Heska Corporation Reports Third Quarter 2022 Results

North America Point of Care Lab Consumables up 11.4%, Consolidated Gross Margin up 180 bps

LOVELAND, Colo., Nov. 8, 2022 /PRNewswire/ -- Heska Corporation (NASDAQ: HSKA; “Heska” or the “Company”), a leading global provider of advanced veterinary diagnostic and specialty solutions, reported financial results in two segments (North America and International) for its third quarter ended September 30, 2022. In this release, Point of Care is “POC”, Pharmaceuticals, Vaccines and Diagnostics is “PVD”, Other Vaccines and Pharmaceuticals is “OVP”, and basis points is “bps”.

Report Highlights

• Consolidated revenue increased 7.1% on a constant currency basis (see “Use of Non-GAAP Financial Measures”) to $61.5 million, led by North America POC Lab Consumables growth of 11.4% and sales in POC Imaging and Informatics.
• Year over year consolidated gross margin: up 180 bps to 43.7%, driven by the International segment expanding approximately 510 bps to 38.4%.
• Strategic initiatives advanced, including new product launches toward commercial rollout and the execution of a definitive agreement to acquire LightDeck Diagnostics (“LightDeck”) to strengthen manufacturing at scale capabilities, to accelerate menu development, and to acquire valuable intellectual property and rights to globally scale the Company’s key Element i+^® growth platform.
• Received long-awaited USDA authorization October 20^th for truRapid™ canine heartworm tests.

Kevin Wilson, Heska’s Chief Executive Officer and President, commented, “In the third quarter, Heska exceeded nearly all profitability targets despite some softness in reported revenue. The profitability performance is clear throughout the release, as we execute on our European products and subscriptions conversion strategy and North America continues to do well. Turning to sales, underlying patient visits trends in North America are showing an upswing, while International reported top-line remains challenged by seasonal, energy inflation, and economy related lower patient visits and budgets, and significant foreign exchange currency impacts that, when combined with our ongoing, purposeful conversion of legacy customers into higher margin, lower unit price subscriptions, drove a 2.7% reduction in constant currency International POC Lab Consumables. Meanwhile, North America POC Lab Consumables sales grew 11.4%, driven by growing Element AIM^®, Element POC^®, and Heskaview^® Telecytology utilization, and price, highlighting the ongoing contributions from our recent innovations and the resiliency of Heska’s expanding customer base.

“As we work to close this year and begin next, our solutions, selling prices and costs, supply chain, innovations pipeline, and team are broadly stronger and much further along in our strategic plan than last year. Heska remains focused on entering 2023 prepared to Win at Scale and Win at Innovation,” continued Mr. Wilson, “Advancing both goals this quarter, Heska is securing major manufacturing-at-scale and R&D capabilities by acquiring LightDeck, the inventor and producer of Heska’s very important Element i+^® platform. In addition to a broad menu of already released and popular immunoassay tests, Element i+^® is targeted to launch transformative menu in 2023, including our exclusive point of care Nu.Q^® Vet Cancer Screening Test recently announced. Further supporting our 2023 consumables growth, in addition to continued success in Element AIM^®, is receipt of our long-awaited USDA clearance on October 20^th for our truRapid™ canine heartworm product, in advance of the main 2023 selling season and upcoming new, cloud-based AI-powered Practice Information Management Software (“PIMS”) in the first half of 2023. These and several other exciting product and commercial wins on tap for early 2023, combined with a strong subscriptions base, a solid cash position, a great team, several of the industry’s newest and most advanced halo products within our broad technology stack, and a wonderful pet healthcare space with ever-increasing focus on diagnostics and data have Heska ready to Win at Scale and Win at Innovation.”

Profitability

Consolidated gross margin expanded approximately 180 bps to 43.7%. International gross margin increased approximately 510 bps to 38.4%, largely driven by the continued execution of ongoing product rationalization efforts to replace lower margin legacy products acquired during the 2020 acquisition of scil Animal Care Company, particularly within POC Lab. The addition of PIMS and other software applications to our product portfolio from our acquisition of VetZ earlier this year favorably impacted gross margin. North America gross margin experienced slight compression of approximately 50 bps to 46.5%, due to product mix and as expected as we continue to install instrument placements of Element AIM^®.

Consolidated operating margin improved approximately 290 bps to negative 1.1%. Currency favorably impacted gross margin approximately 50 bps and consolidated operating margin approximately 30 bps. Adjusted EBITDA margin, which excludes stock-based compensation and acquisition related costs, non-recurring items and extraordinary charges not indicative of ongoing operations, grew approximately 90 bps (50 bps on a constant currency basis) driven by gross margin gains, partially offset by increased operating costs from investment in growth and new technologies like cloud-based PIMS and new truRapid™ portfolio.

Liquidity

We continue to demonstrate a strong liquidity position with cash of $161.1 million.

2022 Updated Outlook

This year’s challenges in foreign exchange, inflation, interest rates, labor constraints, supply chain, pandemic-era comparisons, pet patient visit trends, delayed regulatory approvals, and the slower-than-expected launch of truRapid™ single use tests and Element AIM^® into Europe and other channels have all combined into headwinds to reaching our 2022 Outlook. We are updating our 2022 Updated Outlook to reflect the accumulation of these factors year to date.

• Reported revenue approximately in line with the prior year and up approximately 5% in constant currency.
• North America POC Lab Consumables revenue growth rate of approximately 8%-10% vs prior year.
• International POC Lab Consumables revenue decline of 11%-13% vs prior year on a reported basis, roughly in line with prior year on a constant currency basis.
• Gross margin of 43%-44% and adjusted EBITDA margin at approximately 11%.

Earnings Conference Call

Heska management will host a conference call on November 8, 2022 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company’s third quarter 2022 financial results. The call may be accessed by dialing 1-800-239-9838 within the United States and 1-323-794-2551 outside of the United States and referencing conference identification number 7035658. The call will also be webcast online at https://ir.heska.com/events/. A telephonic replay of the conference call will be available through November 22, 2022. The replay may be accessed by dialing 1-844-512-2921 within the United States or 1-412-317-6671 outside of the United States and referencing replay identification number 7035658. The webcast will be archived on the Company’s website for 90 days.

About Heska

Heska Corporation (NASDAQ: HSKA) manufactures, develops and sells advanced veterinary diagnostic and specialty healthcare solutions through its two business segments: North America and International. Both segments include Point of Care Lab testing instruments and consumables, single-use offerings such as in-clinic diagnostic tests, digital imaging products, software and services, data services, allergy testing and immunotherapy, and heartworm preventive products. The North America segment also includes private label vaccine and pharmaceutical production under third-party agreements and channels, primarily for herd animal health. For more information, please visit www.heska.com.

Forward-Looking Statements

This document contains forward-looking information related to the Company. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or similar expressions. All of the statements in this document, other than historical facts, are forward-looking statements and are based on a number of assumptions that could ultimately prove inaccurate and cause actual results to materially deviate from forward-looking statements. Forward-looking statements in this document include, among other things, statements with respect to Heska’s future financial and operating results, future sales, sales split percentages, sales geography percentages, market share, and strategic goals, and the anticipated benefits of the scil, Lacuna, BiEsseA, Biotech, VetZ, and potential LightDeck acquisitions. Such statements are based on current expectations and are subject to a number of risks and uncertainties, including but not limited to, risks and uncertainties related to the ability to achieve the anticipated benefits of recent acquisitions; supplier availability; competing suppliers; any product’s ability to performed and be recognized as anticipated, in particular when such product is under development; Heska’s ability to sell and market its products in an economically sustainable fashion, including related to varying customs, cultures, languages and sales cycles and uncertainties with foreign political and economic climates; the impact of foreign exchange rates, inflation, interest rates, and labor constraints; the Company’s ability to integrate the acquired businesses within its existing operations; and new product development and release schedules.

Other factors that could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements include, among others, risks and uncertainties related to: the impact of the COVID-19 pandemic on our business, results of operations and financial condition; the success of third parties in marketing our products; our reliance on third party suppliers and collaborative partners; our dependence on key personnel; our dependence upon a number of significant customers; competitive conditions in our industry; our dependence on third parties to successfully develop new products; our ability to market and sell our products successfully; expansion of our international operations; the impact of regulation on our business; the success of our acquisitions and other strategic development opportunities; our ability to develop, commercialize and gain market acceptance of our products; cybersecurity incidents and related disruptions and our ability to protect our stakeholders’ privacy; product returns or liabilities; volatility of our stock price; and our ability to service our convertible notes and comply with their terms. Such factors are set forth under “Risk Factors” in the Company’s most recent annual report on Form 10-K.

Use of Non-GAAP Financial Measures

In addition to financial measures presented on the basis of accounting principles generally accepted in the U.S. (“U.S. GAAP”), we also present third quarter and year to date 2022 and 2021 EBITDA (net (loss) income before income taxes, interest, depreciation and amortization), Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP earnings per share, which are non-GAAP measures. These measures should be viewed as a supplement to (not substitute for) our results of operations presented under U.S. GAAP. The non-GAAP financial measures presented may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner. A reconciliation of non-GAAP financial measures and most directly comparable GAAP financial measures is included in this release. Our management has included these measures to assist in comparing performance from period to period on a consistent basis.

Constant currency is a non-GAAP measure utilized by Heska management to measure performance, excluding the impact of translational movements, and is intended to be indicative of results in local currency. As we operate in various foreign countries where the local currency may strengthen or weaken significantly versus the U.S. dollar, we utilize a constant currency measure as an additional metric to evaluate performance without consideration of foreign currency movements. This information is non-GAAP and should be viewed as a supplement to (not a substitute for) our reported results of operations under U.S. GAAP. We calculate the impact of foreign exchange by translating our current period local currency results throughout the year at the average exchange rates during the respective prior year period. The result is the current period results in U.S. dollars, as if foreign exchange rates had not changed from the prior year period.

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SOURCE Heska Corporation

Company Codes: NASDAQ-SMALL:HSKA