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Heska Corporation (NASDAQ:HSKA)
Q3 2020 Earnings Call
Nov 5, 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 Third Quarter 2020 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jon Aaggard, Director of Investor Relations. Please go ahead, sir.

Jon Aagaard -- Director, Investor Relations

Thank you and good morning everyone. Welcome to Heska Corporation's earnings call for the third quarter of 2020. I am Jon Aaggard, Head of Investor Relations for Heska. Prior to discussing Heska's third quarter 2020 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 contribute to such differences are detailed in writing in this morning's earnings release or in Heska Corporation's annual and quarterly filings with the SEC and elsewhere. Any forward-looking statements speak only as 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, and then we will open the call to questions.

Before I turn the call over to Kevin, I would like to remind everyone of Heska's virtual Investor Day on November 18, 2020. Heska management will present the company's growth strategy at this special event, including key new product demonstrations, commercial and new geography integration update, and multi-year performance targets. To register for this event, please visit the Investor Relations page of the company's website. We are excited and we hope to see you there.

With that being said, 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

Hey, thanks Jon and good morning to everybody. I know everybody is busy, it's a crazy [Indecipherable] cycle. So I'm just going to jump right in. So today we're pleased to report an exceptional third quarter, it exceeded expectations. As outlined in this morning's release, Heska teams delivered record revenue and new universal strength across all key metrics. We saw strong growth of 15.2% in our North American POC Lab Consumables, bringing lab year-to-date performance to 9.7%. We again captured solid international segment performance, with exceptional results from our Spanish, Australian and German teams in particular. All Heska teams have executed at a very high level, to deliver results in which it is hard to find a bad metric.

In spite of macro uncertainty and strong competition, our strong performance across key metrics, leads us to believe that we will perform at the top end of the ranges for most if not all, for the full year targets we've shared publicly.

While Catherine will cover the specifics of the quarter in greater detail, I do want to take a few moments to highlight a few things which may be helpful to investors. Starting with our people; Heska's team is healthy and productive. We've continued to operate effectively from a flexible posture in each country in which we operate. I'm proud of our people, and our investors should sleep well knowing that our performance is underpinned by many hundreds of dedicated Heska employees, that have worked extremely hard to quickly solve challenges in a positive and sustainable way, regardless of any microenvironmental challenges. Heska is staffed by good people, who have been [Indecipherable], doing great work with a wonderful attitude and I'm honored to be part of this team and customers, investors could be proud of their association with Heska.

Similarly, the pet healthcare market broadly is doing great. The industry continues to reaffirm its decades long resiliency. Pet visits and veterinary trends generally have outpaced most forecasts. The companion animal population is growing at all-time high rates, increasing demand across an industry that has been broadly benefited by recent trends, which are more likely than not, and then during tailwind, the long established underlying trends. We are seeing an acceleration of long-term trends in pet ownership, pet favorable housing, positive pet ownership demographics, increased human at-home time and pet households and an even stronger human pet bond. Pet adoptions are up, breeders are managing weaning loss, first time those veterinarians are up, and end-user demand remains very strong. Specific to Heska's focus on Point of Care diagnostics, the trends are similarly encouraging with curbside drop-off and same-day discharge procedures now firmly in place across most hospitals. We are seeing increased utilization in Point of Care testing, some of the increase is from brand new testing, some smaller portion of the increase is at the Point of Care, this testing that has migrated from central reference laboratories. Some of the Q3 utilization performance at Heska was from Q2 catch-up, catching some pent-up demand for deferred wellness visits, elective procedures and supply chain dampening that resulted from COVID-19 effects earlier this year. And some of our strong increase in subscriber utilization growth is being driven by Heska new tests and new analyzers that are now making their way into the installed base.

Regardless of the weighting of each factor and there are others, the net result is that the underlying demand for Point of Care diagnostics testing by veterinarians was very strong in the third quarter and the supporting trends continue to be strong and we believe sustainable. Diagnostics at the clinic care remains central and critical to growing veterinary services. From the veterinarians perspective, consumer goods sales, buying sales and boarding revenues continued to decline while being more than offset by increased diagnostics, surgeries, price, and other professional services that requires licensure.

It turns out that there are more pets than ever, pet families are more focused on their pets. People at home with their pets more regularly see pet health symptoms and households now have increased substantial flexibility to take their pets to the veterinarian. Veterinarians are very busy and so is Heska. Veterinarians are busy, in fact that they presently are less able to take time to make major decisions for technology in their practices. In North America, in particular, companies such as Heska continue to experience delays with in-clinic access by sales and installation teams, which has reduced opportunities for competitive blood instrumentation takeaways and new imaging solutions installations. This dynamic has also increased retention by the incumbent, whether the incumbent is Heska or another company.

While we see this trend moderating over time, it is likely to continue at some level over the next several quarters. However, the markets outside of North America was much more first generation stage adoption. We anticipate increase in accelerating demand to adopt new Point of Care diagnostics for the first time and to capture first major upgrade cycles for early adopters, specifically in core Europe and Australia. International veterinarians are now more likely to adopt Point of Care diagnostics enthusiastically for the first or second time for exactly the same reasons as North American veterinarians are increasing their utilization and percentage of profitability from Point of Care testing.

The international rates for veterinarian diagnostic is certainly in full swing and is likely to largely unfold quickly over the next five to 10 years. As a top-3 competitor in most of the markets we are targeting, it is a race that Heska intends to compete in and to win.

And finally, to conclude my remarks, I'd like to remind you of how we are preparing for the future. In Q3, research and development initiatives progressed in line with our timelines. Our commercial launch plans further solidified across several key projects, also in line with our goals. Integration with our recent international acquisitions progressed as expected, and we are confident we can meaningfully grow and improve the profitability of these businesses over time.

For these reasons, and more, we remain confident and resolute in our ability to deliver on the three core tenants of our 2018 through '23 strategic plan: to double the geographies and customer served, which we have done; to double the products and revenue lines which we offer, which we're very, very close to accomplishing; and to continue to grow our core business, which we have done and anticipate continuing to do.

By adding and multiplying in and among these three major accomplishments, we anticipate a great performance in the back half of our five-year plan.

With that, I'll turn the call over to Catherine to detail the quarter's performance. Catherine?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Thanks, Kevin, and good morning everyone. As Kevin mentioned, we are pleased to report a strong performance for the third quarter of 2020. Consolidated revenue grew 81.3%, while largely benefited by our recent acquisitions of scil and CVM, solid performance during these uncertain times, and our legacy Heska business also contributed to growth on a year-over-year basis.

We 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 primarily Europe as of today.

North America segment revenue grew 16.4%. Contributing to this growth was -- contributing to this was growth of 15.2% in consumable sales and growth in PVD would be expected return of sales of Tri-Heart, a contract manufactured product from Merck, which experienced reduced customer demand in the comparative period and throughout 2019.

The International segment performed at the high end of our expectations with strong consumable sales and capital equipment placements. Consolidated gross margin declined approximately 240 basis points to 41.3%. As anticipated, negatively impacting consolidated gross margin on a comparative basis, 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 higher gross margin at 48.3%, about a 430 basis point increase from prior year, due mainly to product mix within our OVP product line, as well as increased sales of consumables.

Total operating expenses in the third quarter of 2020 were $23.2 million, an increase of $9.7 million from the third quarter of 2019. The increase is driven primarily by the consolidation of our acquisition operating activities of $6.5 million, an increase in stock-based compensation of approximately $3 million, and a one-time acquisition and other related cost of $800,000. We managed and continue to manage operating expenses carefully.

Adjusted EBITDA for the second quarter -- for the third quarter of 2020 was $8.7 million or an adjusted EBITDA margin of 15.3% compared to $2 million or an adjusted EBITDA margin of 6.4% in the third quarter of 2019. This increase is primarily attributable to our recent acquisition, as well as increased profitability from product mix and cost containment in our legacy business.

EPS in the third quarter was a loss of $0.57 per share. Adjusting for certain items, which are detailed in our GAAP to non-GAAP reconciliation included with our release, EPS was $0.08 per share, a decrease of $0.06 per share from the third quarter of 2019. Third quarter non-GAAP EPS was positively impacted by increased profitability during the quarter, but more than offset by an increase in our tax expense as a result of the decrease -- as a result of decreasing the carrying value of our deferred tax assets. Also negatively impacting this measure is the cash interest expense associated with our convertible debt notes issuance.

Our balance sheet is strong. And our liquidity position remains solid with cash of $84.5 million, which continues to provide us the flexibility to advance our strategic plan.

Turning now to the 2020 guidance previously provided on May 5 and recasted on August 4 based on our new segment presentation. It is not our intention to update guidance quarterly, nor will we provide quarterly guidance. Moving forward, we will provide update to our annual guidance based on events we deem significant to the understanding of our performance relevant to the expectations we set forth.

However, given the uncertainty of macro environmental factors mostly related to the COVID-19 pandemic, we believe it's important to communicate with our investors and analysts on the health of our business, which is strong. As such, and as Kevin indicated, we are reaffirming our previously provided 2020 full-year revenue and adjusted EBITDA guidance. We believe we have opportunity to achieve performance near the top end of all ranges previously disclosed.

On last quarter's earnings call, we communicated a full-year effective tax rate benefit of 12% to 15%. Based on changes in our underlying tax and business strategy, we are rescinding our guidance at this time. In sum, we are pleased with our financial performance in the third quarter and I look forward to sharing our multi-year financial targets and other key considerations at our upcoming Investor Day.

With that, we'd like to open the call for your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question today comes from David Westenberg of Guggenheim Securities.

David Westenberg -- Guggenheim Securities -- Analyst

Hi. Thanks for taking my question and congrats on a good quarter. So lab instruments outperformed us and I think the commentary in this space is really -- and you kind of said in you new prepared remarks, there is something like half of practices are really not allowing salesforce back in, and it's probably not at a time that people install new instruments. Can you clarify whether that is -- actually you got that on instruments or is that a lot on the other? And then in the same kind of token, is this dynamic of all these practices not been open, is that impacting subscription renewal or thoughts on subscription renewal, just given the fact that your salesforce -- [Indecipherable] but there isn't capital purchase necessarily -- just a little bit more commitment?

Kevin S. Wilson -- Chief Executive Officer and President

So I'll talk about it qualitatively and then Catherine, anything you want to add? It hasn't stopped. So the ability to get into clinics is not a full stop. The ability to having your people travel is also not at a full stop. And we've altered how we approach customers as well. So it's more difficult in terms of installation of equipment, but the instruments line hasn't entirely stopped by any stretch. We leverage remote specialty, a little bit more -- soundwaves to get the customers and have a conversation. So I think that's really the answer, is that it hasn't stopped. It's really hard to put a pinpoint on it in terms of -- especially quarter-to-quarter variability of how many are going to be installed. In terms of finding subscription renewals, that hasn't been a problem. Customers tend to transact, I think more easily with the incumbent. They may have a positive relationship with them and extending that relationship for additional benefits has not been a problem. So I think we've got a little bit of an upper bump from that dynamic, in terms of when we extend the customer, we have the opportunity maybe to offer an additional analyzer or two, and sometimes, that's also positive, just in terms of the instrumentation portion of that contract, as you put new equipment in on top of what's already in and being renewed.

So Catherine, I don't know, if you have anything to add?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

No. I think that's that covers it.

David Westenberg -- Guggenheim Securities -- Analyst

Okay, thank you. And then in terms of greenfield accounts outside the United States, you highlight that it is a growth strategy. Can you help us to conceptualize what those accounts do right now? Is it no analyzer, hand held analyzer, just kind of an old generation. Greenfield kind of has a lot of different -- different accessibility and I guess that's a better market for you and probably a faster growing one. But just maybe help us conceptualize, what they look like right now, so we can kind of have a sense on really -- you as a new player and thus, I guess, still not that new, but penetrating those markets?

Kevin S. Wilson -- Chief Executive Officer and President

Yeah, and actually you hit on it. We are very well entrenched in that market, still has been servicing those customers, as with CVM in Spain and our efforts in France. So we have good long-term relationships with them. I think you can divide it into a couple of buckets. You can divide it into folks that will just do less testing. They do a more targeted approach to testing. They do wellness testing. It's just not ingrained to the point where they feel like to have to have a full suite. So you will see people with nothing. They will use a reference lab. They will use the local university, those types of things. And then you see some folks who will have a very incomplete portfolio. So they might test for one or two parameters with an older machine, maybe use a strip that's more of a targeted approach, but they're not running full panels and they are not running them quickly. So it's not really integrated into their practice.

And then you will have a fair amount; again it's let's say half or more, who have something. But they tend to be older generation. We see a lot more three-part blood counts in Europe. I think that the North American market is largely five part, and has been for many years. So I would divide it into those three buckets. And then there is variability among countries, you have a better adoption in Germany, let's say, than you might in Italy. So it's very difficult to just say Europe broadly, it is very much a country by country cultural question as well.

David Westenberg -- Guggenheim Securities -- Analyst

Got it. And then just maybe one on margin. I mean, margin expansion -- you have significantly more revenue with the double business, and you know, you now have a strong global footprint. In terms of being able to get more leverage with suppliers, is that a two, three, five year something lever that you might be able to pull, in terms of getting more leverage in your P&L, not just necessarily the mix shift to blood, but also being able to use a bigger size to your advantage?

Kevin S. Wilson -- Chief Executive Officer and President

Absolutely. That was one of the, one of the key underpinnings of my thinking about expanding into Europe, with the acquisition of scil and CVM and the others, and it benefits the North America suppliers as well, if they're able to earn our business in Europe, and U.S. more as a consolidated global pricing and volume partner. So rationalizing those products in these different countries and picking fewer suppliers, obviously means some suppliers lose, and some suppliers pick up business that they wouldn't have otherwise gotten, and we think we get rewarded for the margin and price with that increased volume. So, yeah, I think that's exactly right.

David Westenberg -- Guggenheim Securities -- Analyst

Okay, I have more questions, but I don't want to get in front of your Investor Day, because I really want to talk about products. But I'll just hold off for two weeks.

Kevin S. Wilson -- Chief Executive Officer and President

Perfect. We'll see you at the Investor Day. Thank you.

Operator

Our next question comes from Andrew Cooper of Raymond James.

Andrew Cooper -- Raymond James -- Analyst

Hey guys, thanks for the questions. Maybe starting with Europe and scil, you said kind of, at the high end of your expectations for the quarter. As we try to think about that trajectory there, I know there are some products that likely at some point, get cold in some moving parts there and the transition to subscription. So just any flavor you can give on each of those dynamics to help us think about kind of where your positioning was in 3Q and what it might look like from there?

Kevin S. Wilson -- Chief Executive Officer and President

Yeah. So we're doing those things, and they are in process. I don't see big kind of cliff events or mountain climbing events in either direction, because they won't all happen at the same time. But as we are doing subscription recognition in certain areas now, trying to go to that exclusive basis, and so that will have the effects that it had in 2014 and '15, just in terms of dampened upfront revenue, but better margin profile. And so, we're doing those things.

The way I look at it, is we got on the field largely at the very beginning of the second quarter. So here in the second and third quarter, and then we're now largely into the fourth quarter, or halfway through. So we're putting that baseline here in place, and so the first quarter of 2021 will be the first full year of ownership for us, and so we're setting that baseline, and the expectations, especially given the COVID situation, and rolling lockdowns, and those exist still. So we have had a wonderful quarter, we have -- and we've done wonderfully even with those dynamics in place. But there are now rolling lockdowns in Milan and Lombardy for instance.

So we keep those things in mind. So our first year will include all of that noise I guess is what I would say, Andrew. But for right now, we're setting that baseline here, and it's coming in nicely, despite kind of the dangers that lurk out there. So that's kind of how I look at it.

Andrew Cooper -- Raymond James -- Analyst

Okay. That's helpful. And then maybe just one on margins, I think the North American number was impressive obviously, and that's kind of a new way for us to think about it. But the gross margin was a nice number from our perspective, and when I think about other players, not necessarily in the animal health space, but in general, we've heard call-outs for shipping costs and things like that being elevated. But is there anything to note in the margin other than, hey, there's still shifts around mix in the quarter, but anything else to sort of point out for us to think about? I know you mentioned OVP I think had a strong mix component there. So would love some insights?

Kevin S. Wilson -- Chief Executive Officer and President

Yeah I think that it's OVP mix. I think it's consumables mix, which is key to our gross margins. If you go all the way back to our 2013-2014 plan, you will recall, we said, hey, we've got to get product right. You got to get product right, and then you got to get margin right. And you got to get people right. And then you have to get the model right, so the subscription SaaS type of model. And then you scale it. So I've never been a huge believer in scaling things that aren't profitable. So I think we just had a really positive peek at what we hope will be the future where the higher margin businesses that we emphasize, that we put our shoulder behind, represent a higher percentage of our business and our growth and win positive margin result from that. And I think that's gross margin and eventually that flows down to your adjusted operating margin. So I don't think it's anything more than what it looks like. We had good mix and we had good top-line growth of things that have good margin.

Andrew Cooper -- Raymond James -- Analyst

Okay, great. And then maybe one last one...

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yeah. I would...

Andrew Cooper -- Raymond James -- Analyst

So sorry, go ahead.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yeah, I would just add, though, that I don't think we're coming off of what we talked about on the second quarter call on a full year basis. So just like to kind of clarify that on the consolidated full-year gross margin.

Andrew Cooper -- Raymond James -- Analyst

Okay, great. And then maybe just one last one and I appreciate if you say let's differ. But just as we think about the quarter and some of the traction in the instruments that you've already, at least, brought to market, whether it's the DC5X or the RC and kind of how to think about any trajectory there, any traction that you saw in the quarter, what adoption has looked like would be great.

Kevin S. Wilson -- Chief Executive Officer and President

I would just say they've both been good and I would defer to Investor Day just in terms of more that's in the pipeline. But customers always like to adopt new products. That's the name of the game. So both of those are now shipping and they're being received well and the sales force, also enthusiasm is really important and new products for sales force is a shot in the arm as well. So in terms of analyzers, it's a little bit of a down under the launching sometimes when they can't quite get into the clinics as aggressively as they'd like to, but the adoption has been very good.

Andrew Cooper -- Raymond James -- Analyst

Great. I appreciate it. Thanks for your time.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks, Andrew.

Operator

Our next question comes from Steven Mah of Piper Sandler.

Steven Mah -- Piper Sandler -- Analyst

Hi, guys. Thanks for taking the questions and congrats on a great quarter.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you.

Steven Mah -- Piper Sandler -- Analyst

Yeah. So a lot of -- covered a lot of ground already but maybe digging a little bit more Andrews question and I know you mentioned you're setting a baseline for the scil integration and I understand the travel restrictions, but could you maybe give us a little bit more color or maybe sort of early [Technical Issues] traction from moving scil over to your subscription model, and when we should expect to see an effect on gross margins?

Kevin S. Wilson -- Chief Executive Officer and President

It's more of a multi-year question. I do think we will cover it at Investor Day just in terms of how much can we move gross margins over the next three years. And what those stairsteps look like. So I think I will defer. It's only 13 days and I -- so to take one number out of context, I think it will be better if we present kind of in the future in context in the next 13 days.

Steven Mah -- Piper Sandler -- Analyst

Okay. No, that's fair enough and I appreciate that. All right. So my next question is you had a really nice rebound in Q3 and maybe talked about the backlog and pet business in Q2. But do you think that backlog can fairly flush through or do you think it still will need some [Indecipherable] at the end of the year?

Kevin S. Wilson -- Chief Executive Officer and President

It's a great question. So I look at it two ways. I think, Q2 is maybe a little low and we called out some supply chain transitions that we were making. So I think it was maybe a little bit low. And we called it out because we'd have the benefit of being true. And so we resolved those issues and so we had a full performance in Q3 without the drag of a point or two of just backlog -- our own backlog, so, our own supply chain created. And then, I suspect there is a help of a couple of points on the 15.2%, to just put it in the context. I suspect it was around around 2 percentage point. And I think it's largely flushed through.

So I don't really expect that path to continue because it really is a kind of a catch-up tailwind. But to put it in the context of size, I think it's probably a couple of points now. It's not 5 or 10. And we don't see a supply chain drag like we saw in the second quarter returning in the fourth quarter. So we feel pretty good about underlying demand. It's real and it's not really a snapback, with the exception of maybe a couple of points that didn't come in Q2, that came in Q3.

Steven Mah -- Piper Sandler -- Analyst

Okay, great. Thanks for the color. And maybe just my last question, more sort of on a macro. Obviously the global demand for companion animal healthcare has been very resilient. But could you compare and contrast sort of maybe what you're seeing in major regions in North America and Europe, especially in light of the very recent European lockdowns and maybe give us a sense of the trends you're seeing right now in bulk and how that might translate to North America going forward?

Kevin S. Wilson -- Chief Executive Officer and President

Yeah. And these are just more musings, I think, at this point. So North America, I think, is fairly straightforward. And we don't anticipate lockdowns equivalent to what we had earlier in the year. But having said that, veterinary medicine, pretty much worldwide and the markets that we operate, is considered a necessary product. So even in Lombardy, in Milan, right now, that have lockdowns, you can take your animal to the veterinarian. And we also find sometimes in lockdown areas, not that people are looking for excuses to get out of the house, but they're having the time and -- for animal needs to go to the veterinarian even if it's for wellness, they would rather do it now, while they don't have the ability to do other things.

So I do think there will be rolling challenges. Madrid is another hot spot that flares periodically. And I don't think we're out of the woods on that. You don't need my commentary on what's going to happen with COVID, I'm not an epidemiologist. But I do anticipate companies rolling lockdowns partial or otherwise. But I think we've seen the movie and we've seen that veterinary healthcare is a necessary service that holds up really pretty well. And I called out some of those things. People who are at home with their pets see healthcare issues and then they have all the flexibility and the extra time, they're not running kids to sports, they're not going to the pub, they're not -- or whatever it is, they're going to give their pets extra time, they have flexibility in their schedule, they're working from home, they have more people to watch the kids, all of these things.

And then the model, the fact that veterinarians are doing curbside check-in, but also doing generally same-day curbside check-out, that leads really pretty well toward a Point of Care test, because once the pet's in the back of the house, they get to do the full work up, and if you do everything, they get to recommend everything, they get to set baseline diagnostics, all those things before they go back out to the curb, and that tends to lead pretty well to Point of Care testing as opposed to maybe sending them out and having to wait a day or two. So I'm fairly optimistic that underlying demand for Point of Care diagnostics is holding up fairly well in all the markets that we're operating in.

Steven Mah -- Piper Sandler -- Analyst

Okay, great. Yeah, that's some great additional color. I appreciate it. All right. Thank you so much.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you.

Operator

The next question comes from Ben Haynor of Alliance Global Partners.

Benjamin Haynor -- Alliance Global Partners -- Analyst

Good day, guys. Can you hear me alright?

Kevin S. Wilson -- Chief Executive Officer and President

You bet. Good morning, Ben.

Benjamin Haynor -- Alliance Global Partners -- Analyst

Good morning. So, just a couple of quick ones from me. Just on the International imaging, so bigger than we had anticipated. Is that fairly typical for what scil and the European firms might see in a Q3 and then is there any seasonality we should be cognizant of for the European business as we go into the last quarter of the year?

Kevin S. Wilson -- Chief Executive Officer and President

Sure, Ben. So, I think it was probably a little bit better than we thought. And I think in some regard we were all flying a little bit in the fog, but I think it was probably a little bit better than we thought with the dynamics with clinics. And it's a nice positive and I don't know -- now you're just going to get my opinion again. I think F-150 trucks had a big spike in Q3 as well. So, I think people maybe have some pent-up demand in terms of capital equipment, maybe there are certain incentives in certain European countries that are helpful to that, in terms of investing in your business. Yeah, it was a nice number and it's just too early. We have only run the business for a couple of quarters now, to say that's a firm baseline. We really would rather step back after four quarters of ownership, and say OK, what is it under our ownership compared to historicals. But, but that was a positive number. It wasn't crazy, but it was definitely above my personal expectations.

Benjamin Haynor -- Alliance Global Partners -- Analyst

Okay. That makes sense. I guess I've got a -- add a F-150 sales figures to the model now. And from the -- you mentioned the work-from-home, kind of the logistics flexibility that families and pet owners have now, with obviously work-from-home. I guess in your sense, how big of a driver is that flexibility to the increased -- that business increased and ultimately increased diagnostic usage?

Kevin S. Wilson -- Chief Executive Officer and President

So again, it's just personal commentary. I have been in the business since the early '90s. I think it's huge. We've always said, that the single greatest limiter to everybody's business in the veterinary space is getting the pet to the hospital. Getting your cat in your car and driving it to the veterinarian is the challenge. And I think will tend have very high compliance, they trust their veterinarian a great deal, and they should. So getting them there is the barrier. And I think it's real. And I think it's lasting. I think the change is probably bigger, frankly in North America, where flexible work-at-home type of arrangements and mid-day schedules are less cultured, than they are, say, in Spain. So I think it's probably a bigger shift for North America. But I personally think it's the last pinpoint, and I think it will be in play for quite a while.

Benjamin Haynor -- Alliance Global Partners -- Analyst

Okay. I guess that makes sense, now that everyone has the new F-150. So I will leave it at that. Thanks a lot guys.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you, Ben.

Operator

[Operator Instructions]. The next question comes from Jim Sidoti of Sidoti & Company.

Jim Sidoti -- Sidoti & Company -- Analyst

Good morning, Kevin. Can you hear me?

Kevin S. Wilson -- Chief Executive Officer and President

We can Jim, how are you?

Jim Sidoti -- Sidoti & Company -- Analyst

I am well. I am well. I still drive an old Subaru. But other than that, I am well. Two quick questions. If you look at what you've done so far this year, the guidance for the year, it indicates a downturn sequentially in revenue from the third quarter to fourth quarter, which historically, fourth quarter is usually the strongest quarter of the year. So are you being conservative and rather not update your guidance at this point or was there something probably into Q3, that you don't think will be in Q4?

Kevin S. Wilson -- Chief Executive Officer and President

Yeah, I don't think it's a pull forward question, as much as -- it's a scary place out there. And so, when we look at it, we really have done a very thoughtful job of challenging the numbers and what to do with that, and we think the full year guide and the upper range of the full year guide is probably a correct place to be, given uncertainty. So I think we're going to stick with that. But there is no -- there's nothing really I can give you, that's a large mover and say, hey $10 million of this showed up in the third quarter and we expected it in the fourth. I think it's really -- we started the year with a full year guide and I think we're probably trending to the upper end of that. But we don't really want to move that up at this stage, especially given the fact that most of this space is just refusing to say anything. So we're trying to communicate as best we can. So I think we'll leave it, where it's at.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. So, I mean in this environment, there's no reason to get aggressive. Being a little conservative, not a terrible thing, I don't think. And then the other thing, Catherine, what's going on with the tax rate, why a big charge in the quarter and how should we think about that going forward?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yeah. So Jim, we've just effectively reduced the carrying value of our deferred, which is primarily related to the net operating loss. It's driven by some very strategic tax and business strategies, that has been coming to fruition. So if you think about it going forward, we're really only -- I am going to use the word, we're only really carrying about $7 million growth, that's not -- does not have a valuation allowance to fine-tune it. So the volatility going forward is pretty minimized in that regard.

Jim Sidoti -- Sidoti & Company -- Analyst

So...

Catherine Grassman -- Executive Vice President, Chief Financial Officer

So I guess, said another way...

Jim Sidoti -- Sidoti & Company -- Analyst

Are you going to report what you pay going forward or are you going to report -- you're not going to report a full year tax number, but pay smaller current quarter? Is that right?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

So we're going -- yes. So what we'll do going forward, I mean, we'll certainly provide full year 2021 expected tax rate as part of the multi-year as well.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. But I'm guessing that tax rate is going to come down in '21 and '22 from what you -- what you thought it was going to be, at the beginning of this year?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yeah.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. All right, thank you.

Kevin S. Wilson -- Chief Executive Officer and President

You're welcome.

Operator

As there are no further questions at this point, I would like to turn the call back to Mr. Wilson for any additional or closing remarks.

Kevin S. Wilson -- Chief Executive Officer and President

Hey, thank you. Thanks everybody for joining the call. I think it's pretty clear that Heska has accomplished a great deal this year, and the results for the quarter, I think are wonderful. I am as pleased or maybe even more excited about the work inside of our business, and I think we're in a pretty good place as we as we enter the second half of our five year plan. So I'm super excited. Stay tuned. We're working hard. We expect to continue to execute for the second half of our strategic plan, and I will update you with Catherine and the team further 13 days from now, at our Investor Day, which is again November 18. So I hope to virtually see everybody there. We think it's going to be a great day, a fun day, a big day for Heska and yeah, we hope to see you there. So until then, be safe, count your blessings and don't forget to take your pet to the veterinarian, as we've discussed. We know you have work-at-home time so. So take your pet to the vet. All right, thanks. Everybody have a good day. Bye, bye.

Operator

[Operator Closing Remarks].

Duration: 42 minutes

Call participants:

Jon Aagaard -- Director, Investor Relations

Kevin S. Wilson -- Chief Executive Officer and President

Catherine Grassman -- Executive Vice President, Chief Financial Officer

David Westenberg -- Guggenheim Securities -- Analyst

Andrew Cooper -- Raymond James -- Analyst

Steven Mah -- Piper Sandler -- Analyst

Benjamin Haynor -- Alliance Global Partners -- Analyst

Jim Sidoti -- Sidoti & Company -- Analyst

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