QuidelOrtho Corp
For the period ended Dec 29, 2024. Filed Feb 27, 2025.
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FY2024 · Filed Feb 27, 2025
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of QuidelOrtho Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QuidelOrtho Corporation (the Company) as of December 29, 2024 and December 31, 2023, the related consolidated statements of (loss) income, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2024, 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 29, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2024, 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 29, 2024, 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 27, 2025 expressed an adverse 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 the 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 a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
| Allowance for contractual rebates | |
| Description of the Matter | As described in Note 1 and Note 7 to the consolidated financial statements, the Company records revenues from product sales net of contractual rebates that are estimated at the time of sale. As of December 29, 2024, the Company recognized an allowance on accounts receivable of $39.8 million for rebates which are dependent on estimated rebate percentages that vary based on end-user sales mix. |
|---|---|
| Auditing the Company’s allowance for contractual rebates is especially challenging because the estimate is based upon a high volume of data including inputs from third-party sources. In addition, the allowance for contractual rebates involves estimating rebate percentages which are dependent on estimated end-user sales mix and customer contractual terms, which vary across customers. | |
| How We Addressed the Matter in Our Audit | To test the allowance for contractual rebates, our audit procedures included, among others, a retrospective analysis of the allowance for contractual rebates compared to actual rebate claims received and performance of analytical procedures and sensitivity analyses over the Company's significant inputs. We tested the underlying data used in management's calculations for accuracy and completeness, which included inspection of source data supporting distributor inventory levels. We also evaluated rebate claims received after year end to assess the accrual as of the balance sheet date and the Company’s estimates. |
| Goodwill impairment assessments | |
| Description of the Matter | As of December 29, 2024, the Company’s goodwill balance was $649.5 million. During the year ended December 29, 2024, the Company recognized goodwill impairments totaling $1,822.6 million. As described in Note 1 and Note 9 to the consolidated financial statements, the Company evaluates goodwill at the reporting unit level for impairment on an annual basis on the first day of the fourth quarter of the fiscal year, or whenever events or changes in circumstances occur that indicate that the fair value of a reporting unit is below its carrying amount. In performing both interim and annual goodwill impairment assessments, reporting unit fair values were estimated by management using a weighted discounted cash flow method and guideline public company method. |
| Auditing the Company’s interim and annual goodwill impairment assessments involved significant auditor judgment due to the significant estimation uncertainty in determining the fair value of the reporting units. The assumptions with a significant level of subjectivity or complexity utilized in the impairment assessments included the revenue growth rates, EBITDA margins and discount rates. | |
| How We Addressed the Matter in Our Audit | To test the estimated fair value of the Company’s reporting units, our audit procedures included, among others, evaluating the significant assumptions discussed above and testing the underlying data used by the Company in its analysis. We performed sensitivity analyses of the significant assumptions to evaluate changes in fair value of the reporting units to determine if contrary evidence exists. We also assessed the historical accuracy of the Company’s forecasts of financial results used in developing fair value estimates to assist in evaluating the reliability of the forecasts utilized in the estimate. In addition, with the support of our valuation specialist, we evaluated the Company’s use of a weighted discounted cash flow method and guideline public company method and selection of the discount rates, which included comparing the discount rates used by the Company against discount rate ranges that were independently developed using publicly available market data for comparable entities. In addition, we tested the Company’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2002.
San Diego, California
February 27, 2025
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