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Heska Corporation (NASDAQ:HSKA)
Q4 2019 Earnings Call
Feb 25, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Heska Corporation Fourth Quarter and Full Year 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jon Aagaard, Director of Investor Relations. Please go ahead, sir.

Jon Aagaard -- Heska Corporation

Thank you, and good morning, everyone. Welcome to Heska Corporation's earnings call for the fourth quarter and full year of 2019. I am Jon Aagaard, Director of Investor Relations for Heska. Prior to discussing Heska's fourth quarter and full year 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 contribute to such differences are detailed in writing in this morning's earnings release, Heska 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 Heska does not intend and specifically disclaims any obligation or intention to update any forward-looking statement 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; and Catherine Grassman, Heska's Chief Financial Officer. Mr. Wilson and Ms. Grassman will provide details surrounding the results reported, and then we'll 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 Wilson -- Heska Corporation

Okay. Thanks, Jon, and good morning, everybody. Today, we are pleased to report a great fourth quarter and a strong full year performance that met and exceeded key areas of our 2019 outlook that we presented this time last year. The details of these results are provided in this morning's release. For those of you who have followed Heska for some time, you will know that we work in five year plans, the first of which was from 2013 to 2018. In June of 2020, we will be exactly halfway through our current five year plan. As we approach this milestone, I'm encouraged that during this first half of our five year plan, we are on target to achieve all three rails of our announced initiatives. Our first major growth initiative is to double the addressable customers and geographies we serve. With the groundwork laid in 2019 and 2018, as we begin 2020, I'm proud that we have now built, acquired or obtained the right to acquire business geographies and markets that more than double Heska's reach in addressable customers.

Beginning in 2020, Heska will have longer reach and broader geographic diversity than many in our historical peer set of companies. We are thrilled with our advancements in the international front. We have patiently and efficiently deployed capital to build or acquire scarce, crucial, unique and extraordinarily difficult-to-replicate geographic assets. From these assets, we see significant sales growth, gross margin and integration opportunities to deliver broad geographic reach, economic diversification, size, scalability and substantial value to customers and large industry partners. We will integrate, optimize and begin to grow these international markets, mainly in core Europe, Australia and Canada over the balance of 2020, to create substantial value for all stakeholders. Our second major growth initiative is to double the addressable product revenue lines we serve, again, with the groundwork laid in 2018 and 2019. As we enter 2020, we now look to our Element RC rotor chemistry platform for international markets, our new Element i+ immunoassay line for all global markets, and our anticipated success in the final stages of development and early stages of launching of our new Element UF urine and fecal imaging analyzer line, which was until recently intended initially only for domestic markets in 2020 and 2021, and is now targeted for global markets at launch. I believe firmly, and without doubt, that Heska now has one of the best innovation pipelines in all of animal health diagnostics, an achievement, I believe, that will deliver strong value for all stakeholders in the second half of our five year plan and beyond. Our third major growth initiative is to continue to grow in our existing lines and geographies of business by building upon the past six years of consecutive market share gains in our core diagnostics product lines. In 2019, Heska teams accomplished this goal also and delivered solid results in our core existing lines and locations. We did what we said we would do, and in key areas, we did even more with our core Point of Care Lab Diagnostics exceeding expectations in nearly every way.

Our customer base, up from utilization and improved mix of high-volume users grew in 2019, which drove a historic annual growth rate of 19.7% in Heska's key Point of Care Lab Consumables business line, which is our largest revenue, highest margin and fastest-growing core line. It was a rock-solid performance. This 19.7% growth beat our outlook for 12% to 17% growth. Overall subscription retention was in line at 95%. Gross margins grew and as detailed in this morning's release, our recently expanded sales teams delivered significantly better-than-expected annual growth in months under subscription, minimum contract subscription value and monthly contract subscription value. We expect the direction of these positive trends to continue in 2020 and beyond. For those new to Heska, we indicated at the beginning of 2019 that softness in our noncore legacy Tri-Heart part one preventative, which we contract manufacture for a third-party, would offset these successes in 2019 by roughly $15 million compared to the prior year. This was the case. Also, as announced, we see some of these sales beginning to return in 2020, which we will detail later in the call. In two years, Heska teams have doubled our global reach; advanced our proprietary innovation pipeline to the level of substantial competitive advantage; gained market share in our existing core diagnostics businesses; invested heavily in infrastructure and commercial team expansion; added key leadership experts to the team; expanded and improved our balance sheet, which is in excellent condition; and generated positive operating cash.

We have made your company far more valuable. After two focus years of preparation and investment in the first half of our 5-year plan, we now anticipate that our major initiatives will begin to drive economic performance by the end of 2020, with strong acceleration in the second half of our five year plan. This is consistent with our performance in our first five year plan, and we are comfortable with our next steps and how to take them. With these milestones clearly in sight, I would like to extend my most sincere and respectful thanks to each member of our Heska team that have made this next phase possible. Together, in a short time, they have transformed Heska into a global company with proprietary and exclusive technologies, broad reaching capabilities and above-market growth potential. Due to their hard work, Heska is set to capitalize on the best period of opportunity for a diagnostics company that I can recall in my nearly three decades in the animal health space. Fully aware of the challenges in front of us and the strength and size of our competitors, I continue to expect our success because of our people, the size of our opportunity relative to our own size, our plan, our healthy and consolidated global pet and animal healthcare market and our unique position within these markets and with our customers. In a world where diagnostics represents up to 35% of the sales and profits of the best run veterinary hospitals, which are themselves growing and healthy, we think Heska's unique, closed and scarce position closest to the veterinarian and pet families is very valuable. In the coming 2.5 years, we intend to demonstrate clearly that value.

With that, I'll turn the call over to Jon to walk through our product development schedules and other updates outlined in this morning's release. Jon?

Jon Aagaard -- Heska Corporation

Thank you, Kevin, and thank you again, everyone, for joining us this morning. We presented a lot of good information in today's release, and we want to take a moment to call some of the high points before Catherine covers the financial details. First, I'd like to take a moment to overview our progress in product innovation. Heska continues to focus on growing its highest quality revenues by innovating to solve big and meaningful problems for customers and pet families. Solving these problems uniquely and better than the competition puts Heska closest to the veterinarian, and by extension, pet families. We believe Heska's research and development activities are squarely on target to solve critical pet healthcare challenges by developing diagnostics products that meet a majority of the following attributes: First, they solve for big problems and challenges; second, they are proprietary, exclusive, developed, manufactured and sold by Heska; third, they reach far out on the innovation and value-add curve to leapfrog and obsolete the competition; and fourth, they are offered globally through Heska direct and indirect channels. For 2019, Heska invested $4.9 million more in research and development than the prior year and $3 million more in sales and marketing to expand the domestic sales team and international launch group in anticipation of new products from our innovation pipeline. While smaller than the competition's teams and budgets, we strongly believe in the talent and targeted focus of Heska's teams and development areas. In June of 2019, we introduced Progesterone and BUN tests to Heska's immunoassay and blood gas analyzers, respectively, as well as Heska's new chemistry eWrap Plus Panel. These product launches helped deliver strong retention and increased utilization in 2019. We see menu expansions like these to existing platforms continuing to contribute in a similar way in 2020 and beyond. Specific to Heska's new analyzer platform, Heska introduced the Element RC rotor chemistry, targeted to international markets in June of 2019 in advance of our anticipated larger geographic expansion. Initial sales of Element RC commenced in the third quarter of 2019. Early reception has been favorable. With the acquisition, integration and growth of our international markets now in full swing in early 2020, full Element RC release is now quickly ramping monthly to coincide with this geographic expansion. Element RC is firmly tied to international, and Heska is now off to the races internationally.

Also in 2019, Heska began early limited release of Heska's new Element i+, our next-generation immunoassay platform for global veterinary and animal health applications. Element i+ significantly advances Heska's current leading immunoassay platform with multiplexing test cartridges, superior analyzer design, lower cost, expansive roadmap and global market exclusivity within Heska's full point of care line. Early reception and feedback has been favorable. Full market release and menu availability is now quickly ramping monthly and Element i+ is now expected to be broadly available in North America and Europe in the second quarter of 2020. And lastly, we move to Element UF, Heska's highly anticipated urine and fecal solution. Element UF is Heska's artificial intelligence-enabled urine and fecal imaging analyzer platform for global veterinary and animal health applications. Element UF is expected to be a major first mover innovation from Heska that solves big and important problems for veterinarians in a point of care market estimated to be $400 million in North America and of similar size outside of North America. Heska began prelaunch viewing of Element UF at the VMX conference in Orlando in January and the WDC Conference in Las Vegas in February. Response demand has been favorable, resulting in over 50 customer commitments from competitive customer sites and current Heska reset subscribers that have committed to Element UF, along with expansion and increases to their existing Heska lab subscription. Heska continues to believe now more firmly than ever in the demand and opportunity for Element UF. Heska's Element UF search and development investments to date has continued to yield on target and on-time results.

Alpha Element UF instruments are in hand to begin verification, validation and optimization of data instruments for final sign off before full production is authorized. Element UF has, for many quarters, been scheduled for beta pre-release in the third quarter of 2020. This milestone has now moved to the fourth quarter due to three factors: First, with Heska's substantial acquisitions in Europe, Heska is preparing for initial launch in North America and now also in European markets, with adjustments in manufacturing volume, supply chain and logistics, support network and logistics and manufacturing and user safety requirements for core European markets, Canada and Australia; second, location of supply chain and manufacturing of final commercially available Element UF analyzers is being evaluated. We are currently evaluating updated plans to manufacture these analyzers in the United States. While we do not anticipate major disruption in supply chain components from countries affected by health epidemics, allowances for delays are being incorporated into this updated Element UF schedule; and third, allowance for further optimization of alpha to beta design. Simply put, we will use the time from the above schedule allowances to further optimize and gain more data sets and advance beta units delivery in trial commercial release in quantity. Now I'd like to take a few quick moments to overview our very rapid progress in expanding Heska's addressable geographic market.

Heska's 2019 acquisition of Optomed in France is now complete, and it is making good progress. Sales teams are trained and new point of care lab subscriptions are installed and continuing in France. Also performing well is Australia, which continues to run slightly ahead of expectation. Current maintained Point of Care Lab Diagnostics have secured a foothold on which the team has continued to build and the learnings from our work in Australia have provided a detailed road map for future Heska expansion. Moving to the key market of Spain. On January 9, 2020, Heska announced it's funded its acquisition of CVM Companies. CVM Companies have been leading providers for over 25 years of imaging and blood testing products to the companion animal market in Spain, a market with approximately 6,000 veterinary clinics and hospitals. CVM is successful and unique. CVM Companies estimate their market share prior to joining Heska at number one in ultrasound, number one in digital radiography and number two in point of care blood diagnostics. The integration of CVM Companies, while still early, is progressing well and initial indications point to a favorable long-term opportunity for Heska in Spain and broader Europe. Moving on to greater Europe and the surrounding markets, including Germany, France, Italy, Spain, Scandinavia and Eastern Europe. On January 14, 2020, Heska entered into an agreement to acquire 100% of the capital stock of scil animal care company from Covetrus. Founded in 1998 and headquartering in Germany with facilities and operations also in France, Italy, Spain and Canada, scil has grown into a veterinary point of care laboratory and imaging diagnostics leader, serving pets and their families across Europe and the globe. By combining scil and the recently enlarged Heska, two of the world's top veterinary diagnostics companies will come together to service millions of pets through tens of thousands of veterinarians and active analyzers in over 25 countries, with an expectation to win a top three market share position in key markets. With these combinations, we target market share of 13% in the United States and Canada; 40% in Germany; 40% in Spain; 30% in France; 19% in Italy; and meaningful growth elsewhere. Together, the new Heska will be powered by over 500 employees dedicated to diagnostic sales teams in 10 countries, spanning Europe, North America and Australia. We anticipate generating approximately $200 million in sales for 2020, subject to the closing date and other factors. We expect to derive approximately 93% of our sales from our Core Companion Animal focus, with total 2020 sales estimated to come from a strong and synergistic mix of approximately 60% laboratory and 23% imaging, with approximately 10% coming from other Core Companion Animal products and 7% from other vaccines and pharmaceuticals. And we expect to benefit from a favorable mix in geography with 67% of sales from North America and 33% from our international markets. Approximately 92% of these sales will be occurring in our Core Companion Animal segment. This is the mix that Heska has been seeking now for some time. The scil acquisition remains on track to close in the second quarter of 2020, targeted for April 1, subject to customary closing conditions. Until that time, while we are excited to share more information with customers and investors, until we own the assets which are currently held by another publicly traded company, we are unable to share nonpublic information and other information. Lastly, we turn to corporate accounts, which continue to perform well for Heska, as the number of sites continue to grow and we continue to see major chances to expand and extend our relationships with groups in North America and now with our new international capabilities in Europe, Scandinavia and elsewhere. Having covered a lot of information there,

I will now turn the call over to Catherine to go through the details of the quarter and of the full year. Catherine?

Catherine Grassman -- Heska Corporation

Thanks, Jon, and good morning, everyone. We are pleased to report a strong performance for the fourth quarter of 2019 and full year 2019, which were in line with our overall expectations communicated this time last year. As we begin, I would like to point out that I will be discussing our results as reported on a GAAP basis as well as on an adjusted non-GAAP basis. Fourth quarter and full year for both 2019 and 2018 non-GAAP results include certain adjustments that are detailed in a reconciliation of GAAP to non-GAAP schedules included with the Form 8-K furnished with the SEC as well as in the press release. Consolidated revenue for the fourth quarter was $33.8 million, a 0.9% decrease over the fourth quarter of 2018. Full year 2019 revenue was $122.7 million, a 3.8% decrease over full year 2018. The top line result was generally in line with our 2019 remarks. We report our results in two segments, Core Companion Animal, or CCA, and Other Vaccines and Pharmaceuticals, or OVP. Revenue in our CCA segment was $30.8 million for the fourth quarter of 2019, an 8.9% increase over the fourth quarter of 2018. Revenue for the full year 2019 decreased 2.2%, $106.6 million as compared to the full year 2018. Revenue from Point of Care Laboratory Consumables grew 29.7% in the fourth quarter of 2019 compared to the fourth quarter of 2018 and full year consumable revenue grew 19.7% to $53.6 million, exceeding our full year outlook of 12% to 17%. Strong customer utilization, new test offerings and other factors attributed to [Technical Issues] Revenue from imaging-related instruments grew 36.8% to $9.7 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018. Full year 2019 revenue from imaging-related instruments grew 12.4% to $25.7 million as compared to the full year 2018. Imaging revenue was just short of our 2019 outlook due primarily to lower sales internationally.

Revenue from our OVP segment decreased to 48.7% to approximately $3 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018. For the full year of 2019, revenue in our OVP segment declined 13.1% to $16.1 million as compared to the full year 2018. OVP segment results fell short of our full year guidance due to supply issues of certain raw materials. Consolidated gross margin in the fourth quarter of 2019 was 46.9% as compared to 45.4% in the fourth quarter of 2018. Consolidated gross margin for the full year of 2019 was 44%, flat to 2018 and in line with full year expectations. In the fourth quarter of 2019, gross margin in our CCA segment grew over 400 basis points to 51% as compared to the fourth quarter of 2018. CCA margins for the full year of 2019 increased 200 basis points to 50.3% as compared to full year 2018. Full year 2019 CCA gross margin was favorable to 2019 outlook due to higher level of consumable revenue. OVP segment margin decreased approximately 3,400 basis points to 4.6% in the fourth quarter of 2019 as compared to the fourth quarter of 2018. And full year 2019 gross margin decreased approximately 1,700 basis points as compared to full year 2018. OVP 2019 gross margin was unfavorable as compared to our 2019 outlook due to increased plant utilization charges as a result of the raw material issue supply issue I referenced earlier.

Operating income in the fourth quarter of 2019 decreased to $775,000 or 76.6% as compared to the fourth quarter of 2018. For the full year 2019, operating income decreased 91.4% to $327,000 as compared to full year 2018. Non-GAAP operating income in the fourth quarter decreased $1.4 million or 59.1% as compared to the fourth quarter of 2018. Full year non-GAAP operating income for 2019 was $1 million, a decrease of 91.1% as compared to non-GAAP operating income for 2018. For both metrics in all periods presented, the decline is primarily due to purposeful investment in research and development for innovative products as well as international expansion of sales and marketing previously discussed on this call. Under both GAAP and non-GAAP metrics, we were in line with our previously communicated 2019 outlook for both operating income and operating margin. Adjusted EBITDA for the fourth quarter of 2019 decreased 37.9% to $3.8 million as compared to the fourth quarter of 2018. Full year 2019 adjusted EBITDA decreased 50.6% to $10.4 million as compared to the full year 2018. Decreases in both periods were consistent with decreases in continuing operations. For full year 2019 and 2018, we generated tax benefits of $1.4 million and $2.1 million, respectively. The tax benefit is driven largely by discrete tax benefits associated with stock compensation activity. Net loss attributable to Heska for the fourth quarter of 2019 was approximately $1.7 million or a loss of $0.23 per share compared to income of $3.5 million or earnings of $0.44 per diluted share in the fourth quarter of 2018. Net loss attributable to Heska for the full year of 2019 was $1.5 million or a loss of $0.20 per share as compared to income of $5.6 million or earnings of $0.74 per diluted share for the full year 2018. In addition to lower operating income, net loss attributable to Heska was further burdened by both the cash coupon and noncash amortization related to the convertible debt issuance in September of 2019. On an adjusted basis, non-GAAP net income per diluted share for the fourth quarter of 2019 was $0.07 as compared to $0.54 in the fourth quarter of 2018. Full year 2019 non-GAAP net income per diluted share was $0.37 as compared to $1.64 per diluted share in 2018. As of December 31, 2019, we had approximately $89 million in cash compared to $13.4 million as of December 31, 2018. The significant increase in cash is the result of the issuance of the $86.25 million aggregate principal amount 3.75% convertible senior notes due 2020. In early January 2020, Heska completed its funding of approximately $14 million for the acquisition of CVM Companies discussed earlier on this call. Our recently announced acquisition of scil will be financed through a private placement of preferred equity, which is convertible upon the authorization of additional common shares. Cash flow from operations provided $3.3 million in 2019. Regarding our outlook for 2020, our guidance includes only Heska Corporation as it stands today, February 25, 2020. We did not include the potential impact of the acquisition of scil as the transaction has not yet closed. The sensitivity around providing information relating to a subsidiary of another public entity prohibits us from sharing information prior to close. Within a reasonable amount of time at the close of the transaction, likely to coincide with our first quarter earnings call, providing the transaction closes on or around April 1, we will provide an updated 2020 outlook. Because we anticipate significant variation in our operating results as a result of the scil acquisition as well as other transactions, such as the convertible debt issuance, we're going to provide guidance and historical results adjusted for certain items that we believe enable our investors and our analysts to better understand the underlying operating performance of our business.

For 2020, we anticipate top line consolidated revenue to be between $135 million and $145 million, with CCA segment revenue of $120 million to $130 million, which is primarily driven by a projected 12% to 17% growth in consumable revenue. We anticipate a modest impact to Point of Care Laboratory revenue for the urine and fecal analyzer launch anticipated for the fourth quarter. Imaging-related revenue is projected to be in the $25 million to $30 million range. Included in our CCA revenue projection is approximately $4.5 million of revenue relating to Tri-Heart. 2020 OVP revenue is projected to be nearly in line with 2019, but we will experience variability throughout the year based on timing of production compared to 2019. Adjusted EBITDA margin for 2019 was approximately 8.5%. We have guided adjusted EBITDA in the range of 6% to 8% for 2020, but we expect it to be closer to the high end of the range. Sales, general and administrative investment will increase to support new product launches, international expansion efforts and to support other strategic initiatives. Research and development costs are expected to be in line with 2019 but skewed to the beginning half of 2020. In regards to nonoperating items, we will incur approximately $3 million in cash interest associated with our convertible debt and amortize an approximate $6 million relating to the debt discount and debt issuance costs. We experienced significant volatility in our annual effective tax rate due to discrete tax benefits from stock-based compensation activity and tax expense from executive compensation limitations. Not including the impact of tax items, we estimate a benefit of 15% to 20%. Based on historical tax items, the benefit could increase up to 40%. We do not expect to generate cash flow from operations in 2020 as a result of investment in inventory in anticipation of the new product launch of the urine and fecal as well as the cash interest associated with our convertible debt.

That concludes our financial review. With that, we would like to open up the call for your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] We'll first go with Andrew Cooper from Raymond James. Please go ahead.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Hi. Thanks for the question. I guess, first, and maybe you'll tell me to wait until after the deal's closed, but as we think about scil and sort of the moving parts of what you're acquiring and the $200 million kind of target that is less the same as it was initially, how do we think about the components of that business and obviously, the pieces you value relative to some amount of the business that is distributing competitor products and things like that. How do we think about as well as with the conversion to subscription model, how do we think about that business on a go-forward relative to the information that's already out there from Covetrus of roughly $80 million of revenue for them last year?

Kevin Wilson -- Heska Corporation

Yes. So hey Andrew, it's Kevin. The details, we can't get into until it closes. But having said that, there are a couple of things that I would point out. The first is when you annualize that based on ownership of April 1, I think, obviously, there's not a full year of ownership so that substantially reduces that baseline. The second is we do anticipate revenue recognition changes as we go to a subscription model, which stands in the upfront equipment recognition, but we think it gains long-term economics in price and gross margin, all the things that we just delivered in our U.S. market for the quarter and the year. So I think those two things largely justify the guide in terms of the consolidated $200 million. We will have more detailed information in addition to what we think gross margins and some of those types of things. When we grow out the consolidated, most likely on the next call, until we close on or around April 1, which we think we will.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Okay, that's helpful. And then on kind of the core guidance, when we look at how good the consumables number was relative to our expectation in 4Q, I think in that context, 12% to 17% is actually maybe a little bit less than we would have hoped after 30%. Is there anything in either 4Q that pumped that number a little bit higher that's not going to repeat, or anything along those lines as to why, when we look at kind of the comps in first half 2020 and moving through the year, we're kind of at that 12% to 17% as opposed to something a little bit higher given the subscription model would make us think that there would be more flow-through from the fourth quarter be?

Kevin Wilson -- Heska Corporation

So and I'll let Catherine jump in if I miss anything big, but the big one is, just delivered a well above comp. So you lap that close. And so I think prudence would say keep the guidance 12% to 17%, I think it's a prudent guide.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Okay. And so would you I guess, kind of on that, would you say

Catherine Grassman -- Heska Corporation

Maybe I'll answer your question directly. Nothing in the fourth quarter was a onetime impact. I think that's what you were asking, right? If we compare to what we believe what was a quarter from 2018, that was light compared to what we had expected.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Okay. And then, I guess, would that would it be safe to assume then that 4Q, relative to the monthly minimum, you were further above than kind of your average quarter? Is that a fair way to characterize it?

Catherine Grassman -- Heska Corporation

I would say, utilization was strong in the fourth quarter. But that's why I hesitate to look at things only quarterly. I think that the annual rate was more reflective of the average increase in utilization across the board.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Okay. That's helpful. And then I guess, lastly, I know it's growing a smaller and smaller piece of the business but when we think about OVP and what had always been kind of talk to you as an inflationary type grower, I think you missed the number a little bit in 2019 and are a little bit lower than we expected in 2020. Is that a business that we should think of as being stabilized around the range that you guided in 2020? Or any context you could provide there on gross margin. And then also, I know you talked about in the press release some of the manufacturing that you can do potentially in those facilities. But from a strategic perspective, sort of what that piece means and how you view it as the business has continued to trend downward a little bit?

Kevin Wilson -- Heska Corporation

Yes. So I'll let Catherine jump in as well if I missed something, but that business has declined for many years. It's a contract manufacturing vaccines and pharmaceuticals-focused business. That said, we do have activities in that plant that positively impact our Core Companion Animal segment. Tri-Heart, for instance, comes out of that facility. And last year, not a lot of Tri-Heart came out at all due to what we had anticipated and announced. And so I think some of that will return, but that hits plant utilization and all kinds of other things that flow through that. So I think it's stabilizing at that level. We feel good about the guide for 2020. We don't expect big swings in that. It does have a fairly clear forecasting ability, that a lot of these things are long lead time and a lot of these are contract minimums with the contract manufacturing agreements that we have. So I do like the mix that we're hitting now. The vaccines pharmaceuticals is under 10%, at roughly 7% on a go-forward basis in 2020 if we factor in the acquisition. And I think that's a positive direction, reutilizing some of that capacity in Des Moines for through regulated test cartridges, for instance. We a lot of our tests will require USDA, FDA, those types of things, and that facility has that. That's a scarce resource, and we happen to own one, so we do think we'll get long-term value out of that.

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

Okay. Great. I will leave it that. Thanks.

Kevin Wilson -- Heska Corporation

Thanks, Andrew.

Operator

Thank you. We'll next take Jim Sidoti. Please go ahead, sir.

James Philip Sidoti -- Sidoti & Company -- Analyst

Good morning. Question on R&D. You made a comment in the press release how you expect R&D to stay about the same level of revenue in 2020 as it was in 2019. I just want to be clear, that's prior to the acquisition of scil, is that correct?

Catherine Grassman -- Heska Corporation

Right.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay, because I know you don't want to get into any detail, but I would think the scil business does not require the same level of R&D as the core business does now. Is that a fair statement?

Kevin Wilson -- Heska Corporation

We think that's fair. We think our R&D, combined with what they've done in the past, we don't think have to duplicate the effort. So there is definitely some synergy there. We're coming out with a crazy good pipeline and the scil folks have a fantastic go-to-market team, but I don't think we need to duplicate our R&D spend over at scil.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. And then second question for me, goodwill and other intangibles, it went up to around $36 million at the end of the year from about $27 million. And that is prior to the closing of these two deals? Was there another deal in there that I missed? Okay. Got it. Thank you.

Catherine Grassman -- Heska Corporation

CVM. CVM actually was consolidated in the beginning of December.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. Got it. Thank you.

Operator

[Operator Instructions] It appears that we have no more questions in queue at this time. I'd like to turn the conference back over to Mr. Kevin Wilson.

Kevin Wilson -- Heska Corporation

We must have done a great job of answering everybody's questions with that really long script. Thank you, everybody, for joining our call. We really appreciate the time. I know it's a crazy, crazy day and a crazy week out there. So we're honored that you spend time looking at Heska. We're super excited about the work we're doing. We think we're in a fantastic place. It's a lot of hard work, a lot of things still to be done. But we're entering the second half of our five year plan, and we really like our position. I do want to mention one thing on housekeeping. We've previously announced an Analyst Investor Day on May 20 in New York City to discuss our strategic growth strategy and our multiyear outlook. With the anticipated closing of scil right around the same time and the anticipated first quarter earnings release so close to that scheduled date, we're going to move that Analyst and Investor Day to September 16 in New York City. We will discuss our growth strategy, our consolidated performance, including all the major acquisitions, a demonstration of our Element UF product, and most importantly, a multiyear outlook. So we'll move that. Now the details around that event will be forthcoming. With that, everybody, have a great day. And again, thank you for taking the time for our call today. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Jon Aagaard -- Heska Corporation

Kevin Wilson -- Heska Corporation

Catherine Grassman -- Heska Corporation

Andrew Harris Cooper -- Raymond James & Associates -- Analyst

James Philip Sidoti -- Sidoti & Company -- Analyst

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