ambarella company

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University of Oregon Investment Group

March 13th, 2015

Technology

Covering Analysts: Gregg Anderson

Investment Thesis

Ambarella is currently the sole provider of semiconductors for GoPro and

Xiaomi wearable cameras. As this market continues to emerge, particularly

in China, Ambarella’s existing relationships with GoPro and Xiaomi will

provide strong and diversified exposure to the fast growing wearable

camera markets in the United States and China.

Leveraging a technological lead in low-power, high-definition video

solutions has made Ambarella the continued company of choice for top-

quality OEM drone manufacturers. As the commercial drone market

continues to grow, Ambarella will be in a prime position to benefit from

this emerging market.

Past and continued disputes between police officers and citizens has

resulted in a growing demand and trend towards police wearing body

cameras. Leveraging the technology already used in their wearables

segment will allow Ambarella to quickly capitalize on this market and

further diversify their revenue streams.

Combining a strong cash position with existing relationships with

prominent OEMs in the security market, Ambarella is a flexible and

aggressive company with the capacity to capitalize on emerging industry

trends.

Ambarella Inc.

Ticker: AMBA

Current Price: $63.31

Recommendation: Outperform

Price Target: $77.20

Key Statistics

52 Week Price Range

50-Day Moving Average

Estimated Beta

Dividend Yield

Market Capitalization $2,005M

3-Year Revenue CAGR 21.75%

Trading Statistics

Diluted Shares Outstanding 30.32M

Average Volume (3-Month) 2.09M

Institutional Ownership 33.90%

Insider Ownership 7.47%

2014 Revenue 218.47M

Margins and Ratios

Gross Margin 2015E 64.53%

EBIT Margin 2015E 28.29%

Net Margin 2015E 26.32%

Debt to Enterprise Value 0x

$21.60 - $68.50

$56.63

1.65

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One-Year Stock Chart

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University of Oregon Investment Group March 13th, 2015

Business Overview

Founded in 2004, Ambarella is a semiconductor company that specializes in low-

power, high-definition solutions for a multitude of video-based devices. Upon

founding, the company originally specialized in broadcast infrastructure encoders

before expanding into consumer, sports, security, and automotive cameras.

Operating as a fabrication-less, or fabless, semiconductor company, Ambarella

outsources manufacturing to specialized manufacturers who use Ambarella’s

research and design specifications. Compared to non-fabless business model,

Ambarella enjoys a relatively low level of fixed costs and capital expenditures.

This allows Ambarella the freedom to allocate a significantly larger proportion of

their operating expenses to R&D and SG&A than firms with in-house

manufacturing facilities. With a higher emphasis on research and development,

Ambarella works closely with original equipment manufacturers (OEMs) to

produce specialized solutions for their end products.

As mentioned above, Ambarella creates infrastructure encoders as well as

consumer, wearable, security, and automotive cameras. The following section

will further describe the segments above.

Camera The Camera segment can be broken down into four sub-segments: Security,

Wearables, Automotive, and Other.

Security The security segment is comprised of two segments: professional and consumer.

Professional Security

The Professional Security segment is Ambarella’s largest segment by revenue and

serves as a strong growth segment for the company. Ambarella primarily serves

the surveillance camera market and is continuing to develop chips that allow for

180 and 360 degree vision with quality ranging from 720p to 4K/UHD. Other

specialty features include the ability to “dewarp” images that are captured within

the 180 and 360 degree lenses, creating a clearer image that allows for clearer

identification.

The Professional Security segment can be further broken down into three sub-

segments: premium, mid-range, and low-range. Due to Ambarella’s focus on top

quality video solutions, they primarily compete in the premium and mid-range

markets where margins are generally higher. The company has continued to move

away from the low-range segment as increased pricing competition from low-end

producers continues to grow. Going forward, Ambarella will continue to move

towards the mid-range and premium cameras.

Consumer Security

The Consumer Security segment is one of Ambarella’s smallest and newest

segments. Consumer Security is comprised of home security networks that allow

consumers to actively monitor their home via mobile and computer devices. Prior

to this most recent year, this space was largely defined by small technology

companies who created in-home security camera networks. Recently, cable and

internet service providers have actively moved into this space by buying out

smaller firms and bundling the security service with their other cable and internet

product offerings. Ambarella provides the semiconductors that allow these

cameras to operate at high resolution with low-power consumption. These two

traits are vital in this market as consumers desire a constant video stream with

high enough quality to allow for identification. Going forward, Ambarella will

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Figure 1: Segments as a % of 2014 Camera

Revenue

Source: UOIG Estimates

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Figure 2: Segments as a % of 2014 Security

Revenue

Source: UOIG Estimates

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continue to see strong growth in this market as internet and cable service providers

continue to bundle the security network as part of a customer’s already existing

internet and cable package.

Professional and Consumer Security is estimated to account for 36.43% of total

camera revenue in 2014

Wearable Sports The Wearable Sports segment is Ambarella’s second largest segment by revenue

and has seen very strong growth in recent years as new applications emerge for

cameras within extreme sports. Ambarella is the sole supplier of GoPro and

Xiaomi and there is currently no evidence to suggest that either company is

second-sourcing. The relationship between GoPro and Ambarella is currently

deemed to be healthy as Ambarella works directly with GoPro in order to create

semiconductors that are highly compatible with the GoPro platform. GoPro has

a formidable brand equity and is anticipated to continue to dominate this market.

This ongoing relationship between makes it extremely difficult for other

companies to compete with Ambarella in this space as Ambarella has been able

to specifically gear their research and development into advancing GoPro

capabilities.

Wearable Sports is estimated to account for 40.83% of total camera revenue in

2014.

Automotive The Automotive segment is Ambarella’s third largest segment by revenue and has

grown relatively slower than other segments. Ambarella provides the

semiconductors used in dashboard or “dash” cameras that allow a driver to video

record while driving. This particular camera is primarily used by drivers as a

potential source of evidence in the event of an insurance claim as it allows the

driver to have record of what truly happened. The primary market for these

cameras is in China, Russia, South Korea, and Taiwan, where insurance and other

disputes are highly prevalent.

Automotive is estimated to account for 17.92% of total camera revenue in 2014.

Other Handheld/Pocket Camera

The Handheld/Pocket Camera revenue segment is currently one of Ambarella’s

smallest segments and is considered to be dying. Five years ago, the handheld

camera market began to see strong decline as new camera forms, primarily mobile

phones such as the iPhone and Android, began to emerge. This emergence

significantly decreased the value of a separate, handheld camera, and thus this

market has been in decline since. Ambarella currently still carries a small supply

of semiconductors for this market but it is anticipated that they will discontinue

this line soon.

Drone/Unmanned Aerial Vehicle (UAV)

The UAV segment is a relatively small segment but is one of Ambarella’s fast

growing segments that only began to see revenue in the last four quarters.

Ambarella provides the semiconductors for UAV’s and drones that are used both

commercially and recreationally. Due to both the height and speed at which a

UAV operates, this segment requires a 4K, 60 frames per second, semiconductor

that allows high quality video while attached to a UAV. While this segment is

relatively small, it has an extremely high margin and a large potential as

applications for UAVs with cameras continues to grow. Some industries have

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Source: Google Images

Figure 5: GoPro 2014 Geographic Revenue

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Figure 3: GoPro Logo

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already began to integrate this technology into their operations, including the

agricultural, real estate, and surveying sectors.

Police Camera

The Police Camera segment is another relatively small but fast growing segment

that has emerged in the last five quarters. Ambarella provides low-power

consumption semiconductors that allows a police officer to wear a body camera

while on duty. The primary market for this camera has been in China and other

parts of Asia as corruption is extremely high in these areas. Until recent incidents,

including the controversial shooting of Michael Brown at Ferguson, there has

been an extremely small market in the United States. The United States market

will be addressed further on in this report.

The Pocket Camera, UAV, and Police Camera is estimated to account for 4.81%

of total camera revenue in 2014.

Infrastructure

The Infrastructure segment consists largely of video encoding solutions that can

be used in broadcasting and transmission. This segment was once Ambarella’s

largest segment but has been in decline for the past several years.

As of 2014, the Infrastructure segment accounted for 6.07% of total revenue.

Industry

Overview The sector of the video solutions semiconductor industry that Ambarella competes

in is a relatively new and fast growing space that is comprised of very few players.

While there are large and vertically integrated companies that exist within the

space, the majority of players are small to medium sized firms that are either

private or primarily financed through equity. These smaller firms generally

outsource manufacturing in what is called a fabrication-less, or fabless, business

model. The fabless business model is primarily a result of how specialized this

particular industry is. By sparing the fixed costs associated with manufacturing,

firms are able to allocate a larger portion of their revenues to research and

development. Recent trends show that the presence and demand for high-

definition video has been growing in the last decade and this trend will continue.

As this prevalence continues, the video solutions industry is expected to show

rapid growth.

The primary way that firms generate revenue in this industry is by developing

close relationships with OEMs to develop a video solution that is specifically

catered for the OEM’s end product. When successful, this process results in a

design win and results in the semiconductor being implemented into the end

product. Design wins are absolutely crucial within this industry as they not only

generate revenues from the initial version of the end product but place the

semiconductor firm in an incumbent position for future versions of the end

product. Furthermore, design wins often result in a semiconductor company

working directly with the OEM in the future. This interaction provides direct

insight into the OEM’s industry and allows for better allocation of research and

development.

Geographically, a majority of this industry operates within China, Taiwan, and

Korea where many prominent electronics manufacturers hold their operations.

This trend is expected to continue in the coming years.

Figure 6: Wearable Police Cameras


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Figure 8: AMBA Operating Costs as % of

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Macro-factors Demand for Police-Citizen Transparency

Interactions between police and citizens, particularly in the United States, Europe,

and Asia have received growing media and public attention. In Asia, there is a

high rate of corruption within law enforcement and as a result some governments

have mandated that officers are to be equipped with cameras while on duty. In

the United States, several recent controversial events between police and citizens

have fueled public demand that all officers be equipped with body cameras.

Recently, the United States Justice Department has laid out guidelines for their

use and it is expected that more police departments will begin to adopt the

technology in the coming years as policy becomes better defined and their use is

normalized. As this trend develops, Ambarella is an extremely strong position to

capture this growth as they have and will continue to leverage their current

technological advantage in wearables to secure a first movers advantage.

Advancement and Regulation of Drones

Two years ago, the use of the word “drone” in the United States would be largely

associated with military drones that conduct controversial airstrikes overseas.

However, in the past year this working definition has effectively changed as

Amazon and other companies have attempted to commercialize drones to expand

their business operations. The influx of research and development into

commercial drones has led to advancements in the technology and capabilities of

the drones. While commercial drones have seen rapid expansion in the past year,

the current regulatory environment, particularly in the United States, will be a

major factor in how quickly commercial drones are adopted. As the

implementation of drones grow, Ambarella will be the company of choice to

provide the high-frame and lower power consumption semiconductors that enable

cameras to be effective in advancing business operations.

Analog to Digital

A major trend within video is the transition from analog to digital. Where analog

was once the most cost-efficient method, advances in digital technology coupled

with converging prices has made digital a more attractive investment. This trend

is particularly strong in the security camera segment as users begin to transition

their entire network system from analog to digital. Considering that Ambarella

exclusively produces digital solutions with high resolution and low-power

consumption, the company is very well positioned to experience strong growth as

the digital transition continues.

Consumer Discretionary Spending

A significant amount of video solutions are used within consumer electronics that

are considered to be non-essential or even luxury goods. An economic slowdown

with a major economy would have a detrimental effect to consumer electronics at

the retail level. This particular risk is particularly prevalent to Ambarella’s

wearable segment, which primarily offers a high-end, non-essential camera.

Growing Middle Class in China

A major trend that will continue to benefit Ambarella and consumer electronics

in general is China’s large and growing middle class. This particular trend is

especially important for Ambarella’s automotive and wearable camera segments.

The automotive market will benefit from this transition as more automobiles are

expected to be purchase. Considering that China is one of the largest end market

for automotive cameras, Ambarella will benefit. In terms of wearables,

Ambarella has just recently announced that their semiconductor will be featured

in all of Xiaomi’s new wearable market. Xiaomi is a massive power-house in the

consumer electronics industry in China. This new exposure to Chinese markets

is a major point of growth for Ambarella.

Figure 9: Riots in Ferguson

Source: Wall Street Journal Images

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Competition Ambarella has continued to diversify their product offerings in the past years and

as a result does not exist in just one space. The following discussion will describe

the competitive factors that exist within each space Ambarella operates in.

Wearables

In the wearables segment, Ambarella has essentially monopolized this industry

and has established themselves as the premier supplier of chips that enable the

functions that wearable cameras demand. As noted with GoPro and Xiaomi,

Ambarella is the sole supplier of these chips. While there are vertically integrated

firms like Sony that have attempted to enter the wearables end market, none of

these companies have managed to make a significant breakthrough or gain market

share.

GoPro has been extremely successful in this space by having cameras that have

high definition, high frames per second, low-power consumption, and the

durability to be used in sports. The specifications that enable GoPro’s

revolutionary ability is provided by Ambarella, who has specifically geared their

research and development to provide a combination of high definition and lower

power consumption. The combination has allowed Ambarella to a forge a brand

equity and reputation that is currently unparalleled in the market and is very

unlikely to be matched in the near future.

Security

In the security segment, Ambarella competes primarily with many small,

specialized Chinese firms. Where Ambarella largely competes on quality, many

of these smaller firms, most notably HiSilicon Technologies, compete almost

entirely on price at the expense of quality. Ambarella’s solutions are continuing

to be adopted by OEMs as the primary need for security cameras—

identification—is not met by the lower quality firms. Going forward, Ambarella’s

strong reputation and existing relationships with some of the largest and fasting

growing provides—such as Hikvision and Dahua—will allow the company to

stake out a large market.

Automotive

The automotive market is a relatively small market that is comprised of a few,

very small players including Sunplus Technologies, Novatek, and Core Logic.

Going forward, there is opportunity for this market to grow with the middle class

emergence in China and Russia. More so, technology advancements and price

declines will continue to make the automotive dashboard camera an attractive

investment in non-traditional markets such as the United States and Europe.

UAV and Police Cameras

Similar to the wearable cameras market, in order for a camera to be successful on

a police officer or a UAV, the semiconductor must allow for high-definition, low-

power consumption, and the ability to withstand rugged conditions. This market

is currently emerging and the size and speed at which it will grow is currently

unknown. Leveraging already existing technology in the wearable segment with

continued focus on research and development on low-power consumption,

Ambarella is strongly positioning themselves to intercept potential growth in this

segment.

Figure 12: Xiaomi’s Wearable Camera


Figure 13: HiSilicon Logo


Figure 14: SunPlus Technology


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Strategic Positioning

Low-Power Consumption, High-Definition Video The current markets that Ambarella serves—wearables, security, and automotive

cameras—all require a combination of high-definition video and low-power

consumption. As a result, Ambarella has geared a majority of their research and

development towards creating a video solution that combines high definition with

a long-lasting battery life. This combination has proven to be and will continue

to be a major asset that Ambarella will be able to leverage when attempting to

move into new markets such as the UAV and Police cameras.

System-on-a-Chip (SoC) Ambarella uses a System-on-a-Chip semiconductor that allows the company to

combine high-definition video, image, and audio processing as well as

programmable functions—all on a single chip. The System-on-a-Chip allows

Ambarella to leverage their patented and existing chip architecture into new and

existing markets, reducing costs and allowing Ambarella to focus on improving a

single chip’s architecture. Most importantly, Ambarella has designed their chip’s

architecture specifically to optimize power consumption—a trait that

distinguishes Ambarella from a majority of their competitors.

Furthermore, the System-on-a-Chip is an extremely important component in

maintaining and growing relationships with OEMs. With key customers,

Ambarella provides software that allows the OEM to alter certain specifications

for different models and make necessary adjustments in order to ensure smooth

integration into the product design. Going forward, Ambarella will continue to

leverage their System-on-a-Chip to win new customers and extend current

relationships.

Ability to Transition to New Opportunities Prior to the advancement of picture and video capabilities on mobile devices,

handheld pocket cameras were major sources of revenue. As this revenue

declined, Ambarella was able to leverage their current technologies and move into

new markets such as security and wearables. Going forward, Ambarella has

stated that they will continue to look for new opportunities—particularly in data

analytics, which is discussed below. As end market preferences evolve,

Ambarella has maintained a large cash position that management is prepared to

deploy in order to penetrate new markets. Combining this with Ambarella’s

existing technology, brand equity, and System-on-a-Chip, Ambarella has

positioned themselves as a flexible company that is ready to exploit new markets.

Business Growth Strategies

Considering Ambarella’s consistent dedication to research and development,

existing relationships with large OEM’s, and an extremely strong reputation as

the top provider of low-power, high definition video solutions, Ambarella has a

multitude of opportunities to continue to grow and diversify their reputation and

revenues.

Existing Relationships with ODMs and OEMS Currently, Ambarella has several strong relationships with prominent ODMs and

OEMs across each segment. The company works directly with ODMs and OEMs

to design a semiconductor that fits the operating specifications of the product and

enables functionality.

Figure 15: Ambarella’s Strategic Positioning

Source: AMBA Filings

Figure 16: SG&A Costs

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Working directly with producers, Ambarella is able to gain insights into industry

trends that allow for more focused and catered R&D and SG&A. These insights

ultimately yield crucial information that will allow Ambarella to remain

competitive in the industry and design compatible products. More so, the

established relationship between Ambarella and the ODM/OEM allows

Ambarella an incumbent advantage in the next generation of the ODM/OEMs

products. As successful relationships are developed, as with GoPro and Xiaomi,

Ambarella will continue to win future designs and maintain steady sources of

revenue.

Police Cameras Throughout Asia, Europe, and the United States, there is a growing public and

government demand that police officers be equipped with body cameras. Body

cameras can serve as a source of evidence in a controversial interaction between

a police officer and a citizen and have ultimately shown to have a beneficial effect

in law enforcement.

In Asian countries, there is a high degree of police corruption and some

governments have mandated that their police officers wear a body camera. In the

United States, recent events such as Ferguson have fueled public demand for

police cameras. While this market has seen considerable pickup in recent

quarters, the growth potential worldwide is massive. There are currently 800,000

sworn officers in the United States.

Considering Ambarella’s strategic position and market leadership in low-power

consumption, high-definition semiconductors, the company is in an extremely

attractive position to capitalize on this fast developing market. Arguably no

competitors exist in this space as police cameras require a long battery life and

high quality—a combination that Ambarella undoubtedly dominates. Ambarella

has recognized this potential market and has recently developed a semiconductor,

the A12, which is specifically designed for this market.

Unmanned Aircraft Vehicle (UAV) Cameras Commonly referred to as drones, commercial UAVs have seen extremely large

growth in the past year as industry research and development has rapidly

advanced the necessary technology and prices have continuously decline.

Furthermore, industries including agriculture, real estate and energy have

continued to find new ways in which a drone can expand their business. For

example, a large scale farmer can survey his crops for blights, a real estate

company can capture a breath-taking aerial image of a property, and an energy

company can survey potential oil fields. While drones have grown, the common

denominator in many of their uses is an attached camera that provides picture and

video.

Due to the height and speed at which UAVs operate, commercial users will

demand a camera that has the ability to operate within these conditions while also

producing high quality images. Ambarella has supplied high quality, 4K-30/60

frame per second chips to leading producers and has established a strong

reputation within the market. Current relationships with leading UAV producers,

including DJI, will undoubtedly lead to future collaboration as well as a continued

insight into industry design needs. As UAV industry research and development

continues and prices decline, the market will continue to grow as industries will

continue to find ways in which UAVs with cameras can enhance their operations.

Figure 18: DJI Phantom Quadcopter with GoPro


Figure 17: Projected Police and UAV Revenues


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Security Cameras Until very recently, analog CCTV has been the standard within the security and

surveillance camera world as analog CCTV was considered to be the most cost-

effective and established system. However, advancements in technology and a

steadily decreasing prices have made digital security networks more optimal than

analog CCTV. As a result, digital cameras have become increasingly prominent

in the surveillance world as they unlock a higher image quality and more efficient

energy usage than analog cameras.

As OEM’s continue to transition from producing analog to digital cameras,

Ambarella is well positioned to continue to dominate this market as purchasers of

cameras are looking for cameras that have low consumption with high definition

capabilities that allow for certain identification. Ambarella has aggressively

pursued this space by continuing to develop cameras that match the needs of users,

including cameras with 180/360 degree angles and enhanced imaging quality. As

users continue to switch from analog to digital, Ambarella’s catered technology

will continue to be the primary choice with fast growing OEM’s including

Hikvision and Dahua.

Automotive Cameras Automotive cameras, also known as dashboard cameras, are a common car

accessory used in China, Taiwan, Korea and Russia where traffic accidents and

controversial police interactions are very high. The use of a video clip can serve

as a key piece of evidence in an insurance or corruption claim. However, use in

the United States and Europe has been relatively low as previously low

functionality, high prices and lower controversial traffic incidents have deemed

them as mostly unnecessary. However, continuous improvements in technology

and declining prices make automotive cameras a globally attractive product.

Currently, Ambarella has and is continuing to develop semiconductors that allow

for improved battery life, multiple channel streams, 180/360 degree angles, and

the ability to withstand and continue to operate in the event of a crash. The major

opportunity for growth in this segment is in China as a continuously growing

middle class will result in more automobiles and automobile cameras.

Wearable Cameras Wearable cameras have emerged as a significant portion of revenue, which largely

corresponds with the rise of GoPro wearable cameras. While this market has seen

extremely strong growth in recent years, there is still large growth potential in

coming years. As mentioned above, Ambarella is currently GoPro’s exclusive

source for low-power, high definition video that has made the durable camera

such a hit with sports enthusiasts worldwide. Currently, Ambarella has a healthy

relationship with GoPro and there is no indication that they are second-sourcing

their chips. This exclusive relationship is emblematic of Ambarella’s market and

technology domination and will allow Ambarella a defensible margin within this

particular segment.

Furthermore, Ambarella’s growth in this segment is not limited to GoPro as

recently Xiaomi, a prominent Chinese electronics producer, has just released a

direct competitor to GoPro that features the same definition, with twice the frame

rate at half the price of the cheapest GoPro model. Like GoPro, Xiaomi’s new

product features Ambarella’s semiconductor. Xiaomi offers Ambarella deep

access into a vast and growing Chinese market, something GoPro has little

exposure to. The Xiaomi relationship will greatly expand Ambarella’s market

and will provide a new surge in the wearables segment.

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Figure 20: Hikvision Digital Revenue

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Data Analytics—The “Smart” Camera Ambarella’s management has stated that they have a long-term goal to create a

new camera market that incorporates data analytics. Essentially, the cameras used

today can capture high quality images at high frame rates but they do not interact

with the data that they are collecting. This particular development will lead to

huge growth opportunities in the security and automotive markets. Specifically

in the security camera market, there is potential for a camera to trigger certain

features upon motion. For example, motion could trigger an alarm or activate

certain features that would otherwise be dormant. While this is a relatively new

concept that Ambarella has been working towards, management has stated that

they are looking to deploy their cash stockpile in the near future to begin

advancements in this field. This opportunity and market creation makes

Ambarella an attractive long-term growth play as they are well-positioned to lead

the technology advancement.

Management and Employee Relations

Fermi Wang—Chairman, President, and CEO Fermi Wang founded Ambarella in 2004 and has served in his respective roles

since. Before founding the company, Dr. Wang served as the CEO of a small

semiconductor company, Afara WebSystems, for two years before the company

was bought by Sun Microsystems in 2002. Dr. Wang holds a PhD and Masters in

electrical engineering from Columbia University. Mr. Wang helped take

Ambarella public in 2012.

Dr. Wang’s 2014 compensation stands at $2,342,000, comprised of a base salary

of $340,000, RSAs of $1,747,200 and non-equity compensation of $255,000.

George Laplante—CFO and Secretary George Laplante joined Ambarella as Chief Operating Officer in 2011. Mr.

Laplante transitioned from a career as a management consultant and the CFO of

two small technology companies. Mr. Laplante holds degrees in accounting and

economics from Bowling Green State and Southern Connecticut State College,

respectively. Mr. Laplante helped take Ambarella public in 2012.

Mr. Laplante’s 2014 compensation stands at $1,313,600, comprised of a base

salary of $320,000, RSAs of $873,600 and non-equity compensation of $120,000.

Management Guidance

Ambarella’s management provides guidance for the next quarter and year as a

whole. Specifically, estimated sales, gross margin, and net income are provided.

Management guidance has consistently been beaten by actual results. As stated

by the CFO, estimates are often used as a base case of steady segment results and

does not factor in smaller segments that have the potential for rapid growth

Ambarella does not explicitly break out revenue beyond two segments: Camera

and Infrastructure. However, management does provide a lengthy conversation

on how each sub-segment of camera (i.e. automotive and security) did for the

quarter while also providing relative and qualitative guidance on the coming

quarter and year. Through extrapolation and comparisons, rough percentages can

be ascertained and used in financial analysis.

0

500

1000

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2500

Fermi Wang,CEO

GeorgeLaplante, CFO

Leslie Kohn,CTO

Tota

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om

pen

sati

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(in

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US

D)

2013 2014

Figure 22: Management Compensation

Source: AMBA Filings

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Figure 23: Management Guidance vs Actual

Revenue

Source: FactSet

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)

Low High Actual

Figure 24: Management Guidance vs Actual

Earnings

Source: FactSet

UOIG 11


Portfolio Strategy

Ambarella is currently not held in any of the UOIG portfolios. Ambarella is an

extremely attractive small cap technology company that offers both near and long

term upside. Near term upside will be unlocked from new markets within the

wearables, security, drone, and police segments. Long-term potential is unlocked

via Ambarella’s technological advantage over their competitors and strong

relationships with prominent OEMs. Furthermore, Tall Firs is currently

underweight technology and Svigals is underweight both technology and small

cap.

Recent News

“Ambarella Goes Beyond GoPro”—Barron’s March 5th, 2015

The release of Xiaomi’s cameras, which uses Ambarella semiconductor, is

marked as a new market opportunity for the company. Furthermore, as the

company continues to win contracts with OEMs, revenues are finding new

sources and increasing diversification. The release prompted a small appreciation

in the price of Ambarella’s stock price and generates excitement among investors

who are looking for exposure to the wearable camera market but want to avoid

the volatility of GoPro.

“Ambarella, Inc. Announces Fourth Quarter and Fiscal 2015

Financial Results”—Ambarella Investor Relations March 3th, 2015

After providing revenue guidance between $57-59 million and earnings guidance

between $15-$17 million, Ambarella reported fourth quarter results topping both

expectations with $64.1 million in revenue and $17.7 million in earnings. Strong

fourth quarter results were attributed to strong growth across all markets and

continued design wins with OEMs. Particularly strong segments were the

professional and consumer security and wearable sports.

Catalysts

Upside

Unrestrictive and favorable commercial drone regulation in the United

States could spur commercial advancements in this area which would

directly benefit Ambarella.

Higher than anticipated response for Xiaomi’s wearable camera product

in China could massively boost Ambarella’s revenues and reputation as

the premier video solutions company

Another high-profile, controversial interaction between a police officer

and a citizen in the United States could result in or lead to government

legislation that mandates that police use body cameras

A terrorist attack comparable to the Boston bombing or 9/11 would

further reinforce the desire and need for security cameras that provide

both safety and identification.

14.40%

18.81%19.39%

27.66%

19.50%

13.18%

17.48%

20.46%

29.63%

19.27%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Healthcare Technology Financials IME Con. Goods

Svigals' Portfolio

Benchmark

Figure 25: Svigal’s Sector Allocation

Source: UOIG

Figure 26: Tall Firs Sector Allocation

Source: UOIG

Figure 27: DADCO Equity Allocation

Source: UOIG

UOIG 12


Downside A major OEM such as GoPro or Xiaomi could second-source or in-house

produce the semiconductors used within their product, ultimately

damaging current and future revenue streams for Ambarella.

As a supplier of semiconductors for OEMs who sell consumer

electronics at the retail level, lackluster demand for OEM’s end products

will adversely affect Ambarella’s current and future sales.

Overly restrictive commercial drone regulations from world

governments could effectively slow or stop the development of the

commercial drone market which would result in a major loss of a

potential new market for Ambarella.

Slower than anticipated adoption of police cameras in the United States

could result in over-allocated research and development and slower or

less than expected cash flows.

Comparable Analysis

Ambarella is a high-growth company that is currently dominating an emerging

video solutions semiconductor space. As a result, there were very few

qualitatively and quantitatively similar comparables within the space. Therefore,

comparable companies were screened throughout the semiconductor space. The

philosophy of this comparable analysis was to find other small/mid-cap, high-

growth companies that operate in the broad semiconductor universe.

Comparable companies were screen on a multitude of metrics, including similar

market capitalization, capital structure, business models, revenue growth, and

margins. According to analysts, EV/Unlevered Free Cash Flow and EV/Revenue

are the primary metrics that Ambarella trades off. The following comparables

and metrics reflect next twelve months.

Inphi Corporation (IPHI) – 25%

“Inphi Corporation provides high-speed analog and mixed signal semiconductor

solutions for the communications, datacenter, and computing markets worldwide.

Its analog and mixed signal semiconductor solutions offer high signal integrity at

data speeds while reducing system power consumption. The company’s

semiconductor solutions are designed to address bandwidth bottlenecks in

networks, maximize throughput and minimize latency in computing

environments, and enable the rollout of next generation communications,

datacenter, and computing infrastructures.”—Yahoo! Finance

Inphi Corporation (IPHI) is used as a comparable as it is a fabless semiconductor

company with a strong focus on R&D. Inphi competes with Ambarella in the

Infrastructure space and has very similar gross margins and revenue growth in the

next 24 months. As a result of comparable growth profiles, margins, and business

models, Inphi is weighted 25%.

Mellanox Technologies (MLNX) – 25%

“Mellanox Technologies, Ltd., a fabless semiconductor company, designs,

manufactures, and sells interconnect products and solutions. The company’s

products are used for computing, storage, and communications applications in the

high-performance computing, Web 2.0, storage, financial services, enterprise data

center, and cloud markets. Its products facilitate data transmission between

Figure 28: Inphi Logo


Figure 29: INPI One Year Stock Chart

Source: Yahoo! Finance

Figure 30: Mellanox Logo


UOIG 13


servers, storage systems, communications infrastructure equipment, and other

embedded systems.”—Yahoo! Finance

Mellanox Technologies (MLNX) is used as a comparable company due to similar

market capitalization, revenue growth, and margins. Furthermore, Mellanox

operates as a fabless business model and is a small competitor of Ambarella in the

Infrastructure space. As a result, Mellanox is weighted 25%

Cavium Incorporated (CAVM) – 25%

“Cavium, Inc. designs, develops, and markets semiconductor processors for

intelligent and secure networks. The company operates through Semiconductor

Products, and Software and Services segments. The company’s products also

include a suite of embedded security protocols that enable unified threat

management, secure connectivity, network perimeter protection, deep packet

inspection, network virtualization, broadband gateways, third generation/fourth

generation wireless infrastructure, storage systems, wireless high-definition

multimedia interface, cable replacement, and embedded video applications” —

Yahoo!Finance

Cavium is used as a comparable as it a fabless semiconductor company that

provides network, data, and security solutions. While Cavium does not

specifically focus on video solutions, their exposure to the segment as a whole

subjects them to similar factors that Ambarella faces. Furthermore, Cavium’s

business model, revenue growth, margins, capital structure, and market

capitalization make it an attractive comparable to Ambarella. As a result, Cavium

is weighted 25%.

GoPro (GPRO) – 25%

“GoPro, Inc. develops hardware and software solutions to alleviate consumer pain

points associated with capturing, managing, sharing, and enjoying engaging

content. The company offers HERO line of capture devices, such as cameras;

premium accessories, including battery BacPac, smart remote, and LCD touch

BacPac accessories; and mounts comprising equipment-based mounts consisting

of helmet, handlebar, roll bar, and grip and tripod mounts that enable consumers

to capture content while engaged in a range of activities, as well as mounts that

enable customers to wear the mount on their bodies, such as wrist housings, chest

harnesses, and head straps.”—Yahoo! Finance

GoPro is used as a comparable company to as Ambarella because both companies

are have similar exposure to the wearable sports market and have comparable

growth profiles. Considering that GoPro and Ambarella have an existing

relationship, investors who are looking to gain exposure to the wearable sports

market compare these two companies. As a result, GoPro is weighted 25%.

Discounted Cash Flow Analysis

Revenue Model

Ambarella currently only reports on two segments: Camera and Infrastructure.

Considering that the Camera segment accounts for roughly 95% of total revenue,

individual sub-segments were broken down and estimated in order to provide a

more accurate and deliberate way to project future revenues. Estimates were

gathered through financial statements, earning calls, investor presentations, and

Figure 31: MLNX One Year Stock Price


Figure 32: CAVM One Year Stock Price


Figure 33: GPRO One Year Stock Price


UOIG 14


the use of professional analyst estimates. The following estimates are meant to

reflect a conservative

Infrastructure

Infrastructure revenue was primarily projected on historical results and

management guidance. Until the most recent quarter, this segment was in decline.

However, Ambarella released a new product that management anticipates will

start pick up in the next few quarters as broadcasting companies begin to adopt

4K. Beyond 2018E, revenue is projected to slow as management and company

actions seem to be shifting more towards Camera and away from this particular

segment.

Camera

Security

Ambarella has stated that its two largest customers in the Security segment are

Hikvision Digital Technology and Dahua Technology. Therefore, in order to

project growth rates for this segment, I used a weighted average of the two

company’s projected sales for the next two years, which yielded a growth that was

applied for the Security segment as a whole. This weighted average was used as

a baseline. Considering that a majority of security cameras being sold are now

digital—which Ambarella specializes in—I added a premium to reflect other sales

not reflected in the baseline. Mid-range and Premium are the two largest sub-

segments for Ambarella and are projected to continue to each maintain 45% of

this segment going into the terminal year. Ambarella’s low-range segment, which

consistently declined in past quarters, is projected to continue to decrease into the

terminal year. The consumer sub-segment is projected to continue to grow on a

strong year over year basis (please note the base year is relatively small) as home

security technology becomes more accessible as prices decline and internet

providers begin to bundle the service.

Wearable

In order to project wearable revenues, future sales revenue for GoPro the next

three available years were used. This percentage is meant to reflect a minimum

baseline and a conservative premium was added on to reflect other growth not

reflected with GoPro. In particular, Xiaomi has just released a direct GoPro

competitor that is utilizing Ambarella’s chip. Considering that GoPro has

minimal exposure to China, there is potentially a massive and unrealized Chinese

market. A conservative premium, smaller than the baseline provided by GoPro,

was added onto the GoPro baseline to reflect the growth of the Chinese market. I

believe this estimate to be extremely conservative as it suggests that the Chinese

market be substantially smaller than the American market.

Automotive and Other

This particular segment, which includes UAV and Police cameras, was extremely

difficult to project as little data or certainty exists in these industries. Projections

were determined by estimating historical growth rates and applying an extremely

conservative estimate that is meant to reflect a baseline case as management has

consistently stated that they anticipate these two particular segments could be the

next segments to drive revenue growth.

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2016E2017E2018E2019E2020E2021E2022E2023E

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Security Wearable Automotive Other

Figure 35: Camera Revenue Projections by

Segment


0%

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2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

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Professional: Premium-Range Professional: Mid-Range

Profesional: Low-Range Consumer Home Security

Figure 36: Security Revenue Projections by

Segment


UOIG 15


Cost of Goods Sold

Cost of Goods sold was projected as a percentage of revenue and slowly decreases

through 2018 before slowly trending up towards the terminal year. Cost of Goods

Sold has remained relatively stable from a historical perspective and projections

incorporate Ambarella’s supplier power that allows them to defend against

dilution. The downward trend towards 2018 reflects both introductions of new,

higher margin products as well as a product mix that features higher margin

segments such as premium security, UAV, and automotive cameras.

Research and Development

Research and Development is projected to slightly decline in 2015E compared to

2014A but increase by approximately $28 million. Going into the terminal year,

R&D is projected at 26% of revenue. From a historical perspective, this particular

percentage of revenue might seem low; however, on a year over year basis R&D

is growing at a substantially faster rate than ever.

SG&A

Sales, General & Administrative expenses are forecasted to slightly trend down

in the next two years as Ambarella has secured several large design wins with key

OEMs, including GoPro and Xiaomi. However, beyond this year and into the

terminal year, SG&A is set to trend upwards in order to reflect larger marketing

efforts to win future designs.

Depreciation

Ambarella uses straight-line depreciation and historical averages were used to

project out future expense.

Capital Expenditures

Ambarella’s capital expenditures are primarily composed of equipment used in

research and development and encoding capital equipment. Capital expenditures

were projected using 2014’s percentage of revenue. Capital expenditures are

largely geared towards the infrastructure segment and as Ambarella’s percentage

of revenue in infrastructure decreases so too will capital expenditures.

Net Working Capital

Net Working Capital was primarily calculated using historical averages and

management targets in the terminal year and trending up or down accordingly. A

notable downtrend is seen with both inventory and accounts payable projected

forward. Management has stated that the current year they expect to hold

significantly larger levels of inventory to provide flexibility for upcoming product

offerings. This trend is not expected to continue.

Tax Rate

A heavy reliance on management guidance was used to determine tax rates going

forward. Ambarella has continued to move away from U.S. customers, which

yield a substantially higher tax rate than other countries. There is a chance that

the tax rate could decrease as business moves away from the United States but to

be safe a consistent tax rate is used.

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45.00%

63.50

64.00

64.50

65.00

65.50

66.00

66.50

Gross Margin

Drones and Premium Cameras as % of Revenue

Figure 37: Drone Revenue and Cost of Goods

Sold Projections


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R&D as % of Revenue SG&A as Percent of Revenue

Figure 38: R&D and SG&A Projections


UOIG 16


Beta

Beta was calculated by taking a weighted average of 2-year daily, 2-year weekly,

2-year monthly regressions as well as a 2-year weekly ETF vasicek and a 3-year

daily Hamada. Referring to Figure XX, the standard errors were very high for all

regressions. In order to combat this, weights were distributed throughout to

represent a more accurate and holistic beta.

The use of a terminal beta was also implemented to combat the large amount of

noise and errors in the beta described above. Terminal beta was calculated using

an average of the projected year beta and an Industry ETF beta. The terminal beta

represents a more accurate projection of what beta for this growing company will

be going forward as it matures.

Recommendation

Ambarella is a fast-growing technology company that has both near-term and

long-term upside. Near term growth will be driven by the emerging segments that

they operate in while long-term growth will be driven by the diversification of

their revenue streams and ability to carve out markets. I strong recommend that

this company be bought for all three portfolios.

Beta SE Weighting

1-Year Daily 2.09 0.26 0.00%

2-Year Daily 2.06 0.21 25.00%

1-Year Weekly 1.91 0.57 0.00%

2-Year Weekly 1.84 0.44 20.00%

2-Year Weekly Vasicek 1.11 - 15.00%

2-Year Monthly 1.73 0.15 25.00%

Hamaada ETF 1.09 - 15.00%

Ambarella Inc Beta 1.65

Terminal Year Beta Weighting

Amberalla Beta 50.00%

ETF Beta 50.00%

Terminal Year Beta

1.25

1.45

Beta

1.65

Figure 39: Calculation of Beta


Method Implied Price Weight

Discounted Cash Flow 74.94 85%

Forward Comparables 70.19 15%

Implied Price 74.23

Current Price 66.31

Undervalued 11.94%

Figure 40: DCF Assumptions


UOIG 17

University of Oregon Investment Group Presentation Date

Appendix 1 – Relative Valuation Comparables Analysis AMBA IPHI MLNX CAVM GPRO

($ in thousands) Ambarella Inc

Inphi

Corporation

Mellanox

Technologies Cavium Inc GoPro

Stock Characteristics Max Min Median Weight Avg. 25.00% 25.00% 25.00% 25.00%

Current Price $69.91 $17.98 $46.02 $33.48 $64.22 $17.98 $46.02 $69.91 $37.95

Beta 1.65 1.20 1.53 1.09 1.65 1.20 1.53 1.64 0.93

Size

Short-Term Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Long-Term Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cash and Cash Equivalent 354,251.00 119,162.00 156,330.00 262,999.75 186,531.00 119,162.00 354,251.00 156,330.00 422,256.00

Diluted Basic Shares 56,655.31 32,922.69 47,801.75 72,635.96 32,922.69 40,282.87 47,801.75 56,655.31 145,803.89

Market Capitalization 3,905,035.47 692,283.14 2,124,307.79 3,056,221.80 2,084,298.02 692,283.14 2,124,307.79 3,905,035.47 5,503,260.81

Enterprise Value 3,770,534.47 573,121.14 1,770,056.79 2,798,679.30 1,897,767.02 573,121.14 1,770,056.79 3,770,534.47 5,081,004.81

Growth Expectations

% Revenue Growth 2015E 55.10% 20.40% 30.40% 32.35% 40.55% 55.10% 30.40% 20.40% 23.50%

% Revenue Growth 2016E 32.45% 11.00% 16.40% 16.73% 32.45% 16.40% 11.00% 21.90% 17.60%

Revenue CAGR 34.36% 20.40% 21.15% 24.11% 28.96% 34.36% 20.40% 21.15% 20.51%

% EBITDA Growth 2015E 89.50% 16.30% 43.60% 41.30% 55.96% 89.50% 43.60% 16.30% 15.80%

% EBITDA Growth 2016E 50.70% 21.00% 33.70% 31.40% 32.39% 33.70% 21.00% 50.70% 20.20%

Profitability Margins

Gross Margin 69.69% 64.53% 66.22% 61.58% 64.53% 66.22% 69.69% 65.61% 44.81%

EBIT Margin 28.92% 16.91% 19.82% 19.30% 28.92% 19.82% 16.91% 23.05% 17.41%

EBITDA Margin 29.53% 20.02% 21.31% 21.82% 29.53% 20.02% 21.31% 26.21% 19.73%

Net Margin 26.32% 3.66% 16.66% 13.50% 26.32% 3.66% 16.66% 24.23% 9.46%

Operating Results

Revenue $1,723,000.00 $248,700.00 $526,750.00 $756,300.00 $307,067.64 $248,700.00 $604,500.00 $449,000.00 $1,723,000.00

Gross Profit $772,000.00 $164,700.00 $357,950.00 $413,150.00 $198,139.29 $164,700.00 $421,300.00 $294,600.00 $772,000.00

EBIT $300,000.00 $49,300.00 $102,850.00 $138,750.00 $88,804.12 $49,300.00 $102,200.00 $103,500.00 $300,000.00

EBITDA $340,000.00 $49,800.00 $123,250.00 $159,075.00 $90,665.61 $49,800.00 $128,800.00 $117,700.00 $340,000.00

Net Income $163,000.00 $9,100.00 $104,750.00 $95,400.00 $80,811.75 $9,100.00 $100,700.00 $108,800.00 $163,000.00

Capital Expenditures $41,000.00 $2,180.18 $27,950.00 $26,925.00 $2,180.18 $19,000.00 $36,900.00 $10,800.00 $41,000.00

Free Cash Flow $174,000.00 $40,700.00 $63,850.00 $85,600.00 $79,437.15 $40,700.00 $65,500.00 $62,200.00 $174,000.00

Multiples

EV/Revenue 8.40x 2.30x 2.93x 4.14 6.18x 2.30x 2.93x 8.40x 2.95x

EV/Gross Profit 12.80 3.48 4.20 6.77 9.58 3.48 4.20 12.80 6.58

EV/EBIT 36.43 11.63 17.32 20.58 21.37 11.63 17.32 36.43 16.94

EV/EBITDA 32.04 11.51 13.74 18.06 20.93 11.51 13.74 32.04 14.94

EV/(EBITDA-Capex) 35.27 18.61 19.26 22.53 21.45 18.61 19.26 35.27 16.99

EV/Unlevered FCF 60.62 14.08 27.02 32.73 23.89 14.08 27.02 60.62 29.20

Market Cap/Net Income = P/E 76.08 21.10 35.89 41.71 25.79 76.08 21.10 35.89 33.76

UOIG 18


Appendix 2 – Discounted Cash Flows Valuation

Discounted Cash Flow Analysis Q1 Q2 Q3 Q4

($ in thousands) 2009A 2010A 2011A 2012A 2013A 2014A 4/31/2015E 7/31/2015E 10/31/2015E 1/31/2016E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Total Revenue $71,525.00 $94,739.00 $97,257.00 $121,066.00 $157,608.00 $218,478.00 $64,908.83 $68,801.96 $87,941.42 $85,415.44 $307,067.64 $406,714.95 $537,623.90 $699,639.91 $890,940.93 $1,099,252.65 $1,308,699.11 $1,498,450.81 1,645,910.81

% YoY Growth - 32.46% 2.66% 24.48% 30.18% 38.62% 58.62% 46.49% 33.88% 32.02% 40.55% 32.45% 32.19% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

Cost of Goods Sold 22,747.00 32,897.00 31,322.00 39,398.00 56,665.00 78,804.10 23,237.36 24,493.50 31,131.26 30,066.23 108,928.35 143,610.98 188,954.57 244,751.45 310,214.41 380,945.92 451,386.60 514,380.64 559,609.67

% Revenue 31.80% 34.72% 32.21% 32.54% 35.95% 36.07% 35.80% 35.60% 35.40% 35.20% 35.47% 35.31% 35.15% 34.98% 34.82% 34.65% 34.49% 34.33% 34.00%

Gross Profit $48,778.00 $61,842.00 $65,935.00 $81,668.00 $100,943.00 $139,673.90 $41,671.47 $44,308.46 $56,810.16 $55,349.20 $198,139.29 $263,103.96 $348,669.34 $454,888.46 $580,726.53 $718,306.73 $857,312.50 $984,070.17 $1,086,301.13

Gross Margin 68.20% 65.28% 67.79% 67.46% 64.05% 63.93% 64.20% 64.40% 64.60% 64.80% 64.53% 64.69% 64.85% 65.02% 65.18% 65.35% 65.51% 65.67% 66.00%

Research and Development 27,638.00 34,449.00 37,618.00 42,829.00 48,777.00 57,978.00 14,929.03 15,824.45 20,226.53 19,645.55 70,625.56 95,323.82 128,357.71 170,099.95 220,507.88 276,874.26 335,354.15 390,533.74 436,166.36

% Revenue 38.64% 36.36% 38.68% 35.38% 30.95% 26.54% 23.00% 23.00% 23.00% 23.00% 23.00% 23.44% 23.88% 24.31% 24.75% 25.19% 25.63% 26.06% 26.50%

Selling, General and Administrative 6,894.00 10,313.00 15,926.00 17,926.00 23,153.00 29,297.00 7,789.06 8,256.23 10,552.97 10,249.85 36,848.12 49,568.38 66,530.96 87,892.26 113,594.97 142,215.81 171,766.76 199,481.26 222,197.96

% Revenue 9.64% 10.89% 16.38% 14.81% 14.69% 13.41% 12.00% 12.00% 12.00% 12.00% 12.00% 12.19% 12.38% 12.56% 12.75% 12.94% 13.13% 13.31% 13.50%

Depreciation 748.00 563.00 596.00 737.00 1096.00 1,300.90 576.66 321.96 479.36 483.51 1,861.49 1,431.18 1,493.54 1,546.40 1,546.40 2,172.70 3,171.84 4,642.89 6,697.98

% of PP&E 49.80% 50.68% 38.08% 43.71% 36.32% 43.10% 17.59% 10.18% 14.40% 13.92% 43.09% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00%

% Revenue 1.05% .59% .61% .61% .70% .60% .89% .47% .55% .57% .61% .35% .28% .22% .17% .20% .24% .31% .41%

Earnings Before Interest & Taxes $12,834.00 $15,430.00 $11,165.00 $20,042.00 $27,895.00 $51,268.67 $18,376.71 $19,905.82 $25,551.30 $24,970.29 $88,804.12 $116,780.59 $152,287.13 $195,349.84 $245,077.27 $297,043.96 $347,019.76 $389,412.27 $421,238.83

% Revenue 17.94% 16.29% 11.48% 16.55% 17.70% 23.47% 28.31% 28.93% 29.05% 29.23% 28.92% 28.71% 28.33% 27.92% 27.51% 27.02% 26.52% 25.99% 25.59%

Less Taxes (Benefits) (454.00) 1,501.00 1,344.00 1,854.00 2,241.00 3,517.55 1,653.90 1,791.52 2,299.62 2,247.33 7,992.37 10,510.25 13,705.84 17,581.49 22,056.95 26,733.96 31,231.78 35,047.10 37,911.49

Tax Rate (0.04) 0.10 0.12 0.09 0.08 0.07 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Net Income $13,288.00 $13,929.00 $9,821.00 $18,188.00 $25,654.00 $47,751.12 $16,722.81 $18,114.29 $23,251.68 $22,722.97 $80,811.75 $106,270.33 $138,581.29 $177,768.36 $223,020.32 $270,310.00 $315,787.98 $354,365.17 $383,327.34

Net Margin 18.58% 14.70% 10.10% 15.02% 16.28% 21.86% 25.76% 26.33% 26.44% 26.60% 26.32% 26.13% 25.78% 25.41% 25.03% 24.59% 24.13% 23.65% 23.29%

Add Back: Depreciation and Amortization 1,298.00 1,603.00 1,136.00 1,007.00 1,096.00 1,300.90 576.66 321.96 479.36 483.51 1,861.49 1,431.18 1,493.54 1,546.40 1,546.40 2,172.70 3,171.84 4,642.89 6,697.98

Add Back: Interest Expense*(1-Tax Rate) - - - - - - - - - - - - - - - - - - -

Operating Cash Flow $14,586.00 $15,532.00 $10,957.00 $19,195.00 $26,750.00 $49,052.01 $17,299.47 $18,436.25 $23,731.04 $23,206.47 $82,673.24 $107,701.51 $140,074.83 $179,314.76 $224,566.72 $272,482.70 $318,959.82 $359,008.06 $390,025.31

% Revenue 20.39% 16.39% 11.27% 15.85% 16.97% 22.45% 26.65% 26.80% 26.99% 27.17% 26.92% 26.48% 26.05% 25.63% 25.21% 24.79% 24.37% 23.96% 23.70%

Current Assets 12,525.00 17,857.00 18,358.00 32,651.00 33,839.00 66,056.06 65,284.07 68,429.00 85,949.12 83,595.01 83,595.01 100,365.03 131,799.00 169,960.37 214,464.98 262,201.05 309,315.27 350,932.94 381,419.27

% Revenue 17.51% 18.85% 18.88% 26.97% 21.47% 30.23% 100.58% 99.46% 97.73% 97.87% 27.22% 24.68% 24.52% 24.29% 24.07% 23.85% 23.64% 23.42% 23.17%

Current Liabilities 23,976.00 24,232.00 22,944.00 24,830.00 25,402.00 45,753.22 49,010.10 52,356.59 60,915.68 62,236.25 62,236.25 78,020.84 101,692.32 130,321.44 163,402.93 198,479.05 232,593.97 262,105.71 282,789.80

% Revenue 33.52% 25.58% 23.59% 20.51% 16.12% 20.94% 75.51% 76.10% 69.27% 72.86% 20.27% 19.18% 18.92% 18.63% 18.34% 18.06% 17.77% 17.49% 17.18%

Net Working Capital ($11,451.00) ($6,375.00) ($4,586.00) $7,821.00 $8,437.00 $20,302.84 $16,273.97 $16,072.42 $25,033.45 $21,358.75 $21,358.75 $22,344.19 $30,106.68 $39,638.93 $51,062.05 $63,722.00 $76,721.30 $88,827.23 $98,629.47

% Revenue (16.01%) (6.73%) (4.72%) 6.46% 5.35% 9.29% 25.07% 23.36% 28.47% 25.01% 6.96% 5.49% 5.60% 5.67% 5.73% 5.80% 5.86% 5.93% 5.99%

Change in Working Capital - 5,076.0 1,789.0 12,407.0 616.0 11,865.8 (4,028.9) (201.6) 8,961.0 (3,674.7) 1,055.9 985.4 7,762.5 9,532.2 11,423.1 12,659.9 12,999.3 12,105.9 9,802.2

Purchase of Intangible Assets 940.00 830.00 630.00 - - - - - - - - - - - - - - - -

Purchase of PP&E 357.00 896.00 682.00 1528.00 1701.00 1,550.49 460.85 488.49 624.38 606.45 2,180.18 2,887.68 3,817.13 4,967.44 6,325.68 7,804.69 9,291.76 10,639.00 11,685.97

% Revenue .50% .95% .70% 1.26% 1.08% .71% .71% .71% .71% .71% .71% .71% .71% .71% .71% .71% .71% .71% .71%

Unlevered Free Cash Flow $13,289.00 $8,730.00 $7,856.00 $5,260.00 $24,433.00 $35,635.68 $20,867.49 $18,149.31 $14,145.63 $26,274.71 $79,437.15 $103,828.40 $128,495.21 $164,815.07 $206,817.91 $252,018.06 $296,668.75 $336,263.13 $368,537.10

Discounted Free Cash Flow 20249.10 17089.58 12924.96 23295.96 81620.87 89560.10 101851.41 113318.50 122429.73 127781.96 128416.12 124785.48

UOIG 19


Appendix 3 – Revenue Model

Revenue Model

(in thousands) 2009A 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Camera Market - 71054.25 72942.75 94431.48 138695.04 205225.58 293438.64 392813.37 523096.75 684095.86 874360.61 1081622.24 1290010.87 1478703.58 1625176.21

% Growth - - 2.66% 29.46% 46.87% 47.97% 42.98% 33.87% 33.17% 30.78% 27.81% 23.70% 19.27% 14.63% 9.91%

% of Total Revenue - 75.00% 75.00% 78.00% 88.00% 93.93% 95.56% 96.58% 97.30% 97.78% 98.14% 98.40% 98.57% 98.68% 98.74%

Infrastructure Market - 23684.75 24314.25 26634.52 18912.96 13252.42 13629.00 13901.58 14527.15 15544.05 16580.32 17630.41 18688.23 19747.23 20734.59

% Growth - - 2.66% 9.54% (28.99%) (29.93%) 2.84% 2.00% 4.50% 7.00% 6.67% 6.33% 6.00% 5.67% 5.00%

% of Total Revenue - 25.00% 25.00% 22.00% 12.00% 6.07% 4.44% 3.42% 2.70% 2.22% 1.86% 1.60% 1.43% 1.32% 1.26%

Total Revenue $71,525.00 $94,739.00 $97,257.00 $121,066.00 $157,608.00 $218,478.00 $307,067.64 $406,714.95 $537,623.90 $699,639.91 $890,940.93 $1,099,252.65 $1,308,699.11 $1,498,450.81 $1,645,910.81

% Growth 71.33% 32.46% 2.66% 24.48% 30.18% 38.62% 40.55% 32.45% 32.19% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

Geographic Revenue Model

($ in thousands) 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Hong Kong 60448.00 87438.00 80627.00 104458.00 135382.00 198235.00 277896.22 367060.24 483861.51 629675.92 801846.84 989327.38 1177829.19 1348605.73 1481319.73

% Growth 96.08% 44.65% (7.79%) 29.56% 29.60% 46.43% 40.19% 32.09% 31.82% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

% of Total Revenue 84.51% 92.29% 82.90% 86.28% 85.90% 90.73% 90.50% 90.25% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%

Asia Pacific 4445.00 1503.00 1350.00 550.00 2809.00 3260.50 6141.35 9151.09 13440.60 19240.10 26728.23 35725.71 45804.47 56191.91 65836.43

% Growth 693.53% (66.19%) (10.18%) (59.26%) 410.73% 16.07% 88.36% 49.01% 46.87% 43.15% 38.92% 33.66% 28.21% 22.68% 17.16%

% of Total Revenue 6.21% 1.59% 1.39% .45% 1.78% 1.49% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00%

United States 0.00 2213.00 9825.00 7990.00 7128.00 6169.50 10747.37 16268.60 21504.96 26236.50 31182.93 35725.71 39260.97 41207.40 41147.77

% Growth 0.00% 0.00% 343.97% (18.68%) (10.79%) (13.45%) 74.20% 51.37% 32.19% 22.00% 18.85% 14.57% 9.90% 4.96% (.14%)

% of Total Revenue 0.00% 2.34% 10.10% 6.60% 4.52% 2.82% 3.50% 4.00% 4.00% 3.75% 3.50% 3.25% 3.00% 2.75% 2.50%

North America 3504.00 455.00 1323.00 2602.00 4594.00 4735.50 6141.35 6100.72 8064.36 10494.60 13364.11 16488.79 19630.49 22476.76 24688.66

% Growth (23.54%) (87.01%) 190.77% 96.67% 76.56% 3.08% 29.69% (.66%) 32.19% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

% of Total Revenue 4.90% .48% 1.36% 2.15% 2.91% 2.17% 2.00% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%

Europe 3128.00 3130.00 4132.00 5466.00 7695.00 6077.50 6141.35 8134.30 10752.48 13992.80 17818.82 21985.05 26173.98 29969.02 32918.22

% Growth (45.08%) .06% 32.01% 32.28% 40.78% (21.02%) 1.05% 32.45% 32.19% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

% of Total Revenue 4.37% 3.30% 4.25% 4.51% 4.88% 2.78% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%

Total Revenue $71,525.00 $94,739.00 $97,257.00 $121,066.00 $157,608.00 $218,478.00 $307,067.64 $406,714.95 $537,623.90 $699,639.91 $890,940.93 $1,099,252.65 $1,308,699.11 $1,498,450.81 $1,645,910.81

% Growth 71.33% 32.46% 2.66% 24.48% 30.18% 38.62% 40.55% 32.45% 32.19% 30.14% 27.34% 23.38% 19.05% 14.50% 9.84%

Camera Revenue Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

($ in thousands) 4/31/2014A 7/31/2014A 10/31/2014A 1/31/2015A 2014A 4/31/2015E 7/31/2015E 10/31/2015E 1/31/2016E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Security Cameras 14731.56 17035.29 20810.28 22195.80 74772.93 25780.23 28108.23 32255.93 32183.91 118328.30 179822.24 261978.77 365215.09 486192.94 616705.70 743516.10 849699.67 917675.64

% Growth, Quarterly - 15.64% 22.16% 6.66% - 16.15% 9.03% 14.76% (.22%) - - - - - - - - -

% Growth, YoY - - - - - 75.00% 65.00% 55.00% 45.00% 58.25% 34.83% 45.69% 39.41% 33.13% 26.84% 20.56% 14.28% 8.00%

% of Total Camera Revenue 40.00% 39.00% 33.00% 36.00% 36.43% 41.92% 42.98% 38.16% 39.24% 40.61% 45.78% 50.08% 53.39% 55.61% 57.02% 57.64% 57.46% 56.47%

Wearable Sports Camera 12890.12 16598.49 30269.49 24045.45 83803.55 20624.18 20748.11 33296.44 26450.00 101118.73 127409.60 157987.91 192745.25 231294.30 272927.27 316595.64 360919.03 404229.31

% Growth, Quarterly - 28.77% 82.36% (30.00%) (14.23%) 20.00% 25.00% (30.00%) - - - - - - - - -

% Growth - - - - - 60.00% 25.00% 10.00% 10.00% 28.00% 26.00% 24.00% 22.00% 20.00% 18.00% 16.00% 14.00% 12.00%


Automotive Cameras 8102.36 8299.25 8828.60 10481.35 35711.56 9375.58 9603.40 10215.94 12128.41 39282.71 43112.78 47208.49 51575.27 56217.05 61136.04 66332.60 71805.04 77549.45

% Growth, Quarterly - 2.43% 6.38% 10.00% 15.71% 15.71% 15.71% 15.71% - - - - - - - - -

% Growth, YoY - - - - - (10.55%) 2.43% 6.38% 18.72% 10.00% 9.75% 9.50% 9.25% 9.00% 8.75% 8.50% 8.25% 8.00%


Other 1104.87 1747.21 3153.07 4932.40 10937.55 5721.58 6934.95 8765.86 11245.87 32668.27 42468.75 55921.58 74560.24 100656.33 130853.23 163566.53 196279.84 225721.82

% Growth, Quarterly - 58.14% 80.46% 56.43% - 16.00% 21.21% 26.40% 28.29% - - - - - - - - -

% Growth, YoY - - - - - 417.85% 296.92% 178.01% 128.00% 198.68% 30.00% 31.68% 33.33% 35.00% 30.00% 25.00% 20.00% 15.00%


Total Camera Revenue $36,828.90 $43,680.24 $63,061.44 $61,655.00 $205,225.58 $61,501.58 $65,394.71 $84,534.17 $82,008.19 $291,398.02 $392,813.37 $523,096.75 $684,095.86 $874,360.61 $1,081,622.24 $1,290,010.87 $1,478,703.58 $1,625,176.21

% Growth, YoY - - - - 47.97% 66.99% 49.71% 34.05% 33.01% 41.99% 34.80% 33.17% 30.78% 27.81% 23.70% 19.27% 14.63% 9.91%

Security Camera Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

($ in thousands) 4/31/2014A 7/31/2014A 10/31/2014A 1/31/2015E 2014E 4/31/2015E 7/31/2015E 10/31/2015E 1/31/2016E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Professional: Premium-Range 4419.47 5280.94 6659.29 8177.38 24537.07 8507.48 9345.99 10805.74 10862.07 39521.27 64736.00 100300.44 148172.98 208368.40 278398.57 352639.06 422422.12 477191.33

% Growth, Quarterly - 19.49% 26.10% 22.80% - 4.04% 9.86% 15.62% .52% - - - - - - - - -

% Growth - - - - - 92.50% 76.98% 62.27% 32.83% 41.00% 63.80% 54.94% 47.73% 40.63% 33.61% 26.67% 19.79% 12.97%

% of Security Revenue 30.00% 31.00% 32.00% 33.00% 32.82% 33.00% 33.25% 33.50% 33.75% 33.40% 36.00% 38.29% 40.57% 42.86% 45.14% 47.43% 49.71% 52.00%

Professional: Mid-Range 9133.57 10306.35 12278.06 14240.80 45958.78 15468.14 16583.86 18708.44 18344.83 69105.26 98003.12 135854.71 179738.00 226427.00 270910.00 306965.93 328348.23 330363.23

% Growth, Quarterly - 12.84% 19.13% 15.99% - 8.62% 7.21% 12.81% (1.94%) - - - - - - - - -

% Growth - - - - - 69.35% 60.91% 52.37% 28.82% 41.00% 41.82% 38.62% 32.30% 25.98% 19.65% 13.31% 6.97% .61%


Profesional: Low-Range 957.55 936.94 1040.51 1086.83 4021.83 773.41 772.98 806.40 724.14 3076.92 3596.44 4865.32 6260.83 7640.17 8810.08 9559.49 9710.85 9176.76

% Growth, Quarterly - (2.15%) 11.05% 4.45% - (28.84%) (.06%) 4.32% (10.20%) - - - - - - - - -

% Growth - - - - - (19.23%) (17.50%) (22.50%) (33.37%) (23.49%) 16.88% 35.28% 28.68% 22.03% 15.31% 8.51% 1.58% (5.50%)


Consumer Home Security 220.97 511.06 832.41 1640.50 3204.94 1031.21 1405.41 1935.36 2252.87 6624.85 14385.78 21706.81 31304.15 43062.80 56384.52 70102.95 82542.25 91767.56

% Growth, Quarterly - 131.28% 62.88% 97.08% - (37.14%) 36.29% 37.71% 16.41% - - - - - - - - -

% Growth - - - - - 366.67% 175.00% 132.50% 37.33% 106.71% 117.15% 50.89% 44.21% 37.56% 30.94% 24.33% 17.74% 11.18%


Total Security Camera Revenue $14,731.56 $17,035.29 $20,810.28 $22,195.80 $74,772.93 $25,780.23 $28,108.23 $32,255.93 $32,183.91 $118,328.30 $179,822.24 $261,978.77 $365,215.09 $486,192.94 $616,705.70 $743,516.10 $849,699.67 $917,675.64

% Growth - - - - - 75.00% 65.00% 55.00% 45.00% 58.25% 51.97% 45.69% 39.41% 33.13% 26.84% 20.56% 14.28% 8.00%

UOIG 20


Other Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

($ in thousands) 4/31/2014A 7/31/2014A 10/31/2014A 1/31/2015E 2014A 4/31/2015E 7/31/2015E 10/31/2015E 1/31/2016E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Quadcopter UAV 165.73 524.16 1418.88 2959.44 5068.22 3551.33 4439.16 5770.91 7502.18 21263.58 27642.65 36399.01 48530.80 65516.58 85171.56 106464.45 127757.34 146920.94


% Growth - - - - - 2042.84% 746.90% 306.72% 153.50% 319.55% 30.00% 31.68% 33.33% 35.00% 30.00% 25.00% 20.00% 15.00%

% of Other Revenue 15.00% 30.00% 45.00% 60.00% 46.34% 62.07% 64.01% 65.83% 66.71% 65.09% 65.09% 65.09% 65.09% 65.09% 65.09% 65.09% 65.09% 65.09%

% of Total Revenue .41% 1.12% 2.16% 4.56% 2.32% 5.47% 6.45% 6.56% 8.78% 6.92% 6.80% 6.77% 6.94% 7.35% 7.75% 8.14% 8.53% 8.93%

Police Camera 497.19 873.60 1576.54 1972.96 4920.29 2170.26 2495.79 2994.95 3743.69 11404.70 14826.10 19522.57 26029.44 35139.75 45681.67 57102.09 68522.50 78800.88


% Growth - - - - - 336.50% 185.69% 89.97% 89.75% 131.79% 30.00% 31.68% 33.33% 35.00% 30.00% 25.00% 20.00% 15.00%

% of Other Revenue 45.00% 50.00% 50.00% 40.00% 44.99% 37.93% 35.99% 34.17% 33.29% 34.91% 34.91% 34.91% 34.91% 34.91% 34.91% 34.91% 34.91% 34.91%

% of Total Revenue 1.22% 1.86% 2.40% 3.04% 2.25% 3.34% 3.63% 3.41% 4.38% 3.71% 3.65% 3.63% 3.72% 3.94% 4.16% 4.36% 4.57% 4.79%

Total Other Revenue $1,104.87 $1,747.21 $3,153.07 $4,932.40 $10,937.55 $5,721.58 $6,934.95 $8,765.86 $11,245.87 $32,668.27 $42,468.75 $55,921.58 $74,560.24 $100,656.33 $130,853.23 $163,566.53 $196,279.84 $225,721.82

% Growth - - - - - 417.85% 296.92% 178.01% 128.00% 198.68% 30.00% 31.68% 33.33% 35.00% 30.00% 25.00% 20.00% 15.00%

UOIG 21


Appendix 4 – Working Capital Model

Working Capital Model

($ in thousands) 2009A 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Total Revenue $71,525.00 $94,739.00 $97,257.00 $121,066.00 $157,608.00 $218,478.00 $307,067.64 $406,714.95 $537,623.90 $699,639.91 $890,940.93 $1,099,252.65 $1,308,699.11 $1,498,450.81 $1,645,910.81

Current Assets

Accounts Receivable 9089.00 8829.00 9485.00 20153.00 18837.00 40180.00 49479.88 59218.14 78493.09 102147.43 130077.38 160490.89 191070.07 218773.82 240302.98

Days Sales Outstanding A/R 46.38 34.02 35.60 60.93 43.62 56.96 53.29 53.29 53.29 53.29 53.29 53.29 53.29 53.29 53.29

% of Revenue 12.71% 9.32% 9.75% 16.65% 11.95% 18.39% 16.11% 14.56% 14.60% 14.60% 14.60% 14.60% 14.60% 14.60% 14.60%

Inventory 1679.00 7410.00 6786.00 8918.00 10452.00 21693.00 28432.20 33378.63 43037.29 54449.82 67370.63 80714.43 93249.05 103538.71 109679.40

Days Inventory Outstanding 26.94 82.22 79.08 82.85 67.33 87.09 87.00 85.07 83.13 81.20 79.27 77.34 75.40 73.47 71.54

% of Revenue 2.35% 7.82% 6.98% 7.37% 6.63% 9.93% 9.26% 8.21% 8.01% 7.78% 7.56% 7.34% 7.13% 6.91% 6.66%

Deferred Tax Assets, current 1069.00 903.00 861.00 1220.00 1599.00 2193.06 2886.30 4067.15 5376.24 6996.40 8909.41 10992.53 13086.99 14984.51 16459.11

% of Revenue 1.49% .95% .89% 1.01% 1.01% 1.00% .94% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

Prepaid Expenses 688.00 715.00 1226.00 2360.00 2951.00 1990.00 2796.63 3701.11 4892.38 6366.72 8107.56 10003.20 11909.16 13635.90 14977.79

% of Revenue .96% .75% 1.26% 1.95% 1.87% .91% .91% .91% .91% .91% .91% .91% .91% .91% .91%

Total Current Assets $12,525.00 $17,857.00 $18,358.00 $32,651.00 $33,839.00 $66,056.06 $83,595.01 $100,365.03 $131,799.00 $169,960.37 $214,464.98 $262,201.05 $309,315.27 $350,932.94 $381,419.27

% of Revenue 17.51% 18.85% 18.88% 26.97% 21.47% 30.23% 27.22% 24.68% 24.52% 24.29% 24.07% 23.85% 23.64% 23.42% 23.17%

Long Term Assets

Net PP&E Beginning 1502.00 1111.00 1565.00 1686.00 3018.00 3018.00 3277.59 3596.28 5052.78 7376.38 10797.42 15576.70 21208.69 27328.62 33324.73

Net Intangibles Beginning 2200.00 1650.00 810.00 270.00 - - - - - - - - - - -

Purchase of Intangibles 940.00 830.00 630.00 - - - - - - - - - - - -

Purchase of PP&E 357.00 896.00 682.00 1528.00 1701.00 1550.49 2180.18 2887.68 3817.13 4967.44 6325.68 7804.69 9291.76 10639.00 11685.97

Amortization 550.00 1040.00 540.00 270.00 - - - - - - - - - - -

Depreciation 748.00 563.00 596.00 737.00 1096.00 1300.90 1861.49 1431.18 1493.54 1546.40 1546.40 2172.70 3171.84 4642.89 6697.98

Net Intangibles Ending 1650.00 810.00 270.00 0.00 - - - - - - - - - - -

Net PP&E 1111.00 1565.00 1686.00 2536.00 3018.00 3277.59 3596.28 5052.78 7376.38 10797.42 15576.70 21208.69 27328.62 33324.73 38312.71

Total Net PP&E and Intangibles, net 2761.00 2375.00 1956.00 2536.00 3018.00 3277.59 3596.28 5052.78 7376.38 10797.42 15576.70 21208.69 27328.62 33324.73 38312.71

Total Current Assets & Net PP&E, Intangibles $15,286.00 $20,232.00 $20,314.00 $35,187.00 $36,857.00 $69,333.65 $87,191.29 $105,417.81 $139,175.38 $180,757.79 $230,041.68 $283,409.74 $336,643.88 $384,257.66 $419,731.99

% of Revenue 21.37% 21.36% 20.89% 29.06% 23.39% 31.73% 28.39% 25.92% 25.89% 25.84% 25.82% 25.78% 25.72% 25.64% 25.50%

Current Liabilities

Accounts Payable 5150.00 6725.00 6481.00 7051.00 8321.00 21036.00 27778.59 32578.71 41961.91 53030.98 65539.45 78425.39 90488.95 100338.96 106139.05

Days Payable Outstanding 82.64 74.62 75.52 65.50 53.60 84.45 85.00 83.03 81.06 79.09 77.11 75.14 73.17 71.20 69.23

% of Revenue 7.20% 7.10% 6.66% 5.82% 5.28% 9.63% 9.05% 8.01% 7.81% 7.58% 7.36% 7.13% 6.91% 6.70% 6.45%

Accrued Charges 8757.00 7434.00 7931.00 14042.00 11705.00 18699.00 26088.04 34298.14 44999.51 58120.33 73451.70 89934.13 106246.66 120709.20 131552.79

% of Revenue 12.24% 7.85% 8.15% 11.60% 7.43% 8.56% 8.50% 8.43% 8.37% 8.31% 8.24% 8.18% 8.12% 8.06% 7.99%

Income Taxes Payable 256.00 411.00 530.00 286.00 545.00 1111.22 1460.60 $1,992.90 $2,634.36 $3,428.24 $4,365.61 $5,386.34 $6,412.63 $7,342.41 $8,064.96

% of Revenue .36% .43% .54% .24% .35% .51% .48% .49% .49% .49% .49% .49% .49% .49% .49%

Deferred Revenue 9813.00 9662.00 8002.00 3451.00 4831.00 4907.00 6909.02 9151.09 12096.54 15741.90 20046.17 24733.18 29445.73 33715.14 37032.99

% of Revenue 13.72% 10.20% 8.23% 2.85% 3.07% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25%

Total Current Liabilities $23,976.00 $24,232.00 $22,944.00 $24,830.00 $25,402.00 $45,753.22 $62,236.25 $78,020.84 $101,692.32 $130,321.44 $163,402.93 $198,479.05 $232,593.97 $262,105.71 $282,789.80

% of Revenue 33.52% 25.58% 23.59% 20.51% 16.12% 20.94% 20.27% 19.18% 18.92% 18.63% 18.34% 18.06% 17.77% 17.49% 17.18%

UOIG 22


Appendix 5 – Discounted Cash Flows Valuation Assumptions

Method Implied Price Weight

Discounted Cash Flow 77.20 85%

Forward Comparables 68.51 15%

Implied Price 75.90

Current Price 66.31

Undervalued 14.46%

Beta SE Weighting

1-Year Daily 2.09 0.26 0.00%

2-Year Daily 2.06 0.21 25.00%

1-Year Weekly 1.91 0.57 0.00%

2-Year Weekly 1.84 0.44 20.00%

2-Year Weekly

Vasicek 1.11 - 15.00%

2-Year Monthly 1.73 0.15 25.00%

Hamada ETF 1.09 - 15.00%

Ambarella Inc Beta 1.65

Terminal Year Beta Beta Weighting

Ambarella Beta 1.65 50.00%

ETF Beta 1.25 50.00%

Terminal Year Beta 1.45

Discounted Free Cash Flow Assumptions Considerations

Tax Rate 9.00% Terminal Growth Rate 3.00%

Risk Free Rate 2.16% Terminal Value 5,622,716

Beta 1.65 PV of Terminal Value 1,043,138

Terminal Beta 1.45

Market Risk Premium 6.45% Sum of PV Free Cash Flows 1,498,631

% Equity 100.00% Firm Value 2,541,768

% Debt 0.00% Total Debt 0

Cost of Debt 0.00% Cash & Cash Equivalents 186,531

CAPM 12.79% Market Capitalization 2,541,768

WACC 12.79% Fully Diluted Shares 32,923

Terminal Risk Free Rate 2.81% Implied Price 77.20

Terminal CAPM 12.16% Current Price 66.31

Terminal WACC 12.16% Undervalued 16.43%

UOIG 23


Appendix 6 –Sensitivity Analysis

Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate

77 2.0% 2.5% 3.0% 3.5% 4.0% 0 2.3% 2.3% 3.0% 3.8% 4.5%

1.45 83.03 84.92 87.02 89.36 91.99 1.85 0.32% 0.32% 3.68% 7.63% 12.37%

1.55 78.25 79.99 81.93 84.09 86.51 1.75 6.18% 6.18% 9.82% 14.10% 19.23%

1.65 73.81 75.42 77.20 79.20 81.43 1.65 12.49% 12.49% 16.43% 21.07% 26.62%

1.75 69.68 71.17 72.82 74.66 76.72 1.55 19.29% 19.29% 23.55% 28.58% 34.60%

1.85 65.85 67.22 68.75 70.45 72.35 1.45 26.61% 26.61% 31.24% 36.69% 43.21%



77 2.3% 2.3% 3.0% 3.8% 4.5% 0 2.3% 2.3% 3.0% 3.8% 4.5%

14.79% 68.25 68.25 70.29 72.70 75.58 14.79% 2.93% 2.93% 6.01% 9.63% 13.97%

13.79% 71.21 71.21 73.52 76.24 79.49 13.79% 7.39% 7.39% 10.87% 14.98% 19.88%

12.79% 74.59 74.59 77.20 80.28 83.96 12.79% 12.49% 12.49% 16.43% 21.07% 26.62%

11.79% 78.45 78.45 81.41 84.90 89.07 11.79% 18.31% 18.31% 22.77% 28.03% 34.32%

10.79% 82.87 82.87 86.22 90.18 94.91 10.79% 24.97% 24.97% 30.03% 35.99% 43.12%



77 2.3% 2.3% 3.0% 3.8% 4.5% 0 2.3% 2.3% 3.0% 3.8% 4.5%

1.75 69.84 69.84 71.68 73.78 76.21 1.75 5.33% 5.33% 8.09% 11.26% 14.93%

1.60 72.01 72.01 74.18 76.69 79.65 1.60 8.59% 8.59% 11.86% 15.66% 20.12%

1.45 74.59 74.59 77.20 80.28 83.96 1.45 12.49% 12.49% 16.43% 21.07% 26.62%

1.30 77.74 77.74 80.95 84.80 89.52 1.30 17.24% 17.24% 22.07% 27.89% 35.01%

1.15 81.65 81.65 85.69 90.67 96.96 1.15 23.13% 23.13% 29.23% 36.74% 46.22%

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Beta

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Beta

WA

CC

WA

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Term

inal

Beta

Term

inal

Beta

Implied Price

Terminal Growth Rate

77 2.3% 2.3% 3.0% 3.8% 4.5%

242197.96 67.50 67.50 69.68 72.25 75.33

232197.96 70.93 70.93 73.32 76.14 79.50

222197.96 74.59 74.59 77.20 80.28 83.96

212197.96 78.49 78.49 81.34 84.70 88.72

202197.96 82.65 82.65 85.75 89.41 93.78

Additional Sensitivity Tables

Terminal Growth Rate

77 2.3% 2.3% 3.0% 3.8% 4.5%

476166.36 61.26 61.26 63.08 65.21 67.77

456166.36 67.50 67.50 69.68 72.25 75.33

436166.36 74.59 74.59 77.20 80.28 83.96

416166.36 82.65 82.65 85.75 89.41 93.78

396166.36 91.75 91.75 95.42 99.74 104.91

Term

inal

SG

&A

Term

inal

R&

D

UOIG 24


UOIG 25


Appendix 8 – Sources

Ambarella Investor Relations

Ambarella SEC Filings

Ambarella Earnings Calls

GoPRO Filings

FactSet

MorningStar

Yahoo!Finance

Seeking Alpha

ambarella company

Education