Aurora Innovation, Inc. (AUR) FY 2021 MD&A

Item 7. 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 audited financial statements as of and for the years ended December 31, 2021and 2020, together with related notes thereto, included elsewhere in this Annual Report. The discussion and analysis should also be read together with the section entitled “Information about Aurora”. 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. Aurora’s 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 the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Annual Report.

Percentage amounts included in this Annual 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 Annual Report may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Annual Report. Certain other amounts that appear in this Annual 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 eight 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.

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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. 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.

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.

Our Business Model

The Aurora Driver will be delivered as a service. We intend to partner with our ecosystem of OEMs, fleet operators, and mobility and logistics services, and other third parties to commercialize and support Aurora-powered vehicles. Our business model is for fleet owners to purchase Aurora Driver-powered vehicles from our OEM partners, subscribe to the Aurora Driver, and utilize Aurora-certified fleet service partners to operate autonomous mobility and logistics services. In many instances, the same party may play multiple roles: for example, our OEM partners will in certain cases also provide maintenance services and act as a fleet operator. 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.

Significant Events and Transactions

RTPY Business Combination

On November 3, 2021 (the “Closing Date”), Aurora Innovation Holdings, Inc. merged with and into Merger Sub, a wholly owned subsidiary of RTPY pursuant to the terms of Agreement and Plan of Merger dated July 14, 2021, with RTPY, now known as Aurora Innovation Inc., (the “Business Combination”). Aurora was deemed the accounting predecessor and the post-combination company will be the successor SEC registrant, which means that Aurora’s financial statements for previous periods will be disclosed in our future periodic reports filed with the SEC.

The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, RTPY was treated as the acquired company for financial statement reporting purposes. The most significant impact of the Business Combination on our reported financial position was an increase in cash and cash equivalents of $1.1 billion including $1.0 billion in proceeds from the PIPE investment that was consummated with the closing of the Business Combination. Transaction costs incurred by both parties to the Business Combination totaled $88.2 million.

As a consequence of the Business Combination, we became the successor to a SEC-registered and Nasdaq-listed company which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

Apparate Business Combination

On January 19, 2021, Aurora acquired 100% of the voting interests of Apparate USA LLC (“Apparate”), the self-driving technology division of Uber. The acquisition date fair value of the consideration transferred was approximately $1.9 billion, which consisted of both preferred and common stock issued to the shareholders of Apparate. Aurora accounted for the acquisition as a business combination and recognized the assets acquired and liabilities assumed at fair value on the date of acquisition. The excess of purchase consideration over the fair value of the assets acquired was recorded as goodwill.

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COVID-19 Impact

The spread of COVID-19 caused us to modify our business practices (including reducing employee travel, recommending that all non-essential personnel work from home and cancelling or reducing physical participation in activities, meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, suppliers, and business partners. Aurora has implemented a voluntary return to office policy for its employees.

All of our products and services are in a research phase of development and do not involve physical customer interaction. Therefore, our ability to meet our business expectations and customers’ needs has not been materially impaired due to this COVID-19 pandemic. Even though the global economic implications remain uncertain, this pandemic has not yet had any measurable material impact on our operating results. At the same time, we will continue to actively monitor the pandemic situation and may take further actions to modify our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees and customers.

Key Factors Affecting Our Results

Our financial position and results of operations depend to a significant extent on the following factors:

Development of Our Technology

Since Aurora’s inception, we have focused on attracting and retaining best-in-class talent to solve self-driving’s most difficult challenges. We continue to invest heavily in employee recruitment and retention to advance our technology. Additionally, our team has made purposeful and foundational technological investments in key aspects of self-driving hardware and software. We believe these early investments in our technology will enable us to move toward commercialization more safely and quickly than would otherwise be possible. When we have deemed it to be beneficial, we have entered into strategic acquisitions to expand and accelerate our technology development.

We believe that our developmental approach provides us with meaningful technological advantages in areas such as our lidar technology, fusion of machine learning and engineered approaches, common driver platform, virtual testing, and high definition maps. The successful execution of these details of self-driving technology is what we believe will allow us to differentiate ourselves by developing leading self-driving technology that can safely and reliably navigate its environment. By developing a substantial part of this technology in-house, we ensure that the various inputs and components of our autonomy stack integrate successfully and reduce our reliance on third parties for key aspects of our commercial product offering.

While we believe we are best positioned to address advanced autonomous solutions in trucking and passenger mobility, potential competition may exist from other autonomous technology providers using other approaches. 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.

Commercialization and Strategic Partnerships

We anticipate robust demand for the Aurora Driver. We intend to launch first in trucking, a $700 billion industry in the U.S.. Further, we have multiple levers for sustained growth and adjacent market opportunities, with a core strategy to focus on attractive markets with significant growth and profitability potential. We expect to penetrate into other verticals such as the ride hailing market, $35 billion in the U.S., and local goods delivery market, $100 billion in the U.S, both of which have significant growth potential. Each such market also has a potentially significant global opportunity that we intend to address over time.

Key customers in trucking include for-hire carriers and private fleets. To meet these customers’ needs, we have formed strategic partnerships with two leading truck OEMs who together represent approximately 50% of the U.S. Class 8 truck sales. Aurora’s strategic partnerships with truck OEMs include PACCAR (representing Peterbilt & Kenworth brands) and Volvo Trucks. Our OEM partnerships represent an ability to deploy self-driving trucks at scale, allowing the Aurora Driver to expand quickly. We expect to launch the Aurora Driver for the trucking market in late 2023. Currently, there is a significant driver shortage and we expect to provide access to safe, efficient, and consistent operation at an attractive total cost of ownership (“TCO”). We see our existing partner base as a substantial competitive advantage.

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Our second commercial use case will be passenger mobility. In this space, we have formed strategic partnerships with Uber and Toyota, which will be key enablers to our growth in this segment. Currently, our ten-year agreement with Uber provides us access to Uber network data to refine market selection, to enable better roadmap prioritization, and to optimize commercial fleet operations in an effort to further develop and monetize our Aurora Driver for passenger mobility. We are collaborating with Toyota to integrate the Aurora Driver into driverless-capable Toyota Sienna minivans. We expect to launch the Aurora Driver for the passenger mobility market in late 2024. Over time, we anticipate the Aurora Driver will allow ride hailing to be offered at price points that are more cost-competitive with personal vehicle ownership.

Economies of Scale, Sales and Marketing, & Competition

We believe that our DaaS model will give us the opportunity to establish high margin unit economics when operating at scale. Our future performance will depend on our ability to deliver on these economies of scale with higher volume. We believe our business model is positioned for scalability by leveraging third party partnerships so that Aurora can focus its efforts on core technology development. We expect revenue will be based on miles traveled for each truck equipped with the Aurora Driver. For the first two years of commercial operations we expect our product will primarily consist of our own fleet that we own and operate. Over those two years, we plan to transition to our DaaS model wherein we will provide the Aurora Driver to external fleet owners on a per mile subscription basis. Once we have transitioned to DaaS, we plan to operate in a capital light model and do not expect that we will require significant capital expenditures as revenues grow.

While we expect to achieve and maintain high margins on the Aurora Driver technology for trucking and passenger mobility, emergence of competition in advanced autonomous driving technologies may negatively impact pricing, margins, and market share. As we operate on a fee per mile basis, it is possible that competition may lead to pricing pressure and lower margins that negatively impact operating results. However, we believe our unique technology provides a compelling value proposition for favorable margins and unit economics in industries with increasing demand for driver supply. If we do not generate the margins we expect upon commercialization of our DaaS model, we may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to our stockholders.

Key Components of Sales and Expenses

Basis of Presentation

Currently, we conduct business through one operating segment. Substantially all our property and equipment are maintained in, and our losses are attributable to, the United States. The consolidated financial statements include the accounts of Aurora Innovation, Inc., and its wholly owned subsidiaries. See Note 2 to Aurora’s financial statements for more information on the basis of presentation and operating segments.

Revenue

In January 2021, we entered into a collaboration framework agreement with Toyota Motor Corporation with the intention of deploying the Aurora Driver into a fleet of Toyota Sienna vehicles, subject to further agreement of a collaboration project plan that was agreed and signed in August 2021. The agreement includes $150 million of total payments of which we had received $50 million as of December 31, 2021 and expect to receive the remaining payments in 2022. Revenue recognition is measured by applying an input measure of hours expended as a percentage of total estimated hours to complete the project against total consideration. $82.5 million was recognized in the twelve months ended December 31, 2021.

Once we reach commercialization, our DaaS business model will become our primary revenue source. We expect to derive recurring revenue from per-mile fees charged to users of the Aurora Driver. Recognition of this future revenue will be subject to the terms of any arrangements with our partners or users, which have not yet been negotiated. To date, we have not recorded any revenue under this model.

Cost of Revenue

As we transition towards commercialization, we expect cost of revenue to increasingly be comprised of costs needed to support the Aurora Driver. We expect these costs may include, but not be limited to, insurance, teleassistance service, telecom connectivity, cloud services, hardware, and OEM licensing fees. In early commercialization, where we will operate a fleet, we expect we will incur additional cost of revenue, for example fuel costs, that we do not expect to continue

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significantly as we transition to our DaaS model. As this represents a new offering, we will evolve the specifics of our service bundle in partnership with our customers.

Research and Development

Research and development costs are expensed as incurred. Research and development costs consist of payroll, hardware and electrical engineering prototyping, cloud computing, data labeling, and third-party development services, as well as costs associated with vehicle operations for our test fleet of vehicles. These costs are included within research and development within the statement of operations. We expect our research and development expenses to increase in absolute dollars as we increase our investment in scaling our proprietary technologies.

Selling, General and Administrative

Selling, general and administrative costs consist primarily of personnel-related expenses such as salaries, wages and benefits as well as stock-based compensation. Selling, general and administrative also includes professional service fees, marketing and other general corporate expenses.

Following the closing of the Business Combination, we expect to incur additional selling, general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing standards, additional insurance expenses, investor relations activities, and other administrative and professional services. We also expect to increase the size of our selling, general and administrative function to support the growth of our business. As a result, we expect that our selling, general and administrative expenses will increase in absolute dollars.

Interest and Other Income

Aurora earns interest income through investments in money market securities, which are classified as cash and cash equivalents on the statement of financial position.

Change in Fair Value of Derivative Liabilities

Concurrent with the Closing of the Business Combination, we assumed and effectively issued for financial reporting purposes public warrants, private placement warrants, and Earnout Shares (as defined below). These financial instruments are liability classified and measured at fair value at each reporting period with the resulting change in fair value recognized as other income (expense).

Transaction Costs

Transaction costs incurred in connection with the Business Combination consisting of banking, legal and other professional fees are allocated on a relative fair value basis between the equity and liability classified issued financial instruments. Costs allocated to the liability classified financial instruments are recognized as other expense in the consolidated statement of operations.

Income Tax Expense (Benefit)

Provision for income taxes consists of U.S. federal and state income taxes and income taxes. Since inception, we have incurred operating losses. We have a valuation allowance for net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income.

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Results of Operations

Comparison of Year Ended December 31, 2021, to Year Ended December 31, 2020

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

___________

(1)Not meaningful.

Collaboration Revenue

Collaboration revenue increased by $82.5 million in 2021 due to the collaboration framework agreement and project plan signed in 2021 with Toyota Motor Corporation.

Research and Development

Research and development increased by $517.9 million in 2021, or 288.61%, to $697.3 million in 2021 from $179.4 million in 2020, primarily driven by an increase in headcount from continued hiring to effectively scale the growth of our business. Payroll costs related to research and development increased $246.2 million, stock-based compensation increased $195.9 million, non-payroll software development costs increased $52.2 million, and non-payroll hardware development costs increased $24.2 million.

Selling, General and Administrative

Selling, general, and administrative expense increased by $77.2 million in 2021, or 199.60%, to $115.9 million in 2021 from $38.7 million in 2020, primarily driven by an increase in headcount from both acquisitions and from continued hiring to effectively support the growth of our business. This change is primarily driven by an increase in payroll costs of $34.3 million, and an increase in professional services costs of $23.2 million.

Interest and Other Income

Interest and other income decreased by $3.2 million in 2021, or 85.88%, to $0.5 million in 2021 from $3.7 million in 2020, primarily driven by lower market interest rates.

Change in fair value of derivative liabilities

Expense recognized for the change in fair value of derivative liabilities increased by $20.1 million in 2021 due to the $12.5 million increase in the fair value of the warrant liabilities and the $7.7 million increase in the Earnout Shares

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liability. These liability classified financial instruments were recognized in connection with the Business Combination when the Company effectively issued public and private placement warrants as well as shares to the Sponsor of RTPY that contain price-based vesting criteria. The $98.0 million fair value of the liabilities at Closing was re-measured as of December 31, 2021 to $118.1 million.

Transaction costs

Expensed transaction costs increased by $4.5 million in 2021 due to amounts incurred in connection with the Business Combination. Total transaction costs incurred by Legacy Aurora were $40.6 million and $4.5 million of the total was recognized as an expense in 2021. The amount expensed was determined through an allocation based on the relative fair value of the equity and liability classified financial instruments issued or deemed issued in the Business Combination.

Other expense

Other expense increased by $5.1 million in 2021 primarily driven by the loss on disposal of computers and equipment of $3.3 million and a $1.7 million impairment of acquisition related assets that are no longer in use.

Income Tax Expense (Benefit)

An income tax benefit of $4.5 million was recognized in 2021 due to the release of a deferred tax asset valuation allowance as a result of deferred tax liabilities incurred from acquisitions.

Liquidity and Capital Resources

We have financed our operations primarily through the issuance of equity securities, which has historically been sufficient to meet our working capital and capital expenditure requirements. As of December 31, 2021, our principal sources of liquidity were $1,610.1 million of cash and cash equivalents, exclusive of short-term restricted cash of approximately $0.3 million and long-term restricted cash of approximately $15.8 million. Cash and cash equivalents consist primarily of money market funds.

In 2021, we sold Series U-2 redeemable convertible preferred stock for net proceeds of approximately $397.9 million in January. In November of 2021, we received proceeds of $1,175 million, net of RTPY’s liabilities, in the Business Combination.

We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of $1,091.2 million as of December 31, 2021. 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 Annual 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.

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Cash Flows

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

Cash Flows Used in Operating Activities

Net cash used in operating activities increased by $371.4 million from the year ended December 31, 2020 to the year ended December 31, 2021 due to increases in spending on research and development and selling, general, and administrative expenses, primarily driven by increases in payroll related expenses due to an increase in headcount.

Net cash used in operating activities was $563.3 million for the year-ended December 31, 2021 and was primarily comprised of normal cash operating expenses, including research and development and selling, general and administrative expenses. Changes in operating assets and liabilities decreased cash flows from operations by $104.1 million, primarily due to a $35.8 million decrease in accrued expenses and other current and non-current liabilities and a $32.5 million increase in contract asset.

Net cash used in operating activities of $191.9 million for the year-ended December 31, 2020 was primarily comprised of normal cash operating expenses, including research and development and selling, general and administrative expenses. Changes in operating assets and liabilities decreased cash flows from operations by $11.4 million, primarily due to an increase in prepaid expenses and other current assets and in other assets of $11.7 million and $14.0 million, respectively. The decrease from changes in operating assets and liabilities was partially offset by an increase in accrued expenses and other current and non-current liabilities of $13.7 million.

Cash Flows Provided by Investing Activities

Net cash provided by investing activities decreased by $93.4 million from the year ended December 31, 2020 to the year ended December 31, 2021, due to a decrease of $350.0 million in the maturities, net of purchases, of short-term investments, and an increase in purchases of property and equipment of $41.4 million, partially offset by net cash acquired in the purchase of businesses in 2021 of $294.4 million,

Net cash provided by investing activities was $249.9 million for the year-ended December 31, 2021 primarily due to net cash acquired in the purchase of businesses of $294.4 million, partially offset by purchases of property and equipment of $41.4 million.

Net cash provided by investing activities was $343.3 million for the year-ended December 31, 2020, primarily due to maturities of short-term investments of $470.0 million, partially offset by purchases of short-term investments of $120.0 million.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities increased by $1,538.4 million from December 31, 2020 to December 31, 2021, due to net proceeds from the Business Combination of $1,134.0 million and net proceeds from the issue of Series U-2 preferred stock of $397.9 million in 2021.

Net cash provided by financing activities was $1,539.8 million for the year-ended December 31, 2021, primarily due to net proceeds from the Business Combination of $1,134 million and net proceeds from issuance of series U-2 preferred stock of $397.9 million.

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Net cash provided by investing activities was $1.4 million for the year-ended December 31, 2020, primarily due to proceeds from the issuance of common stock of $2.7 million, partially offset by payments to repurchase Series B preferred stock of $0.5 million and payments to repurchase unvested early exercised stock options of $0.8 million.

Contractual Obligations, Commitments and Contingencies

We 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 2020 or 2021.

Our future contractual commitments related to future minimum payments for purchase obligations at December 31, 2021 are $52.6 million in 2022, $62.8 million in 2023, $62.4 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 December 31, 2021 are $24.2 million in 2022, $24.9 million in 2023, $24.4 million in 2024, $22.7 million in 2025, $20.6 million in 2026 and $60.8 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 audited consolidated financial statements included elsewhere in this Annual Report. Our critical accounting policies are described below.

Stock-Based Compensation

We measure and record the cost of stock-based awards granted to its employees and directors based on the estimated grant-date fair value of the awards. Cost for awards with only a service condition is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the award. Costs for awards with a service and performance condition are recognized on a graded-vesting basis over the requisite service period. We elected to recognize the effect of forfeitures in the period they occur. We determine the fair value of stock options using the Black-Scholes-Merton option pricing model, which is impacted by the following assumptions:

•Expected Term—we use the simplified method when calculating the expected term due to insufficient historical exercise data to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

•Expected Volatility—the volatility is based on the average historical stock volatilities of a peer group of comparable companies within the automotive and energy storage industries.

•Expected Dividend Yield—The dividend rate used is zero as we have never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

•Risk-Free Interest Rate—The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

The grant date fair value of our common stock prior to the Business Combination was determined with the assistance of an independent third-party valuation specialist. The grant date fair value of our common stock was determined using valuation methodologies which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability (Level 3 inputs). Based on Aurora’s early stage of development and other relevant factors, it determined that an Option Pricing Model (“OPM”) was the most appropriate method for allocating its enterprise value to determine the estimated fair value of our common stock before the Business Combination. We have historically used the OPM back solve analysis to estimate the fair value of our common stock, which derives the implied equity value for one type of equity security from a contemporaneous transaction

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involving another type of security, shares of our convertible preferred stock in this instance. The estimates utilized in determining the grant date fair value for new awards will not be necessary once our shares are publicly traded.

Business Combinations

We allocate the fair value of the purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates and assumptions in valuing certain intangible assets include, but are not limited to, estimated replacement cost, profit margin, opportunity cost, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Valuation of Intangible Assets

Intangible assets with indefinite lives consist of in-process research and development (“IPR&D”). We test these assets for potential impairment annually as of December 31 of each fiscal year. These assets are tested annually for impairment until completion. If potential impairment is identified, the process of evaluating the potential impairment of these assets involve significant judgment regarding estimates of the future cash flows associated with each asset.

No intangible asset impairments were recorded during the years ended December 31, 2021 or 2020.

Valuation of Earnout Shares Liability

Shares held by Reinvent Sponsor Y LLC (the “Sponsor” not forfeited under the terms of the Merger Agreement and subject to price based vesting terms (the “Earnout Shares”) are accounted for as a derivative liability that is measured at fair value at Closing and remeasured in subsequent periods with changes reflected in earnings until the vesting conditions are met or the shares expire.

Recently Adopted and Issued Accounting Pronouncements

See Note 2 to our financial statements included elsewhere in this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report.

Emerging Growth Company Accounting Election

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 has elected to take advantage of the benefits of this 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.