What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 96 added, 73 removed, 324 unchanged (34% of the section changed)

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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 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.

As of July 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 150 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.

In the six months ended July 1, 2023, we shipped approximately 16.4 million of our systems, the substantial majority of which were EyeQ® SoCs.

This represents an increase from the approximately 15.9 million of our systems that we shipped in the six months ended July 2, 2022.

We were founded in Israel in 1999.

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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 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.

Secondary Offering

On June 7, 2023, the Company announced the pricing of a public secondary offering of 38,500,000 shares of its Class A common stock (which shares were received upon the conversion of 38,500,000 shares of Class B common stock into Class A common stock) by Intel at a public offering price of $42.00 per share, which closed on June 12, 2023.

The Company did not receive any proceeds from this offering.

The Company paid the costs associated with the registration of shares in connection with the offering, other than underwriting discounts, fees and commissions.

Upon the completion of the offering, Intel continues to directly or indirectly hold all of the Class B common stock of Mobileye, which represents approximately 88.3% of our outstanding common stock and 98.7% of the voting power of our outstanding common stock.

Our Business Model

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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.

Moreover, automakers continue to face supply chain shortages, and we expect that global vehicle production will not fully recover to pre-COVID-19 pandemic levels from the impact of supply chain constraints in 2022 and 2023.

Moreover, automakers continue to face supply chain shortages, and we expect that global vehicle production will remain below pre-COVID-19 pandemic levels in 2023.

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.

For example, in the first quarter of 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 for calendar year 2023 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 $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.

Our revenue of $912 million in the six months ended July 1, 2023 was up 7% year-over-year.

However, continued or future constraints on global automotive production resulting from supply chain shortages and the effects of economic uncertainty may be a limiting factor on our ability to increase revenue.

We expect to continue to capitalize on our strong and collaborative relationships with OEMs and Tier 1s to expand our presence in key markets and capture the long-term growth opportunities in those markets.

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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 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 also are delivering 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.

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For example, in late 2021, semiconductor fabrication costs increased as a result of a global supply shortage that began in 2020 and is continuing.

We are currently experiencing increases in input costs as a result of supply chain shortages, including the global semiconductor shortage, and inflationary pressures.

We have experienced increases in input costs as a result of supply chain shortages, including the global semiconductor shortage, and inflationary pressures.

While we seek to increase our ASPs to reflect these cost increases, we anticipate that our gross margin will decrease, at least in the short term, as a result of these cost increases.

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The continued and timely supply of input materials, the availability of manufacturing capacity, and packaging and testing services at reasonable prices impact our ability to meet customer demand.

Supply chain disruptions, shortages of raw material, such as wafers and substrates, and manufacturing limitations as a result of COVID-19 or other factors could limit our ability to meet customer demand and result in delayed, reduced, or canceled orders.

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 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 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.

To mitigate these supply chain constraints, management is monitoring inventory levels on an ongoing basis.

Although we cannot fully predict the length and the severity of the impact these pressures will have on a long-term basis, we do not anticipate that our current supply chain constraints would materially adversely affect our results of operations, capital resources, sales, profits, and liquidity on a long-term basis.

Supply chain disruptions, shortages of raw material, such as wafers and substrates, and manufacturing limitations could limit our ability to meet customer demand and result in delayed, reduced, or canceled orders.

During 2021 and 2022, the semiconductor industry experienced widespread shortages of substrates and other components and available foundry manufacturing capacity.

We entered 2022 with significantly lower inventories of our EyeQ® SoCs as a result of the limited supply during 2021.

Further, STMicroelectronics, our sole supplier of EyeQ® SoCs, was not able to meet our demand for EyeQ® SoCs during 2022, causing a significant reduction in our inventory level.

Starting in late 2022 and early 2023 such supply chain disruptions, raw material shortages and manufacturing limitations abated and during the first six months of 2023, we successfully increased levels of EyeQ® SoC inventory on hand, mitigating the potential for future supply constraints to cause a shortfall.

However, in the event of a reoccurrence of supply chain constraints, and subject to the duration and severity thereof, we may be required to operate with minimal or no inventory of EyeQ® SoCs or SuperVision TM ECUs 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 if such a shortfall of chips or ECUs were to occur in 2023, we may be unable to offset future supply constraints through the use of inventory on hand.

Our results of operations in the three and six months ended July 1, 2023 have not been impacted by any 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 may stress our ability to meet the supply demands of our customers.

To mitigate these supply chain constraints, management monitors inventory levels on an ongoing basis.

Although we cannot fully predict the length and the severity of the impact these pressures may have on a long-term basis, we do not anticipate that potential supply chain constraints would materially adversely affect our results of operations, capital resources, sales, profits, and liquidity on a long-term basis.

Public company expenses.

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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 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.

EyeQ® SoC sales represented approximately 92% and 92% of our revenue for the three months ended July 1, 2023 and July 2, 2022, respectively, and 90% and 92% of our revenue for the six months ended July 1, 2023 and July 2, 2022, respectively.

Sales of our SuperVision™ product represented approximately half of the remainder of our revenue for the three and six months ended July 1, 2023 and also for the three and six months ended July 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.

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Cost of Revenue

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.

Cost of revenue consists primarily of expenses associated with the manufacturing cost of our EyeQ® SoCs and our SuperVision™ products, 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 and insurance costs and allocated overhead costs.

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Research and Development Expenses, net

Research and development expenses primarily consist of expenses related to personnel, facilities, equipment and supplies for research and development activities including share-based compensation, material, parts and other prototype development, cloud computing services, consulting, and other professional services, including data labeling, quality assurance within the development programs, and allocated overhead costs.

Research and development expenses primarily consist of expenses related to personnel, facilities, equipment and supplies for research and development activities including share-based compensation, materials, parts and other prototype development, cloud computing services, consulting, and other professional services, including data labeling, quality assurance within the development programs, and allocated overhead costs.

We occasionally enter into best-efforts nonrefundable non-recurring engineering arrangements pursuant to which we are reimbursed for a portion of the research and development expenses attributable to specific development programs.

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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.

In the three and six months ended July 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 were zero as of December 31, 2022.

In the three and six months ended July 2, 2022, we incurred interest expense of $6 million and $5 million, respectively, which mainly relates to accrued interest on the Dividend Note to Intel.

Other financial income (expense), net, consists primarily of income related to investment in money market funds, as well as income from short term deposits and 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

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Three months Ended

Six months Ended

dollars in millions

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Three months Ended

Six months Ended

dollars in millions

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Three months Ended

Six months Ended

dollars in millions

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Total share-based compensation

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.

Comparison of the three and six months ended July 1, 2023 and July 2, 2022

In the three months ended July 1, 2023, revenue decreased by $6 million, or 1%, compared to the three months ended July 2, 2022.

This decrease in revenue was primarily due to a decrease in sales of EyeQ® SoC and SuperVision systems.

In the six months ended July 1, 2023, revenue increased by $58 million, or 7%, compared to the six months ended July 2, 2022.

This increase was primarily due to an increase of $48 million, or 6%, in EyeQ® and SuperVision sales, attributable to a 3% increase in volume and a 2% 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 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.

In the three months ended July 1, 2023, our cost of revenue decreased by $1 million compared to the three months ended July 2, 2022.

This decrease was primarily due to a decrease of $14 million in amortization of intangible assets, offset mainly by the rise in the cost of our EyeQ® SoCs due to the global semiconductor shortage and inflationary pressures.

In the six months ended July 1, 2023, our cost of revenue increased by $32 million, or 7%, compared to the six months ended July 2, 2022.

This increase was primarily due to an increase of $51 million in manufacturing costs relating primarily to increased sales of our EyeQ® SoC and our sales of SuperVision™ systems, as well as to a rise in the cost of our EyeQ® SoCs, partially offset by a decrease of $23 million in amortization expenses.

Gross Profit and margin

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.

In the three months ended July 1 2023, our gross profit decreased by $5 million, or 2% compared to the three months ended July 2, 2022.

The decrease was mainly due to a decrease in sales of EyeQ® SoCs and SuperVision systems.

In the six months ended July 1 2023, our gross profit increased by $26 million, or 6%, compared to the six months ended July 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.

Our gross margin remained largely consistent at 49% in the three months ended July 1, 2023, compared to 50% in the three months ended July 2, 2022.

Our gross margin was 47% in both six months ended July 2, 2022 and the six months ended July 1, 2023.

This is due to the fact that 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 April 1, 2023, increased by $55 million, or 31%, compared to the three months ended April 2, 2022.

Research and development expenses, net, in the three months ended July 1, 2023, increased by $32 million, or 18%, compared to the three months ended July 2, 2022.

This increase was primarily due to an increase of $24 million in payroll and related expenses, resulting from an increase in average research and development headcount of 455 employees and an increase in payroll costs, including an increase of $13 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.

Research and development expenses, net, in the six months ended July 1, 2023, increased by $87 million, or 24%, compared to the six months ended July 2, 2022.

This increase was primarily due to an increase of $67 million in payroll and related expenses, resulting from an increase in average research and development headcount of 468 employees and an increase in payroll costs, including an increase of $36 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 April 1, 2023, decreased by $2 million, or 6%, compared to the three months ended April 2, 2022.

Sales and marketing expenses in the three months ended July 1 2023 remained flat compared to the three months ended July 2, 2022.

Sales and marketing expenses in the six months ended July 1 2023, decreased by $2 million, or 3%, compared to the six months ended July 1, 2023.

This decrease was mainly due to a decrease of $8 million in amortization of customer relationship and brand-related intangible assets partially offset by an increase of $5 million in advertising and marketing expenses.

General and Administrative Expenses

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.

General and administrative expenses in the three months ended July 1, 2023, increased by $6 million, or 55%, compared to the three months ended July 2, 2022.

This increase was mainly due to an increase in payroll and related expenses, including an increase of $4 million in share-based compensation, as well as costs related to being a public company, partially offset by the Mobileye IPO related expenses incurred in prior year period.

General and administrative expenses in the six months ended July 1, 2023, increased by $19, or 106%, compared to the six months ended July 2, 2022.

This increase was mainly due to an increase in payroll and related expenses, including an increase of $11 million in share-based compensation, as well as costs related to being a public company, partially offset by the Mobileye IPO related expenses incurred in prior year period.

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.

Interest expense with related party, net in the three months ended July 1, 2023 was $0 million compared to $6 million in the three months ended July 2, 2022, and $0 million compared to $5 million in the six months ended July 1, 2023 and six months ended July 2, 2022, respectively.

These changes were due to zero outstanding balances of both the Dividend Note and a loan to Intel as of December 31, 2022.

Other financial income, net, in the three months ended July 1, 2023, was $15 million compared to $4 million in the three months ended July 2, 2022 and $23 million compared to $5 million in the six months ended July 1, 2023 and six months ended July 2, 2022, respectively.

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 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.

In the three months ended July 1, 2023, provision for income tax decreased by $5 million, compared to the three months ended July 2, 2022.

This decrease was mainly driven by a change in the jurisdictional composition of our taxable income based on operational results.

In the six months ended July 1, 2023, provision for income tax decreased by $15 million, compared to the six months ended July 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 six months ended July 2, 2022.

Liquidity and Capital Resources

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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.

Our capital expenditures have related mainly to the construction of our new sites and campus, data storage and other computer related equipment and were $58 million and $53 million for the six months ended July 1, 2023 and July 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.

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

Three months Ended

Six months Ended

dollars in millions

April 1, 2023

April 2, 2022

Net cash provided by operating activities

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Operating activities

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.

For the six months ended July 1, 2023 compared to the six months ended July 2, 2022, the $36 million decrease in cash provided by operating activities was mainly due to an increase in inventories, as part of a planned initiative to rebuild our strategic inventory of EyeQ chips that was largely consumed during the supply chain crisis in 2021 and 2022, which was partially offset by a change in employee related balances in the first half of 2022 which was due to our recruitment of certain employees relating to the Mobileye business from Intel during the first half of 2022, as well as a decrease in accounts receivable in comparison to an increase in prior year period.

Investing activities

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.

Net cash used in investing activities in the six months ended July 1, 2023 was $58 million, consisting of capital expenditures.

Net cash provided by investing activities in the six months ended July 2, 2022 was $344 million consisting primarily of a $397 million net loan repayment by Intel to Mobileye, partially offset by capital expenditures.

Financing activities

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.

Net cash used in financing activities in the six months ended July 1, 2023 was $12 million, consisting of share-based compensation recharge payments made to Intel.

Net cash used in financing activities in the six months ended July 2, 2022 was $415 million, consisting primarily of $186 million share-based compensation recharge payments and $336 million dividend contribution made to Intel, partially offset by $121 million of a net contribution from Intel.

Liability in respect of employee rights upon retirement

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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.

Severance pay liability decreased from $56 million as of December 31, 2022, to $55 million as of July 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 $15 million (mainly 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.

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Three months Ended

April 1, 2023

April 2, 2022

$ in millions

Six months Ended

dollars in millions

Gross profit and margin

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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 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.

Our Adjusted Gross Margin decreased from 75% for the three months ended July 2, 2022 to 72% for the three months ended July 1, 2023 and from 76% for the six months ended July 2, 2022 to 71% for the six months ended July 1, 2023.

The decrease in both periods 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 at the beginning of 2023 on a zero-margin basis.

Adjusted Operating Income and Margin

We define Adjusted Operating Income as operating loss presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles and share-based compensation expense.

We define Adjusted Operating Income as operating loss presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles, share-based compensation expenses and expenses related to the Mobileye IPO.

Operating margin is calculated as operating loss divided by total revenue, and Adjusted Operating Margin is calculated as Adjusted Operating Income divided by total revenue.

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Three months Ended

April 1, 2023

April 2, 2022

$ in millions

Six months Ended

dollars in millions

Operating income (loss) and operating margin

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Share-based compensation expense

Expenses related to the IPO

Adjusted operating income and margin

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.

The three months ended July 1, 2023 ended with an operating loss of $33 million compared to a $10 million operating income in the three months ended July 2, 2022, and with an operating loss higher by $78 million in the six months ended July 1, 2023 compared to the six months ended July 2, 2022, mainly due to an increase in share-based compensation expense, as well as an increase in research and development expenses attributable to headcount growth, partially offset by a decrease in amortization expense of acquired intangible assets.

Our Adjusted Operating Income decreased by $42 million in the three months ended July 1, 2023 compared to the three months ended July 2, 2022, and by $61 million in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.

The decrease in both periods was primarily due to an increase in research and development expenses attributable to headcount growth.

Our Adjusted Operating Margin decreased from 40% for the three months ended July 2, 2022 to 31% for the three months ended July 1, 2023, and from 38% for the six months ended July 2, 2022 to 29% for the six months ended July 1, 2023, mainly due to an increase in research and development expenses attributable to headcount growth, as well as lower Adjusted Gross Margin.

Adjusted Net Income

We define Adjusted Net Income as net loss presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles and share-based compensation expense, as well as the related income tax effects.

We define Adjusted Net Income as net loss presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles, share-based compensation expense and expenses related to the Mobileye IPO, as well as the related income tax effects.

Income tax effects have been calculated using the applicable statutory tax rate for each adjustment taking into consideration the associated valuation allowance impacts.

2 unchanged sentences

Three months Ended

April 1, 2023

April 2, 2022

$ in millions

Six months Ended

dollars in millions

Net income (loss)

1 unchanged sentence

Share-based compensation expense

Expenses related to the IPO

Income tax effects

Adjusted net income

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.

Our net loss increased by $21 million in the three months ended July 1, 2023, compared to the three months ended July 2, 2022, and by $40 million in the six months ended July 1, 2023, compared to the six months ended July 2, 2022.

The increase in both periods was mainly as a result of an increase in share-based compensation expense, as well as an increase in research and development expenses attributable to headcount growth, partially offset by a decrease in amortization expense of acquired intangible assets.

Our Adjusted Net Income decreased by $21 million in the three months ended July 1, 2023, compared to the three months ended July 2, 2022, and by $26 million in the six months ended July 1, 2023, compared to the six months ended July 2, 2022, primarily due to an increase in research and development expenses attributable to headcount growth.

Critical Accounting Policies and Estimates

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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