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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-12-07 · 124 added, 219 removed, 273 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our combined financial statements and related notes included elsewhere in this report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report.

Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties.

You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this report for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our historical financial data has been derived from the consolidated financial statements and accounting records of Intel Corporation (“Intel”) using the historical results of operations and the historical basis of assets and liabilities.

Our financial data for periods ending or as of dates prior to the completion of the Mobileye IPO have been derived from the consolidated financial statements and accounting records of Intel Corporation (“Intel”) using the historical results of operations and the historical basis of assets and liabilities.

The financial data herein includes costs of our business, which may not, however, reflect the expenses we would have incurred as a stand-alone company for the periods presented.

Following the completion of the Mobileye IPO, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Company Overview

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These technologies can be harnessed to deliver mission-critical capabilities at the edge and in the cloud, advancing the safety of road users, and revolutionizing the driving experience and the movement of people and goods globally.

As of October 1, 2022, our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our System-on-Chips (“SoCs”) had been deployed in over 125 million vehicles.

We are actively working with more than 50 Original Equipment Manufacturers (“OEMs”) worldwide on the implementation of our ADAS solutions, and we announced over 40 new design wins in 2021 alone.

In the nine months ended October 1, 2022, we shipped approximately 24.0 million of our SoCs.

This represents an increase from the approximately 21.2 million of our SoCs that we shipped in the first nine months of 2021.

We estimate, based on our existing design wins through October 1, 2022, that our ADAS solutions will be deployed in more than an additional 270 million vehicles by 2030, including approximately 54 million vehicles based on our 2022 design wins through October 1, 2022 and approximately 50 million vehicles based on our 2021 design wins.

These estimates are based on projections of future production volumes that were provided by the OEMs at the time of sourcing our design wins with them for the models related to those design wins.

These estimates may deviate from actual production volumes (which may be higher or lower than the estimates) and do not include design wins after October 1, 2022.

We currently ship a variety of ADAS solutions to 13 of the 15 largest automakers in the world in addition to many smaller OEMs, and we are recognized for our top-rated safety solutions globally.

For example, 66% of Euro New Car Assessment Programs (“NCAP”) 5-star rated vehicle models for 2018-2021 are equipped with our solutions.

In January 2022, we announced a design win of our consumer Autonomous Vehicle (“AV”) system, Mobileye Chauffeur™, with ZEEKR, Geely Group’s premium electric vehicle brand.

Mobileye Chauffeur™ is expected to be capable of “eyes-off/hands-free” driving with a human driver still in the driver’s seat, in a gradually expanding operational driving domain, and is expected to use surrounding imaging radars and front-facing lidar, but may require driver intervention in certain situations.

We believe that this is an early sign of broad interest in consumer-level eyes-off/hands-free driving.

Building upon Mobileye Chauffeur™, we are developing Mobileye Drive™, our Level 4 self-driving system targeted for fleet-owned Autonomous Mobility as a Service (“AMaaS”) and goods delivery networks.

Mobileye Drive™ will encompass our core autonomous driving technologies and will deliver the driving functions without the need for any in-vehicle human intervention by adding teleoperability and by minimizing cases where human input would be required.

We are working to deploy Mobileye Drive™ through various business-to-business and business-to-consumer channels through the formation of collaborations with potential partners around the world.

As of April 1, 2023, our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our System-on-Chips (“SoCs”) had been deployed in over 140 million vehicles.

We are actively working with more than 50 Original Equipment Manufacturers (“OEMs”) worldwide on the implementation of our ADAS solutions.

In the three months ended April 1, 2023, we shipped approximately 8.1 million of our systems, the substantial majority of which were EyeQ® SoCs.

This represents an increase from the approximately 7.4 million of our systems that we shipped in the first three months of 2022.

We were founded in Israel in 1999.

Our co-founder, Professor Amnon Shashua, is our President and Chief Executive Officer.

Prior to being acquired by Intel for $15.3 billion in 2017, we completed an initial public offering in 2014 and traded under the symbol “MBLY” on the New York Stock Exchange.

In 2014, we completed an initial public offering as a foreign private issuer and traded under the symbol “MBLY” on the New York Stock Exchange.

Intel acquired Mobileye for $15.3 billion in 2017, after which we became a wholly-owned subsidiary of Intel.

We completed the Reorganization (as defined below) and the Mobileye IPO in October 2022.

Reorganization and Initial Public Offering

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Prior to the completion of the Mobileye IPO, we were a wholly-owned business of Intel.

On November 1, 2022, the underwriters of the Mobileye IPO exercised the over-allotment option granted to them in full.

On November 1, 2022, we closed the sale of additional shares pursuant to the exercise of the underwriters’ the over-allotment option.

Upon the closing of the Mobileye IPO (after giving effect to the exercise of the over-allotment option), Intel continues to directly or indirectly hold all of the Class B common stock of Mobileye, which represents approximately 99.3% of the voting power of our common stock.

For further information and descriptions of the transactions in the Reorganization related to the Mobileye IPO, see “Certain Relationships and Related Party Transactions” and “Unaudited Pro Forma Condensed Combined Financial Information” included in Mobileye’s final prospectus dated as of October 25, 2022, filed pursuant to Rule 424(b)(4) under the Act relating to Mobileye’s Registration Statement on Form S-1 (the “Prospectus”).

For further information and descriptions of the transactions in the Reorganization related to the Mobileye IPO, see Note 1 of the notes to the Consolidated Financial Statements in Part II, Item 8 of the 2022 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2023 (the “2022 Form 10-K”), and the section entitled “Certain Relationships and Related Party Transactions” in the Company’s Definitive Proxy Statement on Schedule 14A, as filed with the SEC on April 28, 2023.

Our Business Model

We currently derive substantially all of our revenue from our commercially deployed ADAS solutions.

In the future, propelled by our next generation AV-on-Chip SoC, which we call EyeQ Ultra™, our surround computer vision Mobileye SuperVision™ solution and our True Redundancy™ architecture, we believe that we will be positioned to deliver an autonomous driving solution that can enable the mass adoption of AV.

In the future, propelled by our next generation of EyeQ® SoCs, our surround computer vision Mobileye SuperVision™ solution, productization of software-defined imaging radars and our True Redundancy™ architecture, we believe that we will be positioned to deliver an autonomous driving solution that can enable the mass adoption of AV.

We generate the majority of our revenue from the sale of our EyeQ® SoCs to OEMs through sales to Tier 1 automotive suppliers.

