{ "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": 55, "pageCount": 128, "prevPage": 54, "nextPage": 56, "slideType": "thesis_headline", "function": "frame_problem", "density": "dense", "nDataPoints": 1, "notes": "Includes a red flag callout box, a common Spruce Point visual trope.", "elementsJson": [ "headline_text", "paragraph", "callout_box", "bullet_list" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-1e32ee1ceb49/55", "deckHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-1e32ee1ceb49#slide-55", "components": [ { "bbox": { "h": 0.09, "w": 0.9, "x": 0.05, "y": 0.38 }, "kind": "callout", "text": "In contrast to the market's predilection for ascribing tremendous value to anything that looks remotely like a \"subscription\", we believe investors are wrong to point to Heska's subscription consumables business as a unique source of value.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "992a4ab8-7f66-4171-8dcb-70a47552dabd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.35, "w": 0.9, "x": 0.05, "y": 0.56 }, "kind": "list", "text": "Heska consumables are not proprietary and are supplied by third parties, thus creating a supply risk that diminishes the value of its subscription agreements\nDespite being a headline bull thesis point around Heska's stock, the Company has been pursuing consumables subscription agreements as far back as 2014, and we believe these agreements only contribute 15%-30% of Heska total revenue\nHeska's consumables subscription agreements still depend on Company equipment placements, an area where we believe Heska has little differentiation, no proprietary technology, and a massive scale disadvantage\nWe believe Heska consumables subscription trends do not warrant optimism\nWe have identified numerous troubling mistakes and inconsistencies with Heska's subscription disclosures", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4458cf21-a356-4b1b-87bf-3498376cf38a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.9, "x": 0.05, "y": 0.18 }, "kind": "paragraph", "text": "Heska's business model is that it places instruments at vets for free, or at very low cost, and then signs the vet to a subscription agreement to purchase minimum quantities of the consumables required to operate the instruments. The standard length of these agreements is six years. Given this term length, the instrument portion of these sales is accounted for as a sales-type lease, which results in revenue recognition up front upon placement. The value of the consumables contracts are captured in a remaining purchase obligation that Heska discloses in its financial footnotes. In addition, Heska has disclosed detailed subscription trend information on an annual basis as part of its Q4 earnings report. This information does not appear in its 10-K or 10-Q filings.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "76be1043-460f-4592-938a-4cf93a9687a0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.65, "x": 0.31, "y": 0.05 }, "kind": "title", "text": "We Believe The Market Is Ignoring Underlying Risks And Questionable Disclosures Related To Heska's Subscription Consumables Business", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0289d366-82bb-4ae0-beb1-f77fd3b19c26", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.9, "x": 0.05, "y": 0.5 }, "kind": "title", "text": "Issues We Believe Exist With Heska Subscription Consumables Business", "attrs": null, "subkind": "subtitle", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1f64cf8d-11c1-49d8-ac64-42f83a2e7f86", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "antagonist-introduction", "slug": null, "matchId": "50546143-0ac4-42f9-9226-96a3bc94a7c0", "evidence": "The slide frames the company's business model as a source of risk and questionable disclosure.", "confidence": 0.8 } ], "arcBeats": [ { "to": 128, "from": 51, "beatId": "4e43434d-b2d5-4e85-8876-a8ed1db53557", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Victory", "beatSlug": "overcoming-monster-the-victory", "evidence": "The deck concludes with a strong sell opinion and a call to action for investors.", "position": 2, "confidence": 0.8, "parentBeatName": "Turn", "parentBeatSlug": "turn" } ], "loops": [ { "to": 70, "from": 50, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "5757e4f8-7cdf-47a2-9b16-5ff0d9fc9db3", "evidence": "The deck presents a thorough analysis of Heska Corp.'s financials and business model, highlighting several red flags.", "position": 1, "objective": "The cost of inaction for investors is significant, as Heska Corp.'s stock price may decline.", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }