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NAVTEQ Corporation (NVT)

Q4 2006 Earnings Call

February 8, 2007 5:00 pm ET

Executives

Tom Fox - Director of IR

Judson Green - President, CEO

Dave Mullen - EVP, CFO

Analysts

Brett Manderfeld - Piper Jaffray

Noelle Swatland - Lehman Brothers

Bill Benton - William Blair

Robert Schwartz - Jefferies & Co.

Jay Vleeschhouwer - Merrill Lynch

Brandon Dobell - Credit Suisse

Maynard Um - UBS

David - Pacific Crest Securities

Azeem - Deutsche Bank Securities

Peter Barry - Bear Stearns

Jairam Nathan - Banc of America Securities

Presentation

Operator

Good day ladies and gentlemen, and welcome to the NAVTEQ Corporation Fourth Quarter 2006 Earnings Call. My name is Gene. I will be your conference coordinator today. At this time, all lines are in a listen-only mode and towards the end of the conference call, we will be taking questions. At this time, I will turn the call over your host, Mr. Tom Fox, Director of Investor Relations. Sir, please proceed.

Tom Fox

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 fourth quarter and fiscal year ended December 31, 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. Today's call is available by webcast and is being recorded. 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. Today's webcast also includes a PowerPoint slide presentation which you may access in the News and Events section of our IR website.

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 are made. Such statements may include, but are not limited to, expectations of future financial performance and operating results, growth in unit volume including updates, our share of business, penetration rates, product release schedules for NAVTEQ and our customers, the decline of our distribution business, receipt of payments from customers, and the result of the integration of acquisitions or pending acquisitions. The 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 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 1A, Risk Factors, in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and under the same heading in the company's quarterly report on Form 10-Q for the quarter ended July 2, 2006. NAVTEQ disclaims any obligation to update or revise any forward-looking statements, except as required by law.

A Registration Statement on Form S-4, containing a proxy statement/prospectus of NAVTEQ and Traffic.com relating to the proposed merger of NAVTEQ and Traffic.com was declared effective by the SEC on February 1, 2007. The definitive proxy statement/prospectus has been sent to security holders of Traffic.com seeking their approval of the proposed merger. Investors and security holders are urged to read carefully the definitive proxy statement/prospectus, and any other relevant documents filed by either party with the SEC before making any voting or investment decision because they will contain important information regarding NAVTEQ, Traffic.com, and the proposed merger.

We will begin today's call with some opening remarks from Judson, then Dave will walk through -- walk you through some additional details on the quarter, Judson will add a few closing remarks, and finally we will take your questions.

During the question-and-answer session, we would ask that you to limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue. We will finish at 6:00 P.M. Eastern time.

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

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Judson Green

Thanks, Tom. Good afternoon, everybody and thank you for joining us. We are pleased to report another quarter of record performance and the end of another productive year for the company. For the quarter, we achieved revenue of $180.7 million, which represented growth of 24% over the fourth quarter of 2005. Excluding the distribution business, which was down in the quarter compared to the prior year, revenue was up 30%. The revenue increase was driven by continued growth in map units for onboard applications, which were up 33% when compared to the fourth quarter a year ago.

Operating income in the fourth quarter grew 51% over the year ago period to $62.8 million. Net income grew 55% to $42.9 million in the quarter and earnings per diluted share increased 54% to $0.45. In terms of full year results, revenue of $581.6 million grew 17% over 2005. Excluding the distribution business, which was also down on a full-year basis, revenue grew 23% over 2005. Full-year map units rosé 39% over 2005 to $10.9 million. Operating income for the full year climbed 15% to $153.7 million.

Net income for 2006 was $110 million and earnings per diluted share for the full year were $1.15. The company continues to generate strong cash flow. Net cash provided by operating activities was $140 million for the full year. Even after funding the Map Network acquisition, we ended the year with $322.5 million in cash and marketable securities and no debt.

2006 was another remarkable year with respect to the growth of the navigation industry. First, penetration of in-dash systems continued to rise steadily, despite a sluggish in vehicle environment and the fact that the retail price of the systems generally remained at $2000 or more.

Second, portable navigation devices sustained their growth momentum with NAVTEQ map units for these devices, climbing 42% in the fourth quarter over the prior year.

And third, wireless applications for the mobile phone gained their first real traction with consumers in the US, led by Verizon's aggressive marketing of its VZ Navigator service.

Looking back on the year, I am pleased with the way that we executed in light of three significant challenges. First, on favorable conditions in the automotive sector, particularly in the US, caused in large part by higher interest rates and surging oil prices during the summer months.

Second, the anticipated decline in our distribution services business, which we have discussed on a number of our calls.

And third, the delinquent customer situation, which has improved, but still remains an issue. During the fourth quarter, we received additional payments from this customer, but because we went to a cash basis for revenue recognition in the third quarter, we have deferred recognition of $4 million in revenue as of year end.

Turning to our revenue performance, as was stated in the press release, our European business grew 34% in dollars and 25% on a constant currency basis in Q4; its best year-over-year quarterly growth rate in nearly two years. The improvement was primarily due to strength in portable device business. For the full year, European revenue grew 14% in dollars and 12% on a constant currency basis. North American revenue grew 17% in the quarter and 25% for the full year.

I would now like to spend a few moments talking about Q4 developments in each of the major businesses and provide some of the important statistics for the full year. I will begin with the European in-dash business, where Q4 unit growth and revenue contribution showed improvement compared to the first nine months of the year, due impart to a more significant contribution from our map update program.

According to Global Insight, overall car sales in Western Europe grew 3% in the fourth quarter over the prior year. Luxury car sales were mixed, with overall sales at BMW and Audi up, and Daimler Chrysler down. In terms of key models for navigation, Q4 sales of the BMW 7 series, Audi A4, and Volvo V70 were all up modestly over the prior year. But the BMW 5 series, Mercedes E-Class, and Audi A6 were flat-to-down slightly.

For the full year, adoption or the percentage of cars sold and offered in-dash navigation was over 80% which has been the case for the past few years and effectively represents full adoption at the current price point for in-dash systems.

Navigation take rates continued to grow in Q4, and we again detected relative strength in the mid-priced "C" segment, as we have all year, suggesting a more modest substitution impact from PNDs than we had anticipated. We estimate overall penetration of in-dash navigation systems in Western Europe at approximately 13.6% in 2006, compared to 13.1% in the prior year.

In the North American in-dash business, we faced a difficult year-over-year comparison due to particularly strong promotional activity by the Detroit Automakers in the fourth quarter of 2005. Economic conditions did improve with gas prices dropping and interest rates holding steady. According to Global Insight, Q4 car sales in North America were up about 1% compared to the prior year. Lower gasoline prices helped SUV sales rise 9%. However, the growth was driven by compact SUVs, which were up 34%. Full-size and luxury SUVs were actually flat year-over-year. In addition, minivans & pickups were down 9%, luxury cars drop by 11%, and small-to mid-size cars were up 8%. These trends are important because larger SUVs and luxury cars tend to have much higher take rates for navigation than smaller less expensive vehicles.

While we are disappointed with these trends, we made significant progress in terms of the adoption of the in-dash systems on car models in US. On a full-year basis, adoption rose to 51% in 2006, compared to 45% in 2005. In Q4, navigation was offered for the first time on six models, the Mitsubishi Outlander, Dodge Caliber, Jeep Compass, Ford Edge, Ford Mustang, and Lincoln MKX.

For the full year, the penetration rate in North America increased almost 2 full percentage points compared to 2005, due primarily to good performance on the part of the Japanese manufacturers. However, that penetration growth was dampened somewhat by the heavier mix of fleet sales for the domestic manufacturers. We estimate overall penetration of in-dash systems in North America at 8.4% in 2006 compared to 6.7% in the prior year.

In 2006, we saw our hard-disk drive systems launched on several new platforms, bringing the total number of vehicle models on hard-disk platforms to six in Europe and 13 in North America. We expect these figures to increase in 2007 to 23 in Europe and 32 in the US. As I mentioned briefly a moment ago, our update program, which we call the renewal program for maps, delivered more meaningful results in Q4. For the full year, map updates accounted for approximately 15% of our total in-dash map units, compared to roughly 12% in 2005. We expect to build on this momentum this year.

Turning to the portable device business, we saw a terrific performance overall in Q4, driven by significant improvement in our European business, and remarkable volume increases in the US. In Europe, we estimate that the portable device category overall continued to grow robustly in the fourth quarter and for the full year. Growth was helped by mass merchandisers who played a much larger role in the category during the year. During the quarter, we recognized our first revenue from New TomTom One Europe product offering full continental coverage, which drove solid sequential improvement in our share of business.

We also saw particularly good performance from Garmin, which strengthened its number two position in Europe, and Medion as well. In the US, we estimate that unit sales for the entire portable device category nearly tripled in 2006. Popular retailers like Best Buy, Circuit City, Staples, Target, Wal-Mart, Amazon.com, and CompUSA significantly increased the number devices they offer and intensify their promotion of the category across a number of print, broadcast, and digital media. Moreover, retail prices fell steadily throughout the year. It is now fairly easy to find nicely featured devices priced well below $500, and there are a handful of devices that have reached the sub $300 price levels.

With respect to our Asia-Pacific business, we wrote-off significant receivables at are South Korean subsidiary in Q4 that caused revenue to fall short of our expectations. We are taking actions to improve our performance in South Korea and expect better results in 2007. Turning to the database, we did not launch maps of any new countries in Q4, but we did add six countries during the year, and ended 2006 with a total of 59.

From a content perspective, 2006 was a very productive year in which we launched a number of new features and enhancements. Since our last earnings call, we debuted two exciting content offering, which were featured in our booth last month at the consumer electronic show. First, NAVTEQ Discovers Cities, which is a bundle of urban pedestrian content designed to give users of PNDs and mobile phones, instant access to rich, location-relevant detail. The product covers 10 of the largest US cities and includes restaurant reviews, Fodor's travel guide information, and useful information on city neighborhoods. And second, we announced NAVTEQ Traffic Patterns, which enables our customers to build intelligence into their routing algorithms by utilizing a historical database of actual traffic conditions.

Our customers will now be able to suggest routes based not just on the shortest distance and posted speed limits, but also on the estimated traffic flow for a particular day and time. Both Discover Cities and Traffic Patterns are premium content, for which we intend to charge incrementally. After a major five-year development effort, we implemented a completely new technology platform for map building and data delivery during the quarter. This platform should enable us to work more efficiently in the field, integrate new content more rapidly, and deliver fresh data more frequently to customers. The platform, which is based on Oracle and Sun Technology, was rolled out to our field and productions staff in Q4, and early results are promising.

During the quarter, we consummated the sale of our navigation software business to NAVIGON, one of our customers. Some of you may be aware that NAVTEQ has played a role in the in-dash navigation software business for a number of years. We have developed our own suite of navigation software for route calculation, route guidance, and map display, as well as a standard data storage format to facilitate the entry of new players into the in-dash navigation space, which it accomplished.

For a variety of reasons, we felt we could not justify the significant investment required to keep the product technologically state-of-the-art. So in order to better serve the customers using the software and optimize our product investment, we decided to divest the business. This sale did not have an impact on our Q4 results.

Next, I would like to provide a quick update on the acquisitions we announced in the fourth quarter. First, the acquisition of The Map Network closed on December 15, and integration is proceeding smoothly. Shane Green, TMN's CEO will continue to run the unit as a subsidiary. The consolidation of two weeks of TMN financial results did not have a material impact on our Q4 results.

Second, the proxy statement prospectus has been declared effective by the SEC and has been mailed to the Traffic.com stockholders in connection with the Traffic.com stockholders meeting scheduled for March 6. We are excited about this acquisition and expect to close the transaction shortly after the stockholders meeting. Because there is an outstanding prospectus on the pending acquisition, other than what we discuss in our prepared remarks, we will not be able to answer questions about Traffic.com on today's call.

Finally, before I turn it over to Dave, I would like to announce that NAVTEQ will be moving to a new corporate headquarters in the Chicago area during the second half of 2007. Our new home will be in an office tower not far from our current location at the Merchandise Mart. While we have enjoyed our six years here at the Mart, we came to the end of our lease and after carefully reviewing alternatives, decided that moving made the most sense. We look forward to welcoming visitors to our new home later this year. I will now turn the call over to Dave.

Dave Mullen

Thanks Judson. As I provide some additional color on our results, please note that for comparison purposes our fiscal fourth quarter had 91 days compared to 97 days in last years Q4 and 91 days in Q3. For the most part, my commentary will focus on fourth quarter trends. Additional information on the full-year results can be found in the Power Point presentation that Tom referred to earlier.

First with respect to foreign currency, the average Dollar/Euro exchange rate for the fourth quarter was $1.29, which compares to $1.19 in last years fourth quarter. The stronger Euro increased fourth quarter revenue by $7.5 million and EPS by $0.03 compared to 2005. Excluding the favorable impact of currency, Q4 revenue would have grown by 19% over the prior year. For the full year, the average exchange rate of $1.26 was slightly higher than in 2005, resulting in a $5.2 million benefit to revenue and a $0.01 benefit to EPS, compared to 2005.

Onboard revenue represented approximately 88% of our revenue in the fourth quarter. Distribution comprised approximately 13% of our total revenue. We performed distribution services on 36% of our total in-dash units, which was down from 41% in the prior year. Year-over-year decline in distribution is caused by three factors; first, the mix of business between distribution and non-distribution customers. Second, the loss of distribution business to other non-map OEM suppliers on certain vehicle models at PSA, Peugeot, and Audi in Europe. And third, to a lesser extent the introduction of hard disk drive navigation systems. As a result, on a standalone basis, distribution revenue was down 7% in Q4 from the prior year, which of course has a dampening effect on overall revenue growth.

Excluding distribution, Q4 revenue actually grew 30% over the prior year. We've calculated the change in the license fees paid to us from the fourth quarter of last year to the fourth quarter of this year, by our top ten customers in each of Europe and the Americas on their most popular NAVTEQ map product. This percentage change reflects base licensed fee reductions as well as volume discounts and other considerations. For the fourth quarter of 2006, license fees at our top 10 customers decreased by an average of approximately 9% compared to a year ago.

In terms of our full-year 2006 revenue by customer application, in-dash vehicle business represented 62% compared to 70% in 2005. Portable device business represented 25% compared to 19% in 2005. Internet and wireless business represented 5%, as it did last year. Enterprise revenue represented 4%, compared to 2% in 2005. And services and other revenue, which includes the traffic business, our technical consulting services and Map Network, represented 4%, as it did last year.

With respect to our operating expenses, our cost grew 13% in Q4 over the prior year, compared to 27% growth in Q1, 20% growth in Q2, and 14% growth in Q3. On a constant currency basis, growth in Q4 expenses would have been only 6%. The decelerating growth in spending was due to; first, our revised entire year spending plan, which we described at the beginning of 2006. And second, a cost management program we began in the second quarter, which was effective in reducing our second half non-distribution-related spending. Database creation and distribution cost were up 15% over the year ago period. Distribution related and other direct cost represented approximately 18% of total companywide expenses in the quarter.

Selling, general, and administrative expenses grew 8% in the quarter, compared to the year ago period. Again these modest growth rates were in line with our plans. Q4 reflected the full expensing of options in accordance with FAS 123(NYSE:R), which was not the case in Q4 of 2005. Stock-based compensation expense was $3.3 million in Q4, compared to $2.2 million in the prior year. For the full year, stock-based compensation expense totaled $14.5 million, compared to $9.1 million in 2005.

Our operating margin in the quarter was 34.8%, compared to 28.5% in the year ago quarter. Our effective tax rate was 34.7% in Q4, which was slightly higher than the rate to the first nine months, due to a greater mix of income coming from the US, which has a higher statutory rate. To remind everyone, we are now a full cash tax payer in Europe, but not in the US.

Finally, I would like to finish up by sharing our expectations for 2007 financial results, which is summarized in the press release. We expect total revenue in the range of $ 720 million to $750 million. This includes 10 months of Traffic.com revenue and of course, 12 months of the Map Network revenue. With respect to the major revenue areas, while Europe has reached more or less full adoption for in-dash systems at over 80%, we think the adoption rate in North America should exceed 65%, compared to 51% in 2006. We expect penetration increases for in-dash systems of about a percentage point in both Western Europe and North America. We expect the distribution business to continue its gradual decline in 2007. On a full-year basis, the distribution business might represent a low teens percentage of total revenue, and we would expect the distribution mix of in-dash maps to drop below 40%.

Based on what our customer are telling us, our review of available third party research, and our owned assessment, we anticipate continued growth in portable navigation and believe the overall category could be up by 50% in Europe and the US, driven in part by a more significant contribution from SmartPhone Solutions in Europe. Unit growth is again expected to be partially offset by license fee reductions and volume discounts, which are an ongoing part of our business.

With respect to profitability, we are targeting roughly a 100 basis points of operating margin improvement in our business, excluding acquisitions. However, the dilutive impact of the acquisition will depress our fully consolidated operating margin. We expect earnings per diluted share for the year in the range of $1.20 to $1.26 on a GAAP basis.

In arriving at this guidance, we assume the following; an effective tax rate for the year of around 29%. This is lower than 2006, due to the full year impact of favorable statutory rate adjustments in the Netherlands and average US Dollar-Euro exchange rate of a $1.27, average diluted shares outstanding of approximately 100 million, stock-based compensation expense of $18 million compared to $14.5 million in 2006. Additional one-time rent expense of $3.5 million related to the move of our corporate headquarters, which over lapse with rent expense we incurred for our current location. I should mention that this is not duplicate rent from a cash standpoint due to landlord concessions.

And finally, aggregate revenue of approximately $60 million and standalone EPS dilution of approximately $0.25 from the acquisitions of the Map Network and the pending acquisition of Traffic.com. We would like to make it clear that this dilution is consistent with the guidance we provided when the deals were announced, taking into account the fact that some of the synergies and cost savings expected from these deals are reflected in NAVTEQ's based business assumptions.

In terms of the sensitivity of our 2006 expectations to changes in the Dollar-Euro exchange rate, each $0.01 change in the average annual rate is expected to result in a $3.1 million change in revenue and a $1.1 million in net income on a full-year basis. With respect to the seasonality of our business, the pattern of distribution of our revenue and earnings in 2007 including the acquisitions should be similar to 2006, except for the following; the consolidation of only one month of Traffic.com's revenue in our first quarter and the growing importance of the retail-driven portable business. Means that we expect a slightly smaller portion of our total revenue to fall into the first quarter and a slightly larger portion of our total income to fall into the fourth quarter as compared to 2006.

The company expects fixed asset capital spending to be approximately $60 million into 2007, compared to about $80 million in 2006. This is a significant increase compared to prior years and is due to two factors. First, leasehold improvements related to the move to the new headquarters that Judson mentioned. The vast majority of these improvements will be reimbursed by our landlord. However, accounting rules dictate that the company record that reimbursement as an offset to rent expense over the life of the lease rater than as an offset to capital expenditures. And second, the consolidation of 10 months of Traffic.com's capital spending, which should be about $15 million.

With that, I would like to turn it back over to Judson.

Judson Green

Thanks Dave. I would like to wrap-up the call this afternoon, as I usually do by offering a few comments on our outlook for the business. I am pleased with all that we accomplished in 2006. We were able to win a significant number of important platform decisions at major automotive OEMs, some of which we have shared with you that will make NAVTEQ Map Powers to next -- the vast majority of next generation in-dash systems in Europe and North America and preserves our leadership position in this business for years to come.

On the consumer side, we grew and strengthened our relationships with the leaders in PND space and cultivated new ones with wireless carriers and handset manufacturers. We implemented a new and improved technology platform for map building and content management. And we enhanced the quality of our database, expanded our portfolio content, and grew our global coverage footprints.

In terms of the challenges, it was really the car sales mix shift in the US and a number of a product launch delays in the European portable business that caused us to fall short of our original revenue target. However, we are proud of the fact that when our revenue did not develop as we originally anticipated, we responded by decreasing our second half expenses and mitigating the earnings impact of the revenue short-fall. In our base business, we expect good growth and continued margin improvement in 2007.

While there are clearly a number of factors that could influence our 2007 results, I see five, in particular, that are worth noting. First, car sales trends in Western Europe and North America. In-dash business still represents well over half of our total revenue, so conditions in this sector will again play a key role in our performance. Second, the increasing consumer appetite for onboard portable solutions. We expect the popularity of these devices to be the primary driver of our 2007 revenue growth. Third, contributions from emerging areas such off-board solutions for mobile phones and integrated real-time traffic services for GPS-enabled devices. While leader of these is likely to be a material contributor in 2007 on its own, this should an important year in terms of product news and the availability of new services for both consumers and enterprises. Fourth, foreign exchange rates, which can fluctuate significantly and sometimes mask the true growth profile of our business. And fifth, the performance of our recent acquisitions.

Before we open the line for questions, I will conclude by saying I feel very good about how we ended 2006, and I am confident about our ability to execute on our plans for 2007. We look forward to reporting our progress to you in the months ahead. 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.

Question-and-Answer Session

Operator

(Operator Instructions). We will take our question from Mr. Brett Manderfeld of Piper Jaffray.

Brett Manderfeld - Piper Jaffray

Good afternoon guys and nice quarter. I was hoping you could comment a little bit about the outlook for pricing, looking into '07 preferably by the two areas, PNDs and autos, but just overall would be fine as well? And then, I have follow-up. Thanks.

Dave Mullen

I don't think -- Brett, I don't think that we've seen any particular change in the pricing environment in recent days, and I think our expectations for '07 in both categories would be comparable to what they've been in the past.

