TomTom N.V.

Bruno Priuli - IR Harold Goddijn - CEO Taco Titulaer - CFO

Francois Bouvignies - UBS

Thank you, operator. Good afternoon, and welcome to our conference call during which we will discuss our operational highlights and financial results for the first quarter 2018.

With me today are Harold Goddijn, our CEO; and Taco Titulaer, TomTom's CFO. You can also listen to the call on our website, and a recording of the call will be available shortly afterwards.

As usual, I would like to point out that Safe Harbor applies. We will start today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the financial results from Taco.

We will then take your questions. And with that, Harold, I would like to hand it over to you.

That's great, thank you very much Bruno, welcome ladies and gentlemen, and thank you for joining us today. We started the year with a solid settled results, nearly 70% of our revenue is now derived from data, software & services, boosting our gross margin.

Automotive operational revenue in the quarter amounted to €78 million, and as an increase of 42% compared with the same quarter last year. Taco will provide further information on financial highlights and the financial outlook for 2018 later during this presentation.

I will discuss some of our operational highlights for the quarter. We announced in the quarter that both, Hyundai and Kia expanded their connected car services to include our OnStreet and Off-Street Parking information, Electrical Vehicle Service, and Fuel Prices.

These services will be available on all new Hyundai cars produced for Europe, starting from November 2018. For Kia drivers, it will be available starting with the next generation of Kia Ceed, and gradually will be applied to the whole model range by 2019.

We also announced the expansion of several of our connected car services. Our Electrical Vehicle Service was launched in North America.

We build a model for route-based range calculation and availability of electrical charging points along the route or close to the final destination of an electrical car that serves as a key component in managing so-called range anxiety for drivers of electrical vehicles. OnStreet Parking Service was expanded to 100 European cities.

We calculate the likelihood of finding a parking space closer to the destination and route drivers in the last mile along those roads where likelihood of finding a parking place is statistically the highest. The service has the potential to reduce in city traffic resulting from drivers searching for parking spot.

In relation to others and Autonomous driving, we saw the collaboration with Elektrobit and it's focused on demonstrating electronical rising base functionalities including features such as curved speed warning, fuel efficient driving and range determination. The joint project will combine TomTom AutoStream and Elektrobit's EB robinos Predictor to establish an easy-to-use demonstrator for the automotive market.

Our Telematics business continues to present double-digit growth and we surpassed 826,000 subscribers at the end of the quarter. This represents a 14% increase year-on-year.

Telematics launched it's completely redesigned web-fleet platform in the quarter. Web fleet has been rebuilt with new features like fresh and fast user experience that includes advanced analytics.

The new interface facilitates faster development and deployment of new applications, more powerful APIs for third-party application development. A new range of TomTom drafter [ph] were also launched in the quarter.

This concludes my part of the presentation and now I'm handing over to Taco.

Thank you, Harold. Let me make a couple of comments on the financials.

In the first quarter of 2018, we reported revenue of €192 million, which is 10% lower compared with last year, and in line with the guidance for the full year. Automotive, Enterprise and Telematics delivered a combined year-on-year revenue growth of 4%.

Automotive revenue was up with 11% to €50 million, the increase mainly came from the ramp-up of existing contracts. The deferred revenue position of automotive increased to €128 million at the end of the quarter, that's doubling year-on-year.

This contributed to our strong cash generation during the period. Enterprise revenue in the quarter was €30 million compared to €33 million in the same quarter in the last year, the decline was mainly caused by weaker U.S.

Dollar. Telematics revenue was up with 7% to €43 million, the recurring subscription revenue year-on-year increased by 8% to €33 million.

Consumer revenue decreased with 28% to €69 million, close to 80% of our revenue is PND related with the remaining revenue being split between automotive hardware, sports and navigation apps. Nearly 70% of our revenue in the quarter now comes from data so far in services.

Gross margin was strong at 70% increasing by 7 percentage points year-on-year as a constant currency rate for the U.S. Dollar and the Pound.

Q1 2018 gross margin would have 67%, we provide more details on this in the press release. Total operating expense, OpEx for the quarter was €127 million which is €8 million lower compared with the same quarter of last year.

The decrease in the R&D, SG&A and marketing is driven by consumer. The decline partly offset by increased investment in research and development in our navigation technology including our map platform.

EBITDA increased with 30% year-on-year to €44 million. EBIT was €7 million positive.

The net results adjusted for movement of deferred and in-built revenue and deferred cost of sales from a post-tax basis was €23 million which translates in an adjusted earnings per share of €0.10. This compares to a €7 million loss and an adjusted earnings per share of minus €0.03 in Q1 2017.

At the end of the quarter, we reported the cash position of €129 million and a deferred revenue position combined of €275 million. On the next slide we see the strong growth in operational revenue.

As shown throughout last year, this slide highlights the operational revenue of automotive. Operational revenue is the reported revenue plus net change in the deferred and in-built revenue positions.

As we sell products to Automotive, that includes multi-year updates and/or subscriptions, some of that revenue is deferred. Automotive operational revenue in the quarter amounted to €78 million and an increase of 42% year-on-year.

This compares to 32% growth in Q1 2017 versus Q1 2016. Order intakes from the past years will continue to contribute to strong growth of our automotive business in the coming years.

It will deliver growth through our recognized IFRS revenue, but it will also continue to increase the deferred revenue position. Then the next slide on the outlook of 2018.

We are reiterating our outlook, we expect revenue of around €800 million, and gross margin close to 70% and adjusted earnings per share of around €0.25 and OpEx and CapEx combined, excluding potential acquisitions of around €700 million. As mentioned in our Q4 of full year 2017 earnings call, we needed additional time to evaluate the impact of the new accounting on our Automotive contracts, we have now gone through all the contracts and give an outlook for the revenue CAGR.

The expected combined revenue of Automotive, Enterprise and Telematics to grow at a CAGR of around 12.5% between 2016 and 2020. Operator, we will now like to start with Q&A Session.

First of all, if we look at the Telematics business, results were actually quite in line for the quarter with one exception is that the number of net additions in terms of number of uses was only 17,000 which seems a bit less in historical perspective. So can you bit of explain what's happening there and if we should expect kind of a ramp up in the quarters to come?

Then in terms of the adjustment in the guidance in terms of the CAGR that you are looking for in the coming years, it is now down from 15% growth to 12.5% growth; can you explain to me how that works exactly with the accounting change? Is the balance going into deferred revenues or how should we look at that?

And also can you give us a bit of a mix on how to look at it as a strong growth in Automotive, decent growth in Telematics and steady with Enterprise or how should I look at that mix? Those would be my first two questions.

Let me start with the second question, CAGR. So the CAGR is based on three different revenue streams, one is Enterprise, second is Telematics and the third one is Automotive.

If you compare our estimates from 2016, end of 2016 or with where we are today, there have been some changes. Let me start with Enterprise; Enterprise back in 2016 had a stronger dollar than what we see today and that has it's effect, it does not have a distraction on the starting position, so it doesn't change in 2016, a revenue number for Enterprise but it has it's effect for the coming years because we work with an exchange rate that is materially lower.

Then Telematics, we've seen that Telematics reported 4% revenue growth last year, we have indicated to the market with the full year results that we estimate that we'll repeat itself this year slightly better, maybe 5% this year but again, here the assumptions that we had back in 2016 were probably more positive because we relied then on 2015-2016 and now that we know what 2017 has delivered to Telematics and what we know or what we think 2018 will deliver that has it's effect with Telematics molding [ph]. Then on the positive side we see Automotive; Automotive in 2016 was one of the indications that we used to extrapolate revenue for Automotive was of course or intake back in 2016 we were close to close the order intake of €300 million.

Then the year after we realized €400 million, so when we have to do the calculation, the math again for this year -- we are probably a bit more optimistic about Automotive but there is also some change in the nature of the contract where in 2016 the reported revenue was very much coming from traditional way of supplying [indiscernible] that does mean that it doesn't include mapped updates. Today and also in the near future we see close to 100% adaptation of that mapped update structure; that means that you need to be furthermore revenue than you used to in the past.

So it is due to the new accounting but that's also due to the new deal structure. Again, the operational revenue -- the expectation for operational revenue early 2018 is better than the operational revenue that we had in 2016 but the nature of the contract has it's effect on the reported revenue.

Also tying into your comments about your first question on Telematics that is the result of the slowdown that we experienced last year, that's also continuing early this year. We have a list of actions that we're taking and rolling out, our goal is to get back to double-digit growth that is not foreseen for this year though.

Okay. And in Telematics, are you guys winning market share, losing market share; how should I look at that?

That's a very relevant question. The fact of the matter is that independent research is bit lacking in this industry and so often very late.

So it takes now close to 12 to 18 months before we get market share data from the research houses that monitor this market. Based on that data, we're definitely not losing market share, I think there is some consolidation happening in the market, that's true.

So the number of spares is -- the list of players is getting shorter, that said, we are by far a dominant player in these [ph].

The first one I had is on the automotive and maybe some qualitative comments on the bookings that you see this year; so if you -- as you remember correctly, you said in Q4 that you were seeing the number of deals lower in '18 than '17; so is it scaled again -- how is it evolving through the quarter? Is there any change to these statements?

And also you said in Q4 that you were not erasing customers and adding new one; and I wanted to ask you if it was still the case this year? How you feel about that?

And I have other questions.

To the best of -- so we -- our sales people and current people and market people are trying to calculate as well as they can this total addressable market for this year. And we expect that the total addressable market for 2018 is smaller than it was in 2017.

