Q1 2022 Heska Corp Earnings Call
Please standby we are about to begin.
Good day and welcome to the Heska Corporation first quarter 2022 earnings Conference call. Today's conference is being recorded and now at this time I would 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 first quarter of 2022, I'm, Johnny got head of Investor Relations at scale 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.
We'll provide details surrounding the results reported and then we'll open the call to questions.
I heard you discussing heska is resolved 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 certain forward looking statements regarding future events or future financial performance of the company 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 FCC 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 first quarter 2022 results. Please note all references to growth refer to growth compared to the equivalent period in 2021, unless otherwise noted.
And finally before I turn the call over to Kevin I want to remind our audience that heska will host its investor day on Tuesday may 17th 2022.
This is Matt members of Heska management will discuss the company's growth strategy recent acquisitions and product launches, new product and solutions pipeline and multiyear outlook, including key drivers and metrics to register for this event. Please visit the events page of the company's Investor Relations website.
With all 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 and I will try to refrain from unnecessarily reading it to you here now.
Catherine will cover the specifics of the quarter. So I'll take my time to highlight a few of my own thoughts that may be interesting to you.
To begin let's run down the list of what's been happening in Q1.
First test because market share gains for subscriptions have been faster than they were in the prior year period. So we intend to again finished the year as we have for many many years with more subscribers than we started the year with an.
On our last call for the full year, we shared these good growth goals.
Second veterinarians continue to rely upon point of care diagnostics.
Heska has consolidated revenue point of care lab consumables and gross margins are hitting targets nicely higher than last year's very strong baseline in the first half.
Third.
Our new innovation cycle is in high gear now Pri.
Primary examples of major new contributors include element aim.
Our highly anticipated Heska ncube cancer screen Heska true Rapids, and are timely entry into the practice information management software business.
We will touch more on these initiatives and their associated gross walk at our Investor Day next Tuesday.
Now about supply and demand and pet health care.
What we are hearing at the hospital level is that hospitals have flat to lower by about 100 basis points visit growth.
Total hospitals revenue is up mid single digits with product sales down slightly offset by procedures and diagnostics, which are up mid to high single digits.
And this makes sense.
But let's go a little bit deeper.
Demand, we all agree saw a big step up in 2020 one on the surface. If visits in the first half of 2022 are flat to down demand must be softening.
But that's wrong.
There is nothing to indicate that demand for pet healthcare is weakening we have said for many quarters now that the pandemic step up in demand would be largely one time and after that pet health care would hold onto it with go forward growth reverting to historical growth rates of top the new larger denominator.
Historical growth rates for diagnostic focused companies have been between 10% and.
And 20%.
Which is nice, but not always linear period over period, especially when matched to comps of 20%, 30%, 40% in the last year's first half.
But let's get back to actual supply and demand.
There's nothing to indicate demand for pet healthcare is weakening we have a supply issue, which is more correctly a capacity issue.
Veterinarians and their staff and their ability to see and treat pets. The supply capacity is being outstripped by demand.
Veterinary hospitals in the core channel reached maximum capacity in 2021 and.
And without efficiency gains the constraints on workforce from fatigue resignation, lower labor participation and rolling Covid days off means that the availability of the supply of hospital visit appointments will be capped in the existing channel.
Pet families in 2022 we're having a hard time, making appointments this week or next week or next month or in some cases ever.
Veterinarians in the core channel are turning away, new or less profitable demand, resulting in flat or slightly negative visits growth over last year's peak capacity.
It's not that pet families don't want to visit it.
They aren't allowed to visit.
So what we see then is it veterinarians want long term clients and the best clients to visit and they want the best procedures to visit resulting in good growth support for higher value things like procedures and diagnostics utilization that goes hand in hand with them.
Both of which we see doing well along with price which is inflationary.
Now about the Unserved. These.
These pet families either make do without the weight or they find alternative channels like mobile pop up big box clinics in the Lake and those alternative channels don't show up in most industry measurements of visits and that's important to remember.
So going forward supply will adjust to meet demand by efficiency and new supply.
I believe that markets work and for example, I'm seeing for the first time in many years, the first meaningful wave of new Standalone traditional clinic formation alongside less traditional rollouts.
These new capacity initiatives and efficiency gains will fix supply in visits constraints.
Some supply constraints will be relieved with efficiency through things like practice in customer software and automation.
Business that Heska has now entered.
In time to capture the upcoming upgrade cycle to cloud and mobile centric solutions that incorporate much more automation and predictive medicine from big data learning.
As a provider of efficiencies solutions Heska loves high demands that cannot be served by current supply and efficiency. We will help solve these problems for new capacity providers and we will help better.
Efficiencies occur for current capacity providers, and we will be rewarded for doing so.
We will make hospital staff pet owners and interactions between them more efficient.
We will remove frictions and speed up time to actionable results by bringing them to the point of care.
And we will automate the communication of those results.
Heska will make each interaction more profitable, while realizing better pet health and better business outcomes in short, we will empower veterinarians, who will service growing pet health care demand.
Rather than turn it away.
This is the opportunity in Heska is wonderfully positioned to grab it I.
I Hope you will attend our upcoming Investor Day next week, where we will begin to share and overview as much as is competitively prudent how heska is delivering on this opportunity.
And now a little bit about the macro backdrop.
Pet health care is in good shape.
We're in the middle of a decades long Super cycle, and we see that demand for pet healthcare is not slowing in 2022.
For a couple of years now we have communicated that pet health care was great before will be great during and will be great. Following the pandemic today I'll expand that list. The same is true for macroeconomic periods of quantitative tightening inflation higher interest rates and lower money supply.
And the same is true for periods of geopolitical decoupling and tension between Democratic Society and authoritarianism.
We are not a stay at home play we're not a return to work play we're not an inflation reflation or deflation play we're not a geopolitical game of Thrones play.
But what we are is a really well positioned investment in North America core Europe , and Australia, New Zealand Pet health care.
And what we think is the best part of Pet health care.
Diagnostics and informatics under Heska is bundled subscription model is really well positioned heska has secured the capital people portfolio supply chain and market access and contract terms in and out.
To grow in both Sunday and unsettled times.
We're a good solid investment with really strong and clear growth prospects in our five year plan and beyond.
And while the entire pet space has seen valuations come down due to factors not necessarily correlated with business and prospects takes.
Taking most of us back to the fall of 2020 in terms of share price.
The market and the systems are working if not perfectly directionally.
And I think that gap between perfectly and directionally as an investment opportunity, especially.
Especially as investors sort between the discrete and not necessarily correlated prospects of the companies directly or indirectly serving the pet market.
Investors have correctly formed capital around Heska and Heska is investing this growth capital in support of our human capital strong capability hard work, good market and great prospects to solve problems for veterinarians and pet families.
And we will be rewarded for doing so.
I'll leave it to much smarter people to figure out if and when we are a good trade.
I am very very confident we are a great investment.
Todays Heska has created one of only two unified offerings to serve all of the veterinarians diagnostic and informatics bundled subscription needs.
We expect to achieve our full year outlook, including reported sales growth of 13% or more.
In North America, POC lab consumables growth of 15% or more.
Despite being nudged to the low end of our range by prudent acknowledgment of a more unsettled macro backdrop and buy more variable quarterly peer set sentiment than normal net.
Net net we see strong fundamentals for pet health point of care diagnostics informatics, our new product cycle.
Reising and Heska positioning.
Especially as we indicated on our last call in the back half of the year when our newly releasing products recurring utilization begins to show more fully in our results.
Now I'll 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.
Turning off a strong finish to 2021 has to get delivered a solid start to 2020 to performing in line with our expectation.
We reported total revenue of $64 8 million, an increase of approximately 7% and approximately 10% on a constant currency basis.
Our North America segment revenue was $37 4 million for the first quarter, our point of care diagnostic laboratory products grew 16, 8%, which was driven by approximately 10% consumable growth and increased capital placements, including element Inc.
Offsetting the quarter performance for this segment was the timing of our contract manufacturing sales.
Our international segment reported quarterly revenue of $27 4 million growth of approximately 18% and 25, 5% on a constant currency basis.
Driving our growth as the transition of our customers to the reset subscription program within POC lab solid capital placements of PSC imaging products.
The acquisition is that Z, which established our presence in the practice management information software market.
Consistent with our stated strategy, we continue to pursue acquisitions and partnerships, which serve to enhance our product portfolio and geographic reach.
Our international PST consumable sales on a reported basis down to prior year as a result of FX. Excluding this impact our consumable sales grew around 3% from the prior year.
Consolidated gross margin increased approximately 290 basis points to 45%.
With Americas segment delivered gross margin of 47, 9%, a 90 basis point improvement.
<unk> was driven by favorable mix as we continue to drive growth in our key recurring consumable revenue.
International segment gross margin for the first quarter was 41% an improvement of 670 basis points Heska as international products rationalization and conversion to subscriptions are progressing well. This improvement is indicative of that success to.
To remind you the accounting for convergent subscription to subscription well at times dampen reported sales dollars from consumables discounts are shared with new subscriber activations.
Because of this and other mix impacts this improvement will not be linear.
Also favorably impacting the internet the international gross margin is our acquisition of Betsy.
Total operating expenses were $40 6 million the increase of approximately $16 million was driven primarily by one time charges of $11 million $10 million of which is related to the contraction license payment due upon the execution of the exclusive agreement to develop a heska ncube that cancer screening tests.
Acquisitions added operating expenses of $2 6 million, a portion of which increased R&D as we continue to develop products and services for future growth and the remaining increase is mainly compensation in both short and long term incentives.
Adjusted EBITDA was $7 7 million or an adjusted EBITDA margin of 11, 9%, a 200 basis point decrease.
This was driven by increased investment in recent acquisitions, mainly in R&D as noted as well as previously mentioned cash compensation as we continue to invest in talent and processes. In addition to new products and technologies.
We had a loss of <unk> 97 per share in the first quarter adjusted earnings per share was 27, a decrease of 32 cents.
During the quarter, we put approximately $40 million to work on investments and acquisitions of businesses and partnerships, both establishing and even creating market opportunities our balance sheet is secure with cash of over $172 million.
Turning now to the financial outlook for 2022 previously provided on February 28th it.
It is not our intention to update guidance quarterly however, in light of macro environmental and geopolitical concerns as well as industry specific trends. We believe it is important to communicate with our investors and analysts on the health of our business, which remains strong.
We communicated a guide of $287 million to $297 million for consolidated revenue PSC allowed range of $170 million to $180 million, including growth rates of consumables in North America of 15% to 20% and approximately 5% for international we are reaffirming our guidance and we believe we will achieve the lower end of the consolidated.
The new range at or around $287 million, which which includes achievement at the low end of the North American consumable growth rate previously provided at around 15%.
Our revenue estimate and growth rates include consideration of the lapping of a strong first half of 2020, one with an assumption of that clinic capacity adaptability in the second half coupled with net price gains.
Additionally, our second half of 2020 to include commercial initiatives, such as our planned launch of rapid tests and a heavier element aimed placement plan and as we've previously discussed.
Our profit related expectations remain unchanged.
Based on our recent use of cash for the cancer screening and monitoring tests development. In addition to stocking initiatives to secure supply we will not generate free cash flow in 2022.
With that we would like to open the call for your questions operator.
Ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad do keep in mind, if you're using a speaker phone make sure. Your mute function is released so that as they look to reach our equipment once again star one for questions.
Pause for just a moment to assemble the queue.
And we will hear first from David Westenburg with Piper Sandler.
Hi, Thank you for taking the questions. So let's start off with the guidance or the reiteration of guidance I mean, you.
Quarter was.
It wasn't bad I mean, it was down.
Just a couple of million dollars below I guess consensus not necessarily your perfect.
Guidance here.
But the investors that might think that maybe you're a little bit overconfident with the reassociation of growth in the back half of the year implied by keeping the guidance can you talk a little bit further at length and kind of what gives you that confidence that there would be kind of that reacceleration of growth. I mean, you you did touch on on some net price gains.
And you did touch on some some comps I'm you know.
Can you give maybe a little bit more details there and if there are any other factors of consideration there.
David I think the biggest one would be comps.
We like the first quarter.
Revenue performance, so I think the biggest one would be comps.
And I think you and and the analysts that follow the company understand how our price drips in we take price on a monthly basis, so basically customers annualize and so as that price drip.
Drips and for existing customers I think that that accelerates in the back half and then I think the third thing would just be.
When you're placing analyzers like element aim.
The consumables pull through on that.
Accelerates when you have more element aims placed and so every month, we continue to place more and more brand new analyzers.
As that snowball gets bigger.
You'll get more consumables growth and in the back in the back half so.
I think it's consistent with our plan, we're just acknowledging that it's a little bit rougher out there.
So we're we're down towards the lower end of our guide, but we're not changing our guide and we werent disappointed with the first quarter.
Kathryn do you have anything to add on that I think those are the big three.
Yep that's great.
Yeah I appreciate that.
That's a great answer Okay, and then secondly, where we're getting a lot of questions here on.
If you if you're able to quantitate the subscription conversion in the EU is it is it the speed. According to plan is it above paying below plan.
Any kind of quantification because I think people are really interested in and knowing when that becomes kind of a tailwind.
In that business.
Yeah.
I think what I've said in the past is it's a it's an ongoing thing so were.
If you look at the top 30% of customers, who generate 70% of the sales were over halfway through those so those are a lot of percentages.
But that still leaves 70% of the customers, who generate 30% of the sales and we're less than halfway through those.
So I would expect that to continue really for the balance of this year.
But I don't really see it hurting us I mean I think the performance has just been wonderful I think theyre consumables growth is good despite the dampening effects of.
Of the price moving people to subscription I think their gross margin performance is fabulous I mean, when we bought that business. It was maybe 30.
31, 32% gross margin.
And I think they've done just an amazing job.
Over the last two years so.
I would expect it through the balance of this year for sure.
And then I would expect us to update next year I don't think it will take all the way through next year. If that's the question that's not a forever thing.
But it'll be present for the full year this year.
Thank you very much I'll hop back in queue I got a couple more.
Well now move to a question from Chris Schott with J P. Morgan.
Great. Thanks, so much I would say that maybe a two part question around this that capacity constraints I guess the first thing it seems like we've been hearing about this issue for a while I think you've talked about this in prior calls so I'm sure he'll help us understand a bit what I guess changed between when you issued guidance I guess back in February versus where we are now.
Formerly changing guidance, you're just at the lower end of the range, but it does seem like from what Youre seeing and what were your competitors seeing that it does feel like the environment did kind of pivot a bit in the last few months. So maybe starting with that one just to help us a bit as the year has progressed of.
Is this just kind of come to a head at this point or is this something that's not all that surprising to you based on I guess, what you were seeing as you went through 2021.
Yes, I don't think its terribly surprising.
If I go back to 2020 in 2021.
It was in my prepared comments, a little bit that with the things would.
Normalized back to the 10% to 20% range.
And I think when you strip out.
Constant currency things like that you are finding that our peer sets kind of in the lower end of that range, but within that range and I think you're off a very difficult comps, especially in the first half so percentages or funding things.
So I don't think any of this is really surprising I mean look Chris It takes eight to 10 years to make a veterinarian.
We can't just spin up the veterinary factory in.
And fix constraint, which is a good fact for companies like like Heska, especially if you're in the efficiency business.
Where the practice information management.
And communications to pet owners and some automation in that.
Efficiency is what fixes.
Supply constraints often.
Just just a blunt instrument of more veterinarians. So I don't I don't know that it's a really.
A surprise and I don't really feel like anybody in the industry has fundamentally changed and I'll say directionally.
But if you trim a point or two I think I've heard that occur.
Across the industry, a little bit, but I don't think anybody is really surprised by this.
Perfect.
And then just a quick update on the element aim rollout and feedback from customers, who may just an update of how many devices. If you placed at this point any changes in the goals for the year or just general acceptance of the product so far.
Any additional color would be appreciated.
Yeah, I mean I'm the CEO of the company, who just gave birth to a beautiful baby boy or girl. So I think it's great.
But.
Feedback from customers has has been wonderful feedback from our team we have people on our own.
Veterinary diagnostic lab, our own internal lab that have 2025 years of experience of making.
Slides and looking at urine and fecal.
For research purposes and element aim.
Actually outperforms people, where 2025 years worth of experience in that.
With with top quality microscopes. So so the performance I think has been fantastic.
Our supply chain remains intact and we remain.
On track for where we said we'd be for the full year, we're not going to call out quarterly placements.
But we're on track for our full year and that's all part of our of our sticking with our guide. So so we like it we'll update a little bit more on Investor day next week, but but it's going well.
Good to hear and one last really quick one really strong gross margins internationally this quarter.
That 41% gross margin is that.
I know it might be a little choppy, but is that kind of a sustainable number or just how should we think about the international gross margins as you got through more of the conversion cycle at this point.
Yeah, Catherine do you want to speak to that first.
Yeah, So I would say that not only will the conversion cycle impact that margin going forward right the number by quarter.
We're also going to rollout element aim as well are there and I think we described on the last call. The compressing impact of that instrument. So we still maintain our full year guide on the consolidated range or an improvement of 100 to 200 basis points off of last year. So.
Not linear, but certainly something that we're looking forward to once we've lapped some of these placements.
Tend to compress the margin.
Thanks, so much.
Youre welcome.
Well now move to a question from Elliot Wilbur with Raymond James.
Thanks, Good morning, just two quick ones for.
Catherine upfront.
Back on the topic of international gross margin trends is there and FX impact.
On that number and if so how significant relative to the revenue impact and you also called out various stocking initiatives in the quarter wondering what the impact was on cash utilization in the period and I have a couple for Kevin as well.
Yep.
Yeah. So we did order ahead.
Especially in our international segment so.
Definitely taking that projected use of cash.
<unk> towards a more neutral position if we exclude the impact of the 10 million we paid for the exclusive right to develop the cancer screen test.
So.
Certainly, having a pretty significant impact not a long term one obviously just more of a stocking.
Sorry can you repeat your your the first question.
Sure on international gross margin performance, just trying to understand how.
FX may impact our margin levels.
You know it wasn't an overly.
No significant impact to the margin level to the to the.
Yeah. It just wasn't overly meaningful to the margin on the quarter.
Okay, and then just two quick ones for for Kevin just going following up on that from the earlier questions around element aim and the placements there my assumption would be that once it's placed in a practice that conversion is very rapid almost 100%, but maybe that's not.
Correct just wanted to get a sense of sort of lead you know what the what the conversion is in terms of utilizing name for all the daily.
Fecal test.
Whether or not there's a.
Option curve there.
And then is there.
That's a great question.
Okay. Okay go ahead.
More for you.
No.
As your question on business development.
And the strategic front you guys had been incredibly busy last 12 months youre still relatively well armed how do we think about capital deployment initiatives over the next 12 to 18 months in terms of pace and and some of the additional areas. You may invest in do you have all the key pieces in place that you want to have in place.
<unk> now just a matter of investing more heavily.
In those businesses.
Or do you think there is still additional adjacencies that you'd like to potentially.
Potentially explore and then I'm curious if the contraction in public market valuations in the animal health sector. In general has begun to work its way into private markets and whether that may open up even additional opportunities for you. Thanks.
Yeah. Those are those are all great questions. So I'll just take them in order.
Element aimed conversion is is very quick but it's not instantaneous. So you you install.
Obviously, you install with a with a starter kit of consumables.
And then they work through that first months utilization.
Utilization, but youre still changing behavior.
Every technician every doctor has to get used to doing it a certain way, but the conversion on it is fairly quickly. So I would say it's within the first quarter, you kind of get to normal run rates and remember most of those customers do other things with us. So they do chemistry hematology blood gas immunoassay, they have a whole portfolio of products with which to hit.
Generally they are increased minimum.
So there are minimum goes up 1000.
Per month, because there's an element name just to keep the numbers round.
The amount of do all thousand of that and just element name they might do some of that in increased chemistry, and hematology and associated tests, but for the most part the pull through on it is fairly quick.
With regard to.
To capital deployment, we're largely in the portfolio that we like.
We've assembled the asset that we like but not in every geography. So you could look at it and say from a consolidated level.
I look and I say, we have all of the pieces of the portfolio. So we have point of care.
We now have Rapids, we practice information management software or you just go through the portfolio we have the things.
That we want we are imaging.
Now what we have to do is we have to take where were strong.
And we have to export that to other markets. So, meaning we might have a wonderful 30% market share in practice management software in Germany, and 70% in the biggest hospitals in Germany, you say Wow Thats great.
Need to export that excellence in that and that capability to the North America market to France, Italy to Spain to Australia to the other markets and then we might have a nice little reference lab business in Italy, and we've worked out the business model and.
And now we need to export that to Spain, and France, and Germany and in other markets as well. So so that's how I look at it is we've confirmed the ability to bundle.
We've confirmed that we have the right portfolio and you've heard me say for years I try not to scale things that don't work. So we run little sandbox is before we try and make new sandbox is a bigger sand boxes.
And that's what I mean, when I say, we're going to win at scale.
That's what I mean by that to answer the question.
No that's great and then just as.
As a corollary to that just sort of curious in terms of some of the trends you may be seeing with respect to the private market valuations, whether or not they may have begun to reflect the valuation contraction in the publicly traded names within the space.
Yeah. So so private markets tend to lag public markets, a little bit because they they don't mark to market by the minute and by the day. So they can pretend a little bit longer.
But I think I think we've been in a down in compressing market now long enough that I am starting to see expectations.
Fall. So it's not really just hey, what was my last round at that's not necessarily an anchor anymore. I don't know if it has a huge impact for us.
We're doing business development like our Heska.
New Q investment.
In cancer I think is a monumental wonderful business that we can lead in.
That is that is a huge total addressable market and that's a licensing.
Technology, you know I look at it as off balance sheet development that these people have worked very hard to create an amazing thing that can work well on our portfolio that's already installed and installing.
And hundreds if not thousands of locations so that the uptake the growth curve could be good.
As we finish this final development phase.
So doing deals like that I don't know that are really they're not really equity deals there they're more commercial.
Do think everybody's.
Valuation expectations are are dropping.
I mean, I'm looking at acquiring the wettest I can't figure out where to get all the money for it but I'll, let you know if I figure it out.
I'm kidding about that by the way.
[laughter].
I'd say the debt markets are still cheap, but it probably would.
Gibson.
Yeah.
[laughter].
Thanks for taking my questions guys I appreciate it.
Welcome.
And now we'll move to Ben Hayner with Alliance Global partners.
Good morning, guys first off for me the obligatory international gross margin question.
Just was curious on how much of a contribution that zee was to the the expansion there.
So then cathryn do you probably have a directional number I don't know that we are breaking it out but you know maybe directional yeah. Yeah. It's certainly software like gross margin for that business. So it is a key.
Couple of hundred basis points, predominantly still driven mostly by point of care lab and the consumable.
Movement, but certainly a key contributor to the 670 in total.
Yeah.
Okay, and then and then maybe following up on an earlier question on the exchange rates and the reason the dollar strength.
It does it does that impact your guidance at all I know you mentioned that didn't really do much of the gross margin but.
I think one of your competitors called that out as reducing there.
Therefore with guidance.
Yes, it's certainly part of.
Taking the total guide to the lower end of the range.
Yeah.
Okay.
Got it and then.
Kevin in the in the prepared remarks, you highlighted the kind of the share price returning to 2020 levels you know.
Given that you've got a pretty.
Pretty healthy cash position would you can would you are you guys or the board potentially consider share repurchases.
You know I've thought about that.
<unk>.
Deeply.
By the way I've personally hold of a handful of shares as well so I pay attention to the share price and I'm.
Very sensitive to how everybody on a call like this makes a living but having said that at the end of the day.
We have growth capital to grow and we have really great ideas to use that capital to grow and I think we get paid to deploy capital to.
Solve the efficiency and capacity problems of our customers in ways that pay us over a long period of time so.
That's a long answer to say I think we have better ways to deploy that capital.
Then returning it to shareholders.
Either stock purchases or things like that so we're a growth company and.
And we're growing and our market is growing and our product development is growing and grow grow grow and the macro environment around that if the painting behind us changes I always feel badly that it's changed but it will change again.
And our growth and nothing solves.
Valuation issues like.
Growth and positive free cash flow. So this is what we're paid to do and we've got a five year plan, where we're going to grow at scale.
And we mean, it and we're going to use innovation, we're going to win it innovation and we mean it and I think that's why people have.
I have given us a couple of hundred million dollars of their investment money. So that we can build products and invested on their behalf not play the stock market.
Yeah.
Well I appreciate the thoughts that does makes sense and I guess I'll leave the rest of my questions for next week.
We appreciate it thank you.
Thank you.
Well now hear from Jim Sidoti with Sidoti <unk> Company.
Good morning, Thanks for taking the question can you talk a little bit more about new <unk>.
What you need to do to watch that why do you think that will be and how do you think youll price that.
Okay.
Yes, So we'll talk a little bit more at Investor day, but I can feel most of those questions.
It'll be priced most likely in the mid <unk> low <unk>.
And so we think that's just super accessible.
Especially for annual use for cancer screens and things like that and so one of the biggest things in our business is certainly annual screens.
For things like heartworm in thyroid and age related things in cancer, certainly falls into that especially breed.
Specific.
So we think pricing it at that level.
Opens up just a just a huge market.
In terms of when we think it will come to market, we are pushing hard for this year.
Towards the end of this year, but if not we think it's in the first half of next year.
But it is product development.
But we think that's possible we think that's doable. So that's what the team is pushing for.
Yeah.
Alright and.
You and everybody else on the planet is talking about the currency headwind, but you're you have a considerable.
Operation overseas, so will that be offset by some natural hedges.
Katherine I know you've looked into that I I don't know that we've put currency hedges on no we have not.
We've been evaluating.
I bet hedges.
Well the fact that you have so many so many people working overseas that you're paying in those currencies will that offset the impact to the bottom line.
Oh, you said natural hedge that what you said.
Yeah, Yeah, we I mean, and so the FX on the bottom line. So when we talked about margin, we're not seeing it.
It's obviously part of the reason we can keep.
The profit related targets the same certainly more on the top line.
We do have some exposure we buy in U S D.
For our European part of our European supply. So we are actually looking at hedging arrangements on those.
And then.
I'm not sure if you said it at the Internet Catherine but did you talk about the free cash flow for 2022.
Yeah, I I, just indicated that it would be we would not be generating free cash flow given the investments we made this quarter, but it's first quarter for.
The cancer screen. Additionally.
Additionally, we did procure supply ahead. So we've used cash ahead.
And therefore would probably be closer to neutral on a cash flow generation for the year, excluding the impact of the $10 million.
Alright, thank you.
Okay.
Okay.
And as a reminder, star I Wonder if you would like to ask a question. We have a follow up question from David Westenburg with Piper Sandler.
Alright, Thank you for taking the follow up.
Just with the topic does your of labor.
Labour supply here.
Can you give us some thoughts on how a.
Veterinarian practice might think about adopting the element aim in face of supply constraints.
I mean, I think there is a send out model.
I mean that some of your competitors deploy it sort of obvious that you would take a container send it out to veterinarian doesn't see it but is there some ability in the in house model to actually also kind of fix the ER.
The workload and help supply further veterinary catheter eliminating.
Yeah, you know.
Super interesting in the last quarter that I think point of care for the one competitor that has meaningful point of care and.
Send out reference lab, I think point of care outgrew send out reference labs. So I think it's an interesting data point, but it's only one quarter and it's only one data point.
Look I think theres more to efficiency than just technician time.
Callbacks take a lot of time.
And they're far less gratifying for pet owners. So if you can get everything done in an in an exam time window and you can release, the pet and the pet owner with all of the information without having to do follow up calls at the end of the day, that's a huge time saver.
So I think we're still going to see forever. The same tension between whether its better to send something out because I can just drop in box, whether it's better to do something closer to the point of care and closer to the communication event with the pet family.
Generally if you have a really quality solution.
Generally I think veterinarians will prefer the point of care because it improves the service that it improves the satisfaction in it and I think ultimately is more efficient because they are not chasing things. After the fact, and then having to reduce things. After the fact and say what was that case again, what was the background what was the clinical what were the associated diagnostics related to that number.
Going back and re checking those types of things and then communicating them. After the fact, it's not very efficient so we.
We still like point of care.
And we still like reference lab I don't think it's necessarily a zero sum game element aim in that regard I think is doing great.
By the way people love to get rewarded with great interesting results. When you when you run a fecal and you accidentally discover giardia.
That's pretty interesting, especially given the fact that you might not be sending fecal how to be tested for giardia.
So the incidental findings that happened at point of care quite rewarding as well.
Appreciate it and look forward to seeing you next week and we're talking to you next week.
Thank you.
And it appears we do not have any further questions in our queue I'll turn the call back over to Kevin for any additional or closing remarks.
Hey, Thank you operator, thank you to everybody who joined the call.
Before hanging up I want to quickly remind everyone to join US next Tuesday at our virtual Investor Day, where we will have a number of people from our leadership team available and presenting and available to you.
Thanks, and have a great day, and we'll talk to you soon.
With that ladies and gentlemen, this does conclude today's conference. We thank you for your participation.
May now disconnect.
Okay.
Yes.
[music].
Okay.
[music].
Yeah.
[music].
Okay.
[music].
Yeah.
Yeah.
Okay.
[music].
Yes.
Yeah.