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Heska Corporation (HSKA) Q2 2019 Earnings Call Transcript

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Heska Corporation (NASDAQ: HSKA)
Q2 2019 Earnings Call
Aug 6, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Heska Corporation Second Quarter 2019 Earnings Call. Today's conference is being recorded. At this time I would like turn the conference over to Jon Aagaard. Please go ahead, sir.

Jon Aagaard -- Director-Investor Relations

Thank you and good morning everyone. Welcome to Heska Corporations earnings call for the second quarter of 2019. I am Jon Aagaard, Director of Investor Relations for Heska. Prior to discussing Heska second quarter 2019 results, I would like to remind you that during the course of this call we may make certain forward-looking statements regarding future events or future financial performance of the company.

We need to caution you that any such forward-looking statements are based on our current beliefs and expectations and involve known and unknown risks and uncertainties, which may cause actual results in performance to be materially different from that expressed or implied by those forward-looking statements.

Factors that could cause or contribute to such differences are detailed in writing in places including this morning's earnings release and Heska Corporation's annual and quarterly filings with the SEC. Any forward-looking statements speak only as of the time they are made, and Heska does not intend and specifically disclaims any obligation or intention to update any forward-looking statements to reflect events that occur after the time such statement was made.

We have with us this morning Kevin Wilson, Heska's Chief Executive Officer and President, Catherine Grassman, Heska's Chief Financial Officer, and Jason Napolitano Heska's Chief Operating Officer and Strategist. Mr. Wilson, Ms. Grassman and I will provide details surrounding the results reported and then will open the call to questions. At this time then it is my pleasure to turn the call over to Kevin Wilson, Heska's CEO and President. Kevin?

Kevin Wilson -- Chief Executive Officer

Thanks, Jon. And good morning to everybody. I know it's a topsy turvy market out there and everybody's very busy. So I want to thank you for your interest in spending the time that you spend on Heska. With that we'll jump right in. We are reporting a nice solid quarter. The second quarter remains in line with the outlook that we presented on the fourth quarter of 2018 call and that we reiterated on the first quarter call as well.

Our business initiatives for product development and geographic expansion are on track and operationally the second quarter met or exceeded our goals in nearly all the key areas. Particularly, we showed very strong core companion animal lab diagnostics, where lab consumables rose 14.6% over the prior period and confirmed a nice healthy trajectory that we established in the first quarter where active subscription, this month under subscription, contracts subscription value and subscription retentions for the first and second quarter are progressing well in line with our full-year outlook.

Our first half sales campaigns continue to drive new placements, renewals, and retention. Margins are good. And perhaps most importantly, utilization capture over the full term of the six year contracts continues to be higher than our traditional contract subscription value.

So bottom line is a nice good quarter. Very competitive marketplace, as everybody knows. But the overall market in that area, healthcare continues to be very robust and healthy and we continue to execute well within that space.

So with that, I'll turn the call over to Jon. He's going to make some comments related to the release. And I'll be back with you shortly. Thanks.

Jon Aagaard -- Director-Investor Relations

Thank you, Kevin. And thank you again to everyone who has chosen to join us this morning. We presented a lot of good information that was released this morning. And we wanted to take a moment just to go through it here quickly, starting with Heska's position and strategy in the marketplace. Heska has built a full portfolio of PLC lab and imaging diagnostics that are critical to the modern veterinarian and their patients. Because pets can't speak about their healthcare challenges, real point of care diagnostics act as the voice of the pets. And are relied upon by families and veterinarians to drive care.

PLC diagnostics providers like Heska occupy a unique position that is much closer to veterinarians than other category providers. As a result, veterinary diagnostic continue to trend higher and faster than legacy services and products from which veterinarians are being different to mediated, because diagnostics requires licensure and professional capabilities only found in veterinary centers. The modern veterinary model increasingly relies on diagnostics, as it's indispensable medical outcomes in Financial Growth Foundation. Heska is honored to claim one of a very limited number of coveted positions within this accelerating trend.

