Aurora Innovation, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of Aurora should be read together with Aurora’s unaudited financial statements as of and for the three months ended March 31, 2022 and 2021, together with related notes thereto, included elsewhere in this Quarterly Report. The discussion and analysis should also be read together with the section entitled “Aurora’s Business” below. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of Aurora’s control and actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in “Part II, Item 1A. Risk Factors” of this Quarterly Report and under the heading “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report. Percentage amounts included in this Quarterly Report have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Quarterly Report may vary from those obtained by performing the same calculations using the figures in our unaudited consolidated financial statements included elsewhere in this Quarterly Report. Certain other amounts that appear in this Quarterly Report may not sum due to rounding. Unless otherwise indicated or the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “Aurora,” “we,” “us,” “our” and other similar terms refer to Legacy Aurora prior to the Business Combination and to Aurora and its consolidated subsidiaries after giving effect to the Business Combination. Aurora’s Business Aurora is developing the Aurora Driver based on what it believes to be the most advanced and scalable suite of self-driving hardware, software, and data services in the world to fundamentally transform the over $9 trillion global transportation market. The Aurora Driver is designed as a platform to adapt and interoperate amongst vehicle types and applications. To date, it has been successfully integrated into nine different vehicle platforms: from passenger vehicles to light commercial vehicles to Class 8 trucks. By creating one driver system for multiple vehicle types and use cases, Aurora’s capabilities in one market reinforce and strengthen its competitive advantages in others. For example, highway driving capabilities developed for trucking will carry to highway segments driven by passenger vehicles in ride hailing applications. We believe this approach will enable us to target and transform multiple massive markets, including the $4 trillion global trucking market, the $5 trillion global passenger mobility market, and the $400 billion U.S. local goods delivery market. We expect that the Aurora Driver will ultimately be commercialized in a Driver as a Service (“DaaS”) business model, in which we will supply self-driving technology. We do not intend to own nor operate a large number of vehicles ourselves. Throughout commercialization, we expect to earn revenue on a fee per mile basis. We intend to partner with OEMs, fleet operators, and other third parties to commercialize and support Aurora-powered vehicles. We expect that these strategic partners will support activities such as vehicle manufacturing, financing and leasing, service and maintenance, parts replacement, facility ownership and operation, and other commercial and operational services as needed. We expect this DaaS model to enable an asset-light and high margin revenue stream for Aurora, while allowing us to scale more rapidly through partnerships. During the start of commercialization, though, we expect to briefly operate our own logistics and mobility services, where we own and operate a small fleet of vehicles equipped with our Aurora Driver. This level of control is useful during early commercialization as we will define operational processes and playbooks for our partners. Future success will be dependent on our ability to continue to execute against our product roadmap, which includes milestones to commercialize the Aurora Driver in late 2023 for trucking and late 2024 for ride hailing. We intend to launch trucking as our first driverless product, as we believe that is where we can make the largest impact the fastest, given the massive industry demand, attractive unit economics, and the ability to deploy on high volume highway-focused routes. From there, we plan to leverage the extensibility of the Aurora Driver to deploy and scale into the passenger mobility and local goods delivery markets. 21 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2022 to Three Months Ended March 31, 2021 The following table sets forth a summary of our consolidated results of operations for the periods indicated, and the changes between periods. Three Months Ended March 31, $ Change % Change 2022 2021 (in thousands, except for percentages) Collaboration revenue $ 41,998 $ — $ 41,998 n/m (1) Operating expenses Research and development 154,090 159,109 (5,019) (3.2) % Selling, general and administrative 31,052 32,680 (1,628) (5.0) % Total operating expenses 185,142 191,789 (6,647) (3.5) % Loss from operations (143,144) (191,789) 48,645 (25.4) % Other income (expense) Interest and other income 581 570 11 1.9 % Change in fair value of derivative liabilities 65,810 — 65,810 n/m (1) Other expense (53) (44) (9) n/m (1) Loss before income taxes (76,806) (191,263) 114,457 (59.8) % Income tax expense (benefit) 2 (2,644) 2,646 n/m (1) Net loss $ (76,808) $ (188,619) $ 111,811 (59.3) % ________________ (1) Not meaningful. Collaboration Revenue Collaboration revenue increased by $42.0 million in the three months ended March 31, 2022 due to the collaboration framework agreement and project plan signed in August 2021 with Toyota Motor Corporation. Research and Development Research and development decreased by $5.0 million, or 3.2%, to $154.1 million in the three months ended March 31, 2022 from $159.1 million in the three months ended March 31, 2021, primarily driven by a decrease in stock-based compensation and severance expense, partially offset by an increase in payroll costs and hardware development costs. Selling, General and Administrative Selling, general, and administrative decreased by $1.6 million, or 5.0%, to $31.1 million in the three months ended March 31, 2022 from $32.7 million in the three months ended March 31, 2021, primarily driven by a decrease in professional services costs, partially offset by an increase in insurance and payroll costs. Change in Fair Value of Derivative Liabilities Income recognized for the change in fair value of derivative liabilities was $65.8 million in the three months ended March 31, 2021 primarily due to the change in market price for the underlying instrument. Income Tax Expense (Benefit) An income tax benefit was recognized in the three months ended March 31, 2021 due to the release of a deferred tax asset valuation allowance as a result of deferred tax liabilities incurred from the acquisition of OURS Technology, Inc. 22 Table of Contents Liquidity and Capital Resources As of March 31, 2022, our principal sources of liquidity were $504.3 million of cash and cash equivalents and $964.4 of short-term investments, exclusive of short-term and long-term restricted cash of $0.3 million and $16.1 million, respectively. Cash and cash equivalents primarily consist of money market funds and U.S. government securities. Short-term investments consist of U.S. government securities. We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of $1,168.0 million as of March 31, 2022. We expect to continue to incur operating losses at least for the next 12 months due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business. We believe our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report. We may need additional funding due to changing business conditions or other developments, including unanticipated regulatory developments and competitive pressures. Our future capital requirements will depend on several factors, including but not limited to, the rate of our growth, our ability to attract and retain customers and partnerships and their willingness to pay for our services, and the timing and extent of spending to support our efforts to develop our Aurora Driver. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to scale back our existing operations, which could have an adverse impact on our business and financial prospects. Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2022 2021 (in thousands) Net cash used in operating activities $ (135,813) $ (150,974) Net cash (used in) provided by investing activities (971,576) 291,058 Net cash provided by financing activities 1,835 398,479 Net (decrease) increase in cash (1,105,554) 538,563 Cash, beginning of period 1,626,247 399,828 Cash, end of period $ 520,693 $ 938,391 Cash Flows Used in Operating Activities Net cash used in operating activities was $135.8 million for the three months ended March 31, 2022, a decrease of $15.2 million from $151.0 million for the three months ended March 31, 2021. During the three months ended March 31, 2022, operating cash flows were affected by $47.5 million of cash received in connection with the collaboration agreement, partially offset by increased incentive compensation payments. The change in operating cash flows also benefited from professional fees and other expenses paid in connection with the acquisition of ATG in the three months ended March 31, 2021, which did not recur in the current period. Cash Flows (Used in) Provided by Investing Activities Net cash used in investing activities increased by $1,262.6 million from the three months ended March 31, 2021 to three months ended March 31, 2022, primarily due to the purchases of short-term investments of $966.1 million and the comparative period including $294.4 million in net cash acquired in acquisitions. Cash Flows Provided by Financing Activities Net cash provided by financing activities decreased by $396.6 million from three months ended March 31, 2021 to three months ended March 31, 2022, due to the comparative period including net proceeds from the issuance of Series U-2 preferred stock of $397.9 million. 23 Table of Contents Contractual Obligations, Commitments and Contingencies Aurora may be party to various claims within the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. We assess the need to record a liability for litigation and other loss contingencies, with reserve estimates recorded if we determine that a loss related to the matter is both probable and reasonably estimable. We did not record any material losses for 2019 or 2020. Our future contractual commitments related to future minimum payments for purchase obligations at March 31, 2022 are $47.5 million in the remainder of 2022, $64.4 million in 2023, $62.5 million in 2024, $64.0 million in 2025, and $27.1 million in 2026. Our future contractual commitments related to future minimum payments under non-cancelable operating leases at March 31, 2022 are $20.0 million in 2022, $25.3 million in 2023, $62.5 million in 2024, $64.0 million in 2025, $21.3 million in 2026, and $61.6 million thereafter. Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of the financial statements requires our management to make judgments, estimates and assumptions that impact the reported amount of net sales and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report and in the notes to the consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K for the year-ended December 31, 2021 (the “Annual Report”). There have been no material changes to our critical accounting estimates since our Annual Report. Emerging Growth Company Status Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and have elected to take advantage of the benefits of this extended transition period. The Company expects to remain an emerging growth company at least through the end of 2022, when we expect to qualify as a large accelerated filer, and will have the benefit of the extended transition period. This may make it difficult to compare our financial results with the financial results of other public companies that are either not emerging growth companies or emerging growth companies that have chosen not to take advantage of the extended transition period.