Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Heska Corporation    HSKA

HESKA CORPORATION

(HSKA)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector news

HESKA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/10/2020 | 11:59am EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and related Notes included in Part I Item 1 of
this Form 10-Q.
This discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated
thereunder, that involve risks and uncertainties, and can generally be
identified by our use of the words "scheduled," "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions. Such statements, which include statements
concerning future revenue sources and concentration, international market
expansion, gross profit margins, selling and marketing expenses, remaining
minimum performance obligations, research and development expenses, general and
administrative expenses, capital resources, financings or borrowings and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed under the caption "Risk Factors" contained in Part
II, Item 1A, of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our
Annual Report on Form 10-K that could cause actual results to differ materially
from those projected. The Risk Factors and others described in the Company's
periodic and current reports filed with the SEC from time to time are not
necessarily all of the important factors that could cause the Company's actual
results to differ materially from those projected. The forward-looking
statements set forth in this Form 10-Q are as of the close of business on August
6, 2020 and we undertake no duty and do not intend to update this information,
except as required by applicable laws. If we updated one or more forward looking
statements, no inference should be drawn that we will make additional updates
with respect to those or other forward-looking statements. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth above.
Overview
We sell advanced veterinary diagnostic and specialty products. Our offerings
include Point of Care laboratory instruments and consumables, Point of Care
digital imaging diagnostic products; vaccines; local and cloud-based data
services; allergy testing and immunotherapy; and single-use offerings such as
in-clinic diagnostic tests and heartworm preventive products. Our core focus is
on supporting veterinarians in the canine and feline healthcare space.
Point of Care laboratory instruments and other sales include outright instrument
sales, revenue recognized from sales-type lease treatment, and other revenue
sources, such as charges for repairs. Revenue from Point of Care laboratory
consumables primarily involves placing an instrument under contract in the field
and generating future revenue from testing consumables, such as cartridges and
reagents, as that instrument is used. Instruments placed under subscription
agreements are considered operating or sales-type leases, depending on the
duration and other factors of the underlying agreement. A loss of, or disruption
in, the supply of consumables we are selling to an installed base of instruments
could substantially harm our business. All of our Point of Care laboratory and
other non-imaging instruments and consumables are supplied by third parties, who
typically own the product rights and supply the product to us under marketing
and/or distribution agreements. In many cases, we have collaborated with a third
party to adapt a human instrument for veterinary use. Major products in this
area include our instruments for chemistry, hematology, blood gas and
immunodiagnostic testing and their affiliated operating consumable.
                                      -28-
--------------------------------------------------------------------------------


Digital radiography is the largest product offering in Point of Care imaging,
which also includes computed radiography and ultrasound instruments. Digital
radiography solutions typically consist of a combination of hardware and
software placed with a customer, often combined with an ongoing service and
support contract. Our experience has been that most of the revenue is generated
at the time of sale in this area, in contrast to the Point of Care diagnostic
laboratory placements discussed above where ongoing consumable revenue is often
a larger component of economic value as a given instrument is used.
Pharmaceuticals, Vaccines and Diagnostic ("PVD") revenue, includes single use
diagnostic and other tests, pharmaceuticals and biologicals as well as research
and development, licensing and royalty revenue. Since items in this area are
often single use by their nature, our typical aim is to build customer
satisfaction and loyalty for each product, generate repeat annual sales from
existing customers and expand our customer base in the future. Products in this
area are both supplied by third parties and provided by us. Major products and
services in this area include heartworm diagnostic tests and preventives, and
allergy test kits, allergy immunotherapy and testing.
Other Vaccines and Pharmaceuticals ("OVP") revenue is generated in our USDA, FDA
and DEA licensed production facility in Des Moines, Iowa. We view this facility
as an asset which could allow us to control our cost of goods on any
pharmaceuticals and vaccines that we may commercialize in the future. We have
increased integration of this facility with our operations elsewhere. For
example, virtually all of our U.S. inventory, excluding our imaging products, is
now stored at this facility and related fulfillment logistics are managed there.
Our OVP revenue includes vaccines and pharmaceuticals produced for third
parties. OVP is isolated to the North America segment.
All of our products are ultimately sold primarily to or through veterinarians.
In many cases, veterinarians will mark up their costs to their customer. The
acceptance of our products by veterinarians is critical to our success. These
products are sold directly to end users by us as well as through distribution
relationships, such as the sale of kits to conduct blood testing to third-party
veterinary diagnostic laboratories and sales to independent third-party
distributors. Revenue from direct sales and distribution relationships
represented approximately 65.7% and 34.3%, respectively, of North America
revenue for the three months ended June 30, 2020 and 66.2% and 33.8%,
respectively, for the six months ended June 30, 2020. Revenue from direct sales
and distribution relationships represented approximately 71.6% and 28.4%,
respectively, of International revenue for the three months ended June 30, 2020
and 71.5% and 28.5%, respectively, for the six months ended June 30, 2020.
Segment Change
During the second quarter of 2020, following the scil acquisition, the chief
operating decision maker ("CODM") changed how he assesses performance and
allocates resources based on geographic regions. As a result, the Company
determined it has two operating and reportable segments: North America and
International. North America consists of the United States, Canada and Mexico.
International consists of geographies outside of North America, primarily our
operations in Australia, France, Germany, Italy, Malaysia, Spain and
Switzerland. The Company's core strategic focus on point of care laboratory and
imaging products are included in both segments. The North America segment also
includes the contract manufacturing of vaccines and pharmaceutical products. The
Company revised prior comparative periods to conform to the current period
segment presentation. Refer to Note 17 - Segment Reporting for further
information.
Impact of COVID-19 Pandemic and Current Economic Environment

