2016 CRC Stock Pitch Competition - Finalist

1Cleveland Research Company Stock Pitch 2016

Michael Kress | Nicholas Meyerson | Nguyen Nguyen | Joseph Whiteside

NYSE:MBLY

2

Overview & Thesis 3

Industry Dynamics

Drivers & Growth Opportunities

Valuation

Final Thoughts

Appendix 19

18

6

8

16

2

3

Investment Thesis

Overview & Thesis Industry DynamicsDrivers & Growth

OpportunitiesValuation &

Final ThoughtsAppendix

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.

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 $60.00, a 50% upside from the current share price.

4

Company Overview

CompanyDescription

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

CompanyOutlook

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 to integrate Mobileye’s EyeQ technology in

2016




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Adj Close

$40.01 107.1x

8,123 36.1x

$0.48 15.8x

133.7x

1.6x

$240.9 - -

31.0% 95.8

14.0% 6.8

28.0% 5.5

Cash

Current Ratio

Quick Ratio

Revenue

Gross Margin

EBITDA Margin

Profit Margin

EV/EBITDA

EV/Sales

Price/Book

Price/Earnings

PEG

Debt

Market Performance

Operations

Value

Capital Structure

Current Price

Market Cap (m)

EPS (ttm)

5

Management Direction

Future Goals

Attain full autonomous driving features while retaining the

positives of the human element in vehicle operation

Fully autonomous driving by 2020

Expand technological capabilities through extensive R&D,

increase the usage of vehicle to infrastructure (V2I) and

vehicle to vehicle (V2V) communications

Research & Development

Strategies Usage Diversification

Increase ADAS performance and further reduce the risk of

collision

Utilize radar and lidar technology to improve monocular

ADAS systems

Developed low bandwidth mapping technology to integrate

GPS technology into autonomous driving




Use of crowdsourcing to power mapping for autonomous

driving, integrate low bandwidth processing (REM) into

2017 GM, Volkswagen, and Nissan vehicles

Effectively bridge the somewhere/everywhere tradeoff

(Google mapping uses 1gb/km, REM uses 10kb/km)

Expansion of safety features and ADAS into construction and

industrial vehicles

ADAS systems pursued by insurance companies

for improved driver risk analysis

Public transportation

6

Industry Overview

Current Trends

Increasing regulations on fuel efficiency and safety features

Higher cost of technology in vehicles (~35%) due to

increased demand for autonomous features

Integration between telematic features and insurance

companies to increase good driver incentives

ADAS Adoption

Market Share (based on market cap) Willingness to Repurchase




15.4%

35.2%17.2%

7.7%

3.3%

21.2%

Mobileye Delphi Autoliv Gentex Calsonic TRW Automotive

8.0%

6.0%

5.0%

4.0%

3.0%

28.0%

23.0%

17.0%

17.0%

8.0%

- - 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

China

Germany

South Korea

United States

Japan

91.0%

87.0%

88.0%

89.0%

87.0%

85.0% 86.0% 87.0% 88.0% 89.0% 90.0% 91.0% 92.0%

China

Germany

South Korea

United States

Japan

7

Autonomous Features

Increasing Affordability Effects

Tier1 Providers Tier2 Providers

Autonomous features in vehicles open doors for many new

channels of revenue

Mobile service providers, software firms, financial services,

government

V2V technology is expected to mitigate up to 81% of

distracted crashes




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 due to Mobileye: secured future contracts,

early entry, proprietary technology, and successful R&D

- -$5,000

$10,000$15,000$20,000$25,000$30,000$35,000

Tier1 Providers are “system integrators”

Some Tier1 and Tier2 manufacturers partner together for a

collective benefit

Tier1 suppliers and Tier2 suppliers indirectly compete with

each other

8

Drivers

Powerful 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 risk of collisions

Mobileye’s products are the flagship products of the industry,

and they stay in a competitive position due to continued

successful R&D

Mobileye’s capital structure is debt free

Flexible enough to take on debt, make acquisitions, and

investment more into R&D

Firm specific risk is higher than most (98.02%), but carries

little to no risk of bankruptcy 0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016E 2017E 2018E

