HESKA CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related Notes included in Part I Item 1 of this Form 10-Q. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, that involve risks and uncertainties, and can generally be identified by our use of the words "scheduled," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions. Such statements, which include statements concerning future revenue sources and concentration, international market expansion, gross margin, selling and marketing expenses, remaining minimum performance obligations, research and development expenses, general and administrative expenses, capital resources, financings or borrowings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed under the caption "Risk Factors" contained in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2022 that could cause actual results to differ materially from those projected. The Risk Factors and others described in the Company's periodic and current reports filed with theSEC from time to time are not necessarily all of the important factors that could cause the Company's actual results to differ materially from those projected. The forward-looking statements set forth in this Form 10-Q are as of the close of business onMay 4, 2023 and we undertake no duty and do not intend to update this information, except as required by applicable laws. If we updated one or more forward looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. See "Statement Regarding Forward Looking Statements."
Overview
We sell, manufacture, market and support diagnostic and specialty products and
solutions for veterinary practitioners. Our portfolio includes Point of Care
("POC") diagnostic laboratory instruments and consumables including rapid assay
diagnostic products; digital cytology services; POC digital imaging diagnostic
products; local and cloud-based data services; veterinary practice information
management software solutions ("PIMS") and related software and support;
reference laboratory testing; allergy testing and immunotherapy; heartworm
preventive products; and vaccines. Our primary focus is on supporting companion
animal veterinarians in providing care to their patients.
Our business is composed of two operating and reportable segments: North America
and International. North America consists of the United States , Canada and
Mexico . International consists of geographies outside of North America ,
primarily our operations in Germany , Italy , Spain , France , Switzerland ,
Australia and Malaysia . The product groups described below are offered in both
segments unless otherwise noted.
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POC Laboratory Instruments and Other Sales include outright instrument sales,
revenue recognized from sales-type lease treatment, and other revenue sources,
such as charges for repairs and reference laboratory sales. Revenue from our POC
laboratory consumables, a recurring revenue stream, primarily involves placing
an instrument under contract in the field and generating future revenue from
testing consumables, such as cartridges and reagents, as that instrument is
used. Instruments placed under subscription agreements are considered operating
or sales-type leases, depending on the duration and other factors of the
underlying agreement. A loss of, or disruption in, the supply of consumables we
are selling to an installed base of instruments could substantially harm our
business. The majority of our POC laboratory and other non-imaging instruments
and consumables are supplied by third parties, who typically own the product
rights and supply the product to us under marketing and/or distribution
agreements. Major products in this area include our instruments for chemistry,
hematology, blood gas, urine fecal, and immunodiagnostic testing and their
affiliated operating consumable, as well as our rapid assay diagnostic tests and
digital cytology services. More recently, the Company has developed and/or
acquired product rights pertaining to our urine fecal and immunodiagnostic
platforms.
Radiography is the largest product offering in POC Imaging and Informatics,
which includes digital and computed radiography, ultrasound instruments, and
diagnostic data and support. Radiography solutions typically consist of a
combination of hardware and software placed with a customer, often combined with
an ongoing service and support contract. Our experience has been that most of
the revenue is generated at the time of sale, in contrast to the POC diagnostic
laboratory placements discussed above where ongoing consumable revenue is often
a larger component of economic value as a given instrument is used. In 2022, the
Company acquired VetZ, a provider of PIMS and other clinical practice-related
applications, which are primarily offered in our International segment.
Pharmaceuticals, Vaccines and Diagnostic ("PVD") revenue primarily includes
pharmaceuticals and biologicals as well as research and development, licensing
and royalty revenue. Since items in this area are often single use by their
nature, our typical aim is to build customer satisfaction and loyalty for each
product, generate repeat annual sales from existing customers and expand our
customer base in the future. Products in this area are both supplied by third
parties and provided by us. Major products and services in this area include
heartworm preventives and allergy test kits, allergy immunotherapy and testing.
