Q2 2021 Heska Corp Earnings Call
[music].
Good day and welcome to the Heska Corporation second quarter 2021 earnings call Today's conference is being recorded.
At this time I would like to turn the conference over to John Egan, Vice President Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone welcome to Heska Corporation's earnings call for the second quarter of 2021.
As a reminder, today's conference is being recorded.
I am Johnny Guard head of Investor Relations at Heska and with US. This morning, Kevin Wilson, Heska, as Chief Executive Officer, and President and Catherine Grassman, Heska as Chief Financial Officer Mr.
Mr. Wilson and MS. Grassman will provide details surrounding the results reported and then we will open the call to questions.
Prior to discussing Heska as results and before I turn the call over to Kevin I would like to remind you that the course of this call. During the course of this call. We may make certain forward looking statements regarding future events or future financial performance for 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.
May cause actual results and performance to be materially different from that expressed or implied by those forward looking statements.
Sectors that could cause or contribute to such differences are detailed in writing and this morning's earnings release earnings release, Heska Corporation's annual and quarterly filings with the SEC and elsewhere any forward looking statements speak only as of the as of the time. They are made and Heska does not intend and specifically disclaims any obligation or intention.
And to update any forward looking statements to reflect events that occur after the time such statement was made.
To encourage broad participation and the question and answer session. This morning, we ask each participant to exercise discretion with the number of questions as a follow up as time permits.
With that being said it is now my pleasure to turn the call over to Kevin Wilson, <unk> CEO and president.
Kevin.
Hey, Thanks, John and good morning to everybody I know you've got a full day and I appreciate that you're taking the time with us This morning.
Just like last quarter's call the spark notes version.
I'll pass this quarter as simple today Heska had a great second quarter, both year over year and sequentially.
Our underlying markets are doing very well and we believe this is sustainable.
Performance specific to Heska is also doing very well and we.
Believe heska is a great place to be for the remainder of 2021 and well beyond.
And I encourage listeners to fully review the results from the data published in this morning's release I think you'll find it helpful and informative and I'll avoid as much as possible inefficiently reading it to you this morning.
Rather with the remainder of the time this morning, Catherine and I will keep our prepared remarks brief to allow for more Q&A time to go a bit deeper into the areas that interest you.
For we get there I would like to highlight a few points some of which will echo on recent calls for.
<unk> as I said, the overall market situation is great spin.
Specific to Heska and the second quarter. The results are a strong follow through on the first quarter with solid sequential and year over year performance, which can be found almost everywhere 1 looks.
And our North American International segments, I'll, just say, thank you to our teams theyre expert and they work hard.
And today's release Katherine will detail there scoreboard. It was a great result, and everyone at Heska should be proud of their accomplishments.
Specific to our international segment gross margins, our international products rationalization and upgrade cycle is well underway.
And that is simultaneously accelerating our already rapid conversion to subscriptions and the greater future margin capture.
Spite, the low margin drag from accounting for a wonderful 87% growth and initial subscriptions lab equipment placements internationally.
Our teams and Germany, France, Italy, and Spain are moving so fast and doing so well with our programs that year over year International gross margins have improved 170 basis points as installed customers use higher gross margin consumables.
When we acquired these international assets and early 2020, we believed there was substantial opportunity to bridge their margins close to the North America margins and we're well on our way to doing so.
And our operations I was again pleased to see that when Heska sells more of the right mix, we see operating leverage.
And I guess I'll just leave it at that this morning, we intend to do more of that while managing our business well operationally the team did a great job.
And our R&D launches, we're moving at warp speed.
Our many announced analyzers test menu and new services expansions continue their launches and rapid fire succession.
And we continue to see strong demand for what we're launching.
And there are so many projects launching I encourage investors to review our latest investor presentation for more information.
Our most highly anticipated project launch for 2021 is for element aim our transformative artificial intelligence microscopy platform.
Aimed at revolutionizing urine and fecal testing at the point of care.
Eliminate continues to make solid progress for manufacturing at scale and for installation of general released are anxiously awaiting subscribers on schedule and the fourth quarter.
With a very limited number of prerelease element aimed units on hand, and and hospitals today.
Early indications are positive and appropriate for our timeline.
While we did experience some supply chain disruption and delays for things like advanced computer chips and displays and general freight delays, which moved out our installation volume ramp.
These things are accounted for and our updated 2021 outlook and we remain quite optimistic for a very successful reception at volume and.
And we continue to anticipate meaningful financial contribution for element aim and 2022 and beyond.
And our dry chemistry line at the end of June our team surprise the market with a major.
And unexpected launch of and all new element and D. C X years, and the making element dcfs occupies the sweet spot.
And our economical element DC and our ultra high capacity element do you see buybacks.
Our sales teams are thrilled our current subscribers are emboldened to extend their subscriptions and expand their utilization commitments and we believe new customers will be similarly motivated by element DC X to make the switch to heska.
Moving on to our resources, our capital structure is well prepared to play offense.
We have the capital we have the domain expertise and we have identified specific opportunities to properly put it to work.
And the second quarter, we began by taking our initial step into the international reference laboratory space by acquiring Milan based the Scf, which since 1978 has been 1 of Italy's leading veterinary central reference laboratories.
We intend to knit together the ACF.
Central laboratory, and our trusted local skill point of care diagnostics teams and products.
To offer the best bundle diagnostics subscriptions available to veterinarians and Italy.
While the 2021 financial contribution of the ACF well.
It will be quite modest this first effort and Italy will serve as an important model for launching optimizing and scaling bundled offerings and our key international markets.
To summarize we finished our 2 laps and for lapsed in 2021 very strongly and are now confidently raising our outlook for 2021.
We are a whirlwind of positive activity results in opportunity.
And the first half of 2021 has been fun.
I think the rest of 2021 and all of 2022 will be fun.
And I could talk for hours about how and why but as I promised at the beginning of the call Im not going to do that and I'm going to turn the call over to Catherine to detail the quarter before we move into Q&A.
Catherine.
Thanks, Kevin and good morning, everyone. It's.
And as Kevin mentioned, Heska and second quarter results continued the strong performance experienced in the first quarter of this year and we are tracking ahead of our full year 2021 outlook communicated in February.
We reported total revenue of $64.9 million a record quarterly performance execution on our strategic growth initiatives and continued positive industry trends.
Tribute to our exceptional results and the second quarter, Our North America segment revenue grew 39, 9% and the period driving this achievement was record consumable revenue of $19.3 million growth of 42, 5% and growth is attributed mainly to increased utilization among existing and new customers as well as pricing we also experience.
The growth of more than 70% and point of care imaging as capital placements appear to have recovered from a more severely COVID-19 impacted comparative our international segment reported.
Approximately 46% growth and revenue for the second quarter of 2021, a 26% growth and consumable sales and a recovery of capital placements contributed to this performance.
Consolidated gross margin expanded approximately 290 basis points to 42% and the period for North America segment delivered gross margin of 47, 9% and the second quarter of 2021 compared to 44% and our second quarter 2000, 22020 increased consumable sales and POC lab and increased plant utilization and Ob P.
Tribute to this expansion the international segment gross margin was 32, 2% for the second quarter of 2021 compared to 35% and the second quarter of 2020 execution on previously communicated cost synergies drove this expansion and <unk>.
Strong performance in 2021 has led to an increase in compensation related costs, which is the primary driver I think for operating expenses of approximately <unk> 25 per cent and the second quarter of 2021, adjusted EBITDA margin for the second quarter of 2021 was 13% greater revenue favorable sales mix and leveraged operating cost resulted in a 300.
And 90 basis point improvement compared to the prior year.
EPS for the second quarter was a lot for 6 cents per share non-GAAP EPS for <unk> 50 per share and increase of 50 cents per share from the second quarter of 2020.
We continue to maintain a strong liquidity position with cash of $245 million supported by our successful capital raise during the first quarter and further strengthened by free cash flow generation during the first half of the year.
As a result of our strong performance, we are raising our annual guidance as follows consolidated revenue range at $250 million to $260 million effectively representing year 2 of our previously provided outlook as part of our Investor day presentation in November of 2020, which results and growth of approximately 27% to 32%.
As compared to 2020.
Global POC lab revenue to be 150 to 160 million growth of approximately 33% to <unk> 42 per cent of compared to 2020, driving our increase and POC lab revenue as our North American consumable growth rate, which is now expected to be greater than 20 per cent.
As a result, we expect adjusted EBITDA margins to be greater than 10 per cent and improvement of 200 basis points from our previous guidance.
With that and we would like to open the call for your questions operator.
Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad.
Using a speaker.
Okay.
And.
Okay got it.
For our question.
And my pause for just a moment.
Okay.
And we will take our first question for.
I'm, Chris Schott with J P. Morgan.
Great. Thanks, so much and and congrats on all the progress this year and I just had 2 questions. The first was just could you elaborate a little bit more on your expectations for that volumes as we progress through the remainder of 2021, I guess do you expect to see any sequential slowing or any any changes of note as its reopening.
<unk> continues and people were maybe away from their pets, a bit more and my second question was on gross margins.
Net performance year to date.
Just wondering if the roughly 42% gross margins we've seen this year or the first half is a decent baseline to think about going forward given the strong pull through you're seeing.
Or is there something unique about mix and the first half that we should think about normalizing and the second half of the year. So I'm trying to get a sense of just the yeah.
How sustainable these levels and margins are and and just other thing about growing those going forward. Thanks, so much.
Yeah, you're welcome so al.
Ill address really quickly because.
I don't know if there's a ton of data to be shared.
On the.
And the veterinary volumes.
We think they're sustainable.
I don't think there's a necessarily a spike or a pent up.
It's.
And it's been in many many quarters now so people keep looking for a spring back or a drop or.
I think theyre sustainable there's a there's a narrative.
And out there that people are tired.
And obviously you have for you have labor.
<unk> issues and things like that.
Inflation is a macro theme everybody's.
Probably appropriately worried about such things and the economy in general.
But our business is up substantially and we worked hard and we're tired and all my friends for veterinarians and their business is up and they work hard and they're tired.
But theyre doing a great business and they care about their business and.
We don't see that really as a major constraint. So we think the volumes are sustainable and there was a step up last year, we've talked about on the last call or 2 and.
And we think that step up is real and sustainable and so and I'll, let Katherine and speak to the to the gross margin question.
Yes, so on the and the second half for the year we have.
I would say on a full year basis, when we look at the corner day and year to date up 42% I think it will come down a bit and the back half maybe about 100 basis points for.
For full year, ending around 41% providing.
And the launch of element and aim and other type mix and.
And on the back half revenue mix.
Okay. Thanks, so much.
Next question comes from David Westenburg with Guggenheim Securities.
Hi, Thank you for taking the question.
Congrats on on the great quarter.
I'm actually follow up with the previous question on kind of on the macro theme can you maybe just talk about that that supplying the demand that's out there from consumers for veterinarians ability too and I just wanted to talk about a little bit more and like how we should think about competitive position and as a company that relies on.
On inside lab diagnostics versus.
And the reference lab model.
If there is a labor crunch should we worry about maybe a move towards reference labs from labor constrained veterinarians and I'll I'll stop there before asking the next question.
Yeah, So I I I understand the theory.
We're not worried about it we've been on the point of care business for a long time and.
For reference lab business has been around for a long time and.
And we don't see massive shifts and 1 direction or the other for really quite a long time so.
I understand the theme.
And we're not seeing it you see it anecdotally, but we don't think there's going to be and.
And enormous labor Crunch, that's going on cars behavior and clinics.
To change on a mass scale.
It's really the same thing.
You could argue that it's much more efficient too.
To use a point of care test.
And finished your conversation with a pet owner.
Rather than chasing them down with tax and follow up.
On a phone calls at the end of the day.
Same dynamics for point of care and reference lab, I think or are still in play and I don't.
Don't think Theres, a labor crunch showing up on the numbers. So I think I answered the question that's our.
It's our take on it and.
It's not the first time that it's come to the the idea of that.
And maybe there aren't enough veterinarians to serve millions of pets, it's actually 1 other things, it's that's unique about our space and.
And I think has driven growth.
Has driven innovation so the more that we can do to make the veterinary and.
More efficient.
The better the more of the veterinarian, Kevin jettison non core activities less profitable activities and less defensible activities.
The more we think they'll migrate to things like diagnostics, so well, we like it and we like the macro setup, we think it's good.
Alright.
I'm going to move on to kind of the next theme and that would be on and implied guidance you brought up guidance.
And.
Overall revenue and then.
And you gave a range for kind of the blood diagnostic contribution I think and implied a little bit that <unk> would be also kind of going up.
Is that the correct way to think about it because I mean, theyre all range and so you could you could kind of place that anything is there implied increase and Oh VP and it is that is consequently.
And and implied OBP increase and guidance can you talk about maybe the margin impact from that and the back half of the year and I'll step back in queue. After that I don't want to take too many questions from everyone else.
Thanks, Dan and that's a great question Kash on go ahead, Jeremy Yeah. I'll go ahead and take that the implied is a slight uptick in Q.
Q3 into Q4 and not as heavy as last year's Q4 for will be P.
But just but mostly in line with last year's result.
And for OBP. So you know we guide I think generally we in the past guidance 16 to 17 million and that's about where we'll end the year you're correct on the back half margin for OBP that'll have a bit of a drag so that's part of.
That decline and the second half.
Thank you.
And once again to ask a question. Please press star 1.
We'll take our next question from Steven Mah with Piper Sandler.
Oh, great. Thank you and congrats on the quarter.
Thanks, Steve.
Yeah.
Follow up question on the gross margin expansion. So it seems like the international subscription model conversion seems to be seems to be proceeding better than expected.
Could you give us some more details on on on this conversion rate and if you think it's going to continue on this pace going forward and when do you expect the.
The conversion to be completed.
In terms of completion I still think we have a little while like it's not going to be a quarter or 2 but the rate is.
It's really exciting so I had the opportunity to be and Europe, a couple of times here on the last month.
With the teams and person so international travel as possible and and got a real encouraging update.
So I'm thrilled when I see a little bit of a margin drag it just means they're replacing hundreds of subscriptions and converting them.
For long term.
567 year subscriptions.
And just the way the way it works.
And just if you use a simplified view of it.
Let's just say you put in hundreds at.
And in 1 month and what happens with the gross margin as you place the equipment. So let's.
Just for illustration purposes called out a 30% gross margin.
You only have 1 month of utilization of say, 60% consumables and that month.
And so 1 month of utilization isn't going to swamp the capital equipment recognition and.
And what's thrilling about that is as that snowball gets bigger and bigger and bigger you just have a higher percentage of.
Of those customers installed using high gross margin consumables.
So I.
And there they were ahead of where I had hoped so I think they're doing a great job.
And so long answer to say, they're ahead of where I hope for and I think theyre doing a great job [laughter].
Okay, Alright, great. Thanks, and our next question.
On the acquisition of.
<unk>, if I'm pronouncing that right can.
Can you give us a sense of the scale of that business and then also talk about the rationale for acquiring a reference lab.
And we're getting at does it by assay test menu not overlap with your point of care testing menu.
How do you think about that and so.
So the rationale we have a very good business based in Milan, Italy area.
For point of care and Rapids, and they have a very nice business and a great reputation for decades.
And the same location and so the ability and you could look at diagnostics and very care as a 2 handed opportunity and so on the 1 hand, you have reference lab <unk>.
And out opportunity called at 50% on the other hand, you have 50% that's happening point of care and that's largely behavior driven more than necessarily just overlapping menu. The reference lab has always had the the menu that we have at the point of care, it's really more about getting an answer and 10 minutes instead of sending it out.
And using those logistics.
But we only have a firm grasp on 50% of on.
The opportunity.
And point of care, so putting together a reference lab with that.
And then the ability to sell reference lab services to our point of care customers, who don't use the ACF and.
And the ability to sell point of care services to the ACF Central reference lab customers, who don't use our point of care.
And we share some customers and common so it's really a very logical bundle, it's not unique our largest competitor has done it successfully.
Here on the states primarily.
For very long time, and we think Theres a lot of blue.
Water and these European markets.
Local providers and local language local culture with decades of reputation.
To put those together and put those into a bundle and capture both sides of the opportunity.
Okay. Thanks that makes sense and can you comment on on the gross margins the reference lab space versus point of care and.
And then how should we think about gross margins going forward.
And they tend to be in line with our consumables and perhaps maybe a little bit additive.
It it really depends on volume so the reference lab businesses tend to be more fixed cost and once you get above your incremental testing.
Level to cover your fixed costs your incremental gross margins are.
Our wonderful so it's really about driving volume and so we think we can probably drive volume with the bundling.
And this opportunity and others.
2.2.
Growth reference lab gross margins as well, but you can think of them roughly in line with our consumables gross margin.
Okay, great. Thanks, I'll hop back into the queue. Thank you.
Thanks, Kevin.
And we'll take our next question from Elliot Wilbur with Raymond James.
Thanks, Good morning, Kevin just maybe following up on on your comments with respect to the reference lab could you give us.
Run rate on that business or maybe just talk about what.
And what you see as the.
And the incremental top line potential at this point.
Yeah. So we didn't call out a specific number but very small and I apologize I wasn't duck that question I know I didn't answer.
Something I just couldn't remember what it was so.
So yes, you can look at that as very low single digit.
In terms of.
A million this year, so it's not really going to contribute very much in terms of revenue this year.
And not enough model I guess is what I would say so so you could think about it maybe for the balance of the years and $1 billion or 2.
And we're not going to talk specifically, but it's it's not consequential.
Alright, and then.
I guess with respect to the strong over performance in the quarter are certainly much higher and.
North American <unk>.
Consumables and international maybe just provide a little bit of color on server to be.
Key drivers or what over performed versus expectations in terms of utilization or just overall visit level price.
Or testing mix, it and maybe how some of those dynamics differ between North America and the international market.
Yes, so some of them some of it is our business model is designed to be a little bit out of sync. So we've been focusing very aggressively on utilization and and.
And utilization on our larger facilities specifically.
And North America, the international market, we are at a phase, where we're really laser focused on moving to a subscriber base.
Adding customers on 5.6 and 7 year subscription contracts.
And so I was just really more of a difference and focus we're not driving utilization programs and our international installed base were really our conversations are surrounding the benefits of signing up with us for 6 years.
So driving utilization isn't really the focus.
I think as we complete that over the next year or so we will start to drive utilization utilization and international markets. Also is just lower than it is in North America market. So we see that as an opportunity. So, let's just say and the aggregate the utilization per site is half what it is in North America, just like the gross margin and we see that as an opera.
Charity to bridge closer to North America utilization rates, but right now our focus is really moving that entire market to subscriber base as opposed to.
For leaving them just on an individual purchase every month without without and the visibility of the commitment.
And then just a last question a quick 1 on on the financials.
Given the relatively high level of stock comp and the quarter, maybe Kevin just comment on where the where the expenses allocated between selling and marketing and G&A just thinking about expense trends for the second.
And second half of the year and also your commentary regarding.
Some deceleration in gross margin performance and the second half would you expect that to carry through at a similar level to EBITDA margin.
Hi, Elliot yes, those are both great questions. So first taking stock based comp.
As it pertains to where it shows up primarily G&A, but there is some in Philly.
Selling and marketing majority sits and G&A.
We expect a similar trend in the second half of the year as it pertains for stock comp.
And as far as the back half.
And that will flow through to adjusted EBITDA margin, coupled with increased operating expenses.
And the second half relating to increased R&D from the first half as well as other G&A type costs and short term incentives.
And marketing itself.
Okay. Thank you.
Yes.
Yeah.
Well take our next question from.
Hanger with Alliance Global partners.
Good morning, guys. Thanks for taking the questions.
First off for me just.
Thinking about the acquisition that you mean and Italy, the reference lab.
Is there the possibility that you expand this model beyond Italy is there the possibility that you could take.
Take samples from other countries in Europe, and and room for the Italian lab and.
And just kind of some of the strategic characteristics and and what you can do with that lab and having the bundled platform.
And Ben Thanks for the question, Yes, we fully intend to.
To service other countries, we have we have just great decades long.
Nice market share installed basis, and places like France, and Germany and.
And Spain, and the Nordics and and.
A lot of these countries and so we we think having that sales force and having that point of care installed base of <unk>.
Thousands across those those are very logical cusp.
Customers.
For reference lab offerings. So, yes, we would look to replicate that model and those markets.
Okay.
Potentially where do we ever see it here in North America, as well, maybe signing up with large private company to co market or anything like that.
You know the North American market, just has different dynamics and to cement is reasonably hard and.
There there are 2 large reference lab companies that split 95, maybe even more of them of the market.
So trying to disrupt and duopolies.
And that's a windmill on I'm, not all that interested and tilting against.
We've got.
Oh.
Greater assets and more opportunity and the cement is not hardened and a lot of these European markets. So we think it's important that we'd be 1 of the winners and 1 of the leaders in that.
And.
And that space and bundling opportunities and as European markets. So we're going to focus there.
We're small enough that we still have to focus and that's where we're going to focus.
Okay. That's fair enough and then lastly for me just with some other dynamics on the practice slow and you mentioned folks being tired.
On a lot of these practices have.
Become.
And more flush with cash and then they have been and and.
Caught last decade or more.
Do you think that shifts at all the willingness to.
And the purchase capital equipment or get on to a rental model like yours or other otherwise makes capital sales more attractive or less attractive whats your sense of how our practices are thinking about it and then kind of where does the dcfs fit into that.
So.
And for imaging digital radiography and particular I think it's a it's really a sweet spot.
For for a number of reasons, you still get accelerated depreciation opportunities for.
For large capital equipment investments and digital radiography would fit that would fit that bill and that call it 35% to $50000 range.
So I do think and the fourth quarter is as accountants to remember a lot of these are individually owned either llc's was flow through income and.
And sole proprietors, they've done they've done very well and they're gonna have a tax problem.
So I do think offsetting that with investment and capital equipment and a refresh cycle.
Is favorable for for capital equipment purchases.
And in relation to element D. C X, what's really nice about that is is we have thousands of element D. CS.
Around the world that we would love to offer for.
Faster more automated more modern and better all of it.
And they are inclined to continue with the precision and accuracy and the customer experience and.
And extend their contract with us.
And so I think the real benefit there is the opportunity.
And to really take that whole batch of customers and extend our relationship and also.
Get increases and utilization, while we have those conversations so it's.
It's really.
Really nice opportunity and it was a nice surprise something we had called out.
It has been years and and progress and it's on it's a really nice machine and so I do think it will kickoff.
And a nice refresh and extension cycle and the point of care lab side for the chemistry.
Okay, great and actually if I could just sneak in 1 more is there the possibility that you could swap out some of these.
On the <unk> Dcs that are already existing in the North America markets and those over to <unk>.
International and then swap out and the Dcs into the practice.
Yeah, I don't know that we would move assets from country to country I.
I do think we'll be able to hit.
Lower commitment.
Lower monthly commitment so lower the friction and lowered the hurdle with the element D C.
Okay.
Maybe get a little higher commitments on the D. C X for those that are are easy to clear that hurdle rate.
So I think it does open up and opportunity for US there is still a very nice market and still a lot of veterinarians who.
They'd love to do $300 per month and chemistry.
Testing Theres still sold proprietor ships with 1 or 2 doctors and them and we think we can serve them very well with the element D C.
And we think kind of the middle of that market.
<unk> is probably the sweet spot so.
We'll probably be able to.
Push the the minimum commitment down a little bit with the D C and maybe capture.
Some of the <unk>.
Some of the smaller practices and North America with it.
Okay. That's very helpful and again, thanks for taking the questions and congrats on the quarter guys.
Thanks, Kevin.
And as a reminder to ask a question. Please press star 1.
Our next question from Jim Sidoti with Sidoti and company.
Good morning, sorry about that I had it on mute.
So Kevin I think you kind of threw everybody a curve ball. This morning with the announcement of the reference laboratory.
We've seen network and it really well for IDEXX and maybe not so well.
And Abaxis did that a few years ago.
Whats what what what makes you think that youre going to be more like the IDEXX and the abaxis and that you'll be able to make this work and Italy and if it does work do you expand it to.
Other regions in Europe.
Yeah, Jim and it's.
Very fair question.
I think our positions are fundamentally different and you know me.
And I'll follow the industry I've been in the industry, a very long time, so on the students.
Of the industry.
What we're doing is extremely different and then what abaxis pursued.
And the first was the market picking on domestic market, that's very very well served by bi and tech and and IDEXX.
I think it's a very difficult challenge.
And so we're not doing that the second thing I would say is starting it from scratch as opposed to.
Acquiring decades of.
Customers and goodwill.
And with local culture.
And our market share I believe and point of care is higher.
And Italy, then on Abaxis was at the time, so a lot of differences.
And just even geography, serving the entire north American market.
And with turnarounds of 2 a day pickups and all those types of things out of 1 lab and Kansas associated with the University has a very different model than our and acquiring and merging it in.
And Milan, Italy.
And just geographically logistically all of it so.
We're.
And we're pretty bullish on it we think it's the right thing to do.
Especially in places like Italy, and France, and Spain, and Germany, and those types of markets.
There's not a firm duopoly.
And that that is really hardened.
So we think the setup is quite different and the European markets and it wasn't the United States.
Even 5 or 10 years ago.
So assuming this works out well for you you do expect to be able to do this and other regions and Europe It sounds like.
Yeah, and you know guys like me on calls like this always hesitate to say that because then you could fail and.
And finding local partners and acquiring them and emerging them and successfully doing these things, but yeah I'll. So I'll just put it out there.
And it's 1 of my goals I think it's a good strategy.
And I think we should do it.
We should do it more and we should do it well and we should do at a bigger scale. So so yeah. That's the direction we're headed.
Okay and then it seems like you have quite a bit on your plate with the rollout of <unk> and the back half for the year and some of the other new products.
It seems like you did really well with the integration.
Skill.
Do you have the right people in place and do you think you still need to and manage great merits and sales folks and the back half for this year.
We absolutely need to add management, and we absolutely need to add sales folks were doing that we built out on a nice human resources team.
We've hired some nice executives.
And just even over the last 90 days.
And at the VP level.
For for expansion.
On a business development leadership team.
And what will happen here on the next couple of weeks. So so now we're we're not just building out.
The commercial side, but we're also building out the day inside of the business and I think we're doing a good job there.
And with good people, they're smart and.
Great credentials and the right expertise and and.
And was that growth capital and we've got a great market and we've got great results and.
So yes, a lot of work to do I think you pointed that out but.
And we will need to add people to do it but I think that's in the guidance that the.
Catherine is sharing with for the balance of 2021 and.
And as you know we will update 2022.
And when we get to next year.
Okay, great. Thank you.
Youre welcome.
And we'll take a follow up.
And very quickly and <unk> securities.
Hey, guys. Thank you for taking the follow up so just a question on on element aim and servicing the backlog do you think you can continue to grow that backlog and the back half of the year is that going to be a.
And a core tenet and with Kevin and maybe your sales force to grow that backlog and then in terms of launching I realize you have no control over supply chain and obtain issues and.
And pretty much every company is dealing with.
The supply chain constraints, but is there any.
Any concern that you have in terms of launch timelines.
And additional product timelines on that.
And maybe this drags into the middle of 2022, I realize supply chain Crystal ball is not going to be perfect, but ill just stop there.
Yes. It is.
It's a fair question and and it's 1 that I'm sure My R&D and operations teams and we're thrilled that you asked because they live it every day.
We've managed through it so far we've lost.
Weeks that may add up to a month or 2 and.
And I and I called that out.
The net effect of what we think is will probably be able to install and fewer element Ames in the October November December period.
Largely as a constraint of ramping up the volume and then running them through the initial.
Installation and volume process.
And and so I think we've been conservative on that and we backed out some revenue numbers and the fourth quarter.
Just in terms of what the contribution would be and that is embedded also and.
And the updated guidance. So we still feel good about the consolidated performance.
And all of which is to say I don't really see a situation where it bleeds into 2022.
I think we secured the major components.
But gosh, you could be delayed by a minor component.
Simply can't ship because screw number 212 is sitting on a.
On a freighter somewhere there's always that possibility but.
And we're really not thinking and that's where we are right now I think I answered the question.
Thank you.
Yep.
Yeah.
All of that from Steve and Matt Eichmann and me.
Okay, great. Thanks, and thanks for the follow up question.
And so just continuing on on element aim how many early adopter instruments are currently in the field and can you comment on any preorders preorder strength that you have right now thank you.
So pre order trends.
I think it's fair to say, we have more preorders and then we can.
Manufacturers scale and deliver.
And the fourth quarter.
So we feel great about that but obviously customers want their they want their product as well. So it will probably take us through the first quarter of next year or 2 to work through the balance of the preorders is my guess and we continue to get preorders for customers who've been communicated very clearly that if they're a preorder today.
Day.
Theyre not to expect of a shipment and and 2021, but they should be looking to the first quarter of 2022.
In terms of of of analyzers and process.
We did meet our goal of putting analyzer and.
And a third party clinical environment.
By the end of the quarter.
But in all candor just barely.
And so and again I think we're probably delayed on that by by a few weeks, but we've got a handful.
Operating and running samples and.
And we think the results.
Support our forecast that that will be a manufacturing released by the fourth quarter.
Okay, great Thanks, and congrats again.
Thank you.
And it appears there are no further questions at this time I would like to turn the conference back to Mr. Wilson for any additional or closing remarks.
Well, thank you and thanks, everybody who joined the call. We appreciate the follow up questions I I hope its a helpful call.
To close pretty.
Pretty clearly heska accomplished a great deal on the second quarter.
And as I conclude at our last call as well, we expect to continue to execute.
Throughout the balance of 2021 and and into 2022.
I look forward to updating you on the next quarter, we're working hard to make it another wonderful call and until then thanks for your continued interest and support of our work here Bill.
Be safe avoid COVID-19 arguments.
Count your blessings and most importantly take your pet for the veterinarian, even though he is really busy and establish a little bit tired, but he still wants to see your pet. So we appreciate it we appreciate your interest and our industry and look forward to updating you on the third quarter.
Here on the next month or 2 okay. Thanks Bye.
And that concludes today's presentation. Thank you for your participation you may now disconnect.
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