Revenue growth

9

Flagship Technology

EyeQ2




Proprietary monocular vision-based ADAS system

Only vision based ADAS system that can detect pedestrians on the market

Utilizes a Classifier Engine (CE) and Tracker Engine – Trkfor pattern classification and motion analysis, respectively

Winner of the ‘Best Electronic Design’ in the vision processor category by Electronic Design Magazine

The “Third Eye”

Vision based ADAS has a longer range on detecting objects

than traditional sensors

Can detect and analyze traffic signs such as yield and speed

limit signs

More effective at preventing collisions due to analysis ability

and pedestrian detection than other ADAS systems

10

Aftermarket

AM Add-Ons

Mobileye sells individual mono-cameras that attach to

dashboards for consumers

Incorporates some detection features of the EyeQ chips

Smartphone Integration

Mobileye 5-Series Growth

By 2020, there’s expected to be 6.1 billion smartphone

subscriptions

By integrating some of the features into smartphone apps,

Mobileye is gaining an additional stream of revenue

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

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

11

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

Lower quality mapping

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 increase future economic benefits.

12

Sustaining Growth

Legal Environment Future OEM Contracts & Launches

Original Equipment Manufacturer (OEM) Rev Aftermarket (AM) Revenue




United States Department of Transportation made an

agreement with 20+ automobile manufacturers

All new vehicles mandated to have Automated Emergency

Braking (AEB) by 2022

AEB is highly dependent on effective ADAS systems

EyeQ3 single camera systems are in development for launch

later this year

9 innovative new features total

Contracts for future launches with Audi, BMW, Citroen,

Ford, GM, & more

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450

2011 2012 2013 2014 2015 2016E 2017E

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250

300

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400

450

2011 2012 2013 2014 2015 2016E 2017E

13

Supply Chain

Suppliers

Sunny Optical Technology Group, STMicroelectronics

Strong relationship with suppliers; STMicroelectronics and

Mobileye hit the 1,000,000th unit sold back in 2012

COGS attributed to suppliers is 0.20%

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 provides quality control and accountability

services for smaller, independent businesses

Insurance companies, public transportation

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

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2016E 2017E 2018E 2019E 2020E

14

Projections

Revenues Meeting the Projections

Projected Revenues Projected Net Income

AEB regulation passage

Sustaining technological advancement through increased investment in R&D

Achieve fully autonomous driving by 2020




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%

indicating that the market is nowhere near maturity

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2016E 2017E 2018E 2019E 2020E

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2016E 2017E 2018E 2019E 2020E

15

SWOT Analysis

Strengths Weaknesses

Opportunities Threats

Competitors are partners; if they create quality ADAS

systems themselves, Mobileye would lose revenue

Patents held are only on the use of vision in ADAS Heavily dependent on Tier1 companies




Debt-free capital structure

Flagship ADAS product

Contracts with large automobile companies

Increasing demand for autonomous features

Efficient combination of visual ADAS and crowdsourced

mapping

AEB regulation in the future

Smartphone connectivity – additional add-on revenue

Fully autonomous vehicles open up new channels of potential

revenue

Government and industrial opportunities

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

0.0 20.0 40.0 60.0 80.0 100.0 120.0

DCF Value at 3%-5% Perpetuity Range

DCF Value at 10x-14x EBITDA Multiple

Bear Market DCF

Base Case DCF

Bull Market DCF

52 Week Market High/Low

16

Valuation

Comparables 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 (14.1%-

128.7% upside)

WACC of 7.9% utilized

Perpetuity growth assumed to be 4%

EBITDA Exit Multiple calculated as 12x

$86.69 3.0% 3.5% 4.0% 4.5% 5.0%

11% 43.0 45.0 47.2 49.9 52.9

10% 49.0 51.8 54.9 58.7 63.3

9% 57.1 61.1 65.8 71.6 78.8

8% 68.5 74.6 82.2 91.9 104.9

7% 85.6 95.9 109.5 128.6 157.2

6% 114.3 134.3 164.3 214.3 314.3

$47.01 10.0x 11.0x 12.0x 13.0x 14.0x

11% 37.0 39.4 41.8 44.2 46.6

10% 38.3 40.8 43.3 45.8 48.3

9% 39.7 42.3 44.9 47.5 50.2

8% 41.2 43.9 46.6 49.4 52.1

7% 42.7 45.6 48.4 51.3 54.2

6% 44.3 47.3 50.3 53.3 56.3

W

A

C

C

Equity value per share

Long term growth rate (g):

W

A

C

C

Equity value per share

Long term growth rate (g):

17

Valuation (cont.)

Perpetuity Growth Method EBITDA Exit Multiple Method

Calculation of WACC Comparables Analysis




EV/EBITDA

Low Mean Median High

6.8x 10.3x 9.5x 15.9x

Implied Share Price $45.67 $63.30 $59.27 $91.50

Upside 17.1% 62.3% 51.9% 134.6%

Perpetuity Method

Present Value of Projection Period $1,590.6

2020 Free Cash Flow 955.0

Perpetuity Growth Rate 4.0%

Terminal Value $25,196.9

Years 5.0

Present Value of Terminal Value $17,316.3

Total Enterprise Value $18,906.9

EBITDA Exit Multiple Method


2020 EBITDA 955.1

EBITDA Multiple 12.0x

Terminal Value $11,461.2

Years 5.0

Present Value of Terminal Value $7,876.6

Total Enterprise Value $9,467.2

Assumptions

Cost of debt 2.0%

Tax Rate 27.0%

Debt and Equivalents - -

Debt as % of total capital 0%

Risk Free Rate 1.8%

Beta 1.2

Market risk premium 5.0%

Equity as % of total capital structure 100.0%

Cost of capital (WACC) 7.8%

Net Diluted Shares Outstanding 237.9

18

Final Thoughts




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.

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 $60.00, a 50% upside from the current share price.

19

Appendix

20

Pro Forma Income Statement




Mobileye Historical and Projected FinancialsIncome Statement($ in millions)

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Period 1 2 3 4 5 6 7 8 9 10

Revenue $19.1 $40.3 $81.3 $143.6 $240.9 $337.3 $495.8 $773.4 $1,276.1 $2,067.3

% Growth 111.0% 101.7% 76.6% 67.8% 40.0% 47.0% 56.0% 65.0% 62.0%

Cost of Sales 6.9 12.2 21.1 37.0 61.4 84.3 123.9 193.4 319.0 516.8

Gross Profit $12.2 $28.1 $60.2 $106.6 $179.5 $252.9 $371.8 $580.1 $957.1 $1,550.5

% Margin 63.9% 69.7% 74.0% 74.2% 74.5% 75.0% 75.0% 75.0% 75.0% 75.0%

Operating Expenses 22.8 28.4 43.5 119.3 101.7 114.7 163.6 247.5 395.6 620.2

Operating Profit ($10.6) ($0.3) $16.7 ($12.7) $77.8 $138.3 $208.2 $332.6 $561.5 $930.3

% Margin (55.5%) (0.7%) 20.5% (8.8%) 32.3% 41.0% 42.0% 43.0% 44.0% 45.0%

Interest Expense $1.5 $1.5 $1.1 $1.3 $2.9 - - - - - - - - - -

Other Expense (2.3) 0.6 1.9 (3.3) (0.9) (0.8) (0.8) (0.8) (0.8) (0.8)

Total Other Expenses ($0.8) $2.1 $3.0 ($2.0) $2.0 ($0.8) ($0.8) ($0.8) ($0.8) ($0.8)

Earnings Before Taxes ($13.1) $0.3 $17.8 ($17.8) $79.8 $139.1 $209.0 $333.4 $562.3 $931.1

Corporate Taxes (0.4) (0.3) 2.3 (12.3) (11.3) 37.6 56.4 90.0 151.8 251.4

Net Earnings ($12.7) $0.6 $15.5 ($5.5) $91.1 $101.5 $152.6 $243.4 $410.5 $679.7

% Margins (66.5%) 1.5% 19.1% (3.8%) 37.8% 30.1% 30.8% 31.5% 32.2% 32.9%

Metrics & Drivers

Corporate Tax Rate 24.0% 25.0% 25.0% 26.5% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0%

Operating Expenses as a % of Revenue 119.4% 70.5% 53.5% 83.1% 42.2% 34.0% 33.0% 32.0% 31.0% 30.0%

Fiscal Year Ending December 31st

21

Pro Forma Balance Sheet




Mobileye Historical and Projected FinancialsBalance Sheet($ in millions)

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Period 1 2 3 4 5 6 7 8 9 10

Cash and Cash Equivalents $15.0 $72.6 $339.9 $152.7 $324.7 $509.0 $751.2 $1,083.2 $1,716.6

Accounts Receivable 7.1 12.5 15.8 23.7 27.7 40.7 63.6 104.9 169.9

Other Current Assets 58.3 70.2 62.6 116.9 162.9 205.3 293.5 457.6 613.6

Total Current Assets $80.4 $155.3 $418.3 $293.3 $515.3 $755.0 $1,108.3 $1,645.7 $2,500.1

Net Property, Plant & Equipment $4.5 $5.7 $8.8 $272.0 $281.4 $295.3 $311.0 $353.2 $400.4

Other Long-Term Assets 5.2 7.3 9.3 12.3 12.3 12.3 12.3 12.3 12.3

Total Assets $90.1 $168.3 $436.4 $577.6 $809.0 $1,062.7 $1,431.6 $2,011.2 $2,912.8

Deferred Revenue - - $1.1 $1.3 - - $3.8 $2.2 $4.4 $10.1 $10.5

Other Current Liabilities 11.3 14.8 26.2 43.2 $69.5 $92.9 $146.0 $243.0 $399.4

Total Current Liabilities $11.3 $15.9 $27.5 $43.2 $73.3 $95.2 $150.4 $253.1 $409.9

Total Debt - - - - - - - - - - - - - - - - - -

Other Long-Term Liabilities 7.1 9.7 14.2 18.9 18.9 18.9 18.9 18.9 18.9

Total Liabilities $18.4 $25.6 $41.7 $62.1 $92.2 $114.1 $169.3 $272.0 $428.8

Shareholders' Equity 71.5 142.7 394.6 515.5 710.8 935.6 1,241.3 1,709.2 2,444.0

Total Liabilities & Equity $89.9 $168.3 $436.3 $577.6 $803.0 $1,049.7 $1,410.6 $1,981.2 $2,872.8

Metrics & Drivers

Net Earnings ($12.7) $0.6 $15.5 ($5.5) $91.1 $101.5 $152.6 $243.4 $410.5 $679.7

Cash Ratio 1.3 4.6 12.4 3.5 4.4 5.3 5.0 4.3 4.2

Return on Equity 0.8% 10.9% (1.4%) 17.7% 14.3% 16.3% 19.6% 24.0% 27.8%

Net Debt (15.0) (72.6) (339.9) (152.7) (324.7) (509.0) (751.2) (1,083.2) (1,716.6)


22

Pro Forma Statement of Cash Flows




Mobileye Historical and Projected FinancialsStatement of Cash Flows($ in millions)

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Period 1 2 3 4 5 6 7 8 9 10

Net Earnings $101.5 $152.6 $243.4 $410.5 $679.7

Depreciation 6.7 7.4 13.1 10.2 24.8

Change in Working Capital (19.9) (33.6) (55.8) (102.7) (64.2)

Cash from Operating Activities $88.4 $126.5 $200.7 $318.0 $640.3

Capital Expenditures (10.1) (14.4) (20.9) (43.4) (62.0)

Cash From Investing Activities ($10.1) ($14.4) ($20.9) ($43.4) ($62.0)

