrialize it do that on a large scale, throw resources at it in a way that they that the return on investment is higher as well. If you do all those investments over a larger installed base. So we are pretty excited about the whole thing. Yes, it is not the time to talk about 2018, but that's probably doesn't satisfy your question, but let me give you two trends and that we, how we see 2018 is that One is, I don't think we can repeat the 40% growth rate that we saw in 2017. So yes, growth, but not at 40% level. And for the net addition, so the ballpark number that you need to work with for the net addition deferred revenue automotive is roughly $50,000,000 this year. I expect the net addition to deferred revenue next year to be even bigger than that. On the OpEx, Our business model is changing and we defer it. So cash will be become a more important indicator of progress than the was before also because of the IFRS accounting where lots of revenue is not seen yet. The OpEx number for next year is there will indeed be some relief coming from consumer. On the other hand, is also related to commitments that we have made in the automotive industry, either in CapEx or direct commitments. CapEx in previous year that we now find back in amortization. Overall, OpEx going up next year, not very likely But with that, I want to give you the furthest question to February. Can I have one follow-up on the deferred revenue part? If I do maybe it's that's too simplified, but if I do a calculation, is the 1,000,000 you're earning to that at something like 90% gross margin do a tax over that, that would add some $0.10 to the EPS if you would be able to put it into P and L to correct Is that correct or? That is correct. Yes. Okay. Thanks. We can now take our next question from Mark Swarzenberg from ING. Please go ahead. Yes, thank you. A couple of questions. Start with the sports category. Can you give us Harold, an ID of the loss that you roughly are going to make in 2017 just to get a feel for the for the swing since you mentioned that you're going to be writing black figures as of Q4, to get a sense for the swing for next year? That's my first question. No. I don't I I I really can't do that, unfortunately. We haven't disclosed that number. We have done it's so we lost money. Yes. We stopped the bleeding. At the end of the year, it's flat numbers, and then try to put it to, to history as soon as possible. No. That's also done trying to do. Because we already decided that it's that we're going to face it out or take another decision on it. So going forward, it is then important for us to know what roughly the loss and the bleeding has been. Because then we can also properly adjust our models going forward. I think that's a big positive at stopping the beating. And that's why I'm that's why I want to get a bit of feeling. This is is a public call. So the disclosure issue should not be a problem. I would like to wrap it all up. There's a lot of moving parts. I would like to wrap it all up in, in February 2 2018, when we give you, information how to look at 2018 and how there's different things are moving together and in combination. I don't want you to I don't want To give a number, you added them to the net profit for 2018. I don't think that's right. There's more going on. So I'm not sure we would really help you understanding how that exactly works. So I would prefer giving that uncertainty the flux we're going through to give you the number in February 2018. So you can, yeah, you have to keep what you need for that model. Well, I'll I'll read it because those are quite a I see quite conflicting stuff in the market on this. And to be fair, what is difficult then to understand if we say there's a small there's a law saying we write black figures that we just have this delta next year that is Is there anything else that I'm overlooking then that there should be debt to debt breakdown? Well, as I can add to that. There are all the trends as well, right? So, consumer in itself is not only sports, it is as we have reported the half year numbers that it is more or less breakeven consumer as such. So, if you then work out what's the sports is not contributing that you would add the rest to, P and Ds and automotive hardware, but the latter 2 categories will decline in 2018 as well, right? So Yes, but that's my second point. But Yes. So and the Harold kind of expected you to have that second question, a follow-up question. And then we go into a much more disclosure than we already have done before, and we don't want to do it. Okay. Good. But, yeah, maybe then on PNDs, can you give us any indication of the declines in PNDs currently in Q3 and how that compares to the previous quarters? Well, I can tell you what the market, so what we see in the market is that the decline is roughly 25% and that is on the standard P and E. So it's not specialized products for caravans and motorcycles and and larger screens, but the classic P and D is declined with 25%. Our market share is fairly stable to up. Sometimes means that, and the the ASPs are fairly stable as well. So over a longer period, you can expect our decline also to be 25%. If the prices are stable and the market share is stable, per quarter that can change because sometimes we sell a bit more into the channel or sometimes we we, we saw a little bit less in the channel, but there's the P and D transaction transitions are going according to plan. And is that trend rather stable in terms of all of decline or is it accelerating a bit? No, it is right. I'll stay. That's what I said. So it was 25% in Q3 and it was all what we're seeing year to date, so also in Q2 and Q1. Okay. And for next year, on the PD basis, do you expect that you can still manage out cost quickly enough to keep up with the revenue decline or well, you didn't bid on the margin. Can you give us an indication on that? There is a plan. Yes. Manage out the cost in line with the top line because that would still imply quite a significant cost reduction in the P and E business. But that's that's mandatory. Yeah, yeah, that'll be a replant to do that. Okay. Okay. We'll make it, you know, and there's a and the rule of various And we can do that also from people perspective. We have a lot of flexibility in allocating people and employees to different parts of the business. And and there's a little growth in our area. So by making that easy, we have also more options to keep everything aligned. And, you know, we're pretty confident that the consumer business will contribute a significant amount of cash next year. Okay. And then on the OpEx line, can you give us an indication what we should expect in terms of cost increases in the automotive business? What kind of investments you need on the OpEx line there? Well, there is there's not a huge amount for ongoing contracts. So for contracts, there is a variable architectry that we call NREs when we currently have union charges, that is all manageable some customers have asked us to expand coverage in certain areas where our map is, is under development. We're doing that. I think the biggest investments and adjustment, both in engineering is is probably going to come from the, from the AG map. So the AG map, there's a little work going on in optimizing the processes. Our goal is to have a fully automated process for creating HD Maps. We think we can get there. There's quite some manual work at the moment. But if we can do this fully automated, then it becomes a much more manageable an industrial process and, but we need to spend some money in getting there over the next few years, and it's mostly software engineering charges. Otherwise, there's no, there's no big, big swings from where we are today, other than that the map is continued to increase in quality. We're doing that. So we are kind of in control over that OpEx expenditure, and we can let it we don't need to do big things in order to win the next deal or something like that. That's not how we look at the business. But if you pencil into mid single digit growth for your automotive OpEx, then that will be okay. I beg your pardon? If you put in, say, a single digit increase in OpEx for automotive, that will be already okay. Oh, we don't want to go there. I don't know. I don't know. Let's really let's let's have all the let's bundle all the two sounds to eighteen questions and that's reals in February. It's now budgeting time, I thought. We're looking at exactly the same spreadsheet as you are. Yes, please. That's what I'm asking. You're the same one already. Yes. Okay. I'll send over mine analyzer today. Yeah. Yeah. Maybe we can compare. Take that as well. And then the final one, on the RFQs, Howell, it sounded a bit like that the bigger volume RFQs are still coming in in Q4. And going forward. Is that correct that that so far has been more small stuff and the really bigger ones are now coming in? Is that how I should take your Remark. I'm a bit careful here because we have what we've seen is some delay, from original planning from, from USMotive customers. So, you know, you never know how long that is. The the plan was to have more clarity by Q3 that is kind of pushed out to Q4. And it's, you know, and whether they will happened in Q4 or in 2018, we can also not share with the absolute level of certainty. So there is a fair amount of flux in the timelines of the customers of the OEs. So it's correct to say that in the first half of first three quarters, it was quite small and then everything comes together in Q4 or Q1 next year and that the RFQs in terms of amount likely referred to previously is still high and that's why you're convinced about that. Well, I don't want to as I said, let's wait, then we can we we are not creating Kales. We wait until, February 2018 gives you the number. And we give you as much color around it now as you possibly can. Okay. And I know you sound quite convinced that maybe there's already some in the back and sold quite promising that, that's how I took your remarks. We can now take our next question from Francois Meneur from Morgan Stanley. Please go ahead. Hello, gentlemen. It's been a while I've not been on your call. So, like, hopefully, I will ask interesting questions. Yes. So the the TND market, of course, is not doing so well this year. Again, so What is the scale of, of some time in the U. S. Or North America today? For instance, 18. Is it worth? Is it worth keeping investing in that market or is it better to shut it down or just retract from that particular market and just concentrate on maybe Europe, just to save a bit of money. That's a question. As a known of the company, Harald, what do you think would make sense of maybe spinning off completely the P and D business? Just just so that maybe it's a bit clearer, like in terms of cost, what is allocated to the maps and what's allocated to the hardware. And if someone comes around and wants to make a bid on one of the other business, that would be quite easy. And the third question is not about 2018 budget. It's really about the level 3 map you were talking about before. So if I look on the internet, the new Audi A8 is already level 3. So I'm a bit confused that you're saying like there is a new type of RFQ coming up for 2021. 2022, why there is already a very strict call on the market. And also, I understand you like to talk about the price of those maps per car, but like to some extent, is it better to look at it as kind of an overall price? So basically, like, if you have prices today, you have units time ASPs, it's maybe, I don't know, 1,000,000 or something. And then when it moves to HD, you have a much higher price per the map, but because the units are very low, then maybe it's also EUR 20,000,000. So if you could elaborate on that when you when you discuss with the OEMs, how do you charge? Is it really per car or is it more like software type of deal? Thank you. Yes. So, okay, so telematics first. So telematics, we have, so telematics is mostly European at play. That's, let's be, let's be clear. I think it's about 90% of the revenue satellites generated in, in Europe. We have a presence in North America. It is not very big, but it's also not it's grown quite nicely. It's not costing me anything. It just keeps us in the game there. I don't see any benefits of closing that. We stay close to the market and the assembly development you never know. And I don't think it's distracting management from what they need to do in their core markets. So I'm quite happy with what's going on there. I think for, your other question, do you want to split it off or not? It's an interesting question. What we the question is for PE something. No telematics. P and D, yes. Right. So P and D, yes. But I just, I just, because it's interesting as well, I just let you talk. It's a home answer, but it's an interesting answer. Sorry, I didn't get that. I suppose you were referring to the United's market. No, it's okay. So for BNDs, it's slightly different, but PND is quite a complex business to sell. We would need to accept discount if we want to sell that. I don't think that's the right thing will be a huge distraction. I think it's better to run it as we run as we're running it. And I think we at the moment, the best owner of the asset, and it will decline. We need to review what's going on there. But I'm confident this is the right thing for us to do all the P and D business. I really believe the year with the ride owner. And there are some intangible benefits as well, staying close to end users, understand their preferences. Next question, level 3 maps. Yes, level 3 is Audi is claiming to be a level 3 car. I don't know whether that's true or not. What we internally define as level 3 is probably a higher level of automation than what Audi is providing today, but I don't know the details of what an Audi car can do and what it cannot do. What I do know is that HD Maps are coming into play with those higher degrees of automation. And that is and the request for those type of maps for these type of applications, we see volume coming through according to the RFQs in 2020 2021. And what about the pricing? Is it like really per car or is it more like a kind of a license fee like a like a software? It will be a service fee per car per year. I think that's the most likely outcome. Okay. And in terms of units, time ASPs, because it's fewer units, higher price, Is it the kind of same size of contract quote unquote? Well, initially, the units will be lower, but you, the take rate will be much higher right. So if you have a certain brand and model that will go with level 3 or level 4 eventually, then the take rates will be close to 100% for that model. And also when the carmakers are asking for quotation, it gives a much broader, wider range of volumes than you would typically see in, in normal cars. That's also an indication that they don't exactly know how many of those cars will be sold, the price, quite a bit of work going on to now. The down leg of experience means also that the projections have a wider range than what you typically see in more established car markets where they're quite accurate in their planning and projections. Okay. Good luck for those negotiations. We can now take our next question from Francoise from UBS. Please go ahead. Thank you. Just a last one because We didn't talk about licensing. And just wanted to have a quick word on this licensing, especially given what you saw in Q2, you talked about Microsoft and they do, you seem very excited about the support initiatives. Can you give us maybe an idea on when they do, for example, will come through in your P and L in licensing, and Microsoft as well. So maybe the outlook for licensing would be great given the trend that we see. Thank you. Yes. So in the quarter, we've seen some negative impact from the exchange rate. You've seen that. So a large proportion of our licensing income is in dollar denominated. The, with Microsoft are going into execution fairly quickly. I expect to be live with APIs that are licensed through your 0 platform in Q4 that will be are the end volume in Q4, but at least the product will be available as of then. That's my expectation. From there, we need to grow that business. And that's typically a business where it's quite expensive acquire customers is once you have them, they tend to use to service more for quite a long period of time. So we'll need to see how that, how that develops. But generally speaking, we're excited about this. Those products, we think we can reach a reasonably large audience at low cost. With a high quality service, especially if you look at some of our APIs or world class in the areas of routing and traffic, And, but also the other APIs that you're coding are really matured really, really nicely. In the last few years. So, and that partnership with Microsoft is developing nicely We are excited about the prospect of bringing it live. Baidu's different story. That is a technology share the initial income in the 1st 3 years will be very small. It's more a enumeration for engineering efforts and we'll have you But the broad but the potential income is generated when we start licensing maps or buy, we start licensing aging maps for China. It's important for us that we have this view because we can we will be able to offer a unified product across multiple continents. And especially for China, that's fairly unique. Software developers who are working on self driving cars. We'll have access to AG Maps of the uniform spec and uniform quality. And that will help us to both win in North America, Europe, but also in China. But don't expect big revenue coming through in the next 2 to 3 years. We can now take our next question from Shannon Umar from Kuvary Partners. Please go ahead. Hi, Hal. Just three quick questions. Just so just believe that the point, just on sports, I get the point it's going to be, breakeven or back in the black year, due for this year. But I guess his volumes take a step down next year, is there room in the cost to kind of make sure that we stay in the black or at least in breakeven? Gas question 1, just on telematics. And maybe you could finish the thought you were saying in response to Francoad's question on the coach to dispose that. Possibly, and also just in terms of the ARPU 4, just to understand the dynamic there between lower roaming charges, less hardware, and the mix effects in terms of the connected car? Yes. So the, answer your first question are you will you stay in the black or at least very even, if you continue to sell sports, which is next year you answer questions, yes. We will. Okay, good. Yes, so I don't expect, ongoing losses in the part of business in 2018 going forward. Yes, telemedicine is an interesting one. We're kind of on the crossroads here and So we see wire implications for the complete port portfolio that we're doing. So Telematics itself was quite a And here's quite a specific, service. It's aimed at, fleet managers who own 5 to 2000 cars, something in the range. And the outlook drop rate has failed effectively. We're now shifting more towards or a part of the business, an additional part of the business is directed to connect the car connect the car of wider implications. We have some initial traction in that marketplace. That will be great if we can find out a good way to broaden the overall portfolio, where we can address the needs of carmakers, crushers, providers, in a, in a broader sense with the border in which a portfolio. I see opportunities for synergy in that space coming our way. Okay. So Wednesday of finishing, do you mean what in terms of developing our product portfolio or merging your business with someone else's? No. I see, and reaching our own full year for navigation and location based services with connected car services. Yes. The offer for those title services is low, lower than what you're used to, from us in telemedic services. Significantly lower. But the volumes are significantly higher. That's the way I can look at it. Okay. Okay. Well, I guess just in terms of the lower ARPU rates you guys are seeing at the moment year on year, how much of that is due to kind of less hardware in the mix less roaming charges coming down versus the mix shift towards connected car? Yes. So we've seen 2 events one of events. Well, one of event, that is the abolition of roaming charges. We've had an effect on our pricing, because part of the pricing was a country roaming dependent. We couldn't do that anymore and we didn't want that anymore. And as a result, overall ARPU has come down. I don't know exactly the effect of that, but it's something between $0.2550 per month per car, something around along those lines. There's one effect. 2, the second effect is that we see less hardware, sales because increasingly hardware is becoming a part of subscription fee. So the 1 so debt has a quite significant effect in the full line. Okay. Bigger effect on top line, but not so much, of course, on the the other subscription part, the recurring part. As we have no further questions, I would like to Sorry. There are no further questions on the line. So I'd now like to turn the call back to the host for any additional or closing remarks. Thank you operator. I'd like to thank you all for joining us this afternoon. If you have any follow-up questions at a later time, please don't hesitate to give us a call. Thank you all very much. Operator, you can close the call, please. Thank you. That concludes today's conference call. Thank you for your participation.