Image Credit: Heska.com, Homepage Screenshot, 1/03/2020
On May 7th, Heska Corporation, the US-originated supplier of veterinary and animal health products, reported its financial results for the first quarter ended 31st March 2020. These results show that sales revenue grew during the quarter although profitability deteriorated. The companies overall sales revenue reached $30.7m, compared with $29.5m during Q1 2019, an increase of approximately +3.9% year-on-year. In terms of underlying profitability, net income was ($5.3m) during the quarter, compared with ($0.8m) during Q1 2019, a deterioration of ($4.5m). The increased net loss was driven by higher operating expenses due to a combination of one-time costs related to the acquisition of Scil Animal Care, higher investment into R&D as well as higher sales and marketing costs.
The company has two reportable segments – core companion animal (CCA) and other vaccines and pharmaceuticals (OVP). The sales growth during the first quarter was driven by higher sales revenue from the CCA segment, partially offset by lower sales revenue from the OVP segment. The sales revenue originating from the CCA segment accounted for the majority of the companies revenue (c.90%) and reached $27.3m during Q1 2020, an increase of approximately +11% relative to Q1 2019. The sales revenue originating from the OVP segment reached $3.3m during the quarter, a decrease of approximately -30% relative to Q1 2019.
The CCA segment encompasses the companies portfolio of products services related to laboratory consumables and instruments, imaging solutions as well as pharmaceuticals, vaccines and diagnostics (PVD). The sales growth from the CAA segment was driven by a 15.7% increase in lab consumables and a $1.9 million increase in PVD related to the contract manufactured heartworm preventive, Tri-Heart®. These increases were partially offset by a 22.3% decrease in capital lease placements and outright sales of lab instruments as well as a 10.3% decrease in imaging sales.
Acquisition of Scil Animal Care Company GmbH
On the 1st April 2020, Heska announced that it had completed the acquisition of Scil Animal Care Company GmbH for a consideration of $110m, despite many global M&A transactions being paused or terminated due to the external economic environment. This acquisition is the largest in the companies history and represents a significant milestone in its longer-term strategic plan. Scil Animal Care is a proven European based leader in veterinary point of care laboratory and imaging diagnostics and it strengthens the Heska business particularly within Europe. Scil Animal Care has a longstanding base of loyal customers, a top three market position in Germany, France, Italy, Spain and Canada, as well as a growing presence in the United Kingdom, Scandinavia, Eastern Europe, Latin America and Malaysia. Heska’s combination with scil creates a unified and difficult-to-replicate global veterinary diagnostics company with critical market share leadership in key countries to service millions of pets through tens of thousands of veterinarians and active point of care analyzers around the world.
Comments on the impact of the Coronavirus Pandemic
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 quarter, on-site installations of equipment were impacted in March. We anticipate the impact to on-site installations and capital equipment expenditures to continue for at least the remainder of 2020.While we have experienced some intermittent delays in receiving supply, Heska’s supply chain has not been significantly impacted and we do not expect material changes to current supply availability trends 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 receiving validation samples and device components as well as inefficiencies in remote collaboration and field-testing. We anticipate these delays to result in slippage of 90 to 120 days in our new products’ commercial roll-out schedules. While these delays are unfortunate, we are taking the additional time to improve product features and benefits.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 some 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; (1) our customers and products are essential, (2) our main POC Lab 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 track our 2020 Outlook, (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 prepared for both a staged return and an instant-on return to full capacity.SEC filing, 8-K, Q1 2020 financial results
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