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Heska Corporation (NASDAQ:HSKA)
Q2 2020 Earnings Call
Aug 4, 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 Second Quarter 2020 Earnings Call. [Operator Instructions]

At this time, I'd like to turn the conference over to Jon Aagaard. Please go ahead.

Jon Aagaard -- Director of Investor Relations

Thank you, and good morning, everyone. Welcome to Heska Corporation's earnings call for the second quarter of 2020. I'm Jon Aagaard, Head of Investor Relations for Heska. Prior to discussing Heska's second quarter 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 at 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; and Catherine Grassman, Heska's Chief Financial Officer. Mr. Wilson and Ms. Grassman will provide details surrounding the results reported and then we will open the call for questions.

It is now my pleasure to turn the call over to Kevin Wilson, Heska's CEO and President. Kevin?

Kevin S. Wilson -- Chief Executive Officer and President

Okay. Thanks, Jon, and good morning, everybody. While Catherine will cover the specifics of the second quarter, I want to take a few moments to comment on some of the things that are driving Heska. First and foremost, it's critical to know that the health of our people, our business prospects and our ability to meet our mission are intact. Heska teams and their families are safe, healthy and productive. We remain in a remote work posture, our service and business continuity plans are performing strongly and our people and our morale are in great shape. Our human capital and our business is healthy. The same is true of veterinarians, pet owners and pets. Any recent variation in ordering patterns look rather minor in light of what we expected, has largely reverted to normal. End-user demand for our products has held up nicely and broadly, returned to normal, domestically and internationally. While there are still occasional added use working their way through, our ordering patterns, there are no large movers. Our supply chain in the first quarter was largely in good shape with some disruptions, which improved throughout the second quarter. As we entered the quarter, our supply chain is in its best condition of the year, and we anticipate no major bumps in the road during the second half. Commercially, we are also on schedule in doing well. We have challenged ourselves to be great in this new environment rather than just focusing on mitigation strategies. Subscription's results are solid. While it's more challenging to increase the number of new customer subscriptions currently, we have taken the chance to go wider, deeper and longer with our current customers.

In April, as we noted on our last call, we achieved near record performance in total contract subscription value. In June, we did it again. Contract subscription value is a measure of the total mix and value of customer business committed to Heska, and it grew 17% in the second quarter. Put in simple terms, Heska teams put up solid reported numbers in the second quarter, while scoring an unprecedented amount of future business and retention through the power of our subscriptions and relationships. I'm super pleased with the work of our sales, marketing, product, support and internal teams. Our retention and defensive capabilities are effective, and we continue to play offense. On April 1, we closed our acquisition of Scil Animal Care companies, and have begun to come together in key markets, including Germany, Spain, France, Canada and Italy. If you haven't had a chance to review our releases and presentations around this acquisition, I encourage you to do so, we love this deal. Our work with our new international teams this past quarter has reaffirmed my excitement around our strategy, and we continue to believe in our ability to rapidly grow and improve these businesses. Heska is much stronger today than we were in the rosier days of January. With our newly enlarged markets, new capabilities, cash on hand of nearly $80 million, in our wonderful resilient end markets, we are positioned to harvest the fruits of our work in 2018, 2019 and early 2020, during the second half of our 5-year strategic cycle. Our strategy to do so is simple, it's concise and it's clear. It's not easy, but it's simple, concise and clear. The first pillar of our plan was to double the geographies and customers we serve, we have met this target. The second pillar of our plan is to double the products and revenue lines we offer. We expect to accomplish this target soon. Our products pipeline launches are well on the way to achieving this goal. Element i+ is now shipping the full commercial commodities this quarter, and we are working to quickly expand Element i+'s very exciting menu. Element RC, our internationally focused rotor chemistry is making its way into our new international teams arsenal and is poised for takeoff. Element UF is progressing in line with our updated guidance and is expected to make its premarket public debut at our November Investor Day and full commercial launch about this time next year.

We are on target and are well on our way to doubling the products and revenue lines we offer, which will create a multiplier effect into our new, much larger markets and customer base. And our third pillar is to grow and scale our current businesses, even in this currently challenging environment. We are achieving on this target. In summary, we remain optimistic to achieve our goals for the second half of our current strategic plan and for the rest of this year. There's a great deal of work to be done in the competition and universe, for that matter, both know our ambitions every day. The competition is large and highly competitive and our defense against our market share ambitions are strong and effective. On top of this fact, numerous challenges, both seen and unseen will continue, including COVID-19 impact, international trade, currency and tax uncertainties, geopolitical and U.S. election tensions, shifting competitive threats and society wide race and wealth friction. In spite of this, we believe in ourselves, in the decades-long resiliency of animal health, which has again confirmed its wonderful nature in the past six months and in our strategic plan, which is focused, compelling and achievable.

With that, I'll turn the call over to Catherine to detail the quarter's performance and to provide you with additional information on our new segment reporting, and then we'll open the call for your questions. Catherine?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Thanks, Kevin, and good morning, everyone. As Kevin mentioned, we are pleased to report a strong performance for the second quarter of 2020. Consolidated revenue grew 62.4% while largely benefited by our recent acquisitions of Scil and CVM, solid performance during these uncertain times on our legacy Heska business also contributed to the growth on a year-over-year basis. Following the industry's trend, we experienced a slower start to the quarter, but finished strongly. As also mentioned in this morning's release, we changed our reporting structure as a result of these acquisitions and the related growth of our diagnostic product line, our company's core strategic focus. We now report our results geographically in two segments: North America and International. Our North America segment includes the U.S., Canada and Mexico, while our international segment consists of all countries outside of North America, and is comprised of primarily Europe as of today. Changes in segment structure affects only the manner in which the results of the company's reportable segments were previously reported and do not restate previously reported consolidated statements. In other words, our prior year results have been recast to reflect this change. Our North America segment is directionally comparative to the legacy Heska business. North America segment revenue grew 9.8%. Contributing to this growth was 2.7% in consumable sales and significant growth in PVD with the expected return of sales of Tri-Heart, a contract manufacturing product for Merck, which experienced reduced customer demand in the comparative period and throughout 2019.

The International segment performed in line with our expectations, even demonstrating resilience in this environment with both sales of consumables and capital lease and capital equipment placements. Consolidated gross margin declined approximately 500 basis points to 39.1%. As anticipated, negatively impacting consolidated gross margin is the consolidation of Scil, a lower margin profile business. We continue to see bridging this margin gap as a meaningful synergy opportunity for Heska. The North America segment had a slightly lower gross margin at 44%, about 130 basis point decline from prior year, due mainly to product mix. Total operating expenses in the second quarter of 2020 were $22.3 million, an increase of $9.3 million from the second quarter of 2019. The increase is driven primarily by the consolidation of our acquisitions of operating activities of $6.2 million, onetime acquisition and other related costs of $2.7 million and an increase in stock-based compensation of $1.3 million. We managed and continue to manage operating expenses carefully, and today's results are in line with our expectations. Adjusted EBITDA for the second quarter of 2020 was $4.1 million or an adjusted EBITDA margin of 9.1% compared to $1.8 million or an adjusted EBITDA margin of 6.4% in the second quarter of 2019. The increase in margin is attributable to our recent acquisitions. EPS in the second quarter was a loss of $0.72 per share adjusting for certain items, which are detailed in our GAAP to non-GAAP reconciliation included with our release, EPS was $0 per share, a decrease of $0.10 per share, which is largely attributable to the cash interest expense associated with our convertible debt note issuance.

Our balance sheet is strong, and our liquidity position remains solid with cash of $79.2 million, which continues to provide us the flexibility to advance our strategic plan. Turning now to the 2020 guidance previously provided on May 5. In consideration of our recent acquisitions, which resulted in new segment reported reporting, and in light of the ongoing pandemic, we believe it is prudent to assist analysts and investors during this time. Although I will caution on the difficulty of forecasting in this environment and that our guidance is based on the information we have as of today. It is not our intention to update guidance quarterly nor will we provide quarterly guidance. We are reaffirming our previously provided 2020 full year consolidated revenue guidance of $175 million to $185 million, and our adjusted EBITDA margin of 4% to 6% with business momentum at the higher end of the EBITDA margin expectation. Additionally, consistent with revenue proportions we experienced in the second quarter of 2020, we anticipate approximately 60% to 65% of full year revenue to come from the North America segment. The point-of-care laboratory revenue guide of $105 million to $115 million, point-of-care imaging revenue guide of $25 million to $35 million and former OVP segment revenue now included in North America of $15 million to $16 million are all reaffirmed. 2020 combined outlook point-of-care at consumable 12% to 17% growth was based on the stand-alone business of Heska, including Australia, Spain and France as of March 31, 2020, but excludes the Scil acquisition on April 1, 2020. On a comparable basis, including COVID-19 pressure from our prior lowered estimate for fewer new installed point-of-care lab instruments due to travel and hospital access restrictions, Heska now expects approximately 12% growth, which is the low end of our range.

As part of the segment recast, the portion of the prior 2020 combined outlook for point-of-care lab consumable growth derived outside of North America, which is approximately four percentage points is now attributed to the international segment. As a result, the 2020 recast outlook for North America point-of-care lab consumable is for growth of approximately 8%. To provide a little more insight to assist investors and analysts on the profile of our income statement during this transformative period, for the full year, we expect depreciation and amortization of approximately $11 million to $12 million in stock-based compensation of approximately $6 million to $8 million. The majority of our onetime charges have been incurred throughout the first half of 2020, but we continue to make certain necessary investments, largely considered onetime as we integrate our acquisitions throughout the rest of this year. Our full year effective tax rate is expected to be between to be a benefit of between 12% to 15%, which excludes any potential future discrete items, or any other valuation changes on the realizability of our deferred tax assets in the remaining half of 2020. Finally, while we don't provide quarterly guidance, we do expect to continue to experience some seasonality among the quarters. Because of our acquisition of a European-based company, a region which experiences summer holiday, primarily during the month of August, we expect the fourth quarter to continue to be stronger than the third quarter. In sum, we are pleased with our financial performance in the second quarter.

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

Operator

[Operator Instructions] And we'll take our first question from David Westenberg from Guggenheim Securities. Please go ahead.

David Westenberg -- Analyst

Hi, thanks for taking my question and congrats on the performance in light of the COVID environment. So I'm going to start with in terms I'm going to start with market share as a component of growth. I mean, traditionally, we've looked at Heska as getting the 8% market growth and getting a little bit of a component above that, due to market share. Do you see maybe this year and next year, is it maybe more of a transition year with Scil? Or is that still a major component of growth in the next year or two?

Kevin S. Wilson -- Chief Executive Officer and President

I think it's still a component of growth. I think we're acknowledging that the first six months and probably longer the bias for customers is going to be to stay with their current provider. We still think we'll be up, net, in North America this year, just not quite as much as we had hoped at the very beginning of the year. Scil is a number one or number two player in a lot of those markets already. And I think the similar bias to stay with the current provider exists. And so we're doing quite well in Spain, for instance, because we have Scil and CVM, both very strong players in Spain, and they're retaining their customers. So I think retention is probably easier than net gains right now for everybody. I don't know if that answers your question, but I don't think that's a permanent I don't think it's a permanent condition.

David Westenberg -- Analyst

Got it. No, no, that is helpful because and then my follow-up actually is on the same kind of concept. You noted 17% in contract prescription value. Is that, again, driven then by contract extensions due to the same exact concept that you're talking about in terms of staying with your provider?

Kevin S. Wilson -- Chief Executive Officer and President

Absolutely. So it's easier to reach out to your existing installed base. You have a relationship. You don't have to be on site, you've been on site. So our sales teams build very good relationships and they're able then to go back to those customers and add extra value, add extra analyzers, leverage that trust. And in exchange for that, we increased the number of analyzers, the amount that they want to commit to us and probably more importantly, the link over the term that they want to commit with us. So the good news and the bad news is that benefits, obviously, larger players and smaller players who have a subscriptions model. I think it leaves players without a strong culture of subscription, maybe a little bit more make it than those who have a stronger culture for subscription-like we do.

David Westenberg -- Analyst

Got it. And I admit my model was fairly off in terms of the opex line, specifically G&A. But can you this one is for Catherine, is this quarter representative in terms of the opex run rate? Or is there any kind of things that maybe need to be called out as being different than what we expect going forward?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes. I think, clearly, we called out the onetime charges. So we had about $2.7 million of onetime charges in the quarter, which we will continue to have, but not perhaps at that level throughout the rest of the year. So there will be some of that still. We did have some of those costs offset by slightly lower operating cost as we were controlling costs through the second quarter. We should see a slight uptick. But I'd say, overall, directionally, the second quarter operating, exclusive of those onetimes is relatively close.

David Westenberg -- Analyst

Got it. Thank you very much. I'll jump back in queue.

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

We'll take our next question from Steven Mah from Piper Sandler. Please go ahead.

Steven Mah -- Analyst

Thanks for taking the questions and congrats on the quarter. So I got a question on the gross margins. So we're a little bit off on that as well. Could you maybe give us a little bit of color? Were there any particular events in Q2, which caused the gross margin to decline as much as it did? I mean, for example, did you pay more for supplies or reagents? Or was it primarily due to Scil?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes. I can take this one, Kevin, I think. So on a consolidated basis, largely directionally, we expected lower margin in Scil. In the North American segment gross margin, that was slightly lower than we expected and as a result of an inventory reserve charge we took in light of COVID. If not for that charge, clearly, that's not something I can adjust for on a non-GAAP basis, given inventory reserves are normally recurring. But not quite at this level, we would have been on par with our prior year comparative margin.

Kevin S. Wilson -- Chief Executive Officer and President

And I would point out for investors long term. One of the synergies that we think we can capture with Scil, we're well aware that the gross margins are lower than ours, we think we can bridge that gap. So the consolidated gross margin was very much expected. And I think as we get to work, improving their margins, we'll do a good job of bridging that gap.

Steven Mah -- Analyst

Okay. Yes, that was the next part of my question is, what sort of time frame should we expect for the Scil integration and the margins and the synergies to kind of kick in?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. So I would say it's probably 2-pronged. Again, you have to be realistic in the market that you're in. So we saw travel restrictions, especially America to Europe. So the first step is to make sure that the business retains its health and its growth as a stand-alone business, which its doing. The second step then would be more integration and optimization. And that may take a little bit longer, meaning we're not all over that in the second and third quarter of this year, like maybe we would have been pretravel restrictions, but I think it's making progress. So I would say, gross margins will improve. It will probably take a couple of quarters before you'll see those things improve. So early next year, I think you'll start to see some of the pull through. You also have inventory at first in first out. So you have inventory at current gross margins with product and rationalization happening. So it's going to take a few quarters.

Steven Mah -- Analyst

Okay. No, I appreciate the additional color. And my next question is, could you give us a little bit more color on the urine fecal analyzer? And you briefly mentioned about just wanted a little bit more color on launch and expectations?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. So I we are on schedule for our last time table. And so we think right around this time next year, we'll have full commercial launch. And we think it will have kind of a probably public viewing in our November Investor Day. And so that's the time frame. But people will be able to get their hands on it and watch it work in November. So it sounds like a long time since August for the product lunch.

Steven Mah -- Analyst

Okay. All right. I appreciate it. Thanks for taking the questions.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you.

Operator

We'll take our next question from Ben Haynor from Alliance Global Partners. Please go ahead.

Ben Haynor -- Analyst

Good morning, guys, thanks for taking the questions. First off for me, just kind of wanted to understand the change in the guide for point-of-care lab consumables. I think you talked about on the Q1 call, kind of a 50% to 60% decline in system installs. Is that something that's changed that goes into the decline in the lab consumable guidance? Or what's a good way to think about that?

Kevin S. Wilson -- Chief Executive Officer and President

So I'll let Catherine start, and I'll jump in if the peanut gallery is needed.

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes. Yes. So definitely, that decline is part of that. And it was built into that 12% to 17% range. And so at the beginning of the year, we clearly had potentially a higher obviously, a higher point in that range, whereas when we came back out in May toward the lower end, we're just more reconfirming based on the results for the quarter, especially April and May and then having somewhat of a I'm not going to call it a recovery, but a stronger June, just looking at it in holistically, more reaffirmed to the lower end of that guide. We wanted to come out and make sure we were clear on where we're ending up. And then just a portion of the growth is now sitting in a different segment than previously.

Ben Haynor -- Analyst

Real quick, Catherine, before the peanut gallery jumps in. How much of the growth in the first half was reclassified to the international? I know you mentioned the 4% of the guide that shifts over there. But how did that look if we look at Q1, how much or to the first half, how much would have shifted into international that we'll see come year-end?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes. Yes. So let me take that. We reported in the first quarter what was it, I should go back and look at the exact percentage that we reported in the first quarter. But in North America for the first half, it was 6.8%, it was about 7% growth for the first half in North America. So if you recasted that remaining growth I think it would have been in the International segment.

Ben Haynor -- Analyst

Got it. Sorry, Kevin, did you have anything to add on the system install update?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. I mean, I would add a couple of things just in terms of context. So the first thing is, as I'd point to the 4% is just reclass. It is still intact, and I think that's important. I think it's also important to acknowledge the facts. So on a year-over-year basis, we're running roughly 7%, including all the effects of COVID in the first six months since the supply chain delays in the first half. And I think that's a great performance. I think that's good business continuity at this time, we're doing really good product development, little bit business development. So I think it's important to say where we started the year at 12 to 17, we were trending closer to 16. We're bringing that down to the bottom of the range. But we didn't pull the guidance. We didn't just say, "Oh, we are not to talk about it." I think it's prudent to say if you're 7% for the first half, you're going to drop four points in the reclassification. I think 8% is a prudent number. So I'm encouraged by it. It looks like the market is not, but that's why we do what we do, and you guys do what you do.

Ben Haynor -- Analyst

Well, I mean, that makes sense. And obviously, the business has been quite resilient given all that's developed. Just curious on any metrics that you might be able to share in terms of kind of account visits or contacts by your sales personnel. And also, are there any differences in the states that have had more restrictions than the ones that have had fewer restrictions?

Kevin S. Wilson -- Chief Executive Officer and President

Now the restrictions are really more clinic based. And sometimes they're just busy. And sometimes, we just don't want to put people on airplanes. We don't want to put people in hotels and perhaps, I'm a little cautious on that. I think protecting your people and demonstrating that we care about them is great for your company. It's great for loyalty, for your brand and it flows through to the customers. And this is a very human, ironically, business in veterinary hospitals, treating your people well, flows through to those hospitals and they see it. So we haven't cut pay, we haven't cut benefits, and we're asking people to stay at home, we're asking them to take vacations, we're asking them to be healthy and protect that. And I think long term, that is great for the brand, and it's great for the company. And just on any level, it's just the right thing to do. So we focused on that. In terms of COVID restrictions, saying, "Hey, I just can't get to a clinic in Texas." We do a lot of web demos. Our marketing team has just been phenomenal. We basically backfilled all of our lack of trade show activity with educational seminars, and hundreds and hundreds of veterinarians attending these. And I think there are over 1,000 active leads from three or four events just in the last quarter. So we've adjusted and moved to do things that way as opposed to trade shows and online knocking on doors and bringing donuts, and it seems to be working. So I don't think that's it as much as just the bias for the next six or 12 months, I think, it's going to be to stay with current provider, which is great. It's great for us, the Scil that it stabilizes that business and obviously, Scil is doing well. And it's good for us at Heska. So it's a long rambling answer, but I hope the color helps you a little bit.

