TomTom N.V.

Thank you operator and good afternoon and welcome to our conference call during which we will discuss our operational and financial highlights for the second quarter of 2020. With me today are Harold Goddijn, our CEO and Taco Titulaer, our CFO.

We will start today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the financial results from Taco. We will then take your questions.

As usual, I would like to point out the Safe Harbor applies. And with that, Harold, I would like to hand over to you.

Well, thank you Claudia and welcome ladies and gentlemen. Thank you for joining.

So the consequences of the pandemic remain a challenge for the global economy, but our revenue is now on the road to recovery from the lows that we experienced in April. We have seen a very good upward trend in the second half of the quarter, both for automotive and for retail products and we expect the second half of this year cash to be flow positive.

We have put strict cost control measures in place without compromising our development and engineering capacity. I am very pleased to see how our employees have been able to deal with the situation with no material loss in productivity and very good communication.

We also continue to recruit top talent to TomTom who are helping us to achieve our strategic objectives. We saw a large volume of deal activity combined with high success rate, especially in automotive which will contribute to our future revenue.

It's great to see that we have god traction with our online products for the automotive industry and that's a clear sign that our customers see us as a partner for a truly connected future. And as online future is helping is helping us to simplify and harmonize our portfolio across multiple customer segments and deliver a better end user experience as a result.

Let's now turn to the key operational highlights for the quarter. We have been awarded a global multiyear contract to bring traffic information and dynamic routing to Ford's SYNC platform.

This contract further expends our footprint in North America and will contribute to further improvements of our traffic product. Together with Delphi Technologies, we could demonstrate fuel savings of up to 10% in passenger cars by combining Delta's technology and our ADAS map to control gearbox and motor management.

Vehicles were tested on a variety of real-world driving conditions to validate system's fuel efficiency and we expect this technology to contribute to the development of safer and more sustainable costs. Our enterprise business recently announced an extension of our global deal with ViaMichelin to provide maps and traffic information services.

And finally we made improvements to our search API by significantly improving the number and quality of our POIs. This concludes my part of the presentation and I am handing over to Taco now.

Thank you Harold. Let me make a couple of comments on the financials and outlook and then we will go to the Q&A.

In the second quarter of 2020, we reported group revenue of €124 million, which is 41% lower compared with last year. Our location technology business, which represented roughly 75% of our group revenue in the second quarter, decreased by 90% year-on-year to €94 million.

The quarter started with factory and retail closures impacting trading conditions for automotive and consumer. It made a gradual the opening automotive factories and the return to retail activity to improving conditions which continued throughout the quarter.

June was by far the strongest month and contributed about half of the quarter's operational revenue in automotive and consumer. Operational revenue is defined as reported revenue adjusted for the movement in deferred and unbilled revenue.

Let me go through the details business by business. Automotive reported revenue was down by 32% to €52 million in the quarter and operational revenue was down by 47% to €48 million.

Both of these decreases reflect the impact of closure of automotive factories during the quarter as revenue is based on car production volumes. Enterprise revenue was up by 5% to €42 million in the quarter, reflecting increased revenue from new and existing customers.

Operational revenue was €20 million, 7% higher than in the same quarter last year. COVID-19 has had a limited impact on our enterprise business due to the nature of contracts.

Typically, longer term fixed fee contract and the nature of our B2B customers who are mainly active in the technology space. Consumer revenue was down by 68% to €30 million in the quarter and operational revenue was down by 76% to €22 million.

The closure of retail stores has impacted consumer revenue and while conditions have been tough, it is important to note that the year-on-year decline in consumer revenue is exaggerated by the strong reference. Gross margin was strong at 86% during the quarter, representing an increase of 19 percentage points year-on-year.

This high gross margin in this quarter can be explained by three things. Firstly, the ongoing change of higher location technology and lower consumer revenue will lead to a positive mix effect as consumer products have lower margins.

Secondly, costs incurred for custom engineering work for some of the automotive customers is placed on the balance sheet. These costs are taken as a whole in the quarter when the car line reaches the start of production.

This lowers the margin. In the current quarter, planned start of production were postponed to the second half of the year, given the COVID situation.

Last year, the second quarter included the impact of some large start of productions making this quarter's margins higher by comparison. The third item that can affect the margin is normal movements in provisions such as warranty.

You can see from our cash flow statement that we have a net lease from all our provisions of €3 million. Most of these will impact the gross margin positively.

Total operating expenses in the quarter was €170 million a decrease of €55 million compared with the same quarter last year. The decrease is larger because the reference quarter includes catch-up amortization of €41 million relating to the first quarter of 2019.

Following the change in the estimated useful life of the map database implemented in Q2 2019. If we exclude the amortization of technology and databases, OpEx decreased by 11% to €106 million.

