What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 101 added, 76 removed, 344 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 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.

As of September 30, 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 160 million vehicles.

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

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.

In the nine months ended September 30, 2023, we shipped approximately 25.9 million of our systems, the substantial majority of which were EyeQ® SoCs.

This represents an increase from the approximately 24.0 million of our systems that we shipped in the nine months ended October 1, 2022.

We were founded in Israel in 1999.

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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.

Operations in Israel.

On October 7, 2023, Hamas launched a series of attacks from the Gaza Strip on civilian and military targets in southern Israel, to which the Israel Defense Forces have responded.

Our business activities in Israel continue to operate at their normal capacity without major disruption and we do not have customers who are based in Israel.

At this stage, we expect that the current conflict in the Gaza Strip and the security escalation in Israel will not have a material impact on our business results in the short term.

Approximately 16% of our employees have been called to reserve duty in the Israel Defense Forces and we have provided employees more flexibility to work from home on an as needed basis.

However, since this is an event beyond our control, its continuation or cessation may affect our expectations.

We continue to monitor political and military developments closely and examine the consequences for our operations and assets.

Our Business Model

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

Our revenue of $1,442 million in the nine months ended September 30, 2023 was up 11% 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.

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Material costs are affected by a variety of factors, including the availability of sufficient supply to meet market demand.

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

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

We 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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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.

Starting in late 2022 and early 2023 such supply chain disruptions, raw material shortages and manufacturing limitations abated and during the first nine 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.

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, we may be unable to offset future supply constraints through the use of inventory on hand.

Our results of operations in the three and nine months ended September 30, 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.

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Public company expenses.

As a recently public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.

As a recently public company, we continue to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.

In particular, we expect our accounting, legal and personnel-related expenses to increase as we establish more comprehensive compliance and governance functions and hire additional personnel to support such functions, maintain and review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act, and prepare and distribute periodic reports in accordance with SEC rules.

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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 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.

EyeQ® SoC sales represented approximately 89% and 88% of our revenue for the three months ended September 30, 2023 and October 1, 2022, respectively, and 90% of our revenue both in the nine months ended September 30, 2023 and October 1, 2022, .

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three and nine months ended September 30, 2023 and also for the three and nine months ended October 1, 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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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 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.

In the three and nine months ended September 30, 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 nine months ended October 1, 2022, we incurred a net interest expense of $6 million and $11 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.

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Nine months Ended

September 30,

dollars in millions

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Total share-based compensation

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.

Comparison of the three and nine months ended September 30, 2023 and October 1, 2022

In the three months ended September 30, 2023, revenue increased by $80 million, or 18%, compared to the three months ended October 1, 2022.

This increase in revenue was primarily due to a combination of volume and ASP growth in our EyeQ chip related revenue.

In the nine months ended September 30, 2023, revenue increased by $138 million, or 11%, compared to the nine months ended October 1, 2022.

This increase was primarily due to an increase of $123 million, or 10%, in EyeQ® and SuperVision sales, attributable to an 8% 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 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.

In the three months ended September 30, 2023, our cost of revenue increased by $25 million, or 11% compared to the three months ended October 1, 2022.

This increase was primarily due to an increase of $40 million in manufacturing costs related to increased sales of our EyeQ® and also the rise in the cost of our EyeQ® SoCs due to the global semiconductor shortage and inflationary pressures partially offset by a decrease of $21 million in amortization of intangible assets.

In the nine months ended September 30, 2023, our cost of revenue increased by $57 million, or 8%, compared to the nine months ended October 1, 2022.

This increase was primarily due to an increase of $92 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 $44 million in amortization expenses.

Gross Profit and margin

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 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.

In the three months ended September 30 2023, our gross profit increased by $55 million, or 25% compared to the three months ended October 1, 2022.

In the nine months ended September 30 2023, our gross profit increased by $81 million, or 13%, compared to the nine months ended October 1, 2022.

The gross profit 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 and by the the decrease in Amortization charges related to fully amortized intangibles of Moovit’s acquisition.

Our gross margin has increased by 3 percentage points to 51% in the three months ended September 30, 2023 compared to 48% in the three months ended October 1, 2022.

Our gross margin has increased by 1 percentage point to 49% in the nine months ended September 30, 2023 compared to 48% in the nine months ended October 1, 2022 .

This is mainly due to the lower impact of the cost attributable to amortization of intangible assets as a percentage of revenue partly offset by 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).

Research and Development Expenses, net

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.

Research and development expenses, net, in the three months ended September 30, 2023, increased by $12 million, or 6%, compared to the three months ended October 1, 2022.

This increase was primarily due to an increase of $11 million in payroll and related expenses, resulting from an increase in average research and development headcount of 383 employees, including an increase of $21 million in share-based compensation, mainly offset by the depreciation of the New Israeli Shekel against the USD which resulted in lower than expected payroll related expenses.

Research and development expenses, net, in the nine months ended September 30, 2023 increased by $99 million, or 18%, compared to the nine months ended October 1, 2022.

This increase was primarily due to an increase of $76 million in payroll and related expenses, resulting from an increase in average research and development headcount of 441 employees and an increase in payroll costs, including an increase of $57 million in share-based compensation.

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Sales and Marketing Expenses

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.

