{ "docId": "019dd923-622c-750b-8b99-1e32ee1ceb49", "docSlug": "cce862680d4f", "documentTitle": "Heska Corporation (HSKA)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2021-10-25 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 10, "pageCount": 128, "prevPage": 9, "nextPage": 11, "slideType": "executive_summary", "function": "summarize", "density": "overcrowded", "nDataPoints": 8, "notes": "The slide uses a strong, accusatory tone typical of activist short-seller reports.", "elementsJson": [ "headline_text", "bullet_list", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-1e32ee1ceb49/10", "deckHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49#slide-10", "components": [ { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.82 }, "kind": "callout", "text": "At best, we view Heska as a low-growth, low-margin distributor with a conflicted, sloppy management team and a track record of hyper promotion and poor financial reporting. We humbly suggest investors take profits before the truth about Heska is revealed over time.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5f5dcaf9-8a44-46e8-ac5c-7b3099b2934d", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "At best, we view Heska as a low-growth, low-margin distributor with a conflicted, sloppy management team and a track record of hyper promotion and poor financial reporting.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f3c-7011-a9a5-0174f027ffaf", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.9, "x": 0.05, "y": 0.23 }, "kind": "list", "text": "Heska paid only 1.4x LTM revenues for assets we view as low-quality, but the market is now valuing these companies, which comprise 40% of revenues, at 11x just 1.5 years later. The largest deal, scil animal care, is a low-growth, very low-margin European distributor that suffered a major customer loss right before the deal, and we have identified several inconsistencies with Heska's disclosures related to scil. Lacuna Diagnostics has already lost numerous employees and may have embellished its success. Biotech Laboratories is a tiny operation that produces assay tests of questionable quality that cannot be sold in the U.S.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "343d6770-2256-4b75-8664-cbaafb5e5c1b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.35, "w": 0.9, "x": 0.05, "y": 0.46 }, "kind": "list", "text": "Heska is trading at 9x 2022E revenue, a lofty multiple most often ascribed to a proprietary technology or SaaS company. The Company is trading at multiples nearly double its historical trading range despite virtually no change in the Company's business. The rise in Heska shares in 2020 implied a 282% increase in the value of acquisitions scil and CVM in just eight months, and the stock has doubled again since then. If we value scil and CVM at their acquisition value, which we believe is justifiable given the little time that has elapsed, it implies that the rest of Heska, largely its core North American business, is trading at 17.5x revenues, which is in-line with industry leader and vastly superior company IDEXX. Heska is even trading at a premium or only slight discount to two recent hyper-growth diagnostic testing SPACs. Based on our sum-of-the-parts analysis, we believe Heska shares should be valued at between $90 and $115 per share, representing approximately 50% - 60% downside from current levels", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "59a37ed1-b38d-4434-a25a-a90f2eb15668", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside risk: 60%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-3f3c-7011-a9a5-0637f92ed2ee", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.9, "x": 0.05, "y": 0.18 }, "kind": "paragraph", "text": "We believe Heska's six recent acquisitions raise serious concerns and represent a lackluster attempt by Heska management to assemble the similar key businesses operated by IDEXX and Zoetis", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "749205f9-5cdf-48e8-bd10-859e9cd7eaf5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.9, "x": 0.05, "y": 0.43 }, "kind": "paragraph", "text": "Heska is richly overvalued at current levels", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c6ac1d38-3167-4b00-ad00-bfca3824cdfa", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.9, "x": 0.05, "y": 0.05 }, "kind": "title", "text": "Heska's Acquisitions Are Being Dramatically Overvalued. We See Up to 60% Downside Risk", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2871bf4a-1a54-41d3-a44b-c440fed3e41f", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "ec30af4b-83c1-4390-8060-d7066e1c17a7", "evidence": "The slide is titled 'Heska’s Acquisitions Are Being Dramatically Overvalued. We See Up to 60% Downside Risk' and contains a list of bullet points.", "confidence": 0.9 } ], "frameworks": [], "arcBeats": [ { "to": 10, "from": 1, "beatId": "02d08b6d-6a39-4f06-8213-3bc9ac6a7ce5", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "The deck introduces Heska Corp. as a company with significant ESG concerns and poor governance.", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [ { "to": 20, "from": 10, "name": "Aha Moment", "slug": "03-aha-moment", "bestFor": "Data-heavy sections, research findings, analytical arguments", "matchId": "517ff98c-ed8e-4fec-ac62-b959b2ccb136", "evidence": "The deck presents several contradictions and inconsistencies in Heska Corp.'s financial reporting and business model.", "position": 0, "objective": "The company's financial performance and business model are not as strong as claimed.", "structure": "The Problem/Question -> What the Data Shows -> The Insight", "confidence": 0.7, "description": "Establish a tension, present data, then deliver the insight that changes everything" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }