What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 118 added, 68 removed, 327 unchanged (36% of the section changed)

8 unchanged sentences

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 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.

As of June 29, 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 180 million vehicles.

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

In the three months ended 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.

In the six months ended June 29, 2024, we shipped approximately 11.2 million of our systems, the substantial majority of which were EyeQ TM SoCs.

This represents a decrease from the approximately 16.4 million of our systems that we shipped in the six months ended July 1, 2023.

We were founded in Israel in 1999.

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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.

To date, our operations have not been materially affected, although as of July 31, 2024 approximately 3.6% 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.

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

Towards the end of the first half of 2024, global automotive production forecasts weakened, which disproportionately impacted our core customers, primarily due to their continued market share losses in China.

We cannot be certain of the severity and length of the continued volatility and weakness in the global automotive market, including macro-factors impacting our sales to OEMs in China, and the extent of the adverse effect that such weakness and volatility will have on our results of operations, financial condition and business in the long term.

Our OEM customers’ production can vary from period to period due to global demand, market conditions and competitive conditions, geopolitical issues including trade restrictions and tariffs, as well as other factors.

For example, we expect a reduction in production estimates and orders from customers in the second half of 2024, primarily due to China related macro-factors.

While automotive production has now recovered to approximately 2019 levels, current uncertain economic conditions and inflation may contribute to a reduction in consumer demand.

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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.

We estimate that our customers have used the vast majority of this excess customer inventory in the first and second quarters of 2024, in accordance with our expectations, but there is no guarantee that orders will continue to normalize during the remainder of 2024.

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.

However, our revenue of $678 million in the six months ended June 29, 2024 was down (26)% year-over-year, primarily due to the aforementioned utilization of excess inventory by our customers during the first and second quarters of 2024.

Continued or future constraint on global automotive production resulting from the effects of economic uncertainty, both global and in specific markets in which we operate, 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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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.

Further, STMicroelectronics, our sole supplier of EyeQ TM SoCs, was not able to meet our demand for EyeQ TM SoCs during 2022, causing further a 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.

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 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 results of operations in the three and six months ended June 29, 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.

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We also expect the costs of our insurance, including directors’ and officers’ insurance and insurance coverage for AV activity, to increase as a result of higher premiums.

In addition, in connection with the Mobileye IPO, we established an equity incentive plan for purposes of granting share-based compensation awards to certain members of our senior management, to our non-executive directors and to employees, to incentivize their performance and align their interests with ours.

In addition, in connection with the Mobileye IPO, we established an equity incentive plan for purposes of granting share-based compensation awards to certain members of our senior management, to our non-employee directors and to employees, to incentivize their performance and align their interests with ours.

Historically, grants of share-based compensation to our employees were made pursuant to Intel’s employee equity incentive plans, and such historical grants will continue based on their original vesting schedules.

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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 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.

EyeQ TM SoC sales represented approximately 86% and 92% of our revenue for the three months ended June 29, 2024 and July 1, 2023, respectively, and 81% and 90% of our revenue in the six months ended June 29, 2024 and July 1, 2023, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three and six months ended June 29, 2024 and also for the three and six months ended July 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.

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Research and Development Expenses, net

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.

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, 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 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.

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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 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 brands, 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.

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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 relate 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

Six months Ended

June 29, 2024

dollars in millions

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Three months Ended

Six months Ended

dollars in millions

June 29, 2024

Cost of revenue

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Three months ended

Six months ended

dollars in millions

June 29, 2024

Cost of revenue

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Total share-based compensation

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.

Comparison of the three and six months ended June 29, 2024 and July 1, 2023

In the three months ended June 29, 2024, revenue decreased by $15 million, or 3%, compared to the three months ended July 1, 2023.

This decrease in revenue was primarily due to a decrease of $40 million or 10% in EyeQ TM SoC revenue mostly attributable to a 9% reduction in volume resulting from the usage of the remaining excess inventory at our previously accumulated Tier 1 customers to satisfy demand.

This was mostly offset by an increase of $25 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 5%, due to the higher percentage of SuperVision TM related revenue as compared to the second quarter of 2023.

In the six months ended June 29, 2024, revenue decreased by $234 million, or 26%, compared to the six months ended July 1, 2023.

This decrease was primarily due to a decrease of $274 million, or 33%, in EyeQ TM SoC revenue attributable to a 32% decrease in volume resulting from the usage of meaningful excess inventory previously accumulated at our Tier 1 customers to satisfy demand.

This was partially offset by an increase of $39 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.

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 7%, due to the higher percentage of SuperVision TM related revenue as compared to the first half of 2023.

Cost of Revenue

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.

In the three months ended June 29, 2024, our cost of revenue remained flat compared to the three months ended July 1, 2023.

This is due to an increase of $11 million in manufacturing costs, mainly resulting from an increase in sales of SuperVision TM systems, mostly offset by a reduction of $7 million in amortization of intangible assets.

In the six months ended June 29, 2024, our cost of revenue decreased by $66 million, or 14%, compared to the six months ended July 1, 2023.

This decrease was primarily due to a net decrease of $33 million in manufacturing costs mainly resulting from the reduction in sales of EyeQ TM SoC offset by the increase in sales of SuperVision TM systems, as well as a decrease of $29 million in amortization of intangible assets.

Gross Profit and Margin

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.

In the three months ended June 29 2024, our gross profit decreased by $15 million, or 7% compared to the three months ended July 1, 2023.

In the six months ended June 29 2024, our gross profit decreased by $168 million, or 39%, compared to the six months ended July 1, 2023.

The gross profit decrease in both periods 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.

In the three months ended June 29 2024, our gross margin has decreased to 48% compared to 49% in the three months ended July 1, 2023.

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

In addition, there was an increase in the average cost of our EyeQ TM SoC compared to the second 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.

These were offset by the impact of the lower cost attributable to amortization of intangible assets as a percentage of revenue.

In the six months ended June 29, 2024, our gross margin has decreased by 8% to 39% compared to 47% in the six months ended July 1, 2023.

This was mainly 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 half 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 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.

Research and development expenses, net, in the three months ended June 29, 2024, increased by $45 million, or 21%, compared to the three months ended July 1, 2023.

This increase was primarily due to an increase in payroll and related expenses, resulting from an increase in average research and development headcount of 367 employees, including an increase in share-based compensation, which was partially offset by the depreciation of the New Israeli Shekel against the USD and military duty reserve refunds from the state of Israel.

In addition, there was an increase related to investments attributable to new product development and cloud computing services and also an increase in depreciation costs associated with the new campus and additional sites.

Research and development expenses, net, in the six months ended June 29, 2024 increased by $53 million, or 12%, compared to the six months ended July 1, 2023.

This increase was due to an increase in payroll and related expenses, resulting from an increase in average research and development headcount of 362 employees, including an increase in share-based compensation, which was partially offset by the depreciation of the New Israeli Shekel against the USD and military duty reserve refunds from the state of Israel.

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

Sales 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.

Sales and marketing expenses in the three months ended June 29, 2024 decreased by $1 million, or 5%, compared to the three months ended July 1, 2023.

Sales and marketing expenses in the six months ended June 29, 2024 remained flat compared to the six months ended July 1, 2023.

General and Administrative Expenses

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.

General and administrative expenses in the three months ended June 29, 2024 increased by $2 million, or 12%, compared to the three months ended July 1, 2023.

This increase was mainly due to an increase in corporate expenses.

General and administrative expenses in the six months ended June 29, 2024 decreased by $3, or 8%, compared to the six months ended July 1, 2023.

This decrease was mainly 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.

Other financial income, net, in the three months ended June 29, 2024 decreased by $2 million, or 13%, compared to the three months ended July 1, 2023.

This decrease was mainly due to exchange rate differences and fair value revaluation related to equity investments.

Other financial income, net, in the six months ended June 29, 2024 increased by $7 million, or 30%, compared to the six months ended July 1, 2023.

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

Benefit (Provision) for Income Tax

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.

In the three months ended June 29, 2024 provision for income tax decreased by $5 million, compared to the three months ended July 1, 2023.

This decrease was mainly driven by a higher loss before income taxes in the three months ended June 29, 2024 compared to prior year period.

In the six months ended June 29, 2024, provision for income tax decreased by $14 million, compared to the six months ended July 1, 2023.

This decrease was mainly due to a higher loss before income taxes in the six months ended June 29, 2024 compared to prior year period.

Liquidity and Capital Resources

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Our primary uses of funds have been for funding increases in headcount in our research and development departments, 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.

Our capital expenditures have related mainly to the construction of our new sites and campus, data storage and other research and development projects related equipment and were $46 million and $58 million for the six months ended June 29, 2024 and July 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.

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

Three months Ended

Six months ended

dollars in millions

March 30, 2024

April 1, 2023

June 29, 2024

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

1 unchanged sentence

Operating activities

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.

For the six months ended June 29, 2024 compared to the six months ended July 1, 2023, the $127 million decrease in cash provided by operating activities was mainly due to an increase of $197 million in net loss, partially offset by the decrease in trade accounts receivable due to reduction in revenue.

Investing activities

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.

Net cash used in investing activities in the six months ended June 29, 2024 was $64 million, consisting of capital expenditures and purchases of debt and equity investments.

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

Financing activities

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.

Net cash used in financing activities in the six months ended June 29, 2024 and the six months ended July 1, 2023 was $11 million and $12 million, respectively, consisting of share-based compensation recharge payments made to Intel.

Liability in respect of employee rights upon retirement

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

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

Severance pay liability decreased from $56 million as of December 30, 2023, to $55 million as of June 29, 2024, reflecting mainly the impact of fluctuations in value due to foreign exchange differences between New Israeli Shekel and USD.

Lease liabilities

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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.

Lease liabilities, representing the present value of future lease payments, have increased from $51 million as of December 30, 2023 to $52 million as of June 29, 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 June 29, 2024 (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

Non-GAAP Financial Measures

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For example, we use these non-GAAP financial measures to assess our pricing and sourcing strategy, in the preparation of our annual operating budget, and as a measure of our operating performance.

We believe that these non-GAAP financial measures, when taken collectively, may be helpful to investors because they allow for greater transparency into what measures our management (and Intel’s management) uses in operating our business and measuring our performance, and enable comparison of financial trends and results between periods where items may vary independent of business performance.

We believe that these non-GAAP financial measures, when taken collectively, may be helpful to investors because they allow for greater transparency into what measures our management uses in operating our business and measuring our performance, and enable comparison of financial trends and results between periods where items may vary independent of business performance.

The non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies.

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Three months Ended

March 30, 2024

April 1, 2023

Six months Ended

June 29, 2024

dollars in millions

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

Our Adjusted Gross Margin decreased from 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.

Our Adjusted Gross Margin decreased from 72% for the three months ended July 1, 2023 to 69% for the three months ended June 29, 2024 and from 71% for the six months ended July 1, 2023 to 67% for the six months ended June 29, 2024.

The decrease in both periods 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 second 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.

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Three months Ended

March 30, 2024

April 1, 2023

Six months Ended

June 29, 2024

dollars in millions

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Share-based compensation expense

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 operating income and margin

The three months ended June 29, 2024 ended with an operating loss of $(94) million compared to a $(33) million operating loss in the three months ended July 1, 2023.

The increase in operating loss was mainly due to an increase in operating expenses including share based compensation expenses and a slight decrease in revenue, partially offset by lower amortization expenses.

The six months ended June 29, 2024 ended with an operating loss higher by $218 million compared to the six months ended July 1, 2023, mainly due to lower revenue and higher operating expenses partially offset by lower amortization.

Our Adjusted Operating Income decreased by $61 million in the three months ended June 29, 2024 compared to the three months ended July 1, 2023, mainly due to an increase in operating expenses and a slight reduction in revenue.

Our Adjusted Operating Income decreased by $250 million in the six months ended June 29, 2024 compared to the six months ended July 1, 2023.

The decrease was primarily due to higher operating expenses on an unusually low revenue base.

Our Adjusted Operating Margin decreased from 31% for the three months ended July 1, 2023 to 18% for the three months ended June 29, 2024 mainly due to higher operating expenses on a similar revenue base, in addition to the lower Adjusted Gross Margin.

Our Adjusted Operating Margin decreased from 29% for the six months ended July 1, 2023 to 2% for the six months ended June 29, 2024.

The decrease is mainly due to higher operating expenses on an unusually low revenue base, in addition to the lower Adjusted Gross Margin.

Adjusted Net Income (Loss)

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Three months Ended

March 30, 2024

April 1, 2023

Six months Ended

June 29, 2024

dollars in millions

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Income tax effects

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.

Adjusted net income

Our net loss increased by $58 million in the three months ended June 29, 2024, compared to the three months ended July 1, 2023, primarily due to lower revenue and higher operating expenses, including share based compensation, offset by lower amortization expenses.

Our net loss increased by $197 million in the six months ended June 29, 2024, compared to the six months ended July 1, 2023 primarily due to lower revenue and higher operating expenses partially offset by lower amortization and an increase in other financial income, net.

Our Adjusted Net Income decreased by $59 million in the three months ended June 29, 2024, compared to the three months ended July 1, 2023 mainly due to higher operating expense and lower revenue.

Our adjusted net loss decreased by $229 million in the six months ended June 29, 2024, compared to the six months ended July 1, 2023.

The decrease is primarily due to an unusually low revenue base and higher operating expenses, partially offset by an increase in other financial income.

Critical Accounting Policies and Estimates

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

As noted in the 2023 Form 10-K critical accounting policies, we regularly test our goodwill and 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.

As disclosed elsewhere in this report, recent industry and economic trends have adversely impacted our business and forecasts, and this could impact the results of our testing in the future if these trends continue.

Cautionary Note Regarding Forward-Looking Statements

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

● our ability to effectively compete in the markets in which we operate;

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

● development of regulatory frameworks for current and future technology;

● changes in regulation and trade policy, including increased tariffs, in regions in which we operate, including the U.S., Europe and China;

● projected cost and pricing trends;

12 unchanged sentences

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