Q3 2021 Heska Corp Earnings Call
Yeah.
Yeah.
Please standby.
Good day, everyone and welcome to the Heska Corporation third quarter 2021 earnings call.
<unk> conference is being recorded.
At this time I'd like to turn the conference over to John a guard head of Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone welcome to Heska Corporation's earnings call for the third quarter of 2021 as a reminder, today's conference is being recorded I am Johnny Guard head of Investor Relations with Heska and with US. This morning, we have Kevin Wilson, <unk>, Chief Executive Officer, and President and Catherine Grassman <unk> Chief.
Financial Officer, 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 during the course of this call. We will 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 X.
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 this morning's earnings release, Heska Corporation's annual and quarterly filings with the SEC and elsewhere any forward looking statements speak only as of the time they are made and it has.
<unk> 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.
Also during this call we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which May also be found by visiting the Investor Relations section of our website.
In reviewing our third quarter 2021 results. Please note all references to growth refer to growth compared to the equivalent period in 2020, unless otherwise noted.
And finally to encourage broad participation in the question and answer session. This morning, we ask participants to exercise discretion with a number of questions. It's 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, everybody.
I know you've got a full day and I appreciate your taking the time with US this morning.
We've got a lot to cover so I'm just going to go ahead and jump right in.
Net net Heska had a great third quarter with a mixed financial scorecard truly.
Now I know every CEO says the quarter was great, but except for supply challenges that we worked through in the period, we did well on balance so lets unpack, where we are for 2020 one as we prepare for 2022.
In the third quarter supply chain delays in raw materials caused us to miss about $2 $9 million of sales in our contract manufacturing vaccines and therapeutics lines.
And delays of a few weeks in computing and imaging components effected launches in our new line of digital radiography products in international to the tune of about $1 $5 million in the third quarter.
We believe these issues have been resolved in time for the fourth quarter and we believe these issues are in the rearview mirror.
On the overwhelmingly positive side of the Ledger Heska continues to follow through on our promises. We are encouraged by success in almost every major metric and goal as we work to conclude the balance of 2021 within our guidance.
Katherine will detail the financial scorecard shortly.
But I'd like to take a few moments to detail the strategic scorecard.
The first element aim is now in full commercial release for those new to Heska.
Element aim is the world's first and only urine and fecal analyzer.
Heska had a vision several years ago for this transformative artificial intelligence microscopy platform for urine and fecal testing at the point of care.
While the competition posture and pivoted and settled for rebranded of repurposed human testing platforms with limited utility and technical difficulties Heska innovated.
I am so proud of our Heska teams for their full steam ahead efforts. These past several weeks as we have reached manufacturing at scale and general release milestones. We have about 90 installs on the docket for this fourth quarter with 15 already installed.
Initial user feedback and surveys have been great. Our teams are in place and trained in supply chain and manufacturing lines in new England are up and running well at volumes that are supportive of our goals for 2022.
We continue to anticipate meaningful financial contribution from element aim in 2022 and beyond.
Market opportunity for automating millions of dollars now already being done manually per year.
While it is still early days I can't be more thrilled with this major major successful innovation and launch and I hope investors are pleased as well.
Up next is this week's announced acquisition of debt Z of Germany, a leader in advanced practice information management software pins and.
And picture archiving and communication software, where packs. This is a key leg of the stool for anyone wanting leadership in our markets and whether that Z heska enters the all important HIMSS Pac space with a very strong leadership position and team in the most important geographies to review the summary of the.
<unk> is simple.
Heska has leading positions in point of care diagnostics in key geographies pins and patches that connecting puzzle piece that fits wonderfully into our subscriptions and bonds heska to our customers for decades.
XE has demonstrated pins impacts leadership within the highly advanced demanding an all important German market, where heska is already focused very strong and going deeper.
Heska has over 7000 customers most without that Z tens packs that Z has more than 3000 pimps pak's customers most without Heska diagnostics Heska has a leading expert field sales force and support team that is many multiples larger than that Z and in many more countries that zee.
He has expertise in software development connectivity, all aspects of clinical business logic and associated services for clinics of all sizes, but especially for the all important middle large and Mega hospital segments that we covet. Most the fit is great together, we are much stronger to invest innovate.
Expand to new geographies and scale.
Together, we are better than the competition.
In this press release Youll find lots of information and I encourage you to read it.
