TomTom N.V.

Thank you, operator. Good afternoon and welcome to the conference call during which we will discuss our operational and financial highlights for the fourth quarter and full year 2019.

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 it over to you.

Yeah, thank you very much Bruno and welcome to our conference call. We closed 2019 on a positive note with strong gross margin and cash generation.

The full year results were in line with our latest guidance and we expect this location technology business to continue to grow in the coming years. 2019 was an important year for TomTom.

We finalized the Telematics divestment and we are now more focused Location Technology business. Our advanced mapping platform technology helps us to claim a leading in the emerging HD Map market and the Enterprise business showed strong revenue growth.

Taco will provide further information on the financial highlights and the financial outlook for 2020 later during his presentation and I will discuss our key operational highlights and strategic priority for the year. During our Capital Markets Day, we introduced Automotive backlog as a new KPI to give you better visibility on our future Automotive revenue development.

The Automotive backlog represents this sum of the total expected IFRS revenue resulting from all existing awarded deals. The Automotive backlog increased since the end of Q2 2019 around €1.6 billion to around €1.8 billion.

Order intake and win rate were high. We converted most of the opportunities that were available to us, including the first HD Map deals.

We recently announced a series of new Automotive deals. Fiat Chrysler chose TomTom as its global supplier for maps, navigation, traffic, and other services for a new Uconnect 5 Infotainment System.

The brands Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Lancia and Ram Trucks will all benefit from our products. Our ADAS Map was integrated into Daimler Trucks predictive powertrain control system, and that allows for certain driving functions in the truck to be automated on highways and into urban roads by automatically adapting speed and predicting gear shifting based on the road ahead.

The technology delivers a safer, more comfortable ride, but most importantly at least a significant fuel savings of up to 5% per vehicle as well as lower CO2 emissions. The new deal with Subaru was announced for the 2020 Subaru Outback and the Legacy U.S.

vehicle models. Subaru selected our global map as well as the navigation software and a new user interface was developed for the next generation infotainment platform.

In the next slide, I want to give you a short overview of our strategic priorities for 2020 and beyond. We're all excited about the progress we've made so far and the opportunities that are ahead of us.

And to keep that positive momentum we'll continue to invest in strategic areas whilst maintaining a positive free cash flow philosophy. We'll continue to advance our mapmaking capabilities, investments in software, machine learning, and artificial intelligence will lead to high degree of automation and that result in faster cycle times, lower operational costs for modification, and generally more competitive mapping platform.

Spending less money in maintaining and building the map allows them more innovation and differentiating technologies and applications. And that's a very critical component to our future success.

In the Automotive business we are transitioning our vehicle integrated navigation system to an old line service. This will allow us to deliver much improved user experience.

We will further strengthen our Maps APIs that are successful. We have early traction, especially in the enterprise space.

All in all, we are in a strong position, we are in a stronger position than last year. We have a clear product roadmap, fantastic team, and a strong balance sheet.

And top of that we're generating cash so we are ready to capture the opportunities that will open up over the years to come both in the mid-term and certainly in the longer-term. This concludes my part of the presentation, I am handing over to Taco for more detailed overview of the finances.

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

In the fourth quarter of 2019 we reported group revenue of €156 million, which is 10% lower compared with last year. Main reason for the lower group revenue is the anticipated decline in consumer.

Location Technology represents roughly 70% of our group revenue and increased 4% year-on-year to €110 million. Let me go through the details one by one.

Automotive IFRS revenue was down by 6% to €69 million in the quarter while operational revenue of Automotive increased by 20% to €116 million. Enterprise revenue was up by 25 -- 24% to €41 million in the quarter.

Consumer revenue was down by 32% to €46 million in the quarter reflecting a decrease in both consumer product as well as Automotive partner revenue. Gross margin was strong at 79% during the quarter increasing by 12 percentage points year-on-year.

This improvement is mainly the result of a larger proportion of high margin software and content revenue versus hardware in our revenue mix. Total operating expenses in the quarter was €202 million, an increase of €72 million compared with the same quarter last year.

As explained in the previous quarters the change in the estimated remaining useful life for map database increased amortization expenses. Also R&D expenses increased due to lower capitalization of tools and content.

Higher personnel cost incurred to support our growing Location Technology business and a €7 million onetime restructuring expense due to a higher degree of automation in our map making system. Moreover our SG&A shows a year-on-year increase mainly due to a onetime gain of €13 million resulting from a litigation settlement during the fourth quarter of 2018.

