Heska's topsy-turvy year ends on a high note as record earnings beat estimates

Colorado-based veterinary diagnostics maker Heska ($HSKA) endured both successes and disappointments in 2015, coming up short in the second quarter on revenues but then turning things around a quarter later. Throughout, it has continued to fine-tune a complete overhaul of its business model, which began in 2014.

The year ended well for Heska, which reported March 3 that its sales in the fourth quarter grew 22% year-over-year to $29.8 million and its operating profit doubled to $3.6 million. Its net income was $2 million, or 28 cents per share, beating the average analyst estimate of 17 cents per share, according to Zacks Investment Research. For the year, Heska reported that its sales were up 16% to $104.6 million and that its operating income flew from $2.9 million in the same period a year ago to $8.6 million.

During Heska's restructuring, it shifted to a system that allows it to derive revenues not just from equipment sales, but also from rentals and other recurring sources. Veterinary clinics "have responded by rewarding Heska with net customer gains in all key segments, including the highly competitive blood analyzer space where roughly 80% of 2015 customers for key analyzers upgraded to Heska from a competitor or were new users," said CEO Kevin Wilson in a press release announcing the results.

The market for blood-analysis tools in animal health has grown more competitive in recent years. Heska's chief competitors are Abaxis ($ABAX) and IDEXX ($IDXX), both of which have experienced wide swings in their market performance of late. In 2014, Abaxis scored a big win, placing 100 of its VetScan systems in VCA ($WOOF) hospitals. But in January, it reported that VetScan sales fell by half in its most recent quarter, contributing to an 8% decrease in animal health sales in North America. IDEXX, on the other hand, scored record placements of its blood-chemistry analyzer, Catalyst One, helping to push its total revenues up 14% year over year to $400 million.

Heska has worked hard to keep its product offerings up-to-date, launching new versions of its Element HT5 Hematology and Element POC blood gas analyzers last year. In November, Heska announced it would buy Cuattro Veterinary for $6 million, giving it access to new digital radiography and imaging technology. The acquisition also expanded Heska's international presence to Canada, Mexico, Europe, the Middle East and Latin America.

During a conference call with analysts, Wilson was asked if Heska would expand its portfolio of rapid blood-testing products beyond Element POC, which delivers results in 35 seconds. Wilson commented that competing companies were experiencing strong demand for rapid assays, making a compelling case for Heska to expand its presence there.

"We don't know if it's a $40 million opportunity or an $80 million opportunity but it's on the order of those types of numbers," Wilson said of the rapid-assay market opportunity. "So when you start looking at our baseline, there is pretty substantial growth there and we think it's worth controlling our future and making those investments."

- here's the earnings release
- access a transcript of the earnings call at Seeking Alpha