Heska is a distributor of diagnostic equipment and related consumables to veterinarians and a supplier of various animal health test kits, preventatives, and pharmaceuticals, largely manufactured on a contract basis for others. Following a period of negative organic growth and significant margin contraction from 2017 through 2019, Heska embarked on an acquisition spree and campaign to re-position the Company in the eyes of investors. Despite benefitting handsomely from the market’s embrace of the animal health investment theme, resulting in a more than doubling of its revenue multiple and a 140% rise in its stock price since the end of 2019, we find that Heska’s business, capabilities, and competitive position have barely changed.
We urge investors to review key findings in Spruce Point’s report ahead of the Company’s third quarter 2021 earnings on November 4th, and hold management accountable for answers to the following issues:
- Evidence shows that management has materially embellished Heska’s market share, business model, and product development capabilities while failing to disclose increasing risks to its challenged competitive positioning
- Our in-depth analysis of Heska’s recent acquisitions reveals a pattern of acquiring low-quality assets to create the perception of an expanded product offering on par with the sector’s leaders.
- Market due diligence and management commentary suggest Heska’s highly anticipated product, the Element AIM, will disappoint.
- We have identified numerous examples of incorrect, inconsistent, or inadequate financial disclosures, including a large disposal of the hazardous chemical mercury.
- We find numerous governance failures at Heska – including that its underwriter and bullish equity promoter Piper Sandler employs the children of Heska Chief Executive Officer Kevin Wilson – that should make the shares un-investable for funds that place even the slightest weight on ESG considerations.
- Heska’s current premium valuation is nonsensical, which is why Spruce Point estimates up to 60% downside in the Company’s shares.