EFTA01136528.pdf

JAWBONE — Overview of Company Model April 10, 2013 EFTA01136528  Jawbone — Company Revenue Model 2012A 2013E 2014E 2015E 2016E 2017E 2018E CAGR Units (000s) UP Band 111 3,510 8,775 17,549 30,712 46,067 59,888 185% Jambox 1,583 1,853 3,057 4,586 6,053 7,142 8,000 31% Headset 651 694 777 820 850 865 866 5% Net Revenue / Unit UP Band 78.63 69.37 61.74 55.56 52.23 49.62 47.14 -8% Jambox 123.95 120.43 114.40 102.96 96.79 90.98 85.52 -6% Headset 53.80 52.99 50.31 47.85 45.53 43.37 41.38 -4% Revenue (SOON) UP Band 8,719 243,479 541,741 975,133 1,604,094 2,285,834 2,823,005 162% Jambox 196,278 223,120 349,740 472,149 585,843 649,817 684,127 23% Headset 35,005 36,762 39,117 39,231 38,681 37,517 35,839 0% Software/Services 18,820 47,050 94,100 178,790 268,185 NA Total 240,003 503,361 949,418 1,533,564 2,322,717 3,151,958 3,811,155 59% 2 EFTA01136529  Dramatic shift in product offering Sales Mix by Revenue UP Band Data Headset 4% 0% 1% Data Headset 7% Jambox 14% 18% Jambox UP Band 82% 74% 2012 2018 Company model contemplates a dramatic conversion from speakers to wearable technology. 3 EFTA01136530  Company model assumes `iPod-like adoption of UP Cummulative Unit Sales (millions) 400 iPod 350 300 - iPhone 250 Blackberry 200 UP Band: 167 Company Model 150 iPad UP Band: 100 - .•'+ GV Model 98 50 71 0 0 1 2 3 4 5 6 7 8 9 10 11 Years from 1st Launch Jawbone's financial model assumes an UP adoption curve that closely matches the historical results for the iPod. Not only is this an aggressive benchmark, but we are concerned that such a close match may indicate the plan is not based on a rigorous bottoms-up analysis. 4 EFTA01136531  Company assumes significant gross margin expansion Gross Margin (%) • a• Jambox UP Band 45% 41% 4O% 39% ... ° .... 37% 36% ...... • • °' 35% 34% _ .***. ...... •• • 29%,•°* ....... . .......... 33% 33% 30% _.°. •.•" 30% 31% 2696..•* • 25% .° Se •*. 24% •• 20% 19% 15% 10% 2011 2012 2013 2014 2015 2016 2017 2018 Jawbone assumes gross margin will expand 15% over the next six years. The Company expects these margin gains will come from 'value-engineering' developed by its contract manufacturers. 5 EFTA01136532  Projected margins are well above industry averages Hardware Gross Margins 60% 53% 50% 47% 42% 41% 40% - 34% 31% 2 29% 30% 28% 30% - 27% 26% r 23% 21% 21% 20% 20% - 10% - 0% `Z` I' bA „\se, ccs̀ -4° \<.•4' log< • $.).\ `-f s L 1I pcsA E, sc ,isv• ,91)0 ' 4f) 6(s o(' cb Jawbone's blended hardware gross margin is projected to be 13 percentage points above the hardware industry median. Again, Jawbone projections are 'Apple-like'. 6 EFTA01136533  Projected operating expenses are below industry averages Operating Expenses / Sales 50% 44% 39% 40% 35% 33% 32% 31% 31% 30% 22% 22% 21% 22% 20% 20% 16% 16% 16% 15% 10% 7% 0% ; \e, ,SZ, ,4 <So .\>;2 A (.1 • c, cc• ‹p x's cp C\ tCs „ ccs \e' (IP se. 31° As4Q Jawbone forecasts operating expenses to be 6 percentage points of revenue below the hardware industry median. 7 EFTA01136534  Hardware companies trade well below Jawbone multiple EV/ OPIDU Comps EV Sales Sales Audio HARMAN INTERNATIONAL $2,717 M 0.6x 26.9% 19.8% 7.1% VOXX INTERNATIONAL CORP $411M 0.4x 28.6% 22.0% 6.6% SKULLCANDY INC $130M 0.7x 47.3% 33.4% 13.9% Median O.6x 28.6% 22.0% 7.1% Mobile APPLE INC $272,026 M 2.1x 41.9% 6.6% 35.3% MOTOROLA MOBIUTY* $9,813 M 0.8x n.a. n.a. n.a. NOKIA OKI $9,358 M 0.3x 27.8% 35.4% -7.6% HTC CORP $5,501M 0.8x 20.6% 15.2% 5.5% RESEARCH IN MOTION $5,046 M 0.4x 31.0% 39.1% -8.1% Median O.Bx 29.4% 25.3% 4.1% *Motorola Mobility was acquired by Google in '12 at the above multiples Other Hardware SAMSUNG ELECTRONICS $186,325 M 1.3x 29.6% 16.5% 13.1% HEWLETT-PACKARD CO 559,424M 0.4x 23.2% 15.5% 7.7% SONY CORP $22,883 M 0.2x 20.6% 21.7% -1.0°A LG ELECTRONICS INC 516,350M 0.6x 21.4% 21.2% 0.2% NINTENDO CO LTD $5,435 M am 26.2% 32.0% -5.8% GARMIN LTD $3,856 M 1.9x 53.0% 30.7% 22.2% LOGITECH INTERNATIONAL $894 M 0.5x 34.4% 31.3% 3.1% Median O.6x 26.2% 21.7% 3.1% Jawbone '18 Company Model 58,812 M 2.3x 41.2% 15.7% 25.6% GV Model 52,989 M 1.5x 28.0% 22.0% 6.0% Jawbone assumes an exit multiple of 2.3x revenue, whereas comparable hardware companies trade below 1.0x revenue on average. 8 EFTA01136535  Expected returns using Company model 2O12A 2013E 2014E 2015E 1016E 2017E 2018E CAGR Revenue Jawbone management has UP Band 8,719 243,479 541,741 975,133 1,600,094 2,285,834 2,823,005 162% Jambox 196,278 223,120 349,740 472,149 585,843 609,817 684,1.27 23% modeled the Company's Headset Software/Services 35,035 36,762 39,117 18220 39,231 47,050 38,681 94,100 37,517 178,790 35,839 268,185 0% NA prospects to near perfection: Total 240,003 503,361 949,418 1,533,564 2,322,717 3,151,958 3,811,155 59% 1. iPod-like adoption for the UP Gross Margin UP Band 2,247 71,538 184,192 351,048 593,515 891,475 1,157,432 183% band Jambox Headset 37,293 9,556 53,103 12,095 104,922 11,777 146,366 11,824 187,470 11,675 214,440 11,348 225,762 10,872 35% 2% 2. Apple-type gross margins Software/Services 12,986 32,465 63,988 119,789 177,032 NA Total 49,0% 136,735 313,877 541,703 856,648 1,237,052 1,571,068 78% 3. Exit multiple in excess of all % Gross Margin 205% 27.2% 33.1% 3S3% 369% 392% 41.2% current comparable (-1R&D (-) S&M (41,028) (48,387) (69,397) (76,325) (93,686) (125,936) (115,234) (182,608) (139,433) (242268) (161,742) (293,870) (182,769) (346,767) 28% 39% company trading multiples (-1 G&A (16,959) (18,603) (26,044) (35,160) (45,708) (58,506) (67,282) 26% Operating Profit (57,278) (27,590) 68,210 208,702 428,639 722,934 974251 NA % Operating Margin -219% -5.5% 7.2% 116% 183% 22.9% 25.6% (-1Taxes - - (12,522) (175,742) (296,403) (399,443) NA (.) D&A 4,531 9,756 17,820 26,270 34,672 39,445 37,473 42% (-1Capes (4,366) (31,470) (21,470) (30,195) (39,399) (43,828) (41,637) 46% (.1-1A in Work. Cap. (31,495) (38,436) (12,269) (27,873) (37,823) (45,734) (45,734) 6% Free Cash Flow (88,608) (87,740) 52,292 164,382 210,396 376,414 524910 NA Dividends to GV $416 $1,306 $1,672 $2,991 $4172 Revenue Multiple 5.th 2.3x -12% Equity Valuation 1,193,228 8,812,257 40% Shares 233.058 246,064 1% Value per Share $5.12 $3521 38% GV Shares 1.956 1,956 0% Value of GV Stake $10,000 I $70,033 38% GV MOI 8.1x IRR 44% 9 EFTA01136536  What are expected returns using more realistic assumptions? The next slide shows the expected returns for an investment in Jawbone using what we think are a more realistic set of assumptions: 1. Adoption rates for the UP that are roughly halfway between the iPod and the Blackberry. We would still consider this an impressive target. 2. Zero revenues from 'data' over the next 6 years. We aren't yet convinced that the current or proposed generations of the UP will really provide valuable data for health care providers and insurance companies. For two main reasons: a) It is generally the healthier person that opts to purchase and wear the UP band or one of its competitors (Fitbit, etc.) b) UP band sensors (current and planned) don't provide data that insurance companies can use to better predict major diseases: heart disease/hypertension, diabetes, stroke, or cancer* 3. Margins in-line with hardware industry averages: —28% gross margin, and —6% operating profit margin. 4. Exit multiples more in-line with current trading multiples for hardware companies, adjusted for higher expected growth: - 1.5x revenue *Conversation with Rob Korpman MD - CEO of CentriHealth Inc, a leader in health informatics. 10 EFTA01136537  More realistic assumptions yield only a modest expected return 2012A 2013E 2014E 2015E 2016E 2017E 2018E CAGR Revenue 25 percentage point shortfall in unit sales UP Eland 8,719 i 241,544 483,722 761,848 1 074 232 1,275 663 1,272 452 growth rate each period lambox 196,278 223,149 349,735 472,141 585,945 649,955 684,249 2 Headset 35,005 36.772 I 38 703 37 567 35 0% Software/Services - - A Total 240,003 501,46.5 1,698,880 1.963,185 1,992,633 No revenue attributed to data Gross Margin UP Band 2,247 67,632 135,442 213,317 300,785 357,186 356,287 133% lambox 37,293 53,110 97,926 132,214 164,065 181,983 191,590 31% Headset 9,556 10,296 10,950 10,986 10,837 10,519 10,051 1% Software/Services NA Margins expand to meet industry Total 09 096 131.038 244.318 356.517 475.686 549.692 557,937 96 Gross Margin 20.5% 26.1% 28.0% 2&O% 28.0% 28.0% 28014 averages (-) R&D (41,028) (84002) (135,967) (178,447) (211,461) (213,582) (185 29% (-) S&M (48,387) (94,588) (149.541) (196.262) (232,572) (234,905) (204,07 22% (-)G&A (16,959) (23.054) (36,448) (47,836) (54686) (57,254) (49,739 Operating expenses fall linearly as a Operating Profit (57.278) (72,607) (776 39) (66,027) (25,032) 43,950 118,580 NA 96 Operating Margin -23.9% -14.5% -&9% -8296 -1.5% 2.2% 6.0% percentage of revenue until they meet industry averages (-) Taxes (2,637) (48,618) NA (+) D&A 4,531 &966 14,795 19,213 21,593 20,622 21,655 30% (-)Capex (4,366) (28,923) (17.825) (22,080) (24,537) (22,913) (20,061) 33% (+1-) Ain Work. Cap. (31,495) (35,325) (10,186) (20,385) (23,556) (23,909) (27,498) -2% Sales multiple more in line with public Free Cash Flow (n.608) (127,888) (94255) 189,224 (51,532) 1-5,113 00,058 NA comps, adjusted for higher expected Dividends to GV $99 $262 growth $0 $0 $0 Revenue Multiple 5.0x 1.5x Additional dilution as negative cash flows Equity Valuation 1,193,228 2,988,949 persist longer, requiring new equity raises Shares 233,058 299.155 4% Value per Share $5.12 $9.99 12% Still impressive adoption + industry GV Shares 1,956 956 0% average margins + market multiple 1 Value of GV Stake $30,000 (adjusted for growth) a modest return GV MOI 2.0x IRR 12% I 11 EFTA01136538  Conclusion Using a (still) robust assumption for UP adoption, coupled with industry averages for margins and exit multiples, an investment in Jawbone at the proposed $1.188 Bn valuation would yield only modest returns. The entry multiple of 5x revenue is high relative to current trading multiples for comparable hardware companies, even adjusted for growth. Expected multiple contraction during the investment period will make it difficult to realize a meaningful return. Despite the valuation coming at a discount to the last round (and the proposed near-term round), we are concerned that over a medium-term hold period this investment will not produce venture capital type returns. EFTA01136539 Appendix 13 EFTA01136540  Return sensitivity for GV model MOI Sensitivity (Exit Multiple = 2.0x Revenue) MOI Sensitivity (Exit Multiple = 1.5x Revenue) Operating UP Adoption (% haircut to company model) Operating UP Adoption (% haircut to company model) Margin 0% -5% -10% -15% -20% -25% Margin 0% -5% -10% -15% -20% -25% 26% 6.3x 5.6x 5.0x 4.5x 4.th 3.6x 26% 4.9x 4.4x 3.9x 3.5x 3.2x 2.8x 21% 6.0x 5.3x 4.8x 4.3x 3.8x 3.4x 21% 4.6x 4.1x 3.7x 3.3x 3.0x 2.7x 16% 5.6x 5.th 4.5x 4.0x 3.6x 3.2x 16% 4.3x 3.8x 3.4x 3.1x 2.7x 2.5x 11% 5.1x 4.6x 4.1x 3.7x 3.3x 19x 11% 3.9x 3.Sx 3.1x 2.8x 2.5x 2.2x 6% 4.5x 4.1x 3.7x 3.3x 2.9x 2.6x 6% 3.4x 3.1x 2.8x 2.5x 2.2x I 2.0x GV expected return MOI Sensitivity (Exit Multiple = 1.0x Revenue) MOI Sensitivity (Exit Multiple = 0.5x Revenue) Operating UP Adoption (% haircut to company model) Operating UP Adoption (% haircut to company model) Margin 0% -5% -10% -15% -20% -25% Margin 0% -5% -10% -15% -20% -25% 26% 3.Sx 3.2x 2.8x 2.5x 2.3x 2.1x 26% 2.1x 1.9x 1.7x 1.6x 1.4x 1.3x 21% 3.3x 2.9x 2.6x 2.3x 2.1x 1.9x 21% 1.9x 1.7x 1.5x 1.4x 1.3x 1.1x 16% 3.0x 2.7x 2.4x 2.1x 1.9x 1.7x 16% 1.7x 1.5x 1.3x 1.2x Lbc 1.0x 11% 2.7x 2.4x 2.1x 1.9x 1.7x 1.5x 11% 1.4x 1.3x 1.1x 1.0x 0.9x 0.8x 6% 2.3x 2.1x 1.9x 1.7x 1.5x 1.3x 6% 1.2x 1.1x 1.0x 0.9x 0.8x 0.7x 1 14 EFTA01136541