Q4 2021 Heska Corp Earnings Call

Good day, ladies and gentlemen, and welcome to the Heska Corporation fourth quarter and full year 2021 earnings call. Today's conference is being recorded at this time I turn the conference over to Jon Eckard.

Head of Investor Relations. Please go ahead.

Thank you Keith and good morning, everyone welcome to Heska Corporation's earnings call for the fourth quarter and full year 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, we have Kevin Wilson, <unk>, Chief Executive Officer, and President and Catherine Grassman Heska is.

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 may make forward 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 and opinions are based on our current beliefs and expectations and involve known and unknown risks and uncertainties, which.

May cause actual results and performance to be materially different from that expressed or implied by those forward looking statements.

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 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.

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 fourth quarter and full year 2021 results. Please note all references to growth refer to growth compared to the equivalent period in 2020, unless otherwise noted.

And finally before I turn the call over to Kevin I want to mention two items of housekeeping.

To supplement today's reported results. Please find heska as new earnings presentation on the Investor resources page at the company's Investor Relations website and second that's got plans to host an analyst and Investor day on Wednesday May 18, 2022 to discuss the company's growth strategy consolidated performance, including its recent acquisitions in <unk>.

Product launches, new product pipeline and multiyear outlook details surrounding the event will be forthcoming 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, everyone.

Before I begin I'd like to encourage participants to review this mornings release I think youll find it helpful.

Similar to our release I'll try to keep things concise this morning.

The summary for this morning is simple.

<unk> is a far far stronger company than we were a year ago.

Nearly every key metric and strategic initiatives is substantially better than at any other time in our history and.

And we expect to say the same thing to you. This time next year.

Our outlook for 2022 is for a very strong sales growth and strong global subscriptions performance.

2021 saw record sales up 28, 6%.

North America sales were up 21.2%.

North America, POC lab consumables rose 21, 5% for the year.

It was up as expected over the third quarter.

International sales were up 43, 1% for the year.

International Plc lab consumables sales grew 42.2% Heska.

Heska subscription has had a great year retention was rock solid and we captured market share.

Active subscriptions grew 25%.

Months under subscription grew 24%.

And minimum contract subscription value our C. S V grew 34%, which was double our strong outlook for 17% growth.

Catherine will cover the specifics of the quarter in greater detail. So I'll take the remaining time that I have to highlight a few of my own thoughts and observations in advance of our Q&A today.

About the market.

Health care is broadly in good shape.

We are in the middle of a decades long Super cycle and after 30 years in this space I can say that there's no place I'd, rather be in unsettled times and pet health care.

Veterinarians are strong getting more valuable and continuing to increase their focus and utilization of diagnostics.

Demand from pet families remains solid.

Since the early to middle days of COVID-19, societal adjustments I've taken the position that pet health care was great before will be great during and will be great. Following the pandemic.

We're not a stay at home play.

We're not a return to workplace, we're not a reflation play well.

We're just a good solid play that is probably see saw it a little more than necessary due to narratives in search of facts and in search of momentum.

Up or down we have consistently held that the step up in 2020 and 2021 would simply increase the denominator before growth rates normalize to the industry's already strong mid cycle growth rates, which for diagnostics in particular and for Heska, specifically has been in the 10% to 20% range.

We think that's an encouraging backdrop for heska and for shareholders.

Pet health care stocks with diagnostics exposure, we expect.

To participate within these ranges with up to 17% consolidated revenue growth on tap for 2022.

We expect 2022 active subscriptions to grow 25% months under subscription to grow 24% and minimum contract subscription value to grow 24%.

Our international strategy.

Heska is international integrations products rationalization and products launches are progressing well.

Since our first major investments our international plan has been to trim some products upgrade the entire portfolio to a unified better performing product stack.

Convert our international installed base to multiyear subscriptions and grow alongside our subscribers for decades under higher margin higher utilization subscriptions.

Veterinarians will get better performance lower costs higher margins and higher levels of diagnostics utilization and Heska will get the same things we're aligned.

This is what we began to do in 2021, and what we intend to largely complete in 2022.

