What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-03-09 · 132 added, 127 removed, 314 unchanged (45% 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 December 31, 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 135 million vehicles.

As of December 30, 2023, 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 approximately 170 million vehicles.

We are actively working with more than 50 OEMs worldwide on the implementation of our ADAS solutions.

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We completed the Reorganization and Mobileye IPO in October 2022.

Reorganization and Initial Public Offering

In October 2022, Intel completed the Reorganization for purposes of the Mobileye IPO.

The registration statement related to the Mobileye IPO was declared effective on October 25, 2022, and our Class A common stock began trading on Nasdaq under the ticker symbol “MBLY” on October 26, 2022.

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

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

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.

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 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.

In the future, propelled by our next generation of EyeQ TM 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 TM SoCs to OEMs through sales to Tier 1 automotive suppliers.

We typically sell our products with volume-based pricing and recognize the revenue and costs associated with our products upon shipment.

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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.

We have also established relationships with several suppliers, such as 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.

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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.

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.

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.

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.

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 long-term effects of the COVID-19 pandemic and the global semi-conductor shortage.

While automotive production has now recovered to approximately 2019 levels, current uncertain economic conditions, including the effect of the 2023 automotive worker strikes in North America, and inflation may contribute to a reduction in consumer demand.

On the other hand, pent up demand from years of below peak production levels could lead to better than expected production.

In addition to economic conditions, in prior periods, including during the supply chain crisis and semi-conductor shortage of 2021 and 2022, 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.

As a result, some demand for our solutions and the corresponding revenue from these customers were shifted to earlier time periods than otherwise would have occurred absent a general supply chain shortage and inflationary environment.

We cannot predict when the impact of these factors on global vehicle production will substantially diminish.

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 $1.9 billion for the year ended 2022 was up 35% 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.

As a result of our standard planning process for 2024, including discussions with our Tier 1 customers, we became aware in late 2023 of significant excess inventory at our customers.

This as well as lower than expected production at certain OEMs during 2023 led to the decision by our Tier 1 customers to prioritize in the first quarter of 2024 the utilization of excess inventory on hand before using new shipments to meet the demand of OEMs.

We expect our customers will use the vast majority of this excess customer inventory in the first quarter of 2024 and that orders will normalize during the remainder of 2024, but there is no guarantee that they will do so.

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 $2,079 million for the year ended December 30, 2023 was up 11% year-over-year, outperforming the increase of global automotive production.

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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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.

Together with Intel, we also are currently in the early stages of development of FMCW lidar, which has the potential to replace alternative third-party lidar to further enhance the performance of our sensor suite.

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.

We expect that our development of software-defined imaging 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.

Regulation for ADAS and autonomous driving solutions .

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Importantly, we believe RSS, which is a pragmatic method that is architected to deliver a provably acceptable level of risk defined by governments, will facilitate standardization efforts worldwide as AV deployments accelerate.

In addition to impacting the pace at which autonomous driving technologies are deployed, we expect regulations to impact our financial performance on an ongoing basis over time once autonomous driving gains market

We cannot provide any assurance how any such regulations will impact us and the extent of such impact, particularly if autonomous driving is prohibited in certain areas.

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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 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.

We also are currently delivering full system solutions consisting of higher-function products such as SuperVision™ 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™ 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.

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 are currently experiencing 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.

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 in 2022 and 2023 as a result of supply chain shortages, including the global semiconductor shortage, and inflationary pressures.

While we were largely successful in increasing our ASPs to reflect these cost increases, we experienced a reduction in percentage gross margin as a result of these cost increases.

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, Quanta Computer and other suppliers 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 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 and 2021, 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 or ECUs for our SuperVision TM products 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 2022 have not been significantly impacted by the shortfall of chips.

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 on our balance sheet 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 further significant reduction in our company-owned inventory level.

Starting in late 2022 and early 2023, such supply chain disruptions, raw material shortages and manufacturing limitations abated and during 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™ 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, we may be unable to offset future supply constraints through the use of inventory on hand.

Our results of operations in 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 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.

To mitigate these supply chain constraints, management continues to monitor 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.

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.

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.

As a recently public company, we have implemented and will 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 continue to 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.

