Good day, ladies and gentlemen. Welcome to the TomTom second quarter 2015 earnings 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 one on your telephone. If at any time during the call you require audio assistance, feel free to press star zero and the conference coordinator will be happy to assist you. Please note that this conference is being recorded. I will now turn the call over to your hostess for today's conference, Georgia Vlachou, from the investor relations department. You may begin.
Thank you, operator. Good afternoon, and welcome to our conference call, during which we will discuss our operational highlights and financial results for the second quarter of 2015. With me today are Harold Goddijn, our CEO, and Marina Wyatt, our CFO. You can also listen to the call on our website, and a recording of the call will be available shortly afterwards. As usual, I would like to point out that the safe harbor applies. We will start today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the quarterly financial results from Marina. We will then take your questions. With that, Harold, I would like to hand over to you.
Thank you, Georgia. Thank you very much. Ladies and gentlemen, welcome. Thank you for joining us on today's earnings call. We generated group revenue of EUR 265 million in the quarter, which is 5% up year-on-year. Our gross margin was 51%, which is 5% below past year, as the strengthening of the U.S. dollar adversely impacted our second quarter results. Marina will provide further information on financials and the outlook for the full year 2015 later during this presentation. I will discuss the key operational highlights for business unit. Consumer products revenue in Q2 was roughly flat year-on-year. This was driven by a low single-digit decline of PND and related content and services revenue, offset by a mid-double digit increase of sports revenue. Automotive hardware revenue decline was due to the phasing out of our automotive hardware contracts.
In Q2, we also saw a unit decline of 7% of the European PND market, whilst the North American markets declined by 19%. Our market share in both areas was flat to modestly up. We strengthened our ASP as our product mix in the quarter was skewed towards higher priced products. In the quarter, our sports business launched the TomTom Bandit action camera. It's the first action camera with a built-in media server. That means that footage can be edited on the camera, which makes it easier and faster to share video clips. The Bandit camera introduction was well covered by the press and received a number of awards. The TomTom Bandit started to ship towards the end of the quarter. We continue to broaden our offering in the PND category with the introduction of the new GO PND devices with lifetime maps and lifetime speed cameras.
We also launched TomTom MyDrive, which is a portal and application designed to seamlessly connect user data like destinations, favorites, and routes across multiple devices. Our automotive business contracted as anticipated, newly booked business continued at levels which will support a growing business from 2016 onwards. We will disclose the year-to-date booking number at the end of our Q3 results. We further extended our global partnership with Fiat to deliver our LIVE Services and connected navigation in the Uconnect infotainment systems in the new Fiat 500. We announced a partnership with Luxoft to integrate NavKit into their automotive infotainment solution. Also, during this quarter, we announced a renewal and extension of our global agreement with Apple for maps and related information. To conclude, we acquired the map of Australia from our long partner, Sensis, which is a former subsidiary of the incumbent telecoms operator, Telstra.
On this slide, about our map-making platform, we give you a brief update on the progress we are making. Our new platform, it will be possible to continuously update the map using transactions with automatic quality checks. Updates of the map will be available to customer applications as soon as those transactions have been completed. This helps us to dramatically reduce the time between change detection and publishing a new map, which we can do also incrementally to deliver real-time maps. Some customer applications, such as automated driving, place a high premium on being up to date with the latest real-world changes. We expect to have fully replaced our map-making system with a transaction-based platform before the end of this year. Now, telematics. By the end of the quarter, we had over 500,000 vehicles subscribed to our Webfleet platform, which is a 28% increase year-on-year.
In June, Telematics held its annual international developers conference for Webfleet Connect. IT professionals and software developers joined forces to encourage innovation in connected applications and integrations built around our Webfleet platform. To date, we have more than 600 third-party solutions and applications connected to our Webfleet platform. The integration of the two acquisitions we made last year are developing according to plan. Now this concludes my part of the presentation, I'm now handing over to Marina.
Thank you, Harold. I shall now begin a more detailed look at our quarterly financial results. We generated revenue of EUR 265 million in the second quarter. Our Telematics licensing and sports businesses grew well and more than offset the reduction in PND and automotive revenue. At constant currency, revenue would have been EUR 253 million, up from EUR 252 million last year. Consumer revenue overall for the quarter was EUR 165 million, which was 2% down compared to the same quarter last year. PND revenue was down 3%, that compares with a blended volume market decline of 11%. Automotive hardware was down by 12%, sports revenue increased by a mid-double-digit percentage. Our automotive business generated revenue of EUR 26 million in the quarter, compared to EUR 31 million in the same quarter last year.
This decline was expected and, as Harold mentioned, was due to the phase-out of certain contracts. Licensing revenue was up 42% compared to the same quarter last year. The increase included a EUR 5 million catch-up from Q1. Telematics revenue in the quarter was EUR 35 million, which was a 37% increase compared to Q2 2014. The recurring subscription revenue for the quarter increased by 34% year-on-year. Our monthly ARPU for subscriptions was flat year-on-year. The strengthening of the dollar adversely impacted our second quarter results, like it did in the first quarter. Our gross margin was 51%, which is 5 percentage points lower compared with the 56% we reported for Q2 2014. The gross margin for Q2 2015 at constant currency was 57%, which was actually 1 percentage point higher than last year.
Total operating expenses for the quarter were EUR 134 million, which is EUR 4 million above the same quarter of last year. That was mainly because of higher R&D and marketing expenses, which were partially offset by lower amortization of technology and databases. Total operating expenses included a positive one-off as a result of a litigation settlement, which was partially offset by additional Forex charges and higher costs related to the share-based employee incentive schemes as a result of the appreciation of the share price. Overall for the full year, these trends are expected to result in modestly higher R&D expenses, both in OpEx and CapEx. We expect the quarterly run rate for OpEx overall to remain at similar levels to what we have seen in the second quarter for the two quarters for the remainder of the year.
The net result for the quarter was a gain of EUR 2.5 million, and the adjusted net result on a post-tax basis was EUR 12.4 million. This translated into adjusted earnings per share of EUR 0.05 for the second quarter. At the end of the quarter, we reported a net cash position of EUR 77 million. The cash flow used in investing activities during the quarter was EUR 44 million, and this included our recent acquisition of the mapping company in Australia. During the quarter, 3 million stock options related to our long-term employee incentive programs were exercised, which resulted in a EUR 16 million cash inflow. Finally, let's turn to the outlook for 2015. Today, we are reiterating our guidance for the full year. We continue to expect revenue to grow this year to around EUR 1 billion.
We expect to see growth in three of our four business units, but not in automotive, where we expect a modest decline ahead of growth next year. We're now expecting the level of investment both in CapEx and OpEx in our core technologies to be modestly higher than last year, mainly explained by FX and the higher costs related to our employee incentive programs. We continue to expect adjusted earnings per share of around EUR 0.20. That concludes the formal part of the presentation. Operator, could we now hand over for questions?
Certainly. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take the first question from Gareth Jenkins from UBS. Please go ahead.
Yeah, just a couple if I could, or a few if I could. Firstly, on sports revenues, I guess versus your original expectations of doubling this year, can you talk about how you expect the rest of the year to play out? Do you see an acceleration there driven by the products and the investment you've made in SG&A? Just secondly, on auto backlog. I think you'll typically give this maybe once a year, but could you just give us some sense of how that's been progressing as well, and whether you still feel confident in the kind of 2016, 2017 time horizon, given that backlog? Thank you.
Yeah. Let me handle the first question. Harold will talk about automotive and the backlog there. On the sports revenue side, what we've said is we have grown in the second quarter by a mid-double digit %, which after various conversations, I think everybody understands what that means. What we see in the second half is that we will have a greater contribution from new products. For example, at the moment, the Action Cam has only just started shipping. TomTom, although we don't pre-announce new products, but we have a track record of bringing new products into the market. I think that together with continuing to expand our presence in sport. We have invested in the first half in media campaigns as well. Seasonality will naturally draw us to having a stronger second half on sport.
We expect the growth to accelerate in the second half of the year. We're satisfied with how we're going. It's particularly going well in Europe, I would say. More to come in the second half.
Okay, thank you. On the auto order intake is developing according to plan. We expect a significant order intake this year. Same levels or higher than we had last year. We plan to give you an update at Q3 numbers later this year.
Yeah. We will quantify the order book then at Q3. Just to give an idea as we go into the end of the year. We don't want to give this number out every quarter because of the lumpy nature of the automotive order book. We will quantify it. It's going fine. It's on track.
That's great. Thank you.
Thank you. We will now take the next question from Youssef Essaegh from Barclays. Please go ahead.
Thank you. Actually, my question was just asked by Gareth, although I can add a few follow-ups. You've mentioned before that the ASP of the sports watches was basically more or less EUR 100 based on the volume shipments and the revenue that we reported. Have you seen any pressure on this number? What about the gross margin? Thank you.
I think that there is a sort of cycle with sports watch products, as with other consumer products. Over time and in preparation of new products coming to market, we will bring prices down. I think that's the main trend that we see. Nothing more than that. What was your other question? Sorry.
Well, I was asking you about the gross margin, but it seems to going in line-
Yeah
with what you said on the ASP, but-
Yeah. Exactly
I have a follow-up question.
I think the gross margin in sports products is stronger, in the watches is stronger than, and for PND. Over the average gross margin for consumer, and we continue to see that.
Thank you. Can I ask you a quick one on telematics? You said previously that you would be doing less acquisitions in 2015 than you did in 2014. Is it actually looking to make acquisitions this year?
We have a team that is dedicated in the telematics organization to searching out for acquisitions for us. They're continuing to do that. The comment that I made or we made was more to say that we've made three acquisitions. We do see more consolidation going on in this market. We have a disciplined approach to making such acquisitions. There continue to be targets out there, but it gets harder.
There may be acquisitions, there may not be acquisitions. We couldn't commit, but the strategy is unchanged.
Thank you. If I may, one very final one still on telematics. The growth of Webfleet subscribers is on one side new subscribers, but it's also people that have come from the acquisitions that you have migrated to the Webfleet platform. Can you tell us what's the mix or how much do you still have to go with the acquisitions you did last year on that?
Overall, the subscriber base is up 34%, and the majority of that is organic. There is some contribution from the acquisition. I think the acquisitions would be in the mid-20. The organic growth of the install base is in the mid-20%. The rest comes from acquisitions.
Thank you very much.
Thank you. The next question is from Marc Hesselink from ABN AMRO. Please go ahead.
Yeah. Hi. My first question is the Nokia HERE selling process. Do you see an impact in your automotive business at the moment? Are people delaying decisions there or anything around that? Secondly, it's a bit speculative, but if indeed what's now the recent speculation that the German car makers would acquire Nokia HERE, do you want to speculate on what that would be for your business? What kind of impact that would have? The second question is on the market share of new contracts in automotive. Do you still have the feeling that you're winning market share as you said in the first quarter? Finally, on pricing in automotive, you're clearly stating that the value of your products is increasing. It's a little bit of a long-term story.
You believe that over time you will be able to raise prices in the automotive side, given that you're providing much more value to a connected car and highly automated driving?
I think it's more or less business as usual in the automotive sector for the moment. What I think did help us, the process that HERE is involved, is that we got a lot of attention and a lot of interest in our underlying platform and our capabilities. We go through a massive transition. We've been able to position that more clearly now, and have been able to go through a number of in-depth presentations about our technologies. We got very good response for that. I think it has helped us to establish ourselves as a good vendor and a good alternative in the automotive industry, and a credible player. That puts us as a credible alternative, both to car makers but also to the technology companies. I think that's a positive. What will happen to HERE is unclear.
I don't want to speculate. There's no point doing that. I'll leave that for later when we have more visibility in what's going to happen, who the new owners of HERE are going to be and, importantly, how they're going to play it. If I look to your third question, highly automated driving, yes, there's a lot of interest there. We've done a number of test coverage areas with our high-definition maps, that we're sharing with a lot of car makers for evaluation, for testing, a lot of positive feedback coming from there. We are motoring ahead, covering the highest road classes in North America and Europe. We plan to have that available as a commercial product by the end of 2016. We see intermediate applications between highly automated driving and steps in between where those new maps are going to be deployed, which is good for us.
It gives us a way to grow into that business and evolve our product roadmap. There's a lot of activity development going on, and a lot of interaction with the car industry, to see how we need to progress our product roadmap.
Okay. The second question there on market share in automotive on current contracts?
We saw a good uptick in 2014. I think that trend is continuing. I see healthy order intake levels in the first half of this year. I'm confident that in the second half of this year, we'll continue on that path, that we'll have another good year of order intake. As Marina said earlier, we will quantify that when we give our Q3 results.
Okay. Thank you.
Thank you. We will now take the next question from Andrew Humphrey from Morgan Stanley. Please go ahead.
Hi, just a couple from me, if I may. Firstly, I wanted to ask a bit more about autos orders. Clearly, you've given data points there previously and will do again. I just wanted to ask about your order booking policy. Are you typically booking the entirety of an estimated size of order for a multi-year contract based on adoption rates uptake with particular customers? Basically, what's your booking policy on the autos side? My second question is just on OpEx, actually. If you could just run through the points you highlighted on OpEx trajectory of the remainder of this year, and maybe talk about which of the areas really you're targeting, in terms of additional investment, and how the trajectory looks there, based on your preliminary views on how 2016 might develop.
Yeah. First on booking policy. Typically, in the automotive industry, we respond to RFQs, and RFQs are quite detailed in the vehicle line that needs to be covered, the expected volumes, introduction date, end date of such a contract. That gives us a quite accurate view on the total value of a contract over time. Typically, when we win an order, you can start shipping between 12 and 24 months from taking the order, and the average runtime of a contract is three to four years. We do an order intake when we publish that number. The typical runtime of such an order is for three to four years, and it starts being visible in the top line between 12 and 24 months after we have concluded that agreement and won that deal. Does that answer your question?
Yes, that's great. Thank you.
Yeah.
Okay. Just the trajectory on OpEx. We've reported EUR 134 million of OpEx in the second quarter. Looking at what we're expecting for the other two quarters of this year, we expect OpEx to be at relatively similar levels. There'll be a bit of a change in the mix. R&D was particularly high this quarter for reasons I've mentioned, and I expect that to come down. It'll still be above the level we saw in Q1, but down from where it is in Q2. On the other hand, G&A costs will go up because they have been flattered by the credit on the litigation side in Q2. Overall, we expect things to be roughly a wash for the rest of the year.
Our major areas that we have been investing in this year have been on the R&D side, have been very much on the new mapping platform, where we are going through the transition to the new platform as we speak, and that will continue throughout the rest of this year. The other sort of major area of investment is in the components that we are developing and upgrading for the connected car environment. Those are the major two that we have been investing in and are highly committed to getting those completed, so that will help us as we go forward for next year. Those are the main things.
That's great. If I can just follow up briefly on that, on the R&D side in particular. I think you've mentioned previously that, while you've been rolling out the transactional mapping platform, you've been bearing sort of double R&D costs in some areas for supporting two platforms. Should we basically think about you recycling any potential savings on that front you make into speeding up developments of HD maps and those sorts of things next year? How should we be thinking about the R&D trajectory?
Well, the new mapping platform is designed to be faster and more cost-effective. It's designed to apply a higher level of automation, machine learning, statistical analysis. It's what we're doing already with probe data. We collect probe data on a large scale, use that for map making, and we want to extend that to other information that we automatically collect from cars, sensors, but also from the community without any compromise on quality, obviously. That will help us to make better maps, make them faster and at lower cost. At the same time, the requirements for maps will go up. More attributes, higher level of accuracy, more information. It's a balancing act between higher levels of automation and efficiency, and at the same time meeting future requirements of our customers, both in the automotive industry and from the tech companies.
Where that exactly the right balance is, we'll find out, but I don't expect overall, despite higher efficiency levels in the mapmaking process, that we will reduce our investment in platform development or operations for our mapmaking process. Our aim is to win market share and to grow the top line, and use the funds generated as effective and efficient as possible to make the best possible map at the lowest possible cost.
Okay. That's helpful. Thank you.
Thank you. The next question is from Shyam Kumar from TT International. Please go ahead.
Hi there. I just want to ask a few strategic top-down views on, I guess, the mapping industry. With this real-time mapmaking platform, I'm trying to understand the new addressable markets it's unlocking. For example, obviously with automotive, I guess my first question would be, three to five years from now, how big could the addressable market be in terms of the mapping software going into the automotive industry? Right now, I'm guessing it's about a EUR 600 million tangible addressable market. What could that be three to five years hence? Second question. I guess that also ties into the strong uplift you're seeing year-on-year, half-on-half in licensing. What are the new areas real-time mapmaking is going to unlock from, is it e-commerce? Is it search?
More of that strategic thinking on the three to five-year view, because I guess, tied into that is just a view on. Obviously, [we'd not be here going on]. You're seeing potentially rumored very high values of map assets, much higher than your entire market cap. The question is, it would be easy or potentially very lucrative to create shareholder value by going down that path, depending on what happens. At the same time, if there is a vision that there's significantly more value to be driven from owning this asset over this tech cycle of three to five years, it's good to keep hold of the asset. Anything that you can address around those three points would be very interesting to me.
Yeah. It's a broad topic and a broad set of questions, obviously, you're raising there. I think the total addressable market today is already higher than the number you mentioned. We expect that addressable market to go up in value going forward. That's both driven by tech firms, who want independence from other map makers or other vendors, want to protect their user data, and have an independent product offering from Google, in particular. We see a renewed interest from those companies and a willingness to invest in location-based services, platforms, and offerings. We expect growth coming from that space. There is growth coming from the GIS type of applications, intelligent cities, more awareness for traffic and transport, and what have you. We see good growth opportunities there. Finally, we see good growth opportunities in the automotive space.
That is really coming from two directions. In TomTom's case, from three directions. First of all, we see that despite the introduction of built-in navigation like you get on smartphones, we see that the attachment rates for built-in navigation are going up. We see new use cases emerging, where maps are part of the overall infrastructure of the car, the electronics infrastructure. For adaptive cruise control, for lane level guidance, for helping to switch the gearbox in an efficient, fuel-efficient way, ultimately leading to more advanced forms of automated driving. The last element where we think we can grow, and again, especially in the automotive space, is where that we win market share from our biggest competitors there.
There is a broad area for us to play, with an overall good outlook. We feel good that we have transitioned to a new technology platform so we can capture a larger part of the upcoming opportunities as well.
Okay. Just in terms of telematics, I know you mentioned the TomTom Curfer, TomTom LINK 100. They seem more geared towards fleets. What's the timeline on these kind of products being rolled out to passenger vehicles for insurance purposes or just to help people become better drivers or whatever?
Yeah. That's a good point. The core of telematics business, of course, is business to business. That is really to optimize the use of mobile assets and to improve customer service and the overall integrity of the business. That's an important application. Next to that, we covered it under business development, there are two big areas of interest. One is insurance. Driver-based, behavioral-based insurance premiums and risk assessment. That's gaining some traction, and we're making progress there. I wouldn't say we've cracked the code, but there's more and more evidence that this technology's preparing itself for mainstream primetime application. We have a reasonable position in that space, and we're expanding there. The second area is really connected car in a consumer sense. We've got a couple of pilots running there.
We're investing in some product development there. I think that in 2016, we will see the first large-scale applications coming to the market for connected car applications. There's a lot going on there. It's a bit early to say how big the opportunity is and how fast it can go. There's definitely a lot of interest from the industry for these type of applications.
Thank you.
Thank you. The next question is from Peter Olofsen from Kepler Cheuvreux. Please go ahead.
Good afternoon. I had a question on the gross margin erosion that you witnessed in the quarter. I guess it's mostly on the consumer side. Are you taking any initiatives in terms of pricing or bill of material reduction that could already help you to recover some of the gross margin decline in the second half of the year?
Yes. Absolutely, of course, we are. It's a big impact on us and
The brunt of the impact is felt in our consumer business unit. Absolutely. On the other hand, it's difficult to just take products and put up prices overnight. We need to take the opportunities and the opportunities that are presented as we bring new products to market and look at the pricing then and adjust accordingly in order to get the margins to where they need to be. I think there are two fronts. There is the pricing of products and also the underlying bill of material costs for our products, and that's where we also look at our existing products as well. This is going to take some time to adjust to. Already you see as new products start to play more of a contribution in our results as we go through the year, that that will start to have a positive impact.
Okay. Thank you.
Thank you. The next question is from Marc Zwartsenburg from ING. Please go ahead.
Yes, good afternoon. A few questions left. First, on the camera. I know it's very premature because you just started shipping, but can you give us any color on expectations on what it can contribute, say, over the next 6 months? I think you mentioned we expect still the sports category to double in terms of revenues. Is that including then also contributions from the camera? What are the expectations going forward? In 2016, what kind of volumes should we expect, and can you also give us any guidance on the margins? Is that similar to the sports watch that the gross margin is better than on PNDs as well? My second question, can you give us also the organic growth rate, ex Forex and ex PNDs? Is that a number you have at hand that you can give us? That's it.
First of all, in terms of looking at sports products, I think the camera was your first question.
Yeah.
The camera in Q2, it contributed only a tiny amount to Q2. Not really on the radar because it's only started shipping in May. Clearly as we go through the rest of the year, we are expecting it to make a bigger contribution to the numbers. It's a new category for us. We need to see how that develops. We are, of course, expecting that to contribute towards the higher growth in the second half. We sell an action camera, but there are also a whole range of accessories that go with that. We look at that for the family as a whole in terms of driving a margin for that category. It's relatively competitive. Overall, when you put all of that package together, that makes a decent margin for us.
Would you say that the sports category, is that the EUR 100 million, the doubling of, say, the sports watch contribution of EUR 50 million to EUR 100 million? Would you now include the camera in your guidance, or should we see this separately?
Yes. No, no, don't see it separately. Include it.
In terms of size, because I think you mentioned that you say, okay, we have a track record of coming to the market with a new product. In terms of size of a market, the camera versus sports watch, what kind of numbers should we think about for, say, next year? We know that the sports watch took off really fast.
I think we need to, yes, when we introduced it, we were also giving the message, let's see how it goes and see how it builds. I would say we need to adopt the same approach with the camera. We can't give predictions for next year at this point.
Okay. Clear.
Okay. Your next question. Can you just remind me, please?
Yeah. The organic growth. If you exclude, say, the Forex impact, also if you exclude the PND category, that's still declining. Could you give me the organic growth rate of all those, excluding those elements?
In consumer?
No, the group.
Overall in the group. We've said organically, we as a company, excluding on a constant currency basis, our revenue was up year-on-year by a small amount, I think by EUR 1 million. Clearly within that, we had PND declining overall by 3%. If we take out PND, clearly the organic growth rate is higher. I'm afraid I don't have the exact split of the Forex impact by product category in front of me, but we can get it to you.
The PND-
It'll go a bit higher.
The PND decline of three percentage points you mentioned, that's including Forex, I presume?
Yes.
Okay. All right. That's it. Thank you very much.
Thank you.
Thank you. The next question is from Alexandre Plicque from Exane BNP Paribas. Please go ahead.
Yes, hi. Thanks for squeezing me in. Just wanted to ask you a little bit about margins in licensing and in telematics. From what I see, in H1 you had a slight decline from 32.5%-27% EBIT margin in telematics. Is there anything special going on there? Is it attributable basically to the hardware that you sell within telematics as well? There's this pressure from FX, and that would then explain why EBITDA margins are actually quite flat, a little bit down. Secondly, on licensing. Here, I'd just like to understand because to me it looks like the business should scale quite well as revenue growth returns to more normal levels. You now have 24%-25% growth in H1, and I don't see any scale effect that would benefit your EBIT that is negative at the same level.
The EBITDA margin as well is also down a little bit. If you could just clarify those points for me. Thank you so much.
Yeah. I think the impact that we see in telematics is very much caused by the acquisitions. In the EBITDA, we're stripping out the amortization effect from the acquisitions. That's most of the D&A that you see there. I think when you strip those out, that charge has gone up because we've made more acquisitions, and we're amortizing them. That's why it looks relatively flat. That's telling you that in underlying terms, the telematics EBIT margins are pretty much intact. What I would say is when we make acquisitions, we do end up with a slightly inefficient operating cost structure that we have to work through and takes a bit of time to work through as we assimilate the acquisitions. That is really explaining what is going on in telematics.
In licensing, your point about revenue has increased significantly in licensing, but we've not seen that translating through to the EBIT line is purely because, as we've already said, we're investing at a higher level in our map. When we prepare the segment note, any unabsorbed costs of the map that are not absorbed within the consumer business or elsewhere end up being apportioned in the automotive and licensing businesses. All the costs of the map get apportioned out, and we apportion them on a simple metric, which is driven mainly by revenue. The fact that licensing did better also meant that it absorbed more of the mapping cost. The way to read it is just automotive and licensing together are bearing the lion's share of the cost of the map.
We need to continue to increase revenue in those two business units in order to turn that bottom line profitable.
Can I just ask you as a follow-up? Is there a point in time where you think you will be able to stop growing the cost base in map making alongside the revenue base? Will we see scale effects at some point?
Yeah. I think we're very focused on we need to make sure that we have the product we want at the quality level we want. We've been incredibly focused on delivering, and we continue to be on delivering the new mapping platform. There's also a need to continue to upgrade the content. We see that it's important to continue to invest at high levels in our map. We also see that revenues, as we go forward, are increasing and will continue to increase as we win new business. I think there's a bit of making sure we're as efficient as we can be in our costs, but maintaining the quality of the product. Really, the real drive is to drive more revenue.
Okay, thanks.
Thank you. As a reminder, to ask a question at this time, please press star one. We will now take the next question from Hans Slob from Rabobank. Please go ahead.
Thanks for taking my question. My question is on the licensing business, even stripping out the EUR 5 million impact in Q2, the licensing sales were still pretty strong. Maybe could you explain the underlying drivers for your licensing business? Should we also expect a higher run rate for your licensing business as you have extended and expanded your relationship with Apple? Maybe a little bit more color on that subject.
We've got EUR 5 million in Q2 that should be apportioned to Q1 as you look at your quarterly comps going forward. If you strip out that EUR 5 million from Q2, that should give you a decent feel for the run rate going forward in the licensing business. What you'll see is that's running quite a bit higher than it was last year. Without being specific about customers, that is due to new customer wins coming in, including the Apple contract that we announced in May.
All right. Let's say if going forward, we should strip out the EUR 5 million and take that as a run rate for your next quarter.
Yes.
All right.
Totally.
Thanks.
Thank you. There are no further questions in the queue at this time.
Thank you, operator. I would like to thank you all for joining us this afternoon. If you have any follow-up questions at a later time, please don't hesitate to give us a call. Thank you all very much. Operator, you can close the call.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.