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We partner with STMicroelectronics, a leading supplier and innovator of semiconductor devices for automotive applications, in manufacturing, design, and research and development.

We have co-developed our family of EyeQ® SoCs with STMicroelectronics.

We have co-developed six generations of our automotive grade SOC, EyeQ®, with STMicroelectronics, including EyeQ®5 and EyeQ®6.

We have also established a relationship with Quanta Computer to develop and assemble our ECUs, including the design for our Mobileye SuperVision™, which includes our EyeQ®5 SoCs manufactured by STMicroelectronics.

Our close partnership with Intel exists on multiple fronts.

With Intel, we have access to unique and differentiating technologies such as proprietary silicon photonics fabrication technologies, which we may leverage for the early development of our FMCW lidar, which has the potential to replace alternative third-party lidar sensors to further enhance the performance of our sensor suite.

As a result of our relationship with Intel, we have access to unique and differentiating technologies such as proprietary silicon photonics fabrication technologies, which we may leverage for the early development of our FMCW lidar, which has the potential to replace alternative third-party lidar sensors to further enhance the performance of our sensor suite.

We may also license certain technologies from Intel that support design and development of our software-defined radar, including Intel’s mmWave technologies.

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This potential platform is intended to enable functions essential to safety, entertainment, and cloud connectivity.

Intel’s strength in government affairs and policy development around the world will continue to be of significant value to us as we collaborate with regulators who are preparing frameworks to enable commercial deployment of AVs.

Intel’s strength in government affairs and policy development around the world and will continue to be of significant value to us as we collaborate with regulators who are preparing frameworks to enable commercial deployment of AVs.

Key Factors Affecting Our Performance

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Economic conditions in North America, Europe and Asia can have a large impact on the production volume of new vehicles, and, accordingly, have an impact on our revenue.

Our OEM customers’ production can vary from period to

period due to global demand, market conditions and competitive conditions, as well as other factors, including the effects of the COVID-19 pandemic.

Our OEM customers’ production can vary from period to period due to global demand, market conditions and competitive conditions, as well as other factors, including the effects of the COVID-19 pandemic.

While the automotive industry is showing recovery from the COVID-19 pandemic, with approximately 6% growth in global vehicle production year over year in 2022, production in 2022 was still approximately 8% below the 2019 level.

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Furthermore, current uncertain economic conditions and inflation may contribute to a reduction in consumer demand, which may reduce vehicle production over at least the next several quarters.

For example, in the three months ended April 1, 2023, the Chinese electric vehicle market was negatively impacted by price reductions by a global electric vehicle OEM, reduction in government electric vehicle subsidies, and general economic weakness in the country.

Our current primary customer for SuperVision TM reduced orders for this product as a result.

In addition, in prior periods, certain Tier 1 customers increased their orders for components and parts, including our solutions, to counteract the impact of supply chain shortages for auto parts, and we expect these Tier 1 customers will utilize accrued inventory on hand before placing new orders to meet the demand of OEMs in current or future periods.

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However, ADAS volumes have grown faster in recent years than the overall automotive market as ADAS penetration rates have increased, and we believe that we will continue to benefit from that trend.

Our revenue of $1.3 billion in the nine months ended October 1, 2022 was up 27% year-over-year, outperforming the increase of global automotive production.

Our revenue of $458 million in the three months ended April 1, 2023 was up 16% year-over-year, outperforming the increase of global automotive production.

However, we believe that the expected continued constraint on global automotive production resulting from supply chain shortages and the effects of economic uncertainty will limit our ability to increase our revenue.

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Together with Tier 1 automotive suppliers, we work closely with OEMs to understand their solution requirements and have built close long-term relationships with them extending across multiple generations of EyeQ® products, though there is no guarantee that our customers will purchase our solutions in any certain quantity or at any certain price even after we achieve design wins.

As of October 1, 2022 our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our SoCs had been deployed in over 125 million vehicles.

We are actively working with more than 50 OEMs worldwide on the implementation of our ADAS solutions, and we announced over 40 new design wins in 2021.

In the nine months ended October 1, 2022, we shipped approximately 24.0 million of our SoCs.

This represents an increase from the approximately 21.2 million of our SoCs that we shipped in the nine months ended September 25, 2021.

We estimate, based on our existing design wins through October 1, 2022, that our ADAS solutions will be deployed in more than an additional 270 million vehicles by 2030, including approximately 54 million vehicles based on our of 2022 design wins through October 1, 2022 and 50 million vehicles based on our 2021 design wins.

Investment in technology leadership and product development.

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We also believe that our roadmap for future generations of EyeQ® SoCs and advanced systems will ultimately power autonomous driving solutions.

The EyeQ® family design further enables scalable ECU architectures, supporting a variety of ADAS solution architectures, and our announced EyeQ Ultra™ AV-on-Chip is designed to host the full workload of autonomous driving, while meeting stringent cost and power efficiency requirements.

The EyeQ® family design further enables scalable ECU architectures, from supporting a variety of ADAS solution architectures to hosting the full workload of autonomous driving, while meeting stringent cost and power efficiency requirements.

We expect that our development of software-defined radar will provide a significant cost advantage by eliminating the need for multiple high-cost lidars around the vehicle and require only a single front-facing lidar, significantly lowering the overall cost of the required sensors compared to solutions that use lidar centric or lidar-only systems.

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We believe the ability of our foundational technology to provide a low-cost scale solution with low power-consumption, both from an on-board technology and sensor suite perspective, will be critical to enabling the mass adoption of autonomous driving solutions.

While our significant investments in these technologies may not result in revenue in the near term, we believe these investments will position us for revenue growth over time.

Regulation for ADAS and autonomous driving solutions.

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As these NCAPs demand more ADAS applications such as automatic emergency braking, OEMs will increasingly include ADAS as a standard feature in their models to maintain or to achieve the highest safety ratings.

countries, these safety assessments have created a “market for safety” as car manufacturers seek to demonstrate that their models satisfy the NCAPs’ highest ratings.

In many countries, these safety assessments have created a “market for safety” as car manufacturers seek to demonstrate that their models satisfy the NCAPs’ highest ratings.

We expect national NCAPs to continue to add specific ADAS applications to their evaluation items over the next several years, led by the Euro NCAP.

In recent years, as regulatory requirements and NCAP ratings have increased, OEMs have also begun to highlight their safety features as a competitive advantage.

We are recognized for our top-rated safety with 66% of Euro NCAP 5 star rated vehicle models for 2018-2021 equipped with our solutions.

As additional regulations are implemented around the world, we expect this to lead to increased global adoption of ADAS, and we believe that we are well positioned to benefit from such increasing safety regulations globally, particularly due to the verifiable nature of our current and future solutions.

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While individual solution ASPs may decline, we seek to continually offer new features and functionality and increase the value that our solutions offer to OEM customers as we target new design win opportunities manage the life cycles of existing solutions and create new ADAS categories with advanced features.

We believe our differentiated and scalable solutions consistently enhanced by additional features can enable us to maintain or increase overall ASPs over time.

We also are currently beginning to deliver full system solutions consisting of higher-function products such as SuperVision TM which carry significantly higher prices as compared to our single EyeQ® SoC and cloud-enhanced ADAS products.

We believe our differentiated and scalable solutions consistently enhanced by additional features can enable us to maintain or increase overall ASPs over time, as SuperVision TM and other advanced solutions become a larger portion of our product mix.

The cost of input materials and manufacturing costs are significant factors affecting our gross margin.

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Our gross margin has been and may continue to be affected by our ability to offset these and any future cost increases through realizing pricing increases on our solutions and achieving decreases in other production costs.

We work closely with STMicroelectronics and Quanta on a continuous basis to manage material costs, increase yields and improve manufacturing, assembly, and test costs.

We work closely with STMicroelectronics and Quanta Computer on a continuous basis to manage material costs, increase yields and improve manufacturing, assembly, and test costs.

Supply and manufacturing capacity.

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The semiconductor industry is experiencing widespread shortages of substrates and other components and available foundry manufacturing capacity, and we anticipate that such shortages will continue.

During 2021 and through the nine months ended October 1, 2022, STMicroelectronics, our sole supplier of EyeQ® SoCs, was not able to meet our demand for EyeQ® SoCs, causing a significant reduction in our inventory level, and we expect to continue to experience a shortfall of chips during the fourth quarter of 2022 and continuing through 2023.

We have entered 2022 with significantly lower inventories of our EyeQ® SoCs as a result of the limited supply during 2021, and, due to continuing supply chain constraints, we are operating with minimal or no inventory of EyeQ® SoCs on hand.

As a result, we are substantially reliant on timely shipments of EyeQ® SoCs from STMicroelectronics to fulfill customer orders and are unable to offset future supply constraints through the use of inventory on hand.

During 2022, STMicroelectronics, our sole supplier of EyeQ® SoCs, was not able to meet our demand for EyeQ® SoCs, causing a significant reduction in our inventory level, and we may continue to experience a shortfall of chips throughout 2023.

We entered 2022 with significantly lower inventories of our EyeQ® SoCs as a result of the limited supply during 2021, and, due to continuing supply chain constraints, we may continue to operate with minimal or no inventory of EyeQ® SoCs on hand.

As a result, we are substantially reliant on timely shipments of EyeQ® SoCs from STMicroelectronics and ECUs from Quanta Computer (or other suppliers) to fulfill customer orders and are unable to offset future supply constraints through the use of inventory on hand.

The limited supply of EyeQ® SoCs has already led to rescheduling deliveries to our customers on certain occasions and may continue to cause delays in our ability to fulfill our customers’ orders as scheduled.

Our results of operations in the nine months ended October 1, 2022 have not been significantly impacted by the shortfall of chips.

Our results of operations in the three months ended April 1, 2023 have not been impacted by the shortfall of chips.

Our reliance on single or limited suppliers and vendors for certain components, equipment, and services and the aforementioned shortages of substrates and other components have led to increased supply chain risks and continue to stress our ability to meet the supply demands of our customers.

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Because of the complex nature of our products and the need to customize and validate a product and to integrate it into the OEM’s overall ADAS system, we also have strong direct relationships with the OEMs.

EyeQ® SoC sales represented approximately 88% and 94% of our revenue for the three months ended October 1, 2022 and September 25, 2021, respectively, and 90% and 94% of our revenue for the nine months ended October 1, 2022 and September 25, 2021, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three and nine months ended October 1, 2022 and sales of our aftermarket products represented the majority of the remainder of our revenue in the three and nine months ended September 25, 2021.

Revenue from the sale of our EyeQ® products, SuperVision™ products and our aftermarket products is recognized at the time of product shipment from our facilities, as determined by the agreed-upon shipping terms.

EyeQ® SoC sales represented approximately 88% and 92% of our revenue for the three months ended April 1, 2023 and April 2, 2022.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three months ended April 1, 2023 and approximately half of the remainder of our revenue for the three months ended April 2, 2022.

Revenue from the sale of our EyeQ® products and SuperVision™ products is recognized at the time of product shipment from our facilities, as determined by the agreed-upon shipping terms.

Our sales to any single Tier 1 automotive supplier typically cover more than one OEM and more than one production program from any OEM.

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Cost of revenue consists primarily of expenses associated with the manufacturing cost of our EyeQ® SoCs and our SuperVision™ product, and amortization of acquired intangible assets, identified as developed technology.

Additional costs are royalty fees for the intellectual property that is included in the EyeQ® SoC, personnel-related expenses, including share-based compensation for employees on our operations teams, logistics costs and allocated overhead costs.

As we develop and sell full systems that include hardware beyond EyeQ® SoCs, we expect that our gross margin will decrease because of the greater hardware content included in our solutions.

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We expect our general and administrative expenses to increase in absolute dollars but to decrease as a percentage of total revenue as our business grows.

The primary reasons for the growth in general and administrative expenses will be the costs related to being a

public company, including the need to hire more personnel to support compliance with the applicable provisions of the Sarbanes-Oxley Act and other SEC rules and regulations as well as increased premiums for directors’ and officers’ insurance and the increased use of share-based compensation for general and administrative personnel.

Interest Income (Expense) and Other Expense

On April 21, 2022, we and Intel entered into a loan agreement whereby we distributed to Intel the Dividend Note in an aggregate principal amount of $3.5 billion.

The Dividend Note is scheduled to mature on April 21, 2025 and accrues interest at a rate equal to 1.26% per annum, such interest to accrue quarterly.

In the nine months ended October 1, 2022, accrued interest expense was $20 million.

Our interest income consisted of interest earned on a loan to Intel in the amount of $0.9 billion as of October 1, 2022 and $1.3 billion as of December 25, 2021.

Our functional currency is the U.S.

Other expense consists primarily of fluctuations in value due to foreign exchange differences between our monetary assets and liabilities denominated in New Israeli Shekels and to a much lesser extent, the Euro, the Chinese Yuan, the Japanese Yen, and other currencies.

The primary reasons for the growth in general and administrative expenses will be the costs related to being a public company, including the need to hire more personnel to support compliance with the applicable provisions of the Sarbanes-Oxley Act and other SEC rules and regulations as well as increased premiums for directors’ and officers’ insurance and the increased use of share-based compensation for general and administrative personnel.

Interest Income (Expense) with related party, net and Other Financial Income (Expense), net

On April 21, 2022, we and Intel entered into a loan agreement whereby we distributed to Intel the Dividend Note in an aggregate principal amount of $3.5 billion (the “Dividend Note”).

The Dividend Note accrued interest at a rate equal to 1.26% per annum.

In November 2022, we used approximately $0.9 billion out of the net proceeds of the Mobileye IPO to repay a portion of the indebtedness under the Dividend Note and Intel contributed to Mobileye the remaining portion of the Dividend Note (plus related accrued interest) such that no amounts under the Dividend Note remain owed by us to Intel.

In the three months ended April 1, 2023 we had no interest income (expense) with related party since the outstanding balance of both the Dividend Note and a loan to Intel was zero as of December 31, 2022.

In the three months ended April 2, 2022, we generated interest income of $1 million on a loan to Intel which was fully repaid by Intel to us in December 2022.

Other financial income (expense), net, consists primarily of income from short term deposits and income related to investment in money market funds, as well as fluctuations in value due to foreign exchange differences between our monetary assets and liabilities denominated in New Israeli Shekels and to a much lesser extent, the Euro, the Chinese Yuan, the Japanese Yen, and other currencies.

Benefit (provision) for income taxes

Benefit (provision) for income taxes consists primarily of income taxes related to the United States, Israel and other foreign jurisdictions in which we conduct business, and amortization of deferred tax liability with respect to acquired intangible assets.

Benefit (provision) for income taxes consists primarily of income taxes related to the United States, Israel and other foreign jurisdictions in which we conduct business.

We also have incurred deferred tax liabilities with respect to tax amortization of certain acquired intangible assets.

We are eligible for certain tax benefits in Israel under the Investment Law, at a reduced tax rate, subject to specified terms.

During the years presented in our combined financial statements, certain components of our business operations were included in the consolidated U.S.

During the periods presented in our condensed consolidated financial statements, certain components of our business operations were included in the consolidated U.S.

domestic and certain foreign income tax returns filed by Intel, where applicable.

We also file certain foreign income tax returns on a separate basis, distinct from Intel.

The income tax provision included in our combined financial statements has been calculated using the separate return method as if we had filed our own tax returns.

We present tax loss carry-forward amounts that have not been utilized by Intel only to the extent such tax attributes can be claimed on a separate income tax return as opposed to a consolidated income tax return filing with Intel.

The use of the separate return method may result in differences between our income tax provision compared to Intel’s income tax provision.

In the tax year ended December 25, 2021, Mobileye’s Israeli operations became taxable in the United States as a branch entity.

In the nine months ended October 1, 2022, Moovit’s Israeli operations became taxable in the United States as a branch entity.

The income tax provision included in our condensed consolidated financial statements has been calculated using the separate return method as if we had filed our own tax returns.

We present tax loss and tax credit carry-forward amounts that have not been utilized by Intel only to the extent such tax attributes can be claimed as a benefit consistent with our separate income tax return method approach.

The use of the separate return method may result in differences between our income tax provision compared to Intel’s consolidated income tax provision.

In 2021, Mobileye’s Israeli operations became taxable in the United States as a branch entity.

In 2022, Moovit’s Israeli operations became taxable in the United States as a branch entity.

As a result, these operations are taxed both in the United States and Israel.

tax purposes, there are favorable future tax deductions that we could not benefit from due to a valuation allowance position.

If warranted in the future by our actual and projected profitability, the valuation allowances may be released, resulting in a benefit at that time.

The valuation allowance also resulted in a residual tax expense associated with a deferred tax liability recorded for goodwill in the year ended December 25, 2021 and the nine months ended October 1, 2022.

tax purposes, there are favorable future tax deductions from which we have not benefited due to a valuation allowance position.

If warranted, based on the assessment of verifiable evidence in support of the realization of the deferred tax assets, the valuation allowances may be released, resulting in a tax benefit.

Realization of deferred tax assets is based on our judgment and various factors including reversal of deferred tax liabilities, the ability to generate future taxable income in jurisdictions where such assets have arisen, and potential tax planning strategies.

The valuation allowance for the years presented in our combined financial statements primarily related to U.S.

The valuation allowance for the periods presented in our condensed consolidated financial statements primarily related to U.S.

branch deferred tax assets not currently expected to be realized given that we have sustained recent losses based on the separate return method.

Net operating losses reported in the Intel consolidated tax return have not been reflected in our combined financial statements based on a return reality methodology since they will not be available to us in future periods.

Certain net operating losses and tax credit carry-forward tax attributes generated by the Company that have been utilized as part of Intel’s consolidated income tax return filings, but have not been utilized by the Company under the separate return method approach, have been reflected in these condensed consolidated financial statements because the Company will recognize a benefit based on the separate return method when determined to be realizable.

Results of Operations

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Operating income (loss)

Interest income (expense) with related party, net

Other income (expense), net

Interest Income (expense) with related party, net and Other Financial Income (expense), net

Income (loss) before income taxes

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dollars in millions

Cost of revenue

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Total share-based compensation

Comparison of the three and nine months ended October 1, 2022 and September 25, 2021

In the three months ended October 1, 2022, revenue increased by $124 million, or 38%, compared to the three months ended September 25, 2021.

This increase in revenue was primarily due to an increase of $87 million, or 28%, in EyeQ® SoC sales, attributable to a 21% increase in volume and a 6% increase in ASP.

The remaining increase in revenue was mainly related to the sales of our

SuperVision™ solution, which was launched during the fourth quarter of 2021, and for which no revenue was generated in the three months ended September 25, 2021.

In the nine months ended October 1, 2022, revenue increased by $274 million, or 27%, compared to the nine months ended September 25, 2021.

This increase in revenue was primarily due to an increase of $207 million, or 21%, in EyeQ® SoC sales, attributable to a 13% increase in volume and a 7% increase in ASP.

The remaining increase in revenue was mainly related to the sales of our SuperVision™ solution, which was launched during the fourth quarter of 2021, and for which no revenue was generated in the nine months ended September 25, 2021.

Comparison of the Three Months ended April 1, 2023 and April 2, 2022

In the three months ended April 1, 2023, revenue increased by $64 million, or 16%, compared to the three months ended April 2, 2022.

This increase was primarily driven by an increase of $41 million, or 11%, in EyeQ® SoC revenue, and ramp up in sales of our SuperVision™ product.

The increase in revenue is attributable to approximately 10% increase in volume of EyeQ® and SuperVision systems and to approximately 6% increase in Average System Price, which is calculated as the sum of revenue related to EyeQ® and SuperVision systems, divided by the number of systems delivered.

Cost of Revenue

In the three months ended October 1, 2022, our cost of revenue increased by $60 million, or 35%, compared to the three months ended September 25, 2021.

This increase was primarily due to an increase of $45 million in manufacturing costs relating primarily to increased sales of our EyeQ® SoC and our sales of SuperVision™ solution.

The remaining increase of $15 million resulted from an increase in amortization of intangible assets transferred from in-process research and development to acquisition-related developed technology.

In the nine months ended October 1, 2022, our cost of revenue increased by $153 million, or 29%, compared to the nine months ended September 25, 2021.

This increase was primarily due to an increase of $96 million in manufacturing costs relating primarily to increased sales of our EyeQ® SoC and our sales of SuperVision™ solution.

The remaining increase resulted primarily from an increase of $55 million in amortization of intangible assets transferred from in-process research and development to acquisition-related developed technology.

In the three months ended April 1, 2023, our cost of revenue increased by $33 million, or 15%, compared to the three months ended April 2, 2022.

This increase was primarily due to an increase of $41 million in manufacturing costs relating primarily to increased sales of our EyeQ® SoC and SuperVision™ systems, as well as to a rise in the cost of our EyeQ® SoCs due to the global semiconductor shortage and inflationary pressures, partially offset by a decrease of $9 million in amortization of intangible assets.

Gross Profit and margin

In the three months ended October 1 2022, our gross profit increased by $64 million, or 42% compared to the three months ended September 25, 2021.

In the nine months ended October 1 2022, our gross profit increased by $121 million, or 24%, compared to the nine months ended September 25, 2021.

The increase in both periods, was mainly driven by the increase in revenue from our EyeQ® SoC sales, as well as the sales of our SuperVision™ solution, partially offset by the increase in amortization of intangible assets.

Our gross margin increased from 47% during the three months ended September 25, 2021, to 48% during the three months ended October 1, 2022.

This increase was mainly due to the lower impact of the cost attributable to amortization of intangible assets as a percentage of revenues.

This was partially offset by the impact of SuperVision™ sales contributing lower margin given the greater hardware this product contains.

The rise in the cost of our EyeQ® SoCs due to the global semiconductor shortage and inflationary pressures also had a downward impact on our gross margin, but to a lesser extent than the foregoing because we entered 2022 with an opening balance of EyeQ® SoC inventory that we previously acquired at lower-than-current prices and passed on some of the increased costs of EyeQ® SoCs acquired at current prices to our customers.

Our gross margin decreased from 49% during the nine months ended September 25, 2021, to 48% during the nine months ended October 1, 2022.

This decrease was primarily due to the impact of SuperVision™ sales contributing lower margin given the greater hardware content this product contains.

The rise in the cost of our EyeQ SOCs due to the global semiconductor shortage and to inflationary pressures also had a downward impact on our gross margin.

However, this impact was less than the increased amount of hardware because (i) we entered 2022 with an opening balance of EyeQ SoC inventory previously acquired at lower-than-current prices, and (ii) we passed on some of the increase in costs of our EyeQ SoCs to our customers.

This was partially offset by the lower impact of the cost attributable to amortization of intangible assets as a percentage of revenues.

In the three months ended April 1, 2023, our gross profit increased by $31 million, or 18%, compared to the three months ended April 2, 2022.

This increase was mainly driven by the increase in sales of both EyeQ® SoC and SuperVision™ systems.

Our gross margin was 45% in both the three months ended April 1, 2023 and the three months ended April 2, 2022, as the downward impact of the increased cost of our EyeQ® SoCs (which was passed through as a price increase to our customers on a zero-margin basis) was mostly offset by lower impact of the cost attributable to amortization of intangible assets as a percentage of revenue.

Research and Development Expenses, net

Research and development expenses, net, in the three months ended October 1, 2022, increased by $74 million, or 56%, compared to the three months ended September 25, 2021.

This increase was primarily due to an increase of $46 million in payroll and related

expenses, derived from an increase in average research and development headcount of 487 employees and an increase in payroll costs, including share-based compensation.

Additionally, there was an increase of $19 million in cloud computing services and investments attributable to new product development..

Research and development expenses, net, in the nine months ended October 1, 2022, increased by $175 million, or 45%, compared to the nine months ended September 25, 2021.

This increase was primarily due to an increase of $119 million in payroll and related expenses, derived from an increase in average research and development headcount of 437 employees and an increase in payroll costs, including share-based compensation.Additionally, there was an increase of $37 million in cloud computing services and investments attributable to new product development.

Research and development expenses, net, in the three months ended April 1, 2023, increased by $55 million, or 31%, compared to the three months ended April 2, 2022.

This increase was primarily due to an increase of $43 million in payroll and related expenses, resulting from an increase in average research and development headcount of 480 employees and an increase in payroll costs, including an increase of $23 million in share-based compensation.

The remaining increase is mainly related to occupancy and related expenses associated with the lease of new office space in additional sites.

Sales and Marketing Expenses

Sales and marketing expenses in the three months ended October 1 2022, decreased by $6 million, or 18%, compared to the three months ended September 25, 2021.

Sales and marketing expenses in the nine months ended October 1 2022, decreased by $7 million, or 7%, compared to the nine months ended September 25, 2021.

The decrease in both periods was mainly due to a decrease in amortization of customer relationship and brand-related intangible assets.

Sales and marketing expenses in the three months ended April 1, 2023, decreased by $2 million, or 6%, compared to the three months ended April 2, 2022.

This decrease was mainly due to a decrease of $7 million in amortization of customer relationship and brand-related intangible assets, partially offset by an increase of $4 million in advertising and marketing expenses.

General and Administrative Expenses

General and administrative expenses in the three months ended October 1, 2022, increased by $1 million, or 13%, compared to the three months ended September 25, 2021.

This increase was mainly due to IPO related expenses.

General and administrative expenses in the nine months ended October 1, 2022, increased by $1 million, or 4%, compared to the nine months ended September 25, 2021.

This increase was mainly due to IPO related expenses, partially offset by a decrease in share-based compensation expenses.

Interest Income (expense) with related party and Other Income (expense), net

Interest expense, net in the three months ended October 1, 2022, increased by $6 million compared to the three months ended September 25, 2021.

Interest expense, net in the nine months ended October 1, 2022, increased by $13 million compared to the nine months ended September 25, 2021.

The increase in net interest expense in both periods was mainly due to accrued interest on the Dividend Note issued to Intel on April 21, 2022, partially offset by higher interest earned on a loan to Intel.

Other income (expense), net in the three months ended October 1, 2022, increased by $1 million, compared to the three months ended September 25, 2021.

This increase in other income was mainly due to the increase in interest rate on short term bank deposits.

Other income (expense), net in the nine months ended October 1, 2022, increased by $6 million, compared to the nine months ended September 25, 2021.

This increase in other income was mainly due to the increase in interest rate on short term bank deposits and the effect of foreign exchange fluctuations.

General and administrative expenses in the three months ended April 1, 2023, increased by $13 million, or 186%, compared to the three months ended April 2, 2022.

This increase was mainly due to an increase in payroll and related expenses, including an increase of $7 million in share-based compensation, as well as costs related to being a public company.

Interest Income (expense) with related party, net and Other Financial Income (expense), net

Other financial income (expense), net, in the three months ended April 1, 2023, was $8 million compared to $1 million in the three months ended April 2, 2022.

This increase was mainly due to interest earned on investment in money market funds, as well as higher interest earned on short term bank deposits.

In the three months ended April 2, 2022, we generated interest income of $1 million on a loan to Intel which was fully repaid by Intel to us in December 2022.

Benefit (Provision) for Income Tax

In the three months ended October 1, 2022, provision for income tax increased by $9 million, compared to the three months ended September 25, 2021.

This increase was mainly due to growth in our overall business.

In the nine months ended October 1, 2022, provision for income tax increased by $35 million, compared to the nine months ended September 25, 2021.

This increase was mainly due to a withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group.

The foregoing did not result in a corresponding benefit in the United States, as a result of a valuation allowance position and tax expenses incurred pursuant to U.S.

tax law due to unfavorable timing adjustments and the amortization of deferred tax liability with respect to intangible assets attributable to the acquisition of Moovit.

In the three months ended April 1, 2023, provision for income tax decreased by $10 million, compared the three months ended April 2, 2022.

This decrease was mainly due to a withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group in the three months ended April 2, 2022.

Liquidity and Capital Resources

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Cash generated by operations is our primary source of liquidity for funding our strategic business requirements.

Our primary uses of funds have been for funding increases in headcount in our research and development organization and for capital expenditures.

Our capital expenditures have related mainly to the construction of our campus, data storage and other computer related equipment and were $79 million and $98 million for the nine months ended October 1, 2022, and September 25, 2021, respectively.

In connection with the Reorganization, on May 12, 2022, we also declared and paid the Dividend in an aggregate amount of $336 million to Intel, net of $14 million of cash paid to tax authorities to settle related tax obligations.

To fund our cash requirements in the ordinary course of business, we anticipate that we will continue to primarily rely on operating cash flows, supplemented by our total cash and cash equivalents, together with approximately $0.1 billion retained by us out of the Mobileye IPO net proceeds that we retained in accordance with the Master Transaction Agreement entered into in connection with the IPO, which requires that Intel ensure that immediately after completion of the IPO we will have $1.0 billion in cash, cash equivalents, or marketable securities.

Accordingly, we used approximately $0.9 billion to repay a portion of the indebtedness owed by us to Intel under the Dividend Note.

We expect our total capital expenditures for 2022 to be flat compared our total capital expenditures in 2021.

The construction of our campus is planned to be completed by the end of the first quarter of 2023, with a remaining cost we estimate to be between $80 million and $90 million.

Our primary uses of funds have been for funding increases in headcount in our research and development departments and investments attributable to new product development, as well as for funding our capital expenditures.

Our capital expenditures have related mainly to the construction of our new sites and campus, data storage and other computer related equipment and were $26 million and $27 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

To fund our cash requirements in the ordinary course of business, we anticipate that we will continue to primarily rely on operating cash flows, supplemented by our total cash and cash equivalents.

We expect our total capital expenditures for 2023 to be above our total capital expenditures in 2022, mainly given the expansion to additional facilities required to accommodate our headcount growth, as well as investments in equipment related to the development of our next generation products.

The construction of our campus is planned to be completed in 2023, with a remaining cost we estimate to be between $45 million and $55 million.

Our future capital requirements will depend on many factors, including our growth rate and the timing and extent of operating expenses.

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We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements involving commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, cash requirements or capital resources.

The following table sets forth certain combined statements of cash flow data:

Nine Months Ended

October 1, 2022

September 25, 2021

The following table sets forth certain consolidated statements of cash flow data:

Three months Ended

dollars in millions

April 1, 2023

April 2, 2022

Net cash provided by operating activities

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Effect of foreign exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Operating activities

For the nine months ended October 1, 2022 compared to the nine months ended September 25, 2021, the $43 million decrease in cash provided by operating activities was mainly due to a change in employee related balances resulting from our recruitment of certain employees relating to the Mobileye business from Intel during the second quarter of 2022.

For the three months ended April 1, 2023 compared to the three months ended April 2, 2022, the $120 million increase in cash provided by operating activities was mainly due to the timing of working capital requirements and related payments in prior year period, as well as a decrease in accounts receivable in comparison to an increase in prior year period, partially offset by an increase in inventories.

Investing activities

Net cash provided by investing activities in the nine months ended October 1, 2022 was $319 million, consisting primarily of a $398 million net repayment of a loan by Intel, partially offset by capital expenditures.

Net cash used in investing activities in the nine months ended September 25, 2021 was $488 million, consisting primarily of a $390 million loan to Intel and capital expenditures.

Net cash used in investing activities in the three months ended April 1, 2023 was $26 million, consisting of capital expenditures.

Net cash provided by investing activities in the three months ended April 2, 2022 was $173 million consisting primarily of a $200 million loan repayment by Intel, to Mobileye partially offset by capital expenditures.

Financing activities

Net cash used in financing activities in the nine months ended October 1, 2022 was $451 million, consisting primarily of the $336 million Dividend to Intel and $200 million of share-based compensation recharge payments made to Intel, partially offset by $99 million as a result of net contributions from Intel.

Net cash provided in financing activities in the nine months ended September 25, 2021 was $67 million, consisting primarily of $69 million as a result of net contributions from Intel.

Net cash used in financing activities in the three months ended April 1, 2023 was $3 million, consisting of share-based compensation recharge payments made to Intel.

Net cash used in financing activities in the three months ended April 2, 2022 was $91 million, consisting primarily of $186 million share-based compensation recharge payments made to Intel, partially offset by $102 million of a net contribution from Intel.

Liability in respect of employee rights upon retirement

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Payments in accordance with Section 14 release us from any future severance payments in respect of those employees.

As a result, we do not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as assets on the combined balance sheets.

Severance pay liability decreased from $65 million as of September 25, 2021, to $53 million as of October 1, 2022, mainly due to the recruitment of certain employees relating to the Mobileye business from Intel during the second quarter of 2022, partially offset by an increase in salary and related costs.

As a result, we do not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as assets on the consolidated balance sheets.

Severance pay liability decreased from $56 million as of December 31, 2022, to $54 million as of April 1, 2023, reflecting mainly the impact of fluctuations in value due to foreign exchange differences between New Israeli Shekel and USD.

We have several bank guarantees aggregating approximately $12 million (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

In addition, in connection with the Reorganization and the Mobileye IPO, on April 21, 2022, we distributed to Intel the Dividend Note, in the aggregate principal amount of $3.5 billion (the “Dividend Note”).

The Dividend Note is scheduled to mature on April 21, 2025 and accrue interest at a rate equal to 1.26% per annum.

In November 2022, we used approximately $0.9 billion out of the net proceeds to repay a portion of indebtedness under the Dividend Note and Intel has contributed to Mobileye the remaining portion of the Dividend Note such that no amounts under the Dividend Note remain owed by us to Intel.

In addition, in connection with the Reorganization and the Mobileye IPO, on April 21, 2022, we distributed to Intel the Dividend Note, in the aggregate principal amount of $3.5 billion.

In November 2022, we used approximately $0.9 billion out of the net proceeds from the Mobileye IPO, to repay a portion of indebtedness under the Dividend Note, and Intel contributed to Mobileye the remaining portion of the Dividend Note such that no amounts under the Dividend Note remain owed by us to Intel.

Non-GAAP Financial Measures

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A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure presented in accordance with GAAP.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as our combined financial statements and related notes included elsewhere in this report.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as our consolidated financial statements and related notes included elsewhere in this report.

We believe excluding items that neither relate to the ordinary course of business nor reflect our underlying business performance, such as the amortization of intangible assets and certain expenses related the Mobileye IPO, enables management and our investors to compare our underlying business performance from period-to-period.

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Three Months ended

Nine Months Ended

April 1, 2023

April 2, 2022

$ in millions

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Adjusted gross profit and margin

Our Gross Margin (gross profit as a percentage of revenue) and Adjusted Gross Margin (adjusted gross profit as a percentage of revenue) reflect the high value-added nature of our solutions and have remained consistent in recent periods.

Our Gross Margin (gross profit as a percentage of revenue) and Adjusted Gross Margin (adjusted gross profit as a percentage of revenue) reflect the high value-added nature of our solutions.

As we develop and sell full systems that include hardware beyond EyeQ® SoCs, we expect that our Gross Margin and Adjusted Gross Margin will decrease because of the greater hardware content included in our solutions.

However, as a result of a higher expected selling price for such systems, we expect our gross profit per unit will increase on a dollar basis.

Our Adjusted Gross Margin decreased from 78% for the three months ended September 25, 2021 to 74% for the three months ended October 1, 2022.

Our Adjusted Gross Margin decreased from 78% for the nine months ended September 25, 2021 to 75% for the nine months ended October 1, 2022.

The decrease in both periods was primarily due to increased sales of our SuperVision™, contributing lower margin given the greater hardware this product contains.

The rise in the cost of our EyeQ® SoCs due to the global semiconductor shortage and inflationary pressures also had a downward impact on our gross margin, but to a lesser extent than the foregoing.

Our Adjusted Gross Margin decreased from 76% for the three months ended April 2, 2022 to 71% for the three months ended April 1, 2023.

The decrease was primarily due to increased cost of our EyeQ® SoCs, due to the global semiconductor shortage and inflationary pressures, which was passed through as a price increase to our customers on a zero-margin basis.

Adjusted Operating Income and Margin

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Three months Ended

Nine Months Ended

April 1, 2023

April 2, 2022

$ in millions

Operating income (loss) and operating margin

Amortization of acquired intangible assets

Expenses related to the IPO

Share-based compensation expense

Adjusted operating income and margin

Our operating loss increased in the three and nine months ended October 1, 2022 compared to the three and nine months ended September 25, 2021, mainly as a result of an increase in amortization of acquired intangible assets and share-based compensation expense, as well as an increase in research and development expenses, partially offset by revenue growth.

Our Adjusted Operating Income increased in the three and nine months ended October 1, 2022 compared to the three and nine months ended September 25, 2021, primarily due to the growth in our overall business, partially offset by the increase in research and development expenses.

Our Adjusted Operating Margin decreased in the three and nine months ended October 1, 2022 compared to the three and nine months ended September 25, 2021, primarily due to a decrease in our Adjusted Gross Margin and the impact of increased research and development headcount.

We expect that our Adjusted Operating Margin in future near-term years will decrease compared to the nine months ended October 1, 2022, mainly due to additional research and development headcount and higher direct expenses that we expect to incur in connection with the development of new EyeQ ® SoC generations, Mobileye SuperVision™ enhancements, and the productization of our AV solutions and active sensor suite.

Our Operating loss increased by $35 million in the three months ended April 1, 2023 compared to the three months ended April 2, 2022, mainly as a result of an increase in share-based compensation expense, as well as an increase in research and development expenses, partially offset by revenue growth and a decrease in amortization expense of acquired intangible assets.

Our Adjusted Operating Income decreased by $19 million in the three months ended April 1, 2023 compared to the three months ended April 2, 2022, primarily due to an increase in research and development expenses, partially offset by revenue growth.

Our Adjusted Operating Margin decreased from 36% for the three months ended April 2, 2022 to 27% for the three months ended April 1, 2023, primarily due to a lower Adjusted Gross Margin, as well as an increase in research and development expenses, mainly attributable to headcount growth, to execute our future product portfolio.

Adjusted Net Income

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The adjustment for income tax effects consists primarily of the deferred tax impact of the amortization of acquired intangible assets.

The share based compensation adjustment did not have a material tax impact.

Set forth below is the reconciliation of net income (loss) to Adjusted Net Income:

Three months Ended

Nine Months Ended

April 1, 2023

April 2, 2022

$ in millions

Net income (loss)

Amortization of acquired intangible assets

Expenses related to the IPO

Share-based compensation expense

1 unchanged sentence

Adjusted net income

Our net loss increased in the three and nine months ended October 1, 2022, compared to the three and nine months ended September 25, 2021, mainly as a result of an increase in amortization of acquired intangible assets and share-based compensation expense, as well as an increase in research and development expenses, partially offset by revenue growth.

Our Adjusted Net Income increased in the three and nine months ended October 1, 2022, compared to the three and nine months ended September 25, 2021, primarily due to growth in our overall business, partially offset by the increase in our research and development expenses.

We expect that our Adjusted Net Income margin (which is the Adjusted Net Income divided by total revenue) in future near-term years will decrease compared to the nine months ended October 1, 2022, mainly due to additional research and development headcount and higher direct expenses that we expect to incur in connection with the development of new EyeQ® SoC generations, Mobileye SuperVision™ enhancements, and the productization of our AV solutions and active sensor suite.

Our net loss increased by $19 million in the three months ended April 1, 2023, compared to the three months ended April 2, 2022, mainly as a result of an increase in share-based compensation expense, as well as an increase in research and development expenses, partially offset by revenue growth and a decrease in amortization expense of acquired intangible assets.

Our Adjusted Net Income decreased by $5 million in the three months ended April 1, 2023, compared to the three months ended April 2, 2022, primarily due to a lower Adjusted Gross Margin, as well as an increase in research and development expenses, mainly attributable to headcount growth.

Critical Accounting Policies and Estimates

Our unaudited condensed combined financial statements have been prepared in accordance with U.S.

The application of our accounting policies may require us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities,revenue and expense, and the accompanying disclosures.

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

The preparation of financial statements and related disclosures in conformity with U.S.

generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the estimate was made.

We consider an accounting policy to be a critical estimate if:

(1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the relevant estimate or assumptions, or selection of a different estimate methodology, could have a significant impact on our financial position or the results that we report in our combined financial statements.

We believe that our estimates, assumptions, and judgments are reasonable in that they were based on information available when the estimates, assumptions and judgments were made.

However, because future events and their effects cannot be determined with certainty, actual results could differ materially from those implied by our assumptions and estimates.

On an ongoing basis, management evaluates its estimates, including those related to intangible assets, goodwill and deferred taxes.

We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may materially differ from the results implied by these estimates and judgments under different assumptions or conditions.

There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in the Prospectus.

Intangible Assets

Our combined financial statements include acquisition-related intangible assets, consisting primarily of developed technology and customer relationships and brands.

The identification and recognition of those intangible assets involve significant judgments relating to, among other things, the projected cash flows attributable to these intangible assets and the estimated useful lives of these intangible assets.

We amortize acquisition-related intangible assets that are subject to amortization over their estimated useful lives.

The useful lives are determined by management at the time of acquisition, based on historical experience and the economic life of the underlying technology, and are regularly reviewed for appropriateness.

Acquisition-related in-process research and development assets represent the fair value of incomplete research and development projects that had not reached technological feasibility as of the date of acquisition;

initially, these are classified as in-process research and development and are not subject to amortization.

Once these projects are completed, the asset balances are transferred from in-process research and development to acquisition-related developed technology and are subject to amortization from that point forward based on their estimated useful lives at that time.

The asset balances relating to projects that are abandoned after acquisition are impaired and expensed to research and development.

We perform a quarterly review of significant finite-lived identified intangible assets to make a judgment on whether facts and circumstances indicate that the carrying amount may not be recoverable and an impairment may be required.

These reviews can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.

We perform an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year, or more frequently if indicators of potential impairment exist.

The analysis may include both qualitative and quantitative factors to assess the likelihood of impairment.

Additionally, we are permitted to first assess qualitative factors to determine whether a quantitative goodwill impairment test is necessary.

Further testing is only required if we determine, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount.

Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.

Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value.

Our quantitative impairment test considers both the income approach and the market approach to estimate a reporting unit’s fair value.

Significant estimates include growth rates, estimated costs, and discount rates based on a reporting unit’s weighted average cost of capital.

For 2021, we performed a quantitative impairment test at the reporting unit level, which had $111 million of allocated goodwill as of December 25, 2021.

As of December 25, 2021, the reporting unit was not at risk of failing the quantitative impairment test and the fair value of the reporting unit substantially exceeded its carrying amount.

As of October 1, 2022, no indicators of impairment were identified.

Deferred Taxes

Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the combined financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized.

Use of the term “more likely than not” indicates the likelihood of occurrence is greater than 50%.

Accordingly, the need to establish valuation allowances for deferred tax assets is continually assessed based on a more-likely-than-not realization threshold.

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability and taxable income, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies.

In making such judgments, significant weight is given to evidence that can be objectively verified.

New Accounting Pronouncements

Significant Accounting Policies” to our combined financial statements included elsewhere in this report for information on new accounting pronouncements.

Note 2, “Significant Accounting Policies” of the Notes to the condensed consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

There have been no material changes to the Company’s critical accounting estimates since the 2022 Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

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● the future purchase, use and availability of products, components and services supplied by third parties, including third-party IP and manufacturing services;

● uncertain events or assumptions, including statements relating to our addressable markets, estimated vehicle production and market opportunity, potential production volumes associated with design wins and other characterizations of future events or circumstances;

● uncertain events or assumptions, including statements relating to our estimated vehicle production and market opportunity, potential production volumes associated with design wins and other characterizations of future events or circumstances;

● future responses to and effects of the COVID-19 pandemic;

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● tax- and accounting-related expectations;

● other statements described in this report and under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” in the Prospectus.

The risk factors discussed under the section entitled “Risk Factors” included in the Prospectus could cause our results to differ materially from those expressed in the forward-looking statements made in this Quarterly Report on Form 10-Q.

The risk factors discussed under the section entitled “Risk Factors” included in our 2022 Form 10-K could cause our results to differ materially from those expressed in the forward-looking statements made in this Quarterly Report on Form 10-Q.

There also may be other risks that are currently unknown to us or that we are unable to predict at this time.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis