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  "documentTitle": "Heska Corporation (HSKA)",
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  "authorName": "Spruce Point Capital Management",
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  "presentationDate": "2021-10-25 00:00:00",
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  "notes": "This is a classic activist short-seller slide designed to dismantle management's narrative.",
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      "text": "Heska says it has dramatically increased its level of innovation and product development and frequently embellishes its capabilities, but the evidence we’ve reviewed does not support these claims",
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      "text": "Similarly, Heska's capital expenditures have declined to well below $1 million per year, so we fail to understand how it can be ramping capacity at what likely constitutes an entirely new facility",
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      "text": "Management has focused investor attention on several new product introductions, most prominently the Element AIM, a new fecal/urine analyzer the Company claims it has developed and will manufacture itself",
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      "text": "Heska's oft-touted European subscription opportunity opens the Company up to increased competition",
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      "text": "Not all consumables are sold under subscriptions, and we estimate those that are account for only 15% - 30% revenues",
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      "text": "Heska says it has dramatically increased its level of innovation and product development and frequently embellishes its capabilities, but the evidence we've reviewed does not support these claims",
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      "text": "Our conversations with vets indicate that they were happy to continue using reference lab services for fecal/urine testing as opposed to adding an additional piece of equipment to their practice and further taxing overburdened personnel",
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      "kind": "list",
      "text": "In fact, we are highly suspicious of management comments surrounding timing, supply chain issues, manufacturing, and customer pre-orders (something we don't believe is common or even logical given the product's status)",
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      "text": "Heska's disclosure regarding its subscription business contains numerous errors, inconsistencies, and unfavorable trends, such as slowing growth in subscriptions and declining contract value per month and contract value per subscriber per month",
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      "kind": "list",
      "text": "Heska has already missed its original launch timeline for Element AIM and has been beaten to market by Zoetis, which launched its VetScan Imagyst machine in September 2020",
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      "kind": "list",
      "text": "We believe investor excitement about Heska's subscription consumables business is misplaced",
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      "kind": "list",
      "text": "The Company has been offering subscriptions since 2014, so what exactly is new or differentiated?",
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      "kind": "list",
      "text": "Heska consumables are not proprietary or exclusive, and they require a machine placement (for which the Company appears to be poorly positioned), thus in some cases requiring Heska to give the equipment away for a nominal fee",
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      "kind": "list",
      "text": "Investors have repeatedly overlooked Heska's unjustified bravado and inconsistent statements regarding the Element AIM",
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      "text": "In fact, Heska R&D not only dramatically lags its peers in both absolute and relative terms, but we believe the slight increase over the past few years is barely enough to add minimal incremental functionality to existing machines, much less develop whole new platforms like the Element AIM",
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      "text": "Heska already disclosed it was working with an external OEM supplier on the Element AIM in its 2019 10-K (but deleted the reference in 2020), and other new products can be traced to third parties, so we don't understand management's insistence that Heska is suddenly an innovative company developing numerous new products",
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      "text": "We believe the Element AIM will fail to meet investor expectations",
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      "kind": "title",
      "text": "We Believe Heska Has Gone To Extreme Lengths To Promote Its Business",
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