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Earnings call: TomTom maintains 2024 guidance despite mixed Q1 results

EditorNatashya Angelica
Published 04/18/2024, 02:34 AM
© Reuters.
TMOAY
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TomTom (TMOAY), the Dutch location technology specialist, reported a stable first-quarter revenue in 2024 compared to the previous year, while expressing confidence in its growth strategy and product expansion.

Despite a 1% year-over-year dip in group revenue to EUR 139 million, the company highlighted the successful rollout of TomTom Orbis Maps and partnerships in diverse industries. Automotive revenue saw a modest increase, whereas enterprise and consumer segments faced declines.

TomTom maintains its full-year revenue guidance for 2024, banking on new customer contributions and an anticipated improvement in operating revenue to outperform the market by the fourth quarter.

Key Takeaways

  • TomTom's Q1 2024 revenue remained stable year-over-year at EUR 139 million.
  • The company completed the rollout of TomTom Orbis Maps with global coverage.
  • New partnerships were announced across various industries.
  • Automotive revenue increased by 3%, while enterprise and consumer revenues declined by 4% and 9%, respectively.
  • TomTom reiterated its full-year revenue guidance, expecting a revenue increase starting in Q4 2024.
  • The Overture Maps Foundation was established with major tech companies, promoting interoperability in the mapping industry.

Company Outlook

  • TomTom anticipates new customer contributions to surpass those of existing customers, starting from Q4 2024.
  • The company aims to outperform the market in Q4 and maintain a steady increase in revenue.
  • Full-year revenue guidance remains unchanged, with expectations of gradual growth.

Bearish Highlights

  • A 1% year-over-year decrease in group revenue was reported.
  • Enterprise and consumer revenue segments experienced declines.
  • A large enterprise client's decision to build its own map could negatively impact TomTom's enterprise revenue, but specifics were not disclosed.

Bullish Highlights

  • TomTom's strategy is resonating with customers, and the company is focused on converting sales opportunities.
  • The automotive sector's revenue is expected to be around EUR 350 million for the year.
  • The Overture Maps Foundation is expected to facilitate standards and interoperability, attracting more customers.

Misses

  • There may be some lost revenue in Q1 within the automotive sector that will not be recovered.
  • The majority of a restructuring charge was paid out in Q1, potentially affecting free cash flow.

Q&A Highlights

  • TomTom declined to comment on the financial impact of a large enterprise client creating its own map due to confidentiality.
  • The sales cycle for new maps may vary by customer, with those familiar with TomTom's strategy expected to convert more easily.
  • The remainder of the restructuring charge is set to be executed in Q2.

In conclusion, TomTom's first-quarter performance in 2024 reflects a company in transition, with a stable revenue base and strategic initiatives aimed at long-term growth. While facing some headwinds in enterprise revenue and restructuring costs, the company is optimistic about its new product offerings and partnerships.

TomTom's focus remains on expanding its customer base and leveraging the Overture Maps Foundation to set industry standards and enhance interoperability. The company's management expects these efforts to translate into increased revenue and market outperformance in the latter part of the year.

Full transcript - TomTom (TMOAY) Q1 2024:

Operator: Good day, ladies and gentlemen. Welcome to TomTom's First Quarter 2024 Results Conference call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's prepared remarks. [Operator Instructions] Please note, that this conference is being recorded. I will now turn the call over to your host for today's conference, Freek Borst, Investor Relations. You may begin.

Freek Borst: Thank you, operator, and good afternoon, everyone. Welcome to our conference call. Today, we will discuss the operational and financial highlights for the first quarter of 2024. With me today are Harold Goddijn, our CEO; and Taco Titulaer, our CFO. Starting off, Harold will discuss first quarter operational developments, after which Taco will provide a more detailed look at the financial results and outlook. We will then take your questions. As usual, I would like to point out that safe harbor applies. And with that, Harold, I would like to hand it over to you.

Harold Goddijn: Yes, thank you. Thank you very much, Freek. And good day, ladies and gentlemen. Thanks for being with us today. I'll give you a brief overview of the key operational highlights in progress and then TACO will delve into the financial details. Our revenue in the first quarter of 2024 was comparable to that in the same period of last year. While the Location Technology top line showed no significant growth, we made substantial progress in maturing our product offering and expanding our business development activities. The rollout of our new TomTom Orbis Maps proceeded as scheduled during the quarter and we now have achieved geographical global coverage. We are offering a global mapping product. The new maps post advanced visualization capabilities, an appealing design and feature much improved POI search and routing quality. Introduction of the new maps has enabled us to broaden our market reach, catering for a wider range of use cases and industry resulting in an expanded sales funnel and increased commercial momentum. We've observed a growing variety of use cases for our products and services. During the quarter, we announced partnerships with enterprise customers across diverse industries and sectors, supporting a wide range of applications. And these partnerships include ventures in railroad logistics, insurance technology, location-based marketing, electric vehicle charging, and more. Our new mapping platform allows easy integration of data from other users and producers of geographical data. And as previously communicated, the establishment of the Overture Maps Foundation with AWS, Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT) has been instrumental in facilitating interoperability and defining the specifications of our databases. We are very pleased to see some prominent companies joining us and our Overture co-founders during the quarter. Overture is now gearing up for the first release. With the successful progress of both the Orbis rollout and the Overture initiative, we remain on track to achieve our strategic goals. And with that, I will pass it over to Taco.

Taco Titulaer: Thank you, Harold. Now, I would like to provide some insights into our financials and outlook for the year. After that, we will move on to your questions. Group revenue for the third quarter decreased by 1% year-on-year coming in at EUR139 million. Our Location Technology revenue came in at EUR119 million, comparable to the revenue in the same quarter last year. Let me break down our revenue and discuss it business by business, starting with automotive. Automotive IFRS revenue was EUR83 million, a modest year-on-year increase of 3%. Automotive operational revenue decreased by 6% year-on-year to EUR79 million. This decrease partly reflects lower car production at some of our customers. Further, a difference in pacing of ramp ups and ramp downs of certain car lines negatively impacted the quarterly automotive operational revenue as well. Our enterprise business recorded revenues of EUR35 million, a decrease of 4% year-on-year. We expect a gradual conversion of our sales funnel to lead to increasing revenues later this year and in 2025. Lastly, consumer revenue was EUR21 million, a decrease of 9% year-on-year. Gross margin in the first quarter was 86% comparable to the same quarter last year. First quarter operating expenses were EUR125 million, an increase of 6% versus the same quarter last year. Quarter-over-quarter, we saw a decrease in operating expenses. Also when correcting for the EUR10 million restructuring expense recognized last quarter. This decrease demonstrates our continuous efforts in keeping costs under control. Free cash flow was an outflow of EUR9 million this quarter compared with an inflow of EUR10 million in the same quarter last year. First quarter free cash flow was affected by the annual bonus payments, as well as payment of the charges related to the restructuring we announced in the fourth quarter of 2023. These restructuring related payments are not separately adjusted for, and are absorbed in our free cash flow. We ended the quarter with a net cash position of EUR284 million, down from EUR350 million at the end of the year. This decrease mainly reflects EUR20 million cash out related to our EUR50 million share buyback program. This program, which is aimed at reducing our share capital was 64% completed by quarter end. Having covered our results, let's move on to our outlook. Though top-line development was flat in the first quarter, we did see encouraging signs from a product and business development perspective. We are reiterating our guidance that we gave at the start of the year. For full year 2024, we continue to expect group revenue between EUR570 million and EUR610 million and Location Technology revenue between EUR490 million and EUR520 million. Free cash flow is expected to be higher than 5% of group revenue. For 2025, we are also reiterating our midterm Location Technology revenue ambition of EUR600 million and midterm free cash flow targets of 10% of group revenue. Operator, we are now ready to address any questions from our listeners. And thank you.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Heyman from Independent Minds. Please go ahead, your line is open.

Andrew Hayman: Yes, just a few questions for you. In terms of operational automotive revenue, it was down 9% in the quarter and you highlighted lower auto production volume and the phasing of some car lines. How comfortable are you that it is simply a phasing issue and not an issue with, let's say, a model that's important to TomTom? Then maybe second question on the automotive side and looking a bit longer term. A couple of the stories that are getting a lot of attention at the moment are a push back on EVs is one. And then on the other hand, there's also, let's say, a bit more excitement with autonomous driving, particularly from Tesla (NASDAQ:TSLA). I was wondering, looking midterm, how you see those two factors impacting TomTom. And then maybe on enterprise, the movement in deferred revenue is a positive EUR10.8 million and you highlight that that's the timing of invoicing being a factor. But I was wondering what's behind that. Is that new clients that's pushing that up or is it a larger -- more business with an existing customer? Yep, that's it. Thank you.

Harold Goddijn: Yes, let me address, you said 9%, that is 6% down operating revenue automotive. We think that later in the year that the trend between market development and operating revenue will reverse and hopefully at the fourth quarter we can do better than the market that is at least where we expect the trends to develop towards. But indeed this quarter was not good. That was related to a relative underperformance of the customers that we serve compared to the market as a whole and had to do with timing of end of production and start of production on various contracts. So that is just more a timing thing and that the expectation is that that will recover itself towards the second half of the year. EV and autonomous driving are two trends that will increase take rates for both. We see lots of development and business development. It's indeed true that the increase as a percentage of sales of EV is slowing down. Yes, it's not something that we can influence. I don't think it's structural either. It's a temporary thing. But again, both are beneficial for the take rates as a whole. Your last question on deferred revenue with enterprise that is just normal seasonal patterns on payment behaviors of large customers. I won't read too much into it.

Andrew Hayman: Okay, thank you.

Operator: Thank you. We'll now move on to our next question. Our next question comes from the line of Wim Gille from ABN Amro Oddo BHF. Please go ahead, your line is open.

Wim Gille: Yes, very good afternoon. I've got two questions. First, looking at the enterprise decline in revenues. We've seen enterprise revenues coming down for a number of quarters as the Apple (NASDAQ:AAPL) contract was renegotiated already Q4 2022. So this is no longer an issue. So can you give us a bit more feeling on what caused the decline in enterprise in this particular quarter and how we should look at the remainder of the year? I know you have a fair amount of discussions going on with the new Orbis Maps, but when will growth in enterprise resume? Is that already Q2 or is it more weighted towards the second half? And then with respect to the automotive operational revenues, I had a bit of a bad connection with the previous person asking the question, so could you repeat the answer there? Basically what I want to know is, what's the decline of 6% which is driven by a decline in car production and what part is driven by the phase out of Renault (EPA:RENA) which is not fully compensated by the phase in of Volkswagen (ETR:VOWG_p) and when would you expect the phase in of Volkswagen to be [heightened] (ph) the phase out of Renault? Is it going to be Q2, Q3? Do you have any visibility there?

Taco Titulaer: Yes. Now I’d say let’s -- I think most questions are for me, but please come on Harold if you want to add. Enterprise decline, there is a single large customer who is building a mapping capacity themselves. That contract is declining year-over-year and it continues to decline. So the phase out will continue for another year or so. So you see year-over-year decline sort of starting in Q4 of 2022 and it will continue into Q4 of 2025. It's a phased decline. So that explains why there is no year-on-year growth in enterprise yet. To address your second question about where do we -- when do we expect increase in enterprise. We expect sequential increase in enterprise to start in Q3. We expect year-over-year increase in enterprise to start in Q4. To come back to Andrew's question, I think it is, I would say 50-50. That is an -- I can't comment on the specification you gave yourself, but I will not deny it either. But it is half the underperformance of our customers compared to the market and half the phase out and phase in.

Wim Gille: And where would we expect the phase in to [indiscernible] than the phase out?

Taco Titulaer: Yes, we expect that overall that the contribution of the new customer will be bigger than the [indiscernible] customer. That effect will start to play in Q4, Q1, that timeframe. But again, what I also said to you with Andrew, we think -- in our estimates, we think that our -- if you compare our operating revenue with market trends. So the market trend is quite stable. Q1 the expectations of the initial analysis that will continue to be the case in Q2, and then we see a little bit of improvement in Q3 and Q4, more improvement in Q4. But we think -- similarly we think that operating revenue will improve for TomTom and the expectation is that, we could do better in the fourth quarter than the markets.

Operator: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Marc Hesselink from ING. Please go ahead, your line is open.

Marc Hesselink: Yes, thank you. First question is on Orbis. You're seeing increased momentum in the sales funnel. I'm just wondering if this is mainly smaller clients or is it also some really big clients that -- just one client who would be moving the needle? Linked to that on the Orbis, you're now moving all the traditional contracts, I think, to the Orbis platform to provide an update like how much percent is already on the new platform, when you expect this to be fully moved. When it is fully moved, can you maybe talk about the impact both commercially and also on the cost level when that is done. And the second good question is on the Overture initiative. Obviously really big names in there. Just trying to get my head around on these, they all have their own mapping teams and doing a lot of stuff themselves. They take a lot of data from the open source. What kind of layers would they then take from TomTom on top for you as an opportunity to really monetize it. Thank you.