To maximize Heska's value creation within this globalizing and consolidating market, Heska is rapidly multiplying its target audience through geographic expansion, while at the same time watching Heska exclusive, owned, developed and manufactured innovations that put Heska closer to clinicians, health and pet families by solving their most important healthcare problems. Heska believe this strategy creates a strong multiplier effect that is scalable for decades into the future. In the first half of 2019, Heska's product development and geographic expansion again advanced each of these objectives. Expected launches of key products in international markets have begun and announced upcoming products in geographic expansion timelines have continued to track closely with the timelines given.

Regarding the current platform expansion, Heska's continues to introduce new tests on existing platforms such as progesterone, BUN and EREP additions to Heska's amino acids, blood gas and chemistry analyses, respectively. Early feedback remains positive for each of these first half launches, an increasing utilization and satisfaction among st Heska's thousands of current users is evident.

We are also attracting new customers along the way. In addition to expansions to Heska's products already on market, entirely new platforms hit the starting line in June of this year. Among those new analyzers, the Element i+ is Heska's next generation multiplex in immunoassay platform for global veterinary and animal health applications.

Element i+ plus was introduced to select sites in limited release in June of 2019, with full market release continuing to be on schedule for the third quarter. Element i+ leapfrog Heska's current leading amino acid platform with several important new advantages. Those being multiplex in test guards, superior analyzer design, low cost profile, expansive FDA roadmap for the first and only POC analyzer testing exclusive to Heska and global position within Heska's full POC diagnostics suite.

Next the Element RC is Heska's new rotor-based chemistry platform. Element RC is targeted directly to Heska's international expansion efforts, it's Heska's core chemistry solution for the International Portfolio. Element RC was introduced to the European market in June 2019, at the France, that trade show in Paris. And we believe it was met with strong enthusiasm in advance of international end user shipments expected in the third quarter. And last, but certainly not least. And following closely on the calendar is the Heska Element UF, urine and fecal analyzer platform.

Research and development investments for this invention continue to yield on target results. Significant progress has been made toward on-schedule alpha and beta instruments milestones expected in the second half of 2019 and the first half of 2020, followed by targeted commercial release and revenues soon thereafter.

Element UF is expected to be a major first-mover invention from Heska that solves big and important problems for many thousands of veterinarians across the globe. A successful Element UF launch has exciting impact potential for veterinarians and patients in Heska's thousands of current subscriber hospitals and in competitive and greenfield locations.

While risks around precise timing and costs are always inherent in initiatives like Element UF, current Element UF timelines, market opportunity, and feasibility remain achievable.

Turning now to the International Geographic Expansion Front, integration of Heska's 2019 acquisition of Optomed in France is progressing well. Preparations for launching Optomed endoscopy products in North America and Heska POC Lab Diagnostics into France and broader European markets are developing well, with small, early indications pointing toward greater long-term opportunity and scale than originally anticipated.

New key talent hires in France as well as positive reception at the France Vet Trade Show continue to affirm Heska's direction and investment into France.

On the other side of the globe and in closing, Heska Australia is up and running in POC Lab Diagnostics, representing a major commercial milestone that also now a detailed roadmap for Heska's other expansion targets.

Operational systems have been integrated and the team has shown early competitive prowess with several new subscription accounts successfully won away from the competition in Australia. Early results continue to strengthen Heska's conviction for winning and retaining Australian POC Lab diagnostics customers with Heska technologies and subscription models.

Having covered a lot of information there. I will now turn the call over to Catherine to go over the details of the quarter. Catherine?

Catherine Grassman -- Chief Accounting Officer

Thanks, John. And good morning, everyone. We're pleased to report a strong performance for the second quarter of 2019, which as Kevin mentioned was in line with our previously communicated full-year outlook.

Offsetting strong consumable growth in our point of care lab product line was expected lower revenue from contract manufacturer Tri-Heart benefit, which resulted in a consolidated net revenue decrease of 5.1% to $28.1 million as compared to the second quarter of 2018. Revenue and Core Companion Animal or CCA segment was $24.7 $24.7 million for the second quarter of 2019, a 7.2% decrease over $26.6 million in the second quarter of 2018. Revenue from point of care laboratory consumables grew 14.6% in the second quarter of 2019 compared to the second quarter of 2018, which is in line with our full-year outlook of 12% to 17%.

Offsetting this increase was expected lower revenue from sales of pharmaceuticals and vaccines of 52.8% specifically Tri-Heart a heartworm preventative manufactured from Merck. Revenue from our other vaccines and pharmaceuticals or OVP segment increased 13.7% to $3.4 million in the second quarter of 2019, as compared to the second quarter of 2018.

Consolidated gross margin in the second quarter of 2019 was 44.1% as compared to 44% in the second quarter of 2018. In the second quarter of 2019, gross margin in our CCA segment grew 10 basis points, to 49.6% as compared to the second quarter of 2018, due to the increase in consumable revenue.

OVP segment margin grew 830 basis points to 4.6% in the second quarter of 2019 as compared to the second quarter of 2018, resulting from favorable product mix.

Operating income decreased 125.7% to a loss of approximately $600,000 as compared to the second quarter of 2018. The decrease in operating income is primarily due to increased operating expenses resulting from an increase of $1.7 million in research and development related to new product initiatives and an increase of $800,000 in selling and marketing due to expanded domestic headcount in the latter half of 2018 and expanded international operations.

These increases were partially offset by $300,000 of lower general and administrative expenses, mostly due to lower consulting fees in the quarter. Depreciation and amortization was $1.3 million for the second quarter of 2019, compared to $1.1 million for the second quarter of 2018. Stock-based compensation was $1.2 million for the second quarter of 2019, compared to $1.3 million in the second quarter of 2018.

The company's effective income tax rate for the second quarter of 2019 with the tax benefit rate of 72.5% compared to a tax rate of 10.2% for the second quarter of 2018. The second quarters of 2019 and 2018 include approximately $300,000 and $400,000 respectively of discrete tax benefits associated with stock compensation activity.

Net loss attributable to the corporation for the second quarter of 2019 with approximately $200,000 or a loss of $0.3 per diluted share, compared to income of $1.9 million or $0.24 per diluted share in the second quarter of 2018. As of June 30th, 2019, Heska corporation had approximately $10 million in cash compared to $13.4 million as of December 31st 2018, cash flow from operations was reduced to $5.4 million for the first half of 2019, largely due to a litigation settlement payment of $6.8 million. As compared to cash provided by operations of $4.5 million for the first half of 2018. Pertaining to our outlook beyond 2019, as indicated previously with my appointment to the role of Chief Financial Officer, we are currently updating our May 15th, 2018 Investor Day multi-year outlook to incorporate new initiative and data updates.

While we believe investors and the markets are aware of and have included these updates in their models, we currently plan to share updated details from our own projections during our fourth quarter and full-year 2019 earnings release. These updates will largely focus on and incorporate impacts from already announced updates from our May 2018 outlook, such as the effects from the acceleration of Element UF development into a unified urine and fecal platform as compared to the less optimal May 2018 roadmap, which contemplated three separate products scheduled to arrive at the current Element UF have more advanced design.

Additionally, we will include the effects of announced changes surrounding Tri-Heart heartworm, preventative impacts on a go forward basis, impacts from business development such as our acquisition of Optomed, which was unknown in May of 2018 and other items which again we believe investors and analysts following Heska have largely already modeled.

Finally, we will include the effects of our actual 2019 results and our planned activities for the second half of 2019, which will impact 2020 and beyond. With that, I will turn the call back to Kevin before we open up the call for questions. Kevin?

Kevin Wilson -- Chief Executive Officer

Thanks, Catherine. 2019 is shaping up to be the most transformative period in our history. We're doing a good job operationally. Subscriber growth is good. I think we're hitting our outlook targets and we think the second half is on track for that. But while we're doing that, we stay focused on what our core strategy is.

We're driving internationally to double and in some cases possibly triple the potential customers that we serve. At the same time, we're developing and launching major first market and best in class innovations. We're deploying capital to accelerate our growth and we're scaling our capabilities. If we do these things well, we aim to create this multiplier effect and we think that can be scaled for decades.

We face big competitors. They're well-funded. They execute very well. But they also encourage us. They validate the health of the market. They validate that the customers can be reached with successful innovations in scale. So that's what we're pursuing. So we think we can win meaningfully and we think we can do that in a way that will benefit shareholders, pets, veterinarians, and pet owners.

With that, I'd like to open up the call for questions. And we go to the operator.

Questions and Answers:

Operator

[Operator Instructions]. We'll go first to Mark Massaro with Canaccord Genuity.

Mark Massaro -- Canaccord Genuity -- Analyst

Maybe for you, Catherine. Can you maybe provide an update as to why you're providing the updated 2018 outlook later this year as opposed to -- on this call, are there any moving dynamics related to either timing or potentially costs of development of some of the pipeline?

Catherine Grassman -- Chief Accounting Officer

Not so much the costs on the pipeline. I think we feel fairly confident in our projections pertaining to those that we currently have. Those are pretty locked down. We believe at this point it's more like moving parts. Kevin mentioned earlier this is a pretty transformative period for us. New product launches, expansion geographically. I want to make sure we give a holistic picture and want to take the time to do that properly.

Mark Massaro -- Canaccord Genuity -- Analyst

That's a fair point.

Kevin Wilson -- Chief Executive Officer

I think our timing for the major product launches, initially we tried to reiterate that three or four different copies this morning. So I think that's on track as well. And the second thing I would add to Catherine's comment is a lot of these things are largely modeled by analysts such as yourself already. So I don't know that there's a huge urgency to update May of 2018.

Number outside kind of the ordinary course of business we would normally update our annual outlook at our annual date. And we think if there were massive moves that the market hadn't digested, maybe that would push that forward. But we think it's largely been modelled.

Mark Massaro -- Canaccord Genuity -- Analyst

Got it. Thank you. I hate to ask about the non core stuff, but the Tri-Heart has been under pressure for some time now. Can you just give us a sense for maybe some of the reasons why the demand for that product is maybe lower than you would hope? And can you just give us a sense for how long that product is likely to continue to decline for or do you anticipate some type of recovery in the out years?

Kevin Wilson -- Chief Executive Officer

Yeah, I think under pressure is probably the wrong characterization. We basically will get zero new Tri-Heart this year, largely due to an over stocking situation at Merck. So I'll all kind of refresh. We're a contract manufacturer, receive purchase orders from Merck and we manufacture the volumes and the quantities at the dates that they ask us to. And I think over two year period, they had a product management that overstocked the product. And so at the very beginning of this year end of last year, I think we were approached and said, hey, we've got a year's worth inventory plus sitting on the shelf. We really don't want to order anything in 2019. What do you want to do? And so we basically took that number down to zero this year. And then part of the update that Catherine mentioned, we'll model what we think it's return to the sales will look like in 2020 and 2021. But this year, it's basically zero. So it's pretty hard that I had to go and call the floor.

Jason Napolitano -- Chief Operating Officer and Strategist

This is Jason, Mark. I recently spent some time with the people from Merck. And the latest information I have is the end user demand for that product with going into veterinary clinics is up a hair for year to date on their side. So we're not concerned about the customer demand. What's going on that side so much. As Kevin mentioned, it's the inventory situation that you're seeing flow through our financials.

Mark Massaro -- Canaccord Genuity -- Analyst

Got it. And then maybe I'll just ask a balance sheet question, if you don't mind. You certainly have a lot of R&D ahead of you. You just posted an operating loss for the quarter. Your cash balance is now slightly below $10 million. How are you thinking about financing some of your growth initiatives? Given that there does seem to be a little bit of a strategic shift toward internally increasing your own development?

Kevin Wilson -- Chief Executive Officer

Yeah, I'm just going to say we monitor it closely. We have a credit line that we put in place with JP Morgan and we think we have access to capital to meet our goals. We're largely through a number of the larger spends and the balance of those spends I think are known to us. The lead times on these development projects are pretty clear milestones at this point of the projects cycle, I think we've got a handle on it.

Mark Massaro -- Canaccord Genuity -- Analyst

Excellent, thanks, guys. Look forward to seeing you tomorrow. Later this week.

Kevin Wilson -- Chief Executive Officer

Thanks.

Operator

And we'll take our next question from Andrew Cooper with Raymond James.

Andrew Cooper -- Raymond James -- Analyst

Hey, guys, thanks for the questions. I guess first start with kind of gross margin, I think it was a little bit below sort of what we were looking for. I know some of it is I mean, OVP and kind of -- are you still sticking with the roughly 10% for that bucket of revenue in terms of gross margin and then, how should we think about especially with the i+ starting to roll in at least a little bit this year? The margin for the rest of the year and especially relative to the guides, just to make sure that that aspect of it is unchanged as well.

Catherine Grassman -- Chief Accounting Officer

Yeah, we're not changing our full-year guide unconsolidated gross margin at all. Element i I think we even said during our Q4 call incremental to this year both revenue and margin. So before your guidance is intact.

Andrew Cooper -- Raymond James -- Analyst

Okay. Thank you. And then, any update you could give on I know you said the installs were on track, but anything you could provide in terms of, you know, even just qualitative on the corporate accounts and how that's progressed relative to expectations would be helpful.

Jon Aagaard -- Director-Investor Relations

I think broadly, that the corporate accounts bucket for us is doing very well. Some are doing more well than others. But as a group we're very happy with the progress that we're seeing in those accounts. Ethos in particular, I think it's on a fantastic job converting over to our products and we're pretty tickled with that there. They're large, large hospital users almost exclusively.

I believe they're all on our DC5x for chemistry. So, yeah, I mean broadly the category is doing well.

Andrew Cooper -- Raymond James -- Analyst

Okay, that's helpful, and I'll stick with just one more before we maybe follow up off line, if anything else. But in terms of imaging, again, I think it was a little bit less than we had thought, is there any you know, to some degree, I think there's some effects but anything else in the quarter in terms of any disruption on Optomed or any changes there, any kind of product updates? I know there's some things as well, but anything kind of in the imaging that you would call out as outside the norm or kind of on track with with internal views and maybe the street business models and timing, or at least we did.

Catherine Grassman -- Chief Accounting Officer

We were for it as it relates to imaging, we were for the quarter on in target with our internal projections.

Jon Aagaard -- Director-Investor Relations

I don't think anybody on the whole team. I've got a naughty -- no for the quarter, I think everybody was pretty much right where we hoped they would be. Some getting pretty much in line.

Andrew Cooper -- Raymond James -- Analyst

Great. I appreciate the question. Thanks.

Operator

And now I will take a question from Ben Haynor with Alliance Global Partners.

Ben Haynor -- Alliance Global Partners -- Analyst

Good morning guys, thanks for taking the questions. It seems like a pretty straightforward quarter, an update here. Also nice to see the i+ and RC out there on schedule. Just with regard to the i+, I have known you guys are manufacturing yourself both on the instrument and consumable portion of it. Any hiccups or any surprises there that you've seen this far?

Kevin Wilson -- Chief Executive Officer

No. Sort to clarify. We won't be manufacturing the analyzer. So we're not tooling up with injection molds and things like that, the test cards. Initially, we will utilize our partner, who is the original license owner of the product to do the initial run of test cards until we transition that to our dominion facility.

So in terms of product launch and risk and those types of things, we think we've got a really good handle on that. And then we'll migrate that over to a production line that will establish and to Moines is the plan. But currently there's really no risk to disruption or execution in regards to the manufacturing capability.

Ben Haynor -- Alliance Global Partners -- Analyst

And then do you have kind of a timeline in terms of when that might migrate over?

Kevin Wilson -- Chief Executive Officer

Yeah, I think what we're looking at is sometime in 2020. The effect of that really is just to put it in context, maybe a $2 million to $3 million capital spend to set up the production line. Offset by lower costs per test card. But the costs for test card in our current manufacturing solution is still much more favorable cost profile than our current element i.

So I think we're capturing what we need to capture now, but I see that probably as the second half of next year go either then.

Ben Haynor -- Alliance Global Partners -- Analyst

Okay, fair enough. And then sounds like one of your larger competitors is making some or putting some emphasis on preventative care program that they've developed. I know it's similar stuff you've talked about in the past, particularly, I think with the strategy, with the Element i+, do you have any commentary there on, how that might help you? The emphasis is on preventative care down the line and any thoughts there would be helpful.

Kevin Wilson -- Chief Executive Officer

Yeah, I mean, I applaud those efforts and Tech has done them in the past with reference lab, IBEX [Phonetic] has done them in the past has allowed us I think we've all agreed that utilization in general and diagnostics is probably underutilized, especially in terms of wellness and preventative and predictive care. So I'm tickled to death when I see large competitors educating the market.

And I think we see the benefits of that. We support that so we hope they charge on down the field with preventative care and we'll cheer them along and do what we can to get the message out as well.

Ben Haynor -- Alliance Global Partners -- Analyst

Okay, great. Thanks for taking the questions, guys.

Kevin Wilson -- Chief Executive Officer

Thanks, Ben.

Operator

We will now take the question from David Westernberg with Guggenheim Securities.

David Westenberg -- Guggenheim Securities. -- Analyst

Hey, guys. Good morning and thanks for taking the question. So this is a little bit of a continuation of Andrew's question. So just in terms of the instrument placements, I mean are the instrument revenue in this does, and I think you already kind of said that it did hit on your projections. Is that the same? Should we expect instruments to be growing along with consumables on kind of a go forward basis?

And, if you can maybe give a little bit more color on that particular bucket relative to expectations in this quarter? And I'm kind of on a go forward basis.

Thanks.

Catherine Grassman -- Chief Accounting Officer

Yeah. I think it's fair as it pertains to instrument revenue that's under capital lease treatment, we've asserted that to be on par with last year. So I used the word flat if you will. So when we say we're on target for a full-year, we are on a year to date basis on target for that.

Kevin Wilson -- Chief Executive Officer

Yeah. And I'll add just a little color on that, until new models meaningfully hit, basically new platforms they don't have year-over-year comps, urine and fecal, Element RC, and rational basis as those start to pick up steam. And I don't think you'll see pulled through really until you get to early 2020 on those in terms of picking up steam.

Our model really isn't designed to show year-over-year incremental growth. If we've seen a 2% market share gainer in one year and we say we're going to be at 2% market share gainer in the current year, the revenue recognition on the instrument portion is going to be the bank, by design. And what's going to grow is going to be the consumable pull through, which is growing in the last quarter as 14.6%.

So the consumables are where you get the layered cake effect. But what we've never said is we would go from 2% market share gainer against very strong competitors and see that grow to 2.5% market share gainer. We think 1.5% market share gain we've guided to this year is solid. If it too is fantastic and anything above that, I don't think we've really ever guided in the last six years.

David Westenberg -- Guggenheim Securities. -- Analyst

Got it. Okay, so going back to be the Optomed platform, I think you said it's going to launch, but I did get to play with it a little bit at ABMA -- found it fairly fascinating. So I know it is actually out there. So can you talk about maybe some of the feedback that you've gotten from Bret so far? And can you maybe help us size that market? Just generally what that could look like?

Kevin Wilson -- Chief Executive Officer

Yeah, I don't think the size of the market is huge and it strikes me more like an ultrasound market. It can be in that $5 ish million range, but that's going to take time. I think the most important thing that we're trying to build out is, John's comments hit the nail on the head. Pets don't speak. And we expand the vocabulary of pets every time we launch a new diagnostic, and we think we have the largest vocabulary in the industry, bar none. Endoscopy is part of that. So if you bring your pet in and your pet has terribly dirty ears with mites and infections and you can't look in that ear and you can't see what's in that ear, that pet loses the ability really to communicate that issue and how severe it is. So we think endoscopy is a value add. We have what's called a daily scope and we believe that can be used daily, thus the name. But that's a a piece of vocabulary that we think is important to be able to offer our customers.

And broadly, then our model is to go to those customers and say, look, if you have a urine, fecal chemistry, haematology, blood gas, electrolyte coagulation, immunoassay, infectious disease, ultrasound issue with kidneys, liver, cardiology, endoscopy issues and x -ray issues. So imaging is part of that vocabulary that we think is important to build out because it's good for our customers, even if it might be a $5 million revenue stream, which isn't earth shattering, it's important for our customers amenable.

David Westenberg -- Guggenheim Securities. -- Analyst

Got it. All right. Yeah. And then maybe sticking with the potential fecal platform. Now, fecal antigen is a big marketing effort with guide action. And, this has traditionally been sort of an inside the inside lab kind of concept in your platform is going to attack that inside the lab concept. Are you seeing maybe any any broader shifts due to that competitive launch that, maybe there is maybe a building preference stored toward reference lab with the -- effort or I mean, obviously, it's a big enough market free to bold plan, but I just would be interested in potential changes in the way the market looks like today?

Kevin Wilson -- Chief Executive Officer

You know David, I think our underlying premise remains firmly intact. Sequels have been done at the central reference lab for as long as I've been in the industry I think, so I don't think that's a new concept. And the friction and the barrier to entry is if you bring your dog or cat in and you need a physical answer and you need to then make a treatment recommendation, whether that be diet, whether that be medication, whatever the case might be getting that answer immediately, especially if you have a stain on your carpet, probably feels fairly urgent to you in waiting a day or two is probably not going to drive compliance. I don't think any of those factors change. So, again, I'm favorable to anything that raises the awareness of testing to veterinarians and pet owners, whether you do a fecal antigen test at central reference lab or you choose to get an answer for us in 12 minutes. I like my odds and I think the veterinarian will choose a point of care testing when it works. And they may continue to send it out to the reference lab. We think as many or more, maybe by a couple of factors, fecal exams, reviews of fecal get done manually point of care then they get sent to the reference lab. And that's about automation.

And so we think if we fully automate that process and we improve the results of that process probably pushes more to the point of care which is favorable to us. All of that is to say I'm not betting against them. I think it's great. I think it raises awareness, but I don't think it at all undermines our premise.

David Westenberg -- Guggenheim Securities. -- Analyst

Got it. Okay. And then maybe just last one in terms of placements outside of corporate actually to the individual hospital, how are you thinking about the opportunities outside of corporate? I mean, how did baby placements do barely tip your expectations. You believe there's any potential with new products to maybe gain and that in not individual vet or non corporate kind of corporate practice? Thanks and thank you very much for all the questions. And that's that's the last one. Thank you.

Jon Aagaard -- Director-Investor Relations

We appreciate it.

Kevin Wilson -- Chief Executive Officer

New products always give you entry into competitive accounts. And so -- and we're hopeful and we're reasonably confident that a quality urine and fecal launch will give us a meaningful conversation in the 80 plus percent of the market that doesn't have our product. So, yes, in terms of 2019, I think what we've tried to do since the beginning of the year is right down the middle of the fairway. I think the first two quarters have been pretty much right down the middle of the fairway while we remain on track for these product launches in these geographical expansions.

So we see kind of meaningful pickup in 2020 in competitive accounts, in individual accounts. Once we launch some of these kind of major new beachhead products.

David Westenberg -- Guggenheim Securities. -- Analyst

Thank you.

Operator

[Operator Instructions]. We'll go next to Jim Sidoti with Sidoti and Company.

Jim Sidoti -- Sidoti and Company. -- Analyst

Good morning, everyone, can you hear me?

Catherine Grassman -- Chief Accounting Officer

Morning.

Jon Aagaard -- Director-Investor Relations

Good morning Jim, yes.

Jim Sidoti -- Sidoti and Company. -- Analyst

Great. You talked about your international plans a little bit with the new product launches. Can you just status on your distribution there. And you think you have enough internal staff to support that? Or will you be hiring more people for the international business?

Kevin Wilson -- Chief Executive Officer

So I think in Australia and France, we're staffed appropriately, so we don't see large build up there. I hired a couple in the last couple of quarters already in our numbers. So we think we're there in Australia and then the Optomed acquisition we think is staffed properly as well. So I think we have enough people to get to the market and do fulfillment, customer service and those types of things. Yes.

Jim Sidoti -- Sidoti and Company. -- Analyst

Okay. And same question for the US, you have some pretty significant new product launches planned for the next 18 months or so. Do you wait to see some of those sales develop before you bring people on or do you bring the people in first?

Kevin Wilson -- Chief Executive Officer

I think the goal is always to time it the day of and hopefully get that timing exactly right. It wouldn't surprise me to see a kind of first quarter 2020 build. But I think the outlook already contains what we think we need for 2019. So I don't really see any changes in 2019. But once you get imminent, you're past alpha, you're into beta, you're starting pre marketing. I think then it starts to become prudent to start increasing your sales force and training those people on the new products. But I don't think that's a 2019 question yet.

Jim Sidoti -- Sidoti and Company. -- Analyst

Okay. All right, thank you.

Operator

We'll take our next question from Bruce Jackson with the Benchmark Company.

