Mobileye's Revenue Jumps 46% as It Gears Up for Self-Driving

By John Rosevear Markets Fool.com

Mobileye N.V. (NYSE: MBLY), the Israeli-based developer of camera-based driver-assistance systems, reported better-than-expected fourth-quarter earnings on Feb. 22.Excluding special items, Mobileye earned $0.22 per share in the fourth quarter, up from $0.15 in the year-ago period. Revenue grew 46% to $104.6 million.

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Both profit and earnings beat Wall Street's estimates. Analysts polled by Thomson Reuters expected Mobileye to report earnings of $0.20 per share on revenue of $96.4 million.

Shares rose over 2% in early trading after the news was released.

Mobileye earnings: The raw numbers

Metric Q4 2016 Q4 2015 FY 2016 FY 2015
Revenue $104.6 $71.8 $358.2 $240.9
OEM revenue $77.5 $61.2 $275.9 $202.3
Aftermarket revenue $27.0 $10.6 $82.2 $38.6
EyeQ chips shipped 1,679,000 1,308,000 5,963,000 4,445,000
EyeQ average selling price $45.50 $44.70 $45.00 $43.90
GAAP net income $32.6 $18.8 $108.4 $68.5
Non-GAAP net income $51.4 $36.3 $173.3 $112.9
GAAP cash flow $52.8 $29.6 $161.6 $100.9
Non-GAAP cash flow $50.3 $28.6 $150.5 $95.8

In millions except for EyeQ chips shipped and average selling price. Mobileye's expression of non-GAAP net income and cash flow excludes the costs of share-based compensation as well as the applicable income tax effects. Mobileye reports its shipment totals rounded to the nearest 1,000.Data source: Mobileye N.V.

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Mobileye's co-founder and chief technology officer, Amnon Shashua, at a press conference last month. Image source: Mobileye N.V.

Understanding Mobileye's business

Mobileye develops and sells Advanced Driver-Assistance Systems, or "ADAS," which use its proprietary machine-vision capabilities. These include the lane-departure, collision-warning, automatic emergency braking, and active cruise control systems that are becoming more and more common on new cars. The core of these systems is Mobileye's EyeQ system-on-a-chip; third- and fourth-generation versions of EyeQ are shipping now; the fifth generation, due by 2020, will support full self-driving capabilities.

Mobileye's current products are key components in the self-driving systems now under development by many companies. The company has deals with BMW AG (NASDAQOTH: BAMXF) and giant auto supplier Delphi (NYSE: DLPH) to develop full-blown Level 4 self-driving systems over the next couple of years. The system developed with Delphi will be madeavailable to all automakers.

Level 4 self-driving systems require highly detailed 3D maps. Mobileye's Road Experience Management, or "REM," is a mapping engine that harvests data from sensors on Mobileye-equipped cars to build a 3D map that will be shared (and expanded) by Mobileye's self-driving customers in the future.

Mobileye does business with nearly all of the world's major automakers and has about 70% of the global ADAS market.

What happened at Mobileye during the fourth quarter

CEO Ziv Aviram summed up the quarter in a short statement:

The fourth quarter marked a strong finish to 2016, which resulted in our ability to exceed revenue and profitability expectations for the full year. Strategically, we maintained our leadership position and extended visibility for Advanced Driver Assistance System technology with 12 new program wins across 11 automakers. The Aftermarket division more than doubled revenue in 2016 and we expect continued growth in 2017.

Finally, our expanded product portfoliomatched very well to customer demand for future vehicle technology, leading to five Level 3 and five Level 4 autonomous vehicle production program wins plus definitive REM mapping agreements with Volkswagen and BMW.

New-vehicle development is a complicated, time-consuming process. It can take anywhere from two to three years (sometimes longer) for an automaker to go from first drawings to first cars off the production line. Contracts to suppliers like Mobileye are generally awarded a year or more before production starts. An automaker's development program might be for a single model, or it might be for several models that are closely related mechanically.

The program wins that Avriam mentioned are future business that has now been locked in. Mobileye won contracts to provide ADAS systems to 12 different vehicle programs at 11 different automakers during the quarter. That's a substantial amount of new business, but it may be a few quarters before those new deals contribute to the bottom line.

Mobileye also won contracts to provide components to five Level 3 and five Level 4 self-driving development programs. The levels are industry-standard descriptions recognized by government regulators in many countries, including the U.S.

A Level 3 system provides some autonomous-driving capabilities, but requires a human driver ready to take over under some circumstances. A Level 4 system is fully autonomous with no human backup required, but only works under certain conditions (for instance, when it has access to a 3D map of the area).

Mobileye's upcoming EyeQ5 system-on-a-chip will be able to support Level 4 self-driving systems. Image source: Mobileye N.V.

Mobileye also won agreements with Volkswagen AG (NASDAQOTH: VLKAY) and BMW to use the sensors on upcoming vehicles equipped with Mobileye's ADAS systems to harvest data for those 3D maps via the REM technology.

It's likely that Level 4 self-driving technology will be available to automakers from several different sources within a few years. Mobileye's REM-generated maps could turn out to be a significant competitive advantage when that happens.

Also of note: Mobileye's cash on hand rose. As ofDec. 31,Mobileyehad cash and cash equivalents, restricted bank deposits, and marketable securities of$633.4 million, up from$584.4 millionas ofSept. 30. CFOOfer Maharshak noted that Mobileye is gearing up to build a new research anddevelopment campus in Jerusalem, and will spendabout $12 million in the first quarter on that effort.

Mobileye's 2017 guidance

Maharshak said that Mobileye expects non-GAAP net income of between $241 million and $251 million in 2017, or $1.01 to $1.05 per share, on revenue of $490 million to $505 million. Both represent substantial increases over the company's 2016 results.

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John Rosevear has no position in any stocks mentioned. The Motley Fool recommends BMW and Intel. The Motley Fool has a disclosure policy.