Heska Corporation

Good day, ladies and gentlemen, and welcome to the Heska Corporation fourth quarter and full year 2021 earnings call. Today's conference is being recorded. At this time, I turn the conference over to John Agard, head of investor relations. Please go ahead.

Thank you, Keith, and good morning, everyone. Welcome to Heska Corporation's earnings call for the fourth quarter and full year of 2021. As a reminder, today's conference is being recorded. I am John Agard, head of investor relations at Heska, and with us this morning is We have Kevin Wilson, HESCA's Chief Executive Officer and President, and Katherine Grassman, HESCA's Chief Financial Officer. Mr. Wilson and Ms. Grassman will provide details surrounding the results reported, and then we will open the call to questions. Prior to discussing HESCA's results, and before I turn the call over to Kevin, I would like to remind you that during the course of this call, we may make certain forward-looking statements regarding future events or future financial performance of the company. We need to caution you that any such forward-looking statements and opinions are based on our current beliefs and expectations and involve known and unknown risks and uncertainties, which may cause actual results and performance to be materially different from that expressed or implied by those forward-looking statements. Factors that could cause or contribute to such differences are detailed in writing in this morning's earnings release, ESCA Corporation's annual and quarterly filings with the SEC, and elsewhere. Any forward-looking statements speak only as of the time they are made, and HESCA does not intend and specifically disclaims any obligation or intention to update any forward-looking statements to reflect events that occur after the time such statement was made. Also during this call, we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures as provided in our earnings release which may also be found by visiting the investor relations section of our website. In reviewing our fourth quarter and full year 2021 results, please note all references to growth refer to growth compared to the equivalent period in 2020, unless otherwise noted. And finally, before I turn the call over to Kevin, I want to mention two items of housekeeping. First, to supplement today's reported results, please find Heska's new earnings presentation on the investor resources page of the company's investor relations website. And second, Heska plans to host an analyst and investor day on Wednesday, May 18th, 2022, to discuss the company's growth strategy, consolidated performance, including its recent acquisitions and product launches, new product pipeline, and multi-year outlook. Details surrounding the event will be forthcoming. With that being said, it is now my pleasure to turn the call over to Kevin Wilson, Heska's CEO and president. Kevin?

