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MarketScreener Homepage  >  Equities  >  Euronext Amsterdam  >  TomTom NV    TOM2   NL0013332471


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TomTom : Q3 2020 investor call transcript

10/16/2020 | 10:55am EST



TOM2.AS - Q3 2020 TomTom NV Earnings Call


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call


HaroldC.A.Goddijn TomTomN.V. -Co-Founder, Chairmanofthe Management Board& CEO

TacoJ.F.Titulaer TomTom N.V.-Member ofManagement Board&CFO

MeganDaniellTomTom N.V. - InvestorRelations Officer


Francois-XavierBouvignies UBSInvestment Bank, Research Division -TechnologyAnalyst

MarcHesselink INGGroep N.V.,Research Division -Research Analyst

WimGille ABNAMRO BankN.V.,Research Division -HeadofResearch &EquityResearch Analyst



Goodday,ladiesandgentlemen,andwelcometoTomTom'sThirdQuarter2020EarningsConferenceCall.(OperatorInstructions)Pleasenotethat thisconferenceisbeingrecordedtoday.Iwouldnowliketoturnthecallovertoyourhostfortoday'sconferenceMeganDaniell,InvestorRelations Officer. Please goahead.


Thank you, operator. Good afternoon, and welcome to the conference call, during which we will discuss our operational and financial highlights forthethirdquarterof2020.WithmetodayareHaroldGoddijn,ourCEOandTacoTitulaer,ourCFO.Wewillstarttoday'scallwithHarold,whowill discuss the keyoperational developments, followedby amore detailedlookat thefinancial results fromTaco. We will thentake your questions.

As usual, I wouldliketopoint out thesafe harborapplies. Andwith that, Harold, I wouldliketohandit over toyou.

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Thank you, Megan, and welcome, ladies and gentlemen. Thank you for joining us today. We are pleased with the upward trend that we saw in market conditions, andthat hascontinued over the last 3 months. It's mostlybest reflectedin our Automotive business, which hasshown robust sequential operatingrevenuegrowth. Andthat's atrendwhichwe expect tocontinuein thenext quarter.Ouremployeeshaveshown agilityand commitment to the company in response to the pandemic, and the challenging environment has not slowed us down in achieving our strategic priorities. We continue to invest in R&D, continuously developing and strengthening our product portfolio, and we believe that our ability to maintain coursehas alsocontributedtostrong dealactivity,which we haveseen this year.

I want to turn to the key operational highlights for the quarter for a brief discussion. As you have seen, we announced a multiyear extension andexpansion of our deal with Uber, our full suite of maps, traffic and Maps APIs will help Uber to enhance the location enabled solutions and that ensures aseamlessmappingexperiencein theUber apps,including itsride-hailingandfooddeliveryservices.

We deepenedthatrelationshipwithUberfurtherastheywillserve asatrustedmapeditingpartnertous.Uber willcollect onthegroundinsights from over 10,000 citiesin whichtheyoperate andcorrect the database ifneeded.

In Automotive, we announced that we will provide our full stack solutions of maps, navigation software and connected services to Maserati in vehicleinfotainmentsystem. This is afull stackimplementation andincludes an automatedmapupdater over-the-air.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

Duringthequarter,wealsolaunchedRoadCheck.It'sanindustryfirstproductforautomatedvehiclesthatcontributestosaferdriving.Theproduct addresses a key industry challenge. It's a tool to define and control under which circumstances cars can safely operate in autonomous mode. This concludesmypart ofthe presentation.

I'm nowhandingover toTacofor acloserlookat the financials.

TacoJ.F.Titulaer -TomTom N.V. -Member ofManagementBoard&CFO

Thankyou, Harold. I will makeacouple ofcommentson the financials andoutlook, andthen we'll gotothe Q&A.

In the third quarter of 2020, we saw continued operational improvements in both automotive car production and consumer spending. These improvements translatedintoincreasedrevenuecomparedwiththe secondquarter aswe reportedgroup revenue ofEUR148million.

Let me go through the revenue business by business. Our Location Technology business consists of Automotive and Enterprise and represents roughly70%ofourgrouprevenue. AutomotivereportedrevenueofEUR66million,astrongincreasefromlastquarter,alsosupportedbythestart ofproduction ofnewsoftware platforms.

Car production volumes have continued to show recovery from the lows we experienced in April. This led to similar trends of growth in our operational revenue, which isreportedAutomotiverevenue adjustedfor the movementin deferredand unbilledrevenue.

Our Automotive operational revenue grew sequentially by 24% to EUR 59 million. Because we see the positive trend continuing in the fourth quarter,weexpectthatthesequentialgrowthinAutomotiveoperationalrevenuewillbesimilartowhatwesawin2019.Thatisinthe30%to35% range.

Enterprise reported revenue of EUR 40 million, showing amodest decrease from last quarter. This decrease is because of a weakening of the U.S. dollar as most ofour Enterprise contracts areinvoicedinU.S. dollars.

We expect Enterprise revenue toshowalimitedincreasein the fourth quarter comparedtothethirdquarter.

Our Consumer business reportedEUR42million ofrevenuein the quarter, anincrease of EUR12million from last quarter asconsumers generally spendmore over thesummerholidayperiod. Thiswas alsosupportedbythe returntomore normal levels ofretail activityfollowingthe lockdowns we experienced in April and May. In the fourth quarter, we expect that Consumer revenue will show a sequential decrease similar to 2019. That is adecline in the 20%to35%range.

Our underlyinggrossmargin trendcontinues toimprove asitbenefits from positive mixeffect ofmoresoftwarerevenue.This positiveeffect was partlyoffset duringthe quarterbythe start oftheproduction ofnewautomotivesoftwareplatforms, includingthe newMaseratiplatform, which loweredthethirdquarter'sgrossmargin.Thismeansthatthegrossmarginwasslightlydowncomparedwiththesamequarterlastyear.However, this decreaseis alsoincreasedbyone-offsincludedin the grossmargininQ32019.

If weexclude these one-offs oflast year,the trendwouldhave shown amodest2 percentage point increasefromlast year. Our gross margin will trend at around 80%on average.TotaloperatingexpensesdecreasedslightlyfromthesamequarterlastyeartoEUR180million andisreflectedmainly in marketingandsellinggeneralandadministrativecosts, partlydue to discretionarycostcontrolmeasures.

Free cash flow in the quarter was an expected outflow of EUR 20 million. We have a net cash position of EUR 346 million at the end of the third quarter.

Letmegotothenextslidequarter-on-quarterdevelopment.TheCOVID-19pandemicresultedinAutomotivefactoryclosuresduringtheyear.As Automotiverevenueis basedonthenumber ofcarsproduced,thisimpactedour Automotiveoperationalrevenue.We sawthebiggestimpactin


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

April when most factories were under a total lockdown. As factories started toreopen, we saw gradual improvements within thesecond quarter. Youcansee here thatthis trendhas continued,the thirdquarter is showingastrongsequentialincrease in Automotive operational revenue.

As mentioned before, we expect that this growth will continue and that the increase in the fourth quarter will be similar to the trend we saw last year. However,we expect thatmost ofthis operational revenueuplift will beplacedon the balance sheet anddeferredtolaterperiods.

Youcanseeasimilartrendinourfreecashflowoverthequarters.WeexpectthatthecontinuedimprovementsinAutomotiveoperationalrevenue, combinedwith seasonalcashreceipts willresultin apositive free cashflowofaround EUR30million in the fourth quarter.

The nextslideisthe2020outlook. For thefull year outlook,weexpectthatthe grouprevenuewillbe aroundEUR530million withagrossmargin of around 80%. As explained onthe previous slide, we expect apositive free cash flowof aroundEUR30 million in the fourth quarter. This means thatwewillhaveafullyearoffreecashflowofaboutnegativeEUR30million,translatingintoanetcashpositionofaroundEUR375million

attheendofthe year.

While we have seen notable improvements to revenue over the last few months, we still believe that the economic circumstances remain too uncertain toresume ourshare buybackprogram. We will continue toassess the position as revenue andfreecash flowgeneration improves.

Operator, we will nowliketostart theQ&Asession.



(Operator Instructions)Yourfirstquestioncomes from the line ofFrancoisBouvignies fromUBS.

Francois-XavierBouvignies-UBSInvestmentBank, Research Division -TechnologyAnalyst

Myfirst questionis aroundyourdealactivity. Harold, youmentioned inyour openingremarksthatthe deal activityis strong.And given that we are nowin October and that you have 9 months visibility, I guess you have a pretty good idea of where the order intake and backlog -- how is it trending versus maybe last year. So could you share with us a bit more color around the backlog? Should we expect, in Q4, maybe, notgiving obviouslythenumber, but just atrendof increasing maybe?Andcan youexplain abit more as well the deal activity. What are youtalkingabout?Whatkindofproducts,clients is doingwell atthemoment wouldbe great. I have followups after,ifImay.

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Yes.,Francoisthankyou.Yes asyouknow,orderintakeisalwayslumpy.It'sabinaryprocess.Itcanvaryfromquarter-to-quarter.ButifIgive you the general trend, and I think that's what you're asking for, we saw, particularly in the first half, very strong activity with anumber of awards. We're verypleasedwith that. Over the summer months, thissloweddown, andthatis alsotobeexpected,nothingunusual in that. I thinkforthe last quarter, it's hard to predict where we'll end up. We're working on things but it's not sure whether that will be awarded this year. And it's also not sure that will be awardedtous, of course. But I thinkthe overall activitylevel is still at agoodlevel andprobably stronger thanwhat we have seen last year.

Francois-XavierBouvignies-UBS InvestmentBank, Research Division -TechnologyAnalyst




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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

No, it's generic. It is just not a big change, I think we see more weight to ADAS type of content in the Automotive industry. We saw obviously, theUberdeal,it'snotAutomotivebutitstillwasanimportantdealforusthatcamethrough.Sothat'sallpositive.AndIthinkthebiggest

plus for us was thatwe won alsocontracts fornewtechnologies thatwe will start shippingin'21, '22.

And we said in earlier discussions that we're fully moving towards online presence of all of our products and services, and that has been well received by the industry. And we've won early subscribers to that vision earlier this year. So it's full steam ahead. Very happy also, that that gives cleardirectiontoalltheengineeringteamsandtheproductteams.Theroutewe'vechosenhasbeenvalidatedbythoseearlywins,andthatgives alotofdirection and, generallyspeaking, amovetoan online life.

AndIthinkthat abitfurtherdown theline thatisgoingtobeveryimportantbecauseweseefurtheropportunitiesforsimplifyingourproductoffering. When everything is going online, we can really concentrate our efforts in that domain. And that will help us to reduce complexity in our overall productportfolio.Togiveyouabitmorecoloronthat,ifeverythingisembedded,therearevariantsofdifferentflavors,differentoperatingsystems, differentscreen sizes andsoonandsoforth, all thoseproductsrequiresignificantlocalization andinstallationefforts.

Thoseeffortsoftenruninthemillionsofeurospercontract.Andwethinkthatwecanleveragetheonlinetechnologiestoreducethosecosts, concentrate more on core product activitydevelopment andthatshouldleadus toabetter placeandbetter future.

Francois-XavierBouvignies-UBSInvestmentBank, Research Division -TechnologyAnalyst

That's interesting, your online comments. And I mean, how do you price that, I mean to your customer? I mean, the value of the contract increases because of the online or because the map pricing may be going down, so it kind of offsets this decline. And basically, you think the cost will decrease more than theprice increases. Howshouldwe thinkabout this...

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Ithinkthelonger-termeffectisafurthersimplificationofourproductportfolio,that'sreallywhatwearetryingtoachieve.Sogetmoreconcentration in the core products, and we're doing them really well. And then the integration costs typically will go down when services are delivered in an online framework.

Wedon'tseeabigimpactonpricingasaresultofgoingonline.Ithinkit's,generallyspeaking,awash,butwe'reexcitedaboutthedirection.Itwill deliver a much improved end-user experience, which allows us to better compete with mobile experiences. And generally speaking, the quality ofour products will gotoahigher levelthan whatwe have seenbefore, andahighlevel end-user satisfaction.

Francois-XavierBouvignies-UBSInvestmentBank, Research Division -Technology Analyst

Okay. That's veryclear, Harold. Andmaybe just on the --youtalkedabout Q4,youdon'tknowifyou're goingtogetrewarded.Butit's notonly for Q4, but do you see any change in the competitive landscape? I mean it's a very dynamic industry, the mapping, we see a lot of startups or local start-ups, I should say. Also Google trying for maybe more into the contract. In the last 3 months or so, I mean, do you see any change on people youare --or companies youarecompetingwith?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Wehaven'tseenabigshiftorbigwinsthatwe'renotawareof.It'salwaysatrickyenvironment.You'reright.There'salotoffluxintheindustry. ButIthinkwe --sofar,we'reholdingcourseandeverythingisgoingaccordingtoplan.Sonomajorshiftinthecompetitivelandscapethatwe have seenin thelast quarter.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

Francois-XavierBouvignies-UBSInvestmentBank, Research Division -Technology Analyst

Okay. That's clear. And last one for me, and I will leave the floor to my peers. Around HD Maps. So you talked about ADAS content going up. Obviously,thepandemiccreatedsome uncertaintyaroundtheroadmap for autonomous driving, like youdescribedlast quarter.Howis it going your HD Maps? I mean now we are 3 months, probably your customers have more visibility. Do you see the activity resuming for HD Maps? And howshould we thinkabout the contracts compared to, for example, what yousaidlast year at your Capital Markets Daythat you were rewarded, ofcourse, on asmall valuemarket of60%ofthedeals. Howisitevolvingthese HD Mapsin your dealpipeline?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Well,asIsaid,soHDMapsareappliedindifferentwaysthroughoutthetechnologystack.ButifIlookatthemarketforselfdrivingandtheprogress thatwe'veseenthere,Ihavetosaythathasdisappointedthisyear.Ithinkthereare2thingsplayingarolehere.Firstisthecomplexityofself-driving technology andthat's athingthathasbeen underestimated.


ofthe system cost. Thetotal billofmaterialforself-drivingseemstobe higher than originallyanticipated andthe abilityfor the market to absorb those costs seems to be limited. So overall, it has been disappointing in that domain. I don't think carmakers are losing sight of the end game. They're still working and investing, and so is our Tier 1s and all the suppliers and working hard to make the technology better and cheaper and democratize that.

But net-net, I think the developments in 2020 for us as a vendor, as a system component for Automotive self-driving systems in large-scale applications hasbeen disappointing.

Francois-XavierBouvignies-UBSInvestmentBank, Research Division -TechnologyAnalyst

Andwhat can youdoabout that?I mean, doyou intendtochange, therefore, maybe the investment or the development of HD because yousee thatit'snotveryhigh demandatthemoment. Oryouwanttocontinuetoinvestandseehowitlooks likein,let'ssay,1 year,6months'time?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Well,thereare2levelsofcostandinvestmentgoingintocreationofHDMaps.Oneisthetechnologyitselftoproducethenwhatwecallthepipeline. And there, we keep motoring. We keep investing in optimizing that pipeline for creation of HD Maps. And again, this is not just for HD Maps but alsoADAS features. Sothisis a combination ofvideoprocessing,LIDARprocessing, applyingofmachinelearningandvisualrecognition.


of maps, ADAS Maps, HD maps, scalable, affordable and to a high standard of quality and that investment is continuing. If you look at the other side, so the actual production of HD Maps, we have slowed that down to an extent or we have not increased activity there. We're not extending our coverageatthis stage. Wehave aproduct forthemajor roads in North AmericaandWesternEurope, where weprovideHD Maps

to the industry for evaluation, development and so on and so forth, that will continue, but we are not accelerating the coverage. The main effort nowis toreducecost ofproduction andmaintenance ofthosemaps andthatcontinues unabated.