Our financial statements will reflect the impact of these 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 89% and 94% of our revenue for the years 2022 and 2021, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for 2022 and sales of our aftermarket products represented the majority of the remainder of our revenue for 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 89% of our revenue for the years 2023 and 2022, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for both 2023 and 2022.

Revenue from the sale of our EyeQ™ products, 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 and insurance costs and allocated overhead costs.

Additional costs are royalty fees for the intellectual property that is included in the EyeQ™ SoC, personnel-related expenses, logistics and insurance 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.

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.

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 in future periods.

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.

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.

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

We do not receive any additional compensation or royalties upon completion of such projects and the potential customer does not commit to purchase the resulting product in the future.

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Sales and Marketing Expenses

Sales and marketing expenses consist primarily of expenses associated with the amortization of acquired intangible assets, comprised of customer relationships and branding costs, personnel-related expenses, including share-based compensation of our sales force, as well as advertising and marketing expenses and allocated overhead costs.

We expect to increase our sales and marketing expenses as we continue our efforts to increase market awareness of the benefits of our solutions, but we expect sales and marketing expenses to decrease as a percentage of total revenue as our business grows.

General and Administrative Expenses

General and administrative expenses consist of personnel-related expenses, including share-based compensation, of our executive, finance, and legal departments as well as legal and accounting fees, litigation expenses, and fees for professional and contract services.

General and administrative expenses consist of personnel-related expenses, including share-based compensation of our executive, insurance costs, finance, and legal departments as well as legal and accounting fees, litigation expenses, and fees for professional and contract services.

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.

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 Income (Expense), net

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 issued a promissory note to Intel in an aggregate principal amount of $3.5 billion (the “Dividend Note”).

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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.

We generated interest income on a loan to Intel for which the outstanding balance was zero and $1.3 billion as of December 31, 2022 and December 25, 2021 respectively.

Other 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 year ended December 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 year ended December 31, 2022, we incurred a net interest expense with related party of $6 million which mainly relates to accrued interest on the Dividend Note to Intel.

Other financial income (expense), net, consists primarily of income related to investments 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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We are eligible for certain tax benefits in Israel under the Investment Law, at a reduced tax rate, subject to specified terms.

In addition, the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax in 2021, which calls for the taxation of large multinational corporations at a minimum rate of 15%.

Subsequently, multiple sets of administrative guidance have been issued.

Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States), with the adoption of additional components in later years, or announced their plans to enact legislation in future years.

We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.

During the years presented in our 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.

tax return filed by Intel.

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

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

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

tax purposes, there are favorable future tax deductions that 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 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 consolidated financial statements primarily related to U.S.

The valuation allowance for the years presented in our consolidated financial statements primarily relates 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.

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 consolidated financial statements because the Company will recognize a benefit based on the separate return method when determined to be realizable.

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 the 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 and 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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Comparison of the years ended December 30, 2023 and December 31, 2022

In 2023, revenue was $2,079 million, up $210 million, or 11%, compared to 2022.

This increase in revenue was primarily due to an increase of $189 million, or 11%, in EyeQ™ revenue attributable to an 11% increase in volume, with ASP remaining consistent with prior year, some increase in Supervision sales and initial sales of self-driving systems.

Cost of Revenue

In 2023, our cost of revenue increased by $85 million, or 9%, compared to 2022.

This increase was primarily due to an increase of $138 million in manufacturing costs relating primarily to increased sales of our EyeQ™ SoC and our sales of SuperVision™ solution, offset by $63 million decrease in amortization expenses of intangible assets.

Gross Profit and margin

In 2023, our gross profit increased by $125 million, or 14%, compared to 2022.

The increase was mainly driven by the increase in revenue from our EyeQ™ SoC sales, as well as the decrease in amortization expenses of intangible assets.

Our gross margin increased from 49% during 2022, to 50% during 2023.

This increase was mainly due to a lower cost attributable to amortization of intangible assets as a percentage of revenues, which was partially 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 2023, increased by $100 million, or 13%, compared to 2022.

This increase was primarily due to an increase of $59 million in share-based compensation expenses, an increase of $44 million in cloud computing services and investments attributable to new product development offset by $31 million of higher NRE reimbursements in 2023 and an increase of $32 million in facilities and related expenses due to the occupancy of new sites.

Average research and development headcount increased by 367 employees, however the related payroll expenses were mainly offset by ILS/USD foreign exchange rate impact and military duty reserve refunds from the state of Israel.

Sales and Marketing Expenses

Sales and marketing expenses in 2023 decreased by $2 million, or 2%, compared to 2022.

The decrease was mainly due to a decrease in amortization expenses of intangible assets, partially offset by an increase in marketing expenses.

General and Administrative Expenses

General and administrative expenses in 2023 increased by $23 million, or 46%, compared to 2022.

This increase was mainly due to an increase of $17 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

Interest income (expense) with related party, net in 2023 was $0 compared to $(6) million in 2022.

The decrease was due to zero outstanding balances of both the Dividend Note and the loans to Intel as of December 31, 2022.

Other financial income (expense) net in 2023, was $49 million compared to $11 million in 2022.

This increase was mainly due to interest earned on investment in money market funds.

Benefit (Provision) for Income Tax

In 2023, provision for income tax decreased by $7 million, compared to 2022.

This decrease was driven by withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group in 2022, which was partially offset by an increase in tax expense related to changes in the jurisdictional composition of our taxable income based on operational results and recognition of uncertain tax positions in 2023.

Comparison of the years ended December 31, 2022 and December 25, 2021

In 2022, revenue was $1.9 billion, up $483 million, or 35%, compared to 2021.

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This increase was mainly due to an increase in payroll and related expenses, costs related to being a public company and Mobileye IPO related expenses.

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

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

Interest income with related party in 2022 was $18 million compared $3 million in 2021.

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The increase was due to the accrued interest on the Dividend Note issued to Intel on April 21, 2022.

Other income (expense) net in 2022, was $11 million compared to $(3) million in 2021.

Other financial income (expense) net in 2022, was $11 million compared to $(3) million in 2021.

This increase was mainly due to higher interest earned on short term bank deposits, interest earned on investment in money market funds during the fourth quarter of 2022, as well as the effect of foreign exchange fluctuations.

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In 2022, provision for income tax increased by $32 million, compared to 2021.

This increase was mainly due to the amortization of deferred tax liability with respect to intangible assets attributable to the acquisition of Moovit, which resulted in benefit for income tax in 2021, as well as withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group, which resulted in a corresponding partial benefit in the United States for associated foreign tax credits utilized.

Comparison of the years ended December 25, 2021 and December 26, 2020

In 2021, revenue was $1.4 billion, up $419 million, or 43%, from 2020.

This increase was primarily attributable to a 43% increase in the volume of our EyeQ® SoCs sold in 2021 as compared to 2020, driven by increasing adoption of ADAS compared to 2020 and a slight improvement in global vehicle production.

In particular, the increase in 2021 reflected the increase in sales from (1) new launches (meaning the beginning of series deliveries to OEMs through Tier 1 automotive suppliers) of production programs particularly with Honda, Fiat Chrysler Automobiles, Peugeot, and Great Wall Motors, and (2) the full year effect of production programs launched in 2020, particularly with Renault Nissan, HKMC (Hyundai and Kia), Ford, Fiat Chrysler Automobiles, Peugeot, and Great Wall Motors.

Cost of revenue and gross profit

In 2021, our cost of revenue increased by $140 million, or 24%, from 2020.

This increase was mainly due to an increase of $86 million in manufacturing costs relating primarily to increased sales of our EyeQ® SoC, and an increase of $51 million in amortization of intangible assets.

The increase in amortization of intangible assets was mainly due to an increase of $32 million attributed to intangible assets acquired in the acquisition of Moovit, given the recognition of a full year amortization.

In 2021, our gross profit increased by $279 million, or 74%, from 2020.

The increase in 2021 was driven by the growth in volume of products sold, partially offset by the increase in amortization of intangible assets primarily due to the recognition of a full year of amortization of intangible assets acquired in the acquisition of Moovit.

Our gross margin increased from 39% during 2020 to 47% during 2021.

The increase in 2021 compared to 2020 was due primarily to the higher impact of the cost attributable to amortization of intangible assets, as a percentage of revenue in 2020.

Research and Development Expenses, Net

Research and development expenses, net in 2021 increased by $104 million, or 24%, compared to 2020.

The increase in 2021 was mainly due to an increase of $75 million in payroll and related expenses, derived from an average increase in research and development headcount of 274 employees and payroll costs.

Additionally, there was an increase of $21 million in cloud computing services, development tools, and investments attributable to new product development.

Sales and Marketing Expenses

Sales and marketing expenses in 2021 increased by $18 million, or 16%, compared to 2020.

The increase in 2021 was mainly due to an increase of $8 million in amortization of customer relationship and brand-related intangible assets and an increase of $6 million in employee-related costs mainly as a result of the full year impact of Moovit.

General and Administrative Expenses

General and administrative expenses in 2021 increased by $1 million, or 3%, compared to 2020.

The increase in 2021 was insignificant.

Interest Income (Expenses) and Other Expenses

Interest income attributable to the loan with Intel was $3 million in 2021, compared to $6 million in 2020.

The decrease resulted from a reduction in the London Interbank Offered Rate (“LIBOR”).

Other expenses decreased by $2 million in 2021, compared to 2020, mainly due to the effect of foreign exchange fluctuations.

Benefit (provision) for income tax

In 2021 provision for income tax was $18 million compared to benefit from income tax of $16 million in 2020, mainly due to the effect of deferred income taxes associated with the amortization of goodwill for tax purposes, as a result of our inclusion in the consolidated, combined, or unitary U.S.

federal and state income tax returns with Intel starting in 2021.

This increase was mainly due to the amortization of the deferred tax liability with respect to intangible assets attributable to the acquisition of Moovit, which resulted in a benefit for income tax in 2021, as well as withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group, which resulted in a corresponding partial benefit in the United States for associated foreign tax credits utilized.

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 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 campus, data storage and other computer related equipment and were $111 million and $143 million for 2022 and 2021, respectively.

In connection with the Reorganization, on May 12, 2022, we also declared and paid a 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 Mobileye IPO, which required that Intel ensure that immediately after completion of the Mobileye 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 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 $55 million and $65 million.

Our primary uses of funds have been for funding increases in headcount in our research and development departments, investments attributable to new product development and outflows related to re-building our strategic inventory, 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 $98 million and $111 million for 2023 and 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 2024 to be slightly above our total capital expenditures in 2023, mainly due to investments in equipment related to the development of our next generation products.

The construction of our new campus is substantially complete and occupied.

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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Operating activities

second quarter of 2022 and an increase in accounts receivable balance due to the ramp up in revenue, partially offset by an increase in non-cash adjustments, mainly attributable to the increase in share-based compensation expense.

For 2021 compared to 2020, the $328 million increase in cash provided by operating activities was primarily driven by a decrease of $121 million in net loss, an increase in net cash inflow from working capital and an increase in non-cash adjustments, mainly attributable to the amortization of intangible assets.

For 2023 compared to 2022, the $152 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.

For 2022 compared to 2021, the $53 million decrease in cash provided by operating activities was m ainly 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 and an increase in accounts receivable balance due to the ramp up in revenue, partially offset by an increase in non-cash adjustments, mainly attributable to the increase in share-based compensation expense.

Investing activities

Net cash provided by investing activities in 2022 wa s $1,187 million, consisting primarily of $1,299 million net repayment of a loan by Intel, partially offset by capital expenditures.

Net cash used in investing activities in 2023 was $98 million, consisting of capital expenditures in connection with the construction of our campus and electronic equipment.

Net cash provided by investing activities in 2022 was $1,187 million, consisting primarily of $1,299 million net repayment of a loan by Intel, partially offset by capital expenditures.

Net cash used in investing activities in 2021 was $157 million, primarily relating to capital expenditures in connection with the construction of our campus.

Net cash used in investing activities in 2020 was $965 million consisting primarily of a net investment of $745 million with respect to our acquisition of Moovit, $135 million loan to Intel and capital expenditures mainly relating to the construction of our campus.

Financing activities

Net cash used in financing activities in 2022 was $1,317 million, consisting prima rily of $900 million legal purchase of Moovit and $918 million repayment of the Dividend Note, as well as $280 million of share-based compensation recharge payments made to Intel and the $337 million dividend to Intel, partially offset by $1,034 million in net proceeds from the Mobileye IPO.

Net cash used in financing activities in 2023 was $100 million, consisting of share-based compensation recharge payments made to Intel.

Net cash used in financing activities in 2022 was $1,317 million, consisting primarily of $900 million legal purchase of Moovit and $918 million repayment of the Dividend Note, as well as $280 million of share-based compensation recharge payments made to Intel and the $337 million dividend to Intel, partially offset by $1,034 million in net proceeds from the Mobileye IPO.

Net cash provided by financing activities in 2021 was $91 million, as a result of a net contribution from Intel.

Net cash provided by financing activities in 2020 was $732 million, consisting primarily of $825 million for the acquisition of Moovit, partially offset by share-based compensation recharge payments made to Intel.

Liability in respect of employee rights upon retirement

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The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli Severance Pay Law or labor agreements.

Part of our liability for severance pay is covered by the provisions of Section 14 of the Israeli Severance Pay Law (“Section 14”).

The majority of our liability for severance pay is covered by the provisions of Section 14 of the Israeli Severance Pay Law (“Section 14”).

Under Section 14 employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, contributed by us on their behalf to their insurance funds.

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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 $68 million as of December 25, 2021, to $56 million as of December 31, 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.

We have several bank guarantees aggregating approximately $11 million (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

Severance pay liability was $56 million as of December 31, 2022, and December 30, 2023.

Lease liabilities

We have lease agreements for vehicles and offices.

We lease office space in various locations in Israel and around the world including USA, Germany and China.

All leases are operating leases with fixed payment terms where some of the leases include annual increases to lease payments based on an index or a rate.

Lease liabilities, representing the present value of future lease payments, have decreased from $58 million as of December 31, 2022 to $51 million as of December 30, 2023, reflecting mainly the progress in lease payments for existing arrangements.

We have several bank guarantees aggregating approximately $14 million as of December 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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We believe that the exclusion of expenses related to the Mobileye IPO is appropriate as they represent items that management believes are not indicative of our ongoing operating performance.

These expenses are primarily composed of legal, accounting and professional fees incurred in connection with the Mobileye IPO that are not capitalizable, which are included within general and administrative expenses.

These expenses are primarily composed of legal, accounting and professional fees incurred in connection with the Mobileye IPO that were not capitalizable, and are included within general and administrative expenses.

Adjusted Gross Profit and Margin

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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.

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Our Adjusted Gross Margin decreased from 75% for 2022 to 70% for 2023.

The decrease was primarily due to 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).

Our Adjusted Gross Margin decreased from 78% for 2021 to 75% for 2022.

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

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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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Amortization of acquired intangible assets

Expenses related to the IPO

Share-based compensation expense

Expenses related to the IPO

Adjusted operating income and margin

Our operating loss decreased in 2022 compared to 2021, mainly as a result of growth in our overall business, partially offset by an increase in amortization of acquired intangible assets and share-based compensation expense, as well as an increase in research and development expenses.

Our operating loss decreased by $4 million in 2023 compared to 2022, mainly as a result of growth in our overall business, in addition to a decrease in amortization of acquired intangible assets, partially offset by an increase in research and development, general and administrative expenses and an increase of share-based compensation expense.

Our Adjusted Operating Income increased by $8 million in 2023 compared to 2022, primarily due to the growth in our overall business, partially offset by the increase in research and development and general and administrative expenses.

Our Adjusted Operating Income increased in 2022 compared to 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 from 37% in 2022 to 33% in 2023, primarily due to a decrease in our Adjusted Gross Margin.

Our Adjusted Operating Margin decreased in 2022 compared to 2021, primarily due to a decrease in our Adjusted Gross Margin.

Our Adjusted Operating Income and Margin increased in fiscal 2021 compared to 2020, primarily due to growth in our overall business driven by an increase in adoption of ADAS and a slight improvement in global vehicle production.

We expect that our Adjusted Operating Margin in future near-term years will decrease compared to 2023, mainly due to expected decrease in Adjusted Gross Margin as we develop and sell full systems solutions contributing higher gross profit dollars per unit but lower percentage gross margin given the greater hardware content included in these systems, as well as expected increase in research and development expenses attributable to 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.

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 income (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, 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 in 2022 compared to 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.

The decrease in our net loss in 2021 as compared to 2020 reflects growth in our overall business, driven by an increase in adoption of ADAS compared to 2020 and a slight improvement in global vehicle production.

Our net loss decreased by $55 million in 2023 compared to 2022, primarily due to increase in revenue in addition to a decrease in amortization expense of intangible assets, partially offset by an increase of share-based compensation expense and an increase in financial income in 2023.

Our Adjusted Net Income increased by $54 million in 2023 compared to 2022, primarily due to increase in revenue, partially offset by the increase in our research and development and general and administrative expenses and an increase in financial income in 2023.

Our Adjusted Net Income increased in 2022 compared to 2021, primarily due to growth in our overall business, partially offset by the increase in our research and development expenses.

Our Adjusted Net Income increased in fiscal 2021 compared to 2020, primarily due to growth in our overall business, driven by an increase in adoption of ADAS and a slight improvement in global vehicle production.

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 2023, mainly due to an expected decrease in Adjusted Gross Margin as we develop and sell full systems solutions contributing higher gross profit dollars per unit but lower percentage gross margin given the greater hardware content included in these systems, as well as an expected increase in research and development expenses attributable to 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.

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Our audited consolidated 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.

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

GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgements, 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.

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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.

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.

We perform an annual 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.

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The estimated fair value using a market approach is based on a number of assumptions, including current market capitalization as corroboration of fair value.

As of December 31, 2022, we completed our annual impairment assessment, based on qualitative factors, and no indicators of impairment were identified.

For 2021, we performed a quantitative impairment test for one of our reporting units, which had $111 million of allocated goodwill as of December 25, 2021.

As of December 30, 2023, we completed our annual impairment assessment and concluded that it is not more likely than not that the fair value of each reporting units is less than its carrying amount.

For 2023, we performed a quantitative impairment test for one of our reporting units, which has $111 million of allocated goodwill as of December 30, 2023.

The fair value of the reporting unit substantially exceeded its carrying amount and no impairment loss was recorded.

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Certain components of the Company’s business operations were included in the consolidated U.S.

domestic income tax return filed by Intel.

income tax return filed by Intel.

The Company also files various foreign income tax returns on a separate basis, distinct from Intel.

The income tax provision

included in the Company’s consolidated financial statements has been calculated using the separate return method, as if the Company had filed its own tax returns.

The Company has entered into the Tax Sharing Agreement with Intel that establishes the respective rights, responsibilities and obligations of the Company and Intel with respect to tax matters and, therefore, ultimately governs the amount payable to or receivable from Intel with respect to income taxes.

Any differences between taxes currently payable to the Intel under the Tax Sharing Agreement and the current tax provision computed on a separate return basis, is reflected as adjustments to additional paid-in capital in the consolidated statement of shareholders’ equity and financing activities within the consolidated statement of cash flows.

The income tax provision included in the Company’s consolidated financial statements has been calculated using the separate return method, as if the Company had filed its own tax returns.

Any differences between taxes currently payable to Intel under the Tax Sharing Agreement and the current tax provision computed on a separate return basis, is reflected as adjustments to additional paid-in capital in the consolidated statement of shareholders’ equity and financing activities within the consolidated statement of cash flows.

According to the terms of the Tax Sharing Agreement, the Company and Intel will calculate and agree to estimated amounts owed quarterly but final amounts will also be calculated and paid upon consolidated tax return filings.

Amounts payable under the Tax Sharing Agreement will be recorded in the same manner as other contractual obligations entered into by the Company.

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

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

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are measured based on the largest amount that is more than 50% likely to be realized upon ultimate settlement.

The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for (benefit from) taxes on the Consolidated Statements of Income.

For additional information regarding income taxes, see Note 8 of the Notes to the Consolidated Financial Statements.

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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-K

Item 7. Management’s Discussion and Analysis