Emergent BioSolutions Inc
For the period ended Dec 31, 2023. Filed Mar 8, 2024.
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FY2023 · Filed Mar 8, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Emergent BioSolutions Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Emergent BioSolutions Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15 (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 March 8, 2024 expressed an unqualified opinion thereon.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company does not expect to be in compliance with debt covenants in future periods without additional sources of liquidity or future amendments to its Senior Secured Credit Facilities and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Revenue recognition - Allowance for product returns | |
| Description of the Matter | As described in Notes 2 and 13 to the consolidated financial statements, the Company recognized revenues of $487.5 million for the year ended December 31, 2023 related to the sale of NARCAN® products. For these product sales, revenue is recognized at a point in time, net of estimates of allowances, including allowances for product returns. Auditing the Company’s measurement of allowances for returns of NARCAN® product sales involved significant auditor judgment because the calculation involves subjective assumptions and estimates made by management, including historical return activity used to forecast expected returns and estimates of inventory levels within the distribution channel. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to measure the allowance for returns on NARCAN® product sales. For example, we tested controls over management’s review of the assumptions used in the calculation of the product returns allowance. We also tested management’s controls over the completeness and accuracy of the data used in the underlying calculations.To test the calculation of the product returns allowance, our audit procedures included the following procedures, amongst others. We independently estimated the allowance for product returns using the Company’s historical data and compared the result to the Company’s estimated returns allowance, inspected contracts and related modifications with the Company’s customers to evaluate the Company’s standard returns policy, performed revenue cutoff testing to assess whether there were relevant factors at period end not considered in the Company’s analysis of product returns, and examined credit memos issued after year end for relevant factors or trends not consistent with the Company’s analysis of product returns. We also tested the Company's retrospective review of the accuracy of the allowance for returns on product revenue and compared the results of the retrospective review to the current year assumptions. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2004.
Tysons, Virginia
March 8, 2024
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