(Operator Instructions)Yournext questioncomes from the lineofMarc Hesselinkfrom EFA(sic)ING.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

MarcHesselink -INGGroep N.V., ResearchDivision -ResearchAnalyst


you're alreadyin acontinuous discussion with them anextensionofthat --ofthe initialcontract?Couldyoumaybe share whytheyselected you? Andwhatisextraversus the earliercontract thatyouhadwithUber?

Maybe does it, forexample, alsoinclude the app that's beingusedbyconsumers?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Yes.Solocationtechnology,obviously,issuperimportanttoUber,andit'sabigingredientoftheprimaryprocessesforallocationoftrips,calculating capacity. If youimprove there onlyalittlebit, ithasabigimpacton thebottomline.

Soin waitingtimes,customerservice andsoon andsoforth.

SoforUber,it'sreallyimportanttohavegoodcontrolofthesoftwaretorunthosesystems.TheyarepartoftheircoreIPandcoretechnology base thatmakes Uber whatitis.Andofcourse, theydon'twant torelyon standardstuff. Theywant tohave agreatdealof influence tofine-tune, trainthose systems andmake them better over time.

Our relationship with Uber goes back a long time. We can provide them with all the technology they need to do that, all that planning

andallthatreallyreliable.It'safunctionofthenetwork,thenavigationattributes,speedprofiles,trafficinformation,incidentdata,POIsandsoon andsoforth. Thatplatformhasbeen growing, andtheyhavebuilt it over the years, andthere'snowheavyusage ofthe platform as well.

Andhence, the desire of Uber tocontinue that partnership andextendthe relationship andextendtheir licensing contract. Soit'sacontinuation of a partnership that's been in the making for, can't remember exactly, probably 4, 5 years. It always takes time for those technologies to mature, but there'snowasolidbodyoftechnologyrunningontopofourmaps,our routinganddataandtraffic information.

Anditwasalogicalsteptoextendthat,butalsodeepenthat.Sooneofthethingsthatwearekeenaboutisthatifthereareerrorsinthemapthat wehaven'tdetectedourselvesoradditionstothemapthatarerelevanttocertaincustomersorcertainusecases,thenwegiveUberfull controltoedit,addandchangethosedata.They'vebeencertifiedandfollowingallsortsoftrainingprograms,andthathelpsustokeepthecost ofmaintenance down,but alsoimprovetheaccuracyandfreshness ofourmaps.

Soallinall,youseeatypeofpartnershipthatworkswellineverydimension.Soitwasagreatresultforus,butalsoIthinkforUberthatwefound agoodwayforwardandstart the next chapter in thatpartnership.

MarcHesselink -INGGroep N.V., ResearchDivision -ResearchAnalyst

Andtheconsumer app ofUber,is thatgoingtouseTomTom or?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

No. That may be, but that's probably not on the charts, the driver apps, the back office are all based on the TomTom technology, but the linkingtothe userinformationistypicallydone toanative application likeGoogle Maps or AppleMaps.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

MarcHesselink -INGGroep N.V., ResearchDivision -ResearchAnalyst

Okay. Clear. The secondquestion is, I can remember from theprevious quarter thatyouhadtoalsoadjust your backlogvalue abit because some oftheoldautomotivecontracts,giventheCOVID-19impact,becameabitless.Whathaveyouseenoverthethirdquarter?Ifyourexpectationthere changed?Anddidyouseeanyofthatimpact againin this quarter?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Well, I think we are kindof struggling tosee the trees from the woodhere. There's acouple of things that are playing out here. Sowe had--

of course, we had capacity issues with pure production during the lockdown period. We've seen movements in-stock levels at carmakers and inventorylevels.Wehaveseenmovementsindemandbutit'snotclearwhetherwehavereachedanewstate,anewlevelfromwherewecanstart planning.

It's difficult to weigh all those different elements for all carmakers collectively. So we also don't know whether there's pent-up demand that was, kind of unfulfilled demand, during the lockdown period, whether that showed up all of a sudden in September or whether it will show up in Q4. It's just alittlebitearlytosayhowthose differentevents andeffects influence the underlyingdemandfor newcars.

AndIthinkifIlookalittlebitforwardto2021,thenIhaveahardtimepredictingwhattheoveralleconomicoutlookfor2021willlooklikeandhow that will affect car manufacturing in 2021. I don't know. I don't think it's going to be a complete disaster. That's not what I think. But also don't think that we will go back to the levels we have seen in 2019, but there's quite a bit of bandwidth in between that. And that bandwidth will have a significant impact on the calculation of our backlog as well. We see that mixedmessaging coming from the carmakers as well. We are asking them. And they changed their outlook much more frequently and significantly than what we are used to in the car industry. And it's also kind of anindicatorofalevelofuncertaintythatwehaven'tseenbefore.Butagain,I'mnotplanningfordisaster.Ithinkitwillbeokay,butIalsodon'tthink thatwe will reachthe volumes thatwe haveseenin the pre-COVID period.

I thinkthere's quite asignificantbandwidth in between those outlooks. We learn with everymonth andeveryquarter. Andmaybe the forecast fromthe carmakers willalsoshowatrendtosolidifyingandlessvariation.

MarcHesselink -INGGroep N.V., ResearchDivision -ResearchAnalyst

And then a final question. Over the last couple of years, we've seen obviously a very gradual increase in the take rates. And more recently, I see a big jump alsoin electrification, the sales of those vehicles. Doyou also see that as apositive effect on your -- on the take rates? Is that something that's alreadyvisiblefor you?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board& CEO

Well,I wouldn'toverestimate the volumes.Wesee,thesignsareon green,let's faceit.Somassiveinvestment programs.Newcarscoming

offthelinenowmorefrequentlythanwhatwehaveseenbefore.Andalsomuchhigherenduseracceptanceofelectriccars.Andweseereallythe beginningofasignificant shift. But it's the beginning. We'recomingfrom very,verylownumbers.

I think we were used to 2% of the total manufacturing base is electric, but it's going up. And it's changing and shifting and that has a positive effect on the attachment rate. So one of the key things is range for vehicles. An accurate range prediction has a positive effect both on the peace of mind, but also on the bill of material of a car. And it has a positive effect on bill of material because you don't have to put excess capacitytoreducethatrange anxiety.

SoitisaveryimportantdrivetogetrangepredictionandEVroutingsortedandprovidedriverswithaccurateviewsonactualrange,real-liferange, not the sales brochure type of range that we're used to, but what it means in reality for me as a driver. And we will see implementations of


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

technologies,mostlikelyin100%ofEVvehicles.That'sourexpectation,maybe90%.ButIhaveahardtimetobelievethatthiswillnotbeastandard featureinmost,ifnotall,electrical vehicles.

Andthattiesin veryneatlyin the location technologyin thenavigation,in themapping, in the routing,in theelevation datain weather data and soon andsoforth. Sowe're assemblingacompletesuite oftechnologies toanticipate thatdemand. We'realready --the trainhasleft the station, as you can imagine. So we are shipping EV routing ports already with a significant body of investment and research going into improving those products and collectingalltherelevantdatathatare neededtocome toahigher degree ofaccuracy.

Net-net, yes, positive growing percentage of electrical vehicles, that meanshigher attachment rates than what we are usedto. But the real effect on our P&Lnowis stilllimited.


Your next question comesfromthe lineofWim Gille.

WimGille -ABNAMRO BankN.V., Research Division -HeadofResearch &EquityResearch Analyst

Wim Gille, ABN. A couple of questions. For starters, Harold, youmentioned during the call that if youlook at the bigger picture, the development for HD Maps has been quite -- or somewhat disappointing for you. However, if I look at the robo-taxi world and predominantly Waymo but also the bigChinese guys, theyare progressingquite fine.

Infact,theyaremovingtokindofnextlevels,whichwillfacilitateautonomousdrivingalsoforconsumers.SohowshouldIlookatthisdivergence in the technology ratrace with the tech guys continue to advance, while the OEMs are falling a bit behind. Is there going to be aproblem for your strategic positioningfurther down theroad?Thatwill be myfirst question.

