What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-13 compared with 2024-02-23 · 125 added, 108 removed, 338 unchanged (41% of the section changed)

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

As of December 30, 2023, our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our SoCs had been deployed in approximately 170 million vehicles.

As of December 28, 2024, our solutions had been installed in approximately 1200 vehicle models (including local country, year, and other vehicle model variations), and our SoCs had been deployed in over 200 million vehicles.

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

For the year ended December 30, 2023, we shipped approximately 37.4 million of our systems, the substantial majority of which were EyeQ™ SoCs.

This represents an increase from the approximately 33.7 million of our systems that we shipped in 2022 and approximately 28.1 million of our systems that we shipped in 2021.

For the year ended December 28, 2024, we shipped approximately 29.0 million of our systems, of which the substantial majority were EyeQ ™ SoCs.

This represents a decrease from the approximately 37.4 million of our systems that we shipped in 2023 and approximately 33.7 million of our systems that we shipped in 2022, primarily due to a significant drawdown of excess inventory at our Tier 1 customers and a reduction in volumes shipped to China in 2024.

We were founded in Israel in 1999.

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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 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 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 ™ SoCs, including our EyeQ ™ 6 SoC, our Compound AI system architecture, including True Redundancy ™ , our surround computer vision Mobileye SuperVision ™ solution, and our software-defined imaging radars, 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 typically sell our products with volume-based pricing and recognize the revenue and costs associated with our products upon shipment.

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

We have also established relationships with several suppliers, such as Quanta Computer, to develop and assemble our ECUs, including the design for our Mobileye SuperVision ™ , which includes our EyeQ™5 SoCs manufactured by STMicroelectronics.

Our close partnership with Intel exists on multiple fronts.

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.

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 design and development of our software-defined imaging 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.

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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.

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

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

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, 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 in the global automotive market, including macro factors impacting our sales to OEMs in China, and the extent of the adverse effect that such volatility could have on our results of operations, financial condition and business in the long term.

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

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

We estimate our customers used the vast majority of this excess customer inventory in 2024 in accordance with our expectations, but there is no guarantee that orders will remain normalized or that our customers won’t build up excess inventory in the future.

ADAS volumes have grown faster in recent years than the overall automotive market as ADAS penetration rates have increased, and we believe that we will continue to benefit from that trend.

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

However, continued or future constraints on global automotive production resulting from supply chain shortages and the effects of economic uncertainty may be a limiting factor on our ability to increase revenue.

Our revenue of $1,654 million for the year ended December 28, 2024 was down 20% year-over-year, primarily due to the aforementioned utilization of excess inventory by our customers during the first half of 2024 and a reduction in volumes shipped to China OEMs in 2024.

Continued or future constraints 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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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 ™ 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 ™ for at least a major portion of product for their 001 model going forward.

Investment in technology leadership and product development .

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

Starting in late 2022 and early 2023, such supply chain disruptions, raw material shortages and manufacturing limitations abated and during 2023, we successfully increased levels of EyeQ™ SoC inventory on hand, mitigating the potential for future supply constraints to cause a shortfall.

Starting in late 2022 and early 2023, such supply chain disruptions, raw material shortages and manufacturing limitations abated and during 2023, we successfully increased levels of EyeQ ™ SoC inventory on hand, mitigating the potential for future supply constraints to cause a shortfall of chips.

However, in the event of a reoccurrence of supply chain constraints, and subject to the duration and severity thereof, we may be required to operate with minimal or no inventory of EyeQ ™ SoCs or SuperVision ™ ECUs on hand.

As a result, we are substantially reliant on timely shipments of EyeQ ™ SoCs from STMicroelectronics and ECUs from Quanta Computer (or other suppliers) to fulfill customer orders and if such a shortfall of chips or ECUs were to occur, we may be unable to offset future supply constraints through the use of inventory on hand.

Our results of operations in 2023 have not been impacted by any shortfall of chips.

Our reliance on single or limited suppliers and vendors for certain components, equipment, and services and the aforementioned shortages of substrates and other components have led to increased supply chain risks and continue to stress our ability to meet the supply demands of our customers.

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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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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 ™ SoCs to OEMs primarily 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% of our revenue for the years 2023 and 2022, respectively.

EyeQ ™ SoC sales represented approximately 86% and 89% of our revenue for the years 2024 and 2023, respectively.

Sales of our SuperVision ™ product represented the majority of the remainder of our revenue for both 2024 and 2023.

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

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.

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

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

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

As we develop and sell full systems that include hardware beyond EyeQ ™ SoCs, we expect that our gross margin will decrease over time 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, 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 associated with personnel related expenses, facilities, equipment and supplies for research and development activities, materials, parts and other prototype development, cloud computing services, consulting and other professional services, 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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We intend to continue our significant investment in research and development activities to attain our strategic objectives.

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 2023, 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.

Accordingly, we expect research and development expenses to increase in absolute dollars, but to gradually decrease as a percentage of total revenue.

The expected increase is 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 investment in software and hardware infrastructure for 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 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.

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 over time, 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, insurance costs, finance, and legal departments as well as legal and accounting fees, litigation expenses, and fees for professional and contract services.

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

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.

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

We expect our general and administrative expenses to moderately increase 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 and the applicable provisions of the Sarbanes-Oxley Act, 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 year ended December 28, 2024, as a result of the impairment analysis the Company performed during the third quarter of 2024.

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

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

In the year ended December 30, 2023 we had no interest income (expense) with related party since the outstanding balance of both the Dividend Note and a loan to Intel were zero as of December 31, 2022.

In the years ended December 28, 2024 and December 30, 2023, we had no interest income (expense) with related party since the outstanding balance of both the Dividend Note and a loan to Intel were zero as of December 31, 2022.

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

Other financial income (expense), net, consists primarily of income related to investments in money market funds, as well as income from short term deposits and fluctuations in value due to foreign exchange differences between our monetary assets and liabilities denominated in New Israeli Shekels and to a much lesser extent, the Euro, the Chinese Yuan, the Japanese Yen, and other currencies.

Other financial income (expense), net, consists primarily of income related to investments in money market funds, as well as income from short term deposits, fair value revaluation of equity investments 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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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.

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 in which we operate.

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

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General and administrative

Goodwill impairment

Total operating expenses

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Comparison of the years ended December 28, 2024 and December 30, 2023

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

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

In 2024, revenue was $1,654 million, down $425 million, or 20%, compared to 2023.

This decrease in revenue was primarily due to a decrease of $438 million, or 24%, in EyeQ ™ SoC revenue attributable mainly to a 23% decrease in volume, which was primarily related to the previously disclosed meaningful build-up of inventory at our Tier 1 customers, including in the fourth quarter of 2023.

The vast majority of this excess inventory was consumed to satisfy demand in the first half of 2024.

This was offset by a slight increase in SuperVision ™ related revenue.

Cost of Revenue

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

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

In 2024, our cost of revenue decreased by $119 million, or 12%, compared to 2023.

This decrease was primarily due to a decrease of $87 million in manufacturing costs relating primarily due to the decrease in sales of our EyeQ ™ SoC, in addition to a $30 million decrease in amortization expenses of intangible assets.

Gross Profit and margin

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

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

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

This increase was mainly due to a lower cost attributable to amortization of intangible assets as a percentage of revenues, which was partially offset by the downward impact of the increased cost of our EyeQ™ SoCs (which was passed through as a price increase to our customers on a zero-margin basis).

In 2024, our gross profit decreased by $306 million, or 29%, compared to 2023.

The decrease was mainly due to the decrease in revenue from our EyeQ ™ SoC sales, partially offset by the decrease in amortization expenses of intangible assets.

Our gross margin decreased from 50% during 2023, to 45% during 2024.

This decrease was mainly due to a higher impact of amortization of intangible assets as a percentage of revenues, as well as the impact of higher EyeQ-related costs per unit due to mix effects.

Research and Development Expenses, net

Research and development expenses, net, in 2024, increased by $194 million, or 22%, compared to 2023.

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

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

This increase was primarily due to an increase in payroll and related expenses, resulting from an increase in average research and development headcount of 348 employees, and 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.

Sales and Marketing Expenses

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

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

Sales and marketing expenses in 2024 remained flat compared to 2023, mainly due to an increase in marketing expenses which was offset by a decrease in payroll and related expenses including share-based compensation which is mainly associated to the winding down of the Aftermarket Solutions Unit in 2024.

General and Administrative Expenses

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

This increase was mainly due to an increase of $17 million in share-based compensation, as well as costs related to being a public company.

General and administrative expenses in 2024 decreased by $3 million, or 4%, compared to 2023.

This decrease was mainly due to a decrease in legal and corporate expenses.

Goodwill Impairment

Goodwill impairment expenses were $2,695 million in 2024 and zero in 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 10 to the Consolidated Financial Statements included in this report.

Interest Income (expense) with Related Party, net and Other Financial Income (expense), net

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

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

Interest income (expense) with related party, net was zero in both 2024 and 2023.

Other financial income (expense) net in 2024, was $62 million compared to $49 million in 2023.

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

This increase was mainly due to an increase in interest earned on short term bank deposits, a decrease in exchange rate differences expense and income from fair value revaluation of equity investments executed during 2024.

Benefit (Provision) for Income Tax

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

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

In 2024, benefit for income tax was $73 million, compared to a $(43) million provision for income tax in 2023.

This change is mainly due to the deferred tax effects of goodwill impairment to the Mobileye reporting unit, as well as higher loss before income taxes in 2024.

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

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

This increase in revenue was primarily due to an increase of $363 million, or 28%, in EyeQ™ SoC sales, attributable to a 7% increase in ASP and a 19% increase in volume, driven by increasing adoption of ADAS compared to 2021 and a slight improvement in global vehicle production.

The remaining increase in revenue was mainly related to the sales of our SuperVision™ solution, which was launched during the fourth quarter of 2021 and ramped up during 2022.

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

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

Cost of revenue

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

This increase was primarily due to an increase of $162 million in manufacturing costs relating primarily to increased sales of our EyeQ™ SoC and our sales of SuperVision™ solution.

The remaining increase resulted primarily from an increase of $50 million in amortization of intangible assets resulting from the full year impact of the amortization of intangible assets transferred from in-process research and development to acquisition-related developed technology during 2021.

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

Gross Profit and margin

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

The increase was mainly driven by the increase in revenue from our EyeQ™ SoC sales, as well as the sales of our SuperVision™ solution, partially offset by the increase in amortization of intangible assets.

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

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

This increase was primarily due to the lower impact of the cost attributable to amortization of intangible assets as a percentage of revenues, which was partially offset by the impact of SuperVision™ sales contributing lower margin given the greater hardware content this product contains.

The rise in the cost of our EyeQ™ SOCs due to the global semiconductor shortage and to inflationary pressures also had a downward impact on our gross margin, but to a lesser extent than the foregoing because we entered 2022 with an opening balance of EyeQ™ SoC inventory previously acquired at lower-than-current prices and passed on some of the increased costs of EyeQ™ SoCs acquired at current prices to our customers.

This increase was mainly due to lower cost attributable to amortization of intangible assets as a percentage of revenues, which was partially offset by the downward impact of the increased cost of our EyeQ ™ SOCs (which was passed through as a price increase to our customers on a zero-margin basis).

Research and Development Expenses, Net

Research and development expenses, net, in 2023, increased by $100 million, or 13%, compared to 2022.

This increase was primarily due to an increase of $187 million in payroll and related expenses, resulting from an increase in average research and development headcount of 433 employees and an increase in payroll costs, including share-based compensation.

Additionally, there was an increase of $47 million in cloud computing services and investments attributable to new product development.

Sales and Marketing Expenses

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

The decrease was mainly due to a decrease in amortization of customer relationship and brand-related intangible assets.

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

General and Administrative Expenses

General and administrative expenses in the 2022 increased by $16 million, or 47%, compared to 2021.

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

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

This increase was mainly due to an increase of $17 million in share-based compensation, as well as costs related to being a public company.

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

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

The increase was due to higher interest earned on the loan to Intel that was settled.

Interest (expense) with related party was $(24) million in 2022 compared to zero in 2021.

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

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

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

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

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

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

Benefit ( provision ) for income tax

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

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

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

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

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, investments attributable to new product development and outflows related to re-building our strategic inventory, as well as for funding our capital expenditures.

Our capital expenditures have related mainly to the construction of our new sites and campus, data storage and other computer related equipment and were $98 million and $111 million for 2023 and 2022, respectively.

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 data storage and other computer related equipment, expenditure related to research and development projects and to the construction of new sites and were $81 million and $98 million for 2024 and 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.

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

We expect our total capital expenditures for 2025 to be higher compared to our total capital expenditures in 2024.

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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Operating activities

For 2024 compared to 2023, the $6 million increase in cash provided by operating activities was mainly due to a lower increase in inventories compared to prior year period during which the company rebuilt its strategic inventory of EyeQ chips and a decrease in accounts receivable due to reduction in revenue.

This was mostly offset by an increase of $3,063 million in net loss, which was adjusted by $2,695 million of non-cash goodwill impairment loss.

For 2023 compared to 2022, the $152 million decrease in cash provided by operating activities was mainly due to an increase in inventories, as part of a planned initiative to rebuild our strategic inventory of EyeQ chips that was largely consumed during the supply chain crisis in 2021 and 2022, which was partially offset by a change in employee related balances.

For 2022 compared to 2021, the $53 million decrease in cash provided by operating activities was m ainly due to a change in employee related balances resulting from our recruitment of certain employees relating to the Mobileye business from Intel during the second quarter of 2022 and an increase in accounts receivable balance due to the ramp up in revenue, partially offset by an increase in non-cash adjustments, mainly attributable to the increase in share-based compensation expense.

Investing activities

Net cash used in investing activities in 2024 was $120 million, consisting mostly of capital expenditures and purchases of debt and equity investments.

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

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

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

Financing activities

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

Net cash used in financing activities in 2024 and 2023 was $66 million and $100 million, respectively, consisting of share-based compensation recharge payments made to Intel.

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

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

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

Severance pay liability increased from $56 million as of December 30, 2023, to $62 million and as of December 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 decreased from $58 million as of December 31, 2022 to $51 million as of December 30, 2023, reflecting mainly the progress in lease payments for existing arrangements.

We have several bank guarantees aggregating approximately $14 million as of December 30, 2023 (mainly denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

Lease liabilities, representing the present value of future lease payments, have decreased from $51 million as of December 30, 2023 to $50 million as of December 28, 2024, reflecting mainly the progress in lease payments for existing arrangements partially offset by new lease contracts and amendments to existing agreements.

We have several bank guarantees aggregating approximately $11 million as of December 28, 2024 (denominated in New Israeli Shekels) mainly in connection with lease agreements and import of vehicles.

In addition, in connection with the Reorganization and the Mobileye IPO, on April 21, 2022, we distributed to Intel the Dividend Note, in the aggregate principal amount of $3.5 billion.

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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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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.

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, 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 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 were not capitalizable, and are included within general and administrative expenses.

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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Our Adjusted Gross Margin decreased from 70% for 2023 to 68% for 2024.

The decrease was primarily due to the downward impact of the increased cost of our EyeQ™ SoCs (which was passed through as a price increase to our customers on a zero-margin basis).

The decrease was primarily due to the downward impact of the increased cost per unit of our EyeQ ™ SoCs due to mix effects.

The decrease was also related to higher percentage of revenue attributable to Supervision ™ .

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

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

The rise in the cost of our EyeQ™ SoCs due to the global semiconductor shortage and inflationary pressures also had a downward impact on our gross margin, but to a lesser extent than the foregoing.

The decrease was primarily due to the downward impact of the increased cost of our EyeQ ™ SoCs (which was passed through as a price increase to our customers on a zero-margin basis).

Adjusted Operating Income and Margin

We define Adjusted Operating Income as operating loss presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles, share-based compensation expenses and expenses related to the Mobileye IPO.

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.

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

Operating margin is calculated as operating income (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:

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Expenses related to the IPO

Goodwill impairment

Adjusted operating income and margin

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

Our operating loss increased by $3,192 million in 2024 compared to 2023, mainly as a result of a goodwill impairment loss recognized during the third quarter of 2024.

Our Adjusted Operating Income decreased by $500 million in 2024 compared to 2023, primarily due to a reduction in revenue, and an increase in operating expenses.

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

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

Our Adjusted Operating Margin decreased from 33% in 2023 to 12% in 2024, primarily due to a higher operating expenses on a lower revenue base, in addition to lower adjusted gross margin.

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

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

We expect that our Adjusted Operating Margin in future near-term years will decrease compared to 2023, mainly due to expected decrease in Adjusted Gross Margin as we develop and sell full systems solutions contributing higher gross profit dollars per unit but lower percentage gross margin given the greater hardware content included in these systems, as well as expected increase in research and development expenses attributable to headcount and higher direct expenses that we expect to incur in connection with the development of new EyeQ™ SoC generations, Mobileye SuperVision™ enhancements, and the productization of our AV solutions and active sensor suite.

We expect that our Adjusted Operating Margin in the near-term future will increase compared to 2024, mainly due to a lower expected impact of operating expenses as a percentage of revenue.

This is expected to be partially offset by an over time decrease in Adjusted Gross Margin as we develop and sell full systems solutions contributing higher gross profit dollars per unit but lower percentage gross margin given the greater hardware content included in these systems.

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 expenses and expenses related to the Mobileye IPO, as well as the related income tax effects.

We define Adjusted Net Income as net income (loss) presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles, share-based compensation expenses 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:

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Expenses related to the Mobileye IPO

Goodwill impairment

Income tax effects

Adjusted net income

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

Our Net Loss increased by $3,063 million in 2024 compared to 2023, primarily due to a goodwill impairment loss recognized during the third quarter of 2024.

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

Our Adjusted Net Income decreased by $454 million in 2024 compared to 2023, primarily due to a reduction in revenue, and an increase in research and development expenses.

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

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

We expect that our Adjusted Net Income margin (which is the Adjusted Net Income divided by total revenue) in future near-term years will decrease compared to 2023, mainly due to an expected decrease in Adjusted Gross Margin as we develop and sell full systems solutions contributing higher gross profit dollars per unit but lower percentage gross margin given the greater hardware content included in these systems, as well as an expected increase in research and development expenses attributable to headcount and higher direct expenses that we expect to incur in connection with the development of new EyeQ™ SoC generations, Mobileye SuperVision™ enhancements, and the productization of our AV solutions and active sensor suite.

We expect that our Adjusted Net Income Margin (which is the Adjusted Net Income divided by total revenue) in the near-term future will increase compared to 2024, mainly due to a lower expected impact of operating expenses as a percentage of revenue.

Critical Accounting Policies and Estimates

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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.

During the third quarter of 2024, we performed an impairment assessment of intangible assets and concluded that the sum of the expected future undiscounted cash flows expected to be generated by the intangible assets is substantially above their carrying amount and therefore no impairment was identified.

The Company did not record any impairment of intangible assets for any of the periods presented.

We perform an annual impairment assessment of goodwill at the reporting unit level in the fourth quarter of each year, or more frequently if indicators of potential impairment exist.

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Our quantitative impairment test considers both the income approach and the market approach to estimate a reporting unit’s fair value.

Significant estimates include business projections, growth rates, estimated costs, and discount rates based on a reporting unit’s weighted average cost of capital.

Significant estimates include business projections, growth rates, and discount rates based on a reporting unit’s weighted average cost of capital.

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

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

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

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

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, 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 indicated that the fair value of the Mobileye reporting unit was 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 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.

During the fourth quarter of 2024, we completed our annual impairment assessment.

Based on the assessment, the fair value of the “Mobileye” reporting unit exceeds its book value.

We also performed a detailed quantitative analysis for the “Other” reporting unit which showed that no impairment was required.

Fair value was estimated using the expected present value of future cash flows and is categorized as Level 3 within the fair value hierarchy due to the use of unobservable inputs.

The Company did not record any impairment of goodwill in 2023 and 2022.

The provision for income tax consists of income taxes in the various jurisdictions where the Company is subject to taxation, primarily the United States and Israel.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis