Good afternoon, everyone. Welcome to our conference call, during which we will discuss our operational and financial highlights for the 4th 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 take your questions. As usual, I would like to point out that safe harbor applies. With that, Harold, I would like to hand it over to you.
Thank you very much, Freek. Welcome, ladies and gentlemen. Thank you for joining us today. I will discuss the operational highlights of the quarter and give an overview of our strategic priorities. We recorded robust growth in revenue in the 4th quarter.
Enterprise performed 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 product 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 EUR 2.4 billion at the end of the year. Our new maps platform is maturing and in line with expectations with first customer shipments expected to happen in Q2 this year. We announced our 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.
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 map. 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 this initiative, and market reception so far has been encouraging. We aspire to further grow our market share in automotive based on a 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 ADAS and automated driving will provide us with further opportunities. 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 to a much broader variety of customers. Especially in the enterprise segment, we expect positive effects from standardization and our open source initiative. We're 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 on the financial highlights of the quarter and the full year. This concludes my part of the presentation, and I'm 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 EUR 139 million, that's 21% higher than the same quarter last year. Location Technology revenue increased by 30% to EUR 118 million. Let me go through the revenue business by business. We reported automotive IFRS revenue of EUR 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 the reported revenue this quarter. Automotive operational revenue increased by 16% year-on-year to EUR 82 million. This marks an outperformance compared to the 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 from market share gains and further increase in take rates. Enterprise revenue decreased by 7% year-on-year to EUR 40 million. The decline was anticipated and is related to some contract renewals reflecting decreased usage and thus lower contract values. Lastly, consumer revenue decreased by 13% year-on-year to EUR 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 proportion of software and content revenue in our total revenue mix. Operating expenses were EUR 125 million, a decrease of EUR 4 million compared with the same quarter last year. This decrease resulted from a lower personnel expenses in our map unit.
Before moving to the outlook, let me reflect on our full year results. We reported group revenue of EUR 536 million for the year, a 6% increase compared to 2021. Location Technology revenue increased by 11% to EUR 436 million, while our 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 EUR 29 million. Lastly, our net cash position was EUR 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 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 EUR 2.4 billion, up from EUR 1.9 billion at the end of 2021. Our automotive backlog is some of the expected IFRS revenue from all award deals. As such, the backlog decreases when revenue is recognized and increases when the new deals are awarded. This also increases or decreases when customer revise their forecast for car production volumes. To provide additional transparency on automotive revenue expectations, we give an indication of how the backlog will materialize and revenues over time. Most of the reported automotive revenue for 2023 will be the outcome of the current backlog.
Reported revenue for later 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 EUR 540 million and EUR 580 million. A strong increase in automotive revenue is expected to offset the clients in both our consumer and enterprise business. In addition, we envision our enterprise business to show growth again from Q4 2023 onwards. Location Technology revenue is expected to be between EUR 455 million and EUR 485 million in 2023. This includes a positive impact from the evolution of our automotive products and re-related change in revenue recognition of around EUR 14 million.
In terms of free cash flow, we increased our cash flow guidance from break even to between 0 and +5% of our group revenue for 2023. You should note here that our free cash flow guidance excludes the charges related to the restructuring we announced in June of 2022. Of the EUR 26 million restructuring charge, we paid EUR 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 EUR 600 million in 2025. The new m-map platform that we introduced at the Capital Markets Day will bring significant improvements for our customers.
The 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. As revenue growth will lead to operating leverage. We envision to generate free cash flow of 10% of group revenue by 2025. Operator, we would now like to start Q&A session.
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, you can press star one one again. Please stand by while we compile the Q&A roster. 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.
Hi. Thank you. First, on your comment that the first feedback is encouraging on the new map platform, could you maybe tell a bit more, like what are the clients saying? Maybe split it a bit between automotive and enterprise. 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.
Marc, we had a good moment to test the temperature and take temperature of our direction of course was at CES, the computer show in Las Vegas, and I've been working the floor there for four days. Massive interest in what we're trying to do, trying to understand the implications for our customers' business and the industry. Overall, overwhelmingly positive reactions, you know, varying from that makes sense to, you know, what can I, should I become a member of Overture and how do I do that? That kind of thing. I think it's important also for clarity in the market that there is a standard emerging.
I think that is customers have been waiting for, maybe even if they didn't know it, because the adoption of a location-based service platform is a costly and a costly enterprise, and you don't want to be locked in, if you can avoid it. I think, this initiative will fly. I think the expectations are high, and I do believe it will lead to, much better products and a more efficient way to get there. The reactions I got from our customers were also in that line. Very encouraging indeed. People want their sample data, and so on and so forth.
Not only from enterprise segment, I have to say, also the interest from the automotive, the more conservative part, perhaps, of our customer portfolio, showed a keen interest to understand what the implications are and will be and can be for their own business, and their own data strategy, including data strategies for autonomous driving. I was pleased with the effects. We will start shipping to limited number of customers in Q2, our new map. That is 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. It feels like there is momentum, there's tailwind. We dedicated to capture that.
There's a lot going on sales and marketing side as well in order to capitalize on the momentum that we're seeing in the marketplace.
That's clear. The second question is actually on automotive. You've been outperforming the automotive production in your markets in, I think the full year 2022, and especially in the fourth quarter. 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 forecasts. I do assume that take rates will continue to go up, and you're also probably still gonna take some share. What's behind that?
Taco can you give...
You mean the current year or 2024?
Sorry, 2023, yeah. To be clear, 2023. If I do the calculations a bit then on operational revenue, it seems that you're guiding something like mid to little bit higher growth, automotive base. That seems a bit close to the car production expectations. Well, actually, last year, you clearly outperformed that. What's... Is it just being a bit conservative this early in the year, or are there reasons why you should not outperform in 2023?
No, I think we will do better. It's always a bit of discussion, which view you have for EU and North America. On the data we rely on, we see a 7% increase in the combined markets. We ourself think that operational revenue can grow with between 10%-15%. We continue to see that growth. The data that we're looking at for a like, shows 7% increase in car production volumes. That's usually dependent on which countries you include and don't include.
Okay, thanks. Final question is actually on the competitive dynamics. You also mentioned GS. I think your competitor here also launched a new platform over there. It seems like, a bit like, yeah, your previous platform, the transactional map-building platform. What's your view on that? Did they make a step change in the quality of their product? Is that changing the dynamics a bit for you?
I find it really hard to read that announcement, to be honest. I don't have the view. I think, we will only know by the second half of next year before those products that are built on that platform will come to market. It's really hard for me to comment on what's going on there and what the expected results of that assessment are going to be. I can't say.
Okay, 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. I hope my questions have not been answered yet in that part. The first question I have is on consumer. If I look at the guidance, the midpoint of the guidance used to be EUR 75 million revenues in 2023. Now with the upgraded guidance, it is EUR 90 million. What has made you more positive?
Well, yeah, that's, 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%-15%? Or is it just 2023, which is a kind of one-off?
I think 10% is a good, a good way to look at it, yes.
Yeah. Okay. Then the second question is also on the guidance. Within location revenues, you have a EUR 40 million tailwind from the accounting change, and you have a EUR 20 million headwind from FX. Could you give a bit more disclosure on the assumptions on FX? Is it based on the FX rates of yesterday at the close? And do you have...
Yeah, 109.
...hedging?
It is based on 109 versus parity. Parity was the situation where we were at during Q3. Enterprise is roughly 75%, and automotive is 35%, I would say. That is dollar denominated. We don't do a lot of hedging, no.
What is the reason for that, if I may ask?
Well, that is, at least these, 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. The benefit is, over the longer term, not that large to us.
Okay. Okay. Then, finally, a question on free cash flow. The free cash flow was softer than expected in Q4, although I guess you had pretty good visibility. 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 now come in 2023. All in all, it looks like 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?
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. Normally it's EUR 25, it's now roughly EUR 36 million. That is just we see some opportunities of vendors that give us discount if we pay it all at once. We pursue those opportunities. The same with payments. Our commitments to vendors were historically low. Indeed, those two trends will benefit the cash flow generation in 2023.
On the other hand, the fact that the dollar is weaker, than originally assumed will not benefit our cash generation because we are long in the dollar. A weaker dollar, net-net, it does not have a positive effect on our cash flow. If you compare the October situation with the January situation, we are tighter with spend and cost control. 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's maybe over more years?
No, 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. No, it is more third party spend and overall headcount. It's not salary related, for sure.
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 [audio distortion] as well?
I'm not at liberty to comment on the structures that we have agreed or want to give our employees at this point.
Okay, thank you. I will go back to the queue. Thanks.
Okay, thanks.
Thank you.
Thank you. We'll now take our next question. Please stand by. 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 your automotive segment. Can you say something about the competitive landscape and the development in market shares there?
Yeah, so yeah, it's not so easy. This is not a fast-moving business market share. You know, you know the drill about long lead times and the long times. What we see is that in, let's say, the traditional competitive landscape, it looks like we are coming out as the winner, let's put it that way. The number of companies that are active in the full stack is shrinking. We have a strong portfolio. We have a lot of customers, so we can spend also and continue to improve the quality of our products. There's investments, of course, to keep up to date, but also the new generation of electrical vehicles.
That's a demanding exercise to get drivers of electric vehicles all the information they need. We get a lot of signals back from our clients. From the cars that we are equipping with software, we also get location. Anonymized, of course, we get other data. We get sensor observations, sensor data, which in turn help us to improve our product. This is kind of a flywheel that we have seen turning that helped us to gain an important position in traffic information that seems to happen now also in the navigation stack. 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. That's a good situation, but also in a market that is kind of in, you know, trying to figure out how exactly to be successful in software. It is still moving parts. The partnerships we are forging now, gives us good insights in what customer requirements are, how they will be developed. 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. It's really ours to mess it up, I think. Yeah, I think it helps.
That gives you a bit of color on how we see our position developing.
Thank you.
Thank you. Once again, if you would like to ask a question, you can press star one one on your keypad. We'll now take our next question. Please stand by. This is from the line of Harry Blaiklock from UBS. Please go ahead.
Hi there. Good afternoon. Thanks. Thanks for taking my questions. The first is just on the backlog growth 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 you can give there would be great.
Shall I take that one?
Yeah.
It is both. We have seen new logos in this list that we haven't been supplying before. I would qualify that as potential mark or potential future market share gains. There are also some expansions. The most notable one is Stellantis. It's a combination of both. To add to it, there's also an increase of take rates. The assumptions that underlying this order intakes run with way higher take rates than what we've seen before.
Got it. Thank you. The second one is just on enterprise revenue. 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.
It is, that is just, it's not accounting, but it's just, 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. If you take out the effect, then enterprise is growing again, 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.