The free cash flow from continuing operations was an inflow of 48 million in the quarter which is €18 million below last year. The lower cash generated from operations is mainly the result of higher personnel expenses and a one off cash related to the litigation settlements in the fourth quarter of 2018.

Our deferred revenue position is now €369 million compared with €281 million at the end of 2018. Automotive and Consumer maintained their trends which means Automotive was up with 106 million to now 278 million and Consumer is down with 24 million to now 68 million.

At the end of 2019 we reported the net cash position of €437 million. We will execute share buyback of up to €50 million which represents 4% of our total issued share capital.

The share buyback program covers our long-term incentive plans. Our expectations are that the share buyback will be completed before the year ends.

Now let me comment on the guidance on the next slide. We delivered on our guidance for 2019.

Group revenue for the full year totaled €701 million, 4% above the initial guidance of €675 million. Our consumer business outperforms our initial expectations as a result of replacement sales due to the GPS weak number rollover issue.

Gross margin over the year came in strong at 74%. The adjusted net results for the full year from continuing operations of €34 million which translates to an adjusted earnings per share of €0.20.

Free cash flow as a percentage of revenue was 9% close to our initial outlook. Let's now move on to the outlook for 2020 in more detail.

We expect Location Technology's revenue to be between €450 million and €475 million in 2020. We reiterate our mid-term revenue guidance for the segments to grow its revenue to around €500 million by 2021 which represents CAGR of around 10% for the period between 2018 and 2021.

Our expectations are supported by a growing Automotive backlog of around €1.8 billion and the growth of our Enterprise business. We'll continue to invest to improve our competitive position to capture market opportunities.

Free cash flow for the year is expected to be mid-to-high single-digits percentage of Group revenue which with a double-digit FCF as a percentage of Group revenue as a mid-term target. The Automotive backlog on the next slide.

During our Capital Market Day we introduced Automotive backlog as a new KPI with the aim of getting better visibility of our future Automotive revenue. Our Automotive backlog increased since the end of H1 2019 from around €1.6 billion to around €1.8 billion.

The Automotive backlog represents some of the total expected IFRS revenue resulting from all existing awarded of multitudes. Changes in the backlog are the result of revenue recognition during the period.

In this case the reported revenue in H2 bring it down with €125 million offset by an increase as a result of the culmination of estimates of the cumulative value of newly awarded contracts and a reassessment of the previously awarded contracts which amounts to €325. The phasing of 1.8 billion backlog into revenue is shown on this slide where you can see that two thirds will be reported from 2022 onwards.

We'll give an update on the Automotive backlog on an annual basis during our full year results. Looking at the profile of our balance sheets on Slide 9, as previously explained the nature of our technologies and product is changing.

The quality of our products materially increased over the years and the value of our map database is more determined by its refreshed status. We will capitalize a lot less and what we capitalize will be for a shorter duration on our balance sheet, we will therefore amortize faster as well.

In 2019 we had a total D&A €292 million and this level of amortization will continue in 2020. We expect our intangible assets to be below €200 million by the end of 2020 as shown on this slide.

As of 2021 the annual amortization will be much lower and will continue to decline in the years. I would now like to comment on our expected 2020 cash burns and particularly our R&D spend on the next slide.

Our total cash spend in 2019 increased compared to 2018 with 14%. For 2020 we expect a more limited increase in our total cash spend.

As mentioned by Harold earlier we'll continue to invest in R&D especially in our map making platform to achieve a higher degree of automation to provide better maps at lower costs. We'll also continue to invest in our online architecture [ph] to deliver great user experience for connected cars and to improve our map APIs.

Operator this concludes my remarks. We will now like to start with the Q&A session.

Thank you very much. And the first question I had is on your orders.

Harold you talk about the orders intake has been solid in 2019. I just wanted to have your view on what is driving that, is it a market that is growing fast or is it because of your market share, any specific around that and how do you see the order intake for 2020 although you don't disclose the order bookings anymore just to have a qualitative comments around it, that would be my first question?

Yeah, first of all thank you. So I think generally speaking we have significantly invested into last year's in everything that has to do with the navigation on board.

We have a couple of class leading products here including traffic and our navigation software is now clear market leader. There is not that many players who can keep up the investment levels that are required for in-car navigation including the move to online.

We've been doing that consistently. I think our customers are happy with the products they take from us, so we are happy that we haven't lost any customers, we get repeat orders, and generally speaking we're winning market share.

It's a combination of all that that helps us to get stronger in that market. And I expect those trends to continue especially now with online navigation that is not easy to master.

You need to understand that contrary to what you see on a mobile phone in a car, navigation system needs to work online but there also needs to be an off line fallback position here, car park, garage or even if connectivity is not available at all. That means you need to be able to deliver a hybrid experience that gives the optimum user experience in online situation and let's say somewhat degraded but still acceptable performance when there is no connectivity.

Definitely I think we're leading the pack I see. I think our customers are seeing that, they're generally happy with the product roadmap, and I think on the strength of that product roadmap I believe that in vehicle infotainment we can continue to win market share.

And for the 2020 or during take as a whole for the market do you see that as a like -- better year than at 2019 or 2018 or how do you see the addressable market to some extent?

Yeah, it's hard to predict what the available market is. It's -- I don’t want to say anything about the size of the available market, two sides we think that [ph] we don't know enough about it at this stage to give you an accurate report.

What we do see however is a slight change in attitudes with Automotive customers and they're more looking for more strategic and longer-term partnerships rather than the best price on the latest set of RFT and RFI and I think that's driven by the insight and the requirement to work more collaboratively and more efficiently to provide a much better user experience that what we have seen in the past when things were changing rapidly. So I think there is some positive trends there that will help us to establish those longer-term partnerships and solidify them in 2020.

What do you mean, I mean is it like the contracts are longer or are concretely -- what does it mean that this changed?

Well, so I think traditionally what we have seen is that order, that contract you win in the Automotive industry is very much RFQ, request for quotation driven and mostly driven by where purchasing department has the latest and the last say in which software developer selects this to power the next generation. That mobile has some problems.

Most importantly is that you need -- a car maker needs to start all over again with a completely new software stack, new integration, new level of risk, and a level of capital destruction goes with that. I think the trend now seems to start heading for more longer-term partnerships where you work in a more collaborative fashion to deliver lower location component in an IVI system on a longer-term scale.

More as a partner than as a vendor and I think that is -- we've been waiting for that change. I see that change is overdue but we now see the first signs that that's actually happening.

Okay, that's interesting. And on these two maps, I mean you talked briefly about the first set of HD maps.

Should we expect -- is it like the track or is it like for cars now because… Yeah.

So the first one was unique for trucks and we made a reference to that deal in our comments earlier. It's very much an 2018 [ph] map product that is used in a slightly different way.

We now have one deals for passenger cars as well. And 2019 it was an important one to get confirmation that what we think is the right product is actually meeting market expectations.

Okay. And can you really have the sense of the pricing versus a traditional map, I'm not asking the price but just the magnitude of the average selling price for example?

Well, what -- I think what we see for the first time is that the car makers want a subscription model with us so you get a -- the first contract we sign are a certain amount of money per year subscription for a fairly long period of time. So you get a more recurring revenue stream out of HD Maps.

That's what we're seeing so far. There's a word of caution of course and that is that the full automated driving is taking longer.

But what we do see is more and more higher levels of automation in vehicles that start to benefit from HD Maps. I think the most important significant development we're seeing is kind of the what we've got cruise control and steroids where the car not only keeps its speed but it keeps its speed depends on the maximum speed, traffic conditions.

Car can overtake, can prepare for leaving the motorway, and so on and so forth. And for those level 2.5 applications HD Maps are now requested by a number of carmakers.

Okay, and last one for me is HD Maps do you expect their contracts to be meaningful in 2020 for you in terms of size of your bookings?

For 2020 the import revenue will not be meaningful. Bookings hopefully will continue in 2020.

Revenue will follow in later years.

Okay, okay. Thank you very much for your answers.

Thank you. My first question would be on the FCA contract that you announced earlier this month or last month.

Could you talk a bit more about what is the scope increase versus the issuers at FCA contract that you have, I'm talking about is it going to be a larger number of clients but it is also clearly that you have increased the software part that you put into it and the functionality that you put into it? And related to that this extra functionality that you're adding is that something that -- is it more or less a blueprint for other contacts for other clients going into the future?

So we had traditionally strong relationships on the Italian side and Fiat has been a customer for us for a very long time. But we've never really managed to increase our footprint in Detroit.

That has changed dramatically with this contract that we signed sometime ago. So for us only it's a major breakthrough in the North American market as well as the Big Three.

It was crucial due for us to win, we did win it. Not only did we get the mandate but we've also been asked by FCA to bring -- have a bigger impact -- a better input and responsibility for the end user experience.

So what you see here, what we pioneered with Fiat Chrysler is that the large part of the responsibility for user experience and user interaction was with TomTom. So we not only engineered all thing but we did extensive market research and testing and to make sure that the offered solution is fit for purpose in the North American context as part of the wider API [ph] software system that everything is well integrated.

And I'm very, very pleased with the way that worked both in terms of product but mostly in terms of collaboration. It was a very collaborative effort, very efficient software development, and I've seen a lot of smiling executives all around.

So I think that's a good blueprint for us to have a more meaningful role and more responsibility for what the end product looks like. Very excited, we are going to launch and I think in four or five months from now the first vehicles will go into the market.

We have high expectations and for us this was a critical deal to establish a footprint in the North American market.

Okay, and the blueprint path for other clients and we're not looking at the numbers but the license fee that you get per car is that significantly higher than you used to get for the old FCA contract?

Well it's a different content, I am not in a position to discuss commercials but it's a full stack product including map update, including services, traffic information, routine EV charging points, and availability. It's complete software stack that we deliver and maintain with a significant proportion of online services that come with that package.

So both in terms of volume, strategic positioning, course yield product this is a very critical deal for us.

Okay, clear. And the second question will be on the Automotive revenue should you kind of picked up the market they will be more or less flattish year-over-year in 2020 partly because this contract is going to come online in the second half of the year, but still I would like to get the inevitable feel of what's happening on the operational revenues because if I'm correct then the deferred part is expected to be a bit lower this year than last year, so that would imply that operational readiness for Automotive would be down year-over-year which I can't really square with, and there is some extra contract coming online with the comment on the higher take away which pushed up the backlog.

Could you explain really the moving parts there please?

So let me first answer your question on the, sorry Marc I am just taking my numbers in front of me. The deferred revenue of Automotives increased in 2019 with 115.

If you -- and the expectation for next year is that it will increase again with 105. So the part of this deferred goes up with 105 that is indeed a bit lower than what we've seen in 2019.

The IFRS revenue, the increased guidance that we've given is that enterprise would go up 5% roughly this year and Automotive with 10%. Does that answer your questions?

Yeah. I mean it shows where you will be at the end.

Yeah but still it seems rather low growth from the outer operational revenue perspective and given the two points made before, any FCA contract coming online and also the higher…

The FCA will -- the production will be in the second half of 2020. What you normally see is that that will start with one car line, etc.

So the full revenue effects will not really materialize in 2020.

Okay clear. And then on the cost side, the cash cost side, as we already explained it will be will be up but not as much as before and doing a bit more math you can get to that number?

Yes, we can. So the OPEX had a total OPEX including D&A and excluding CAPEX was 746 in 2019.

We expect that that would grow to roughly 780 within a fairly flat D&A number and further declining our CAPEX number of, yeah, the CAPEX is expected to decline but we do not have 10 million.

Great, thank you.

Yes sir. Good afternoon.

First of all on the backlog, you showed quite a healthy increase in the second half of about 200 million. I understand that it's a bit of a split between new order wins that we will likely hear about two years from now and a bit of contracts kind of reassessments if you will.

Can you give us a bit of feeling what type of contracts you have won in this particular number, so are we talking about HD Maps or ADAS or SD, is it more related to services etcetera? And my second question would be on IVI, during the Capital Markets Day you already mentioned that you are planning to play a bigger role.

I think we've seen the first signs of an increased presence of you guys in IVI software if you will with the Subaru contracts and also to a lesser extent but also included in the FCA contract. So can you give us a bit of a feeling what are the critical roadblocks that you -- or milestones that you need to accomplish to kind of get your product line up in this particular space up to speed and can you share with us what the customer feedback has been so far in terms of the discussions that you had with clients?

Those were my two first questions.

Yeah, on the new order. Yeah I will say everything you mentioned but with the exception from HD mapping deals, we closed some of those but that was in the H1.

There was nothing that we lost by the way but there was nothing to win in H2. But the nature of the order intake was a combination of mapping and ADAS, traditional mapping ADAS and services.

And with existing clients or also new clients?

Existing clients.

Fair, and then with respect to the role that you intend to play in kind of a more holistic approach about IVI software?

Yeah, Wim so I am sure you follow the industry where FCS [ph] is starting to make comments about the complexity of the software landscape and we've seen some dramatic problems in 2019 with major car lines and major product interactions being delayed because of software issues that are kind of demonstrate the complexity of what the industry is trying to achieve here. That is seen as a problem, increasingly also by the car executives and they are looking for a more effective way of bringing software into dashboard.

And we think we can play a role there. That also drives for us to come up with the IVI concept which is on one hand a simplification in the underlying technology and on the other hand provides much better integration and user interface not only for traditional navigation but also some integrated safety features like debt support, debt corner overtaking other ADAS functionality like adaptive speed control and what have you.

There is a clear need to achieve a level of simplification but also sophistication in order to bring software in dashboard. What we are doing, we're playing a role here in reboot.

We've developed a couple of Lighthouse products, IVI is one of them. We are marketing that actively with our customers.

We are doing workshops, we try to understand the level of appetite and influence our key customers want to have on the development of the road map. I think the feedback we've collected so far is positive both FCS as well what we see in one-on-ones and it's a clear view from TomTom what the future of IVI can look like and we are very excited to develop that thinking that pull us further in 2020 together with some of our leading customers.

And in terms of software development from a technological perspective. Are you guys already where you need to be or are there more meaningful investments to be made to make this product line up or basically live up to the expectations of the car executives?

Well, there is a minimum viable product, but you need to continue to invest in this stuff continuously. There is, it's quite relentless, but we would be ready for commercial introduction in 2022 and it's 2021.

That's the time line we have in mind that is within the realm of possibilities. But it's not just that we love what we're doing and we have been doing over the last couple of years would contribute to that design vision.

And yeah, I think we're making good progress. There is a little bit of excitement, a little of enthusiasm to keep going in this direction.

Very good and some of the order intake that you already reported to date does it include the IVI stuff that we just discussed or is this still more in a, let's say, marketing phase if you will and not yet embedded in order intake?

No, it's not in the order intake. This is clearly pre-RFI, pre-RFQ work that we are now committing to together with some of our key customers.

Very good, then I have a question on the share buyback. You mentioned that you're going to do a 50 million share buyback, but you're not going to cancel any share, so it's to offset the dilution from share based payments.

If I look back at my cash flow statements to 2012, you have a cumulative share based compensation of about 30 million. So I do understand that you have an ongoing dilution of about 1 million shares based on share performance plans.

But the gap still seems a bit big for me. So can you maybe explain to me a little bit better what the gap is that we are looking at or are you already kind of front loading, if you will, on treasury shares in order to be able to kind of offset the dilution that you expect in future years?

You're correct is that the run rates for at least this year and what we have seen in the last couple of years is roughly €1 million. So the backlog where we are today is 5.4 and we have less than 1 million treasury shares left from our previous share buyback.

So, by the end of Q2 these numbers -- so if you look at the current treasury shares at less than 1 million, the backlog over 5 million adding another million this year. If you multiply the 5 million times the share price roughly of today of €10 that you end up the 50 million.

Fair and the backlog of 5.5 -- sorry a different approach to the thing, how long is your typical vesting periods, in other words…

Three years.

Three years. So how do we get to a backlog of 5.5 million if the run rate is a million shares a year?

Yeah, there are some -- there's a combination of RSUs options, so you can have options that can be exercised after three years, but they have a longer tenure of seven years. So they are exercising, but they are not being exercised.

That's fairly skewed. Last question from my end, you mentioned Harold in the prepared remarks that you had an excellent win rates.

Can you let's say quantify that or can you give us a bit more feeling on market share developments based on your internal calculations in 2019?

No, I don't have those number also because of course, the German kind of what's happening there is not very transparent to us. What we do know is especially on the software side, our market share, we are now the largest funder of navigation software for embedded systems in the open street.

And we can also see that a lot of companies who used to have an offering in this space are no longer offering that. So there is a level of consolidation take place and we are the prime beneficiary of that.

What we do know is marketing and traffic is high. 85% market share in Europe and about 40% market share in North America for embedded systems so that's good.

And the investment in creating modular software components that can be used to cost efficiently build a good product are really starting to pay with significant market share win but also consolidation as I said earlier, it's kind of good to see that really happening and that is I think it's a positive trend for us.

Very helpful, thank you very much.

You're welcome. 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.