Other Vaccines and Pharmaceuticals ("OVP") revenue is generated in our USDA , FDA
and DEA licensed production facility in Des Moines, Iowa . We view this facility
as an asset which could allow us to control our cost of goods on any
pharmaceuticals and vaccines that we may commercialize in the future. We have
increased integration of this facility with our operations elsewhere. For
example, virtually all of our U.S. inventory, excluding our imaging products, is
stored at this facility and related fulfillment logistics are managed there. Our
OVP revenue includes vaccines and pharmaceuticals produced for third parties.
OVP is attributable only to the North America segment.
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Our products are ultimately sold primarily to or through veterinarians. The
acceptance of our products by veterinarians is critical to our success. These
products are sold directly to end users by us as well as through distribution
relationships, such as the sale of kits to conduct blood testing to third-party
veterinary diagnostic laboratories and sales to independent third-party
distributors. Revenue from direct sales and distribution relationships
represented 82% and 18%, respectively, of revenue for the three months ended
March 31, 2023 . Revenue from direct sales and distribution relationships
represented 80% and 20%, respectively, of revenue for the three months ended
March 31, 2022 .
On March 31, 2023 , we entered into a Merger Agreement with Antech Diagnostics,
Inc. Refer to Note 1, Business Overview and Summary of Significant Accounting
Policies in our Condensed Consolidated Financial Statements included in Part I,
Item 1 of this Form 10-Q for details of the Merger.
Effects of Certain Industry and Economic Factors and Trends on Results of Operations
Industry Trends - We continue to see demand for companion animal healthcare, which supported solid growth for POC laboratory diagnostic products and services. We have a healthy liquidity position with cash of$125.2 million as ofMarch 31, 2023 . We continue to be active in pursuits that support our growth in the companion animal healthcare space. Supply Chain and Logistics - Due to our dependence on global suppliers, manufacturers and shipping routes, we are experiencing intermittent delays in receiving supply, increased shipping costs and some targeted increase in materials cost. Because our long-term subscription programs, the commercial program of our largest revenue category, POC laboratory instruments and consumables, include annual price adjustments at a greater of 4% or the consumer price index, we are able to mitigate some of these costs in this highly inflationary environment. Further, we have worked closely with our suppliers to evaluate and identify products with long-lead time parts and provided advanced purchase notification and have secured products in advance to further mitigate supply disruption.
Inflation, Foreign Currency, Interest Rate Risk Impact - Refer to Item 7A.
Quantitative and Qualitative Disclosures about Market Risk in our Annual Report
on Form 10-K for the year ended
Results of Operations
Our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward.
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The following table sets forth, for the periods indicated, certain data derived
from our unaudited Condensed Consolidated Statements of Loss (in thousands,
except per share):
Three Months Ended March 31,
2023 2022
Revenue, net $ 62,381 $ 64,800
Gross profit 27,399 29,145
Operating expenses 37,822 40,599
Operating loss (10,423) (11,454)
Interest and other (income) expense, net (272) 359
Net loss before income taxes and equity in losses of unconsolidated affiliates
(10,151) (11,813)
Income tax benefit (375) (2,208)
Net loss before equity in losses of unconsolidated affiliates (9,776) (9,605)
Equity in losses of unconsolidated affiliates (349) (381)
Net loss attributable to Heska Corporation $
(10,125)
Diluted loss per share attributable to Heska Corporation$ (0.97) $ (0.97) Non-GAAP net income per diluted share(1)(2) $ 0.17$ 0.27 Adjusted EBITDA(1)$ 3,263 $ 7,688 Net loss margin(1) (15.7) % (14.8) % Adjusted EBITDA margin(1) 5.2 % 11.9 % (1) See "Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to net loss and Non-GAAP net income per diluted share to diluted loss per share attributable toHeska Corporation , the closest comparable GAAP measures, for each of the periods presented. Net loss margin and adjusted EBITDA margin are calculated as the ratio of net loss before equity in losses of unconsolidated affiliates and adjusted EBITDA, respectively, to revenue. (2) Shares used in the diluted per share calculation for non-GAAP net income per diluted share are (in thousands): 10,521 for the three months endedMarch 31, 2023 compared to 10,605 for the three months endedMarch 31, 2022 .
Revenue
Total revenue decreased 3.7% to$62.4 million for the three months endedMarch 31, 2023 , compared to$64.8 million for the three months endedMarch 31, 2022 . For the three months endedMarch 31, 2023 , the decrease in revenue is driven by a 20.6% decrease in POC imaging & informatics, largely as a result of supply chain delays and timing impacting the International segment, lower contract manufacturing sales and unfavorable foreign exchange impacts. These decreases are partially offset by increased consumable sales, mainly as a result of net pricing gains, particularly withinNorth America , and increased sales-type lease placements, including increased placements of Element AIM. -37- --------------------------------------------------------------------------------
Gross Profit
Gross profit decreased 6.0% to$27.4 million in the three months endedMarch 31, 2023 , compared to$29.1 million in the three months endedMarch 31, 2022 . Gross margin percentage decreased to 43.9% in the three months endedMarch 31, 2023 , compared to 45.0% in the three months endedMarch 31, 2022 . The decreases in both gross profit and gross margin percentage were driven by the acquisition of LightDeck. Excluding the impact of the acquisition, gross profit was approximately in line with the prior year period. Gross margin percentage, excluding the impact of the acquisition, increased to 46.8%, driven by increased consumable sales as well as favorable idle plant impacts and product mix within our OVP business. Operating Expenses Selling and marketing expenses were$12.4 million in the three months endedMarch 31, 2023 , compared to$12.0 million in the three months endedMarch 31, 2022 , an increase of 3.8%, driven primarily by increased employee compensation costs, partially offset by lower stock-based compensation of$0.6 million and favorable foreign exchange impacts. Research and development expenses decreased to$3.1 million in the three months endedMarch 31, 2023 , compared to$12.5 million in the three months endedMarch 31, 2022 . The decrease is primarily driven by the prior year expense of$10.0 million for an exclusive global supply and licensing agreement to adapt and commercialize the Heska Nu.Q® vet cancer screening test. This is partially offset by increased developer costs associated with our Informatics business of$0.3 million and costs related to the acquisition of LightDeck of$0.2 million . General and administrative expenses increased 38.0% to$22.3 million in the three months endedMarch 31, 2023 , compared to$16.1 million in the three months endedMarch 31, 2022 driven primarily by increased non-recurring costs related to the proposed Merger of$5.1 million (refer to Note 1 in this Form 10Q), the acquisition of LightDeck of$1.1 million , partially offset by prior year non-recurring costs of$1.0 million primarily related to the acquisition of VetZ. Additionally, we incurred higher ongoing costs related to the acquisition of LightDeck of$1.3 million and higher employee compensation costs of approximately$0.7 million . The increased ongoing costs are partially offset by lower stock-based compensation costs of$1.5 million .
Interest and Other (Income) Expense, net
Interest and other income, net, was$0.3 million in the three months endedMarch 31, 2023 , compared to$0.4 million expense in the three months endedMarch 31, 2022 . The income generated in the three months endedMarch 31, 2023 is primarily driven by interest income earned in the three months endedMarch 31, 2023 related to our short term investment in a money market fund.
Income Tax Benefit
For the three months endedMarch 31, 2023 , the Company had a total income tax benefit of$0.4 million , including$1.1 million of domestic deferred income tax benefit and$0.7 million of current income tax expense. In the three months endedMarch 31, 2022 , the Company had a total income tax benefit of$2.2 million , including$2.4 million of domestic deferred income tax benefit and$0.2 million of current income tax expense. The Company recognized$0.6 million in excess tax expense related to employee share-based compensation in the three months endedMarch 31, 2023 , compared to$0.6 million in excess tax benefit recognized in the three months endedMarch 31, 2022 . The decrease in tax benefit for the 2023 period versus the 2022 period is due to tax expense from transaction costs and employee stock compensation. -38- --------------------------------------------------------------------------------
Net Loss Attributable to
Net loss attributable to Heska was$10.1 million in the three months endedMarch 31, 2023 , compared to$10.0 million in the three months endedMarch 31, 2022 . The change for the three months endedMarch 31, 2023 is due primarily to the dilutive effect of the acquisition of LightDeck as well as lower tax benefit, mostly offset by lower operating costs, primarily due to lower non-recurring costs and lower stock-based compensation charges. Expanded research and development capabilities and manufacturing capacity, which were part of our long-term strategic rationale for the acquisition of LightDeck, will continue to be dilutive in 2023. Adjusted EBITDA Adjusted EBITDA in the three months endedMarch 31, 2023 was$3.3 million (5.2% adjusted EBITDA margin), compared to$7.7 million (11.9% adjusted EBITDA margin) in the three months endedMarch 31, 2022 . The decrease is partially driven by the acquisition of LightDeck, which reduced adjusted EBITDA by$2.4 million (and reduced adjusted EBITDA margin by 390 basis points). Excluding the impact of the LightDeck acquisition, adjusted EBITDA decreased by$2.0 million (and adjusted EBITDA margin declined by approximately 270 basis points) due to increased operating expenses driven largely by ongoing employee compensation costs. See "Non-GAAP Financial Measures" for a reconciliation of adjusted EBITDA to net loss, the closest comparable GAAP measure, for each of the periods presented.
Loss Per Share
Loss per share attributable to Heska was
Non-GAAP Earnings Per Share
Non-GAAP EPS was income of$0.17 per diluted share in the three months endedMarch 31, 2023 compared to income of$0.27 per diluted share in the three months endedMarch 31, 2022 . The decrease in the three months endedMarch 31, 2023 is primarily driven by the impact of the acquisition of LightDeck and higher ongoing operating costs related to compensation.
Non-GAAP Financial Measures
In addition to financial measures presented on the basis of accounting principles generally accepted in theU.S. ("U.S. GAAP"), we also present EBITDA, adjusted EBITDA, adjusted EBITDA margin, and non-GAAP net income per diluted share, which are non-GAAP measures. These measures should be viewed as a supplement to, not substitute for, our results of operations presented underU.S. GAAP. The non-GAAP financial measures presented may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner. Management uses EBITDA, adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income per diluted share as key profitability measures, which are included in our quarterly analyses of our operating results to our senior management team, our annual budget and related goal setting and other performance measurements. We believe these non-GAAP measures enhance our investors' understanding of our business performance and that not adjusting for the items included in the reconciliations below would hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. -39- --------------------------------------------------------------------------------
The following tables reconcile our most directly comparable as-reported financial measures calculated in accordance with GAAP to our non-GAAP financial measures (in thousands, except percentages and per share amounts):
Three Months Ended March 31,
2023 2022
Net loss(1) $ (9,776) $ (9,605)
Income tax benefit (375) (2,208)
Interest (income) expense, net (423) 440
Depreciation and amortization 3,974 3,300
EBITDA $ (6,600) $ (8,073)
Acquisition related and other non-recurring/extraordinary costs(2) 7,135 11,032
Stock-based compensation 3,077 5,110
Equity in losses of unconsolidated affiliates (349) (381)
Adjusted EBITDA $ 3,263 $ 7,688
Net loss margin(3) (15.7) % (14.8) %
Adjusted EBITDA margin(3) 5.2 % 11.9 %
(1) Net loss used for reconciliation represents the "Net loss before equity in losses of unconsolidated affiliates."
(2) To exclude the effect of acquisition related costs, non-recurring items and extraordinary charges not indicative of ongoing operations of$7.1 million charge for the three months endedMarch 31, 2023 , and$11.0 million charge for the three months endingMarch 31, 2022 . The costs for the three months endedMarch 31, 2023 are primarily related to the proposed Merger (refer to Note 1 of this Form 10Q) and the acquisition of LightDeck. The costs for the three months endedMarch 31, 2022 are primarily related to a$10.0 million licensing expense as well as acquisition-related charges.
(3) Net loss margin and adjusted EBITDA margin are calculated as the ratio of net loss and adjusted EBITDA, respectively, to revenue.
Three Months Ended March 31,
2023 2022
GAAP loss attributable to Heska per diluted share $ (0.97) $ (0.97)
Acquisition related and other non-recurring/extraordinary costs(1) 0.68 1.04
Amortization of acquired intangibles(2) 0.24 0.21
Purchase accounting adjustments related to fixed asset step-up(3)
0.05 0.05
Stock-based compensation 0.29 0.48
Loss on equity investee transactions 0.03 0.04
Estimated income tax effect of above non-GAAP adjustments(4) (0.15) (0.58)
Non-GAAP net income per diluted share
$ 0.17
Shares used in non-GAAP diluted per share calculations 10,521 10,605 (1) To exclude the effect of acquisition related costs, non-recurring items and extraordinary charges not indicative of ongoing operations of$7.1 million charge for the three months endedMarch 31, 2023 , and$11.0 million charge for the three months endedMarch 31, 2022 . The costs for the three months endedMarch 31, 2023 are primarily related to the proposed Merger (refer to Note 1 of this Form 10Q) and the acquisition of LightDeck. The costs for the three months endedMarch 31, 2022 are primarily related to a$10.0 million licensing expense as well as acquisition-related charges. -40- -------------------------------------------------------------------------------- (2) To exclude the effect of amortization of acquired intangibles of$2.5 million in the three months endedMarch 31, 2023 , compared to$2.2 million in the three months endedMarch 31, 2022 . These costs were incurred as part of the purchase accounting adjustments for recent acquisitions.
(3) To exclude the effect of purchase accounting adjustments for step up
amortization of
(4) Represents income tax expense utilizing an estimated effective tax rate that adjusts for non-GAAP measures including: acquisition related, non-recurring and extraordinary costs (excluding items which are not deductible for tax of$5.2 million for the three months endedMarch 31, 2023 , compared to$0.1 million for the three months endedMarch 31, 2022 ), amortization of acquired intangibles, purchase accounting adjustments, amortization of debt discount and issuance costs, and stock-based compensation. This incorporates the discrete tax related to stock-based compensation of$0.6 million expense for the three months endedMarch 31, 2023 , compared to benefits of$0.6 million for the three months endedMarch 31, 2022 . This also includes the tax benefits related to R&D tax credit of$0 for the three months endedMarch 31, 2023 , compared to$0.8 million for the three months endedMarch 31, 2022 . Adjusted effective tax rates are approximately 25% for both periods presented.
Analysis by Segment
The
TheNorth America segment represented approximately 61.8% of our revenue and the International segment represented approximately 38.2% of our revenue for the three months endedMarch 31, 2023 , respectively. The following sections and tables set forth, for the periods indicated, certain data derived from our unaudited Condensed Consolidated Statements Loss (in thousands). North America Segment Three Months Ended March 31, Change Dollar 2023 2022 Change % Change Point of Care Laboratory:$ 25,249 $ 23,284 $ 1,965 8.4 % Instruments & Other 4,243 4,647 (404) (8.7) % Consumables 21,006 18,637 2,369 12.7 % Point of Care Imaging & Informatics 5,828 6,051 (223) (3.7) % PVD 5,433 4,576 857 18.7 % OVP 2,050 3,463 (1,413) (40.8) % Total North America Revenue$ 38,560 $ 37,374 $ 1,186 3.2 % North America Gross Profit$ 18,109 $ 17,908 $ 201 1.1 % North America Gross Margin 47.0 % 47.9 % North America Operating Loss$ (9,206) $ (12,311) $ 3,105 (25.2) % North America Operating Margin (23.9) %
(32.9) %
North America segment revenue increased 3.2% to$38.6 million for the three months endedMarch 31, 2023 , compared to$37.4 million for the three months endedMarch 31, 2022 . The$1.2 million increase was driven by a 12.7% increase in POC laboratory consumables, mostly driven by price favorability, partially offset by a 40.8% decrease in OVP sales due to timing. -41- -------------------------------------------------------------------------------- Gross profit for theNorth America segment was$18.1 million compared to$17.9 million for the three months endedMarch 31, 2023 and 2022, respectively. Gross margin was 47.0% for the three months endedMarch 31, 2023 , compared to 47.9% in the three months endedMarch 31, 2022 . The acquisition of LightDeck unfavorably impacted both gross profit by$1.8 million and gross margin by 460 basis points. Excluding the impact of the acquisition, gross profit and gross margin percentage favorability were driven by increased revenue as a result of higher consumables pricing and favorable idle plant and mix impacts within our OVP business.North America had$9.2 million operating loss in the three months endedMarch 31, 2023 , compared to operating loss of$12.3 million in the three months endedMarch 31, 2022 . The reduction in operating loss in the three months endedMarch 31, 2023 is driven by increased revenue and profit as well as lower non-recurring and stock-based compensation costs, partially offset by the acquisition of LightDeck and increased employee compensation costs. International Segment Three Months Ended March 31, Change 2023 2022 Dollar Change % Change Point of Care Laboratory:$ 15,330 $ 15,481 $ (151) (1.0) % Instruments & Other 4,785 3,733 1,052 28.2 % Consumables 10,545 11,748 (1,203) (10.2) % Point of Care Imaging & Informatics 7,674 10,962 (3,288) (30.0) % PVD 817 983 (166) (16.9) % Total International Revenue$ 23,821 $ 27,426 $ (3,605) (13.1) % International Gross Profit$ 9,290 $ 11,237 $ (1,947) (17.3) % International Gross Margin 39.0 % 41.0 % International Operating (Loss) Income$ (1,217) $ 857 $ (2,074) NM International Operating Margin (5.1) %
3.1 %
International segment revenue was$23.8 million compared to$27.4 million for the three months endedMarch 31, 2023 and 2022, respectively, driven by a 30.0% decline in POC Imaging & Informatics due to supply chain delays and timing, lower consumable sales and unfavorable foreign exchange impact of$1.1 million , partially offset by 28.2% increase in instrument sales due to Element AIM rollout in International markets subsequent to the first quarter of 2022 as well as higher capital lease placements. Gross profit for the International segment was$9.3 million compared to$11.2 million for the three months endedMarch 31, 2023 and 2022, respectively. Gross margin for the International segment was 39.0% for the three months endedMarch 31, 2023 compared to 41.0% for the three months endedMarch 31, 2022 . The decrease in gross profit and gross margin for both periods is driven by decreased revenue as well as unfavorable product mix associated with increased capital lease placements. International segment operating loss was$1.2 million for the three months endedMarch 31, 2023 , compared to$0.9 million income for the three months endedMarch 31, 2022 . The operating loss for the three months endedMarch 31, 2023 is driven by lower revenue and gross profit. -42- --------------------------------------------------------------------------------
Liquidity, Capital Resources and Financial Condition
We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to access other forms of capital as well as our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control, including but not limited to effects of the COVID-19 pandemic. Our primary source of liquidity is our available cash of$125.2 million . A summary of our cash from operating, investing and financing activities is as follows (in thousands): Three Months Ended March 31, Change Dollar % 2023 2022 Change Change Net cash used in operating activities$ (9,161) $ (17,665) $ 8,504 48.1 % Net cash used in investing activities (22,558) (29,843) 7,285 24.4 % Net cash used in financing activities (128) (3,262) 3,134 96.1 % Foreign exchange effect on cash and cash equivalents 438 (60) 498 NM Decrease in cash and cash equivalents (31,409) (50,830) 19,421 38.2 % Cash and cash equivalents, beginning of the 156,618 223,574 (66,956) (29.9) %
period
Cash and cash equivalents, end of the period
(27.5) %
For the three months ended March 31, 2023 and March 31, 2022 , cash flow used in
operations was $9.2 million and $17.7 million , respectively, which was primarily
the result of (in thousands):
Three Months Ended
March 31, Change
Dollar %
2023 2022 Change Change
Net loss $ (10,125) $ (9,986) $ (139) (1.4) %
