Q4 2020 Heska Corp Earnings Call
Good day and when it comes to the Heska Corporation fourth quarter and full year 2020 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to John H Art.
The restaurant Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone welcome to Heska Corporation's earnings call for the fourth quarter and full year of 2020.
On a guard head Investor relations at Heska.
This morning, we have Kevin Wilson, Heska, as Chief Executive Officer, and President and Catherine Grassman, Heska as Chief Financial Officer.
Mr. Wilson, and that's grassman will provide details surrounding the results reported as well as the company's 2021 outlook and then we will open the call to questions.
Prior to discussing Huskers rebel and before I turn the call over to Kevin on the back to remind you that during the course of this call. We may make certain forward looking statements regarding 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 debt expressed or implied by those forward looking statements factors that could cause or contribute to such differences are detailed in writing in this morning's earnings release Heska.
<unk> Corporation's annual and quarterly filings with the SEC and elsewhere and Heath.
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 the time such statement was made.
Facilitate broad participation in the question and answer session. This morning, we ask that each participant limit their questions to one or two with follow up as necessary and as time permits. We appreciate your interest in consideration in this regard.
With that being said it is now my pleasure to turn the call over to Kevin Wilson Heska.
<unk> CEO and President Kevin.
Hey, Thanks, John and good morning, everybody.
I always challenge on this morning on mob.
I'm thrilled that people are listening to me instead of volume.
Chairman Powell, so well so hopefully we have some good information for you today.
Before I begin I'd like to encourage callers to review this mornings release data on a written comments I think you'll find them helpful.
And as you do.
As you'll see we're pleased to report on exceptional fourth quarter on full year Heska delivered record revenue and universal strength across all key metrics.
Fourth quarter sales Rose 19, 5% full year sales rose 16.9% subscriptions.
Subscriptions for the year grew 25% from good gains in market share and retention.
I encourage callers to look at the subscriptions details in this morning's release.
In the fourth quarter, North American POC lab consumables grew nicely at 15, 5%.
On a continuation of the 15, 2% we captured in the third quarter.
Bringing the year to date performance to 11, 2%, which is above our full year guide of 8% to 10%.
We again captured solid international segment performance with exceptional results from our Spanish Australia on German teams in particular.
In summary throughout 2020, all of our Heska teams executed well to deliver results in which it is hard to find a bad metric.
While Catherine will cover the specifics of the quarter in greater detail I wanted to highlight a few things in advance of our Q&A time today.
Starting with our people.
The teams have worked well throughout a difficult year from a remote and hybrid posture morale is good and large part because women in a healthy way it's motivated.
We've raised our game on all areas.
While it's been more difficult to visit customers and possible customers in person.
And to do installs on new equipment in 2020 would you see that dynamic shifting to a more normal situation towards the end of the second quarter of 2021.
Just in time for our element and ramp up to begin.
Even as this opens up we intend to retain our newly built remote posture skills. As we returned to the benefits of more normalized in person customer visits and installations, regardless based on our demonstrated flexibility to execute in all manner of macro environments. We're convinced that we can perform well as we move forward with the midyear.
Similarly, the pet health care market is doing great.
The on the Street continues to reaffirm its decades long resiliency.
Pet visits in veterinary trends continue to outpace most prior forecasts.
Increasing demand across an industry that has been broadly benefited by recent trends, which in our view.
On enduring tailwind to our long established underlying trends.
Veterinarians are doing great and end user demand from pet families remains strong.
Specific to Heska is focused on point of care diagnostics. So the trends are similar encouraging and are leading to increases in utilization of our tests.
Some increase is from brand new testing from end user pet channel demand.
Some of the increases from our new efforts to educate and promote utilization.
So on smaller portion of the increase at the point of care is testing that has migrated from central reference laboratories.
And perhaps most encouragingly some of our recent increase in subscriber utilization is being driven by new Heska education efforts and new Heska tests on analyzers.
Just now on making their way into the installed base.
Regardless of the weighting of each of these factors. The net result is that the underlying demand for point of care diagnostics by veterinarians was very strong on the fourth quarter and for the full year when.
And we continue to see that those supporting trends remained strong and sustainable.
And our international efforts integration is also progressing well.
X Ray products rationalization and launches are moving on pace with my goals.
And we continue to see margin expansion as a major opportunity in 2021 and 2022.
Also continue to see a clear path to subscriptions conversion and on international installed base at a rate that is faster than our experience in North America circa 2013 through 2015.
We began the international effort at roughly the same position we began a similar effort on North America in 2013.
We have today a tested playbook on experience that is better supported by superior infrastructure team installed base market share market condition existing products and margin on new products on margin.
Our goals for this effort are detailed on this morning's release.
And finally to conclude my prepared remarks, I'd like to remind you of how we were prepared for the future.
For those listeners who have not yet viewed our investor day presentation last November I encourage you to do so.
We're following it very closely.
<unk> articulated a five year plan entitled of Act two.
And we're executing to that plan, while receiving support from positive and broad based market dynamics.
Our research and development initiatives have progressed and continued to progress in line with our previously shared timelines, even as we've added new bonus launches, including our new effort and digital cytology professional services.
Balance sheet is in great shape.
Our position in the markets, we serve has never been stronger.
Our teams are better than at any time on our history.
End markets are doing great and our specific diagnostics markets within them are perhaps the best place to grow.
For these reasons and more we remain confident in our ability to deliver on the three core tenants of our active strategic plan.
The double the geographies, we serve which we've done.
The double the products on addressable revenue lines, we offer which we have done and.
And to continue to grow our core business, which we have done throughout 2020, and we anticipate continuing to do in 2021 day.
The multiplier effect of these three major accomplishments needs need to anticipate the great performance in 2021 and 2022.
There is substantial opportunity in pet health care and Heska intends to win in that opportunity aggressively in 2021 and beyond.
With that I'll turn the call over to Catherine to detail the quarter and full year performance and provide you with additional information on our 2021 combined outlook.
Catherine.
Thanks, Kevin and good morning, everyone.
As Kevin noted we are pleased to report exceptional financial performance for the fourth quarter on full year of 2020.
In which we met or exceeded our 2020 outlook and all metrics previously communicated at the conclusion of our discussion around our performance I will take you through an overview of our financial outlook for 2021.
The results.
Underpinned by expanding global demand in the companion animal health care market Heska delivered excellent performance during 2020 and in the midst of a global pandemic Heska quote on the single most transformational transaction in our company's history. The acquisition of <unk> animal care, which contributed to a consolidated net revenue growth of 69%.
Continued strong performance in legacy businesses and products also contributed to our growth for the quarter and for the year.
We reported our results geographically in two segments North America and international.
The Americas segment includes the U S, Canada, and Mexico, while our international segment consists of all countries outside of North America and is comprised primarily in Europe as of today.
North America segment grew revenue grew 29, 3% for the fourth quarter and 13, 6% for the full year contributing to this was growth of 15, 5% consumable sales for the fourth quarter and 11, 2% total full year. We also experienced growth in PBT, which include sales of Tri heart of contracting.
Factory products.
<unk>.
The international segment exceeded our expectations with strong consumable sales and capital equipment placements related to point of care imaging for the full year of 2020. This segment largely represents our inorganic growth.
Consolidated gross margin declined approximately 560, and 320 basis points to approximately 41% for the fourth quarter and full year as anticipated impacting consolidated gross margin on a comparative basis is the consolidation and scale, which is a lower margin profile business. We are hard at work, we're doing with margin GAAP and recognize it.
Financially meaningful synergy opportunity for Heska.
The North American segment experienced lower gross margin in the fourth quarter when compared to the prior year due to mix, but finished the year at 46, 5% about 120 basis point increase due mainly to higher sales of consumables and P. V D as well as increased sales on products product mix and our other contract manufactured products within other.
The International segment gross margin was 38% for 2020, which was in line with our expectation.
Total operating expenses in the fourth quarter and full year of 2020 or $25 9 million, an 89 point $89 5 million an increase of 72%.
85, 3% over the fourth quarter and full year 2019, respectively.
In both periods. The increase was driven primarily by the consolidation of our acquisition operating activities and increases in fact based compensation, one time acquisition and other related costs and depreciation and amortization expenses, resulting from purchase accounting.
Adjusted EBITDA for the full year of 2020 with $22 3 million on an adjusted EBITDA margin of 11, 3% exceeding our full year 2020 outlook higher sales higher gross margin and leveraged operating costs were all contributing factors.
EPS in the fourth quarter was a gain of 25 cents per share EPS for the full year 2020 was a loss of $1 $61.66 per share adjusting for certain items, which are detailed on our GAAP to non-GAAP reconciliation included with our release non-GAAP EPS was <unk> 72 per share in the fourth quarter, an increase of 62.
Per share from the fourth quarter of 2019, non-GAAP EPS was <unk> 74.
Per share for the full year, an increase of 25 cents per share for the full year 2019 full year non-GAAP EPS was positively impacted by increased operating leverage of the revenue growth experienced throughout 2020.
Our balance sheet is strong and our liquidity position remains solid as we ended 2020 with cash of $86 3 million.
Turning now to the financial outlook for 2021.
On Investor Day. This past November we provided a multiyear financial outlook and outlined assumptions around element in March and continued transition of our newly acquired business to a reset model at this time, we are updating our 2020 financial outlook to summarize.
Consolidated revenue of 225 to 235 million is expected for 2021.
And point of care Laboratory is a key driver in topline growth year over year, we estimate a range of $135 million to $145 million in point of care Laboratory, which is driven by global consumable growth as a result of continued market share gains, including the impact of the skill acquisition positive industry trends of increased utilization.
Pricing profile in Utah.
We estimate a range of $50 million to $60 million in point of care imaging, which also incorporates the impact of the skill acquisition as well as continued steady growth our remaining product lines of P. D. D. In OBP are expected to be relatively consistent through 2020.
We anticipate approximately 60% to 65% of our full year 2021 outlook consolidated revenue to come from the North American segment, which includes an estimated point of care lab consumable growth rate of more than 10% are international consumable growth rate is expected to be more than 35% on a reported basis.
2021, adjusted EBITDA margin is expected to be approximately 8% increased sales will be offset by an expected flat margin, which include international reset subscription program transition the continuation of product rationalization internationally and higher instrument revenue recognition relating to element in it.
North America.
Finally, the addition quarter on operating expenses skill in 2021. In addition to increased travel and sales related expenses.
Anticipating anticipate increased mobility, among our sales force in light of macro factors relating to vaccinations against COVID-19 are attributing to the compression on the margin compared to 2020.
Lastly to assist investors and analysts on the profile of our GAAP income statement, but still debt.
To forecast at this point due to some uncertainty for the full year, we expect.
Depreciation and amortization of approximately $11 million and stock based compensation of approximately $10 million to $12 million.
We're changing accounting guidance applicable to our convertible notes issuance, which we adopted on January one 2021, we will no longer record noncash interest expense, while they're gonna relatively small amount of amortization related to the debt issuance costs. Additionally, due to certain investment decisions and the related accounting treatment benefiting heska, we expect.
Net interest expense of approximately $1 million.
Our full year effective tax rate is expected to be between zero to 5% expense, which excludes any potential future discrete items or any valuation changes on the realize ability of our deferred tax assets in 2021.
We believe we will have sufficient liquidity for ongoing operations and flexibility for smaller strategic initiatives 2021 free cash flow projection defined as operating cash flow less capex is approximately $8 million to $10 million.
We are pleased with our financial performance in 2020, and look forward to the many opportunities afforded to us on the space in which we compete as well as those which we are creating for heska specifically.
With that we'd like to open the call for your questions operator.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signify by pressing star one on your kind of wonky part if you're using a speaker phone. Please make sure. Your mute function is turned off to a low you're taking on too much on equipment and that's again star one to ask a question.
First question comes from David Your question Barak of Guggenheim Securities. Please go ahead.
Hi, Thank you for taking the question and congrats on the on a great year.
So I just wanted to start with you gave out new data.
<unk> revenue in Q4 was definitely great and then it looks like there's an acceleration in terms of new accounts and subscription winds, but you've also given commentary that says market share. It's tough when you can't go in to see the clinic.
So can you help us reconcile.
Why those numbers that are going so far up suggesting acceleration on market share, but your commentary is kind of on a little more muted there.
Yeah, I think you.
You want to be as realistic as you can and nobody has a crystal ball.
And you have to assume that you have really really strong competitors I think everybody understands out about our space.
So I think maybe but for some of the challenges of getting into clinics, maybe you would've done better.
We do see that opening up a little bit reducing debt is a tailwind maybe for imaging.
Which which is more difficult Justin just by the nature of just the size on them the installation.
Process, but.
Yeah, I just think it's a realistic number given that you don't know what the future holds and you had really strong competition.
Yeah, I mean, let me maybe take a step back and I I mean, it looks like.
Maybe even just from a kind of a retrospective view.
Did the subscription growth was weighted great.
And again, new account growth was great.
But you also kind of said, it's hard to get them into account. So maybe if you can conceptualize.
Where were you like signing the subscription, but not necessarily installing the instrument because again the numbers look really great in terms of that but.
I know that Theres, a pandemic going on so I'm, just trying to conceptualize that difference on.
If that makes sense.
Yeah, no not I mean installations have continued.
It's just harder it's harder to schedule.
It's harder to travel, but but installations I think it continued for everybody in the industry.
Can you just spend more time trying to figure out whether you can get in there on Tuesday, or if it's going to be two Tuesdays are free Tuesdays from now but that has opened up a little bit since since kind of the March April timeframe, when people were a little bit frozen in place.
It's not like what you would see just in the general.
And the general market and.
On the restaurants aren't as busy.
But they are still open and some are doing better than others and so I think.
We've still been able to progress it's just been it's been a little bit more difficult than it otherwise would've been.
Got it okay well thank you.
Are you on a lot of new equipment coming out in the near term.
Tom can you talk about your willingness to maybe win a fraction of the diagnostic tie rather than the entire diagnostic pie I mean, I know your business is built on the subscription concepts, but theres a lot of new products.
Is something were waiting a small fraction could be something on.
I'm, just really interesting as you're rolling out with digital cytology fecal analysis urine analysis, all these kind of new products.
Yes, Theres no question.
We're trying to serve customers diagnostic needs and.
And if they currently get those diagnostic needs on our reference lab.
We still want to serve that need if we have the technology to do so so digital cytology for us is not a defensive play.
Whether it might be a defensive play for folks who are on the reference lab business for us it's on.
It's the ability to offer our customers more services.
And so so we like that we like that trend, we think technology is bringing things more to the point of care.
We think that Oh gosh day with the current example.
Inefficient to to take a slide sample.
Now on dropping an envelope and have somebody drive a car to pick it up.
Drive the car to the airport dropping them into a box put it on an airplane fly for Los Angeles or New York.
And drive it from the airport to a central.
Central Lab, and then haven't looked at it we think that's that's.
Green, it's not efficient on within technology can can make the experience better for the pet the pet owner and veterinarian. So I think that's a perfect example of getting a small piece of the very large pie.
Or if there's $500 million a year on free cash flow happening at the central reference lab.
We will be thrilled to get on a smaller piece, but to get some of that and so I think entering those types of businesses for US is it's definitely on the menu and <unk> and will begin on that process. Similarly, the element I mean, if you. If you look at the if you look at the lab business, you had blood and plasma.
Testing, which we've been on now for quite a long time, but you also have your own and sequel.
And then you have pathology type services specialty type services and.
On Heska is largely just spent on the blood plasma side of the business for the last debt.
Or two.
We're now moving into the other half.
What you would call laboratory testing with urine and fecal and and blood slides on some errors and things like that and then also adding the third leg of that stool, which is professional services. So.
That's in line also with getting a small piece of a much bigger pie.
Just haven't been at that table in 2021, we're at we're at that table on a big way and we think we can do better than zero.
We've shown our ability to gain market share in a really competitive space on point of care blood and plasma and I think we can do the same thing on the other.
The other segments.
Great.
You gave a nice long answer so I'm going to hop back in queue and give the other analysts the opportunity. Thank you.
Thanks, David.
Thank you next question comes from Andrew Cooper of Raymond James. Please go ahead.
Andrew Cooper of Raymond James. Please go ahead, you might be muted sir.
Sorry, I was on mute I appreciate the question guys.
Maybe starting with just a little bit sort of higher level, one, but Kevin you snuck in a comment in regards to some efforts on driving utilization, which is something if we think that longer term, we havent heard heska talked about a lot. So maybe just can you give us any sort of what youre doing.
On how thats been received.
And certainly you're seeing competitors do a lot of that so it's interesting to see assets.
Any color there would be really helpful.
Yeah, We think that's that's a game changing mouse Don first look you don't invest lots of <unk>.
Money trying to drive utilization and an installed base, that's a 500 or 1000 or even 2000.
You just don't get the leverage.
But when you get over a couple thousand and we're well over that number now in North America, and then you add several thousand outside of North America.
Driving utilization on that installed base can can move the needle and so we've got a much bigger.
Our competitor who has just been a wonderful example of that they are extraordinary on it and that's just a lever I haven't really been willing to pull until the end of 2020, but by way of example, let's say last week, we had a web a web seminar I misspoke on the webinar.
Webinar.
And.
I Wanna say, we maxed it out and I don't remember if that was 500000 participants.
But we haven't traditionally done those things that heska and so we do think we can drive utilization in our installed base.
It's all base itself is growing so it's kind of that multiplier effect. So yes that is something that we're actively pursuing in the second half of 2020, and it's going well.
Okay great.
And then maybe on on the international business the growth I think especially on the consumables is is it good.
Good number but could you help us unpack a little bit you know obviously, there's there's laughing when the deal came in and so what's the sort of on.
Underlying same store consumables growth that youre sort of looking for whether you wanted to adjust out for the simple.
Cash flow rationalizations, or not just anything to help us get a flavor for how you think that market showing them, what you're sort of share gains.
Might look like there through 'twenty one.
No I don't think today, we're prepared to dive a whole lot deeper on that.
Hum.
We've only on the business since April of 2020, So we have one more quarter before we lap it.
And I do I do think we'll be able to share a little bit more data, but it's <unk>.
Three quarters, which is really two quarters. If you if you factor in some other delays with Covid After April one.
There's really just not enough.
Other timeline to give you the level of data that we're confident in so I think we're going to pause on that.
We tried to be transparent we think it's good we think it's positive it's part of our consolidated outlook, but we need another quarter or two before we dive into more detail.
Okay fair enough I'll I'll stop there thanks for the time.
Okay. Thank you.
Thank you next question comes from Stephen <unk> of Piper Sandler. Please go ahead.
Oh, Great, Hey, Kevin and Katherine Thanks for the questions on Ah Congrats on the quarter.
Thank you.
I wanted to dig in on on the international subscriptions can you give us a sense or some color on the number of skilled customers that you've converted on a part of that 335 international subscriptions on give us some color on that conversion rate is what you're what you've been expecting or had been trying to get a sense for how to.
The subscription model conversions going in and maybe wouldn't that'll be completed and when we should expect gross margins to improve.
Yeah. So.
2000, Twenty's International subscriptions, we ended 2020 at about 335.
And we ended 2013 in the North America efforts. So if you go on with back to 2013 at the end of 2013 at about 370.
And and in 2014 in North America, we ended at 730.
And so so we've put a forecast together this year that will start at $3 35, So a little bit less on we started in 2013 on North America, but we'll take that to 835.
Internationally.
And kind of our first year.
Which is obviously better than the 730, so to put it another way, we do see a faster adoption rate with the international customer base.
And international for US isn't just skill. So part of that 330 has been work before we really got busy with skill. So CDN companies in Spain. Since you put those two businesses together the scale business in the CDN business.
So they've been active in subscriptions during the second half and they've done well and then Australia has done well also so that 330 I view as largely a baseline number that's kind of our starting remember that $3 35.
And I view that as very similar to other $3 70 that we started in North America in 2017, but I do think it's going to be a faster adoption rate. So we're calling out 835 for this year.
Which is faster than what we did in North America.
Okay, great. Thanks, I appreciate the color.
Just sneak one last one in on on the point of care lab consumables increase of 15, 5% is there any element of a backlog catch up or do you think that's more durable going forward.
We didn't want to have a backlog in there in Q3 was $15 two I recall.
So we don't see any of that really is a snap back on I think that's just a strong market and I think we did well within a strong market.
Okay got it okay. So it's not like a backlog hangover from from Q3 that maybe didnt get.
And push it into Q3, but the trickled into Q4 or do you think it's more girl bolt on.
We do yeah okay.
The whole second half was was one big.
Nice nice period.
Okay, Alright, well fantastic thanks for the questions.
No.
Thank you next question comes from Chris Schott of Jpmorgan. Please go ahead.
Great. Thanks, so much for the questions. The first one for me was I was just looking at the guidance for 'twenty one on for North America contract subscription value growth and I think it's about 7% over 2020, I'm trying to kind of bridge a little bit.
Given the new products like you're seeing it does seem like instead of a slowdown forecast and guidance and just some color there.
It would be in a similar vein just the growth youre expecting a new subscriptions versus contract value on 'twenty. One can you just talk a little bit about the dynamics that we're seeing there of the 7% subscription 9% subscription growth versus 7% contract growth expectation of a follow up after that.
Yes, no. That's a great question, so what I would point out is contract subscription value.
Is the minimum.
If the customer signs up for them.
We're quite confident in utilization, especially with some of these new products that.
If we asked for a lower contract subscription value.
But we get a longer term, we would make that trade because we're confident in utilization and we don't really want to cause any angst.
<unk> by asking for for higher monthly dollar commitments on our we'd rather keep that low friction as low as possible and obtained longer.
Term contracts that people are comfortable with.
And we believe that their utilization the value of the utility of the products that we're installing world will exceed that anyway. So so that's a big piece of our thinking in that GAAP between minimum contract subscription value, maybe not growing exactly in line with the number of subscriptions.
But you'll also see some really nice growth.
And months under subscription as well so we think it all works out.
Okay, great and just sitting on their trend and they're just a just a contract value of size that makes that makes sense and then my second question I think addressed a little bit of this in the remarks, though.
You've had EBITDA margins in the low to mid teens over the past few quarters.
Just help us bridge, a little bit from those recent trends versus the 8% target that youre expecting for this year.
So I'll take a first stab at it.
If we're doing better than that with so many things to grow so many things to on best and that we would probably accelerate.
Investment in some of those product Rollouts and then maybe I'll, let Katherine if theres any other color that she wants to add.
Yeah, no I think that growth.
That's a good point and ambition to.
We have experienced that in this year, especially you know we have to reduce costs and living on a legacy business.
And just to rebuild them.
And mobility, among the group, which we've built back in Q2 and encourage and enhance sales in 'twenty, one for that and that's obviously going to pull that down a bit as well as expanded a bit.
Europe is low so there are some additional costs going on there that are bringing that margin down on a comparative basis.
Great. Thanks, so much.
Okay. Thank you. The next question comes from Ann Hynes of Alliance Global Partners. Please go ahead.
Good morning, guys. Thanks for taking my questions.
First for me just kind of following up on one of the earlier questions on international point of care.
Lab consumable growth of 35% plus.
Just thinking about.
Having a full Q1 this year versus not having that anything last year plus the.
Covid impact in Q2.
It seems like the way to read that.
To me is that.
Moving to emphasize the plus a little bit more you know just with the snap back from Covid plus full Q1.
<unk>.
Fair I know you said, you don't want to get into it too much but.
Just anything on that that would be helpful.
So on a super broadly.
You Gotta Katherine go ahead, yeah, Yeah, I mean, I think you're you.
Right on point I, certainly see that there is.
Potential for upside on that percentage in Q1, Q2, and iOS on spot on but just keeping in mind debt.
One of them.
One of our strategy is right that were in process and throughout 'twenty, one working on in that transition in the existing base onto our we've got program debt.
Typically you're getting.
<unk> plus new customer growth.
We're going to be very focused on transitioning our customer base.
If we're looking and still being aggressive on the new customer acquisition space internationally, but really protecting that base is a key priority for us.
Great.
And then just also on yet.
And also on earlier on you know I understand the.
Desire to remove friction on the installed impacting on kind of a minimum.
<unk>.
But.
My recollection is over time as the existing account add on.
You know new equipment and re.
Re up for various reasons.
That should go up.
The existing accounts.
And it's always hard to kind a free.
So you're all you know which metrics to emphasize because you know you can always give.
Dollar away for 90, something you did one side of the equation to move up rapidly.
Or.
On and maximize revenue.
There are some trade offs there but.
Yes, when you look at it in.
Understanding that friction removal makes sense in your case.
Should we be looking at it as you know month months under subscription is the main thing to be looking at or subscriptions total I mean, what what's going to give us. The best evidence that you guys are kind of executing the plan if that makes sense.
No. It's it's a it's a great. It's a great question, so here's kind of how it roughly look at it active subscriptions.
Leads me to look to retention.
And market share gains.
So when those go up.
That's roughly the bucket that I look at <unk>.
<unk> under subscription leads me to say are we achieving our main goal if the premise on our market is veterinarians pet health care veterinarians in particular are gonna do wonderfully.
Over the next couple of decades, and they're gonna do more point of care testing more diagnostics testing, so 20% 30% of net revenues.
They continue to grow.
<unk> mission is to be as close to the veterinarian for decades, that's our mission.
And so on months under subscription gives me a little snapshot there to say we are repeating that mission of having long term proximity being closest to the veterinarian and so thats, how I look at that metric and that's a key success metric.
And then minimum CSV for me, it's more about just a check to make sure that we're not giving the dollar away for 90 cents.
That you're you're maintaining some discipline there that youre achieving that long term relationship with the customer and youre getting more customers. The first two metrics and you're doing it in a way that the customers confidence to to commit to spending a certain amount of there.
Our spend with Heska. So that's kind of how I look at those three just in terms of the dashboard I don't know if that helps.
No that was very helpful on exactly what I was looking for.
That's all for me thanks for taking my questions.
Alright, Thanks, Dan.
Thank you I can remind you ladies and gentlemen, Thats star one to ask the question. The next question comes from Jim Sidoti of Sidoti and company. Please go ahead.
Hi, Good morning can you hear me.
Good morning, Jim we can.
Good hope I hope, you're all well.
To put to work two questions for me.
Can you update every day.
Thinking about the rollout for urine and fecal so should I assume that the timelines that you put out previously is still we're still okay.
They are.
Okay.
Then the second one.
I know this is the first time in my career that we're facing a low inflationary environment rising interest rates.
Have you factored that at all into your guidance and if so how do you think it would impact us.
And the top line and the margins.
So we haven't factored that into our guidance.
We feel like we're reasonably well protected on our subscriptions are subscriptions have on CPI.
Get out of jail free card. So so if for some reason we woke up at Jimmy Carter.
15%.
Interest rates.
Our pricing will adjust by contract and so we feel like we're protected there.
We don't see that happening by the way, but we have looked around the corner on baked that into our contracts on our customers who that is reasonable.
They too would then be inflationary with their pricing. So I think we're protected there we don't see that macro event, we're not huge capital.
And we don't have a large debt payments that are subject to variable interest rates.
And those types of things and I think largely inflation driven by.
Gigantic balloons of cash being sprinkled on.
[noise] tumors.
Largely is probably a good thing for pricing in things like pet health care.
Because it sits right between.
You know kind of a consumer consumer cyclical, but but it's also on health care.
Requirement, so I think we're positioned fairly well for that environment.
Okay, and I think I heard Kathryn say that she expects net interest expense for.
For 2021 to be $11 million is that correct.
That's great.
Okay.
Sorry, I didn't hear you.
I'm, sorry, I was just confirming that.
That's correct.
Okay. Okay. Thank you.
Yeah.
Thanks, Thank you.
Thank you.
Last question comes from Andrew Cooper of Raymond James. Please go ahead.
Hey, guys just figured I'd jump in for a follow up since nobody else asked it but just on that day.
I know the Rollouts on track, but.
Any color you can give on sort of the backlog continuing to build how youre feeling about.
Some of the goals you talked about in November in terms of rolling out.
<unk> installed base.
And just the level of excitement you're hearing from customers any update there.
Yeah, we just can't go fast enough.
So we continue to build backlog.
World.
Every quarter goes by we're confident that demand is more than there too.
To get to where we want to be so really it's an execution question Thats just getting.
A wonderful working product out to as many customers as fast as possible. So needless to say our sales team is chomping at the debt, but so are a lot of our customers I don't want to get into specifics because I don't want I don't want to update our backlog and public debt. It's a it's good.
Great I appreciate it.
Okay.
Thank you.
There are no further questions at this time I'd like to turn the call back to Kevin Wilson for any additional or closing remarks.
Well, thanks, operator, and thanks to everybody who joined the call.
Honestly Heska did great last year, and we continue to expect that will.
Accelerated momentum in 2021, we think will execute well on the second half of our five year strategic plan.
And I look forward to updating you guys next quarter.
Till then thanks for your interest and your support on our work.
And be safe count your blessings and took care of pet to the vet.
So we appreciate you and.
Have a good day out there okay. Thanks bye.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
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Yes.
Yeah.
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