Harold Goddijn: Yes, Mark. Thank you. Yes, the sales funnel is really a mixture of different size companies. There's some very significant deals both on the automotive side and on the enterprise side. But there is also a large number of smaller opportunities that are opening up because of the Orbis database and new APIs and SDKs that we are publishing on top of the database. So it's really a mixed bag of bigger numbers and a lot of smaller numbers. So then moving customers from the existing platform to Orbis, that's not happening at scale. And I don't think that will happen. I think if you look at what's happening in the auto industry, a lot of our customers will continue to use -- that have started with Genesis will continue on the Genesis database and continue to use that for a number of years into the future. The switching of software and data in an e-car environment is notoriously hard and at the end of the day carmakers are not that interested in doing that once the car has left the factory. But what we do have, what we have achieved is that, Orbis is now, let's say, internally our master database and all the changes that we achieve and upgrades and extensions of the data that we achieve in our Orbis mapping platform will go through, will automatically to a large extent flow through to the legacy databases, Genesis database. In that way we keep the Genesis database fresh, we keep it up to date at minimal cost, mostly using automated processes, but all the innovation and new data types and the geographical expansion will really materialize on the forward-looking products and on the Orbis platform. Does that answer your question?

Marc Hesselink: Yes, clear. I think then it's time to assume that multi clients will stay also when they renew the contract, they will stay on Genesis or is the renewal a typical moment when they will shift to Orbis?

Harold Goddijn: No, it's mostly tied to introduction, launching of new car models. And with some of our large customers, we are aiming to introduce Orbis Maps beginning of 2025 for SOPs that are happening around that timeframe or a bit later I would say. So those are -- customers are currently using the Genesis database but the Orbis database will feature in new car models.

Marc Hesselink: Okay, clear. And the other question on the Overture, those clients.

Harold Goddijn: Yes. So Overture is a -- so there's a couple of things happening in [indiscernible] industry. We are trying to set standards. There is no standard for map making and there is no interoperability. If you look at the requirements now in the future, it's to keep up with those demands and use cases, you need to have more partners contributing to the data. To facilitate that, we publish a standard to base map, which is really quite bare, but it's an important canvas on which other companies can match their own content. And that can be an HD layer or it can be a POI dataset or it can be visual aspects, 3D buildings, photorealistic data that you can all attach to the map in a way that makes it easy and cheap to do that. With the base map itself, you can't do that much. A lot of essential attributes are missing there. So if you want to have industry strength routine or search or not, and then that base in and of itself is not going to help you. You will need to upgrade to a commercial version of that map. And of course, we are concentrating ourselves in standardizing OSM data, make the quality controlled and making [indiscernible] works everywhere, then we have all sorts of data related to addressing the related POI, related to the road conditions and speeds and all that kind of stuff. There's a whole stack of data on top of that, that make in combination will make the map that can be used in real-world applications.

Marc Hesselink: Okay. And those clients will then pick and choose a few layers from TomTom at their own layers. And that's [indiscernible]

Harold Goddijn: That's possible. It depends a little bit on the type of customer and the size of the customer. You need to be a sizable company for you to -- if you want to do a lot on the layer level yourself. So the majority of our customers will take the final product that they can license from us, but other customers who like a large ride-hailing company, they want to augment that database with what they have learned from their drivers and their customers, like pick up [indiscernible] how buildings or cafes or restaurants are referred to by customers. That's knowledge that a ride-hailing company will accumulate in the Orbis structure and Overture standardization and classifications is how you do all that, makes it really simple to actually do that and achieve that. You call it conflation, this is notoriously difficult in the industry, and we're making that easy for the industry as a whole. On top of that as a whole range of open source tools. We published a database in a format that has wide industry support and a lot of developers who know how to work with that format. There's a lot of open source tools that can help you to lower your overall cost of ownership of a location platform. I think that's one of the key elements of the commercial story is that, this will grow and it will grow faster than the other map ecosystem and that there is already widespread support for the data format, and that will only accelerate and accumulate over time, which eventually will lead to a far superior map and platform than anything else that is out there. And that is one of the key elements for customers -- potential customers to go through [indiscernible] a considerable amount of pain, if you want to switch from location platform that is a -- that's a big decision typically for a company and -- but the idea that you are on a winning platform that will grow and as well supported by industry, both on the data side and on the tooling side, that is very appealing in a very strong sales argument. And certainly, over time that argument will grow in strength. And if we provide more proof points and show that more customers are taking that effort to change from location provider that, again, will help us to faster convert our sales funnel and for our sales force to become more effective. So we are in the early days. I think the -- what's important for us as a team is that, we see that the strategy that we had designed it in 2019 is working. We see the effects certainly in the pipeline, the discussions we have with sales funnel and a variety of customers that we're talking to, to whom we have never spoken in the past, all our key indicators, leading indicators for us, that strategy that we have developed over the last and implemented is working. So from that perspective, we are on track. Strategically, it is working as we had hoped and expected. So now I'd say, yes, it's a matter of converting all those opportunities that are opening up to real contracts going forward. But I think both in the auto industry, as well as in the enterprise segment, that strategy is clear, resonates, and I definitely believe it will give us an edge going forward for years to come.

Marc Hesselink: Great. Thanks for the elaborate answer. I’ll leave it here.

Harold Goddijn: Yes. Thanks you.

Operator: Thank you. We will now move on to our next question. [Operator Instructions] Our next question comes from the line of [Nikos Koletonis] (ph) from Van Lanschot Kempen. Please go ahead, your line is open.

Unidentified Analyst: Hi. Good afternoon. Thanks for taking my question. First one under Orbis. Can you give us a bit more color on how you expect the typical sales cycle to look like under the new maps in terms of time frame and the time that it's going to take for the testing process and the eventual conversion to sales? And my second question is on the funnel of Orbis. So it's building up well. Can you comment on what are your communications with the companies in the funnel and at what stage in the sales cycle you are on average with these companies? And if you could comment separately on large accounts versus small ones? Thank you.

Harold Goddijn: Yes. So Nikos, thanks for the question. So first question about conversion. Now what does that look like, and how long is it take? It's a bit of a mixed bag. So customers who know us from the past, who have been dealing with in the past and to whom we introduce our plans and strategy to say, yes, I get it. I understand it and I like doing -- does take that much to convince those type of customers, and we can substantiate the statistics [indiscernible] objectively better than anything else that is available. So that's an easy sell. That doesn't mean that everybody starts to run to convert, but it does mean that when they're up for renewal or they're up for new introduction on new launch or new program default choice is for Orbis and it doesn't require a little extra work for us. So there's one extreme. So customers understand there's no redoing. They can see the results and they are taking interest in the metrics that we are now starting to share with those customers. On the other -- on the flip side, there is a type of customer that we know can use a data to whom we are unfamiliar. There it takes longer. There you need to go through in different type of sales cycle where you have to introduce yourself first and that takes longer. You need to introduce yourself and then you need to introduce your strategy and then you need to introduce your product, and that takes longer. But also there, once we are engaging and when there is a sales opportunity or product replacement opportunity, it's fair to say that [indiscernible] customers show an interest in what we're doing. And there, again, in that environment, at least strategically, those customers understand what we're trying to do and like that idea, the direction of travel. But it takes more time to convince and you need to provide more proof points. I think there's a couple of large customers who will start converting and introducing Orbis on their own platforms. Double in itself being an important proof point for [indiscernible] to get easily convinced that Orbis has reached maturity and is ready for prime time. So that's kind of where we are in terms of that whole journey -- commercial journey.

Unidentified Analyst: Okay. Thank you.

Operator: Thank you. We'll now move on to our next question. Our next question comes from the line of Maarten Verbeek from The Idea. Please go ahead, your line is open.

Maarten Verbeek: Good afternoon. It's Maarten Verbeek from The Idea. Firstly, you mentioned that [indiscernible] a large enterprise client was starting to build its own map and that would give some negative pressure on your enterprise revenue. To get a bit of feel of the underlying development for Enterprise, how much sales do you expect to lose from this client compared to last year's level in the next two years?

Taco Titulaer: Yes, Maarten, I fully understand your question, but I can't comment on it. Apart from what I already answered to [indiscernible] is that, we expect a sequential increase in our Enterprise revenue as of Q3 and a year-on-year increase in our Enterprise revenue as of Q4. More details, I can't provide also client confidentiality.

Maarten Verbeek: And also to get a bit of feel for the underlying free cash flow. Last year, you took the almost EUR10 million restructuring charge. You stated that would be consumed in the first half of this year. Is it still the case? And could you also give some kind of -- inform us how much you have used, how much you've spent of that provision in the first quarter?

Taco Titulaer: Yes. The lion share of that was paid out in the first quarter.

Maarten Verbeek: And more or less the remainder will be executed in the second quarter.

Harold Goddijn: There's always a long tail for individuals. But indeed, I think after the second quarter, 90% of that will have been paid.

Maarten Verbeek: And lastly, since you expect some tough quarters in automotive. According to your backlog, the breakdown you expected revenue of Automotive to be in the neighborhood of EUR350 million for this year. Has that changed now we have entered into April?

Taco Titulaer: No, it hasn't. Of course, there is some lost revenue in Q1 that will not be recouped later in the year, but there's also a fair amount of revenue that will come later. So overall, by be couple of million below where we thought it -- were the middle of the bell curve could end up, but it is still within that range. And so, the EUR350 million is a very fair estimate.

Maarten Verbeek: Thanks very much

Freek Borst: All right. Since it appears there are no further questions, I would like to thank you all for joining us this afternoon. Operator, you may now close the call.

Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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