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Heska Announces Q4 and Annual 2008 Results
Date:3/16/2009

Core Companion Animal Health Segment Increases Annual Revenue

LOVELAND, Colo., March 16 /PRNewswire-FirstCall/ -- Heska Corporation (Nasdaq: HSKA) ("Heska" or the "Company") today reported financial results for its fourth quarter, the three months ended December 31, 2008, and year ended December 31, 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20000622/HESKALOGO)

"The poor economic environment had an impact on our fourth quarter 2008 results in addition to the anticipated revenue shortfall in our Other Vaccines, Pharmaceuticals and Product segment. This was particularly true in new instrument sales, which represent a relatively large capital expenditure for a significant portion of our customers. We believe many veterinarians are consciously delaying capital expenditures until they perceive more positive economic conditions," said Robert Grieve, Heska's Chairman and CEO. "We cannot plan for this situation to change quickly. Accordingly, we took steps late in 2008 to reduce our overhead costs in the coming year. Our restructuring charge of $785 thousand includes severance payments for several employees. Despite the economic downturn experienced globally in the fourth quarter, our Core Companion Animal Health product revenue grew to a record level in 2008. We are committed to managing our business through these challenging times and positioning our company to prosper in the years to come."

Total Revenue

Total revenue for the fourth quarter of 2008 was $15.4 million, a decrease of 23% compared to $20.0 million in the fourth quarter of 2007. 2008 total revenue was $81.7 million, down 1% compared to $82.3 million in 2007. Total revenue consists of product revenue and research, development and other revenue, both of which are discussed below.

Segment Product Revenue

Total product revenue for the fourth quarter of 2008 was $15.1 million, down 23% from $19.7 million in the fourth quarter of 2007. For the year ended December 31, 2008, total product revenue was $80.3 million, down 1% from $80.8 million in 2007. Heska Corporation's business is comprised of two reportable segments - Core Companion Animal Health and Other Vaccines, Pharmaceuticals and Products. Product revenue from these segments is as follows:

Core Companion Animal Health This segment includes revenue from the Company's diagnostic instruments and supplies as well as single use, point-of-care tests, vaccines and pharmaceuticals, primarily for canine and feline use. In the fourth quarter of 2008, this segment generated product revenue of $13.4 million, down 22% as compared to $17.1 million in the fourth quarter of 2007. For the year ended December 31, 2008, this segment generated product revenue of $67.0 million, up 2% from $65.9 million in 2007.

Other Vaccines, Pharmaceuticals and Products This segment includes revenue from private label vaccine and pharmaceutical production, primarily for cattle but also for other animals such as small mammals. In the fourth quarter of 2008, this segment generated product revenue of $1.7 million, down 34% as compared to $2.6 million in the fourth quarter of 2007. In 2008, this segment generated product revenue of $13.3 million down 11% from $14.9 million in 2007. Results for the year ended December 31, 2007 include approximately $1.6 million in revenue recognized in the first quarter upon receipt of a payment for product previously shipped and "take-or-pay" minimums for 2005 and 2006 which previously had not been paid as part of a now settled dispute with United Vaccines, Inc. ("United"), a former customer.

Research, Development and Other Revenue

Research, development and other revenue was $307 thousand in the fourth quarter of 2008, a decrease of 6% compared to $325 thousand in the prior year period. For the year ended December 31, 2008, research, development and other revenue was $1.3 million, a 13% decline compared to $1.5 million in 2007.

Income Tax Benefit

The Company reported an income tax benefit for all periods presented which generally relate to an anticipated future tax benefit for financial results in the period presented. Prior to December 2007, the Company's domestic net operating loss carryforward ("NOL") had historically been reduced by an equal, offsetting valuation allowance. Based on the Company's profitable operating performance in the United States, in December 2007 the Company concluded that a portion of its domestic NOL was realizable on a more-likely-than-not basis and reduced the corresponding valuation allowance. This resulted in an income tax benefit of approximately $30 million and a corresponding $30 million net deferred tax asset - equal to the estimated amount of income taxes the Company will recognize in its future statement of operations as income tax expense that the Company will not have to pay in cash as the Company utilizes its domestic NOL, assuming the Company's estimate of the realizable portion of its domestic NOL is correct. This was a non-cash accounting entry. In addition, the Company's fourth quarter 2008 and 2008 income tax benefit was reduced by $10 thousand with a corresponding reduction of its net deferred tax asset related to its NOL in Switzerland as the Company did not generate sufficient taxable income in 2008 to fully utilize its Swiss net deferred tax asset, which expired at the end of 2008. The Company does not anticipate a valuation allowance adjustment related to its deferred tax assets in any period in the near future, although there can be no assurance a significant valuation allowance adjustment - increase or decrease - will not be appropriate in the future.

Investor Conference Call

Management will conduct a conference call on Monday, March 16, 2009 at 9:00 a.m. MDT (11:00 a.m. EDT) to discuss the fourth quarter and year end 2008 financial results. To participate, dial (800) 218-0204 (domestic) or (303) 262-2138 (international); the conference call access number is 11124767. The conference call will also be broadcast live over the Internet at http://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, download and install any necessary audio software. Telephone replays of the conference call will be available for playback until March 30, 2009. The telephone replay may be accessed by dialing (800) 405-2236 (domestic) or (303) 590-3000 (international). The webcast replay may be accessed from Heska's home page at www.heska.com until March 30, 2009.

About Heska

Heska Corporation (Nasdaq: HSKA) sells advanced veterinary diagnostic and other specialty veterinary products. Heska's state-of-the-art offerings to its customers include diagnostic and monitoring instruments and supplies as well as single use, point-of-care tests, pharmaceuticals and vaccines. The company's core focus is on the canine and feline markets where it strives to provide high value products and unparalleled customer support to veterinarians. For further information on Heska and its products, visit the company's website at www.heska.com.

Forward-Looking Statements

This announcement contains forward-looking statements regarding Heska's future financial and operating results. These statements are based on current expectations and are subject to a number of risks and uncertainties. Investors should note that there is an inherent risk in using past results to predict future outcomes. Revenue generated in 2008 or 2007 related to customers, technology or products may not recur in 2009. For example, in the year ended December 31, 2007, Heska recognized approximately $1.6 million in revenue upon receipt of a payment from United for product previously shipped and "take or pay" minimums for 2005 and 2006. As United has ceased operations, Heska does not expect to generate any future revenue from United. In addition, factors that could affect the business and financial results of Heska generally include the following: uncertainties regarding overall economic conditions, the effect of these conditions on Heska's business and Heska's accuracy in predicting these and related matters; the level of Heska's fixed expense, which is significant, and the corresponding cash flow and liquidity-related risks resulting from unanticipated revenue and gross margin shortfalls; uncertainties related to the Company's ability to generate taxable income in the future to benefit from its net operating loss and other deferred tax assets, and its ability to predict such outcomes, including over the very long term; risks regarding Heska's reliance on third-party suppliers, which is substantial and could have significant negative consequences if Heska were to lose exclusive rights or access to a product due to a failure to meet minimum sales requirements or for other reasons; risks regarding Heska's ability to successfully market, sell and distribute its products; competition, including uncertainties regarding the impact of new products competitors have recently launched or may launch in the future; uncertainties regarding Heska's reliance on third parties to whom Heska has granted substantial marketing rights to certain of Heska's existing products; uncertainties related to Heska's ability to obtain access to capital in the future in order to sustain its business; uncertainties related to Heska's ability to maintain its listing on the Nasdaq Capital Market; risks related to Heska's reliance on third parties for products Heska may intend to introduce in the future; and the risks set forth in Heska's filings and future filings with the Securities and Exchange Commission, including those set forth in Heska's Annual Report on Form 10-K for the year ended December 31, 2007 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

Financial Table Follows:

                      Consolidated Statements of Operations
                     In Thousands, Except per Share Amounts
                                 (unaudited)

                                          Three Months       Twelve Months
                                             Ended               Ended
                                          December 31,        December 31,
                                         2007      2008      2007      2008
    Revenue, net:
      Product revenue, net:
        Core companion animal health   $17,082   $13,398   $65,910   $67,021
        Other vaccines,
         pharmaceuticals and products    2,635     1,729    14,897    13,310
          Total product revenue, net    19,717    15,127    80,807    80,331
      Research, development and other      325       307     1,528     1,322
          Total revenue, net            20,042    15,434    82,335    81,653

    Cost of revenue:
      Cost of products sold             13,084    11,083    48,874    52,478
      Cost of research, development
       and other                            40        10       274       331
          Total cost of revenue         13,124    11,093    49,148    52,809

    Gross profit                         6,918     4,341    33,187    28,844

    Operating expenses:
      Selling and marketing              3,937     3,616    16,109    17,640
      Research and development             570       489     2,679     1,951
      General and administrative         1,883     2,161     8,925     8,917
      Restructuring expenses                 -       785         -       785
      Other                                  -       232       (47)      232
          Total operating expenses       6,390     7,283    27,666    29,525
    Income (loss) from operations          528    (2,942)    5,521      (681)
    Interest and other expense, net        155       140       588       640
    Income (loss) before income taxes      373    (3,082)    4,933    (1,321)
    Income tax expense (benefit)       (29,996)   (1,215)  (29,875)     (471)
    Net income (loss)                  $30,369   $(1,867)  $34,808     $(850)

    Basic net income (loss) per share    $0.59    $(0.04)    $0.68    $(0.02)
    Diluted net income (loss) per share  $0.55    $(0.04)    $0.63    $(0.02)

    Shares used for basic net
     income (loss) per share            51,364    51,821    51,097    51,674

    Shares used for diluted net
     income (loss)  per share           55,659    51,821    55,509    51,674



                                 Balance Sheet Data
                             In Thousands (unaudited)

                                                December 31,    December 31,
                                                    2007            2008
    Cash and cash equivalents                      $5,524         $4,705
    Total current assets                           35,127         31,290
    Total assets                                   75,591         70,438
    Line of credit                                 12,614         11,042
    Current portion of long-term debt
     and capital leases                               776            770
    Total current liabilities                      25,195         22,228
    Long-term debt and capital leases               1,151            381
    Stockholders' equity                           42,883         42,523

Pro Forma Financial Information Statement of Utility

The following estimated pro forma financial information is presented assuming Heska had reduced its valuation allowance related to its domestic net operating loss on December 31, 2006 rather than December 31, 2007. In this circumstance, the Company would have recognized Net Operating Loss Usage as Income Tax Expense, as outlined below. The Company believes the pro forma information may be valuable to investors as an additional tool to benchmark future periods versus historical results on a consistently reported basis. The Company does not suggest that investors should consider such pro forma financial information in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

                                 Pro Forma Reconciliation to GAAP
                              Consolidated Statements of Operations
                             In Thousands, Except per Share Amounts
                                            (unaudited)

                              Three Months Ended       Twelve Months Ended
                                December 31, 2007       December 31, 2007
                            As                        As
                         Reported             Pro  Reported             Pro
                          (GAAP) Adjustments Forma  (GAAP) Adjustments Forma
    Revenue, net:
      Product revenue,
       net:
        Core companion
         animal health   $17,082     $-    $17,082  $65,910     $-   $65,910
        Other vaccines,
         pharmaceuticals
         and products      2,635      -      2,635   14,897      -    14,897
            Total
             product
             revenue,
             net          19,717      -     19,717   80,807      -    80,807
      Research,
       development
       and other             325      -        325    1,528      -     1,528
              Total
               revenue,
                net       20,042      -     20,042   82,335      -    82,335

    Cost of revenue:
      Cost of products
       sold               13,084      -    13,084   48,874       -    48,874
      Cost of research,
       development
       and other              40      -        40      274       -       274
              Total
               cost of
               revenue    13,124      -    13,124   49,148       -    49,148

    Gross profit           6,918      -     6,918   33,187       -    33,187

    Operating expenses:
      Selling and
       marketing           3,937      -     3,937   16,109       -    16,109
      Research and
       development           570      -       570    2,679       -     2,679
      General and
       administrative      1,883      -     1,883    8,925       -     8,925
      (Gain) on sale
       of assets               -      -       -        (47)      -       (47)
              Total
               operating
               expenses    6,390      -     6,390   27,666       -    27,666
    Income from
     operations              528      -       528    5,521       -     5,521
    Interest and other
     expense, net            155      -       155      588       -       588
    Income before
     income taxes            373      -       373     4,933      -     4,933
    Income tax expense
     (benefit)           (29,996)  30,218     222  (29,875)  31,825    1,950
    Net income           $30,369  $30,218    $151  $34,808 $(31,825)  $2,983

    Basic net income
     per share             $0.59   $(0.59)  $0.00    $0.68   $(0.62)   $0.06
    Diluted net income
     per share             $0.55   $(0.55)  $0.00    $0.63   $(0.58)   $0.05

    Shares used for
     basic net income
     per share            51,364   51,364  51,364   51,097   51,097   51,097

    Shares used for
     diluted net income
     per share            55,659   55,659  55,659   55,509   55,509   55,509


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SOURCE Heska Corporation
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