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Heska Corporation (NASDAQ:HSKA)
Q1 2019 Earnings Call
May. 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Heska Corporation First Quarter 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jon Aagaard. Please go ahead, sir.

Jon Aaggard -- Director of Investor Relations

Thank you and good morning, everyone. Welcome to Heska Corporation's Earnings Call for the First Quarter of 2019. I am Jon Aagaard, Director of Investor Relations for Heska. Prior to discussing Heska's first quarter 2019 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 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 could contribute to such differences are detailed in writing in places, including this morning's earnings release and Heska Corporation's annual and quarterly filings with the SEC. Any forward-looking statements speak only as of the 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 statement was made. We have with us this morning. Kevin Wilson; Heska's Chief Executive Officer and President; Catherine Grassman, Heska's Chief Financial Officer; and Jason Napolitano, Heska's Chief Operating Officer and Strategist. Mr. Wilson and Ms. Grassman will provide details surrounding the results reported and will open the call to questions.

At this time then, it is my pleasure to turn the call over to Kevin Wilson, Heska's CEO and President. Kevin?

Kevin S. Wilson -- Chief Executive Officer and President

Hey, thanks, Jon. Good morning, everybody. Today we're pleased to report a solid first quarter. It remains in line with our full-year outlook. These results are described in more detail in this morning's release and I encourage you to look at it. Before we get started this morning on the details, I'd like to take a minute to congratulate Catherine Grassman on her new promotion to Chief Financial Officer of Heska this week. Catherine has been an excellent leader and a senior member of my team for the past couple of years, most recently as our Chief Accounting Officer, and I'm super pleased to have her officially now in this expanded role. So, congratulations Catherine. Yes, good job.

Now for today's results. Our year has started off strongly. Today's results met or slightly exceeded our estimates in nearly all key areas. Leading the way was 13.8% growth in Lab Consumables and our highest number of Heska Point of Care Lab reset subscriptions since the middle of 2016. Active subscriptions, subscriber retention rates, months under subscription, and minimum contract subscription value; all were in line with my goals for the quarter and for the year. Commercially, customers responded well to our new six month Free Term campaign for consumables and shipping with qualifying new and renewing subscribers receiving six months free and then continuing to benefit from Heska's superior performance and value for another six years. Early placement results are solid and utilization trends higher than traditional minimums in the early months of this program.

We anticipate that these trends will follow through and increased utilization over the life of these agreements will be had that are above our more traditional minimum CSV ranges. All in all the teams performed wonderfully for customers in a very competitive point of care lab space and I'm proud of their work. Moving to our corporate account installation efforts. While there's still much work to do, we are progressing positively with all of our accounts and are generally in line with our goals for 2019. We saw installations from each of our outstanding corporate partners in the first quarter; including Ethos, Pathway, and PetVet Care Centers; and we're optimistic for the balance of the year that we will continue our progress. I'm proud of the strong work of all of our corporate install teams and their continuing success in this very competitive segment of the market.

Moving on to our product launches scheduled for the beginning of 2019, I'm pleased to report that we are on track. As anticipated, we expanded the utility of our existing family of analyzers by launching new tests throughout the first quarter and on into the second quarter. Progesterone testing for the Element i is launched and the reception has been excellent among clinicians that focus on breeding healthcare. Also in the quarter, we launched the new eWrap configured Plus Panel, which is our second most used panel that runs on our Element DC and high volume DC5x chemistry platforms. Early response is quite positive for this eWrap configuration because it is easier and faster to use in higher volumes with performance at a great price. And finally, for our Element POC Blood Gas platform. our BUN test has now been added to the single comprehensive test card to meet a major and long-standing request from our highest volume specialists and clinicians.

With each of these new offerings, we are proud to continue to invest to make Heska technology more useful more often to more clinicians and (inaudible) and we're encouraged that the response to each of these new menu expansions has been healthy and enthusiastic. We believe that these new test menu expansions will increase utilization and satisfaction among our thousands of current users and will also serve to attract new customers to Heska from the competition. On the international front, Heska Australia is up and running in Point of Care Lab Diagnostics. The team is trained and in place, operational systems are coming online, and we're excited to have on schedule a handful of localized Heska reset subscriptions now signed up. This is a major milestone and we're proud of our young Australian team's achievement.

Moving to Europe, Heska's February acquisition of Optomed in France is closed. The integration is progressing well and preparations for launching Optomed endoscopy products in North America and Heska Point of Care Lab Diagnostics into France and broader European markets are continuing. Near-term contributions from these initiatives are anticipated to be small in 2019 and growing in 2020. On the new product front and in regards to our announced new product launches, Element i+ and Element RC continued to be targeted for early limited release in June and full market release late in the third quarter of 2019. Element i+ is an important release for Heska domestically and internationally while Element RC is targeted and tied to our European expansion efforts. We're excited and anxious to see both of these new platforms reach their commercial launch phase and momentum is positive and building toward this goal.

Slightly further out on the calendar for next year is our critical Element UF urine and fecal analyzer platform. Our research and development investments are showing results and progress continues positively with several milestones now met, important data now known, and key decisions made. With this progress and updated status, we continue to target an early Limited release in the second quarter of 2020. This is a big and important project for Heska and we aim to get it right as we invent a first mover solution to a big and important problem for veterinarians and their patients across the globe. Now while risks around precise timing and costs are inherent in initiatives such as these; based on the current status and progress of these projects, we remain optimistic for meeting our timetables and we continue to strongly believe in the market opportunity and feasibility of each of these products. As I wrap up my prepared comments, I just want to again point out how excited we are to be well into the 2019 and 2020 cycle. It's been a lot of work getting here and now it's getting fun as we push hard to hit our stride for Act 2.

2019 continues to be the busiest and most productive period in Heska's history. We are simultaneously broadening our proprietary solutions, growing our subscriber base in a very competitive market, expanding our geographical footprint, and scaling our teams to create a multiplier effect in 2020 and beyond. While there's always risk and uncertainty in reaching for these goals, 2019 is off to a solid start and we remain upbeat about our chances. Underpinning these efforts is a growing pet healthcare market with favorable demographic, price, expansion, and investment trends. Into this healthy environment, our challenge is the same and it remains clear. Number one, win with Heska reset point of care lab subscriptions against a very strong set of competitors. Number two, deliver on transformative products like the new Element i+, Element RC chemistry, and Element UF urine and fecal platforms even as we expand the geography into which we sell.

Number three, more fully transition to these core proprietary highly differentiated diagnostics that are developed, manufactured, and sold directly by Heska to move Heska it to the top of the value creation and innovation chain. And number four, allocate capital for product development, in-house manufacturing of our core diagnostics, team expansion, acquisitions, joint ventures, and licensing opportunities. We have a lot of work to do and we're hard at work doing it, but the competition is equally hard at work against us. And while the competition is big, buttoned up, and impressive; I suspect that our space is not zero sum and that there will be many winners not just one. But make no mistake, if we do the hard things well, in my opinion it's primarily simply a question of time. Heska's in it to win and we are committed to doing the hard things to secure that win because that's what creates value, delivers returns, positively changes lives, upsets aging champions, and makes the fight fun.

Now with that, I'll turn the call over to Catherine to go over the details of the quarter and following Catherine's comments, we'll open up the call to answer your questions. Catherine?

Catherine Grassman -- Vice President, Chief Accounting Officer

Thanks, Kevin, and good morning, everyone. The first quarter of 2019 was in line with our previously communicated full-year outlook. Compared to the first quarter of 2018, consolidated net revenue was $29.5 million, a 9.9% decrease. Revenue in Core Companion Animal or CCA segment was $24.7 million for the first quarter of 2019, a 7.8% decrease over $26.8 million in the first quarter of 2018. Revenue from Point of Care Laboratory Products grew 17% in the first quarter of 2019 compared to the first quarter of 2018 driven by strong sales of -- sales growth of consumables of 13.8%, which is in line with our full-year outlook consumable growth rate of 12% to 17%, and favorable placements under sales type leases. Offsetting these increases were expected lower revenue from sales of pharmaceuticals and vaccines of 53.6% specifically Tri-Heart, a heartworm preventative manufactured for Merck, and lower point of care imaging product sales of 9.4%.

As anticipated, revenue from our Other Vaccines and Pharmaceuticals or OVP segment declined 19.4% to $4.8 million in the first quarter of 2019 as compared to the first quarter of 2018 as a result of lower production and shipping -- shipments related to contract manufacturing agreement.

Consolidated gross margin in the first quarter of 2019 was 42.5% as compared to 40.6% in the first quarter of 2018. In the first quarter of 2019, gross margin in our CCA segment grew 140 basis points to 48.9% as compared to the first quarter of 2018 due to favorable pricing of Point of Care Lab and imaging product. OVP segment margin remained flat at 9.4% for both periods presented due to favorable product mix on lower volume. Operating income decreased 104% to a loss of approximately $75,000 as compared to the first quarter of 2018. The decrease in operating income is due to increased compensation cost in selling and marketing due to expanded sales force and as expected, increased research and development costs related to new product innovation.

Depreciation and amortization was $1.3 million for the first quarter of 2019 compared to $1.2 million for the first quarter of 2018. Stock-based compensation was $1.2 million for the first quarter of 2019 compared to $1.1 million in the first quarter of 2018. The Company's effective income tax rate for the first quarter of 2019 was a tax rate benefit of approximately 1700% compared to a tax rate benefit of 14.9% for the first quarter of 2018. Both periods include tax benefit of approximately $1 million from stock-based compensation activity. Net income attributable to Heska Corporation for the first quarter of 2019 was $0.8 million or earnings of $0.10 per diluted share, a 62.2% decrease over $2.2 million or $0.28 per diluted share in the first quarter of 2018. As of March 31st, 2019 Heska Corporation had $9.1 million in cash compared to $13.4 million as of December 31st, 2018. Cash flow from operations was $0.7 million for the first quarter of 2019 as compared to $4.2 million for the first quarter of 2018.

Regarding potential questions pertaining to our 2018 Investor Day outlook for 2020 and 2022, we are in the process of updating these models. As followers of Heska already know, Heska is fast moving and has several variables that affect long-term projection. Since May 15th of 2018, pieces have moved, added, and been removed while new learning has occurred. For example since May 15th of 2018, we made the strategic decision to forgo our 2019 stand-alone urine analyzer and our 2020 stand-alone sequel analyzer in order to accelerate by two years our single system urine and sequel analyzer into 2020. We also now have better visibility than we did in May of 2018 into things like the rate impact and roll-out geographies of international markets as well as the expected performance of some of our non-core products sold through third-parties such as heartworm preventive.

As such, we are reviewing and refining our model to reflect these and other changes. While I believe investors and analysts who follow Heska have largely adjusted their expectations and model to reflect this understanding, in my new role as CFO I am fully evaluating our processes surrounding forward-looking -- forward-looking information and I intend to provide a more comprehensive update by the end of this year related to the long-term outlook we provided back on May 15th of 2018 as well as our approach going forward. Before I turn the call over for questions. I would like to take the opportunity to thank Kevin, the Board of Directors of Heska Corporation, my colleagues, my teammates, and my family for their continued support and I'm honored to serve as Heska's Chief Financial Officer. I look forward with great enthusiasm to serving the Company and all of its stakeholders in this role.

With that, we would like to open up the call for your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We will now take our first question from Mark Massaro from Canaccord Genuity. Please go ahead, your line is open.

Mark Massaro -- Canaccord Genuity Limited -- Analyst

Hey guys. Thanks for the questions. And Catherine, congrats on the promotion to CFO.

Catherine Grassman -- Vice President, Chief Accounting Officer

Thanks, Mark.

Mark Massaro -- Canaccord Genuity Limited -- Analyst

My first question, it's encouraging to see the update regarding your large group accounts so I was hoping you could maybe provide a little bit more color around how the installations are going and certainly wanted to verify that you've initiated shipments to PetVet Care Centers?

We have. So, installations occurred to PetVet Care during the period. Each of the installations were swap outs of a competitive placement and I think we're working through the logistics with that. So, it was an encouraging quarter.

That's great. I guess, Kevin, a question for you. I know that you've made some progress with your European operations, you called out Australia, you've done a nice job completing the acquisition of the company in France. Can you just speak a little bit more broadly about the potential of working with a larger partner in a more perhaps meaningful expansion to Europe and beyond?

Kevin S. Wilson -- Chief Executive Officer and President

Yes, In terms of a distributor partner, what we're finding is -- well, I think other folks have found that there is no one European market. It's not the United European states. And so what we're finding is there are strong champions in Germany, who will be quite different than the strong champions in France and not to make light of it, but I think they fought about 800 wars over the years. So, there are just strong cultural differences and economic differences. So, the idea that there is a pan-European single partner and single entry isn't -- isn't as intriguing to us as partnering with strong partners in places like Germany, Scandinavia, Spain, France, which is why we entered France through an acquisition. So, that's what our thinking is currently. And I do think we said on May 15th of 2018 as we viewed some of these strategic discussions that we would start moving forward on our own and doing more targeted country and region type of partnerships and I think that's what we're doing and we like how it's turning out. So we think it might be a little bit slower, but we like it.

Mark Massaro -- Canaccord Genuity Limited -- Analyst

Great. And then I appreciate the comments about the long-term targets. I guess maybe for Catherine, obviously there are a lot of moving pieces as you mentioned that have changed since last May. One of those changes, maybe this is just me, I think would be an increased focus on taking in more of the R&D and some of the manufacturing in-house. So, is it fair to think that in addition to maybe the timing of new product releases, another element to the update would include perhaps spending and obviously flowing down to say operating margin?

Catherine Grassman -- Vice President, Chief Accounting Officer

Yes, that is a fair point absolutely. It will be more comprehensive as we talked about incorporating manufacturing capabilities as you mentioned. Yes, more comprehensive all encompassing.

Mark Massaro -- Canaccord Genuity Limited -- Analyst

Okay. And can I ask on where your sales force stands? And that will be my last question. Thanks.

Kevin S. Wilson -- Chief Executive Officer and President

I don't think the number -- the net number has moved much in the quarter. So I want to say it's right around 110, but I don't think it moved much in the quarter. There were a couple of additions and a couple of losses, just kind of natural sales force churn.

Mark Massaro -- Canaccord Genuity Limited -- Analyst

Great. That's it for me. Thanks, guys.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks, Mark.

Operator

Thank you. We will now take our next question from Ben Haynor from Alliance Global Partners. Please go ahead.

Benjamin Haynor -- Alliance Global Partners -- Anayst

Good morning, guys. And congrats, Catherine, on the promotion..

Catherine Grassman -- Vice President, Chief Accounting Officer

Thanks, Ben.

Benjamin Haynor -- Alliance Global Partners -- Anayst

So, just thinking about the Free Term campaign that you guys have undertaken, Can you talk about -- a bit about what you see there once the six-month time is up? I mean I would imagine it's maybe a bit of a way of educating customers that there may not be as much pushback from patients if they are able to push diagnostics. Is that part of the strategy and they use at a higher rate and then that higher rate continues once the six-month term is up or how do you see that flowing through?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. I mean I think you've got it. They get more encouraged to just utilize testing when it's clinically necessary. It just becomes part of their daily routine perhaps a little bit more than it had been in the past. We still compete with outside reference labs and I think sometimes we lose sight of that, but anything that you can do to pull testing from sending it out and waiting compared to doing it at the point of care; sometimes that's not really a clinical decision, it's a habit and it's the old adage it takes eight weeks to change a habit. If you can change that habit among all the staff; that's technicians, that's all the veterinarians communicating with the pet owner; then I think the long-term trends are good. The program is also good in regards to setting actual utilization over the -- over the period of the paid term meaning instead of picking an arbitrarily low minimum subscription per month, we have precise data on what the clinic actually generates under normal utilization patterns and then that actually flows through contractually for the term of the agreement and they're quite comfortable with it and we're quite comfortable with it because it's based on the annualized data from the six-month free period.

So, there have been a number of benefits. And then candidly, it's just -- it's an aggressive program. So I -- straight up I think it helps us convert competitive accounts and it also helps us renew customers who are expiring this year and next year because it's a little bit of found money for them. If they're happy with Heska and they want to renew, we're tickled to give them six months free which is kind of a -- kind of a nice bonus that they didn't see coming as part of their P&L and maybe they can make other investments in their hospital if they continue with something that they've been happy with for the last five years and we're tickled to do it because we secure a happy existing customer for an additional six years. So, it's been -- it's been effective.

Benjamin Haynor -- Alliance Global Partners -- Anayst

Great. That's very helpful. And then just one more for me and then I'll jump back in queue. On the contracts that you've signed so far, the rental reset contracts in Australia, do they also have that Free Term as well and are those guys getting the Element RC or are they getting the Element DC? What kind of instrument package are they slated to get typically?

Catherine Grassman -- Vice President, Chief Accounting Officer

The -- our Australian customers are utilizing our Element DC as part of their suite of analyzers. And then to answer your first question, no, currently we are approaching the market similarly as we did here earlier a few years ago. And -- but are approaching it more in five-year terms versus the six-year terms there just to introduce Heska to the market.

Kevin S. Wilson -- Chief Executive Officer and President

Which is what we started here. So, we're just following the roadmap that we followed here and it's encouraging that dogs with Australian accents are pleased to get our chemistry as well as those with American accents, It's good.

Benjamin Haynor -- Alliance Global Partners -- Anayst

That's great. Alright, thanks a lot guys.

Operator

Thank you. Our next question comes from Andrew Cooper from Raymond James. Please go ahead, your line is open.

Andrew Cooper -- Raymond James -- Analyst

Hey guys. Thanks for the questions. Just a couple from me. I guess first, the 13.8% on the Point of Care Lab Consumables relative to the guide. I guess as we think about the quarter having really good placement number and thinking about the pacing of the year, is there any reason that that shouldn't be accelerating given kind of the incremental placements that you make -- made and that you'll continue to make through the year so we may end up closer to the higher end of that range as opposed to the lower or any thinking around that would be helpful?

Catherine Grassman -- Vice President, Chief Accounting Officer

I think that this is a very reflective number within that range and I say that because while placements are positive, offering six months free term does dampen that growth rate over the initial period -- over the entire period of the contract. So, I wouldn't advise to the higher end of the range at this point.

Andrew Cooper -- Raymond James -- Analyst

Okay. That's helpful. And then is there any kind of incremental color you could give us on where we are in the US process just kind of qualitatively of what stage of the process or anything like that?

Kevin S. Wilson -- Chief Executive Officer and President

For which process. I'm sorry?

Andrew Cooper -- Raymond James -- Analyst

Of development for the UF?

Kevin S. Wilson -- Chief Executive Officer and President

Oh, the urine and fecal, yes. We've put out milestones and I think I specifically remember a slide early in the year at JPMorgan's conference and we're on schedule with that. So, we're moving toward where we will turn alpha units in the second half of this year and we're moving toward kind of an early release -- pre-market release in the second quarter of next year. So, I think we're on schedule. There's lots of moving parts, but each time we move forward, I'm actually more encouraged as opposed to less. So, I think we're wherever we said we've been publicly and I think we reiterated that this morning.

Andrew Cooper -- Raymond James -- Analyst

Okay. And then last one from me just on kind of the -- it's been touched on a little bit, but bringing in-house more of the manufacturing. Has that gotten really under way at the facility and what's the lift look like there and how are we thinking about that through the course of the year ?

Kevin S. Wilson -- Chief Executive Officer and President

So I think initially we have a team in Des Moines that's evaluating initially setting up production line for Element i+ test cards. Part of the benefit there is some of those tests cards in the future are destined to be USDA regulated tests in any event so they have to be manufactured in a USDA facility such as our Des Moines plant. So, we're early stages. We haven't deployed capital. We're getting our budgets together for what CapEx looks like to get a production line setup for Element i+ cards and that will be our first project.

Jason A. Napolitano -- Chief Operating Officer, Chief Strategist

Yes. This is Jason. I think we are likely to follow the model we followed in the past, which is to do the initial manufacturing in Colorado in this case by our partner and once we've got some of the kinks worked out of the system, then transfer it on a larger scale to Des Moines. So, probably the initial product that you'll see will be produced by our partner here in Colorado. And over time then we'll transfer hopefully as we're getting the larger volumes to Des Moines and pickup those efficiencies.

Andrew Cooper -- Raymond James -- Analyst

Okay. So more -- more likely the bigger impact coming in 2020 and beyond as opposed to anything kind of in the back half of the '19?

Jason A. Napolitano -- Chief Operating Officer, Chief Strategist

I think that's fair.

Kevin S. Wilson -- Chief Executive Officer and President

Yes, that's how I see it as well.

Andrew Cooper -- Raymond James -- Analyst

Okay. That's it for me. Appreciate it.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks, Andrew.

Operator

Thank you. Our next question comes from Bruce Jackson from The Benchmark. Please go ahead, your line is open.

Bruce Jackson -- The Benchmark Company -- Analyst

Thanks for taking my question. With regard to the Element i+, is it going to have a full menu at launch or are you going to roll-out the tests in incremental and then if you could tell us what the roll-out schedule is for those tests? That would be helpful.

Kevin S. Wilson -- Chief Executive Officer and President

Yes. So initially it will have our T4 and our Cortisol test, which represent roughly 90% of the testing on the current Element i platform. So, those are the most important tests to roll out. Shortly following that, we're targeting TSH and a handful of other tests. We have published a limited menu. What's interesting about the Element i+ is the menu is -- it's very, very expansive in terms of its capability. So we've -- we have published a limited piece of that menu including things like heartworm, lyme, ehrlichia, anaplasma regulated tests, and then unregulated tests like TSH and Cortisol and progesterone, and things like that are unregulated tests.

But we intended that menu -- part of the reason to make that investment, that menu expansion will occur for years -- years and years and it's really just a matter of assay development and capital expenditure. So, it's time and capital. Most assays will run somewhere between 500,000 and 1 million to develop an assay and will run anywhere from six months to 15 months. And so we sit and look at market needs and requirements and capital allocation and maybe you do one or two a year, maybe you do six or 12 year just depending on what you think the market opportunity is and what the capital allocation needs are.

Bruce Jackson -- The Benchmark Company -- Analyst

Okay, great. And then with regard to the Optomed product line in Europe in terms of bringing some of those over to the United States, when do you think you might have some of those ready to launch and what are the first ones that you're going to bring over?

Kevin S. Wilson -- Chief Executive Officer and President

I'll talk about the process first. So, we've had imaging executives go to France and sit with the product teams and get educated on the products. They've picked certain scopes that they think based on the data and the customer utilization in Optomed's French customer base, which are best suited for launch here in the US. I'm not prepared to reveal exactly which of those products. And there are samples now here in the United States that are being evaluated by product managers and everything is in the process of being we'll say Americanized. You have to come up with pricing brochures, specifications, those types of things. So, that's where we are in the process. Mechanically, it's more of a product management challenge than anything.

Bruce Jackson -- The Benchmark Company -- Analyst

Alright. That's very helpful. Thank you.

Operator

Thank you. (Operator Instructions) We will now take our next question from David Westenberg from Guggenheim Securities. Please go ahead, your line is open.

David Westernberg -- Guggenheim Securities -- Analyst

Hi. Thanks for taking my question and congratulations to Catherine. So on the fecal, urine analyzer in terms of competition, are you seeing any maybe patents being filed or trademarks that are suggesting that maybe competitors are working on the same exact kind of project?

Kevin S. Wilson -- Chief Executive Officer and President

No, I mean we haven't seen trademarks and in terms of patent, I'm unaware of any patents. If you are, send them on over. I think we're ahead on this project because we've been focused on this method to solve the problem since the beginning. So, we haven't focused on a reference -- central reference lab based kind of antigen based test. We focused on an imaging solution since the beginning. But again, it's competitive and I never know -- I never know what some of our big competitors are doing, but I'm unaware of anybody racing us to the finish line but it wouldn't really matter to us. We think our launch is soon., We think it's probably a first-mover advantage, but if not it's a very very early mover advantage into an unserved market. So, we feel good about where we are.

David Westernberg -- Guggenheim Securities -- Analyst

Great Thank you. And then great to see the R&D tick up, you know I always like that. But is most of that associated with the urine fecal analyzer? And kind of what I'm asking is where should we expect to kind of normalize run rate from now on? I'm saying that also with you're going to be adding menu to the immunoanalyzer as well so.

Kevin S. Wilson -- Chief Executive Officer and President

Yes. I think urine and fecal is probably -- probably driving it. I think the Element i+ is also driving it. So rolling out those assays and finalizing the new analyzer development, I think those are probably the two bigger components of R&D. Once analyzers get finalized, I think you do have a leveling off. In terms of ongoing R&D expense, we will update that really with our 2020, 2022 update. And you have more visibility in that once the analyzer platforms are baked, then it literally is how aggressive do you want to get to move tests forward or do you want to move them back, you can control the calendar a little bit more. But the race to the starting line with analyzers is what it is, you want it to go as fast as possible but still have as close to perfect of a product at the start line as you can get.

David Westernberg -- Guggenheim Securities -- Analyst

Thank you. And just one last question. A lot of pharma companies are looking to do more novel products, whether it be, biologics, immunotherapies, et cetera, et cetera. You have capabilities of building fairly novel therapeutics or kind of products at your Iowa facility. So do you foreshadow maybe some potential relationships in the future or things that you can do out of that facility?

Kevin S. Wilson -- Chief Executive Officer and President

We've done contract manufacturing for really well-funded smart people out of that facility for 40 years and I think that has the potential to continue. We have a team there that's very good at it. But candidly, we're pretty laser focused on our announced projects. We have business development looking for those types of things, but our main focus is our diagnostics products. Did we lose you?

David Westernberg -- Guggenheim Securities -- Analyst

Alright, I'm done. Thank you.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks David. Good to talk to you.

Operator

Thank you. There are no further questions in the phone queue at this time. I would like to hand the call back over to you, Mr. Wilson, for any additional or closing remarks.

Kevin S. Wilson -- Chief Executive Officer and President

Well, thank you everybody for logging into our call and for your attention to Heska. I think we started the year off strongly. We're super encouraged and it's really fun to enter this 2019-2020 phase where we're aimed at launching some really significant new products and geographies. So, I look forward to talking to you in about 90 days to update you on our progress for the first half. And until then, thanks for following us and we'll talk to you soon. Thanks. Bye.

Operator

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.

Duration: 38 minutes

Call participants:

Jon Aaggard -- Director of Investor Relations

Kevin S. Wilson -- Chief Executive Officer and President

Catherine Grassman -- Vice President, Chief Accounting Officer

Jason A. Napolitano -- Chief Operating Officer, Chief Strategist

Mark Massaro -- Canaccord Genuity Limited -- Analyst

Benjamin Haynor -- Alliance Global Partners -- Anayst

Andrew Cooper -- Raymond James -- Analyst

Bruce Jackson -- The Benchmark Company -- Analyst

David Westernberg -- Guggenheim Securities -- Analyst

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