Heska Corporation
Q3 2016 Earnings Call Transcript

Published: 1 Nov 2016

[Operator:]

Good day, and welcome to the Heska Corporation Third Quarter 2016 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brett Maas of Hayden IR. Please go ahead.

[Brett Maas:]

Hello and welcome to Heska Corporation’s earnings call for the third quarter of 2016. I am Brett Maas of Hayden IR, Heska’s Investor Relations firm. Prior to discussing Heska Corporation's third quarter 2016 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 that 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 are contribute to such differences are detailed in writing in places including Heska’s Corporation's annual and quarterly filings with the SEC. Any forward-looking statements speak only as of this 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 statements was made. We have with us this morning, Kevin Wilson, Heska's Chief Executive Officer and President; John McMahon, Heska's Chief Financial Officer, and Jason Napolitano, Heska’s Chief Operator Officer and Strategist. Mr. Wilson will begin with the summary of results we reported today, followed by further comments by Mr. McMahon, then we'll open the call up to your questions, followed by Mr. Wilson's closing remarks. Now, I’ll turn the call over to Kevin Wilson, Heska's Chief Executive Officer and President. Kevin?

[Kevin Wilson:]

Thanks, Brett, and good morning everybody. I’d like to start off this morning by again welcoming John McMahon to his new role as our Chief Financial Officer. John joined us a little over a year ago with an eye towards assuming the position. In late September, as planned, Jason Napolitano, our CFO for many years assumed a new role as Chief Strategist, in addition to his existing role as Chief Operating Officer. At the same time, we’ve promoted John to CFO. John brings a great deal of public company experience to the role and over the past year, he has worked well and closely with me, Jason and our Archimedy. And we’re excited to have him with us and I think the investor community willing to work with John as much as I do. For this morning, I am very pleased to report to shareholders another record quarter for Heska. The whole Heska team delivered above our internal expectations and our external benchmark. Compared to last year, total revenue increased 19%, operating income grew 110% and net income was up 137% to $3.3 million or $0.45 per diluted share. Year-over-year growth accelerated nicely during the first half and now has again accelerated in the third quarter. Expense discipline remain solidly in place; the overall veterinary market is strong and Heska is getting more market share. Virtually every area Heska performed well in the third quarter and continues to do so early in the fourth quarter. Our Core Companion Animal teams continue to win. In the third quarter, Core Companion Animal sales grew 26% over last year, largely by taking market share. We confidently achieved solid net subscriber gain and we've had even higher gains in subscription months under contract in the quarter. The source of these gains in net subscribers continues to be primarily from new subscribers converting from competitive offering. The source of gains in subscription months under contract continues to be from a combination of those new subscribers and agreement extensions and additions from existing subscribers. Our transition to a full subscriptions blood diagnostic business now has critical mass. With roughly 72% of all blood diagnostic consumables used in the period shipping under a multi-year subscription. Turning to the operational side. Heska's operational team continues to deliver in a period in which gross profit rose 18% operating expenses were well-managed coming in 6.1% better as a percentage of sales than last year's period. That's a great result that is combining and contributing to record operating margins and profit. Now I'll turn the call over to John to detail the quarter's financial results. Then I'll take a few minutes to cover some of the basics of our diagnostics product and our recent subscriptions model to get investors a feel for how we are positioned with veterinarian. Following that, we'll open up the call for questions, John?

[John McMahon:]

Thank you, Kevin. Once again, we had a record quarter with revenue of $33.4 million, a 19% increase over $28 million in the third quarter of last year. Revenue for the first nine months of the year was $90.5 million, a 21% increase over $74.8 million in the first nine months of 2015. Revenue for the Core Companion Animal Health Segment or CCA was $26.4 million this quarter, which is a 26% increase over $21 million in the third quarter of last year. For the first nine months of the year, CCA has generated revenue of $74.3 million, which is a 21% increase from $61.3 million in the prior year nine-month period. This broad-based performance was driven primarily by increases in instrument subscriptions and consumables, heartworm preventive products and digital radiography solutions. Other Vaccines and Pharmaceutical's product segment or OVP generated $7 million in revenue in the third quarter 2016. That was in line with last year's third quarter and our expectations. For the first nine months of the year, OVP has generated revenue of $16.3 million, a 20% increase from $13.5 million in the prior year period. Revenue under our agreement with Eli Lily’s Elanco unit continues to drive performance in that segment. Our consolidated gross margin for the third quarter in both 2016 and 2015 was roughly 41%, while 2016 year-to-date consolidated gross margin was 41.8% compared to 42.7% in the year-to-date period of last year. Heska Imaging U.S. grew revenues 10.4% in the quarter to $4.8 million with the gross margin of 37%, that's up from $4.3 million and a gross margin of 36.4% in the prior year period. For the first nine months of the year, Heska Imaging U.S. has generated revenue of $15.5 million and that's a 20% increase from $12.9 million in the prior year period while increase in year-to-date gross margin from 37.2% to 40.6%. Longer-term, we continue to believe that 35% is a reasonable gross margin target for Heska Imaging U.S. Total operating expenses in the third quarter of 2016 were $9.2 million, that's a 2% decrease from $9.5 million in the third quarter last year. This decrease was largely driven by the effects of large early termination package for our former executive chair that was recognized in the third quarter of 2015. Offsetting this, we did incur expense increases related to our second quarter acquisition activity, as well as increased commissions on higher revenue performance. Operating income for the third quarter of 2016 was $4.5 million, that's 110% greater than the prior year Q3 performance of $2.1 million. Year-to-date operating income was $10 million, 100% higher than last year's nine-month performance of $5 million. Depreciation and amortization was $3.4 million year-to-date as compared to $3.2 million last year. stock-based comp was $1.7 million year-to-date as compared to $1.5 million last year. Our estimated effective tax rate for the year is roughly 25% and as we noted last quarter this is due primarily the early adoption of new accounting standard related to the tax achievement of employee stock compensation. The benefit of tax expense in the quarter was roughly $250,000 or $0.03 per diluted share. Year-to-date benefits of tax expense in this quarter was roughly $250,000 or $0.03 per diluted share. Year-to-date benefits of tax expense is roughly $750,000 or $0.10 per diluted share. As we also know each quarter, the deferred income tax expense line item on our financial statements primarily relates the taxes we would have made, if we did not have a large domestic net operating loss position and is therefore essentially a non-cash charge. Net income attributable to Heska Corp for the quarter was $3.3 million or $0.45 per diluted share at a 137% increase over $1.4 million or $0.20 per diluted share generated in the third quarter of last year. Year-to-date net income attributable to Heska Corp grows 120% to $7.1 million or $0.97 per diluted share that compares to $3.2 million or $0.46 per diluted share last year. On previous calls, we have discussed potential regulatory investments we are considering to substantially expand our lateral flow test menu. The process with the USCA is progressing a bit slower than anticipated although we do anticipate incurring additional research and development cost in this area of approximately $250,000 for the remainder of the year for the balance of that investment will occur more rapidly throughout 2017. We currently continue to expect at least one new product to be approved in this area in 2017 as a result of this investment. Looking ahead now, we expect our full year results to outpace the expectations we set - set for you in earlier calls this year. Due to our recent strong performance and strong pipeline, we believe our revenue for 2016 will be higher than our previous estimate of $122 million. Today, we believe we will finish this year with revenues in the range of $124 million to $127 million with operating income in the range of $13 million to $15 million. In summary, we have once again posted a record quarter, thanks for traction and our subscription programs that have led to market share gains as well as operating leverage that is being driven by expense disappointment [ph]. With that, I’ll turn the call back over to Kevin.

[Kevin Wilson:]

Thanks. John. Before we open up the call for questions I thought it would be helpful to investors to discuss some of the dynamics that we see in the market. With our subscription strategy, solidly in place, we’ve entered the expansion phase of our proven model. To do this we focus on five key ways to scale our access to our subscriptions. First, we’re scaling through regulatory introductions of new analyzers, new tests and programs to attract new subscribers from competitors and upgrade and extend our existing subscribers. Second, our higher value and fairer model has generated thousands of satisfied customers if we now use for peer reference selling and prospecting. With so many more references today than even six months ago, we are now increasing our new subscribes targeted fueled sales team density for the first time since our subscriptions launch in 2013. We anticipate a successful density increase of roughly 15% to 20% to be in place and fully productive early next year. Third, we continue each quarter to work more and more closely with our Henry Shine teammates to educate competitor accounts without switching to Heska Reset subscription. Fourth, we're expanding our work between our imaging team and our blood diagnostics teams to expand and grow bundling sales opportunities and diagnostic reporting consolidation using our cloud bank service. And fifth, we’re expanding the geography in which we compete. Today, virtually no Heska blood diagnostics revenue come from outside of North America, with upwards of 35% of our competitors' revenue deriving from International customers, we anticipate that Heska can compete quite effectively in International market, because our subscriptions model has lower barriers and our prices are best in breed [ph]. Given our international baseline is essentially zero, we anticipate good and meaningfully things will happen near-term and long-term with International sales opportunities that are additive to our current North American performance. All would be evident I say, thanks to our continued success as we finish out the year and we begin the next. Impart, this is because I firmly believe that Heska has the strongest mix of product to win, a superior business model for customers and the best people to deliver the message and the results. In the product area, we think it is clear that Heska has the newest and fully refreshed lineup amongst the three main competitors. Given that most customers prefer one partner for all of their complex diagnostics. The strength of the entire offering is key. I’d like to take a few moments to overview a few of the products in our diagnostics portfolio to demonstrate the breath of Heska strength and product. Our most recent addition, the Heska Element it has now passed 300 units installed since our launch earlier this year. Our launch back orders resolve and Element it continues to grow nicely, because it’s the best in its class. In fact, it’s in a class all by itself. Element it performs several immunodiagnostic tests, including industries only point of care T4 and TSH testing for real-time hypothyroidism confirmation. Given that hypothyroidism in dogs there’s a top five challenge faced by many veterinarians. Element it will continue to get strong interest from thousands of hospitals. Many of those hospitals are current Heska subscribers who will renew and extend their current Heska agreement to 72 months, while adding Element it. These renewals and extensions add nicely to our subscriber months under contract and of course, many veterinarians interested in Element it are using competitor analyzers for chemistry and hematology. We will take the opportunity presented by the Element it interest, to persuade them to switch a Heska subscription for their other analyzers as well. In Chemistry, our Element DC Utilizes DRI-Chemistry technology to best-in-class. Element DC continues to gain market share. It is accurate, fast, precise and it uses the widely acknowledge leading technology in the space, which is DRI-Chemistry testing. In fact, after decades of competition, we estimate that DRI-Chemistry represents more than 75% of the market which Heska’s Element DC compete. The vast majority of veterinarians agree that DRI-Chemistry is the best method of operation for in clinic, chemistry panels and individual test. At Heska, we don’t have to argue otherwise. With Element DC, DRI-Chemistry, we already agree and our aligned with the vast majority of veterinarians, all we have to do, just show that we do DRI-Chemistry better and more fairly than other sales models. That’s why we have the Heska Reset subscription. In Hematology, our Element HT5 utilizes laser and impedance technology to be the best-in-class. Element HT5 continues to gain market share. It is accurate, fast and precise and it uses the industries widely acknowledge leading laser and impedance technology to perform a true and full five [ph] part laser count. The vast majority of veterinarians agree that these are the best methods of operation. At Heska, we don’t have to argue otherwise. With Element HT5 laser and impedance hematology, we already agree and are aligned with the vast majority of veterinarians, all we have to do, that show that we do five-part laser and impedance hematology better and more fairly than other sales models. That’s why we have Heska Reset. In Blood Gas and Electrolytes testing, our Element POC is also best-in-class. Element POC continues to gain market share, it is accurate, fast, precise and widely preferred, because it uses a single room temperature store test card for all test. Making it easier to order, easier to stock, simpler to use and less expensive to operate. The vast majority of veterinarians agree that these are the things they are looking for a handheld Blood Gas and Electrolyte test. With Element POC, we already agree and align with the vast majority of veterinarians. All we have to do is show that we do Blood Gas and Electrolyte testing better and more fairly than other sales models. That’s why we have to Heska Reset subscription. And in connectivity, we have had for some time now full two-way communication in our Analyzers. For seamless integration with practice management software. This includes full two-way connection to our friendly Henry Schein AviMark and Impromed users as well as a great many other offerings. Additionally, Heska’s already a leader in cloud-based medical record data storage and sharing. In fact, our cloud bank some time ago surpasses 1 million study emphasis in imaging alone. Cloud Bank is DICOM NHL7 [ph] compliance, with diagnostic data and reports securely accessible from virtually any cellphone, tablet, PC and Mac connected to the internet. Cloud Bank will power the next stage in complete portable pet health record that include all key imaging and blood diagnostics. With current and prior results in one place. This will become a standard expectation with customers and industry partners. At Heska, we are well ahead of the competition in this area. To summarize in products, we strongly believe that we have the best products and tests anywhere in the market. And the fight for market share, Heska sits at the top, the best in breed and preferred method of operation list. We address each and every key performance requirement veterinarians have. We check all the boxes. All we have to do, is get in front of more veterinarians to show them that we do complex diagnostics better and more fairly than the competition and that’s where the Heska Reset subscription comes into play. Our subscription models branded Heska Reset. Heska Reset summary is simple, get more, pay less, no tricks, it's simple. Heska has blood diagnostics infrastructure available for free placement on the veterinarian’s counter. Right next to their counter, veterinarians have patients with blood diagnostic need. The challenge is as simply as possible to put those two things together. Customers want accurate diagnostic cancers immediately, while the patient in the examiner room can be treated, that's the simple need. Veterinarians don't want to have to buy $20,000, $30,000 or $70,000 worth of technology. It requires tens and thousands of dollars and warranty coverage. They don't want to have to purchase supplies from self-providers for years at unknown ever-rising pricing, that's not what they want, that's a bad model with big barriers. Heska Reset subscription eliminates the barriers to entry in complex diagnostics. Heska Reset subscription share some common theme. We play Heska owned blood analyzer infrastructure on the veterinarian’s counter for free. We warranty it for free, we offer substantial savings on supplies and we guarantee supply's price protection for years. Without that and without large upfront cost barriers veterinarians get more technology, more performance, more security, more visibility and more test per dollar with Heska. And they get all of that along with the confidence that comes along with utilized and already established gold standard methods of operation in each analyzer category. With Heska Reset, veterinarians don't spend tens and thousands of dollars to buy equipment that drops in value after its first day of use. They don’t spend thousands of dollars on warranty, warranty is free. If the Heska analyzer has an issue, we replace it, simple. And they don't worry about price gimmicks, supply over commitment and uncontrollable price hikes. The Heska subscription includes price protection with increases that at no more than 4% per year. And with Heska Reset customers often face 30%, 40% or more when compared to their current expenses that's tens and thousands of dollars. And it matters, it matters to practice owners, it matters to staff, and it matters to the families of pet. Heska Reset is a true subscription that is just better, it's simple, get more, pay less, no trick and it's quite popular with roughly 72% and growing of our consumable shipping under multi-year subscriptions today. Heska is set about totally changing the veterinarians experience and expectations in point of care diagnostics. We strive to be better, fair and more pleasant than old providers and the old way. That's our culture and our people have embodied that culture. Heska's people deliver our message and they deliver on our promises day in and day out. Customers and industry partners love our people. They appreciate our extensive training and our careful selection of enthusiastic, happy, passionate human being. At Heska, our people believe in doing good, while doing well. We know how hard it is to be a veterinarian. We understand that when Heska delivers more results for less money to veterinarian, veterinarians can deliver more care to pets and their family. And that's something veterinarians and pet families appreciate. For the past 13 quarters, many, many veterinarians have voted with their business that Heska is on the right track. And because of this, new and old investors alike have agreed with them. For those, votes of confidence, we are humbly thankful and we intend to keep working hard to earn those votes of confident. As we enter 2017, we will continue to give an ever-expanding audience of veterinarian even more compelling reasons to choose Heska. Some of those in the audience will be in new countries and will speak different languages and that's exciting. Because we can't wait to prove that the simple core of our Heska message transcends language and culture, get more, pay less, no tricks. We think that translates quite well in any language. Our tactics will include geographic expansion, sales team expansion, product line expansions, a broadening of the products available under subscription, enter in the new partners and many other activities that one would expect from a fast-growing company focused on doing good, while delivering value in excess of all peers. It's not one thing that will propel Heska's growth for the next decade, it's hundreds of things and that's the great news. There is a lot of work to be done that's for sure. And we intend to do it well. And as we do it, we're excited to share the results of our work with you for many years to come. Now with that, I’d like to open up the call for your questions.

[Operator:]

Thank you. [Operator Instructions]. And we’ll take our first question from Nicholas Janssen [ph] from Raymond James.

[Unidentified Analyst:]

Hey, guys. Congrats on another strong quarter. I just wanted to first start on kind of employed 4Q guidance based on your full year expectations would suggest another, pretty nice step up sequentially in revenue growth and I know there is some seasonality to your imaging business, but if there was anything specifically driving kind of the reasonably robust expectation for 4Q revenue growth, anything that you would call out seasonally or new product lines maybe the e-coin business in your emerging business but just wanted to give more further details on that, thanks.

[Kevin Wilson:]

I think it’s a combination of things that you’re going to most of them. Seasonally the fourth quarter is strong, as always end of your tax line for capital equipment which favors our emerging business substantially in the fourth quarter. So, I think all of things are implies and I think less than or singling is the third quarter performance we think it was normal based on what we’re actually think and the market it was an extra ordinary we didn’t call things forward obviously, we like how healthy we did the third quarter and we thing the fourth quarter, I think the fourth quarter looks good as well. Hope it answers the question.

[Unidentified Analyst:]

No, it doesn’t, just one quick question on the international business. What is the contributing revenue in the third quarter, so we can just square up?

[John McMahon:]

About 1.4 million.

[Unidentified Analyst:]

Okay. And then as we think about some of your comments Kevin about the expansion of sale density as we think about ‘17, what ramification do that have on the model as we look at kind of operating margins going forward, you’ve done a great job of expanding EBIT margins to in almost 13% to 14% in the most recent quarter. Just trying to get a sense of where we stand on the margin pieces here? How do you think about your longer-term margin opportunity in context of the revenue drivers that you laid out on the call?

[Kevin Wilson:]

I think the investment more than offset any of the expense, some of those expansions have begun already in third quarter number and I think what we are calling out is that we expect those focus to be up to speed and fully productive as we entered next year. So, some of those expenses are already embedded in the third quarter number and I don’t think you'll see a negative impact when it comes to operating.

[Unidentified Analyst:]

That’s great to hear and then I guess my last question will just be on the international front, how do we think about your go-to market strategy as you look to maybe drive some cross-selling with your existing business on the imaging front and more so when do we think we might have some distributer partnership announce. Just trying to get better sense of how we think about that revenue ramp. Thanks.

[Kevin Wilson:]

You’re welcome. Good question. We are actually working currently with some distributers oversea. We haven’t made announcements; I think a lot of times we want to just get things ramped up and just delver the performance as opposed to doing business by press release. So, we think those conversations and those roll outs are going quite well. The thing I would just caution folks on is, we’re growing really well domestically and I think our growth story is solid domestically. So, the thing that we do internationally are all intents and purposes, the way I look at it are additive and that’s kind of a nice place to be in 2017. So, I will emphasize healthy expansion internationally, which again is almost purely additive growth overly rapid expansion and audacious leaps forward. So, the things that we would like to do, I think will be healthy and they'll be prudent and some will be bigger than others, but in all case, I think international in terms of what diagnostics will be purely additive. So, it’s good place to be.