The decrease is mainly in selling, general and administrative expenses shows the effect of discretionary control measures taken in the quarter. The free cash flow was an outflow €54 million in the quarter.

This reflects lower operational revenue and a higher working capital usage. At the end of Q2 2020, we reported a net cash position of €373 million.

We will not provide guidance at this time. As market conditions develop, we will reassess this position and also whether to resume our share buyback program.

What we can say is that we expect our revenue to continue its recovery path in the second half of the year. In OpEx, our expenses in R&D are expected to increase quarter-on-quarter, however we will continue to control our discretionary spend.

The recovery of revenue combined with our OpEx expectations and seasonal customer receipts means that we expect to have a positive free cash flow in the second half of 2020. Operator, we would now like to start the Q&A session.

Hi gentlemen. Thank you very much for taking my questions.

I have a couple. And the first one is on your comments around the deal activity.

Harold, every year you give comments and qualitative comments around this kind of deals and how is the order intake for the year and backlog. And if I look at your comments for H1, it seems fairly positive or constructive compared to previous years.

So I was just wondering, how should we think about for the full year deal activity, not only H1? But how do you compare it versus the previous years?

And more importantly, why is it you see it better? Is it because of the market share?

Is it because of the penetration of in-dash growing? What is driving these high volumes?

Well, thank you Francois. The deal interest is always lumpy, especially in the automotive industry.

It depends on -- it's black and white, deals are available to win them, you lose them. But at the same time, in the first half, it went well, better than typically for comparable periods.

And we wanted to share that with the community that despite all the doom and gloom that we are seeing in production land and car land, business is going on as usual. And actually, on the order intake side, it's been strong and better than years that we typically see at this stage in the calendar, I would say.

Now, you are saying, again asking me what second half will look like is a tough one. I just don't know.

And so it's difficult for us to say something about whole year on the order activity and the order intake. I am not going to do that.

But I do want to share that the first half was good, not only in terms of volume, but also strategically. So another OEM signed up, which is important and also strategically important because we started to get contracts for online technologies.

And that is very significant for us because moving to online is important in multiple ways and a lot of opportunity we see is that by going online we can really simplify and unify our technologies and make them available to different customer segments. We can start reducing the complexity associated to deals in the automotive industry, the branching and the forking, the maintaining of legacy systems.

There is now a clear trend to online and that's a good one. So I am happy with what we have achieved in the first half of this year and looking forward to the second half.

But qualitatively, I can't say much what the second half is likely to look like.

And should we think that this strong activity is in market overall? Or is it absorbed mainly driven by your high win rate, i.e.

market share gain?

I think it's will result in the market share gains over time when those contracts come online. So I am happy with that.

They are not necessarily links to a larger addressable market, although the market will grow with a higher percentage of electric vehicles in the mix because electrical vehicles all have location technology onboard, 100% dash integrated. That's something you still don't see in petrol cars or diesel cars.

So there the attachment rates are relatively low still and if the EV vehicles take a meaningful proportions of the total production volumes, then the total attachment rates of location technology in vehicles will improve, will go up.

Okay. That's very clear.

Thank you Harold. The second one is on the HD Maps.

I mean you usually give some comments. This quarter you are a bit more quiet on this side.

I know that last quarter you said that there may be some push outs because of what's going on with the pandemic. Could you give some update there?

Well, we don't see an acceleration. We haven't seen acceleration on HD demand in Q2.

And carmakers are still hesitant, mostly by the volumes, not clear about the introduction date. So we are very active with HD Maps.

We have a number of RFQs outstanding. But it's a bit disappointing if we talk about take up and clarity that we are getting from the market at this stage.

And do you think it could be structural with the issue of HD Maps, I don't know, because it's too expensive or because the industry is not fully ready? Or is it mainly due to short term uncertainty because of the crisis?

I can't say that. It's difficult for me to judge.

I don't think the pandemic is helping. But I see nervousness with carmakers to add at scale all the hardware and all the kit that is needed to get it to work and their ability to charge that bill of material to the end customer.

Okay. Thank you.

And the last one is may be for Taco. If we look at the automotive revenues for this year, you mentioned in the release that it's a trough basically in April and that you see a recovery.

So should we expect a gradual improvement in the automotive quarter-on-quarter in Q3 and Q4 as it recovers slightly? I mean reported revenues.

Yes. So I think that both Q3 and Q4, we will be able to report higher numbers than we have seen in Q1 and Q2.

The operational revenue will see a stronger recovery. And we also think that the operational revenue is more skewed towards Q4.

So Q3 will be better than Q2 in operational point of view but Q4 will be even better than Q3, again operational revenue.

Great.

Yes. Sorry, Francois, answering first question, yes, reported revenue will be higher in Q3 and Q4.

