No. of Recommendations: 10
Hi everyone,

OK, I'm getting this up before reading your commentary. Thanks for putting up the earnings already and starting a discussion, which I'll get to right after posting this.


First off, for the analyst guesses, they were adjusted EPS of $0.04 and revenue of $30.3 million. The company produced that $0.04 of EPS and revenue came in at $34.7 million.

Big whoop.

What I found much more interesting and exciting was the discussion in the call. Except for the modeling questions (e.g. "As we're looking at our model ..." and "And then sticking with modeling questions ..."), there was a lot of really interesting stuff.

Actually, that's not quite fair. I'm really critical of the "help us fill in cell G15 on our spreadsheet" type questions, as they seem to me to be more help to the analyst so he doesn't look totally ridiculous by coming up with an earnings estimate too far away from other analysts who are covering the same company (the whack a mole issue -- stick your head up unlike your colleagues and get whacked). For this particular company and the fact that it's so brand new to the market, such questions actually can elicit interesting information.

For instance, the second one mentioned above led to the comment about scalability of the business. If revenue doubles, R&D and G&A expenses don't. That has huge implications for net income, as more and more revenue drops straight to operating income (and net income) without being dinged by R&D and G&A along the way.

On the other hand, if one had actually stopped to think for a bit and taken what management has said before (we don't do our own manufacturing, we have a solid team of R&D), the conclusion that more revenue bypasses R&D and G&A is not that surprising.

Other interesting stuff was brought out.

1. Tesla is on board, as is GM. It's been speculated, but they couldn't announce that until now.

2. Competition by chip makers (e.g. Intel or ARM Holdings) is not a big worry, there's more to making these chips than just making the chips. The algorithms interpreting the visual data are highly complex (and patented) and the ability to reach a 99.99% accuracy rate on a huge database of imagery is really hard.

3. Being a public company is actually helping, giving visibility to the products, and even some respectability. Eli Lilly got systems for its fleet of cars partly because of this, for instance.

4. The Tier 1 companies (the companies that make parts directly for the car makers, e.g. Delphi) that are building competing systems are not customers of MobilEye.

5. Radar and stereo camera vision are okay, but not as accurate as mono camera vision. If a car maker (the OEMs mentioned in the call are the car makers) decides to drop a detection system because of cost, it will be the radar, not the camera.

6. Holy cow! 70% YoY revenue growth and 140% YoY FCF growth (and the vast majority of CFFO flows into FCF as capex is really light). Keep on doing that, guys! If you do, you'll beat even the high expectations priced in when I first bought shares for the MUE portfolio. :-)

I liked this report, I liked the information in the conference call, and I like what the company is doing (making driving safer). Onward.

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