Dividends - - - - - - - - - -

Share Repurchases 93.8 72.2 62.4 57.5 55.1

Change in Debt - - - - - - - - - -

Cash from Financing Activities $93.8 $72.2 $62.4 $57.5 $55.1

Change in Cash $172.0 $184.3 $242.2 $332.0 $633.4

Beginning Cash $152.7 $324.7 $509.0 $751.2 $1,083.2

Ending Cash 324.7 509.0 751.2 1,083.2 1,716.6

Metrics & Drivers

Free Cash Flow $78.2 $112.1 $179.9 $274.6 $578.3

Operating Profit 138.3 208.2 332.6 561.5 930.3

EBITDA 145.0 215.7 345.7 571.7 955.1


23

Discounted Cash Flow Analysis




Mobileye Historical and Projected FinancialsDiscounted Cash Flow Analysis

($ in millions)

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Years 1 2 3 4 5

Revenue $19.1 $40.3 $81.3 $143.6 $240.9 $337.3 $495.8 $773.4 $1,276.1 $2,067.3

Less: Operating Expenses 22.8 28.4 43.5 119.3 101.7 114.7 163.6 247.5 395.6 620.2

Operating Income ($3.7) $11.9 $37.8 $24.3 $139.2 $222.6 $332.2 $525.9 $880.5 $1,447.1

Taxes 27.0% 27.0% 27.0% 27.0% 27.0%

Tax-Effected EBIT $162.5 $242.5 $383.9 $642.8 $1,056.4

Plus: Depreciation $6.7 $7.4 $13.1 $10.2 $24.8

Change in Working Capital (19.9) (33.6) (55.8) (102.7) (64.2)

Less: Capital Expenditures (10.1) (14.4) (20.9) (43.4) (62.0)

Unlevered Free Cash Flow $139.2 $202.0 $320.4 $506.9 $955.0

Present Value @ a Discount Rate of 7.8% $129.1 $173.8 $255.8 $375.5 $656.3



24

Comparables Analysis




ADAS Technology Firms - Auto Parts

Company Name Ticker Exchang

e

Share

Price

% of 52

Week HighMarket Cap

Enterprise

Value

LTM

EBITDA

LTM

Revenue

Price/Earning

sPrice/Book EV/EBITDA EV/Sales

EPS

(TTM)

Estimated

EPSForward PE

Profit

Margin

Delphi DLPH NYSE $72.35 79.9% 20.0 23.6 2.5 15.2 14.3x 9.0x 9.5x 1.6x $5.06 $6.04 10.3x 9.6%

Autoliv ALV NYSE $112.76 85.3% 9.9 10.1 1.1 9.2 21.8x 2.8x 9.0x 1.1x $5.17 $6.73 15.2x 5.0%

Continental Automotive CON.DE XETRA $212.61 80.7% 42.5 45.8 6.7 43.3 14.1x 3.1x 6.8x 1.1x $15.13 $17.26 - - 7.0%

Oracle Corp ORCL NASDAQ $40.42 89.3% 167.7 159.4 15.2 37.5 19.5x 3.7x 10.5x 4.3x $2.07 $2.44 14.4x 24.6%

Ansys, Inc. ANSS NASDAQ $86.57 88.0% 7.6 6.9 0.4 0.9 31.4x 3.5x 15.9x 7.3x $2.76 $3.32 21.9x 26.8%

80.7% 9.9 10.1 1.1 9.2 14.3x 3.1x 9.0x 1.1x $2.76 $3.32 10.3x 7.0%

84.6% 49.6 49.1 5.2 21.2 20.2x 4.4x 10.3x 3.0x $6.04 $7.16 12.4x 14.6%

85.3% 20.0 23.6 2.5 15.2 19.5x 3.5x 9.5x 1.6x $5.06 $6.04 14.4x 9.6%

88.0% 42.5 45.8 6.7 37.5 21.8x 3.7x 10.5x 4.3x $5.17 $6.73 15.2x 24.6%

EV/EBITDA

Low Mean Median High

6.8x 10.3x 9.5x 15.9x

Implied Share Price $45.67 $63.30 $59.27 $91.50

Upside 17.1% 62.3% 51.9% 134.6%

(in billions)

1st Quartile

Mean

Median

3rd Quartile

Documents

2016 CRC Stock Pitch Competition - Finalist