The other question I would have is another kind of change that we see or which we saw in the quarter, if you look at the IVI operating systems, traditionally, that market was dominated by Linux and BlackBerry. But we see that Android is making some inroads in that area despite the fact thattheydon'thave anysafetysignificance andwhathave you.

IsthefactthatAndroidismakinginroadsintotheoperatingsystemoftheIVIunit?Isthatgoingtobeaissueforyoufromastrategicpointofview? Or would you say that for you, that doesn't really make a big difference, given the products that you have in the market? And the last question I wouldhave is,in thepressrelease or the Uber deal, youmentionedthatyouprocessclose to2billion map changes amonth. On topofmy mind, youwerealreadyprocessing2billionmapupdatesamonthwhenyoupresentedthelastnumbersduringtheCapitalMarketsDay.Sowhatiskind ofthe --is thislikemore ofaroundingthing?Oris the --are theproductivitygains, ifyouwill, arethoseplateauingat themoment?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

So first, some thoughts around robo-taxis. So robo-taxis typically operate in aconfined geographical area, but are using all the road types in that geographical area. From a map-making perspective, you cover apredefined geographical areainitsentirety.

The second element is that in robo-taxis, the pressure for bill of material is a lot less high because they are capital goods amortized over a long period of time, a lotof kilometers. Soit's okay to stuff those cars with a ton of sensors andcomputing power, andit doesn't have a big impact on

the economics. So the technology that's used there and the economic conditions are kind of opposite of what thecarindustry needs. Thecarindustry is looking for all the roads in North America. So you get long stretches of road initially the highways, the closed access roads, completely covered. Andsecondly,thereisahigh-pressureonthebillofmaterial.Soitneedstoruninalimitedfootprintintermsofstorage,processingpowerandso

on andsoforth.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

Soyou'rereallytryingtosolveadifferentproductproblem,thereintheautomotivespace.Ourtechnologyismostlygearedtowardstheautomotive customer base. We are playing around a little bit in the robo-taxi market, but it's not a clear technology standard there. There's not a

clearroute forwardbut we haveour toeintothatmarket, but wedon't seeit forus asacriticalpart thatweneedtoplayinbecause the problems we needtosolve for volume applications and the technologies deployed there areofdifferent nature.

Second question about Android. I think it can be a little bit confusing, but Android and Google are different things. So Android is the open source operating system that runs on top of Linux. And we see that operating system, making inroads in all sorts of devices, consumer devices, mobilephones,obviously,tablets,allsortsofhardwareispoweredbytheAndroidoperatingsystem.Andthatisbecauseit'sfreeofcharge.There's nolicense fee there.Andit's verywell supported bythesilicon industry as well.

Sothere'saton ofhardware andaton ofexperience andintegrating andrunningAndroidontopof kindofvanilla flavorhardware. Andwereally encourage the automotiveindustrytogothatroute as well.Because itmakes lifeeasierfor everybody. Youhave amuch richerenvironment, you have hardware extractionlayers.Youcan gofaster atlowercost andhave lower integrationcostsas well.

SoIthinkit'sagoodthingfortheindustryifthereissomelevelofstandardizationthatwillmakeiteasiertodeliverenduserexperiencesthatmeet the expectations oftodayandtomorrow.

Then second,production ofmaps. Yes, youhave the 2 billion number. It's kindof auseful indicator because it gives youaflavor of the throughput andthe amount of processing that's happeningin keepingthosemaps up todate. We have internalmetrics aswell, costper change andthe weight ofacertainchange, howthat changehas aneffect on thereal qualityandhowtheenduser experiences it.

SoIwouldn'tputtoomuchweightonthatsinglenumberbutwhatIcantellyouisthatwe'remaking,we'refeelinggoodaboutprocess,progress we're making on our map making technologies, and we see efficiency improvement coming through everywhere. I spoke about HD, image recognition, all those technologies, we are reallyseeingsignificant improvementsin throughput andreduction incostper modification.

Thatisinitselfgoodnewsbutit'salsoanecessity.It'snotthatthere'sarealurgencytomakefurtherimprovementstherebecausethe requirements are going up all the time. People have more accurate maps, better maps, more detail, more attributes, bigger geographical coverage, soimproving efficiency for us is a key driver of our strategy, and we think we can make further progress there, significant progress in building that efficient mapmaking platform. We alluded also map editing partnerships, what we're doing with Uber, we do with other companies as well. That alsohelps us tofindhigh-valuechangesinthe database thatwecan then process atlowcost.

Sothere's abig,bigeffort andalotoffocus on makingthatplatform efficient,high throughput anddelivervalue formoney.

WimGille -ABNAMRO BankN.V., Research Division -HeadofResearch &EquityResearch Analyst

Verygood. Andmaybe as abit of afollow-up on your remarks, which is veryconsistent with kindof the things we've heardin the past that if you look at robo-taxis that they are essentially solving a different puzzle versus the OEMs, which need to have autonomous driving, which is working on every road in every jurisdiction and every circumstance, which is different from a robo-taxi. But given the fact that if you look at kind of the simple picture, the let's say, problem set that the OEMs have tosolve is quite a bit more complex than the problem set that robo-taxi guys need to solve, so how come that you, but also HERE technologies for that matter, are not that well embedded in therobo-taxi world. Why do these guys do everything themselves and why they try to invent the wheel themselves rather than, basically, rely on themarket standardswhich youand HERE technologies are?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Well,thatisbecausetheyaresystemsthatareindevelopment.Theycanusedifferenttechnology.Thetechnologytheydeploydoesn'tneedtoscale. IfIgodrivingaroundwithaLIDAR,andI'vejustrecordedalldata,storeonaharddiskofhowmanymegabytesonadiscofhowmany megabytes, that's not a problem. I don't have to do much in order to create that map because it's not compressed or the need for


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call

compression is not really there. There are other problems that are much more urgent for those robo-taxi guys. And because those are closed proprietary systems, the additional cost of scanning a neighborhood or a city are not prohibitive. If they had to do that for the whole world, you wouldbe tryingtosolveadifferent problem. But that'snotthestate where theindustryis thesedays.

WimGille -ABNAMRO BankN.V., Research Division -HeadofResearch &EquityResearch Analyst

Helpful. Thenmaybelastly, obviously, youannouncedthepartnershipwith Microsoftalreadyquite afewquartersago.Canyougive us abit ofan update on where you stand in terms of the number of API calls? And also maybe some of the recent news around, let's say, the progress that Microsoftismakingintothe automotive space?

HaroldC.A.Goddijn -TomTomN.V.-Co-Founder, Chairmanofthe Management Board&CEO

Idon'thavetheactualAPIcalls.Butwhatwecanseeisfurtherdeepeningoftherelationship,sothetrafficisgoingup.Theusecasesareexpanding, we're moving into the Bing mapping platform nowthat will alsodrive alot more traffic andinteraction. SoI would saythat, that relationship, the partnership withMicrosoft is ontrackanddevelopingin line withour expectations.

Theyhaveakindofanindependentactivityinautomotive.They'recomingfromadifferentangleandthatistoprovideacloudplatformtocollect vehicle data, interact with its customers, do dataanalytics andsoon andsoforth. Theycan dothat independent from us or anyother unit vendor. We are aware oftheirplans. Weare aware ofthecommercialsuccess, wecollaborate where possible.

There's agoodexchange,andcollaboration there. Buttheyare differentproducts. Soyouhaveacloud-baseddata analyticsplatform andamore embeddedorin-carlocationtechnologyplatformthatweareprovidingandtherearewaystoconnectthosetwosystems,obviously.ButIthink important for us isat the commerciallevel,that's all well. Andwehave afairlygoodpicture ofwhat's happeningin themarketplace.


We have nofurther questions, ifyouwish tocontinue.


Thankyousomuch for the questions.I'dliketothankyouall for joiningus this afternoon. Andoperator, ifyoucanplease closethe call.


Thankyou. Ladies andgentlemen, that does conclude today's presentation. Thankyouall forparticipating, andyoumaynowdisconnect.


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OCTOBER 14, 2020 / 12:00PM, TOM2.AS - Q3 2020 TomTom NV Earnings Call


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