Cleveland Research Company Stock Pitch Competition Finalist Presentation

1Cleveland Research Company Stock Pitch 2016

Michael Kress | Nicholas Meyerson | Nguyen Nguyen | Joseph Whiteside

NYSE:MBLY

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Overview & Thesis 3Industry Dynamics

Drivers & Growth Opportunities

Valuation

Final Thoughts

Appendix 1918

68

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Investment Thesis

Overview & Thesis Industry Dynamics Drivers & Growth Opportunities

Valuation & Final Thoughts Appendix

Mobileye is a technological leader in the autonomous vehicle industry poised to capitalize on future regulations and increasing demand for autonomous features.

❖ The United States Department of Transportation and IIHS recently announced a plan to require automatic emergency braking systems on all new vehicles by 2022.

❖ Mobileye has a number of substantial OEM contracts with companies such as General Motors, Mitsubishi, Honda, Nissan, and is set to take advantage of the increase in demand for autonomous features.

❖ Mobileye has created a competitive advantage due to being first to market at supplying effective and proprietary vision based ADAS (advanced driver assistance systems).

We recommend Mobileye (NYSE:MBLY) as a Buy with a 12 month price target of $70.00, a 67% upside from the current share price.

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Company OverviewCompany Description

❖ Mobileye N.V. provides image sensing and processing technology for automotive applications

❖ The firm serves customers worldwide

❖ Corporate headquarters located in Jerusalem, Israel

❖ NYSE: MBLY

Company Outlook

Key Statistics Stock Performance

❖ Mobileye pioneered the use of mono-cameras to enhance Advanced Driver Assistance Systems (ADAS)

❖ The firm is continuing to revolutionize ADAS technology, adding features such as intelligent headlight control, lane departure warnings, and collision warnings

❖ 347 car models will integrate Mobileye’s EyeQ chips in 2016



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Management DirectionFuture Goals

❖ Attain full autonomous driving features while retaining the positives of the human element in vehicle operation

❖ Reduce human capital costs that arise from motor vehicle crashes

❖ Retain current contracts with large automobile manufacturers and Tier1 competitors to remain competitive

Technological Advancement

Strategies Usage Diversification

❖ The ability for ADAS systems to have 360 degree sensors, increasing performance and reducing the risk of collision

❖ Utilize radars and lidars in addition to mono-cameras in order to improve performance and progress further towards fully autonomous vehicles

❖ Use low bandwidth mapping technology for vehicles to integrate GPS technology into autonomous driving



❖ Using crowdsourcing to power mapping for autonomous driving, integrate low bandwidth processing (REM) into GM and Volkswagen vehicles

❖ Effectively neutralizes the somewhere/everywhere tradeoff (Google mapping uses 1gb/km, REM uses 10kb/km; 102x more efficient)

❖ Expansion of safety features and ADAS into construction and industrial vehicles

❖ ADAS systems pursued by insurance companies for improved driver risk analysis

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Industry OverviewCurrent Trends❖ Increasing regulations on fuel efficiency, influence on

cruise control technologies

❖ Consumer data availability due to the use of sensor technology

❖ Higher cost of technology in vehicles (~35%) due to increased demand for autonomous features

❖ Integration between telematics features and insurance companies to increase good driver incentives

ADAS Adoption

Market Share (based on market cap) Willingness to Repurchase



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Autonomous FeaturesIncreasing Affordability Effects

Tier1 Providers Tier2 Providers

❖ Autonomous features in vehicles open doors for many industries to increase revenues

❖ Mobile service providers, software firms, financial services, government



❖ Tier2 providers such as Mobileye supply the core intelligence that is used to integrate autonomous systems into vehicles

❖ Tier2 competitors: Hella, Busch Ltd, NVIDIA

❖ Barriers to entry: Mobileye has an advantage from secured future contracts, early entry (Mobileye systems have been in vehicles since 2007), and superior R&D

❖ Tier1 Providers are indirect competitors with Tier2 providers

❖ Some Tier1 and Tier2 manufacturers partner together for a collective benefit

❖ Tier2 manufacturers experience rapid increases in risk when market becomes competitive due to the nature of their business models

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DriversPowerful Technology

Capital Structure Sustaining Growth



❖ Mobileye’s Shield is the most effective ADAS camera system on the market, designed for large commercial vehicles

❖ Utilizes proprietary algorithms, software, and visual cameras to reduce risks of collisions

❖ Mobileye’s products are the flagship products of the industry, and through R&D, they stay in a competitive position

❖ Mobileye is debt free, as it does not carry short-term or long-term debt

❖ Bloomberg lists the likelihood of Mobileye’s default on liabilities as 0.02%

❖ Firm specific risk is higher than most (98.02%), but carries little to no risk of bankruptcy

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Sustaining GrowthLegal Tailwinds Future OEM Contracts & Launches

OEM AM



❖ United States Department of Transportation made agreement with 20+ automobile manufacturers

❖ All new vehicles mandated to have automated emergency braking by 2022

❖ AEB is highly dependent on effective ADAS systems

❖ EyeQ1, EyeQ2, EyeQ3 single camera systems are in development for launch later this year, each tier will have additional features

❖ 9 innovative new features total

❖ Contracted with Audi, BMW, Citroen, Ford, GM, & more

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Somewhere/Everywhere Tradeoff“Somewhere” “Everywhere”

Mobileye Solution Solution Launch



❖ “Somewhere” with full functionality, tradeoff is a large range of mapping

❖ Problem seen in Google and Baidu’s autonomous vehicle technology

❖ 3D detailed maps, inefficient bandwidth usage (1gb/km)

❖ “Everywhere” with partial functionality, tradeoff is quality of mapping

❖ Problem seen in general car industry

❖ Low-res (nav) maps u

❖ Roadside experience management (REM)

❖ Utilizes crowd-sourcing of real time data for precise localization

❖ Extremely efficient, utilizes only 10kb/km of driving

❖ Mobileye to launch REM in new Nissan vehicles in 2016

❖ Also working with Volkswagen and GM

❖ If crowd-sourced mapping is a success, Mobileye would gain a further competitive edge in terms of autonomous technology, and increasing future economic benefits.

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Supply ChainSuppliers

❖ Sunny Optical Technology Group, STMicroelectronics

❖ Strong relationship with suppliers; STMicroelectronics and Mobileye hit the 1,000,000th unit sold back in 2012

❖ Bloomberg reported very low levels of COGS (0.20%)

Future Products

Mobileye Customers Revenue & Gross Profit



❖ Audi, BMW, Citroen, Ford, GM, Honda, Hyundai, Jaguar, Nissan, Volvo are just a few of the major manufacturers that Mobileye is launching with

❖ Mobileye also services independent businesses on vehicle tracking to improve quality control and accountability

❖ EyeQ1

❖ Lane departure warning, intelligent headlight control

❖ EyeQ2 & EyeQ3

❖ Lane keeping and support, traffic sign recognition, forward collision warning, headway monitoring, fusion to radar, pedestrian detection warning, video only adaptive cruise control, low speed automatic braking

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InventoryRise of Inventory Against Sales Revenue Issues/Benefits of Rising Inventory

EyeQ Chip Growth Ratios

❖ Mobileye tends to update its technology relatively often, so if inventory is allowed to accumulate too high, there may be losses due to obsolescence

❖ With an increasing amount of contracts and increased consumer demand, a rising inventory will help Mobileye fulfill sales



❖ EyeQ Chip volume increased 83% year over year

❖ This increase in sales volume occurred despite an increase in average selling price

❖ Helped generate a $96 million free cash flow in 2015

❖ Return on assets: 9.58%

❖ Return on equity: 15.04%

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AMAftermarket Add-ons

❖ Mobileye sells individual mono-cameras that attach to dashboards for consumers

❖ Incorporates some of the features of the EyeQ (pedestrian collision warning, lane departure, forward collision warning, headway monitoring, intelligent high beam, speed limit indication)

Smartphone Integration

Mobileye 5-Series Growth

❖ 187 million people own a smartphone

❖ By integrating some of the features into smartphone apps, Mobileye is gaining an additional stream of revenue and possible sustained growth

❖ The firm can release features for sale through the app store, which results in a lower COGS and larger operating profits



❖ Aftermarket revenues are relatively small compared to OEM revenues, but growth can be sustained through finding new sales channels such as the smartphone market

❖ Utilizes a single camera

❖ Connects via Bluetooth to smartphones

❖ Enables consumers to experience benefits of Mobileye’s products without buying a new vehicle

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ProjectionsRevenues Meeting the Projections

Projected Revenues Projected Net Income

❖ If the automatic emergency braking regulation passes in the automotive industry, then its long term growth rate is realistic

❖ However, if a competitor rises and is on par with Mobileye, the growth rate is unrealistic as increased competition means that less of the industry growth will go to Mobileye



❖ Mobileye’s projections state that the managers believe that it will experience 40% and 47% growth rates in 2016 and 2017, respectively

❖ The firm also estimates its long term growth rate to be 15%, which is unusually high

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SWOT AnalysisStrengths Weaknesses

Opportunities Threats

❖ Competitors are partners; if they create quality ADAS systems themselves, Mobileye would lose revenue

❖ Doesn’t own a real barrier against other firms entering



❖ Debt-free capital structure❖ Flagship ADAS product❖ Contracts with large automobile companies❖ No current quality competition❖ Competitors are also partners

❖ Automatic Emergency Brake regulation in the future❖ Smartphone connectivity ❖ Crowdsourcing – mapping method

❖ Tier1 firms developing their own ADAS systems and not needing Mobileye anymore

❖ Competition arising as growth is too strong not to attract attention

❖ Fully autonomous vehicles by companies such as Google

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ValuationComparables Analysis Football Field Valuation

DCF (Perpetuity & Exit EBITDA Multiple) Sensitivity Analysis



❖ EV/EBITDA multiple used to derive an implied share price

❖ Implied share price ranged from $45.67 - $91.50 (17.1%-134.6% upside)

❖ WACC of 8.2% utilized

❖ Perpetuity growth assumed to be 3.5%

❖ EBITDA Exit Multiple calculated as 9.5x

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Valuation (cont.)Perpetuity Growth Method EBITDA Exit Multiple Method

Calculation of WACC Comparables Analysis



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Final Thoughts



Mobileye N.V. is a technological leader in the area of software algorithms and ADAS chip technology that is taking advantage of the rapidly growing usage of self-driving features in automobiles, and is positioned well for future growth due to future AEB regulations.

❖ Mobileye has a number of substantial OEM contracts with companies such as General Motors, Mitsubishi, Honda, Nissan, and is set to take advantage of the increase in demand for autonomous features.

❖ The United States Department of Transportation and IIHS recently announced a plan to make automatic emergency braking a standard on all new vehicles by 2022.

❖ Mobileye has a competitive advantage due to the quality of its product and R&D, and has the opportunity to increase revenues through many different markets, such as construction vehicles.

We recommend Mobileye as a Buy with a 12 month price target of $70.00, a 67% upside from the current share price.

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Appendix

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Income Statement



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Balance Sheet



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Statement of Cash Flows



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Discounted Cash Flow Analysis



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Comparables Analysis



Cleveland Research Company Stock Pitch Competition Finalist Presentation

Economy & Finance

Transcript of Cleveland Research Company Stock Pitch Competition Finalist Presentation