• Group Revenue: EUR141 million, a decrease of 2% year-on-year.

• Automotive Operational Revenue: EUR69 million, down from EUR85 million year-on-year.

• Automotive IFRS Revenue: EUR78 million, a decline of 5% year-on-year.

• Enterprise Revenue: EUR42 million, an increase of 13% year-on-year.

• Location Technology Revenue: Stable at EUR120 million year-on-year.

• Consumer Revenue: EUR21 million, a decline of 16% year-on-year.

• Gross Margin: Increased to 87%, up from 83% year-on-year.

• Operating Expenses: EUR126 million, a marginal decrease year-on-year.

• Free Cash Flow: Inflow of EUR15 million, compared to EUR30 million last year.

• Net Cash Position: EUR270 million, up from EUR258 million at the end of the previous quarter.

• Warning! GuruFocus has detected 2 Warning Signs with TMOAF.

Release Date: October 11, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• TomTom NV (TMOAF) is witnessing growing interest in advanced safety features and automated driving technology, which require highly detailed near real-time maps.

• The enterprise business showed good growth, with revenue increasing by 13% year on year, attributed to the success of existing customers and continued commercial traction.

• TomTom NV (TMOAF) strengthened its partnership with NextBillion.ai and secured collaborations with GfK, Standard & Poor Global Mobility, and IVECO, highlighting the versatility and demand for its technologies.

• The company launched a premium Geocoding API aimed at improving efficiencies in last-mile logistics, enhancing customer satisfaction.

• Gross margin increased to 87% for the third quarter, up from 83% in the same period last year, due to a larger contribution from location technology in the revenue mix.

Negative Points

• TomTom NV (TMOAF) is facing a slowdown in the global automotive industry, with challenging near-term market conditions affecting car production volumes.

• Group revenue in the third quarter of 2024 decreased by 2% compared with the same quarter last year, with automotive operational revenue dropping significantly.

• Automotive business performance was negatively impacted by delays in the launch of new car models and a continued weakening of the global automotive industry.

• Consumer revenue declined by 16% year on year, reflecting ongoing challenges in this segment.

• Free cash flow was an inflow of EUR15 million, down from EUR30 million last year, indicating a decrease in cash generation capabilities.

Q & A Highlights

Q: What are the hurdles for TomTom to win larger enterprise clients? A: Harold Goddijn, CEO, explained that the product is ready and established, with approval from leading technology companies. The main hurdles are internal organizational processes on the client side, which require time and effort for transitions. The credibility of TomTom's platform is no longer an issue, and it is seen as a forward-looking location platform provider.

Q: Is there price pressure from OEMs in the automotive sector, especially regarding EVs? A: Harold Goddijn acknowledged price pressure but noted that TomTom is protected by long-term contracts. While there is pressure if no innovation occurs, the increasing integration of maps into vehicle functions, especially for EVs, commands higher value, mitigating concerns about price pressure.

Q: When do you expect the positive long-term trends in automotive to offset current market weaknesses? A: Harold Goddijn anticipates that around 2026-2027, a new generation of automation in mainstream brands will require more advanced maps, leading to increased revenue. He expects significant deal activity in the next 6 to 18 months, with revenue impacts in the latter half of 2026 and into 2027.

Q: How is the order intake and win rate for TomTom's automotive business? A: Taco Titulaer, CFO, mentioned that deal activity is typically back-end loaded, with many decisions pending. While there is some delay in decision-making, the company is well-positioned to win market share in the next 6 to 18 months. The win rate is positive, and TomTom is confident in its competitive position.

Q: How are navigation take rates tracking, and what is the impact of EV adoption delays? A: Taco Titulaer stated that take rates are on an upward trend, although exact numbers are not available. The mix of EVs versus internal combustion engines affects take rates, with EV adoption delays impacting these rates. However, the trend remains positive, and EV adoption is seen as a matter of when, not if.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.