Ben Haynor -- Analyst

Well, that's definitely helpful, that's all I have for today. Guys thanks a lot.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks Ben.

Operator

We'll take our next question from Andrew Cooper from Raymond James. Please go ahead.

Andrew Cooper -- Analyst

Thanks for the questions. I guess, one, just kind of thinking about the guide and the low end of the 12% to 17%. How much of that, if you can sort of help us think about fewer new installs. Is there much new install activity sort of assumed in the back half that helps that consumables? Or can we think about most of that base already having been put in, in really, 1Q and, I guess, maybe a hair in 2Q. How should we think about that?

Kevin S. Wilson -- Chief Executive Officer and President

It's a great question. There's not a lot of hopeless on strategy in that number. I believe that we're I'll go to COVID, nobody called in for the call to get my opinion on COVID, but I think it's relevant here. I think we're in a very, very long slog for another six to 12 months, at least. And so that's what we've assumed. So we haven't assumed big step-ups in the second half based on hope. We haven't assumed that COVID solves and we're going to return to normal. So no, we don't have model steps in new installs and in new installs, if you lose a point or two of growth, a couple of hundred hospitals that you thought would be using, maybe 100 instead of 250, that type of thing, that's first. So no, we haven't planned for a big step-up and big changes. And now right after COVID, we're going to be able to get into every clinic and start taking market share again. That's not built into our number.

Andrew Cooper -- Analyst

Okay. Great. That's super helpful. And then maybe kind of sticking on that theme a little bit. In the past, you guys have done for different periods, programs with a year, six months of consumables sort of for free to extend or to add new customers. Was there anything on that front to call out in 2Q or that we should be thinking about for the remainder of the year, especially as your vet customers, at least, seem to have been resilient, but I think there was at least a month or so period in there where they were probably feeling a little bit of pain. So anything to call out there in terms of relative to last year as we move forward?

Kevin S. Wilson -- Chief Executive Officer and President

No, I don't think there were any kind of deals. We did reach out to some customers and offered forbearance. But that was really kind of April time frame. And candidly, people were just scared. And most customers said, "yes, I don't need it." So no, I don't think it was really driven by that. It was more of a focus. We decided to focus on our current customers and go a little bit lighter with the product line on the counter. And certainly, it will longer in terms of contracting, and they responded to that. So I don't I wouldn't say there'll be big swings.

Andrew Cooper -- Analyst

Okay. Great. And maybe just one more for me, sort of on that last point on wider on the counter. When we think about sort of your investment philosophy, whether it's iPlus and adding some of the probably more exciting menu items there or expansion of some of the sales and marketing as you are more global and thinking about those things? Has anything changed at a high level in terms of how you would prioritize some of those investments through, obviously, the back half of 2020, but even into 2021 with U.S. launch on track and kind of a handful of moving parts? Is there anything that we should note that you're thinking about a little bit different than you were prior?

Kevin S. Wilson -- Chief Executive Officer and President

I don't have any, Andrew. Catherine, remind me, if I am not aware. I think our plan is intact. And I say that not because I want to be right that our plan was right, it just happens to be true. We're pretty much executing to the plan and not having to modify the plan, and that's a little surprising. I mean there's just a lot of macro issues. It's a little surprising that we haven't to offer a plan, that R&D is still intact. The menu and development is still intact. So no, I don't haven't really changed any priorities. I feel pretty good about exactly the plan that we're on and have been on for the last several quarters. Catherine, I don't know if you have...

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes. I would and actually, it's a great question and something that just triggered a thought on a prior question, I think maybe David asked the question about the run rate for operating expenses. This we did experience a bit a little bit of a slowdown during this quarter as it relates to the spend associated with R&D. But clearly, as Kevin has reaffirmed, the timing is still not off, but we will have an acceleration of that development and expense associated expense throughout the remaining half of 2020, and that's actually a great question because I'm thinking about operating activities, I was really thinking about the marketing and sales and G&A functions. But R&D is clearly included in there and we will have an increase in activity and then through the second half of this year.

Andrew Cooper -- Analyst

So maybe a little bit on timing of executing some of the R&D, but more, I assume, because you couldn't move around and get some things done, no time no shift to the timeline of actual completion or anything like that. Is that kind of the right way to think about it?

Kevin S. Wilson -- Chief Executive Officer and President

That's correct.

Andrew Cooper -- Analyst

Great, thanks.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks Andrew.

Operator

Our next question from Jim Sidoti from Sidoti & Company. Please go ahead.

Jim Sidoti -- Analyst

Hi. Good morning. Glad to hear everybody there is doing well.

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Thanks, Jim. How are you?

Jim Sidoti -- Analyst

Well, things are very quiet in New York, but going to be still a very good, OK, I think it's worth it. Just a couple. I just wanted to be clear, I guess, on the theme of Scil. When you break out international revenue at $16.7 million, is that almost is that all Scil revenue? Or is there a portion of the legacy Heska business in there?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

There is a portion of legacy Heska business such as our Australian, existing French and then previously, but more recently, completed acquisition of CVM. So CVM was present in Q1, right? So it does include that.

Jim Sidoti -- Analyst

Can you tell me then what the acquired revenue was from the two acquisitions in 2020?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

I don't think we're giving out that specific, but it's safe to say the majority is acquired. As you know, Australia was organic and that's been doing very well as part of that effort. And then France was primarily in the lab in the imaging product line, so that gives you a sense of acquired on the PSC lab versus PSC imaging in the international segment.

Jim Sidoti -- Analyst

Okay. And then the second question, contract manufacturing business did very well in the quarter. It looks like we got about $2 million year-over-year. Is that a level you think you're going to maintain throughout the rest of the year?

Kevin S. Wilson -- Chief Executive Officer and President

I think the full year guidance is in tact, Jim. That business always has lumpiness. We get almost a full year worth purchase orders. So we had good visibility into that business. So I think we've reaffirmed that. We pretty much came out today and reaffirmed everything. Actually, within its original range of the side. I don't think there's really any change. I guess that would be a good take on for the call. We reaffirmed everything.

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes, Jim I think what you because you're asking to the OVP piece, the 15 to 16, and the period-over-period comparison is relatively consistent. I think you're specifically asking about the PVD portion, the Tri-Heart. And I think on our last two calls, we've reaffirmed around, like say, $7-ish million return of that product for this year, kind of between the $5 million and $11 million range.

Jim Sidoti -- Analyst

Okay. Right, great. And then last couple, the onetime expenses, are those primarily in the G&A? Or are they spread between G&A and gross margin?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

I'm sorry. Can you repeat the first part of that question, Jim?

Jim Sidoti -- Analyst

You said you had about $3 million of onetime expenses in the quarter. And I'm just trying to model going forward?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes.

Jim Sidoti -- Analyst

Is that primarily generic...

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Yes.

Jim Sidoti -- Analyst

Okay.

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Primarily in generic, yes. Nothing would be in gross margin.

Jim Sidoti -- Analyst

Okay. Then can you just reiterate, you said the size of the sales force is? As of today?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

I am sorry, I don't know why I'm having a bit of a difficulty hearing. You are just a little muffled, can you repeat that for me?

Jim Sidoti -- Analyst

Yes. Maybe this is better. Can you tell me the size of the sales force right now?

Catherine Grassman -- Executive Vice President and Chief Financial Officer

Oh, size of the sales force. Kevin, do you have that?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. Jim, I don't think it's changed. We probably have added a couple, ironically. We have expanded our regional management, and we have two people who are promoted to senior management. But I think the net numbers are about the same, except for maybe one or two. So we can update you with exact numbers as we [Indecipherable]

Jim Sidoti -- Analyst

All right. And then last one for me. You do have a pretty considerable European business now. What are you seeing the recovery there quicker than here in the U.S.? Can you characterize that?

Kevin S. Wilson -- Chief Executive Officer and President

So I think the question is, you are probably seeing recovery internationally faster than the U.S.? Was that the question?

Jim Sidoti -- Analyst

Right. Right. Yes.

Kevin S. Wilson -- Chief Executive Officer and President

No, I would say it's consistent. And I would also say it's a little lumpy. Some markets so just look at GDP. I mean, Spain is up almost 19%. France was in mid-teens, right around 14%, and I think Germany is around 11%. Italy is around 12%. Just broad macro GDP, I think those are the right numbers. And so every country hasn't been hit the same, every country hasn't bounced back the same. I think what's been surprising to me is imaging has held up well, consumables have held up well. We really haven't been ripped off. It's not saying we haven't been affected. Obviously, we've been affected. So I think when Catherine said, no, she is not going to use the word, recovery. I think that's part of the sentiment here is, it's been pretty steady and on the filler in most of these markets. Veterinarians largely are doing well. And then there are pockets where some are doing actually better. And I would just say to investors, I think there are three types of companies in this current market, companies that actually do better under a COVID world, I think Netflix, think Zoom, companies that do the same, their business continues to grow, continues to be healthy under COVID; and then obviously, companies that are structurally damaged by it, and I think we're in the second bucket, it'll be really hard to say we're going to grow faster. But we're definitely not in the third bucket. Our business is doing well, and it's held up well. And we probably got a little bit of survivor skill as well. And so we really kind of bounced around a lot. So I'm not sure that recovery is necessarily the right word to choose with these markets. Again, I'm sorry for the long rambling answer, but maybe the kind of the concept is helpful.

Jim Sidoti -- Analyst

Okay, all right, thank you. Yeah, it is impressive. The only name in my, my universe year or you really have not had to make the Article cost to top and bottom line estimates. So that is very impressive feature of the company in the market.

Kevin S. Wilson -- Chief Executive Officer and President

Yeah. Thanks, Jim.

Operator

Thank you. And we have no further questions. I would now like to turn the call back over to Kevin for any additional or closing remarks.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you, operator, and thanks, everybody, who joined the call. I will make it quick, because I know everybody's got a lot of work to do. I just reiterate, we got a lot done in the first half of 2020. We doubled our customer and our geographic base. We managed our supply chain in COVID, and we're on track for R&D and additional business development. So we just we feel like we're in a very good place, and we're definitely a stronger company in August than we were in January. And so with that, I'll sign off. I look forward to seeing everybody on our next call and our November Investor Day, whether it's in person or it's video cast. We're excited about it, I think it's going to be a very good day because we look at volumes in the U.S. and some of our other things. Until then, thanks for your interest, be safe, be cautious, happy blessings, take your pet to the veterinarian, please, and do something nice. Signing off, OK. Have a good day. Bye-bye. [Operator Closing Remarks]

Questions and Answers:

Duration: 46 minutes

Call participants:

Jon Aagaard -- Director of Investor Relations

Kevin S. Wilson -- Chief Executive Officer and President

Catherine Grassman -- Executive Vice President and Chief Financial Officer

David Westenberg -- Guggenheim Securities -- Analyst

Steven Mah -- Piper Sandler -- Analyst

Ben Haynor -- Alliance Global Partners -- Analyst

Andrew Cooper -- Raymond James -- Analyst

Jim Sidoti -- Sidoti & Company -- Analyst

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