HESKA CORPORATION
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.
-27-
--------------------------------------------------------------------------------
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
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 May 5,
2021 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. See
"Statement Regarding Forward Looking Statements."
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 instruments; digital cytology services; 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.
Radiography is the largest product offering in Point of Care imaging, which
includes digital and computed radiography and ultrasound instruments.
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.
-28-
--------------------------------------------------------------------------------
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
stored at this facility and related fulfillment logistics are managed there. Our
OVP revenue includes vaccines and pharmaceuticals produced for third parties.
OVP is attributable only 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 customers. 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 70% and 30%, respectively, of revenue for the three months ended
March 31, 2021 and 67% and 33%, respectively, for the three months ended March
31, 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 is 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 18
- Segment Reporting to the consolidated financial statements included in Part
II. Item 8 of our 2020 Annual Report on Form 10-K for further information.
Impact of COVID-19 Pandemic and Current Economic Environment
Beginning in the first quarter of 2020, to limit the spread of COVID-19,
governments took various actions including the issuance of stay-at-home policies
and social distancing procedures and guidelines, causing some businesses to
adjust, reduce or suspend business and operating activities. Veterinary care is
widely recognized as an "essential" service for pet owners, and veterinarians
continued to deliver essential medical care for sick and injured pets. The
stay-at-home policies deployed early in 2020 to combat the spread of COVID-19
resulted in a decrease in companion animal clinical visits, including delay of
elective procedures and wellness visits and as a result lower demand for
diagnostic testing services. Beginning in the second quarter of 2020, certain
local, state and federal governments began to ease the stay-at-home policies and
allowed more businesses and facilities to re-open, leading to a recovery in
companion animal clinical visits and associated demand for our diagnostic
products. During the fourth quarter of 2020 and into the first quarter of 2021,
increased restrictions, mainly in the European Union , certain parts of Canada
and Australia , in which we operate, re-emerged. The extent to which the
continuation, or another wave outbreak of COVID-19, or an
-29-
--------------------------------------------------------------------------------
outbreak of other health epidemics could impact our business, results of
operations and financial condition, including the potential for write-offs or
impairments of assets and suspension of capital investments, will depend on
future developments. We are unable to predict with certainty the effects of the
COVID-19 pandemic on our customers, suppliers and vendors, as well as the
actions of governments, and when and to what extent normal economic and
operating conditions can resume; these effects may differ from those assumed in
our projected estimates. Even after the COVID-19 pandemic has subsided, we may
continue to experience adverse impacts to our business, mainly in our ability to
place new capital equipment, primarily under long-term contracts, as a result of
any economic impact that has occurred or may occur in the future.
As a result of social distancing measures, on-site installations of POC Lab and
Imaging equipment continue to experience intermittent delays. While not
significant to the overall results of the of the year, on-site installations of
equipment have been impacted since March 2020 . However, our financial position
remains strong. On March 5, 2021 , we completed a public offering of shares of
common stock. As a result, 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 and a
slight increase in shipping costs, our supply chain has not been significantly
impacted. 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 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 may temporarily
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 (Loss) (in
thousands, except per share):
Three Months Ended March 31,
2021 2020
Revenue, net $ 60,503 $ 30,654
Gross profit 25,470 13,448
Operating expenses 24,452 18,066
Operating income (loss) 1,018 (4,618)
Interest and other expense, net 526 2,199
Income (loss) before income taxes and equity in losses of unconsolidated affiliates
492 (6,817)
Income tax benefit (1,565) (1,508)
Net income (loss) before equity in losses of
unconsolidated affiliates 2,057 (5,309)
Equity in losses of unconsolidated affiliates (186) (130)
Net income (loss) after equity in losses of
unconsolidated affiliates 1,871 (5,439)
Net loss attributable to redeemable non-controlling interest
- (151)
Net income (loss) attributable to
Diluted earnings (loss) per share attributable to
$ 0.19 $ (0.70)
Non-GAAP net income (loss) per diluted share1 2 $ 0.59 $ (0.14)
Adjusted EBITDA1 $ 8,400 $ 918
Net income (loss) margin1 3.4 % (17.3) %
Adjusted EBITDA margin1 13.9 % 3.0 %
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 earnings
(loss) per share attributable to Heska Corporation , the closest comparable GAAP
measures, for each of the periods presented. Net income (loss) margin and
adjusted EBITDA margin are calculated as the ratio of net income (loss) and
adjusted EBITDA, respectively, to revenue.
2 Shares used in the diluted per share calculation for non-GAAP net income per
diluted share are (in thousands): 9,844 for the three months ended March 31,
2021 compared to 7,568 for the three months ended March 31, 2020 .
Revenue
Total revenue increased 97.4% to $60.5 million for the three months ended March
31, 2021 , compared to $30.7 million for the three months ended March 31, 2020 .
The significant increase in revenue is driven mainly by the acquisition of scil,
which represented $22.3 million in the three months ended March 31, 2021 that
was not included in the prior year period.
-31-
--------------------------------------------------------------------------------
Gross Profit
Gross profit increased 89.4% to $25.5 million in the three months ended March
31, 2021 , compared to $13.4 million in the three months ended March 31, 2020 .
Gross margin decreased to 42.1% in the three months ended March 31, 2021 ,
compared to 43.9% in the three months ended March 31, 2020 . The increase in
gross profit was due mainly to the scil acquisition. The decrease in gross
margin percentage was due to lower margin in the scil business.
Operating Expenses
Selling and marketing expenses increased 47.8% to $10.9 million in the three
months ended March 31, 2021 , compared to $7.4 million in the three months ended
March 31, 2020 . The increase is a direct result of international expansion
related to recent acquisitions and is in line with management expectations.
Research and development expenses decreased 44.3% to $1.2 million in the three
months ended March 31, 2021 , compared to $2.1 million in the three months ended
March 31, 2020 . The decrease is related to timing of spending on product
development for the urine and fecal diagnostic analyzer and enhanced
immunodiagnostic offerings in the current year. As we invest in future growth of
the Company, management anticipates continued research and development costs
throughout 2021, which is consistent with strategic initiatives.
General and administrative expenses increased 44.4% to $12.4 million in the
three months ended March 31, 2021 , compared to $8.6 million in the three months
ended March 31, 2020 . The increase is driven by $4.4 million related to
additional expenses related to the impact of international acquisitions compared
to the prior year, increased stock-based compensation expenses of $2.1 million ,
and increased other general and administrative costs. These increases are
partially offset by $3.7 million in lower one-time costs that we incurred in the
first quarter of 2020 related to the acquisition or scil that did not repeat in
the first quarter of 2021.
Interest and Other Expense (Income), net
Interest and other expense, net, was $0.5 million in the three months ended
March 31, 2021 , compared to $2.2 million in the three months ended March 31,
2020 . The decrease in interest and other expense was primarily driven by a
change in accounting treatment related to non-cash interest expense as a result
of the Notes. Refer to Note 16, Convertible Notes, in the Notes to Consolidated
Financial Statements further information on the change in accounting treatment
and its impact on interest expense.
Income Tax Benefit
For the three months ended March 31, 2021 , we had a total income tax benefit of
$1.6 million , including $2.2 million of domestic deferred income tax benefit and
$0.6 million current income tax expense. In the three months ended March 31,
2020 , we had a total income tax benefit of $1.5 million , including $1.5 million
of domestic deferred income tax benefit and $25 thousand of current income tax
expense. The increase in tax benefit is due to pretax income reported in the
first quarter of 2021 compared to pretax loss reported in the first quarter of
2020 and the tax benefit received from the release of the valuation allowance
based on a realizability assessment of deferred tax assets relating to expiring
tax credit carry-forwards. The Company recognized $0.5 million in excess tax
benefits related to employee share-based compensation in the three months ended
March 31, 2021 , compared to $0.3 million recognized in the three months ended
March 31, 2020 .
-32-
--------------------------------------------------------------------------------
Net Income (Loss) Attributable to Heska Corporation
Net income attributable to Heska was $1.9 million in the three months ended
March 31, 2021 , compared to net loss attributable to Heska of $5.3 million in
the three months ended March 31, 2020 . The difference between this line item and
"Net income (loss) after equity in losses of unconsolidated affiliates" is the
net income or loss attributable to our minority interest in our French
subsidiary (Optomed ), which we purchased in February 2019 . In October 2020 , the
Company acquired the remaining 30% minority interest in Optomed . Net income is
higher in the first quarter of 2021 due to increased revenue and profit, as
discussed above, and the change in non-cash interest charges relating to the
Notes.
Adjusted EBITDA
Adjusted EBITDA in the three months ended March 31, 2021 was $8.4 million (13.9%
adjusted EBITDA margin), compared to $0.9 million (3.0% adjusted EBITDA margin)
in the three months ended March 31, 2020 . The increase is driven by increased
revenue and gross profit, partially offset by increased operating expenses, as
discussed above. Increased stock based compensation expenses and depreciation
and amortization associated with the acquisition of scil 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
Earnings per share attributable to Heska was $0.19 per diluted share in the
three months ended March 31, 2021 compared to loss of $0.70 per diluted share in
the three months ended March 31, 2020 . The increase is primarily due to
increases in revenue and profit and lower interest and amortization charges
relating to the Notes, partially offset by increased operating expenses, as
discussed above.
Non-GAAP Earnings Per Share
Non-GAAP EPS was income of $0.59 per diluted share in the three months ended
March 31, 2021 compared to loss of $0.14 per diluted share in the three months
ended March 31, 2020 . The increase is primarily due to increased revenue and
profit, partially offset by increased operating expenses. See "Non-GAAP
Financial Measures" for a reconciliation of non-GAAP EPS to net income (loss)
attributable to Heska per diluted share, the closest comparable U.S. GAAP
measure, in each of the periods presented.
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 EBITDA,
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 EBITDA, adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income
(loss) per diluted share as key profitability measures, which are included in
monthly or quarterly analyses of our operating results to our senior management
team, our annual budget and related goal setting and other performance
measurements. We believe these non-GAAP measures enhance our investors'
understanding of our business performance and that not adjusting for the items
included in the reconciliations below would hinder comparison of the performance
of our businesses on a period-over-period basis or with other businesses.
-33-
--------------------------------------------------------------------------------The following tables reconcile our most directly comparable as-reported financial measures calculated in accordance with GAAP to our non-GAAP financial measures (in thousands, except percentages and per share amounts):
Three Months Ended
March 31,
2021 2020
Net income (loss)1 $ 2,057 $ (5,309)
Income tax benefit (1,565) (1,508)
Interest expense, net 531 2,113
Depreciation and amortization 3,571 1,374
EBITDA $ 4,594 $ (3,330)
Acquisition-related and other one-time costs2 155 3,874 Stock-based compensation 3,837 353 Equity in losses of unconsolidated affiliates (186)
(130)
Net loss attributable to non-controlling interest - 151 Adjusted EBITDA$ 8,400 $ 918 Net income (loss) margin3 3.4 % (17.3) % Adjusted EBITDA margin3 13.9 % 3.0 %
1 Net income (loss) used for reconciliation represents the "Net income (loss) before equity in losses of unconsolidated affiliates."
2 To exclude the effect of one-time charges of$0.2 million for the three months endingMarch 31, 2021 , and$3.9 million for the three months endingMarch 31, 2020 incurred as part of acquisition and other related costs.
3 Net income (loss) margin and adjusted EBITDA margin are calculated as the ratio of net income (loss) and adjusted EBITDA, respectively, to revenue.
Three Months Ended
March 31,
2021 2020GAAP net income (loss) attributable to Heska per diluted share $
0.19 $ (0.70) Acquisition-related and other one-time costs1 0.02 0.51 Amortization of acquired intangibles2 0.14 0.02
Purchase accounting adjustments related to inventory and fixed asset step-up3
0.02 -
Amortization of debt discount and issuance costs - 0.20
Stock-based compensation 0.39 0.05
Loss on equity investee transactions 0.02 0.02
Estimated income tax effect of above non-GAAP adjustments4 (0.19) (0.24)
Non-GAAP net income (loss) per diluted share $ 0.59 $ (0.14)
Shares used in diluted per share calculations 9,844 7,568
1 To exclude the effect of one-time charges of $0.2 million for the three months
ending March 31, 2021 , and $3.9 million for the three months ending March 31,
2020 incurred as part of acquisition and other related costs.
-34-
--------------------------------------------------------------------------------
2 To exclude the effect of amortization of acquired intangibles of $1.4 million
in the three months ended March 31, 2021 , compared to $0.1 million in the three
months ended March 31, 2020 . 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 and
fixed asset step up amortization of
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 items which are not deductible for tax of$60 thousand cost for the three months endedMarch 31, 2021 ), 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$0.5 million for the three months endedMarch 31, 2021 and to$0.3 million for the three months endedMarch 31, 2020 . Adjusted effective tax rates are approximately 25% for both periods presented. Impact of Inflation In recent years, inflation has not had a significant impact on our operations. -35- -------------------------------------------------------------------------------- Analysis by Segment TheNorth America segment includes sales and costs fromthe United States ,Canada andMexico . The International segment includes sales and costs fromAustralia ,France ,Germany ,Italy ,Malaysia ,Spain andSwitzerland . TheNorth America segment represented approximately 61.6% of our revenue for the three months endedMarch 31, 2021 and the International segment represented approximately 38.4% of our revenue for the three months endedMarch 31, 2021 . The following sections and tables set forth, for the periods indicated, certain data derived from our unaudited Condensed Consolidated Statements of Income (Loss) (in thousands). North America Segment Three Months Ended March 31, Change Dollar 2021 2020 Change % Change Point of Care laboratory:$ 19,939 $ 16,302 $ 3,637 22.3 % Instruments & Other 2,988 2,616 372 14.2 % Consumables 16,951 13,686 3,265 23.9 % Point of Care imaging 6,688 3,496 3,192 91.3 % PVD 6,864 4,504 2,360 52.4 % OVP 3,781 3,348 433 12.9 %Total North America revenue$ 37,272 $ 27,650 $ 9,622 34.8 % North America Gross Profit$ 17,509 $ 12,504 $ 5,005 40.0 % North America Gross Margin 47.0 % 45.2 % North America Operating Income (Loss)$ 1,033 $ (4,093) $ 5,126 (125.2) % North America Operating Margin 2.8 %
(14.8) %
North America segment revenue increased 34.8% to$37.3 million for the three months endedMarch 31, 2021 , compared to$27.7 million for the three months endedMarch 31, 2020 . The$9.6 million increase was driven by a 23.9% increase in POC Lab Consumables driven by utliziation and price increases, an increase of$3.2 million in Point of Care Imaging, which benefited from$3.0 million in sales fromCanada not included in the comparative period as a result of the scil acquisition, and a$2.4 million increase in PVD related to an increase of$1.9 million for the contract manufactured heartworm preventive, Tri-Heart®, and increased allergy sales of$0.6 million . Gross profit for theNorth America segment was$17.5 million compared to$12.5 million for the three months endedMarch 31, 2021 and 2020, respectively. The increase in gross profit is primarily driven by increased revenue mix in the current year period. Gross margin was 47.0% for the three months endedMarch 31, 2021 , compared to 45.2% in the three months endedMarch 31, 2020 . The increase is due to increased revenue and margins for consumables, which tend to be our highest margin products, and OVP, which experienced greater productivity in the period. -36- --------------------------------------------------------------------------------North America operating income increased$5.1 million for the three months endedMarch 31, 2021 compared to the prior period. The increase is driven by increased revenue and profit as discussed above. Increases in operating expenses related to stock-based compensation of$3.2 million and expenses related toCanada of$1.0 million were offset by timing of research and development costs of$1.0 million and reduced one-time transaction related costs for the acquisition of scil in the prior year of$3.8 million . International Segment Three Months Ended March 31, Change Dollar % 2021 2020 Change Change Point of Care laboratory:$ 15,239 $ 795 $ 14,444 1,816.9 % Instruments & Other 3,014 235 2,779 1,182.6 % Consumables 12,225 560 11,665 2,083.0 % Point of Care imaging 6,658 1,358 5,300 390.3 % PVD 1,334 851 483 56.8 %Total International revenue$ 23,231 $ 3,004 $ 20,227 673.3 % International Gross Profit$ 7,961 $ 944 $ 7,017 743.3 % International Gross Margin 34.3 % 31.4 % International Operating Loss $ (15)$ (525) $ 510 97.1 % International Operating Margin (0.1)
% (17.5) %
International segment revenue was$23.2 million compared to$3.0 million for the three months endedMarch 31, 2021 and 2020, respectively. The increase is due to the acquisition of scil, which contributed approximately$18.0 million of revenue in the three months endedMarch 31, 2021 that was not included in the comparable period. Gross profit for the International segment was$8.0 million compared to$0.9 million for the three months endedMarch 31, 2021 and 2020, respectively. Gross margin for the International segment was 34.3% for the three months endedMarch 31, 2021 compared to 31.4% for the three months endedMarch 31, 2020 . The increase in gross profit and gross margin is driven by increased revenue from acquisitions. International operating loss decreased$0.5 million for the three months endedMarch 31, 2021 compared to the prior year period. The decrease in operating loss for the three months endedMarch 31, 2021 is driven by increased International revenue and gross profit from the scil acquisition. 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$238.5 million , which includes net proceeds from the issuance of common stock of approximately$165 million onMarch 5, 2021 . -37- -------------------------------------------------------------------------------- A summary of our cash from operating, investing and financing activities is as follows (in thousands): Three Months Ended March 31, Change Dollar % 2021 2020 Change Change Net cash provided by (used in) operating activities$ 1,337 $ (4,761) $ 6,098 (128.1) % Net cash used in investing activities (13,131) (14,630) 1,499 (10.2) % Net cash provided by financing activities 164,355 121,630 42,725 35.1 % Foreign exchange effect on cash and cash equivalents (440) (24) (416) 1,733.3 % Increase (decrease) in cash and cash equivalents 152,121 102,215 49,906 48.8 % Cash and cash equivalents, beginning of the 86,334 89,030 (2,696) (3.0) %
period
Cash and cash equivalents, end of the period
24.7 %
For the three months ended March 31, 2021 and March 31, 2020 , cash flow provided
by (used in) operations was $1.3 million and $4.8 million , respectively, which
was primarily the result of (used for) (in thousands):
Three Months Ended
March 31, Change
Dollar %
2021 2020 Change Change
Net income (loss) $ 1,871 $ (5,439) $ 7,310 (134.4) %
Non cash expenses and other adjustments 6,143 2,298 3,845 167.3 %
Change in accounts receivable 858 (1,092) 1,950 (178.6) %
Change in inventories, net (1,818) (3,081) 1,263 (41.0) %
Change in other assets (893) (429) (464) 108.2 %
Change in accounts payable 153 837 (684) (81.7) %
Change in other liabilities (4,977) 2,145 (7,122) (332.0) %
Net cash provided by (used in) operating
(128.1) %
activities
For the three months endedMarch 31, 2021 andMarch 31, 2020 , cash flow used in investing activities was$13.1 million and$14.6 million , respectively, which was primarily used for (in thousands): Three Months Ended March 31, Change Dollar % 2021 2020 Change Change Acquisition of CVM $ -$ (14,420) $ 14,420 (100.0) % Acquisition of Lacuna, net of cash acquired (3,882) - (3,882) - % Promissory note receivable issuance (9,000) - (9,000) - % Purchases of property and equipment (262) (210) (52) 24.8 % Proceeds from disposition of property 13 - 13 - % Net cash provided by (used in) investing$ (13,131) $ (14,630) $ 1,499 activities (10.2) % -38-
-------------------------------------------------------------------------------- For the three months endedMarch 31, 2021 andMarch 31, 2020 , cash flow from financing activities was$164.4 million and$121.6 million , respectively, which was the result of (in thousands): Three Months Ended March 31, Change Dollar % 2021 2020 Change Change Payment of stock issuance costs$ (217) $ (158) $ (59) 37.3 % Preferred stock proceeds - 122,000 (122,000) (100.0) % Proceeds from issuance of common stock 165,357 336 165,021 49,113.4 % Repurchase of common stock (679) (538) (141) 26.2 % Repayments of other debt (106) (10) (96) 960.0 %
Net cash provided by (used in) financing
35.1 %
activities
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 I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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$440 thousand negative impact for the three months endedMarch 31, 2021 , compared to a$24 thousand negative impact for the three months endedMarch 31, 2020 , an decrease of$416 thousand . These effects are related to changes in exchange rates between theU.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 ofMarch 31, 2021 , the Company had purchase obligations for inventory of$50.1 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 endedDecember 31, 2020 , 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