During the quarter, we experienced modest impact on our business resulting from
government restrictions on the movement of people, goods, and services in
connection with the COVID-19 pandemic. Fortunately, those we serve,
veterinarians and herd animal health experts, are deemed essential services in
areas of government mandated restrictions. To service them safely and
efficiently, Heska teams quickly adjusted to a targeted,
                                      -29-
--------------------------------------------------------------------------------


remote workforce posture and put the care and health of people and our brand
first. Heska has not laid off or furloughed employees but did introduce limited
salary reductions in Europe. Because of social distancing measures, on-site
installations of POC Lab and Imaging equipment will experience intermittent
delays. While not significant to the overall results of the first half of the
year, on-site installations of equipment have been impacted since March. We
anticipate the impact to on-site installations and capital equipment
expenditures to continue for at least the remainder of 2020.

Our financial position remains strong. On April 1, 2020, we closed our
acquisition of scil; the transaction was fully financed by a preferred stock
offering. We have sufficient liquidity to sustain our operations and do not
anticipate a need to access additional capital outside of the various programs
available to our overseas subsidiaries.

While we have experienced some intermittent delays in receiving supply, our
supply chain has not been significantly impacted and we do not expect that to
materially change over the remaining months of 2020. Our major research and
development projects are continuing to progress substantially as planned but we
have experienced sporadic delays in receiving validation samples and device
components as well as inefficiencies in remote collaboration and
field-testing. We anticipate these delays to result in total slippage of 90 to
120 days in our new products' commercial roll-out schedules, consistent with our
disclosure in our Form 10-Q for the period ending March 31, 2020.

We do not know how long COVID-19 related challenges will continue. The ultimate
impact on our business will depend on many factors substantially beyond our
control and difficult to predict. In the near-term and with asynchronous
variation across geographies, we anticipate veterinary hospitals will
temporarily: (1) realize lower average diagnostics use as a result of deferred
and elective patient visits, and (2) delay capital equipment investments as a
result of heightened conservatism and the effects of social distancing on
in-clinic demonstrations and installations. Despite these headwinds, we believe
we are well positioned because: (1) our customers and products are essential,
(2) our main Point of Care laboratory business continues to show healthy
consumables use and margin, (3) our subscriptions model metrics continue to show
solid performance, (4) our vaccines and pharmaceuticals business continues to
perform with minimal disruption, (5) our balance sheet is strong, and (6) our
employees, logistics, supply chain, and operations continue to operate well in
the current environment and they are fully prepared for both a phased return and
an instant return to full capacity.
Results of Operations
Our analysis presented below is organized to provide the information we believe
will facilitate an understanding of our historical performance and relevant
trends going forward.
                                      -30-
--------------------------------------------------------------------------------


The following table sets forth, for the periods indicated, certain data derived
from our unaudited Condensed Consolidated Statements of Income (in thousands,
except per share):
                                                                                                               Six Months Ended June
                                                      Three Months Ended June 30,                                       30,
                                                        2020                 2019               2020                2019
Revenue, net                                      $      45,712$ 28,146$  76,366$   57,657
Gross profit                                             17,865             12,412             31,313              24,955
Operating expenses                                       22,319             12,978             40,386              25,596
Operating loss                                           (4,454)              (566)            (9,073)               (641)
Interest and other expense (income), net                  2,145                 21              4,343                   5
Loss before income taxes and equity in losses of
unconsolidated affiliates                                (6,599)              (587)           (13,416)               (646)
Income tax benefit                                         (212)              (426)            (1,720)             (1,436)
Net (loss) income before equity in losses of
unconsolidated affiliates                                (6,387)              (161)           (11,696)                790
Equity in losses of unconsolidated affiliates               (87)              (127)              (217)               (308)
Net (loss) income after equity in losses of
unconsolidated affiliates                                (6,474)              (288)           (11,913)                482
Net loss attributable to redeemable
non-controlling interest                                   (117)               (47)              (268)                (91)
Net (loss) income attributable to Heska
Corporation                                       $      (6,357)          $ 

(241) $ (11,645)$ 573


Diluted (loss) earnings per share attributable to
Heska Corporation                                 $       (0.72)$  (0.03)$   (1.43)$     0.07
Non-GAAP net income (loss) per diluted
share(1)(2)                                       $           -           $   0.10$    0.03$     0.21

Adjusted EBITDA(1)                                $       4,146$  1,798$   5,065$    4,038
Adjusted EBITDA margin(1)                                   9.1   %            6.4  %             6.6  %              7.0    %


(1) See "Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to
net income and Non-GAAP net income (loss) per diluted share to diluted (loss)
earnings per share attributable to Heska Corporation on the closest comparable
GAAP measures, for each of the periods presented.
(2) Shares used in the diluted per share calculation for non-GAAP net income per
diluted share are (in thousands): 9,269 for the three months ended June 30, 2020
compared to 7,951 for the three months ended June 30, 2019 and 8,165 for the six
months ended June 30, 2020 compared to 7,956 for the six months ended June 30,
2019.
Revenue
Total revenue increased 62.4% to $45.7 million for the three months ended June
30, 2020, compared to $28.1 million for the three months ended June 30, 2019.
Total revenue increased 32.4% to $76.4 million in the six months ended June 30,
2020, compared to $57.7 million in the six months ended June 30, 2019. The
significant increases in revenue are driven by the acquisitions of CVM
Diagnostico Veternario S.L. and CVM Ecografia S.L. ("CVM", collectively) and
scil, which represented $18.2 million of revenue in the second quarter that was
not included in the prior period.
                                      -31-
--------------------------------------------------------------------------------


Gross Profit
Gross profit increased 43.9% to $17.9 million in the three months ended June 30,
2020, compared to $12.4 million in the three months ended June 30, 2019. Gross
margin decreased to 39.1% in the three months ended June 30, 2020, compared to
44.1% in the three months ended June 30, 2019. Gross profit increased 25.5% to
$31.3 million in the six months ended June 30, 2020, compared to $25.0 million
in the six months ended June 30, 2019. Gross margin decreased to 41.0% in the
six months ended June 30, 2020, compared to 43.3% in the six months ended June
30, 2019. The increase in gross profit for both periods was due to recent
acquisitions. The decrease in gross margin percentage for both periods was due
to lower margin in our newly acquired businesses as well as unfavorable product
mix in our legacy business.
Operating Expenses
Selling and marketing expenses increased 42.7% to $9.6 million in the three
months ended June 30, 2020, compared to $6.7 million in the three months ended
June 30, 2019. Selling and marketing expenses increased 23.4% to 17.0 million in
the six months ended June 30, 2020, compared to $13.7 million in the six months
ended June 30, 2019. The increases in both periods are a direct result of
international expansion related to recent acquisitions and are in line with
management expectations.
Research and development expenses decreased 24.3% to $1.7 million in the three
months ended June 30, 2020, compared to $2.2 million in the three months ended
June 30, 2019. The decrease is related to timing of spending on product
development for urine and fecal diagnostic analyzer and enhanced
immunodiagnostic offerings in the current quarter. Research and development
expenses increased 6.1% to $3.8 million in the six months ended June 30, 2020,
compared to $3.6 million in the six months ended June 30, 2019. The increase is
related to the product development projects mentioned above. As we invest in
future growth of the Company, the increased research and development expense is
consistent with the spending initiatives of management and is expected to
continue through 2020.
General and administrative expenses increased 174.4% to $11.0 million in the
three months ended June 30, 2020, compared to $4.0 million in the three months
ended June 30, 2019. General and administrative expenses increased 137.8% to
19.6 million in the six months ended June 30, 2020, compared to $8.2 million in
the six months ended June 30, 2019. The increase in both periods is driven by
one-time costs related to the acquisition of scil, which were $2.7 million for
the second quarter and $6.6 million for the year to date period. In addition, we
had increased stock-based compensation expenses in the current quarter and
additional expenses related to the impact of international acquisitions compared
to the prior year.
Interest and Other Expense (Income), net
Interest and other expense (income), net, was $2.1 million in the three months
ended June 30, 2020, compared to $21 thousand in the three months ended June 30,
2019. Interest and other expense (income), net, was $4.3 million in the six
months ended June 30, 2020, compared to $5 thousand in the six months ended June
30, 2019. The increase in interest and other expense was primarily driven by
interest expense as a result of the Notes.
                                      -32-
--------------------------------------------------------------------------------


Income Tax (Benefit) Expense
For the three months ended June 30, 2020, we had a total income tax benefit of
$0.2 million, including $0.2 million of domestic deferred income tax benefit and
$31 thousand current income tax expense. In the three months ended June 30,
2019, we had a total income tax benefit of $0.4 million, including $0.5 million
of domestic deferred income tax benefit and $28 thousand of current income tax
expense. The increase in tax benefits is due to the higher financial loss. The
Company recognized $0.2 million in excess tax benefits related to employee
share-based compensation in the three months ended June 30, 2020, compared to
$0.3 million recognized in the three months ended June 30, 2019. The Company
recognized $0.5 million in excess tax benefits related to employee share-based
compensation in the six months ended June 30, 2020, compared to $1.4 million
recognized in the six months ended June 30, 2019.
Net (Loss) Income Attributable to Heska Corporation
Net loss attributable to Heska was $6.4 million in the three months ended June
30, 2020, compared to net loss attributable to Heska of $0.2 million in the
three months ended June 30, 2019. Net loss attributable to Heska was $11.6
million in the six months ended June 30, 2020, compared to net income
attributable to Heska of $0.6 million in the six months ended June 30, 2019. The
difference between this line item and "Net income after equity in losses of
unconsolidated affiliates" is the net income or loss attributable to our
minority interest in our French subsidiary, which we purchased in February 2019.
Net income is lower in both comparative periods due to increases in operating
expenses as discussed above, as well as interest and amortization charges
relating to the Notes.
Adjusted EBITDA
Adjusted EBITDA in the three months ended June 30, 2020 was $4.1 million (9.1%
adjusted EBITDA margin), compared to $1.8 million (6.4% adjusted EBITDA margin)
in the three months ended June 30, 2019. Adjusted EBITDA was $5.1 million (6.6%
adjusted EBITDA margin) in the six months ended June 30, 2020, compared to $4.0
million (7.0% adjusted EBITDA margin) in the six months ended June 30, 2019. The
increase is driven by increased revenue and gross profit as discussed above. The
increases in operating expenses are excluded from adjusted EBITDA. See "Non-GAAP
Financial Measures" for a reconciliation of adjusted EBITDA to net income, the
closest comparable GAAP measure, for each of the periods presented.
Earnings Per Share
Loss per share attributable to Heska was $0.72 per diluted share in the three
months ended June 30, 2020 compared to loss of $0.03 per diluted share in the
three months ended June 30, 2019. In the six months ended June 30, 2020 we had a
loss of $1.43 per diluted share compared to income of $0.07 per diluted share in
the six months ended June 30, 2019. The decline in both periods is primarily due
to increases in operating expenses as discussed above, as well as interest and
amortization charges relating to the Notes.
Non-GAAP Earnings Per Share
Non-GAAP EPS was income of $0.00 per diluted share in the three months ended
June 30, 2020 compared to income of $0.10 per diluted share in the three months
ended June 30, 2019. In the six months ended June 30, 2020 non-GAAP EPS was
income of $0.03 per diluted share compared to income of $0.21 per diluted share
in the six months ended June 30, 2019. The decline in both periods is primarily
due to cash interest related to the Notes. See "Non-GAAP Financial Measures" for
a reconciliation of Non-GAAP EPS to net (loss) income attributable to Heska per
diluted share, the closest comparable U.S. GAAP measure, in each of the periods
presented.
                                      -33-
--------------------------------------------------------------------------------

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
Adjusted EBITDA, Adjusted EBITDA margin, and Non-GAAP net income (loss) per
diluted 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. Management
uses Adjusted EBITDA and Adjusted EBITDA margin as a key profitability measure.
This is a non-GAAP measure that represents EBITDA before certain items that are
considered to hinder comparison of the performance of our businesses on a
period-over-period basis or with other businesses.
The following tables reconcile our most directly comparable as-reported
financial measures calculated in accordance with GAAP to our adjusted non-GAAP
financial measures (in thousands, except percentages and per share amounts):
                                                                 Three Months Ended                                 Six Months Ended
                                                                      June 30,                                          June 30,
                                                                2020              2019              2020               2019
Net (loss) income(1)                                        $  (6,387)$  (161)$ (11,696)$    790
Income tax benefit                                               (212)            (426)            (1,720)           (1,436)
Interest expense (income)                                       2,213               14              4,326                (1)
Depreciation and amortization                                   3,330            1,257              4,704             2,522
EBITDA                                                      $  (1,056)$   684$  (4,386)$  1,875
Acquisition-related and other one-time costs(2)                 2,728                -              6,603                 -
Stock-based compensation                                        2,444            1,194              2,797             2,380

Equity in earnings (losses) of unconsolidated affiliates (87)

       (127)              (217)             (308)

Net (income) loss attributable to non-controlling interest 117

         47                268                91
Adjusted EBITDA                                             $   4,146$ 1,798$   5,065$  4,038
Adjusted EBITDA margin(3)                                         9.1  %           6.4  %             6.6  %            7.0   %


(1) Net (loss) income used for reconciliation represents the "Net (loss) income before equity in losses of unconsolidated affiliates."


(2) To exclude the effect of one-time charges of $2.7 million and $6.6 million
for the three and six months ending June 30, 2020 incurred primarily as part of
the acquisition of scil.

(3) Adjusted EBITDA margin is calculated as the ratio adjusted EBITDA to revenue.

                                      -34-
--------------------------------------------------------------------------------

                                                                 Three Months Ended                               Six Months Ended
                                                                      June 30,                                        June 30,
                                                                2020              2019             2020              2019

GAAP net (loss) income attributable to Heska per diluted share

                                                       $   (0.72)$ (0.03)$ (1.43)$   0.07
Acquisition-related and other one-time costs(1)             $    0.29          $     -          $  0.81          $      -
Amortization of acquired intangibles(2)                     $    0.18

$ 0.04$ 0.25$ 0.08 Purchase accounting adjustments related to inventory and fixed asset step-up(3)

                                      $    0.04          $     -          $  0.05          $      -
Amortization of debt discount and issuance costs            $    0.16          $     -          $  0.37          $      -
Stock-based compensation                                    $    0.26$  0.15$  0.34$   0.30
Gain (loss) on equity investee transactions                 $    0.01$  0.02$  0.03$   0.04
Estimated income tax effect of above non-GAAP
adjustments(4)                                              $   (0.22)$ (0.08)$ (0.39)$  (0.28)
Non-GAAP net income (loss) per diluted share                $    0.00

$ 0.10$ 0.03$ 0.21


Shares used in diluted per share calculations                   9,269            7,951            8,165             7,956


(1) To exclude the effect of one-time charges of $2.7 million and $6.6 million
in the three and six months ending June 30, 2020 incurred primarily as part of
the acquisition of scil.

(2) To exclude the effect of amortization of acquired intangibles of $1.6 million and $2.1 million in the three and six months ended June 30, 2020, compared to $0.3 million and $0.6 million in the three and six months ended June 30, 2019. These costs were incurred as part of the purchase accounting adjustments for the acquisitions of scil, Optomed and CVM.


(3) To exclude the effect of purchase accounting adjustments for inventory step
up amortization of $0.2 million and depreciation related to the step-up of fixed
assets of $0.2 million for the three and six months ended June 30, 2020.

(4) Represents income tax expense utilizing an estimated effective tax rate that
adjusts for non-GAAP measures including: acquisition-related and other one-time
costs (excluding those costs which are not deductible for tax of $1.3 million
and $4.0 million for the three and six months ended June 30, 2020,
respectively), amortization of acquired intangibles, purchase accounting
adjustments, amortization of debt discount and issuance costs, and stock-based
compensation. This incorporates the discrete tax benefits related to stock-based
compensation of $0.2 million and $0.5 million for the three and six months ended
June 30, 2020, respectively, compared to $0.3 million and $1.4 million for the
three and six months ended June 30, 2019, respectively. Adjusted effective tax
rates are 25% for the three and six months ended June 30, 2020 and 24% for the
three and six months ended June 20, 2019.

Impact of Inflation In recent years, inflation has not had a significant impact on our operations.

                                      -35-
--------------------------------------------------------------------------------



Analysis by Segment
The North America segment includes sales and costs from the United States,
Canada and Mexico. The International segment includes sales and costs from
Australia, France, Germany, Italy, Malaysia, Spain and Switzerland.
The North America segment represented approximately 63.4% and 74.2% of our
revenue for the three and six months ended June 30, 2020, respectively, and the
International segment represented approximately 36.6% and 25.8% of our revenue
for the three and six months ended June 30, 2020, respectively.
The following sections and tables set forth, for the periods indicated, certain
data derived from our unaudited Condensed Consolidated Statements of Income (in
thousands).

North America Segment
                                 Three Months Ended June 30,                                                Change                                              Six Months Ended June 30,                      Change
                                   2020                 2019            Dollar Change             % Change              2020              2019            Dollar Change             % Change
Point of Care laboratory:    $      16,499$ 16,078          $         421                    2.6  %       $ 32,801$ 32,040$      761                        2.4  %
Instruments & Other                  2,962              2,896                     66                    2.3  %          5,578             6,541                (963)                     (14.7) %
Consumables                         13,537             13,182                    355                    2.7  %         27,223            25,499               1,724                        6.8  %
Point of Care imaging                4,148              4,166                    (18)                  (0.4) %          7,644             9,231              (1,587)                     (17.2) %
PVD                                  4,880              2,721                  2,159                   79.3  %          9,384             5,392               3,992                       74.0  %
OVP                                  3,455              3,431                     24                    0.7  %          6,802             8,225              (1,423)                     (17.3) %
Total North America revenue  $      28,982$ 26,396                  2,586                    9.8  %       $ 56,631$ 54,888$    1,743                        3.2  %
North America Gross Profit          12,760             11,950                    810                    6.8  %         25,263            24,254          $    1,009                        4.2  %
North America Gross Margin            44.0   %           45.3  %                                                         44.6  %           44.2  %
North America Operating Loss        (3,067)              (265)         $      (2,802)               1,057.4  %         (7,161)             (158)         $   (7,003)                  (4,432.3) %
North America Operating
Margin                               (10.6)  %           (1.0) %                                                        (12.6) %           (0.3) %


North America segment revenue increased 9.8% to $29.0 million for the three
months ended June 30, 2020, compared to $26.4 million for the three months ended
June 30, 2019. The $2.6 million increase was driven by a $2.2 million increase
in PVD related to the contract manufactured heartworm preventive, Tri-Heart®,
which had reduced channel demand in 2019, and a 2.7% increase in POC Lab
Consumables. North America segment revenue increased 3.2% to $56.6 million for
the six months ended June 30, 2020, compared to $54.9 million for the six months
ended June 30, 2019. The $1.7 million increase was driven by a $4.1 million in
Tri-Heart sales and 6.8% increase in POC Lab Consumables. These increases were
partially offset by a 17.3% decrease in OVP related to reduced customer
requirements during the period, a 17.2% decrease in from Point of Care Imaging,
and a 14.7% decrease in capital lease placements and outright sales of Point of
Care Lab Instruments, which were largely expected as a result of the government
restrictions in place relating to COVID-19.
                                      -36-
--------------------------------------------------------------------------------



Gross profit for the North America segment was $12.8 million compared to $12.0
million for the three months ended June 30, 2020 and 2019, respectively. Gross
profit was $25.3 million compared to $24.3 million for the six months ended June
30, 2020 and 2019, respectively. The increase in gross profit for both periods
is primarily driven by increased revenue in the current year periods,
specifically related to PVD and POC Lab Consumables. Gross margin was 44.0% for
the three months ended June 30, 2020, compared to 45.3% in the three months
ended June 30, 2019. The decline is driven by product mix. Gross margin was
44.6% for the six months ended June 30, 2020, compared to 44.2% in the six
months ended June 30, 2019. The increase is due to increased revenue and margins
for Tri-Heart and OVP, which had reduced production in the six months ended June
30, 2019.
North America operating loss increased $2.8 million and $7.0 million for the
three and six months ended June 30, 2020 compared to the prior year periods. The
increase is driven by one-time transaction related costs for the acquisition of
scil and increased stock-based compensation expenses in the current year
periods.

International Segment
                                 Three Months Ended June 30,                                            Change                                              Six Months Ended June 30,                      Change
                                                                         Dollar                  %                                                       Dollar                    %
                                    2020                 2019            Change                Change                2020              2019              Change                  Change
Point of Care laboratory:    $       11,676$    41$ 11,635                 28,378.0  %       $ 12,472$    41$   12,431                   30,319.5  %
Instruments & Other                   2,206                16             2,190                 13,687.5  %          2,440               16               2,424                   15,150.0  %
Consumables                           9,470                25             9,445                 37,780.0  %         10,032               25              10,007                   40,028.0  %
Point of Care imaging                 4,404             1,064             3,340                    313.9  %          5,762            1,408               4,354                      309.2  %
PVD                                     650               645                 5                      0.8  %          1,501            1,320                 181                       13.7  %
Total International revenue  $       16,730$ 1,750            14,980                    856.0  %       $ 19,735$ 2,769              16,966                      612.7  %
International Gross Profit            5,105               462             4,643                  1,005.0  %          6,050              701               5,349                      763.1  %
International Gross Margin             30.5   %          26.4  %                                                      30.7  %          25.3  %
International Operating Loss $       (1,387)$  (301)           (1,086)                   360.8  %       $ (1,912)$  (483)             (1,429)                     295.9  %
International Operating
Margin                                 (8.3)  %         (17.2) %                                                      (9.7) %         (17.4) %



International segment revenue was $16.7 million compared to $1.8 million for the
three months ended June 30, 2020 and 2019, respectively. International revenue
was $19.7 million compared to $2.8 million for the six months ended June 30,
2020 and 2019, respectively. The increase in both periods is due to the
acquisitions of CVM and scil, which contributed approximately $18.2 million of
revenue in the three months ended June 30, 2020 and $19.6 million of revenue in
the six months ended June 30, 2020, that were not included in the comparable
periods.

                                      -37-
--------------------------------------------------------------------------------


Gross profit for the International segment was $5.1 million compared to $0.5
million for the three months ended June 30, 2020 and 2019, respectively. Gross
profit was $6.1 million compared to $0.7 million for the six months ended June
30, 2020 and 2019, respectively. Gross margin for the International segment was
30.5% and 30.7% for the three and six months ended June 30, 2020, respectively,
compared to 26.4% and 25.3% for the three and six months ended June 30, 2019,
respectively. The increase in gross profit and gross margin percent for both
periods is primarily driven by increased revenue from acquisitions.
International operating loss increased $1.1 million and $1.4 million for the
three and six months ended June 30, 2020 compared to the prior year periods. The
increase is driven by one-time transaction related costs in the current year
periods; partially offset by increased International revenue and gross profit
discussed above.


Liquidity, Capital Resources and Financial Condition
We believe that adequate liquidity and cash generation is important to the
execution of our strategic initiatives. Our ability to fund our operations,
acquisitions, capital expenditures, and product development efforts may depend
on our ability to access other forms of capital as well as our ability to
generate cash from operating activities, which is subject to future operating
performance, as well as general economic, financial, competitive, legislative,
regulatory, and other conditions, some of which may be beyond our control,
including but not limited to effects of the COVID-19 pandemic. Our primary
source of liquidity is our available cash of $79.2 million, which includes net
proceeds from the issuance of the Notes. Additionally, we financed the
acquisition of scil through a private placement of convertible preferred equity
for which we raised $122 million, while we transferred approximately $111
million in purchase price, netting a remaining $11 million of liquidity. Refer
to Note 12. Capital Stock.

For the six months ended June 30, 2020, we had net loss attributable to Heska
Corporation of $6.4 million and net cash used by operations of $13.1 million. At
June 30, 2020, we had $79.2 million of cash and cash equivalents and $125.5
million of working capital.
A summary of our cash from operating, investing and financing activities is as
follows (in thousands):
                                                          Six Months Ended
                                                              June 30,                                             Change
                                                                                           Dollar                  %
                                                       2020              2019              Change               Change
Net cash used in operating activities              $ (13,095)$ (5,356)$  (7,739)                  144.5  %
Net cash used in investing activities               (119,926)           (1,251)          (118,675)                9,486.4  %
Net cash provided by financing activities            122,991             3,205            119,786                 3,737.5  %
Foreign exchange effect on cash and cash
equivalents                                              189                 5                184                 3,680.0  %

Increase (decrease) in cash and cash equivalents (9,841) (3,397)

            (6,444)                  189.7  %
Cash and cash equivalents, beginning of the period    89,030            13,389             75,641                   564.9  %

Cash and cash equivalents, end of the period $ 79,189$ 9,992$ 69,197

                   692.5  %


Net cash used in operating activities was approximately $13.1 million for the
six months ended June 30, 2020, compared to net cash used in operating
activities of $5.4 million for the six months ended June 30, 2019, a decrease in
cash from operating activities of approximately $7.7 million. The decrease in
cash from operating activities is primarily due to the $12.4 million decrease in
net income after equity in losses of unconsolidated affiliates for the six
months ended June 30, 2020 compared to the six months ended June 30, 2019. In
addition to the decrease in net income, we had a decrease of $0.5 million in
cash from operating assets and liabilities driven by the timing of collections
and payments in the ordinary course of business. These decreases are
                                      -38-
--------------------------------------------------------------------------------


partially offset by non-cash transactions impacting cash used by operating
activities, including a $3.0 million increase related to amortization of the
debt discount, a $2.2 million increase in depreciation and amortization driven
by the acquisition of scil, and a $0.4 million increase in stock-based
compensation expense.
Net cash used in investing activities was $119.9 million for the six months
ended June 30, 2020, compared to net cash used in investing activities of $1.3
million for the six months ended June 30, 2019, an increase of approximately
$118.7 million. The increase in cash used for investing activities was driven by
$105.2 million investment for the scil acquisition, net of cash acquired, and a
$14.4 million payment of consideration for the December 2019 acquisition of CVM.
Net cash provided by financing activities was $123.0 million for the six months
ended June 30, 2020, compared to net cash provided financing activities of $3.2
million for the six months ended June 30, 2019, an increase of approximately
$119.8 million. The change was driven primarily by a $122.0 million increase in
proceeds from preferred stock, primarily used for financing the acquisition of
scil.
We believe that our cash, cash equivalents and marketable securities balances,
as well as the cash flows generated by our operations, will be sufficient to
satisfy our anticipated cash needs for working capital and capital expenditures,
including selling and marketing team expansion and product development
initiatives, for at least the next 12 months. Our belief may prove to be
incorrect, however, and we could utilize our available financial resources
sooner than we currently expect. For example, we actively seek opportunities
that are consistent with our strategic direction, which may require additional
capital. Our future capital requirements and the adequacy of available funds
will depend on many factors, including those set forth in Part II, Item 1A,
"Risk Factors", of this Form 10-Q and in Part I, Item 1A, "Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2019. We may be
required to seek additional equity or debt financing in order to meet these
future capital requirements, even in the absence of any acquisitions. In the
event that additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, results of operations and
financial condition would be adversely affected.
Effect of currency translation on cash
Net effect of foreign currency translations on cash was a $189 thousand positive
impact for the six months ended June 30, 2020, compared to a $5 thousand
positive impact for the six months ended June 30, 2019, a decrease of $184
thousand. These effects are related to changes in exchange rates between the
U.S. Dollar and the Swiss Franc, Euro, Australian Dollar, Canadian Dollar, and
Malaysian Ringgit which are the functional currencies of our subsidiaries.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no off-balance sheet arrangements or variable interest entities.
Purchase Obligations
Purchase obligations represent contractual agreements to purchase goods or
services that are legally binding; specify a fixed, minimum or range of
quantities; specify a fixed, minimum, variable, or indexed price provision; and
specify approximate timing of the transaction. As of June 30, 2020, the Company
had purchase obligations for inventory of $25.5 million.
                                      -39-

--------------------------------------------------------------------------------



Critical Accounting Policies and Estimates
Our accounting policies are described in our audited Consolidated Financial
Statements and Notes thereto contained in our Annual Report on Form 10-K for the
year ended December 31, 2019 and other than the recently adopted accounting
pronouncements described in Note 1. Operations and Summary of Significant
Accounting Policies in our Condensed Consolidated Financial Statements included
in Item 1 of this Form 10-Q, have not changed significantly since such filing.

© Edgar Online, source Glimpses

All news about HESKA CORPORATION
11/18HESKA CORP : Change in Directors or Principal Officers, Financial Statements and..
AQ
11/05HESKA : Management's Discussion and Analysis of Financial Condition and Results ..
AQ
11/05HESKA CORP : Results of Operations and Financial Condition, Financial Statements..
AQ
11/05HESKA : 3Q Earnings Snapshot
AQ
08/24HESKA CORP : Change in Directors or Principal Officers, Financial Statements and..
AQ
08/10HESKA : Management's Discussion and Analysis of Financial Condition and Results ..
AQ
08/04HESKA CORP : Results of Operations and Financial Condition, Financial Statements..
AQ
08/04HESKA : 2Q Earnings Snapshot
AQ
05/28HESKA CORP : Changes in Registrant's Certifying Accountant, Financial Statements..
AQ
05/08HESKA : Management's Discussion and Analysis of Financial Condition and Results ..
AQ
More news