What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-09 · 150 added, 200 removed, 245 unchanged (59% of the section changed)

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

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

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

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

Company Overview

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

As of 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.

As of March 30, 2024, 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 approximately 170 million vehicles.

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

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.

In the three months ended March 30, 2024, we shipped approximately 3.6 million of our systems, the substantial majority of which were EyeQ TM SoCs.

This represents a decrease from the approximately 8.1 million of our systems that we shipped in the first three months of 2023, due to high excess inventory at our Tier 1 customers, as announced earlier this year.

We were founded in Israel in 1999.

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

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

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

Reorganization and Initial Public Offering

In October 2022, Intel completed the internal reorganization and design of our new public entity (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 The Nasdaq Global Select Market 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’ the over-allotment option.

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.

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

We completed the internal reorganization and design of our new public entity (the “Reorganization”) and our initial public offering (the “Mobileye IPO”) in October 2022.

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.

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

In addition, Hezbollah has attacked military and civilian targets in Northern Israel, to which Israel has responded.

Further, on April 13, 2024, Iran launched a series of drone and missile strikes against Israel, to which Israel has responded.

How long and how severe the current conflict in Gaza, Northern Israel or the broader region becomes is unknown at this time and any continued clash among Israel, Hamas, Hezbollah, Iran or other countries or militant groups in the region may escalate in the future into a greater regional conflict.

To date, our operations have not been materially affected, although as of May 1, 2024 approximately 4.0% of our employees have been called to reserve duty in the Israel Defense Forces.

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.

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

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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.

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

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

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

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 TM 5 SoCs manufactured by STMicroelectronics.

Our close partnership with Intel exists on multiple fronts.

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

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

Additionally, we intend to explore a collaboration with Intel on a technology platform to integrate our EyeQ® SoC with Intel’s market leading central compute capability, with plans to utilize Intel Foundry Services’ advanced packaging capabilities.

As a result of our relationship with Intel, we have access to unique and differentiating technologies.

For example, we may license certain technologies from Intel that support the development of our FMCW lidar, and the design and development of our software-defined radar, including Intel’s mmWave technologies.

Additionally, we intend to explore a collaboration with Intel on a technology platform to integrate our EyeQ TM SoC with Intel’s market leading central compute capability, with plans to utilize Intel Foundry Services’ advanced packaging capabilities.

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

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

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

Key Factors Affecting Our Performance

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

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

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 remain below pre-COVID-19 pandemic levels in 2023.

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

For example, in the first quarter of 2023, the Chinese electric vehicle market was negatively impacted by price reductions by a global electric vehicle OEM, reduction in government electric vehicle subsidies, and general economic weakness in the country.

Our current primary customer for SuperVision TM reduced orders for this product for calendar year 2023 as a result.

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

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 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 $1,442 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.

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 estimate that our customers have used the vast majority of this excess customer inventory in the first quarter of 2024, in accordance with our expectations, and we expect 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.

However, our revenue of $239 million in the three months ended March 30, 2024 was down 48% year-over-year, primarily due to the aforementioned utilization of excess inventory by our customers during the first quarter of 2024.

Continued or future constraint 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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To achieve program design wins, we must maintain our technological leadership and continue to deliver differentiated solutions versus our competition through investment in research and development.

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

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

Investment in technology leadership and product development.

We believe our ability to continue to develop and design highly advanced and cost-efficient ADAS and AV solutions will position us to extend our technology leadership and encourage greater adoption of our solutions by enabling greater levels of autonomy.

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

The EyeQ® family design further enables scalable ECU architectures, 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 also believe that our roadmap for future generations of EyeQ TM SoCs and advanced systems will ultimately power autonomous driving solutions.

The EyeQ TM 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 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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Our solutions have different margin profiles.

As we develop, bundle, and sell full systems that include third-party hardware beyond EyeQ® SoCs, we expect that our gross margin will decrease on a percentage basis because of the greater third-party hardware content.

As we develop, bundle, and sell full systems that include third-party hardware beyond EyeQ TM SoCs, we expect that our gross margin will decrease on a percentage basis because of the greater third-party hardware content.

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.

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

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

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

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

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.

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

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

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

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

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

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

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

Further, STMicroelectronics, our sole supplier of EyeQ TM SoCs, was not able to meet our demand for EyeQ TM 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 TM SoC inventory on hand, mitigating the potential for future supply constraints to cause a shortfall of chips.

However, in the event of a reoccurence 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 TM SoCs or SuperVision TM ECUs on hand.

As a result, we are substantially reliant on timely shipments of EyeQ TM SoCs from STMicroelectronics and ECUs from Quanta Computer (or other suppliers) to fulfill customer orders and if such a shortfall of chips of 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 months ended March 30, 2024 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 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 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.

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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Components of Results of Operations

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

We generate the majority of our revenue from the sale of our EyeQ® SoCs to OEMs through sales to Tier 1 automotive suppliers that implement our product into vehicles, in which case our direct customer is the Tier 1 automotive supplier that is responsible for paying us for our products.

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

We generate the majority of our revenue from the sale of our EyeQ TM SoCs to OEMs through sales to Tier 1 automotive suppliers that implement our product into vehicles, in which case our direct customer is the Tier 1 automotive supplier that is responsible for paying us for our products.

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 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.

EyeQ TM SoC sales represented approximately 72% and 88% of our revenue for the three months ended March 30, 2024 and April 1, 2023, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three months ended March 30, 2024 and April 1, 2023.

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

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

Cost of Revenue

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

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

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.

Cost of revenue consists primarily of expenses associated with the manufacturing cost of our EyeQ TM 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 TM SoC, personnel-related expenses, logistics and insurance costs and allocated overhead costs.

As we develop and sell full systems that include hardware beyond EyeQ TM 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 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, materials, parts and other prototype development, cloud computing services, consulting, and other professional services, including data labeling, quality assurance within the development programs, and allocated overhead costs.

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

Research and development expenses primarily consist of expenses related to personnel-related expenses, including share-based compensation, facilities, equipment and supplies for research and development activities , 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 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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Accordingly, we expect research and development expenses to increase in absolute dollars, but to gradually decrease as a percentage of total revenue, over time.

We expect that in the near term our research and development expenses will increase compared to 2022, mainly due to additional research and development headcount and higher direct expenses that we expect to incur in connection with the development of our new EyeQ® SoC generations, Premium Driver-Assist offerings and the productization of our AV solutions and active sensor suite.

In the near term, we expect that our research and development expenses will increase compared to 2023, also as a percentage of total revenue, mainly due to additional research and development headcount and higher direct expenses that we expect to incur in connection with the development of our new EyeQ TM SoC generations, Premium Driver-Assist offerings and the productization of our AV solutions and active sensor suite.

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.

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 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.

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

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

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

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

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

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

In the three 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.

General and administrative expenses consist of personnel-related expenses, including share-based compensation of our executive, insurance costs, 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 moderately in absolute dollars but to decrease as a percentage of total revenue as our business grows.

The expected increase is mainly associated with the costs related to being a public company, including the need to hire more personnel to support compliance with 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.

Other Financial Income (Expense), net

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

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

tax return filed by Intel.

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

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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 periods presented in our condensed consolidated financial statements primarily related to U.S.

The valuation

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

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

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Three months Ended

Nine months Ended

September 30,

dollars in millions

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Operating income (loss)

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

Other financial income (expense), net

Income (loss) before income taxes

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Three months Ended

Nine months Ended

September 30,

dollars in millions

4 unchanged sentences

Three months Ended

Nine months Ended

September 30,

dollars in millions

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Total share-based compensation

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.

Comparison of the Three Months ended March 30, 2024 and April 1, 2023

In the three months ended March 30, 2024, revenue decreased by $219 million, or 48%, compared to the three months ended April 1, 2023, due to a decrease of $233 million, or 58%, in EyeQ TM SoC revenue, primarily attributable to a 56% reduction in volume resulting from the usage of meaningful excess inventory at our previously accumulated Tier 1 customers to satisfy demand.

This was partially offset by an increase of $14 million in SuperVision TM related revenue.

Average System Price, calculated as the sum of revenue related to EyeQ TM and SuperVision TM systems divided by the number of systems delivered, increased by approximately 13%, primarily due to the higher percentage of SuperVision TM related revenue as compared to the first quarter of 2023.

Cost of Revenue

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.

In the three months ended March 30, 2024, our cost of revenue decreased by $66 million, or 26%, compared to the three months ended April 1, 2023, primarily due to a decrease of $44 million in manufacturing costs, mainly resulting from the reduction in sales of EyeQ TM systems, as well as a decrease of $22 million in amortization of intangible assets.

Gross Profit and margin

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).

In the three months ended March 30, 2024, our gross profit decreased by $153 million, or 74%, compared to the three months ended April 1, 2023.

This decrease was mainly driven by the decrease in sales of EyeQ TM systems, attributable to the usage of meaningful inventory at our Tier 1 customers to satisfy demand.

Our gross margin decreased from 45% for the three months ended April 1, 2023, to 23% for the three months ended March 30, 2024.

This decrease was primarily due to the increase in the percentage of revenue attributable to SuperVision TM , as well as a higher impact of amortization of intangible assets as a percentage of revenue.

In addition, there was an increase in the average cost of our EyeQ TM SoC compared to the first quarter of 2023 since we entered 2023 with an opening balance of EyeQ TM SoC inventory that we previously acquired at lower-than-current prices.

Research and Development Expenses, net

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.

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 three months ended March 30, 2024, increased by $8 million, or 3%, compared to the three months ended April 1, 2023.

This increase was primarily due to an increase in occupancy and related expenses associated with the occupancy of the new campus and additional sites.

Average research and development headcount increased by 351 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.

In addition, an increase related to investments attributable to new product development and cloud computing services was offset by higher NRE reimbursements.

Sales 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.

Sales and marketing expenses in the three months ended March 30, 2024, increased by $1 million, or 3%, compared to the three months ended April 1, 2023.

General and Administrative Expenses

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 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 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.

General and administrative expenses in the three months ended March 30, 2024, decreased by $5 million, or 25%, compared to the three months ended April 1, 2023.

This decrease was primarily due to a decrease in share-based compensation expenses.

Other Financial Income (expense), net

Other financial income, net, in the three months ended March 30, 2024, was $17 million compared to $8 million in the three months ended April 1, 2023.

This increase was mainly due to an increase of $6 million in interest earned on investment in money market funds and short term bank deposits, as well as an increase of $3 million derived from the impact of fluctuations in foreign exchange rates.

Benefit (Provision) for Income Tax

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 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.

Benefit for income tax in the three months ended March 30, 2024, was $3 million compared to a provision for income tax of $(6) million in the three months ended April 1, 2023, mainly due to a higher loss before income taxes in the three months ended March 30, 2024 compared to prior year period.

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 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.

Our primary uses of funds have been for funding increases in headcount in our research and development departments, 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 $22 million and $26 million for the three months ended March 30, 2024 and April 1, 2023, 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 the first quarter of 2024, with a remaining cost we estimate to be between $25 million and $35 million.

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.

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:

Nine months Ended

Three months Ended

dollars in millions

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash used in investing activities

Net cash used in financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

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Operating activities

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.

For the three months ended March 30, 2024 compared to the three months ended April 1, 2023, the $131 million decrease in cash provided by operating activities was mainly due to an increase of $139 million in net loss.

The decrease in trade accounts receivable due to reduction in revenue, was largely offset by a decrease in accounts payable and an increase in other current assets.

Investing activities

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.

Net cash used in investing activities in the three months ended March 30, 2024 and the three months ended April 1, 2023 was $22 million and $26 million, respectively, consisting of capital expenditures.

Financing activities

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.

Net cash used in financing activities in the three months ended March 30, 2024 and the three months ended April 1, 2023 was $4 million and $3 million, respectively, consisting of 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 $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.

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

Severance pay liability increased from $56 million as of December 30, 2023, to $57 million as of March 30, 2024.

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 increased from $51 million as of December 30, 2023 to $55 million as of March 30, 2024, reflecting mainly new lease contracts and amendments to existing agreements, partially offset by the progress in lease payments for existing arrangements.

We have several bank guarantees aggregating approximately $12 million as of March 30, 2024 (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

Non-GAAP Financial Measures

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

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

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

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

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

Accordingly, we believe these adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends.

In addition, we also believe these adjustments enhance comparability of our financial performance against those of other technology companies.

Our non-GAAP financial measures reflect adjustments for amortization charges for our acquisition-related intangible assets, share-based compensation expense and certain expenses related to the Mobileye IPO as well as the related income tax effects where applicable.

Our non-GAAP financial measures reflect adjustments for amortization charges for our acquisition-related intangible assets, share-based compensation expense as well as the related income tax effects where applicable.

We exclude amortization charges for our acquisition-related intangible assets for purposes of calculating certain non-GAAP measures, although revenue is generated, in part, by these intangible assets, to eliminate the impact of these non-cash charges that are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

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Although we exclude share-based compensation expenses from our non-GAAP measures, equity compensation has been, and will continue to be, an important part of our future compensation strategy and a significant component of our future expenses, and may increase in future periods..

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.

Adjusted Gross Profit and Margin

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Three months Ended

Nine months Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

dollars in millions

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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.

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

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

Our Adjusted Gross Margin decreased from 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.

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.

Set forth below is the reconciliation of operating income (loss) to Adjusted Operating Income and the calculations of Operating Margin and Adjusted Operating Margin:

Our Adjusted Gross Margin decreased from 71% for the three months ended April 1, 2023 to 62% for the three months ended March 30, 2024.

The decrease was primarily due to the increase in the percentage of revenue attributable to SuperVision TM .

In addition there was an increase in the cost of our EyeQ TM SoCs compared to the first quarter of 2023 since we entered 2023 with an opening balance of EyeQ TM SoC inventory that we previously acquired at lower-than-current prices.

Adjusted Operating Income (Loss) and Margin

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

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

Set forth below is the reconciliation of operating income (loss) to Adjusted Operating Income (Loss) and the calculations of Operating Margin and Adjusted Operating Margin:

Three months Ended

Nine months Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

dollars in millions

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Share-based compensation expense

Expenses related to the IPO

Adjusted operating income and 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 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.

Adjusted operating income (loss) and margin

Our Operating loss increased by $157 million in the three months ended March 30, 2024 compared to the three months ended April 1, 2023, mainly due to a decrease in revenue, partially offset by a decrease in share-based compensation and amortization expenses.

We had an Adjusted Operating Loss of $65 million in the three months ended March 30, 2024 compared to an Adjusted Operating Income of $124 million in the three months ended April 1, 2023, primarily due to the decrease in revenue.

Our Adjusted Operating Margin declined from a positive 27% for the three months ended April 1, 2023 to a negative (27)% for the three months ended March 30, 2024, primarily due to a lower Adjusted Gross Margin and operating expenses that were similar to the prior year, but significantly higher as a percentage of revenue, given the unusually low revenue base.

Adjusted Net Income (Loss)

We define Adjusted Net Income (Loss) as net income (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.

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

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

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

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

Three months Ended

Nine months Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

dollars in millions

2 unchanged sentences

Share-based compensation expense

Expenses related to the IPO

Income tax effects

Adjusted net income

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.

Adjusted net income (loss)

Our net loss increased by $139 million in the three months ended March 30, 2024, compared the three months ended April 1, 2023, primarily due to the decrease in revenue, partially offset by a decrease in both share-based compensation and amortization expenses of acquired intangible assets, as well as an increase in other financial income.

We had an Adjusted Net Loss of $55 in the three months ended March 30, 2024 compared to an Adjusted Net Income of $115 in the three months ended April 1, 2023, primarily due to the decrease in revenue.

Critical Accounting Policies and Estimates

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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.

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

Note 2, “Significant Accounting Policies” of the Notes to the condensed consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the 2023 Annual Report on Form 10-K, as filed with the SEC on February 23, 2024 (the “2023 Form 10-K”) describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.

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This report includes forward-looking statements within the meaning of the federal securities laws.

Mobileye and its representatives may also, from time to time, make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the SEC, press releases, and our reports to shareholders.

Forward-looking statements may be identified by the use of words such as “plan,” “expect,” “believe,” “intend,” “will,” “may,” “anticipate,” “estimate” and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth, and cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, competitive position and expenditures.

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● expectations about our ability to maintain or enhance our leadership position in the markets in which we participate;

● future consumer demand and behavior;

● future consumer demand and behavior, including expectations about excess inventory utilization by customers;

● future products and technology, and the expected availability and benefits of such products and technology;

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

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

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

● availability, uses, sufficiency and cost of capital and capital resources, including expected returns to stockholders such as dividends, and the expected timing of future dividends;

● tax- and accounting-related expectations;

● adverse conditions in Israel, including in connection with the Israeli military operations in response to the October 7, 2023 terrorist attacks, which may affect our operations and may limit our ability to produce and sell our solutions;

● any disruption in our operations by the obligations of our personnel to perform military service as a result of current or future military actions involving Israel;

● other statements described in this report and under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” in our 2023 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis