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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-12 · 70 added, 37 removed, 81 unchanged (57% of the section changed)

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 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 and six months ended June 30, 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.

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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.

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 Merger and to Aurora and its consolidated subsidiaries after giving effect to the Merger.

Aurora’s Business

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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.

We plan to first launch Aurora Horizon, our driverless trucking 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.

Future success will be dependent on our ability to execute against our product roadmap to launch Aurora Horizon.

From there, we plan to leverage the extensibility of the Aurora Driver to deploy and scale into the passenger mobility market with Aurora Connect, our driverless ride hailing product, and longer-term the local goods delivery market.

Results of Operations

Comparison of the Three Months Ended March 31, 2022 to Three Months Ended March 31, 2021

Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 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

Three Months Ended June 30, $ Change % Change

(in thousands, except for percentages)

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Selling, general and administrative 33,467 21,646 11,821 54.6 %

Goodwill impairment

1,000,081 — 1,000,081 n/m (1)

Total operating expenses 1,217,333 181,458 1,035,875 570.9 %

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Other income (expense)

Interest and other income 581 570 11 1.9 %

Change in fair value of derivative liabilities 39,878 — 39,878 n/m (1)

Other expense (53) (44) (9) n/m (1)

Other income (expense), net 2,545 (353) 2,898 n/m (1)

Loss before income taxes (1,154,177) (181,811) (972,366) 534.8 %

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Net loss $ (1,154,177) $ (181,812) $ (972,365) 534.8 %

________________

(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.

Collaboration revenue increased by $20.7 million in the three months ended June 30, 2022 due to progress made during the period under 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.

Research and development increased by $24.0 million, or 15.0%, to $183.8 million in the three months ended June 30, 2022 from $159.8 million in the three months ended June 30, 2021, primarily driven by an increase in payroll 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.

Selling, general, and administrative increased by $11.8 million, or 54.6%, to $33.5 million in the three months ended June 30, 2022 from $21.6 million in the three months ended June 30, 2021, primarily driven by an increase in payroll and insurance costs.

Goodwill impairment

The Company recognized a goodwill impairment of $1,000.1 million during the three months ended June 30, 2022 as a result of an interim goodwill impairment assessment performed due to a significant decline in the market price of the Company’s Class A common stock and its market capitalization during the period.

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 recognized for the change in fair value of derivative liabilities was $39.9 million in the three months ended June 30, 2022 primarily due to the change in the market price for the underlying instrument.

Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated, and the changes between periods.

Six Months Ended June 30, $ Change % Change

(in thousands, except for percentages)

Collaboration revenue $ 62,731 $ — $ 62,731 n/m (1)

Operating expenses

Research and development 337,875 318,921 18,954 5.9 %

Selling, general and administrative 64,519 54,326 10,193 18.8 %

Goodwill impairment

1,000,081 — 1,000,081 n/m (1)

Total operating expenses 1,402,475 373,247 1,029,228 275.7 %

Loss from operations (1,339,744) (373,247) (966,497) 258.9 %

Other income (expense)

Change in fair value of derivative liabilities 105,688 — 105,688 n/m (1)

Other income (expense), net 3,073 173 2,900 n/m (1)

Loss before income taxes (1,230,983) (373,074) (857,909) 230.0 %

Income tax expense (benefit) 2 (2,643) 2,645 n/m (1)

Net loss (1,230,985) (370,431) $ (860,554) 232.3 %

(1) Not meaningful.

Collaboration Revenue

Collaboration revenue increased by $62.7 million in the six months ended June 30, 2022 due to progress made during the period under the collaboration framework agreement and project plan signed in August 2021 with Toyota Motor Corporation.

Research and Development

Research and development increased by $19.0 million, or 5.9%, to $337.9 million in the six months ended June 30, 2022 from $318.9 million in the six months ended June 30, 2021, primarily driven by an increase in payroll costs and hardware developments costs, partially offset by a decrease in severance expense and stock-based compensation.

Selling, General and Administrative

Selling, general, and administrative increased by $10.2 million, or 18.8%, to $64.5 million in the six months ended June 30, 2022 from $54.3 million in the six months ended June 30, 2021, primarily driven by an increase in payroll and insurance costs, partially offset by a decrease in professional services costs.

Goodwill impairment

The Company recognized a goodwill impairment of $1,000.1 million during the six months ended June 30, 2022 as a result of an interim goodwill impairment assessment performed due to a significant decline in the market price of the Company’s Class A common stock and its market capitalization during the period.

Change in Fair Value of Derivative Liabilities

Income recognized for the change in fair value of derivative liabilities was $105.7 million in the six months ended June 30, 2022 primarily due to the change in the 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.

An income tax benefit was recognized in the six months ended June 30, 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.

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.

As of June 30, 2022, our principal sources of liquidity were $549.4 million of cash and cash equivalents and $829.4 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.

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.

We have incurred negative cash flows from operating activities and significant losses from operations in the past.

We expect to continue to incur operating losses and that we will need to opportunistically raise additional capital to support the continued development and commercialization of the Aurora Driver.

We believe our cash on hand and short-term investments 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.

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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(1,060,456) 398,467

Cash, beginning of period

Cash, cash equivalents, and restricted cash at beginning of the period

1,626,247 399,828

Cash, end of period

Cash, cash equivalents, and restricted cash at end of the period

$ 565,791 $ 798,295

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.

Net cash used in operating activities was $225.4 million for the six months ended June 30, 2022, a decrease of $57.5 million from $283.0 million for the six months ended June 30, 2021.

During the six months ended June 30, 2022, operating cash flows benefited from $95.4 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 six months ended June 30, 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.

Net cash used in investing activities increased by $1,123.7 million in the six months ended June 30, 2022 from the six months ended June 30, 2021, primarily due to the purchases of short-term investments, net of maturities, of $833.1 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.

Net cash provided by financing activities decreased by $392.8 million in the six months ended June 30, 2022 from six months ended June 30, 2021, due to the comparative period including net proceeds from the issuance of Series U-2 preferred stock of $397.9 million.

Contractual Obligations, Commitments and Contingencies

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We did not record any material losses for 2021 or 2022.

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

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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.

Other than as described below, there have been no material changes to our critical accounting estimates since our Annual Report.

Valuation of Goodwill

Goodwill represents the excess purchase consideration of acquired businesses over the estimated fair value of the net assets acquired and is not amortized.

Goodwill is evaluated for impairment annually on December 31, or whenever events or circumstances indicate that the carrying amount may not be recoverable.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill.

During the second quarter of 2022, the market price of the Company’s Class A common stock and its market capitalization declined significantly.

As a result, the Company determined that a triggering event had occurred and an interim goodwill impairment assessment was performed.

The Company utilized a market approach valuation method utilizing the observable market price of the Company’s Class A common stock as it represented the best evidence of the fair value of its reporting unit.

Based on the results, the Company recognized a $1,000.1 million goodwill impairment during the three and six months ended June 30, 2022.

As of June 30, 2022, the Company’s carrying value of goodwill was $113.7 million, which approximates its fair value.

To the extent there are future entity-specific or macroeconomic conditions that negatively impact the market price of the Company’s Class A common stock and its market capitalization, additional goodwill impairments may be necessary.

Emerging Growth Company Status

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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-Q

Item 2. Management’s Discussion and Analysis