[Unidentified Analyst:]

Good job guys. I'll hop back in queue.

[Operator:]

And your next question comes from David Westinberg [ph] from CL King.

[Unidentified Analyst:]

Hey guys, thanks for taking my question and congregations on an outstanding quarter. So, first, can you talk about some of the market that you think you have appeal abroad or maybe some of the easiest markets for you to first enter into, if you have that sort of strategy development right now?

[Kevin Wilson:]

Sure, we’ve actually make the main road into Easter Europe. We have a long and existing presence to our imaging business; you remember that we acquired the International imaging business earlier the year. That business has been offsetting for many years effectively in big market such as Germany, be a Germany Benelux, or Switzerland kind of the key EU markets and we have a great presence in the UK as well. I would suspect those would be the primary focus. We do have experience in Latin America, Australia and New Zealand, Middle East and other places but I would expect us focused really more on the core drivers in EU and Germany and surrounding countries and then the UK probably - any surprises there.

[Unidentified Analyst:]

Got you. And I know you still about 10% market share so what’s happening in the macro, it’s not necessarily important but to me some of the other key areas in the industry it seem to see some softness or maybe let’s say normalization in macro from what we’ve seen in the past year which has been maybe growth above normal. So that being said did you see any significant stocking in Q3 that might incline maybe a little bit of slowdown in Q4 and beyond?

[Kevin Wilson:]

So, softening or stocking?

[Unidentified Analyst:]

The question is specifically on if there is some softness and there was some softness in Q3 macro did you see any stocking basically that’s trying to hit their minimum in the slow quarter?

[Kevin Wilson:]

The subscription model we have is unique and has an awful lot of benefits but one of the main benefits is that it aligns the purchases that customers make on a monthly basis. Every month they get credit for what they used during the month and it doesn’t benefit them to over order or under order in any particular month and so we don’t see any kind of stocking irregularity at the end of the quarters or at the end of the month basically ever in terms of end user follow through, so I guess that’s a long way to answer to say no. I think customer pull through has been quite good, I think the veterinarian is healthy. I know the veterinarian is healthy, I know lots of them are our friends and I think they’re doing quite well, so we’re not seeing softness and I think jury is probably out a little bit in terms of specific competitors I think some are doing very well and some might be experiencing softness. I expect that’s more competitive pressure than it is market pressure that’s just my sense.

[Unidentified Analyst:]

Got you.

[John McMahon:]

Dave, just to add what Kevin said, data I’ve seen I haven’t seen any indications of softness and whenever I get a question like that I ask myself what could be causing that? if anything the economy seems to be doing a little better recently, which if you’re going to talk about a pull back and bench bending you could think there’d be an economic situation that would deteriorate if anything is getting a little better so, we don’t really see that I think from the data we have.

[Unidentified Analyst:]

Got you. And then, can you talk about your willingness to buy some of the longer-term contracts obviously in 2014, when a competitor made an all direct decision there was a big push and then certain push back from that larger competitor that went on the rack if there are a little bit more let’s say instruments on your contract, can you talk about your willingness to buyout those longer-term contracts?

[Kevin Wilson:]

Yeah, I think the real question is really what is the barrier to switching? And a traditional model if the customer has made a 20 year $30,000 investment a barrier to switching is the sum cost and if you can save that customer more than the balance of what their investment is as is on cost now balancing and so it’s really just math. Most of those customers out there who have made an investment in an equipment and then investment may have come with an agreement with buy certain amount of supply, which could kind of lead to - are they over-stocking or under-stocking, did they over-commit or under-commit, earlier question, but I don’t know I just don’t see it being an issue.

[John McMahon:]

Yeah, David to amplify what Kevin said, we try and approach this rationally. We don’t go out of our way of our competitors, but in particularly, we’re a small investment to get a high-volume clinic, we will do that deal.

[Unidentified Analyst:]

Got you. And then finally, you're still roughly 10% in the market. And I'm obviously broad look pretty exciting that you have an opportunity. But can you talk about maybe where you might be under penetrated in the U.S. itself, I mean I'm sure there is tons of areas for you to invest in the U.S. in certain geographies that you're under penetrated.

[Kevin Wilson:]

It's in our sales meeting it's everywhere. I agree with you 10% market share plus or minus a point here and there. I think we can do better, and I think we've been on a great trajectory since 2013. So, I think that 10% represent nice growth and I think we can continue to do that. We try and keep it simple. I think what I was trying to emphasize in my prepared comments is it's all about the veterinarian and it's about pet and it's all about aligning infrastructure with veterinarians who have access to the pet's bloods and need diagnostics. It's really just not that complicated. And I think our team is doing a really great job of evangelizing that, I think they're doing a great job.

[Unidentified Analyst:]

Great. Hey, thank you guys and congrats again.

[Kevin Wilson:]

Thanks a bunch.

[Operator:]

And our next question comes from Ben Haynor from FELTL and Company.

[Ben Haynor:]

Good morning, guys. The - a couple of questions I had on the sales force, if I recall correctly you added of sales people several months. Am I remembering that right, and can you give kind of give us some color on maybe how their productivity was tracking?

[Kevin Wilson:]

Ben, you are right. [indiscernible] with you. Yes. And so again I think in my prepared comments I was focused on more on, we think they are on track to be fully productive, early in the next year. And so lot of those investments in terms of operating expenses occurred in the third quarter and they seem to be doing a very, very good job. So I was just reiterating this, that, that density increase is going well. And they are starting to become more productive. In addition to having more people on the ground the people we have on the ground are more productive.

[Ben Haynor:]

And then am I understanding it correctly that you are going to add even more sales force density here in the in the remainder of the year or was that - where those the hires you made earlier?

[Kevin Wilson:]

I think at this point we're probably looking to add a couple of more. The first batch that we hired a couple of months ago are doing great. And that's really the difference between 15% and 20%. I'd also point out to that I think we count our sales people little bit differently. So, when I spoke about sales people, I'm really focused on new subscriber focused sales people. I'm not bundling them in with field sales support, and clinical sales support and marketing and inside sales and all of those other things which we've been expanding as well. What I'm referring to them a really people in remote offices who wake every morning and they go walk into veterinary hospitals and they try and get them to be interested in switching to Heska subscription from whatever they're doing today. And so, that's what those folks are doing. And I do think that you'll see that couple more in addition to the ones that we had in the third quarter yet.

[Ben Haynor:]

Okay, great. And then a couple of kind of housekeeping questions. First off, do you still see OVP as kind of an inflation rate growth business?

[Kevin Wilson:]

We do.

[Ben Haynor:]

Okay. And then lastly from me, did I hear correctly that you expect the full year effective tax rate to be about 25% this year?

[John McMahon:]

Yes, that's correct, Ben, this is John. And our projections have fit that rate for the year.

[Ben Haynor:]

Okay, perfect. Well, thanks for taking the questions gentlemen and congrats on the quarter.

[Kevin Wilson:]

Thanks. Appreciate it.

[Operator:]

[Operator Instructions]. And it appears that we have no further phone questions at this time. I'd like to turn the conference back to our speakers for any closing remarks.

[Kevin Wilson:]

Thank you, operator, and thanks to everybody who joined the call today. As we entered the fourth quarter, which is usually our strongest seasonal quarter for imaging placements and other products, I'm confident that we're on the right path. We've worked hard to deliver great results year-to-date and with the proven subscription model firmly in place, we're now focused on scaling it and to capture even more market share. Our Heska has on its side the right team in place, a full line of best in breed solution and thousands of veterinarians who are passionate references for Heska and our Heska Reset subscription. With strong trends in the veterinary market at our back, I continue to see Heska has poised for continued profitable growth. I look forward to updating you again on the close of the year call and until then thanks for your interest and everybody have a great day. Bye-bye.

[Operator:]

And that will conclude today's conference. And we appreciate your patients. You may disconnect.