Heska Corporation Reports First Quarter Results

LOVELAND, Colo., May 2, 2017 /PRNewswire/ -- Heska Corporation (NASDAQ: HSKA - News; "Heska" or the "Company"), a provider of advanced veterinary diagnostic and specialty products, today reported financial results for its first quarter ended March 31, 2017.

First Quarter 2017 Highlights with Prior Year Comparison:

• Revenue up 12% to $30.4 million.
• Operating income up 42% to $2.8 million.
• Net income attributable to Heska up 288% to $4.6 million.
• Earnings per share up 259% to $0.61 per diluted share.

Kevin Wilson, Heska's Chief Executive Officer and President, commented, "The first quarter of 2017 built nicely upon the foundations set over the past couple of years. Blood diagnostics subscribers grew as Heska again saw market share gains with lasting growth visibility unique to our subscriptions model. Blood diagnostics revenue rose 22% in the period. Digital imaging sales were in line with our expectations and below record 2016 levels, offset by vaccines, allergy, and pharmaceuticals sales that surged 56% in a great start to the year. I am very pleased with our early 2017 performance. Entering the second quarter, we continued to have good subscriptions visibility, solid price realization, large addressable targets, improving operating leverage, a solid balance sheet, and a multi-pronged growth strategy. Margins have expanded, profitability is up, topline growth is in line with our expectations, and we are well positioned to outperform others this year and over the next several years."

"Veterinary market indicators continue to point to a strong environment for the rest of 2017," added Mr. Wilson. "Aided by this trend, our 2017 focus is on cost, systems and margin optimization for long-term and increasing profitability as we expand. In the face of large competitors who have and will contest our progress every step of the way, Heska teams are hard at work on numerous expansion initiatives. We are competing effectively for new market share, adding to our test menu, benefiting from end user prosperity and price, expanding and extended our multi-year contracts with customers, deepening our commitment to subscriptions over capital sales, broadening our sales reach in North America, and continuing to lay the foundations for an international launch of our diagnostics subscription model. Heska is hard at work on these and so many other positive activities because the rewards for doing them well are large and meaningful. We intend to do each of them well."

Financial Results

2017 first quarter revenue was $30.4 million, a 12% increase from $27.1 million in the first quarter of 2016. With core blood diagnostics revenue rising 22%, partially offset by an expected 26% reduction in imaging revenue, total first quarter Core Companion Animal Health segment revenue increased 5% to $24.6 million, up from $23.4 million in the first quarter of 2016.  Our Other Vaccines, Pharmaceuticals and Products segment revenue increased 56% to $5.8 million, up from $3.7 million in the first quarter of 2016, driven by a strong broad based performance and an increase in sales from our contract with Elanco.

First quarter gross profit rose 15% to $13.2 million, compared to $11.4 million in the prior year.  First quarter gross margin was 43.5%, up 140 basis points over the 42.1% gross margin in the first quarter of 2016. Total operating expenses in the first quarter of 2017 were $10.4 million (34.3% of sales), compared to $9.5 million (34.9% of sales), in the prior year period.  First quarter operating margins improved 190 basis points to 9.2%, compared to 7.3% in the prior year. Operating income grew 42% to $2.8 million during the first quarter of 2017, compared to $2.0 million in the first quarter of 2016.  Net income attributable to Heska Corporation rose 288% to $4.6 million, or $0.61 per diluted share, in the first quarter of 2017, compared to $1.2 million, or $0.17 per diluted share, in the first quarter of 2016.

Income Taxes

The Company's effective income tax rate was a benefit of 51% for the first quarter of 2017, compared to tax expense of 31% for the first quarter of 2016. The effective tax rate for this quarter was favorably impacted by the discrete tax benefits associated with larger than normal stock compensation activity during the quarter which was subject to ASU 2016-09 accounting guidance we adopted in June of 2016.  The Company estimates these discrete tax benefits impacted the first quarter of 2017 by approximately $2.2 million, or $0.29 of diluted earnings per share. The Company anticipates that ASU 2016-09 impacts will continue, varying significantly by quarter based on stock sale activity, settlement specifics, stock price levels, and other factors, and will moderate in the future.

Balance Sheet

At March 31, 2017, Heska had $12.2 million in cash and cash equivalents, compared to $6.2 million in the prior year period, and working capital of $24.9 million. Stockholders' equity increased to $92.7 million as of March 31, 2017, up from $87.0 million as of December 31, 2016.

Investor Conference Call

Management will conduct a conference call on May 2, 2017 at 9 a.m. MDT (11 a.m. EDT) to discuss the first quarter 2017 financial results. To participate, dial 1- 888-256-9157 (domestic) or 1-913-312-0860 (international) and reference conference call access number 8951708. The conference call will also be broadcast live over the Internet at www.heska.com. To listen, simply log on to the web at this address at least ten minutes prior to the start of the call to register, and download and install any necessary audio software. Telephone replays of the conference call will be available for playback until May 9, 2017. The telephone replay may be accessed by dialing 1- 844-512-2921 (domestic) or 1-412-317-6671 (international). The replay access number is 8951708. The webcast will also be archived on www.heska.com for 90 days.

About Heska

Heska Corporation (NASDAQ: HSKA - News) sells advanced veterinary diagnostic and specialty products. Heska's state-of-the-art offerings include blood testing instruments and supplies, digital imaging products, software and services, vaccines, local and cloud-based data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products.

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