Bruce Jackson -- Benchmark Company -- Analyst

Hi, thanks for taking my question. If we could talk about the revenue progression for the rest of the year. Basically looking at the new product launches. How close are you to being ready to go for a full commercial launch? Are we're going to see some of that in the third quarter, or would it be a case -- more of a case where there's still work to be done on a new product launch and we should be thinking about more revenue falling into the fourth quarter?

Catherine Grassman -- Chief Accounting Officer

Yes, the new product launches are mostly geared toward fourth quarter revenue, but keep in mind, again, the full-year outlook included that assumption and also Element i+ is incremental to this year. That test -- as that menu expands, it becomes more of a step function for us in later years. So it really is incremental in this year.

Kevin Wilson -- Chief Executive Officer

And then in terms of commercial, the ERC and the element i+ are for sale. With salespeople going in and showing its value and asking customers to sign up and use tests in the third quarter. But the way our model normally works is that becomes an extension opportunity for existing customers. And in the case of a new customer, that becomes a subscription that will have a certain amount of revenue recognition based on the instrument. But it's not going to be large. The bigger value is, again, the layered cake where you acquire that customers testing business for six years.

So again, by the time that starts to spin out, it really starts to get more in the fourth quarter and then it continues going from there. So I think we answered the question.

Jim Sidoti -- Sidoti and Company. -- Analyst

Yeah, that's great. That's helpful. Thank you. And then have the new product launches had any effect on the new contracts that are under consideration? Have that some decided they're going to hold off on signing a contract because they know that these new instruments are coming and they want to incorporate that into what they're talking about with your salespeople?

Kevin Wilson -- Chief Executive Officer

They really haven't. And the nice thing about our model is, is it's a menu. So you going to go and order hamburger, fries, and Coke. And if you want to add a shake later, you can. And so I think customers understand that and these products are tangible enough that they can kind of build it into their thinking. But I don't think we're really seeing a big kind of stall out while people are waiting for the next big thing that's going to obsolete, the current thing that we're not really seeing anything like that.

Jim Sidoti -- Sidoti and Company. -- Analyst

Okay. Then last question for me. Can you tell us where your sales force headcount is right now?

Kevin Wilson -- Chief Executive Officer

Up a top of my head. It hasn't changed. We did a bill toward the end of last year. And off the top of my head, I want to say it's mid 60s, but I'd have to check that. We'd have to get back to you on the exact number. Part of the reason I wiggle a little bit is, is it depends on how you count sales force. So some people will count the inside sales team. Some people count the field service team. Some people count only direct sales people who then use those teams so we can get to the detail. But it hasn't meaningfully changed during the year.

Jim Sidoti -- Sidoti and Company. -- Analyst

Okay, great. Thank you.

Kevin Wilson -- Chief Executive Officer

Thank you.

Operator

And it appears there are no further questions at this time, I'd like turn the conference back to Kevin Wilson for any additional or closing remarks.

Kevin Wilson -- Chief Executive Officer

Thank you and thanks to everybody who logged into the call. We had a good solid quarter and we were reaffirming our outlook for 2019. We think our product releases are on schedule Element i+, Element RC in the market, incremental releases to our chemistry, haematology and immunoassay products in the market and importantly our fecal launch, which we think is probably our biggest focal point, continues to be on track and in budget and on time, as best we can tell. So we'll keep up that work. And we'll be back to you in another 90 days or so to report on our progress and will be 90 days closer to some of those things we're looking forward to in 2020. So thanks and we'll talk to you soon. Bye bye.

Operator

[Operator Closing Remarks].

Duration: 44 minutes

Call participants:

Jon Aagaard -- Director-Investor Relations

Kevin Wilson -- Chief Executive Officer

Catherine Grassman -- Chief Accounting Officer

Jason Napolitano -- Chief Operating Officer and Strategist

Mark Massaro -- Canaccord Genuity -- Analyst

Andrew Cooper -- Raymond James -- Analyst

Ben Haynor -- Alliance Global Partners -- Analyst

David Westenberg -- Guggenheim Securities. -- Analyst

Jim Sidoti -- Sidoti and Company. -- Analyst

Bruce Jackson -- Benchmark Company -- Analyst

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