Heska Corporation
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, and welcome to the Heska Corporation's Third Quarter 2014 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Brett Maas of Hayden IR. Please go ahead, sir.

[Brett Maas:]

Thank you, all, for joining us today on our conference call. On the call today with us are Kevin Wilson, Heska's President and Chief Executive Officer; Jason Napolitano, Heska's Chief Financial Officer; and Bob Grieve, Heska Corporation's Executive Chair. We appreciate having the opportunity to review the results for the third quarter of 2014 and provide an update on the company's progress. Prior to discussing our results, I'd like to remind you that during the course of this call, we may make certain forward-looking statements regarding future results, 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 than what is expressed or implied by those forward-looking statements. Factors that could cause or contribute to such differences are detailed in our press releases or in our annual, quarterly or other filings with the SEC. These forward-looking statements speak only as of today and except as otherwise required by law, Heska does not intend to update any forward-looking statements to reflect events that occur after today's call. Now I'll turn the call over to Kevin Wilson, Heska's Chief Executive Officer.

[Kevin S. Wilson:]

Thanks, Brett. I'd also like to thank you, everybody, for joining the call today. On today's call, Jason Napolitano will deliver the details of our strong Q3 performance, and which is -- as compared to last year our revenue was up 24%, and earnings per share doubled. Over the last 12 months Heska has generated $89 million in revenue, which is up 21% compared to the preceding 12 months, but even more impressively we posted a profit of $0.48 per share reversing a loss of $0.34 a share in the 12 months prior. It's been a good start. Following Jason's report, I'll provide some color on 2 major announcements made this morning. The first is Heska's launch of another key product, a new element HT5 hematology analyzer. The second is Heska's new partnership with Henry Schein Animal Health. Following this Bob Grieve, our Executive Chair will provide general directional comments regarding our future financial performance and then we'll take questions. Now I'll turn the call over to Jason to review our fantastic Q3 results.

[Jason A. Napolitano:]

Thank you, Kevin. The third quarter of 2014 was another solid quarter for Heska. Revenues for the quarter were $21.8 million compared to $17.6 million in the year ago quarter, an increase of 24%. Core Companion Animal Health revenue was $16.4 million, including $2.3 million from Heska Imaging, an increase of 13% compared to $14.5 million, including $2.1 million from Heska Imaging in the prior year period. Growth in our consumables was a factor in the increase. Revenue in our Other Vaccines, Pharmaceuticals and Products segment, or OVP, was $5.4 million in the third quarter of 2014, an increase of 76% from $3.1 million in the prior year period. The largest factor in the increase was greater revenue from the Elanco Animal Health contract assumed from AgriLabs last year. For the 9 months ended September 30, 2014, revenue was $65.5 million, including $7.6 million from Heska Imaging, an increase of 19% as compared to $54.8 million, including $6.7 million from Heska Imaging in the year ago period. We generated $8.3 million in gross profit, including $381,000 from Heska Imaging in the third quarter of 2014, an increase of 12% compared to $7.4 million, including $725,000 from Heska Imaging in the prior year period. Gross margin was 38.1% in the third quarter of 2014, down from 42.1% in the year ago period. A greater share of our total revenue this quarter was from OVP, which tends to be a lower-margin area than our Core Companion Animal Health segment. This and lower gross margins from Heska Imaging due in large parts to increased Heska Imaging rental placements in the period were contributing factors in the change. For the 9 months, gross profit was $25.7 million, with 39.2% gross margin, compared to gross profit of $20.2 million with 36.9% gross margin in the year ago period. In the third quarter of 2014, total operating expenses were $8 million, including $1.4 million from Heska Imaging. This represents a 9% increase from $7.3 million in the third quarter of 2013, including $1.3 million from Heska Imaging. The largest area of increase was in our general and administrative expenses, where increased noncash compensation expense, primarily related to new employment agreements for our Chief Executive Officer and Executive Chair was a key factor in the change. Total operating expenses for the 9 months ended September 30, 2014, were $24.5 million, a slight increase compared to $24.4 million in the prior year period. As Kevin mentioned, our sales growth is significantly outpacing modest growth and operating expenses, which indicates that our discipline and model are working. Depreciation and amortization was $2.6 million in the first 9 months of 2014 as compared to $1.7 million in the prior year period. Increased depreciation and amortization from Heska Imaging and our blood testing instruments in the 2014 period were key factors in the increase. Operating income was $341,000 in the third quarter of 2014 compared to operating income of $75,000 in the prior year period. We had operating income of $1.2 million in the first 9 months of 2014 as opposed to an operating loss of $4.2 million in the prior year period. For tax expense, it is important to remember that 45.4% of Heska Imaging is not owned by Heska Corporation. Therefore, 45.4% of Heska Imaging's taxable income is taxed at the individual level, but the corporate level tax is essentially 0. This tends to lower our consolidated reported tax rate in periods of profitability for Heska Imaging, an increase to our consolidated reported tax rate in periods of loss for Heska Imaging. Every quarter, we true-up total tax expense to our latest estimate. This is the reason we've relatively high tax rate this quarter. Investors will note that the bulk of tax expense is reported in the deferred tax expense line item, and is primarily related to our large federal net operating loss deferred tax asset position, which I'll refer to as our NOL. I want to stress that tax expense related to our NOL is a noncash accounting entry only. In the real world, most of our federal tax expense related to our taxable income is shielded by our NOL. So we expect to pay a much lessen taxes from this year's operations that our total tax expense would indicate. In the third quarter of 2014, we generated net income attributable to Heska Corporation of $513,000 for the quarter as compared to net income attributable to Heska Corporation of $241,000 in the prior year period. This translates to $0.09 per share basic and $0.08 per share diluted for the third quarter of 2014, compared to $0.04 per share basic and diluted in the third quarter last year. We have net income attributable to Heska Corporation of $1.8 million in the first 9 months of 2014. As compared to a net loss attributable to Heska Corporation of $2.4 million in the prior year period. This translates to $0.30 per share basic and $0.28 per diluted for the first 9 months of 2014, compared to a loss of $0.41 per share basic and diluted for the first 9 months of last year. Cash and cash equivalents at September 30, 2014, totaled $5.8 million compared to $6 million at December 31, 2013. Total debt at September 30, 2014, was $2.2 million compared to $5.3 million at December 31, 2013. With a double-digit revenue increase in our Core Companion Animal Health segment, a large increase in OVP revenue, strong income of increase, this quarter represents the type of results, we would like to continue to report to our investors. We look forward to building on the success we have this quarter. With that, I'll turn the call over to Kevin for some additional color on a few of our major initiatives and progress.

[Kevin S. Wilson:]

Thanks, Jason. So over the past year, Heska has continually released new and refreshed products. Today I'm pleased to announce, what is perhaps the most important new release, a new Element HT5. Element HT5 as a true 5-part laser, impedence and colorimetric hematology system. We've been working on this project for sometime, because the [indiscernible] hematology is a key component for wining the best clients for all of our blood testing solutions. But one of our competitors has recently report selling only one hematology analyzer for every 3 chemistry systems. Another competitor reports selling one hematology analyzer for every one chemistry system. With world-class hematology, we feel that the ratio of one-to-one is the right target. And we believe that Element HT5 is poised to achieve this level for Heska. Even as it provides the halo effect to pull more on chemistry market share to us, if that's good. Here's why, Element HT5 is faster than the competition, it's less expensive to run in the competition. And it has modern features, such as a large touchscreen user-interface and compact form factor. Element HT5 requires less blood samples than the competitors and it provides results in under 60 seconds, which is 2x to 13x faster in major market shareholders. And Element HT5 is accurate, it's really accurate, because it's a true 5-part measurement hematology that uses impedence and colorimetric methods, along with laser analysis of samples from 3 angles for reference level performance with the MBA systems many times its size and many times its price. We believe that the Element HT5 will open up substantially more hematology market to Heska. As it is positioned to take share from competitors that offer slower, less precise, less efficient, more expensive and dated offerings. We love this thing. It's going to improve our product portfolio and we think it's clearly, the strongest line up in our history. So to review, in 2014 Heska has gotten product right, by launching major new products and updates. In point-of-care blood testing with electrolytes, metabolites and basic chemistry we've launched the Element POC, which has taken market share. In chemistry, we've launched a new E-Wrap for our Element DC, which delivers both the convenience and multislide prepackaged dry chemistry panel, and the flexibility of single slide test. In Allergy, we've launched the all new ALLERCEPT testing and treatment lines with an 85% increase in sensitivity at a substantially lower test price. In imaging, we've launched 3 major new digital radiography products, including the CloudDR ultra high-definition line for companion animals. And the new Slate 5 and Uno 5 line for the upcoming equine end of year selling season. And in cloud-based software services, we've completed the launch of our all new Cloudbank 2.0 for imaging, report, data and multiformat information archival and sharing from the cloud to title together. But Heska's product line refresh in full swing, we are now fine-tuning our sales model, including Heska's reset and blood diagnostics and our widely popular rent-to-own options in digital imaging. And while these long-term programs may have dampened earlier revenues and margins in the most recent periods, and may continue to do so for sometime. The benefits of sustained revenues, market share and momentum are beginning to show on our numbers. For instance, sales of our blood analyzer consumables to end-users continued to trend up at over 20% year-over-year. This key metric is encouraging and it's important. With Heska's best-in-class products family and confirmed go-to-market programs progressing, we now turn our attention to scale and reach. So today, I'm pleased to announce that Heska has entered into an agreement with Henry Schein Animal Health for broad nationwide distribution. Henry Schien Animal Health is the leading companion animal health distribution company in the United States, with approximately 300 field sales representatives, 200 telesales representatives, 13 state-of-the-art distribution facilities and 10 inside sales centers across the country. Alongside existing MWI and our new Midwest veterinary supply channels, Henry Schien will offer and promote Heska's Solo Step Heartworm testing, ALLERCEPT allergy testing, Element POC Blood Gas system and test guards, Heska infusion pump and other Heska offerings. In chemistry and hematology, including the brand-new Element HT5 hematology, we've strategically chosen Henry Schien as Heska's only external distributor. As the nation's largest and broadest distributor, we believe that Henry Schien is best positioned to gain and protect market share in this changing environment. So Heska has been nimble in partnering with Henry Schien in a way that shields their work from the unending churn, poaching and margin erosion, commonly seen when identical routers, clips, slides, reagents or analyzers are being sold by many distributors that are falling into the same hospitals. This sort of contrast to a multidistribution model, we're excited to win the lion's share first opportunity volume and loyalty of Henry Schien sales professionals, which there are over 500 by differentiating ourselves with superior products, better pricing, and perhaps most importantly a loyal and exclusive foundation. We think that these attributes will encourage the Henry Schien team to position Heska favorably and position Heska often into thousands of opportunities. Now before we go on, I want to take a step back and comment on IDEXX's shift away from distribution, which has set in motion new opportunities across the industry. Now IDEXX is an excellent company and admired competitor. I like the rest of the industry will watch with interest as they pursue their new path. While I wish them well, and as much as their success is a rising tide that lifts many boats, I'm excited by the opportunities cracked open by their decision to retreat from exclusive distribution relationships. When IDEXX dropped distribution, IDEXX also dropped a draw bridge across a moat that was helping -- that was keeping Heska from being invited to compete for thousands of decisions each year. When given the opportunity to compete, Heska wins. With the addition of Henry Schien's scale and relationships we're encouraged that Heska maybe the biggest beneficiary of these recent changes, as we leverage Heska sales team of 60 with Henry Schien's team of over 500. While all this is exciting, a word of caution is in order. We still have to do our own work and we still have to be the best. We still have to overcome many obstacles. For instance, because IDEXX is a fierce competitor, we anticipate that many of the IDEXX accounts serviced by MWI, Patters and Henry Schien and other over the years are in some way entangled or contracted IDEXX to continue purchases of IDEXX products from IDEXX. It remains to be seen how large this lock up is based -- how large this lockup base is for IDEXX and how many of those accounts are in a position to excise the choice in favor of an alternative. While we're encouraged that the opportunity is large, we anticipate that is by no means universally opened in all veterinary hospitals. And finally, a last observation on the topic, because Heska places analyzers on a reset rental model in return for long-term consumable contracts of the veterinarian, Heska does not sell into distributors warehouse those analyzers. We do not anticipate large analyzer stocking orders pursuing Heska's result in the short-term. Rather we anticipate emphasizing growth in consumables as the primary metric of our success in these efforts. So to review, Heska has launched a full line of new and refreshed products. We fine tuned our go-to-market plan, we've revamped and renewed our sales and marketing teams. We dramatically cut expenses in relation to sales. And we've now begun to scale this winning formula. Compared to last year in the same period, we grew our top line sales by 24%, increased gross profit by 12% and contained operating expenses to a mere 9% rise against this backdrop of a 24% top line growth. We delivered $0.08 per diluted share in the third quarter, which has doubled last year's performance. Like the second quarter -- in the third quarter, we grew the bottom line much faster than the top line, even as we increased our placement of long-term rental agreements in our imaging and blood analyzer segments. Now I'll turn the call over to Bob Grieve, our Executive Chair for some closing comments.