That is our current expectation.

That's great. Thank you very much.

Hi. And my first question is also going back on that commercial traction comment.

You have seen success both on the outside and the enterprise side. But as you mentioned it in this release is that also on both sides or is it any of the two more in particular?

No. It's on both sides.

So both in enterprise and in automotive.

Okay. Thanks for that.

Your position today in North America, we have seen the success with this quarter Verizon and this quarter Ford. What's your feel on your relative position in that market?

And do you have the feel that because of the recent wins that you are now even at a better position going forward also to show to other North American clients?

I am kind of happy what we have achieved there. We have a number of very big names in our client portfolio.

It's really good to see that. I am proud of team that we managed to pull that off.

So you look at Uber and Microsoft and Apple, to name a few. Those are leading companies.

And we seem to have the right mix of products and people and connections to be successful in that space. We have recently managed to extend that success also into the automotive industry with FCA wins in our Ford as well.

And it's important for us because, like it or not, most innovations come from the West Coast. That's where we learn the most from our customers.

They ask us to keep up and move fast. It has a very positive effect on our visibility of tech.

It gives us access to talent also in the West Coast. So I am happy that we are where we are.

We can build from that position further. I am convinced of that.

Okay. Thanks.

And coming back on that, in automotive you see that the lead times are pretty low and then also still take quite a long time before the others actually go into production. Is it possible then on the enterprise side that this all moves a bit quicker, that people move towards your platform and that you actually see the revenues coming in?

Well, also in enterprise, you need to have patience. So it takes some time between the sales cycles are long and also before technology is actually used can also take quite a while.

I wouldn't say the sales cycles in enterprise are that different. It's starting to change now with bigger uptake of our APIs.

So we see a larger community of developers using our APIs. And that goes much more gradual and faster.

But also there, you need to, there is a sales cycle time in terms of developing applications and then application itself need to gain traction. And all those applications that are powered with our technology make it or are scaled as well.

So it's also don't count on overnight success or explosion of sales. It's a gradual step-by-step approach that we are building.

We are going from strength to strengths. We have a much larger community on developers now using our APIs.

Some of those developers will turn into big clients in the future.

Okay. Thank you.

Yes. Hi.

It's Wim Gille from ABN AMRO. I have got three questions.

First is, if we look at the discussions that you have with your automotive clients, obviously they are a bit stuck at the moment between on the one hand ongoing developments for electric vehicles and robotaxis, especially Waymo, Cruise, Zoox, et cetera were all making quite decent progress on autonomous driving in their own fields whereas simultaneously, these OEMs are also scrambling for survival at this point in time. So what is your current feeling on how they look at their own roadmaps?

Are very still on track with the launches of the new models that they have been planning for years? Or do you see a lot of push outs where OEMs are basically considering to push out product launches and new innovations because of the uncertainty that they currently face?

And in relation to that, during the Capital Markets Day, you gave quite a decent guidance on the midterm future, especially on the automotive side where there was basically an inflection point in 2021 where we could be seeing an acceleration of growth because the adoption rates are going up because of all these aforementioned trends in electrification, et cetera, et cetera. Is that the inflection point still going to be there?

Or would it be likely that that inflection point will be pushed out a year because of COVID? So that will be my first question.

The second is more on exit rates. Obviously, you have shown great improvement during the quarter with June being significantly better than May and May being better than April.

But in terms year-over-year comparison on an operational level, if I make my calculations, I would argue that in June automotive revenues had an exit rate of roughly speaking minus 20%. Is that a correct calculation?

Is that in line with what you guys are looking at? And what should we be expecting in terms of run rate for June as an exit rate on the consumer side because there obviously we have two factors playing a role being retail closures and also the difficult comparable base.

So how should I look at an exit rate, a normalized exit rate for June on the consumer side? And then lastly on the commercial activity, you have been quite successful both in terms of the number of RFPs and orders in the market as well as your win rates.

Is it fair to assume and I understand that there is multiple things influencing the order book. But is it fair to assume that we will see a significant double digit increase in the order book by year-end?

Yes. Thanks Wim.

So yes, the automotive industry, as you rightly say, the inbox of the automotive CEO is rather full and it's not easy to plan as there is a number of industry developments who contribute to that. You put COVID into the mix and you have a fairly fluid situation.

I don't get the impression. So my impression is that carmakers are seeing this as temporary dip and their longer term planning, their strategic choices are not really influenced by this pandemic, although their cash balances are.

So there may be kind of hard choices between what they can and can not afford. But I don't see a strategic shift in the priorities as such and I see more and more carmakers investing in software development capabilities as well.

I think the EV train has left the station. I don't think there is any carmaker now who is not taking it serious and is not putting out models in the coming years.