Non cash expenses and other adjustments 7,941 6,400 1,541 24.1 %
Change in accounts receivable 4,399 2,060 2,339 113.5 %
Change in inventories, net (3,112) (6,528) 3,416 52.3 %
Change in lease receivables (2,708) (2,248) (460) (20.5) %
Change in other assets (1,908) (288) (1,620) (562.5) %
Change in accounts payable (7,683) (3,069) (4,614) (150.3) %
Change in other liabilities 4,035 (4,006) 8,041 NM
Net cash used in operating activities
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For the three months ended March 31, 2023 and March 31, 2022 , cash flow used in
investing activities was $22.6 million and $29.8 million , respectively, which
was primarily used for (in thousands):
Three Months Ended
March 31, Change
Dollar %
2023 2022 Change Change
Acquisition of LightDeck, net of cash acquired
NM
Acquisition of VetZ, net of cash acquired - (29,509) 29,509 NM
Capital expenditures (1,885) (334) (1,551) (464.4) %
Net cash used in investing activities $ (22,558) $ (29,843) $ 7,285 24.4 %
For the three months ended March 31, 2023 and March 31, 2022 , cash flow used in
financing activities was $0.1 million and $3.3 million , respectively, which was
the result of (in thousands):
Three Months Ended
March 31, Change
Dollar %
2023 2022 Change Change
Proceeds from issuance of common stock $ 1 $ 1,761 $ (1,760) (99.9) %
Payments for taxes related to shares withheld
for employee taxes (90) (4,961) 4,871 98.2 %
Repayments of other debt (39) (62) 23 37.1 %
Net cash used in financing activities $ (128) $ (3,262) $ 3,134 N/M
We believe that our cash, cash equivalents and marketable securities balances,
as well as the cash flows generated by our operations, will be sufficient to
satisfy our anticipated cash needs for working capital and capital expenditures,
including investment in product development initiatives, and the build out of
our new leased office space in Loveland, Colorado (see Part I. Item 2.
Properties in our Annual Report on Form 10-K for the year ended December 31,
2022 ), for at least the next 12 months. Our belief may prove to be incorrect,
however, and we could utilize our available financial resources sooner than we
currently expect. For example, we actively seek opportunities that are
consistent with our strategic direction, which may require additional capital.
Our future capital requirements and the adequacy of available funds will depend
on many factors, including those set forth in Part I. Item 1A, "Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2022 . We may seek
additional equity or debt financing in order to meet these future capital
requirements, even in the absence of any acquisitions. In the event that
additional financing is required from outside sources, we may not be able to
raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, results of operations and
financial condition would be adversely affected.
Effect of currency translation on cash
Net effect of foreign currency translations on cash was a$0.4 million positive impact for the three months endedMarch 31, 2023 and a$0.1 million negative impact for the three months endedMarch 31, 2022 . These effects are related to changes in exchange rates between theU.S. Dollar and the Swiss Franc, Euro, Australian Dollar, Canadian Dollar, and Malaysian Ringgit, which are the functional currencies of our subsidiaries.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no off-balance sheet arrangements. Refer to Note 4 for discussion of our variable interest entity.
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--------------------------------------------------------------------------------Purchase Obligations
Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and specify approximate timing of the transaction. As ofMarch 31, 2023 , the Company had contractual purchase obligations for inventory purchases through 2026 in the aggregate amount of$45.4 million . Refer to Note 6, Leases in our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a summary of lease obligations.
Critical Accounting Policies and Estimates
Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . Operations and Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, have not changed significantly since such filing.
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