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Mobileye: Strong Earnings and a Breakup Note to Tesla Motors

Mobileye CTO Amnon Shashua discussed details of a major new self-driving partnership with BMW and Intel earlier this month. During Mobileye's second-quarter earnings call, Shashua surprised investors when he said the company will soon end its partnership with Tesla Motors. Image source: BMW.

Mobileye (NYSE: MBLY), the Israeli maker of driver-assstance systems, reported its second-quarter earnings on July 26. Here's what investors need to know.

The key numbers

MetricQ2 2016Q2 2015
Revenue $83.5 million $52.8 million
OEM revenue $64.4 million $43.6 million
Gross margin 75.6% 74.3%
EyeQ chips shipped 1,409,000  969,000 
EyeQ average selling price $44.50 $43.70 
GAAP net income $26.9 million $15.3 million 
Non-GAAP net income $41.2 million $23.6 million
GAAP cash flow $37.8 million $23.6 million 
Non-GAAP cash flow $33 million $22.8 million

Data source: Mobileye.

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.

What happened at Mobileye during the quarter

Mobileye produces components and software for assisted-driving technologies, ranging from basic collision-warning systems to platforms that will (eventually) be key to fully autonomous vehicles. It specializes in systems that use cameras as sensors. 

Its key product is a series of processor chips, called EyeQ, that support the intensive computations needed for image processing and are compliant with the needs of automakers. It's currently shipping its third-generation chip, EyeQ3 -- but it's already announcing deals centered on its upcoming EyeQ4 and EyeQ5 processors. 

Mobileye doesn't just sell components, it also seeks to serve as a development partner with automakers, or OEMs, and major Tier 1 suppliers. 

During the earnings call, CEO Ziv Aviram recounted the key deals Mobileye made during the quarter:

  • Two new programs at Volvo, including Volvo's upcoming self-driving project. Both programs will run on the EyeQ4 chip, Aviram said.
  • A "high-volume" program with Fiat Chrysler Automobiles (NYSE: FCAU) that will include Tier 1 supplier Delphi. It will launch in late 2017. 
  • A contract with Soueast, a new domestic Chinese automaker.
  • Additional business from Chinese automaker First Auto Works (FAW).

In addition, Aviram noted that Nissan and Mazda both launched new products using the EyeQ3 chip during the quarter. 

Additionally, on July 1, just after the quarter ended, Mobileye announced a major new deal with BMW and Intel. The partners will develop Level 3 (highly automated) and Level 4 (fully self-driving) vehicles by 2021, using the upcoming EyeQ5 processor.

Mobileye's decision to break up with Tesla

The biggest news of the morning is that Mobileye is (apparently) choosing to end its relationship with Tesla Motors (NASDAQ: TSLA) at the end of the EyeQ3's lifecycle. Mobileye supplies components (including EyeQ3 chips) that are part of Tesla's Autopilot system. Autopilot has recently come under fire after a fatal accident in which a Tesla drove into a tractor-trailer truck cutting across traffic. 

CTO and co-founder Amnon Shashua didn't go into much detail about the reasoning behind the decision. "In our view, moving forward to more advanced autonomy is a paradigm shift, both in terms of function complexity and the need to ensure an extremely high level of safety," Shashua said by way of explaining the decision. "There is much at stake here to Mobileye's reputation and to the industry at large. Mobileye believes that achieving this objective requires partnerships that go beyond the typical OEM-supplier relationship such as our recently announced collaboration with BMW and Intel. Mobileye will continue to pursue similar such relationships."

Looking ahead: Mobileye raised full-year guidance

CFO Ofer Maharshak raised Mobileye's full-year guidance for revenue and non-GAAP net income. 

Mobileye now expects its full-year revenue to come in between $344 million and $350 million, up from its earlier guidance of $336 million to $340 million, on higher-than-expected volume in aftermarket sales. The midpoint of the new range would represent 44% year-over-year growth, Maharshak said. 

It also now expects its full-year non-GAAP net income to come in between $167 million and $170 million, with earnings per share in the range of $0.70 to $0.71 per share.

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John Rosevear has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool recommends BMW and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.