Tomtom NV

Ladies and gentlemen, welcome to TomTom's second quarter 2026 results conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks, at which time, if you would like to ask a question, you may do so by pressing star 1 1 on your telephone keypad. Thank you. Thank you.

Thank you, operator. Good afternoon, everyone, and welcome to our conference call. On today's call, we will discuss the operational highlights and financial results for the second quarter and first half of 2026, together with Mike Schoos and Paco Titular. Mike will begin with an update on our strategic and operational developments, and Paco will then provide further insight into our financials. After their prepared remarks, we will open the line for your questions. And as always, please note that safe harbor applies. With that, Mike, let me hand it over to you.

Thank you, Claudia, and good afternoon, everyone, and thank you for joining our poll. I'll give an update on our strategic and operational progress for the quarter before handing over later to Kako for the financials. So during the quarter, we continue to make progress across both automotive and enterprise, strengthening our positioning and our position as a provider of high-quality, scalable location technology. So in automotive, we see investments into automated driving where we act as a critical safety component in a growing industry. We're engaging globally with key players in the ecosystem and with the OEMs, so both. And our location data and our dynamic services like traffic speeds and hazards play a key role to get to zero accidents together and less disengagements of the automated driving systems. A quality of freshness at scale for our data are clear differentiators in those conversations. In enterprise, we continue to broaden our customer base and expand the range of use cases we support. So growth across more customers with new logos is helping us to further diversify our revenue base and reducing customer concentration, which is quite important and a good trend. So we see the need for high-quality, continuously updated location data that can be seamlessly consumed by AI systems. And to support this as an example, we introduced the TomTom Agents Toolkit through a Maps SDK, enabling developers to build AI-powered applications that interact more intelligently with maps and location data. Then also a sharp focus from us on growth industries like government and defense, the public sector, and geospatial analytics, of which InsureTech is a big market. enables us to increase our opportunity pipeline in terms of new logos, but also the size of individual deals. So overall, the progress we are making reflects disciplined execution, continued product innovation, and strengthening commercial traction across our four markets. Looking ahead, we remain focused on execution in 26, while positioning the company for future growth. and we see our customer programs expanding into 2027, especially in automotive, notably through China overseas wins and a further rollout and expansion within the VW group. We see clear opportunities in location intelligence, which is predominantly enterprise. Our data and dynamic services are the key components to increase adoption into workflows of our target industries. And making our data AI consumable also unlocks new use cases and expands our addressable markets. We are confident that the steps we are taking today will support a return to revenue growth from 27 onwards and continued improvements in profitability over time. And with that, I'll hand over to Taco who will take you through the financial results in more detail.

Thank you, Mike. I'll cover our financial performance and our outlook, after which we'll take your questions. In the second quarter of 2026, group revenue was $135 million, an 8% decrease from last year's $146 million. The 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 81 million for the polar, 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 38 million, down 4% year-on-year. On a constant currency basis, revenue was stable year-on-year. Taken together, allocation technology segment generated 119 million euros, which is 5% lower than last year. Finally, the consumer segment declined. As expected, consumer revenue was 15 million, down 24% year-on-year, reflecting the continued contraction of the P&D market. and also memory supply constraints. Growth margin improved to 90% from 88% last year. This increase was driven by a half a portion of high margin location technology revenue in our mix. Operating expenses were 130 million, a reduction of 35 million compared with the same period last year, excluding restructuring charts in the prior year, underlying operating expenses decreased mainly reflecting lower personnel costs following the organizational relignment and a one-off items in prior years. As a result, our operating result was 9 million compared with a loss of 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 8 million compared with an inflow of 14 million last year. During the quarter, we completed our 15 million share buyback problem. We ended the quarter with a net cash position of $234 million with no outstanding bank borrowings. Then on to the outlook. We are on track for 2026. Revenue development is progressing as expected and we're delivering improvements in profitability driven by strong growth margins and disciplined cost control. Looking ahead, we are reiterating our full year 2026 outlook. We expect group revenue of 495 million to 555 million with location technology revenue of 435 million to 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 growth and operating margin. And with that, we are ready to take your questions. Operator, please start the Q&A.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We will take our first question, and the question comes from the line of Andrew Heyman from Independent Minds. Please go ahead. Your line is open.

Thank you. Maybe to add just a broad question for Mike to start with, and it's 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's some adjustments that you want to make. Is there anything you could add on shifts that you're looking to implement within the company?

Yeah, thank you, Andrew, for that question. So, as you say, we want to see continuity as well. We have a strong foundation with a backlog in both automotive and enterprise. But what I already said in my opening, you see... strong, let's say, growth segments in industry in both as a motive in location intelligence. And we want to concentrate also on 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 two points with a strong deal with the FDW 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 it 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 vast 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 the fuel, and it's very strong. And people look for fresh, wide coverage, qualitative data. with rich features and attributes, and we have that. That's our fuel and our baseline. Now we need to invest 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 the pure raw 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. We take go more in those directions in terms of investment and concentrating go to markets.

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 spot.

So if you look at across the board in the car industry, there's a lot of turmoil in that industry, right? You see a lot of things happening because of big decisions on EV, software, AI, automated driving. So there's almost no exceptions there across the board globally. NVW is one of them, arguably 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 Plus that's happening everywhere. So there's no slowing down there, regardless of reorts 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.

Thank you. Yes?

Sorry, were you going to add something?

Yeah, sorry, and we are working very closely with our partners to bring those solutions to the markets. 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, what do you expect for the full year for free cash flow? Will there be some reversal from Q2?

I think for the full year, free cash flow will be negative. It will continue to be negative. I think that we'll gradually... slowed down, but you have seasonal patterns for working capital that you 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 10 million year over year if you strip up the restructuring. But there's also mention of a one-off reversal of previously capitalized contract costs booked in Q2 25. Do you have any details on that, for example, of the size of it and why was it reversed?

Well, I need to look up what we exactly said last year during the two press releases of 2025, but it was certain the cost that we put on the balance sheet was reversed. It was a change of plan of the customers, and then we take those costs by the OPEX line. So that's a one-off that occurred 12 months ago.

Okay, okay. Yep, I'll hand it over to somebody else. Thank you very much.

Thank you. Once again, if you wish to ask a question, please press star 1, 1 on your telephone. We will take our next question, and the question comes from the line of Mark Hasling from ING. Please go ahead. Your line is open.

Yes, thank you. I had a bit of connection issues in the beginning, so sorry if I missed something before. The first thing I want to discuss is you're still saying next year we should see a growth year backed by your current backlog. How do you see that trajectory? Is that something that we will see already in the second half of the year, some clear improvements in the trading conditions? and then accelerating pace over the course of 27? Or are there any really step changes going into that code trajectory because of new models coming online, new contracts getting ready, that kind of stuff?

Yeah, it is the latter. So we expect revenue to start growing as of next year, not in the second half.

Okay, that's clear. Then, maybe zooming back a little bit on the operating expenses. I think you've highlighted that in the second half of the year, there will be a little bit less capitalization. But in the first half of the year, clearly you're running ahead of your guidance. I mean, if you get to the real guidance, it means that you have close to zero margin in the second half of the year operating margin. That seems also a bit harsh, looking at all the trends and maybe all the moving parts into the second half relative to the first half to get to that 3% level.

Yeah, so I expect that operating margin will continue to be positive, although maybe not percentages that we saw in the previous quarter. So overall, indeed, we're very comfortable with the guidance of 3%, i.e. meaning that it might be a little bit higher than that, but that said, the 6% will not be repeated in the second half of the year, also due to less capitalization.

Okay, thanks. And finally, on EVs, I mean, the narrative is changing a bit. Maybe not yet really visible in the numbers yet. But if you have the discussion with your clients, I mean, do they expect to significantly see the proportion of EVs continue to rise into next year? And if that's the case, How positive would that be for you given the typically higher attachment rate to EVs?

Yeah, so I think we've seen in the industry over the past 24 months shifts in both directions, right? Shifting upwards in terms of EV adoption and down. Also the latest developments geopolitically has had an influence over EV adoption with fuel prices. But it's hard to really define a forecast and a pattern to say this is going to continue. We see the move into hybrids again. We see more different power trains running in parallel, which complicates the landscape for car makers. I would say the most important development we're seeing is the acceleration and automated driving, which I said before. So there's clear investment choices that car makers need to make on top of everything else. next to EV and that's where the value lies and the growth lies as well in the industry and where we want to play a key role which we're already doing with our big deal in the wind with VW but also expanding that with the ecosystem players and automated driving and with the car makers across the globe so that's a common denominator we're engaging quite deeply with our data in our dynamic services And that's where you see that we expect adoption to increase and also value and value add in terms of services and solutions in a car. Combined, and I may repeat myself now a bit, but you said you had connectivity problems. Combined also with what's happening from automated driving and what happens in the, let's say, deeper in the vehicle being translated into the infotainment system with visualization and rendering of that those ADAS systems. There's a lot of push and added value towards the end user experience of those technologies being adopted and coming together. And that's why I see the biggest movement in the industry right now.

Okay, great. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 1-1 on your telephone.

As there seems to be no additional questions, I want to thank you all for joining us today. Operator, you may now close the call. Thank you.

Thank you.

This concludes today's presentation. Thank you for participating.

You may now disconnect.