Q3 2019 Earnings Call
Good day and welcome to the Heska Corporation.
She says a 19 earnings call today's conference is being recorded.
I would like to turn the conference over to John acreage Director Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone welcome to Heska Corporation's earnings call for the third quarter of 2019, I Am Johnny Guard director of Investor Relations for Heska prior to discussing Heskas third quarter 2019 results I would like to remind you that during the course of this call. We may make certain forward looking statements regarding.
In future events or future financial performance of the company.
We need to caution you that any such forward looking statements are based on our current beliefs and expectations and involve known and unknown risks and uncertainties, which may cause actual results and performance to be materially different from that expressed or implied by those forward looking statements factors that could cause or contribute to such differences.
Are detailed in writing in places Lady in this morning's earnings release.
Yes, good corporations annual and quarterly filings with the FCC.
Any forward looking statements speak only as of the time. They are made and Heska does not intend and specifically disclaims any obligation or intention to update any forward looking statements to reflect events that occur after that time such statement was made.
With us this morning, we have Kevin Wilson, Heskas, Chief Executive Officer, President, Katherine Grassman, Heskas, Chief Financial Officer, and Jason Napolitano, <unk>, Chief strategy Officer, Mr. Wilson, and that's Grassman will provide details surrounding the results reported and then we'll open the call. The questions. At this time then it's my pleasure to turn the call.
Over to Kevin Wilson, Heskas, CEO and President Kevin Thanks, Sean Good morning, everybody.
Today, we're pleased to report another strong quarter. It remains in line with our full year outlook, including the timelines that are driving our core business growth initiatives and major product developments.
Our performance in nearly all key areas again met or exceeded our goals for the period and year to date strong growth in core companion animal lab diagnostics went away.
With plc lab consumables up 20.9% over the prior year period.
Active subscriptions lots under subscription minimum contract subscription value and subscription Retentions all continue to progress nicely in line with our full year outlook.
Sales campaigns test menu expansions and favorable timing helped drive these strong results.
We anticipate again capturing market share in the lab space for the six year in a row.
We achieved in several areas in the period first we had healthy commercial performance second our research and development investments are on schedule and delivering good results, especially in our highly anticipated element you left product and third we had positive operating cash trends and we completed our 86.25 million.
Dollar capital raise to help power our offense.
As we look to close out the year [noise].
And enter an exciting 2020.
We sense good momentum that is underpinned by healthy veterinary market generally.
By Heskas execution and central position in that market specifically.
Heskas full portfolio point of care diagnostics are critical to veterinarians and pet families because pets can't speak.
Which makes heskas products, the indispensible voice of the pet did a central to driving positive health care outcomes for pets and positive financial outcomes for veterinarians.
Our point of care diagnostics continued to benefit from several strong long term growth trends that are well known but dessert mentioning again.
We continue to benefit from the Humanization of pets trend that is expanding globally across pet households in multiple generations and demographics.
We continue to see an ongoing and increasing pressure on traditional veterinary profit streams, which make point of care diagnostics from Heska, an indispensable part of the modern veterinary health care providers business.
We continue to see robust corporate consolidation investment into veterinary health care providers, both domestically and internationally.
Which drives global markets for diagnostics.
And we continue to see positive hospital patient visit and utilization trends.
We continue to benefit from veterinary health Care's wonderful streamlined payer and regulatory environments.
These trends and several others continue to drive robust industry investment and accelerating consolidation.
Into this positive setup, we had have scar thrilled to claim one of a very limited number of spots when within this coveted space.
To rapidly capitalize on the opportunities within the global animal health care space in September we successfully issued $86.25 million of convertible senior notes to accelerate and fund our intended expansion and strategic growth initiatives.
With that I'll turn the call over to Kathryn.
And John to walk through other updates outlined in our release this morning John .
Thank you, Kevin and thanks, again to everyone, who has chosen to join US. This morning, we presented a lot of good information in today's release and we want to take a moment to call out some of the high points here before Catherine covers the financial details.
First I'd like to take a moment to overview, our progress and product innovation.
In June Heska launched progesterone and B U N tests to Heskas immuno assay in blood gas analyzers, respectively, as well as Heskas, New chemistry, you wrap plus panel.
These products watches and effective work from our sales teams helped to deliver good retention and utilization in the quarter.
With broad market launches of two new analyzers in the fourth quarter, we're optimistic that our sales teams and tactics are finding positive response from our customers.
In June we began limited release of Heskas new element plus.
Ilmenite pluses Heskas next generation multiplexing immuno assay platform for global veterinary an animal health market.
And I plus leap frog test as current leading immuno assay platform.
Multiplexing touch card superior analyzer design.
Our cost profile expansive roadmap of first and only point of care testing in global markets availability within Huskers full point of care line.
Early reception for element I plus has been favorable in the third quarter and broad market releases scheduled for December .
Also in June Heska launched the element RC our new Roeder based chemistry platform targeted directly to the Companys geographic expansion initial installed to now be gone.
Early reception has been favorable and broad market release began starting in late December .
[noise] and lastly, we are pleased to note that the highly anticipated release of Heskas element U.S. urine and people analyzer is now a quarter closer to market.
Heskas research and development investments continue to yield on target in on time key results, leading us to reiterate our previously released timelines.
You EPS is expected to be a major first mover innovation from Heska in a market estimated to be many hundreds of millions of dollars.
We continue to be confident in the market opportunity feasibility benefits timetable and potential for value creation of this exciting new sequel, and year end testing technology.
Now I'd like to take a few quick moments to overview, our progress in expanding our market.
That's because 2019 acquisition of optimizing France is now complete and it is making good progress with our first point of care lab diagnostics installations, which have begun.
Also performing while its Heska, Australia, which is what running slightly ahead of expectation.
Small early wins and point of care lab diagnostics continue on the learnings from our work in Australia, providing detailed road map for future Heska expansion.
These early international market expansion results well relatively minor in bottom line impact continue to strengthen our conviction and heskas ability to expand execute and scale into markets outside of North America.
Lastly on market expansion, we turned to corporate accounts.
Which continued to perform well for how Scott as the number of sites continues to grow and we began also to see opportunities to expand and extend our existing relationships [noise].
One such extension of note is with pet care centers, which has now extended its term with heska by an additional two years through the end of 2026.
That care centers is a great heska customer that is now on track for solid 2019, gross and for a very strong and reliable mid teens annual growth through the end of 2026.
For the full year 2019, heskas for the full year 2018, Heskas corporate account individual account wins and subscription retention results are progressing in line with our outlook.
[noise], having covered a lot of information there I will now turn the call over to Catherine to go through the financial details of the quarter Katherine Thanks, John and good morning, everyone. We're pleased to report a strong performance for the third quarter 29.
Consolidated revenue for the quarter was 31.29, your 0.9% increase over the third quarter 2018 revenue in our core companion animal or Cps segment was 26.3 million for the third quarter 2090.
3.1% decrease over 27.29, and the third quarter of 28.
Revenue from point of care Laboratory consumables grew 20.9% in a third quarter 29, so compared to the second quarter 2018, which is in line with our full year outlook of 12% to 17%.
Offsetting this increase was expected lower revenues from sales of pharmaceuticals, and backing 52.2%, specifically try hard heartworm preventive that manufactured from Merck.
Revenue from other vaccines and pharmaceutical for Ob piece segment increased 30.1% 4.9 million in the third quarter 29.
I compared to the third quarter 20 people, which is largely due to timing consolidated gross margin in the first quarter 29.
43.7% as compared to 47.8% in the third quarter 20.
And the third quarter 2019 gross margin in RCC, a segment grew 225 basis point.
51.7%, that's compared to the third quarter 20 equal due to the increase in consumable revenue OVC segment margins decreased 3500 basis points to 1.2% in the third quarter of 29.
I compared to the third quarter of 28.
Resulting from unfavorable product mix.
Operating income.
<unk> 193000, as compared to an operating loss of 3.9 in the third quarter 2018.
The increase in operating income is due to 7.1 million nonrecurring charges relating primarily to the settlement of a legacy marketing complaint recorded in the third quarter of 24, excluding the nonrecurring.
Point 1 million third quarter of 22 third quarter 2019, adjusted operating income decreased 3.3 million or 94.4% from 3.5 million, primarily due to lower profitability on obesity related sales increased research and development spend on product initiatives of 1.6 million previously discussed.
On this call.
Depreciation and amortization was 1.2 million third quarter 2019, compared to 1.1 million for the third quarter 20.
Stock based compensation was 1.2 million horrible horrible a third quarters of 2019 and 20.
The company and effective income tax rate for the third quarter 29, cool well the tax benefit rate of 72.2% compared to a tax benefit right at 52.9% for the third quarter of 28.
On a non-GAAP basis, excluding the tax effects of 2 million relating to the nonrecurring charges. The company's effective tax rate for the third quarter 2018, where they tax expense rate, 3.6% the volatility in the company tax rate due to lower level income as a result of reinvestment in the business and discrete tax benefits associated with the stock.
Compensation activity.
Net loss attributable to ask a corporation third quarter 2019 was approximately 300000 or a loss of four cents per share which includes approximately 600000 of other expense related to cyber security network event or one cents impact per share compared to a loss of 1.7 million or losses.
23 cents per share in the third quarter 2018.
Excluding the nonrecurring charges and 20.
Adjusted net income for Trickle Tesco Corporation for the third quarter 2018, with a 3.4 million.
Core earnings of 43 cents per diluted share.
As of September Thirtyth, 2019, Heska Corporation, Accidently 82.5 million in cash compared to 13.4 million as of December 31st 20.
On September 17 29.
Operationally 86.25 million aggregate principal now 3.75% convertible senior notes due in 2020.
Net proceeds from the filled and notes were approximately 3.7 million after deducting. The initial initial purchasers discount any offering expenses.
Approximately 12.8 million of the net proceeds were used to repay all the outstanding indebtedness under the credit facility and 2 million was used as collateral to fully fund the letter of credit facility.
Corporation intends to use the remainder of the net proceeds from the notes to fund our intended expansion efforts, including through acquisitions complementary businesses or technology or other strategic transaction and for working capital and other general corporate purposes.
Cash flow from operations, where they use a 3.3 million for the nine month ending September Thirtyth 2019, due to litigation settlement payment 6.8 million as compared to cash provided by operations 6.5 million for the nine months ending September Thirtyth 20.
Regarding our outlook for the balance of 29, so investors may recall that we don't provide quarterly Orton period guidance that said, we continue to believe our full year 2019 outlook is achievable, but of course not guaranteed pertaining to our outlook for 2020 as indicated previously we will provide our 2020.
Well on our regular schedule during our fourth quarter and full year earnings call.
Regarding our outlook past 2020, we plan to host an analyst and Investor Day on May 20, 2020 in New York City, where we where we will discuss heska strategic growth strategy and multi your outlook to incorporate more fully affects from our capital raise business development activities research and development, new product launches geographic expansion and.
Their whole topics for investors and analysts etail surrounding the event will be forthcoming with that we would like to open up the call for your questions operator.
Thank you, ladies and gentlemen, if you wish ask a question at this time P. signals referencing star one on your telephone keypad.
And that is starting wouldn't ask a question.
[noise], we when they take or first question from decent Westenberg Guggenheim Securities. Please go ahead, Sir your line is open.
Thanks for taking the questions and grants on on it on a good quarter. So I'd just first on the on the FICO market. How how would you think about if competition came up for that market isn't big enough and and you know how big of a market need do you anticipate that being and it maybe two or three year out.
Oh period.
Hey, David it's Kevin Good morning.
I think we've called out.
I think I've seen reports out there maybe one from you.
Somewhere in the six or 700 million dollar range and and we think that's accurate.
Oh.
Fecal itself is a very very big market in terms of point of care as is basically on address.
And we think combining earnings equal.
It is certainly an advantage for us.
If were successful in doing that so certainly we think it's a good market and we think you get there relatively quickly.
It's not a market.
At least in our conversations with veterinarian since you have to convince veterinarians and technicians up the need.
They do these often.
Manually.
That's a messy pleasant process that that results in variability depending on the user and we think we can.
Bruce standardized.
Sample prep and things like that to get better results in more consistent results without having to deal with the manual messy process. So we think it's pretty compelling.
In regards to competition I think it just puts more.
Because some more visibility.
On the space and I wouldn't view that as a negative side probably view it.
As a slight positive having another marketing machine out there advocating.
Got to speed up.
Market penetration, both domestically and internationally, depending on where the competition came from would be probably helpful.
Just a poster.
Thank you and then outside the U.S. can you talk about how you're thinking about investment outside the U.S. versus growth outside the U.S. and I realize it's kind of a day question, but I'm kind of getting a sense I'm just trying to get us a a said so when you see a market it's fully right to attack first days.
You know weight when you might be pulling back a in a certain geography, if theres any sort of got guide rails, you can give us there that would be helpful.
Yeah, I mean, I called out markets in the past generally kind of.
Westernized.
Democratic markets with good thinking and good legal.
I was like to remind people, we'd like to place assets that we own and keep on our balance sheet largely that's that's our business model and it's important for us to have stability in currency.
Legal.
Those types of things property rights so.
I think that's the first piece. So we're not trying to focus for instance, where not Asia focused we think.
Western Europe .
Central Europe .
Strategy on are really good examples.
And in terms of looking for market opportunities that are ripe to jump on.
Most of these markets are are more than right to jump on its really more looking for a thoughtful way.
Into that market and that's for business development and international growth for us are really.
Hi, very very closely.
I think getting a thoughtful each had in each of those markets.
It's important and will largely dictate our next couple of market entries.
If we can get a good good entry point through some thoughtful business development.
We'll take it and that will dictate where we would intend to grow that market over the next couple of years.
I appreciate it.
Okay. So here, it's Jason Okano, and it's Kevin mentioned I think we'll do it both organically as we didn't Australia for by acquisition based on availability and enough demand in France is a good example.
So acquisition.
If I could just squeeze in one real quick one ill take it offline outside the or sorry.
There was a couple reference lab acquisitions that just took place I is that something that you might be opportunistic towards is that something.
A strategic direction of the business just any color. There is helpful and congrats again on a good quarter and I'll jump off like thank you.
That's it.
Yeah, Phoenix Lab was acquired by Ah. So let us this past month Marshfield was acquired by IDEXX.
Those are.
The two largest remaining independent labs in North America.
We would love to be.
In or partner with.
Central reference labs in international markets.
We we think largely the north American market is a effectively.
Served by two large players, namely IDEXX and Antech, which is owned by Mars and so we don't really see.
Tesco in the North American market.
Penetrating that but we do think that's quite a possibility in some of these international markets largely because heska can bring the point of care component.
The central reference lab component instantly and those are those are potentially nice tie ups. So thank you.
Yes.
And they take or next question from Mark Massaro of kind of course Junichi. Please go ahead. Your line is open.
Hi, This is Maxim sees young from Mark.
So you extended the term of your relationship with pet care centers like two years 2026. So I guess, how did you arrive disagreement and what are some of the solutions that can be addressed is slower than expected conversions in prior years and I guess, what gives you confidence in the mid teen.
This growth rate through 2026.
At Max I've answered your question I know you guys are probably fall that aspect of our story.
A little more closely.
They're a they're good customer sometimes it takes a little while to to get things linked up we've been working with them for two years as you recall they were our first big.
Corporate customer announced.
So we worked with them over the last six to nine months.
A little bit more intensively.
And ER and we've agreed to extend so that we get the economics and we get to work with them on a longer basis.
And I think that's a good thing in terms of the growth.
We have a high degree of confidence in that I think we've stepped up in terms of what their commitments and growth rates are and what our expectations and obligations to do the surface NR and we just have a very high degree of confidence in that on a go forward basis.
Great and how's the funnel looking for additional tuck in M&A in Europe .
Do you see additional opportunities that resemble opted med.
Terms their financial profile or are you looking at companies that are there different.
From up to that maybe in terms of size reach and financial profile.
Yeah, Jason one thing I'm sure, it's Jason I'll take that we are looking at several opportunities in Europe .
I think up demand is a pretty good proxy for the type of companies that are we like to say, we'd like to see someone strong in country someone's got a real good market presence in their particular country.
There's several of them out there I'm reluctant obviously to start I'm guiding to you know closing deals and things along those lines just because these things.
No tend to be very personality, driven and you've got to find the right at right opportunity you got to do your diligence and you got to be sure you've got a good economic arrangement.
But I expect over the next year, you're going to see a few optimist like transactions being announced by Heska, Yeah, and I'll just add to that you know after that was supposed small.
And I think what we're signaling is.
If they have the right.
Question in their local market are good entry point for us that's not that's not a negative thing for us we like the smaller transactions.
But we have an appetite obviously for for larger healthy entry points as well. So I think we considerable for sure for sure.
Great and then one more if they can so you're you're not manufacturing some instruments and consumables in des Moines.
You guys just on gross margins for the quarter I guess, how how is the process of manufacturing yourself going into any challenges.
Just one should we expect to see any sort of benefit to your gross margins in 2020 or is up for grabs.
Yeah, I do think.
So much gross margin talking about if you're talking about consolidated gross margin that can also be driven by mix.
So as you launch some of these new tests analyzers in the supplies. It run through them may have better margins and some of the products in our in our stable, whether it be imaging or oral VP or things like that.
We have not started manufacturing tests in des Moines, we're still in investment mode.
And development mode on that so we haven't we haven't seen any.
Benefit of that some of our new product.
Launches.
Also have very good margin profiles and as they become part of the mix.
Do things that they can be a positive impact on on consolidated gross margins as well, but we haven't started doing the manufacturing piece, we're still investing in that.
Thanks, guys. That's all for me.
<unk>.
When they move onto next question from Andrew.
Freeman James. Please go ahead, Sir your line is.
Hey, everyone. Thanks for the question a lot is already been asked but I think.
Maybe one just relative to our model I think the sales and marketing build was a little bit slower than we had expected. So just kind of any any commentary in terms of build up either.
Domestically ahead of some of the or are in conjunction with some of these newer products and then internationally as well as we think about Australia and not without demand in France and potentially more just how you think about you know when you reach sort of a.
Scale their domestically and again, how you're going at internationally would be helpful.
In terms of domestic scale.
We added last year throughout the year I don't think we've been as aggressive adding headcount.
This year we.
Actually this week just promoted.
Two very very qualified individuals to vice president roles.
To manage and build out and grow our salesforce for the point of care lab business.
Kevin class in general, Brian Social Shout out to those guys. They do a great job they've been here, a long time and and so we are making those investments, but I think we've got the timing about right.
In order to align those things with product releases and when we actually need to feed on the street I do anticipate we will continue to expand our reach.
It varies quarter by quarters as you know.
Okay. That's helpful and then kind of circling back on.
Dots on M&A.
Internationally what.
Are there any sort of assets that you know what would be a better fit or frankly ones that you'd say, we don't want to be involved here you know I think there's a lot more.
Fragmentation and all of these international markets. So clearly there's a lot of opportunity whether it be to your point, you know partnering with reference lab or something more like Optum Ed. That's obviously you know in in a little bit different market than what you had domestically.
But how you think about you know rank ordering something that's maybe more directly linked to what you your existing businesses versus you know something maybe a little bit more further afield, whether it be vertical or horizontal.
In nature.
I think Kevin and Jason.
I'll take first step out and yeah, well supplementary facing let me know by with it.
Yeah, I think I think we've called out in the past.
Mini Heskas.
In geographies at Heska is not in a would be attractive would be very.
At very attractive and easier for us to integrate.
I think those are are very positive Chad I wouldn't expect us to go.
A whole lot farther afield I think you wish him you've got a little mini heska type of.
And graphic expansion.
Got central reference labs their geographic expansions.
Called out practice management software companies.
I couldn't be geographic expansions.
That's good customer bases and you know you know local.
Market, it's not the United States.
And I wouldn't expect us to go Crazy and go by some apps company or an insurance company or anything that's kind of out of the core of our business. We're not we're not looking to bolt on.
Ladies and brand new revenue streams were we think we've got the right model. We think we've got to rent capabilities I think it's more about scaling.
Our existing business and.
Taking the learnings that we've gotten from Australia.
From Optum in France, and applying those scaling those and several other countries over the next couple 12 months two years I think it's probably the strategy.
Yeah, I think it yeah, I I agree with Kevin just to supplement a little bit I think where we would look at product type expansions.
But there's not a huge amount that I see on that front that really fits with what we're doing most of the opportunity up I'm looking at is primarily geographic it's Kevin mentioned, we think we've got the right in clinics. We at this point you've got largely international rights that are products we need.
And it's a matter of getting those products in that range into we'd given geography.
You know we are trying to send the message out there that we're interested in looking at acquisitions and we would we would pretty much.
Okay.
Hard for me to imagine, saying I know you want to look at good look at an opportunity, but we're going to be pretty disciplined about being sure. We bring things in here that that ultimately fit we're confident we can integrate properly and will be a synergistic to what we've got going on.
Okay. That's very helpful. That's all I have all a follow up offline appreciate it.
Thanks.
Our next question comes from Ben Haynor of Alliance Partners. Please go ahead, Sir your line is open.
Good morning, guys. Thanks for taking the questions first for me just ER.
I see the step up in lab consumable growth rate here versus kind of the first half a year.
I was there anything specifically that you can kind of a tribute that 600 plus basis point increase I mean as it free term promotions expiring is it.
National driven as a menu expansion is a equivalent days what kind of.
Drove that for the most part it was kind of a mix.
As far as it's a mix of a number of things up but I think really it's just general health and the business.
And there are some year over year timing questions remember, you're comparing to prior year quarters to current your quarters and there could be some timing in terms of shipments and things like that we you know we guided 12 to 17.
Percent for the year.
I think we're still just barely within those goal posts.
With a with a third quarter, but worth deposit and then to those goal posts and up and I think we've got about right for the year yeah.
Okay Fair enough and then.
I'm, sorry, if I Miss this but on the P.B.C.C. term extension did that come alongside the placement of new instruments or is it just purely a <unk> expansion in the time on another the agreement.
Yeah, I think it's it's a it's a little bit of both as an extension.
I think we've got better alignment and much more discrete targets in terms of.
[noise] testing and financial performance. So we feel really good about again, our long term forecasts are 2026, I think we've got very good alignment with them.
And.
We've got a team ready to support them for installations and.
They've got focus and believed very strongly that they can do the do the numbers and we agreed to their 2026. So it's it's in a good place.
Excellent and then lastly from me I know you now see analyst day coming up next may.
Previously held one I think every five years.
Before this.
You know yet or we should we expect one to be held every year or is this kind of a one off with the you know similar timing for the launch of the element you out for what's a good way to think about this.
I suspect it's more of a one off.
You know well do on when we think enough has moved.
At the analyst and Investor community that models, our business probably need of.
A more detailed walkthrough of how some of those changes can affect the longer term models and that's what really drives it and when you launch.
You are in a sequel product for instance that has a market opportunity. That's four times the revenue baseline of the whole company.
That probably deserve some some modeling helped we raised over $80 million for business development I suspect, we'll have more details surrounding that I've been a bad what those impacts could be like so their major enough that we really think analysts investment community is probably going to want to sit down a model some of that news.
That may be coming through.
Hi, and after that period.
Okay, Great. That's all I have thanks for taking the questions guys.
Thanks [noise].
Our next question comes from Jim.
She incomplete. Please go ahead your line is open.
Hi, Good morning can you hear him.
We can how are you.
Right right. So you're right you've got everything go to me right direction here.
We are.
The heartworm, rather than the try heard Murphy seems like everything seems to be back group.
Garden try hard go have you gotten any feedback from Merck regarding end user demand.
Sorry for you is that a busy few except to come back over the next couple of years.
I think we'd say nine and Jason Frida supplements I think we'd say we were pretty consistent with what we said on our Q4 call. We had a stated at that point that we thought that while the business would return not necessarily to the level that it had been in previous years.
We do have a sense of what 2020 looks like and that would be part of our Q4 guidance right yeah, Jim that that relationship rolls up under me and I'm.
Talking to them or people that they've been historically, you know sensitive to giving too much information because they know we have disclosure obligations.
But I've had some pretty in depth discussions with them, they're seeing pretty consistent demand and their sign a you know this isn't generic there is some pretty strong price competition out there they seem to be holding their own largely in terms of share and its Catherine mentioned, we've got a.
Good forecast for next year I, you know if anything it's a little better than I had I had hoped originally and we've got 120. They lead time. So by the time, we get on the next call I expect we'll have locked purchase orders in hand and be able to give you a lot more confidence in terms of a forecast.
Great. Okay, and then all last one for me regarding the balance sheet.
Centuris down a couple of moving from the quarter, the previous quarter, which surprised me.
That you know you had some pretty big product launches coming up with what's going on there.
From the previous quarter I think it.
Calling it a similar cadence from we generally have higher inventory in the beginning of year, just based on our minimum purchase requirements and we.
The only change in that wouldn't be a imaging related purchases may be in consistent between the periods, but other than that it was it was as expected there.
Okay supplemental.
I'll repeat business rose up under me, we did hold some inventory that we managed to get it the into Q2 that we ship.
During Q3, so that's probably a piece of it Jim.
Okay. So so we should expect inventory that do rise again early 2020.
Absolutely, yes, okay alright, thank you.
Thank you.
Final question comes from Bruce Jackson of the Benchmark Company. Please go ahead. Your line is open.
Hi, Thank you for taking my questions I'm, just a couple more questions about the to try hurt product. So.
The wettest had a hurt warm watch and third quarter I'm, a lump goes down to be working out something as well does that factor into the discussions that you had with Merck when discussing the demand for try hurt during 2020.
Well, we discuss those products obviously.
I think I would describe those products is more on the.
The higher end you know everybody's trying to go to what I'm going to call the Holy Grail of <unk>.
Every sort of pest out there fleece pig heartworm all in one pill.
And the try hard or we see much more on the lower end of the market.
It protects against who intestinal worms, but wasn't heartworm and it's been out there. It's a 15 year old generic so we don't think theres a tremendous impacted those products directly on to try hard product.
And Merck is certainly aware of.
Yeah, so at us on a long ago and the competitive landscape.
Landscape, absolutely when they're preparing their up their forecasts for us absolutely.
Okay, Great and then we see the element I plus so the plans to launch later this year.
Then how does the manufacturing side of it transition as as the demand grows so right now the instruments being manufactured by someone else and I believe you were thinking about doing the reagent manufacturing and your facilities. So just how does that transition play out.
Over the over the course of late 2019 and into 2020.
Yeah, I I think it's more of a end of 2020 transition we have analyzer manufacturing.
Locked down we like it.
We don't tend to make it a they've got good production and the analyzers great.
The test we have enough manufacturing volume without bringing it in house to launch that product and fulfill all the need that we anticipate.
It's really more of a positive.
Going into 2021.
In terms of a margin and plant utilization in des Moines are the things that would drive that hub, but we won't have we won't have supply constraint.
And so.
We're not we're not really looking at data as a as a major cost in 2020 or major driver for gross margin in 2020.
Okay, Great and then last question for me could I get see I'm the head count of your field sales force. Please.
I don't think it's moved much from last quarter.
I don't have it off the top my head I don't want to give me wrong number, but we'll follow up with you after the call.
Okay Super and thank you for taking my questions.
We appreciate it.
It appears there I know further questions at this time I would like to train.
Having benson CEO for any additional or closing.
Oh, Thank you operator, and thanks, everybody who joined the call. We appreciate the analyst questions.
To close I, just want to reiterate I I'm very pleased with the quarter I think our team did a.
Great job a work quarter closer on our major R&D for the element U.S. and Oh, we like the health of the market generally we like our execution specifically.
And.
And we look forward to updating you again on our full year call beginning next year, but have good afternoon.
Ladies and gentlemen that concludes today's calls thank you for your participation you may now disconnect.