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Heska Corporation (NASDAQ:HSKA)
Q4 2020 Earnings Call
Feb 23, 2021, 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 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jon Aagaard, Director, Investor Relations. Please go ahead, sir.

Jon Aagaard -- Investor Relations

Thank you, and good morning, everyone. Welcome to Heska Corporation's earnings call for the fourth quarter and full year of 2020. I am Jon Aagaard, Head of Investor Relations at Heska. With us this morning, we have 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 as well as the company's 2021 outlook, and then we will open the call to questions. Prior to discussing Heska's results and before I turn the call over to Kevin, 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 statements to reflect events that occur after the time such statement was made. [Operator Instructions] 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, everybody. I was telling Jon this morning I'm thrilled that people are listening to me instead of Chairman Powell. So hopefully, we have some good information for you today. Before I begin, I'd like to encourage callers to review this morning's release data in our written comments. I think you'll find them helpful. And as you do -- as you'll see, we're pleased to report an exceptional fourth quarter and full year. Heska delivered record revenue and universal strength across all key metrics. Fourth quarter sales rose 90.5%. Full year sales rose 16.9%. Subscriptions for the year grew 25% from good gains in market share and retention. I encourage callers to look at the subscriptions' details in this morning's release. In the fourth quarter, North American POC Lab Consumables grew nicely at 15.5%, a continuation of the 15.2% we captured in the third quarter, bringing the year-to-date performance to 11.2%, which is above our full year guide of 8% to 10%. And we again captured solid International segment performance with exceptional results from our Spanish, Australian and German teams in particular. In summary, throughout 2020, all of our Heska teams executed well to deliver results in which it is hard to find a bad metric. While Catherine will cover the specifics of the quarter in greater detail, I wanted to highlight a few things in advance of our Q&A time today. Starting with our people. Heska teams have worked well throughout a difficult year from a remote and hybrid posture. Morale is good, in large part because winning in a healthy way is motivating. We've raised our game in all areas. While it's been more difficult to visit customers and possible customers in person and to do installs of new equipment in 2020, we do see that dynamic shifting to a more normal situation toward the end of the second quarter of 2021, just in time for our Element AIM ramp-up to begin.

Even as this opens up, we intend to retain our newly built remote posture skills as we return to the benefits of more normalized in-person customer visits and installations. Regardless, based on our demonstrated flexibility to execute in all manner of macro environments, we're convinced that we can perform well as we move forward with the new year. Similarly, the pet healthcare market is doing great. The industry continues to reaffirm its decades-long resiliency. Pet visits and veterinary trends continue to outpace most prior forecasts to create increasing demand across an industry that has been broadly benefited by recent trends, which, in our view, are an enduring tailwind to long-established underlying trends. Veterinarians are doing great and end-user demand from pet families remain strong. Specific to Heska's focus on point-of-care diagnostics, the trends are similarly encouraging, and are leading to increases in utilization of our tests. Some increase is from brand-new testing from end user pet family demand. Some of the increase is from our new efforts to educate and promote utilization. Some smaller portion of the increase at the point-of-care is testing that is migrated from central reference laboratories. And perhaps most encouragingly, some of our recent increase in subscriber utilization is being driven by new Heska education efforts and new Heska tests and analyzers that are just now making their way into the installed base. Regardless of the weighting of each of these factors, the net result is that the underlying demand for point-of-care diagnostics by veterinarians was very strong in the fourth quarter and for the full year. And we continue to see that those supporting trends remain strong and sustainable. In our international efforts, integration is also progressing well. Products' rationalization and launches are moving on pace with my goals, and we continue to see margin expansion as a major opportunity in 2021 and 2022. We also continue to see a clear path to subscriptions conversion in our international installed base at a rate that is faster than our experience in North America circa 2013 through 2015.

We began the international effort at roughly the same position we began a similar effort in North America in 2013, and we have today a tested playbook and experience that is better supported by a superior infrastructure, team, installed base, market share, market condition, existing products and margin and new products and margin. Our goals for this effort are detailed in this morning's release. And finally, to conclude my prepared remarks, I'd like to remind you of how we are prepared for the future. For those listeners who have not yet viewed our Investor Day presentation last November, I'd encourage you to do so. We're following it very closely. Heska has articulated a five-year plan entitled of Act two, and we're executing to that plan while receiving support from positive and broad-based market dynamics. Our research and development initiatives have progressed and continued to progress in line with our previously shared time lines, even as we've added new bonus launches, including our new effort in digital psychology professional services. Our balance sheet is in great shape. Our position in the markets we serve has never been stronger. Our teams are better than at any time in our history. Our end markets are doing great and our specific diagnostics markets within them are perhaps the best place to grow. For these reasons and more, we remain confident in our ability to deliver on the three core tenets of our active strategic plan: to double the geographies we serve, which we have done; to double the products and addressable revenue lines we offer, which we have done; and to continue to grow our core business, which we have done throughout 2020 and we anticipate continuing to do in 2021. The multiplier effect of these three major accomplishments leads me to anticipate a great performance in 2021 and 2022. There is substantial opportunity in pet healthcare, and Heska intends to win in that opportunity aggressively in 2021 and beyond. With that, I'll turn the call over to Catherine to detail the quarter and full year performance and provide you with additional information on our 2021 combined outlook. Catherine?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Thanks, Kevin, and good morning, everyone. As Kevin noted, we are pleased to report exceptional financial performance for the fourth quarter and full year of 2020 in which we met or exceeded our 2020 outlook in all metrics previously communicated. At the conclusion of our discussion around our performance, I will take you through an overview of our financial outlook for 2021. Now to the results. Underpinned by expanding global demand in the companion animal healthcare market, Heska delivered excellent performance. During 2020 and in the midst of a global pandemic, Heska closed on a single most transformational transaction in our company's history, the acquisition of scil animal care, which contributed to our consolidated net revenue growth of 60.9%. Continued strong performance in legacy Heska businesses and products also contributed to our growth for the quarter and for the year. 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 of Europe as of today. North America segment grew -- revenue grew 29.3% for the fourth quarter and 13.6% for the full year. Contributing to this was growth of 15.5% in consumable sales for the fourth quarter and 11.2% for the full year. We also experienced growth in PVD, which includes sales of Tri-Heart, a contract manufactured product for Merck. The International segment exceeded our expectations with strong consumable sales and capital equipment placements relating to point-of-care imaging for the full year of 2020. This segment largely represents our inorganic growth. Consolidated gross margin declined approximately 560 and 320 basis points to approximately 41% for the fourth quarter and full year. As anticipated, impacting consolidated gross margin on a comparative basis is the consolidation of skill, which is a lower margin profile business. We are hard at work bridging this margin gap and recognize it as a financially meaningful synergy opportunity for Heska.

The North America segment experienced lower gross margin in the fourth quarter when compared to the prior year due to mix, but finished the year at 46.5%, about 120 basis point increase due mainly to higher sales of consumables and PVD as well as increased sales and product mix and our other contract manufacturer products within OVP. The International segment gross margin was 30.8% for 2020, which was in line with our expectations. Total operating expenses in the fourth quarter and full year of 2020 were $25.9 million and $89.5 million, an increase of 72% and 65.3% over the fourth quarter and full year 2019, respectively. In both periods, the increase is driven primarily by the consolidation of our acquisitions, operating activities and increases in stock-based compensation, onetime acquisition and other related costs and depreciation and amortization expenses resulting from purchase accounting. Adjusted EBITDA for the full year of 2020 was $22.3 million or an adjusted EBITDA margin of 11.3%, exceeding our full year 2020 outlook. Higher sales, higher gross margin and leveraged operating costs were all contributing factors. EPS in the fourth quarter was a gain of $0.25 per share. EPS for the full year 2020 was a loss of $1.66 per share. Adjusting for certain items, which are detailed in our GAAP to non-GAAP reconciliation included with our release, non-GAAP EPS was $0.72 per share in the fourth quarter, an increase of $0.62 per share from the fourth quarter of 2019. Non-GAAP EPS was $0.74 per share for the full year, an increase of $0.25 per share from the full year 2019. Full year non-GAAP EPS is positively impacted by increased operating leverage of the revenue growth experienced throughout 2020. Our balance sheet is strong and our liquidity position remains solid as we ended 2020 with cash of $86.3 million. Turning now to the financial outlook for 2021. On Investor Day this past November, we provided a multiyear financial outlook and outlined assumptions around on Element AIM launch and continued transition of our newly acquired business to our Reset model. At this time, we are updating our 2020 financial outlook.

To summarize, consolidated revenue of $225 million to $235 million is expected for 2021. Growth in Point of Care Laboratory is the key driver in top line growth year-over-year. We estimate a range of $135 million to $145 million in Point of Care Laboratory, which is driven by global consumable growth as a result of continued market share gains, including the impact of the scil acquisition, positive industry trends and increased utilization, our pricing profile in new test. We estimate a range of $50 million to $60 million in Point of Care imaging, which also incorporates the impact of the scil acquisition as well as continued steady growth. Our remaining product lines of PVD and OVP are expected to be relatively consistent to 2020. We anticipate approximately 60% to 65% of our full-year 2021 outlook consolidated revenues to come from the North America segment, which includes an estimated Point of Care Lab consumable growth rate of more than 10%. Our International consumable growth rate is expected to be more than 35% on a reported basis. 2021 adjusted EBITDA margin is expected to be approximately 8%. Increased sales will be offset by an expected flat margin, which includes international reset subscription program transition, the continuation of product rationalization internationally and higher instrument revenue recognition relating to Element AIM in North America. Finally, the additional quarter of operating expense at scil in 2021, in addition to increased travel and sales-related expense as we anticipate increased mobility among our sales force in light of macro factors relating to vaccinations against COVID-19 are attributing to the compression of the margin as compared to 2020. Lastly, to assist investors and analysts on the profile of our GAAP income statement that's still difficult to forecast at this point due to some uncertainty, for the full year, we expect depreciation and amortization of approximately $11 million and stock-based compensation of approximately $10 million to $12 million.

Due to a change in accounting guidance applicable to our convertible notes instrument, which we adopted on January one, 2021, we will no longer record noncash interest expense other than a relatively small amount of amortization related to debt issuance costs. Additionally, due to certain investment decisions and the related accounting treatment benefiting Heska, we expect net interest expense of approximately $1 million. Our full-year effective tax rate is expected to be between 0% to 5% expense, which excludes any potential future discrete items or any valuation changes on the realizability of our deferred tax assets in 2021. We believe we will have sufficient liquidity for ongoing operations and flexibility for smaller strategic initiatives. 2021 free cash flow projection, defined as operating cash flow less capex, is approximately $8 million to $10 million. In sum, we are pleased with our financial performance in 2020 and look forward to the many opportunities afforded to us by the space in which we compete as well as those which we are creating for Heska specifically. With that, we would like to open the call for your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] The first question comes from David Westenberg of Guggenheim Securities. Please go ahead.

David Michael Westenberg -- Guggenheim Securities -- Analyst

Hi, thank you for taking the question and congrats on a great year. So I just want to start with -- you gave out new data, like instrument revenue in Q4 was definitely great. And then it looks like there's an acceleration in terms of new accounts and subscription wins, but you've also given commentary that says market share is tough when you can't go in to see the clinic. So can you help us reconcile why those numbers that are going so far up, suggesting acceleration of market share, but your commentary is kind of a little more muted there?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. I think you want to be as realistic as you can, nobody has a crystal ball. And you have to assume that you have really, really strong competitors. I think everybody understands that about our space. So I think maybe -- but for some of the challenges getting into clinics, maybe would have done better. We do see that opening up a little bit. We do see that as a tailwind may be for imaging, which is more difficult just by the nature of just the size and the installation process. But yes, I do think it's a realistic number given that you don't know what the future holds and you have really strong competition.

David Michael Westenberg -- Guggenheim Securities -- Analyst

Yes, maybe take a step back. I mean it looks like -- I mean, maybe even just from a kind of a retrospective view, the subscription growth was great, and again, new account growth was great. But you also kind of said it's hard to get into accounts. So maybe if you can conceptualize where were you like signing the subscription but not necessarily installing the instrument because again, the numbers look really great in terms of that. But I know that there's a pandemic going on. So I'm just trying to conceptualize that difference. I don't know if that makes sense?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. No, no. I mean, installations have continued. It's just harder. It's harder to schedule. It's harder to travel, but installations, I think, have continued for everybody in the industry. You just spend more time trying to figure out whether you can get in there on Tuesday, or if it's going to be two Tuesdays or three Tuesdays from now. But that has opened up a little bit since kind of the March-April time frame when people were a little bit frozen in place. So it's not like what you would see just in the general market. Restaurants aren't as busy. But they're still open, and some are doing better than others. And so I think we've still been able to progress. It's just been -- it's been a little bit more difficult than it otherwise would have been.

David Michael Westenberg -- Guggenheim Securities -- Analyst

Got it. You had a lot of new equipment coming out in the near term. Can you talk about your willingness to maybe win a fraction of the diagnostic pie rather than the entire diagnostic pie? I mean, I know your business is built on the subscription concepts, but there's a lot of new products. Is something where winning a small fraction could be something just really interesting as you're rolling out digital cytology, fecal analysis, urine analysis, all these kind of new products?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. There's no question. We're trying to serve customers' diagnostic needs. And if they currently get those diagnostic needs at a reference lab, we still want to serve that need if we have the technology to do so. So digital cytology for us is not a defensive play where it might be a defensive play for folks who are in the reference side business. For us, it's the ability to offer our customers more services. And so we like that trend. We think technology is bringing things more to the point of care. We think that Progesterone is the current example. It's inefficient to take a slide, a sample, and drop in an envelope and have somebody drive a car to pick it up, drive the car to the airport, drop it into a box, put it on an airplane, fly to Los Angeles or New York and drive it from the airport to a central lab and then have it looked at. We think that's -- it's not green. It's not efficient, and we think technology can make the experience better for the pet, the pet owner and the veterinarians. So I think that's a perfect example of getting a small piece of the very large pie. If there's $500 million a year in free cash flow happening at the central reference lab, we would be thrilled to get a smaller piece but to get some of that. And so I think entering those types of businesses for us is it's definitely on the menu, and we're beginning that process. Similarly, the Element AIM, if you look at the lab business, you have blood and plasma. Testing, which we've been in now for quite a long time, but you also have urine and fecal.

And then you have pathology-type services, specialty-type services. And Heska is largely just been in the blood and plasma side of the business for the last decade or two. And we're now moving into the other half of what you would call laboratory testing with urine and fecal and blood slides and scenarios and things like that, and then also adding the third leg of that store, which is professional services. So I think that's in line also with getting a small piece of a much bigger pie. We just haven't been at that table. And in 2021, we're at that table in a big way. And we think we can do better than 0. We've shown our ability to gain market share in a really competitive space in point of care blood and plasma, and I think we can do the same thing in the other segments.

David Michael Westenberg -- Guggenheim Securities -- Analyst

You gave a nice long answer. So I'm going to hop back in queue, can give the other analyst opportunity. Thank you.

Kevin S. Wilson -- Chief Executive Officer and President

Okay. Thanks, David.

