諾基亞 (NOK) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen.

We thank you for your patience and welcome to the First Quarter 2006 NAVTEQ Corporation Earnings Conference Call.

My name is Bill and I will be your conference coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to your host for today’s presentation, Mr. Tom Fox, Director of Investor Relations.

Please proceed, sir.

Good afternoon everyone.

This is Tom Fox, Director of Investor Relations at NAVTEQ and welcome to our conference call to discuss financial results for the quarter ended April 2, 2006.

With me today are Judson Green, President and Chief Executive Officer, and Dave Mullen, Executive Vice President and Chief Financial Officer.

By now you should have received a copy of our earnings release which was distributed earlier over the wire and is also available on our website.

I would like to point out that this call is available by webcast and is being recorded.

Following the call, replays will be available.

Information on the replay and the webcast is available in the release and on the Investor Relations section of our website at www.NAVTEQ.com.

Before we begin I would like to remind you that some of the statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on management’s current expectations, assumptions and projections about NAVTEQ at the time that the statements were made.

Forward-looking statements are subject to certain risks and uncertainties that may cause the actual results to differ materially from our past performance and our current expectations and projections.

For a discussion of these risks and factors that may affect future performance, please review the reports filed by NAVTEQ with the SEC; in particular, note the risk factors set forth under item 1(a) “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

NAVTEQ disclaims any obligation to update or revise any forward-looking statements except as required by law.

We will begin today’s call with some opening remarks from Judson, then Dave will walk you through some additional details on the quarter.

Judson will add a few closing remarks and finally we’ll take your questions.

We will finish the call no later than 6:00 p.m.

Easter time.

I would now like to turn the call over to Judson.

Thanks, Tom.

Good afternoon everybody and thank you for joining us.

We are pleased to report another solid quarter for the Company.

Our revenue of $122.3 million set a new record for first quarter performance and grew 17% over the prior year.

On a constant currency basis, revenue grew by 23%.

The revenue increase was driven by continued growth in unit volume which was up 59% when compared to the first quarter a year-ago.

Operating income was $20.7 million compared to $24.8 million in the prior year.

Net income before the cumulative effect of the change in accounting principles was $15.7 million or $0.16 per diluted share.

We recognized a cumulative effect of the change in accounting principle during the quarter related to FAS 123R which we adopted on January 1st.

The effect reflects adjustments made to unvested, restricted stock unit grants made in prior years.

The effect yielded a first quarter benefit to net income of $500,000.

Reported net income for the quarter was $16.2 million or $0.17 per diluted share.

Net cash provided by operating activities was $14.4 million for the first quarter of 2006, compared to $5.8 million in the first quarter last year.

We ended the quarter with $226 million in cash and marketable securities and no debt.

Overall, our financial results were in line with our expectations.

Total revenue was on plan although it came in ahead of our plan in certain areas, for example, portable devices in both Europe and the U.S.; but fell short in other areas such as the North American in-dash business.

In terms of the comparability of the first quarter of 2006 to the prior year, I would like to make a few comments.

First, we faced a significant currency head-wind in Q1.

The average dollar/Euro exchange rate in this year’s first quarter was approximately $1.20 compared to $1.32 in the year-ago period.

The lower exchange rate reduced our revenue by $6 million and diluted EPS by $0.02 when compared to the prior year.

The $1.20 exchange rate was in line with the 2006 guidance we issued in February.

Second, while the surging popularity of portable devices is having a number of very favorable effects on the growth profile of our business, it is also giving rise to more pronounced revenue seasonality.

Unlike in-dash navigation, portable devices rely heavily on the holiday shopping season for their full-year performance.

In 2005 the sale of maps for PNDs picked up in Q3 and accelerated in Q4 resulting in that business becoming a larger piece of our total revenue.

Thus, the expected sequential decline in the portables area in this year’s first quarter had a larger impact on our overall revenue growth than it had in 2005.

Third, as you know, the nature of map building is such that our expenses bear little relationship to revenue and we do not seek to match quarterly expenses with quarterly revenue; thus while Q1 expenses grew significantly over the prior year’s first three months, they were in line with our plan.

More importantly, total operating expenses actually declined sequentially from Q4 of last year and even when adjusted for the differences in the number of days in the quarter, total operating expenses were basically flat.

The acquisitions in Korea and Mexico increased first quarter expenses by $2.4 million and, as we indicated during our Q4 2005 call, we chose to invest more heavily in Q1 in certain projects and initiatives we felt were strategically important to our success which I will touch on in more detail in a few moments.

And, finally, Q1 was the first quarter to reflect the full expensing of options in accordance with FAS 123R.

Total stock-based compensation expense was $4 million in Q1 of which $2.2 million was related to stock options.

As indicated in the press release, European revenue grew 6% in the quarter but was up 15% on a constant currency basis and revenue for the Americas grew 34% over the prior year.

Asia-Pacific revenue which is principally derived from our Korean subsidiary was $1.8 million in the quarter.

This was $1.3 million lower than we had originally expected primarily due to a decision to exit an unprofitable hardware related business.

I’d now like to spend a few moments talking about Q1 developments in each of the major revenue areas.

Beginning first with the European in-dash business, revenue for the quarter was in line with our expectations with continued growth in unit volume compared to the prior year.

Adjusted for the extra selling days and other factors, overall car sales were up 1% in Q1 compared to the prior year.

The model specific trends in the quarter were also consistent with our plan.

Overall unit sales at BMW and Mercedes Benz were up but the increases were, again, driven by lower-priced models with low navigation uptake such as the BMW 1 and 3 Series and the Mercedes B-Class.

Sales of the Mercedes E-Class and the BMW 5 Series which are important models for us were down 14% and 12% respectively and were only partially off-set by good unit growth for the Audi A6 and A8.

Navigation take rates continued to grow across Europe and remained robust in the luxury segments.

The dynamics with respect to portable devices were similar to the last two quarters.

We saw a slight impact from portable devices on the medium class car segment in which take rates have continued to grow but only modestly due to the relatively high price of in-dash systems.

We have not seen a significant negative revenue impact on economy class cars for portables as take rates are generally low to begin with.

However, portable devices continued to put pressure on sales of traditional in-dash, after-market systems and in particular on systems that lack a full map display which are more prevalent in Europe than North America.

Not surprisingly, we saw double digit decline in maps for European after-market systems in Q1 when compared to the prior year.

Turning to North American in-dash revenue, Q1 came in slightly below our plan but showed significant growth over the prior year.

U.S. car sales rose 1% in the quarter with especially strong performance by BMW and Mercedes Benz.

However, a significant portion of the industry unit volume was comprised of fleet vehicles particularly for the domestic OEMs.

Fleet vehicles generally are sold to rental car agencies or service companies and are almost never equipped with in-dash navigation systems.

Increases in adoption helped to sustain our growth in North America.

Most notably, navigation was offered for the first time in Q1 on the Buick Lucerne, VW Golf GTI, Volvo C-70 and the Porsche Cayman.

Navigation take rates in North America during the quarter were mixed with good performance on the part of the Japanese and European vehicles and relatively poor uptake on a number of domestic models.

Several new and refreshed models at BMW, Mercedes Benz, Honda Acura and Toyota Lexus have maintained relatively high take rates since their introductions last year.

Meanwhile, growing dealer inventories for the domestic OEMs have cause a reduction in the number of cars shipped to dealers with in-dash systems.

The increase in fleet sales at Ford, Chrysler and to a lesser extent GM also put downward pressure on take rates in the quarter.

With respect to portable devices, while the first quarter is not a particularly exciting sales period for the consumer electronics industry in general, mobile device revenue and unit growth exceeded our plans in both Europe and the Americas.

In Europe Q1 volume growth was driven primarily by better than expected performance from Garmin and Sony.

Specifically, the European roll-out of the new Sony Nav-U PND had better results than we had anticipated and Garmin’s shipments outpaced our forecasts.

Navigation for Smart Phones also continued to grow with new products from Route 66 launched on the Simbian platform.

We also saw good growth in maps for portable devices in North America.

Sony launched a Nav-U in March and has begun significant advertising to support the product.

We crowned the winners of the Third Annual NAVTEQ Global LBS Challenge to standing-room only crowds at the Three GSM Show in Barcelona in February and at the CTIA Wireless Show in Las Vegas earlier this month.

We received more than 200 applications from interested developers and had a total of 24 semi-finalists on both continents.

The semi-finalists were evaluated by judges that included wireless carriers, analysts from leading market research firms and other industry experts.

In Europe, the grand prize winner was ALK Technologies whose application, Co-Pilot Live Fleet Center provides navigation and asset tracking functionality for the mobile work force.

The grand prize winner in North America was Tierra Vision with its application called, Work Space Locator.

The application allows real-time tracking of workforce resources as well as a high-quality mapping interface for Sales Force.com.

We are already looking forward to the next challenge which will kick off at the CTIA Wireless Show in the Fall.

Also in the internet and wireless area momentum is beginning to build as new services were announced and launched by wireless carriers and internet portals.

For example, Verizon Wireless selected NAVTEQ maps to enable all of its location-based services and launched its first application called “Easy Navigator.” This service provides turn-by-turn navigation for GPS enabled mobile phones.

The application is being provided by Networks in Motion which won the grand prize at our first-ever LBS Challenge.

Additionally, existing services such as TeleNav and Garmin Mobile and Sprint Nextel continue to acquire subscribers.

We are seeing an increased amount of activity at the major U.S.-based internet portals.

It is clear these companies are becoming more interested in getting closer to the mobile consumer by incorporating location awareness into their services.

For example, MapQuest recently announced a new application for the mobile phone called MapQuest Navigator which will use NAVTEQ data an intel-map application.

Yahoo! announced the upcoming launch of its “Go Mobile Service” for the mobile phone.

Go Mobile, which offers local search functionality and driving directions among other services will be available to AT&T and Cingular customers in the U.S. and on several Nokia handsets in other countries; and Motorola will soon begin selling web-enabled phones that feature easy access to Google’s search engine by pushing a button on the phone’s keypad.

We view these developments as positive for our business.

While few internet mapping services currently incorporate location awareness into their applications, we believe this is, indeed, the direction of which these customers and solutions are headed.

In terms of our operating expenses, the first quarter was a significant investment period for the Company.

Here are just a few areas of focus.

First, we are emphasizing database maintenance in 2006 to an even greater extent that we did in 2005.

Update work has been concentrated in areas such as the U.S., France, Italy and the United Kingdom.

Second, we are pursuing coverage enhancement projects to increase the breadth and depth of the road network detail in our maps including significant efforts in parts of the U.S., Poland, Russia, Brazil and the Czech Republic.

Third, we continue to expand to new geographies in Eastern Europe and Southeast Asia.

And finally, we are working to increase the number of points of interest we offer such as golf courses, parks, museums, car dealers and the like and we are continuously improving the accuracy of the POI information.

The projects I just mentioned and hundreds of others are typically in response to specific requests from our customers.

Our investment in these efforts is designed to preserve or enhance the value and competitiveness of our database today and for many years into the future.

The Q1 increase in our SG&A expense was driven by a number of factors including, 1) significant growth in global sales resources particularly in the burgeoning consumer area, 2) expansion in the Asia-Pacific region including four new offices and more than 70 new employees, most of whom are part of the Korean operations we acquired in July of last year, 3) additional trade show activity including the first-ever European leg of the NAVTEQ Global LBS Challenge and an expanded presence at key industry events; and finally, the adoption of FAS 123R which I mentioned earlier.

Turning to product news, we have released four new countries this year - Albania, Macedonia, Bosnia Herzegovina, and Serbia Montenegro.

Since January, 2005, we have added 11 Eastern European countries to our coverage which now stands at 57 countries and territories around the world.

We also achieved full detail coverage for the entire Iberian Peninsula in Q1 which represented a major effort for our field teams.

Full detail coverage represents the collection of all of the road attributes that help optimize navigation including street names, addresses, access restrictions, one-way streets and speed categories.

Our coverage for Spain and Portugal now covers over 900,000 kilometers of roads.

In the area of dynamic content it was announced recently that three new vehicle models would offer our real-time traffic data later this year.

The Acura RDX, the Infinity G-35 and the Lexus LS will offer XM NAV Traffic in the 2007 model year.

This is an important milestone in the development of our dynamic content business and is a signal of growing interest on the part of OEMs and consumers alike.

Our real-time traffic coverage now stands at 42 metropolitan areas in the U.S., up from 32 at the end of last quarter.

New coverage areas include Las Vegas, Buffalo and Austin.

We also announced the availability of NAVTEQ Traffic RDS with CBS radio stations across the United States.

Using RDS, traffic data is broadcast over the terrestrial radio infra-structure to devices that have been specially equipped to receive and interpret the data feed.

This important new relationship immediately creates another distribution mechanism for transmitting NAVTEQ traffic data to vehicle navigation systems and portable navigation devices.

The availability of Traffic RDS should accelerate the deployment of real-time traffic services in the coming years by giving our customers more data delivery options.

I would now like to turn the call over to Dave who will review some of the first quarter numbers in more detail.

Thanks, Judson.

I’ll try to provide some additional color on our results.

As I do that, please note for comparison purposes that our fiscal first quarter had 92 days compared to 86 days in last year’s first quarter and 97 days in Q4, 2005.

On the revenue side, media revenue represented approximately 89% of our revenue in the first quarter with unit volume up 59% over the prior year.

In-dash map units rose 13% compared to the same quarter a year ago while portable device map units grew over 150%.

Distribution business made up approximately 19% of our total revenue.

This percentage is likely to continue to trend downward in the future as non-vehicle revenue becomes a bigger piece of our business and hard disk drive navigation systems are introduced on more vehicle models over the next few years.

We performed distribution services on 47% of our in-dash volume which was flat with the prior year.

The mix of distribution units in Europe was 70% which was down slightly from the prior year and the mix in North America was 18% which was higher than the year-ago period.

As we did last quarter, we’ve calculated the change in the license fees paid to us from the first quarter of last year to the first quarter of this year by each of our top-10 customers who together represent about two-thirds of our revenue on their most popular NAVTEQ map product in Europe and the Americas.

This percentage change reflects base license fee reductions as well as volume discounts and other considerations.

For the first quarter of 2006, license fees at our top-10 customers decreased by an average of approximately 7% compared to last year’s first quarter.

As a result of the corporate reorganization that took place in January, we conducted a review of our expense classifications in order to better align our external reporting with the nature of our spending.

As a result, certain functional groups previously captured in our SG&A expense line were moved into database creation and distribution costs.

These groups began as relatively small parts of our sales and marketing organization but have grown larger and, in our view, are now more closely related to the database creation and distribution activity.

We have reclassified expenses in prior years to conform to this presentation.

With respect to the expenses themselves, database creation and distribution costs were up 24% over the year-ago period.

The increase was primarily driven by the investment in the database that Judson described, hand growth in distribution unit volumes.

Consistent with what we said in our last conference call, we expect these investments to be less weighted toward the back-half of the year than they have been in prior years.

Distribution related and other direct costs represented approximately 20% of total company-wide expenses.

Selling, general and administrative expenses grew 34% in the quarter compared to the year-ago period.

The year-over-year growth rate was higher than it has been historically as a result of the projects and initiatives Judson described, six additional days compared to Q1 of 2005 and higher stock-based compensation expense most of which hits the SG&A expense line.

Note that excluding the impact of stock options expense, SG&A expense was flat compared with the fourth quarter of 2005 and up only slightly over Q4 when adjusted for differences in the number of days in the quarter.

Our operating margin in the quarter was 17% compared to the 24% margin in the year-ago quarter.

As revenue seasonality becomes more pronounced there will likely be even less correlation between our quarterly revenue and expenses and, therefore, more variability in our quarterly operating margins.

With that I’d like to turn it back over to Judson to finish up.

Thanks, Dave.

I would like to wrap up the call this afternoon by offering a few comments on the business.

Directionally, we feel very good about the state of the market for navigation and location-based solutions.

And we are excited about the opportunities we see for the Company.

In terms of in-dash navigation, it is difficult for us to assess what impact, if any, growing dealer vehicle inventories, higher gas prices and rising interest rates may have on navigation unit sales through the balance of the year.

Nevertheless, we are pleased with the fact that in-dash penetration rates continue to climb on both continents which bodes well for the future.

As I mentioned in my opening remarks, the complexion of our business is certainly changing with the rapid growth of mobile navigation devices.

Our first quarter results signal the emergence of a more significant seasonal pattern in our revenue and perhaps more than ever before, the fourth quarter is expected to be a critical driver of revenue and profitability.

Our Q1 results, to some extent, are a reflection of our business model.

Mainly, the nature of map building is such that our expenses which are highly discretionary bear little relationship to revenue and we do not seek to match quarterly expenses with quarterly revenues.

We are building a business for long-term success and our decision-making with respect to reinvestment will continue to reflect that perspective.

This concludes our prepared remarks.

So thank you for your attention.

Now I would like to ask the Operator to open the lines so that we might answer your questions.

Thank you very much, sir. [OPERATOR INSTRUCTIONS] Our first question comes from the line of Mr. Greg Cappelli.

Please proceed, sir.

Hi guys.

It’s Greg and Brandon.

Let’s see, three quick questions.

The first one is Judson you talked about this specific request your customers are making for you to continue enhance the database, obviously.

Would the amount of investment you’re making -- you guys used to talk about putting $0.60 of the $1.00 back into that database, does that continue to be the trend; and then, secondly, would those investments -- do you expect that to help you hold the line in terms of price a little bit more going forward?

Well, to the second piece, we absolutely do think that reinvesting in the database and in reacting to the numerous requests, quite numerous requests, to continue to add different kinds of content coverage, geographies, etc., is a factor in our pricing strategy.

So, yes, that’s one of several reasons why we are doing that.

I don’t think we have changed our perspective on our reinvestment in terms of what our goals are; and, in fact, we think this is the right strategy for the long-term success of the business.

Okay.

That’s helpful.

And then just with the seasonality impact that you talked about sequentially, should we see Q2 from a PND perspective continue to likely be -- I mean you’re expecting some pick-up there sequentially or is this more third and fourth quarter now loaded from the PND perspective?

And I guess in the business overall as well, because it seems like in-dash might be a little bit more seasonal as well towards the back-half than it used to be.

I don’t think that we have seen a different pattern in in-dash seasonality than we have seen historically.

Of course, we’ve only finished the first quarter; but we don’t see any reasons why that aspect of the business should change.

Our policy is not to comment on a quarterly basis on expenses.

I think you could take from our comments that we made on our last call and the comments that we made today that the investments in the database, this year, are probably more front-end loaded than they have been in past years.

Okay.

I was actually talking about the seasonal - you know - from a seasonal perspective in terms of 1Q going into 2Q just from a PND perspective; any sense on, do you expect this to be sort of a steady progression upward throughout the year or do you expect 1Q and 2Q from a seasonal perspective to be similar and then start to see the increase in 3 and 4Q for the PND business?

Yes.

We understand your question.

It’s a good one; but it’s hard for us to be more specific because this is, let’s fact it, a rather new phenomenon in terms of this tremendous growth in PNDs.

I still think we believe the fundamental, the biggest driver in the PNDs will be in anticipation of the holiday period so we’re talking about Q3 particularly into Q4.

So it’s hard for us to predict with anymore accuracy where the other quarters will fall out.

Okay.

Fair enough.

Final question - just the loss in market share that Magellan took on?

How did that impact you and, obviously, Garmin got some of that and Tom-Tom; but maybe just your quick thoughts on that.

I think that what we did in the portable business was consistent with our expectations.

So I don’t know that we felt a particular impact from that particular customer.

Okay.

Thanks a lot.

Thank you very much, sir. [OPERATOR INSTRUCTIONS] Our next question comes from the line of Jay Vleeschhouwer, Merrill Lynch.

Please proceed.

Thanks.

Judson, Dave, can you comment a bit more on pricing?

Within the PND segment itself and as between auto versus PND, are you continuing to see a range of pricing across a range of functionality?

In other words, you get what you pay for pricing still applies as far as the map databases are concerned?

And then secondly, in terms of designing activity we saw quite a proliferation of product in 2005 in terms of ’06 and perhaps even ’07 device outlook.

Do you expect that OEM activity will remain as active as we saw last year?

Well, I would say first of all the range of pricing continues to be a function of several variables as we’ve pointed out before.

And as we see new players come into the market, the beginning conversations have to be, “What are they trying to accomplish?

What functionality do they want to put in?” So there’s a lot of activity and a lot of variation and diversity, if you will, in those products.

So we continue to believe that that price range that you referred to, that’s what we’re seeing and what we expect to see.

With respect to the amount of activity, you are correct.

There has actually been some new activity both for vehicle and PNDs but clearly there are a number of new players that have come in on the PND space and we understand a number more are considering coming in.

So we would expect that there would be some new players that pop up in ’06 and probably, for that matter, in ’07.

I think that’s just the natural evolution of this kind of market that’s taking off; when you get the consumer acceptance that we’ve gotten this is what you see.

Good to know.

At the TA analyst meeting they made an interesting technical comment comparing their database to yours, specifically with respect to new third party mapping and LBS-type applications.

They are suggesting that there are increasingly important differences in terms of, let’s say, the openness or programmability of the databases, one versus the other, which is going to become especially important as we see wireless and other type applications come along.

That’s a bit of a technical question but do you see this, in fact, becoming a competitive issue?

Well, to be clear, I’m not familiar with the comment and I’m not quite sure I understand it.

I think our -- I can’t comment on their database.

I can comment on ours that we’re continuing to add the many different dimensions to our database in response to what we hear from our customers and in anticipation of what we think the market is going to want.

So I’m really not in a position to make comments about “theirs” versus “ours.”

Thank you.

Thank you very much, sir.

Your next question comes from the line of Peter Friedland of Soleil Group.

Please proceed.

Hey guys.

I just want to be clear.

Did you guys update guidance for 2006 full year?

No.

It’s not our policy to do that.

Okay.

So well based on your non-comment, should we assume that you are reaffirming or any kind of --?

We issue guidance once a year at the beginning of the year.

We do not undertake to update that guidance unless we believe that our actual results will differ materially from that guidance.

Okay.

I’ll stick to the one question.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Bill Benton of William Blair.

Please proceed.

Good afternoon, guys.

I’ve got one really cheap one.

So if I could squeeze one in there.

If you can just give us the stock comp in terms of where that’s showing up by line and then the real question is maybe a follow-on to that last question.

I mean obviously you guys have a good visibility to the number of new players coming in the market and price points and you can make assumptions about elasticity.

You’ve seen kind of what’s happened in the first quarter on North American/European auto sales.

Can you just guide us one way or the other in terms of your confidence level with regard to your prior forecasts on the doubling of PND volumes and whatnot?

I think -- well, first off with respect to this stock-based comp, I think the total stock-based comp was $4.4 million, 3.2 of that was in the SG&A line.

Okay.

And the rest we can assume database-wise?

Excuse me, 4.0 was the total stock-comp.

Okay.

And with respect to confidence, all I would say is we remain optimistic about the prospects for the portable device market.

I think you could -- the companies that participate in that space have reported recently and I think that their expectation for the market were consistent with ours when we gave guidance in February.

Okay.

Okay.

Great, guys.

Thanks.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Maynard Um of UBS.

Please proceed.

Hi.

Thank you.

I think I actually missed that last part.

I think you talked about some of your peers.

They said they were looking for a sequential up-tick by about roughly 10% ahead of the summer vacations and I think you just said that that was kind of consistent with your expectations?

No.

I was actually referring to the fact that Tom-Tom, yesterday in their release, talked about their thoughts about 2006 versus 2005.

And their thoughts were consistent with what we had shared with you in February.

Okay.

Any comments on the 10% unfilled growth to their comments?

No.

Okay.

And then lastly, in your discussions with some of the in-dash suppliers and your customers, do you see any indications of price decline expectations setting into the back half or can you just update your expectations on that?

You’re talking about the retail price of in-dash systems?

Correct.

Yes.

I think we’ve said before and I think we still believe this that we’ve been disappointed that the prices have not come down.

We think they are -- I think we’ve said before that as it takes longer for changes to occur in the vehicle world, there is a possibility that there would be some movement in the ’07, ’08 timeframe; but I would not say that there would be in the ’06 timeframe.

Next question, please.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Brett Manderfeld of Piper Jaffray.

Please proceed.

Thanks.

I had a couple points of clarification.

Judson, I just want to make sure I’m looking at this correctly.

But did you say European growth in the in-dash unit volume was up 1% year-over-year?

No.

He said, Brett, that car sales - overall car sales - in Europe were up 1%.

Okay.

Did you comment on the units at all?

Only on the overall basis.

Okay.

Overall, units were up 59% which has been our practice historically.

Okay.

And taking away just -- it sounded like North America in the in-dash fell a little short; was that primarily because of fleet vehicle sales?

Is that what I heard?

Yes.

That’s correct.

Okay.

Great.

And then my one question, I guess, is related to just the PND sales we’ve heard from some other industry participants that Q1 was only down slightly versus Q4 overall in Europe.

Is that pretty consistent in terms of the units and what you saw Q1 versus Q4?

Actually, we saw a bigger fall-off than that.

So any kind of -- between -- down more than say 25 or 35%, Dave?

We saw a bigger fall-off.

Bigger fall-off.

Right.

Okay.

Thank you very much.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Noelle Swatland of Lehman Brothers.

Please proceed.

Hi guys.

I just had one follow-up question, also, around the in-built market in Europe this quarter.

After a fairly soft period last quarter is it fair to assume that this quarter we could have seen flat-ish to down slightly in the single-digits?

And then my question relates actually to some of your full-year OpEx numbers.

I was wondering if you could remind us what’s in your longer term targets for OpEx of the 15% to 20% year-over-year, sort of what that assumes and some of the comments today seem to suggest that with your increased focus this year on some of your maintenance that actually we could see numbers trend to be a little bit above that longer term goal this year.

Thanks.

Noelle, I wonder if I could just ask you -- I’m not sure I understood the last part of the question.

Could you just repeat it?

Yes.

Just on your longer term -- I think you had said that we should expect your operating expenses to trend up about 15%, 15% to 20% year-over-year.

It would seem as though some of the comments you made on the call today with regard to the increased focus this year specifically with respect to maintenance investments may suggest that we could be at the upper end or slightly above that longer term target and just can you remind us what’s in some of that normal longer term target range of 15% to 20%?

I don’t think we’re in a position to update that.

And I don’t think that -- I would not necessarily draw any conclusions from our first quarter spending relative to our long-term plans because I don’t think that they’ve fundamentally changed.

Thank you very much, ma’am.

Ladies and gentlemen, your next question comes from the line of Steve [Conig] of Jefferson Company.

Please proceed.

Hi.

Thank you.

Congratulations on your quarter and in particular your PND volume growth.

I would like to understand if you could comment on the pricing trends.

Can you make any generalizations about the pricing trends in PND versus in-vehicle helping us to break down a little bit, a little color, around the 7% overall reduction that you saw?

The 7% is developed from a market basket of our customers - of our largest customers - some of whom offer portables, some of whom offer in-dash and some of whom offer both.

So I think it is representative of overall pricing trends.

I don’t think that there’s anything happening in either one of those sectors that is particularly variant from that.

Okay.

Great.

Thanks.

And if I may, I have just a real quick one on European in-vehicle growth which was a little lower this quarter than usual.

Do you expect that, or should we expect to see that start to pick up again as we get through the rest of ’06 or are we looking at continued levels of this?

You mean relative to the prior year?

That’s right.

Yes.

The reason we’re hesitating is a lot of that depends on what happens to the economy and what happens to car sales.

That’s a big driver of Europe and of U.S., frankly.

Okay.

Fair enough.

I don’t think we can shed any additional light on it.

Okay.

Thank you, very much.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Ben Radinsky of Bear Stearns.

Please proceed.

One very quick one, just a housekeeping question.

Based upon your earlier guidance you had mentioned that the long-term target was extending operating margins by about 200 basis points a year, and I was wondering if you are sticking to that.

And then the second more broad question, is with the rise of the internet portals and their focus on location-based technologies I was wondering if you can update us on the economics of your contracts with the various portals?

First on the long-term operating margin target question we’ve been pretty consistent, I think, over the past several quarters in saying that we expect longer-term to expand our operating margin by 100 to 200 basis points on an annual basis.

So you are reiterating that?

I’m just telling you what we’ve said over the past several quarters.

Right.

And that has unchanged this quarter given what you know now?

Again, I think either Dave or Judson said earlier we’re not in a position right now to comment on our guidance in any specific way.

Okay.

And then the second question?

With respect to the internet portals, that falls under our server pricing and in general those entities license our map by paying us typically a minimum annual license fee, a subscription basis with a transaction kicker.

The transaction kicker basically is different for a B-to-B transaction and a B-to-C transaction; but generally all of them are under that kind of a structure.

So is there any change in the economics given the rise of popularity of these types of services?

Well, I would point to the fact that in 2004 our revenue from internet portals was 3% of our total revenue and in 2005 it was 5% of our revenues and I would think we would expect it to continue to rise.

Thank you very much.

Thank you very much, sir.

Ladies and gentlemen, your next question come from the line of April Horace of Hoefer and Arnett.

Please proceed.

Hi.

Good afternoon.

One, I wanted to congratulate you on the CBS contract.

I was wondering if you could give us a little bit more color as it relates to real plan traffic services what would be entailed with respect to vehicles receiving such services with respect to antennas, would it require an HD radio, how can we think about that particular new service going forward?

The service that we’re providing is identical to the service that we provide through the satellite radio companies.

This one will not require a satellite radio.

You can simply have a digital radio with an RDS receiver which is typically how the FM radios or the typical high-end radios in cars are equipped today as I understand it.

So it enables some of the companies who have not made as big a play in satellite radio to offer traffic to their customers with, in essence, a basic radio with an RDS receiver in it.

And then a quick follow-up on a different topic.

You seem like you are reaffirming your guidance which I think is great.

So can we infer from you reaffirming your revenue guidance and your EPS guidance that any short-fall in in-dash OEM revenue that you internally expected could be off-set by the growth of the PNDs?

I think we have to correct what you said.

We are not reaffirming or reiterating.

What we said was that we have a policy of issuing annual guidance at the beginning of each year during the Q4 earnings report.

If we feel with a reasonable degree of confidence that changes in our business will result in financial performance that is materially different from the guidance we have provided then it’s our intention to update that guidance in the form of a press release.

So we’re adhering to the policy that we very clearly laid out.

So I would just say that we are not technically reaffirming our guidance in accordance with our policy.

Okay.

Thanks.

Thank you very much, ma’am.

Ladies and gentlemen, your next question comes from the line of Jeetil Patel of Deutsche Bank.

Please proceed.

Yes.

Thank you for the Q&A today.

A couple questions.

Can you just give us a sense of I guess when you set your guidance for last quarter, can you remind us what you thought your auto unit growth would look like?

Would it be flat, up or down in 2006?

And is it -- and if you look at the PND business sequentially from Q4 to Q1 it looked like units were down about 50%.

Can you give us a sense of how the relative strength was for the U.S. market versus the European market?

Thank you.

First off we don’t provide that kind of granularity as a general rule.

I can tell you that both markets are growing at least Q1-over-Q1.

When you take the seasonality Q4 to Q1 is not an appropriate comparison and for that reason we don’t do it.

But both markets are growing and the PND market should be no surprise is growing faster than the automobile market.

And if you look at the PND business it is a little bit of a back-end loaded type of business and given that it’s a regional, kind of seasonal play into the second half can you talk about at what time of the year you start to get some visibility from an order standpoint?

Do you tend to work with the PND vendors this -- or earlier in the year or is that more of an ad hoc process as you approach let’s say beginning of Q3?

We understand why you’re asking the question but, again, we can’t be more specific.

It’s not as if we’ve had experience for the last ten years with PNDs and their popularity in the consumer market.

So I have the feeling that each year we’re going to see continued evolution.

We don’t know how far this is going to go.

We don’t know how many players.

We don’t know the specific -- we haven’t had enough history to give you a better more granular answer about exactly when in a quarter it starts to take off and what the quarter-over-quarter sequential growth is.

Perhaps in the future we’ll have more experience under our belt; but we understand why you’re asking the questions.

We just don’t have the experience or the data to answer it.

Understandable.

But I guess we’re just trying to figure out how you came up with the assumption of how the PND market does this year and kind of build up the model as you go back to last quarter when you gave out guidance for the year.

Well, let’s separate the quarter from the annual because the only guidance we gave was annual.

And the way we build up our models is by asking our customers what they think they’re going to do in the course of the year.

And we get an idea of how the markets going to grow.

All I can tell you historically is that last year our PND volume grew every quarter.

Now how much of that was growth from new business and how much of it was seasonality?

We can’t say for sure.

We don’t have years and years of experience in this sector.

Last year was the first time it was really a significant portion of our revenues.

So you’re likely to get better information on the seasonality of the business from consumer electronics companies who have tons more experience in this sector.

Thank you very much, sir.

Ladies and gentlemen your next question comes from the line of John Bucher of Harris Nesbitt.

Please proceed.

Thank you.

As you categorize revenues in your 10-K, in the mobile devices you got both PND as well as mobile handset-based contribution.

Understandably now the mobile handset-based contribution is a relatively small piece of the business; but as the carriers ramp up their promotions what should we expect in the revenue model and in changes to margins as within the mobile devices category the revenue attributable to mobile handset-based things whether it’s a subscription model or a transaction model.

I realize that you don’t have a crystal ball here but if you could just comment generally speaking what we might, in fact, see in margins.

I don’t think the margins are significantly impacted.

When we sell additional maps or we sell additional transactions there aren’t really costs associated with those from our standpoint.

The pricing, it’s a different kind of pricing model, obviously.

It’s more akin to the internet model and the server-type model than it is to our traditional media pricing and it’s -- how much revenue we generate from there is really a product of how quickly and how aggressively the wireless carriers and the wireless players roll it out and how much marketing dollars and marketing muscle they put into it and that’s uncertain to us today.

I think we don’t expect it to be a major portion of our revenue this year.

Do you think you can see growth in that mobile handset-base contribution -- do you think you can see growth in that without it cannibalizing the PND category?

Thank you.

Hard for us to tell right now.

I guess I would just comment that we think there’s going to be a multitude of devices that are going to be GPS enabled or hooked up to GPS or hooked up to a server where solutions can be provided.

At this point because it’s such a nascent market, we don’t know what consumer behaviors will be; we don’t know if there will be preponderance of consumers who have only one device or end up having multiple devices and so at this point it’s just impossible for us to predict out five years exactly how the mobile device part of the navigation market will evolve.

We’re excited about it.

We think the opportunity is great but it’s just impossible for us to be more specific about how exactly that’s going to turn out.

Point taken.

Thank you very much.

Thank you very much, sir.

Ladies and gentlemen, our next question comes from the line of Robert [Duweejick] of Aragon Global.

Please proceed.

Hi there.

Two very simple numbers questions.

Can you give us any numbers on adoption or take rates and second, what caused the share comp to go down?

I think, let’s see -- share count go down.

That could be the price of the stock --?

You know, I don’t think the share count went down.

That’s why I’m baffled by the question.

If so, my mistake.

I’ll follow-up.

The diluted shares in the first quarter were 95.5 million and in the fourth quarter they were 94.9.

Okay.

Sorry.

My mistake.

And on adoption take rates?

We don’t typically get into quarterly details on adoption take rates.

Those are metrics we typically talk about on an annual basis.

Okay.

Thanks.

I’m 0 for 2.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Brad Lundy of Ivory Capital.

Please proceed.

Thank you.

Just a quick question of clarification.

You mentioned earlier in the call that you thought Tom-Tom’s guidance with regards to the business in ’06 was somewhat consistent.

I’m curious whether you’re referring to the overall Europe unit numbers or their implied market share based on their units as a percentage of those units?

What my understanding is that they talked about what they thought the market would do in Europe.

Well, in both markets.

I think that what I could say is they expect the market to be substantially -- excuse me.

They expect the demand for their products to be substantially higher than last year.

And that was what we felt was going to happen when we did our guidance in February.

Okay.

Gotcha’.

And then just quickly, did you guys give the unit sequential change from Q4 to Q1 for the PND business?

We did not.

You did not.

It was just the year-over-year [inaudible]?

Correct.

Okay.

And if you don’t mind what was it?

It was 150% or something?

Over 150%.

Right.

Okay.

Gotcha’.

And then just lastly what is your materiality threshold with respect to guidance at one point?

That’s a hypothetical question.

I figured I’d ask.

And we’ll appreciate your asking.

Okay.

Thanks, guys.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Godfrey [Kilt] of Kilt Capital.

Please proceed.

Hey guys.

Another numbers question.

Just wanted to get some clarity on the tax rate going forward.

I think you guided at 33 to 34, I think, at the end of 2005 and it looks like it may be a little bit lower in the quarter.

Maybe you can explain that and give us some thoughts for going forward.

Again, I would point to the policy that Judson just talked about.

Something that differs materially from the guidance that we provided, we feel an obligation to update.

Okay.

Thanks.

Thank you very much, sir.

That concludes our Q&A session for today.

I’d like to turn the call back over to our speakers for any closing remarks they may have.

Thank you everyone for joining us.

We appreciate it.

Good night.

Thank you.

Thank you very much, sir.

And thank you ladies and gentlemen for your participation in today’s conference call.

This concludes the presentation and you may now disconnect.

Have a good day.