TomTom N.V. (TOM2) Earnings Call Transcript & Summary

[Audio Gap] decline was in line with expectations and revenue remains on track for the full year. Let me briefly break down our top line performance. Start with Automotive revenue. came in at EUR 81 million for the quarter, a 6% decrease year-on-year. Automotive operational revenue was 76 million, down 2% year-on-year. Excluding currency effects, revenue was more or less stable with higher production volumes at certain customers, offsetting the ramp-down of some vehicle programs. Enterprise revenue was EUR 38 million, down 4% year-on-year. On a constant currency basis, revenue was stable year-on-year. Taken together, our [ Location Technologies ] segment generated EUR [ 119 ] million, which is 5% lower than last year. Finally, the Consumer segment declined as expected, Consumer revenue was EUR 15 million, down 24% year-on-year, reflecting the continued contraction of the PND market. and also memory supply constraints. Gross margin improved to 90%, up from 88% last year. This increase was driven by a high proportion of high-margin location technology revenue in our mix. Operating expenses were EUR 113 million, a reduction of EUR 35 million compared with the same period last year. extraordinary restructuring charge in the prior year, underlying operating expenses decreased, mainly reflecting lower personnel costs following the organizational realignment and one-off items in prior years. As a result, our operating result was EUR 9 million compared with a loss of EUR 20 million in the same quarter last year. Our operating margin was 6%, a sharp improvement year-on-year. Free cash flow for the quarter was an outflow of EUR 8 million compared with an inflow of EUR 40 million last year. During the quarter, we completed our 15 million share buyback program. We ended the quarter with a net cash position of EUR 234 million with no outstanding bank borrowings. Then on to the outlook. We are on track for revenue development is progressing as expected, and we're delivering improvements in profitability driven by strong gross margins and disciplined cost control. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of EUR 495 million to EUR 555 million with location technology revenue of EUR [ 435 ] million to EUR 485 million and an operating margin of around 3% for the full year. As already mentioned by Mike, we see a path towards revenue growth next year for total revenue, excluding consumer. We also expect a further strengthening of both our gross and operating margins. And with that, we are ready to take your questions. Operator, please start the Q&A.

[Operator Instructions] We will take our first question, and the question comes from the line of Andrew Hayman from Independent Minds. .

Maybe to add just a broad question for Mike to start with, and this is your first call. I mean, there's clearly going to be considerable continuity at TomTom given your appointment and the length of time you've been with the company. But I could imagine that there are some adjustments that you want to make. Is there anything you could outline on shifts that you're looking to implement within the company?

Yes. Thank you, Andrew, for that question. So as you say, we have -- we want to see continuity as well. We have a strong foundation with the backlog and in both Automotive and Enterprise. But what I already said in my opening, you see a strong, let's say, growth segments in industry in both automotive and location intelligence. And we want to concentrate also in those growth markets. So if you look at automated driving, there's clearly investments happening from the industry and there's margin and value in those. And for us, we see a clear product market fit, and we have an edge there. So we're investing and we already have proof points with a strong deal with the VW Group. So we want to double down. That's an important topic, in order to do that, you need to make choices and to say that you go after those markets. The other part -- and by the way, before I move to Location Intelligence and Enterprise is also that you see a shift from purely navigation into automated driving where that gets visualized into the infotainment system of a car. So it's not just navigation anymore. It all comes together that technology, which is a very strong momentum where we want to play a key role. So that's quite important for us to have the right positioning with our data and our services. Outside of automotive, that location intelligence part is also fast growing, but it's a fast landscape. So also there, you need to pick your battles. And what we can see is with the whole shift of AI consumable data, the data is fuel, and it's very strong. And people look for fresh wide coverage qualitative data, with rich in features and attributes, and we have that. That's our fuel in our baseline. Now we need to -- we're investing into making that AI consumable, which is accelerating the adoption in our existing segments, but also opening new use cases. And in order to grow there, you need to be more relevant in those industries with that interface, you build on top of your data, which we're doing, and also moving higher up the stack in terms of location analytics enabling decisions from your customers instead of just pure all data. So there's a shift happening there, which we see in terms of how we invest in our product stack as well to accelerate in growth markets. And that's more the concentration where we see the landscape moving, where we see growth in the industry with high margin, strong value and a competitive edge. And we go more in those directions in terms of investment and concentrate in go to market.

Okay. Interesting. And then you did specifically mention VW, I mean, obviously, in the news at the moment, there's a lot of news about cuts that they're planning to make. Are you seeing that impact you at all? Or are you finding that actually the potential business there is just as interesting because levels of automation look like they'll be higher than maybe you want thought?

So if you look at across the board, in the car industry, there's a lot of turmoil in that industry, right? We see a lot of things happening because the big decisions on EV, software, AI, automated driving. So there's almost no exceptions there across the board globally. VW is one of them, are a little bit closer to our doorstep in Europe and maybe there's a lot of things going on. But what we see is that -- there is that requirement and that push across the globe to invest in automated driving capabilities of L2+ that's happening everywhere, right? So there's no slowing down there. regardless of reorgs in the automotive industry and decisions they need to take. We see those programs have high intensity and high pressure, and they need to be delivered for competitiveness as well, especially what you see coming overseas from China. So all that to say, I don't see an impact. The solutions need to be driven to the market to be competitive across the board.

Sorry, were you going to add something?

Yes. So and we are working very closely with our partners to bring those solutions to the market. So that's not changing.

Okay. Okay. And then just specifically on this quarter, I mean the free cash flow was quite soft. And you already said that for the year, free cash flow will be negative as you invest in lane level maps. But any detail on that would be helpful. I mean, will you -- what do you expect for the full year for free cash flow? Would there be some reversal from Q2?

No, I think for the full year, free cash flow will be negative -- will continue to be negative. I think that we will gradually slow down, which you have seasonal patterns or working capital that we don't want to influence. That said, we are on track to reverse that trend for next year. But for this year, the free cash flow will continue to be negative.

Okay. And then one other number question. The operating expenses decreased EUR 10 million year-over-year if you strip out the restructuring. But there's also a mention of a one-off reversal of previously capitalized contract costs booked in Q2 '25. Do you have any details on that, for example, the size of it? And why was it reversed?