So I think that's growing and I do think that at some point in the near future we do see an inflection point where EV vehicle sales will take up faster than what we have seen so far. Yes.

The exit rates that you are referring to, I think I will hand it over to Taco to see if he can shine some light on the specific numbers. When you look at our order book for how we want to finish that at the end of this year, again, we find it difficult to make further comments than that the first half was good.

And how the whole year will pan out, I really want to, we need to see that. But there is this quite some stuff in the pipeline that we can win or that we can not win or that can be postponed.

I don't know. We will see.

But so far it's been a strong first half of the year for contracts and new contracts. I can't say much more than that.

Yes. So on the rates of decline that we saw at the end of the quarter, both for automotive and consumer, these decline rates were lower than we saw for the whole quarter, as you said yourself, obviously.

I think automotive, where we started with a high three or four. So our numbers are bit less optimistic as yours.

And for consumer, the comparison is very difficult, as you said, as well as we had the weak number rollover last year. And also June is traditionally more stronger month in the quarter anyway.

But the year-on-year decline is probably 50% or so in consumer at the end of quarter.

But that's including the great results of last years. So from a planning point of view, well, if you leave continue the improvement in consumer and in one or two months, the WNRO effect will be going live from the 2019 numbers.

So that didn't have a big affect as of September anymore. We think that we can have, we are trending towards 25% decline, 25% to 30% decline in consumer for the rest of the year.

Yes. For the rest of the year, okay.

That's fair. Fair and thank you for that.

And then maybe as a follow-up or based on the strategic choices that carmakers have been forced to make, et cetera and also the model launches that they are planning, is it still fair to assume that all other things being equal that that inflection point that you showed during the Capital Markets Day somewhere around 2021 where growth rates in the industry should accelerate based on higher take rates that that inflection point is still close?

Well, as I remember, we gave a CAGR for the current period that we were in and we gave a CAGR beyond that time. I don't want to pinpoint the inflection moment on that year.

But based on the deal activity that we have seen in the first half of the year and also the content of the RFQs and RFIs that we are receiving, also on the OEM side they are working with higher take rates.

Very good. And then a last question from my end will be on Google.

Obviously, it has been quite a while when they announced the deals with Volvo and with now Nissan. Volvo, we have now seen that car coming to the market.

So that has been launched. But they are fairly quite on that front from Renault Nissan.

So what are you seeing in terms of our discussions and the volumes that they are planning to do with you guys. Is there any sign that you or your contracts with or the volumes that you are shipping to Renault Nissan come to an end soon?

Or is that still not something for the near future?

Well, I think the year Renault situation is different from Volvo because in Renault cars, only a small percentage of the cars will be equipped with the Google solution is at the high end of the range. So there is a very significant portion of business still to done there in the volume segment.

Okay. And is there any sign that they will be shipping any Google-equipped cars anytime soon?

I haven't seen anything from them recently.

That's not for us, I am afraid, to comment on. No, I don't feel that we should do that.

Fully fair. Thank you very much.

Yes. Thanks Wim.

Thank you Wim.

Hi again. Sorry, I just had another one I thought I wanted to ask you.

It's on Apple. I mean if we look at Apple, they did their developer event and they announced that the map is done in the U.S.

basically and now they are starting to rollout in Europe including the U.K. If we look at, it's been two years since they announced that they would build their own map.

And when I look at your track record, you renewed the contract with Apple in 2015. So it's been five years now and maybe you signed even before you announced it, so maybe at least five years.

And if we look at the average length of the contract, I mean I think we are around this five, six or seven years. So my question is, since they are rolling out, would you then see impact from Apple on your enterprise business at all so far?

[AUDIO GAP] Impact from this in the next future either because the contract is coming to an end and we should expect some impact that the fact that they create their own maps? Just trying to, now it's been two years since they announced that.

You never explained if there is any impact on you. so I am just wanting to ask you.

Yes. Again, it's a commercially sensitive topic.

We have a long term relationship with Apple. The nature of his relationship is changing, as you rightly comment.

But it's too early to say if how that relationship will and/or what shape that relationship will take in the longer term future. So very difficult to comment on that.

It's commercially sensitive. We all know what Apple is doing.

We still have a very good relationship. We are sharing a lot of data and information.

I think that relationship is intact and I think there will be opportunities for extending that relationship. It will be of a different nature than it used to be.

Okay. And just to be clear, the fact that they finished the U.S., for example, do they still use TomTom maps in the U.S.

or it's now over?

No. In the U.S., they are don't use our maps any more.

They are still relying on some of the content that we have provided. But their mapping system has completely moved to their proprietary mapping effort.

Okay. That's very clear.

Thank you very much.

Thank you.

Since there are no further questions, I would like to thank you all for joining us this afternoon. Operator, you can close the call.