What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-07 · 141 added, 112 removed, 333 unchanged (43% of the section changed)

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

As of 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.

As of September 28, 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 190 million vehicles.

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

In the six months ended 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.

In the nine months ended September 28, 2024, we shipped approximately 19.8 million of our systems, the substantial majority of which were EyeQ TM SoCs.

This represents a decrease from the approximately 25.9 million of our systems that we shipped in the nine months ended September 30, 2023.

We were founded in Israel in 1999.

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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 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.

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

In addition, both Hezbollah and the Houthi movement have attacked military and civilian targets in Israel, to which Israel has responded, including through increased air and ground operations in Lebanon.

In addition, the Houthi movement has attacked international shipping lanes in the Red Sea.

Further, on April 13, 2024 and on October 1, 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, Lebanon 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 October 24, 2024 approximately 8.3% of our employees have been called to reserve duty in the Israel Defense Forces.

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

However, since these are events beyond our control, their continuation or cessation may affect our expectations.

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

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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.

For example, we may license certain technologies from Intel that support 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.

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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.

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.

For example, 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.

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.

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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 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.

We estimate that our customers 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.

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 $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.

However, our revenue of $1,164 million in the nine months ended September 28, 2024 was down 19% year-over-year, primarily due to the aforementioned utilization of excess inventory by our customers during the first half 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.

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However, the revenue generated by each design win and the time necessary to achieve a design win can vary significantly.

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.

To achieve program design wins, we must maintain our technological leadership and continue to deliver differentiated solutions versus our competition, including in-house technologies developed by our customers, 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 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.

For example, in the third quarter of 2024 Zeekr announced their decision to utilize their in-house system instead of SuperVision TM for at least a major portion of production for their 001 model going forward.

Investment in technology leadership and product development.

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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 and six months ended June 29, 2024 have not been impacted by any shortfall of chips.

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

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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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 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.

EyeQ TM SoC sales represented approximately 86% and 89% of our revenue for the three months ended September 28, 2024 and September 30, 2023, respectively, and 83% and 90% of our revenue in the nine months ended September 28, 2024 and September 30, 2023, respectively.

Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three and nine months ended September 28, 2024 and also for the three and nine months ended September 30, 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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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.

Goodwill Impairment

Goodwill impairment expenses consist of a non-cash impairment loss recognized for the goodwill of the "Mobileye" reporting unit in the three and nine months ended September 28, 2024, as a result of the impairment analysis the Company performed during the third quarter of 2024.

Other Financial Income (Expense), net

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Three months Ended

Six months Ended

June 29, 2024

Nine months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

dollars in millions

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General and administrative

Goodwill impairment

Total operating expenses

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Three months Ended

Six months Ended

Nine months Ended

dollars in millions

June 29, 2024

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

Cost of revenue

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Three months ended

Six months ended

Nine months Ended

dollars in millions

June 29, 2024

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

Cost of revenue

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Total share-based compensation

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.

Comparison of the three and nine months ended September 28, 2024 and September 30, 2023

In the three months ended September 28, 2024, revenue decreased by $44 million, or 8%, compared to the three months ended September 30, 2023.

This decrease in revenue was primarily due to a decrease of $51 million or 11% in EyeQ TM SoC revenue mostly attributable to a 9% reduction in volume resulting from a reduction in units shipped to China OEM's, as well as modest declines in overall global vehicle production.

Average System Price, calculated as the sum of revenue related to EyeQ TM SoC and SuperVision TM systems divided by the number of systems delivered, decreased by 1%, due to a modestly unfavorable mix of EyeQ TM feature bundles as compared to the third quarter of 2023.

In the nine months ended September 28, 2024, revenue decreased by $278 million, or 19%, compared to the nine months ended September 30, 2023.

This decrease was primarily due to a decrease of $325 million, or 25%, in EyeQ TM SoC revenue attributable mainly to a 24% decrease in volume resulting from the usage of meaningful excess inventory previously accumulated at our Tier 1 customers to satisfy demand in the first half of 2024.

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 7%, due to the higher percentage of SuperVision TM related revenue as compared to the first half 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 4%, due to the higher percentage of SuperVision TM related revenue as compared to the first nine months ended September 30, 2023.

Cost of Revenue

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.

In the three months ended September 28, 2024, our cost of revenue decreased by $9 million, or 3% compared to the three months ended September 30, 2023.

This is due to a decrease of $9 million in manufacturing costs, mainly resulting from a decrease in sales of EyeQ TM SoC, as well as a cost reduction in manufacturing of SuperVision TM systems.

In the nine months ended September 28, 2024, our cost of revenue decreased by $75 million, or 10%, compared to the nine months ended September 30, 2023.

This decrease was primarily due to a decrease of $42 million in manufacturing costs mainly resulting from the decrease in sales of EyeQ TM SoC and a cost reduction in 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 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.

In the three months ended September 28 2024, our gross profit decreased by $35 million, or 13% compared to the three months ended September 30, 2023.

This decrease was primarily due to the reduction in sales of EyeQ TM systems, partially offset by an increase in gross profit of SuperVision TM systems, given the reduction in manufacturing costs.

In the nine months ended September 28 2024, our gross profit decreased by $203 million, or 29%, compared to the nine months ended September 30, 2023.

This decrease was primarily due to reduction in sales of EyeQ TM systems, partially offset by an increase in sales of SuperVision TM systems, as well as a decrease in amortization of intangible assets.

In the three months ended September 28 2024, our gross margin has decreased to 49% compared to 51% in the three months ended September 30, 2023.

This decrease was primarily due to the impact of the flat cost attributable to amortization of intangible assets as a percentage of revenue, as well as higher EyeQ-related costs per unit given a different mix of EyeQ generations sold.

This was partially offset by an increased profitability of our SuperVision TM systems given the reduction in manufacturing costs.

In the nine months ended September 28, 2024, our gross margin has decreased to 43% compared to 49% in the nine months ended September 30, 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.

In addition, there was an increase in the average cost of our EyeQ TM SoC compared to the nine months ended September 30, 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 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.

Research and development expenses, net, in the three months ended September 28, 2024, increased by $85 million, or 39%, compared to the three months ended September 30, 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 369 employees, including an increase in share-based compensation, which was partially offset by military duty reserve refunds from the state of Israel.

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

Research and development expenses, net, in the nine months ended September 28, 2024 increased by $138 million, or 21%, compared to the nine months ended September 30, 2023.

This increase was mainly 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 military duty reserve refunds from the state of Israel.

In addition, there was an increase related to investments attributable to new product development and also an increase in depreciation costs associated with the new campus and additional sites, partially offset by higher NRE reimbursements.

Sales and Marketing Expenses

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.

Sales and marketing expenses remained flat in both the three and nine months ended September 28, 2024 compared to the three and nine months ended September 30, 2023.

General and Administrative 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.

General and administrative expenses remained flat in the three months ended September 28, 2024 compared to the three months ended September 30, 2023.

General and administrative expenses in the nine months ended September 28, 2024 decreased by $3 million or 5%, compared to the nine months ended September 30, 2023.

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

Goodwill Impairment

Goodwill impairment expenses were $2,695 million in the three and nine months ended September 28, 2024 and zero in the three and nine months ended September 30, 2023.

During the third quarter of 2024, the Company performed an interim quantitative goodwill impairment analysis for the "Mobileye" reporting unit, resulting in a non-cash impairment loss.

For further details, refer to Note 12 to the Condensed Consolidated Financial Statements included in this report.

Other Financial Income (expense), net

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.

Other financial income, net, in the three months ended September 28, 2024 decreased by $1 million, or 7%, compared to the three months ended September 30, 2023.

This decrease was mainly due to exchange rate differences expense, partially offset by interest earned on short term bank deposits and fair value revaluation of equity investments.

Other financial income, net, in the nine months ended September 28, 2024 increased by $6 million, or 16%, compared to the nine months ended September 30, 2023.

This increase was mainly due to interest earned on short term bank deposits and a slight increase in interest earned on investment in money market funds.

Benefit (Provision) for Income Tax

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.

In the three months ended September 28, 2024 benefit for income tax was $78 million, compared to a $6 million provision for income tax in the three months ended September 30, 2023.

The change is mainly due to the deferred tax effect of goodwill impairment to the Mobileye reporting unit.

In the nine months ended September 28, 2024, benefit for income tax was $76 million, compared to a $22 million provision for income tax in the nine months ended September 30, 2023.

The change is mainly due to the deferred tax effect of goodwill impairment to the Mobileye reporting unit, as well as higher loss before income taxes.

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 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.

Our capital expenditures have related mainly to data storage and other research and development projects related equipment and the construction of our new sites and campus and were $68 million and $75 million for the nine months ended September 28, 2024 and September 30, 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 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.

We expect our total capital expenditures for 2024 to be relatively flat compared to our total capital expenditures in 2023.

We continue to invest 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:

Six months ended

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dollars in millions

June 29, 2024

September 28, 2024

September 30, 2023

Net cash provided by operating activities

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Operating activities

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.

For the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023, the $89 million decrease in cash provided by operating activities was mainly due to an increase of $2,929 million in net loss, partially offset by $2,695 million of non-cash goodwill impairment loss as well as a decrease in accounts receivable due to reduction in revenue and a lower increase in inventories compared to prior year period during which the company rebuilt its strategic inventory of EyeQ chips.

Investing activities

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.

Net cash used in investing activities in the nine months ended September 28, 2024 was $98 million, consisting mostly of capital expenditures and purchases of debt and equity investments.

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

Financing activities

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.

Net cash used in financing activities in the nine months ended September 28, 2024 and the nine months ended September 30, 2023 was $16 million and $29 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 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.

Severance pay liability increased from $56 million as of December 30, 2023, to $62 million as of September 28, 2024, reflecting mainly the impact of annual salary increases.

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 $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.

Lease liabilities, representing the present value of future lease payments, have increased from $51 million as of December 30, 2023 to $53 million as of September 28, 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 $10 million as of September 28, 2024 (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

Non-GAAP Financial Measures

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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 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, impairment of goodwill 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 goodwill impairment is appropriate because it does not reflect our core operating performance, and excluding such non-cash impairment loss facilitates a useful evaluation of our performance and comparisons to past operating results.

Adjusted Gross Profit and Margin

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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 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.

Our Adjusted Gross Margin decreased from 69% for the three months ended September 30, 2023 to 68% for the three months ended September 28, 2024, primarily due to higher EyeQ-related costs per unit given a different mix of EyeQ generations sold.

In addition, an increase in the percentage of revenue attributable to SuperVision TM was partially offset by an increase in SuperVision TM gross margin given the reduction in manufacturing costs.

Our Adjusted Gross Margin decreased from 70% for the nine months ended September 30, 2023 to 67% for the nine months ended September 28, 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 nine months ended September 30, 2023 since we entered 2023 with an opening balance of EyeQ TM SoC inventory that we previously acquired at lower-than-current prices.

This cost increase was partially offset by an increase in SuperVision TM gross margin given the reduction in manufacturing costs.

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 expenses.

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.

1 unchanged sentence

Three months Ended

Six months Ended

June 29, 2024

Nine months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

dollars in millions

2 unchanged sentences

Share-based compensation expense

goodwill impairment

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.

The three months ended September 28, 2024 ended with an operating loss of $2,807 million compared to a $8 million operating income in the three months ended September 30, 2023.

The increase in operating loss was mainly due to the goodwill impairment loss recognized this quarter.

The nine months ended September 28, 2024 ended with an operating loss higher by $3,033 million compared to the nine months ended September 30, 2023, mainly due to the goodwill impairment loss recognized this quarter.

Our Adjusted Operating Income decreased by $104 million in the three months ended September 28, 2024 compared to the three months ended September 30, 2023, and by $354 million in the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023.

The decrease in both periods was mainly due to an increase in operating expenses and a reduction in revenue.

Our Adjusted Operating Margin decreased from 34% for the three months ended September 30, 2023 to 16% for the three months ended September 28, 2024.

Our Adjusted Operating Margin decreased from 31% for the nine months ended September 30, 2023 to 8% for the nine months ended September 28, 2024.

The decrease in both periods is mainly due to higher operating expenses on a lower revenue base, in addition to the lower Adjusted Gross Margin.

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.

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

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

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

Three months Ended

Six months Ended

June 29, 2024

Nine months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

dollars in millions

2 unchanged sentences

Share-based compensation expense

Expenses related to the IPO

goodwill impairment

Income tax effects

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.

The three months ended September 28, 2024 ended with a net loss of $2,715 million compared to a $17 million net income in three months ended September 30, 2023.

Our net loss increased by $2,929 million in the nine months ended September 28, 2024, compared to the nine months ended September 30, 2023.

The increase in net loss in both periods is mainly due to the goodwill impairment loss recognized this quarter.

Our Adjusted Net Income decreased by $104 million in the three months ended September 28, 2024, compared to the three months ended September 30, 2023.

Our Adjusted Net Income decreased by $333 million in the nine months ended September 28, 2024, compared to the nine months ended September 30, 2023.

The decrease in both periods is primarily due to higher operating expense and lower revenue.

Critical Accounting Policies and Estimates

7 unchanged sentences

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.

During the third quarter of 2024, the Company performed an interim quantitative goodwill impairment analysis for the "Mobileye" reporting unit due to the recent decline in the share price of the Company's Class A common stock and the corresponding decline in market capitalization, as well as macroeconomic and industry factors.

The quantitative impairment test estimates the fair value of the reporting unit using an income approach.

Significant inputs and assumptions incorporated in the valuation include business projections, estimated costs, terminal growth rate, and discount rate based on the reporting unit’s weighted average cost of capital.

The Company also assesses the reasonableness of the estimated fair value of the reporting unit by comparison to its market capitalization, including consideration of expected acquirer synergies, control premium, and the current market.

The results of the impairment analysis indicate that the fair value of the Mobileye reporting unit is below its carrying amount and therefore a non-cash impairment loss of $2,695 million ($2,613 million, net of tax), was recognized in the Condensed Consolidated Statements of Operations.

A 1% increase in the discount rate and a 0.5% decrease in terminal growth rate would result in an additional impairment of $1,493 million and $465 million, respectively.

Cautionary Note Regarding Forward-Looking Statements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis