PACIFIC BIOSCIENCES OF CALIFORNIA INC
For the period ended Dec 31, 2023. Filed Feb 28, 2024.
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FY2023 · Filed Feb 28, 2024
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Report of Independent Registered Public Accounting Firm (PCAOB ID:
To the Stockholders and the Board of Directors of Pacific Biosciences of California, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pacific Biosciences of California, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Revenue recognition - Identification of performance obligations and allocation of contract consideration | |
| Description of the Matter | For the year ended December 31, 2023, the Company recognized revenue of $200.5 million, including $183.9 million of product revenue, which consists primarily of instrument sales and related consumables. As described in Note 1 to the consolidated financial statements, the Company may enter into contracts with customers that includes a combination of promised products and services, resulting in arrangements containing multiple performance obligations. The Company identifies a performance obligation for each promise to transfer to the customer, a product or service that is distinct. The consideration is allocated between each performance obligation based on its individual standalone selling price, which is estimated by the Company, using historical sales data, as well as management judgment. |
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| The Company enters into, or periodically modifies, revenue contracts with non-standard terms, requiring management to evaluate whether these non-standard terms represent a performance obligation. For example, the Company may offer specified discounts on current products within an arrangement and on future purchase options, for which historical information may not be available. As part of the Company's identification of performance obligations and the resulting determination of the allocation of contract consideration, the Company considers if these specified discounts represent a material right when compared to the estimated standalone selling price and, therefore, a performance obligation to be included in the allocation of the contract value.Auditing management’s identification of the performance obligations and the resulting determination of the allocation of contract consideration in certain contracts involved a higher degree of judgment due to the subjective nature of identifying certain performance obligations and the related determination of standalone selling price when it is not based on historical information. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls addressing management’s identification of performance obligations and allocation of contract consideration, including standalone selling price determination.Our audit procedures included, among others, reading executed contracts for a sample of arrangements and evaluating whether terms of the contracts (including specified discounts on current and future purchase options) resulted in additional performance obligations. Additionally, we tested the completeness and accuracy of the information used in management’s allocation of contract consideration, including the data incorporated in underlying calculations to determine standalone selling price. |
| Business combination - Valuation of intangible asset | |
| Description of the Matter | As described in Note 2 to the consolidated financial statements, the Company completed its acquisition of Apton Biosystems, Inc. during 2023. The transaction was accounted for as a business combination, and the Company recorded an indefinite-lived intangible asset of $55.0 million. |
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| Auditing the Company’s accounting for the acquisition was challenging because the determination of the fair value of the identified intangible asset, which consisted of in-process research and development (IPR&D), required management to make certain subjective estimates and assumptions. The Company used an income approach to measure the intangible asset. The valuation of the intangible asset is subject to higher estimation uncertainty due to management’s judgments in determining significant assumptions, which included certain components of the revenue projection and the discount rate. A change in these significant assumptions could have a significant effect on the fair value of the intangible asset. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls addressing the identified audit risk. For example, we tested controls over management’s review of the significant assumptions used to develop the fair value estimate of the intangible asset. We also tested management’s controls to validate that data used in the fair value estimate was complete and accurate.To test the estimated fair value of the intangible asset, we performed audit procedures that included, among others, evaluating the Company’s valuation model with the assistance of valuation specialists, performing sensitivity analyses to determine which assumptions had the greatest impact on the overall determination of value, and testing the completeness and accuracy of the underlying data used to develop the assumptions. We also evaluated the assumptions by comparing them to market and economic trends, historical results of the Company’s business and other guideline companies within the same industry. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2011.
San Mateo, California
February 28, 2024
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