Hey, thanks, John, and good morning, everyone. Before I begin, I'd like to encourage participants to review this morning's release. I think you'll find it helpful. Similar to our release, I'll try to keep things concise this morning. The summary for this morning is simple. Heska is a far, far stronger company than we were a year ago. Nearly every key metric and strategic initiative is substantially better than at any other time in our history. And we expect to say the same thing to you this time next year. Our outlook for 2022 is for very strong sales growth and strong global subscriptions performance. 2021 saw record sales up 28.6%. North America sales were up 21.2%. North America POC lab consumables rose 21.5% for the year and was up as expected over the third quarter. International sales were up 43.1% for the year. International POC lab consumables sales grew 42.2%. Heska subscriptions had a great year. Retention was rock solid and we captured market share. Active subscriptions grew 25%. Months under subscription grew 24%. And minimum contract subscription value or CSV grew 34%, which was double our strong outlook for 17% growth. Catherine will cover the specifics of the quarter in greater detail, so I'll take the remaining time that I have to highlight a few of my own thoughts and observations in advance of our Q&A today. About the market, pet healthcare is broadly in good shape. We are in the middle of a decades-long super cycle, and after 30 years in this space, I can say that there's no place that I'd rather be in unsettled times than pet healthcare. Veterinarians are strong, getting more valuable, and continuing to increase their focus and utilization on diagnostics. Demand from pet families remains solid. Since the early to middle days of COVID-19 societal adjustments, I've taken the position that pet healthcare was great before, will be great during, and will be great following the pandemic. We're not a stay at home play. We're not a return to work play. We're not a reflation play. We're just a good solid play. that is probably seesawed a little more than necessary due to narratives in search of facts and in search of momentum. Up or down, we have consistently held that the step up in 2020 and 2021 would simply increase the denominator before growth rates normalized to the industry's already strong mid-cycle growth rates, which for diagnostics in particular, and for HESCA specifically, has been in the 10% to 20% range. We think that's an encouraging backdrop for HESCA and for shareholders of pet healthcare stocks with diagnostics exposure. We expect to participate within these ranges with up to 17% consolidated revenue growth on tap for 2022. We expect 2022 active subscriptions to grow 25%, months under subscription to grow 24%, and minimum contract subscription value to grow 24%. About our international strategy. HESCA's international integrations, products rationalization, and products launches are progressing well. Since our first major investments, our international plan has been to trim some products, upgrade the entire portfolio to a unified, better performing product stack, convert our international installed base to multi-year subscriptions, and grow alongside our subscribers for decades under higher margin, higher utilization subscriptions. Veterinarians will get better performance, lower costs, higher margins, and higher levels of diagnostics utilization. And Heska will get the same things. We're aligned. This is what we began to do in 2021 and what we intend to largely complete in 2022. The optics of the accounting for this conversion period will at times show dampened sales dollars and consolidated gross margin pressure in international, which I see as expected and a good trade in 2021 and 2022 in exchange for benefits in 2023 and beyond, when the conversion and accounting effects will be largely completed or moderated year over year. As long as we get good utilization, solid long-term subscriptions, solid ongoing margins, reasonable retention through the transition, and placements of long-term platforms with highly expandable product roadmaps, we are thrilled. We got these things in our 2021 international efforts. As we enter 2022, we continue to see ongoing success and opportunity in these things from product expansion, rationalization, and standardization. We also continue to see a clear path to international customer subscription conversion and growth in average minimum monthly CSV at a rate that is faster than our successes in North America circa 2014 when we pursued similar goals in North America. Our goals for this effort in 2022 are detailed in this morning's release. About our investment strategy, we've invested heavily in internal innovation, collaborative partnering, licensing innovation, and in acquiring pre-revenue and early revenue teams and technologies that we can grow quickly to meet our customers' current and future needs for the full bundled suite of products and services that they want. These investments are beginning to convert to financial opportunities in 2022 and 2023. Our Element AIM, one of our most exciting internal innovations, is in full commercial release as the industry's exclusive artificial intelligence microscopy platform designed for automated urine and fecal testing at the point of care. We installed over 100 Element AIM devices in the fourth quarter in North America, a bit ahead of our goal. Initial feedback and enthusiasm has been great, and we continue to anticipate meaningful financial contribution from Element AIM in 2022. On January 3rd, we closed our acquisition of Betzee in Germany to become a leader in advanced practice information management software and imaging diagnostics informatics. This is a key leg of the stool for anyone wanting leadership in our markets, And with Vet Z, HESCA is now in a leadership position. Today's HESCA has created only one of two or three unified offerings to serve all of a veterinarian's diagnostics and informatics bundled subscription needs for leading point of care lab and rapids diagnostics, imaging and practice software informatics, and central reference lab and telemedicine services. That HESCA has done this is remarkable, and there is more to come in 2022. What this HESCA team has accomplished financially is wonderful. What this HESCA team has accomplished strategically is a leap forward that, as best I can tell, is unmatched by anyone in our industry. Ten years ago, I began to articulate HESCA's 15-year plan in three acts, and we are executing to that plan. We haven't pivoted. We haven't wavered. From 2013 through 2017, we said we would prove our health and prove our relevance in this coveted market, and we did. From 2018 through 2022, we said we would build intrinsic value and build revenue growth, and we have. From 2023 through 2027, we have said we would win at scale and win at reinvention profitably. We will. Our balance sheet is in great shape. Our position in the markets we serve has never been stronger. Our teams are better than at any time in our history. Our end markets are doing great and the diagnostics markets within them are doing even better. Our sales are growing. Our margins are growing. We've leapt over an entire year of our multi-year sales goal. We have a subscriptions business model that puts us at the very trusted center of the veterinarian's business for decades. We've doubled the geographies and customers we serve, and we've doubled the products and addressable revenue lines that we offer. We are leading in innovation and value creation. And we have assembled a full stack of products and geographies to win. We've invested many millions of dollars directly in our business while generating operational cash. And now we enter 2022 with our full focus on expanding and scaling our new full subscriptions capabilities across multiple geographic markets to grow the overall pie while also getting a bigger slice of it. It's simple, sometimes a little bumpy, super busy, and always hard work. We're glad to do it, and we're honored and thankful that customers and investors have supported us since 2013 as we do our work. Now I'm going to go ahead and turn the call over to Catherine to detail the quarter before we move into our Q&A time. Catherine?