So let's continue to update the scorecard as.
As we start to reach the end of our multi year Act too we have doubled our customers geographies and product revenue stream served while continuing to win in our core baseline business.
Those were our stated goals and we have met them.
We have a subscription business model that puts us at the very trusted center of the veterinarians business for decades, we stand atop the innovation and value creation chain.
Our sales are growing our margins are growing and we have assembled a full stack of products and geographies to win with.
We've invested many millions of dollars directly in our business, while generating operational cash.
We have collaborated and partnered smartly with technological leaders to directly and indirectly benefit from an additional many hundreds of millions of dollars in research and development innovation.
We've invested tens of millions of dollars in acquiring early revenue team's capabilities and technologies, along with tens of millions more invested in minority positions in technology developers for the future. All of this is a smart proxy for research and development investment.
While succeeding in these strategic initiatives. We have also captured the stepped up growth levels. This past 18 months.
Through COVID-19, as our new financial metrics denominator.
We are now well positioned to grow very nicely going forward off of that stepped up base with our full line subscription stack to win at scale and reinvention and our upcoming Act III sprint.
Look as we enter 2021 with an investor day presentation, indicating $225 million to $235 million in sales for 2021.
And $250 million to $260 million in sales for 2022.
We will leapfrog, our 2021 goal and achieve our 2020 to go this year and I think that's remarkable.
And we and why we will update you fully on our full year ending call on our normal schedule with such rapid headline growth. It's also good to see that on top of these accomplishments our contract subscription value C. S. V. Scorecard reflects and is tracking our headline success. So far this year for example.
We finished 2015 with $38 million of minimum CSV, and we will finish 2021, well in excess of our 2021 target of $154 1 million.
Because we surpassed this goal in July of this year.
We ended 2015 was $701 per month of North American average monthly CSD and.
And we will finish 2021, well in excess of our implied 2021 target of <unk>.
1093.
Because we surpassed 1200 in July of this year.
Without belaboring the point it is clear that our customers are doing well and that we are privileged to be doing well and long term partnership with them.
It's always been our plan and we are bit by bit shown some of our growing capability, but not all of it.
We are thankful for the support of investors and are glad for those that have invested with us for extended periods of time to capture substantial returns.
I think you should keep doing that.
We have created substantial intrinsic assembly and Optionality value. These past eight years and in my opinion, the best is yet to come.
For while I am thrilled with our 2021 financial and subscriptions performance I'm, even more thrilled with our 2021 strategic and business development accomplishments rigs.
Regardless, they both underpinned my expectations for strong growth next year and beyond.
While we will update our 2022 outlook on our normal scheduled call during our full year ending call I anticipate a strong update for many reasons for those new to Heska I'd like to take a few moments to touch on just a few of them.
Our balance sheet and culture has us well positioned to play offense within a wonderful pet health care space that is experiencing multi decades growth.
We have great capital in hand, and we have great relationships and decades of dedicated domain expertise to win at scale and reinvention we.
We work hard and do the hard things required to manifest value and we have a long track record of doing so and our momentum is accelerating.
Building on 2020, which was transformative in just 2021 Heska has assembled for veterinarians a unified offering house directly within the Heska family to serve all of their diagnostics and informatics subscription needs, let's take a moment to go through what this means because it's an incredible assembly.
Heska possesses an expanding fully refreshed and leading point of care blood diagnostics family that is trusted and preferred as the best available by many thousands of veterinarians around the world and for years under subscription.
Heska has invented and has begun a full commercial launch of the world's only point of care urine and fecal diagnostics analyzer and consumables platform with the launch of element aim.
To address market needs already occurring manually at the point of care to the tune of hundreds of millions of dollars each year.
Heska has launched the industry's next generation 100, Micron high definition digital radiography that is driving a wonderful upgrade cycle that will continue through 2022.
Heska has entered the important telemedicine specialist service market with our acquisition of Lacuna diagnostics for Telus Cytology in February of this year.
Heska has entered the rapid single use diagnostics market to address needs of approximately $500 million per year through our acquisition of biotech laboratories in September of this year.
With fantastic products, and Heartworm line irregular Anaplasma F. I D. F E L D parvo and many others Heska enters this space with a leading portfolio and performance for global sales in subscription and otherwise.
Heska has made its entry into the European reference laboratories market with our acquisition of the ACF in Italy in July of this year, our strategy, we intend to scale and expand in other geographies.
And this week with our acquisition of XE in Germany, Heska has entered into the practice information management software competition with a strong technological and market share leadership position to tie it altogether.
What this team has accomplished so far in 2021 financially is wonderful.
With the exception of discrete and largely solve supply chain challenges of about $4 $4 million in the third quarter I'm pleased.
What this team has accomplished so far in 2022 strategically is a leap forward that as best I can tell is unmatched by anyone in our industry.
Now as we conclude 2021, well financially we will also bring to bear our full attention and skills to integrate expand invest in and scale, our new full subscriptions capabilities across multiple geographic markets.
In doing this we will grow the overall pie will also getting a bigger slice of it.
It's simple.
Times, it's a little bumpy and its always hard work, but we're glad to do it. This is the stuff that makes business fun and it makes it worth doing.
Finding opportunities to solve problems grow markets and beat the competition.
The lighting customers employees partners and shareholders in the process setting.
Setting big goals to win and then winning in them honorably.
Rinse wash repeat.
Look we're honored and we're thankful that customers investors have supported us since 2013 as we do our work.
So that's a lot and it's a lot more words and I, usually subject you to on our calls.
I'm hopeful that some of it was helpful.
I could talk with you about this for hours, but that's not really the work that you are I get paid to do so as I think about how to conclude my prepared remarks today I think I'll just use the same words that I used last quarter.
We are a whirlwind of positive activity results in opportunity.
The first three quarters of 2021 has been fun.
I think the rest of 2021 and all of 2022 will be fun.
I could talk for hours about how and why but as I promise I'm not going to do that and I'm going to turn the call over to Catherine to detail the quarter before we move to our Q&A time Catherine.
Thanks, Kevin and good morning, everyone I am pleased to take you through our third quarter results and update you as to how we see the fourth quarter and the full year 2021, turning out.
Good delivered a strong third quarter financial performance, despite some supply chain challenges and a very strong comparative quarter in 2023rd quarter revenue grew six 4% over the very strong comparison.
Driving the majority of this achievement was our North America segment, which recorded revenue growth of nine 8% for the third quarter.
Of note point of care imaging grew 41, 1% bolstered by the product refresh in the U S and the continued launch of the Heska brand in Canada.
Increased utilization and pricing resulted in 10, 1% growth in point of care lab consumables.
Our international segment results revenue results were mostly flat to the prior year point of care imaging supply chain challenges.
Offset by higher point of care lab instruments and other NPV deed.
Our consumable sales, while slightly down to prior year included healthy volume as we transition our customers toward better more unified and profitable portfolio of products included in our long term subscription program, we expect to share the cost benefit in exchange for long term relationships via five to six year contracts. The success of this program.
Both revenue and margin growth has been demonstrated in the U S.
Our consolidated gross margin increased approximately 60 basis points to 41, 9%.
Despite the low gross margin drag from accounting for lab equipment, new subscriptions revenue.
International segment gross margin improved 280 basis points to 33, 3%.
The conversion of our customers to a more profitable portfolio under their subscriptions was a significant contributor to this increase.
Excellent sequential follow through from the most recent prior quarters as a reminder, when we acquired these international assets in early 2020, we believed there were substantial opportunity to bridge their margin close to the North America margin, we continue to work toward achieving the synergy.
The north the North America segment delivered solid gross margin of 47% in the third quarter, a decline of approximately 130 basis points, which was largely attributed to idle plant charges on our OBP and PPD lines due to raw material supply disruption as well as some other product mix impact.
Okay.
Operating margin declined 440 basis points to negative 4% because of increased operating expenses of $4 5 million.
Higher cash compensation, including short term incentives as well as stock based incentive costs were the primary drivers as the company continues to achieve its strategic objectives.
General and administrative costs were higher due to increased consulting and other professional services and one time acquisition and other related costs to the business development.
Adjusted EBITDA margin declined 590 basis points for the same reasons, excluding onetime both costs and benefits and stock based compensation.
We continue to maintain a strong liquidity position with cash of approximately $223 million in the quarter, we deployed over $20 million of capital investing in acquisitions and furthering our strategic plan.
Expanding into new product offerings, both domestically and internationally.
Now turning to the fourth quarter and full year expected results.
As part of our second quarter earnings call, we communicated and expected 2021 consolidated revenue range of $250 million to $260 million.
Based on experience to date, including some of the factors already discussed such as supply chain disruption and foreign exchange the more likely outcome is that the low end of the range, resulting in year over year growth of approximately 27% and as Kevin noted. This revenue result puts us one year ahead of our multiyear outlook presented only one year ago.
Mark.
We are reaffirming all ranges previously provided as well as in North America consumable growth rate in excess of 20% for the full year adjusted EBITDA margin in excess of 10% is still expected and with that 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 one on your telephone keypad. If you are using a speaker phone. Please make sure your mute function is turned off.
To allow your signal to reach our equipment.
Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.
And we will take our first question from Chris Scott with Jpmorgan.
Great. Thanks, so much for the questions.
Two for you first.
First can you talk about your international point of care consumable results I think they were basically flat year over year I know they've been showing some last quarter was healthier growth I'm trying understand some of the dynamics there and then the second one was just to clarify on the lower end of guidance range.
This is purely just based on the timing the timelines of some of this contract manufacturing and equipment placement with the supply chain as well as FX or are there other factors that we should consider relative to the update you gave in August just any color. There also would be appreciated. Thanks so much.
Hey, Chris Thank you.
Can you hear me okay guys.
I can hear you fine.
Okay, great. So.
So the first question, yes. Thank you.
I was hoping somebody would ask that.
So I'm going to take probably three or four minutes to explain this but I think it's worth explaining so.
So the way I look at it is we're I think in pictures, So bear with me I'll I'll land the plane.
We're in the process of organizing flower garden.
We bought a business with margins say, 30% said since we bought it we would grow those margins substantially towards the North America level and so in the flower garden near times Youre going to start trimming some less interest in flowers and youre going to pull some leads.
You're going to put some new flowers and replace place the old ones with ones that you like for six to 10 years. So that's what we keep referring to with our rationalization of the products to bring kind of our standardized products.
The effects of moving customers from low margin consumables to much higher margin consumables means as part of our mission that we can share the cost savings with the customer on each unit sold while we're more profitable.
So what happens is we get higher gross margins, but for a limited time it drags on the top line revenue at the same unit volumes.
<unk>, we share some of the cost savings so the way I would look at it is let's say, we sell a rotor for $20.
With a 30% gross margin six bucks.
And then we've now developed a rotor with 70% gross margins and so we're able to help the customer we go to the customer and say Hey, we can offer you a 10% savings on that road or we're going to upgrade you to a new platform. We're still your rotors for $18.
Now now we're realizing 70% gross margins, we're going to go out and share that $2 back with the customer. So we're still gonna realized $12 60 in gross margin instead of $6.
Like we were yesterday and that customer site, but every rotor that customer uses is only going to generate $18 in revenue as opposed to 20.
So that saves $2, the pet family, probably saves around six on that test.
We dampen our revenue about 10%, while we gained over 100% and profitability.
And so that's when that happens at scale when you're converting as fast as we're converting that's where you pick up the couple of hundred basis points in gross margin and so if you look at our right away, we always want to grow revenue.
But we also want to grow gross margin and when Theres a right of way issue, we're going to prioritize the gross margin and go ahead and share some of the topline revenue with the customer which is really again, it's part of our mission is to save the customer money and do a better job form clinically at the same time.
So I'm sorry that was a that was a long answer but I just I think it's a really important one because people look at that number go Oh My God. It's flat I look at that number go Wow, that's great it should be flat.
You kind of want to get that just about right now it's wonderful if you can get outsized growth in addition.
To get into flower bed that you want and all the dynamics that I just but.
But again, when our right of way issue happens I'll prioritize faster subscriptions much.
Much higher gross margins and getting those customers over to our product platform.
I think the second question was about.
It was about.
The full year guide at the lower end of the range and I'll, just say really there's there's $4.4 million that we called out.
With supply chain.
In the third quarter will run out of the the calendar.
And.
To get some or any of that back.
And then Forex and the other things I think the Katherine called out Scott I don't know if you want to add any color for Chris.
No I think thats good.
I appreciate the color.
And our next question will come from David Westenburg with Guggenheim Securities.
Hi, Thanks for taking the question.
I might ask you I'm going to ask a little bit of a pointed question, but I think it's fair for you guys to kind of defend this year.
The consumables North American consumables did Miss me I think historically, you've said you don't look at this as kind of a market share.
Number now we all have access to things like that success data IDEXX is pins data and yes, we are seeing trends of both veterinary volume in veterinary revenue that looks like it's above market. It looked like there was a D cell there and so you know its probably tough to use one quarter of it is example, but traditionally we think of you guys.
Just being a little bit more of a market share gainer is there anything we can read into that.
One quarter number in terms of where you think you are in market share position I apologize I realize that's a pretty pointed question, but I think it would be.
You know give me the opportunity to defend it.
So I'll start Catherine probably has.
Additional information.
We feel good about our market share we know what our subscriptions are we know who is on a subscription and who's getting product every month.
So I really don't think it's a market share.
Question I think 10.1 is right around where Kathryn was guiding.
I think our bigger competitor did a little better than that but I wouldn't say earth shattering Lee So I havent looked at their numbers in detail.
So yeah, I don't I wouldn't say I'm disappointed I think it actually rolls up with what we think in the fourth quarter to right where Kathryn.
It was indicating for the year, so Catherine do you.
Kevin anything you want to add.
No I mean, I think thats spot on and I also think.
We typically tend to see a slowing from Q2 to Q3 seasonally.
Every year last year with an oddity.
Covid.
R R.
You know a major competitor.
It's the same the same trend.
Okay.
No problem alright. Thank you and then you punch above your weight in terms of consolidators.
Your size and market share for consolidators in North America.
Did see an acceleration in terms of consolidation I mean, some figures some industry people have 1500 clinics are going to get consolidated.
In 2021, which would be.
A massive uptick do you feel comfortable with.
With your position with consolidated practices do you think you'd continue to pump punch above your weight and do you think that theres going to be continued tailwind from that and I'll hop back in queue. After this one.
So David I do we've got.
A couple of really nice consolidators, so I'm going to use round numbers consolidator Ey has 500 hospitals consolidate or be as 500.
And consolidate or see as a 1400, let's let's just say.
And we've got a and B and.
And in a smattering.
Smaller ones, but I think of the majors, we feel really good and those organizations are doing great. They are acquiring it's very competitive but I think they are acquiring their fair share and and over time I think we get to participate in that so.
Yeah.
We will.
We like the consolidators and we think that's a favorable trend because as you pointed out we think we do have a higher percentage than our just general market rate and is the consolidators get bigger at a faster rate that should help us so yes.
Thank you.
And our next question will come from Ben Hayner with Alliance Global partners.
Yeah.
Good morning, guys can you hear me okay.
You bet, However, you Ben.
Doing well.
Just a couple quick ones for me on the vet.
Acquisition, you mentioned some of the numbers.
So you have the 3300 or they have.
Can you, maybe just maybe give us a sense of how easier to cross sell in both directions, I mean, I would imagine that somewhat easier to maybe swap out instrument.
It's somewhat overdue competitive software suite, but just wanted to kind of get your sense of.
What you think can happen on that front.
Whats easier or harder or what we should expect.
Going forward.
I think that's right.
It's always harder to get somebody to switch their practice management software.
There were two German assets that I have coveted.
Since 2009.
When I got back into the into the vet space.
One was skill.
And the other was that Z.
And so to say.
To finally get to be partners with them that Z on a direct basis I've worked with them for very long time.
As a really big deal and part of the reason as I.
It answered several questions. Obviously, we can place analyzers in and their users and I think tighter integration and those types of things will be wonderful I think the ability to trend and do other things.
Between reference labs and point of care.
Those type of solutions is wonderful I think moving things to mobile is wonderful I think adding extra value through their pets XL. So think fulfillment to us the veterinarian is like Holy Sacrosanct. It is.
The only thing is the channel that we that we support.
And I think he has some really great technologies that help.
Veterinarians directly with pet owners, and pet families and fulfillment and things like that so.
I think those things can be done even if theyre not switching out their entire system.
Patras management system immediately it also answers questions for us in.
Competitive accounts, where maybe the current practice management solution isn't up to snuff.
Or or doesn't offer proper levels of integration or capabilities and so to be able to say hey, we can take the responsibility for the whole experience I think is a great deal.
And the business logic piece I think is supercritical.
These guys have a really really strong position in some of the biggest if not the biggest hospitals in the world from the largest universities in the world with hundreds and hundreds of workstations and users.
The specialty hospitals, and the workflow and business logic that they've developed in those spaces. I think is is it really kind of best in class.
Something that I think will enhance our reputation and certainly our footprint in some of those bigger hospitals. So it's it's.
It's just great all the way around I can't find a negative other than it took me.
I don't know what does that 12 years 12 years to make it happen other than that I can't find a negative.
Okay.
And just.
When it comes to logistics, just walking off the software.
Is it a tougher thing to.
Transfer the data from all.
Different software solutions.
These solution or is it more about training the personnel R. R.
Or are these things kind of swap out of a relatively usually if he can get buy in from the account.
So the conversion tools and technologies advance he has.
<unk> are extremely powerful in.
They've they've done data conversions.
But just about every major practice software solution competitor out there.
I think the whole market and I think our competitors agree is in for a really really substantial refresh cycle.
So you are seeing more investment and in the Perm space.
And so converting people converting their data I don't think is a barrier the better providers have good technology for that workflow is always an issue and so that's where you know having 25 years of experience like that Z does and Super highly trained very precise wonderful German teams I think is a good thing.
Just in terms of converting people to the platform and making them happy.
Okay. That's helpful.
Lastly for me.
Some of these acquisitions.
Made elsewhere.
On the point of care rapid diagnostics when do you kind of envision those hit in the market and then is there any additional color you can give us on the Italian lap.
Yeah. So we do see rapid hitting the market in 2022.
And the Italian lab and its early days you know July.
And it's going well and we're working through the bundling opportunities in all of those types of things. So I think I'd called out as a small lab, that's a it's a learning and scaling opportunity for us.
It's been around since 1970, each I think I think it's europes oldest.
Continuously operating.
Veterinary reference lab and so we think it's really a great place to get good learning Wow.
Servicing primarily that that is.
Northern Italian market, but it's going well.
Okay, great well, thanks for taking the questions guys.
Turning to realize as well.
Thank you.
And once again, if you'd like to ask a question. Please press star one.
We'll now take a question from Jim Sidoti with Sidoti <unk> Company.
Hi, good morning, and thanks for taking the questions. So you're not the first company that.
As reported supply chain issues in the quarter.
And.
Some costing pressure can you just remind me when you sign a long term contract with your customers do you have any escalators and therefore inflation.
So we do we've always had.
Since we <unk>.
Began the programs in 2013 2014, we've always had.
The CPI.
Adjuster in there so.
So our price increases generally or about 4% under those contracts and we don't go above that with the exception of in periods where.
Consumer price index is above that at which point we match the CPI. So we feel covered there.
And we aren't seeing price increases on the supply side, we generally have contracted those in most cases on a fixed basis.
Okay. So I mean, you must be seeing some some labor cost increases just like the rest of the world.
Yeah.
I think that's not specific to Heska I think everybody will see that.
So yes, we're not we're not immune to it.
Okay, alright, but it sounds like you do have some from where you're pricing to absorb some of that.
Some of that increased cost and then.
On the three acquisitions, you've done most recently the reference lab.
Wanted care products in the practice management software can you give us a sense I know you don't want to get into details on guidance, whatever but are we talking.
Single digit millions tens of millions.
Just give us a ballpark of what you think the annual revenue contribution from these three deals.
Look like once they get up and running.
Sure. So so the only one so the vet see the pins business you could think of that as.
As a kind of a $10 million.
<unk> on an annual go forward basis as our starting point.
It's a profitable business.
I think we I think we did well.
In acquiring it but you could think of it as about a $10 million.
Piece will get more specific.
Just obviously in terms of the whole 2020 to add but that's about the size of it.
The other two.
The reference lab in Italy are very small.
And just in terms of.
Yeah.
Revenue.
Relative to our other revenues and then the Rapids business, that's really that's really about menu and how fast we get it on the market.
It's $500 million market and we're starting virtually.
Virtually none.
None that we manufacture so that one I don't want to put a put a number on for 2022 until we give 2022 guidance.
Alright, thank you.
Youre welcome.
Yes.
And our next question will come from Elliot Wilbur with Raymond James.
Yeah.
Oh I apologize it looks like we'll take a question now from Chris Scott with Jpmorgan.
Hey, guys just wanted to I appreciate all the color earlier on the curtains analogy I just had a quick follow up though if I think about international point of care should we be thinking about this kind of dynamic continuing into <unk> and I guess into 2022 as you convert over accounts, so a scenario, where maybe the sales growth might be a little bit lower but the gross.
Margin improvement is kind of offsetting that or was this more of just a one off phenomenon with just the way account conversions played out this quarter that it skewed more towards some of these products that had maybe some sort of like kind of cost savings for the customer, but much higher margin for you I'm sorry, I guess I was just kind of on a go forward basis is this kind of representative of what we should be thinking about the next few quarters.
Thanks.
Yeah.
My sense is it's a it's another couple of quarters.
Not years, but it's it's another couple of quarters and again I think that's kind of built into the guide.
The catherines given for the year.
Perfect. Thanks, so much.
Youre welcome.
And my apologies, we'll now hear from Elliot Wilbur with Raymond James.
Okay.
Hey, Good morning can you hear me all right.
We can good morning Elliot.
Okay.
Not sure what happened there.
Just a quick question for her Catherine if you could just provide what the currency impact was in terms of.
Impact on growth in the international segment in the quarter and then for yourself, Kevin obviously been a lot of noise in the marketplace lately around element aim maybe you could just.
Do a high level fly over again in terms of what you think the market opportunity is there and outside of some of the obvious factors in terms of time and convenience and alike.
What are the key differentiators of the platform and ultimately what are some of the levers that.
Drive drive the initial uptake.
Okay.
Katherine you wanted your Forex and then I'll do element aims.
Yeah, I'd say, the foreign exchange impact to the quarter's pay about 100 basis like for like growth.
Yeah.
Okay.
I'm sorry, Katherine is that port is that.
Across the entire top line or for the international segment.
Did we lose Kathryn.
Oh, I'm, sorry, I'm sorry.
You're on mute.
Oh, sorry about that.
Let's just say on a constant currency basis growth was at about five 5%.
For revenue versus the reported six.
Okay can you hear me.
Yes.
Okay.
So what you needed Elliot.
Yeah, Thanks, and then just.
Okay. So so element aim.
So let's go through it real quickly.
Element aim goes into clinics.
The current pricing promotion is $1000 a month.
Minimum commitment for 72 months.
And the consumables.
$15 per test for urine and fecal.
And there is a fecal prep device.
They cost an additional five that you only use when you use FICO.
So just in terms of utilization Youre looking for only three to four day between urine and fecal and most veterinarians don't find that particularly high hurdle.
So so that's what the economics look like so you can see why we think it's meaningful it's really closely in line with our chemistry, and hematology business, which would be the biggest part of our core lab.
In terms of Differentiators.
So so there's a urine product out there.
IDEXX set of you.
That product is is a re purpose rebranded human medical product out in eastern Europe.
We looked at it we're aware of it and we think we outperformed in urine.
We look at more sample.
We think we've overcome a lot of the issues regarding.
Looking behind.
Highly sediment and samples.
And things like that so.
So we think we have a better mousetrap for urine and they place thousands of them.
And in terms of fecal there really is there really is no product that's automating fecal and I you know.
When all deference to.
But the wonderful competitor, that's launched a fecal slide scanner.
We were well.
Technology, a couple of years ago, and many millions of dollars ago as well.
So we don't think that preparing.
Slide with fecal and then looking at it under an automated microscope is the same thing.
Again, we're looking at.
Much more sample.
We have a consumable that's specifically designed for this purpose, it's a sealed consumable so.
So remember we are talking about fecal liquid.
Sequel, liquid and smearing it on slides and those types of things is not I'm not a great.
Right thing.
We do our computations.
Locally and we believe much much faster.
The competition is having to do their AI in the cloud.
Especially with internet speeds and variability.
The user experience, we think is substantially.
Slower and.
And we just think we have a better mousetrap and then when you combine those we think we're better at fecal. We think we're better at year end, we do urine and fecal together at great economics.
Not quite sure how anybody would would make the case that they should go with them.
With a single platform that isn't as good in them and the one thing that it specializes in.
So does that help Elliot there's more you know we have some sales and marketing teams.
And we will be getting after that a little bit more here in the next month or two as we're doing the launch but does that help.
Yeah, No that's right.
Good overview I appreciate it thank you.
Youre welcome.
And once again, if you'd like to ask a question. Please press star one.
We will now take a question from Ben Hayner with Alliance Global partners.
Hey, guys just a quick follow up here.
The eliminating did you say there was 15, one five or five zero 50 out there in the field already and then I was also curious about how the element DC access has been received.
Assuming that's helped.
In the field as we speak.
Any color there.
Yeah. So no it's one five.
Remember, we called out that we would start full commercial release of production manufactured units. So the full release.
And that began in October.
Towards the end of October so we got one five that are customers who've been waiting who are installed and then we've got the additional.
Work to do to hit the fourth quarter on the docket number.
In terms of DC acts, Yes, you would expect me to say, it's a it's going great. It is [laughter].
We have inventory our customers.
Customers are are very pleased with it it automates.
It automates, one additional step for people and.
And they like it so theres just no downside to a DC X and it's just a nice upgrade path for us because now we can hit a lower price point on the D C.
Slightly higher price point on the D. C X and then for the for the Mega hospitals with the D. C. <unk>, we don't really think there's a direct comparison a lot of customers would have to put in three or four competing analyzers, which they do.
And in some of their large clients and they count those as individual devices as opposed to just one D C. Five X.
So on the on the Dcs are you seeing.
I guess more than you expect.
I would expect in terms of competitive wins or is it more of kind of an upgrade replacement cycle.
What's the right way.
Think about where that slots and then.
And I think it's I think it's an upgrade cycle. It's a it's a nice to have it's not a disruptor.
And again I don't think that the new products that our competition is launched.
Regarding simplified or lower cost hematology are simplified dry chemistry, I don't think those are really disruptive either there they're kind of more incremental upgrades and so the DC X just makes us more competitive but I don't know you should be looking forward to grab an extra percent of market share.
Okay got it.
And thanks again for taking the question. Thank you.
You bet.
And we have no further questions queued at this time I will turn the conference back over to Mr. Wilson for any additional or closing remarks.
Well, thanks, operator, and thanks, everybody who joined the call I think this may be our longest call. Since 2014, when I started doing calls with you so for that I apologize.
I, just want to simplify and exciting quarter I think that sums it up pretty well, we had an extremely strong prior year comparable.
We experienced supply chain challenges that hit the third quarter, and we think we worked through them well, but the impact of the year by about $4 $4 million in the third quarter.
We entered a $500 million plus market.
The full commercial launch of element aim.
We believe that that's the size of that market and we believe in that market after years of work and innovation.
Our core recurring POC consumables grew 10, 1% as we expected and I'm happy with that and I think as we guided.
International products rationalization, the subscriptions conversion my.
My Flower garden analogy I think.
Helps.
People to understand the international.
Consumables number and that margin capture and those conversions in those subscriptions.
<unk> are going well or CSV, we didn't talk about it.
After the prepared comments, but to hit those or beat those numbers in July of this year.
And to have those.
<unk> run up in the bonus Ron I think is is amazing.
So we see with two years or two months left in the year, reaching our guidance for revenue margin consumables and most if not all of our other key things that we discuss often.
Added multiple key legs to the stool and we now have a strong foothold or.
Our stronghold position in the whole subscription stack that we've been aiming for now for the last several years, including markets that are worth hundreds of millions of dollars like pins and rapids.
And those are meaningful obviously relative to our revenue starting point and we see these strengths and trends supporting our strong 2022 updated outlook 2021 will and for us as a record year in which we leapfrogged an entire year financial outlook and accomplish more business development in many companies can do over several years.
There's a lot of work and we aren't perfect, but I believe we are manifesting outsize value creation within a market that is itself in a multi decades long secular uptrend.
And that hasn't changed that hasn't changed with the last 30 days or over the last 90, we will keep at it. We appreciate your interest in our work, while we do that and I look forward to updating you on the next quarter.
That's our full year call and we will update you on our normal details for subscriptions and our expectations go forward, we're working hard to make it a another wonderful call and until then be safe avoid political arguments ignore and avoid smashing grabbers.
Count your blessings and take your pet to the vet. So we appreciate your time today, thanks and bye bye.
And that does conclude today's call. Once again. Thank you everyone for joining US you may now disconnect.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
Okay.
[music].
Sure.
[music].
Okay.
[music].
[music].
Yeah.
Okay.