[Robert B. Grieve:]

Thank you, Kevin. Before we conclude our prepared comments, I'd like to spend a few moments providing you with some context regarding our expectations going forward. As we said during last quarter's earnings call, we expect to see ongoing growth into the intermediate term, with Core Companion Animal Health revenue, our largest segment, expected to grow in a low double digits. And the OVP segment to grow at about the rate of inflation in the low single digits over the intermediate term. I want to stress that this is not short-term guidance and we could well experience individual quarters with higher or lower growth rates. In particular, in quarters where we've a particularly easy or difficult comparison to the given historical quarter. It is worth noting again, that the year-over-year revenue growth in the OVP segment has been quite striking in the past 2 quarters. Much of this has been due to the transition of cattle vaccines manufactured in our Des Moines facility to our new partner in that area, Elanco Animal Health. We want investors to understand as we expect these segments to return to more historical performance trends namely, lower growth in the consolidated business with a lumpy performance and quarterly results. I'd also like to point out that the fourth quarter 2013 was, for Heska Imaging, a monster success, that when coupled with some other events in the period creates a very aggressive baseline measurement to our upcoming fourth quarter this year. It is worth reiterating Kevin's enthusiasm and comments about our new relation with Henry Schein Animal Health. For those of you working to model our future performance, please remember that revenue realized through our distribution channels will be subject to a discount realized by the distributor. So as that revenue is netted by that discount, it will be lower revenue per unit and affiliated gross margin percentage, but hopefully, increase overall gross profit. The extent of this should be factored in the income statement modeling will be dependent on how much revenue is realized through that channel. Presently that is fairly difficult to estimate. On the expense side, investors should expect to see tightly managed expense in each operating expense category. With revenue growth in our sights, new products launched, Henry Schein Animal Health scale and reach on our side and expense control yielding results, we look for the coming quarters to enhance profitability during this exciting and promising time for Heska. Thanks for your attention, today, and we appreciate your continued interest and support of Heska. At this time, I'd like to turn this over to the operator for questions and answers.

[Operator:]

[Operator Instructions] We will take our first question from Jon Block from Stifel.

[Jonathan D. Block:]

Kevin and Jason. I mean, Kevin maybe if you can just talk a little bit about what you're seeing with the end market, you talked about really solid consumables, when you look to the end users. Some of that is market share, I'm guessing. But also, maybe what are you seeing in terms of the end markets over the past 6 to 9 months. And maybe how do you see developing for the rest of the year.

[Kevin S. Wilson:]

I think broadly, like, what we're seeing from most of the industry players, it's a rising market in general. It seems that everybody is having a good spring, put it that way. So we are seeing health out there. We're seeing veterinarians are encouraged and maybe a little bit more bullish. That's not probably a good way to put it. So I think as their business gets healthier, as long as we can continue to grow market share, I think our business will do well.

[Jonathan D. Block:]

Okay. And then, 2 more if I may. The first one, any details you can give around how you would break apart your chemistry and market share and that of hematology. And should we think there is a distinct opportunity to increase that if it's not one-on-one to one-to-one upon the release of the new hematology analyzer?

[Kevin S. Wilson:]

We're trend a little bit below one-to-one right now. We had a fantastic 3-part chemistry -- hematology in for many years. And the position that its occupied is for people who want a rocksolid 3-part workforce. We've been frozen out of the 5-part market, so if that becomes a criteria for somebody who really wants those extra capabilities and extra measurements, we do simply haven't been able to participate in that space. And so what we believe happened in that case is, people look at the family of products and they select, which products they're going to evaluate as a family. So I suspect we've been crossed off the list early in some accounts simply because their specification required a 5-part. So I'm excited, it still has to play out in the market certainly, but if we now meet that key specification for blood analyzers, meaning when somebody is looking for chemistry hematology and perhaps blood gas analyzers. But primarily chemistry and hematology, it's really important now that we not only meet that 5-part specification, so we're likely to get invited to that evaluation. But in our opinion it's the best 5-part out there. So we do anticipate a one-for-one, it may even be higher than one-for-one initially, depending on our ability to capture market share from those competitors, who don't sell hematology and whatever chemistry in it. We think there's an opportunity out there.

[Jonathan D. Block:]

Okay. And then, last one for you and I appreciate the commentary around IDEXX's decision to go direct. I think, they push you a little bit there and this one have been pre-dating before you just arranged but when -- about a year and a half ago, I believe Heska went into a agreement with MWI as a distributor that was in place on the -- in clinic chemistry and hematology side for a couple of quarters. And then I think, it was sort of unraveled in the back part of '13. But can you talk to us about what's different this time with Henry Schein and why it didn't worked with MWI? Do you see a very different outcome with Henry Schein going forward.

[Kevin S. Wilson:]

You're welcome, thank you. Yes, it is -- Henry Schein is a great organization. They sell a lot of our other products and we enjoy working with them. That said, if you go back and you look at the dynamics in the market that was in place, it's totally different scenario. What MWI was presented with was a long contract of exclusivity with IDEXX, long embedded habits formed with the field that will simply allow them to reach deeper into their bag and pull out now a second player in the form of Abaxis or Heska. And if the second player didn't work, they were allowed to reach deeper in their bag and pull out a third player, which again was Abaxis or Heska. But nothing really changed in the primary relationship and the primary habits. And so if you're a sales representative at MWI and you've successfully placed IDEXX systems for 5 to 7 years and it's rewarded you and it's done well, and you have confidence in that product. It's a bit odd that you would say, I'm going to reach all the way down into the bag and grab a third option. And the fact of the matter is, they were being served well, by 2 large competitors. The largest being IDEXX, which still maintained the largest share at MWI. So the dynamics were incorrect and what's interesting is, we took a more direct approach 1.5 year ago. And I'm honored that IDEXX would agree that, that strategy from 1.5 year ago happened to be a good one. But having IDEXX having changed the dynamics, it's our job as a small nimble company to then play the hand as it sits today. And we think that partnering with Henry Schien on exclusive basis will fundamentally change those dynamics. We think Henry Schien will reach for us, Heska as a primary option as oppose to being a third option. So hope that answers the questions, it's a little bit of rambling answer, but it's how I see the world.

[Operator:]

And we'll take our next question from Nicholas Jansen from Raymond James.

[Nicholas Jansen:]

Just a couple of quick questions. First on the comp from a year-over-year perspective as we look at the fourth quarter. I think, Bob you mentioned [indiscernible] had a kind of a blow out 4Q number last year and we've been kind of averaging roughly in the high 2s about 3,000 for the last 3 quarters. How should we think about -- I know it's a seasonal business, I know a lot of purchases happening in the year end for DR. But just wanted to get your sense of maybe you can help us frame kind of your sense of what sequential expectations could be just for that product line.

[Robert B. Grieve:]

Sure, I would. This is Bob, Nick. And again thanks for your comments and question. I would say, again directionally only. We're simply saying that Q4, 2013 was, I call it a little monster, a blow out in your terminology. I suppose, and it wasn't just imaging, there were some other things that were going on there as well. So again, I think in my closing comments, I referenced historical -- certain historical quarters are going to make a tough comp. And I would see fourth quarter this year being under that sort of pressure, as we had such a great quarter a year ago that we're having a hard time beating that.

[Nicholas Jansen:]

That's helpful. And then looking at the Elanco relationship for the last 2 quarters, certainly been a nice driver to revenue growth there. So maybe if you could just help me, remind me kind of some of the specifics there, what's really driving that increase in revenue, and why certain of that might go back to historical levels over the next few quarters?

[Robert B. Grieve:]

Sure. We reported and described publicly 2 major elements to that relationship. In the first case, they purchased certain assets, the vaccine feeds [ph] from Heska, that were owned -- they're owned historically by the Diamond Animal Health entity. Now under the umbrella of our OVP revenue segment. Secondly, they -- and you recall perhaps historically that we had a relationship there, distribution relationship with AgriLabs, which is a consortium owned by a variety of distributors and AgriLabs labeled and pushed those cattle vaccine products out through those multiple distribution channels. Elanco purchased that distribution right agreement more precisely from AgriLabs. And then in order to get into this market, taking it to cattle vaccines that would be manufactured in Des Moines facility. So what you're seeing here in transition, while I can't be completely sure, because there is a fair curtain between some of what that customer does and the end market. But you might anticipate things like stocking orders, in transition -- offset against inventory they may have purchased from AgriLabs in the near term. But we just see, ultimately they're settling down to the smaller growth rate after this transition is complete. Now that said, we think Elanco is a very robust partner. They're determined to make a bigger -- and bigger footprint in the animal health. In general, you will note there is a -- an acquisition of Norse Animal Health business pending. And they were specifically interested in scaling and scoping the cattle vaccine segment, which is relevance to your question.

[Nicholas Jansen:]

Very helpful color. And then, lastly, kind of thinking about the opportunity over the next year or so, with the expanded distribution with Henry Schien. I guess, the question is in terms of the innovation that you've done right now, what else are you guys are looking at in terms of you souped up your chemistry, you significantly expanded your hematology, your R&D expense every year really isn't that big. I'm just trying to get a sense of how we should be thinking about the new product innovation going forward, given that you've done a pretty broad overall refresh as you put it over the last, lets say, 12 to 18 months.

[Kevin S. Wilson:]

This is Kevin. The product refresh when you look at the R&D spend again, as a smaller nimbler company, it's our job to work with manufacturing partners who are doing substantial R&D. There are factories around the world that are in verticals that do amazing technology innovation, and it's our job to identify that innovation where the R&D has been spent and then to adapt it into our vertical veterinary. And the opportunities out there to do that are innumerable. So that's really more of our strategy and it's really not just our strategy, even our much larger competitors rely on the companies, an example would be IDEXX and their partnership with Sysmex, would be an example for the hematology. So the R&D spend in our particular space, I don't think tells us an awful lot about what the innovations are coming down the pipe. Forgot the second part of the question, was that about it.

[Operator:]

[Operator Instructions] And we'll take our next question from Ben Haynor from Feltl and Company.

[Ben C. Haynor:]

Can you talk a little bit more about the Element HT5, is it in the market now, I appreciate the speed of comparisons with the competitors, but can you maybe give us some information on the differential in cost structure versus some of the competitors that are out there as well?

[Robert B. Grieve:]

Sure. The process is literally just announced this morning. And it will roll out coinciding with the roll out of our Henry Schien relationship, and we think that gives an awful lot of excitement and momentum as well. We don't expect to be shipping and installing units until the end of the quarter. We do expect first shipments to begin at the end of the quarter. But some of those shipments may roll into the first quarter depending on timing. So it's not determined yet. So it is a brand-new system, but it's not a system in progress, it's not something that we anticipate talking about in the new launch 6 months from now. I mean, it will ship in the fourth quarter. In terms of differences and differentiators with the competition, I don't want to be overly broad on purpose, but it's faster. I mean 2x faster, does 60 second results. One of our very good competitors is 2 minutes on their super premium option. There are thousands of laser-based hematology unit's out there that take for 13 minutes to provide the results that we can do in 60 seconds. And so that's a big differentiator. It's a true 5-part measured system, one of our competitors doesn't measure all 5 parts, there's estimated and averages in there. And we think the customers want specificity. They want to measure something they don't want to estimate it. There's a big differentiator there. For normal users, 2, 3, 4 studies per business day, it's substantially less to operate, it's roughly $4, I believe is the test cost. To operate at that volume level and it gets even better as those volume levels go up for larger clients. So when I say, it's smaller, sleeker, cooler, faster, less expensive, it is at least in our market research all of those things.

[Ben C. Haynor:]

Great. That's very helpful. With all these refreshes and new product introductions, would you guys say, it's fair to say that you guys have the newest line of product on the market?

[Kevin S. Wilson:]

I think so. I'm sure other folks could spin that in another direction. And -- but we think so. We think that's pretty clear. We have -- with the most recently released blood gas analyzer and it's taken market share, because we have no market share when we launched it and we now have hundreds of clients that have it. So we see the trade-ins coming and we see the performance with other analyzers out there. So we're doing well in the blood gas and electrolyte space. And we think with our entry into the 5-part, it brings us into clinics that weren't bringing us in. Yes, we would do -- we're doing clearly -- we got the strongest portfolio we have ever had at Heska.

[Ben C. Haynor:]

Great. And then, on the relationships with your largest competitors and then the lockups that may exist, sort of be in place with them going direct from historical contracts. I guess, I don't recall anyone walking [indiscernible] for more than 5 years. Wouldn't that generally imply that perhaps 20% might be available in any given year for you guys at Heska?

[Kevin S. Wilson:]

I think, bluntly that's a reasonable expectation and then, it's like anything else. If they're doing their job, they are renewing those agreements by bringing new offerings to the table on an annual basis. But, yes, I think, 20% is a good starting point.

[Ben C. Haynor:]

It's okay. And other than [indiscernible] last with the performance that you guys have had, the success that you have here, is there any intention or plan to maybe perhaps expand the sales team, take advantage of some of the opportunities that are out there?

[Kevin S. Wilson:]

Yes, we're doing that slowly. I've seen small companies get into trouble with strategic plans to just scale on paper. So I've never found that counting the numbers of sales reps is really a super accurate way to determine our health, it's really the quality of each of those. So we are doing it slowly, our sales rep count is up, but it's up in very, very small numbers. We would do far better to focus on leveraging 500 Henry Schein relationships with our 60 people, then trying to move our 60 people to 70 people. So that's really our focus over the next year, is to work with Henry Schein and get market share that way. We're encouraged, we think they know an awful lot about the market, they have an awful lot of relationships, they have an awful lot of insight into the spend and clinics that may have never seen a Heska product. So we like how we're doing on our own. And we only think adding those relationships in that reach with Henry Schien is probably the better way forward for us in the near term.

[Operator:]

And we'll take our final question from Jason Aryeh from Jalaa Equities.

[Jason M. Aryeh:]

A couple of questions. On the 5-part, how much does speed matter in some cases you're talking about a couple of minute difference. Is it enabling the -- that to get a client in and out of the office faster, so he can see more clients that day. What do you see? I know there are other advantages, but speed wise is what you've emphasized.

[Kevin S. Wilson:]

Well, I think clearly, there are advantages to getting clients real-time information. I mean the whole point of doing in client diagnostics is to not wait. So if I look at even what a -- one of my colleagues recently said on their call, the evaluation that he gave I believe was something along the lines of the choice to buy would be based on speed, it would be based on accuracy, it would be based on cost of test. So those are the things that I think we all in the industry emphasize because those are the things that the veterinarians continually tell us they want. So yes, if you have to spend an extra 10 minutes watching your tea kettle boil, that's not a very efficient use of your staff time and certainly, not a very efficient use of your exam room time. And if your hospital is small like most veterinary hospitals are, and you have 2 or 3 exam rooms. And you have 3 people sitting in exam rooms waiting an extra 10 minutes, and you multiply the ripple effect of that through the day, and you multiply that ripple effect for things like presurgicals. So now you're tying up surgery time, you're tying up staff in that way. It's pretty significant.

[Jason M. Aryeh:]

Great. And I just kind of more macro question in -- the company's trading at 1x revenues, put a great management team together now, got terrific growth good new products. And are going to throw off some significant free cash flow. It seems like your efforts to gain attention from the Street have been fairly minimalistic. Do you guys plan on being more visible to the Street kind of track more institutional ownership of the stock. I know you've done a great job leading the business, which is most important, but I guess the second part of being a public company and gaining more visibility at least institutionally, what are your thoughts there and plans?

[Jason A. Napolitano:]

' I would say, I understand the comment, but I don't necessarily think it reflects the reality. We've been pretty hard at work, that various conferences where we've been invited we'll continue to do that. We've been also on various nondeal road shows, calling specifically on institutions. Primarily filers, high-quality people and I would say, if you look carefully at the public filings you'd seen a shift in institutional holdings over the past year, which is as meaningful material and different than it has been in the past. There's no reason to assume that we're going to suspend those activities. We'll continue those at similar pace in the future. So again, I'd encourage you to look at those regulatory filings and see where our institutional ownership over the past year or even 18 months.

[Operator:]

And we have no additional questions at this time. Mr. Wilson, I'll turn the conference back to you for any additional or closing remarks.

[Kevin S. Wilson:]

Well, thanks, everybody. Clearly, Heska had a great quarter. I couldn't be more proud of the people at Heska. They did a great job. And the teams and the products just seem to be getting better and better. We're encouraged by our recent trajectory, we're encouraged by our momentum. Now we look forward to our next report to you on our progress. Thanks for your interest, and have a great day.

[Operator:]

And ladies and gentlemen, this does conclude today's conference. And we do thank you for your participation.