David Michael Westenberg -- Guggenheim Securities -- Analyst

Thank you.

Operator

Next question comes from Andrew Cooper of Raymond James. Please go ahead. And Cooper of Raymond James. Please go ahead.

Kevin S. Wilson -- Chief Executive Officer and President

You might be muted, sir.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

Sorry I was on mute. I appreciate the question guys. Maybe starting with just a little bit sort of higher-level one. But Kevin, you said you're not going to comment in regards to some metrics on driving utilization, which is something if we think back, longer term, we haven't heard Heska talk about a lot. So maybe just -- can you give us some context of sort of what you're doing? How that's been received? And certainly, we've seen competitors do a lot of that. So it's interesting to see Heska sort of make that shift. Any color there would be really helpful.

Kevin S. Wilson -- Chief Executive Officer and President

Yes. We think that's a game-changing milestone, first. Look, we don't invest lots of effort and money trying to drive utilization in an installed base that's 500 or 1,000 or even 2,000. You just don't get the leverage, but when you get over a couple of thousand, and we're well over that number now in North America, and then you have several thousand outside of North America, driving utilization in that installed base can move the needle. And so we've got a much bigger competitor who's just been a wonderful example of that. They're extraordinary at it. And that's just a lever I haven't really been willing to pull until the end of 2020. But by way of example, I said last week, we had a web seminar, I just say -- called it a webinar. And I want to say we maxed it out, and I don't remember if that was 500 or 1,000 participants, but we haven't traditionally done those things at Heska. So we do think we can drive utilization in our installed base. The installed base itself is growing. So it's kind of that multiplier effect. So yes, that is something that we're actively pursuing in the second half of 2020, and it's going well.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

Okay. Great. And then maybe on the International business. The growth, I think, especially in the consumables is a good number, but could you help us unpack a little bit? Obviously, there's lapping when the deal came in. So what's the sort of underlying same-store consumables growth that you're sort of looking for whether you want to adjust out for the -- some rationalizations or not? Just anything to help us get a flavor for how do you think that market is growing and what your sort of share gains might look like there through 2021?

Kevin S. Wilson -- Chief Executive Officer and President

I don't think, today, we're prepared to dive a whole lot deeper on that. We've only owned the business since April of 2020. So we have one more quarter before we lap it. And I do think we'll be able to share a little bit more data. But three quarters, which is really two quarters if you factor in some of the delays with COVID after April one is really just not enough of a time line to give you the level of data that we're confident in. So I think we're going to pause on that. We try to be transparent. We think it's good. We think it's positive. It's part of our consolidated outlook. But we need another quarter or two before we dive into more detail.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

Okay, fair enough. I'll stop there. Thank you for your time.

Kevin S. Wilson -- Chief Executive Officer and President

Okay, thank you.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

Thank you.

Operator

Next question comes from Steven Mah of Piper Sandler. Please go ahead.

Poon Mah -- Piper Sandler & Co. -- Analyst

Great. High Kevin and Katherine. Thanks for the questions and congrats on the quarter.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you.

Poon Mah -- Piper Sandler & Co. -- Analyst

Yes. I want to dig in on the International subscriptions. Can you give us a sense or some color on the number of scil customers that you've converted and are part of that 335 international subscriptions? And give us some color on if that conversion rate is what you've been expecting. I've been trying to get a sense for how the subscription model conversion is going and maybe when that will be completed and when we should expect gross margins to improve?

Kevin S. Wilson -- Chief Executive Officer and President

Yes. So 2020's international subscriptions, we ended 2020 at about 335. And we ended 2013 in the North America efforts. If you go all the way back to 2013, we ended 2013 at about 370. And in 2014, in North America, we ended at 730. And so we've put a forecast together this year that we'll start at 335, so a little bit less than we started in 2013 in North America. But we'll take that to 835 internationally in kind of our first year, which is obviously better than the 730. So put another way, we do see a faster adoption rate with the International customer base. And International for us isn't just scil. So part of that 330 has been work before we really got busy with scil. So CVM companies in Spain. We've since put those two businesses together with scil business and the CVM business. So they've been active in subscriptions during the second half, and they've done well. And then Australia has done well also. So that 330, I view, is largely a baseline number. That's kind of our starting number, that 335. And I view that as very similar to the 370 that we started in North America in 2017. But I do think it's going to be a faster adoption rate. So we're calling out 835 for this year, which is faster than what we did in North America.

Poon Mah -- Piper Sandler & Co. -- Analyst

And maybe just sneak one last one in. On the Point of Care Lab consumables increase of 15.5%, is there any element of a backlog catch up or do you think that's more durable going forward?

Kevin S. Wilson -- Chief Executive Officer and President

We don't have a backlog in there. And Q3 was 15.2%, I recall. So we don't see any of that really as a snapback. I think that's a -- it's just a strong market. And I think we did well within a strong market.

Poon Mah -- Piper Sandler & Co. -- Analyst

Okay. Got it. Okay, so it's not like a backlog hangover from Q3 that maybe didn't get good pushed into Q3 but tripled into Q4. Do you think it's more durable then?

Kevin S. Wilson -- Chief Executive Officer and President

We do. Yes. I think the whole second half was one big nice period.

Poon Mah -- Piper Sandler & Co. -- Analyst

Okay. Right. Fantastic. Thanks for the questions.

Kevin S. Wilson -- Chief Executive Officer and President

Thank you.

Operator

Next question comes from Chris Schott of JPMorgan. Please go ahead.

Christopher Thomas Schott -- JPMorgan -- Analyst

Great, thanks so much for the questions. The first one for me was, I was just looking at the guidance for 2021 on -- for North America contract subscription value growth. And I think it's about 7% over 2020. I'm trying to kind of bridge a little bit, given the new product cycle you're seeing, it does seem like it's a bit of a slowdown in forecasting guidance and just some color there. And maybe in a similar vein, just the growth you're expecting in new subscriptions versus contract value in 2021. Can you just talk a little bit about the dynamics that we're seeing there of the 7% subscription -- or 9% subscription growth versus 7% contract growth expectation? And I have a follow-up after that.

Kevin S. Wilson -- Chief Executive Officer and President

Yes. No, it's a great question. So what I would point out is contract subscription value is the minimum that the customer signs up for. And we're quite confident in utilization, especially some of these new products that if we ask for a lower contract subscription value, but we get a longer term, we would make that trade because we're confident in utilization. And we don't really want to cause any angst in adoption by asking for higher monthly dollar commitments. We'd rather keep that friction as low as possible, and obtain longer-term contracts that people are comfortable with. And we believe that they'll -- their utilization, the value of the utility of the products that we're selling will exceed that anyway. So that's a big piece of our thinking in that gap between minimum contract subscription value maybe not growing exactly in line with the number of subscriptions. But you'll also see some really nice growth in months under subscription as well. So anyway, we think it all works out.

Christopher Thomas Schott -- JPMorgan -- Analyst

Great. So no trend in there, just the contract value size. That makes sense. And then my second question, I think you addressed a little bit of this in the remarks, though. You've had EBITDA margins in the low to mid-teens over the past few quarters. Just help us bridge a little bit from those recent trends versus the 8% target that you're expecting for this year.

Kevin S. Wilson -- Chief Executive Officer and President

So I'll take a first stab at it that if we're doing better than that, we have so many things to grow, so many things to invest in that we will probably accelerate investment in some of those product rollouts. And then maybe I'll let Catherine, if there's any other color that she wants to add.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yes. No, I think that it's a good point in addition to -- we have experienced that in this year, especially, we have some reduced costs inhibit our legacy business is just a result of immobility among the group, which we've built back into to encourage and enhance sales in 2021. So that's obviously going to pull that down a bit as well as expand it a bit in Europe as well. So there are some additional costs going in there that are bringing that margin down on a comparative basis.

Christopher Thomas Schott -- JPMorgan -- Analyst

Thanks so much.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

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

Benjamin Charles Haynor -- Alliance Global Partners -- Analyst

Good morning, guys, thanks for taking the questions. First, for me, just kind of following up on one of the earlier questions on International Point of Care Lab consumable growth of 35%-plus. Just thinking about having the full Q1 this year versus not having anything last year plus the COVID impact in Q2. I mean it seems like the way to read that to me is that to emphasize the plus a little bit more just with the snapback from COVID plus like full q1, is that fair? I know you said you don't want to get into it too much, but just any thinking on that, that would be helpful.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Super nicely...

Kevin S. Wilson -- Chief Executive Officer and President

Super broadly. You got it, Catherine? Go ahead.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

Yes. I mean, Ben, I think you're right on point. I certainly see that there is potential for upside on that percentage. In Q1 and Q2, evaluation is spot on. But just keeping in mind that one of our strategies, right, that we're in process and throughout 2021, working on in fact transition of the existing base onto our Reset program. That typically, you're getting utilization plus new customer growth, and we're going to be very focused on transitioning our customer base. I mean obviously looking and still being aggressive in the new customer acquisition space internationally, but really protecting that base is a key priority for us.

Benjamin Charles Haynor -- Alliance Global Partners -- Analyst

Great. And then just also, I get -- following up on an earlier one. I understand the desire to remove friction on the installed that's impacting kind of the minimum ESG. But my recollection is over time as the existing accounts add, new equipment reup for various reasons, that should go up at the existing accounts. And it's always hard to kind of figure out which metrics to emphasize because you can always give $1 away for $0.90, and you get one side of the equation to move up for efficacy or try and maximize revenue, there's some trade-offs there. But I guess when you look at it and understanding that friction removal makes sense in your case, should we be looking at it as months under subscription, is the main thing to be looking at? Or subscriptions total? I mean, what's going to give us the best evidence that you guys are kind of executing to plan, if that makes sense?

Kevin S. Wilson -- Chief Executive Officer and President

No, it's a great question. So here's kind of how I roughly look at it. Active subscriptions leads me to look to retention and market share gains. So when those go up, that's roughly the bucket that I look at. months under subscription leads me to say, are we achieving our main goal? If the premise in our market is veterinarians, healthcare, veterinarians, in particular, are going to do wonderfully over the next couple of decades, and they're going to do more point of care testing, more diagnostics testing. So 20%, 30% of their revenues as they continue to grow, then our mission is to be as close to the veterinarian for decades. That's our mission, right? And so months under subscription gives me a little snapshot there to say, are we meeting that mission of having the long-term proximity being closest to the veterinarian? And so that's how I look at that metric, and that's a key success metric. And then minimum CSV for me is more about just a check to make sure that we're not giving a $1 away for $0.90. That you're maintaining some discipline there, that you're achieving that long-term relationship with the customer, you're getting more customers, the first two metrics. And you're doing it in a way that the customer is confident to commit to spending a certain amount of their spend with Heska. So that's kind of how I look at those three just in terms of the dashboard. I don't know if that helps.

Benjamin Charles Haynor -- Alliance Global Partners -- Analyst

No, that was very helpful and exactly what I was looking for. That's all from me. Thanks for taking the questions.

Kevin S. Wilson -- Chief Executive Officer and President

Thanks, Dan.

Benjamin Charles Haynor -- Alliance Global Partners -- Analyst

Thank you.

Operator

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

James Philip Sidoti -- Sidoti & Company -- Analyst

Hi, good morning. Can you hear me?

Kevin S. Wilson -- Chief Executive Officer and President

Good morning, Jim, we can.

James Philip Sidoti -- Sidoti & Company -- Analyst

Good hope hope you all well too. Two questions from me. Are you going to update anything about the rollout for urine and fecal? So should I assume that the time lines that you put out previously are still OK?

Kevin S. Wilson -- Chief Executive Officer and President

They are.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. And then the second one, I know this is the first time in my career that we're facing an inflationary environment and rising interest rates. Have you factored that at all into your guidance? And if so, how do you think it would impact the top in the top line and the margins?

Kevin S. Wilson -- Chief Executive Officer and President

So we haven't factored that into our guidance. We feel like we're reasonably well protected in our subscriptions. Our subscriptions have a CPI, get-out-of-jail-free card. So if for some reason, we woke up and know Jimmy Carter, 15% interest rates, our pricing would adjust by contract. And so we feel like we're protected there. We don't see that happening, by the way, but we have to look around the corner and bake that into our contracts, and our customers view that as reasonable. They too would then be inflationary with their pricing. So I think we're protected there. We don't see that macro event. We're not huge capital driven. We don't have large debt payments that are subject to variable interest rates and those types of things. And I think largely inflation driven by gigantic balloons of cash being sprinkled on consumers, largely is probably a good thing for pricing in things like pet healthcare because it sits right between kind of consumer, consumer cyclical, but it's also a healthcare requirement. So I think we're probably positioned fairly well for that environment.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. And I think I heard Catherine say that she expects net interest expense for 2021 to be around $1 million. Is that correct?

Catherine Grassman -- Executive Vice President, Chief Financial Officer

That's correct.

James Philip Sidoti -- Sidoti & Company -- Analyst

Sorry, I didn't hear you.

Catherine Grassman -- Executive Vice President, Chief Financial Officer

I'm sorry, I was just confirming. Yes, Jim was correct.

Operator

Our last question comes from Andrew Cooper of Raymond James. Please go ahead.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

I just figured I could jump in for a follow-up since nobody else asked this. But just on the AIM, I know the rollout is on track. But any color you can give on sort of the backlog continuing to build, how you're feeling about some of the goals you talked about in November in terms of rolling out to the existing installed base. And just the level of excitement you're hearing from customers. Any updates there?

Kevin S. Wilson -- Chief Executive Officer and President

Yes, we just can't go fast enough. So we continue to build backlog. We're -- every quarter goes by, we're confident that demand is more than there to get to where we want to be. So really, it's an execution question. It's just getting a wonderfully working product out to as many customers as fast as possible. So needless to say, our sales team is chomping at the bit and so a lot of our customers. I don't want to get into specifics because I don't want to update our backlog in public but it's good.

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

I appreciate it.

Kevin S. Wilson -- Chief Executive Officer and President

Okay. Thank you.

Operator

It appears there are no further questions at this time. I'd like to turn the call back to Kevin Wilson for any additional or closing remarks.

Kevin S. Wilson -- Chief Executive Officer and President

Well, thanks, operator, and thanks to everybody who joined the call. Obviously, Heska, we did great last year, and we continue to expect that we'll accelerate momentum in 2021. We think we'll execute well in the second half of our five-year strategic plan. And I look forward to updating you guys next quarter. Until then, thanks for your interest and your support in our work. And be safe, count your blessings and take care of your pet through the vet. So we appreciate you, and have a good day out there. Okay. Thanks. Bye.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Jon Aagaard -- Investor Relations

Kevin S. Wilson -- Chief Executive Officer and President

Catherine Grassman -- Executive Vice President, Chief Financial Officer

David Michael Westenberg -- Guggenheim Securities -- Analyst

Andrew Harris Cooper -- Raymond James & Associates, Inc. -- Analyst

Poon Mah -- Piper Sandler & Co. -- Analyst

Christopher Thomas Schott -- JPMorgan -- Analyst

Benjamin Charles Haynor -- Alliance Global Partners -- Analyst

James Philip Sidoti -- Sidoti & Company -- Analyst

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