Q2 2019 Earnings Call
[noise].
Please standby.
Good day and welcome to the Heska Corporation second quarter 2019 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to John Eckart. Please go ahead Sir.
Thank you and good morning, everyone welcome to Heska Corporation's earnings call for the second quarter of 2019, I am John a guard director of Investor Relations for Heska.
Prior to discussing Heska second quarter 2019 results 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.
We need to caution you that any such forward looking statements are based on our current beliefs and expectations and involve known and unknown risks and uncertainties, which may cause actual results and performance to be materially different from that expressed or implied by those forward looking statements.
Factors that could cause or contribute to such differences are detailed in writing in places, including this morning's earnings release, and Heska Corporation's annual and quarterly filings with the SEC.
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.
We have with US this morning, Kevin Wilson, Heskas, Chief Executive Officer, and President Katherine Grassman, Heskas, Chief Financial Officer, and Jason Napolitano, Heskas, Chief operating officer and strategist.
Mr. Wilson, Miss Grassman, and I will provide details surrounding the results reported and then we'll open the call to questions.
At this time then it is my pleasure to turn the call over to Kevin Wilson, Heskas, CEO and President Kevin.
Thanks, John and good morning to everybody I know, it's a topsy turvy market out there and everybody is very busy so.
I want to thank you for your interest in spending the time that you spend on Heska.
And with that we'll jump right in.
We are reporting a nice solid quarter.
The second quarter remains in line with the outlook that we presented on the fourth quarter of 2018 call and that we reiterated on the first quarter call as well.
Our business initiatives for.
Product development and geographic expansion are on track.
And operationally the second quarter met or exceeded our goals in nearly all the key areas.
Particularly we showed very strong core companion animal lab diagnostics.
Where lab consumables rose 14.6%.
Over the prior period.
And it confirmed a nice healthy trajectory that we established in the first quarter were active subscriptions months under subscription contracts subscription value and subscription retentions for the first and second quarter are progressing well in line with our full year outlook.
Our first half sales campaigns.
Continue to drive new placements renewals and retention.
Margins are good and perhaps most importantly utilization capture.
Over the full term of the six year contracts.
Continues to be higher than our traditional contracts subscription value.
So bottom line is.
A nice good quarter very competitive marketplace as everybody knows.
But the overall market in veterinary healthcare continues to be very robust and healthy and we continue to execute well within that space.
So with that ill turn the call over to John who is going to make some some comments related to the release.
And I'll be back with you shortly thanks.
Thank you Kevin and thank you again to everyone who has chosen to join US. This morning, we presented a lot of good information in the release. This morning, and we wanted to take a moment just to go through it here quickly starting with Heska physician and strategy in the marketplace.
Heska has built a full portfolio of plc lab and imaging diagnostics that are critical to the modern veterinarian and their patients because pets can't speak about their health care challenges real point of care diagnostics that does the voice of the pets.
And our relied upon by families and veterinarians to drive care.
Plc diagnostics providers like Heska occupies a unique position that is much closer to veterinarians than other category providers as a result, but an everyday diagnostics continued to trend higher and faster than legacy services and products from which veterinarians are being disappointing disintermediated because diagnostics requires licensure and professional capabilities only found in veterinary centers. The modern veterinary model increasingly relies on diagnostics as his efforts indispensible medical outcomes and financial growth Foundation.
Heska is honored to claim one of very limited number of coveted positions within this accelerating trend.
To maximize heskas value creation within this globalizing and consolidating market Heska is rapidly multiply and its target audience through geographic expansion, while at the same time launching heska exclusive owned developed and manufactured innovations that put heska closer to clinicians.
Pets and pet families by solving their most important healthcare problems Heska believes this strategy creates a strong multiplier effect.
It is scalable for decades into the future.
In the first half of 2019, Escos product development and geographic expansion again advanced each of these objectives.
Expected launches of key products and international markets have begun and announced upcoming products and geographic expansion timelines have continued to track closely with the timelines given.
Regarding the current platform expansion Heska continues to introduce new test on existing platforms, such as progesterone be UN and E wrap additions to Heskas immuno assay blood gas and chemistry analyzers, respectively.
Early feedback remains positive for each of these first half launches and increasing utilization and satisfaction amongst heskas thousands of current users is evident we are also attracting new customers along the way.
In addition to expansions to Heska products already on market entirely new platforms hit the starting line in June of this year.
Among those new analyzers the element I plus is Heskas next generation multiplexing immuno assay platform for global veterinary in animal health applications.
Element I plus was introduced to select sites in limited release in June of 2019 with full market release, continuing to be on schedule for the third quarter.
Element I plus leap frogs, heskas current leading immuno assay platform with several important new advantages those been multiplexing test cards.
Superior analyzer design low cost profile expansive essay roadmap for the first and only plc analyzer testing exclusive to Heska.
In global position within Heskas full plc diagnostic suite.
Next the element Rcs Heskas, new rotor based chemistry platform.
Element RC is targeted directly to Heska is international expansion efforts as Heskas core chemistry solution for the international portfolio.
Element RC was introduced to the European market in June 2019 at the fact that the France that trade show in Paris, and we believe it was met with strong enthusiasm in advance of international end users shipments expected in the third quarter.
And last but certainly not least and following closely on the calendar is the heska element, you f. urine and FICO analyzer platform.
Research and development investments for this invention continue to yield on target results.
Significant progress has been made.
Toward on schedule Alpha and beta instrument milestones expected in the second half of 2019 and the first half of 2020.
Followed by targeted commercial release and revenues soon thereafter.
Element you F. is expected to be a major first mover invention from heska that solves big and important problems for many thousands of veterinarians across the globe.
A successful element you ETF launch has exciting impact for potential veterinarians in patients and heskas thousands of current subscriber hospitals and in competitive and Greenfield locations.
While risks around precise timing and costs are always inherent in initiatives like element Youssef current element, you f. timelines market opportunity and feasibility remain achievable.
Turning now to the international geographic expansion front integration of Heskas 2019 acquisition of optimized in France is progressing well.
Preparations for launching optimized and endoscopy products in North America in Heska, PEO sleep plc lab diagnostics into France, and broader European markets are developing well.
With small early indications pointing towards greater long term opportunity and scale than what was originally anticipated.
New key talent hires in France, as well as our perceived positive reception at the France Vet trade show continued to affirm heskas direction and investment into France.
On the other side of the globe and in closing.
Heska, Australia is up and running and.
Plc lab diagnostics, representing a major commercial milestone that is also.
Now a detailed roadmap for Heska is other expansionary targets.
Operational systems have been integrated and the team has shown early competitive progress with several new subscription accounts successfully one away from the competition in Australia.
Early results continue to strengthen Heskas convention conviction for winning and retaining Australian plc lab diagnostics customers with Heska technologies and subscription models.
Having covered a lot of information there I will now turn the call over to Catherine to go over the details of the quarter Catherine Thanks, John and good morning, everyone.
We are pleased to report a strong performance for the second quarter of 2019, which as Kevin mentioned was inline with our previously communicated full year outlook.
Offsetting strong consumable growth and our point of care lab product line with expected lower revenue from contract manufactured heartworm preventive as which resulted in a consolidated net revenue decrease of 5.1% to $28.1 million as compared to the second quarter of 2018 revenue and core companion animal or CCH segments was 24.7 $24.7 million for the second quarter of 2019, a 7.2% decrease over $26.6 million in the second quarter of 2018.
Revenue from point of care Laboratory consumables grew 14.6% in the second quarter of 2019 compared to the second quarter of 2018, which is in line with our full year outlook of 12% to 17%.
Offsetting this increase was expected lower revenue from sales of pharmaceuticals, and vaccines of 52.8% specifically try hard a heartworm preventive manufactured from Merck.
Revenue from our other vaccines and pharmaceuticals, or OVP segment increased 13.7% to $3.4 million in the second quarter of 2019 as compared to the second quarter of 2018.
Consolidated gross margin in the second quarter of 2019 was 44.1% as compared to 44% in the second quarter of 2018.
And the second quarter of 2019 gross margin in RCC segment grew 10 basis points to 49.6%.
As compared to the second quarter of 2018 due to the increase in consumable revenue.
OVC segment margin grew 830 basis points to 4.6% in the second quarter of 2019 as compared to the second quarter of 2018, resulting from favorable product mix.
Operating income decreased 125.7% to loss of approximately 600000 as compared to the second quarter of 2018. The decrease in operating income is primarily due to increased operating expenses, resulting from an increase of $1.7 million in research and development related to new product initiatives and an increase of 800000 in selling and marketing due to expanded domestic head count in the latter half of 2018 and expanded international operation.
These increases were partially offset by 300000 of lower general and administrative expenses, mostly due to lower consulting fees in the quarter.
Depreciation and amortization was $1.3 million for the second quarter of 2019 compared to 1.1 million for the second quarter of 2018 stock based compensation was $1.2 million for the second quarter of 2019 compared to $1.3 million in the second quarter of 2018.
The company's effective income tax rate for the second quarter of 2019 with a tax benefit rate of 72.5% compared to a tax rate of 10.2% for the second quarter of 2018. The second quarters of 2019 and 2018 include approximately 300000 400000, respectively of discrete tax benefits associated with stock compensation activity.
Net loss attributable to Heska Corporation for the second quarter of 2019 was approximately 200000 or a loss of three cents per diluted share compared to income of $1.9 million or 24 cents per diluted share in the second quarter of 2018.
As of June Thirtyth, 2019, Heska Corporation had approximately $10 million in cash compared to 13.4 million as of December 30, Onest 2018 cash flow from operations was a use of $5.4 million for the first half of 2019, largely due to a litigation settlement payment of $6.8 million.
As compared to cash provided by operations of $4.5 million for the first half of 2018.
Pertaining to our outlook beyond 2019.
As indicated previously with my appointment to the role of Chief Financial Officer. We're currently updating our may 15th 2018, Investor day, multi year outlook to incorporate new initiatives and data updates.
While we believe investors and the markets are aware of and have included these updates in their models. We currently plan to share updated details from our own projections during our fourth quarter and full year 2019 earnings release. These updates will largely focus on and incorporate impacts announced.
Oh, sorry.
From already announced updates from our May 2018 outlook, such as the effects from the acceleration of element U.S. development into a unified year analytical platform as compared to the less optimal may 2018, roadmap, which contemplated three separate product schedules to arrive at the current element us more advanced design. Additionally, we will include the effects of announced changes surrounding tray hurt Tri heart heartworm preventive impacts on a go forward basis impacts from business development, such as our acquisition of optimism, which was unknown in may of 2018, and other items, which again, we believe investors and analysts following heska have largely already modeled.
Finally, we will include the effects of our actual 2019 results and our planned activities for the second half of 2019, which will impact 2020 and beyond.
With that I will turn the call back to Kevin before we open up the call for questions.
Hey, Thanks Catherine.
2019 is shaping up to be the most transformative period in our history.
We're doing a good job operationally.
Subscriber growth is good I think we are hitting our outlook targets and we think the second half is on track for that.
But while we're doing that we stay focused on what our core strategy is we're driving internationally to double.
And in some cases, possibly triple the potential customers that we serve at the same time, we're developing and launching major first to market and best in class innovations.
We're deploying capital to accelerate our growth.
And we're scaling our capabilities.
If we do these things well we aim to create this multiplier effect and we think that can be scaled for decades.
We face big competitors, they're well funded on to execute very well.
But they also encourage us they validate the health of the market they validate that the customers.
Can be reached with successful innovations in scale.
So thats what were pursuing so we think we can win meaningfully and we think we can do that.
In a way that will benefit shareholders pets, veterinarians and pet owners with that I'd like to open up the call for your questions and go to the operator.
Thank you if you'd like to ask your question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star One Tasker question.
Well go first to Mark Mark Massaro with Canaccord Genuity.
Maybe for you Kathryn.
Can you maybe provide an update as to why.
Hi, you're providing the updated.
2018.
Outlook later this year as opposed to on this call are there any.
Moving dynamics related to.
Either.
Timing or potentially cost of development of some of the pipeline.
Not so much the costs on the pipeline I think we feel fairly confident in our projections.
Pertaining to those that we currently have.
They're pretty locked down at least at this point, it's more line moving parts, Kevin mentioned, where we this is a pretty transformative period from new product launches.
Expansion geographically I want to make sure we give a holistic picture.
And want to take the time to do that thoughtfully.
That's a fair point okay.
Hello.
I think our timing.
For the major product launches I think we tried to reiterate that three or four different ways. This morning, So I think thats on track as well.
And the second thing I would add to the Catherines comment is a lot of these things are largely modeled.
By analysts such as yourself.
I'm already side I know, there's a there's a huge urgency to update in may of 2018.
Number outside kind of the ordinary course of business, we would normally update our our annual outlook at our annual at our annual date and we think if they were they were massive moves at the market hadn't digested maybe that would maybe that would push that forward, but we think it's largely.
Been modeled.
Got it thank you.
I hate to ask about the noncore stuff, but.
The try hard has been under pressure for some time now.
Can you just give us a sense for.
Maybe some of the reasons why the demand for that product is maybe lower than you would hope and can you just give us a sense for.
How long that product is likely to continue to decline for or do you anticipate some type of recovery in the out years.
Yeah I think.
Under pressure is probably the wrong characterization.
We basically want getting zero.
New sales from Tri hurt this year largely due to one over stocking situation at Merck.
So so I'll I'll kind of refresh were a contract manufacturer received purchase orders from from Merck and we manufacture and the volumes and the quantities at the dates that they ask us to do.
And I think over a two to issue year period, they had a product management.
That that overstock, the product and and so at the very beginning of this year end of last year I think we were.
Approached us and said Hey, we've we've got a year's worth inventory plus sitting on the shelf.
We really don't want order anything.
In 2019, what do you want to do and so we basically took that number down to zero. This year and then part of part of the the update the Katherine mentioned will model, what we think its return to.
To sales will look like in 2021.
But this year, it's basically zero. So it's it's a it's pretty hard to.
Yeah, I think when called the floor [laughter] Yeah. This is Jason Mark.
I recently spent some time with with the people from Merck and the latest information I have is the end user demand for that product with going into veterinary veterinary clinics is is up a hair for year to date on their side. So we're not concerned about the.
The customer demand, what's going on in that side. So much as Kevin mentioned, it's the inventory situation that you're seeing flow through our financials.
Got it and then maybe I'll just ask a balance sheet question, if you don't mind.
You know you you certainly have a lot of R&D ahead of you.
You just posted an operating loss for the quarter.
Your cash balance is now slightly below $10 million.
How are you thinking about.
Financing some of your growth initiatives given that.
There does seem to be a little bit of a strategic shift towards.
Internally.
Increasing your own development.
Yes, I'm just going to say, we monitor it closely we have a credit line that we put in place with JP Morgan.
And we think.
We think we have access to capital to meet our goals, we're largely through a number of the larger spends.
And the balance of those spends I think are are are known to us.
The lead times on these development projects or are pretty clear milestones at this point in the project cycle.
So I think I think we've got a handle on it.
Excellent. Thanks, guys look forward to seeing you tomorrow.
Later this week.
Thanks.
And we'll take our next question from Andrew Cooper with Raymond James.
Hey, guys. Thanks for the questions I guess first start with kind of gross margin I think it was a little bit below sort of what we were looking for.
I know some of it is timing you know VP and kind of are you still sticking with the roughly 10% for that that bucket of revenue in terms of gross margin and then how should we think about especially with the i. plus starting to roll in at least at least a little bit. This year you know the margin for the rest of the year and especially relative to the guide just want to make sure that that aspect of it is unchanged as well.
Yeah, we're not changing our full year guide on consolidated gross margin.
At all element I think we even said during our Q4 call.
Incremental to this year, both revenue and margin. So the full year guide is intact.
Okay.
Thank you and then.
Any update you could give on I know you said the installs were on track, but anything you could provide in terms of you know even just qualitative on the corporate accounts and how that's progressed relative to expectations would would be helpful.
I think broadly the corporate accounts bucket for us is doing very well.
Some are doing.
More well than others.
But as a as a group we're we're very happy with the progress that we're seeing in those accounts and eat those in particular.
I think has done a fantastic job.
Converting over to our products and we're pretty typical what that they're they're large.
Large hospital users almost exclusively.
I believe they are all on our D.C. fivex for chemistry, I'm. So yeah, I mean broadly the category is doing now is doing well.
Okay, that's helpful and I'll I'll stick with just one more before we.
Maybe follow up offline, if anything else, but in terms of imaging again I think it was a.
You know a little bit less than than we had thought is there any you know it to some degree I think there's some FX, but anything else in the quarter in terms of any disruption on on optum add or or any changes there or any kind of product update because I know, there's some things as well but.
Anything kind of in the imaging that you would call out as outside the norm or you know kind of on track with internal views and maybe the street just miss modeled some timing or at least we did.
Yeah Wheeler for it is as it relates to imaging lever for the quarter on in target with our internal projection.
No I don't think anybody on the whole team.
Got a naughty and already know.
For the quarter I think everybody was pretty much right, where we hope they would be.
So I think pretty much in line.
Great I appreciate the question. Thanks.
Thanks, and I'll now take a question from Ben Haynor with Alliance Global partners.
Good morning, guys. Thanks for taking the questions you know it seems like a pretty straight forward quarter and update here also nice to see the I. plus NRC alter on schedule, just just with regard to the high plus at knowing you guys are manufacturing the new yourselves both on the instrument and consumable portion of it is any hiccups or any surprises there that you've seen thus far.
No I'm sort of clarify.
We won't be manufacturing the analyzer.
So so we're not we're not tooling up with injection molds and and things like that the test cards initially.
We will utilize our partner.
Who is the original license or of the product to do the initial run of test cards until we transition that to our des Moines facility. So in terms of you know product launch at risk and those types of things. We think we've got a really good handle on that and then will migrate that over.
To a production line that will establish in des Moines is the plan.
But currently there is really no risk to disruption or execution in regards to to manufacturing capability.
Okay, and then do you have a a kind of a timeline in terms of when that might migrate over.
Yeah, I think what we're looking at is sometime in 2020, all the effect of that really is.
And just to put it into context, maybe a $2 million to $3 million a capital spend to set up the production line.
[noise] offset by lower cost per test card.
But the cost per test card in our current manufacturing solution is a is still much more favorable cost profile element I. So I think we're capturing what we need to capture now, but I see that probably is the second half of next year go live event.
Okay Fair enough and then it sounds like one of your larger competitors is making some are putting some emphasis on preventative care program that they have developed I know what it's similar to the stuff that you've talked about in the past you know, particularly I think what's the strategy with the element I plus men you any commentary there on you know how that might help you the emphasis on preventative care down the line and any thoughts there would be would be helpful.
Yeah, I mean, I applaud those efforts Antech has done them in the past with reference lab IODEX has done them in the past I was allowed us I think we've.
We've all agreed that utilization in general and diagnostics is probably underutilized, especially in terms of wellness in preventative and predictive care.
So I'm tickled to death, when I see large competitors educating the market and I think we see the benefits of that we support that so.
We hope they charge on down the field with preventative care and and I will tell them well chairman along and do what we can to get the message out as well.
Okay, great. Thanks for taking my questions guys.
Thanks Ben.
We will now take a question from David Westenberg with Guggenheim Securities.
Hey, guys. Good morning, and thanks for taking the question. So there's a little bit of a a continuation of of Andrew's question. So I just.
In terms of the instrument placements are they are the instrument revenue it missed us and I think you already kind of said that it did hit on your projections.
Is that the same should we should we expect instruments to be well be growing along with consumables.
Hey on kind of a go forward basis, and you know if you can maybe give a little bit more color on that particular bucket relative to expectations in this quarter and kind of on a go forward basis. Thanks.
Yeah, Yeah, I think as far as it is as it pertains to instrument revenue that's under capital lease treatment, we've asserted that to be on par with last year. So oh I used the word flat he will [laughter]. So when we say we're we're on target for full year. We are on a year to date basis on on target for that.
Yeah, and I'll, just a little color on that until until new models meaningfully hit basically new platforms that are.
They don't have year over year comps hearing and sequel element RC national basis, as those start to pick up steam.
And I don't think you'll see pull through really until you get to early 2020 on those in terms of picking up steam.
Our model really isn't designed to show year over year incremental growth, if we've been a 2% market share gainer.
In one year, and we say, we're going to be a 2% market share gainer in the current year. The revenue recognition on the instrument portion is going to be the same.
By design and what's gonna grow is going to be the consumable pull through which is growing in the last quarter was 14.6, so the consumables or where you get the layered cake effect.
But what Weve never said is that we would go from 2% market share gainer against very strong competitors and see that grow to 2.5% market share gainer. We think we think 1.5% market share gain that we've guided to this year is.
Is is solid if it too is fantastic and anything above that I don't think weve really ever guided in the last six years.
Got it okay, so going back to the the optimal platform I think you said, it's going to launch, but I did get to play with it a little bit at Aevenia may benefit fairly fascinating. So I know it is actually out there. So can you talk about maybe some of the the feedback that you've gotten front from Brad So far in and you know can you maybe help us size that market I'm just.
Generally of what that could look like.
Yeah, I don't think the size of the market is huge and it strikes me more like an ultrasound market.
It can be in that five ish million dollar range, but that's going to take time.
I think the most important thing that we're trying to build out is.
John's comments I hit the nail on the had pets don't speak.
And we expand the vocabulary of pets every time, we launch a new diagnostic and we think we have the largest vocabulary and the industry bar none.
Endoscopy as part of that so if you bring your pad in in your pet has terribly dirty irrs with might send infections and you can't look in that area and you cant see whats in that year.
That Pat loses the ability really to communicate that issue and how severe it is.
So we think endoscopy is is a is a value add we have what's called a daily scope and and we believe it can be use daily does the name.
But that that's a.
That's a piece of vocabulary that we think is important to be able to offer our customers and broadly then our our model is to go to those customers and say look if you have a yearend sequel, chemistry, hematology blood gas electrolyte coagulation immuno assay infectious disease ultrasound issue with with kidneys liver cardiology.
Endoscopy issues and X Ray issue, so imaging as part of that vocabulary that we think is important to build out because it's good for our customers.
Even if even if it might be a 5 million dollar revenue stream.
Which isn't or shattering it's important for our customers. It minimal yeah got it alright, yet and then maybe sticking with the the the potential FICO platform now fecal antigen is a big marketing effort with IDEXX and.
And this is traditionally been sort of an inside the inside lab kind of concept in your platforms going to attack that inside the lab concept or are you seeing maybe any any broader shifted due to that competitive.
Launched that maybe there is maybe a building preference toward towards reference lab with the IDEXX effort or.
I mean, obviously, it's a big enough market for you to both planned but I just would be interested in potential changes in the way the market looks like today.
You know David I, I think our underlying premise remains firmly intact vehicles have been done at the central reference lab.
For as long as I've been in the industry I think.
So I don't think Thats, a new concept and the friction and the barrier to entry is if.
If you bring your dog or cat in and you need a fecal answer and you need to then make a treatment recommendation whether that be diet, whether that be medication whatever the case might be getting that answer immediately, especially if you have a stain on your carpet probably feels fairly urgent deal in waiting a day or two is probably not going to drive compliance.
I don't think any of those factors change.
So again I.
I'm favorable to anything that raises the awareness.
Attesting to veterinarians and pet owners.
Whether you do a fecal antigen tests at a central reference lab, where you choose to get an answer for us in 12 minutes I like my odds and I and I think the veterinarian will choose point of care testing when it works.
And and they may continue to send it out to the to the reference lab.
We think as many or more maybe by a couple of factors.
Fecal exams reviews of FICO get done manually point of care then they get sent to the reference lab.
And that's without automation.
And so we think if we fully automate that process and we improved the results of that process.
Probably pushes more to the point of care, which is favorable to us.
All of that is to say I'm not betting against them I think it's great I think it raises awareness, but I don't think it at all undermines our premise.
Got it Okay, and then maybe just last one in terms of placements outside of.
Corporate it's actually into the individual hospital.
You know and you you.
Hey, how are you thinking about the opportunities outside of corporate I mean, how did.
Bhavan placements do video to your expectations do you believe.
I mean, you know theres any potential with new products to maybe gain in that and not individual that or or non corporate kind of corporate practice. Thanks, and thank you very much for all the questions and that's the that's the last one thank you.
We appreciate.
New products always give you entry into competitive accounts.
And so and we're hopeful.
And.
We're reasonably confident that that a.
The quality earnings sequel launch will give us a meaningful conversation in the.
80, plus percent of the market that doesn't have our product.
So so yes.
In terms of of 2019.
I think what we've tried to do since the beginning of the year is.
Right down the middle of the Fairway I think the first two quarters have been pretty much right down the middle of the fairway while we.
Remain on track for these product launches in each geographical expansions. So we see kind of meaningful pickup in 2020 and competitive accounts and individual accounts. Once we launch some of these kind of major new beachhead products.
Thank you.
And once again, if you would like to ask a question. Please press star one well go next to Jim Sidoti with Sidoti and company.
Good morning, everyone can you hear me.
Good morning, Good morning, Jim Yes.
Great.
You talked about your international plans a little bit.
With the new product launches can you just update us on your distribution there and do you think you have enough.
Internal staff to support that or will you be.
Be hiring more people for the international businesses.
So I think in Australia, and France were staffed appropriately so we don't see large.
Build up there we hired a couple in the last couple of quarters already in our numbers.
So we think we're we're we're there in Australia and then the opt in that acquisition, we think is staffed properly as well.
So I think we have enough people to get to the market and do fulfillment customer service and those types of things yes.
Okay and same question for the U.S. you have.
Some pretty significant new product launches.
Plan for the next 18 months or so.
Do you wait to see some of those sales developed before you bring people on or do you bring the people on first.
Yeah, I think the goal is always to time it.
Good day.
[laughter] and and hopefully we get that timing.
Exactly right.
Hi, It wouldn't surprise me to see a kind of first quarter 2020 build.
But I think the outlook.
Already contains what we think we need for for 29 teams I don't really see any changes in 2019.
But but once you get.
Eminent.
Your past alpha year end to beta.
Youre starting pre marketing.
I think that it starts to become prudent to start increasing your salesforce and training those people on on the new products, but I don't think that's a 2019 question yet.
Okay all right. Thank you.
[noise] well take our next next question from Bruce Jackson with the benchmark company.
Hi, Thanks for taking my question, if we could talk about the revenue progression for the rest of the year.
Basically looking at the new product launches, how close are you to being ready to go for a full commercial launch and are we going to see some of that in the third quarter.
Or would it be a case more of a case, where there is still work to be done on the new product launch and we should be thinking about more revenue.
Falling into the fourth quarter.
Yeah.
The new product launches are mostly geared toward fourth quarter.
Revenue.
But keep in mind again, the full year outlook included.
That assumption and also element I plus the incremental to this year.
He got tests as that menu expands it becomes more of a step function for us than later years. So it really is incremental and this year.
Now turning to commercial.
The RC and the element IR.
For sale.
With salespeople.
Going in and showing its value and asking customers to sign up and.
And used cash in the third quarter.
But the way our model normally works is that becomes an extension opportunity for existing customers and in the case of a new customer.
That becomes a subscription to we'll have certain amount of revenue recognition based on the instrument, but it's not going to be large the bigger value is again the layer cake.
You acquire that customers testing business for six years. So again by the time that starts to spin out, but it really starts to hit more in the fourth quarter and then and then it continues going from there.
So.
I think we answered your questions.
Yeah, that's great. It's helpful. Thank you.
And then half the new product launches had any effect on the the new contracts that are under consideration have.
Has that some decided they're going to hold off on.
Signing a contract because they know that these new instruments are coming and they want to incorporate that into what they are talking about with your salespeople.
I think they really haven't and the nice thing about our model is its a menu.
So you're going to go in order Hamburger Fries, and Coke and if you want to add a shake later, you can and so I think.
I think customers understand that and these products are tangible went opposite thing kind of build it into their thinking but I don't think we're really seeing a big kind of stahl people waiting for the next big thing that's going to obsolete current thing that we're not really seeing anything like that.
Okay. Then last question for me can you tell us where your sales force head count is right now.
Off the top of my head I it hasn't changed.
We did a bill.
Towards the end of last year.
And off the top of my head I want to say its mid Sixtys.
But I'd have to check that we'd have to get back to you on the exact number.
Part of the reason I would go a little bit is it depends on how you count salesforce. So some people count the inside sales team some people count the field service team some people count only direct salespeople, who then use those teams. So we can get to the detail.
But it hasn't meaningfully changed during the year.
Okay, great. Thank you.
Thank you.
And it appears there are no further questions at this time I'd like to turn the conference back to Kevin Wilson for any additional or closing remarks.
Thank you and thanks to everybody who logged into the call.
We had a good solid quarter and we we are reaffirming our outlook for 2019, we think our.
Our product releases are on schedule element I plus element RC.
In the market incremental releases to our chemistry, hematology and immuno assay products in the market and importantly, our yearning sequel launch, which we think is probably our biggest focal point.
Continues to be on track and in budget and on time as best we can tell so we'll keep up that work and we'll be back to you in another 90 days or so to report on our progress and will be 90 days closer to.
To some of those things were looking forward to in 2020, so thanks, and we'll talk to you soon bye bye.
This concludes today's call. Thank you for your participation you may now disconnect.