That's all a hard number we can give you here, things changed during the year, new opportunities pop-up, other opportunities are postponed, carried over to next year, but the general feeling we have is that it will be smaller. Now just to say much about a win rate, it's difficult to predict and give you guidance there, that's not part of the guidance but I think the overall addressable market for 2018 is lower than it was last year.

And then the second question, you can repeat it please, I'm not sure I got that.

You said in Q4 that you didn't lose any customers and you added the new ones; I was just wondering if you feel the same about this year -- how is it looking?

Again, difficult to say, those are binary events. I can't give you any further information there but it's true that in 2017 we didn't lose customers and we made some wins.

So I hope that pattern will continue but I can't give you any guidance there obviously.

Okay, thank you. And on the HD-maps [ph] maybe, do you see maybe the first contracts coming this year or how should we think about the timeline?

Well, this year we will launch -- one of our customers will launch a product that is dependent on maps; it's not high volume but it's kind of indicative of things happening. So in this particular case, our maps are used in a truck and then the map is used for cruise control and the idea is that if you know exactly what the route looks like and where you need to stop them, where you have curves and we'll have you -- you can optimize bio-maps [ph] into truck ended results in actually quite significant fuel reduction, especially in hilly terrain and the numbers quoted by our customer are ranging to going upto 5% fuel savings.

So there we -- you use an AG map [ph], it has the maximum speed data, it has the crossings to spot signs, it has the traffic lights, new curves and all the other information used to manage the depth of cruise control and pilot training. And that is also the type of application that we're looking for when we're talking to more advanced adaptive cruise control.

So that is -- that is an example where we're going through the different levels of automation and I think it's fair to say that the bulk of applications will [indiscernible] that will fly fully automated driving, in the short-term that will level 2.5, level 3 and gradually moving upto higher degrees of automation going forward.

Okay, thank you. And as a question, maybe on -- if you could clarify on the confusions with the rate of news saying that you were hiring to look for opportunities -- I just wanted to have your comment on this and maybe clarify if there is anything missing that you can do.

Yes. So I'd like to stress at normally rumors we don't comment on; this time it was very specific, the steady share price doesn't move so we had to come out with statement.

But the fact of the matter is that those rumors were not based on fact and no true; so I'm quite have to repeat that here that I was not saying off the nature.

Okay, thank you. And the other question I have is on your gross margin and then the deferred revenues.

So if you look at the gross margins in Q1, it seems quite strong; even -- I mean, also because of the currency but don't you feel that the 70% -- close to 70% for the full year is a bit too conservative at this stage, especially given the mix that is gaining more and more positive through the year?

I don't want to make Q1 -- so, we're very happy with Q1. Q1 was a good quarter, on multiple elements with EBITDA, cash generation, and indeed also including gross margin.

Gross margin was held by currency that we give details splits of that in our press release; but that said, this was a strong gross margin, you could ask the same question about -- just down per share of €0.10, that is also a strong start for the year and if you compare that with the full year guidance, there might be room for upside but we want to take the coming months to do proper assessment of how we see the year progressing and we've given an update in July with our H1 results.

And on the deferred revenues, I mean when you talk about these adjusted net results; I mean if you look at the net move you had like €21 million, if I remember correctly, you said in Q4 that you would expect the €17 million of €24 million to double in '18. First, I mean, do you -- is it still the case?

And if it's the case, how should we think about the phasing because for us it's very complicated to forecast, obviously we don't have any visibility on when you can get this. So you have given that you had €20 million already in Q1, how should we think about the next quarters?

You're referring to €20 million…

So in 2017, I think that €24 million of net deferred and you said in the conference call that you expected this number to double; is that in '18 -- is that right?

For the full year?

Yes, for the full year.

Yes, we'll stay with that statement.

And you said more than double and you had €21 million in Q1 already, but it's €24 million in the full year '17; so I was just wondering how should we think about the phasing? I mean you are obviously in a very strong start of the year.

Yes, that's true but there are couple of things. So consumer -- the -- I expected release to grow, now significant but it will grow quarter-over-quarter.

And the other thing is that we need enterprise, there was -- that's related to timing of payment and us sending invoices. If you compare the net effect in Q1 2017 with the net effect in Q1 2018, there is €10 million difference and that is just timing.

I couldn't call seasonality because we compare Q1 with Q1 but it has to do with timing. So we stay with the statement, again, Q1 is a strong start of the year; I don't want to make it smaller than it is that we need a bit of more time to do a proper update of our outlook.

Okay. And in terms of phasing, I mean should we expect a particular quarter with -- I mean, if you look at last year you add in Q3 big release in the net move -- should we think about the same pattern this year?

Yes.

Alright, thank you very much. I will leave the floor to others for the questions.

Thank you.

Thank you.

If there is no additional questions, I would like to thank you all for joining us this afternoon. If you have any follow-up questions, please don't hesitate to give us a call.

Operator, you can close the call.