The optics of the accounting for this conversion period will at times showed dampened sales dollars and consolidated gross margin pressure in international which I see as expected and a good trade in 2021 and 2022 and exchange for benefits in 2023 and beyond when the conversion and accounting sex.

Will be largely completed or moderated year over year.

As long as we get good utilization solid long term subscriptions solid on growing margins reasonable retention through the transition and placements of long term platforms with highly expandable product Roadmaps we are thrilled.

We got these things in our 2021 international efforts as we enter 2022, we continue to see ongoing success and opportunity in these things from product expansion rationalization and standardization. We also continue to see a clear path to international customer subscription conversion and growth in average minimum.

Monthly C. S V at a rate that is faster than our successes in North America circa 2014, when we pursued similar goals in North America. Our goals for this effort in 2022 are detailed in this morning's release.

About our investment strategy.

We've invested heavily in internal innovation collaborative partnering licensing innovation and then acquiring pre revenue an early revenue teams and technologies that we can grow quickly to meet our customers' current and future needs for the full bundled suite of products and services that they want.

These investments are beginning to convert to financial opportunities in 2022 and 2023.

Our element AME one of our most exciting internal innovations is in full commercial release is the industry's exclusive artificial intelligence microscopy platform designed for automated urine and fecal testing at the point of care.

We installed over 100 element aimed devices in the fourth quarter in North America, a bit ahead of our goal.

Initial feedback and enthusiasm has been great and we continue to anticipate meaningful financial contribution from element aim in 2022.

On January 3rd we closed our acquisition of XE in Germany to become a leader in advanced practice information management software and imaging diagnostics Informatics. This is a key leg of the stool for anyone wanting leadership in our markets and with the Z Heska is now in a leadership position.

Todays Heska has created only one of two or three unified offerings to serve all of our veterinarians diagnostics and informatics bundled subscription needs for leading point of care lab in rapid diagnostics.

Imaging and practice software informatics, and central reference lab and telemedicine services that Heska has done this is remarkable and there is more to come in 2022.

What this heska team has accomplished financially is wonderful what this heska team has accomplished strategically is a leap forward that as best I can tell is unmatched by anyone in our industry.

10 years ago, I began to articulate Heska is 15 year plan in three acts and we're executing to that plan. We haven't pivoted, we haven't wavered from 2013 through 2017, we said we would prove our help improve our relevance in this covenant market than we did.

From 2018 through 2022 we said, we would build intrinsic value and build revenue growth and we have.

From 2023 through 2027, we have said, we would win at scale and when it reinvention profitably we will.

Our balance sheet is in great shape, our position in the markets. We serve has never been stronger.

Our teams are better than at anytime in our history. Our end markets are doing great in the diagnostics markets within them are doing even better or.

Our sales are growing our margins are growing we've left over an entire year of our multiyear sales goal.

We have a subscriptions business model that puts us at the very trusted center.

Of the veterinarians business for decades.

We've doubled the geographies and customers, we serve and we've doubled the products and addressable revenue lines that we offer.

We are leading in innovation and value creation.

And we have assembled a full stack of products and geographies to win.

We've invested many millions of dollars directly in our business, while generating operational cash and now we enter 2022 with our full focus on expanding and scaling our new full subscriptions capabilities across multiple geographic markets to grow the overall pie, while also getting a bigger slice of it it's simple.

Sometimes a little bumpy super busy and always hard work, we're glad to do it and we're honored and thankful that customers and investors have supported us since 2013 as we do our work now.

Now I'm going to go ahead, and turn the call over to Catherine to detail the quarter before we move into our Q&A time Catherine.

Thanks, Kevin and good morning, everyone. As Kevin noted we are pleased to report strong financial performance for the fourth quarter and full year of 2021, I will take you through the reported results along with our outlook for 2022.

Our full year revenue grew 28, 6% to $253 7 million in 2021 in line with our guidance and representing double digit growth in our major product groups. In addition to the acquisition of <unk> now included for the entire year, our fourth quarter revenue grew to just over 68 million with capital lease placements.

Our POC lab instruments as a key driver in both segments as we began our commercial launch of element aim in North America and continued the successful launch of our reset program in Europe .

Our North America segment revenue grew 21, 2% for the full year and eight 3% for the fourth quarter increased subscriptions expanded menu offering as well as price favorability and the continued strong demand in animal health diagnostics, all contributed to significant growth of our P. O C consumables, resulting in 'twenty one.

0.5% and 13, 2% for the full year and fourth quarter respectively.

PSC imaging grew 42, 9% for the year. We also saw increased demand for both contract manufacturer Tri heart, and our allergy products, which drove growth with PPD with N P. B D at 25, 9% for the year.

Our international segment revenue grew 43, 1% for the full year on a reported basis and 16%. If you exclude the impact of an additional quarter of skill results in 2020 , one compared to 2020 exceeding our international subscription outlook by 10%, where the key driver of growth as we continue to execute on a reset.

Program transition in Europe , a core tenant of our strategic acquisition of skill.

Our consolidated gross margin for the year increased approximately 50 basis points to 41, 7% with expansion seen in both North America and international fourth quarter consolidated gross margin compressed 40 basis points to 49%.

North America full year gross margin increased approximately 30 basis points to 46, 8% mix of higher consumable sales in imaging, where the key drivers of growth North America experienced a lower gross margin in the fourth quarter of 45, 6% as we began to introduce element aim with approximately 100 placements.

International gross margin expanded in both the quarter and the year to approximately 33%. We continue to see positive gains in our P. O C consumables, which has been a key synergy opportunity of the skilled acquisition product mix with an imaging sales also favorably impacted the margin.

Total operating margin for the year was negative <unk>, 4% an improvement over the prior year by 380 basis points, driven by higher revenue and gross margin improvement as previously mentioned as well as better leveraged operating expenses and lower onetime costs, partially offsetting this improvement was the impact of the ownership of skill for the full year and <unk>.

Kris short and long term compensation expense.

Adjusted EBITDA for the first for the full year was $29 7 million and adjusted EBITDA margin was 11, 7% exceeding our full year outlook of greater than 10%.

Higher sales expanded gross margin and operating leverage contributed to our 2021 performance.

Fourth quarter EPS was a loss of <unk>, while the full year was a loss of 11 non-GAAP EPS was <unk> 35 cents for the quarter and $1 61 for the full year.

Our balance sheet is strong with cash of approximately 224 million to end the year during the year, we generated approximately $5 million in free cash flow and we deployed about $35 million in growth capital investing in acquisitions and other partnerships.

Now for our financial outlook for 2022.

We expect consolidated revenue within the range of 287 to 297 million, which reflects reported growth of 13% to 17% and our constant currency growth of 15% to 19%.

Our guide includes growing our subscription base, 25% continuation of favorable underlying fundamentals relating to demand price gains successful placement of approximately 500 element and analyzers and expanding menu all resulting in a point of care library $170 million to $180 million.

Coming off an exceptional year for imaging placements, we are estimating a range of $65 million to $75 million for point of care imaging now inclusive of informatics or that Zee acquisition completed on January 3rd week.

We expect our P. B D O V P product groups to remain relatively consistent with 2021 levels.

Based on our current element aimed placement schedule and investment and sales support I'll speak about in a minute, we see revenue acceleration in the second half of the year.

We expect North America to comprise approximately 60% of total revenue, which includes an estimated point of care lab consumable growth rate of 15% to 20%. The remaining 40% of total revenue in our international segment includes an estimated point of care lab consumable growth rate of approximately 5%.

Our focus in the international segment in 2022 will be a continuation of research subscription transition, which impacts the near term consumable growth rate as we focus on existing customers and exchange price for a longer term economics.

We expect to expand our gross margin between 100 to 200 basis points.

While our revenue performance is ahead of our multi year outlook shared in November of 2020 investment in the business as required in order to continue to execute on our strategic plan, our investments will be centered around building out research and development capabilities in support of ongoing efforts to commercialize existing and future products sales promotion and support.

And further building of key corporate functions, such as accounting and legal are 2022, adjusted EBITDA margin expectation is to continue to exceed 10%.

Further, we expect depreciation and amortization expense of approximately $17 million.

Stock compensation expense of approximately 20 $20 million to $22 million.

Interest expense of about $2 million.

Our annual effective tax rate is estimated at 7% to 12%, which could be further impacted by additional executive compensation limitations and excess tax benefits, we expect to be in a tax expense position our free cash flow.

Generation is expected to be in the range of $7 million to $10 million.

And to date in 2022, we have deployed nearly $31 million in growth capital as part of the that's the acquisition.

With that we would like to open the call for your questions operator.

Thank you, ladies and gentlemen, if you like to ask a question you may do so by pressing star one on your telephone keypad. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment star.

Star one for questions, we'll pause a moment to assemble the queue.

We'll take our first question from Chris Schott with J P. Morgan. Please go ahead.

Hi, This is actually Caterina from J P. Morgan on for Chris. Thank you so much for taking your questions and congratulations on the results and update.

The first question is on point of care International groups with 2022, obviously appreciate the customer conversions you know our HUD one but can you perhaps elaborate on the underlying volume growth trends that you're seeing for that piece of the business and it's part of that maybe talk about how you're thinking about the first half when you're still seeing all these customer conversions versus second half growth when we're probably going to see a more.

Normalized number.

And then the second question is on North America point of care, what consumables growth. So I think you've guided to 15% to 20% growth can you provide some rough color around you know how much element aim contribution isn't there. Thank you so much.

Kathryn do you want to take that or you want me to do it.

I can start I'm gonna go in reverse order, so caterina I might need your help reiterate maybe the first question actually the the first question relating to volume in Europe . We are seeing increased volumes. So we are definitely trading some price.

And in exchange for these long term contracts, but we do see volume increases across our customer base in Europe as far as the cadence.

Our expectation of slower comparative in the first half end to end a.

Transition phase into the second half is the right expectation to have from a growth rate standpoint.

And then finally I believe the third question was the North American consumable growth rate and the contribution of element aim, which based on our placement target for the year would yield about two percentage points within that range.

Yeah.

Great. Thank you so much.

You're welcome.

We will take our next question from David Westenburg with Piper Sandler. Please go ahead.

Hi, Thank you for taking the question again Craig.

On the good quarter. So just to confirm I think I heard you say that that he is being reported in the imaging and other and to go along with just the previous question about the 15% to 20% it looks like an acceleration of growth.

If it's not it is that she is indeed it in it.

In imaging and there was only 2% growth from element aim it does still imply that there is an acceleration.

And the overall growth rate. So can you is there anything inorganic because it's maybe also pushing it because it just seems like a really really good number and I just want to confirm Oh no there wasn't.

Sure I'm not missing this massive step up in growth overall and maybe there is.

Yeah, I'll start and then Catherine certainly may have more detail on on imaging.

Imaging had a fantastic 2021 .

We are combining and I think it's consistent with how the market sees it we are combining our software informatics and imaging and imaging informatics into <unk> into.

Into one bucket and I think that makes an awful lot of sense, but but imaging won't have a in of itself wont have a huge step up this year off of such a strong number.

In 2021, so I think you're you're you're reading that right.

There is a strong underlying consumables growth rate for the company I don't think aside from element name in a couple of points. There that there is an awful lot contributing inorganic and I would just remind most people most of the inorganic things that we've done a really small.

In terms of in terms of revenue. So I don't think that's what's driving it where we're seeing good <unk>.

Utilization, we're seeing good menu launches, we're seeing good subscriber retention.

So it's just a lot of good positive factors bleeding into that number and I think that number is pretty consistent.

You look at the the deck that John posted in reference on our website.

Visually I think you'll see that that's pretty consistent with 2018 2019 actuals. So when we've kind of indicated we would get back to a really strong underlying industry growth rates at 15 to 20 is is really very consistent with what we were seeing in 2018 19 pre pandemic Kathryn did I get that right.

Okay.

Yep.

Alright, great yeah, Okay. So so.

Is now a organic kind of 15 or 13 ish plus a grower I mean just to confirm.

Yesterday right.

Alright, I think.

That's the right way to look at it.

Alright.

That's great news.

Then just did and I'm sorry to pick on one thing, but the one thing I am getting a pushback.

Pushback from investors is a little bit on the Cogs I think people expected the cogs to materialize a little bit faster than than they are so can you talk about maybe this is for Kathryn some of the specific headwinds I know that you're taking price in Europe in exchange for longer contracts I mean, I guess that's.

That's a headwind but is there any other mix headwinds that might be playing into that and in terms of if there were upside to that I mean, what what kind of has to materialize in the next couple of years to kind of drive that up much faster.

Yeah, I'd say, one Kathryn Mark Hastings, Yeah, Yeah mine had one one by.

One of the headwinds we're facing into 'twenty two as you know.

Some of our contracts for our European and steer purchased in USD rate with the strengthening of the U S. D. That's kind of compressing.

The margin a bit so we had some work to do there. That's I would say that's one of them are rolling out the QUADRA branded imaging throughout Europe will.

We'll take a little time on that watches largely underway this year and should yield good improvement in gross margin as well, but that's going to take a little bit of time to roll that out and see that within our the next Europe tends to be.

Somewhat heavy and imaging and imaging across the board with MRI and ultrasound and some of the cells that are less so in the U S. So, let's say, it's a bit of a hurdle rate for us there.

Kevin I nothing else is coming to mind for me Yeah, No that's and the only other thing I would say is the world's just got more expensive.

And I think our team's done a great job of managing kind of incoming freight shipment logistics, which which does show up in Cogs.

Hum in certain in certain Skus and I think advancing our gross margin the way we have while we're doing subscription conversions, while we're trimming certain products.

I think the team has done a great job. So yeah, there's always a number of theres always a knit and I'm good with that one I think we're doing a pretty good job there.

Gotcha, Okay, and then maybe if I could just squeeze in one more I promise last one I'm you know I know you have 4% in your contracts, but I do think that there is a stipulation for when the C. P. I is in excess of all of that do you think that you might need to pull that in excess of 4%.

This increases to kind of mitigate some of that or where do you anticipate that happening and is there any way to think about maybe supply or if there is no pricing levers and in the face of all of supply issues or is that just be an it in future contracts and I'll stop there. Thank you.

Nor our contracts I think had pretty good foresight. So since 2013, we have had a CPI adjustment in there as well and so we have the ability to raise price, we always try to keep our prices as low as possible for veterinarians.

And that's part of one of one of our missions, but I think relative to what's happening in the world. We're not getting a whole lot of price pushed back and I think veterinarians in terms of end user price are still doing just fine as well so.

Nobody likes to celebrate seven 7.5% price increases.

But we do have the ability to take those as inflation kind of choose in so we have that ability we try not to use it but we will use it as as is appropriate.

Thank you congrats on the quarter.

Thank you.

We will take our next question from Erin Wright.

With Morgan Stanley . Please go ahead.

Great. Thanks can you speak to the opportunity in rapid assay products. When we should expect I guess, the heartworm standalone product and what's embedded in your 2022 guidance as it relates to rapid.

I think it's still pretty small I don't know that we're breaking it out I I will say that it's.

Clearly a three 500 million dollar market in the markets that we compete in.

But but I think for us in 2021 we've got a reasonably slow.

I'll say single millions ramp, but I don't know that we've broken that out.

Kathryn and I don't know that we're going to this year.

Yes, that's correct. So for this year single millions is accurate and it is within our P. B D category Erin.

Okay got it and then on international how are you thinking about the pace of the initiative with the international reference lab is there a deal pipeline there and how we should be thinking about inorganic versus the organic approach them with RAF lap internationally. Thanks.

Yeah, No I think that's a great question. So one thing I would keep in mind is there just aren't very many reference labs at scale.

So so even if there's inorganic it's gonna be very small in terms of revenue base.

But the reason that you would do inorganic on very very small revenue base as you gain local language local expertise local reputation local relationships and the specialty community providing.

The services, so ideally we'd be able to find really strong.

But expect them to be very small local partners from which to grow we think we could expand that business substantially by bundling it with our point of care and our Rapids business and our software informatics business. So we think we can grow reference lab businesses from very small to not very small, but if we're doing small inorganic tuck ins.

In that regard.

There just aren't a whole lot of of assets at scale that would move the needle a whole lot. So I think I answered the question.

Okay. Yeah, no that's helpful. Thank you.

Yeah.

Star one for questions. We will take our next question from Elliot Wilbur with Raymond James. Please go ahead.

Hi, good morning.

On behalf of Elliot. Thank you for taking our questions first our year to date overall vet clinic visits have been off to a slow start though.

Been recovered.

Just impact the progression of sales growth in North America over the course of the year.

Yeah. So I struggle, sometimes this is just me.

Individual Kevin Wilson.

I struggle, sometimes to look at the macro.

That hospital visits and some of those things on surveys.

Hum.

See it filter in kind of as a one to one driver or dampener.

Diagnostics use in any one quarter.

So it's a.

It's a rambling way of saying I'm not sure there's a direct.

Correlation and causation and how fast that happens.

Diagnostics utilization per visit I think is up I don't think that's controversial and and I think I probably focus more on that.

And probably more concerned about utilization levels per visit which is really behavior of veterinarians and their revenue streams and their profits and whether they're being disintermediation by.

Buy online pharmacy, and they're being disintermediation by other things if theyre doing more diagnostics as a professional service I think that's probably a more focused trend for us so with bigger competitors, who probably have maybe a little bit more focus on on that kind of data but.

I personally and again, that's just me I I've been doing this for three decades now it sounds sounds awful long when you say it that way, but I'm, a little dubious of quarter by quarter variation just based on kind of the macro visits based on surveys.

My veterinarian friends tell me that they're really busy and they're really tired.

They have more customers than they than they necessarily want an on a lot of days. So that's kind of what I hear anecdotally.

Okay and thank you for that one is the primary driver and the 100 to 200 basis points improvement in gross margin, but Europe .

Kathryn do you want them. So that's like that yeah. Yeah. It is it's.

Pretty across the board with higher mix of consumables was part of the total revenue profile. Those are extremely high margin for us in improvement in our imaging margins. We saw that throughout this year as we continue to launch our branded equipment.

Through.

Our skill subsidiaries, we expect to see that occur in Europe as well.

And then mixed within our P B D.

Product category as well.

Albeit slightly compressed by instrument placements.

And I would layer one more thing just strategically because this is a broad theme that investors should keep in mind with us.

When we talk about product rationalization and standardization.

Getting to a globalized standard product, where you have thousands of various specific analyzers.

In clinics.

It's really important because when your R&D and you'll notice we continue to invest in R&D when your R&D converts to tests.

On a standardized global platform the uptake of that test.

It is generally a very high margin because of the consumables are the highest margin thing that we do.

It can be very good.

And so there are times, especially in our international business, where we'll we'll trim less interesting.

Products that arent products of the future, they're not platforms of the future the margins arent, great. So we might trade out a platform and chemistry hematology immunoassay with whichever platform with my trim.

That might be a 25% to 30% gross margin legacy platform and then what we do is we hope to replace it.

With something in the 15th and 16th plus.

Over the long term under subscription so that's just a general trend for just building a better business, which is generally what I focus.

More on is what does it look like over the next three to five years and so.

To grow our gross margin, while we're doing that and continuing to grow sales, while we're doing that I think is.

Heska has done a really good job over the last couple of years I hope that was helpful.

Yes that was great. Thank you so much for the color. One last question. If I may last quarter, you indicated that revenue was negatively impacting impacted by a 4.4 million due to supply chain issues, either delay, whereas that business fully recaptured in the fourth quarter and is there.

Any lingering effect from these same issues that is anticipated to carry out.

Throughout 2022.

I think that business was not recaptured.

And we tried to indicate that on the on the call I think we just ran out of calendar.

Catherine probably has more detail on it and I and I think supply chain largely was in pretty good shape. We have difficulties just like everybody else, but I think we've managed pretty well through it. So I think by the time, we reported it on the call. We we felt pretty good about go forward supply chain, but those were two discrete things that we're gonna.

And the number in the third quarter and the fourth quarter and they were a is that a fair characterization Kathryn.

Yes.

Well. Thank you both for your answers and congrats on the quarter.

Thank you.

Thats Star one for questions. We will take our next question from Ben Hayner with Alliance Global Partners. Please go ahead.

Good morning, guys can you hear me okay.

You bet good morning, Ben.

Oh great.

Great. So couple of quick ones for me, one I guess more broad and then another one that's a little bit more targeted but just kind of looking at the big picture, you've got international average monthly CSP isn't that about half of where the North American figure is.

I know the expectation is that it.

Over time that will that gap will close.

Kind of wondering what maybe individual Kevin Wilson's view on on that might be you know how quickly does that occur why does it occur is that account season.

More comfort with the existing.

Existing installed basis at middle of larger installed lab per clinic.

What all goes into that and how do you think about that.

Yeah. That's a great question you know we're sitting at about 690.

Internationally after our first year and if you go back to 2014 kind of the starting point when we started subscriptions.

In North America, It was right around 700.

So that was really really a good strong comparison, there and today, we are double that.

So you know between 2014 in 2021 we were able to double from 700, and North America I think we probably.

Have the possibility to grow that faster than.

In international I'm really encouraged that the starting points are the same.

And sort of way you grow that is the you know job one is to just again the customer you know we've said for a long time growing alongside veterinarians, which themselves are growing.

Wonderfully is a key part be their partner for for two decades, and you're going to do really well.

So so getting them onto subscription and partnering with them for a long period of time is key and and then you just simply grow the menu you add new analyzers, which increases their testing you add new tests to the analyzers that they currently have which increases their testing.

And then I think Europe in general My competitors I think agree it's just a little bit behind the North America market in terms of just diagnostics utilization per pet visit.

Anyway, and we see that narrowing as well I think that will narrow for for the whole industry, including our competitors and including Heska. So it's it's a combination of those increased utilization.

Veterinarians in Europe , increasing their diagnostic utilization per pet visit and then our ability to provide more menu and more analyzers in each address that we're in and I think we have the possibility to grow that monthly C. S V utilization faster in the international markets than we did from 2014 through 2020 one in north.

Erica.

Not prepared to say, how much faster, but I do think there isn't a good analog there.

Okay.

You're saying like three years.

[laughter], so now you're going to ask me to say how much faster.

Got it.

There's just.

Been a little bit smarter than that but.

For my second one just kind of you've got more than 100, all the names out there.

Any more color you can provide on the reception you've gotten.

Not only from existing customers, but.

I'll add to that.

The trade show and I know, you've got one coming up here in a week.

Or so.

What's been the reaction from kind of trade show attendees and potential customers as well.

Yeah, I mean, I'll give the standard C E O answer it's been great enthusiasm excited it's a really good product.

And but it's a product launch right and so it's new to our people, it's new to our customers.

But as a percentage of our customer base of 100.

<unk> is a tiny percentage and so the first step is what's what do our own current subscribers of which we have thousands think about the product and the innovation and the possibility to expand their diagnostics testing with us and we get very positive response, when we approach customers and say we have a whole new category of testing for you that can make.

Your life easier and it can improve the results for pets and that's it's priced.

Very well per test are you interested and they are so we're getting really good response, and it's a good door opener for our team.

So we continue to be called out like I said, there's about 500, but I don't think that's.

That's overly ambitious for 2022.

Sure.

Well, thanks for the color guys and congrats on the quarter.

Thanks, Dan.

Okay.

At this time, we have no further questions in the queue I would like to turn the conference back to Kevin Wilson for any additional or closing remarks.

Well, thanks, operator, and thanks to everybody who joined the call. It's been a long call trying to do so many words, so all land the plane simply I want to reiterate what I started with this morning, which is to say that heska is a far far stronger company than we were a year ago. Nearly every key metric and strategic initiative is substantially.

Better than at any other time in our history and we do expect to say the same thing to you. This time next year. So our outlook for 2022 was strong for sales growth in global subscriptions performance and we're working hard to achieve that and Kathryn and John and I look forward to updating you on our progress on the next call which.

They always come quickly. So we'll talk to you soon thanks, everybody have a great day.

Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.

Okay.

[music].

Yeah.

[music].

Okay.