Mobileye Global Inc

Previous wording

As of March 30, 2024, our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our System-on-Chips (“SoCs”) had been deployed in approximately 170 million vehicles. We are actively working with more than 50 Original Equipment Manufacturers (“OEMs”) worldwide on the implementation of our ADAS solutions. In the three months ended March 30, 2024, we shipped approximately 3.6 million of our systems, the substantial majority of which were EyeQTM SoCs. This represents a decrease from the approximately 8.1 million of our systems that we shipped in the first three months of 2023, due to high excess inventory at our Tier 1 customers, as announced earlier this year.

Current wording

As of June 29, 2024, our solutions had been installed in approximately 800 vehicle models (including local country, year, and other vehicle model variations), and our System-on-Chips (“SoCs”) had been deployed in approximately 180 million vehicles. We are actively working with more than 50 Original Equipment Manufacturers (“OEMs”) worldwide on the implementation of our ADAS solutions. In the six months ended June 29, 2024, we shipped approximately 11.2 million of our systems, the substantial majority of which were EyeQTM 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.

Previous wording

On October 7, 2023, Hamas launched a series of attacks on civilian and military targets in Southern Israel and Central Israel, to which the Israel Defense Forces have responded. In addition, Hezbollah has attacked military and civilian targets in Northern Israel, to which Israel has responded. Further, on April 13, 2024, Iran launched a series of drone and missile strikes against Israel, to which Israel has responded. How long and how severe the current conflict in Gaza, Northern Israel or the broader region becomes is unknown at this time and any continued clash among Israel, Hamas, Hezbollah, Iran or other countries or militant groups in the region may escalate in the future into a greater regional conflict. To date, our operations have not been materially affected, although as of May 1, 2024 approximately 4.0% of our employees have been called to reserve duty in the Israel Defense Forces. We expect that the current conflict in the Gaza Strip and the security escalation in Israel will not have a material impact on our business results in the short term. However, since this is an event beyond our control, its continuation or cessation may affect our expectations. We continue to monitor political and military developments closely and examine the consequences for our operations and assets.

Current wording

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

Previous wording

Global demand for automotive vehicles. Our business performance is related to global automotive sales and automotive vehicle production by our OEM customers. 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 and inflation may contribute to a reduction in consumer demand. On the other hand, pent up demand from years of below peak production levels could lead to better than expected production. In addition to economic conditions, in prior periods, including during the supply chain crisis and semi-conductor shortage of 2021 and 2022, certain Tier 1 customers increased their orders for components and parts, including our solutions, to counteract the impact of supply chain shortages for auto parts. As a result, some demand for our solutions and the corresponding revenue from these customers were shifted to earlier time periods than otherwise would have occurred absent a general supply chain shortage and inflationary environment. As a result of our standard planning process for 2024, including discussions with our Tier 1 customers, we became aware in late 2023 of significant excess inventory at our customers. This as well as lower than expected production at certain OEMs during 2023 led to the decision by our Tier 1 customers to prioritize in the first quarter of 2024 the utilization of excess inventory on hand before using new shipments to meet the demand of OEMs. We estimate that our customers have used the vast majority of this excess customer inventory in the first quarter of 2024, in accordance with our expectations, and we expect that orders will normalize during the remainder of 2024, but there is no guarantee that they will do so. ADAS volumes have grown faster in recent years than the overall automotive market as ADAS penetration rates have increased, and we believe that we will continue to benefit from that trend. However, our revenue of $239 million in the three months ended March 30, 2024 was down 48% year-over-year, primarily due to the aforementioned utilization of excess inventory by our customers during the first quarter of 2024. Continued or future constraint on global automotive production resulting from supply chain shortages and the effects of economic uncertainty may be a limiting factor on our ability to increase revenue. We expect to continue to capitalize on our strong and collaborative relationships with OEMs and Tier 1s to expand our presence in key markets and capture the long-term growth opportunities in those markets.

Current wording

Global demand for automotive vehicles. Our business performance is related to global automotive sales and automotive vehicle production by our OEM customers. 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. While automotive production has now recovered to approximately 2019 levels, current uncertain economic conditions and inflation may contribute to a reduction in consumer demand. On the other hand, pent up demand from years of below peak production levels could lead to better than expected production. In addition to economic conditions, in prior periods, including during the supply chain crisis and semi-conductor shortage of 2021 and 2022, certain Tier 1 customers increased their orders for components and parts, including our solutions, to counteract the impact of supply chain shortages for auto parts. As a result, some demand for our solutions and the corresponding revenue from these customers were shifted to earlier time periods than otherwise would have occurred absent a general supply chain shortage and inflationary environment. As a result of our standard planning process for 2024, including discussions with our Tier 1 customers, we became aware in late 2023 of significant excess inventory at our customers. This as well as lower than expected production at certain OEMs during 2023 led to the decision by our Tier 1 customers to prioritize in the first quarter of 2024 the utilization of excess inventory on hand before using new shipments to meet the demand of OEMs. We estimate that our customers have used the vast majority of this excess customer inventory in the first and second quarters of 2024, in accordance with our expectations, but there is no guarantee that orders will continue to normalize during the remainder of 2024. ADAS volumes have grown faster in recent years than the overall automotive market as ADAS penetration rates have increased, and we believe that we will continue to benefit from that trend…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

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. 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 EyeQTM 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.

Current wording

Design wins with new and existing customers. Global OEMs are continuously looking for innovative ways to improve the customer appeal and safety of their vehicles. Additional program design wins for production programs are important to our future revenue growth. 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. 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 EyeQTM 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.

Previous wording

Supply and manufacturing capacity. Our solutions are dependent on the global semiconductor supply chain. The continued and timely supply of input materials, the availability of manufacturing capacity, and packaging and testing services at reasonable prices impact our ability to meet customer demand. Supply chain disruptions, shortages of raw material, such as wafers and substrates, and manufacturing limitations could limit our ability to meet customer demand and result in delayed, reduced, or canceled orders. During 2021 and 2022, the semiconductor industry experienced widespread shortages of substrates and other components and available foundry manufacturing capacity. We entered 2022 with significantly lower inventories of our EyeQTM SoCs on our balance sheet as a result of the limited supply during 2021. Further, STMicroelectronics, our sole supplier of EyeQTM SoCs, was not able to meet our demand for EyeQTM 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 EyeQTM SoC inventory on hand, mitigating the potential for future supply constraints to cause a shortfall of chips. However, in the event of a reoccurence of supply chain constraints, and subject to the duration and severity thereof, we may be required to operate with minimal or no inventory of EyeQTM SoCs or SuperVision TM ECUs on hand. As a result, we are substantially reliant on timely shipments of EyeQTM SoCs from STMicroelectronics and ECUs from Quanta Computer (or other suppliers) to fulfill customer orders and if such a shortfall of chips of ECUs were to occur, we may be unable to offset future supply constraints through the use of inventory on hand. Our results of operations in the three months ended March 30, 2024 have not been impacted by any shortfall of chips. Our reliance on single or limited suppliers and vendors for certain components, equipment, and services and the aforementioned shortages of substrates and other components have led to increased supply chain risks and continue to stress our ability to meet the supply demands of our customers. To mitigate these supply chain constraints, management continues to monitor inventory levels on an ongoing basis. Although we cannot fully predict the length and the severity of the impact these pressures will have on a long-term basis, we do not anticipate that our current supply chain constraints would materially adversely affect our results of operations, capital resources, sales, profits, and liquidity on a long-term basis.

Current wording

Supply and manufacturing capacity. Our solutions are dependent on the global semiconductor supply chain. The continued and timely supply of input materials, the availability of manufacturing capacity, and packaging and testing services at reasonable prices impact our ability to meet customer demand. Supply chain disruptions, shortages of raw material, such as wafers and substrates, and manufacturing limitations could limit our ability to meet customer demand and result in delayed, reduced, or canceled orders. During 2021 and 2022, the semiconductor industry experienced widespread shortages of substrates and other components and available foundry manufacturing capacity. We entered 2022 with significantly lower inventories of our EyeQTM SoCs on our balance sheet as a result of the limited supply during 2021. Further, STMicroelectronics, our sole supplier of EyeQTM SoCs, was not able to meet our demand for EyeQTM SoCs during 2022, causing further a significant reduction in our company-owned inventory level. Starting in late 2022 and early 2023, such supply chain disruptions, raw material shortages, and manufacturing limitations abated and during 2023, we successfully increased levels of EyeQTM 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 EyeQTM SoCs or SuperVision TM ECUs on hand. As a result, we are substantially reliant on timely shipments of EyeQTM 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. Our reliance on single or limited suppliers and vendors for certain components, equipment, and services and the aforementioned shortages of substrates and other components have led to increased supply chain risks and continue to stress our ability to meet the supply demands of our customers. To mitigate these supply chain constraints, management continues to monitor inventory levels on an ongoing basis. Although we cannot fully predict the length and the severity of the impact these pressures will have on a long-term basis, we do not anticipate that our current supply chain constraints would materially adversely affect our results of operations, capital resources, sales, profits, and liquidity on a long-term basis.

Previous wording

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. 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.

Current wording

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. 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, which we expect to increase over time.

Previous wording

EyeQTM SoC sales represented approximately 72% and 88% of our revenue for the three months ended March 30, 2024 and April 1, 2023, respectively. Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three months ended March 30, 2024 and April 1, 2023. Revenue from the sale of our EyeQTM 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.

Current wording

EyeQTM SoC sales represented approximately 86% and 92% of our revenue for the three months ended June 29, 2024 and July 1, 2023, respectively, and 81% and 90% of our revenue in the six months ended June 29, 2024 and July 1, 2023, respectively. Sales of our SuperVision™ product represented the majority of the remainder of our revenue for the three and six months ended June 29, 2024 and also for the three and six months ended July 1, 2023. Revenue from the sale of our EyeQTM 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.

Previous wording

Research and development expenses primarily consist of expenses related to personnel-related expenses, including share-based compensation, facilities, equipment and supplies for research and development activities , material, parts and other prototype development, cloud computing services, consulting, and other professional services, including data labeling, quality assurance within the development programs, and allocated overhead costs.

Current wording

Research and development expenses primarily consist of expenses related to personnel related expenses, including share-based compensation, facilities, equipment and supplies for research and development activities, materials, parts and other prototype development, cloud computing services, consulting, and other professional services, including data labeling, quality assurance within the development programs, and allocated overhead costs.

Previous wording

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.

Current wording

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.

Previous wording

Realization of deferred tax assets is based on our judgment and various factors including reversal of deferred tax liabilities, the ability to generate future taxable income in jurisdictions where such assets have arisen, and potential tax planning strategies. The valuation

Current wording

Realization of deferred tax assets is based on our judgment and various factors including reversal of deferred tax liabilities, the ability to generate future taxable income in jurisdictions where such assets have arisen, and potential tax planning strategies. The valuation allowance for the periods presented in our condensed consolidated financial statements primarily relate to U.S. branch deferred tax assets not currently expected to be realized given that we have sustained recent losses based on the separate return method.

Previous wording

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

Current wording

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

Previous wording

In the three months ended March 30, 2024, revenue decreased by $219 million, or 48%, compared to the three months ended April 1, 2023, due to a decrease of $233 million, or 58%, in EyeQTM SoC revenue, primarily attributable to a 56% reduction in volume resulting from the usage of meaningful excess inventory at our previously accumulated Tier 1 customers to satisfy demand. This was partially offset by an increase of $14 million in SuperVision TM related revenue. Average System Price, calculated as the sum of revenue related to EyeQTM and SuperVision TM systems divided by the number of systems delivered, increased by approximately 13%, primarily due to the higher percentage of SuperVision TM related revenue as compared to the first quarter of 2023.

Current wording

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 EyeQTM SoC revenue attributable to a 32% decrease in volume resulting from the usage of meaningful excess inventory previously accumulated at our Tier 1 customers to satisfy demand. This was partially offset by an increase of $39 million in SuperVision TM related revenue. Average System Price, calculated as the sum of revenue related to EyeQTM 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.

Previous wording

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

Current wording

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 EyeQTM SoC offset by the increase in sales of SuperVision TM systems, as well as a decrease of $29 million in amortization of intangible assets.

Previous wording

In the three months ended March 30, 2024, our gross profit decreased by $153 million, or 74%, compared to the three months ended April 1, 2023. This decrease was mainly driven by the decrease in sales of EyeQTM systems, attributable to the usage of meaningful inventory at our Tier 1 customers to satisfy demand.

Current wording

The gross profit decrease in both periods was mainly driven by the decrease in sales of EyeQTM systems, attributable to the usage of meaningful inventory at our Tier 1 customers to satisfy demand.

Previous wording

Our gross margin decreased from 45% for the three months ended April 1, 2023, to 23% for the three months ended March 30, 2024. This decrease was primarily due to the increase in the percentage of revenue attributable to SuperVision TM, as well as a higher impact of amortization of intangible assets as a percentage of revenue. In addition, there was an increase in the average cost of our EyeQTM SoC compared to the first quarter of 2023 since we entered 2023 with an opening balance of EyeQTM SoC inventory that we previously acquired at lower-than-current prices.

Current wording

In the six months ended June 29, 2024, our gross margin has decreased by 8% to 39% compared to 47% in the six months ended July 1, 2023. This was mainly due to the increase in the percentage of revenue attributable to SuperVision TM, as well as a higher impact of amortization of intangible assets as a percentage of revenue. In addition, there was an increase in the average cost of our EyeQTM SoC compared to the first half of 2023 since we entered 2023 with an opening balance of EyeQTM SoC inventory that we previously acquired at lower-than-current prices.

Previous wording

Research and development expenses, net, in the three months ended March 30, 2024, increased by $8 million, or 3%, compared to the three months ended April 1, 2023. This increase was primarily due to an increase in occupancy and related expenses associated with the occupancy of the new campus and additional sites. Average research and development headcount increased by 351 employees, however the related payroll expenses were mainly offset by ILS/USD foreign exchange rate impact and military duty reserve refunds from the state of Israel. In addition, an increase related to investments attributable to new product development and cloud computing services was offset by higher NRE reimbursements.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

General and administrative expenses in the three months ended March 30, 2024, decreased by $5 million, or 25%, compared to the three months ended April 1, 2023. This decrease was primarily due to a decrease in share-based compensation expenses.

Current wording

General and administrative expenses in the six months ended June 29, 2024 decreased by $3, or 8%, compared to the six months ended July 1, 2023. This decrease was mainly due to a decrease in share-based compensation expenses.

Previous wording

Other financial income, net, in the three months ended March 30, 2024, was $17 million compared to $8 million in the three months ended April 1, 2023. This increase was mainly due to an increase of $6 million in interest earned on investment in money market funds and short term bank deposits, as well as an increase of $3 million derived from the impact of fluctuations in foreign exchange rates.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

Our primary uses of funds have been for funding increases in headcount in our research and development departments, investments attributable to new product development, as well as for funding our capital expenditures. Our capital expenditures have related mainly to the construction of our new sites and campus, data storage and other computer related equipment and were $22 million and $26 million for the three months ended March 30, 2024 and April 1, 2023, respectively.

Current wording

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.

Previous wording

For the three months ended March 30, 2024 compared to the three months ended April 1, 2023, the $131 million decrease in cash provided by operating activities was mainly due to an increase of $139 million in net loss. The decrease in trade accounts receivable due to reduction in revenue, was largely offset by a decrease in accounts payable and an increase in other current assets.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Net cash used in financing activities in the three months ended March 30, 2024 and the three months ended April 1, 2023 was $4 million and $3 million, respectively, consisting of share-based compensation recharge payments made to Intel.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

We have lease agreements for vehicles and offices. We lease office space in various locations in Israel and around the world including USA, Germany and China. All leases are operating leases with fixed payment terms where some of the leases include annual increases to lease payments based on an index or a rate. Lease liabilities, representing the present value of future lease payments, have increased from $51 million as of December 30, 2023 to $55 million as of March 30, 2024, reflecting mainly new lease contracts and amendments to existing agreements, partially offset by the progress in lease payments for existing arrangements.

Current wording

We have lease agreements for vehicles and offices. We lease office space in various locations in Israel and around the world including USA, Germany and China. All leases are operating leases with fixed payment terms where some of the leases include annual increases to lease payments based on an index or a rate. Lease liabilities, representing the present value of future lease payments, have increased from $51 million as of December 30, 2023 to $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.

Previous wording

Our management uses Adjusted Gross Profit and Margin, Adjusted Operating Income and Margin and Adjusted Net Income, collectively, as key measures in operating our business. We use such non-GAAP financial measures to make strategic decisions, establish business plans and forecasts, identify trends affecting our business, and evaluate performance. 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. 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. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure presented in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as our condensed consolidated financial statements and related notes included elsewhere in this report.

Current wording

Our management uses Adjusted Gross Profit and Margin, Adjusted Operating Income and Margin and Adjusted Net Income, collectively, as key measures in operating our business. We use such non-GAAP financial measures to make strategic decisions, establish business plans and forecasts, identify trends affecting our business, and evaluate performance. 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 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. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure presented in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, as well as our condensed consolidated financial statements and related notes included elsewhere in this report.

Previous wording

Our Adjusted Gross Margin decreased from 71% for the three months ended April 1, 2023 to 62% for the three months ended March 30, 2024. The decrease was primarily due to the increase in the percentage of revenue attributable to SuperVision TM. In addition there was an increase in the cost of our EyeQTM SoCs compared to the first quarter of 2023 since we entered 2023 with an opening balance of EyeQTM SoC inventory that we previously acquired at lower-than-current prices.

Current wording

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 EyeQTM SoCs compared to the second quarter of 2023 since we entered 2023 with an opening balance of EyeQTM SoC inventory that we previously acquired at lower-than-current prices.

Previous wording

We define Adjusted Operating Income (loss) as operating income (loss) presented in accordance with GAAP, adjusted to exclude amortization of acquisition related intangibles and share-based compensation expense. Operating margin is calculated as operating income (loss) divided by total revenue, and Adjusted Operating Margin is calculated as Adjusted Operating Income (Loss) divided by total revenue.

Current wording

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.

Previous wording

Note 2, “Significant Accounting Policies” of the Notes to the condensed consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the 2023 Annual Report on Form 10-K, as filed with the SEC on February 23, 2024 (the “2023 Form 10-K”) describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K.

Current wording

Note 2, “Significant Accounting Policies” of the Notes to the condensed consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to the Consolidated Financial Statements in Part II, Item 8 of the 2023 Annual Report on Form 10-K, as filed with the SEC on February 23, 2024 (the “2023 Form 10-K”) describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2023 Form 10-K. As noted in the 2023 Form 10-K critical accounting policies, we regularly test our goodwill and intangible assets to make a judgment on whether facts and circumstances indicate that the carrying amount may not be recoverable and an impairment may be required. These reviews can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines. As disclosed elsewhere in this report, recent industry and economic trends have adversely impacted our business and forecasts, and this could impact the results of our testing in the future if these trends continue.