Brett Manderfeld - Piper Jaffray

So, with the significant drop in the PND overall retail price, would you expect to see much change in your unit price?

Dave Mullen

I think that we feel constant pressure on our pricing from all of our customers. It's not just limited in the portable space, and I think that we've an expectation as we -- we said all along that our price will decline and we've outlined the parameters for that. And as I said before, I don't think it's going to be much different in 2007.

Brett Manderfeld - Piper Jaffray

Okay, good. And just related to the dilution, I understand what you said, Judson that you wouldn't comment on the deal right now. But the $0.25, vis-à-vis the original $0.11 to $0.17 dilution, would -- is it fair to assume that you are at the high end of that and then The Map Network would be kind of the difference there, the delta?

Dave Mullen

It doesn't accounts for all the difference, Brett. I think you have to add the two together. We weren't as definitive about The Map Network because it was much smaller. And what we said was the differences really incorporate into our base business assumptions. So, some of the synergies and cost reductions come about in our base business because of what we don't have to do there now that we own these properties.

Brett Manderfeld - Piper Jaffray

Okay, very good. Thank you.

Operator

We'll take our next question from Noelle Swatland of Lehman Brothers.

Noelle Swatland - Lehman Brothers

Hi guys.

Judson Green

Hi.

Noelle Swatland - Lehman Brothers

Just as a starting point for the first quarter, I think last year you planned your spending more heavily weighted towards the first half and then eased up in the second half. Can you just talk about the dynamics and what we should expect this year? Thanks.

Dave Mullen

I think we did describe what expected this year by saying that we expected our spending patterns to be comparable to what they were last year, with the exception of the fact that Traffic.com is not coming on until -- we only get one month of their operations in the first quarter. And I think 2005 -- excuse me -- 2006 relative to 2004 and 2005, those two years had steeper spending within the year. Their quarter-to-quarter growth was much higher than it was in 2006 where the increases were flatter, and I think we expect a spending trend more like 2006 than like 2004 and 2005. I hope that's helpful.

Noelle Swatland - Lehman Brothers

Yeah, okay. That's helpful. I misunderstood. I thought you were just saying about the revenues previously for the guidance this year. That's great. Thank you.

Operator

We'll take our next question from Bill Benton of William Blair.

Bill Benton - William Blair

Hi, afternoon guys. One quick one, if you could just give me a little color on the AR, it was up obviously. Is that pretty significant sequentially? Is that just the PND seasonality? And then, if you could just comment broadly on, I guess, a discussion of new traffic congestion initiatives and how they could impact your business and how you guys intend to exploit that?

Dave Mullen

On the AR, Bill, I'll answer them and then Judson can talk to you about traffic. But actually, the AR in Q4 is really up seasonally, and you are right, because of the heavy sales activity. Actually our receivables are healthier in terms of weighted average days outstanding, at least the way we calculated it. It's the healthiest. It's been since I got with the company four years ago.

Bill Benton - William Blair

Okay.

Judson Green

Bill, you then asked -- you mentioned new traffic congestion initiatives, can you clarify what your question is there?

Bill Benton - William Blair

I guess its part of Bush's budget request some how reduce traffic congestion obviously is I think to reduce overall fuel usage and everything else I think. So, I think he is looking to put more dollars towards reducing highway congestions. And I am just trying to get a sense on how you think that may play into some of your business plans?

Judson Green

I think it would be impossible for me to estimate what the government might do or might not do or how successful it might be or it might not be. I mean I think, if I go up to 40,000 feet and I think about traffic going forward, the immense infrastructure that would need to be successfully invested to make a difference in traffic congestions. We continue to see -- we've seen historical trends. The traffic is getting worse year-over-year. And I am not optimistic and I am not aware of what would fundamentally change that trend going forward. So, that's a long way of saying that I think we feel that we are doing the appropriate thing to focus on expanding our existing real-time traffic business and to find whatever variations to our traffic products and services might be appropriate to help with overall traffic congestion.

Bill Benton - William Blair

Okay. So it doesn't sound like you've seen anything specific that would -- that you are responding to at this time?

Judson Green

That's correct.

Bill Benton - William Blair

Okay. Thanks.

Operator

We'll take your next question from Robert Schwartz of Jefferies. Please proceed.

Robert Schwartz - Jefferies & Co.

Thanks so much. I was hoping if you could help me reconcile some thinking here. It looks like your PND unit growth was about 42% year-on-year compared to the guidance potentially much higher next year, higher in the last two quarters. And I think of your PND success, and then I look at the auto being much stronger. I am wondering why this -- how I reconcile that with the fact that it looks like you might outperform Europe this year, given that you talked about the European auto sales being stronger than the US. So, I am trying to put those things together to try to figure out the dollar flows and may be you could help me reconcile this. It looks like PND -- so the two questions, I guess will be PND being at 42% growth, how does that compare to what your guidance is for Q4 and how I reconcile that? And then two, why Europe appears not to have grown on a dollar basis as much given that what you said about the automobiles?

Dave Mullen

A lot of that is timing, if I understood right. For the full year, our Nav units were up 63% year-over-year.

Robert Schwartz - Jefferies & Co.

That's right.

Dave Mullen

So, we are talking about units going up 50%.

Robert Schwartz - Jefferies & Co.

As much as 50%?

Dave Mullen

As much as 50%, that's our slower growth rate than 2006. So, maybe we didn't explain that clearly. With respect to automotive, our units for the year were up, I think, 12% year-over-year, and I don't think we gave unit guidance --

Robert Schwartz - Jefferies & Co.

You had provided some penetration guidance which should get you -- get you pretty much -- pretty close.

Dave Mullen

Right. So, Rob if you want to -- I am not sure I answered your question right. If you want to ask it again or make -- clarify, that would probably be helpful if we didn't get to your answer.

Robert Schwartz - Jefferies & Co.

I will follow-up with you offline.

Dave Mullen

Okay, thanks.

Operator

And we'll take our next question from Jay Vleeschhouwer, Merrill Lynch.

Jay Vleeschhouwer - Merrill Lynch

Thanks. Good afternoon. Two questions, Judson, even without acquisitions, but certainly with the acquisitions, your business is becoming increasingly complex from the time we first got involved with the name few years ago, it was relatively straight forward with the Auto OEM business. And now, you have multiple types of products, more customers of course, additional license models, pricing and the like. So, just at a very high level perhaps, just talk about how you are thinking about this increasingly complex business from the simpler business that you would had just a few years ago? And then secondly, in terms of investments in the business maybe as a follow-on to the first question, given the choices between or trades-offs between coverage investments, new countries, new market, building out existing countries versus investments in new applications and services of the kind, for example that we did see at CES, talk about your thought process in terms of those trade-offs, building out a country in Europe versus investing in software or some kind of application? Thank you.

Judson Green

Okay. The first question had to do with the fact that the business is more complex and it was a lot simpler several years, You are absolutely correct, Jay, that is true. But perhaps, I should just say that fundamentally, the vision and mission statement of the business hasn't changed since 2000, when I came in. And we are still very focused on the map. I would perhaps slightly broaden that term to say location-based content. And everything that we are doing has to do today with location-based content.

I might also point out that even to the extent, as I said in my prepared remarks, that we were involved in some software, as we just reported we've divested ourselves with that software business. So we are, I think, very focused on what we think our core competency is and the complexity merely comes in from the fact that you are correct that there are more and more industries, more and more customers, more and more variations, but at the heart of it, it's location-based content. So I think we have done a very good job of organizing the company, organizing our efforts, evolving that organization as we go forward to deal with this increasing complexity and relative to many other companies who try to do many different things in vastly different areas requiring vastly different core competencies, I would say that we are -- every bit is focused today as we were in 2000 when we reengineered the company.

With respect to the second question, which had to do with really the allocation of investment dollars, we've described that in the past. And although it may -- you mentioned applications and software, and frankly that's really not what we are focused on. We are again focused on location-based content. But that could involve either static content or dynamic content like real-time traffic or real-time event information et cetera. And the process that has proven well for us, proven effective for us has been to -- for us to not only do our own internal thinking about the future, we have a strategic planning department. We have a five-year planning process. We've got a very disciplined and effective annual operating plan process.

But the most important component of what we do is to listen to the breath of our customers and to spend in-depth time with many of them to better understand their perspective of the market, where is it going, what are the priorities. And then of course, we have what turns out to be frankly a multi-month process internally to sort out what we think are the right priorities. To be a little more specific, you mentioned the country we may trade-off as we have in '06, opening one or two additional countries because when we did the analysis, we determined it wasn't sufficient or the highest use return on our use of limited resources, and we may have put proportionately more money in some other new product. I have mentioned the couple of them on this phone call earlier.

So, I think we have a very rational prioritization process that fundamentally is driven by what our customers tell us. And what that means is fundamentally driven by what we think is going to be happening in the marketplace and what role we can best play in that marketplace which, again is really focused on location-based content. I hope that try -- I hope that at least in part answers your two questions.

Jay Vleeschhouwer - Merrill Lynch

Sure. And just to clarify, I wasn't suggesting you were not focusing on the core business or your core competencies or the mission. It was more about relating forecasting and outlook to the complexity. Because it just becomes, I would think, a little bit more difficult to deal with all the different variables, particularly the growth of wireless, for example.

Judson Green

You are right about that. I think pre-IPO -- well, actually, if you go back to even 2000, I think it was -- most grand majority of our business was automotive-based, I think and the IPO was probably in the 80% range. I think we mentioned earlier in the prepared remarks, next year it should be down in the low 60% range. So, what does make it slightly more challenging, is the fact that the portable and consumer sector of this market is harder to estimate and forecast. Now, having said that, we are going to endeavor and we aspire to becoming better at that as we go through time. We certainly expect to be better out at in '07 than '06, but it clearly is fundamentally just structurally a more difficult business to estimate than what we have been accustomed to.

Jay Vleeschhouwer - Merrill Lynch

Thanks Judson

Operator

We will take our next question from Brandon Dobell, Credit Suisse.

Brandon Dobell - Credit Suisse

Thanks. Judson, at the outset you talked a bit about some premium contents, the Discover Cities and traffic patterns. As you think about premium content and your intent to charge more, kind of an up-sell to that, how confident are you that you can actually do that, that you won't get too much pushback from your vendors? Or just view it as a nice to have, not a have to have? How can we balance the opportunity versus the potential for no extra ASP help or the potential for the value from the Traffic.com acquisition to be diluted if you can't charge more for what those guys do?

Judson Green

Well, I would say, since you brought up Traffic.com, and that is an example of premium price content or separately priced content. Regardless of what business model ultimately or business models ultimately become invoked, we've been charging incrementally for real-time traffic since 2004 when we launched this business. So, your broader question about incrementally priced content, understand that each year we're going to be adding a variety of things into the core database and not charging incrementally. We're going to make a judgment as to what really is a very -- what are -- some of the elements that are important to uphold and improve the value of the whole value proposition. But there are, in our opinion and we now have evidence of this with respect to ADAS attributes, with respect to real-time traffic, with respect to the Discover Cities that I've mentioned and several other examples, premium points of interest for example. There are other forms of content that may -- that fundamentally require incremental investment, that require extra effort, that are justifiable in terms of charging incrementally. So, I think it is going to be a balancing process, but we do see this as, as we've now seen for the last two or three years, as an opportunity for us to at least in part, offset some of the price degradation from the core map and we're very focused on it.

Brandon Dobell - Credit Suisse

Do you see, there is a difference between the in-dash or the mobile markets in terms of the receptivity from this content?

Judson Green

There will be differences, I think because, although they are very similar in many respects, there are some differences. I think on the portable, there might be more interest in things that are more pedestrian oriented. Within the automotive arena, there may be more ability to handle more content in more sophisticated applications which you are not able to do so easily on a portable device. So, there will be some fundamental differences between consumer and automotive. But obviously, we will be evaluating all of our opportunities in pursuing those that we think have the most promise for return.

Brandon Dobell - Credit Suisse

Great, thanks a lot.

Operator

We will take our next question from Maynard Um, UBS.

Maynard Um - UBS

Hi, thank you. Can you offer any thoughts on how the mobile business model might change? Maybe how things like Google Maps on handsets, I presume is transaction-based, and then you have a model where you get a small piece of the per month fees. And then you have Nokia that announced kind of the free downloadable maps. Can you just talk about how you anticipate that model to change over time? And then secondly, if you could, on the exchange rate of 1.27, kind of what thought process there, it looks like it's below the spot rate that we have today? Thanks.

Judson Green

Yeah, I think one is very clear to us is that we need to be flexible with respect to the business model that we offer up and that we ought to be expecting that business models will change over time. And if we are astute, we'll react to that. If I can bring it home to, instead of speculating what's going to happen in the future, if I can bring it home to real-time traffic, when we launched in 2004, initially through XM Satellite Radio, because they were on a subscription-based model and their consumers were-- it was easy for their end consumers to adapt to that model. That was the model that we offered. But the fact of the matter is, we think each customer will select either one or perhaps more than one and perhaps hybrids of different business models. And beyond subscription, your thoughts then turn to transaction as a very realistic model. Another very realistic model is life-time pricing, where instead of having to do subscriptions or transactions, there is a one-time fee paid at the beginning of a service for the life time of that device and service, which has its own appeal in some respects to consumers And then, of course, an advertising based model where you might have it transparent to the consumer and it appears free, but there in fact is a way for the businesses to be remunerated.

So I think it would be -- I think we need to be flexible. I think it would be foolish for us to try to estimate whose -- which is going to be the most popular and whatever turns out to be I am sure will change overtime. The key is that there will be multiple business models going forward and we will adapt to them as our customers and there end-consumers require.

Dave Mullen

With respect to the, you asked about the exchange rate and we simply chose $1.27 because that’s what we used in our internal planning processes. So, it just makes it easier for us. And if you can tell me what the rate will be at the end of the year and guarantee it, I would really appreciate it?

Maynard Um - UBS

And lastly, will you be providing the quarterly breakouts for the traffic plus NAVTEQ in the Map Network once the Traffic.com acquisition is done?

Dave Mullen

We got a – unfortunately, I don’t have any answer for you. We got to see what that looks like when we put it together. We are still evaluating what the best way to do that is. And whether there is segment reporting requirements that we are trying to figure out, how we respond to that. I think we will try to give you as much transparency as we feel comfortable doing, understanding that presumably there will be integration of the businesses and it will be harder and harder to perhaps -- it will perhaps be harder and harder to see what the differences are. But I think in the near-term, we will give you as much transparency as we can.

Maynard Um - UBS

Great, thank you.

Operator

And we will take our next question from Steve Lidberg of Pacific Crest Securities. Please proceed.

David - Pacific Crest Securities

Good afternoon, this is David in for Steve. Hoping if you could provide some thoughts as to your view of the competitive dynamics in the auto segment? Looking at market share, you are fairly dominant, wondering how you see this progressing over the next say two years? Thank you.

Judson Green

Well, I think, we have been at the -- this part of the business really since just about our founding or shortly thereafter, so call that 22 years of experience. I think we are very pleased with our positioning. We are pleased with how we have learned on how to do this aspect to the business. I think I mentioned earlier in my prepared remarks that I was very pleased with the number of platform wins. Over the quarters, we have shared some of that news with you as it comes along. In some cases, it's not appropriate or approved to be shared publicly. But I would simply say that with respect to the dynamics of decision making within this part of the business, the fact that it does take long lead times and decision times and build design-in times, build-in times, that we were very happy with where we are and we don’t expect any significant change over the next couple of years. I think it is maybe one way to summarize.

David - Pacific Crest Securities

Great, thank you.

Operator

We will take our next question from Jeetil Patel of Deutsche Bank Securities.

Azeem - Deutsche Bank Securities

Hey this is actually Azeem in for Jeetil. Two questions, firstly after CES, could you just sort of talk about the sort of early response you are receiving from integrating Traffic.com into your products. And do you see more of an opportunity to sort of up-sell it into the PND side or into the phone side or into the in-dash side, or is it kind of all of the above?

And the second question is, could you also please talk a little bit more about the sort of commercial government opportunity? It seems like the revenue for that segment more than doubled from '05 to '06. Just trying to understand if what sort of growth you are expecting for that in '07 and how we can kind of model it, and what are sort of the margins associated with that category? Thank you.

Judson Green

Okay there was a lot in those questions. I guess to start, I think as we said at the outset, we really don’t think it is appropriate for us to answer any question with respect to Traffic.com. We can talk about our real-time traffic business, because we have a business, an ongoing, we have been in this business till 2004. But if your questions specifically has to do with -- what's going to happen after we close Traffic.com, I think we would prefer not to go there because that’s just not appropriate right now.

Azeem - Deutsche Bank Securities

Okay.

Judson Green

With respect to your second question, I think you noticed a slightly higher contribution from both government and enterprise, if I am not mistaken. And the enterprise sector is not just government but also, if you will, commercial business solutions of various kinds, various applications in various industries. This obviously represents another use of our products and services. And although -- and frankly, I don't have any macroeconomic numbers to -- of the top of my head to talk about the growth of enterprise solutions. But it's a logical thing to use location-based content in applications for productivity improvement, for asset tracking, for a variety of things to make business solutions more efficient when you introduce location and location-based content. With respect to your -- the aspect of your question about margins and everything, I can just say this did double, as you point out, but it's on a very small base and I would not read too much into it.

Azeem - Deutsche Bank Securities

Okay. All right. Fair enough. Thank you.

Operator

And we'll take our next question from Peter Barry of Bear Stearns.

Peter Barry - Bear Stearns

Good afternoon, gentlemen.

Judson Green

Hi.

Peter Barry - Bear Stearns

I may have missed this, but did you speak to market shares, North America and Europe and if not, would you share those with us?

Judson Green

Well, we typically -- we just don't talk about our shares of business. It's just not something -- first of all, it's a very difficult thing to estimate and increasingly difficult in the consumer and portable part of the business. So, we just don't typically disclose this in the quarterly call.

Peter Barry - Bear Stearns

Judson, you can't give us some directional guidance in that regard, can you?

Judson Green

I think, I have said that I am actually very pleased with our positioning. We are working on strengthening -- building new relationships where we don't have them, strengthening the ones that we have. And I think I have indicated that with respect to our automotive business, I think I just said a few minutes ago that we don't expect any significant change in that.

Peter Barry - Bear Stearns

And my second question has to do with your sense of the opportunity that remains in the Asia Pacific market.

Judson Green

That's an interesting question. We think I -- we don't pretend to be experts on this, although I will tell you that we've had employees in the Asia Pacific region for many years. We've had an office in Tokyo for more than ten years. We've got multiple offices in half a dozens countries at least in Asia-Pacific. We see the opportunity as being pretty large. The difficulty is -- in other words, meaningfully large, but the difficulty is estimating the growth, the rate of growth in this part of the world. And so, I think again, we are looking this as an opportunity for growth, and we are going to continue to staff appropriately. But I can't be more specific as to how fast it grows and how big it gets. It's obviously got our attention, as I think it has the attention of most any company that's global in its aspirations.

Peter Barry - Bear Stearns

Thank you very much.

Dave Mullen

Peter, we don't want to evasive on the share of business question, but I think we'll have more visibility on that once other people report.

Operator

We'll take our last question from Ronald Tadross with Banc of America Securities.

Jairam Nathan - Banc of America Securities

Hi, this is Jairam Nathan for Ron. Looking at your in-dash penetration in North America, you said it will be up one percentage point. That seems low compared to -- considering that your adoption rate goes up by 10 percentage points. Can you kind of give us some more details on that?

Judson Green

The adoption rate, remember has to do with -- when cars are offering navigation. So first of all, that is a process that goes on throughout the course of the year as new models are introduced and as the OEMs decide to offer navigation on some of them. Obviously, one of the many things that we are doing is to try to cheerlead to get as many models introduced with navigation as an option as possible.

With respect to the relation to penetration, remember that the adoption is kind of the beginning of the consumers' decision cycle, right? I mean, you first have to get awareness. First of all, you have -- you need awareness that navigation is even an option, you need availability that is -- that is offered that you can order a model with Nav. And then there are many other steps in the process, including what we have talked about many times in the past, which is efforts to try to educate the dealerships in the sale of this new technology. And so, there is -- as we have learnt, it takes a while for that to be realized, because simply said, if you introduce a particular model to a particular dealership and they have never had it before, the first thing that has to happen is that the salespeople on the show floor have to learn the technology. They have to experience it. They have to get faster in terms of talking about it, so that they can sell it effectively. And, of course, we do things to try to move that along. But that does take time.

So, we're very pleased that the adoption rate has gone up. And frankly, we're also pleased that even in light of some difficult automotive industry macroeconomics. We're seeing improvement in the penetration rate.

Jairam Nathan - Banc of America Securities

And one last question on -- do you have a plan for on how many countries you're planning to kind of launch coverage on next -- in '07?

Dave Mullen

We do have some preliminary ideas, but we would not disclose those at this time, because one of the things that we want to do, we obviously have some initial plans built into our annual operating plan. But we do also have in addition to the prioritization process that I explained. We also have another process that as during the course of the year, we may change some of those plans and we may change rather quickly and we may decide that in one case, we're going to put off the launch of a new country in other three months or six months for other reasons unrelated to that country. It may be some new idea or new piece of content that we've decided, as higher priority. For that reason, although, I will say that we are planning to open some new countries in '07, I don't think it's appropriate for me to be more specific because we will amend our thinking over the course of the year.

Jairam Nathan - Banc of America Securities

Okay. Thank you.

Judson Green

Operator?

Operator

I will turn the call over to the presenters for closing remarks.

Judson Green

Thank you all for joining us, we appreciate it. Good night.

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