Nautilus Biotechnology, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of Nautilus Biotechnology, Inc.’s (“Nautilus” or the “Company”) condensed consolidated results of operations and financial condition. The discussion should be read together with the condensed consolidated financial statements and the accompanying notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements for the year ended December 31, 2022 and the related notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2023. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Nautilus’ actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” in Part II, Item 1A as set forth in this Quarterly Report on Form 10-Q. 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 “Nautilus,” “we,” “us,” “our” and other similar terms refer to the business and operations of Legacy Nautilus prior to the Business Combination and to New Nautilus and its consolidated subsidiary following the Business Combination. Overview We are a development stage life sciences company creating a platform technology for quantifying and unlocking the complexity of the proteome. Our mission is to transform the field of proteomics by democratizing access to the proteome and enabling fundamental advancements across human health and medicine. We were founded on the belief that incremental advancements of existing technologies are inadequate, and that a bold scientific leap would be required to radically reinvent proteomics and revolutionize precision medicine. Our vision is to integrate our breakthrough innovations in computer science, engineering, and biochemistry to develop and commercialize a proteomic analysis technology of extreme sensitivity and scale. To accomplish this, we have built a prototype of a proteome analysis system, an instrument to perform massively parallel single protein molecule measurements which will be further developed to deliver the speed, simplicity, accuracy, and versatility that we believe is necessary to establish a new gold standard in the field. Since our incorporation in 2016, we have devoted substantially all of our resources to research and development activities, including with respect to our proteomics platform, or Nautilus platform, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations. We do not have any products available for commercial sale, and we have not generated any revenue from our Nautilus platform or other sources since inception. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of our Nautilus platform, which we expect, if it ever occurs, will take a number of years. Our Nautilus platform, which includes our end-to-end solution comprised of instruments, consumables, and software analysis, is currently under development and will require significant additional research and development efforts, including extensive testing prior to commercialization. These efforts require significant amounts of additional capital and adequate personnel infrastructure. There can be no assurance that our research and development activities will be successfully completed, or that our Nautilus platform will be commercially viable. In order to commercialize our Nautilus platform in volume, we will need to establish internal manufacturing capacity or to contract with one or more manufacturing partners, or both. Our technology is complex, and the manufacturing process for our products will be similarly complex, involving a large number of unique precision parts in addition to the production of various reagents and antibodies. We may encounter unexpected difficulties in manufacturing our Nautilus platform, instruments, and related consumables. Among other factors, we will need to develop reliable supply chains for the various components in our Nautilus platform, instruments, and consumables to support large-scale commercial production. In connection with our Nautilus platform, we intend to utilize over 300 complex reagents and various antibodies in order to generate deep proteomic information at the speed and scale which we expect our Nautilus platform to perform. Such reagents and antibodies are expected to be more difficult to manufacture and more expensive to procure. There is no assurance that we will be able to build manufacturing or 20 consumable production capacity internally or find one or more suitable manufacturing or production partners, or both, to meet the volume and quality requirements necessary to be successful in the proteomics market. Given our stage of development, we have not yet established a commercial organization or distribution capabilities. We do intend to build a commercial infrastructure to support sales of our products. We expect to manage sales, marketing and distribution through both internal resources and third-party relationships. We plan to commercialize our proteomics platform using a three-phase plan that has been shown to be effective and optimal for introducing disruptive products in numerous life sciences technology markets. The first phase is expected to involve collaboration with biopharmaceutical companies and key opinion leaders to validate the performance and utility of Nautilus’ product, during which we do not expect to recognize significant revenue, if any. The second phase will include an early access limited release phase in which we expect to recognize limited revenue. Finally, the third phase is anticipated to include a broader commercial launch. We are currently in the collaboration phase during which we have entered into and are seeking to enter into collaborations with a small number of research customers, including with biopharmaceutical companies and key opinion leaders in proteomics whose assessment and validation of our products can significantly influence other researchers in their respective markets and/or fields. During the early access limited release phase, we plan to leverage our publications to drive awareness and customer demand to pre-sell instruments and reagents to select customers performing large-scale proteomics research. We do not anticipate that these activities will result in any material revenue. During the second phase, we expect to work closely with early access customers to demonstrate a unique value proposition for our Nautilus platform . During this phase, we plan to provide early access program partners with broad-scale analysis and profiling of samples analyzed in our facility and shared via a cloud platform. We anticipate early access engagements and associated revenue in 2024. We expect this second phase to lead into the third phase of broad commercialization and launch of our proteome analysis platform in 2024. Voice of customer studies have suggested that there is market demand for a proteomics platform with specifications that are initially lower than what we have previously disclosed, for example, around characteristics such as sample input and proteome coverage. Consequently, as we balance our time to market goals with our evolving view of customer requirements, we are refining our initial launch specifications. We believe that subsequent consumable releases will enable our platform to meet or exceed our previously announced product specifications. We intend to commercialize our Nautilus platform through a direct sales channel in the United States, and through both direct and distributor sales channels in regions outside the United States. Given our stage of development, we currently have limited marketing, sales, commercial product distribution or service and support capabilities. We intend to build the necessary infrastructure for these activities in the United States, European Union, the United Kingdom, and potentially other countries and regions, including Asia-Pacific, as we execute on our three phase commercial launch strategy for our Nautilus platform. On June 9, 2021, Nautilus Biotechnology, Inc. a Delaware corporation (f/k/a ARYA Sciences Acquisition Corp. III, a Cayman Islands exempted company and the Company’s predecessor company (“ARYA”)), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of that certain Business Combination Agreement, dated as of February 7, 2021 (the “BCA”), by and among ARYA, Mako Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of ARYA (“Mako Merger Sub”), and Nautilus Subsidiary, Inc., a Delaware corporation (f/k/a Nautilus Biotechnology, Inc.) (“Legacy Nautilus”). As a result of the Business Combination, ARYA changed its name to “Nautilus Biotechnology, Inc.” and Mako Merger Sub merged with and into Legacy Nautilus with Legacy Nautilus surviving as the surviving company and becoming a wholly-owned subsidiary of ARYA (the “Merger” and, collectively with the other transactions described in the BCA, the “Reverse Recapitalization”). In addition, in conjunction with the completion of the Business Combination, certain investors (“PIPE Investors”) subscribed for the purchase of an aggregate of 20,000,000 shares of common stock of the Company (“New Nautilus Common Stock”) at a price of $10.00 per share for aggregate gross proceeds of $200.0 million (“PIPE Financing”). Prior to the Business Combination, we financed our operations primarily through private placements of convertible preferred stock and had raised aggregate net proceeds of $108.4 million from these private placements. In connection with the consummation of the Business Combination and PIPE Financing, we received additional 21 gross proceeds of approximately $345.5 million from PIPE Investors and the Business Combination, offset by approximately $18.2 million of transaction costs and underwriters’ fees relating to the closing of the Business Combination. As of September 30, 2023, we had cash, cash equivalents and short-term investments of $183.3 million. Based on this, we believe that our existing cash, cash equivalents, and short-term investments will enable us to fund our planned operating expenses and capital expenditures through at least the next 12 months. We have incurred significant losses since the commencement of our operations. Our net loss was $46.7 million during the nine months ended September 30, 2023, and we expect to continue to incur significant losses for the foreseeable future as we continue our research and development activities and planned commercialization of our proteomics platform. As of September 30, 2023, we had an accumulated deficit of $185.2 million. These losses have resulted primarily from costs incurred in connection with research and development activities and to a lesser extent from general and administrative costs associated with our operations. We expect to incur significant and increasing expenses and operating losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned commercialization and research and development activities. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we: • continue our research and development activities, including with respect to our Nautilus platform; • undertake activities to establish sales, marketing and distribution capabilities for our Nautilus platform; • incur setup costs related to production tooling and required testing; • maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know how; • implement operational, financial and management information systems; • attract, hire and retain additional management, scientific and administrative personnel; and • operate as a public company. As a result, we will require substantial additional funding to develop our products and support our continuing operations. Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID‑19 pandemic, recent and any potential future financial institution failures, the conflicts in Eastern Europe, the Middle East and in other countries, and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, and could force us to delay, reduce or eliminate our product development or future commercialization efforts. We may also be required to grant rights to develop and market products that we would otherwise prefer to develop and market ourselves. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Impact of Negative Global or National Events Businesses have been and will continue to be impacted by a number of challenging global and national events and circumstances that continue to evolve, including the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, recent and any potential future financial institution failures, and conflicts in Eastern Europe, the Middle East and in other countries. The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and 22 will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances. For example, as the COVID-19 pandemic has developed, we have taken numerous steps to help ensure the health and safety of our employees. We continue to employ hygiene protocols; controls for social distancing; enhanced cleaning, disinfecting, decontamination, and ventilation protocols; health policies; and usage of personal protective equipment, in all cases where appropriate. While we have resumed normal operations, any resurgence or worsening of the COVID-19 pandemic may cause us to reinstitute certain measures to protect employee safety, including staggered work hours or reduced in-person staffing, that could result in additional disruption and/or delays in our ability to conduct development activities. We have been and continue to actively monitor our supply chain in light of these challenging global and national events and circumstances, including our third-party materials suppliers. We have, in the past, experienced some supply disruptions due to the COVID-19 pandemic, including closures at certain chip manufacturers, which led to extended lead times for certain chips; diversion of certain lab materials needed to support COVID-19 relief efforts; and lower availability of certain reagents. While certain of these disruptions have been resolved since the start of the COVID-19 pandemic, we are continuing to monitor our supply chain and contingency planning is ongoing with our partners to reduce the possibility of an interruption to our development activities or the availability of necessary materials. The ultimate impact of these global and national events and circumstances, either individually or in aggregate, is highly uncertain and subject to change. In April 2023, President Biden signed legislation that ended the COVID-19 national emergency on May 11, 2023. The full impact of this termination of the national emergency and the wind-down of the public health emergency on FDA and other regulatory policies and operations are unclear. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to mitigate potentially negative impacts to our business. For example, during the COVID-19 pandemic, we made certain modifications to employee travel, with masking and vaccination requirements in our offices, and with our employees working remotely fully or intermittently as able from March 2020 until August 2022. We will continue to actively monitor the rapidly evolving situation related to these global and national events, and may take further actions to mitigate potential negative impacts to our business, and that may alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which these global or national events and circumstances may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain. Components of Our Results of Operations Revenue To date, we have not generated any revenue and we may not generate any revenue from the sale of products or from other sources in the near future. Operating Expenses Research and Development Expense Research and development expenses account for a significant portion of our operating expenses and consist primarily of salaries, related benefits and stock-based compensation expense of product development personnel, laboratory supplies and equipment, depreciation and amortization, external costs of vendors engaged to conduct research and development activities, and allocated expenses for technology and facilities. We expense research and development expenses in the periods in which they are incurred. We plan to continue to invest in our research and development efforts and to increase our investment in research and development efforts related to our product development. As a result, we expect research and development 23 expenses to increase in absolute dollars as we continue to advance our product development, hire additional personnel and retain existing personnel, purchase supplies and materials and allocate expense to our research and development facilities. General and Administrative Expenses General and administrative expenses consist of salaries and benefits, and stock-based compensation expense for personnel in executive, operations, legal, human resources, finance, marketing, commercial, IT personnel and administrative functions, professional fees for legal, patent, consulting, accounting and audit services, director and officer insurance, and allocated expenses for technology and facilities. We expense general and administrative expenses in the periods in which they are incurred. We expect that our general and administrative expenses will increase substantially over the next several years as we hire additional personnel to support the growth in research and development activities for our products and commercial activities supporting the growth of our business. We also anticipate that we will incur substantially higher expenses as a result of operating as a public company, including expenses related to accounting, audit, legal, regulatory, insurance, compliance with the rules and regulations of the SEC, Sarbanes-Oxley Act and those of any national securities exchange on which our securities are traded, investor and public relations, and other administrative and professional services. Other Income (Expense) Other income (expense) consists primarily of interest income on our cash, cash equivalents and investments (including accretion and amortization of discounts and premiums on marketable debt securities), gains and losses on foreign currency transactions, and other miscellaneous nonrecurring expenses such as gains or losses on disposal of property and equipment. Results of Operations Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022 The following table shows our condensed consolidated statements of operations for the periods indicated: Three Months Ended September 30, Change ($) Change (%) 2023 2022 (in thousands) Operating expenses Research and development $ 11,996 $ 9,571 $ 2,425 25 % General and administrative 7,079 6,249 830 13 % Total operating expenses 19,075 15,820 3,255 21 % Other income (expense): Interest income 3,197 1,889 1,308 69 % Other expense — (132) 132 (100) % Total other income 3,197 1,757 1,440 82 % Net loss $ (15,878) $ (14,063) $ (1,815) 13 % Research and Development Expenses Research and development expenses were $12.0 million for the three months ended September 30, 2023, compared to $9.6 million for the three months ended September 30, 2022, an increase of $2.4 million, or 25%. The increase was primarily due to a $1.4 million increase in salaries, related benefits, and stock-based compensation, a $1.1 million increase in laboratory supplies and equipment expense, and a $0.9 million increase in facilities costs. These increases were primarily caused by increased hiring during 2023 and our new leases. These increases were 24 partially offset by a decrease of $1.0 million in costs for external development services as more development efforts were performed by the Company. General and Administrative Expense s General and administrative expenses were $7.1 million for the three months ended September 30, 2023, compared to $6.2 million for the three months ended September 30, 2022, an increase of $0.8 million, or 13%. The increase was primarily due to a $0.8 million increase in salaries, related benefits, and stock-based compensation, primarily attributable to increased hiring in 2023, and a $0.1 million increase in marketing costs. These increases were partially offset by a $0.2 million decrease in insurance costs and a $0.1 million decrease in professional services costs. Other Income (Expense) Other income (expense) for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 increased primarily due to higher interest income from marketable debt securities driven by higher interest rates. Results of Operations Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022 The following table shows our condensed consolidated statements of operations for the periods indicated: Nine Months Ended September 30, Change ($) Change (%) 2023 2022 (in thousands) Operating expenses Research and development $ 34,785 $ 28,085 $ 6,700 24 % General and administrative 21,366 19,229 2,137 11 % Total operating expenses 56,151 47,314 8,837 19 % Other income (expense): Interest income 9,517 2,929 6,588 225 % Other expense (17) (130) 113 (87) % Total other income 9,500 2,799 6,701 239 % Net loss $ (46,651) $ (44,515) $ (2,136) 5 % Research and Development Expenses Research and development expenses were $34.8 million for the nine months ended September 30, 2023, compared to $28.1 million for the nine months ended September 30, 2022, an increase of $6.7 million, or 24%. The increase was primarily due to a $4.1 million increase in salaries, related benefits, and stock-based compensation, a $2.4 million increase in facilities costs, a $2.0 million increase in laboratory supplies and equipment expense, $0.4 million increase in depreciation, and a $0.3 million increase for professional services. These increases were primarily caused by increased hiring in 2023 and our new leases. These increases were partially offset by decreases of $2.3 million in costs for external development services as more development efforts were performed by the Company. General and Administrative Expense s General and administrative expenses were $21.4 million for the nine months ended September 30, 2023, compared to $19.2 million for the nine months ended September 30, 2022, an increase of $2.1 million, or 11%. The increase was primarily due to a $3.3 million increase in salaries, related benefits, and stock-based compensation as a 25 result of increased headcount, and a $0.2 million increase in marketing costs. These increases were partially offset by a $0.9 million decrease in insurance costs and a $0.9 million decrease in professional services costs. Other Income (Expense) Other income (expense) for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 increased primarily due to higher interest income from marketable debt securities driven by higher interest rates. Liquidity and Capital Resources Sources of Liquidity Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. Our net loss was $46.7 million for the nine months ended September 30, 2023. As of September 30, 2023, we had an accumulated deficit of $185.2 million. Prior to the Business Combination, we funded our operations primarily with proceeds from the sale of convertible preferred stock. Prior to the Business Combination, we had raised net proceeds of $108.4 million from these private placements of our convertible preferred stock. In June 2021, in conjunction with the consummation of the Business Combination with ARYA, we received additional gross proceeds of approximately $345.5 million from PIPE Investors and the Business Combination, offset by approximately $18.2 million of transaction costs and underwriters’ fees relating to the closing of the Business Combination. As of September 30, 2023, we had cash, cash equivalents and investments of $275.7 million. Our primary uses of cash to date have been to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Funding Requirements To date, we have not generated any revenue and we may not generate any revenue from the sale of products or from other sources in the near future. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we: • continue our research and development activities, including with respect to our proteomics platform; • undertake activities to establish sales, marketing and distribution capabilities for our proteomics platform; • incur setup costs related to production tooling and required testing; • maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know how; • implement operational, financial and management information systems; • attract, hire and retain additional management, scientific and administrative personnel; and • operate as a public company. Based on our planned operations, we expect our current cash, cash equivalents, and short-term investments will be sufficient to fund our operating expenses and capital expenditures for at least the next 12 months. We continue to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to: delays in execution of our development plans; the scope and timing of our investment in our sales, marketing, and distribution capabilities; changes we may make to the business that affect ongoing operating expenses; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; changes we may make in our business or commercialization strategy; changes we may make in our research and development spending plans; our need to implement additional infrastructure and internal systems; the 26 impact of the COVID-19 pandemic; and other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions. Until such time as we can generate significant revenue from commercialization of our products, if ever, we will continue to require substantial additional capital to develop our proteomics platform and fund operations for the foreseeable future. We intend to obtain such capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. We may also seek additional financing opportunistically. We may be unable to raise additional funds on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID‑19 pandemic, recent and any potential future financial institution failures, the conflicts in Eastern Europe, the Middle East and in other countries, and otherwise. Our failure to raise additional capital, if needed, would have a negative impact on our financial condition and our ability to execute our business plan. Our expected future capital requirements depend on many factors including expansion of our product portfolio and the timing and extent of spending on sales and marketing and the development of our technology. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Historical Cash Flows For the Nine Months Ended September 30, 2023 and 2022 The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022: Nine Months Ended September 30, 2023 2022 (in thousands) Net cash used in operating activities $ (37,811) $ (35,429) Net cash (used in) provided by investing activities (2,675) 38,315 Net cash provided by financing activities 115 427 Net (decrease) increase in cash, cash equivalents and restricted cash $ (40,371) $ 3,313 Operating Activities During the nine months ended September 30, 2023, net cash used in operating activities was $37.8 million, primarily resulting from our net loss of $46.7 million and decrease in net changes in assets and liabilities aggregating $2.3 million. Net cash used in operating activities was partially offset by non-cash charges aggregating $11.1 million, which primarily included $9.1 million of stock-based compensation, $2.8 million of amortization of operating lease right-of-use assets, and $1.3 million of depreciation. These non-cash charges were partially offset by $2.0 million of net accretion of discounts on securities. During the nine months ended September 30, 2022, net cash used in operating activities was $35.4 million, primarily resulting from our net loss of $44.5 million and decrease in net changes in assets and liabilities aggregating $0.6 million. The decrease in net changes in assets and liabilities was primarily driven by a $0.9 million decrease in accounts payable, and a $0.9 million decrease in lease liabilities. These decreases were partially offset by a $0.9 million increase in accrued liabilities, and a $0.2 million decrease in prepaid expenses and other assets. Net cash used in operating activities was partially offset by non-cash charges aggregating $9.7 million, which primarily included $7.5 million of stock-based compensation and $1.6 million amortization of operating lease right-of-use assets. 27 Investing Activities During the nine months ended September 30, 2023, net cash used in investing activities was $2.7 million, primarily resulting from $51.9 million in purchases of securities, and $2.0 million in purchases of property and equipment, partially offset by $51.2 million in proceeds from the maturity of securities. During the nine months ended September 30, 2022, net cash provided by investing activities was $38.3 million, primarily resulting from $142.1 million in proceeds from maturities of securities, partially offset by $101.7 million in purchases of securities and $2.1 million in purchases of property and equipment. Financing Activities During the nine months ended September 30, 2023, cash provided by financing activities was comprised of $0.1 million of proceeds from exercise of stock options and issuance of common stock under the employee stock purchase plan. During the nine months ended September 30, 2022, net cash provided by financing activities was $0.4 million of proceeds from exercise of stock options and issuance of common stock under the employee stock purchase plan. Contractual Obligations and Commitments For a discussion of our contractual obligations and commitments, refer to Part I, Item 1, Note 8, “Commitments and Contingencies,” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses. We evaluate our estimates and assumptions on an ongoing basis, and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for the judgments we make about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows. Other than the policies noted in Part I, Item 1, Note 2, “Significant Accounting Policies,” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our audited financial statements as of and for the years ended December 31, 2022 and 2021. Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see Part I, Item 1, Note 2 “Significant Accounting Policies” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Emerging Growth Company Accounting Election The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an 28 emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult. We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of ARYA’s initial public offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. Further, even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. 29