Sales and marketing expenses in the three months ended September 30, 2023 increased by $1 million, or 4%, compared to the three months ended October 1, 2022.

Sales and marketing expenses in the nine months ended September 30, 2023 decreased by $1 million, or 1% , compared to the nine months ended October 1, 2022.

This decrease was mainly due to a decrease of $7 million in amortization charges related to intangibles of Moovit's acquisition partially offset by an increase in advertising and marketing expenses.

General and Administrative Expenses

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.

General and administrative expenses in the three months ended September 30, 2023 increased by $9 million, or 100%, compared to the three months ended October 1, 2022.

This increase was mainly due to an increase of $5 million in payroll and related expenses, relates to 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 nine months ended September 30, 2023 increased by $28, or 104%, compared to the nine months ended October 1, 2022.

This increase was mainly due to an increase in payroll and related expenses, including an increase of $16 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

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.

Interest expense with related party, net in the three months ended September 30, 2023 was $0 million compared to $6 million in the three months ended October 1, 2022, and $0 million compared to $11 million in the nine months ended September 30, 2023 and nine months ended October 1, 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.

Other financial income, net, in the three months ended September 30, 2023 was $15 million compared to $1 million in the three months ended October 1, 2022 and $38 million compared to $6 million in the nine months ended September 30, 2023 and nine months ended October 1, 2022, respectively.

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

Benefit (Provision) for Income Tax

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.

In the three months ended September 30, 2023 provision for income tax decreased by $9 million, compared to the three months ended October 1, 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.

In the nine months ended September 30, 2023, provision for income tax decreased by $24 million, compared to the nine months ended October 1, 2022.

This decrease was mainly due to a change in the jurisdictional composition of our taxable income based on operational results and the recognition of discrete tax expenses in 2022.

Additionally, the decrease was driven by a withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group in the nine months ended October 1, 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 $58 million and $53 million for the six months ended July 1, 2023 and July 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 $75 million and $79 million for the nine months ended September 30, 2023 and October 1, 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 $30 million and $40 million.

The construction of our campus is planned to be completed in the first quarter of 2024, with a remaining cost we estimate to be between $25 million and $35 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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The following table sets forth certain consolidated statements of cash flow data:

Six months Ended

Nine months Ended

dollars in millions

September 30, 2023

October 1, 2022

Net cash provided by operating activities

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Operating activities

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.

For the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022, the $110 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 nine months ended October 1, 2022 which was due to our recruitment of certain employees relating to the Mobileye business from Intel, as well as a flat accounts receivable balance in the nine months ended September 30, 2023 in comparison to an increase in prior year period.

Investing activities

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.

Net cash used in investing activities in the nine months ended September 30, 2023 was $75 million, consisting of capital expenditures.

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

Financing activities

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.

Net cash used in financing activities in the nine months ended September 30, 2023 was $29 million, consisting of share-based compensation recharge payments made to Intel.

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

Severance pay liability decreased from $56 million as of December 31, 2022, to $53 million as of September 30, 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 $14 million as of September 30, 2023 (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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September 30, 2023

October 1, 2022

dollars in millions

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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 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.

Our Adjusted Gross Margin decreased from 74% for the three months ended October 1, 2022 to 69% for the three months ended September 30, 2023 and from 75% for the nine months ended October 1, 2022 to 70% for the nine months ended September 30, 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, share-based compensation expenses and expenses related to the Mobileye IPO.

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October 1, 2022

September 30, 2023

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Adjusted operating income and margin

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.

The three months ended September 30, 2023 ended with an operating income of $8 million compared to a $25 million operating loss in the three months ended October 1, 2022.

The increase is mainly due to higher revenue and gross profit.

The nine months ended September 30, 2023 ended with an operating loss higher by $45 million compared to the nine months ended October 1, 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 increased by $39 million in the three months ended September 30, 2023 compared to the three months ended October 1, 2022, mainly due to increase in revenues.

The Adjusted Operating Income was decreased by $22 million in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022.

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

Our Adjusted Operating Margin increased from 32% for the three months ended October 1, 2022 to 34% for the three months ended September 30, 2023 mainly due to higher revenue with operating expenses that were largely consistent on a year over year basis.

The Adjusted Operating Margin decreased from 36% for the nine months ended October 1, 2022 to 31% for the nine months ended September 30, 2023.

The decrease is 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, share-based compensation expense and expenses related to the Mobileye IPO, as well as the related income tax effects.

We define Adjusted Net Income as net income (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.

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Adjusted net income

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.

Our net income increased by $62 million in the three months ended September 30, 2023, compared to the three months ended October 1, 2022, and our net loss decreased by $22 million in the nine months ended September 30, 2023, compared to the nine months ended October 1, 2022.

The improvement in both periods was mainly as a result of an increase in revenue as well as a decrease in amortization expense of acquired intangible assets and an increase in interest income, partially offset by an increase in share-based compensation expense.

Our Adjusted Net Income increased by $67 million in the three months ended September 30, 2023, compared to the three months ended October 1, 2022, and by $41 million in the nine months ended September 30, 2023, compared to the nine months ended October 1, 2022, primarily due to an increase in revenue as well as increase in interest income.

Critical Accounting Policies and Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis